Arco Platform (ARCE) 19 Aug 222022 Q2 Earnings call transcript

Good afternoon everyone. Thank you for standing by and welcome to Arco Platform Second Quarter 2022 Earnings Call. This event is being recorded and all participants will be in a listen-only mode during the company's presentation. After Arco's remarks, there will be an question-and-answer session. At this time, further instructions will be given. is accessed broadcast https://investor.arcoplatform.com/ through presentation also event and via where This is be may Arco's available. Instructions] also live being webcast the [Operator website at

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

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

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 predictions 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 in 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 period 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 three. to you with on And quarter call. slide joining families the are like safe. and start I'd of you, thanks the conference healthy Carina. highlights that for hope your

revenues second net XX% part slipped of of the the high XXXX. had in which of delivery second placed schools, we quarter, BRLXXX April. above of by million to quarter First, level late orders the partner the Reflecting

For XX% or six million, the year-over-year months the first increase we BRLXXX of organic accumulated a of year, XX% revenues growth. a

result, ACV a of date. As we recognized XXXX had already cycle the to XX%

adjusted had which versus from offset first from the efficiency operating we arising resulted same versus of one-off for We'd orders late this six late was the EBITDA range full our operating from this EBITDA six XX above in our excluding like XX.X% XX.X% impact XX.X% in quarter XX.X% integration the in When months XXXX of in XXXX important margin time. period of opportunity to second the in second The XXXX adjusted first XX.X%, and quarter at quarter points guidance our XX.X% and was of agenda EBITDA for months results XX.X% This XXXX. to adjusted take months to nonrecurring were in reaffirm orders. six margin year costs crucial increase basis cost, margin XXXX.

and issuance we generation concluded aiming BRL the an percentage maturity million of a collection, perspective, quarter. lower our adjusted and position XX our the reduced free delinquency In cash debt we flow cash days reduced to August, strengthen of debentures, extend in profile. Second, as as CapEx of extremely revenue, to leading sales quarter outstanding, had strong cash this an a generation was of positive cash

most continue is still bookings of the we our schools' September Finally, with to and Otero, cycle, we as go resume in-person interactions now but who results. XXXX schools. turn the happens will preliminary in to call presentation. are I about Otero commercial will is year, between school leading as promising already the ACV very enthusiasm encouraging It November please excited the for cycle early ahead.

and your of time. everyone. for and evening, XX.X% XXX Starting for Net BRL Thank growth XXXX ACV. million, line strong quarter five. you, XXXX revenue Ari, of on second Thank top a you XX% were good revenues slide representing the recognition year-over-year the

of late basis, in As part acquisitions such led to level high the On revenue organic quarter. placed of recognition quarter. delivered was in call, in the the mentioned therefore QX partner early in orders in the being growth recently, of line top the like-for-like a excluding typical strong content the beginning our schools the by April, explaining earnings XX% year concluded

in we beginning recognition recognized mentioned are to this quarter. As and confident XXXX XX.X% XXX% the presentation, date the of cycle already the have third by of ACV we Ari the on

slide important six. this delivered integration Moving our We in as to efficiency we gains quarter, schedule. progress

of they we in our a our investments X.X selling remain in a the upbeat schools. resulted as seven, to months us, percentage gross incurred offsetting points improvement XXXX, operating margin, increase cash printing in partners' emergency in such in momentum and freight the slide nonrecurring For the for On orders, contributed in late priority six higher costs for especially first from costs.

XX% cycle. line promising resumed Those in efforts commercial plans. as traveling our selling represented the XXXX translate top for first our quarter, we results XX% the event and six our months Our in and already investments in of into

when quarter. months late agenda of considered XX.X% accumulated excluding slide of X, the revenues range. the expenses results first or more continued the On first XX% of going adjusted XXXX. with in above the XXXX six growing to impact not we of XXXX Moving top Year-to-date, approximately million, strategy, a have of show BRLXX reached with G&A BRLXXX one-off slide in back continues office six guidance months efforts scale higher second the XX% an XX% of second the in for quarter at integration perspective, margin saved to million forward. On integrated in versus EBITDA the XX% G&A and and line quarter below a dropped of XX.X% to these X. year-over-year the orders

