Q1 2022 StoneCo Ltd Earnings Call
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Good evening, ladies and gentlemen, and thank you for standing by and welcome to the Stone co first quarter 2022 earnings conference call by now everyone should have access to our earnings release. The company has also posted a presentation to go along with its call all material can be found online at <unk>.
Investors Dot stone Darko throughout this conference call the company will be presenting non I F or S financial information, including adjusted net income these.
These are important financial measures for the company, but are not financial measures as defined by I F or S. Reconciliations of the company's known I F or S financial information to the I F or S financial information appear in today's press release finally, before we begin our formal remarks.
I would like to remind everyone that today's discussion may include forward looking statements. These statements are not guarantees of future performance and therefore, you should not put undue reliance on them.
The statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the company's expectations. Please refer to the forward looking statements disclosure in the company's earnings release. In addition, many of the risk.
Regarding the business are disclosed in the company's form 20-F filed with the Securities and Exchange Commission, which is available at Www Dot S E C Dot Gov.
I would now like to turn the conference over to your host Rafael Martin Vice President of Finance and Investor Relations Officer at Stone co. Please go ahead Sir.
Thank you operator, and good evening, everyone joining us on the call we have our CEO geography, all Lia Matos, Chief strategy Officer, and our CFO Marcello Bobby.
They will present, our first quarter 2022 results.
Some recent trends and provide an updated outlook for our business.
I will now pass it over to Jabil. So he can share highlights of our performance and some key insights starting on page four of our presentation jargon.
Thank you Hoffa and good evening everyone.
As I said in our previous earnings call I believe we are well positioned to drive strong growth and improving profitability in 2022.
Our first quarter results show that we are on the right track.
We produced strong PPV and revenue growth.
Weather was a significant improvement in our operating margin.
Our gross ancient remains strong despite seasonality we achieved our all time high revenue of 2.1 billion Reais that is 10% above the midpoint of our guidance.
As a result pro forma revenue growth accelerated to 87% in first quarter.
From 51% last quarter, our highest growth rate since the fourth quarter 2018.
This strong revenue growth was driven by two key factors the higher claims monetization driven by our new pricing policy and an accelerated MSM deep PPV growth, which reached 93% in first quarter exceeding the top of our guidance of 83%.
These strong PPV growth was the result of both active client base growth and a continued improvement in our go to market strategy for Don and stone products.
On the profitability side, our adjusted earnings before tax reached 163 million Reais in the quarter, which was 16% above our guidance represents an almost 10 fold increase on a sequential basis.
As we mentioned last quarter, we reorganized the company into two segments financial services and software because we believe this will increase transparency reduce complexity and it enabled us to better manage our business.
As you can see from our reporting both of our segments performed well in the quarter.
Within financial services revenue increased by 107, 8% driven by solid expansion of client monetization.
As a result of our new pricing initiatives Msnb take rates, reaching two points here of 6%, which was 35 basis points above the previous quarter and the quality of our client mix improvement within both stone and stone products.
The net addition of clients decelerated in the quarter, but this was mainly driven by the churn of lower profitability quiet.
Finally, we continue to expand our banking platform with transactional products generating more engagement and increase the opportunity to monetize clients in the future.
In our software segment pro forma revenue growth reached 27% driven by a strong performance in the core softer and the consolidation of certain acquisitions made in the period within the core we generated revenue growth of 32% driven by stronger new sales and higher average ticket per client.
We're also gaining operating leverage in the software segment with 12% adjusted EBITDA margin in first quarter E significant improvement compared with 9% adjusted EBITDA margins in the fourth quarter to anyone.
To help us execute our extensive roadmap, we will be welcoming two seasoned leaders to our team a new CTO and a new head of credit.
We have also a sign and a new VP of finance for our software Division.
Company has also recently welcomed two new board members, resulting in a board composed of 90% independent members with very diverse backgrounds and deep experience in technology and financial services.
I'm pleased with the direction of our reducing freshwater and I think this is a solid first step to producing strong results in 2022.
I'm also encouraged that we are seeing the same positive trends so far in the second quarter.
With that I will now pass you over to Leah will provide more detail about our first quarter performance and strategic update.
Yeah.
Thank you Chad and good evening, everyone I will start today with some performance highlights and then do a quick deep dive on the main drivers of our performance.
On page five we show a summary of our main financial and operating highlights and I just wanted to touch on a couple of points here.
As Joel mentioned, our total revenue surpassed a record Mark of 2 billion, Hey, I used this quarter with growth accelerating to 139% or 87% pro forma pardon me.
I think one takeaway of our strong growth performance is it does confirm our ability to implement the new pricing strategy laid out in the fourth quarter of 'twenty, one while maintaining strong typically growth.
This strategy together with a tighter cost management enabled us to also see a significant recovery in profitability with an adjusted EBIT margin of seven 9% compared to 0.9% in the fourth quarter of 'twenty one.
Moving to page six as you can see we're presenting our financial results in two segments. Our Fintech businesses are managed in our financial services segment, and our vertical P. O S. An ERP solution as well as the digital Commerce solutions are managed within our software segment.
Lastly, we have a third bucket for non allocated activities, which were managed separately.
This change in reporting aligns with how we manage the business and is consistent with the changes we have implemented in our leadership team and management system. We.
We have made the historical data for these segments available for your review in the appendix of this earnings release.
Let's now take a closer look at each of our two businesses I'll talk first about financial services on pages seven to 12, and then move to foster on slide 13.
In financial services, we produced very strong growth during the quarter with more than $1 7 billion in revenue more than doubling compared with last year and increasing on a sequential basis despite historical seasonality.
Perhaps more importantly profitability rebounded significantly with adjusted EBIT of 146 million here I E more than four fold increase from the previous quarter and a 620 basis point sequential margin improvement.
I think this begins to show a shift in our profitability trajectory, which we will continue to focus on throughout 2022.
On slide eight I want to talk about our client base trend during.
During the quarter, we reached $1 9 million M. S N b clients and the net addition of 168000 clients.
As anticipated in our last earnings call. We saw sequential deceleration in net adds but this deceleration was mostly a result of churning of lower profitability clients.
Taking a closer look the 168000 net adds was comprised of 184000 new editions in the Teng product, while the stone and pogany products experienced a decrease of 15000 clients.
Let me take a moment to break this down further and explain to you what has happened.
As we've mentioned we have shifted the commercial strategy to onboard smaller clients onto the tone product as opposed to the stone product.
Is it better suit their needs and has a better unit economic profile for us.
As a result, there are two effects taking place here.
The majority of our new sales for smaller clients are directed towards Teng and second the majority of our churn comes from less profitable small clients still using this phone product move.
