ARCE - Earnings call transcript Q1 2021

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Operator

Good evening, everyone. Thank you for standing by, and welcome to Arco Platform's First Quarter of 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 broadcast 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. your Carina conference may the turn Carina, you I'll Carreira, Now, Arco's Director. Please begin to

Carina Carreira

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 first 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

our business financial in this and include, statements not presentation to limited are performance. Forward-looking related but to, statements

as our in information described forward-looking regarding statements more These well of The the we presentation based are documents related strategic future and initiatives today, fully this product to expectations Commission. forth filings the their us market. issued expectations hereof. in in with for guidance set benefit the Securities the Our our as those expectations Exchange in regarding and as that earlier those available the include periods, and risks and date our

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

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

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

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

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

Ari de Sa Cavalcante

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

our and XX.X% EBITDA the XX.X%. for adjusted the margin a recognition First, revenue results quarter, challenging scenario, an strong of with operating healthy despite

are guidance XX.X% our free flow XX.X% a We we and the the to receivables, maintaining rate. improve tax margin benefit lower reduce year, and our of along CapEx expect collect cash to effective as from

the wave impact As to XXXX we recognition actual of on second for now leading have enrolled, in by better is the Brazil. COVID-XX ACV students versus lower visibility revenue of numbers slightly

for for we Second, XXXX in to show the our commercial cycle encouraging school growth recent about excited movements come. to and years year the continues are results

the segment We with of COC have strengthened acquisition our Bosco. Dom and core

on for results market. and to cross-sell turn will the materiality And on quarter. us and great We leverage are our continue to will consistent an ahead. and the results our to achieving now, our superior huge our in Agenda please initiatives this value present we proposition promising conclude Otero, in offering BXC go call Otero allow the to update and we assessment. ESG explore and improvement the finally, from will I discuss our interest

Roberto Otero

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

a of solutions XX% impacted depreciation points last the representing and core gains XX% XXXX General on the increased growth restructuring in reflects versus a such X. were as year-over-year. solutions XXXX growth This delivered year-over-year, amortization other and by year, to Slide only basis for first increased XX% the representing BRLXXX.X margin first actually administrative last recently of with XX.X%, our cash platform, amortization XX% of revenues Inteligencia margin increased depreciation for from related XX% the and Revenues XX.X%. on Positivo. from expenses, the increase of million, expenses, the Escola of scale. Cost to Net commercial travel XX% XXX teams excluding solutions reduction revenues quarter the of quarter portfolio. amortization XX% leading resulting addition supplemental excluding Selling the year. a result versus of the X% from to period expenses When Moving acquired revenues hand and quarter line last to a depreciation as to same year-over-year, gross of da the and in XX% XX% additional excluding to Educational and sales personnel increased year. our gross on in expanded first sales

As XX.X% EBITDA BRLXXX.X with quarter first adjusted year reached XX% EBITDA million, margin. the last a result, above

Finally, adjusted net for with of million first million quarter in XXXX BRLXX.X BRLXX.X the from quarter margin net income the was XX.X%. adjusted

kick-off as we'd make for our Turning dynamics on the for bookings ACV to cash cycle on revenue the prior revenue the ACV and we the and to quick to schools. Slide start the recap school deliver the X; We material we beginning collection for like to commercial year a the recognize of recognition business. bookings, year partner

segment the average usually per four one Core have deliveries year, in the classroom. to month on For the usage prior we

or small twice of year For vast the normal a a matches deliver cash school in year. to pays we fiscal only solutions majority up XX instalments for In portion the The schools a supplemental pay material instalments. partner solutions, the with up to usually eight our the year. in our year, the collection

Slide receivables slightly only and increase X; quarters terms. Therefore, COVID-XX concentrated are flexible our the neither the having between slipped to educational the retention challenging XXXX and more more the for with we to year-over-year On to nor and due XXXX. second X% portion, relates the mainly past reflecting for the fourth through impaired payment our However, due, segment, environment support present breakdown the from school and to year terms. payment receivables and the flexible opted protect we schools more pandemic pricing our

processes, our pre-pandemic of the As to for we doubtful our interim the allowance see returning accounts evolve profile receivables levels. and we improve

