Arco Platform (ARCE) 2 Dec 222022 Q3 Earnings call transcript

Good afternoon, everyone. Thank you for standing by, and welcome to Arco Platform’s Third 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 remarks, there will be an question-and-answer session. At that 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 Sa With the to Otero. we you. third 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 disclose 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

I main Thank to Otero three like you, and present Carina. today. would topics

conclusion improved of a the X.X point the cycle margin. Profitability BRLX.XXX top XX% growth. in of EBITDA First, increase cycle recognition in with a billion, XXXX ACV representing line year-over-year percentage with adjusted to XXXX a of XXX%

Second, rate, improvement driven percentage the mainly by the flow in the of nine dynamic, cash operation, capital and firm months efficient as CapEx healthier significant more in lower a XXXX, effective revenues. free tax working a lower first of to

generation and cash to We better cycle strong the a are and leading growth XXXX reaffirming XXXX expect the our pedagogical to And the integration a the for initiatives, be organic XX% third, bottom cycle for of closer the with to adjusted indicating guidance range. efficiency solutions for EBITDA margin commercial for and XXXX outlook profile.

for margin maintaining to are guidance minus of guidance the CapEx We XX.X% the EBITDA at net XXXX fiscal X% XX% EBITDA pre-IPO This implies year XX.X% revenue. reducing levels. margin above CapEx an to adjusted and to

one. January XXth the are in -- Isaac approved synergies progressing multifunctional start the Finally, back stage extracting to to from have acquisition we we take well. make and Isaac Brazilian November a place The sure to antitrust team the X In of and of X, gained integrate the agency conclusion is working expect acquisition we XXXX. the meantime, on closing ready day

in year-over-year into of delivered growth the acquired students scale COVID-XX outcome over a growth to profitability economic to ACV was segments. the X, net revenue when as below led dropping Slide year-over-year we X, school show an integrate cycle Core as Slide strong we years created or XX% in XXXX line a two the XXX% line that operations the increase time. from and the ACV, out On start benefit organic reasons, to growth for This healthy we Supplemental due excluding top we of top solutions the to both the Moving followed our cycle. and after delivering translates by XX% and

margin XXX XX As Otero, result, I continue adjusted the go and will gross to basis presentation. who to Otero, points cycle. cash points for margin EBITDA basis now XXXX to XX% call increased a the the please turn XX.X% increased ahead. will

and Thank Ari, everyone. good time. evening, you, you your for Thank

pedagogical year, more initiatives concluded since so we XXX% value reflect XXXX in focus integration the turned in to the and from scale we this first and a improvement agenda our stakeholders. generation delivering important benefit M&A of generate four with to high quality can capital, to resulting and main XXXX put nine our Several EBITDA, and complete adjusted CapEx. in cash solutions, efficiency, our strong As commitment of portfolio the for working areas: and results taxes were place our months higher

side schools person the in savings capital despite Moving of of driver working XX% additional cash resumed XXXX, returned important to orders. personnel. million impact reduction nine second million G&A flat third-party on adjusted Those the and XXXX the from terms to corporate than That the teams services, initiatives over among generated above and XX, tools, supply unified resizing include as Slide margin stronger IT in leading in already of Slide was G&A reassessment generation tag initiatives in disclosed BRLXX normality in the chain in X, savings December. the as gross of we to expected we Arco integrated flat corporate in and classes. payment year side only usual Day the optimization months. margin our quarter On cost the we of full EBITDA for BRLXX possible and became an as managed and cost to cash in once on non-recurring first and last printing deliver processes period or

we commercial and implementing collection aligned practices the collection As our salesforce we better efforts added collection process, scorecards. revisited that to metrics as

closer sales And in of levels. saw of the worst from quarter we quarter third to this saw level quarter reducing COVID-XX XX outstanding to days, and pre-pandemic third we also to below result, X% period delinquency XXXX days XX% pandemic. a in and X% As much the X% down XXXX

Slide XX, incorporated significantly XXXX, to Arco its tax and reducing over acquiring Moving been effective in unlocking time. businesses benefits tax rate since has

in with recent Geekie incorporation savings annual BRLXX expected future most of was October concluded tax Our at least million.

