Arco Platform Ltd (NASDAQ:ARCE) Q2 2023 Earnings Conference Call August 31, 2023 5:00 PM ET Company Participants Roberto Otero - CFO Ari de Sá Cavalcante Neto - Founder, CEO & Director Conference Call Participants Mauricio Cepeda - Credit Suisse Operator Good afternoon, everyone. Thank you for standing by, and welcome to Arco Platform Second Quarter 2023 Earnings Call. This event is being recorded and all participants will be in a listen-only mode during the company's presentation. [Operator Instructions] T ...

Financial Data and Key Metrics Changes - In Q1 2023, Arco's net revenue grew by 28% year-over-year, reaching BRL 1.136 billion, with adjusted EBITDA margin at 41.5% despite cost pressures [10][11] - Consolidated first quarter results showed net revenue of BRL 534.9 million and adjusted EBITDA of BRL 110.7 million, resulting in a 20.7% adjusted EBITDA margin [19] - Free cash flow to firm reached BRL 207.6 million, representing 38.8% of net revenue for the quarter, a significant improvement compared to the previous year [14][21] Business Line Data and Key Metrics Changes - The Pedagogical business saw a 28% top line and EBITDA growth cycle to date, with Core Solutions up 26% and Supplemental Solutions up 38% year-over-year [6][10] - The newly launched Financial & Management Solutions segment reported a 133% increase in net revenue year-over-year, contributing BRL 62.5 million in Q1 [8][17] Market Data and Key Metrics Changes - The company anticipates a significant improvement in gross margin behavior in the second half of 2023 due to renegotiated printing prices and integrated supply management strategies [12] - The company has signed contracts for the 2024 cycle, with expected price reductions in nominal terms for printing costs [24] Company Strategy and Development Direction - Arco aims to strengthen its position in Brazil's education ecosystem by diversifying its product portfolio and enhancing relationships with partner schools [8] - The company is focused on improving operational efficiency and scalability through various initiatives, including capital deployment and SG&A management [8][9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving EBITDA margin guidance for the fiscal year between 36.5% and 38.5% despite cost pressures [7] - The management highlighted that cash flow generation improvements are expected to be recurring, driven by normalized working capital dynamics [25] Other Important Information - The company has reduced its net debt over adjusted EBITDA to 3x, indicating a focus on deleveraging [21] - CapEx as a percentage of revenues is expected to trend below the guidance of 8% to 10% due to improved capital allocation strategies [40] Q&A Session Summary Question: Can you provide more color on the terms negotiated for the 2024 cycle and how they compare to this year's costs? - Management indicated that prices per page for the 2024 cycle are expected to decline in nominal terms, with contracts already signed [24] Question: What are your expectations on the margins for the rest of the 2023 cycle? - Management expects gross margin to be down around 2 to 3 percentage points for the fiscal year, with improvements anticipated in upcoming quarters [27] Question: What is your perception of the competitive environment for the 2024 sales process? - Management noted that they are ahead of the curve in metrics such as price increases and new school additions compared to the previous year [28] Question: Do you see any opportunities in the public sector going forward? - Management stated that while there are opportunities in the public sector, the focus will remain on the private sector due to its significant potential [35]

Arco Platform Limited (NASDAQ:ARCE) Q4 2022 Earnings Conference Call March 30, 2023 5:00 PM ET Company Participants Carina Carreira – Investor Relations Director Ari de Sa Cavalcante Neto – Chief Executive Officer Roberto Otero – Chief Financial Officer Conference Call Participants Lucca Marquezini – Itau BBA Marcelo Santos – JP Morgan Javier Martinez – Morgan Stanley Mauricio Cepeda – Credit Suisse Yan Cesquim – BTG Pactual Operator Good afternoon, everyone, and thank you for standing by, and welcome to Ar ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20-F (Mark One) ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . OR ☐ SHELL COMPANY REPORT PURSUANT TO SE ...