Moving solutions the commercial solutions growth. our ahead to finish as below to Slide in improve year the satisfaction content historical brand to Positivo level. Investments development and with investment, the should now as rates, customer X; XX% revenues was technology X; Slide first accelerate in the and detail part largest retention the the de Today, de intensified from Ensino further increase is percentage as the around four of to we goodwill strengthen SAS million the goal and we investments intangible into This amortization reduce and well subsidiaries quarters from incorporated and should our incorporation organic of Companhia of a assets e quarter year acquired save in upcoming year. S.A. the in part On business corporate company BRLXX and combinations, XXXX. CBE Positivo additional both the SAS starting of CBE or Educacao undergoing BRLXX of of Sistemas and conclude benefit restructuring remaining potential per million the benefits. estimated tax Brasileira for only taxes, representing cycle. additional we in the under of

XX.X% As effective be further we will reduce businesses first tax quarter last year. incorporate and currently other of rate, additional the into CBE, our benefits XX% in from at capture able tax we therefore to

taxes, expect upcoming the in and generation improvement months increase. cash flow CapEx free in lines, our the of result to a we these receivables, three As

and flow times concentrated accelerated collection fact, XXXX, flow expectation in X higher which in versus In means with April from generation QX and results free our our should April line QX. between cash cash already show be

Slide the XX, present for debt on our we schedule sellers Finally a and of payment notes.

BRLXXX have ahead. please we cover already Our line I attractive short-term and firm Ari, mid-term to proposals million go obligations balance to cash conditions. position million and to the turn the the back for to sheet credit will a BRLXXX now strengthen for is call from banks enough Ari. at between

Ari de Sa Cavalcante

Otero. you, Thank

very our for prospects recent the are about We excited future. the and initiatives

both Dom Parthenon, growth Arco. in content, of M&A acquiring of of COC business Arco a among and awareness Bosco the track Paulo in on and presence. to First student its service XX.X standpoint in acquisition concluded track benefit and brands tax paid COC their price and XX, accretive to It study net EY is XXXX, a of are national is was COC exam parents region XXXX have and reliable XX% in in the in strategic winning current are XX% price with relevant students' brands schools the and They with best three of and According Bosco in of acquired being top-of-mind five geographic is once will admissions top year customer improving and are Dom Sao portfolio, Bosco to on important of proven as the present Southeast very distribution. the accelerate among on of the among value an XX% XX% record the high-quality three by is BRLXXX by of was COC where being Principals. expected to with equivalent concentrating, very Bosco has brands financially complementary million solutions state. top base their Slide times technology, Don EBITDA of best awareness generate the a factors the record Dom extensive applying schools incorporated. for top COC the cities. and Arco's effective ranking high-priced

team synergies, to EBITDA. times shows cost XX.X multiple Additionally, approximately of post already initial BRLXX integration in assessment a from XXXX synergy million leading

opportunities. are from complementary distribute current to Finally, commercial agreement boosting selected Pearson, the our to deal offer, includes cross-sell a solutions which supplemental

XX, on promising Slide designed share capture to we the strategy Second, opportunities. the from results cross-sell

innovation cross-sell are benefits invested of and and Positivo investments has comes for and a from leading deliver to and high-customer leaders new we of digitalization putting XX% XX%, as school content SAE by place us brands, result, XX% proud our NPS initiatives. product technology, in supplemental in for increased have to the to our present satisfaction and and results. XX% in evolution XX% for academic incentives, We more Slide the continuous pedagogical On legacy XX, we services intake differentiated industry. excellent results in SAS year-to-date In our training XXXX, bundle making solutions and to XXXX first

ahead related universities in XX, results. is of through tenth the showing and in promising player March first leaders students admitted ENEM, on are admissions to Me in academic the fourth the in early in the in public students students second place. second We and through third to Salva exam, admitted place, national also acquisition Slide results admitted far BXC our of place On Prep

focusing started and while growth. test-prep We accelerate in marketing, Salva's courses share as such have premium already of increasing the offerings Me investing medicine to on team