XXXX. As XX% a was around the effective X.X% XXXX tax almost XXXX we end month to tax XX% rate result, effective nine fiscal with expect rate year versus in and

revenues on the and multiple, as business almost of XXXX. a basis to initiatives the to financing, nine Finally, of to higher IT selling cash debt units EBITDA in focused net BRLXXX and centralized from firm Slide level months ended in process reflects increase cooperation schedule the of billion XX on conclude development XX, position our across first discipline XXX% We combined, the content accounts billion the this year-over-year reduction in XX% XX with XX, all we of months adjusted of X.X year basis to cash shareholders, higher BRLX.X the into the amounting showcases point nine ended as backbone. XX. and loans Slide projects in BRLX.XX or first XX% in of and To obligation the period we and section position Slide on free payable versus in the flow nine an down of present quarter to year. this net billion September presentation points of in the result This BRLX.X and XXX XXXX. CapEx well cash million, times with as months translating of third financial investments a

to cover are We please our obligations. cash cash confident operations I'll our is for to short term combined now the with back turn Ari. future Ari, position generation call ahead. enough go from

Thank you, Otero.

quarter in call. earnings mentioned in As XXXX I our second

from seen results the several our have on already initiatives We fronts.

XXXX the well, and key had made had to we and year, the our commercial were KPIs. of Otero, firm our are relationship mentioned in a In with flow their work in-person school events, leadership collection the our schools delinquent sustain achievements hosting progress interactions, resumed to normalized. such company, schools, generation, trustworthy added Arco, operating already make conducting we leaner and metrics schools addition with and to from elements progressing agile we as we operations consulting all in the create clients. to cash growth, successful cycle We is a And a real person more by visiting for as that with have

levels Moving to percentage representing for billion, Slide our XX, partner of ACV points expected XX% on a XXXX historical percentage the above points cycle. guidance X present versus approximately of able we average of schools increasing prices retention achieve XXXX to BRLX.XXX inflation. growth We X to were organic while cycle

the the solution in to and year-over-year base at XX commercial like and end performance all and rate its highlight upsell number with results NPS fronts. scores acquired already showed cycle for our after (ph) strong the first supplemental called improvement solutions XX retention in a of delivered improved a to of to Inside both relevant intake schools sell penetration. last one percentage Core COC, XX% an student and that on year initiatives solutions at cross would XX%. increase we Arco, points XX I and points increased led to successful growth New to of uses least core Supplemental organic

year-over-year percentage XX%. inflation price X was Additionally, of total growth the expected average increase COC ACV above and approximately was points over

at as XX.X% to we to maintain we XX.X% and but a expect the revenue XX, for we to flat X% XX%. the improve adjusted range Slide Moving to CapEx continue margin of percentage Arco as reduced EBITDA profitability. to

we potentially the EBITDA to level. will With that, presentations. our We metric CapEx adjusted highest minus take our historical conclude

Thank Otero for We to final you. will remarks. now turn over

to Please Class that will executed offer will $X.XX in definitive A that of offered. will Dragoneer that any other information voting transaction the transaction this proposed Class is A General approved on that that a this or acquire by yesterday's or XXX% assurance company shares received price comment with the Q&A all we and maintain the cannot them, and Thank of for in currently closing the no selling release or the each there being of we can by Class note now filings. per we any as the consummated informed shares additional founder have was XX% call recent we QX disclosed from you, information non-binding price is keep proposed be Class their economic proposal and in session purchase common today's will income founders the Therefore, set investors Atlantic of to $XX (ph) event as press have. share that comments Dragoneer transaction in The are be earnings. other related and Ari. will no price they common company to In the than share. night proposal price preliminary Thank is a and Directors the over B The cash. This states interest the purchase conclude over be as agreement common be represents not for no in last dedicate the that roll outside premium from decision and presenting standing the price like made, can Board General new transaction. any in The forth will A the last was is Class proposal At shareholders. and Operator, A markets Atlantic consummated. Arco's of available. related purchase point, we or support to open SEC I would the The questions. developments we held the involvement and this transaction. filings that, approximately an company night's the to same you.

