Q1 2021 StoneCo Ltd Earnings Call
[music].
Good evening, ladies and gentlemen, and thank you for standing by welcome to the Stone co first quarter 2021 earnings conference call by now everyone should have access to our earnings release. The company also posted a presentation to go along with its call all material can be found at www.
Got stone cold dark co on the Investor Relations tab.
Throughout the conference call the company will be presenting non I FRS financial information, including adjusted net income and adjusted free cash flow. These are important financial measures for the company, but not all financial measures are defined as Ifr Act reconciliations of the company's non I F. R. S financial information to the Ifr S financial information.
Asian appear in today's press release.
Finally, before we begin a refined our formal remarks excuse me I would like to remind everyone that today's discussion might include forward looking statements. These statements.
These forward looking statements are not guarantees on future performance and therefore, you should not put undue reliance on them.
And it's always subject to numerous risks and uncertainties that could cause actual results to differ materially from the company's expectations. Besides we would like to remind you that the link acquisition is pending regulatory approval by the Brazilian antitrust authority and manage my comments are based on only on publicly available information. Please.
Please refer to the forward looking statements disclosed on the company's earnings press release.
In addition, many of these risks regarding business and disclosed in the Companys form 20-F filed with the Securities The Securities and Exchange Commission, which is available at Www Dot S. E. C. Dot Gov. Please note. This event is being recorded I would now like to turn the conference over to your host Rafael Martins Vice President of Finance and a.
That's a relations officer at Stone co. Please proceed sir.
Thank you operator, and good evening everyone.
Joining us here today, we have geography, all RSC, you Lia Matos, our CFO and Chief strategy Officer, and Marcelo <unk> our CFO.
A day, we will present, our operation on financial metrics for the first quarter 'twenty 'twenty, 1 results and discuss some trends that we are observing in a second quarter I will pass it over to Jive was so he can share with you the key messages regarding the quarter and future outlook geography.
Thank you Rafa and good evening everyone.
While Brazil faced a challenging situation with the second wave of Covid in the first quarter. We continued to work hard to stay close to a client and bring to them the best service and solutions we envision.
We monitor or a client activity closely as well as how a explanations and economic activity both in Brazil and in other countries.
Based on our experience with Lockdowns last year recent client transactional data and learnings from the dynamics of countries, where vaccines are widespread.
We expect that once a explanation a scale, which we expect in the second half of 2021, the economic recovery will be fast and although delayed looks like Brazil was moving the right direction.
In order to be the fastest player when our economy comes back to normal levels in the first quarter, we decided to increase investments in our operation.
We have a high quality and solid core business in terms of gross profitability and cash flow generation debt continues to scale, both in client base and see PV, while also increase engagement of clients with new solutions.
Our core SMB business presented strong growth metrics in the quarter and to date.
As Leah will detail shortly our active payments clients isn't smb's grew 67% in a quarter versus last year, achieving 857.8 thousand active clients.
257000 clients are active in our digital accounts and of those 188000 use it as their banking domicile Saturday all debt transactions in the store on accounts.
Overall, SMB CTV grew 45% in the first quarter versus last year with strong acceleration in the second quarter to date.
<unk> grew 121, 6% in April and a 111, 2% in may up to mid twenties.
While April and may compared to a weaker comps due to lockdowns in the second quarter of 2020, we still see strong growth acceleration when looking at a 2 year CAGR of 42.5% and a 52% annual growth respectively in April and May to date.
In terms of revenue and profitability in our core SMB operation or take rates decreased from 2.2% in the first quarter 'twenty to 1.9% in the first quarter 'twenty 1 due to additional provisions on our a credit product caused by commerce restrictions.
Excluding these effects, we believed our take rates would have been $2.22%.
Even though we have experienced 160 million impact the revenue reduction on.
Our credit portfolio grew and remained healthy reaching a risk adjusted return net of funding cost between 1.5 and 1.9% on a monthly basis. Despite the short term impact from Covid.
We continue to evolve and on a strategy to fund our product with third party capital and does limit our exposure to credit risk.
We have recently concluded another issuance of CD, raising Additionally, $340 million in third party capital.
In total we have now available $833 million in third party funding to be disbursed in our credit operation.
Regarding our vision and product evolution, we are building a complete financial operating system for F N b.
In the best with took the approach of building separate solutions as it was the best way to grow fast learn about the market and get a client feedback.
We have now decided to integrate our solution set and we have already migrated approximately 70% of stone SMB client based on a new platform.
Regarding our software strategy will continue to invest in and acquire a brick and mortar Pos and ERP solutions built by great people and focused on a strategic verticals, where we have great channel of integrating our financial operating system and executing on the Digitization of commerce in order to help our clients.
To sell a line.
The acquisition of leaf, which is still pending antitrust approval is a big step towards a revision and we will broaden our a vertical coverage as well expand our a set of digital solutions.
With this acquisition, we would reach 1.1 billion NY lies a pro forma revenue in software.
By executing both on the stone SMB core business and our software strategy. We believe that we will be in a much stronger position to capture the evolution of the approximately $4.7 trillion re is G. M V of household consumption.
We seek to build a player the best help on our merchants to do business and reach consumers.
To that extent our investment in both winter and the commercial partnerships. We are building will be very accretive in terms of learning and new experiences.
We are very confident in the growth a for a car business and excited with the opportunities ahead.
We work hard as protagonist in the financial in Commerce Revolution of our a country finding the best people, we can and serving our client with Mexican care and devotion.
With that said I will pass it over to Leah Leah.
Thank you Chad and good evening, everyone. Thanks for joining us today.
I want to start a presentation on page 3 by highlighting that Brazil went through a second wave of Covid in the first quarter of 'twenty, 1, which impulse commerce restrictions in several cities throughout the country. Those restrictions were felt by our clients with average T. P V, reaching a low in the end of March but similar to the behavior we saw in the.
Come back from the first Lockdown in 2020, we already absorbed a significant and quick recovery with average typically inmate achieving levels above January 'twenty 'twenty 1.
As Chad mentioned, we expect that 1 vaccination scale, the economic recovery of the country will be fast.
Page 4 we show a decision to increase investments in the growth of our business, we want to be ready to accelerate growth when our economy comes back to normal levels.
Indeed, when we compare to the previous quarter, we increased our sales team head count by 24% and our marketing investments by 33% to ramp up our distribution capacity.
We expanded tech head count by 20% to further drive the evolution of our platform and solutions.
And we increased our customer service and logistics teams by 32% to continue to bring the best service to our clients as a operation continues to scale.
In page 5 I want to highlight the performance of our SMB business from now on when we referred to SMB, we are referring to our brick and mortar smbs smbs that sell on a nice to put the army and Tom our micro merchant solution.
We continue expanding our SMB client base, which has increased 67% year over a year, reaching close to 858000 clients in the first quarter, a 'twenty 'twenty 1 with quarterly net addition of clients of a 138000.
