Q4 2023 StoneCo Ltd Earnings Call

Operator: Good evening, ladies and gentlemen. Thank you for standing by.

Good evening, ladies and gentlemen, thank you for standing by and welcome to the Stone co fourth quarter 2023 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.

Operator: Welcome to the StoneCo fourth quarter 2023 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 online at investors.stone.co. Throughout this conference call, the company will be presenting non-IFRS financial information, including adjusted net income and adjusted net cash. These are important financial measures for the company but are not financial measures as defined by IFRS.

Online at investors dots down Darko.

Throughout this conference call the company will be presenting non <unk> financial information, including adjusted net income and adjusted net cash.

These are important financial measures for the company, but are not financial measures as defined by I F. R. S. Reconciliations of the company's non <unk> financial information to the Ifr as financial information appears in today's press release.

Operator: Reconciliations of the company's non-IFRS financial information to the IFRS financial information appear in today's press release. Finally, before we begin our formal remarks, I would like to remind you that today's discussion might include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the company's expectations. In addition, many of the risks regarding the business are disclosed in the company's Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov.

Speaker Change: Finally, before we begin our formal remarks I would like to remind you that today's discussion may include forward looking statements. These forward looking statements are not guarantees of future performances, and therefore, you should not put undue reliance on them.

Speaker Change: These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the company's expectations.

Speaker Change: In addition, many of the risks 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 FCC Dot Gov.

Roberta Noronha: I would now like to turn the conference over to your host, Roberta Noronha, Head of Investor Relations at StoneCo. Please proceed. Thank you, operator. Coal is our CEO. Today, our CFO and Investor Relations Officer, Mateus Schwening, and our Chief Strategy and Marketing Officer, Lia Matos, will present our fourth quarter 2023 results and provide an updated outlook for our. I will now pass it over to Pedro so he can share some highlights of our performance. Pedro, Thank you, Roberta, and good evening.

Speaker Change: I would now like to turn the conference over to your host how better or not I am head of Investor Relations at Stone co. Please proceed.

Host: Thank you operator, and good evening everyone.

Host: Joining me today on the call is our CEO <unk>, our CFO and Investor Relations Officer, Marcio shattered and our chief strategy and marketing officer today, we will present, our fourth quarter 2023 results and provide an updated outlook for our business.

Host: I will now pass it over to Pedro so he can share some highlights.

Host: Farmers.

Host: Zero.

Pedro: Thanks, Rob and good evening everyone.

Pedro Zinner: As I have outlined in our annual shareholders letter, after a year into my role as CEO, I have taken a deeper look at our company, better spotting our strengths and areas of weakness. This journey has been revealing as it has provided valuable lessons and enhanced my perspective on the opportunities we, Reflecting on the successful year we had, it is impressive how well our company did. I am not only referring to our strong financial performance but also acknowledging the strategic milestone [inaudible] Tailoring Our Go-To-Market Approach Our new organizational structure aligns with each client segment, while it also strengthens key capabilities around engineering, product, marketing, and innovation. Enhancing Our Ability to Address Client, New We have sharpened our strategic focus around three strategic priorities, which we outlined in our investigation. These three priorities to win an MS, drive engagement with our class, and scale to platform.

Pedro: As I have outlined in our <unk>.

Pedro: Shareholders' letter after a year into my role as CEO I have taken a deeper look at our KOL breakfast parking our strengths and areas of improvement.

Pedro: This journey has been resilient as it has provided valuable lessons and enhance my perspective on the opportunities we see.

Pedro: Reflecting on the successful year, we had it is impressive how well our company performed I'm not only referring to our strong financial performance, but also acknowledging the strategic milestones that have strengthened our position in the market.

Pedro: Paved the way for future growth.

Pedro: In our Investor day.

Pedro: In response to the initial insights and assessment in my role as CEO.

Pedro: 2023, we have initiated several strategic adjustments to better position our business for the future.

Pedro: We have reorganized ourselves to deliver our solutions more effectively across different client segments from micro to medium businesses tailoring our go to market approach to meet their unique needs.

Pedro: Our new organizational structure aligns with each client segment, while it also strengthened key capabilities around engineering product marketing and innovation.

Pedro: <unk>, our ability to address client needs.

Pedro: We have sharpened our strategic focus around three strategic priorities, which we outlined in our Investor day.

Pedro: The strict priorities to win Msnb's to drive engagement with our clients and to scale through platforms help us to set key focus areas for the coming years.

Pedro Zinner: Help us to set key focus areas for the, The first one, defining where our focus will be in terms of the software and financial services integration. By focusing our execution around four priority verticals of retail, gas stations, food, and drug, we're increasing our competitive edge and opening a significant growth avenue for Lia. Lia represents some initial encourager. We achieved in the second one to leverage the power of the combination of payments, banking, and software. There is a huge opportunity in our installed base to increase engagement with our solutions. An example today, only a fraction of our client base.

Pedro: The first one.

Pedro: Finding where our focus will be in terms of the software and financial services integration efforts.

Pedro: By focusing our execution around four priority verticals of retail gas stations food and drug stores.

Pedro: We're increasing our competitive edge and opening a significant growth Avenue for the future.

Pedro: India represents some initial encouraging results we achieved in the fourth quarter.

Pedro: The second one to leverage the power of the combination of payments banking and software there is a huge opportunity in our installed base to increase engagement with our solutions. As an example today only a fraction of our client base can be considered heavy users of our solutions.

Pedro Zinner: Class A Class A, And there is a substantial potential to improve our unit economics as we continue to engage. The results we saw in our financial service segment in the fourth quarter reflect the success of this strategy around payments and, And the third one, the creation of the Stone platform. Our rapid growth initially focused on development speed, sometimes at the expense of consistency and reusability. This resulted in the existence of multiple data sets.

Pedro: There is a substantial potential to improve our unit economics as we continue to engage debates the.

Pedro: The results we saw in our financial services segment in the fourth quarter reflect the success of the strategy around payments and banking.

Pedro: And the third one the creation of the strong platform.

Pedro: Our rapid growth initially focus on development speed, sometimes at the expense of consistency and Reusability. This resulted in the existence of multiple data platforms, but over the last year and a half we've made a significant change.

Pedro Zinner: But over the last year and a half, we've made a significant change. We brought our technology teams together, streamlined how we work, and started to build a solid foundation that we all share, the stone platform, as we move forward, especially with new tech like artificial intelligence. We're setting ourselves up to generate new synergies and use our insights even more effectively to serve our customers. Our last strategic adjustment focuses on the implementation of cost management and spending control. Recognizing the potential to unlock substantial operating leverage, we have embarked on initiatives aimed at enhancing profitability even further. Through Sustainable Cost Optimization, we're setting the stage for more efficient and profitable by implementing a shared and zero-based budgeting. We're Before handing it over to Lia... [inaudible] Last year was a milestone, marking a complete rebound from the challenges faced in 2020. He closed the year with exceptional results.

Pedro: We've brought our technology teams together streamline how we work and started to build a solid foundation that we all share the strong platform as we move forward, especially with new tech like artificial intelligence, we're setting ourselves up to generate new synergies end user insights.

Pedro: Even more effectively to serve our clients our last strategic adjustment focus on implementation of cost management and spending controls recognizing the potential to unlock substantial operating leverage we have embarked on initiatives aimed at enhancing profitability even further.

Pedro: Sustainable cost optimization, we are setting the stage for more efficient and profitable operations.

Pedro: By implementing a shared service center and a zero based budgeting, we're enhancing our financial discipline across the organization.

Pedro: While the opportunity is huge we will seize it through a targeted approach ensuring we do not dissipate all athletes.

Pedro: Before handing over to Leah.

Leah: I'd like to briefly talk about our 2023 results.

Leah: Last year was a milestone for us marching a complete rebound from the challenges faced in 2021, we closed the year with exceptional results, particularly in the fourth quarter. When we accomplished significant progress in our key strategic initiatives.

Pedro Zinner: Particularly in the fourth quarter, when we accomplished significant progress in our key strategic initiatives. We've posted remarkable growth, achieving a notable MSMB, both annually with MS and BTPV increasing 21% 350 billion highs and in the fourth quarter. Our banking services also recorded impressive, Deposits reaching 6.1 billion reais by the end of This role not only refers to higher engagement but also a better conversion of TPV into the pot. Monetization

Leah: We've posted remarkable growth achieving a notable increase in MSNBC PV, both annually with <unk>, increasing 21% to 350 billion highs and in the fourth quarter with an acceleration from the previous period.

Leah: Our banking services also recorded impressive growth with deposits, reaching $6 1 billion highs by the end of December a significant increase from 2022.

Leah: This growth not only reflects higher engagement, but also a better conversion of PPV into deposits.

Leah: Monetization improved substantially throughout the year with MSNBC Greeks achieving 243%.

Pedro Zinner: MS&B take rates achieved 2.43%, up 22 basis points year-over-year. In the fourth quarter, we saw a slight decline of six basis points compared to the previous quarter, but that was already expected and purely a result of seasonality. More importantly, we continue to advance in our credit solution, reaching a working capital portfolio of 309 million reais by the end of, very encouraging results regarding the health of the portfolio and NPLs strictly under control. Additionally, our integration efforts in the four prioritized verticals have just started to bear fruit, participation in TPV from these software clients, they're passing 20 billion reais. The push to scale is complex.

Leah: 22 basis points year over year in the fourth quarter, we saw a slight decline of six basis points compared to the previous quarter, but that was already expected and purely a result of seasonality more importantly, we continued to advance our credit solution, reaching our working capital.

