Earnings call transcript Q2 2023

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Operator

Good afternoon, everyone. Thank you for standing by, and welcome to Arco Platform Second Quarter 2023 Earnings Call. This event is being recorded and all participants will be in a listen-only mode during the company's presentation. [Operator Instructions] This event is also being broadcast live via webcast and may be accessed through Arco's website at investor.arcoplatform.com, where the presentation is also available.

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

Roberto Otero

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

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

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

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

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

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

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

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

call to the CEO. to like I'd that, With Arco's Ari, over turn

Ari de Sá Cavalcante Neto

all business highlights cash the capital operating second verticals underlying working Otero. flow allocation. important as you, across I of and improvement strong flow quarter Slide operating posted the consistent quarter like with capital XXXX all start on dynamics would cash of such Thank to X. driving, with

Arco's X reports. the million, percentage of Supplemental margin capturing yielding to This of year volatility centralized highlighted current also and efficiency functions Core CapEx effectively XX% strategy Pedagogical minus recent the prior R$XXX expansion pressures represents points of growth have minus while growth gains with compared performance cycle, in operational an an year-over-year. of adjusted segment leverage operation This cycle. comprising maintained adjusted in CapEx both a solid EBITDA the our XXXX increasing our cost solutions EBITDA our previous a continued mitigating in with is of

cash Our represents cycle free reducing CapEx. free effective is tax Pedagogical to allocating flow in during up XX equivalent from period the percentage optimized R$XX and capital The the points 'XX rates affirm in improvement to result of segment minus million million, year. for better R$XXX last firm working cash flow dynamics

solid points, and execution. continues increase scalability with of was Our levels focus & our trajectory, with our reflecting healthy pursuit adjusted of an enabled product efficiency were reaching Management XX This as to delinquency XXX% EBITDA margin growth referred growth revenue posting a the gains in by percentage portfolio. expansion These quarter. on X.X% by operational this minus in Solutions market fit segment's year-over-year, its F&M, in Financial accelerated net segment aligned accompanied

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

Roberto Otero

business fluctuations cycle X. performance Considering everyone. Ari, initiated basis. the on on state begin and analyze you, in Pedagogical presenting by of results Thank good investors We'll the a orders, Slide to strongly recognition revenue our of we the advise segment evening, our

R$X.XXX XX% grew revenue billion. net cycle, XXXX the year-over-year, In reaching

and Our growth, XX% grew solutions year-over-year solutions Supplemental Core marked year-over-year. XX%

driven was the first quarter quarter second ACV streamlining the in This lower by our on aimed operations ACV posted and of strategy this to cycle. resulting delivery compared recognition reducing concentrated in supply count, anticipated, new each As shift quarter at XXXX.

a for of Additionally, is impact portion June million. in July an to revenue R$XX of expected recognized were deferred to be

bringing figures For reason, and October are cycle for the we July. between P&L this

margin, Moving margin June the and in XXXX. up the to adjusted with the aforementioned Slide present our pressure. June, years To up previous we discuss same account for a cost the in Pedagogical X, July July. recent period adjusted October to from cycle ACV until business' July, margins we Between deferral EBITDA. In until XX.X% we up XX.X% cycle-to-date remained presented results in of EBITDA XXXX line despite the

projected guidance on remains XXXX XXXX benefits of between the recognition half from alongside cycle curve new growth for adjusted XX.X% the Our implementation year. the the that EBITDA impact ACV track. This outlook XX.X% year of and contracts fiscal will printing later of the XXXX margin to normalized

compared coordination Current Slide our results. figures of percentage reduction This CapEx to Moving we our X, cycle. investment and product capital to and among strategy, net XXXX focus quality. the period corresponding collaboration at on attests which continues our brands X.X evolution that our the increased cycle-to-date disclose reflect in point allocation show revenues, a to and optimized CapEx X.X% reflects to

