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Arco Reports Second Quarter 2023 Results

Healthy cash generation trend continues in the 2023 cycle

Financial & Management Solutions post strong growth with margin gains

Arco Platform Limited, or Arco or the Company (Nasdaq: ARCE), today reported financial and operating results for the second quarter ended June 30, 2023.

 

 

 

 

 

 

2Q23

 

 

 

1H23

Consolidated

 

 

 

Consolidated

 

Net revenue

Cash gross profit

 

 

 

Net revenue

Cash gross profit

R$471.0M

R$330.4M

 

 

 

R$1,005.9M

R$700.6M

+14.3% YoY

+5.8% YoY

 

 

 

+19.4% YoY

+7.5% YoY

Adj. EBITDA

Adj. net income

 

 

 

Adj. EBITDA

Adj. net income

R$83.5M

R$78.1M

 

 

 

R$194.2M

R$36.1M

-24.6% YoY

n/a

 

 

 

-24.6% YoY

347.3%

 
 
 
 

2Q23

 

 

 

CTD23

Pedagogical business

 

 

 

Pedagogical business

 

Net revenue

 

 

Net revenue

R$395.7M

 

 

 

R$1,532.6M

-4.0% YoY

 

 

 

+18.0% YoY

Adj. EBITDA

 

 

 

Adj. EBITDA

R$85.3M

 

 

 

R$556.7M

-22.9% YoY

 

 

 

+16.3% YoY

 

Consolidated 2Q23 and 1H23 figures include full results of isaac, our most recent acquisition, that is reported within financial & management segment. Therefore, for an accurate comparison year over year we recommend investors to reach pedagogical business figures (core & supplemental solutions).

Note: Please see adjusted EBITDA reconciliation and adjusted Net Income reconciliation on page 15.

2Q23 & 1H23 Highlights

  • Net revenue for the second quarter was R$471.0 million, a 14.3% YoY increase, with Core solutions totaling R$371.9 million (+1.2% YoY), Supplemental solutions totaling R$23.8 million (-46.9% YoY due to a different distribution of the ACV recognition per quarter relative to last year) and financial & management solutions (F&M) posting a significant 104.3% YoY growth (versus 2Q22 pro-forma figures, prior to isaac’s acquisition by Arco) with R$ 75.3 million.



    Net revenue for pedagogical business (Core and Supplemental solutions) decreased 4.0% YoY in the second quarter due to deliveries’ seasonality (20.5% ACV recognition in 2Q23 vs. 26.4% in 2Q22) and part of June deliveries deferred to July, impacting 2Q23 ACV recognition in approximately R$ 36 million. Cycle-to-date figures (October through June) reaffirm the solid ACV growth expected for the 2023 cycle, with Core totaling R$1,210.9 million (+17.0% YoY) and Supplemental totaling R$331.6 million (+23.6% YoY).



    In June 2023, Arco reached 79.4% of its 2023 ACV recognized cycle-to-date vs. 83.2% in June 2022. We recommend that investors analyze our P&L performance on a cycle-to-date basis, for a more accurate assessment of the business underlying profitability trends.

  • Cash gross margin (gross margin excluding depreciation and amortization) on a consolidated basis was 70.2% in 2Q23 (versus 75.8% in 2Q22) and 69.7%, in 1H23 (versus 77.4% in 1H22).



    Pedagogical business cash gross margin was 74.9% in 2Q23 (versus 75.8% in 2Q22) and 74.7% in CTD23 (versus 79.3% in CTD22). 1H23 printing costs were affected by the previously discussed price increases in the paper supply chain in the end of 2022 (consequence of pulp and paper commodity prices hike), as printing contracts are negotiated in advance of the collections. We continue to roll out cost reduction initiatives, such as the centralization of our supply operations to capture scale gains, which we expected to offset and outpace such recent and punctual external cost pressures and expect positive outcomes on 2H23 and, specially, in the 2024 cycle.

  • In 2Q23, consolidated selling expenses excluding depreciation and amortization totaled R$177.3 million (+20.3% YoY). For 1H23, consolidated selling expenses excluding depreciation and amortization totaled R$338.6 (+18.7 YoY).



    Pedagogical business posted R$160.0 million in selling expenses in 2Q23 (+8.6% YoY). Cycle-to-date selling expenses for the pedagogical business reached R$465.9 million, up 15.9% YoY and representing 30.4% of revenues in the cycle, vs 31.0% in the same period 2022.

  • General and administrative expenses (G&A) figures excluding depreciation and amortization totaled R$115.7 million in 2Q23 (+75.4% YoY), an increase driven by the consolidation of isaac structure. For the first six months of 2023, G&A expenses excluding depreciation and amortization were R$267.1 (+92.7% YoY) mostly related to isaac operations (teams & tech).



    Pedagogical business G&A expenses excluding depreciation and amortization reached R$92.1 million (+39.6% YoY versus 2Q22). Cycle-to-date G&A for the pedagogical business increased 17.7% YoY, representing 16.0% of revenues in the 2023 cycle, vs 16.1% in the same period 2022.

  • Consolidated adjusted EBITDA was R$83.5 million in 2Q23 (-24.6% YoY), with an adjusted EBITDA margin of 17.7%. In 1H23, consolidated adjusted EBITDA was R$194.2 (-24.6% YoY), with an adjusted EBITDA margin of 19.3% (vs. 30.6% for the same period in 2022).



    Pedagogical business delivered an adjusted EBITDA of R$85.3 million (-22.9% YoY) with an adjusted EBITDA margin of 21.6% versus 26.9% in 2Q23, pressured by the lower revenue recognition seasonality. In the 2023 cycle-to-date, adjusted EBITDA margin was 36.3% for the pedagogical business versus 36.8% CTD 22. As previously mentioned, atypical deliveries deferring to July not only impacted revenue recognition but also Adjusted EBITDA cycle to date. For a better comparable analysis cycle to date, we have included July results. In the period between October and July, 2023 cycle posted a 23% adjusted EBITDA growth, delivering 36.3% Adjusted EBITDA margin, versus 34.8% margin in the 2022 cycle until July. We reiterate our 2023 guidance for EBITDA margin between 36.5% and 38.5%.



