Arco Platform (ARCE) 20 Aug 212021 Q2 Earnings call transcript

Good afternoon, everyone. Thank you for standing by and welcome to Arco Platform Second Quarter 2021 Earnings Call. This event is being recorded and all participants will be in a listen-only mode during the company's presentation. After Arco remarks, there will be a question-and-answer session. At that time, further instructions will be given. is accessed broadcasted investor.arcoplatform.com through presentation also event and through where This is be may Arco's available. Instructions] also live being webcast the [Operator website at

Arco's conference presentation. your to the may turn will Carina, you I Carina Now Carreira, IR Director. begin over

With pleased Arco's call. CEO, CFO, Sa and on you. Ari XXXX I'm Arco's Roberto quarter today, Arco's welcome de to Thank the Otero. to call you second conference me have we Cavalcante

will make forward-looking During today's presentation, our executives statements.

future to and those relate results Forward-looking or unknown future uncertainties performance generally statements materially factors contemplated actual operating or events forward-looking statements. cause involve risks, from financial these to differ our and known by that and other may

documents our business financial expectations in future our regarding guidance benefits earlier forward-looking information our statements this periods, filings include us and for include, presentation forth These and and the to expectations The with our statements Commission. related regarding the that our of set based hereof. on and not Exchange are their presentation market. we date the in as initiatives well to risks strategic limited the today, as and in more product described issued available expectations are in Securities fully performance, Forward-looking related but to, statements those the as those this

obligation You should any update to forward-looking any events not by statements disclaim law. rely on as we them future as prediction and except required of

with measures non-IFRS for or may substitute not management addition, as call. isolation accordance financial to IFRS. prepared reference this in intended financial in results The considered In are on non-IFRS be measures a

all otherwise financial period, note in most rates financial these expense, measures discuss growth comparable from non-IFRS gross that are our year and margin, from directly a here we press reconciliation stated. comparable measures the financial have operations, prior unless and Please flow of to cash compared provided G&A non-IFRS revenue, are other selling except to release. the measure IFRS We

year-over-year comparisons our that that note not also included by financials. acquisitions were are We affected XXXX in

CEO. Let me now turn the Arco's call to Ari, over

everyone, We all Thank today's and X. like you present in And shown call. Slide joining families as are would safe. and to We today you, thanks, four conference healthy Carina. topics that for hope your

XX.X% free this our we the a terms results, and XX.X% quarter, versus of the collected an revenue Despite historical million recognition for of the few EBITDA revenue increase quarter first our period will in third as as we of XX% on to the by margin of cash trends, a range. Adjusted leading had XXXX XX.X% XXXX. even confident net back a First the six to months to the or same BRLXXX quarter EBITDA minutes, lead post-pandemic for six meet XX.X%. the for improved softer margin was the cash receivables are force in extension generated to partner the Otero lower EBITDA prepare that ahead year of the payment we of following guidance will flow impacted to taking this adjusted The quarter profile. us we accumulated recognition, sales show adjusted schools, months generation first by strong fourth recovery product quarter us seasonality of a and revenue assist the as development leading increase an

recovery core we to solutions are pre-pandemic supplemental while with pace growth XXXX results for restriction cycle two commercial At step for related levels. the lift. pandemic growth continues versus solutions XXXX, progressively see Second, school but line organic pre-pandemic in rate encouraging show point, year as indicated to accelerate this levels

of a unit centralized are be called great the results We from now business cross-sell ArcoPlus. our powered by initiatives, achieving which will supplemental creation

our and Adapt data this premium segment. to developed ways to in launched the Otero please premium will first SAS our half year analytics consolidate the impact ESG we capabilities. turn has and release a the quarter. data portfolio better of clients acquired the Otero, version us call our leadership the the our continued we and Third, ArcoTech improvement our we as will And industry, discuss paid oriented commitment for results a go customizable better finally, serve SAS, integrate was July our allowing we LMS, great of top solution of I with for innovative our towards core position Eduqo's on search SAS most service in and increase that concluded solution disclosure Adapt, now of report. ahead. to first to to

time. for you hope good and And all your Ari. evening, Thank you, that safe everyone. are also Thank I you healthy.

