Earnings call transcript Q1 2023

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Operator

Good afternoon, everyone. Thank you for standing by, and welcome to Arco Platform First Quarter 2023 Earnings Call. This event is being recorded. [Operator Instructions]. This event is also being broadcast live via webcast and may be accessed through Arco's website at www.investor.arcoplatform.com, where the presentation is also available.

conference Robert the Arco's turn I'll over Otero, to CFO. Now may begin you your Otero, presentation.

Robert Otero

pleased you call to Quarter I'm Sa you. Thank welcome Call. Arco's Ari me Cavalcante have Neto. XXXX to With on we the today, CEO, de Conference First Arco's

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

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

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

The forward-looking as hereof. based date on of the in to are information available the us this statements presentation

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

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

directly comparable measure a provided measures financial of the these IFRS have reconciliation most our financial We press non-IFRS in release. to

unless compared and stated. revenue, measures are to discuss flow operations, financial from Please rates gross we comparable prior selling year cash and non-IFRS, are all note margin, period the that except expense, otherwise for G&A here other growth

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

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

Ari de Sa Cavalcante Neto

our already and quarter joining Arco's includes line for I business, print Pedagogical Otero, highlights XXXX content. a the which with like of costs supplemental with conference everyone, margin so XX% far call. EBITDA brands, you, EBITDA and thank core pressure top Slide would on adjusted cycle X. an the to to growth you, start we today's the Thank delivered anticipated despite on in XX.X% our at On

Since has impacting a resulting material last gross paper year. margins prices costs, has higher from in industry which increase printing XXXX, globally, suffered our from the been since

We in second lower expect of significantly we gross the year a impact such margin effects as pressure this in in on mitigate to our slow we and the down discuss half XXXX, working further with to circumstantial presentation. are the

EBITDA year our guidance XX.X%. between We fiscal and remain deliver we for the confident, XX.X% margin will

material Pedagogical And EBITDA XX to posted XXXX allowing in points in business and the expanded year-over-year. minus soon. discuss cycle we more CapEx CapEx Our improvements cash, to generate working across posted Arco has of reflecting in cash taxes, percentage capital, flow Adjusted cycle, generation improvement structural will first and quarter significant Otero date the improvements. metric detail which

revenue education shop segment year-over-year. adding one-stop net position we that closer a The us of schools with P&L, while platform to for strengthen products, a partner of ecosystem a in acquisition With The establishing segment dominant its the from ISAAC, in Financial resulting quarter, portfolio the making Brazil's families. Arco its of true diversifying further our scope by relationship launched Arco increase XXX% with & Solutions Management growth new also debuts ISAAC. enables in

control, capital improve such to to drive and wanted as we XXXX agile more margin several under generation. by our will performance matrix implementing printing efficient, working are is operation, and which have initiatives deployment, been whose SG&A is that a management I remind scalable capital. shown and significantly our taking pressure circumstantial, unlocking gains we and is cost those that are The cash initiatives in already

schools partner internal serving our improve to keep while company. result and commitment our of all dedication the as requires full at continuous always a customers On top efforts our products in decisions. our solutions, investment of we our center and operation, This our always to must evolve

will go will the who ahead. to presentation. continue I Otero, please turn Otero call now the

Robert Otero

Thank good evening, and you, Ari, everyone.

begin business the presenting results We of by initiating will Slide on Pedagogical our X.