Revenue Growth - Arco reported a 44% increase in revenues for 2022, totaling R$1,775 million, and a 50% increase in adjusted EBITDA to R$648 million[1][2] - For Q4 2022, net revenue was R$679.3 million, a 47.4% YoY increase, with Core solutions at R$447.0 million (+39.1% YoY) and Supplemental solutions at R$232.3 million (+66.4% YoY)[3][5] - Revenue for the twelve months ended December 2022 was R$1,775,427 thousand, up from R$1,232,074 thousand in the previous year, marking an increase of approximately 44.2%[38] - Net revenue for the three-month period ended December 2022 was R$679,331 thousand, a 47.4% increase from R$460,834 thousand in the same period of 2021[43] EBITDA and Profitability - Adjusted EBITDA for Q4 2022 was R$353.2 million, reflecting a 57.4% YoY growth, with an adjusted EBITDA margin of 52.0%[11] - Adjusted EBITDA for the three-month period ended December 2022 was R$353,190 thousand, representing a margin of 47.1%, compared to R$224,403 thousand and a margin of 46.3% in the same period of 2021[42] - Total revenue for the twelve months ended December 2022 was R$1,775,427 thousand, with an adjusted EBITDA margin of 32.3%, up from 26.3% in the previous year[42] - Free cash flow for the three-month period ended December 2022 was (R$142,140) thousand, an improvement from (R$256,950) thousand in the same period of 2021[47] Expenses and Costs - General and administrative expenses decreased to R$68.5 million in Q4 2022, representing 10.1% of net revenue, down from 15.2% in Q4 2021[9] - Selling expenses in Q4 2022 totaled R$148.5 million, a 27.4% YoY increase, driven by higher investments in commercial activities[8] - Cash gross margin for Q4 2022 was 78.1%, down from 83.8% in Q4 2021, impacted by increased costs in the supply chain[7] - The total depreciation and amortization for the twelve months ended December 2022 was R$277,458 thousand, compared to R$194,885 thousand in the previous year[40] Assets and Liabilities - Total intangible assets decreased by 0.6% to R$3,184.0 million compared to R$3,257.4 million in the previous year[13] - Total current liabilities increased from R$1,393,211 thousand in December 2021 to R$1,533,589 thousand in December 2022, an increase of approximately 10.1%[37] - Non-current liabilities decreased from R$2,721,674 thousand in December 2021 to R$2,322,389 thousand in December 2022, a reduction of about 14.7%[37] - Cash and cash equivalents increased slightly from R$211,143 thousand in December 2021 to R$216,360 thousand in December 2022, an increase of about 2%[36] Cash Flow - Cash from operations for 4Q22 was -R$42.8 million, an improvement from -R$138.4 million in 4Q21, while for the full year 2022, it was R$341.3 million compared to R$138.2 million in 2021[16] - Cash from operations for the twelve months ended December 2022 was R$341,269 thousand, a significant increase from R$138,166 thousand in the previous year[40] - The company reported a cash from operations of R$341,378 thousand for the three-month period ended December 2022, compared to R$206,290 thousand in the same period of 2021[45] Student Metrics and Market Position - The annual ACV for 2023 is confirmed at R$1,930 million, representing a 24% YoY growth, serving 8,000 schools and over 2.6 million students[2][11] - The number of students served increased by 15% to 2.6 million for the 2023 school year, with a 33% increase in students approved for universities through SISU[21] - Retention rates remained consistent, with a 3 percentage point increase in the number of Core students using at least one Supplemental content solution, rising to 18% from approximately 15% in the previous year[19] Tax and Corporate Structure - The effective tax rate for 2022 was 13.1%, down from 17.8% in 2021, with ongoing corporate restructuring expected to capture additional tax benefits[12] - The effective current income tax rate for the twelve-month period ended December 2022 was 34.0%[49] Intangible Assets and Goodwill - The amortization of intangible assets in Q4 2022 was R$97.6 million, reflecting a 35.6% increase year-over-year[14] - Goodwill remained stable at R$1,950.9 million, unchanged from the previous quarter[13] - Customer relationships intangible assets decreased by 3.8% to R$237.0 million compared to R$274.7 million in the previous year[13] - The amortization of goodwill increased by 76.7% to R$56.4 million in Q4 2022 compared to R$32.0 million in Q4 2021[14] ESG and Social Impact - Arco's 2022 ESG report highlighted a 423% increase in the number of students impacted by the Arco Institute[21]