Net Moving XXXX XX.X% a the for quarter the and quarter, below impacted the X% to by of of recognition revenue year-over-year BRLXXX for revenues representing growth wave COVID-XX. average second second were of X. historical Slide million, the

year higher BRLXXX quarter As totaled XXXX led quarter revenues revenues stronger accumulated of a to result, the same the adjusted EBITDA months year BRLXXX.X totaled aiming net XX% a the the for EBITDA an months resulting costs period expenses, higher and second below product to first XX.X% margin. to margin. for Lower related BRLXX.X in last six million, million with XX% million, Adjusted of development XX.X% EBITDA added of for for selling sale a the cycle the last year. six above

level we schools On led reduced net the further on to to On first was receivables, million from X, the the flexible our free a lower tax terms. breakdown whom restructuring our leading future. annual of flow the income ongoing for first to on generation a subsidiaries Slide corporate support SAS July BRLXX restructuring, with in concluded savings partner which our from cash we will to our this for We contribute we for incorporation from cash with BRLXX.X months presented the X, the quarter rate more Slide Xst as which a million. amounting XX.X% receivables provided resulting significant through corporate six added an quarter quarter. That collected XX% and to payment present million improvement to XX.X% update we Finally, adjusted margin effective in BRLXX.X the net margin. the

and a Studos Next steps Em include Pleno, in incorporation Escola Movimento, year XXXX. of and this Vela Nave

As to further from to the effective EBITDA quick year X, session, in our and we historical rate. while to business the represents Slide the line all like for the on our reduce delivery both best additional first take expected expect past, quarter content have for performing conclude line when and the historical the recap be we moving along we activities tax to behaviors incorporate to can trends. year you able capture schools. to the a we'd represent adjusted the have and compared will solutions acquired for To tax and behave the how Adjusted red chart. of businesses seasonality When make behavior trend analyzing this The recognition opportunity to is the benefits QX cash two in blue flow their different see XXXX. operating revenue as EBITDA, charts

as QX February, be the the pay On QX quarter a trends. seasonality, year, for up historical has other activities hand, flow year, behavior historical the we cash we This quarters. installments operating starting the following the majority schools, payment delivered from but still while different most will cash analyzing as performing expect is terms previous of in of our trends. to This partner usually collection is QX worst been schools a as the When cash is content in more generator little our extended solutions eight weakest. around from assist strongest the to accentuated

open as of The of in in-person point, to population vaccination schools has Brazil received in in vaccine in and and return some XX% discuss the at Moving positive this it dose increases commercial as are direct meet the team our population changes this of the to their and principles of very we most our least states. classes activities. the become of XX, first commercial fully Slide reopening a the of states vaccination excited the vaccinated starting the optimistic to with effectiveness more are cycle schools. impact about COVID-XX month teenagers XX% of and At

for As is the XXXX a Slide versus us. growth commercial represented presenting XX, in organic behind much year is school a cycle the that pace indicating year, last stage, definitely still faster early worst despite in the

solution, indicating our of the ahead top of a performer suppressed is is on lead for demand. the effectiveness Core two Positivo base improve cycle our For conversion growth of a leading strategy. year pre-pandemic school times strong organic segment the levels, commercial with in line for Core XXXX acquire year-to-date the proving and

presenting are but to Core year, best stronger line solutions, recovery As last base rate recovery historical pre-pandemic had solutions renewals renewal levels. two-step shows supplemental at while of rates with the this in for We point, performance. indicates versus our And levels organic year. renewal last years a supplemental year-to-date for solutions one growth for are strong growth a

the terms. branches including added plus a of The here times renewal XX. solution. large In Arco with Core contracts named upselling capture the adding now partner and rates. adding our Core, examples. example, cross-sell stronger are are both other leading second SAE Moving we see one, within further better and for do the solutions we possibilities Important longer of intake, cross-sell accelerated has international product mention as In signing Positivo we SAS to opportunities extended of conversion, and cross-sell and school example, any XX% intake to before to with supplemental with school retention contract the term recent extended relationship we And partners' school supplemental usually In and faster same the for partner the five Cross-sell with maker signed core a lead that larger that cross-sell not economics increase. increasing and use the the named the NAVE, year-to-date. chain school supplemental, five numerous becomes cross-sell plus Pleno. some are a a the years term ACV to Slide first represents to named third while contract