in this the basis, a XXXX Given quarter, business to when XXXX, the of compared up first difference in investors our performance XXXX. we to QX QX on revenue strongly recommend to recognition cycle-to-date quarter analyze starting

year. Solutions revenues up XXXX year-over-year growth Solutions a the revenue XXXX. BRL and year-over-year, lower Pedagogical XX% reflecting last grew business Supplemental billion, our to in with XX% ACV up XXXX cycle the with the in guidance X.X reaching billion cycle date. -- versus versus the driving first revenue robust maintain XX% Net of quarter, recognition X.XXX were We XX% growth for XX% year-over-year, XX% year-over-year BRL for Core In

cycle Moving at margin. to we managed XX.X%. our we the to Slide the discuss X, XXXX keep the business adjusted in EBITDA Pedagogical pressures, EBITDA cost margin in year-over-year Despite line adjusted

margin, cycle. providing of While SG&A generate profitability the content on positive performance our flat to the points X.X percentage versus managed consumed XXXX costs a same the our impact efforts for

in the guidance year. behind detail On discuss leverage this we more the achievement slide, next margin our EBITDA

including delivery from X, more important scalable Slide to volume improvement integrated intense of printing and prices supply more direct paper on and gross to half will producers technology second expect strategy, margin setups. year acquisition and a the and in reflecting allow the we reallocation usage renegotiation negotiation few production content an Moving behavior management initiatives, due for

SG&A, XXXX a the our high process, X.X we and have content cash on we gains for XXXX. approximately will continue top unlock this cycle signed in half to to at to our gross when growth. already scale slower margin in, at of Pedagogical On starts expect the down point, second we production printing our Thus, line very cost for we which August. have the All be grow At expenses percentage visibility pace next year. points business contracts compared a much the

X expect last and the years over this trend the in continue significant results We have to posted future.

the to revamp behind in generation our the metrics improvement of disclosed sales Improvements cash in working key X, were capital outstanding, days the Pedagogical days and Slide this On dynamics quarter. quarter. delinquency inventory in business of we the significant main

XX. We disclosed EBITDA more focus in efforts expand XXXX resulted from from the it the our This allocation CapEx cycle revenue enabled Slide percentage the in product show points cooperation reflect in almost XXXX. optimized XX% in us investment that X.X% XX.X% CapEx coordination but capital starts a on Pedagogical to to and continues XXXX XXXX. of net cycle adjusted to our These higher at to also metric to XX.X% minus XX the of evolution, effect Moving brands. among strategy in

result, million When versus BRL to show XXX.X XXXX at XXX we Pedagogical improvement the free quarter flow, quarter figures. the XX.X negative the that the cash line business million quarter every at BRL in BRL flow and delivered million of the when first XXX.X we flow registered XX XX% cash free compared million generation XXXX first in the to net cycle our and operating date. XXXX As XX, our in looking to cycle, in expansion BRL represents BRL cash almost expansion million free the in of XXX.X to Slides cash revenues form a leading our of flow

to a BRL ISAAC's million March as XX. almost Slide with annual X as revenue with solutions We already XX all-in-one brief an address financial to in was schools platform. model ISAAC and has XXX in BRL recurring on or reached billion total payment currently and value of transact yearly TPV. our and segment recap software business and needs moving K-XX officially Financial Management August ISAAC founded Now trajectory. overarching debuted XXXX in

skills; ISAAC's pen the offline through schools ISAAC limited monthly second, collection, parents; in incorporating help first the product, Revenue legacy rates guarantees and becomes once first, aids responsible or unstructured friction paper school's financial delinquency Brazilian's paper eliminates collecting that streamline fixed ERP billing systems take managerial to financial Guarantee struggles schools. invoices; made leading the them that tuition surpassing and for is to once and applied a priced volatility laborious with risk in all mostly

Such delay a and days. for a at education paid in capital year during delinquent of schools XX-year end students law. as as delinquency few working low as installments stated next reduced cannot revenue school And most is once monthly are product and structurally recurring often parents cycle long by provides cycle a the monthly reenroll

through we powerful business the drivers. enables XX, and model fundamentals go such complementary of ISAAC that early Slide On

based rate intense model, First, in significant provide take mandatory growth scale. for all students

our with Solutions the rapidly cost that products intake schools adds use pave that motion a Core Supplemental relationship and growth new of Solutions additionally and by schools going into Managerial strengthened pipeline and such for the monetizing portfolio already forward. an and Second, our complementary Financial sales provides way offering