    F&M vertical posted an adjusted EBITDA of R$(1.8) million in 2Q23, versus a pro-forma R$(32.5) million in 2Q22 (prior to the acquisition by Arco), representing an EBITDA margin improvement of 85.8 p.p., from (88.3)% in 2Q22 to (2.4%) in 2Q23. In 1H23, F&M posted an Adjusted EBITDA margin of (12.2)% versus a pro forma (92.4)% margin in the first half of 2022.

  • Consolidated adjusted net income (loss) in 2Q23 was R$78.1 million, with an adjusted net margin of 16.6% (versus -5.6% in 2Q22). For 1H23, consolidated adjusted net income totalized R$36.1 million, with an adjusted net margin of 3.6 % (versus 1.0% in 1H22).

  • Consolidated cash from operations in the 1H23 reached R$365.5 million (up from R$294.3 million in 1H22). For the first half of the year, free cash flow to firm (managerial) was R$252.7 million, a R$96.1 million improvement compared to the R$156.6 million free cash flow to firm of 1H22. After interest payment, Arco generated R$ 47.7 million of free cash flow (representing 4.7% of net revenues) in the first half of 2023 (vs. R$85.4 million in 1H22, representing 10.1% of net revenues).
 

Free cash flow to firm (managerial)

Consolidated

1H23

 

1H22

 

% of net revenue

1H23

% of net revenue

1H22

YoY

(% of net revenues)

Adjusted EBITDA

194.2

 

257.3

 

19.3

%

30.6

%

-11.3 p.p

(+/-) Non-cash adjustments

60.1

 

(15.6

)

6.0

%

-1.9

%

+7.8 p.p

(+/-) Working capital

111.2

 

52.6

 

11.1

%

6.2

%

+4.8 p.p

(-) Income taxes paid

(33.4

)

(47.5

)

-3.3

%

-5.6

%

+2.3p.p

(-) CAPEX¹

(79.4

)

(90.2

)

-7.9

%

-10.7

%

+2.8p.p

Free cash flow to firm (managerial)

252.7

 

156.6

 

25.1

%

18.6

%

+6.5p.p

1) Excludes R$14.2 million related to M&A payments (PGS’ and Mentes’ acquisition).

Pedagogical business free cash flow to firm keeps the pace from previous quarter, delivering significant improvement year over year. Free cash flow to firm (managerial) cycle-to-date was R$205.2 million, R$285.9.0 million above the R$(80.7) million free cash flow to firm of CTD 2022, showing important improvements across cash flow drivers, including working capital, capex and taxes.

Free cash flow to firm (managerial)

Pedagogical

CTD23

CTD22

% of net revenue

CTD23

% of net revenue

CTD22

YoY

(% of net revenues)

Adjusted EBITDA

556.7

 

478.5

 

36.3

%

36.8

%

(0.5) p.p.

(+/-) Non-cash adjustments

71.0

 

(3.6

)

4.6

%

-0.3

%

+4.9 p.p.

(+/-) Working capital

(283.2

)

(318.9

)

-18.5

%

-24.6

%

+6.1 p.p.

(-) Income taxes paid

(36.0

)

(49.4

)

-2.3

%

-3.8

%

+1.5 p.p

(-) CAPEX¹

(103.3

)

(187.4

)

-6.7

%

-14.4

%

+7.7 p.p.

Free cash flow to firm (managerial)

205.2

 

(80.7

)

13.4

%

-6.2

%

+19.6 p.p.

1) Excludes R$14.2 million related to M&A payments (PGS’ and Mentes’ acquisition)

To obtain better price conditions for the 2024 cycle, we anticipated the paper acquisition in 2Q23 versus previous years (R$58M as of June), increasing inventory levels earlier in the cycle. To maintain comparability between quarters, we have disclosed a pro-forma days of inventory, adjusted by the paper acquisition.

  • Pedagogical solutions days of sales outstanding (DSO) in 2Q23 was 142 days vs 141 days in the 2Q22. Delinquency figures for pedagogical business continue posting YoY improvement and ended 2Q23 at 4.6% from 5.6% in 2Q22 and 5.3% in 1Q23, driven by our collection initiatives.

Provision for expected credit losses Pedagogical business (R$M)

2Q23

 

2Q22

 

YoY

1Q23

 

QoQ

Allowance for doubtful accounts

2.1

 

0.4

 

425.0

%

5.5

 

-61.8

%

% of net revenue

0.4

%

0.1

%

0.3 p.p.

1.2

%

-0.8 p.p.

Days of sales outstanding

June. 30, 2023

June. 30, 2022

YoY

June.30 2023

(pedagogical)

June 30, 2022

YoY

Trade receivables (R$M)

983.1

 

687.6

 

43.0

%

794.4

 

687.6

 

15.5

%

(-) Allowance for doubtful accounts

(151.7

)

(79.7

)

90.2

%

(91.8

)

(79.7

)

15.1

%

Trade receivables, net (R$M)

831.4

 

607.8

 

36.8

%

702.6

 

607.8

 

15.6

%

Net revenue LTM pro-forma¹

1,939.1

 

1,568.9

 

23.6

%

1,801.3

 

1,568.9

 

14.8

%

Adjusted DSO

156

 

141

 

10.6

%

142

 

141

 

0.7

%

1) Calculated as net revenues for the last twelve months (for 2022 added to the pro forma revenues from businesses acquired in the period to accurately reflect the Company’s operations).