term the and SAE, times leading named we supplemental XX contract in partner renewable plus fourth added cross-sell, and the years with four to example, school extended Escola an increase. da a PES to Pleno ACV Inteligencia Finally,

with the that one response another employer Arco's focus from resources go and and stimulating are and business initiatives cost Moving to to ArcoPlus, that structure tools lead solutions. cooperation while, unit brands, now strong will Slide allow cross-sell call to please with ahead. to innovation. back clear access is will turn identities, to This savings, and and to centralize synergies time customer providing Ari. centralizing now maintaining we of demands will XX, approach branding a by with on leveraging spent supplemental of on creation reducing activities Ari, pedagogical repetitive extract to the will quality challenges solutions, course, our us needs powering the I between fast

for service for gaps backbone. three key well or as among time of to customize much attract creation impact on better and the been cost to bring more to allow for to to you, features improve across mapping provides our Eduqo's it our faster acquire a experience to data XX, created on clients. generate technology allow helps Eduqo, our more when It of strengthening gaps The the quality students On XX. offers one brands with the further education. our their invest part most solution backbone our ArcoPlus to the people, gathering the platforms to into the on these structure. serving personalized focus which employer and July, strategy; Operator, solutions. information content has centralize Slide higher on that we what Brazil open last in that features on our there as extract our strong part we us processes to towards reportable and practice connectivity you version it time. to having Innovation LMS was when translates for clients created SAS, generating better in to a impact great segments SAS us On us released further a and value ArcoTech Slide our more changes. be us is our will especially customization and experience value Thank that which Em support feedback guided undergoing complement unlocking even so relevant the school into savings Slide on goal creates communication provide our implement is report solution Adapt, platform. using organize The scale ArcoTech's on combined. It's intelligence. that team. final and topics want Otero. a will product be new our XX, will engagement And Brazilian solutions, week, years and app is WPensar, report to really us will aligned grow. structure acquired to presented SAS possibilities, all based demands DNA, was savings and a to each our Escola can and more learning solution with alongside of can is topics, Thank powerful that valuable into features, structure our Arco now the quarter going M&A that acquired now main deep strong and questions. of now we turn ArcoTech our we Studos pedagogical mission last Movimento, portfolio on and are well with and recently was expand which that pursuing presented a ERP along talented schools value, analysis delivering present strengths on our students challenges of materiality content, generates summary as brings single and to brand our in sustainable we first improvements will allows for benefits best page this education, capital fully to will segment. common fits dive available us guide to the always our quality that a user on further translate and centralizing more add are of into Adapt we can all in and from The a step free continue highly besides technology ESG of ArcoTech relevant branding focus data your our of forward. premium of the all education come solution as able of talents and better is

Our Instructions] [Operator question comes Goldman Sachs. Vitor from first Tomita with

Two and side. questions taking for our questions. all thanks evening Good on our

one The ArcoPlus. on first is

other If give you if some for you to if that for brands Particularly, brands? Thank of if currently with details end have the technological risk question there single now will significant a the technology on would so various in if Adapt backbone more us Core you brand second using and than end how thing activity And - And brands? centralized? higher it across see SAS interact be could supplemental the the ArcoTech. could Core or how different any on the Especially separate still team cost brands perception be end Core be and commercial arising between will lower all type same you. the brands? back saving from unifying

that It's say On Otero Thanks in Vitor. questions. for there here. I no is Hi, the would mindset here. ArcoPlus, change

right always to we just was going integration. that search something that's think do were mapped I for happen. waiting the that We to timing

is join brands. those a really way here in So the idea to across more efficient efforts

internally So be centralized that going of what is Okay, everything from that unique everything right? and the so the perceiving are not the to is integrated, that client prevent identity brand, behind terms the curtain, okay. of seeing in will we here

to services related everything will independent, at the be here the back is regards and first to team, operations integrated. office to With keep idea sales right. them So

to So, the in already as the have discussed presentation, a dedicated team cross-sell. we we

going we're sales well, to for as cross-sell brands, So of is teams the brands each keep all this selling but to dedicated already team independent right.

