Q2 2023 Arco Platform Limited Earnings Call
[music].
Speaker 1: Good afternoon everyone! Thank you for standing by and welcome to Arco Platform 2Q2023 Earnings Call Stan
Good afternoon, everyone. Thank you for standing by and welcome to occupy to form second quarter 2023 earnings call.
Speaker 1: These events being recorded and all participants will be in a listen-only mode during the company's presentation. After our remarks, there will be a question and answer session. At that time, further instructions will be given. Should any participant need assistance during this call, please press star 0 to reach the operator.
As events being recorded and all participants will be in a listen only mode. During the Companys presentation.
After I call remarks, there will be a question and answer session at that time further instructions will be given should any participant need assistance. During this call. Please press star zero to reach the operator.
Speaker 1: 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 . Roberto Otero, you may begin your presentation.
Does the fed is also being broadcast live via webcast and may be accessed through arcos website at Investor Dot Oracle platform Dot Com, where the presentation is also available.
Now I'll turn the conference over to Javier Soltero Arco's CFO.
You may begin your presentation.
Speaker 2: Thank you. I'm pleased to welcome you to ARCO's second quarter 2023 conference call. With me on the call today we have ARCO's CEO , Adejisar Cabocancienet. During today's presentation, we'll make four looking statements. Four looking statements generally relate to future events or future financial or operating performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from those contemplated by these four looking statements.
Thank you I am pleased to welcome you to Arco's second quarter 2023 conference call with me on the call today, we have Arco's CEO. How do you just saw a couple of question. It during today's presentation. We'll make forward looking statements forward looking statements generally relate to future events or future financial or operating performance and involve known and unknown risks uncertainties and other factors that may cause our acts.
<unk> results to differ materially from those contemplated by these forward looking statements.
Speaker 2: Our lucky statements in this presentation include but are not limited to statements related to our business and financial performance, our expectations and guidance for future periods, our expectations regarding strategic product initiatives and their related benefits, and our expectations regarding the market. These risks include those set forth in the documents that we issued earlier today, as well as those more fully describing our findings with the Securities and Action Commission.
Forward looking statements. In this presentation include but are not limited to statements related to our business and financial performance, our expectations and guidance for future periods or expectations regarding strategic product initiatives and their related benefits and our expectations regarding the market. These risks include those set forth in the documents that we issued earlier today, that's what I was those more full.
As described in our filings with the Securities and Exchange Commission. The forward looking statements. In this presentation are based on information available to us as at the date hereof, you should not rely on them as predictions of future events as we disclaim any obligation to update any forward looking statements, except as required by law.
Speaker 2: The four location statements in this presentation are based on the information available to us as of the date hereof. You should not rely on them as predictions of future events, as we are displaying any obligation to update any four location statements except as required by law.
Speaker 2: In addition, management may reference non-IFRS financial measures on this call. The non-IFRS financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with IFRS.
Management May reference non <unk> financial measures on this call did not I FRS financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with all your friends.
Speaker 2: We have provided a reconciliation of these non-IFRS financial measures to the most directly comparable IFRS financial measure in our press release. Please note that except for revenue, gross margins, send expense, G&A and cash flow fund operations, all other financial measures we discuss here are non-IFRS and growth rates are compared to the prior year's comparable period, unless otherwise stated.
We have provided a reconciliation of these non <unk> financial measures to the most directly comparable <unk>.
Financial measure in our press release, please note that except for revenue gross margins and expense G&A and cash flow from operations all financial measures, we discuss your iron ore a year for us and growth rates are compared to the prior year comparable period, unless otherwise stated.
Speaker 2: We also know that year-over-year comparisons are affected by acquisitions not included in our 2022 financials. With that, I'd like to turn the call over to...
We also note that year over year comparisons are affected by acquisitions not included in our 'twenty two to find issues with that I'd like to turn the call over 'twenty Arco's CEO.
Speaker 3: Thank you, Otero. I would like to start with the highlights of the quarter on slide 3. 2023, second quarter.
Thank you.
I would like to start with the highlights of the quarter on slide three.
73 second quarter dosed.
Speaker 3: strong operating cash flow dynamics across all business verticals with consistent improvement of all important underlying cash flow driving.
Operating cash flow dynamics across all business verticals with consistent improvement.
All important underlying cash flow driving.
Speaker 3: such as operating, working capital, and capital allocation.
Such as operating working capital and capital allocation.
Speaker 3: Arco's pedagogical segment comprising both our core and supplemental solutions have maintained solid operational performance in the current 2023 cycle.
Arcos, but a guidepost segment, comprising both our core and supplemental solutions have maintained solid operational performance in the current 2023 cycle.
Speaker 3: using an adjusted IbiDoma Inoscopics of 453 million MRIs, 56% growth year over year.
Using an adjusted EBITDA minus Capex of 453 million Reais, a 56% growth year over year.
Speaker 3: This represents an expansion of margin of adjusted Ibidama and Scapix of 7 percentage points compared to the prior years cycle.
This represents an expansion of margin off of adjusted EBITDA minus capex of seven percentage points compared to the prior to your.
Your cycle.
Speaker 3: This is also a strategy of capturing efficiency gains with centralized functions while increasing operation leverage with our continued growth, effectively mitigating the recent volatility in cost pressures highlighted in our previous report.