Leah: Our portfolio of 390 <unk> by the end of the year with very encouraging results regarding the health of the portfolio and Npls strictly under control. Additionally, our integration efforts in the fall prioritize verticals have just started to be fruitful with participation.

Leah: In PPV from this software clients, surpassing 20 billion highs in the year.

Leah: The push to scalable platforms.

Pedro Zinner: Unit Substantial Operational Lab. We are taxing our EBT at a billion reais, an increase of 3.3 times over the previous year. This leap forward improved our EBT margin by more than 10 percentage points, and our adjusted net profit surged to 1.6 billion heralds, up 3.8 times from the previous year. Our profitability also translated into cash generation, and we ended the year with an adjusted net cash position of 5.1 billion reais, even after significant investments in our credit portfolio and shares. On a separate note, the software segment PACE Challenge Class of 2023, particularly in non-stra However, our efficiency initiatives have already started showing results.

Leah: Tension operational leverage boosting our EBT 2 billion is an increase of three three times over the previous year.

Leah: This leap forward improved our EBIT margin by more than 10 percentage points and our adjusted net profit surged to one 6 billion has.

Leah: Three eight times from the previous year, our profitability also translated into cash generation and we ended the year with an adjusted net cash position of $5 1 billion highs, even after significant investments in our credit portfolio and share buybacks.

Leah: On a separate note the software segment faced challenges in 2023, particularly in non strategic verticals, where growth was slower. However, our efficiency initiatives already started showing results with EBITDA margins in 2023, improving by one.

Pedro Zinner: EBITDA margins in 2023, improving by 1.9 percentage points to 16.4, the fourth quarter recorded a deep one-off restructuring cost, but these moves are poised to generate Class of 2023 was a year of significant achievement. Strategic Advancement, And our fourth quarter results are positioning us in a good place to deliver our 2024 and, Now I would like to pass it over to Lia. [inaudible] performance and strategic planning Thank you, Pedro, and good evening, everyone.

Leah: <unk> nine percentage points to 16, 4%.

Leah: The fourth quarter recorded a deep due to one off restructuring costs, but these moves are poised to generate savings in 2024.

Leah: In summary for power.

Leah: <unk> 23 was a year of significant achievements and strategic advancement for us in our fourth quarter results are positioning us in a good place to deliver our 2024 and 2027 outlook.

Speaker Change: Now I'd like to pass it over to <unk> to discuss our fourth quarter 2023 performance and strategic updates.

Speaker Change: Sure.

unknown: Thank you Pedro and good evening everyone.

Lia Machado de Matos: We had important evolutions over the last year in our strategic priorities, and while we continue to balance growth with profitability, which you can see on slide five. Compared with the fourth quarter of 22, our consolidated revenues grew by 20%, which combined with lower financial expenses led to an increase of almost 2.3 times in adjusted EBIT. These factors, combined with a lower effective tax rate, resulted in adjusted net income increasing by almost threefold year over year, with an adjusted net margin of 17.4%, up about 10 percentage points in the period. Taking a closer look at our financial services segment performance on slides 6 to 11, I will start on slide 6 with the performance of our payments business for MSMB. Our payments Active Client Base increased 37% year over year, reaching almost 3.5 million active clients.

unknown: Had important evolutions over the last year in our strategic priorities, while we continued to balance growth with profitability, which you can see on slide five.

Speaker Change: Compared with the fourth quarter of 'twenty, two our consolidated revenues grew by 20%, which combined with lower financial expenses led to an increase of almost two three times in adjusted EBT. These factors combined with a lower effective tax rate resulted in adjusted net income.

Speaker Change: Increasing by almost three fold year over year with an adjusted net margin of 17, 4% up about 10 percentage points in the period.

Speaker Change: Taking a closer look at our financial services segment performance on slide six through 11, I will start on slide six with the performance of our payments business. Our M. S. M B P.

Speaker Change: In fact of client base increased 37% year over year, reaching almost $3 5 million active clients.

Lia Machado de Matos: sequentially, this represented a net addition of 192,000 clients, lower compared to the previous quarters, mainly as a result of our strategic shift towards larger clients in the hubs and the fact that we have caught up to growth levels in the microseconds. This growth in the client base also resulted in healthy and profitable cohorts across all clients. As you will see in the pages that follow, and in line with our strategic priorities to win in the MS&B segment and to drive engagement with our solution, besides optimizing our commercial strategy for growth and market share gains, we're also putting a lot of focus on improving bundle offerings of payments and banking to new client cohorts, both in tone and in stone, as well as driving further engagement with our solutions for more mature cohorts of clients.

Speaker Change: Sequentially. This represented a net addition of 192000 clients lower compared to the previous quarters, mainly as a result of our strategic shift towards larger clients in the hubs and the fact that we have caught up to growth levels and the micro segments.

Speaker Change: This growth in client base also resulted in healthy and profitable cohorts and all client tiers as you'll see in the pages that follow and in line with our strategic priorities to win in the M. S. N B segment and to drive engagement with our solutions Besides optimizing our commercial strategy for growth.

Speaker Change: And market share gains were also putting a lot of focus on improving bundled offerings of payments and banking can you client cohort.

Speaker Change: Bolton tongue and stone as well as driving further engagement with our solutions for more mature cohorts of claims as I will show on slide seven disapproved has resulted in profitable growth with market share gains in B M. S N b segment versus the overall market.

Lia Machado de Matos: As I will show on slide seven, this approach has resulted in profitable TPV growth with market share gains in the MSMB segment versus the overall market. MSMB TPV increased 20% year-over-year, growing more than twice the industry average. Considering PICS P2M volumes, which were almost 8 billion reais in the quarter, MSMBTPV increased 25% year over year, an extra 5 percentage points of growth when considering PICS P2M in our overall. We achieved this strong growth performance while also increasing take rates by 22 basis points year over year to 2.43%. Take rates were lower versus the third quarter as a natural result of seasonality in the fourth quarter, which always presents higher debit volume.

Speaker Change: MSNBC PV increased 20% year over year growing more than twice the industry level.

Speaker Change: Considering fixed speed to EM volumes, which were almost 8 billion highs in the quarter M. S. N BCP V increased 25% year over year, and an extra five percentage points of growth when considering big speak to them in our overall TPG. We achieved this strong growth performance, while also increasing take rates by <unk>.

Speaker Change: 22 basis points year over year to 2.43%.

Chris were lower versus the third quarter as a natural result of seasonality in the fourth quarter, which always presents higher debit volumes, we're continuously evolving our pricing and bundle strategy to achieve higher levels of engaged clients, helping them more with their jobs to be done. We believe these strong numbers are the result of.

Lia Machado de Matos: We're continuously evolving our pricing and bundle strategy to achieve higher levels of engaged clients, helping them with their jobs. We believe these strong numbers are the result of our competitive advantages around our distribution capabilities, our superior service, and more and more the ability to offer more complete solutions to our customers. Now, a quick update on our key accounts performance on slide, Key Accounts TPV decreased 17.6% year-over-year to R$15 billion, as we have continued to deprioritize and off-board low-margin clients. Year over year, key account stake rates increased 11 basis points as a result of the adjustments in our commercial policies and a mixed shift within the sector. Now, let's discuss our banking performance on slide 9. The banking active client base increased threefold year over year to 2.1 million active clients.

Speaker Change: Our competitive advantages around our distribution capabilities, our superior service and more and more the ability to offer more complete solutions to our clients.

Speaker Change: Now a quick update on our key accounts performance on slide eight.

Key accounts TPB decreased 17, 6% year over year to 15 billion highs as we have continued to prioritize and off board low margin clients year over year key accounts take rates increased 11 basis points as a result of the adjustments in our commercial policies and a mix shift within this segment.

Speaker Change: <unk>.

Speaker Change: Now, let's discuss our banking performance on slide nine.

Speaker Change: Banking active client base increased three fold year over year to $2 1 million active clients. This evolution was a result of the launch of Super contact Tom in the beginning of 2023 and the continued activation of banking first phone clients, who I'll bundle offers.

Lia Machado de Matos: This evolution was a result of the launch of SuperContaTon at the beginning of 2023 and the continued activation of Banking for Stone clients through our bundle offering. The decrease in growth levels compared to the previous quarters is mainly due to the end of the migration of Stone clients to our full banking solution. This growth-inclined base was associated with a 52% year-over-year growth in deposits, which reached R$6.1 billion in the quarter

Speaker Change: The decrease in gross levels compared to the previous quarters is mainly due to the end of the migration of clients to our full banking solution. This growth in client base was associated with a 52% year over year growth in deposits, which reached $6 1 billion highs in the quarter.

Lia Machado de Matos: This new level of deposits derived both from a positive impact on the cash-in level and engagement due to the effectiveness of our payments and banking bundles, and second, from a seasonal and calendar effect at the end of the quarter. As a result, our PAC increased 11.4% quarter-over-quarter to R$28.4 per month. Despite lower seasonality, this positive trend in client deposits was also seen throughout the first quarter of 2021. On slide 10, we'll talk about our credit performance. As you know, we've relaunched our working capital solution to SMBs in 2023 and have seen very positive initial results. In the fourth quarter of 23, we disbursed more than 230 million reais to around 7,000 clients, reaching a portfolio of 309 million reais, an increase of 2.7 times the volume of a quarter. Loan loss provision expenses totaled 39 million reais in the period, an increase of 2.1 times sequentially as we constitute the provisions of 20% of our portfolio.

Speaker Change: This new level of deposits derived both from a positive impact in the cash and level and engagement due to the effectiveness of our payments and banking bundles and second from a seasonal and calendar effect at the end of the quarter as a result, our Pac increased 11, 4% quarter over quarter to $28.