Moving on to slide nine we can see that our strong TPG growth was the result of not only the client base growth, but also the improvement in the quality of our client base.
TPG and the M. S N b segments grew over 93% above the top range of our guidance, while the average CPG clients also increased in both store and foam product as a result of the shift in commercial strategy that I just mentioned.
Take rates also improved materially in the first quarter of 2022.
2.6%, an increase of 35 basis points compared with the previous quarter.
As a result of our evolving commercial strategy, where we're optimizing our client mix of solutions based on customer need we're increasingly focused on our overall M. S. N BCP V and client base metrics versus thinking about our business separately between stone for the army and Tom.
To align with the strategy and provide investors a better and more consistent perspective on our performance. We will focus on reporting on overall M. S N b metrics rather than by specific products, starting now in the second quarter.
In slide 10, we highlight the continued expansion and engagement with our banking platform. This quarter, we surpassed half a million clients actively using our digital banking accounts more than double compared with the previous year.
We have been growing our base, while also increasing our pack, which reached 33 <unk> in the first quarter growing 32% sequentially.
Shifting to slide 11, I want to quickly update you on our credit business, our legacy credit portfolio is performing in line with our expectations.
This quarter, we had a cash inflow of around 250 million high some clients paying us back and we are on track to entirely Jewish principal capital.
Given this performance our portfolio was recognized at a fair value of 260 million higher and our balance sheet in the first quarter of 2022 compared with over 2 billion. He is one year ago.
Finally on slide 12, we show some kpis or key accounts business TPG.
TPG grew 9% versus last year as we continued to de prioritize our sub acquire operation. In contrast, our platform services business continues the world fast accelerating its growth to 114%.
Our take rate for the key account business continue to improve at zero point, 84% for the quarter, increasing sequentially as a result of both repricing and mix shift towards platform services, which have higher take rates and sub acquirers.
Now, let's shift to give some highlights on our software business performance on slides 13 and 14.
Starting with the topline software revenue reached 327 million. He is in the quarter up 27% pro forma for Lynx and our pro forma adjusted EBITDA margin improved 370 basis points this quarter.
12, 3%.
On slide 14, I wanted to touch a little bit on the drivers of this performance and the progress of our software strategy.
The core software business produced a strong growth of 32% as a result of the increase the number of locations using our P. O S and ERP solutions and an increase in the average ticket while the digital segment revenue decreased 2% as a reflection of tougher comps and the need for performance improve.
Alan.
Second, we're gaining scale and improving margins with an annualized revenue of $1 3 billion high we are able to continue to generate operating leverage from our integration efforts and efficiency gains in cost and expenses and we expect this trend to continue.
Finally, we see plenty of room to grow organically in current verticals expand vertical coverage with new investments, increasing our reach to help merchants become more productive fell more and grow now.
Now I want to pass it over to have file so he can discuss in more detail some of our key financial metrics huffer.
Thanks, Liam starting on slide 15 without going into too much detail on the numbers that Jaguar and Leah has already walked you through I do want to note three things first we see strong continued growth strengths second we see these results in both software and financial services segment.
Third and most importantly, we are starting to see our profitability rebound.
On slide 16, and 17, we show our P&L and adjust the P&L for the quarter as we have already discussed topline trends in detail I'll move directly to slide 17 to focus on our costs and expenses pro forma for links.
And this quarter, we observed operating leverage across all our cost and expenses line items, both on a sequential and annual basis with the minor exception of selling expenses quarter over quarter, which were impacted by additional marketing expenses that are part of our contract with global.
It is important to note here that most of the institutional marketing will not affect our cash flow since we prepaid 230 million reais of marketing expenses in the first quarter of 2021, which was fully funded by cash received from Grupo Globo.
Now, let me highlight the most relevant efficiency gains quarter over quarter, our cost with time our platform our receivables decreased from 64 million Reais in the fourth quarter 2021 to close to 32 million Reais in this quarter.
We still have room to improve on this line and we expect to continue gaining operating leverage in our cost to serve in the coming quarters.
We gained almost 200 basis points margin in administrative expenses due to better cost control and third party services facilities travel expenses among others.
And for the first time over the last year, we saw financial expenses decreased as a percentage of revenue by 260 basis points. Despite continued increase in interest rates in Brazil, our new pricing policy more than affect the higher absolute level of finish expenses.
Now moving to page 18, as we indicated in our previous earnings call. We are taking important steps to reorganize the business and bring in additional seasoned and talented people to strengthen our team. This.
This quarter I'm happy to announce that we are welcoming Marco swoboda, formerly at Microsoft Google Yahoo, and IBM as our Chief Technology Officer and.
And Gregor ill former head of Santander Brasil, F&B retail risk, who have 15 years of experience in credit and is expected to join the team as head of credit after his garden leave.
Also as Marcus <unk>, who has joined our team last year was designated as the new VP of finance for our software Division.
We would also like to highlight that we welcomed two new independent board members, but it is a very good Eddie Schindler, former JP Morgan Chief Risk Officer Chair of Audit Committee up high easing and board member at Curtis Bay is Brazil, and Moody's who look at who has 19 years of experience at Ambev deep expertise in HR and management.
And also an extensive board experience.
As a result, our board is currently comprised of 90% independent directors.
Lastly, as we just announced in a separate filing we have recently approved a new incentive plan for an important step towards attracting and retaining talents to support the execution of our strategy into aligned incentives between our shareholders and the management partners, who will lead the next phase of our growth.
With these steps we believe that we are moving the right direction to strengthen our team and governance practices, increasing the long term value generation for our stakeholders.
To finalize our presentation, let's move to page 19, where we share our second quarter 2010 to outlook for the business.
For the second quarter, we expect the total revenue and you can between $2 15, and $2 2 billion reais representing year over year growth pro forma for links between 148% and 154%.
If we exclude the credit product, which had a negative impact on our second quarter 2021 topline the pro forma revenue should grow between 70% and 74%.
We expect revenue growth to be driven substantially by the growth of our M. S. N D business projected to reach TPB between 67 billion and 68 billion reais, representing a year over year growth of between 71% and 73%.
Because of the extent of the repricing that took place in the first quarter, we still expect our net client adds to continued to be affected in the second quarter.
Regarding our EBIT guidance, we expect our business to continue improving profitability with adjusted EBT above 185 million Reais in the second quarter when adjusting for a financial expenses of our bond. This compares with 163 million Reais achieved in the first quarter.