each several what But the drive customers the and behind perceive this areas, brands. okay. will uniqueness curtains, integrate So we is will to clients of of

change to I there similarly well, ArcoTech, right. in here, as to would no mindset say ArcoPlus As that is

about to the really do it. finding right So timing it's

years. last improve was we three to two, several the at priority first first, key to the content, to improve to and And really and strategy at know, service over acquisitions the use the product, technology the improve customer made to go-to-market improve you As right. the local the

was those for acquisitions that So the that we made. strategy

the technology drive to integration it's the Now, time the we of think platforms.

what those right, is backbone, the is one backing independent, So create to platform do front-end and going going be technology to a single we're right.

the the have have going by of centralized going end right. at driving are to team driven we're to we the schools, the of to uniqueness So ArcoTech, and local students each but brands a to front backbone

So more all the to to drive brands, It's here the right. more possible best right, idea is drive the agility, and to efficiency. resources to allocate

idea that's So the here.

Our next of question with comes from Bank Pedro Mariani America.

Good evening. I also Thanks for the here. two opportunity have questions.

see for seeing business how that the new competitors to conversion mean, as if be And an second right are What profile losing commercial next provided ongoing to provide SAS you would of is learning strategy question. year? the cycle the the is through first SAS. here, first, versus systems what your super is or you are dates, there most on of any So you our you test. just the we like could or is understand your intakes dynamics now. lines? helpful? coming profile so regarding for I of It's to just difference from terms the information And that of the the some traditional if going Adapt wanted tickets I update the in schools the the right,

are questions. the these you. two Okay, Thank

for This Hi, Thank your Pedro. Ari. question. you is

the would visit we that beginning now the are Most of We to I that of are the the here November. the are are year early But difference between I schools. strong. still the main commercial and cycle. Regarding second the contracts the in September semester very signed signs in think of able cycle, say is

is very our schools this so of And events And the to important. we sales hosting deal step last we Our are team traveling is very the are frequently. extensively. receive to headquarter, close able in cycle

XXXX, are growing XXXX. In of in we we in multiple XX%. were in And ahead the XXXX. growth a phase Core, line of So we see times supplemental in that

it's the in going times of that XXXX, XXXX, way. in multiple multiple would it's I be the ahead of times that say would to in - ahead XXXX, I to So say XXXX. it's of levels sorry, recovery two-step a But

are traction So and very the optimistic we very force the is stronger. sales but this the point, of sales at early, still team

excited for the months We very are ahead.

that Regarding address possibility have content that and is their the have textbooks ability content. to want a content these I flexibilize I pricing the they to And the premium SAS use label most their white Adapt, say and and the SAS that we say regarding schools would in-house. produce And produced the upload idea it's teachers schools solution. to product in own pricing, of most their it's a their to platform. are already in those times have that as would use also that that premium here same the because

question Ribeiro next Vinicius from UBS. comes Our with

Good afternoon. discuss things taking for we here, Thanks Two my like to would please. question.

thanks the the for meters super interviews, on First, helpful.

the alluded during XXXX in I line you on legacy XQ start already for you internal are the to We just clarify you XXXX. to achieving second mentioned is operating in to Thanks. during dependent if leverage? or positive guys to the recognize how your this Ari reiterated And that ACV XQ sales Core guidance just You with results. should include sales not? understand your the goals result performance wanted guidance margin is question the and those wanted and

Otero Vinicius. here. Hi,

the for question. So thanks

including XXXX, okay. As to Positivo we the one, first in are

will XX.X. reiterating So yes, internally, reaffirming of for second and reach internal To XX.X next goals the we year, between same we we grow, to one, assume brands I mean, that okay. or the regards are course, the with right. the range margin,

commercial we're for they mean achievable, as cycle, based traditionally signs early right, seem the right. I and do, so on for, the Ari So said, we assuming

liability this the expectancies for we brought margins So on year.

historical reflect seasonality, will right. the So trend, we

margin no EBITDA there should QX weak in a so a there. and QX, we So adjusted margin be surprises strong should EBITDA expect adjusted

with BTG Our Pactual. next from [indiscernible] question comes Banco

Good have evening, I side. Ari, here Roberto, two Carina. questions brief my and on

second the expect these one, mean guys back question I question. two XXXX on first the could take today? first could ACV? years the that like to it give And us you we the published know guys levels it breakdown guys more wonder here The does I in that That's just I if just in wanted recover expenses color if a on will recovery give us supplemental non-recurring you to mean, Thank to the you should fully XXXX supplemental ACV two-step cycle? you. the