XXXX. As best-prep outstanding sale nearly expected in a By expect we to BXB second half Salva year. in Me Salva's to already a launch solution is on schools partner to this leveraging the result, offering, of double Me test-prep

our ESG evolves XX, assessment. our Moving to Slide agenda materiality we as conclude

to time in many the engaged to important and who the I like process would such to you, an have thank the take of opportunity stakeholders contribute theme. We all took to

Our as with confirms to relevance impact in the of and materiality education our topics in strategy. line related map asset, team an

in and Next steps include questions. results you of your for the operator, we indicators much disclosure definitions for can Thank very open upcoming months. time. now main And of

Operator

Our Mariani with Thank Pedro you. questions. for question Bank The ahead. Pedro, of floor now from go [Operator first is open Please comes Instructions] America.

Pedro Mariani

you if and is in related to Me revenues the second please from as what Ari, Hey, from have and the I expect related mentioned to your have what for Ari, the product. of first evening And much environment wave. Good mean, you questions regarding Otero. here. how from initiatives five I my with possible, us question compared for COVID-XX do already mean, right all what recognition me. in now. my the to in opportunity line the impact These I Salva. recognition. two my one could to is the Ari, business second goes thanks BXC this this well. And two you revenue Otero, expect hey tell these weeks share that, could I of And are if to the -- total coming first an you are lower question. mean in also, revenues order engage expand changed represent again, This impact to questions

Roberto Otero

Hope you're Pedro. doing fine. Thanks,

thanks So question. for the

revenue than the a be to XXXX expect low by pandemic below we announcement, presentation, may for schools. of and be course This reflects this the the year for mid-single the ACV the in digit. recognition mentioned we expected initially as to lower So slightly enrollments

in the you deliveries delivered schools of So divided as to the know, along we year. content four

any enrollments. a market including have not delivery, on the allows is This right. much for all the the and are are such the the time. We we potentially why view revenue year include of upside, providing to clear at second revenue the does us this potential this which lower guidance size recognition And to reason

kindergarten prefer and Ari you pre-K half transparency. I'm be in of on conservative re-enrollments eventually of we for for the in returning the supplemental from or to come products could this comment So benefit to year, sold BXC. second the being his but to

Ari de Sa Cavalcante

question. Hello, Pedro. your Thank you for

Salva your regarding portion business five Me question sizable really years. we Salva, in on our of to So, expect Me be

is I think a a you, coming XX% opportunity remind there. school. public have from big we of And there just the to students

So team, investing marketing large don't especially we and that yet more area, the already where capture to a strengthen TAM we commercial address started digital to it's we are in the customers. and

We also expand an opportunity the see offered are that to products there.

med we now very well school So right to interesting for that very it's a with instance, going a have course ticket.

for with we run, to together the this and Miguel [ph] strong be sizable Arco. very very business So long starting will a we are in work that are optimistic and

Pedro Mariani

lot. a Thanks

Operator

Please Mr. go ahead. from question Sachs. next Tomita, Our Vitor Goldman with Tomita comes

Vitor Tomita

thanks all my questions. for Hello, Ari. Otero. Hello, taking Hello, and

if detail on any So initiatives provide give per question flexible my would first to payments additional be, us the more could you school.

closing -- here additional question market expanding this would publishing I and if you on that [indiscernible] actual with schools schools, you market, negotiate be you. our Me should their about not will And down thinking negotiation contract. [ph]. on have number we the have significant difficulties maybe Salva. and already don't school also Thank overall Well, financial our expect whether if seen due tariffs with So to second Arco included gain pay of

Roberto Otero

Hey Otero question. for the here. is Vitor, it Thanks

discipline. So a I of as you have mean know, we lot

model, discounts prices, contracts I going through creative to and So schools market brand the or schools we and help provide to and to if reputation use but about very course, the difficult help schools unusual don't portfolio, business mean the causing renew or or to care the add -- financials. environment them, we to without without to goal our and a the operations lot damage support or to a navigate any any damage are our causing them of this and period, our

little So more the presentation. given very renegotiated length the for a I specific in mean, some the we in broadly detail bit of cases, Basically contract.