Speaker Change: <unk> per month, despite lower seasonality. This positive trend in client deposits is also seen throughout the first quarter of 2024.

Speaker Change: On Slide 10, we'll talk about our credit performance as you know we've been lost our working capital solutions to Smbs in 2023 and have seen very positive initial results in the fourth quarter of 'twenty three we disbursed more than 230 million reais to around 7000 clients, reaching a portfolio of three.

Speaker Change: <unk> hundred 9 million, an increase of two seven times quarter over quarter loan loss provision expenses totaled 39 million here is in the period, an increase of two one times sequentially as we constitute provisions of 20% of our portfolio. Although we are taking a conservative approach the performance.

Lia Machado de Matos: Although we are taking a conservative approach, the performance of our vintages is above our expectations, with NPLs between 15 and 90 days of 1.96% and NPLs over 90 days of 0.29%. As we have highlighted before, this is a recently launched portfolio, so the ratio of past two loans should increase as our portfolio matures. This year, we will continue with disbursements without changing our diligence towards risk evaluation and close monitoring of market conditions.

Speaker Change: Our vintages is above our expectations with Npls between 15, and 90 days of 196% and Npls over 90 days of 0.29% as.

Speaker Change: As we have highlighted before this is our recently launched portfolio. So the ratio of past due loans should increase as our portfolio matures. This year, we will continue with disbursements without changing our diligence towards risk evaluation and close monitoring of market conditions.

Lia Machado de Matos: Beyond our working capital solution for S&Bs, the principal driver of our portfolio growth this year will also mark the launch of more credit solutions to our clients, such as credit cards and more. To summarize, the fourth quarter was again marked by above-industry TPV growth and higher take rates, resulting in financial services revenue growth of 24% year-over-year in the fourth quarter, reaching 2.9 billion reais. Moving to slide 12, let's talk about our software performance and strategic evolution. Quarter over quarter, MS&B TPV overlap between financial services and software clients increased 19.3%, almost twice the growth we had in our MS&B TPV in the same. Among the four strategic verticals, this performance was mainly driven by gas.

Speaker Change: Beyond our working capital solution for Smbs, the principal driver of our portfolio growth. This year will Mark also the launch of more credit solutions to our clients such as credit cards and overdrafts.

Speaker Change: To summarize the fourth quarter was again marked by above industry TPG growth and higher take rates, resulting in financial services revenue growth of 24% year over year in the fourth quarter, reaching $2 9 billion highs in turn adjusted EBT reached 604 million hoist with an.

Speaker Change: EBT margin of 21% an increase of more than 10 percentage points year over year.

Speaker Change: Moving to slide 12, let's talk about our software performance and strategic evolution.

Speaker Change: Quarter over quarter M. S. N V TPG overlap between financial services and software clients increased 19, 3% almost twice the growth we had in our M. S. N BCP V. In the same period among the foreign strategic verticals. This performance was mainly driven by gas stations this relative performer.

Lia Machado de Matos: This relative performance illustrates our continued efforts and first signs of success of our strategy to provide an end-to-end solution that combines management software, payments, and banking to our SMB clients. Going forward, we have listed three main priorities in order to drive growth and engagement in the four priority areas. First, we're focusing on setting up our go-to-market strategy in order to scale our distribution model for combined software and financial services offerings. Second, we're enhancing the product value proposition to seize the opportunity in the four key strategic verticals, with gas stations and retail being the main focus for 2024. And third, we're integrating the post-sales process to guarantee we maintain the superior levels of service our clients expect from us. There is still a huge opportunity for us to target within our software installed client base and to drive engagements with our bundled solutions.

Speaker Change: This illustrates our continued efforts and first signs of success of our strategy to provide an end to end solution that combines management software payments and banking to our SMB clients going forward. We have listed three main priorities in order to drive growth and engagement in the fourth priority verticals.

Speaker Change: First we're focusing on setting up our go to market strategy in order to scale, our distribution model for combined software and financial services offerings.

Speaker Change: We're enhancing the product value proposition to seize the opportunity in the four key strategic verticals with gas stations and retail being the main focus for 2024 and third we're integrating the bulk sales process to guarantee we maintain the superior levels of service our clients expect from us Theres still is.

Speaker Change: A huge opportunity for us to target within our software installed client base and to drive engagement with our bundled solutions and this will be a key focus for the next year's.

Lia Machado de Matos: And this will be a key focus for the next. Moving to slide 13, software segment revenues decreased 3.5% year-over-year to R$363 million as a result of lower revenues from the enterprise business, which was down 16% in the. Sequentially, software revenues decreased. 6.4% due to lower yield on cash, as well as lower revenues from the enterprise. As a result of this weaker top line, combined with one-time restructuring costs in the amount of 11.5 million Reais, Adjusted EBITDA decreased to 59 million Reais in the quarter, with an Adjusted EBITDA margin of 16.2%, compared with 20.5% in the third quarter of 2020. Excluding these restructuring costs, the adjusted EBITDA margin would have been 19.3% in the fourth quarter.

Speaker Change: Moving to slide 13 software segment revenues decreased three 5% year over year to 363 million highs as a result of lower revenues from the enterprise business, which was down 16% in the period sequentially software revenues decreased six 4%.

Speaker Change: Due to lower yields on cash as well as lower revenues from enterprise business.

Speaker Change: As a result of this week, our topline combined with one time restructuring costs in the amount of 11 5 million highs adjusted EBITDA decreased to 59 million highs in the quarter with an adjusted EBITDA margin of 16, 2% compared with 25% in the third quarter of 23.

These restructuring costs adjusted EBITDA margin would have been 19, 3% in the fourth quarter and as we continue to focus on diligent cost savings and process improvements in our software segment, we expect margins to improve in 2024 S. Petra mentioned the fourth quarter Mark.

Mateus Scherer Schwening: And as we continue to focus on diligent cost savings and process improvements in our software segments, we expect margins to improve in 2020. As Pedro mentioned, the fourth quarter marks the closing of an important year of strategic advancement for our business. The combined evolution of our strategic priorities around win, engage, and scale through platforms led to the strong results we have seen in the fourth quarter. Reinforcing what Pedro already said, I believe we're well positioned for a strong 2024 and 2027 outcome. Now, I want to pass it over to Mateus for him to discuss in more detail our key financial methods. Mateus, Thank you, Lia, and good evening, everyone.

Speaker Change: The closing of an important year of strategic advancements for our business. The combined evolution of our strategic priorities around when engage and scale through platforms led to the strong results. We have seen in the fourth quarter reinforcing with Petro already said I believe we're well positioned for a strong 2024 and two.

Mattel: 27 outlook now I want to pass it over to materials for him to discuss in more detail our key financial metrics Mattel's.

Mattel: Thank you Leah and good evening, everyone I would like to begin on slide four where we discuss the quarter on quarter evolution of our cost and expenses on an adjusted basis.

Mateus Scherer Schwening: I would like to begin with slide 10, where we discussed the quarter-on-quarter evolution of our costs and expenses for energy. Cost of services reached R$803 million, increasing 15% year-on-year and 3.8% quarter-on-quarter. However, cost of services was sequentially flattish as a percentage of revenues, despite provisions for expected credit losses in the amount of R$39 million in the first quarter, as we grew our credit book and higher investments Including provisions for expected credit losses, cost of services would have decreased 50 basis points sequentially as a percentage of revenues, showing continued operational leverage. Administrative expenses decreased 6.5% year-on-year, leading to a 250 basis points reduction as a percentage of revenue when compared to the first quarter. However, sequentially, administrative expenses increased 14% of 70 basis points job revenues due to higher third party services.

Mattel: Cost of services reached 803 million, increasing 15% year on year, and three 8% quarter on quarter cost of services sequentially flattish as a percentage of revenue despite provisions for expected credit losses in the amount of 39 million Reais in the first quarter as we grew our credit book and higher investments.

Technology.

Mattel: Excluding provisions for expected credit losses cost of services would have decreased 50 basis points sequentially as a percentage of revenues.

Mattel: With operational leverage.

Mattel: Administrative expenses decreased to six 5% year on year, leading to up to 150 basis points reduction as a percentage of revenue when compared to the first quarter financials.

Mattel: Administrative expenses increased at FERC, 10% up 70 basis points as a percentage of revenue due to higher third party services expenses combined with personal expenses, which are seasonally higher in the first quarter as we have shared in our investor day, achieving efficiency in G&A will continue to be a priority way forward.

Mateus Scherer Schwening: Combined with, which are seasonally higher in the per As we have shared in our investor day, achieving efficiency in G&A will continue to be a priority going forward. We remain committed to our guidance of less than 1.125 million in administrative expenses for 2024, which implies a growth of less than 7% for the selling expenses increased 2.6% quarter on quarter and remained flat as a percentage of revenues, despite higher provisions for variable compensation in the. Financial expenses decreased 10% quarter on quarter, down 430 basis points as a percentage of revenue. This evolution was a result of lower interest rates, with average CDI decreasing in the quarter, a lower number of employees, a seasonal decline in the average duration of funding lines, and a lower average cash balance. Other expenses increased 47, Class A Class A Class A because of higher tax provisions related to share-based compensation as a result of the share price appreciation in the. Lastly, the adjusted effective tax rate reached 11.7% in the fourth quarter. The lower effective tax rate in the period was a result of higher utilization of tax benefits from LedoBank, as well as from areas abroad, subject to different statutory text.

Mattel: We remain committed to our guidance.

Mattel: Less than one month's you're fighting union of administrative expenses for 2024, which implies a growth of less than 7% for the year.