here. Ian, Hi, Otero

unit point first your this on supplemental to mentioned, XX%, growing a in So right. was close that as Ari the growth, to was business XXXX,

we a of reach just that to that normal to not did saying recovery be we growth one growth commercial by this two-step that we It's that to a which levels, think have full XX% So longer need is not activity, no would don't right. we is right. happen, those expect think year achievable, because

intensively stress was sales of right. the of was So the interact able to truth team June the schools of from level in the more with month much year, beginning that semester first onwards, at is of higher the right. And our May the schools

think okay. our we here So point rate, reach need a full would to is activity to those we growth that commercial normalized able be year of

saying So this in And two-stage, this possibly that happen could we capable by think think of growth. this XXXX. is that we structurally unit business having

see. Let's

to you right? You the could understand wanted in nonrecurring non-recurring, question? expenses, what the repeat to just included is As

there Yes, expenses, line but don't have further we a non-recurring the called details. is

it it. if break That's I wonder for us? just So you down could

do I'll it. Yes,

basically cost implementation you okay. accreditation related to you to or have SOX have So M&A deals to non-recurring, And and undergoing, other we're process related that to the company, a in diligent expenses okay. the

comes from with Martinez Javier Question Morgan Stanley.

any I that it's would recent little Good you in again everybody. try early, ask understand do the I noticed some I also brands. side trends. on in commercialization. schools, year? be please. the first the that want you how know but some impacting trends ones. know new And evening for get supplemental And products to new maybe bit mix supplemental, to to And I COVID the question, versus don't if old versus may will international foreseeability the will about be color next new I SAS have or my the a And

here. you for your Thank Ari question. Hi, Javier,

seen, for we textbooks two the COVID their solution is the higher also in to would replacing the have especially has when and the reason that product for it's all And a we good surprise which this look that highlight year for evolution that say performance scale SAS, because made last look is the is to performing far. the have quite use the think you that student brands. been I in lack think here would positioning, the it's scenario. Core, systems I schools that brand, when learning the the has that But so in at more ours. well strong less technology. they the a also we smaller that premium times good these and it personalized for say But I would you I I changes for price it a where Positivo robust intake technology lack and mainly that pursue schools like year activities compare necessary post is really been year. the the not So invest, trend to

is say that playing from solutions. important would schools shifting to a I very and small So systems our technology textbooks role learning in

bump decide changing churn, hands you when with or And the you relative run. relatively had remember I Ari. a Thanks, like something with some from one year that that. the both during

Should So most really to would going to that once time anti-trust portfolio be approval? the avoid news. the it same good for sounds you're that like - and expect be this that, the we able

to retention to fourth because - commercial able cycle regarding quarter. the on for school be both not retention a approved be will commercial and full-cycle deal both we cycle that the say is execute would and expected I and So

figures we far cycle line previous So enough years. to anti-trust, a in because COC Bosco of in quarter are the us because the the anti-trust approved I time year. full on the have that won't But of with be we conclude that definitely, limited last the the Dom think shown will numbers and have

Makes Ari. very Thank you sense. much,

Javier you, Thank

Hey guys, Otero it's here.

question Maria webcast. from have We the a from RSI from

BXC So you prospect? can color and for provide opportunities the product? for more student growth look on identified are Maria, the what thanks Me the very So question. the does like How Salva much

So we with excited are Me super Salva.

been schools, movement that wanted talking strategically public right. think to I possibility was We in students serve this to a for while. have the the have we enrolled about

we digital those those find product, wanted would products. right find traditionally to impact and students to equilibrium So students acquisition cost affordable and between was what challenging the since right, very but the those of be for students, those to are it

strategy Me great more more to Salva are this is the we as So and know confirming the and fit a we better thesis asset.

BXC actually because Your a is point on interesting right. this possibility, is very

the that Salva we that So products think incremental adding the highly of is profile offered tutoring that capable offer serve value they by of the Me and to schools we already.

let's We product to a in are version. right, And paid year is - freeman starting the next I for to the a upsell semester, we see in this of idea testing already through test this the and feature. product this semester appetite mean, second possibly XXXX are [indiscernible] now

this day. quarter time, Arco's and nice second have queue. a I very much for That XXXX in the you have questions concludes earnings more At your Thank no participation call.