This is also a strategy of capturing efficiency gains with centralized functions, while increasing operation leverage with our continued growth effectively mitigating the recent volatility.
Volatility in cost pressure as highlighted in our previous reports.
Speaker 3: Our free cash flow to firm for the pedagogical segment in 23 cycle is 205 million reais up from minus 81 million reais during equivalent period last year.
Our free cash flow to firm poured at the <unk> segment and 23 cycle.
205 million Reais up from minus 81 million he is doing.
Equivalent period last year.
The 20 percentage points improvement in free cash flow to firm represents.
Speaker 3: the result of a optimized or working capital dynamics, reducing effective tax rates, and better allocating capital.
The result of optimize our working capital dynamics, reducing the effective tax rates and better allocating capex.
Speaker 3: Our financial management solution segment referred to as F&M continues its accelerated growth trajectory boasting a 104% increase in that revenue year over year. Reflecting the segments product market fit, aligned with solid execution.
Our financial management solutions segment referred to US ethylene continues its accelerated growth trajectory boasting over 104% increase in net revenue year over year.
Selecting the segment's product market fit align with solid execution.
Speaker 3: The scroll was accompanied by an adjusted EB-DM expansion of 86% of points reaching minus 2.4 in this quarter.
This growth was accompanied by an adjusted EBITDA margin expansion of 86 percentage points, reaching minus 2.4 in this quarter.
Speaker 3: These gains were enabled by our focus on scalability and pursuit of operational efficiency with healthy delinquency levels in our portfolio.
These gains were enabled by our focus on scalability and pursue the operation efficiency with healthy delinquency levels in our portfolio.
Speaker 3: I will now turn the call to Othello who will continue the presentation. Othello, please go ahead.
I will now turn the call to Ted will continue the presentation well that'll. Please go ahead.
Speaker 2: Thank you, Adi, and good evening, everyone. We will begin by presenting the results of our pedagogical segments in these shading lights six.
Thank you Eddie and good evening, everyone. We will begin by presenting the results of a pedagogical segments initiated ones like six because.
Speaker 2: Considering the fluctuations in revenue or recognition of the quarters, we strongly advise investors to analyze or business performance on a cycle to date basis. In the 2023 cycle, that revenue grew 18% every year, reaching 1 billion 532 million reais. Our car solutions mark 17% of your growth, and supplemental solutions grew 24%.
Considering the fluctuations revenue recognition over quarters, we strongly advise investors to analyze our business performance on a cycle basis. You did 2023 cycle revenue grew 18% year over year, reaching wouldn't be at 532 million reais or car solutions more than 17% growth in supplemental solutions grew 24% year over year.
Speaker 2: As anticipated, this quarter pulls to lower ACV recognition compared to the second quarter in 2022. This shift was driven by our new supply strategy aimed at streamlining operations and reducing delivery count, resulting in concentrated ACV on the first quarter of each year.
As anticipated this quarter posted low rates to be recognition compared to the second quarter. In 2022. This shift was driven by our new supply strategy aimed at streamlining operations and reducing delivery count, resulting concentrated ACB on the first quarter of each cycle. Additionally, a portion of revenue is expected to be recognized.
Speaker 2: Additionally, a portion of revenues expected to be recognized in June were deferred to July for an impact of 36 new reais. For this reason, we are bringing P&L figures for this cycle between October and July .
June were deferred to July for an impact of 36 memory is for this reason, we're bringing P&L figures for this cycle between October and July.
Speaker 2: Moving to slide 7, we discussed the pedagogical business adjusted in bidam. In the 2023 cycle, up until June , our margins remain in line with the previous years, despite recent cost pressure. To account for the formation deferral of June ACV to July , we present cycle-to-date result up until July . Between October and July , we present an 36.3% adjusted in bidam margin, up from 34.8% margin in the same period in 2022.
Moving to slide seven we just because the pedagogical business adjusted EBITDA, the 20th twenty-three cycle up into June our margins remain in line with the previous years.
Despite recent cost pressure to account for the aforementioned deferral of June a C V to July we presented Tycho to date result up until July between October and July we presented a 36, 3% adjusted EBITDA margin up from 34, 8% margin in the same period in 2022.
Speaker 2: Our projected 2023 Agencies to be down margin guidance for the 2023 fiscal year of between 36.5% to 38.5% remains on track.
Our projected 2023, adjusted EBITDA margin guidance for the 2023 fiscal year of between 36, 5% to 38, 5% remains on track.
Speaker 2: This outlook benefits from normalized A3 recognition curve alongside the 2024 cycle growth and the implementation of new printing contracts that will impact later half of the year. Whoa.
This outlook benefits from normalized H B recognition curve alongside the 'twenty 'twenty four cycle growth and the implementation of new printing contracts that will impact. The later half of the year.
Moving to slide eight we disclosed our capex results.
Speaker 2: Current type of date figures show cat-backs at 0.7% of net.
Sorry to date figures show Capex at six 7% of net revenues by seven seven percentage point reduction compared to the corresponding periods in 2022 cycle.