CAPEX in 2Q23 was R$42.4 million, or 9.0% of net revenue (versus 10.5% of net revenue in 2Q22, when excluding R$ 8.7 million from PGS and Mentes acquisition). Pedagogical business CAPEX was R$ 30.1 million, or 7.6% of net revenue (versus 10.5% of net revenue in 2Q22). In the 2023 cycle to date, CAPEX reached 6.7% of revenues vs 14.4% in the 2022 cycle so far and has contributed to significant expansion on the Adj. EBITDA minus CAPEX metric that reached 29.6% cycle to date in June, 2023, versus 22.4% cycle to date 2022.

CAPEX (R$M) - Consolidated

2Q23

 

2Q22

YoY

1Q23

QoQ

Acquisition of intangible assets¹

39.2

 

41.5

-6

%

35.4

11

%

Educational platform - content development

(0.3

)

4.5

-126

%

0.3

-485

%

Educational platform - platforms & tech

14.4

 

17.9

-20

%

17.6

-18

%

Software

21.7

 

16.5

32

%

15.7

38

%

Copyrights and others

3.3

 

2.6

61

%

1.8

133

%

Acquisition of PP&E

3.2

 

1.7

89

%

1.6

101

%

TOTAL¹

42.4

 

43.2

-2

%

37.0

15

%

1) For 2022 excludes R$14.2 million related to M&A payments (PGS’ and Mentes’ acquisition).

  • Arco’s corporate restructuring is ongoing and progressing as planned. Future incorporation processes include Escola da Inteligência (2023), Pleno (2023) and SAE Digital (2024). As we keep incorporating other businesses into CBE, we expect to capture additional tax benefits and therefore further reduce our effective tax rate, currently at 8.4% in 1H23 (versus 10.3% in 1H22).

Intangible assets - net balances (R$M)

June 30, 2023

June 30, 2022

YoY

Mar. 31, 2023

QoQ

Business Combination

3,523.4

2,949.9

19.4

%

3,522.4

0.0

%

Trademarks

476.5

488.8

-2.5

%

486.7

-2.1

%

Customer relationships

226.4

255.8

-11.5

%

236.6

-4.2

%

Educational system

188.3

224.6

-16.2

%

198.0

-4.9

%

Softwares

3.5

8.6

-59.3

%

14.3

-75.5

%

Educational platform

5.4

4.4

22.7

%

5.1

5.9

%

Others¹

13.7

16.8

-18.5

%

17.1

19.9

%

Goodwill

2,609.6

1,950.9

33.8

%

2,564,9

1.7

%

Operational

340.1

288.1

18.0

%

329.6

3.2

%

Educational platform²

166.9

200.1

-16.6

%

179.4

-7.0

%

Softwares

143.5

77.1

86.1

%

124.2

15.5

%

Copyrights

27.3

10.8

152.8

%

26.0

5.0

%

Customer relationships

-

0.1

-100.0

%

-

n/a

 

Others¹

2.4

-

n/a

 

-

n/a

 

TOTAL

3,863.5

3,253.9

19.3

%

3,852.0

0.3

%

1) Non-compete agreements and rights on contracts. 2) Includes content development in progress.

Amortization of intangible assets (R$M)

2Q23

 

2Q22

 

YoY

1Q23

 

QoQ

Business Combination

(110.0

)

(73.5

)

49.7

%

(80.5

)

36.7

%

Trademarks

(16.8

)

(8.0

)

110.0

%

(7.9

)

112.7.%

Customer relationships

(19.3

)

(9.4

)

105.3

%

(10.8

)

78.7

%

Educational system

(17.6

)

(9.4

)

87.2

%

(8.8

)

100.0

%

Softwares

(2.6

)

(0.7

)

271.4

%

(1.2

)

116.0

%

Educational platform

(0.5

)

(0.2

)

150.0

%

(0.2

)

150.0

%

Others¹

(3.1

)

(1.5

)

106.7

%

(1.5

)

106.7

%

Goodwill

(50.1

)

(44.3

)

-100.0

%

(50.1

)

-0.1

%

Operational

(73.1

)

(29.1

)

151..2%

(35.7

)

104.7

%

Educational platform²

(50.1

)

(21.7

)

131.0

%

(27.4

)

82.9

%

Softwares

(17.8

)

(5.4

)

229.7

%

(6.2

)

187.1

%

Copyrights

(4.3

)

(1.8

)

140.9

%

(2.1

)

106.5

%

Customer relationships

-

 

(0.2

)

-85.5

%

-

 

n/a

 

Others¹

0.8

 

-

 

n/a

 

-

 

n/a

 

TOTAL

(183.1

)

(102.5

)

78.7

%

(116.2

)

57.6

%

1) Non-compete agreements and rights on contracts. 2) Includes content development in progress.

Amortization of intangible assets (R$M)

Impacts

P&L

Originates tax benefit

Amortization with tax benefit in 2Q23²

Amortization

Tax benefit

Impact on net income

Business Combination

 

 

(103.6

)

19.9

(83.7

)

Trademarks

Yes

Yes²

(8.9

)

0.8

(8.1

)

Customer relationships

Yes

Yes²

(9.4

)

1.0

(8.4

)

Educational system

Yes

Yes²

(8.9

)

0.9

(7.9

)

Educational platform

Yes

Yes²

(25.1

)

-

(25.1

)

Others¹

Yes

Yes²

(1.2

)

0.1

(1.1

)

Goodwill

No

Yes²

(50.1

)

17.1

(33.1

)

Operational

Yes

Yes

(73.1

)

24.8

(48.2

)

TOTAL

 

 

(176.7

)

44.7

(131.9

)

1) Non-compete agreements and rights on contracts. 2) Amortizations are tax deductible only after the incorporation of the acquired business.