reducing serve a our Third, structure ISAAC's main technology while on state-of-the-art of top processes and pillar and collection team to cost and scale. is gaining of enhancing pricing that,

growth When over of Slide its year, efficiency. powerful a analyzing scalability and track school on single model. historical ratio metric in can is profile, XX% year-over-year power surpassed of 'XX ISAAC able ISAAC's mark the growth in tech-enabled demonstrating such almost to trajectory as increase the double ARR was a we total a with see combined March its robust and headcount to as XX. is

forma points the Net to we adjusted EBITDA Slide XX the minus a were of show XXXX of versus management pro versus growth to XX.X%, revenue Adjusted Moving our first of BRL an million quarter. year-over-year prior first quarter revenue XX, first margin in a XX.X the XXX% was earnings and percentage forma net the financial and cost acquisition. first segment. pro the expressive EBITDA quarter expansion result

type directly EBITDA and gradually pace, its scale it's its resulting rapid margins revenue ramping scale expected and to on profile. growth from that up gains growth will growth to increase quarter-over-quarter, improvement correlates Due gains.

margin revenue XXX year the in confident guidance minus EBITDA reaching and are year. We adjusted XXXX million BRL XX% BRL our for in of fiscal this hovering guidance and the for fiscal XXX our between segment million F&M net

a Slide and consolidated that snapshot Pedagogical our F&M quarter both results XX, results. we combines On provide 'XX first of

Consolidated of revenue representing income delivered free XXX.X revenue million million, adjusted figures adjusted margin. adjusted BRL XX.X% margin. BRL firm the XX million Consolidated consolidated XX.X% representing net BRL minus XXX.X cash quarter XXX.X minus in period. First of with and income net X.X% EBITDA a reached million, adjusted EBITDA of was net to a net flow BRL

the evolution revenues beginning Moving to to of year, our present the this free a we in the of in firm we over highest definitely cash period. order of rate performance once the XX, significant Slide to milestone such since highlight deliver XXXX, flow

of accounts we our Such net XX.X% as process until highlight On initiating a revenues XX, to year Arco collaborates the deleveraging XX. million Slide we end that receivables disclosed result continuous expect are due million June. not collect XXX to approximately in XXX XX, past first of BRL XX. after in million the XX.X From BRL up disclosed March of Arco's the financial quarter, cash collection in flow Slide BRL free expenses, Slide reaching cash or on robust of generation as

the In our first Xx, specifications. covenant we last quarter, to our adjusted debt months net EBITDA over according reduced XX to further calculating

analyzing for continue to our order in our our strategy and long we liability term. While short deploy current to meet management obligations obligations,

As are mentioned final capital disbursements. the cash of stages of With generation we sheet And that, that, balance future for in strengthen additional we representation. confident in are top currently to to issuing conclude our the at line an previous on our credit calls, capacity. make we

Operator, Thank now questions. you. for we can open

Operator

Instructions]. [Operator

Our with Lucca Itau first question comes from Marquezini BBA.

Lucca Marquezini

two got side. our from We've questions

the for Otero, next commercial already mentioned cycle. during -- billing initiated call you First, contracts has that the that Arco year's

more color to year's this also they costs? negotiated please terms compare you the how provide and can So on

was working that secondly, improvement regarding better flow we by caused And saw cash then mainly significant capital. generation, a

can working you capital? improvement recurrence led on these to So of that in comment effects please the

Robert Otero

for the Thanks question.

the first with starting one. So

beginning As process We'll screening the August. the of signed of content. have end by yes, contracts XXXX batch XXst already you we July, start said, of of

negotiations pretty well I signed, point, So contracts are those this some and at said. are advanced much as

prices are seeing single-digit of prices say, okay? end fourth started which, in high the as those, initial I page to to a would down schools deliveries, okay? August, by page nominal in for mid- in mid the printing delivering we per For we and I quarter, we said, to the terms, per decline start

fundamentals, circumstantial X with the that's think There's cash no has of second the in deteriorated a It generates recurring, generation. of of generation, I this okay? this point business do The one-off back So to last and to, performance the on more the highlight key mean, is this our goes Actually, XXX% as you're most important [indiscernible] why effect On cash the the such flow I flow right, flow lot cash. right? acquisitions. cash years, the incorporation events in business much reason quarter.