From those over 62000, a coming from online and offline Smbs and close to 77000, a coming from from a.
A strong acceleration on compared to last year.
With a strong growth in tone, we are excited with the opportunity to become a relevant player in the micro merchant space.
The number of open digital banking accounts increased to over 658000 <unk>.
30% higher than the previous quarter, and 5.4 times higher than the first quarter of 'twenty 'twenty.
Clients with an active digital banking accounts reached more than 237000, demonstrating an increasing level of engagement.
From now on we will only disclose the number of active accounts.
Also within these accounts more than 188000 clients are already using stone as their main settlement accounts.
The number of clients using our working capital solutions also grew significantly the number of clients using credit increased 3 fold year over a year, reaching more than a 102000 in the first quarter, a tiny tiny 1 and the percentage of clients with prepayments grew from 62% on the first quarter 2020.
So 67% this quarter, a 5 percentage points increase.
Moving over to page 6 we show the TPG evolution of our SMB operation, which grew 45% year over year in the first quarter and has accelerated to 122% in April and a 111% in may up to the 20th of the month.
Looking at a 2 year CAGR Tomorrow lies the effect from weaker April and May and from 'twenty, We see SMB clients to PV accelerating growth in may to over 50% 2 year CAGR, even with the impact of Covid in 'twenty, and 2020 'twenty 1.
In page 7 we highlight the performance of a credit operation in a quarter.
Our take rates decrease as a result of an increase on our credit provisions and financial incentives to clients due to Congress restrictions imposed by Covid second weighted.
This measure a brought a negative impact on our results of a 116 million a ice or 35 basis points in the SMB take rates.
With that I would take rates on Smb's decreased from 2.2% in the first quarter of 'twenty 'twenty 218, 7% in the first quarter 'twenty 'twenty 1.
If we were to exclude these effects, we believe our take rates would have been 2 point 22%.
Even though we have experienced this impact our credit portfolio has grown and remains healthy.
With monthly returns between $2, 1 and 2.5% or between 1.5 and 1.9% when we already a discount the funding costs.
The total credit portfolio grew from 1.5 billion in the fourth quarter of 2020 to $1.9 billion in the first quarter of 2020.1.
We continue to evolve in a strategy to fund a product with third party capital and thus limit our exposure to credit risk.
As of the second quarter 'twenty 'twenty, 1 we have concluded another issuance a fuji raising an additional 340 million a I've in third party capital.
We now have a total of 833 million available in finding to be the first in our a credit operation.
This second Fuji was raised at a cost of CDI, plus $3, 76% versus CDI plus $4, 88% in the first issuance lowering our marginal cost of funds by a 112 basis points.
As we show on page 8 the traction and engagement of our a B C platform continues to increase the heavy users of the platform defined as clients being active in payments credit and banking products reached 7.7% of the total in the first quarter, a 21 compared to 5.3% on the previous call.
And only 0.4% 1 year ago.
Also we saw more clients being active in at least 2 financial solutions with a number growing from 34% in the fourth quarter to 41% in the first quarter of 'twenty 'twenty 1.
On page 9 we discuss our vision a product evolution.
Javelin mentioned, we're building a complete financial operating system for F. N B's online and offline we have gotten to where we are today by developing different solution sets to help our SMB clients with their financial needs.
We built the a b C platform to help brick and mortar smbs with an integrated payments banking on working capital offering.
This was an important step to drive the activation of new financial solutions beyond payments, we have already migrated approximately 70% of the SMB client base to this new platform and continue to see increased engagement.
At the same time, we have enabled SMB clients to sell on line 2 hour programming platform.
More recently, we launched start on solution for micro merchants and we have also acquired additional solutions to help our clients with value added services, such as reconciliation and loyalty.
As we have increased scale and those solutions looking ahead, we have taken the challenge to integrate program just ambient on product into the unified experience of the a b C platform.
As shown on this page I want to highlight the elements of this platform in 4 feature sets.
Money in and which we enable our clients to collect money from their sale in cards and other non cash payment methods, such as peaks wire transfers bonuses and vouchers.
Evolving to enable a reconciliation of all payment methods and providers as well as online sales with risk management and chargeback disputes.
1 of the most mission critical needs of our clients is working capital and we address those needs bolstering prepayments and loans.
Once our clients cash in their sales using a platform and can take working capital solutions to help them grow their business, we want to help them with a complete set of money outside true such as Bill that's a bullet payments wire transfers peaks on card to pay other business related expenses and withdraw cash.
We are working hard to launch our payroll feature so our clients can pay their employees in a simple way as our solution evolves. We will offer a value added service is integrated into our core platform such as loyalty.
On CRM.
Now I want to show you some metrics to illustrate the evolution of these fronts in page 10, and 11, we show engagement metrics of the current users of the platform.
While our TPP grew 45% from compared to the previous year banking money in volume, which include mainly third big simple natus.
For a 6 fold year over a year to $2.6 billion has finally, our total accounts balance grew 5 times, reaching nearly 614 million in the quarter.
In money out prepaid card to PV grew close to 5 times year over a year, reaching nearly 219 million in the first quarter, driven by increasing penetration and adoption of cards within our overall client base.
Banking money out volumes composed by debt fixed politically and bill payments grew 5.7 times year over a year, reaching close to 9 billion here is in the first quarter.
Our working capital solutions also continued to scale with credit portfolio, increasing to $1.9 billion, while we increase the percentage of the portfolio being funded with third party capital up from 4% from the fourth quarter 2020, a 17% in the first quarter 'twenty 'twenty, 1 as I already mentioned.
As of today, we have 833 million has a third party funding for a credit solutions.
Additionally, in prepayments, we were able to grow the total trading volume in the segment by 38% year over a year fulfilling all our clients working capital needs during this challenging environment.
Moving on to pages 12, and 13, we show how our vision and software has evolved back into a second quarter. A 2019, we communicated our vision to investors and since then we have taken several steps on the direction of helping merchants of all sizes with a workflow tools to drive their digitization and gross.
S. Jaguar already mentioned, we have taken the approach to invest in and acquire a P. O S. An ERP software businesses with 2 main opportunities for value creation number want to up sell financial services and number 2 select segments, where we could help drive the digitization of commerce.
The acquisition of links which is still pending anti trust approval is a big step in achieving our vision and will broaden our vertical strategy as well as expand our set of digital solutions.
On page 13, we highlight where we are in the evolution of a vision and how the lease acquisition will enhance our software ecosystem.
N P O S. A and you have to be solutions, our current ecosystem covers retail food and service vertical for F&B.
With links we will expand to new verticals, such as fashion pharma and gas stations and gained strength in mid large clients. Our strategy will continue to be driven by expanding presence in strategic verticals through M&A.
And continuing to support organic growth within each vertical.