Speaker 2: A 7.7% point reduction compared to the corresponding period in the 2022
Speaker 2: This attests to optimize capital location strategy, which reflects an increased collaboration and investment coordination among our brands. The continuous reflect over focus on product evolution and quality.
Tests or optimized capital allocation strategy, which reflects an increase collaboration and investment in coordination among our brands that continues to reflect our focus on product evolution and quality.
Speaker 2: On slide nine, we disclose, adjusted the bidam minus cap ex. 2023 cycle to date pulls to 29.6% margins versus 22.4% in the previous cycle to date, as the Gneefkin 7% points expation.
On slide nine we disclosed adjusted EBITDA minus Capex.
So literally three cycle to date posted 29.6% margins versus 22, 4% in the previous cycle to date, a significant seven percentage points expansion.
Speaker 2: We are on track for our fiscal year guidance for just the bidamines topics trying to award the higher end of the 20 to 26.5% to 30.5% margin guidance provided last year.
We're on track for our fiscal year guidance for adjusted EBITDA minus capex trending towards the higher end of the 20th 26, 5% to 30 30.
<unk> 35 per cent margin guidance provided last year.
Speaker 2: Moving to the X, we disclose the main drivers behind the significant improvement plan in the pedagogical business working capital cash generation.
Moving to slide 10, we disposed the main drivers behind the significant improvement trend in the pedagogical business working capital cash generation.
Speaker 2: Days of sales outstanding remained flat over a year, while the link was improved 1% more in the year.
Diesel sales outstanding remained flat year over year, while delinquency improved one percentage point year over year.
Speaker 2: On a comparative basis, we improved days of inventory by 9% to...
On a comparative basis, we improved days of inventory by 9% year over year, we're disclosing pro forma diesel inventory due to a one off initiative to capture better conditions in our supply chain in wage we advanced 58 million Reais to anticipate paper acquisition for the 2024 that cycle with printers guaranteed battery.
Speaker 2: We are disclosing performance days of the inventory due to a one-off initiative to capture better conditions in our supply chain in which we advanced 58 mineral-reize to anticipate paper acquisition for the 2024 cycle with printers. Because theiesz has not been being distributed withdrawers, they are basically just
Conditions for the next cycle.
Speaker 2: As a result, in ZD11, we should have consistent improvements across drivers in our predagogical free cash flow to firm cycle to date leading our pedagogical business to a free cash flow to firm of 205 million rise in the cycle so far, which represents 13.4% of net revenues of the period. 286 million expansion versus the negative 80 million free cash flow, registered in the equivalent period in 2022.
As a result, and as that 11, we showed a consistent improvements across the drivers and I would predict illogical for cash flow for cycle to date, leading or a pedagogical business drove free cash flow for of 205 million Reais in this cycle, so far which represents 13, 4% of net revenues over the period.
286, we didnt expansion versus the negative 80 million in free cash flow registered in the equivalent period in 2022.
Speaker 2: On slide 12 we highlight the consistent improvements over.
On slide 12, we highlight the consistent improvements over cycles.
Speaker 2: Now moving to right of treaside 14 with the slows over financial and management
Now moving to slide 14, we disclosed our financial and management segment in the second quarter of 2023, our net revenue amounted to 75 million reais growing 104% year over year, when compared to the pro forma net revenue of the second quarter of last year prior to the acquisition.
Speaker 2: In the second quarter of 2023, our net revenue amounted to 75 million reais, growing 104% year-over-year when compared to the pro-forma net revenue of the second quarter last year prior to the acquisition.
Speaker 2: Accumulated net revenue for the first half of 2023 reached 137 meter rise. A growth of 116 percent.
Accumulated net revenue for the first half of 2023 reach at 137, and we do rise a growth of 116% year over year.
Speaker 2: I just leave it a margin in the quarter reaches minus 2.4%, a very important 86% points year-over-year expansion.
Adjusted EBITDA margin in the quarter reached minus two 4% a very important 86 percentage points year over year expansion.
Speaker 2: Adjusted with a margin in the first half of 2023, landed at minus 12%, and native percentage point, year-over-year expansion.
Adjusted EBITDA margin difference half of 2023 landed at minus 12% an 80 basis.
<unk> points year over year expansion.
Speaker 2: This improvement in margins is tied to scale and efficiency gains enabled by the growth and tech enabled profile of our players.
This improvement in margins as types of scale and efficiency gains enabled by the growth in tech enabled profile upward for them.
Speaker 2: We're confident in achieving our net revenue guidance projected to be between 300 and 250 million reais and our minus 10% adjusted with our margin guidance for the segment in this visco.
We're confident in achieving our net revenue guidance projected to be between 300, and 250 million Reais and I were minus 10% adjusted EBITDA margin guidance for the segments in this fiscal year.
Speaker 2: On slide 16, we provide a snapshot of our constant data article, second quarter 23, and first half 23 results combining both pedagogical and the financial and management results.
On slide 16, we provide a snapshot of our concentrated arco's second quarter 'twenty, three and first half 'twenty three results combining both pedagogical and financial management results second.
Speaker 2: Second quarter, conservative figures delivered a net revenue of 471 per rise, and a just a bit of 83.5 million, with a just a bit of margin at 17.7%.
Second quarter consolidated figures delivered a net revenue of 471 would rise not just EBITDA of $83 5 million with adjusted EBITDA margin at 17, 7%.
