Earnings stock to watch: Arco Platform Ltd (NASDAQ: ARCE)

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Arco Platform Ltd (NASDAQ: ARCE) stock rose over 0.50% on May 28th, 2020 pre-market session after the company the first quarter of FY 20 has reported Adjusted Net Income of R$56.2 million, Adjusted EBITDA of R$96.9 million & 37.1% of Adjusted EBITDA margin. The company has beaten topline estimates for the first quarter of FY 20. At the end of March, 2020, except for the revision of the Company’s estimated credit losses from its trade receivables based on expected increases in financial default and in unemployment rates in Brazil for the next months, which resulted in an increase of R$3,115 thousand, there were no other material impacts to the Company’s financial performance or position.

The company had reported the adjusted revenue growth of 123 percent to Brl 261.6 Million in the first quarter of FY 20, beating the analysts’ estimates for revenue of Brl 254.4 Million, according to Refinitiv Ibes Estimate.

For the second quarter of 2020, the company expects to be ~20% of the consolidated ACV Bookings. For full year 2020, the company expects Adjusted EBITDA Margin to be in the range of 35.5% to 37.5%.

Meanwhile, due to Covid-19, the company has integrated platform ready to support the schools since day-1 of social distancing measures, has 100% remote operations running smoothly and with no impact to the clients and has redesigned go-to-market strategy to leverage on digital leads created. Despite legally mandated school closures, the Company had not suspended its activities and, following health and social distancing guidelines, its workforce continues to work remotely from home, for which investments in IT and network infrastructure were made in order to enable stable remote operations. In order to safeguard the health and safety of its employees, customers and suppliers, the Company has already taken several preventive measures. The company’s content production continues according to the scheduled curriculum calendar and the current educational material has been delivered to the schools according to the planned schedule, enabling the Company to recognize the revenues on these products. Further, the company deliver the Core Curriculum content four times each year, in March, June, August and December and the Supplemental Solutions content twice each year, in June and December, usually two to three months prior to the start of each school quarter. Due to the nature of the business cycle, the company requires significant working capital, typically in September or October of each year, to cover costs related to production and accumulation of inventory etc.

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