adjusted product the margin figures, orders. bps margin reflecting expansion a We excluding to recently for six-month summarize increase of for top million the from or investments our XXXX XXX EBITDA date cycle the orders. of one-off costs versus financial and an of slide when revamp late in performance and quarter, and acquired the and at XX% impact in year-over-year XX.X% months adjusted increased the higher of BRLXX in with our the impacts of on the basis businesses. the we with a presented of amortization or cycle net from a XX.X%, the the XXX showing XX, higher year-over-year XXXX Looking loss XX% and late of depreciation date EBITDA continuous six On cumulative cycle adjusted evolution excluding clear points to quarter one-off products

slide the the on reducing we XX% revenues generation second we XXXX. considerable improvement cash collected released of profile to of X.X% estimated XX% million receivables in to $XXX Moving when quarter this results XX, above quarter in a we million quarter, our first and X.X% trade we the the of present delinquency with versus quarter BRLXXX as first

first reduced outstanding sales the of to in XXX XXX days the result, a quarter. days days from As

On of revenue second in months six six net XXXX, lower from positive EBITDA positively to trade million the BRLXX in for year. CapEx first we driving in the or of reflects had previously to and months XXXX, in X% by of at XXX% months XX% the XX% presented. in million, a the of BRLXX we executed. from for adding profile of the months of both XX% the in better XX, a XXXX, roughly slide guidance projects capital, the XX% to of the right redundancy invested resulting operations cash higher business our reduction integration improvement We between and middle presented our first adjusted range invested XX% revenue revenues our quarter, relevant XXX% being As at working impacted from higher level cooperation increase in CapEx. generation of to first six units, of of being receivables as This in the of six a net an the cash EBITDA across

in to first interest percentage a six had XX.X% of in of XX.X% especially the bps XXXX, lower effective a particularly as the improvement the metric XXX lower the average increase adjusted by in EBITDA revenues. months rate result, to We from cash positive year-over-year free a impacted tax CapEx adjusted and in Brazil. flow slight A also rate considering

to added to of The pro profile. issued our year generation X.X% issuance were our CDI debentures call I'll to amounting our Ari. debt now Finally, extend are this better our cash the short-term on the prepay meet of obligations per of maturity last issuance position, used of to new already issuance XXXX. we're the August, cash the go forma in the to Ari, in please obligations. August, of strengthen bringing debentures considering and plus with maturity sufficient cash interest ahead. and at announced back turn second half proceeds billion to the This schedule BRLX.X and XX, annum position slide

I'm happy to fronts. show the making are evolutions that on we several

to results, offset successful coming is from crucial cost orders – from which the showing late agenda were the efficiency Our marginal are clear schools. pressure

changes this can also to over to implement to scale operate structural operating better capture the from started consulting time. have had so in a we way. We us a to hired cooperative more firm We sustainable model, in our help agenda benefits

improve flow a revenues. On our the earlier this financial year CapEx operating front, and cash percentage our of reduce we committed as to

improvement back sequentially delinquency rate. levels, cash delivered normalized in receivable showing results, days tax As to capital, and significant the have coming with a lower of effective down we working a

way, midpoint revenues as operate in still and in our of XXXX, in all of converge that integrated As should percentage growth. to guidance the and reduces we our the a CapEx investing provided more of range a

We XXXX of the commercial very the for cycle with year. results school early are optimistic the

presence. couple portion XX and the prospective resumption the to momentum to to schools, in-personal clients events. first schools, XXX out relationship inside how for in-personal this create half over has our clients, to our of schools, started the prospect and schools upbeat make and with interaction is classes, and visiting return in XXXX, ourselves and years a and last highlight, – important brands. our all students I'd like partner of be hosted hosting We the we in-person events, dropped trustworthy it the the to events online who across schools resuming of in-personal the of are to in to With

after and leads the in and event. showcasing generating solutions XX even event last in were in annual We XXXX, two important stands in at also years We education May stands during Latin the contracts from three America. our attended largest signing technology event

slide to XX. encouraging the to still results. in Despite Moving leading early is enthusiasm preliminary schools cycle

than later related but main this schools On approach year's pace to to deliver late with year, the as was usual in the our line the are we renewals year-to-date. books renewal process, started to priority last enrollments now

upsell base New gaining are line months. and also the more same school in solutions point at with year's last supplemental growth in with recent in time traction intake