Speaker 2: Adjustment of income was 78 million reais, representing 16.6% Adjustment of income margin.
Adjusted net income was 78 million Reais, representing 16, 6% adjusted net income margin.
Speaker 2: The first half of 2022 and 3 deliver the net revenue of 1 billion and 5 million reais and a just a bit of 194 million with 19.3% a just a bit of a large.
The first half of 'twenty, two and three delivered a net revenue of 1.005 billion Reais and adjusted EBITDA of $194 million with 19, 3% adjusted EBITDA margin.
Speaker 2: Consuminated at just an income of 36 million reais, representing 3.6% at just an income of
Consolidated adjusted net income was 36 million Reais, representing three 6% adjusted net income margin.
Speaker 2: Moving to slide 17, constantly different cash for the firm for the first half of 2023 reached 252 million reais, including Isaac, representing 25% of net revenues in the period, a 6.5% point expansion versus the first half of 2022.
Moving to slide 17, consolidated free cash flow to four for the first half of 2023 reached at 252 million Reais, including Isaac representing 25% of net revenues in the period.
Six five percentage points expansion versus the first half of 2022.
Speaker 2: Turning our attention to Z18, we present articles not that and obligations as of June . Our commitment to reduce the leverage remains a focal point enabled by organic gas generation growth.
Turning our attention to slide 18, we present articles that debt and obligations as of June.
Our commitment to reducing leverage remains a focal point enabled by organic cash generation growth in.
Speaker 2: In the second quarter of 2013, our net debt over the trading 12 months adjusted to be done was 3.3.
In the second quarter of 2023, our net debt over the trailing 12 months adjusted EBITDA was three three times.
Speaker 2: To account for the aforementioned deferred of June ACV and EBITDA to July , we also present a pro-forma net that over the adjusted EBITDA last 12 months as of July , which reached 3.1.
To account for the aforementioned deferred opportune HCV and EBITDA to July we also present, a pro forma net debt over adjusted EBITDA last 12 months as of July which reach at three one times.
Speaker 2: Coming forward, we continue to deploy our balance sheet management strategy. In July , we have issued a non-covertible debaucher amounting to 550 million reais, with an interest rate of TDI plus 2.6, paid semi-annually, and amortized over three years, starting in 2026.
Going forward, we continue to deploy your balance sheet management strategy in July we have issued a non convertible debentures amounted to 550 million reais with an interest rate of CDI, plus 2.6 paid semi annually and amortize over three years starting in 2026 in July also.
Speaker 2: In July , we also have another important milestone to share. Isaac has successfully raised a K-12 dedicated Fedic. This Fedic, or a receivables back investment fund, secured 112 million reais to be immortalized in 2025.
So have another important milestone to sure Isaac has successfully raised a key to trough dedicated feeding this fatigue or our receivables backed investment fund secured a husband 12, when you're really used to be amortized in 2025.
Speaker 2: This allows Isaac to raise capital from third parties to fund its revenue guarantee product capital required.
I'd like to raise capital from third parties to fund its revenue guarantee product capital requirements.
Speaker 2: If you take what oversubscribed, despite the lack of a wireless tablet strack for a quad and will boost i-X growth even further.
Take was oversubscribed, despite the lack of a lifestyle district court and will boost isaacs growth even further.
Speaker 2: Taking into account these issues is in early third quarter, our pro format cash position totals 1.2 billion reais. The financial position cover the big covers, our short term obligations, and we are confident in our cash generation capacity and future perspectives to implement a full-delivered gene process in years to come.
Taking into account these issuances in early third quarter, our pro forma cash position totals $1 2 billion Reais. This financial position comfortably covers our short term obligations and we are confident in our cash generation capacity and future perspectives to implement a food deleveraging process in years to come.
Speaker 2: On site 20, we disclose a brief process recap of our recently announced agreement to take our co-private. Upon the receipt of the initial non-binding proposal from the bidders at $11 per share in November 2022, the board of directors formed a special committee consisting of four independent directors to evaluate the non-binding proposal.
On slide 20, we disclosed a brief proceeds recap of our recently announced agreement to take Oracle private.
Upon the receipt of the initial nonbinding proposal from the beaters at $11 per share in November 2022, the board of directors formed a special committee consisting of four independent directors to evaluate you didn't buy any proposal.
Speaker 2: In January 2023, the Special Committee retained financial and legal independent advice.
In January 2023, the special Committee retained financial and legal independent advisors in.
Speaker 2: In May, the special committee received a revised non-binding proposal from the bidders at $13 per share and agreed to engage negotiations of definitive agreements.
In May the special Committee received a revised nonbinding proposal from the beaches at $13 per share and agreed to engage in negotiations of definitive agreements.
Speaker 2: On August 10th, 2023, our co-entered into an agreement to go private, in which holders we received $14 per share in cash. 1338% premium versus weighted average for 30 days prior to the initial off.
August 10th 2023, Arco entered into an agreement to go private and we'd shareholders, we received $14 per share in cash.
13, 38% premium versus weighted average for 30 days prior to the initial offer.