Amortization of intangible assets from

business combination that generate tax benefit

– breakdown by type (R$M)

Businesses with current tax benefit

Undefined²

2023

2024

2025

2026+

 

Trademarks

27

27

27

318

 

65

Customer relationships

25

25

25

59

 

111

Educational system

27

27

27

106

 

32

Software license

-

-

-

-

 

10

Rights on contracts

1

1

1

2

 

1

Others

2

2

1

1

 

8

Goodwill

237

231

227

761

 

343

Total

319

313

308

1.247

 

571

Maximum tax benefit

108

106

105

424

 

194

Amortization of intangible assets from

business combination that generate tax benefit

– breakdown by solutions (R$M)

Businesses with current tax benefit

Undefined²

2023

2024

2025

2026+

 

Geekie

42

42

42

279

 

-

NAVE

9

9

9

11

 

-

P2D

89

89

89

364

 

-

Positivo, Conquista, PES English

170

170

168

593

 

-

Other Companies

9

3

-

-

 

-

Acquired companies not yet incorporated

N/A

N/A

N/A

N/A

 

571

Total

319

313

308

1.247

 

571

Maximum tax benefit

108

106

105

424

 

194

  • Arco’s cash and cash equivalents plus financial investments position as of June 30th, 2023 was R$549.9 million, while financial debt¹ and accounts payable to selling shareholders were R$2,451.9 million, resulting in a net debt of R$1,902.0 million.



    1) Excludes Convertible notes: considers the conversion into equity of the convertible senior notes with no future disbursement of principal (US$150 M) issued on Nov 30, 2021. These notes mature in 7 years, on Nov 15, 2028, and bear interest at 8% per year fixed in Brazilian reais (R$66 M per year). 2) Cash position refers to cash and cash equivalents plus financial investments (short and long term) plus the New Debentures and FIDIC (issued in 3Q23). 3) Amount subject to an arbitration process. Please reference the Financial Statements as of June 30th, 2023, for additional details..

  • In July, Arco concluded the issuance of 550,000 non-convertible debentures, each at a par value of R$1,000 (the “Debentures”), totaling R$550 million (approximately US$115 million), for public distribution in Brazil with restricted placement efforts to institutional investors (the “Offering”). The Offering is part of Arco’s balance sheet management strategy to strengthen its cash position, and to extend its debt maturity profile. The Debentures mature on July 12, 2028, with the principal to be amortized in three equal instalments payable on July 12, 2026, July 12, 2027, and July 12, 2028. The Debentures bear interest at 100% of the CDI interest rate (the average of interbank overnight rates in Brazil, based on 252 business days) plus 2.60% per annum, payable semi-annually on January 12 and July 12, and are guaranteed by Arco Educação S.A.

  • In August, isaac announced the first K-12 dedicated FIDC (Receivables-backed investment fund). The raised amount totaled R$112 million with amortization in 2025. This allows isaac to raise capital from third parties to fund its revenue guarantee product working capital. The fundraising was oversubscribed, despite the lack of track-record, which we expect to reduce cost of capital significantly as the operation matures.

  • In August 10, Arco announced that entered into agreement to go private. Please refer to press-release from August 10 and 6K filled on August 11 for more details (available at https://investor.arcoplatform.com/).

Conference Call Information

Arco will discuss its first quarter 2023 results today, August 31, 2023, via a conference call at 5 p.m. Eastern Time (6 p.m. Brasilia Time). To access the call, please dial: +1 (412) 717-9627, +1 (844) 204-8942 or +55 (11) 4090-1621. For enhanced audio connection investors may connect through Web Phone (access code: 7636515).

An audio replay of the call will be available through September 6th, 2023, by dialing +55 (11) 4118-5151 and entering access code 219191#. 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/.

About Arco Platform Limited (Nasdaq: ARCE)

Arco has empowered millions 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-GAAP financial measures including Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income (Loss), Adjusted Net Income (Loss) Margin, Taxable Income Reconciliation and Managerial 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 press release 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 - Pedagogical

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.

Key Business Metrics – Financial & Management (“revenue guarantee” solution)

Contracted schools are the primary operating metric and represent the total number of schools with active contracts with isaac. Schools sign contracts for 1 year (or longer) with isaac to guarantee tuition from all of the enrolled students. After signing and onboarding a partner school, services can be initiated at any month of the year.

Total payment value (TPV) indicates the full amount to be transacted by isaac to contracted schools. It is calculated by the total tuition fee owed by parents to their schools.

Take rate is the primary revenue driver and is a percentage of TPV agreed upon contract signing. It is priced upon school sign-up based on school historical delinquency rate, risk profile and operating costs. It may be renegotiated or adjusted based on the contract’s performance.

Annual recurring revenue (ARR) is the contracted annualized revenue for a given month. Annual contracts and recurring nature make ARR a good proxy for growth, given isaac’s high growth profile, mitigating seasonal and onboarding effects.

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, Managerial Free Cash Flow and Reconciliation of Taxable Income and 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 and restricted stock units, plus provision for payroll taxes (restricted stock units), plus/minus M&A expenses (expenses related to acquisitions, and legal services mainly due to International School arbitration), minus other changes to equity accounted on investees (which refers to gains related to capital contribution from others on investees leading to an increase in equity of the investee) and plus non-recurring expenses (expenses related to our organizational restructuring in such as consulting services expenses and workforce reduction expenses). We calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by Net Revenue.