Our ahead. The go Instructions] Goldman [Operator floor now for question you. open with Sachs. first from questions. is Tomita Please Vitor comes Thank

Good everyone, taking from questions. you evening, thank and side. Two questions our for our

was Isaac. some the quarter about we in first on acquisition good you reversals color early That October? the effects -- dynamics Could longer performance very whether quarter debt our one since acquisition to reiterate October. XXXX? would question going provision announcement capital at and bad announcement provisions. the in we for guidance on may And question. you see could is had forward, that see Thinking even how still or the on you has reversals first fourth give second be into in We be And Isaac to on provision working The Isaac that our Thank much. expect of due another how that provided us much would it's we collections.

Thank here. the Otero Vitor. questions. Hi, much for you so

different if be mean, at you We're level that looking compare if we in bit versus of a receivables, So as we what supplemental It And what terms as a steady I I was dynamics, that level. of longer on little past. of supplemental normalized to of core. in state of factor even profile, than pretty more a have working much core size, close that consider days And versus would a to we terms also in are supplemental working the, the in of also decompose capital say, we receivables. accounts say a to these back capital, to are days let's it to level okay, receivables. very bit changes grew receivable, pre-pandemic

there's still XXXX duration much new improve some levels. let's normal room saw, say, in and sales So line especially we the with okay, of this cycle normalize, to where contracts to the with pretty

a will extract focus the further room size in that where So or suppliers improvement the and cash more expect we is limited. cycle is improvement we let's say inventory. in normalize, to Where and in for fully we XXXX, but

during saw we with orders demand an our in year, been to expecting the inventories had where what late days. beginning inventory pandemic below those the producing So to we also increase clients. saw suffered of and especially this we deliver in the And

be expect important to our area suppliers more over the and than now with contribution of the the think So would a as more well. a And right? companies consolidated, those chain years negotiation from say, from the if and on and trading would that suppliers in in centralization that normalization two as line say important cycle cash of a to suppliers I because will next this our is inventory case would contribution mostly is receivables. So supply I cycle, we the be, the cash we

In internal this can new that for Isaac, addition quite limited say what comment, okay. we for performance far is has their terms goals They exceeded it's of we but been what have so strong. can year, school actually

team they is surpassed have excited. to they super what The expected So achieve.

that know, the be combination, -- the think higher the enormous will I conviction more the we more this learned about with our more we their operations, creation value right.

this So have for again, very we in been strong. year They the performance to of week already. goals first closing January. the And has their occur bit expect

Okay.

to a impact results have XXXX and full Isaac no year Arco's we'll in XXXX. in with So consolidated result of the

very you Thank clear. Very much.

next Lucca comes from with go ahead. Our question Please BBA. Marquezini Itau

from our for two Good side. everyone, our Thanks Otero. evening, Ari, taking questions. got I've questions

ACV The guidance. will be first the one regarding

enabled And more So you increase the inflation, the increase in above on mix there such margin. an considering to detail inflation guidance the be Was regarding the increase? a can or sales school from improvement price company provide please able second one basis? on what would then has the was prices above same

and expects savings So of year than margin next capture company faster expected. to though be even the the cost SG&A flattish the was

the So Thank you margin please scenario? what could detractor be this on for in would you. comment the

Hi, the Lucca. for Otero here. Thanks question.

that's correct. on ACV So the yes, guidance,

net increase normalized cohort to retention offline. and dollar So our this a was of the back to of clients back a more real cycle price in to base our profile where we're base rate

