Business Wire | Mar 31, 2021 04:34PM EDT

Arco Reports Fourth Quarter and Full Year 2020 Financial Results

Mar. 31, 2021

SAO PAULO--(BUSINESS WIRE)--Mar. 31, 2021--Arco Platform Limited, or Arco (Nasdaq: ARCE), today reported financial and operating results for the fourth quarter and full year ended December 31, 2020.

"While the year of 2020 presented an unprecedented global challenge, the Brazilian K-12 education sector has undergone an important technological transformation that will benefit Arco for a long time. While taking care of our team and being financially responsible, we were able to quickly evolve our solutions and go-to-market to better serve existing clients and attract new prospects. In 2021, we will continue evolving our winning factors of brand reputation, superior solutions and distribution capability to pursue our mission of delivering high-quality education at scale," said Ari de S Neto, CEO and founder of Arco.

Full Year 2020 Results

* Net Revenue of R$1,001.7 million; * Adjusted EBITDA of R$381.0 million; * Adjusted Net Income of R$220.3 million;

Fourth Quarter 2020 Results

* Net Revenue of R$296.5 million; * Adjusted EBITDA of R$125.9 million; * Adjusted Net Income of R$67.4 million;

Key Messages

2020 results: solid FY Revenues with high EBITDA margin

* FY20 Net Revenue of R$1,001.7 million * Above guidance FY20 adjusted EBITDA margin of 38.0%

2021: ACV of R$1,163 million with sustained high margin

* 2021 ACV of R$1,163 million, 21% growth versus 2020 * Recovery of COVID related revenue impact of Recent acquisitions progressing as planned

* COC and Dom Bosco complement Core portfolio and reinforce Arco's leadership * Arco enters the supplemental test prep vertical with the acquisition of Me Salva! * Escola da Inteligncia, national leader in social-emotional, close to full integration

Priorities for 2021: growth, digital and ESG

* Leverage stronger winning factors to continue growing on large & untapped market * Drive K-12 digitalization * Disclose and further pursue ESG impact

Conference Call Information

Arco will discuss its fourth quarter and full year 2020 results today, March 31, 2021, via a conference call at 6:00 p.m. Eastern Time. To access the call, please dial: +1 412 717-9627, +1 844 204-8942, +55 11 3181-8565 or +55 11 4118-4632. An audio replay of the call will be available through April 6, 2021, by dialing +55 11 3193-1012 and entering access code 1608874#. A live and archived webcast of the call will be available on the Investor Relations section of the Company's website at https://investor.arcoplatform.com/.

Information related to COVID-19 pandemic

As of December 31, 2020, there was a total impact of R$14.6 million on the Company's condensed consolidated financial statements related to the COVID-19 pandemic mainly related to: (i) revision of the expected credit losses considering estimated increases in financial defaults, arising from renegotiations with customers and in unemployment rates in Brazil for the foreseeable future due COVID-19, which resulted in an increase of R$ 7.0 million in allowance for doubtful accounts as of December 31, 2020, (ii) additional expenses of R$ 7.7 million during the year ended December 31, 2020 related to IT, network infrastructure and an integrated teaching platform, as well as expenses to maintain protective measures such as cleaning and disinfecting the installations, distribution of protective masks and alcohol to employees and delivery of chairs, computers and work kits, (iii) increase in inventory reserves to accurately reflect the expected realization of inventories, which resulted in an incremental charge of R$287 thousand, and (iv) rent concessions, regarding leased buildings, that occurred as a direct consequence of the COVID-19 pandemic, amounting R$350 thousand.

The future impact of the COVID-19 pandemic on an ongoing basis is still uncertain, and the Company's management team will continue to closely monitor and assess the potential impacts it may have on the Company's business, its financial performance and position.

For full disclosure regarding the COVID-19 discussion, please refer to the December 31, 2020 condensed consolidated financial statements submitted to the Securities and Exchange Commission on Form 6-K.

About Arco Platform Limited (Nasdaq: ARCE)

Arco has empowered hundreds of thousands of students to rewrite their futures through education. Our data-driven learning methodology, proprietary adaptable curriculum, interactive hybrid content, and high-quality pedagogical services allow students to personalize their learning experience while enabling schools to thrive.