Mattel: Selling expenses increased <unk>, 6% per term quieter and remained flat as a percentage of revenue despite higher provisions for variable compensation in the period.

Mattel: Financial expenses decreased 10% quarter on quarter down for 130 basis points as a percentage of revenues. This evolution was a result of lower interest rate with ever CDI decreasing in the quarter lower number of working days a seasonal decline in the average duration of funding rate.

Mattel: And a lower average cash balances in the period.

Mattel: Other expenses increased 47, 6% sequentially and 120 basis points as a percentage of revenues because of higher contingency.

Mattel: Thanks provisions related to share based compensation as a result of the share price appreciation in the first quarter Lastly, adjusted effective tax rate reached 11, 7% in the first quarter the lower effective tax rate in the period was a result of higher utilization of tax benefits from the debate as well as gains from some.

Mattel: Good day areas abroad subject to different statutory tax rate.

Mateus Scherer Schwening: For 2024, we continue to expect effective tax rates between 20 to 25, turning to the slide. Our adjusted net cash position reached 5.1 billion reais, an increase of 1.6 billion reais year on year and 196 million reais for the. The growth in adjusted net cash is especially notable as it came after the deployment of R$293 million on share buybacks within the quarter, while also continuing to deploy capital towards the expansion of our credit portfolio. Now I would like to turn it back.

Mattel: For 2024, we continue to expect the effective tax rate between 20% to 25% turning to slide 15.

Mattel: Our adjusted net cash position reached 5 million, reflecting an increase of $1 6 billion year on year, and 196 million reais for the quarter the growth in adjusted net cash is especially notable as it came after the deployment of 290 premium on share buybacks in the quarter.

Mattel: While also continuing to deploy capital towards the expansion of our credit portfolio.

Mattel: I would like to turn it back to Pedro.

Pedro Zinner: Thank you so much. To wrap it up, today we also announce a pivotal transition in our Andres Trich, our esteemed founder and chairman, has also chosen to conclude his tenure on the board, stepping aside from re-election at the forthcoming annual general meeting for April 2020. Similarly, Vice-Chairman Conrado Engel and Board Member Patricia Verderesi will not sit re-elected, honoring the two-year term. Andrea will remain connected to the company as a reference shareholder, boasted by special protections and holders agreement and articles of association. Including the privilege to nominate the chairman, This transition marks the culmination of a deliberate multi-year effort led by André to professionalize management and enhance governance, The candidates recommended for the upcoming AGM will be Mauricio Lucchetti as Chairman and Gilberto Caldarte as Vice-Chairman.

Pedro: Thanks, Joe materials to wrap it up today, we also announced a pivotal transition in our leadership.

Pedro: And then I stitch, our steam founder and Chairman has also chosen to conclude his tenure on the board stepping aside from reelection at the forthcoming annual General meeting scheduled for April 2024.

Pedro: Similarly, Vice Chairman <unk>, CEO and board member Patricia.

Pedro: We will not seek reelection honoring their two year commitment.

Pedro: And Brian we remain connected to the company as a reference shareholder bolstered by special protections and orders agreement and the articles of Association.

Pedro: The privilege to illuminate the chairman of the board.

Pedro: <unk> marks the accumulation of a deliberate multiyear effort led by Indra, So professionalized management and enhanced governance standards.

Pedro: Mission that was crystallized by our strong 2023 results and the robust strategically aligned.

Pedro: Now at the helm.

Pedro: The candidates recommended for the upcoming AGM will be Mauricio look at you as chairman and geographical docs as Vice Chairman. Additionally, a new member will be indicated <unk> Shanghai we.

Operator: Additionally, a new member will be, We have shared more details about the succession of the 6K5. We are committed to keeping alive the entrepreneurial spirit created by our founders. Our goal is to maintain high standards of governance as our company grows, continue to be a leader in entrepreneurship in clients, with a committed shareholder like Andrea, a great strong business, we are all set to continue to advance our mission forward. Before moving to Q&A, I would like to reinforce our guidance given for 2024. [inaudible] We expect MSMB TPV to reach more than 412,000, an increase of more than eight While we expect client deposits of more than 7 billion AI, creating more than 14% year over, For monetization, we expect our credit portfolio to surpass 800 million reais, increasing 2.6 times year over year, with MS&B take rates higher than 2.49%, implying an increase of more than, Lastly, in efficiency, we expect adjusted net income to be higher than 1.9 billion reais, representing more than 22% year over year growth, administrative expenses of less than 1,125,000,000 reais, decreasing 7% compared with 2021.

Pedro: We have shared market tails above the success shopper 65.

Pedro: We are committed to keeping our lives the intrapreneur Rio spirit created by our farmers. Our goal is to maintain high standards of governance as our company grows and continues to be a leader and to partnership and client Centricity.

Pedro: We have committed shareholder like umbrella a great team and a strong business. We are all set to continue to advance our mission forward.

Speaker Change: Before moving to Q&A I would like to reinforce our guidance given for 2024.

Speaker Change: While our growth metrics, we expect MSNBC PV to reach more than 412 billion, an increase of more than 18% compared with 2023, while we expect client deposits of more than 7 billion reais, increasing more than 14% year over year.

Speaker Change: Monetization, we expect our credit portfolio to surpassed 800 million highs, increasing two six times year over year with Msnb take rates higher than 249%, implying an increase of more than four basis points Lastly, inefficiency.

Speaker Change: Specced, suggesting that income to be higher than $1 9 billion highs representing more than 22% year over year growth with administrative expenses of less than $1 billion 125 million highs decreasing 7% compared with 2023.

Operator: As we close 2023 and kick off 2024, I am more enthusiastic than ever about. There is growth ahead of us, and we are closer to demonstrating the power of compassion. With that said, operator, can you please open the call to questions? Okay, at this time, we're going to open it up for questions and answers. If you have a question, please write it down in the Q&A section or click on "raise your hand" for audio questions. Please remember that your company's name should be visible for a question to be taken. We do ask, however, that when you pose your question, you pick up your headset to provide optimum sound quality.

Speaker Change: As we close 2023, and keep costs 2024, I am more enthusiastic than ever about our business. There is growth ahead of us and we are closer to demonstrating the power of combining with that said operator can you. Please open the call up to questions.

Speaker Change: Okay. At this time, we're going to open it up for questions and answers. If you have a question. Please write it down into Q&A section, where I click on raise hands for audio questions. Please.

Speaker Change: Please remember that your company's name should be visible for your question to be taken we do ask that when you pose your question that you pick up your headset to provide optimal sound quality. Please.

Operator: Please hold while we poll for questions. Our first question comes from Mauricio Picado with Evercore. Mauricio, you can open your microphone.

Speaker Change: Please hold while we poll for questions.

Evercore: Our first question comes from <unk> <unk> with Evercore.

Evercore: Lisa you can open your microphone.

Lia Machado de Matos: Hi, this is Sheriq Sumar from EvoCore ISI. I had a question on the software business coming to slide 13. Just wanted to get a sense as to, you know, how should we think about the potential benefits of the four key verticals heading into 2024? Given that it just grew by half a percentage point in the fourth quarter, and when can we expect the impact of the enterprise to decline so that we can see a growth in the software business from here? Thank you. Hi Sheriq. Lia here.

Evercore: Hi.

Lisa: This is <unk> <unk> from Evercore ISI.

Lisa: I had a question on the software business coming to slide.

Lisa:

Lisa: <unk>.

Speaker Change: Just wanted to get a sense as to you know what I mean, how should we think about the potential benefits of the four key verticals heading into 'twenty 'twenty four.

Speaker Change: Given that it just crude like half a percentage point.

Speaker Change: In the fourth quarter and when can we expect.

Speaker Change: <unk>.

Speaker Change: The impact of the enterprise to decline so that we can see a growth in the software business from here.

Speaker Change: Thank you.

Speaker Change: Hi, Sherri Lia here. Thank you for the question, so I'm going to kick off talking a little bit about what we highlighted on page 14, which is regards to how we are advancing on our initiatives to cross sell financial services into our software client base. So this page talks about.

Lia Machado de Matos: Thank you for the question. So I'm going to kick off talking a little bit about what we highlighted on page 14, which is with regard to how we are advancing on our initiatives to cross sell financial services into our software client base. So this page talks about the evolution of this strategic priority. And as we shared at investor day last year, we selected those four key verticals because they represent the majority of the opportunity in financial services revenues with our installed client base. So we believe that in order to capture this opportunity, it's going to be essential for us to offer our clients better solutions that combine software and financial services, and that we can do this in a way that we can leverage the capabilities of our vast distribution footprint and sustain our service differentiation, which really is a cornerstone of our value proposition. In that regard, the main metric for success in this initiative is the TPV overlap between financial services and software. And this metric reached 5.8 billion AIs in the quarter, which represents sequential growth of 19%.

Speaker Change: Evolution of this strategic priority and as we shared in the Investor day.

Speaker Change: Last year, we selected those four key verticals because they represent the majority of the opportunity in financial services revenues with our installed client base. So we believe that in order to capture this opportunity.

Speaker Change: It's going to be essential for us to offer our clients better solutions that combined software and financial services and then we can do this in a way that we can.

Speaker Change: Leverage the capabilities of our vast distribution footprint and sustain our service differentiation, which really is a cornerstone of our value proposition. So in that regard are the main metric for success in this initiative is.

Speaker Change: The PPV overlap between financial services and software.

Speaker Change: And this metric.

Speaker Change: Metric reached $5 8 billion reais in the quarter, which represents a sequential growth of 19%. So we compare this growth with the growth of our M. S N B PPV overall.