From the second quarter onwards, we have decided to stop adjusting the financial expenses related to the bonds from our adjusted P&L. This decision was driven by the partial sale of our stake in Banco Inter and investment which was fully funded by the issuance of our bonds. We have sold 21, 5% of our stake in bunk winter through the cash out at.
<unk> offered into your corporate restructuring.
With this change in adjustment the adjusted EBT should be above 19 million reais in the second quarter 2022, compared to 82 million Reais in the first quarter 2022, considering the same metric.
We believe 2022 marks the recovery of our profitability, while maintaining strong levels of growth and advancing on our purpose of serving Brazilian entrepreneurs.
With that said operator can you. Please open the call up to questions.
Yes, it will.
I'll start the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys and to withdraw your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.
And the first question will come from Tito law Berta with Goldman Sachs. Please go ahead.
Hi, Good evening Thiago Rafael.
Raphael. Thank you for the call I'm, taking my question.
Couple of questions I guess.
One is in terms of repricing I know you kind of gave your guidance you could is there still more room to continue repricing you think in the second half of the year or do you think that once interest rates stabilize then you won't be able to reprice anymore, just to get a sense of.
How how that should relate.
Going forward and you know how that.
Could impact the take rates and margins more for the second half of the year and if there is some operating leverage there and then my second question.
Just to understand.
I understand you have the cash that option for Banco inter well you know why sell the stake so soon right its at a loss compared to when you bought it.
Do you think that that may have been a mistake.
D C. What are the benefits of that partnership at this point anything that you can highlight there in terms of when.
You can leverage from the partnership with bunker either.
Hello, Tito juggled here. Thank you very much for your question I'll start with the repricing, let margins question and then I'll talk about Easter.
So first talking about repricing margins, we still saw interest rates increasing significantly.
Year to date in Brazil, an.
And as this has been the main factor driving our margins here, we decided to set a balanced approach.
In order to consistently increase our margins, while keeping strong growth levels and protecting our relationship with our clients.
Which in the end of the day is what matters in our company. So we believe that we are improving our balanced and this trend will continue in the coming quarters.
So I think pizza that there was a very good first step on first quarter. The guidance that we gave you in the second quarter is because we are seeing the same trends in the first quarter in the second quarter. So we are confident with the numbers, we gave and these trends of better balancing our profitability using our new pricing.
So our margins will continue across the year, it's not a onetime thing I think is a new dynamic regarding the company and this is driving our profitability.
Regarding bunk winter, we really liked the team as you always say, we continue to collaborate with them in many fronts, but we are driving our focus toward car business, we decided to sell just parse your stake.
Connection with the organization given the premium that was involved with and the environment around interest rates in Brazil intact. So it was a tactical decision.
The rest of our <unk>.
Yes.
We will receive BD ours, and then shares of bunk winter.
In ASIC.
So that was our decision regarding the bond as we said despite the fact that it was issue to fully funds Disney fast means now we are seeing this as part of our capital structure going forward given that the asset has decreased in value.
And therefore, we decided to stop adjusting for the second quarter onwards, So I think that no big change in terms of our relationship with bulk will entail and how much we admire them, but this was a tactical move given the opportunity presented to us.
Okay, great. Thank you Thiago.
If I can ask just one follow up on the repricing how.
How much does it depend on the competitive environment.
A lot of your competitors have been repricing just from higher interest rates.
Yes.
D.
Is it very dependent on what your competitors do.
As you mentioned.
Bryan net adds will continue to be impacted due to the repricing. So just wanted to get a sense in terms of like thinking of future growth.
Is there how do you how are you balancing that growth with margin.
And the re pricing just to get a sense of if one could potentially offset the other at some points.
Great you too I think that I can talk about competition and they can talk a little bit about net adds as you just mentioned too.
In the end of the day I don't see that competition changes the way, we decides to price our products.
But given that competition is being much more rational today it opens more space for this balance to.
To be made with.
With much better room, I would say, so I'm not I'm not seeing any change in terms of competition from what we have discussed last quarter, we see players overall taken rationale pricing decisions here.
Small and medium clients, we see more competition from new players in large clients, we see more a quiet strong incumbent banks. So I think that that's the take regarding competition.
If I can give you some color regarding that adds what I. What we can say is that there are two elements here to consider you have churn and new sales, but before it the doubleclick on both it is important to highlight that we are seeing a good balance between pricing policy and that adds.
In the in the pace that we have here our M. S. N B client base as you saw increased 10% quarter over quarter.
But the profitability of that client basis, much better. So I think that the balance that the company is reaching us a good balance when when we talk about churn as we mentioned during the call. The majority concentrated on less profitable clients.
Those clients had lower average CPB, we're talking about clients that transacted between zero 7000 Reais.
A month.
Additionally, as we mention we are shifting to our commercial strategy.
Directing those smaller clients to turn products. So what you can see here as an effect of this strategy is that the TPG growth is accelerating so we have 93% TPG growth in the M. S N b.
And both.
The two projects stone and.
Don the average CPG on both projects that are increasing as well. So we think that the balance between both products are set in the right place rigor.
Regarding your sales the pace of the first quarter.
We are seeing 72% of the pace that we had in the fourth quarter.
So still a strong pace in sales.
They are a little bit impacted by the our pricing policy, but we think that we have a much better balance now. So those are the main highlights in terms of net adds so.
I think that in the end of the day, it's much more about how we are organizing our projects to address the needs of our clients and all the competition but.
Those are the the call it that it can provide.
Okay, Great. That's very helpful. Thank you Joe.
Thank you very much you too.
The next question will come from Josh Seigler with Cantor Fitzgerald. Please go ahead.
Yes, hi, Thanks for taking my question and congratulations on the results can you provide some more color on the banking solutions, specifically around your ability to greatly improve monetization.
Hi, Josh this is lia here thank.
Thank you for the question so regarding banking I think there's two key takeaways here. So we continue to see the number of digital accounts grow as well as our our pack on a sequential basis.
It's important to remember that active account growth is mainly driven by the growth of our payments clients. So there was a little bit of the effect.
Similar to the trends in that asset that Thiago just described but we did see increased penetration of banking within our overall.
Our payments clients base. So we continue to see the this expansion happening and regarding our pack.
We also saw this improvement the sequential improvement that I explained and this is driven by increased engagement, which is reflected in our of course floating revenue, but also activation of new features such as insurance, which we highlight the growth and the scaling that we're having with our insurer.
<unk> solution. So overtime, what we expect is as we continue to increase our client base in payments. We will continue to penetrate those relationships also with banking are the way that we scale. Our banking solution is when we sell stone to to a new client.
We sell the acquiring solution with a sort of bundle offering of banking as well and that's the entry point of a banking relationship and over time.