Forward-Looking Statements

This press release contains forward-looking statements as pertains to Arco Platform Limited (the "Company") within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, the Company's expectations or predictions of future financial or business performance conditions. The achievement or success of the matters covered by statements herein involves substantial known and unknown risks, uncertainties, and assumptions, including with respect to the COVID-19 pandemic. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, the Company's results could differ materially from the results expressed or implied by the statements we make. You should not rely upon forward-looking statements as predictions of future events. Forward looking statements are made based on the Company's current expectations and projections relating to its financial conditions, result of operations, plans, objectives, future performance and business, and these statements are not guarantees of future performance.

Statements which herein address activities, events, conditions or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. You can generally identify forward-looking statements by the use of forward-looking terminology such as "anticipate," "believe," "can," "continue," "could," "estimate," "evaluate," "expect," "explore," "forecast," "guidance," "intend," "likely," "may," "might," "outlook," "plan," "potential," "predict," "probable," "project," "seek," "should," "view," or "will," or the negative thereof or other variations thereon or comparable terminology. All statements other than statements of historical fact could be deemed forward looking, including risks and uncertainties related to statements about our competition; our ability to attract, upsell and retain customers; our ability to increase the price of our solutions; our ability to expand our sales and marketing capabilities; general market, political, economic, and business conditions in Brazil or abroad; and our financial targets which include revenue, share count and other IFRS measures, as well as non-IFRS financial measures including Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Net Income Margin, Free Cash Flow and Adjusted Free Cash Flow.

Forward-looking statements represent the Company management's beliefs and assumptions only as of the date such statements are made, and the Company undertakes no obligation to update any forward-looking statements made in this presentation to reflect events or circumstances after the date of this press release or to reflect new information or the occurrence of unanticipated events, except as required by law.

Further information on these and other factors that could affect the Company's financial results is included in filings the Company makes with the Securities and Exchange Commission from time to time, including the section titled "Risk Factors" in the Company's most recent Forms 20-F and 6-K. These documents are available on the SEC Filings section of the Investor Relations section of the Company's website at: https://investor.arcoplatform.com/

Key Business Metrics

ACV Bookings: we define ACV Bookings as the revenue we would contractually expect to recognize from a partner school in each school year pursuant to the terms of our contract with such partner school, assuming no further additions or reductions in the number of enrolled students that will access our content at such partner school in such school year (we define "school year" for purposes of calculation of ACV Bookings as the twelve-month period starting in October of the previous year to September of the mentioned current year). We calculate ACV Bookings by multiplying the number of enrolled students at each partner school with the average ticket per student per year; the related number of enrolled students and average ticket per student per year are each calculated in accordance with the terms of each contract with the related partner school.

Non-GAAP Financial Measures

To supplement the Company's condensed consolidated financial statements, which are prepared and presented in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board-IASB, we use Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Net Income Margin, Free Cash Flow and Adjusted Free Cash Flow which are non-GAAP financial measures.

We calculate Adjusted EBITDA as profit (loss) for the year (or period) plus/minus income taxes, plus/minus finance result, plus depreciation and amortization, plus/minus share of (profit) loss of equity-accounted investees, plus share-based compensation plan, restricted stock units and provision for payroll taxes (restricted stock units), plus M&A expenses, plus non-recurring expenses and plus effects related to COVID-19 pandemic. We calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by Net Revenue.

We calculate Adjusted Net Income as profit (loss) for the year (or period), plus share-based compensation plan, restricted stock units and provision for payroll taxes (restricted stock units), plus amortization of intangible assets from business combinations (which refers to the amortization of the following intangible assets from business combinations: (i) rights on contracts, (ii) customer relationships, (iii) educational system, (iv) trademarks, (v) non-compete agreement (vi) software and (vii) educational platform resulting from acquisitions), plus/minus changes in fair value of derivative instruments (which refers to (i) changes in fair value of derivative instruments-finance income, and plus (ii) changes in fair value of derivative instruments-finance costs), plus/minus changes in accounts payable to selling shareholders plus share of (profit) loss of equity-accounted investees, plus/minus changes in current and deferred tax recognized in statements of income applied to all adjustments to net income, plus/minus foreign exchange gains/loss on cash and cash equivalents, plus interest expenses, net, plus M&A expenses, plus non-recurring expenses and plus effects related to COVID-19 pandemic. We calculate Adjusted Net Income Margin as Adjusted Net Income divided by Net Revenue.