Lia Machado de Matos: So we compare this growth with the growth of our MSMB TPV overall, and we can see that this growth is significantly higher than the sequential growth of our MSMB TPV. And as long as we can continue to grow the financial services TPV overlap in our software client base above the growth of the overall client base, this means we're capturing additional value from this combination. So I think this is the essence of what we talk about on this page. Maybe Matheus can give a bit more detail on the revenue trends. Yeah, for sure.

Speaker Change: And.

Speaker Change: We can see that this growth is significantly higher than the sequential growth of <unk> and as long as we can continue to grow.

Speaker Change: The financial services, Oh, TPG overlap in our software client base above the growth of the overall client base. This means were captured capturing additional value from this combination. So I think this is the essence of what we talk about at this stage, maybe my skills can give a bit more highlight on the revenue trends.

Skills: Yeah for sure. So I think you also touched upon the software revenues on a standalone basis, which we show on page 13.

Mateus Scherer Schwening: So I think you also touched upon the software revenues on a standalone basis, which we show on page 13. And here, I think, especially on enterprise, we have some negative effects on the quarter related to IAS 29. So hyperinflation, especially in Argentina, that was a direct top line impact.

Speaker Change: And here I think especially on thank you, Brian we had some negative effect from the quarter related from Ias 29, So hyper inflation, especially in Argentina. This was a direct lending there Brian.

Mateus Scherer Schwening: But I think, like Lia said, the priority here is really not on the revenues for software standalone; I think the focus is really on improving that cross-sell metric for TPV. So again, yes, I think there can be some upside for enterprise software revenues in the future because there was a one-off related to hyperinflation, but the focus is really not there, expenses? Sure, I will start with the first part, and then I will ask you to repeat the second part you've got here a little bit.

Speaker Change: But I think.

Speaker Change: Michael you said the priority.

Speaker Change: Leading model the revenues for software stand alone. If you the focus is really on improving that.

Speaker Change: So metrics for TPB.

Speaker Change: So again, yes, I think there can be some upside for enterprise software revenues into future because they are one off related to hyperinflation, but the focus is really not there.

Okay.

Speaker Change: Got it. Thank you I just have one follow up question on the financial expenses can you help us understand as to how should we think about the first quarter and even for 2024 as well given the prospect of lower interest rates and the use of cash as.

Mateus Scherer Schwening: But just to start on financial expenses, I think the trends for 2024 are pretty much similar to what we saw in the quarter, which is that financial expenses should be driven by changes in interest rates. So as we have interest rates reducing, this should have a positive impact on financial expenses. Cash generation, which I think is a similar trend as the business evolves its cash generation, and we use part of this cash to fund repayments and credit.

Speaker Change: As you know going for third party funding.

Speaker Change: And also I know it just might be a pretty small impact, but implications of the leap year or for like an extra day in the month of Blake would that have any impact on the financial expenses. Thank you.

Speaker Change: Okay.

Speaker Change: Sure I will start with the first Brian.

Speaker Change: Could you repeat the second Brian you've got here, a little bit, but just to start on financial expenses.

Speaker Change: The transfer of 2024 are pretty much similar to what we saw in the quarter, which is the financial expenses shouldn't be driven by the changes in interest rates. So as we have with interest rates. We do see this should be a positive impact for finished expenses.

Mateus Scherer Schwening: This has a positive impact on financial expenses, and, of course, this will be offset by TPV growth. But again, I think these are the same trends that we saw in the quarter itself, and they should remain consistent throughout the year. Can you please repeat the second part of the question, Sheriq? Yeah, sure. So in your comments, you said that there were a lower number of working days in the fourth quarter, but in the first quarter, you're going to see an extra working day because you have an additional day in the month of February.

Speaker Change: Cash generation, which I think is a similar trend as the business evolves discussion duration and the use of this cash to.

Speaker Change: <unk> has a positive impact on finish expenses and of course, this will be offset from TPG roof, but again I think these are the same trends that we saw in the quarter to say open it should remain consistent throughout the year can you. Please repeat the second part of the question.

Speaker Change: Yeah sure. So in your comments you had said that there was a lower number of working days in the fourth quarter, but.

Speaker Change: In the first quarter Youre going to see an extra working day.

Because you have an additional day in the month of February So I know what the impact is going to be pretty small, but just wanted to get a sense as to you know what should how should we think about that.

Mateus Scherer Schwening: So I know the impact is going to be pretty small, but just wanted to get a sense as to what we should think about. Yeah, I think this was the smallest of the effects that we mentioned. So again, when we talk about one extra or lower extra day in the quarter, it's about 3% impact maximum. So on the delta, right? So it's not mature at all, I think.

Speaker Change: Yes, I think just one more.

Speaker Change: <unk> of the effects that we mentioned so again when I talk about one extra or lower extra being the Parker is amongst 3% impact mix and also on the Delta right. So it is not mature at all I think.

Mateus Scherer Schwening: Thank you so much. That's all. Thank you, Sheriq. Our next question is from Eduardo Rosman with BTG. You can activate your microphone.

Speaker Change: Thank you so much that's all from me.

Speaker Change: Thank you Sherry.

Speaker Change: Our next question from Eduardo <unk> with BTG.

Eduardo: And activate your microphone.

Mateus Scherer Schwening: Hi, hi, everyone. I have two questions here. The first one is on your credit business, right? You are booking your results now on an accrual basis and also booking upfront provisions, right, which I think makes total sense. But you're still using a cost of risk of 20% while you believe, you know, actual losses will be under 10%, right? So just trying to understand here how much time you need to be able to use a lower cost of risk, or eventually, how much time we need here to be able to see a convergence, you know, of the cost of risk to your actual losses.

Eduardo: Hi, Hi, everyone I have two questions here.

Eduardo: First one is on your credit business right.

Eduardo: You are booking your results now on an accrual basis and also booking upfront provisions right, which I think makes total sense, but they are still using a cost of risk of 20%. Why are you believe you, though actual losses will be under 10%. So just trying to understand here.

Speaker Change: How much time you need.

Speaker Change: So to be able to use a lower cost of risk of Nomura. Thanks for you how much time, we need to be able to see that I call a convergence of the of the cost of risk to your actual kind of losses that would be the first question and the second one.

Mateus Scherer Schwening: That would be the first question. And the second one, just trying to understand because the stock is down 10% in the aftermarket. And my sense here is that the numbers were strong, right. So I'm trying to understand here what could be behind, you know, the sell-off and many investors and clients here asking about, you know, street departure. So just want to, Andrea, right, so just wanted to, if you could help us understand, you know, how, what his role has been in the last, you know, 12 to 24 months. You know, he remains, you know, naturally an important kind of partner of the company, but if you can remind us, like, his economic stake is not that large anymore. So if you can help us understand a little bit more about the changes on the board, you know, and maybe that could explain a little bit the sell-off, which, to me, doesn't make a lot of sense given the results. Thanks. Hey Rosman, Mateus here.

Speaker Change: Just trying to understand because.

Speaker Change: The stock is down 10% in the after market and my sense here is that the numbers were strong right. So trying to understand here what could be behind it.

Speaker Change: The sell off in many fastest clients youre asking about no street departure.

Speaker Change: So just wonder Andre Andre Alright, So just wanted to if you could help us understand it.

Andre: What was really his role in the last 12 to 24 months he remains in.

Andre: Naturally.

Andre: An important kind of a partner of the company, but if you can remind us like his economic stake is not that large anymore.

Andre: So if you can help us understand a little bit more about the changes in the board.

Andre: And maybe that could explain a little bit the selloff, which to me it doesn't doesn't make a lot of sense given the results. Thanks.

Andre: He holds them.

Speaker Change: <unk> here I will start with the credit piece.

Pedro Zinner: I will start with the credit piece and then hand it over to Pedro to talk about the governance changes. Regarding credit, you're totally right. So we're booking credit on an approval basis, and we're using the expected credit losses of 20% until we have more confidence in the models themselves.

Over to Andrew to talk about the governance changes.

Andrew: Regarding credit you are totally right. So were booking credits on an accrual basis and we're using the expected credit losses of 20% until we have more confidence on the model itself.

Mateus Scherer Schwening: The migration to a risk-based approach will occur throughout this year, and so it probably will be gradual. So we're going to start to converge the provisioning models towards our risk models. And then, maybe, I think it's also worthwhile to provide an update on how we're seeing NPLs as well, which touches upon your comments about the 10% versus the 20% expected loss levels. So this quarter we started to report NPLs. As you can see, 90-day NPLs are still really low at 0.24, and NPLs from 15 to 90 days are still at 2%. Of course, this metric is affected by the speed of growth of the portfolio, and that's why the numbers are so low.

Andrew: The migration for a risk based approach we will occur throughout this year. So it probably will be gradual.

Andrew: What are you going to start to converge the provision model.

Andrew: Our risk models.

Andrew: Then maybe if you could also required to provide.

Andrew: Hum.

How are you seeing npls as well, which searches upon your comments about the 10% versus the 20% expected loss levels.

Andrew: So this quarter when you started to report Npls.

Andrew: As you can see 90 days npls or <unk> 24 in Npls from 15 to 90 days are still at 2%.

Andrew: Of course this metric is affected by the speed of growth of the portfolio and Thats why the numbers are so low.

Mateus Scherer Schwening: But even when you look at the cohort data, our over-30 MOV3 remains roughly at the same level that we disclosed yesterday in the two, between two and 4% area. So I think you're right about that point that, overall, when we look at the numbers, that continues to put us on the right track to land at an expected loss below the 10% level. But again, it's still really soon.

But even when you look at the cohort data.