the environment, cash naturally. at normalized a one assuming which So are the is we right operating business generates now,

profile. work or the accelerate flow healthy this initiatives very impact and of the of minimize doing is to the return and improve, team cash the course, want internal don't I influence the to to

So on the through you okay? the incentives we in concrete this internal There's measure which reflecting is we've So should management. has one-off again, that metric company. lot no through success recurring. this behavior a been processes throughout now of is And the see through in focus become year. to key putting This the and results, effect, this

Okay.

Operator

with next Our Morgan comes Stanley. question Lucas from Nagano

Lucas Nagano

two have We questions.

First that the XXXX I the have that reduce. understand for the cycle, printed? margins been what the on the one printing is related XXXX are costs. your should to rest costs expectations cycle, must already materials given the But for of

process. the And second -- question next to XXXX sales the is related

helping the and Core ISAAC in competitive accelerate And could And some segment So you're you well? to us on the which you the give do as environment? of Pedagogical on growth see ACV for your level growth targeting Supplemental? perception color

Robert Otero

This is Otero speaking.

on the year. expectation the So this for and question starting with cost first

said -- as this year, down to the remarks, expect fiscal I around percentage opening margin we be X okay, So the gross during the points X max. in to year

an are affecting already improving the the XXXX in means negotiations this And this cycle. reflects upcoming curve that quarters. the So

the managed first exposed suppliers the August, So cycle. to the minimize for other this other impact printing cycle, and ourselves managed to Along higher current which XXXX directly we helps the year. the in QX reduce we the for companies the prices in affects prices XXXX printing But started entire batches in were for cycle. and of relocate the and volume we process, mostly to

in the again, of fully the much be And margin we at entire mean, down and expect showed pace prices saw to But beginning quarter. the higher the for said, what I a XXXX, we as the the managed we than capacity printing pressure, we process, at lower I but first gross cycle. be this for especially again, relocate those exposed will to to year

as On it traditionally. a year But you early accelerates I is process, the the say, to second -- half second point, sales curve the the in for the mean XXXX know lot of we what at ahead metric we this builder process, we the pretty of we every the curve that compare look that much can share to are XXXX at. in when ACV point is

ahead of price school terms our of ahead terms and expectations. in of new in upselling So increase, of performing we cross-selling, addition, are and the curve light

emphasize to that But early. again, important it's

are the expectations have mind let's keep encouraging beginning we point of the expectations for in still sales shows But So at bearing we that the completion data cycle. process. this the

at cross-sell regards we the With to point, are on this ISAAC, I more sell ISAAC. would say to that focusing

early say has a doing we for more end we with we schools would I products. So supplemental ISAAC X,XXX focus on I already it's what clients. do up to will think cross-sell, reverse which as would And than call ISAAC.

sales to the are, Pedagogical and a sell priority, to helping a force clients. the It potential cross-sell ISAAC is we clients of more on Pedagogical current Pedagogical and leads is But based it So for point, important. relevant of focusing of at our Arco's focus business. this matter create

much of and And matter going likely I to reverse I we're prioritization focus. year a Yes, or think towards more more this in the the questions. cross-sell answer think of the this probably, start end XXXX. it's

I think got... you

Operator

Our comes next with question from JPMorgan.

Unidentified Analyst

I have two.

