Arco Platform Ltd. (ARCE) Reports Q3 Loss of BRL0.49

Arco Platform Ltd. (NASDAQ: ARCE) reported Q3 EPS of (BRL0.49), versus (BRL2.11) reported last year. Revenue for the quarter came in at BRL208.73 million versus the consensus estimate of BRL70.52 million.

Letter from Ari de Sá Cavalcante Neto, Arco’s founder and CEO

The year of 2020 has been a testament to the resilience of our business, and we have planted seeds that will help us grow our company for years to come. As technology took a leading role in education overnight, we were able to quickly evolve to better serve existing clients and attract prospects, as well as deliver strong financial and operational results. As student, parent and educator habits changed drastically, we are excited at the opportunity to continue to disrupt our sector and shape the future of education.

While mostly working remotely from the safety of their homes, our team has delivered strong results during the first nine months of 2020. Arco has recorded 117% YoY revenue growth for the period, 148% increase in adjusted EBITDA and confirms its adjusted EBITDA guidance of 35.5-37.5% for the 2020 fiscal year. We have achieved these results while continuing to invest in our team, our solutions and our brand equity, the ingredients of our virtuous cycle focused on long-term growth. During this period, there have been no layoffs or pay-cuts; on the contrary, we have continued to grow our team by recruiting talented professionals in technology, pedagogical, frontline and management roles.

The accelerated evolution of our solutions and go-to-market strategy during the period has been a source of pride for us. Within days of the COVID-19 outbreak, we offered our partner schools a portfolio of technology tools, digital content and remote pedagogical support that helped them to continue providing high-quality education to students and perceived value to parents. As a result, we are experiencing high levels of user engagement and customer retention and satisfaction. In our business, trust and reputation are determinant to long term success, and we believe these results will drive growth for years to come.

Additionally, the change in our go-to-market strategy from in-person to digital-first has delivered a record number of leads at a lower cost per lead than past commercial cycles. Since September, when schools started to reopen and our sales team resumed travel, we have seen a strong rebound in new school intake. We expect to deliver solid annual contract value (ACV) growth of 20 to 25% for the 2021 school year.

The evolution in the way we operate and serve our clients has further reinforced our brand reputation, quality and distribution. While some companies perished and other benefited only in the short term, Arco emerges stronger with brighter long-term perspectives. With a 4% share in a R$25 billion fragmented market in urgent need of high-quality education, today continues to be day 1 for us. We thank our partner investors for their support and guidance during this period and Arco’s team for their relentless pursuit of excellence and value to our partner schools.

Key Messages

Resilient business leading to strong financial results

• Delivered 2020 ACV in line with contracted value: 4% gap to contracted value as temporary schools closure due to COVID-19 resulted in minor student dropout
• 3Q20 net revenues of R$208.7 million, 196% above 3Q19; 9M20 net revenues of R$ 705.2 million, 117% above 9M19
• 9M20 adjusted EBITDA grew 148% versus 2019, resulting in a margin of 36.2%
• On track to deliver FY adjusted EBITDA guidance of 35.5-37.5%

Solid growth expected for 2021 cycle

• Guidance for 2021 ACV growth between 20% and 25%, with a 2021 ACV guidance of R$1,150 to R$1,200 million
• Broader guidance range due to additional growth potential from delayed sales cycle
• Conservative assumptions for student dropout recovery

For earnings history and earnings-related data on Arco Platform Ltd. (ARCE) click here.

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