2022 Cycle Results - Arco delivered 100% revenue recognition for the 2022 cycle, with a 48% year-over-year growth, including 34% organic growth[3, 5] - The 2022 cycle saw profitability improvement, with a 23 percentage points adjusted EBITDA margin expansion year-over-year[3, 8] - 2022 cycle revenues reached R$1561 million, a 48% increase compared to R$1057 million in the 2021 cycle[9] - Cash gross profit for the 2022 cycle was R$1249 million, a 49% increase from R$839 million in the 2021 cycle[9] - Adjusted EBITDA for the 2022 cycle was R$526 million, a 58% increase from R$332 million in the 2021 cycle[9] Cash Flow Improvement - Free Cash Flow to Firm (FCFF) for 9M22 increased by 132% year-over-year, reaching 194% of revenues compared to 119% in 9M21[3, 35] - Effective tax rate decreased to 87%[15, 72] 2023 Outlook - The commercial cycle for pedagogical solutions indicates an approximate 24% ACV growth for 2023[3, 43] - ACV guidance for the 2023 cycle is approximately R$1930 million, compared to R$1560 million for the 2022 cycle and R$1163 million for the 2021 cycle[44] - Adjusted EBITDA margin guidance is maintained at 365% – 385%, and CAPEX guidance is reduced to 8% – 10% of revenue for FY 2023[3, 48]

Arco Platform Limited (NASDAQ:ARCE) Q3 2022 Earnings Conference Call December 1, 2022 5:00 PM ET Company Participants Carina Carreira - Director, IR Ari de Sa Cavalcante Neto - CEO Roberto Otero - CFO Conference Call Participants Vitor Tomita - Goldman Sachs Lucca Marquezini - Itau BBA Fred Mendes - Bank of America Javier Martinez - Morgan Stanley Operator Good afternoon, everyone. Thank you for standing by, and welcome to Arco Platform’s Third Quarter 2022 Earnings Call. This event is being recorded and al ...

[Unaudited Interim Condensed Consolidated Financial Statements](index=2&type=section&id=Unaudited%20interim%20condensed%20consolidated%20financial%20statements) [Interim Condensed Consolidated Statements of Financial Position](index=2&type=section&id=Interim%20condensed%20consolidated%20statements%20of%20financial%20position) Total assets decreased to **R$5,588.1 million** by June 30, 2022, from **R$5,990.1 million**, while total equity slightly increased to **R$1,922.3 million** Consolidated Statement of Financial Position (in thousands of BRL) | Account | June 30, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | 1,670,167 | 2,046,927 | | **Total Non-current Assets** | 3,917,901 | 3,943,192 | | **Total Assets** | **5,588,068** | **5,990,119** | | **Total Current Liabilities** | 1,259,964 | 1,393,211 | | **Total Non-current Liabilities** | 2,405,849 | 2,721,674 | | **Total Liabilities** | **3,665,813** | **4,114,885** | | **Total Equity** | **1,922,255** | **1,875,234** | | **Total Liabilities and Equity** | **5,588,068** | **5,990,119** | [Interim Condensed Consolidated Statements of Income and Comprehensive Income](index=4&type=section&id=Interim%20condensed%20consolidated%20statements%20of%20income%20and%20comprehensive%20income) Revenue grew **43.2%** to **R$842.2 million** for H1 2022, resulting in a net profit of **R$89.3 million**, a turnaround from a prior-year loss Key Income Statement Data (in thousands of BRL) | Metric | Six-months ended June 30, 2022 | Six-months ended June 30, 2021 | | :--- | :--- | :--- | | **Revenue** | 842,174 | 587,973 | | **Gross Profit** | 592,542 | 432,745 | | **Operating Profit** | 106,683 | 60,566 | | **Net Profit (Loss)** | 89,318 | (8,208) | | **Basic EPS (Class A/B)** | 1.59 | (0.14) | Q2 Key Income Statement Data (in thousands of BRL) | Metric | Three-months ended June 30, 2022 | Three-months ended June 30, 2021 | | :--- | :--- | :--- | | **Revenue** | 412,137 | 256,301 | | **Operating Profit** | 26,283 | 8,458 | | **Net Loss** | (13,341) | (20,019) | | **Basic Loss per Share (Class A/B)** | (0.24) | (0.35) | [Interim