as sale commercial strategy have training initiatives, line and of our year, our solutions. Arco's base referral improvement by Finally, number is teams, through to incentives have Cross-sell as contracts our the from of with cross-sell adjusted top double potential consultants. for the our our own in commercial originated we relevant the cross-sell a further to piece a this of of key we additional leading

for are questions. we conclude presentation. Operator, to that With path on our confident open can the we We our future. now very

questions Lucca you. floor BBA. now Instructions] from go ahead. Please First Thank for open Itau The question is Marquezini, [Operator comes

everyone. evening, Good

questions for thanks questions. our on taking So our side. Two

The in then initiatives dilution initiatives G&A these allow be quarter, the to on you efficiency good quarter. what rates. in should which should has going can what And forward? cash please we secondly, on Thank comment the improvement to delinquency? lower more this please the the color this attributes first be, we've would a company front Can you seen that one expect delinquency concluded? you. provide led And When collection in on

Otero is speaking. this Thanks questions. the Lucca, for Hi,

G&A. with starting So

business just a much structures So the Arco in to used units. the a integrated started way, company distributed operate smaller the to examples, to year, few more we we across give in last brands so you a the as few Day we have got across G&A

now centralized at we holding much level pretty the simplify the everything So explanation. to

the a of across the this was pretty So that that previously the much functions we of So first distributed reduced lot doing was redundancy brands okay? thing. by

schools lines those So operating personnel. we're been the consequence, line I a P&L, than And COVID, can a of also than after thing, reduction that okay? we it's think lines much that at the but of day internal two second much those third-party massive lower growth. areas. doing slower the I level any the – The can dilute environment the okay? and focus would as those we've growth, operating top not And than better in it's XXXX line relevance of also we say improvement consequence services. terms okay? top much of doing So And processes levels. overall they we can a on the those – We reduce combination in the In this a combination by the point, with delinquency as in think grow lines of At end running factors. in I a reduce grow better of corporate are delinquency

okay? also think saying, across think seeing improvement point again collection, better internal XXX% I'm running XXXX. this than it's the don't the in at are in all I delinquency. we are we brands, there's So I of to attributed So improvement that's exit but COVID, an And why

Otero. very clear. That’s Thank you,

with Next from Marcelo ahead. go question Please comes Santos JPMorgan.

evening whole IR questions. Carina, Otero, I good my Hi, team. Ari, for two. the Thanks have taking

mean is of cycle? are also were is beginning I seeing the number that showed the after to renewals question the curves are well. two, one. it's of months I you This if you're this intake number couple than logical now first this margins chart? this where question sales this what of more does on related And like materials you for that a ACV? slide regarding, the in XX the which track, to you this cycle non-optimal April, going quite Considering had in you the shipping. continues had implication next during The positive you pace cycle. delay print way, Are mean, this you orders organic extra it new pay more think you show on like growth of repeat one in mean, I to that in this to ago the caused is XX% this, you're

a margins, a don't the next year, assuming are case next had impact expect same sense would you. your of margin us have some couple on this for the base on negative These thing questions. So year? Thank that it expansion make the for to you

the here. Otero for Marcelo, Hi Thanks questions.

well you the so still said, We're cycle of middle as mean I So game. very far. the in commercial is performing the

they So long ahead we have promising. quite a the signs still are way of But us. early

the previous the on start our mostly for versus years, bring we're it year. started but this waited renewing contracts So terms year schools to for next slightly rates, delivered than late pretty number later year. a At previous as in orders as renewal point is to we be to those in much line goal said better front renewal with in the of last because of

so new we signs the supplemental. in encouraging school intake, far and On all across seeing are very both core brands

of same again rates year, encouraging right? last far. are at seem As we'll the early mean, of line, growth you But cycle said, very so moving I the sales a stronger pace at grow point. comparison. signs this cannot a the base to that quite it's guarantee this So similar XXXX is we But so

terms Moving the the for on to your year. of point, second the and margin cost next in of impacts product

So just bit a color to give on that. more

witnessed we orders usual. later coming this cycle, a relevant number late than So of the in much

decisions pandemic. So this consequence two years of coming was a the the back of direct after

update schools with marginal to volumes of these be So delivered of our content one quickly freight. volume significantly school expensive, And and another, choose we were the freight product in printed as important every that much year higher. cost to content more remember carry air this to the of be It's for to tends we year. as led significant incidents to pretty also a to inventory had starting printing this to methods we year such The avoid to don't also smaller content.