So opportunities first, the the by you [indiscernible] sector. expect in public continue on do end to breakeven ISAAC, of

Robert Otero

I'm not and you. Jessica. sure ask connection you the but Otero our I here, lost here. repeat question. it's but could first second sorry, I'm if

appreciate. If you could repeat, I would

Unidentified Analyst

you here is any Yes, forward? My going question the opportunities sure. sector. public second regarding Do see

Robert Otero

question. Great. Thank Thanks for you. repeating the

to one, be first yes, base this So case. on the continues the

the -- up minus the sorry, ISAAC XX% in business, business right builds Arco. And XX.X% ISAAC margin. revenue year, quarter, compounds Arco's from the revenue margin differently from So minus first along they along saw you right? EBITDA EBITDA As The a posted differently Jessica. year,

you gains leverage minus year. the happens So guidance the expect converge XX.X% the the and So operating to along scale right? this our year, should to for full

So everything is track. on

with expectations. in I think performing is line the business

that breakeven would point at happen initially longer take to us that we nothing believe planned. there's what to So this than will lead the

is far performing with The expectations. So so good. business the line in

think question, it's we obviously, this in that explore a opportunity continue matter of private big, private think point, will think good public to in opportunity we is the in ways, With so and we can but the I private the the we sector sector in so at regards to a focus, sector, many the for this focus sector.

are We scratching surface segments we the in just which in many operate.

platform. Now ISAAC, we had have the to more even mean straight I

this mean, matter belief matter continue the to, the on a a for private of that best for to So place of I sector. focus focus. and we focus And is will

Operator

with Suisse. comes question Caravina Pedro Credit next Our from

Pedro Caravina

follow-up a I like do to So cash on would generation.

the a following generation I are Is So cash cycle. Following may first the a better ask, the the the you should expect question. in lot my X we of colleague's improved And quarters? for dynamics? cycle? If generation concentration quarters for behind X capital XXXX what cash what the working there of

reduction is Or also, all. don't improvements expanding. terms that And I there and know, noticed in I CapEx was -- a better at

And should going as So were in maybe of revenues? forward the levels what percentage a recurring CapEx higher XXXX? level for a be

Robert Otero

Pedro, Otero for here. question. Thanks the

So normalization in think capital behavior. terms the more much working a flow I of improvement, the it's of cash

or impact company's think behavior changed I working and of capital. are that leaving the affected from behind really the events we events

impacts receivables, the a think to I well. on lesser inventories payables extent, as

normalization a across the board. seeing we're So

delinquency -- better So if is you example, for than we're now our look performance a delinquency at now the levels. on right performing pre-COVID

okay, normal So focus are is adds as Pedro? this And say the or more to to right? would that more we putting recovery, business fuel well, this that going think profile. So accelerates a I on internally, I back this much recovery

the of schools, all applies renegotiations applies we're applies this contracts those with . putting suppliers. to This internally to with going So on This printing effort. to a lot

this is into in this And incentives effort So working internal because translating very are has a become a key focus. towards goal. ample it's all capital improvement the this that

quarters, usually expectation quarter right, terms the well cash second should for a at capital of next not expect see and quarter very terms usually is highest the is collection, anything consumption. the of in In the which the quarter different. QX And as a So consumption, okay? working for strong you we

similar we that. expect trend should a So to

And very terms for weakest of and QX, one cash. usually generation. cash the QX, inflow strong So of collections in QX, flow

I product towards, and the terms terms quality have dominant evolution. the being technology and quality we best and not of In of expanding, player CapEx the mindset changed in mean, the

not has is relevance as is And at CapEx this percentage reason changed this So revenues. the actually all. losing not of why a

I brands has more with much way think level company among the do the the and across the the of been it and reduced redundancy to we've brands. operating coordination

reflecting So all of Arco revenues. of them that translates things terms of technology capital we into Day into the that those of more example, -- process CapEx now deployment percentage centralizing discussed is at a as relevance development, for and all even losing in some a efficient

revenues guidance a the below or at CapEx as of say or X% at the trend would maintain this below to that sign We I there's of slightly this guidance. point, CapEx will XX%. that percentage But a of of low end

Operator

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

disconnect. now may You

Arco Platform (ARCE) 25 May 232023 Q1 Earnings call transcript