We calculate Free Cash Flow as Net Cash Flows from Operating activities, less acquisition of property and equipment, less acquisition of intangible assets. We consider Free Cash Flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by operating activities and cash used for investments in property and equipment required to maintain and grow our business. We calculate Adjusted Free Cash Flow as free cash flow for the year (or period) plus (i) interest change in financial investments, (ii) M&A expenses, and (iii) non-recurring expenses.

We understand that, although Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Net Income Margin, Free Cash Flow and Adjusted Free Cash Flow are used by investors and securities analysts in their evaluation of companies, these measures have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results of operations as reported under IFRS. Additionally, our calculations of Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Net Income Margin Free Cash Flow and Adjusted Free Cash Flow may be different from the calculation used by other companies, including our competitors in the education services industry, and therefore, our measures may not be comparable to those of other companies.

Arco Platform Limited

Consolidated Statements of Financial Position



December 30, December 31,

(In thousands of Brazilian reais) 2020 2019

Assets

Current assets

Cash and cash equivalents 424,410 48,900

Financial investments 712,645 574,804

Trade receivables 415,282 329,428

Inventories 74,076 40,106

Recoverable taxes 19,304 15,612

Financial instruments from acquisition of - 3,794 interest

Related parties 9,970 1,298

Other assets 24,073 14,630

Total current assets 1,679,760 1,028,572



Non-current assets

Financial instruments from acquisition of - 32,152 interest

Deferred income tax 236,903 156,748

Recoverable taxes 1,121 6,613

Financial investments 10,349 4,690

Related parties 10,508 14,813

Other assets 22,239 14,399

Investments and interests in other entities 9,654 48,574

Property and equipment 26,087 21,328

Right-of-use assets 30,022 21,631

Intangible assets 2,549,637 1,811,903

Total non-current assets 2,896,520 2,132,851



Total assets 4,576,280 3,161,423









December 30, December 31,

(In thousands of Brazilian reais) 2020 2019

Liabilities

Current liabilities

Trade payables 40,925 34,521

Labor and social obligations 85,069 68,511

Taxes and contributions payable 9,676 7,508

Income taxes payable 44,731 52,038

Advances from customers 23,080 25,626

Lease liabilities 12,742 6,845

Loans and financing 107,706 98,561

Accounts payable to selling shareholders 656,014 117,959

Other liabilities 331 607

Total current liabilities 980,274 412,176



Non-current liabilities

Labor and social obligations 36,570 2,801

Lease liabilities 22,478 19,012

Loans and financing 203,413 -

Financial instruments from acquisition of - 33,940 interest

Provision for legal proceedings 1,366 251

Accounts payable to selling shareholders 1,130,501 1,098,273

Other liabilities 794 160

Total non-current liabilities 1,395,122 1,154,437



Equity

Share capital 11 11

Capital reserve 2,200,645 1,607,622

Share-based compensation reserve 80,817 84,546

Accumulated losses (80,589 ) (97,369 )

Total equity 2,200,884 1,594,810



Total liabilities and equity 4,576,280 3,161,423

Arco Platform Limited

Consolidated Statements of Income

Three months ended December 31,

Twelve months ended December 31,

(In thousands of Brazilian reais, except earnings per share)

2020

2019

2020

2019

Net revenue

296,537

247,644

1,001,710

572,837

Cost of sales

(66,305

)

(55,374

)

(221,130

)

(117,258

)

Gross profit

230,232

192,270

780,580

455,579

Operating expenses:

Selling expenses

(97,687

)

(76,691

)

(372,269

)

(199,780

)

General and administrative expenses

(71,528

)

(56,165

)

(270,558

)

(191,438

)

Other income (expense), net

(6,251

)

(8,738

)

(2,258

)

(6,287

)

Operating profit

54,766

50,676

135,495

58,074

Finance income

9,614

24,943

45,211

72,047

Finance costs

(28,110

)

(37,032

)

(142,013

)

(170,855

)

Finance result

(18,496

)

(12,089

)

(96,802

)

(98,808

)

Share of profit (loss) of equity-accounted investees

8,450

153

409

(1,800

)

Profit before income taxes

44,720

38,740

39,102

(42,534

)

Income taxes - income (expense)

Current

(18,538

)

(14,596

)

(87,379

)

(46,850

)

Deferred

(1,979

)

18,371

65,057

79,953

Total income taxes - income (expense)