XX close have So payment along then this it's returning we it, one right right. month of days, contract, and XX The to prolonged breadth, in to so days, towards right.

little what exactly discounts any this bit financially we expanding are contract, we of So not this is did, that of any or right. providing sort sort goes beyond a

of what much on pretty that's the see So you aging the receivables.

if actually for go delinquency, debt we came to with you down, concerned not provision pre-pandemic are as We see levels. the bad

We not all the changing are at here. policy

are the had right. we have the we right. So collection exactly process, the keeping have same over last improved provisioning policy we But year,

So, the led down. And result, also bad provision as of improve for internally. seeing to we are coming debt a pandemic a us collection profit the

right. for prolonging what just the basically that's right, contract, we So a little so terms payment it's bit, did some specific equal

in very university-evolution for You those for it's size, who also mean debt, especially asked Actually about impacted have, reducing the honest, kindergarten pre-K, has I schools much. closures. of that I right. the we to prep ourselves be schools' mean, what saw is very something course, not and

of it school, schools the right. we of that the seen past have closure bad the or down, extreme and both consequence, to our minimal impaired the a even debt for receivables and profile gave right. actually saw was K-XX our come provision have as cycle, you But impact clients, So due financials highest the

business. that the So are not seeing we affecting

Vitor Tomita

much. very you Thank Perfect.

Operator

comes question Please next Morgan go Our with from Mr. Caio Stanley. Moscardini, Moscardini ahead.

Caio Moscardini

from wondering expect related school was and when you the close the this accounts if color do international selling to some you I regarding How everyone. guys much morning payable to deal? good Hi, shareholders. amount give BRLXXX can to guys more million represents

Roberto Otero

for the Thanks here. question. Otero Caio, Hey

has is that There no not been So changed. half right. Actually almost amount. that amount, this to has update international among of school

any the international half automatically far amount of keeping you mean And will As note so term arbitration market seeing let process. short that, If Caio. know, that the we I know, you're to have almost said, on we I But in the payables. this relates update we seller as school, are right.

Caio Moscardini

you night. color. good Thank good and That's

Roberto Otero

Thank you.

Operator

question Lucas BBI. Bradesco with Please, next comes from go Our [ph] ahead.

Unidentified Analyst

seeing how you. question learning you of update forward, the acquisition M&A give A COC at after from Could especially looking an markets system Bosco. us are you everyone. evening, on Dom solutions Thank the Good under side. my and going

Ari de Sa Cavalcante

Hi the thanks Lucas, for question.

you'll a waiting for and capital the the we was look on mean we company So antitrust side, move very Yes, had this when as we're discipline. made. approval and say successful growth what We opportunity that for to transformational wanted back, the would for Dom we of on still I I M&A actually in have terms acquisitions. the allocation see buy and the buy Bosco. to

you ahead, over should diversification always we some I be of revenue inside our core our that the course the acquisitions inclined more gained business, looking would that of have to years. scale pull, leveraging expect of business, on sort say So inside but to core

look have core we we segment, we can explore in two today when So, that at right. the ways, scale on the

The one one efficiency, is growth. is and second of the right course, first

have So will we and initiatives new this coincidence use it's a been that to the core in and business right. not we we supplemental place, look products the from for has at to benefit will incremental will scale, growth generate need scale. that cross-sell that put that And

Finally, on nearly on initiatives for a product way of as is talking the we M&A the reason million segment. and leverage to this and core why that, now, offering be will expand in the kicked we take a the that other have have been scale. And because to X.X advantage included it's this about really something cross-sell while we the want market we've off to

Lucas. expand will cross So, revenue Otero sell as about is in eventually, more would talking ARPU we way, our more metric and an

Unidentified Analyst

Okay, thank you.

Ari de Sa Cavalcante

you. Thank

Operator

Arco's Have much your Thank a week. questions. Seeing a and for conference video good session you our great for has That question-and-answer participation. concludes night concluded. no today. The further very

Arco Platform (ARCE) 25 May 212021 Q1 Earnings call transcript