Additionally, with links we will enhance our presence in digital by helping large brick and mortar merchants to go omni channel through links is on that as well as SMB and mid large retailers to sell directly to their consumers can re commerce platform marketplace gateway in food delivery apps.
We help our clients engage with social media and with link simple product, we will expand the offering of engagement tools and help merchants better attract and engage with a new consumers.
Moving to page 14, we bring some numbers that show our evolution in software.
Our pro forma revenue reached $55.2 million a ice in the first quarter, a 'twenty 'twenty, 1 with organic growth a 43% year over a year.
If we include numbers from Lynx pro forma revenue would have reached $285.8 million growing 16% year over a year.
In annualized terms, our combined revenue would have reached over 1.1 billion.
From this quarter onwards, we decided to exclude from a reported numbers a subscriber software clients. The SMB clients using a reconciliation on loyalty tools since those solutions are being integrated into a a b C platform and will be treated as value added services.
With that we have reached 133000 clients from the first quarter, a 'twenty 'twenty 1 combined with links total client figures would have reached 202000 in the quarter.
On pages 15, and 16, we bring day evolution of our client base and from a revenue by segment, but from those I would like to highlight.
2 important data points.
First we reached $174.7 million a ice pro forma revenues in P. O S. On ERP solution with 47.9000 clients on Smbs.
And second we reached $1.6 billion highs in Gmg in digital solutions, considering both e-commerce platform or a mess and food delivery apps.
Finally, we seek to be the player that can best help our merchants to do business and reach consumers.
Our investment in Banco <unk> that we discussed on page 17, and a commercial partnerships that we intend to build with them will be an important step in that direction for.
For those not familiar with Bunkering day. It is a leading digital bank in Brazil, with a growing 10 million active client base and a complete suite of products and services to individual including banking marketplace credit insurance on investments.
We're investing up to $2.5 billion here is for a maximum of 4.99% stake in index also we will have a seat on their board and we will be entitled with a writer first refusal for.
For a period of 6 years and according to a certain price thresholds in case a change of control.
We have already engaged with interests team regarding commercial partnership.
Such as to connect merchants to into a shop their fast growing marketplace driving the digitization of phone merchant base and providing a multi channel journey for a sharp consumers to enable a seamless mobile payment experience between inter consumers' in store merchants, both online and offline.
And to leverage interest funding capabilities to increase efficiency in the phone's working capital solutions as well as deep into a clients access to new investment opportunities in fixed income through the offering a fuji.
We're excited to work closely with interest team to drive the conversion to a its consumers and stones merchants and we will update you on the future about advancements in our commercial partnerships.
Lastly on page 18, I want a give a quick update on program a key accounts our fintech as a service business. We continue to see short term headwinds in TPG and revenues and expect this strength to continue in the short term.
That said, we want to highlight that this is a more volatile business and that the representative Miss to our earnings is very small despite being more relevant in TPP.
Although we will continue to evolve program a key accounts offering to a broader set of features such as banking as a service and credit as a service programming focus will be inclined towards a digital native smbs and integration with the a b C class 1.
In the first quarter, a 'twenty 'twenty 1 to be the increased by 21% to $18.2 billion.
In the second quarter to date up to May 20th TPG has increased by 26% year over year.
Take rates have decreased from 1.1% in the first quarter of 'twenty 'twenty 2.0.8% in the first quarter of 2021, a decrease of 30 basis points, mainly a result of lower prepayment rates, which were impacted by lower CDI rates in Brazil.
Take rate net of funding cost has decreased from 0.55% in the first quarter 'twenty 'twenty 2 zero point for a 5% in the first quarter, a 'twenty 'twenty, 1 a decrease of 10 basis points.
With that I will pass it over to Rafael who will discuss our financial results in more detail hoffa.
Thanks, Leah starting on page 19, we show that earliest debt given the volatility in commerce activity as a result of the pandemic, we have decided to increase provisions for expected losses, which together with financial incentives to our clients has impacted negatively our consolidated revenue in the first quarter.
<unk> 'twenty 'twenty, 1 by almost 116 million Reais in our adjusted net margins by 5.2 percentage points.
Our consolidated take rate ex Corona voucher decrease from 181% in the first quarter of 2020% to 163% in the first quarter of 2021.
With a 23 basis points negative impact from the fact I just mentioned.
This was a similar level of take rate compared to last quarter. When we reported a 164% take rate ex Corona voucher.
Total revenue and income grew from $716.8 million Reais in the first quarter of 2020 to $867.7 million Reais in the first quarter of 2021, a 21% increase year over year in terms of margins. We had a 21, 6% adjusted net margin this quarter.
We are already seeing much better trends for our top line in the second quarter as indicated by Lear before.
Moving to slide 20, we show the evolution of the number of active payment in client T TV revenue.
Despite the COVID-19 impacts our payment client base grew by 34, 5% when compared to the first quarter 'twenty 'twenty, reaching 720 to 3000 clients excluding toll.
Don has reached 193000 active clients posting a record net adds in the quarter of $76.6000 clients.
Our consolidated CTV grew by 35, 5% in the first quarter 2021.
Toward a second quarter due to a strong performance in the first month of the period and easier comps, we expect a significant acceleration in the TBD.
On slide 21, we discuss our operating leverage and profitability our operating leverage was impacted by lower revenue due to the increase of credit provisions and financial incentives to client headwinds from COVID-19 in our volumes and S. Jobber mentioned, our decision to keep investing in our business aiming to accelerate growth.
<unk>.
Also financial expenses increased as a percentage of total revenue and income due to the combination of a higher base rate in a country mark to market from short term investments and the revenue impacts that I just mentioned.
With that our adjusted net margin was 21, 6% roughly in line with the first quarter of 2020.
Now going over in more detail on each P&L line item on page 22, we see that we had stronger growth in a revenue from transaction activities, which grew 40% year on year and also a subscription services and equipment rental which grew 50% year over year both lines.
Presented higher a year over year growth than we saw last year in the first quarter of 2020 on.
Our financial income revenue line grew 2.6% year over year, mainly due to the higher provisions in our credit business and declines in prepayment rates in plug Army key accounts, which were influenced by lower CDI rate in Brazil.
Our cost of surfaces reached $239.7 million Reais or 27, 6%, a total revenue and income an increase of $6.7 percentage points over the first quarter of 2020.
This increase was mainly due to higher investments in our technology and customer support teams.
Costs associated to our software solutions higher data center costs to support our operation and the increase in the unit costs a charge backs.
When compared to the previous quarter cost a serves as a percentage of revenue increased 6.3 percentage points, primarily because of operational deleverage from lower revenue.
Higher investments in new solutions.
<unk> fees related to the increasing the unit costs, a charge backs higher depreciation mainly in zone as a result of significant increase in client base and higher investments in our customer support team.
Administrative expenses were $117.6 million reais or a 13, 6% a total revenue and income 3.2 percentage points higher than the prior year period, mainly due to the expenses associated with our software solutions.
