Arco Platform Ltd (NASDAQ: ARCE) stock lost over 2.5% on 18th August, 2020 (As of 11:05 am GMT-4; Source: Google finance) post second quarter of FY 20 performance, on concerns over rising expenses. The company posted 124% rise in the selling expenses to R$8.1 million compared to R$39.3 million for the second quarter of 2019. The higher year-over-year selling expenses are on back of investments in the sales team, that includes the hunters and farmers as a network to offer continued support to the partner schools and expand the network of clients. The sequential quarter-over-quarter rise in selling expenses is due to the investments in the new go to marketing strategy in order to increase the 2021 growth potential, driven by the new opportunities that have aroused from the current environment.
The firm has reported the net revenue of R$234.9 million, which represented 23% of the 2020 ACV. The company posted the gross margin of 81.6% for the second quarter compared to 81.2% for the same period in 2019, which is in line with the historical trend. The company generated 64% increase in the Adjusted EBITDA to R$100.6 year-over-year for the second quarter of 2020. The company has ended the second quarter of 2020 with R$892 million in cash and equivalents with over R$300 million of bank loans. The company is even considering the future M&A payables.
For fiscal 2020, the company is on track to achieve adjusted EBITDA margin of 35.5% to 37.5%. On August 1st, the company had finalized the corporate reorganization and the incorporation of Positivo, which means the company will a tax benefit of the deductibility of the goodwill and fair value adjustments of R$529 million. The fair value adjustment should be deductible over the next five to twenty years. Further, the company has also completed 90% of the backlogs activities migration to Arco’s shared services centers.
On the other hand, the company had designed the go-to-market strategy in order to conduct a fully remote negotiation sales and on-boarding process more customized to the reality. This will improve the lead quality. The company has currently 400 leads in the solutions on a trial version with the high level of customer satisfaction. The company is confident that those changes will be valuable to the company not only during this time while the remote sales model is needed but also in the upcoming years with the growth of the digital transformation in schools.