Condensed Consolidated Statements of Changes in Equity](index=5&type=section&id=Interim%20condensed%20consolidated%20statements%20of%20changes%20in%20equity) Total equity increased to **R$1,922.3 million** by June 30, 2022, driven by **R$89.3 million** net profit, partially offset by treasury share purchases Changes in Equity for the Six-Months Ended June 30, 2022 (in thousands of BRL) | Description | Amount | | :--- | :--- | | **Balance at December 31, 2021** | **1,875,234** | | Profit for the period | 89,318 | | Share based compensation plan | 9,319 | | Purchase of treasury shares | (51,616) | | Restricted stock transferred | - | | **Balance at June 30, 2022** | **1,922,255** | [Interim Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Interim%20condensed%20consolidated%20statements%20of%20cash%20flows) Operating cash flow decreased to **R$29.5 million**, while investing activities generated **R$531.6 million**, leading to a **R$164.6 million** increase in cash and cash equivalents Cash Flow Summary (in thousands of BRL) | Activity | Six-months ended June 30, 2022 | Six-months ended June 30, 2021 | | :--- | :--- | :--- | | **Net cash flows from operating activities** | 29,503 | 136,765 | | **Net cash flows from (used in) investing activities** | 531,612 | (103,415) | | **Net cash flows used in financing activities** | (396,220) | (138,976) | | **Increase (decrease) in cash and cash equivalents** | 164,610 | (109,718) | | **Cash and cash equivalents at end of period** | 375,753 | 314,692 | [Notes to the Financial Statements](index=8&type=section&id=Notes%20to%20the%20unaudited%20interim%20condensed%20consolidated%20financial%20statements) [Note 1: Corporate Information](index=8&type=section&id=1%20Corporate%20information) Arco, a Cayman Islands holding company traded on NASDAQ, details its corporate structure and significant H1 2022 events including acquisitions and share repurchases - Arco is a holding company incorporated in the Cayman Islands, traded on NASDAQ under "ARCE", with its principal operations in Brazil providing K-12 curriculum content[17](index=17&type=chunk) - Significant corporate activities in H1 2022 included: - **Loan Liquidation:** Paid off a **R$201.9 million** loan in January 2022[19](index=19&type=chunk) - **Acquisitions:** Acquired PGS and Mentes do Amanhã from Pearson, and the remaining 42.58% of Geekie for **R$223.9 million**[22](index=22&type=chunk) - **Share Repurchase:** Purchased 531,125 Class A common shares for approximately **US$9.9 million**[23](index=23&type=chunk) [Note 2: Significant Accounting Policies](index=9&type=section&id=2%20Significant%20accounting%20policies) Interim financial statements adhere to IAS 34, maintaining consistency with 2021 annual policies, with the Brazilian real as the functional currency - The unaudited interim condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting[24](index=24&type=chunk) - Accounting policies applied are consistent with those from the annual consolidated financial statements for the year ended December 31, 2021[25](index=25&type=chunk) [Note 3: Cash and Cash Equivalents](index=10&type=section&id=3%20Cash%20and%20cash%20equivalents) Cash and cash equivalents increased to **R$375.8 million** by June 30, 2022, primarily comprising highly liquid Bank Certificates of Deposit Cash and Cash Equivalents Breakdown (in thousands of BRL) | Component | June 30, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Cash and bank deposits | 17,586 | 20,085 | | Bank deposits in foreign currency | 26,954 | 154 | | Cash equivalents (CDBs) | 331,213 | 190,904 | | **Total** | **375,753** | **211,143** | [Note 4: Financial Investments](index=11&type=section&id=4%20Financial%20investments) Financial investments significantly decreased to **R$411.5 million**, primarily due to a loan payment and the acquisition of Geekie shares Financial Investments (in thousands of BRL) | Classification | June 30, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Current | 378,134 | 973,294 | | Non-current | 33,382 | 40,762 | | **Total** | **411,516** | **1,014,056** | - The decrease in financial investments is primarily due to the payment of a loan in January and the