We calculate Adjusted Net Income (Loss) as profit (loss) for the year (or period), plus share-based compensation plan, restricted stock units and related payroll taxes (restricted stock units), plus M&A expenses (expenses related to acquisitions, and legal services mainly due to International School arbitration), minus other changes to equity accounted on investees (which refers to gains related to capital contribution from others on investees leading to an increase in equity of the investee), plus non-recurring expenses (expenses related to our organizational restructuring in such as consulting services expenses and workforce reduction expenses), plus amortization of intangible assets from business combinations (which refers to the amortization of the following intangible assets from business combinations: (i) trademarks, (ii) customer relationships, (iii) educational system, (iv) software resulting from acquisitions, (v) educational platform, (vi) non-compete agreement and (vii) rights on contracts), plus/minus changes in accounts payable to selling shareholders (which refers to changes in fair value of contingent consideration and accounts payable to selling shareholders—finance costs), plus interest expenses, net (which refers to interest expenses related to accounts payable to selling shareholders from business combinations adjusted by fair value), plus/minus non-cash adjustments related to derivatives and convertible notes (which Refers to changes in fair value of derivative instruments from put option to convert senior notes) and plus/minus changes in current and deferred tax recognized in statements of income applied to all adjustments to net income (loss), which refers to tax effects of changes in deferred tax assets and liabilities recognized in profit or loss corresponding to financial instruments from acquisition of interests, tax benefit from tax deductible goodwill, share-based compensation and amortization of intangible assets).

We calculate Managerial Free Cash Flow as Net Cash Flows from Operating activities, less acquisition of property and equipment, less acquisition of intangible assets, adjusted by M&A-related payments that may be classified as CAPEX or as payment of contingent consideration. 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 Taxable Income Reconciliation as profit (loss) for the year (or period) adjusted for permanent and temporary additions and exclusions (for example, adjustments to provisions and amortizations in the period) and for all tax benefits that Arco is entitled to (for example, goodwill). The effective tax rate will be the current taxes for the period divided by the taxable income. In Brazil, taxes are charged based on the taxable income, not the accounting income, which means companies can have an accounting loss and a taxable profit. Additionally, Arco owns several companies and taxes are calculated individually.

We understand that, although Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income (Loss), Adjusted Net Income (Loss) Margin and Managerial Free Cash Flow and Taxable Income Reconciliation 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 (Loss), Adjusted Net Income (Loss) Margin, Managerial Free Cash Flow and Taxable Income Reconciliation 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

Interim condensed consolidated statements of financial position

 

 

 

 

 

 

 

 

June 30,

 

December 31,

(In thousands of Brazilian reais)

 

2023

 

2022

Assets

 

(unaudited)

 

 

Current assets

 

 

 

 

Cash and cash equivalents

 

400,326

 

 

216,360

 

Financial investments

 

117,131

 

 

391,785

 

Trade receivables

 

831,428

 

 

856,887

 

Inventories

 

283,723

 

 

254,060

 

Recoverable taxes

 

71,173

 

 

67,166

 

Related parties

 

-

 

 

3,956

 

Other assets

 

136,376

 

 

82,515

 

Total current assets

 

1,840,157

 

 

1,872,729

 

 

 

 

 

 

Non-current assets

 

 

 

 

Financial investments

 

32,441

 

 

30,861

 

Recoverable taxes

 

9,189

 

 

11,108

 

Deferred income tax

 

484,919

 

 

337,267

 

Other assets

 

75,315

 

 

78,038

 

Investments and interests in other entities

 

22,820

 

 

111,631

 

Property and equipment

 

53,362

 

 

59,031

 

Right-of-use assets

 

60,152

 

 

68,696

 

Intangible assets

 

3,863,557

 

 

3,184,047

 

Total non-current assets

 

4,601,755

 

 

3,880,679

 

 

 

 

 

 

Total assets

 

6,441,912

 

 

5,753,408

 

 

 

 

 

 

Liabilities

 

 

 

 

Current liabilities

 

 

 

 

Trade payables

 

236,346

 

 

182,748

 

Labor and social obligations

 

138,718

 

 

89,044

 

Lease liabilities

 

33,584

 

 

34,329

 

Loans and financing

 

99,809

 

 

102,873

 

Derivative financial instruments

 

6,946

 

 

3,693

 

Taxes and contributions payable

 

10,393

 

 

9,488

 

Income taxes payable

 

11,946

 

 

28,576

 

Advances from customers

 

111,768

 

 

16,079

 

Accounts payable to selling shareholders

 

808,331

 

 

1,060,746

 

Other liabilities

 

6,989

 

 

6,013

 

Total current liabilities

 

1,464,830

 

 

1,533,589

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

Labor and social obligations

 

4,652

 

 

1,451

 

Lease liabilities

 

35,836

 

 

42,576

 

Loans and financing

 

1,788,802

 

 

1,833,956

 

Derivative financial instruments

 

63,590

 

 

110,154

 

Provision for legal proceedings

 

2,369

 

 

3,174

 

Accounts payable to selling shareholders

 

349,696

 

 

330,457

 

Other liabilities

 

217

 

 

621

 

Total non-current liabilities

 

2,245,162

 

 

2,322,389

 

 

 

 

 

 

Equity

 

 

 

 

Share capital

 

14

 

 

11

 

Capital reserve

 

2,763,402

 

 

2,009,799

 

Treasury shares

 

-

 

 

(8,205

)

Share-based compensation reserve

 

151,101

 

 

95,008

 

Accumulated losses

 

(182,597

)

 

(199,183

)

Total equity

 

2,731,920

 

 

1,897,430

 

 

 

 

 

 

Total liabilities and equity

 

6,441,912

 

 

5,753,408

 

Arco Platform Limited

Interim condensed consolidated statements of income

 

Three-month period

ended June 30,

 

Six-month period

ended June 30,

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

2023

 

2022

 

2023

 

2022

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

 

 

Revenue

470,962

 

412,137

 

1,005,868

 

842,174

 

Cost of sales

(178,973

)

(133,054

)

(394,707

)

(249,632

)

Gross profit

291,989

 

279,083

 

611,161

 

592,542

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

Selling expenses

(206,332

)

(174,439

)

(397,503

)

(338,792

)

General and administrative expenses

(129,029

)

(80,037

)

(292,711

)

(166,137

)

Other (expense) income, net

3,766

 

1,676

 

159,953

 

19,070

 

Operating (loss) profit

(39,606

)

26,283

 