When compared to the previous quarter administrative expenses increased from 12, 2% a total revenue and income to 13, 6% mainly due to lower revenue.
Selling expenses were $162.8 million reais in a quarter or 18, 8% a revenue 3.2 percentage points higher than the prior year period, mostly explained by higher marketing investments mainly in Tau.
Compared to previous quarter. It increased 4.8 percentage points as a percentage of revenue mostly explained by the lower revenue the increase in our sales force head count and higher marketing expenses.
Financial expenses were $92.5 million Reais, a decrease of 37, 7% compared to the prior year, mainly explained by lower cost of funds driven by both day lower base rates and higher use of own cash to fund a prepayment operation, which more than compensated the higher volumes in a quarter.
When compared to the previous quarter financial expenses as a percentage of total revenue and income increased from 6.4% to 10, 7% mainly explained by lower revenue and higher cost of funds explained by a higher Brazilian base interest rates.
Other operating expenses were $41.5 million reais in the quarter.
Compared to a $3.5 million reais in the first quarter of 2020.
This difference is mainly related to unusually low share based expense in the first quarter of 2020 related to lower tax and social charges provisions due to high depreciation of shares in that quarter and fair value adjustments of call options related to a few leads labor contingencies and tax claims, which together impacted other a.
<unk> expenses in the first quarter 'twenty 'twenty 1.
When compared to the previous quarter other operating expenses were 54% or 4.2 percentage points lower as a percentage of our revenue.
This lower figure is mostly related to a higher share based expense in connection to the tax and social charges provisions, resulting from the appreciation of shares in the fourth quarter. The tenement area as donation to help with a constriction of a factory for the prediction of COVID-19 vaccines also in the last quarter and higher than usual P. O S losses due to the COVID-19.
<unk> backed in Smbs in the fourth quarter.
Turning to cash flow on page 23, we reported negative adjusted free cash flow of $299.8 million Reais in the first quarter of 2020, 1 compared to a negative from $122.3 million Reais reported in the first quarter of 2020.
The adjusted free cash flow figure of the first quarter 'twenty 'twenty, 1 was impacted by 230 million a prepaid marketing expenses as a result of the agreement with group a global 160 million Reais from prepaid P. O S purchases and 46 million Reais and prepaid software licenses.
Important to highlight that the prepaid capex in the quarter was motivated by the opportunity to realize attractive discounts with suppliers.
In addition to the first quarter 'twenty 'twenty, 1 adjusted free cash flow figures I would like to highlight some important recent events regarding capital allocation.
This year, we have completed our repurchase program as announced on May 20th having purchased a total of 3.6 million shares at an average price of 55.4 dollars per share.
From this number of shares 18% was executed in the first quarter 'twenty 'twenty, 1 totaling 232 million reais.
Also in the second quarter of 'twenty 'twenty, 1 we sold most of our a minority stake in cloud walk a payment as a startup in Brazil for a 209 million reais, realizing a gain of approximately 200 million reais.
On page 24, I would like to highlight some key messages of today's presentation.
First our core SMB business experienced strong growth in the first quarter 'twenty, 1 despite short term impacts from Covid.
Based on transactional data from our clients and examples of economic comeback in countries, where a vaccination is more advanced we have made an informed decision to increase investments in our business. So it will be ready to grow faster once our economy comes back to normal levels.
Second the strong signs of traction and engagement of current users of our a b C platform, coupled with Digitization trends have encouraged us to continue evolving our solutions to create a unified financial operating system for SME online and offline.
Third we are excited with the increased breadth of our bricks and motor software solutions as well as the steps we have taken in helping clients with digital and with call. It the links acquisition, we will a hence our ecosystem.
Finally, we are confident with a continued evolution of a business in 2020.1 both in terms of our gross and our team's ability to deliver a strong value proposition to our clients.
For these reasons, we have decided to provide you some additional outlook for the year up 'twenty 'twenty, 1 as shown on slide 25.
Our outlook excludes any impact from links acquisition as this transaction was not yet closed.
For the full year 'twenty 'twenty, 1 we expect between 1.4 and $1.5 million active payment clients, including ton.
Approximately 950000 claims excluding tonne a.
Take rate external a voucher for the full year between $1.85, and 2% a.
And a significant acceleration in total revenue and income growth compared to the growth levels. We saw in 2020.
With that said operator can you. Please open the call up to questions.
Yes, Sir at this time, we're going to open it up for questions and answers if he would like to ask a question. Please press Star then 1 on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing on the keys and to withdraw. Your question. Please press Star then 2 and at this time, we'll pause momentarily to assemble a roster.
And the first question will come from Jorge Kuri with Morgan Stanley. Please go ahead.
Hi, good afternoon, everyone a congrats on the numbers I wanted to ask 2 questions. If I may the first 1 is on the provision that you took for your lending business.
How do we get comfort that the amount of provisions taken is enough to cover some of the extraordinary a risk that I have a.
Surface due to Covid is there a way for us to get.
How the NPL ratio has moved.
Or what is your coverage ratio meaning from.
Provisions sitting on the balance sheet, a visa Avi.
On the current nonperforming loans any guidance on how those metrics look like in a.
What would be helpful in trying to get our arms around potential more provisions going forward.
On my second question is on <unk>.
Thank you for the 'twenty 'twenty, 1 outlook page from that page the take rate.
A 1 point to 85% on 2% I wanted to get a.
A little bit a color on what drives each of those 2 numbers is it just purely your expectation on you know if it makes US better then we'll get to a 2% if not is 185 or what what's a <unk>.
What's driving those 2 numbers. So it's a we can also as the year progresses figure out of your likelihood to call them on the high end or the low end of those 2 numbers. Thank you.
Okay.
Okay.
Yeah.
Good morning.
Yeah.
Hello can you hear.
Yes.
Yes.
So.
How far was answering a new but I think that you're not listening. So I will take this first question.
And the second 1 to thank you for the question. So first regarding provisions in our a credit products. There's true 2 really important message is we are very confident with the level of risk adjusted return net of funding costs that we're showing and we decided to open the cohorts for you to see the impacts on different cohorts from the first.
Quarter a.
'twenty 'twenty.
2 this quarter 'twenty 'twenty, 1 and basically when you see the second quarter 2020 cohorts a b mind.
We already received 82% of the cash flows of debt quarters, and we think we did everything we need it in terms of provisions because of the second wave of Covid. So we are very confident with the level of provisions with it we think that it's all done in terms of a.
Making sure that the book a.
It took all of the impacts of the second waves into accounts in terms of take rates. The 2 main drivers here is really a our ability true scaled. The SMB operation was you were seeing debt, we are increasing growth on mi and we decided to show the chewy at a CAGR of growing 50% regarding.