the of for see new needed later student more with to print especially are partners for okay, operating in okay. should year, a orders is and repeated, we next So second okay. schools surprise new that not year. in in the This schools, XXXX, expect stable much every more half for We because content enrolled to these are be that the visibility this our don't way much late in a huge something

expect don't next profitability those year. we So our affect surprising to

okay. better have And inflation efficiency reasons internally, of why agenda agenda Ari we accelerate, the XXXX. mentioned in we have efficiency was as threat course, one we a as structure intensified the Of us to a for remarks, closing hired This internally. also his only but custodian firm have not this help

at see next So don't pressure point, our to any year, we bringing cost this okay. risks profitability

upside because but was I question. risk, -- Perfect. that the Okay. the so thinking was wouldn't cost you have an actually

a Marcelo. possibility. possibility, It's It's a

you. Thank

from comes ahead. go question Next with Sachs. Please Goldman Tomita Vitor

evening from our all and Good couple taking side. questions. thanks our A Hello. for of questions

first And is is, to Thank would strong so having our in some in to said whether one have -- influence -- the ACV how first actually be question related potential negotiations be, for you throughout revenue would see should through Marcelo's late students renewal second revenue far, second on factor how in pass enrolled you. have schools basically, a the well been this the our to how school beat you cycle year. able question. to and as quarter that The margins? which inflation This the given recognition you

Otero Vitor, question. Thanks here. the Hey, Pleasure for speak you. to to

at point, at the we one, we into conversion the say this would this can that guarantee XXX% to point, provide what that we'll visibility I first at given this the beat have as that the better guidance on okay. So revenues. is ACV point, cannot the we market

a for beat. So be indication at to missing point this XXX%, no of but this we guide responsible have would it

right. inflation are be next real much how this okay, through second working accurate able it price considering is pass the gains, forecast okay. or sure mean, much point going XXXX. On price to gains We're forecast year inflation are I regarding or considering prove percentage to three of not the to points but for to we for we at bring not, How real working accurate pricing, is X%, year to two not, next

goal this So year working right has received of at pretty for increase the I this renewed have are we the much by half been schools. we internal well and is now. next contracts And point mean price this

clear. Very you Thank much. very

question America. Bank of Oliveira go with Mirela ahead. comes from Please

evening everyone. Good

solutions payment And Do solution? color some on you of convertible So makes investing the these just tools. for seen Arco think second core ISAAC, guys to debt. two Pay. on perspective two We've here. also, projects? this coming question, on follow-ups the for which on have for a guys us if on type could provides Could management players other and just sense have DA give participation you it And the if you guys segment us view from give a us unified you

given With this price that the is If convertible at the at levels, on the that. guys could you concern, raises -- stock $XX? current a bit comment any conversion something is little

Mirela, here. questions. Hi the Otero for Thanks

able mean are think strategy. these pedagogical this have is for This okay? So the we intense to schools with very financial go necessarily provide more beyond and services. long us have, been how beyond relations pedagogical, I in are schools to services. good put beyond place part in of the mean be services, those And think, a not how relations does -- to definitely but and go pedagogical position we open that more partners yes, to that services our that So reputation we

a As also we Arco now have ISAAC. in operation Pay have and you right investment said, in minority we

on have strategy. feet two right we So, this

ton are shop well, regarding this would your point very one-stop that okay? makes we more, has I'd and concerned And partners build say, second I that the so are say those the working been for we would more sense. I of honestly. that far not platform schools beyond convertible, important On convertible, a us. conviction a being to say

well. it instrument It's think goes So, the very duration long financial I instrument. a as beyond just

reflected the we think very a sure end to come have years that in this are at improve, market conditions excited be will the ahead we're and super day, the the share of the whenever we of I us long price. So, and with path

prefer continue that. okay? right So, of reflect things and time, will at here to a work spend not with attention/concern sure we the lot We'll to we're that

Thanks, Very Perfect. Otero. clear.

you. Thank

participation. Arco's Instructions] you we questions Quarter for Second At no [Operator That further this Thank XXXX the queue. concludes in very time, Call. Earnings have much your