The TPP from the acquired he gets becomes of cashing in the banking. This is the first step towards activating new features and monetizing that relationship. So in the summer I think those are the takeaways that we can highlight in terms of bank and our travel you want to add anything.
Just a little wet here in terms of monetization today, we are focused on three.
Main products, which is.
As more engagement, we have from our clients more account balances we have so.
The floating.
Revenue that we produce taking interest rates on those deposits to the company. It's a good monetization roadmap. The second one is interchange in the cash out that they used to when they used to.
The cash out is.
It's a very good Roe to monetize banking through the cards and I think that insurers now starting to produce better results. We are increasing our exposure to the insurance product because we have confidence in the product, we built and what they liked this executions that we don't take the risk and the assurance <unk>.
So we designed that product with larger insurers partners.
They kept the product their balance sheet, who has received a fee.
On these relationship, but we don't bear the risk. So it's a very light execution. So I think that the combination of the floating revenue.
With increased engagements the revenue that we have into cash outs when clients using the cards and now the surety product produce monetization in a very good level.
Excellent. Thank you very much that's helpful detail.
To switch gears now over towards the software side. So now that linked sub acquiring business is fully migrated to the stone platform are you turning your attention towards cross selling down payments to length as legacy client base, how have those cross selling efforts been performing so far.
So great question, Josh So in terms of our.
Penetrating links client base, our software in general right client base with payments.
You provided some color on those numbers last quarter, what we can say right. Now is those numbers are more or less in line this quarter, but with the difference that we have fully migrated the residual volume that exists still in let's say.
<unk> platform now so now we have fully concluded that migration process.
Our focus right now is really driven towards improving those integrations.
And the acquiring side, but also peaks.
At QR code gateway integration onto the peer west so that we can prioritize on those two two areas in terms of cross sell of our payment solutions to software client base.
The platform TPG growth.
That you saw the 114% is very much driven by.
Those those links state volumes migrating onto the <unk> platform and we continue to see opportunity to increase that upsell looking forward.
I think that's the main takeaway.
Great. Thank you very much.
Thank you John next question.
The next question will come from Jamie Friedman with Susquehanna. Please go ahead.
Hi.
Thank you and good results here.
Have a question for you I think it's slide 17.
But it's it's not entirely intuitive to me why.
This financial service.
Expenses would have declined I realize you say in this side of this slide you reprice.
But that's a revenue observation that's not an expense observation, yes, slide 17, when you're talking about financial expenses and it being down 20 basis points sequentially.
So what's what's that about.
Hi, Jamie. Thank you for the question. So what we show here. If you look at our financial expenses that are two main drivers here one is.
CDI in Brazil, right the average interest rates and the other one is TBD. So if you look at the <unk> in the first quarter for a seasonal reason the PPV decreases a little bit. So it tends to decrease the finished expenses by the other hand, the CDI continued to increase.
That's why on an absolute number basis, you see our financial expenses, increasing from $611 million to $622 million.
What I mentioned regarding the Finnish expenses was as a percentage of revenue decreased two six percentage points and the main reason was a repricing.
We did especially in prepayment that more than offset the increase in absolute number and finished expenses. So.
I was mentioning regarding the revenue as compared to revenue, but on an absolute basis, given the CDI increase at the finish expensive steel increased a little bit quarter over quarter.
Okay I understand now.
And then on slide 14 Lear the.
Digital revenue declining 2% so is that just.
Because of tough comps and e-commerce or is there something else going on there.
Hey, Jamie. Thank you for the question. So as I mentioned I think Theres two drivers number one tough comps I think we saw many digital focused players sort of posting.
The same sort of tough comps regarding.
The market just because of easing out of pandemic restrictions in the comparison in terms of digital volumes right, but.
But on top of that we do have the need to improve.
Some of our digital solutions. So when we think about our digital solution set within links it's a combination of ads engagement solutions and platforms, both Oems and links commerce and when we look at the combination of that we see.
All of them, that's performing well in terms of the operational drivers so increasing the number of omnichannel stores and increasing the GNP overall, which is really where our focus is because our focus in the digital strategy is to help those core clients digitize. However, some of the solutions like engagement solutions did see.
Some performance.
Problems that need to improve that performance. So overall I think our focus really continues onto driving the digitization of those core clients and on those operational metrics, we are resolved evolving positively.
Dear colleagues. Thank you add some comments here, yes. Please yes.
He is speaking just a comment about the digital I think we do have tougher comps, but here we have different solutions. So when you see the Oems, which is the solution that makes our clients through sell through with pro channel performance doing quite well.
Commerce platform is moving well the engagement tools that we have I think that they are working well, but in the other hand, we have two solutions like re targeting that regulation change in the way that use cookies.
Or the protection of both the data it impacted the business and we have another business with solutions for clients to manage different profiles and social media that was impacted by changes that are faced with that.
So bundling all of our solutions I think that you saw that decrease of 2%. We are focused on improving our execution there, but the most strategic solutions, we have in digital reading working well.
We do have different comps so I think that on the next quarters, we will bring better results supported digital as the team is working to produce a barrel solutions here for our clients.
Got it thank you for that I'll jump back in the queue.
Thank you very much Amy thanks.
Thanks, Jamie.
The next question will come from Tayo Brito with UBS. Please go ahead.
Hi, Jim.
Evening, everyone. So I have two questions on my side. Please the first one is related to the prepayment business.
So we have been hearing that at least the mandatory register or card receivables and the platforms I would say working more properly nowadays some players are already beating for the agendas of some competitors. So I just would like to understand if indeed, you are seeing this movement in the industry Nowadays and how is.
The company positioning for each and also as a consequence as a consequence, if we could see this pass through the effects of your pricing in the industry, reducing again in Cui Cui clear going forward because of this new environment and then I will follow up with my second question. Please.
Hi, Tayo Thiago here. Thank you very much for the question.
What I can say about the registry environment and the dynamics with prepayments is that we're still not seeing this in our client base. So it is not relevant in our client base to you and we are still not confident to put efforts on the project of prepaying order requires because for us the exit.
Fusion in terms of the registry and the settlement of those transactions.
You have a re.
Risks operational risks involved so we are still not confident.
I know that there are some executions in the market I think that they are by the way that youre seeing there is still a very small, but we would like to see.
That part of the industry.
But bear in terms of performance because we see this as a very big opportunity for us, but I think that we don't have still the maturity that are on the system to bring this risk for us because Indian facility.
Prepaid.
And not just a little help there.
And then the government will not come.
To us and it can.
Put risks for the company so let's see if the register system matures and we get comfortable to start this execution with more efforts.