(20,517

)

3,775

(22,322

)

33,103

Profit (loss) for the period

24,203

42,515

16,780

(9,431

)

Basic earnings per share - in Brazilian reais

Class A

0.42

0.79

0.30

(0.18

)

Class B

0.42

0.79

0.30

(0.18

)

Diluted earnings per share - in Brazilian reais

Class A

0.42

0.78

0.30

(0.18

)

Class B

0.42

0.78

0.30

(0.18

)

Weighted-average shares used to compute net income per share:

Basic

57,588

53,812

55,758

51,552

Diluted

57,749

54,149

55,919

51,552

Arco Platform Limited

Consolidated Statements of Income

Three months ended Twelve months ended December 31, December 31,

(In thousands of Brazilian reais, 2020 2019 2020 2019except earnings per share)

Net revenue 296,537 247,644 1,001,710 572,837

Cost of sales (66,305 ) (55,374 ) (221,130 ) (117,258 )

Gross profit 230,232 192,270 780,580 455,579

Operating expenses:

Selling expenses (97,687 ) (76,691 ) (372,269 ) (199,780 )

General and administrative (71,528 ) (56,165 ) (270,558 ) (191,438 )expenses

Other income (expense), net (6,251 ) (8,738 ) (2,258 ) (6,287 )

Operating profit 54,766 50,676 135,495 58,074

Finance income 9,614 24,943 45,211 72,047

Finance costs (28,110 ) (37,032 ) (142,013 ) (170,855 )

Finance result (18,496 ) (12,089 ) (96,802 ) (98,808 )

Share of profit (loss) of 8,450 153 409 (1,800 )equity-accounted investees

Profit before income taxes 44,720 38,740 39,102 (42,534 )

Income taxes - income (expense)

Current (18,538 ) (14,596 ) (87,379 ) (46,850 )

Deferred (1,979 ) 18,371 65,057 79,953

Total income taxes - income (20,517 ) 3,775 (22,322 ) 33,103 (expense)

Profit (loss) for the period 24,203 42,515 16,780 (9,431 )

Basic earnings per share - inBrazilian reais

Class A 0.42 0.79 0.30 (0.18 )

Class B 0.42 0.79 0.30 (0.18 )

Diluted earnings per share - inBrazilian reais

Class A 0.42 0.78 0.30 (0.18 )

Class B 0.42 0.78 0.30 (0.18 )

Weighted-average shares used tocompute net income per share:

Basic 57,588 53,812 55,758 51,552

Diluted 57,749 54,149 55,919 51,552

Arco Platform Limited

Consolidated Statements of Cash Flows

Three months ended December 31,

Twelve months ended December 31,

(In thousands of Brazilian reais)

2020

2019

2020

2019

Operating activities

Profit (loss) before income taxes for the period

44,720

38,740

39,102

(42,534

)

Adjustments to reconcile profit (loss) before income taxes

Depreciation and amortization

37,692

23,865

127,455

48,314

Inventory reserves

4,114

4,273

7,453

8,476

Allowance for doubtful accounts

6,451

7,903

34,684

17,392

Loss on sale/disposal of property and equipment and intangible assets disposed

2,753

2,906

4,277

3,499

Fair value change in financial instruments from acquisition interests

(124

)

(10,822

)

(562

)

(473

)

Changes in accounts payable to selling shareholders

458

7,622

20,330

89,403

Share of (profit) loss of equity-accounted investees

(8,450

)

(153

)

(409

)

1,800

Share-based compensation plan

21,024

612

36,333

33,043

Accrued interest on loans and financing

3,810

1,002

19,862

1,002

Interest accretion on acquisition liability

18,389

17,496

68,379

42,206

Income from non-cash equivalents

(3,532

)

(45,797

)

(13,388

)

(45,797

)

Interest on lease liabilities

976

258

3,036

1,489

Provision for legal proceedings

(7

)

20

587

120

Provision for payroll taxes (restricted stock units)

(1,831

)

(15,066

)

(2,997

)

8,333

Foreign exchange income (loss)

183

571

(188

)

555

Changes in fair value of step acquisitions

3,555

(3,708

)

307

(3,708

)

Gain on sale of investment

-

(34

)

-

(3,286

)

Other financial cost/revenue, net

(466

)

(881

)

(2,315

)

(2,362

)

