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

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Arco Platform Ltd (NASDAQ: ARCE) stock fell over 0.1% on November 27th, 2019 (as of 11:09 am GMT-5; Source: Google finance) after the company in the third quarter of FY 19 has reported the Net Revenue of R$70.6 million, net Loss of R$108.5 million, adjusted Net Income of R$0.8 million and adjusted EBITDA of R$ -7.3 million.

Moreover, a significant portion of the expenses is seasonal. Due to the nature of the company’s business cycle, ARCE need significant working capital, typically in September or October of each year, to cover costs related to production and accumulation of inventory, selling and marketing expenses, and delivery of the teaching materials at the end of each fiscal year in preparation for the beginning of each school year. Therefore, such operating expenses are generally incurred by the company in the period between September and December of each year. Further, ARCE generally 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. The third quarter revenue is generally the lowest point of the year

For FY 19, the company expects to recognize in the fourth quarter 2019 the range 26% to 29% of the consolidated ACV Bookings 2020. Adjusted EBITDA Margin for Arco, excluding Positivo, is expected to be in the range of 35.5% to 37.5%.

For fiscal 2020, the company expects ACV Bookings for Arco Platform to be approximately R$1,000 million and ACV Bookings for Arco, excluding Positivo, is expected to grow in the range of 32% and 34%.

Meanwhile, the company had recently completed its previously announced acquisition of Sistema Positivo de Ensino, (Positivo), which is one of the largest K-12 content providers to private schools in Brazil. The closing of the transaction has consolidated the expansion of Arco’s footprint, with new capacity is expected to reach over 4,800 partner schools and around 1.2 million students. The agreed purchase price is R$1,650 million, out of which 50% has to be paid in cash on the transaction closing date, and the remaining 50% will be paid in four installments as follows: 10% to be paid in cash in each of 2021 and 2022, and 15% to be paid in cash in each of 2023 and 2024, all as adjusted by the CDI rate (Brazilian interest rates).

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