Speaker 2: The transaction is subject to calls and conditions, including among other conditions, the authorization and approval of the agreement by the affirmative vote of shareholders, representing at least two thirds of the voting power of the company's company share-present, and voting in person or by proxy at a general meeting of the company's shareholders.
Speaker 2: and require regulatory approval, the anti-trust. Shareholders will receive prox instructions for the General Meeting in-Dune.
Speaker 2: The merger is currently expected to close during the fourth quarter of 2023 or the first quarter of 2024. With that, we conclude our presentation. Operator, we can now open for questions.
We conclude our presentation operator, we can now open for questions. Thank you.
Speaker 1: Thank you. The floor is now open for questions. If you have a question, please press star 1 on your touchtone tone at this or anytime. If at any point your question is answered, you may remove yourself from the queue by pressing star 2. Questions will be taken in the order they are received. We do ask that when you pose your question that you pick up your handset to provide up sound quality. Please hold while we pull for questions.
Thank you the Florida is now open for questions. If you have a question. Please press star one on your Touchtone phone at this or any time.
If at any point. Your question is answered you may remove yourself from the queue by pressing Star then two.
Questions will be taken in the order. They are received we do ask that when you pose your question that you pick up your handset to provide optimal sound quality. Please hold why would poll for questions.
Speaker 1: Our first question comes from Mauricio Sepeda with Creditsuiz. Please go ahead. Hi, Otero. Arit, thanks for the purchase.
Our first question comes from Audi has disappeared with credit Suisse. Please go ahead.
Hi, Otero, Eddie Thanks for the opportunity.
I have two questions from our sites.
Speaker 4: The first is about the re-establishment of the margin equilibrium in relation to the paper.
The first is about the the re establishment of the margin equilibrium in relation to the paper.
Speaker 4: cost of paper. So if you how confident you are that in next cycle you'll be able either to negotiate with schools, a service...
The cost of paper. So if you how confident you are that the next cycle youll be able wiser to negotiate with schools Ah Ah Ah.
Our service our service fee that is a.
Speaker 4: to the papers costs, or if you are kind of confident that there may be an alleviation in the price of the commodity.
Responded to the papers are costs or if you are kind of confident that there may be an alleviation of the price of the commodity.
Speaker 4: And the second question is a little bit to get the tails on this delivery post-ponement to July . If it was due to any trouble zone on cash, on the cash cycle of our clients, or if it was an internal decision about logistics or any other internal factor, thanks.
And the second question is a little bit to get details on this delivery postpone them into July.
If it was due to any broad only troubles on cash on the cash cycle of your clients or your footprint. You said there was an internal decision.
About the logistics or any order of green turtle factor. Thank you.
Speaker 2: Hi Tepella, what's out of here? Take us a look for the questions. So on the first one, actually we are very confident with the recovery of growth and margin already in the second half coming from, I mean, the better terms with the pre-suppliers.
[laughter].
Thank you so much for the question. So on the first one I'd say, we are very confident with.
With the recovery.
Martin already in the second half coming from the better terms.
We have a pretty suppliers.
Speaker 2: Actually, those contracts have already been signed. And so we have a representative ability for the terms of those, of those.
Actually those contracts have already been signed okay.
And so Oh, we have 100% visibility on the terms of.
All of those of those contract and for the first batch of deliveries, which are the ones that we send to schools.
Speaker 2: and for the first batch of deliveries.
Speaker 2: which are the ones that we sent to schools between November , December , in January . The price per page printed will be down in on-no terms around 12% year over year. Okay, so this is a proxy of a unit cost.
Queen November December and January.
<unk> per page printed we won't be down.
Military was around 12% year over year. So this is a proxy of our unit cost.
Speaker 2: per page printed all in, in case down 12% year-over-year nominal terms.
For page a printed OLED okay.
<unk> are down 12% year over year nominal terms.
Speaker 2: So again, we have the stability. Those are contracts that are already signed. And this, we will impact the TNL mostly towards the end of Q3 beginning of Q4.
So again, we have visibility of those or conflicts that are already signed.
And this will impact the P&L mostly towards the.
The end of Q3 beginning of Q.
Speaker 2: On your second question regarding the right new postponement from June to July , this is actually a very normal course of business. Sometimes it's a decision that it comes from from this call in some situations. So this call requesting to receive the packs of content in a certain week.
Q4.
On your second on your second question regarding the revenue postpone them from from June to July. This is actually a normal course of business.
It's a decision that it comes from from this cold and some situations. So this KOL requesting to receive.
The types of content necessarily a week and Porto recently tweak leaks.
Speaker 2: for the reason we live to the next month. So the business operates under annual contract.
Next moves right. So that the business operates under annual contracts so that.
Speaker 2: So it's very common to see the deliveries of the content moving from one week to another and as a consequence from one month to another and as a consequence from one quarter to one other. In case you go through it, it's an annual business and that's how these calls also see the business. But I mean, as we report deoronies on a foreign basis, sometimes we see this movement in right-new in case. This does not coincide with cash.
That would come in to see the deliveries all of the content of moving from one week to another and as a consequence for one month, that's one other and as a consequence for the one quarter. It's one other key because it's on an annual basis and that's how these kohl's also see a bid business, but I mean as we report your needs.
On a partner basis, sometimes we see these movements in revenue okay.