On Slide previous posted EBITDA date, expansion. significant points to minus X X, XXXX we XX.X% the versus CapEx. cycle margins XX.X% percentage adjusted disclose cycle-to-date a in

to year. year the guidance the end on minus trending CapEx, for guidance higher margin adjusted towards track for fiscal are provided We XX.X% XX.X% of our EBITDA last

comparative Slide by On significant business in Moving of working improved year-over-year, Base behind the X% point while XX. generation. basis, delinquency the improvement outstanding the year-over-year. remained inventory X drivers we to of main sales Pedagogical flat improved disclosed trend cash year-over-year. capital a days We percentage

better paper printers, inventory one-off advanced for guaranteeing our cycle. we to XXXX disclosing conditions in in forma chain, anticipate the cycle conditions the due which a of supply initiative days next with better million are for to R$XX to We pro capture acquisition

our R$XXX flow so XXXX. registered equivalent XX.X% the Pedagogical which in in business leading of in result, date, show Pedagogical the free the consistent cash a expansion free period, free million across represents cash net in cycle a the versus XX, R$XXX we the for far, flow flow cycle revenues improvement of to of in negative As period cash Slide drivers million

On Slide consistent we cycles. XX, over the improvements highlight

moving growing & R$XX second XX, growth Management the of quarter revenue Slide for XXXX year of disclose year-over-year. year-over-year reached net the to a the our the R$XXX last first XXX% to million, Financial million, XXX% segment. Accumulated revenue of net In amounted of acquisition. the quarter Now half revenue when to our we forma XXXX, net compared pro to second prior

We're points important half EBITDA year-over-year XX Adjusted EBITDA is to margin minus tied our landed in EBITDA of minus guidance guidance percentage efficiency the the year-over-year XX growth margin for XX%, gains XXXX in an scale and XX% points net this Adjusted minus projected This enabled margin the X.X%, improvement at between R$XXX a be million the very fiscal first expansion. percentage expansion. revenue quarter confident tech-enabled our achieving of and reached segment margins year. adjusted R$XXX in in by our million to and profile in platform. and

we Slide the both a second On Pedagogical of half quarter results, Management provided & first XX, snapshot and 'XX results. XX our Financial Arco and combining consolidated

adjusted a and EBITDA adjusted R$XX XX.X% delivered figures million adjusted net with of R$XXX income of million million, was R$XX.X EBITDA consolidated income Adjusted revenue net representing net margin. margin quarter at XX.X%. Second

was The and net EBITDA adjusted billion, million, million, income R$XXX half adjusted with margin. EBITDA revenue XX.X% adjusted of XXXX representing margin. first of R$X.X net X.X% delivered Consolidated income net R$XX of a adjusted

a half Moving percentage in of half cash point revenues for Slide reached including first net flow XXXX. isaac, X.X free to XX% R$XXX period, the Consolidated XX. the versus of million, first expansion the XXXX representing of

we Arco's obligations XX, attention net of as and present our to Slide June. debt Turning

Our leverage was trailing net generation months debt remains second over the growth. point, XX X.Xx. adjusted a commitment of the XXXX, quarter cash to focal enabled EBITDA organic reducing by our In

account debt present the and of of for X.Xx. the To XX also months which over in as EBITDA we forma July, June a last to deferred adjusted net July, reached pro aforementioned EBITDA ACV

July, nonconvertible paid with amortized R$XXX semiannually years have issued of forward, we XXXX. management amounting in three to and rate CDI In deploy plus over sheet debenture our Going we continue a in to X.X% strategy. interest an million starting balance

successfully secured In fund July, or guarantee XXXX. well-established track a capital FIDC. parties receivables-backed be in growth amortized FIDC another milestone raised isaac isaac K-XX also fund to have third raise to The has share. million investment of to isaac's and allows a This even boost R$XXX This we from requirements. dedicated capital stake lack revenue will product its to record despite important the oversubscribed further. was

totals quarter, implement pro and process our issuances into position confidently cash position a billion. confident to forma short-term generation come. account in perspectives capacity deleveraging obligations, covers Taking and The years cash R$X.X in future our our we financial early are in to full third these

