Arco Platform Limited (NASDAQ:ARCE) Q4 2022 Earnings Call Transcript

So at this point, we are running with delinquency levels better than those that we posted before COVID. I think it’s a combination of the school market recovering after the pandemic, but also several internal processes that we implemented during COVID that combined driving this improvement in collection in general okay? So you should see the DSO or the cash cycle as a whole normalizing as the revenue recognition and the mix also normalizes, and this is an is moved, okay? In terms of ACV and the churn level, when we look at churn levels before the IPO used to range around 5% after the IPO, as we added more Supplemental solutions to the portfolio, it went up to between 7% to 8%. And in this cycle we posted 9%. Again, I think the key reason here, we did not see a deterioration in churn, out the churn that we provide is actually combined churn for all the solutions.

So the mix impacts a lot here. And we have two components. The first one is Supplemental, which is still a higher churn compared to Core. I think here we don’t think it should be structurally higher than Core. It should be higher, but not structurally higher and not at the magnitude that it is today. So I think it €“ there is room to improve here, and also some Core brands with still higher churn when compared to the more mature ones, and they outgrew in this cycle. So as a consequence, the combined churn looks higher than those levels that we posted a couple years ago. So looking ahead, what should drive a churn reduction is our efforts to reduce churn on Supplemental as a whole, okay? we still have brands in Supplemental with 15% almost 20% churn.

It’s extremely high. So there is room to improve. And in the Core brands, challenging those less mature brands to bring their retention rates to levels close to SAS positive or for example, COC all of them with retention rates above 95%, okay? So that’s the challenge. That’s the goal. And we expect that to drive combined churn to close to 7% as we posted in previous years at least.

Yan Cesquim: That’s clear. Thank you, Otero.

Operator: Thank you. Well, thank you very much. At this time, we have no further questions in the queue. This concludes Arco fourth quarter and full year 2022 earnings call. Thank you very much for your participation, and have a nice rest of your day.