acquisition of Geekie shares[34](index=34&type=chunk) [Note 5: Trade Receivables and Advances from Customers](index=11&type=section&id=5%20Trade%20receivables) Net trade receivables slightly increased to **R$607.8 million**, while advances from customers grew to **R$60.9 million**, driven by increased B2C sales Trade Receivables (in thousands of BRL) | Account | June 30, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Gross Trade Receivables | 687,573 | 680,395 | | Allowance for doubtful accounts | (79,747) | (87,132) | | **Net Trade Receivables** | **607,826** | **593,263** | - Advances from customers increased to **R$60,932** from R$35,291, driven by the growth of the business-to-consumer (B2C) sales model, which grew to **31.9% of revenue** from 25.2% in the prior year period[39](index=39&type=chunk) [Note 6: Inventories](index=12&type=section&id=6%20Inventories) Inventories increased to **R$174.0 million**, primarily in educational content and content in progress, with the inventory reserve also rising to **R$41.1 million** Inventory Breakdown (in thousands of BRL) | Category | June 30, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Educational content | 81,613 | 75,778 | | Educational content in progress | 76,579 | 71,314 | | Other | 15,829 | 11,490 | | **Total** | **174,021** | **158,582** | [Note 7: Related Parties](index=13&type=section&id=7%20Related%20parties) The company details related party transactions and discloses key management personnel compensation, which totaled **R$60.0 million** for H1 2022 - The company engages in transactions with related parties, including sales of educational content to entities under common control and loans to minority and former shareholders of acquired entities[45](index=45&type=chunk)[46](index=46&type=chunk) Key Management Personnel Compensation (in thousands of BRL) | Category | Six-months ended June 30, 2022 | Six-months ended June 30, 2021 | | :--- | :--- | :--- | | Short-term employee benefits | 40,580 | 31,653 | | Share-based compensation plan | 19,422 | 18,140 | | **Total** | **60,002** | **49,793** | [Note 8: Intangible Assets](index=14&type=section&id=8%20Intangible%20assets) Intangible asset acquisitions totaled **R$96.1 million** in H1 2022, primarily for educational content and technology platforms, with amortization expense at **R$116.4 million** - Intangible asset additions in H1 2022 totaled **R$96,053**, mainly for: - Development of educational content: **R$43,406** - Development of technology platforms: **R$26,074** - Trademarks: **R$14,505**[52](index=52&type=chunk) [Note 9: Loans and Financing](index=15&type=section&id=9%20Loans%20and%20financing) Total loans and financing decreased to **R$1,650.4 million** due to a **R$202.0 million** loan repayment, with debentures and convertible notes as major outstanding debts Loans and Financing Breakdown (in thousands of BRL) | Instrument | June 30, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Debentures (due 2023) | 980,022 | 919,703 | | Convertible notes (due 2028) | 622,081 | 647,474 | | Bank loan (paid Jan 2022) | - | 201,990 | | Other bank loans | 48,321 | 62,150 | | **Total** | **1,650,423** | **1,831,327** | [Note 10: Derivative Financial Assets and Liabilities](index=15&type=section&id=10%20Derivative%20financial%20assets%20and%20liabilities) Total derivative liabilities decreased to **R$125.9 million** by June 30, 2022, primarily due to a fair value adjustment on a put option related to senior notes Derivative Financial Liabilities (in thousands of BRL) | Instrument | June 30, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Swap Geekie | 7,096 | - | | Put option | 118,811 | 223,561 | | **Total** | **125,907** | **223,561** | - The put option allows Dragoneer and General Atlantic to convert their investment in senior notes into Class A shares. The company recognized a net fair value adjustment of **R$104.8 million** as finance income related to this option in H1 2022[58](index=58&type=chunk) [Note 11: Accounts Payable to Selling Shareholders](index=16&type=section&id=11%20Accounts%20payable%20to%20selling%20shareholders) Accounts payable to selling shareholders decreased to **R$1,500.1 million**, with