August weighted prior special received of initial engage receipt received agreement in agreements. XXXX, revised share at go directors bidders recap per of retained process private. we XX Slide in the committee in XX, proposal. the agreement to and versus the proposal shareholders four and a nonbinding disclose take bidders a from from evaluate $XX of into to January In the legal independent consisting November special XX% negotiations agreed committee Board in recently On On advisers. In to for XXXX, days share an Arco brief formed offer. the initial Arco share to May, proposal the per premium definitive the Upon independent to a Directors at cash, private the special XX, per committee nonbinding our of XXXX, announced nonbinding entered which of $XX average the $XX financial

other agreement regulatory least in vote power affirmative common or the the conditions, shareholders antitrust. the at the company's and conditions, the transaction subject approval voting The by of authorization representing proxy present general among is voting by closing a company's shares and of and including, X/X of of of shareholders require person to approval, meeting the the at

XXXX. quarter in XXXX merger receive The instructions meeting first the of during due the the currently general Shareholders time. will close fourth proxy to of for quarter expected for is

is for With conclude open floor presentation. that, questions. open can now questions. we now for The Operator, our we

Operator

first Mauricio Cepeda Suisse. with [Operator Credit Instructions] question from Our comes

Mauricio Cepeda

have from I questions two our side.

the the margin first relation The about of the in to reestablishment cost is the paper. of paper, equilibrium

in -- confident commodity? paper you the fee alleviation either corresponded costs? are if be is cycle, that you'll to So the price Or there next with able you be you the kind how that the may are negotiate that of if a an confident schools, in of service to

the get was if clients? question internal logistics if And of -- cash due troubles little it or to postponement is cycle cash any decision the details factor on second an here? on internal to about to delivery on your other bit this of any was July it a Or

Roberto Otero

the you Cepeda, so here. question. Thank much for Otero

terms those feasibility that batch Actually, on down the the So January, the the very around from been in suppliers. of we And in of the half gross margin And in December a will contracts first confident we November, terms to of deliveries, signed, already year-over-year recovery on between have the for sent the ones and have those coming and first be with one, XX% so terms per okay? second we are with schools better printed already actually, research page the case. nominal price are contracts. which pretty

paper So unit of in our page a cost year-over-year down XX% terms. is nominal proxy this in per printed all-in

beginning again, have of this the already contracts that and of So the those we P&L of impact mostly QX, will visibility are towards signed are end QX.

from this a course revenue of second the actually pretty June question regarding business. postponement is your to July, normal On

decision that it's it core Sometimes, some situations. from a its in comes

content we in And move, which week question certain to next the is receive whole right? the of this for packs this a reason So week.

So annual under the business contracts. operates

I another, the decision content we much So business, a cash. to we as or this that's really consequence as another, coincide quarterly from the and quarter course as we from the school deliver an from to deliveries and and logistics because revenue and week This basis, the either the see one one a the as consequence the operational This company how common business. cash this okay, on certain see necessarily. of no report not the in date, earnings But recognize a one in sometimes moving content or does content to see the a it's to to annual another, more also very to month it's with It's from school. from has revenue, the okay? we movement mean, receive with correlation

Mauricio Cepeda

Okay. And just clarify. to

on So costs negotiations necessarily prices. about confident through than more the are the adjusting reduction question, first in of you

Roberto Otero

Yes.

high to intake renewing during in you, a the of components cost mentioned nominal also margin, So price those cost new the unit parallel, targeting minus two to increase to as and XX%, I and are contributing to terms price the down single-digit we the to unit going is for And right? process we So ACV mean, to the the in course, next printing. process prices, increase And gross schools. are -- for see cycle I for we're print. also, of in

Operator

there Ladies no this and are at further time. gentlemen, questions

So our Call. your have for Earnings session. XXXX night. Second Quarter very concludes Arco's a that much Q&A That Thank concludes great participation, you and

Arco Platform (ARCE) 31 Aug 232023 Q2 Earnings call transcript