Andrew: Our over 30 month three remained roughly at the same level that we disclosed in Investor day in the true between two and 4% area. So.

Speaker Change: So I think youre right in that point Thats overall, when we look at the numbers that continues to put us on the right track to land it.

Speaker Change: Unexpected loss below the 10% level, but again.

Speaker Change: <unk> really seen and we're taking a cautious approach here. So the migration will be gradual over time.

Mateus Scherer Schwening: And we're taking a cautious approach here, so the migration will be gradual over time. Then, maybe Pedro, if you want to comment about the governance. Yes. Hi Rosman.

Speaker Change: Then maybe physical shrink to a point about the Bourbon, yes, hi.

Speaker Change: Hi Hoffman.

Pedro Zinner: I think what I'm trying to do, I think it's hard to, talk about rational or irrational reactions on the investment side. I think I'll try to be a little bit pragmatic in terms of changes we have made at the board in how we see this as we move ahead. So I think this indirect transition is a kind of natural step in the company's journey. I'm sorry, and I think over the past two years or so, the company has been functional, personalizing its board of directors, bringing a mix of technical expertise, industry, and company knowledge, right? I think I was even part of this changing process a couple of years ago; two years ago, I joined the board in April.

Speaker Change: I think what I'm trying to I think it's hard to.

Speaker Change: Talk about rational or irrational reactions.

Speaker Change: The investment side, I think I'll try to be.

Speaker Change: And there are bit pragmatic in terms of changes we had at the board.

How we see this as we move ahead.

Speaker Change: I think Andreas transition is it kind of a natural step in the Companys Journal journey I'm sorry.

Speaker Change: And I think.

Speaker Change: The past two years or so the company has been.

Speaker Change: Functional personalizing, it's what our direct is bringing a mix of technical expertise industry.

Speaker Change: Opening knowledge right I think I was even part of this.

Speaker Change: Changing process a couple of years ago, two years ago I joined the board in April.

Pedro Zinner: I think 2022 was a year of a turnaround, and I think in 2023, we presented very solid results. I think we have a strong management team and a clear strategy as we move ahead. And I think Andre played a key role in terms of changing the governance and setting the directions as we move ahead. And I think he felt it was the right time to make the transition.

Speaker Change: I think 2022 was.

Speaker Change: What's in a row and I think 2023 represents a very solid results I think.

Speaker Change: We have a strong management team and a clear strategy as we move ahead.

Speaker Change: And I think that plays a key role in terms of.

Speaker Change: Changing the governance in setting the direction as we move ahead and I think he felt it was right was the right time to make the transition right.

Pedro Zinner: I think the important point here to highlight is that despite him stepping back from his formal role, he remained as a reference shareholder of the company. I think, addressing the question you made, he holds us off today with roughly 7% of the economic value of the company in terms of economic value for the company, with a voting power of roughly 37%. Right?

Speaker Change: I think important point to highlight is that despite the NIM.

Speaker Change: Getting back from his former role he will remain as a reference shareholder of the company.

Speaker Change: I think addressing the question Mig you may if you hold as of today roughly 7% of.

Speaker Change: The economic in terms of economic value for the company.

Speaker Change: Empower off roughly 37%.

Pedro Zinner: I think another point which is worth highlighting is the safeguards regarding the company shareholders agreement and the articles of association that is held by Andre. The first one is that as long as he holds at least 15% of the voting rights, he can nominate a board member. The other safeguard, which is building on that, is that while he holds more than 25% of the voting rights, he decides who is the chairman among the board members.

Speaker Change: I think another point, which is worth highlighting.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: Yes, safeguards regarding the company's shareholders' agreement and the articles of association that is held by them.

Speaker Change: The first one is that as long as he holds at least 15% of the voting rights. We can indicate a board member.

Speaker Change: The other safeguard which is building on that is that why he holds more than 25% of the hope Fulton rights. He decides who is the chairman among the board members.

Pedro Zinner: And so, in a nutshell, Andre is still very committed to the company as a reference shareholder, and I think he has played an important role in terms of changing the governance and setting directions as we move ahead. No, thanks.

Speaker Change: So I think in a nutshell.

Speaker Change: It's still very committed to the company.

Speaker Change: As a reference shareholder.

Speaker Change: It played an important role in terms of changing the Gordon us in certain directions as we move ahead.

Speaker Change: No. Thanks, Thanks, a lot.

Pedro Zinner: Thanks a lot, Pedro, for the tough, tough question. And thanks a lot, Mateus, as well. Thank you. Thank you. Our next question is from Mario Pierry with Bank of America. Now, you can activate your microphone.

Speaker Change: We added a floor for the tough question.

Speaker Change: And thanks, a lot and materials as well.

Speaker Change: Thank you Robin Thank you.

Speaker Change: Our next question from Mario <unk> with Bank of America.

Mario: You can activate your microphone.

Lia Machado de Matos: Hi guys, thanks for taking my question. Let me ask you two questions as well. The first one is that you recently acquired a financeira license that should help your funding costs going forward. Have we seen any benefits of that so far? Also, if we look at your deposit base, right, the strong growth, can you explain to us better, you know, what drove this growth? Is it because all of your clients now have a banking account with you? Or what percentage of your clients already have a banking account? And maybe that's why you've seen the benefits?

Mario: Hi, guys. Thanks for taking my question, let me ask you two questions as well.

Mario: The first one is you recently acquired a financiera license that should help your funding costs going forward have you seen any benefits of that so far.

Mario: Also if we are looking at your deposit base rates strong growth can you can you explain to us better what drove this growth is it because all of your clients now have a banking account for you or what percentage of your clients already have a banking account and maybe that's why you're seeing the benefit.

Lia Machado de Matos: And can you just remind us if you continue not to remunerate this deposit? And then the second question is related to your tax rate, right? We saw an effective tax rate of only 11%.

Mario: And can you just remind us if you continue not to to remunerate this deposits.

Mario: And then the second question is related to your tax rate right with an effective tax rate of only 11%.

Mateus Scherer Schwening: Can you remind us what the effective tax rate that you are forecasting in your guidance for the year? So when you talk about net income, adjusted net income of more than 1.9 billion R.I., are you assuming that the tax rate should stay around the current levels or should we see a more normalized tax rate, which I think had been running closer to 20%? Thank you. Hey Mario, thank you for the questions.

Mario: Can you remind us what is the effective tax rate that your.

Mario: Forecasting on your guidance for the year, so when you're talking about net income adjusted net income of more than 190 <unk>.

Mario: Are you assuming that tax rate should stay around the current levels or should we see a more normalized tax rate, which I think you had been running closer to 20%. Thank you.

Okay.

Speaker Change: Hey, Mike. Thank you for the questions I'll start with the <unk> III piece, and then hand it over to you to talk about banking.

Mateus Scherer Schwening: I will start with the text read piece and then hand it over to Lia to talk about banking. So in terms of tax rates, I think the main driver for the lower tax rates in the quarter was that we were able to maximize the usage of tax benefits associated with research and development, the legal bank. And just to give some perspective here, even though our company as a whole has been profitable for many years, some of our entities where we have significant R&D expenses have not been. So we have been working really hard to make sure that we improve profitability, not only at the consolidated level but also in those main EU entities. As a result of these efforts, we were able to reverse accounting losses at some of our subsidiaries in the fourth quarter and increase the usage of legal ban, which was really concentrated in the fourth quarter of twenty three.

Mike: So in terms of the tax rate I think the main driver for the lower tax rates in the quarter was that we were able to maximize the usage of tax benefits associated with research and developments Lee Delaney.

Mike: And just to give some perspective here, even though our company as a whole has been profitable for many years.

Mike: Our entities, where we had significant R&D expenses were not.

Mike: So we have been working really hard to make sure that we improve profitability not only at the consolidated level, but also in those mainly going into this.

Mike: As a result of these efforts we were able to reverse accounting looks at some of our subsidiaries in the first quarter.

Mike: And increase the usage of <unk>, which was really concentrated in the first quarter of 'twenty three.

Lia Machado de Matos: As we move ahead, the level of lidoban usage across the year will not materially change, but the benefits should be more spread out throughout the year. So when we look ahead in terms of tax rates, we continue to expect a tax rate between 20 to 25%, which is what we guided during investor day. And that's what is embedded in the guidance that we provided. Yeah, so, Maite, just to give you some color on your questions regarding banking, okay? So in terms of the strong results and deposits that we saw, these results were mainly the result, the consequence, of two main factors.

Mike: As we move ahead the level of legal being usage across the year, we will not materially change, but the benefits should be more spread out throughout the year.

Mike: So when we look ahead in terms of tax rate.

Mike: We continue to expect opex rates between 20% to 25%, which is what we guided during the Investor day, and that's what is embedded in the guidance that we provided.

Okay.

Speaker Change: Yeah. So might've just to give you some color on your questions regarding banking right. So in terms of the strong results in deposits that we saw.

Speaker Change: These results were mainly a result, a consequence of two main factors first is that we continued to put.

Lia Machado de Matos: First, we continue to put significant efforts around bundling payments and banking. So we talked a lot about this at the investor day, right? So a payment CPV becomes a relevant cash in for clients that use banking as their domicile.

Significant efforts around bundling payments and banking so.

Speaker Change: We talked a lot about this in the Investor day right. So.

Speaker Change: Up payments TPC becomes irrelevant cashin.

Speaker Change: Clients that use banking is domicile and that was an important.

Lia Machado de Matos: And that was an important driver in increasing deposits, but also our ability to continue to engage more and more clients with our banking solutions. Of course, the fourth quarter does have seasonality in deposits, so there is a seasonal effect there.

Speaker Change: River and increase in deposits, but also.