129,715

28,807

341,946

157,472

Changes in assets and liabilities

Trade receivables

(148,908

)

(176,193

)

(108,087

)

(136,407

)

Inventories

(10,109

)

(3,669

)

(18,161

)

(14,637

)

Recoverable taxes

7,970

(944

)

3,152

(8,494

)

Other assets

(6,768

)

(9,376

)

(14,087

)

(16,035

)

Trade payables

7,677

(37

)

3,886

8,455

Labor and social obligations

(37,593

)

(2,390

)

7,239

15,950

Taxes and contributions payable

(8,650

)

2,491

1,147

1,951

Advances from customers

17,292

22,334

(2,981

)

19,997

Other liabilities

(533

)

112

(1,420

)

(268

)

Cash (used in) generated from operations

(49,907

)

(138,865

)

212,634

27,984

Income taxes paid

(4,641

)

(6,107

)

(95,053

)

(34,747

)

Interest paid on lease liabilities

(914

)

(455

)

(2,100

)

(852

)

Interest paid on accounts payable to selling shareholders

(140

)

-

(187

)

-

Interest paid on loans and financing

(3,556

)

-

(13,423

)

-

Payments for contingent consideration

(9,520

)

-

(9,520

)

-

Net cash flows (used in) generated from operating activities

(68,678

)

(145,427

)

92,351

(7,615

)

Investing activities

Acquisition of property and equipment

(5,159

)

(3,382

)

(10,822

)

(10,991

)

Payment of investments and interests in other entities

-

(36,435

)

(32,628

)

(41,853

)

Acquisition of subsidiaries, net of cash acquired

(182,284

)

(782,748

)

(204,286

)

(798,885

)

Payment of accounts payables to selling shareholders

-

-

-

-

Acquisition of intangible assets

(33,758

)

(16,741

)

(96,827

)

(43,102

)

Net sales (purchases) of financial investments

192,028

365,821

(130,113

)

277,389

Loans to related parties

(5,000

)

-

(5,000

)

(14,000

)

Net cash flows used in investing activities

(34,173

)

(473,485

)

(479,676

)

(631,442

)

Financing activities

Capital increase - exercised stock options

-

1

-

13,830

Capital increase - proceeds from public offering

-

589,602

591,898

589,602

Share issuance costs

1,240

(18,224

)

(16,291

)

(18,897

)

Payment of lease liabilities

(2,782

)

(1,698

)

(8,510

)

(4,407

)

Payment of loans and financing

(837

)

(511

)

(301,151

)

(563

)

Payment to owners to acquire entity's shares

(779

)

(928

)

(1,733

)

(928

)

Loans and financing

62

97,574

498,434

97,574

Dividends paid by subsidiaries

3,696

-

-

-

Net cash flows generated from financing activities

600

665,816

762,647

676,211

Foreign exchange effects on cash and cash equivalents

(183

)

(572

)

188

(555

)

(Decrease) increase in cash and cash equivalents

(102,434

)

46,332

375,510

36,599

Cash and cash equivalents at the beginning of the period

526,844

2,568

48,900

12,301

Cash and cash equivalents at the end of the period

424,410

48,900

424,410

48,900

(Decrease) increase in cash and cash equivalents

(102,434

)

46,332

375,510

36,599

Arco Platform Limited

Consolidated Statements of Cash Flows



Three months ended Twelve months ended December 31, December 31,

(In thousands of Brazilian 2020 2019 2020 2019 reais)



Operating activities

Profit (loss) before income 44,720 38,740 39,102 (42,534 ) taxes for the period

Adjustments to reconcileprofit (loss) before income taxes

Depreciation and amortization 37,692 23,865 127,455 48,314

Inventory reserves 4,114 4,273 7,453 8,476

Allowance for doubtful 6,451 7,903 34,684 17,392 accounts

Loss on sale/disposal ofproperty and equipment and 2,753 2,906 4,277 3,499 intangible assets disposed

Fair value change in financialinstruments from acquisition (124 ) (10,822 ) (562 ) (473 ) interests

Changes in accounts payable to 458 7,622 20,330 89,403 selling shareholders

Share of (profit) loss of (8,450 ) (153 ) (409 ) 1,800 equity-accounted investees