It does not coincide with cash they said no correlation with cash and necessarily it's much more a logistics or operational decision either from the company or from the school to receive the content.
Speaker 2: This has no correlation with cash necessarily. It's much more logistics or operational decision either from the company or from this home to receive the company in a certain date. And we recognize the revenue as we deliver the content to this call.
Okay, and we recognize the revenue as we deliver the content to today's call.
Speaker 4: Thank you and just clarify so about the first question you are more confident on the reduction of costs through negotiations and then in necessary adjusting price.
Okay. Thank you and just to just clarify so so about the first question you are more constant on the reduction of costs through negotiations.
I've been in necessary adjusting prices.
Speaker 2: Yeah, so the minus 12% of I mentioned to you is the unit cost to print. And also, in far while, we are in the process of renewing ACZ for the next cycle and also, of course, doing the intake process for new schools. And we are targeting a high single-vigit price increase to prices. So we are going to see those two components.
Yeah, So did minus 12% that I mentioned to you see the unit cost to print.
And also in parallel.
<unk> of renewing our ACD fortinet cycle and also of course.
Doing the intake process for new schools.
We are targeting a high single digit price increase.
Two I mean, two prices right. So we're going to see those two components are contributing.
Speaker 2: contributing to to girls margin the price increase and unit cost down the nominal terms for
Contributing to gross margin the price increase and our unit cost down in nominal terms for a pretty.
Speaker 4: That's very clear. Thank you, O'Zero. Thank you, David O'Hara.
That's very clear thank you Alessandro.
Things will get better.
Speaker 1: Ladies and gentlemen, there are no further questions at this time, that concludes our Q&A session. That concludes our CO2 second quarter, 2023 earnings call. Thank you very much for your participation and have a great night.
Ladies and gentlemen, there are no further questions at this time.
So that concludes our Q&A session.
That concludes our second quarter 2023 earnings call. Thank you very much for your participation and have a great night.
Speaker 5: in
Okay.
[music].
Sure.
Yes.
[music].
Operator: Good afternoon, everyone. Thank you for standing by and welcome to Arco Platform's second quarter 2023 earnings call. This event is being recorded and all participants will be in the listen only mode during the company's presentation. After Arco remarks, there will be a question in the next session. At that time, further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. 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.
Operator: Now, I will turn the conference over to Roberto Otero, Arco CFO.
Roberto Otero: Otero, you may begin your presentation. Thank you. I'm pleased to welcome you to Arco's second quarter 2023 conference call.
Roberto Otero: With me on the call today, we have Arco CEO, Adi Gisar, a co-continent. During today's presentation, we'll make four looking statements. Four looking statements generally relate to future events, for future financial or operating performance and evolve known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from those contemplated by these four looking statements. Four looking statements in this presentation include that are not limited to statements related to our business and financial performance, our expectations and guidance for future periods, or expectations regarding strategic products initiatives and their related benefits, and our expectations regarding the market.
Okay.
Roberto Otero: This risk includes those set forth in the documents that we issued earlier today, as well as those more fully described in our findings with the Securities and Action Commission. The four looking statements in this presentation are based on the information available to us as of the date hereof.
Okay.
[music].
Yeah.
Roberto Otero: You should not rely on them as predictions of future events, as we displaying any obligation to update any four looking statements except as required by law. In addition, management may reference not IFRS financial measures on this call. The not IFRS financial measures are not intended to be considered in isolation, or as a substitute for results prepared in accordance with IFRS. We have provided a reconciliation of these non-AFRS financial measures to the most directly comparable IFRS financial measure in our press release.
Okay.
Roberto Otero: Please note that except for revenue, growth margins, and expense, money, and casual fund operations, all other financial measures we discussed here are not IFRS, and growth rates are compared to the prior year's comparable period, no less otherwise stated. We also note that year-over-year comparisons are affected by acquisitions not included in our 2022 financials.
Adi Gisar: With that, I would like to turn the call over to our CEO. Thank you, Othello. I would like to start with the highlights of the quarter on slide three. In 2023, second quarter, those strong operating cash flow dynamics across all business verticals with consistent improvement of all important underlying cash flow driving such as operating, working capital, and capital allocation. Arcos pedagogical segment comprising both our core and supplemental solutions have maintained solid operational performance in the current 2023 cycle.
Adi Gisar: Using an adjusted EBDMoscopics of 453 billion in REI's 56% growth year over year. This represents an expansion of margin of adjusted EBDMoscopics of 7% points compared to the prior year cycle. This is also a strategy of capturing efficiency gains with centralized functions while increasing operation, leverage with our continued growth, effectively mitigating the recent volatility in cost pressures highlighted in our previous reports. Our free cash flow to firm for the pedagogical segment in 23 cycle is 205 million REI's up from minus 81 million REI's during equivalent period last year.
Adi Gisar: The 20% points improvement in free cash flow to firm represents the result of optimizing or working capital dynamics, reducing effective tax rates, and better allocating capics. Our financial management solution segment referred to as F&M continues its accelerated growth trajectory, boasting at 104% increase in that revenue year over year, reflecting the segment's product market fit, aligned with solid execution. This growth was accompanied by an adjusted EBDMosc expansion of 86% points reaching minus 2.4 in this quarter. These gains were enabled by our focus on scalability and pursuit of operational efficiency with healthy delinquency levels in our portfolio.