major balances for Positivo and International School acquisitions, partly due to Geekie payments Accounts Payable to Selling Shareholders by Acquisition (in thousands of BRL) | Acquisition | June 30, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Acquisition of Positivo | 795,202 | 754,451 | | Acquisition of International School | 399,118 | 379,501 | | Acquisition of EI | 226,256 | 234,493 | | Acquisition of Geekie | 15,291 | 224,759 | | Other Acquisitions | 64,198 | 75,582 | | **Total** | **1,500,065** | **1,668,786** | [Note 12: Labor and Social Obligations](index=17&type=section&id=12%20Labor%20and%20social%20obligations) Labor and social obligations include details on share-based compensation, with the Geekie stock option plan settled for **R$75.6 million** and **500,016** RSUs outstanding - On June 1, 2022, the company settled the Geekie stock options plan in cash for **R$75,578**[72](index=72&type=chunk) Restricted Stock Units (RSU) Movement | Description | Number of RSUs | | :--- | :--- | | **Outstanding at December 31, 2021** | **142,184** | | Granted | 462,715 | | Transferred | (48,353) | | Forfeited (Effectively & Estimated) | (56,530) | | **Outstanding at June 30, 2022** | **500,016** | - Total compensation expense for share-based plans in H1 2022 was **R$19,422** (R$9,319 principal and R$10,103 taxes)[75](index=75&type=chunk) [Note 13: Equity](index=21&type=section&id=13%20Equity) The company repurchased **531,125** shares in H1 2022, holding a total of **1,027,142** treasury Class A common shares by June 30, 2022 Treasury Share Movement | Description | Number of Shares | | :--- | :--- | | **As of December 31, 2021** | **605,316** | | Repurchase | 531,125 | | Transferred – RSU's program | (109,299) | | **As of June 30, 2022** | **1,027,142** | [Note 14: Earnings (Loss) Per Share (EPS)](index=21&type=section&id=14%20Earnings%20%28loss%29%20per%20share%20%28EPS%29) Basic EPS for H1 2022 was **R$1.59**, a significant improvement from a prior-year loss, with diluted EPS for Class A shares at **R$(1.45)** due to anti-dilutive effects EPS for Six-Months Ended June 30 | EPS Type | 2022 (in BRL) | 2021 (in BRL) | | :--- | :--- | :--- | | **Basic EPS (Class A & B)** | 1.59 | (0.14) | | **Diluted EPS (Class A)** | (1.45) | (0.14) | | **Diluted EPS (Class B)** | 1.59 | (0.14) | [Note 15: Revenue](index=22&type=section&id=15%20Revenue) Net revenue for H1 2022 increased **43.2%** to **R$842.2 million**, primarily driven by **R$834.6 million** from educational content sales Net Revenue Breakdown (in thousands of BRL) | Category | Six-months ended June 30, 2022 | Six-months ended June 30, 2021 | | :--- | :--- | :--- | | Educational content | 834,607 | 584,471 | | Other | 9,554 | 5,086 | | Taxes | (1,987) | (1,584) | | **Total Revenue** | **842,174** | **587,973** | [Note 16: Expenses by Nature](index=22&type=section&id=16%20Expenses%20by%20nature) Operating expenses increased in H1 2022, with cost of sales at **R$249.6 million**, selling expenses at **R$338.8 million**, and G&A at **R$166.1 million**, reflecting expansion Operating Expenses for Six-Months Ended June 30 (in thousands of BRL) | Expense Category | 2022 | 2021 | | :--- | :--- | :--- | | **Cost of sales** | (249,632) | (155,228) | | **Selling expenses** | (338,792) | (238,385) | | **General and administrative expenses** | (166,137) | (136,294) | | **Total** | **(754,561)** | **(529,907)** | [Note 17: Finance Result](index=24&type=section&id=17%20Finance%20result) The company achieved a net finance income of **R$10.0 million** in H1 2022, a significant improvement, driven by foreign exchange gains and fair value changes in derivatives Finance Result for Six-Months Ended June 30 (in thousands of BRL) | Category | 2022 | 2021 | | :--- | :--- | :--- | | **Finance income** | **373,615** | **22,054** | | Foreign exchange gains | 139,058 | 2,047 | | Changes in fair value of derivatives | 107,402 | - | | **Finance costs** | **(363,586)** | **(84,292)** | | Interest on loans and financing | (105,544) | (8,905) | | Foreign exchange loss | (95,396) | (6,139) | | Interest on acquisition of investments | (89,674) | (54,024) | | **Finance result** | **10,029** | **(62,238)** | [Note 