Okay, great. Thanks, and the second one I just would like to understand how are you thinking about your commercial team. So we are seeing from players discussing and increasing the sales team and we know that stone is always assessing gene so I would like to.
Obviously, our view first about the overall commercial team in the payments industry.
Specifically about yours, if you already made in changed during the first half of this year or if you foresee anything going forward and what could easily in terms of expenses and operating leverage were for it.
<unk>.
Great Guy or in terms of the team what I can say is in the fourth quarter. When we saw our margins dropped and it took us too long to adjust our pricing policies. So the contribution margin for our clients decreased in the fourth quarter, we decided to.
Not being not be aggressive in terms of hiring so we stopped hiring that process.
We lost some of our personnel with regular turnover. So the average number of people from the fourth quarter to the first quarter diminished a little bit now that we have put our pricing policy on track and we have our execution organize it in the way that we expect we are increasing our sales force.
Back again, because at the end of the day the key differentiation that Stonehouse is the presence in the counter of our clients. The proximity that we generate with them the level of service. So we will invest on growing our team our commercial and our sales team, but we are not seeing that this will decrease our margin.
<unk> at all I think that we already learned how to go through those cycles. So when we say that we will increase our.
Our margins and will increase our profitability in the next quarters, we are already factoring in our expectation to increase our sales personnel and I think that what I can sallie regarding bats and.
And I think just an additional color on the net adds.
Is that in the second quarter, we have seen basically the same trends that we saw last quarter.
The first quarter, but we see a much better performance in terms of sales. So it is possible that we deliver a better net adds in the second quarter than we delivered in the first quarter lets see part of that is because we are improving.
Our sales strategy and our sales team.
Just.
Chuck if I may add one point.
It's important to also emphasize that we still see a lot of white space to continue to grow through our hub strategy. So.
Not only by.
Increasing the density where we're already present opening new hubs and I think there's this view hasn't changed at all.
Regarding this.
If a loosening of our commercials commercial strategy, we are focusing our sales agents in the hub operation on those larger.
SMB clients because that value proposition of proximity that I explained.
Really a coupled with a much better service right and then attractive unit economic profile of those clients.
We really see that that's a that's a very strong value proposition and we see a lot of white space to continue to grow there. So.
We really see vest.
Opportunities for continuing to grow.
Okay.
Okay, great. Thank you very much.
Thank you Kai.
Thanks Scott.
The next question will come from <unk> <unk> with Evercore ISI. Please go ahead.
Hey, everyone. Thanks, a lot for taking my question just wanted to get a sense on the inflation aspect as to how much was it a help or in the fourth quarter and does your two Q guidance also factor in the.
Increase in inflation.
Hello, Farooq Thiago here. Thank you very much for the question.
Thanks.
We are experiencing here, it's much more related to us gaining market share on the msnb segment than inflation of course that inflation creep.
Creates an effect on our CPD and contributed to our revenue, but when you see the level of growth that we are presenting in our overall CPB and mainly on the GPU on the M. S. N b clients with 93% year on year I think that the inflation is a very small component compared to.
The market share gain that we had experienced in the windows.
When you see the expansion.
With the guidance that we gave you for the second quarter.
What's driven that expansion is market share gains.
Understood. Thank you and one last question from my end.
Credit or the revenue front any update on the timing as to when would you when would we see disbursement.
I mean I see that you are.
You have appointed a new head of credit and he is not supposed to join until October 'twenty to 'twenty. Two so would that be like a good timeframe to consider or or do you prefer it starting off disbursing credit prior to that.
Oh I think you have a you did a very good observation.
Regarding the beginning here of Gregor.
That's correct as the new head of credit will help us a lot in terms of knowledge in how to conduct.
The credit product.
In credit we are trying to promise less and deliver more in the end of the day I think that the team is doing a very good job rebuilding our product in our infrastructure to connect our credit solutions with our hubs and create a better experience and renegotiation capabilities for our clients with a better scoring bras.
So I think that the team is evoking well I'm trying not to create too many promises in terms of timing because we want to have the time to make it right.
I think that we keep in the same way that we were in the in the last quarter.
Thanks for that thank you very much.
Thank you Sri Thank you very much for the questions.
The next question will come from Jason Mullen with Scotiabank. Please go ahead.
Yeah.
Hello, everyone.
Thiago Lia Rockdale and team.
My question is on something Leo you mentioned I guess, the reset and focus on smaller clients at tone, given the better unit economics. If you can share some color on that and how how do you think about that that would be helpful.
And then I just had a quick question on the insurance side.
The fees that you're registering are those cash payments upfront.
From the providers that you're registering or of those.
Revenues going to be a recurring over time is it going to be registered as over the life of the product or is it an upfront fee. Thank you.
Hey, Jason. Thank you for the question. So just regarding the commercial commercial strategy that I mentioned so.
With India P. M. S N b segments, the shift that I explained was smaller clients shifting onto the tone product because overall the strong value proposition as a better much better fit for that sub segments within M. S N B's.
Both from the perspective of.
The model itself right. So.
The acquisition costs that we have through this digital distribution and a much lower cost to serve because these clients. They accept a more self service type of offerings at more attractive.
Attractive prices for them. So we've been really able to adapt and improve our go to market strategy for this at sub segments, right and and really target. The most profitable clients within the sub segments as javelin explain we look at this client more or less between zero and 7000 of average seat.
<unk> monthly, but when you look at the evolution of average CPU within this this this search.
I meant that we disclosed on page nine of the presentation I think this highlights the evolution that we saw right. So it's not so much about us focusing there, but it's about really improving our commercial strategy to optimize our go to market and the offerings between the micro clients that we focus more with the Tom fraud.
And the larger SMB clients that we focus more with the stone products to the hub model that I just said so it's really the optimization that we've been talking about.
Yeah can I add small comments sure.
Jayson Thiago here. Thank you very much for the question I, just don't want to give ourselves that we are changing focus and focus on the micro merchant segment. We continue to be laser focused on the SMB, where do you see where we see the best unit economics.
If you see the TPB in stone and plug Army project in the SMB segment grew 74% year on year. So we'll continue to be focused there. We've found a very good value proposition with the <unk> product to address a new avenue of growth in the micro segment and decline.
Small volumes that were born in Keystone, we are redirecting them through toll, but we continue to be focused on the SMB wherever you see where we see the best profitability in the industry, but as we have the capability. We've built the product I think that the team.
The.
Found a very good value proposition and a good balance with unit economics, we decided to allocate capital.
To the micro merchant space and we will continue to do so but our focus is in the SMB.
Hi, Jami Rafael here rigs.