Share-based compensation plan 21,024 612 36,333 33,043

Accrued interest on loans and 3,810 1,002 19,862 1,002 financing

Interest accretion on 18,389 17,496 68,379 42,206 acquisition liability

Income from non-cash (3,532 ) (45,797 ) (13,388 ) (45,797 ) equivalents

Interest on lease liabilities 976 258 3,036 1,489

Provision for legal (7 ) 20 587 120 proceedings

Provision for payroll taxes (1,831 ) (15,066 ) (2,997 ) 8,333 (restricted stock units)

Foreign exchange income (loss) 183 571 (188 ) 555

Changes in fair value of step 3,555 (3,708 ) 307 (3,708 ) acquisitions

Gain on sale of investment - (34 ) - (3,286 )

Other financial cost/revenue, (466 ) (881 ) (2,315 ) (2,362 ) net

129,715 28,807 341,946 157,472

Changes in assets and liabilities

Trade receivables (148,908 ) (176,193 ) (108,087 ) (136,407 )

Inventories (10,109 ) (3,669 ) (18,161 ) (14,637 )

Recoverable taxes 7,970 (944 ) 3,152 (8,494 )

Other assets (6,768 ) (9,376 ) (14,087 ) (16,035 )

Trade payables 7,677 (37 ) 3,886 8,455

Labor and social obligations (37,593 ) (2,390 ) 7,239 15,950

Taxes and contributions (8,650 ) 2,491 1,147 1,951 payable

Advances from customers 17,292 22,334 (2,981 ) 19,997

Other liabilities (533 ) 112 (1,420 ) (268 )

Cash (used in) generated from (49,907 ) (138,865 ) 212,634 27,984 operations

Income taxes paid (4,641 ) (6,107 ) (95,053 ) (34,747 )

Interest paid on lease (914 ) (455 ) (2,100 ) (852 ) liabilities

Interest paid on accountspayable to selling (140 ) - (187 ) - shareholders

Interest paid on loans and (3,556 ) - (13,423 ) - financing

Payments for contingent (9,520 ) - (9,520 ) - consideration

Net cash flows (used in)generated from operating (68,678 ) (145,427 ) 92,351 (7,615 ) activities



Investing activities

Acquisition of property and (5,159 ) (3,382 ) (10,822 ) (10,991 ) equipment

Payment of investments and - (36,435 ) (32,628 ) (41,853 ) interests in other entities

Acquisition of subsidiaries, (182,284 ) (782,748 ) (204,286 ) (798,885 ) net of cash acquired

Payment of accounts payables - - - - to selling shareholders

Acquisition of intangible (33,758 ) (16,741 ) (96,827 ) (43,102 ) assets

Net sales (purchases) of 192,028 365,821 (130,113 ) 277,389 financial investments

Loans to related parties (5,000 ) - (5,000 ) (14,000 )

Net cash flows used in (34,173 ) (473,485 ) (479,676 ) (631,442 ) investing activities



Financing activities

Capital increase - exercised - 1 - 13,830 stock options

Capital increase - proceeds - 589,602 591,898 589,602 from public offering

Share issuance costs 1,240 (18,224 ) (16,291 ) (18,897 )

Payment of lease liabilities (2,782 ) (1,698 ) (8,510 ) (4,407 )

Payment of loans and financing (837 ) (511 ) (301,151 ) (563 )

Payment to owners to acquire (779 ) (928 ) (1,733 ) (928 ) entity's shares

Loans and financing 62 97,574 498,434 97,574

Dividends paid by subsidiaries 3,696 - - -

Net cash flows generated from 600 665,816 762,647 676,211 financing activities



Foreign exchange effects on (183 ) (572 ) 188 (555 ) cash and cash equivalents

(Decrease) increase in cash (102,434 ) 46,332 375,510 36,599 and cash equivalents



Cash and cash equivalents at 526,844 2,568 48,900 12,301 the beginning of the period

Cash and cash equivalents at 424,410 48,900 424,410 48,900 the end of the period

(Decrease) increase in cash (102,434 ) 46,332 375,510 36,599 and cash equivalents

Arco Platform Limited

Reconciliation of Non-GAAP Measures

Three months ended December 31,

Twelve months ended December 31,

(In thousands of Brazilian reais)

2020

2019

2020

2019

Adjusted EBITDA Reconciliation

Profit (loss) for the period

24,203

42,515

16,780

(9,431

)

(+/-) Income taxes

20,517

(3,775

)

22,322

(33,103

)