As of the impact of Covid in 'twenty, 'twenty, 'twenty 'twenty, 1 and our ability to further penetrate additional working capital solutions in which we are doing well. So we decided to migrate clients to a new platform, which is much seamless to our clients to take all their monies in their working capital based on those volumes.
We will be ready for the new dynamic of the registry of receivable now on June 7 and with more collateral we can provide more working capital toward a clients in a form of prepayments in and credit and working capital projects. So we are very confident with the range that we have provided and as always we are much more.
Committed to the top of the range as we always did so very confident with the provisions and the level of take rates and client base growth that you have provided.
Thank you thanks for the clear response.
Thank you Jorge.
The next question will come from Tito law Berta with Goldman Sachs. Please go ahead.
Hi, Good evening. Thank you for a call and taking my question. A couple of questions also I guess, 1 on the margin and the impact from some of the additional investments.
That you did in a quarter it would.
Would you say those investments I guess in your head count It was that a 1 time in 1 Q and that should go away.
He showed in I think a slide 26 that was about a 5% impact to margin.
Just help us think about that going forward.
And then you know along those lines I guess is a more recurring level of margin closer to what you you show here like around a 36%, giving you a like another 9% impact related.
Related to Covid on provisions.
And how quickly can you get back to those levels you know given the take rate seems to be increasing from here on out.
And then second question with a partnership with Banco Inter yeah. Thanks for the color on that.
Is there any interest to get closer to the consumer in the slide. It seems you want to offer a complete platform for merchants and then into can have a complete platform for consumers, but I guess, maybe particularly as you're growing ton more do you need to have more products for the consumer is that any part of the rationale there.
Strictly just a benefit of your merchant base. Thank you.
Thank you Tito.
You guys hear me now.
Sorry for the previous question My Mic was not working so answering your first question Tito.
We will continue to invest in a business of course, but I think that in the first quarter a.
This was unusually a high in terms of impact on margins because of the lower revenue because of the provisions. So I would say that we see margins going up already in the second quarter and at the margins in the first quarter do not represent what we see as a steady state margins so well.
And also this quarter as we disclosed we have invested a lot in our business, even though we're going through this COVID-19 scenario right.
Because basically we don't think that those are.
Moving a should influence our ability to invest in the long term.
Again, we are seeing margins going up again in the second quarter.
And halfway if I can just complement on this a.
Topic on investments I think just to reemphasize debt. We are really excited about continuing to invest in growth right. So the the mindset here for our investments in the first quarter Tito was really to Frontload, a investments to be able to grow in a second quarter in the second half of the year a.
And throughout 2022, so I think this is a very important message message to come across it is a continued to be very confident.
Regarding a grille, it's looking ahead and I and moving on to your question regarding either I think just to.
To a talk a little bit of a about a what we see in terms of this a deal we admire a lot the things our team I think they have a very similar culture and vision as we do and they built a great business focus on consumer so same industry, but very different business model focused on different.
Line segment.
But we have as we have been working a lot to drive the digitization of our merchants, we've been learning with them a lot about how to think about that Congress a evolution from the consumer perspective, So a lot of what we all want we want a bill together with them with these commercial partnerships has to do with really bringing this conversion of.
Helping to drive the Digitization of our merchant base by connecting our clients a 2 inter shop and helping intercept consumers on the other hand to undergo this a more a multichannel omnichannel journey of consumption. So.
That's really where the mindset is and we think that there's a lot that we can build together with them.
Yeah, just to add some points here.
Q2. Thank you for your question. So I think that as we always said levels around 25% to 30% margins are healthy levels. So we are committed to this.
So this range is a we always said that we think that in in line with this we have healthy margins, but we are always searching for new avenues of growth and if we can find ways to grow faster than margins will be much close to the to the bottom of this range and if we can.
You don't find too much avenues of gross margins will be upper but we are always committed to health margin levels. As we said before and we will continue to find new avenues of growth and balance growth in margins at the same time, it's not very easy to do it but I think that with discipline.
We can do it and and yes, we expect margins to go up on a quarter over quarter basis, We think that we have peace a huge a almost 1 time effect of the COVID-19 and provisions debt as I said I think that everything we we should have done we did it in the first quarter now we expect margins to go up to the levels we.
Our users to help and regardless, but regarding Blink winter investment I think that as Leah said, we like the team we like the culture and what they're building. We think that we have now a better opportunity to learn more about a finished or a evolution from the consumer perspective, we said last quarter that we want to be a protagonist and a convergence in between.
Consumers and merchants ecosystems. So we think that we will have the ability to be close and to learn a lot.
Thank you Tito for day, Greg Great question.
Great. Thank you Thiago Lia and Rafael that's very helpful. If I can just have 1 quick follow up on day in theory and that kind of linking it to the length of your I don't know.
How much you can comment there, but just given the whole omni channel experience and will link you you'll get to a more software.
How important is like the inter shop to that whole omni channel experience for your merchants.
Great question, Tito so difficult to talk about Lynx, yet we are still waiting for antitrust for regulatory approval, but you know that we are working hard to make sure that we help our clients to sell more true digital channels, so to digitize their there.
Inventory and sell through digital channels is something that we want to do we are really working hard on that direction. So the combination of being present in the Pos and ERP solutions with the D. O M asks in the e-commerce platforms and being close to a marketplace help us in that direction. So it's a time.
To learn and work hard, but we believe that the next phase of the business will be about helping clients to sell a line. So all the movements with deep day or go into that direction. So I think that we will always have a very strong core in financial services and we are evolving our core platforms and we are.
Leave that the SMB space and this is the best based on the market, but we are evolving the business towards healthier and price to sell more and I think that those 2 investments give us a lot of learning and we can work hard with both teams to try to make this work.
Yeah.
Great. Thank you Kevin that's very helpful.
The next question will come from <unk> Kumar with Evercore. Please go ahead.
Okay.
Good evening. Thanks for taking my question I fail on the first 1 is could you help us think about how free cash flow adjusted free cash flow could a luck for the remainder of the year. Obviously, you already addressed the heightened cash capital expenditures in the first quarter, but how should we think about it.
For the remainder of the year and my My second question is if you can help us frame the evolution of converting a client base into a heavy users which is payments banking credit clearly there. There is an important dynamic supporting revenue growth acceleration here and we know that great Paris 8 person.
And in the first quarter.
From 5% in a fourth quarter. So is there a target penetration rate.
That you have in mind for this year a next thank you.
Thank you arena for your question Rafael here. So let me answer your first question regarding free cash flow. So this quarter, we had an unusually a.
Low free cash flow because of higher capex always when we have opportunities a commercial opportunities with suppliers with advanced payments and that's what we did this quarter, but when we look out for the year a without those seasonality, we really intend to have a high conversion rate a cash conversion rate as we had in previous years. So our business is a cash.
Generative business and we expect that to continue in the future. So when you look at our adjusted net income and you'll see our free cash flow, we do expect it.
To have higher conversion rates.