Regarding your second question.
About insurance.
Well, yes, youre right. So as we we have a commission based business and insurance, we earn the fee upfront.
Regardless of what happens then with the relationship of the insurance company with a client.
We aim to make this business despite upfront.
The cash we aim to make this business a recurring one because after it expires usually after a year, we aim to renew and resale of that same product to the client. So that's the idea when you look at our <unk>.
<unk> numbers that we put out there in our banking system. What we do is for for that operational metric. We we make it a monthly over a year. So we don't put that upfront in our <unk> calculation. So that's the way our insurance product works.
That's helpful and just as a follow up on a comment about resuming credit origination I think.
From what I understood looking to what what was done in the first quarter, we should be waiting probably some time until your new head of.
Credit is onboard so.
Probably a next year story at best I guess.
In terms of tests.
<unk> chuckled here again, I think that in terms of testing the product.
We will.
Continue to test the fish analysis that.
We've built.
But in order to expand the sale of the credit product I think that it will be much more to end towards the end of the year.
Thank you very much.
Thank you.
The next question will come from Mario Perry with Bank of America. Please go ahead.
Hi, guys good afternoon.
Thanks for taking my question two questions here from my side.
Travel how should how do you think about your overall employee base right I was looking at your 20-F.
You recently disclosed you have more close to 15000 employees.
Do you think there's room to improve right head counts UBS.
Company, how do you see you know the size of your employee base today.
If we can make any changes.
And then the second question is related to the recent.
Press release that you issued debt.
Founders selling shares in the company.
If you can give us you know what is your interpretation of how we should interpret this news. Thank you.
Yeah.
Hi, Mitra chuckled here. Thank you very much for the question when we think about the team and the size of the team there's two things here one.
<unk> is how we are.
How we create capacity.
To keep the services that we provide today to our clients and how we create overcapacity to continue to grow the business. In this scale that we are I think that what we're doing in the previous six months is that we are using part of the operational leverage that we've built.
Built in the past.
And that's why you're seeing that we're not growing our team.
In the last four or five months and you will see this as an operational average on the lines of administrative expenses.
On a cost of service. So I think that we will continue to gain.
Operational average both on cost of service energy Minister administrative expenses, because we've built the operational leverage in the past and now I think that we have a very good size of team for the entire year. So we are not growing the team because we did it in the past and that took the time to <unk>.
Train.
Regarding the second question actually I don't know about this new about any co founder selling shares what we do.
Is that Eduardo.
The choice.
Changing his class B shares to class a shares that will be owned directly for.
Through his family vehicles, but Theres no news about any of the co founders here selling shares just to be precise.
Okay. So so yes youre right. The new is the news is that as you publish right that his converting his his his shares and so I wanted to understand then what is the purpose of doing that.
Can you hear me.
Yes.
Okay well.
Work you know.
I think that I said as I said my personal decision of Eduardo following his departure from the board and it has to do with the personnel restructuring in his family vehicles is Jesse converting this class B to class C and he you won't this directly in the company the two co founders.
We still have approximately 40%.
<unk>, which is a combo level in other companies around the world If you see.
That company is in U S under a continuous as our chairman and very close to the company is always it while we continue to be available whenever the company needs to give advice to be helpful to us. So there's nothing changing in the day to day of the company. It's just a personal decision of Eduardo Yes. He left the board screamer.
So nothing major to comment here.
Okay, and then final question for me on Bunker.
Queen parent brand as you disclosed you've thought about I think it was 21%.
Of your position you mean or you took advantage of the cash out.
How do you look at it the stake going forward.
There's a you know is there something that you still plan when when you announced the acquisition of I do you have plans for developing potential business opportunities will be in there.
Is this completely out of question now.
You think that your remaining shares they.
We're gonna be salary or this shares or how should we think.
Of your relationship with being there going forward and.
Lead them to hold shares of inter.
Mario I think that no update here about it relationship with them doesn't change the way that we admire what they are building it doesn't change we continue to.
I have some efforts in terms of creating synergies between the company, but we have to focus on our core so I think that the move that we made of selling this 21% stake was a tactical move because of the price that was offered.
The environment that we're seeing and it was.
Simple is that we continue to have a almost 80% of our peers. There we continue to be engaged to create future value. So no no update here, but we are trying to be focused on the core of our business and the new organization that we have of our two segments I think that we have a lot to.
Deliver we are seeing that we are keeping growth for the year. We are balancing this with a much better profitability profile, we want to keep things simple focus on the core deliver results consistently quarter over quarter I think that's much more about focus than any.
The other thing.
Okay. Thank you very much.
Thank you very much Mike.
The next question will come from Jeff Cantwell with Wells Fargo. Please go ahead.
Hey, how are you thanks for allowing me to join this call I appreciate it.
Yeah.
So sue.
I wanted to see most of my questions have been asked but.
Obviously, if we can focus on the financial expenses line.
And given all the investor focus on that line I was curious if you could walk us through your thoughts on.
Next quarter.
For the full year.
Can you just sort of walk us through.
From a modeling standpoint, what is the right way to be thinking about that line and maybe maybe bring into bring into play your thoughts around.
The central bank interest rates and so forth to help us understand here, what we might be expecting on that line and if you wanted to discuss the financial income as well I'd love to kind of get a sense of both of those lines to this country, we're able to discuss.
Yeah.
Hi, Jeff Rafael here. Thank you for the question. So I think as I said, if you think from a modeling perspective.
The financial expenses.
They should evolve with our T V.
Growth right and also the average interest rates in Brazil. So if you look for example, the average CDI in Brazil in the first quarter of 2021. It was two 2.0% to 2% in the first quarter of 2022 that number increased to $10 27%.
So if you look at that average average CDI over time.
Our financial expenses should grow with that together with the growth in our TPB. So you should expect the financial expenses line to keep growing on an absolute number over time. However.
However, when we look at our top line and if you look at our financial income line.
Our line that is growing faster right, because especially the repricing of clients. So although we have an increase in financial expenses. We also expect a very strong increase in financial income.
So.
That's sort of the dynamics that we see this year and from the comments that <unk> made that we'll keep adjusting our pricing policy. According to the CDI increase in a way that we balance the growth that we have.
With that level of profitability that is desirable for us. So I think those are in a very simple way, though the main drivers of that line going forward.
Okay, Great I appreciate it and then separately I apologize if I missed this earlier, but similarly on the active payment credit lines, where it really gets your net adds.
Are you able to give us a sense of what.
What the right way to think about it.
Next few quarters or on the net add side I'm. Just curious if you can help us put together everything's happening, especially with M. S. N. B. So it seems like that that did you know that was very strong this quarter. So just want to make sure. We all have the right set of expectations as we're thinking about.