Speaker Change: Our ability to continue to engage more and more clients that are banking solutions of course, the fourth quarter does have seasonality in deposits. So there is a seasonality effect there but continue to see the same very positive trends throughout the first quarter of 'twenty.

Lia Machado de Matos: But we continue to see the same very positive trends throughout the first quarter of 24. So with regard to your question about the Financiera license, we talked, we gave a lot of color on this at investor day, right, the roadmap that we have ahead of us in terms of banking this year. So investment products are a part of our roadmap, and we gave some color on that. And there's not much to say beyond what we already said. We are testing this product for our clients. Our focus is really to develop a roadmap that can prioritize the main jobs to be done for our clients. So investment is a part of that roadmap, and we will be giving more color on this throughout 2024. Thanks, Leah.

Speaker Change: For.

Speaker Change: So with regards to your question about the state of license.

Speaker Change: We talk we gave a lot of color on this in the Investor day right. A roadmap that we have ahead of us in terms of banking Ah. This year. So investment products are a part of part of our roadmap and we gave some color on that and there's not much to say beyond what we already said we are testing this.

Speaker Change: Product for our clients. Our focus is really that we develop a roadmap that can prioritize the main jobs to be done for our clients. So.

Speaker Change: Investment is a part of that roadmap and we will be giving more color on this throughout 2024.

Speaker Change: Thanks.

Lia Machado de Matos: Just let me ask you then, on the banking domicile, what percentage of your clients today have a banking domicile. Today, Mario, around 50% of our clients have a banking domicile. Of course, there's been a significant shift towards 2023 when we migrated all of our Tone clients to the full banking solution. But we continue to drive payments and banking bundles to new sales as well as upsell banking to current clients in the base, okay? So you are correct in the sense that deposits currently do not pass through any of the floats. But of course, as long as we decide to scale investment products, that may change, but it's too early to give any more specifics about that. Okay, thank you very much.

Speaker Change: Just let me ask you then on the banking domicile what percentage of your clients that they have a banking account.

Speaker Change: Today, our model between around 50% of our clients have a banking domicile of course.

Speaker Change: There's been a significant shift towards 2023, when we migrated all of our top clients to the full banking solution, but we continue to drive.

Speaker Change: Payments and banking bundles to new sales as well as upsell banking to current clients in the base.

Speaker Change: Okay and then.

Speaker Change: Just confirm that you are not renewing their rating those deposits and you do not plan on Remunerating them correct.

Speaker Change: So you are correct in the sense that the deposits currently we do not pass through any of the float.

Speaker Change: But of course as long as we decided to scale investment products that that may change, but too early to give any more specifics about that.

Speaker Change: Okay. Thank you very much.

Lia Machado de Matos: Oh, and just to be clear, our guidance that we gave on investor day for the level of deposits in 2024, which considers that we do not pass through any of the interests, the clients? Our next question from Tiago Beanfield with Goldman Sachs. You can activate your microphone.

Speaker Change: And just to be clear our guidance that we gave them the investor day for the level of deposits of 2024 that considers that we did not pass through.

Speaker Change: Any other.

Speaker Change: Interest to clients.

Speaker Change: Our next question from Chagal being filled with Goldman Sachs you can activate your microphone.

Mateus Scherer Schwening: Hi everyone. Thank you for taking the time to answer my question. I have just one on expenses. When we look at your guidance for growth below 7% in 2024, what do you think are the main challenges and opportunities here? And especially considering that third-party services and personnel picked up this quarter, are there any new trends to read from these two lines? But more broadly, we would appreciate any color you can give on expenses. Class of 2024. Thank you. Hey Thiago,

Chagal: Hi, everyone. Thank you for taking my question I have just one on expenses when we look at your guidance going below 7% in 2024, what do you think are the main challenges and opportunities here and especially thinking that a third party services personnel picked up this quarter.

Chagal: Any new trends to read from these two lines.

Chagal: We would appreciate any color you can give.

Chagal: <unk> expenses into 2024, thank you.

Chagal: Hey, Jonathan Thanks for the question Matthew.

Mateus Scherer Schwening: Thank you for the question. Mateus here. So I'll first address the fourth quarter and then talk about 2024. In regards to the fourth quarter, administrative expenses are seasonally higher in this quarter. And this is mostly a result of two drivers. The first one, in general, is variable compensation because we pay variable compensation according to the expected EBT of each quarter. Naturally, the fourth quarter has a higher result and drives more variable compensation. But also, we have a concentration of more corporate events in the quarter. And that drives a lot of the third-party expenses. So I wouldn't read too much into the transfer departure. I think that's seasonalally expected.

Jonathan: So first of all the rest of the first quarter and then talk about 2024.

In regards to the first quarter administrative expenses are seasonally higher in this quarter.

Jonathan: And this is mostly a result of two drivers the first one in general.

Jonathan: Herbal compensation, because we provision.

Jonathan: Compensation. According to the expected <unk> of each furniture naturally the first quarter has a higher results in drugs more variable compensation.

Jonathan: But also we have a concentration of mark corporate events in the quarter and that drives a lot of third party expenses. So I wouldn't read too much on the transfer of departure athene that seasonally expected.

Mateus Scherer Schwening: Now when it comes to the guidance, now we guide 1.125 million in 2024. This implies a growth slightly below 7% when you compare it to the numbers we closed in 2023. And here I think you have basically two drivers.

Jonathan: When it comes to the guidance, we guided $1 one shall face meeting between 'twenty four it does imply that roof.

Jonathan: Slightly below 7% when compared to the numbers, we close 2023.

Jonathan: And here I think you have basically two drivers.

Mateus Scherer Schwening: On the one hand, we've been doing a lot of efforts to implement zero-basis budgeting and a shared services center for the company. And when we talk about these two processes, I think the main driver behind them is really unifying processes throughout the company that, either because we grew too fast, or either because we have the software segment not integrated yet, we may have duplicate processes for some corporate functions. On the other hand, we still need to invest more, especially in the financial services segment, as we're bringing more capability to the company and improving the processes as a whole. So I think the 7% figure in terms of growth is really the net effect of these two trends. On the one hand, seeking efficiency and implementing these initiatives. And, on the other hand, continuing to invest in what we feel we need to deliver our plans. Thank you, Mateus.

Jonathan: <unk>.

Jonathan: Been doing a lot of efforts to implement zero based budgeting and shared services center from the company.

Jonathan: And when we.

Jonathan: We talk about these two processes I think the main driver behind them is really a unifying processes throughout the company that either because we grew too fast or either because we have the software segment in one integrated yet we may have duplicate processes for some corporate functions.

Jonathan: On the other hands, we still need to invest more especially in the financial services segment as we are bringing to market the ability to the company and improving the processes of Hu <unk>.

Jonathan: So I think the 7% senior in terms of growth is really the net effect of these two trends on one hand seeking efficiencies and implementing these initiatives.

Jonathan: On the other hand is continuing to invest.

Jonathan: And what do we need to deliver airplanes.

Speaker Change: Thank you.

Mateus Scherer Schwening: Very clear. Our next question is from Neha Agarwala with HSBC. You can activate your microphone.

Speaker Change: Clear.

Speaker Change: Our next question from Neil <unk> with HSBC, you cannot you can activate your microphone.

Lia Machado de Matos: Hi, congratulations. Thank you for taking the time to answer my question. Just a quick one on volume growth for 24. The guidance remains strong after a good year in 2023. How are you seeing the competition evolve given that most of the competitors are focusing on the SMB segment? You mentioned that you maintain your benchmark status in the SMB segment, but are you seeing a bit more competition from the competitors, both in terms of price, aggressiveness, as well as adding new sales force on the street? Is that putting pressure on volumes?

Neil: Hi legislation because it does and thank you for taking my question just a quick one on volume growth for 'twenty for the guidance.

Neil: I mean strong after a good dish entering 'twenty.

Neil: How are you seeing the competition that was given that.

Neil: Most of the competitors that focusing on the SMB segment. You mentioned that you remain do you maintain your benchmark status in the SMB segment, but are you seeing a bit more competition from our competitors both in terms of price aggressiveness as well as adding.

Neil: Adding sales force out in the state is that putting pressure on the volumes.

Lia Machado de Matos: So that would be very helpful. Thank you so much. Hi Neha, Lia here.

Speaker Change: That's very helpful. Thank you so much.

Speaker Change: Hi, Neil Hi, Lia here. Thank you for your question, so I'm going to start talking a little bit about <unk> trends in the guidance and then.

Lia Machado de Matos: Thank you for your question. So I'm going to start talking a little bit about TPV trends and the guidance and then give some color on the competition. So I think regarding TPV, there's nothing really new in terms of the dynamics that we're seeing. ABEX recently released their outlook for market growth in 2024.

Give some.

Lia: Color on the competition on the competition. So I think regarding TPB nothing really new in terms of the dynamics that we're seeing.

Lia: Apex released recently their outlook for market growth in 2024, and when you compare you contrast that with our guidance for 2024 of 412 billion highs and MSNBC Tvs. This implies that we will continue to grow more or less.

Lia Machado de Matos: And when you compare that with our guidance for 2024 of 412 billion reais in MS&B TPV, this implies that we will continue to grow more or less twice the market rate of growth, which means, essentially, we will continue to gain share in the MS&B sector. So I'm going to start by talking a little bit about the TPV segment versus the overall market. So we remain committed to this guidance.

Lia: Twice the market our rate of growth, which means.

Lia: Essentially we will continue to gain share in the Msnb segment versus the overall market.

Lia: So we remain committed to this guidance.