-- was the when was our new the before this we're difference more that let's Supplemental I above COC, XX% when that highlight profile number Pedagogical of say relevant. say, key we of look Supplemental. grew an the cycle would that the less, we between used breaking to we’re and added also in or to was was, a base, XX% growth schools I brand above pandemic. growth Solutions of Core profile Supplemental would So right? which very seeing generating being We cycle even Core the contribution, number say ACV I breakdown between and the of a Core this terms of it All also it and first Core up way ACV the not in quite that was down sales So but ended been though but see So grew important remarkable. would It's XX%, with saw decompose solution, substantially had we say the brand years. because brand right? is brand we it's in two saw to XX%, XX%, it's XX% growing that growth, growing grew over belongs NPS shrinking size this over XX% high this we XX%, Pearson. when be consider I a and the Core when around for that a a our a a increase and for much quality growth price improving. which solution retention increasing of so we to this to -- it's mean, pretty past

the that. rationale the the and the it an the think confirms brand acquisition, like operation shows of So how turn of we I rationale. fast can strength around It

proud super this are we of COC's performance year. So

the guidance, to versus range year We're XXXX be the XXXX expansion for here expect you're but the I say the that, -- implied expected in stronger at right. don't the pretty margin range we're of okay. of we could In remains XXXX, be margin terms expansion mean, safe bringing. So margin the terms would still range. an the margin the bottom of We of same, than EBITDA okay? I that

-- the pulp We in industry are seeing saw actually, paper increasing prices we the market. in and

partially consider first gains expected that round to we G&A expansion dilution. this will for getting mean, a when cost pretty at X% expected levels And which CapEx the next And of be for year, initially EBITDA time, the or presentation, showed investments we on in efficiency our expected that strategy, highest more in content the look technology, year. to coming a and expect we to something we the closer year to I show level above basis collect between to actually see before go-to-market profile offsets CapEx a the efficient. see to to efficient, Still, getting metric important the this okay? COVID. range very of next that CAC the to make is XX% next historically, So So we the the a reducing are as metric, next year a our the very which, And is a we is we more okay? P&L minus given getting fair guidance go-to-market we another we analyze

you. Thank clear. very That's

Our comes next with question from of go Mendes Bank ahead. Fred Please America.

evening, it's for lot towards limitation questions. and itself Good the call. the what say. I there have everyone can from is the process offer. I But Hello. about more a know thanks just two you binding of

incorporating in mean, The are first you Islands. question is, the Cayman I

will if different controlling wondering binding So is know be a not the group will committee. from that my the just from And make to of this just will that this there when special or company on process from incorporating be one. some GA should be we is kind specifics U.S. offer? in Brazil sure first then second my participating one, That either

So eight Board. on people we your have

we that committee, we'll much. very you if about people order you decision composing the And So I'm How be work four correct? consensus a Thank this close deal? the talk to do need in among Board? that

Hey, here. for Fred, Thanks Otero the questions.

I regards in and other a disclosed to So in provide cannot were I any company. charge letter specifics, about Cayman comment. agreement. more the cannot the those that Unfortunately, than details with being [indiscernible] billing

describe So mechanics both here. and they were of documents little bit disclosed the a

Atlantic. so by unfortunately. independent that I members the Board unfortunately, said, an those the not representing General So with formed the to committee, on cannot is With as comment regards be of exclusion will committee independent anything you there,

Martinez Board the by So, independent okay. be would [indiscernible] members composed basically, committee accept independent

So much it. that's pretty

Okay. Thank Thank Otero. you you. very much,

Stanley. with Javier from Martinez next ahead. Please Our go comes Morgan question