80,900

 

106,683

 

 

 

 

 

 

 

 

 

Finance income

78,221

 

214,382

 

181,152

 

373,615

 

Finance costs

(147,622

)

(238,485

)

(309,524

)

(363,586

)

Finance result

(69,401

)

(24,103

)

(128,372

)

10,029

 

 

 

 

 

 

 

 

 

Share of loss of equity-accounted investees

(591

)

(14,294

)

(1,443

)

(19,936

)

 

 

 

 

 

(Loss) profit before income taxes

(109,598

)

(12,114

)

(48,915

)

96,776

 

Income taxes - income (expense)

 

 

Current

416

 

8,038

 

(14,669

)

(13,809

)

Deferred

35,146

 

(9,265

)

80,170

 

6,351

 

Total income taxes – income (expense)

35,562

 

(1,227

)

65,501

 

(7,458

)

 

 

 

 

 

 

 

 

Net (loss) profit for the period

(74,036

)

(13,341

)

16,586

 

89,318

 

 

 

Basic (loss) earnings per share – in Brazilian reais

 

 

Class A

(1.12

)

(0.24

)

0.25

 

1.59

 

Class B

(1.12

)

(0.24

)

0.25

 

1.59

 

Diluted (loss) earnings per share – in Brazilian reais

 

 

Class A

(1.19

)

(0.24

)

(0.91

)

(1.45

)

Class B

(1.12

)

(0.24

)

0.25

 

1.59

 

 

 

Weighted-average shares used to compute net (loss) profit per share:

 

 

Basic

66,242

 

55,917

 

66,012

 

56,008

 

Diluted

71,888

 

61,089

 

71,678

 

61,680

 

Arco Platform Limited

Interim condensed consolidated statements of cash flows

Three-month

period ended

June 30,

 

Six-month

period ended

June 30,

(In thousands of Brazilian reais)

2023

 

2022

 

2023

 

2022

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

Operating activities

(Loss) profit before income taxes

(109,598

)

(12,114

)

(48,915

)

96,776

 

Adjustments to reconcile (loss) profit before income taxes to cash from operations

 

 

Depreciation and amortization

80,779

 

74,302

 

173,955

 

140,083

 

Inventory allowances

14,521

 

10,940

 

23,885

 

13,339

 

Provision (reversal) for expected credit losses

36,351

 

(372

)

66,428

 

(6,603

)

Loss (profit) on sale/disposal of property and equipment and intangible

502

 

(114

)

1,044

 

(192

)

Fair value change in derivative financial instruments

2,920

 

(84,320

)

(40,874

)

(95,973

)

Fair value adjustment in accounts payable to selling shareholders

8,695

 

(33,348

)

26,296

 

(26,320

)

Share of loss of equity-accounted investees

591

 

14,294

 

1,443

 

19,936

 

Share-based compensation plan

20,306

 

2,851

 

41,130

 

9,046

 

Accrued interest on loans and financing

67,262

 

56,774

 

137,124

 

105,544

 

Interest accretion on accounts payable to selling shareholders

39,700

 

45,744

 

82,522

 

89,674

 

Interest from financial investments

(2,076

)

(17,793

)

(3,406

)

(38,353

)

Interest on lease liabilities

2,309

 

1,126

 

5,233

 

2,287

 

(Reversal) provision for legal proceedings

22

 

11

 

(821

)

106

 

Provision for payroll taxes (restricted stock units)

5,560

 

177

 

2,427

 

(3,083

)

Foreign exchange effects, net

(32,310

)

61,644

 

(48,501

)

(43,662

)

Fair value of previously held interest in associate

(13,863

)

 

-

 

 

(170,277

)

 

-

 

Gain on changes of interest of investment

-

 

(1,345

)

-

 

(17,758

)

Loss on sale of investment

7,439

 

 

-

 

 

7,439

 

 

-

 

Other financial expense (income), net

(536

)

 

(2,205

)

 

(1,760

)

 

(3,128

)

128,574

 

116,252

 

254,372

 

241,719

 

Changes in assets and liabilities

 

 

Trade receivables

148,292

 

202,582

 

60,511

 

(4,344

)

Inventories

(75,779

)

(29,786

)

(60,460

)

(27,671

)

Recoverable taxes

1,812

 

5,266

 

8,153

 

8,448

 

Other assets

(10,508

)

(27,067

)

(39,756

)

(35,077

)

Trade payables

18,296

 

22,182

 

42,909

 

51,637

 

Labor and social obligations

1,683

 

11,630

 

25,265

 

25,745

 

Taxes and contributions payable

(8,938

)

228

 

(1,584

)

(978

)

Advances from customers

(128,437

)

(109,529

)

78,783

 

25,641

 

Other liabilities

14,720

 

(196

)

(2,654

)

9,228

 

Cash from operations

89,715

 

191,562

 

365,539

 

294,348

 

Income taxes paid

(2,222

)

(4,792

)

(33,387

)

(47,474

)

Interest paid on lease liabilities

(1,859

)

(1,039

)

(4,223

)

(2,346

)

Interest paid on accounts payable to selling shareholders

(73,341

)

 

(36,536

)

 

(73,568

)

 

(36,914

)

Interest paid on loans and financing

(16,646

)

 

(16,412

)

 

(127,239

)

 

(31,992

)

Payments for contingent consideration

(19,620

)

 

(70,541

)

 

(37,221

)

 

(70,541

)

Payment for stock options

-

 

 

(75,578

)

 

-

 

 

(75,578

)

Net cash flows (used in) from operating activities

(23,973

)

(13,336

)

89,901

 

29,503

 

 

 

Investing activities

 

 

Acquisition of property and equipment

(3,174

)

(1,726

)

(4,818

)

(8,398

)

Payment of investments and interests in other entities

-

 

-

 

(20

)

(18

)

Cash attributed from acquisition of subsidiaries

-

 