And maybe I'll take the second crusher and a regarding a heavy users and I think that's a great question.
The 2 big elements here on the are about our customer service operations and how we interact with our clients a on a very a day to day basis, and very effectively and about technology and product. So we talked a little bit.
In the presentation about how we are we have migrated already a 70% of our clients to the experience of the a b C platform and what happens is toward the experience of this platform. Our clients can access digitally all of their solutions all of the financial solutions that we offer to a that experience of the a b C. A.
Platform. So once we on board a new client it tends to be the case that they start with us through a payments relationship right, but over time that payments relationship evolves to banking a loans and other solutions. So the fact that we can interact with them to the customer relationship team and the fact that they have this in.
Integrated experience to the a b C platform, a really the 2 big elements that will drive further penetration of heavy users in our overall a client base. Looking forward. Then we're very excited that this evolution continues to happen a on a consistent basis.
And Ryan a thiago here, a very health Watson some quick comments regarding capex, we always in free cash flow, we always had a very strong cash conversion rates in our business and we expect to keep the level a conversion rate that we have and this quarter. We have an impact of the deal we made with group a global.
Because basically we are we are buying a.
A.
The order shipped a group who had in tone migrating this ownership to a stone co level and on their dish, we a prepay.
The marketing investments.
Investments with the cash that we have received from group a global so it's a really a net effect is almost zero, but we have to recognize this as a capex, but we raised the capital from them to do it and regarding the have users I think that's really about investing more and more in tech knowledge to make sure that the convergence.
Between the solutions are very strong and a very simple product at what we are building into this new a financial operating system that we started with the a b C. A play.
Net form and you can see that now we have 15% of our SMB clients with credits using a credit product already but we disclosed that the new metric, which is 6.7% of our clients use prepayments. So you can see the potential working captain or a client base and we still have some clients that they don't use credit or prepayments with us.
Because he wasn't another bank with a registry of receivables, we will have the ability to offer more prepayments and we've.
By seeing the collateral we can have better working capital projects for them. So if we have the best products. If we have the best service. If we are devoting to make the LIFO for our clients better I think that engagement before a solutions will increase so it's about devotion to product customer service and making sure that we deliver everything on a V.
Simple weight with the best service possible to our clients.
Very helpful. Thank you.
The next question will come from Craig Maurer with Autonomous Research. Please go ahead.
Yeah, Hi, good evening, thanks for taking my questions.
A couple of questions.
First on competition.
In a while it's hard for me to see any real improvement in the actual offering from incumbents I am curious on your view on the threat from embedded finance from the likes of companies like Inbev who're going to sounds like start to offer a financial.
Officers directly.
Merchant sure buying their goods second if you could comment on.
What the take rates look like on the non acquiring T. P V.
That you're seeing through.
Your cards or through bill pay or other things.
And lastly cost of sales look to be up significantly as a percentage of T. P V or a percentage of transaction revenue so maybe a.
A comment or 2 to help think about how we should look at that going forward. Thanks.
Hi, Craig Thiago here. Thank you for the questions. So I'll start first in the competition part I think that we still compete with the big incumbent players here in the market a those.
Those are the players that we see day to day, and we face competition, but I think that we have the ability to increase client base and increase engagement of the solutions really because of the quality of the products and the services. We offer so if we think.
In terms of acquiring business itself competition is what has always been so take rates in acquiring has a.
A small decrease but much more than offset by the results from the additional solutions that'd be a sole focus about providing more engagements with new solutions being the crowded than a additional prepayments. The most the most relevant in terms of when it's a nation, but we are putting a lot of efforts to increase our <unk>.
Allergy to create more engagement in the money money and features in the money out features we want to be present in the life a for our merchants in all the financial needs day, they have and when we see a.
Some effect on take rates there 2 things in terms of acquiring first is debt we have a higher debit mix. That's 1 and we have is like mixed shift towards bigger smb's debt. They have a little bit lower take rate, but they have a much bigger LTV.
And we always start relationship through the payments first so as we grow our client base fast you have a.
A weight in these payments first type of relationship that then we upsell working capitals to them. So that's why you see the dynamics of take rates going up not in dispute of the client base, but coming up a fast as you see increase in prepayment and credit and all the working capital solutions the take rates.
In the month the banking money in the banking money out today is it's still a small but the marketing most importance.
A strategy now is to create more engagements. So we want to scale the money in money out features as fast as we can and then we will have many more much more ability to monetize those volumes. So we are.
Working hard to create more functionality as to where our clients such as payroll for example, which will be a greater avenue for us and we think we can deliver this in the second half of the.
Okay.
Thanks, and the cost of sales that were up.
As a percentage of a transaction revenue in PPV.
Hi, Craig Rafael here. So when you look at our cost of services, we do have many investments there, especially in customer service and technology team that that it hasn't it goes in that line as well as a softer investments. So when you look on a year over year basis a.
Those are the main.
When you look on a quarter over quarter basis, we have also investments in new solutions like dog, a registry a receivables and also a banking right. So those are the main effects that we see in that line is not only a transactional.
Like technology transactional costs, but also those are those costs that I just mentioned.
Thank you Craig that area, a lessee element just just to be precise so we expect to keep increasing take rates on our SMB operation.
Based on debt experience of creating more engagement with solutions, increasing client base. So we expect a take rates on the SMB operation will continue to grow and competition is mainly with incumbents to day.
Thank you very much.
Thank you for export.
The next question will come from Jeff Cantwell with Guggenheim. Please go ahead.
Hi, Thanks for taking my question can you hear me.
Yes.
Okay great.
You're always very thorough on your prepared remarks, thanks very much anchored on maybe let's just talk about can you tell us more about what youre seeing in the current operating environment and help us understand what's been driving that improvement and ppb in April and in May versus March.
What does it seem like a drill down on that for us because we've been focused on what's happening with your core call. It ex Corona voucher growth.
In PPD or is it a SMB driven where do you think youre gaining market share right now and is there any noticeable change in mix debit versus credit just trying to get a sense of what happened.
Since the end of the first quarter could you help us get a sense for why you feel that the companies moving past the bottom so to speak.
Thanks.
A high death. This is Lee a thank you for the question. So regarding TPG evolution. The more recent typically evolution I think like we said at the beginning of today's presentation. What we're saying is is the fact of this fact that when restrictions eased a come back tends to be fast. So yes, the TPG growth is being driven.
A by Smbs, largely a and and we do expect that as restrictions ease that does come back we will continue to come and it will be fast and that is why we emphasize the fact that we're investing continuing to grow our operations. So I think that's a that's kind of what we can highlight in terms of.
In terms of the color of TPG growth.
And Jeff Channel.
The growth of TBD is mainly based on the SMB operation scaling fast if it wasn't for the second wave of Covid in a first quarter the growth would be much stronger, but we expect this growth in terms of a client base NTP a view to increase I think we have more engagement of our clients are a client's nowadays are a bit a little.