Adi Gisar: I will now turn the call to Octadu, who will continue the presentation. Octadu, please go ahead. Thank you, Eddie, and good evening everyone.
Adi Gisar: We will begin by presenting the results of our pedagogical segments initiated on slide 6. Considering the fluctuations in revenue recognition of the quarters, we strongly advise investors to analyze our business performance on a cycle to date basis. In the 2023 cycle, that revenue grew 18% year over year, reaching 1,532 million REI's. Our car solutions mark 17% year over year growth, and supplemental solutions grew 24% year over year. As anticipated, this quarter pulls the lower ECB recognition compared to the second quarter in 2022.
Adi Gisar: This shift was driven by our new supply strategy aimed at streamlining operations and reducing delivery count, resulting in concentrated ACV on the first quarter of each cycle. Additionally, a portion of revenues expected to be recognized in June were deferred to July for an impact of 36 new REIs. For this reason, we are bringing P&L figures for this cycle between October and July. Moving to slide 7, we discussed the pedagogical business adjusted in bidam.
Adi Gisar: In the 2023 cycle, open to June, our margins remain in line with the previous years, despite recent cost pressure. To account for the formation deferral of June ACV to July, we present cycle to date results open to July. Between October and July, we present a 36.3% adjusted bidam margin up from 34.8% margin in the same period in 2022. Our projected 2023 agiocity bidam margin guidance for the 2023 fiscal year of between 36.5% to 38.5% remains on track. This outlook benefits from normalized A3 recognition curve alongside the 2024 cycle growth and the implementation of new print contracts that will impact later half of the year.
Adi Gisar: Moving to slide 8, we disclose our cat-back results. Current cycle date figures show cat-back at 6.7% of net revenues, a 7.7% point reduction compared to the corresponding period in the 2022 cycle. This attest to our optimized capital location strategy which reflects an increased collaboration and investment coordination among our brands that continues to reflect our focus on product evolution and quality. On slide 9, we disclose agiocity bidam minus cat-backs. 2023 cycle to date pulls at 29.6% margins versus 22.4% in the previous cycle to date, a significant 7% point expansion. We are on track for our fiscal year guidance for agiocity bidam minus cat-backs 20 towards the higher end of the 20 to 26.5% to 30.5% margin guidance provided last year.
Adi Gisar: Moving to slide 10, we disclose the main drivers behind this significant improvement plan in the pedagogical business working capital cash generation. Days of sales outstanding remained flat over year, while the link was improved 1% point year over year. On a comparative basis, we improved days of inventory by 9% over year. We are disclosing performance days of inventory due to a 1-off initiative to capture better conditions in our supply chain in which we advanced 58 million reais to anticipate paper acquisition for the 2024 cycle with printers guaranteeing better conditions for the next cycle.
Adi Gisar: As a result, in ZL1, we showed a consistent improvement across the drivers in our pedagogical free cash flow firm cycle to date, leading our pedagogical business to a free cash flow firm of 205 million reais in the cycle so far, which represents 13.4% of net revenues of the period, 286 million expansion versus the negative 80 million free cash flow registered in the equivalent period in 2022. On slide 12, we highlight the consistent improvements over cycles.
Adi Gisar: Now, moving to slide 14, we disclose our financial and management segment. In the second quarter of 2023, our net revenue amounted to 75 million reais, growing 104% year over year when compared to the pro forma net revenue of the second quarter last year prior to the acquisition. Accumulated net revenue for the first half of 2023 reached 137 million reais, a growth of 116% year over year. I just a bit of margin in the quarter reached minus 2.4%, a very important 86% point year over year expansion.
Adi Gisar: I just a bit of margin in the first half of 2023 landed at minus 12%, a native percentage point year over year expansion. This improvement in margins is tied to scale and efficiency gains enabled by the growth and tech enabled profile of our platform. We're confident in achieving our net revenue guidance projected to be between 300 and 250 million reais, and our minus 10% adjusted with our margin guidance for the segment in this fiscal year.
Adi Gisar: On site 16, we provided a snapshot of our constant data Arco 2nd quarter 23, and first with a logical and the financial and management results. 2nd quarter consolidated figures delivered a net revenue of 471 with the rise and adjusted the bidah of 83.5 million with adjusted the bidah margin at 17.7%. Adjust the net income was 78 million reais representing 16.6% adjusted the net income margin. The first half of 22 and 3 delivered a net revenue of 1 billion and 5 million reais and adjusted the bidah of 194 million with 19.3% adjusted the bidah margin.
Adi Gisar: Consolidated adjusted net income was 36 million reais representing 3.6% adjusted net income margin. Moving to slide 17, constantly the forecast for the firm for the first half of the 2023 reached 252 million reais including Isaac, representing 25% of net revenue in the period at 6.5% points expansion versus the first half of 2022.
Adi Gisar: Turning our attention to slide 18, we present Arco's net debt and obligations as of June. Our commitment to reduce an average remains a focal point enabled by organic as generation growth. In the 2nd quarter of 2023, our net debt over the trading 12 months adjusted the bidah was 3.3 times. To account for the aforementioned deferred of June ACV and EBITDA to July, we also present a pro format that over the adjusted the bidah last 12 months as of July which reached 3.1 times.