-

 

164,252

 

-

 

Sale of interest in subsidiary, net of cash sold

452

 

 

-

 

 

452

 

 

-

 

Acquisition of intangible assets

(39,200

)

(50,241

)

(74,596

)

(96,053

)

Purchase of financial investments

(74,674

)

 

(362,091

)

 

(184,466

)

 

(529,891

)

Redemption of financial investments

69,334

 

 

729,613

 

 

451,639

 

 

1,152,356

 

Interest received from financial investments

1,641

 

 

14,666

 

 

9,307

 

 

18,428

 

Loans to related parties

-

 

(4,812

)

-

 

(4,812

)

Net cash flows (used in) from investing activities

(45,621

)

325,409

 

361,750

 

531,612

 

Financing activities

Purchase of treasury shares

-

 

(16,893

)

-

 

(51,616

)

Payment of lease liabilities

(8,896

)

(5,712

)

(18,900

)

(12,005

)

Payment of accounts payable to selling shareholders

(209,316

)

(119,293

)

(236,474

)

(121,270

)

Loans and financing payments

(5,899

)

(5,469

)

(11,854

)

(211,329

)

Net cash flows used in financing activities

(224,111

)

(147,367

)

(267,228

)

(396,220

)

 

 

Foreign exchange effects on cash and cash equivalents

123

 

1,743

 

(457

)

(285

)

(Decrease) increase in cash and cash equivalents

(293,582

)

166,449

 

183,966

 

164,610

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

At the beginning of the period

693,908

 

209,304

 

216,360

 

211,143

 

At the end of the period

400,326

 

375,753

 

400,326

 

375,753

 

(Decrease) increase in cash and cash equivalents

(293,582

)

166,449

 

183,966

 

164,610

 

Arco Platform Limited

Reconciliation of Non-GAAP Measures

 

Reconciliation of Adjusted EBITDA

 

Three-month period

ended June 30,

Six-month period

ended June 30,

(In thousands of Brazilian reais)

2023

2022

2023

2022

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Net (loss) profit for the period

(74,036

)

(13,341

)

16,586

 

89,318

 

(+/-) Income taxes

(35,562

)

1,227

 

(65,501

)

7,458

 

(+/-) Finance result

69,401

 

24,103

 

128,372

 

(10,029

)

(+) Depreciation and amortization

80,779

 

74,302

 

173,955

 

140,083

 

(+) Share of loss of equity-accounted investees

591

 

14,294

 

1,443

 

19,936

 

EBITDA

41,173

 

100,585

 

254,855

 

246,766

 

(+) Share-based compensation plan

22,944

 

3,726

 

59,924

 

19,149

 

(+) Share-based compensation plan and restricted stock units

 

20,306

 

 

1,810

 

 

41,130

 

 

9,830

 

(+) Provision for payroll taxes (restricted stock units)

 

2,638

 

 

1,916

 

 

18,794

 

 

9,319

 

(+) M&A expenses

14,307

 

7,714

 

17,396

 

9,186

 

(-) Other changes to equity accounted investees

 

(13,863

)

 

(1,345

)

 

(170,277

)

 

(17,758

)

(+) Non-recurring expenses

18,907

 

-

 

32,255

 

-

 

Adjusted EBITDA

83,468

 

110,680

 

194,153

 

257,343

 

 

 

Revenue

470,962

 

412,137

 

1,005,868

 

842,174

 

EBITDA Margin

8.7

%

24.4

%

25.3

%

29.3

%

Adjusted EBITDA Margin

17.7

%

26.9

%

19.3

%

30.6

%

 

Reconciliation of Adjusted Net Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

Three-month period

ended June 30,

 

Six-month period

ended June 30,

(In thousands of Brazilian reais)

 

2023

 

2022

 

2023

 

2022

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

 

 

 

Net profit (loss) for the period

 

(74,036

)

 

(13,341

)

 

16,586

 

 

89,318

 

(+) Share-based compensation plan

 

22,944

 

 

3,726

 

 

59,924

 

 

19,149

 

(+) Share-based compensation plan and restricted stock units

 

20,306

 

 

1,810

 

 

41,130

 

 

9,830

 

(+) Provision for payroll taxes (restricted stock units)

 

2,638

 

 

1,916

 

 

18,794

 

 

9,319

 

(+) M&A expenses

 

14,307

 

 

7,714

 

 

17,396

 

 

9,186

 

(-) Other changes to equity accounted investees

 

(13,863

)

 

(1,345

)

 

(170,277

)

 

(17,758

)

(+) Non-recurring expenses

 

18,907

 

 

-

 

 

32,255

 

 

-

 

(+/-) Adjustments related to business combination

 

43,187

 

 

8,134

 

 

100,182

 

 

58,037

 

(+) Amortization of intangible assets from business combinations

 

29,554

 

 

29,142

 

 

59,917

 

 

57,599

 

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

 

8,695

 

 

(33,348

)

 

26,296

 

 

(26,320

)

(+) Interest expenses, net (adjusted by fair value)

 

4,938

 

 

12,340

 

 

13,969

 

 

26,758

 

(+/-) Non-cash adjustments related to derivative instruments and convertible notes

 

(24,244

)

 

(19,571

)

 

(79,227

)

 

(125,220

)

(+/-) Tax effects

 

90,933

 

 

(8,500

)

 

59,271

 

 

(24,640

)

Adjusted Net Income (Loss)

 

78,135

 

 

(23,183

)

 

36,110

 

 

8,072

 

 

 

 

 

 

 

 

 

 

Net Revenue

 

470,962

 

 

412,137

 

 

1,005,868

 

 

842,174

 

Adjusted Net Income Margin

 

16.6

%

 

-5.6

%

 

3.6

%

 

1.0

%

Weighted average shares

 

66,242

 

 

55,917

 

 

66,012

 

 

56,008

 