With bigger which is much better for us in terms of our ability to help them with their needs. They have so the evolution of CP V and the growth that you were seeing a pre me is mainly driven by the comeback of the volume from the SMB base. If it wasn't for the Lockdowns in the second wave of Covid in the first quarter the growth would be what.
Bigger so we expect to increase gross.
A along the year.
Got it got it great.
And then.
My other question was I guess this is a high level 1 but.
While increased investments now I guess the question is what's what's the calculation that you're making about.
The future normalized environment.
It seems the timing of these vessels in this new product launch.
But a unified financial operating system, and somebody announced partnerships and links I guess the point is that those will drive factories, a top line growth for you guys, which makes sense. So I just wanted to see if you can tell us more about the timing and where these investments can turn into incremental revenue opportunities for you could you maybe highlight some of the areas, where you're seeing opportunities in the market. Thanks.
Yes.
Great Geoff that's actually a great question. So it's mainly 2 factors Thiago here speaking 1 is experience and learnings troll. The first wave of Lockdown last year. So last year, when COVID-19 hit and looked on as happens with decided to resize, our operation and the operation was a smaller so once the client base came back.
We were a.
We were short in terms of our ability to serve and extend the client base and we learned that debt lockdowns are effects that happens, it's very very tough, but its path and we won a bid the fastest player when the economy, a bounce back and we are learning from other countries that once you scale vaccination then the economic risk.
Cover as fast so I.
I think that we are the right direction or a investing more on the operation I think that the growth of apron me show that it makes sense. So we will continue to invest in a operation we a balance he as we always say, it's always a margin and gross but based on the experience of last year and the data that we have seen throw more clients and this year the impact was.
A much less than last year, so our a rebase, while reducing volumes around 20%, we decided to keep investing to be the fastest player when the economy bounced back and are we keeping in this plan and it looks like by the clients' data debt. This is the direction that we should continue to fall.
Okay, great. Thanks for all the color I appreciate it.
Thank you very much Jeff.
Thanks, Jeff.
The next question will come from Jamie Freidman with Susquehanna. Please go ahead, great. Thank you very much for taking my question I just had 2 quick ones.
On the April and May PPV growth rates looked great. How should we think about Q2 take rate. So there's still on a major voucher impact that we should be thinking of and then the second question is when it comes to active clients. It looks like for 2021 year now targeting about 950000, excluding tone can you talk a little bit about the cadence for those in.
How those ads work through Q2 Q3 Q4.
Hi, Jami Rafael here. Thank you very much for your question. So regarding your first question on take rates. Yes. So we do expect a take rates to go up in a second quarter I would say that the first quarter was sort of the bottom in terms of a take rate.
Corona Posher volumes, there there could be but not very relevant as we saw last year.
But so that that's pretty much a trend that we're seeing that's why we're very comfortable in providing the guidance that we did an offer take rates for the full year between 185, 2%.
And we are already seeing this in a second quarter.
Okay.
Let me add some comments here Jamie so 2 things as we are as we we gave you some visions about the take rates for the year. We obviously expect a significant increase in take rates in the following quarters. A we are seeing the take rates are in.
In the second quarter has a relevant improvement compared to the first quarter. We don't expect to have a too much quote on a voucher.
This year, so the take rate the take rate ex COVID-19 on a voucher.
A RIF corner Navarre should not be too different this year by what we expect and and plug Army will continue to grow volume maybe not in the pace that we were using last year, but we will continue to grow volume. So when we say that we expect to have in this range more close to 2% take rate take rate is basically the SMB.
A operation increasing the LTV, increasing the engagement of new solutions. So yes, we expect a relevant increase in take rates in the second quarter and onwards until the fourth quarter a year.
Alright, I believe it I believe you made a question regarding a active base at the end of a year right. Yes, I did thank you.
Just to address that point. So yes, we were we provided this guidance of 950000 clients by the end of the year, excluding a tone and a that you asked about the cadence of that we do expect that this cadence debt. The net adds will continue to increase throughout the year right. So we re emphasizing the message that Thiago thoughts.
A we expect that restrictions will ease more and more as vaccinations become a more widespread on Brazil and once that happens we really are front loading for growth. So we expect to reach the end of the year at about $3.5000 agents on the streets in the fourth quarter of 'twenty 'twenty, 1 and so we expect this cadence on.
Net adds to increase throughout the year and regarding debt number there too.
We also want to talk about which is important which is of course, there was a impact from a the first the second wave lockdowns in the first quarter and we are driving some of the net adds a.
Oh of stone into tone that the smaller client base right. Some of the insight sales clients that provide much better economics in the zone offering done in this phone offerings. So that also impacted that number 950000 number.
Okay. Thank you very much.
Thank you Jamie.
The next question will come from Mario Pirate with Bank of America. Please go ahead.
Hello, everybody a good afternoon, let me ask you on just let me go back to the credit.
Isn't it.
And the pickup in provisions here like just doing the math right you basically build provisions of a 160 million. This represents almost 8% of your average portfolio.
So I, just look first quarter versus fourth quarter.
So my question. Then is you know was this a specific clients that you had a problem with is there's a specific segment.
What are you what have you learned during this process you know why why does it need a good so much provisions.
So quickly.
Does it mean that you were under provisioning or you were too optimistic on your assumptions does that mean day you'd need to change a pricing going forward.
And does it does it change your appetite for lending.
No.
We did see a marginal slowdown in originations this quarter does it mean than debt you know.
This should continue or are we.
Thank you fix the problem onetime events, let's go back to business as usual.
Hi, <unk>. Thanks for your question on half Io here. So the provisions that we built this is mainly provisions for older cohorts right. So we have to have our best estimate when we have our numbers out and of course, we didn't estimate a second wave of Covid back in the past.
So that's why we are a provision here. So when we look going forward, we see newer cohorts. Despite a having all of this in our model and the Covid impact and so on we see our newer cohorts with better returns. So for example, S. Thiago said if you look at clients of the second quarter last year cohorts we've.
Already received back over 80% of the cash.
That we should receive a and so we're comfortable with those levels. So it does not change our appetite appetite for credit for growing our solution a we remain a.
Very optimistic about the prospects there so just to remind you a.
The market is really really big so our credit solutions really are in the early beginnings. So the opportunity is big and their returns even net of those delinquency expect a delinquencies that we have.
We see returns or 1.2% a month net of delinquencies. So a business a very healthy return and we remain very a very enthusiastic about that solution a working capital solutions for clients.
Modulators to complement a little bit juggled here speaking I think that the reason why we decided to open the cohorts for a decent for a different quarters is to show you that the major impact was the first quarter of 'twenty to 'twenty basically a death time, our model was not ready to deal with Lockdowns and what happens with certain type of class.