Thank you.
Hi, Jeff Chicago here, I think that to give color about net adds going forward as I said.
S. We are seeing a better performance in terms of sale this quarter, but we've.
<unk> the same type of trends regarding churn in the lower clients.
I think that the balance will be.
The same or a little bit better net adds in the second quarter, let's see and I think that going forward that should.
Increase because as we our pricing policy the churn effect will diminish and then the sales speed that we have will continue or be a little bit better if we execute better. So from what I can give you is up as a color is we will keep or increase.
A little bit for the second quarter, let's let's see because sales are performing well and then as churn reduced and we're already starting to see some of that effect for the third quarter I think that thats due increased compared to first and second quarter and I think that on a quarter to quarter basis I can give you more color.
The dynamic.
Okay, great. Thanks, very much I appreciate it.
Thank you Jeff Jeff just one comment I think your question was very very good and.
I think that we're still missing to giving more perspective about long term.
Both in terms of growth PPD and margins. So we are targeting to do an investor day by the end of the year and in the Investor Day, we'll talk much more about medium and longer term to have the time to help everyone with modeling and to see the company.
We have a good perspective, so I expect that we execute this in the end of the year until the end of the year I think that we will continue to give more color on a quarter on quarter basis in our metrics.
Yeah.
The next question will come from Nina <unk> with HSBC. Please go ahead.
Hi, congratulations on the results.
Thank you for giving us additional disclosure.
Turning the company if I can just ask about the soft goods segment.
It seems to have improved quarter on quarter, but how should we think about it in the coming year to year, how much more potential of gaining synergies do you have the cooling invitation Netherlands operation.
Kind of margin EBITDA margin.
Come to expect from the South correct part of the business.
Thank you so much.
Hi, Thank you for your question Lia here, So I think regarding margin trends in software a few things to highlight.
Number one we still have a.
Impact in the software business regarding the costs related to link space.
Because as we explained we finalized 100% of the migration of those clients are.
But the costs associated with that link, Spain legacy business has not been fully fades out phased out yet we expect that to happen are over the next quarters and of course as this happens this will impact positively our margins I think the second element to two highlights.
Both portfolio companies, which were input that we're invested with installed that were integrated within our software business as well as the digital business. They are less mature so as they mature of course, we expect also that to contribute.
Positively to margins.
And even on top of all of those effects, we are already seeing as.
And so then the number some operational leverage right.
Through efficiency gains and cost and expenses and operational leverage would have already positively impacted those margins I think over the next quarters. What we can expect is EBITDA margins continued to improve sequentially and to stabilize we've talked about this last quarter more or less on the range of 20.
So I think this is what we can say regarding margin evolution in software.
Finally, I, you mentioned EBITDA margins around 20%.
Got it.
Yes, yes, yes, 20%.
Okay, Great I think that's about it yeah.
Finally, her chuckle here just an additional color I think that the range between 23% revenue growth was softer is a good range for our medium term.
I think that this 20% level of EBITDA is really really doable.
Team is improving a lot the execution or softer and the discipline around the way we manage the business I'm very happy to see.
The integration between links and the portfolio of companies that we have these assets and acquired over time links core already operates with EBITDA.
And that so we are bringing the efficiency of the links.
Management team to the growth that our interpreters fields and this combination is.
Showing this profile that we are giving with revenue growing between 20, and 30% EBITDA coming in to around 20% I think that you will see positive news on a quarter on quarter basis. This year.
I think that between the fourth quarter and first quarter next year I think that the margin profile will be much closer to what we are talking here. So very happy to see the execution of a softer with discipline focusing on clients in different segments is really working well, we think that now we have the execution of software contracts.
So I think they have cool. Thank you so much.
Thank you Neil.
Thank goodness.
The next question will come from Pedro Ladakh, but he Tau BBA. Please go ahead.
Thank you have a good evening everyone.
First and foremost thank you for the increased disclosure I know a lot of.
Ground has been covered on this call already and I would like to pick your brain a little bit around Capex, if I may.
You had a $242 million this quarter lower than the last as you have advanced the terminal purchases. Obviously can you give us an update on this subject a bit how your supply chains are doing how is the flex.
Saying roll inventory vis a vis the grocery we're seeing which seems better than expected even.
For an update on this thank you.
Hi, Pedro Rafael here. Thank you for the question so.
So as you said regarding capex.
We should see lower Capex overall this year right as we mentioned last call because especially at the end of last year.
We prepaid a lot of Capex regarding U S because of the micro chip shortage that.
What's been discussed last year.
Of course, now we are much better adjusted.
Regarding inventory and lead times to one.
And in the first quarter, we actually still had part of that those contracts that we had on capex. So it's still <unk>.
Pretty high but if you look at overall in 2022, despite our very strong growth compared to 2021, we should see lower levels of Capex. So I think that we took the right decision last year to protect our growth and derisked our growth in terms of potential shortage of components and I think that.
That had give us room to keep growing the second half of last year and now we are we have adequate inventory and lead times. So we can continue to grow further so I think that the situation has normalized.
Much more this year.
Okay great.
Yes.
Visitor just just to add two points here and give a little bit more color I think that the decision in the fourth quarter was not an easy one I think that the team made the right decision to advance.
Investments.
In our <unk>.
Because we hold prices, we've got the supply we needed, but we that the team.
Expanded.
The number of providers. So I think that now we have much more providers in new models.
Of hardware that we use here, so I'm not worried with <unk> chain and the supply chain and I'm not worried with the lead time I think that did seem did a very good job.
<unk> pressure in the fourth quarter in terms of our cash.
Cash flows, but I think that was the right decision over the long term, that's why we're seeing lower capex expenditures capital expenditures.
And we've seen the second quarter this entrance.
Perfect. Thank you so much for adding.
While we were talking about terminals Kinder is give us an update on the Tom tap solution, maybe on the terminal a free payment.
Payments.
How is it evolving what have you learned so far or is it maybe it worth investing more behind it is it contributing relevantly already.
Just on the follow up thank you.
Yeah.
You have to be out there I think that to give a color on that.
I think the team did a good job to invest on that technology. We were the first one to two.
To launch this product do you when you see clients from zero to 7000, a month as we see there is a part of those clients, which are clients that process 1000, or 2000, and <unk> amounts and we think that for the future. We have to focus more on these type of solutions, where we don't have the hardware because it's too.
Expensive the the the separation and brink's pressure for the cost of acquisition of clients. So we can offer a better value proposition for them based on that functionality. So that the first phase was really well I think that the card brands increased the ability of <unk> to <unk>.