Adjusted EPS

 

1.18

 

 

(0.41

)

 

0.55

 

 

0.14

 

 

Reconciliation of Free Cash Flow

 

 

 

 

 

Three-month period

ended June 30,

 

Six-month period

ended June 30,

(In thousands of Brazilian reais)

2023

 

2022

 

2023

 

2022

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(Loss) profit before income taxes

 

(109,598)

 

(12,114)

 

(48,915)

 

96,776

(+/-) Non-cash adjustments to reconcile Adj, EBITDA to cash from operations

 

238,172

 

128,366

 

303,287

 

144,943

(+/-) Working capital (Changes in assets and liabilities)

 

(38,859)

 

75,310

 

111,167

 

52,629

Cash from operations

89,715

 

191,562

 

365,539

 

294,348

(-) Income tax paid

(2,222)

 

(4,792)

 

(33,387)

 

(47,474)

(-) CAPEX

 

(42,374)

 

(51,967)

 

(79,414)

 

(104,451)

Free cash flow to firm

 

45,119

 

134,803

 

252,738

 

142,423

(-) Interest paid on loans and financings & lease liabilities

 

(18,505)

 

(17,451)

 

(131,462)

 

(34,338)

(-) Interest paid on accounts payable to selling shareholders

 

(73,341)

 

(36,536)

 

(73,568)

 

(36,914)

(-) Payments for contingent consideration2

 

(19,620)

 

(70,541)

 

(37,221)

 

(70,541)

(-) Payments of stock options3

 

-

 

(75,578)

 

-

 

(75,578)

Free cash flow

 

(66,347)

 

(65,303)

 

10,487

 

(74,948)

(-) M&A classified as payments for contingent consideration2

 

19,620

 

70,541

 

37,221

 

70,541

(-) M&A classified as payments of stock options3

 

-

 

75,578

 

-

 

75,578

(-) M&A classified as intangible assets acquisition (CAPEX1)

 

-

 

8,701

 

-

 

14,208

Free cash flow (managerial)

 

(46,727)

 

89,517

 

47,708

 

85,379

 

1)

For 2022, is related to M&A payments (PGS’ and Mentes’ acquisition, being R$5.5 million in 1Q22 and R$8.7 million in 2Q22), from the accounting CAPEX of R$42.4 million in 1Q22 and R$37.0 million in 2Q22

2)

Related to M&A payment (difference between amount in the PPA and the final transaction amount calculated by the earn-out multiple related to the acquisition of subsidiaries).

3)

Related to M&A payment (Geekie employees’ SOP).
 

Three-month period

ended June 30,

 

Six-month period

ended June 30,

(In thousands of Brazilian reais)

2023

 

2022

 

2023

 

2022

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Free cash flow to firm

 

45,119

 

134,803

 

252,738

 

142,423

(+) M&A classified as CAPEX¹

 

-

 

8,701

 

-

 

14,208

Free cash flow to firm (managerial)

45,119

 

143,504

 

252,738

 

156,631

1)

For 2022, is related to M&A payments (PGS’ and Mentes’ acquisition, being R$5.5 million in 1Q22 and R$8.7 million in 2Q22), from the accounting CAPEX of R$42.4 million in 1Q22 and R$37.0 million in 2Q22.

 

Reconciliation of Taxable Income

 

 

 

 

 

Three-month period ended June 30,

Six-month period

ended June 30,

(In thousands of Brazilian reais)

2023

2022

2023

2022

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(Loss) profit before income taxes

 

(109,598

)

 

(12,114

)

 

(48,915

)

 

96,776

 

(+) Share-based compensation plan, RSU and provision for payroll taxes¹

18,778

 

 

(16,582

)

43,907

 

(18,814

)

(+) Amortization of intangible assets from business combinations before incorporation¹

4,087

 

 

6,094

 

8,268

 

13,846

 

(+/-) Changes in accounts payable to selling shareholders¹

(49,413

)

 

(6,269

)

(58,639

)

23,604

 

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

 

591

 

 

14,294

 

 

1,443

 

 

19,936

 

(+) Net income from Arco Platform (Cayman)

 

(14,102

)

 

5,007

 

 

(191,544

)

 

(104,508

)

(+) Fiscal loss without deferred

 

12,257

 

 

6,695

 

 

14,187

 

 

11,846

 

(+/-) Provisions booked in the period

 

33,923

 

 

12,834

 

137,279

 

44,119

 

(+) Tax loss carryforward

 

195,478

 

 

7,344

 

265,365

 

37,023

 

(+) Others

 

2,840

 

 

5,092

 

3,368

 

10,172

 

Taxable income

 

94,841

 

 

22,395

 

174,719

 

134,000

 

 

 

 

 

 

 

 

 

 

Current income tax under actual profit method

 

(32,245

)

 

(7,614

)

 

(59,404

)

 

(45,560

)

% Tax rate under actual profit method

 

34.0

%

 

34.0

%

 

34.0

%

 

34.0

%

Effective current income tax

 

(32,245

)

 

(7,614

)

 

(59,404

)

 

(45,560

)

% Effective tax rate

 

34.0

%

 

34.0

%

 

34.0

%

 

34.0

%

(+) Recognition of tax-deductible amortization of goodwill and added value²

 

20,694

 

 

15,546

 

 

41,387

 

 

26,868

 

(+/-) Other additions (exclusions)

 

11,967

 

 

106

 

 

3,348

 

 

4,883

 

Effective current income tax accounted for goodwill benefit

 

416

 

 

8,038

 

 

(14,669

)

 

(13,809

)

% Effective tax rate accounting for goodwill benefit

 

-0.4

%

 

-35.9

%

 

8.4

%

 

10.3

%

 

1)

Temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base that will yield amounts that can be deducted in the future when determining taxable profit or loss.

2)

Added value refers to the fair value of intangible assets from business combinations.

 

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