Next Tuesday, recent IPO Arco Platform (ARCE 22.54, -1.10, -4.65%) is scheduled to
report its 3Q18 results after the market closes. This will be the company's
first earnings report since going public on September 26. ARCE is a
Brazil-based provider of a complete pedagogical system with technology-enabled
features to deliver educational content to private schools in Brazil. Its
turnkey curriculum products provide educational content in both printed and
digital formats delivered through its platform to improve the learning process.
Its IPO got off to a hot start, pricing at $17.50, the high end of the $15.50-$17.50 expected price range. It then opened for trading at $24.50, good for a 40% opening pop. However, its strong debut also has marked its high point so far. In the days immediately preceding its IPO, the stock sold off sharply on some profit-taking, in addition to weakening conditions in the broader markets. Since then, shares have been range-bound, vacillating within a $20.50-$23.50 zone.
Its revenue is driven by the number of enrolled students using the solutions and the agreed price per student per year. As a result, it benefits from high visibility in net revenue and operating margin. ARCE's annual retention rate in 2016 and 2017 was 95.0%, making its recurring revenue base highly stable. As of March 31, 2018, its network consisted of 1,140 partner schools, compared to 835 schools as of March 31, 2017, 667 schools as of March 31, 2016 and 377 schools as of March 31, 2015, representing annual growth rates of 36.5%, 25.2%, and 76.9%, respectively.
As for its earnings report, analysts are expecting a loss per share of ($0.04) on revenue of $56.9 mln, which would equate to yr/yr growth of 48%. While the company isn't expected to be profitable this quarter, analysts are expecting it to generate positive EIBTDA of 6.3 mln.
Outside of the main headline numbers, there are a couple other key metrics that warrant attention -- specifically, revenue retention rate, ACV Bookings, and Number of Enrolled Students.
- Retention Rate: ARCE measures revenue retention rate by comparing the difference in revenue generated by its existing partner school base over a year compared to that of the previous year. In 2017, revenue retention rate came in at 94.7%, up from 90.8% in 2016.
- ACV Bookings: ACV Bookings is an operating metric and represents its partner schools' commitment to pay for its solutions offerings. As of March 31, 2018, ACV bookings were $83.5 mln, or, Rs 322.1 mln, up 40% yr/yr.
- Number of Enrolled Students: The number of enrolled students is the primary operational metric of ARCE's management reviews. It represents the total number of students at its partner schools served by its platform during a given school year. As of March 31, 2018, 2017, 2016, and 2015, ARCE had 405,814, 322,031, 265,354, and 156,011 enrolled students, respectively, representing a CAGR of 37.5%.
To conclude, ARCE's 3Q18 report represents a landmark event for the company, as it's the first earnings report as a public company. While the stock has yet to decisively break out of the aforementioned trading range, a strong upside report could be the catalyst that ultimately enables the stock to break out.