Zach using that technology, and we will put more efforts towards that direction and the rest of the year I think that it was the right move and we will continue to.
Invest.
On their strategy on the second half of the year.
Thanks, so much.
Thank you.
The next question will come from Domingos.
Salvina with J P. Morgan. Please go ahead.
Thank you for.
They can be.
And here too.
Two questions.
Unfortunate not very quick ones. Its been one of them is a bit complex, but starting with the quicker one.
I guess my question is we already have your margin moving back to the 20th right and what I'm looking at the model before 2018 when ahead below 5% market share you still have pretty much running on loss.
And then just sort of break this breakeven.
Rich <unk>.
<unk> <unk> thousand 18 market sharing you roll your weight in market share today to something around 10.
10 to 12, depending on how you look at the data.
And your margins are obviously due to several reasons, but basically close to zero again, even adjusting for tariffs.
Mark to market volatility I look at the largest players like a 25% market share and.
Yeah.
Doesn't seem like your results are este lauder by credit or anything any more initially sure.
Printing low margins as they are so my question to you here is.
How do you see kind of these margin bouncing back I mean, you had as much as 40% margin is it.
Control of your factors right either.
A lot your costs.
Which at 11% market share growing 70% it won't be the biggest player probably two years or you believe that youre going to increase your prices more than the average industry or you believe that nominally going to cut costs.
The bottom right hand, the question that I think it's pretty easy right.
I think particularly more bullish on the industry, we're seeing everybody increasing prices, but that's not a reason why we stone should be better than the industry and thats kind of the question I want to drill the margin evolution better than market.
Where exactly you see is coming from.
My second one already is.
Yeah.
My understanding is that you had something like 300 million and losses realized with the sale of interest stake.
And I wanted to basically understand if you hypothetically didn't before.
Let's say you had 1 billion losses cool.
Who do you have.
Yeah.
Use the earnings or the pretax earnings of stone in the following years to benefit from these tax credits.
Or not because my understanding is that if you actually.
Had bigger losses, you would probably be limited because of the non operating investment you will be limited to men operating gains in future years, and basically what I'm trying to get at is you will be tax inefficient to have sold everything easier because you're probably not going to heavy duty that make.
Those are my two questions sorry for me.
Okay.
Hi, Domingos Chuckle here. Thank you very much for the question I understood.
Your point I think that when we think about margin improvements.
And this consistently quarter over quarter work that we're doing there are three main factors one factor as mentioned is the new pricing policy that we are using for the core products and I think that we still have room to improve that's the other part I think that is as we are choosing the mix of clients that have <unk>.
More profitability in that contributors to the court to the second effect.
More than the core is monetization in banking.
As we increase engagements with banking solutions. It's basically we are not applying capital to acquire those clients because we already have in our client base, we are increasing the engagement using our app.
In a self service way and the monetization road that we have with interest rates on the Dallas with the cash out in the interchange and the card and for insurers will bring better margins for the company and third we will dilute costs and administrative expenses and then.
Selling expenses, but not now because we are still growing a lot.
And you'll see those effects too I think that this year, you will see a lot of cost.
Ah cost dilution.
Elution compare to revenue AUC I used to receive expenses dilution.
Compares to revenue so you will see that effect on a quarter over quarter basis.
This year and then you'll see that we would increase monetization and spreads on the car offering that we have and increase monetization with more activation of banking clients because in the end of the day. We don't have two projects for clients is one platform that they have payments banking now.
They have access to insurance and they will have access to more working capital projects. So I think that the strategy of improving margin has discrete effects.
Okay.
Yeah.
Rafael here, let me answer your second part of the question. Thank you for that.
I think regarding the loss in bunk winter if you look our.
The P&L, our adjusted P&L, you'll see that we're not getting any tax benefit into the negative mark to market of winter.
We are constantly evaluating the best alternatives for our investments, but at this moment. There is no we are not considering tax benefit as you said.
For for a negative mark to market or losses with bunk winter.
One one complement to <unk>.
Answered regarding the first question.
If I may just before you go back to Charles I understand Mark to market doesn't necessarily allow you to benefit from the tax credit, but once you realize the loss you can so my question is.
You should realize that the 300 million or can you and this year. My question is if you realize the full let's say be lending losses.
Loosen or be limited to non operational gains or could you use 2023 2020 earnings before taxes from stone to amortize up to benefit from these credit differently.
Mhm.
Yes, that's right so.
If you look at the investment and into it.
It became an entity right. So it's not technical so that's why today even on.
On a realized loss, we do not consider as of today.
Benefiting benefiting from such loss from a tax perspective so.
This is related to the entity.
It is located right.
Yes.
Ed.
Yes, just a small comments here domingos. So we made the investments through our Cayman entity Stone co which is the company that is listed and we raised at the bond on debt same.
Same entity too.
When we did.
The bonds. The bond was made to fully fund the investment in inter I think that we just made the decision of taking this opportunity of the cashless method, we have discussed it with them.
It now that we have decided to change that we were managing our capital structure moving the bonds to fund prepayments and keeping the bond.
Cause of the prices that we have executed the bonds in the past and the duration that upon house I think it's accretive for us to keep what we are doing is that we're looking going back to the drawing board in our tax.
<unk> strategy and once we have signed that's how you handle the bonds overtime and tax implications. We will give you more update on that but today is in a different entity. That's why you are not capturing the benefit of the tax.
The next shoot very clear very clear guys. Thank you I'm listening to these as I'm sure a lot of other.
Investors, who are listening and shrinking.
Through this vehicle you are not going to benefit from any tax shield. So.
Given how share's moved today it wasn't like the best decision.
Right or wrong and listening in this way.
But don't understood quite Domingos can you. Please repeat the question, yes, what I meant is if you had invested is let's say, let's see underneath.
On Brazil, you would have.
Being able to use some of those credits.
In the operations, you're right it would be able to offset your your prospects in Brazil.
The mark to the realized losses in Eaton.
Okay.
I think that there is other sectors that we factor in in that decision and we can chat offline with you to give more update about the way. We reason the reason why we use it the entity and what we're doing now, but I think that its just simple as that we made through that entity now that we have taken the born minute journey.
The structure of the financial platform, we will reorganize.
The way that we handle this.
To the future and we will give you more update about it.
Alright, Thank you guys.
Thank you very much domingos.
This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks. Please go ahead.
Hello, everyone to juggle here back again, I'd, just like to say a big Thank you to you all a big Thank you for our team for the efforts in the quarter and see you next quarter Bye bye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Okay.
Uh-huh.
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Yeah.
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