18: Income Taxes](index=25&type=section&id=18%20Income%20taxes) Income tax expense was **R$7.5 million** in H1 2022, with an effective tax rate of **7.7%**, significantly lower than the statutory rate due to non-taxable financial results - The effective tax rate for H1 2022 was **7.7%**, compared to the statutory rate of **34%**. The main reconciling item was the non-taxable financial result on loans and financing (convertible senior notes)[94](index=94&type=chunk)[95](index=95&type=chunk) Net Deferred Tax Assets (in thousands of BRL) | Description | June 30, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Total deferred tax assets | 414,973 | 384,359 | | Total deferred tax liabilities | (87,399) | (63,136) | | **Deferred tax assets, net** | **327,574** | **321,223** | [Note 19: Segment Information](index=26&type=section&id=19%20Segment%20information) Arco operates in Core Curriculum and Supplemental Solutions segments, with Core generating **R$713.5 million** revenue and Supplemental **R$143.9 million** in H1 2022, both showing strong growth - The company operates and makes strategic decisions based on two segments: - **Core:** Provides solutions addressing the Brazilian K-12 curriculum - **Supplemental:** Provides additional content such as ESL programs, LMS platforms, and socio-emotional skills content[101](index=101&type=chunk)[102](index=102&type=chunk) Segment Performance for Six-Months Ended June 30, 2022 (in thousands of BRL) | Segment | Net Revenue | Segment Profit | | :--- | :--- | :--- | | Core | 713,495 | 230,546 | | Supplemental | 143,850 | 27,306 | Segment Performance for Six-Months Ended June 30, 2021 (in thousands of BRL) | Segment | Net Revenue | Segment Profit | | :--- | :--- | :--- | | Core | 464,779 | 138,029 | | Supplemental | 123,194 | 56,331 | [Note 20: Financial Instruments](index=30&type=section&id=20%20Financial%20instruments) The company categorizes financial instruments by measurement basis and fair value hierarchy, with derivative liabilities and accounts payable to selling shareholders as key Level 3 FVPL instruments - The company classifies its financial instruments by fair value hierarchy. Derivative financial liabilities and accounts payable to selling shareholders are the primary Level 3 instruments, valued using techniques like discounted cash flow analysis with unobservable inputs[117](index=117&type=chunk)[119](index=119&type=chunk) Level 3 Fair Value Measurements (Liabilities, in thousands of BRL) | Instrument | June 30, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Derivative financial liabilities | 118,811 | 223,561 | | Accounts payable to selling shareholders | 640,250 | 867,264 | [Note 21: Commitments and Contingencies](index=33&type=section&id=21%20Commitments%20and%20contingencies) An ongoing arbitration with International School's non-controlling shareholder regarding purchase price calculation is the primary contingency, with a provision based on 2019 and 2020 EBITDA - An arbitration proceeding with the non-controlling shareholder of International School regarding the purchase price calculation is ongoing[124](index=124&type=chunk) - A partial award determined the calculation methodology should be based on **10 times realized EBITDA** for 2019 and 2020. The company has provisioned for this liability, which is included in 'Accounts payable to selling shareholders'[125](index=125&type=chunk)[128](index=128&type=chunk) [Note 22: Subsequent Events](index=34&type=section&id=22%20Subsequent%20events) Significant subsequent events include further share repurchases, the issuance of **R$1.2 billion** in new debentures for debt refinancing, and a corporate reorganization - Events after the reporting period include: - **Share Repurchase:** Purchased an additional **20,000** Class A shares for **US$282 thousand** between July 1 and August 15, 2022[129](index=129&type=chunk) - **Debenture Issuance:** Issued **R$1.2 billion** in new debentures in August 2022 to prepay existing debt and extend maturity[130](index=130&type=chunk) - **Corporate Restructuring:** Completed a reorganization on August 1, 2022, incorporating Eduqo and Studos into another subsidiary[131](index=131&type=chunk)