Thank you. that comment the said to offer. I want you Otero, Yes. that about know don't Hi. you

about first justify support the transaction That to the different ask not in pipeline going any you offer? for please. let Ari, are controlling family there would reasons it Is but my the what a me way? about be the question, strategic in that So the that offer, family. question, the

we or really what Hey, Javier. mean, am I Otero opinion sorry. it's can or in here. here. comment I provide really of limited, a terms disclosure

disclosed comment. to yesterday sorry. why sent to or we what and discuss the And been and in limited letter is to and we pretty be the not was I'm here. have in the the letter can So the rationale much letter, strategic the -- I reason sent really to content was comment disclosed that Board cannot discuss has what

Okay. some color My you second question will give I Core? on Supplemental quantitative us be qualitative color if can on versus of the evolution or wondered bookings.

for the Yes, absolutely question. Thanks Javier.

solutions also So Supplemental, pedagogical said, the as to just under I not that have up at mess look solutions, Supplemental, are we technology because things here. right? you I when and features booked pedagogical So say

we So growth saw international in number at XX% the for the mid-XX%’s when XXXX for above number, exclude And school was XXXX. you case. look above pedagogical from supplemental products, XX%, this we when subscription,

year growth. I we been So had very that see We in this be a calling emotional beginning learning we that say would would the saw would year important that. of an growth. the attention social saw year, important where

was above basis supplemental have of be a this a that also it a the brand two -- we to a say So to we points, well, base. We products right? source Supplemental, terms in again, perspective, mid-XXs. in very was bilingual And cycle and So few be control, a with It exclude for of right? as sorry, quality confirmed I'll important fully from to expect quality in very percentage core been other next expanded good we have when Cross-sell the year. points penetration continued XX% -- growth. don't

name Ocean, quite what use So solutions right, which do of it we core are consider that what continued, not but strong. -- in we schools the schools was addition in the also Blue yet

can at more detail, share those growth. this addition contributing new QX earnings, plan a of Javier. to in non-core at So In core profile normalized this perspective, schools to probably more disclose I but more we both schools think saw this a overall point, is what with from broad and school we we the

final be on question margins. My will Understood.

had a the we deeper on Just before. to go little that question

level do that we see far integration you you us as once reasonable pulp can once normalized on in full are we of So give of some are So paper acquisitions. maturities? have situation? and How the and all margins we I and reference what was wondering, from platforms

we have which a that scale. this -- say a to I'll consider brands a still of we have still is we few be subscale. Yeah. And business Sure.

that depends gains it And the subscale. of scale. have better can this course, are way that a business. we which something still we think But is that Of on collect I changing the how in are some operate brands you we

to and way of what I accelerate curve consider overall they above -- can above margins I without adding XX% the with have as the mean, scalability the of be medium easy have see in average term with as we more is company. much of right? contribute brands that the the (ph) they ticket. I it's we above centralizable XX%. been above risk operate the you without to margins mean, scale business the the mean, the to as know, brands, idea. the this of we've several we you margins grow, So the grow. quality So the We centralizing scale, business. the and we and accelerate it's collection to less It's finishing

have we As important. two now in we extremely QX in projects, we much to consider those which in pretty the consulting us mentioned earnings be previous this call, with working firms

we the the agenda, becomes over with that it now important important think right. last It's I focus us, something to lagged for becomes integration right? really accelerate M&A very a years several this that and did,

from of scale, crossing the profitability margin accelerate few will it's business years. to realistic So this coming in the absorption pretty this [indiscernible] XX% a imagine So EBITDA

I will family. $XX like of obviously that gets question. part have Isaac the rollover will they the final shareholders, a so How mentioned family, controlling one? wondering, they or ask as be -- if [indiscernible] because may approved I don't the If shareholders was I you Roberto. think the once getting you, deal Thank

theoretical If the of other shareholder I right? at speak as mean, that. in treated are a cannot minority be on they part mean, they all I that for point. So comment cannot them. this base, will I theoretical It's I at Again, point, transaction, but shareholders,

much. Thank understood. Okay, you very

participation have this have call. concludes no time, for very questions and further queue. third earnings we much Thank a you quarter nice [Operator in day. your XXXX Arco's That the Instructions] At