Adi Gisar: Moving forward, we continue to deploy our balance sheet management strategy. In July, we have issued a non-covered about the bancher amounting to 550 million reais with an interest rate of CDI plus 2.6 paid to semi-annually and amortize over 3 years to start in 2026.
Adi Gisar: In July, we also have another important milestone to share. Isaac has successfully raised a K-12 dedicated CDIC, this CDIC or a receivables back investment fund secured 112 million reais to be amortized in 2025. This allows Isaac to raise capital from third parties to fund its revenue guarantee product capital requirements. The CDIC was oversubscribed, despite the lack of a well-established track record and will boost Isaac's growth even further. Taking into account these issues in early third quarter, our pro format cash position totals 1.2 billion reais. This financial position covered the big covers our short-term obligations and we are confident in our cash generation capacity and future perspectives to implement a full-delivered in process in years to come.
Adi Gisar: On site 20, we disclose a brief process recap of our recently announced agreement to take our co-private. Upon the receipt of the initial non-binding proposal from the bidders at $11 per share in November 2022, the Board of Directors formed a special committee consisting of four independent directors to evaluate the non-binding proposal. In January 2023, this special committee retained financial and legal independent advisors. In May, this special committee received a revised non-binding proposal from the bidders at $13 per share and agreed to engage in negotiations of definitive agreements. On August 10, 2023, Arco entered into an agreement to go private, in which hold us, we received $14 per share in cash. 1338% premium versus weighted average for 30 days prior to the initial offer.
Adi Gisar: The transaction is subject to calls and conditions, including among other conditions, the authorization and approval of the agreement by the affirmative vote of shareholders, representing at least two thirds of the voting power of the company's company share present and voting in person or by proxy at a general meeting of the company shareholders and require regulatory approval, the anti-trust. Shareholders, we received prox inspections for the general meeting in due time. The merger is currently expected to close during the fourth quarter of 2023 or the first quarter of 2024.
Adi Gisar: With that, we conclude our presentation.
Operator: Operator, we can now open for questions, thank you. Thank you.
Operator: The floor is now open for questions. If you have a question, please press star one on your touch tone at this or anytime. If at any point your question is answered, you may remove yourself from the queue by pressing star two. Questions will be taken in the order they I received. We do ask that when you pose your question, that you pick up your handset to provide up and sound quality.
Operator: Please hold while we pull for questions.
Mauricio Cepeda: Our first question comes from Maurizio Cepeda with Candid Swiss. Please go ahead. Hi, Otero, Ari, thanks for the opportunity.
Mauricio Cepeda: I have two questions from our site. The first is about the reestablishment of the Marginic Libre in relation to the paper, the cost of the paper. If you how confident you are that in next cycle, you will be able either to negotiate with schools, a service fee that is responded to the papers costs or if you are confident that there may be an alleviation in the price of the commodity.
Roberto Otero: The second question is a little bit to get the tails on this delivery post-ponement to July. If it was due to any troubles on cash cycle of your clients or if it was an internal decision about logistics or any other internal factor. Thank you. Hi, Cepeda, Otero here. Thank you so much for the questions. On the first one, we are very confident with the recovery of growth and margin already in the second half coming from the better terms with the pre-suppliers.
Roberto Otero: Actually, those contracts have already been signed. We have a new percentage of ability on the terms of those contracts. For the first batch of deliveries, we turned the ones that we sent to schools between November and December in January. The price for a page printed will be down in nominal terms around 12 percent year-over-year. This is a product of a unit cost per page printed all-in in case down 12 percent year-over-year nominal terms. Again, we have the ability. Those are contracts that are already signed. This will impact the TNL mostly towards the end of Q3 beginning of Q4.
Roberto Otero: On your second question regarding the direct-new postponement from June to July, this is actually the normal course of business. Sometimes, it's a decision that it comes from this call in some situations. This call requests you to receive the packs of content in a certain week. For the reason, we believe it's due to the next move. The business operates under annual contracts. It's very common to see the deliveries of the contents moving from one week to another and as a consequence, from one month to another and as a consequence, from one quarter to one other.
Roberto Otero: It's an annual business and that's how these calls also see the business. As we report dear news on a part of the basis, sometimes we see these movements in direct-new in case. This does not coincide with cash. This has no correlation with cash, necessarily. It's much more logistics or operational decision either from the company or from this call to receive the content in a certain date. We recognize the direct-new as we deliver the content to this call. Okay, thank you.
Roberto Otero: And just to clarify so about the first question, you are more confident on the reduction of costs through negotiations than in necessary adjusting prices. Yeah, so the minus 12% of I mentioned to you is the unit cost to print. And also in far a while, we are in the process of renewing ACZ for the next five, colonel, so of course, doing the intake process for the new schools. And we are targeting a high single-digit price increase to prices, right? So we're going to see those two components contributing to growth margin, the price increase, and unit cost down the nominal terms for print. That's a very clear thank you, Otero. Thank you, Livida.
Operator: Ladies and gentlemen, there are no further questions at this time, so that concludes our Q&A session. That concludes our CO2 water 2023 earnings call. Thank you very much for your participation and have a great night.