Q2 2022 Arco Platform Ltd Earnings Call

you had to pay extra shipping. So this had a negative impact on your margins. Assuming that you don't have the same thing next year, would it make sense for us to expect a couple of, some margin expansion on the base case for next year? These are the questions. Thank you. Hi Marcelo, Otero here. Thanks for the questions. So I mean, as you said, the commercial cycle is performing very well.

with the previous year in terms of renewal rates, but our goal is to bring a better number versus last year. On the new school intake, we are seeing very encouraging signs so far across all brands in both current and supplemental. As you said, growth rates seem very similar to the 2022 sales cycle so far, but this is a moving line, so we cannot guarantee...

that will grow at the same pace of last year. Okay, so it's a stronger base of comparison, but again, the early signs are quite encouraging at this point.

Moving to your second point in terms of the impacts on the cost of product and the margin for next year. So, just to give a bit more color on that. So, we witnessed a relevant number of late orders coming in this cycle much later than the usual. Okay, so this was a direct consequence of the students coming back after the two years of the pandemic. So, this led to a significant volume of content.

to be printed and delivered to schools quickly to avoid those students starting the school year without content. The marginal cost of printing in smaller volumes tends to be significantly higher, okay, and the fried methods we had to choose were also more expensive, such as air fried. It's also important to remember that we don't carry inventory of product from one year to another as we update the content pretty much every year. So we needed to print new content for every new student.

later in our partner's calls. Okay, this is not something that should be repeated, okay, in the second half of the year. We don't expect to see this huge surprise in late orders for 2023, especially because these calls are now operating in a much more stable way and with much more visibility for next year. Okay, so we don't expect those surprising to affect our profitability next year.

Of course, we have inflation as a threat for 2023. This is one of the reasons why we have intensified the efficiency agenda internally. And as Adi mentioned in his closing remarks, we have also hired a consulting firm to help us not only accelerate but better structure this efficiency agenda internally. So at this point, we don't see any cost pressure bringing risks.

to our profitability next year, okay?

Okay, perfect. I was actually thinking upside risk, because you wouldn't have the cost.

But that was the question. It's a possibility. It's a possibility, Marcelo.

Thank you.

The next question comes from Vitor Tomita with Godman Sex. Please go ahead.

Hello, good evening all and thanks for taking our questions. A couple questions from our side. The first one would be whether, basically how you see the potential for revenue in this school cycle to actually beat ACV given the strong revenue recognition in the second quarter and students having enrolled late throughout the year. This would be our first question and our second question related to Marcelo's is...

How well have you been able to pass inflation through two schools in renewal negotiations so far, which is a factor that, as you said, should have some influence on margins? Thank you.

Thank you for the question. Pleasure to speak to you. So on the first one, at this point we cannot guarantee that we will beat the ACV conversion into revenues. I would say that given the visibility that we have at this point, 100% is what we can provide to the market as the better guidance at this point. So we have no indication of missing this 100%, but at this point it would be irresponsible to guide forward.

points of real price gains considering inflation next year at 8%. So this is the internal goal we are working right now and I mean at this point we have renewed pretty much half of the contracts for next year and this price increase has been well received by schools.

Very clear, thank you very much.

Next question comes from Mirela Oliveira with Bank of America. Please go ahead.

Good evening, everyone. Just to follow up here, we've seen other players investing on payment solutions and school management tools. Do you guys have participation on ISAC, which provides this type of solution? And also, you have our co-pay. Do you guys give us some color on the perspective for segment, if it makes sense for us to think on a unified forthcoming from these two projects? And a second question, if you could...

could just give us a view on the DA convertible debt. With the stock at current levels, is this something that raises any concern given the conversion price? I think it's at $29. If you guys could comment a little bit on that.

Hi, Mirela, Otero here. Thanks for the questions. So, yeah, I mean, we think more and more schools are open to partners to provide services that go beyond pedagogical services. And we think that the...

The reputation that we have, how intense our relations are with the schools and for how long those relations have been in place put us in a very good position to be able to go beyond services does not necessarily mean financial services but definitely beyond a pedagogical case. So, this is part of the strategy. As you said, we have our copay in operation right now and we also have...

minority investment in ISAC. So we have two feet right on this strategy and so far this has been working well. Okay I would say that more and more we build conviction that being a one-stop shop platform for schools makes a ton

On the second point regarding the convertible, I would say that we are not concerned, honestly. I would say beyond the convertible, those are very important partners to us. So I think it goes beyond just the financial instrument. It's a very long duration instrument as well. So at the end of the day, I think we have a very long path ahead of us and we are super excited with the years to come.

Once again, if you have a question, please press star 1 on your touchtone phone.

At this time, we have no further questions in the queue. That concludes AHRQ's second quarter 2022 earnings call. Thank you very much for your participation.

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