(+/-) Finance result

18,496

12,089

96,802

98,808

(+) Depreciation and amortization

37,692

23,865

127,455

48,314

(+/-) Share of (profit) loss of equity-accounted investees

(8,450

)

(153

)

(409

)

1,800

EBITDA

92,458

74,541

262,950

106,388

(+) Share-based compensation plan, restricted stock units and provision for payroll taxes (restricted stock units)

18,566

11,148

69,846

66,978

(+) M&A expenses

8,063

15,939

13,751

28,848

(+) Non-recurring expenses

2,736

4,675

19,488

7,142

(+) Effects related to Covid-19 pandemic

4,075

-

14,990

-

Adjusted EBITDA

125,898

106,303

381,025

209,356

Net Revenue

296,537

247,644

1,001,710

572,837

EBITDA Margin

31.2

%

30.1

%

26.3

%

18.6

%

Adjusted EBITDA Margin

42.5

%

42.9

%

38.0

%

36.5

%

Three months ended December 31,

Twelve months ended December 31,

(In thousands of Brazilian reais)

2020

2019

2020

2019

Adjusted Net Income Reconciliation

Profit (loss) for the period

24,203

42,515

16,780

(9,431

)

(+) Share-based compensation plan, restricted stock units and provision for payroll taxes (restricted stock units).

18,566

11,148

69,846

66,978

(+) Amortization of intangible assets from business combinations

21,349

13,485

76,067

23,173

(+/-) Changes in fair value of derivative instruments

(124

)

(10,822

)

(562

)

(473

)

(+/-) Changes in accounts payable to selling shareholders

458

7,622

20,330

89,403

(+) Share of loss (profit) of equity-accounted investees

(8,450

)

(153

)

(409

)

1,800

(+/-) Tax effects

(21,706

)

(25,112

)

(76,898

)

(79,569

)

(+/-) Foreign exchange on cash and cash equivalents

183

571

(188

)

555

(+) Interest expenses, net

18,049

17,153

67,058

41,042

(+) M&A expenses

8,063

15,939

13,751

28,848

(+) Non-recurring expenses

2,736

4,675

19,488

7,142

(+) Effects related to Covid-19 pandemic

4,075

-

14,990

-

Adjusted Net Income

67,402

77,021

220,253

169,468

Net Revenue

296,537

247,644

1,001,710

572,837

Adjusted Net Income Margin

22.7

%

31.1

%

22.0

%

29.6

%

Three months ended December 31,

Twelve months ended December 31,

(In thousands of Brazilian reais)

2020

2019

2020

2019

Free Cash Flow Reconciliation

Cash generated from operations

(49,907

)

(138,865

)

212,634

27,984

(-) Income tax paid

(4,641

)

(6,107

)

(95,053

)

(34,747

)

(-) Interest paid on lease liabilities

(914

)

(455

)

(2,100

)

(852

)

(-) Interest paid on investment acquisition

(140

)

-

(187

)

-

(-) Interest paid on loans and financing

(3,556

)

-

(13,423

)

-

(-) Payments for contingent consideration

(9,520

)

-

(9,520

)

-

Cash Flow from Operating Activities

(68,678

)

(145,427

)

92,351

(7,615

)

(-) Acquisition of property and equipment

(5,159

)

(3,382

)

(10,822

)

(10,991

)

(-) Acquisition of intangible assets

(33,758

)

(16,741

)

(96,827

)

(43,102

)

Free Cash Flow

(107,595

)

(165,550

)

(15,298

)

(61,708

)

(+) Interest change in financial investments

3,532

45,797

13,388

45,797

(+) Working capital of acquired companies

22,915

55,078

22,915

55,078

(+) Business combinations

-

5,699

22,642

5,699

(+) M&A expenses

8,063

15,939

13,751

28,848

(+) Others

2,736

8,784

15,379

11,251

(+) Labor and social obligations of restricted stock units

13,548

(3,561

)

-

(3,561

)

(+) Working capital and expenses related to Covid-19 pandemic

39,943

-

39,943

-

Adjusted Free Cash Flow

(16,858

)

(37,814

)

112,720

81,404

View source version on businesswire.com: https://www.businesswire.com/news/home/20210331005974/en/

CONTACT: Investor Relations Contact: Arco Platform Limited IR@arcoeducacao.com.br Carina Carreira (carinacarreira@arcoeducacao.com.br)