<unk>, 1 day or close to a big period of time, so simple for our clients, they're not in business anymore. So we had to adapt our model through first quarter in a in the beginning of the second quarter and I think that the adjustments with debt was based on the learnings and the effects on the last year cohorts and I think.
That's done a deal.
Not reduce our appetite for this product is halfway I'll have a.
It's actually the opposite because when you go through such a difficult environment and you can operate with healthy level of returns you can see that the worst cohorts a 0.5% a them a return it increase your ability to provide more working capital to your clients, but we have to do it based on <unk> first is to create a pro.
The debt our clients need understand and like that's the first thing create a product that our clients see value and wants to take it to do more businesses. The second thing is our ability to create this products with profitability that we feel safe in order to scale, our operation and the third thing is our ability.
To raise capital from third party partners that can limit our exposure to credit risk and to funding. That's why we are happy for our ability to raise more capital as Leah said, we have no more than 800 million reais commuted a.
Throw investors and I think that we are doing exactly what we did in prepayments in the past we put some a farmer money in the beginning is kind of our working capital for this product and really a scaled this project with third party capital exactly like we did in prepayments so actually very confident with working capital solutions and crowded I think that the learnings we.
We had during the Covid and the Lockdowns was very very valuable for the future.
Okay.
Finally on book right at your loan book in the first quarter was about 300 million, we ice second quarter was about $500 million.
So youre, averaging about let's call. It a like for 50, and then now you have to encourage a provisions by 116.
It just seems like a.
It's a very large figure for the signs on their loan book.
Social then I go back to the question was this a specific to 1 client or really you was across the board.
A highlight a no business was not a specific a specific to 1 client so our client base a very pulverized. If if we look at client concentration for example in credit is nothing is really really small.
It's really a has to do with the Lockdowns a scenario that effect on many many thousands of merchants a.
And no specific client or a concentration there.
And am I do just to give you another information and I will triple check this with a team and we can connect offline then, but I think that the biggest size check that we're giving things of credit should be somewhere around a 150000 something like that so we don't have bigger clients right. So I think that what we had in last year was really.
We didn't have the experience to deal with Lockdowns and with some segments that are a very expose it to not selling a.
Through their brick and mortar operation and we learned so it's not concentrated into 1 client or 1 segment. It's much more about learning how to navigate through a lockdown just a credit product and I think that the returns we expect for this quarter represents the learnings we had.
Okay. Thank you very much.
Thank you Mario.
The next question.
<unk> will come from Nihon <unk> with HSBC. Please go ahead.
Hi, Thank you for taking my question.
A quick 1 off on my Big question, because they give us a sense of.
What is the NPL ratio, sorry, a non book Oh.
Allowance range.
Range and how the whole change to get together and get a sense of income through any additional provisioning in the coming from.
And then my second question is on a possible have moved to the SMB segment. Although he is a first half of this year. They have also been more connected and opening more on putting more people on the street.
Does that in anyway.
Got it.
A merchant depends on your target on have you been hearing more about them from their margin. So any color on that competition from box a little would be helpful. On.
And then lastly on in debt.
This partnership do you have ambition to go beyond being a player to be plan on maybe the lapping of the relationship with the end consumer meaning on today, maybe Q3 a day.
That a isn't that you have.
Just on loans.
Pioneer. Thank you for a question on how a file here, let me answer your first question. So.
When we look at our expected delinquencies rates day, they they're a little above 10%, so around 12% or so.
As a when we look at pre Covid levels last year, we were talking about like 8%.
So a business sort of the increase that we see as.
As a sad when we look at second quarter 'twenty 'twenty cohorts, we have already received over 82%.
What we have learnt so.
That's sort of the increasing risk that we have seen.
Now regarding your second question. This is geography speaking here I think the regarding competition as I said.
Competition is on the same level debt, we have always experience a biggest competition are still with the the bigger banks and the incumbent players we don't like to comment too much a.
About our competitors movements, we pay attention.
In everything, but we keep our minds focused on serving our clients from the best place possible weekend and I think that we do have the best value proposition for Smbs based on the product the service the engagement, we have with them and I think that the gross levels. We have showed our ability to be the major player in the SMB space.
And we will continue to be protagonists in this resolution or a financial services for Smbs in Brazil. So I think that those are the comments regarding competition and about punk winter. It's not that we are moving towards consumers that we are learning how consumers interact with merchants and the best way possible. So we can serve our merchants.
Matter because in the end of the day more than helping our clients with a financial needs. They have we want to help them to sell more and in order to help them to sell more we need to learn more about consumers, but it's always about helping our merchants to drive and to grow. So this is about learning this is about creating synergy.
This is about helping our clients to sell a.
Through digital channels, and I think that we will have very positive evolutions of this a partnership with Bon Quintin and other partnerships that we can do a consumer facing companies that wants to be close to our merchant base.
Understood what.
So a question on the credit the average duration I think what wasn't a team going up it's a setting 7 on it last quarter. It was day this quarter. It is line.
So he's got a room that was a deviation well increasing and they should it normalize and will come on here.
Thank you.
Finally had thank you so that there is some effect there that a winter our clients a.
Take the credit for a second time, so they have already paid us back a fully and then they take the second credit for a second time, we usually extend a little more a term for them. So that's that's how that's why we see that effect there and of course as we get comfortable and as we learn S. Thiago said, we'd become a we released a liter.
A more the terms the average ticket that is still a small a little over a below 20000 reais. So that that's something that we are evolving over time, and that's why you'll see that number going up.
1 additional comment as hostile said a.
About a the duration of the project so to 2 things 1 is the average size, we give us briefly about 1 month of sales over a clients and now we have seen.
Debt, our clients that pay entirely the products a big percentage they want a new offering of credits so they're rolling over the operation pay entirely the first 1 and taking a second credit operation and with that we increased a little bit the duration in order for them to pay on a easier pace for damage.
For their cash flow because if they pay entirely the first product in the tool kit again, we're a much more comfortable of the risk of those clients. So we can let them pay with a lower percentage of volume because in the end of the day, we have much less npls from those clients. So it's about adjusting the credit for the cash flow of the.
<unk> and always for the best clients, we need to bring a better deal. So it's about the just in the products for the for the better clients.
But is it a last 1 day relation that you off line.
Should be around 10 months I don't think we have something.
Something much bigger than this.
I think average 9 long ago maximum balance.
Great. Thank you so much like the answers.
Thank you Anita.
Thank you Thanks me Huh.
There are no questions. At this time. This concludes the question and answer session I would now like to turn it over to your host for final considerations. Please go ahead.
Hello, everyone. Thiago here just wanted to say a big thank you to everyone in a big Big Big Thank you to a routine and to the support into 2 hour investor. The support we have from our investors is amazing, but really the star of the show Here's a routine putting a lot of hard work and to me.
A serving our clients through difficult times, and you keep county on us on hard work in helping merchants in Brazil to win this situation and become better. Thank you everyone. Bye Bye see you next quarter.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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