Lia Machado de Matos: In terms of competition, nothing really new regarding the competitive environment, based on the fourth quarter results, we can see that we're starting to experience benefits from the reduction in interest rates, with financial expenses as a percentage of revenue decreasing 4.3 percentage points. And this is consistent with what we have been saying over time that in the short term to medium term, the competitive environment is much more rational. And stable, and players will benefit from a decrease in interest rates. In terms of competitive dynamics, overall, this is pretty much what we see, a rational market; not anything much new to say about that. Super helpful. Thank you so much, Leah.

Lia: In terms of competition, nothing really new regarding the competitive environment based on the fourth quarter results. We can see that we're starting to experience benefits from reduction in interest rates.

Lia: Financial expenses as a percentage of revenue decreasing four three percentage points and this is consistent with what we have been saying over time that in the short term to medium term the competitive environment is much more rational and stable and players will benefit from decrease in interest rates.

Lia: In terms of competitive dynamics overall this is pretty much what we see a rational market not not a.

Speaker Change: Any any thing much new to say about that.

Speaker Change: Super helpful. Thank you so much Neil.

Mateus Scherer Schwening: Thank you, Neha. Next question from Renato Meloni with Autonomous Research. You can activate your microphone.

Neil: Thank you Alicia.

Speaker Change: Next question is from tend not to meloni without autonomous research you can activate your microphone.

Mateus Scherer Schwening: Hi everyone, thanks for the space here to ask a question. So first on take rates, I wonder if you can give me some more granularity on the decline in 4Q, how much comes from seasonality, and how much is coming from the shifting client mix, and then the expectation of how that's going to behave throughout 2024. And my second question is a follow-up on financial expenses. The sequential decline is a little bit more than we expected, given the declining rates. So I wonder if there is another factor here at play. And then if you have some ratio that could help us estimate this for the year. Thank you. Thank you and awesome.

Meloni: Hi, everyone. Thanks for the space here to ask a question. So first on take rates I Wonder if you can give me some more granularity on the decline in <unk>, how much comes from seasonality and how much is coming from the shifting client mix and then the expectation on Paul.

Meloni: That's going to behave throughout.

Meloni: 2024.

Meloni: Second question is a follow up on financial expenses.

Meloni: The sequential decline I think it's a little bit more than we expected given the declining rates. So I wonder if there is a oh.

Meloni: They're a factor here.

Meloni: And then if you have some.

Meloni: The ratio that could help us.

Meloni: Estimate this towards the year. Thank you.

Mateus Scherer Schwening: I will start with the big risk piece and then move to financial expenses. In regards to take rates, the vast majority of the decline was a result of mixed credit versus debit. We also noticed a slight client mix change, but this time around, it was the opposite effect, with Tom's TPV gaining relevance over Tom's TPV in the quarter, which was a different trend than previous quarters. And this is likely offset by the increased contribution from banking credits, which is growing above the pace of payments overall. So, in general, the greatest and vast majority is purely seasonality. That's why we remain committed to the guidance that we provided, and it was pretty much in line with what we expected. Now in terms of financial expenses, you are right that this quarter there is a second minor effect. This is related to the mix between the sale of receivables versus total debt outstanding. But again, we've always mentioned in the past that from quarter to quarter, you can have small effects related to the mix of receivables versus debt. But this is not material at all when we look at the numbers.

Speaker Change: Thank you and anthem.

Speaker Change: I will start with the deep roots piece, and then move to finish expenses.

Speaker Change: In regards to take rate the vast majority of the decline was a result of mix credit versus debit.

Speaker Change: We also loaded.

Speaker Change: <unk> claimed exchange, but this time around it was the opposite effect, we've stone TPG, gaining relevance overtones to beginning the quarter, which was a different trend in the previous quarters.

Speaker Change: And this.

Speaker Change: Slightly offsets the increased contribution from banking credits, which is growing on both the pace of payments overall. So in general decrease I think the vast majority is purely seasonality. That's why we remain committed with the guidance that we provided and it was pretty much in line with what we expected.

Speaker Change: Now in terms of financial expenses.

Speaker Change: You are right.

Speaker Change: This quarter there is a <unk>.

Speaker Change: Minor effect it was related to the mix between CEO of receivables versus total debt outstanding.

Speaker Change: But again, we've always mentioned in the past that from quarter to quarter, you can have small effects related to the needs of seal off receivables versus.

Speaker Change: But this is not about cheap material at all when we look at the numbers I think when we conclude the reduction CDI dilaura molecule frequently and the lower average cash balances in the period, you got pretty close to where financial expenses should land.

Mateus Scherer Schwening: I think when we combine the reduction in CDI, the lower amount of working days, and the lower average cash balance in the period, you get pretty close to where financial expenses should land. So again, when we look at 2024, I think it's safe to forecast based on these drivers alone and forget about these small variations due to the mix of funding lines that we use. That's very clear. Thank you. Next question from John Coffey with Barclays. You can activate your microphone.

Speaker Change: So again when we look at 2024, I think can see support cost basis on these drivers along and forget about these margarine nations due to the mix of funding lens that we use.

Speaker Change: Yeah.

Speaker Change: That's very clear thank you.

Speaker Change: Next question from John Coffey with Barclays you can activate your microphone.

Mateus Scherer Schwening: Great, thank you very much. So I just had two questions, which are sort of tied to some of the questions that Deha had. So given that the Celica has been declining over time, and you benefit from that, and you haven't really seen any irrational behavior in the market just yet, I'm just wondering, at a very high level, is there a way to think about what has to happen in order for you to start becoming more aggressive on pricing?

John James Coffey: Great. Thank you very much. So I just had two questions, which are sort of tied to some of the questions that <unk> had had so given that the silica has been declining over time and you benefit from that and you haven't really seen any irrational behavior in the market just yet I'm just wondering like at a very high level is there a way to.

John James Coffey: Think about what has to happen in order for you to start becoming more aggressive on pricing is it generally like one key competitor makes a significant.

Mateus Scherer Schwening: Is it generally like one key competitor makes a significant, you know, change to pricing, or are you starting to see this more broadly across the market? And I guess my second question is, as far as the TPV guidance for 2024, is there any kind of view you can give us on the cadence of that growth on a quarter to quarter basis? That's it.

John James Coffey: No change to pricing or are you starting to see this more broadly.

John James Coffey: Over the market and I guess my second question.

John James Coffey: He is as far as the PPV guidance for 2024 is there any kind of view you can give us on the cadence of that growth on a quarter to quarter basis. That's it. Thank you.

Mateus Scherer Schwening: Thank you. Thank you, John. I'll take the TPV question and then pass it over to Mateus. So I think there is no news in terms of the cadence of TPV. I think our TPV growth dynamics have been pretty consistent, so the important thing to look out for is the guidance for the year overall. So I think there is not much to say beyond that. And, of course, the seasonalities, which tend to be pretty consistent. Mateus, do you want to go?

Uh Huh. Thank you John I will take that TPG question, and then pass it over to my Bill So I think so.

John James Coffey: Nobody else in terms of the cadence of TPG I think our TPG growth dynamics has been pretty.

Speaker Change: Pretty consistent so the important thing.

Bill: I think to look out for is the guidance for the year overall, so I think not much to say beyond that and of course, the seasonality that tends to be pretty consistent but there was you want to yes.

Bill: In regards to the sensitivity of changes in pricing for the changes in interest rates.

Mateus Scherer Schwening: Yes. In regards to the sensitivity of changes in pricing for changes in interest rates, I think here we have to talk about the dynamics of pricing within each segment. So when we look at microbes, we mostly address them through our brain tone.

Bill: I think here.

Bill: We'll have to talk about the dynamics of pricing within each segments. So when we look at micro we mostly addressed my accrue through our brand tone.

Mateus Scherer Schwening: And when you look at Tom, the dynamics in terms of pricing is one of public prices. So the price is on the website. And if you look today, it's very similar to prices for all the main players. Why is that important?

Bill: And when you look at the dynamics in terms of pricing is one of public prices. So that prices on the website and if you look today is very similar to pricing.

Bill: For all the main players.

Bill: Why is that important with public pricing whenever you make a move.

Mateus Scherer Schwening: With public pricing, whenever you make a move, it's a very expensive move because your clients, at the end of the day, can call you and request the same public price. So we don't think there's any incentive for any player to make a move in the short term. Of course, longer term, if rates really go down in a significant manner, a smaller player has the incentive to reduce prices, and then others will most likely follow suit over time. But we don't see that happening in the short to medium term. And then in the SMB, the dynamics in terms of pricing are the opposite, but the effect is quite the same because in the SMB, the pricing is done on an individual basis. So it's very common in Brazil to have, let's say, two drugstores in the same neighborhood, the same size, but with two very different pricing profiles.

Bill: It's a very expensive move because your clients and you looked at they can call you and request the theme public price.

Bill: So we don't think there's any incentive for any player to make a move into short term.

Bill: Of course longer term if rates really go though in a significant manner.

Bill: FLIR has incentives to reduce branches and then the others will most likely follow suit over time, but we don't see that happening the short to medium term.

Bill: And then in SMB the dynamics in terms of pricing.

Bill: But the effect is quite is seeing because well less in media pricing is done on an individual basis. So very quality in Brazil to have let's see shall drugstores seem neighborhood see same size, but with two very different pricing profiles.

Mateus Scherer Schwening: And what that means is that if any player wants to be aggressive in SMB, there's no such thing as being aggressive for the whole base. The behavior occurs in the new seals, and then it really takes a while for the whole base to recycle and have the effects on the P&L. So that's why we don't see any likelihood of having a negative impact regarding interest rates in terms of pricing. But longer term, I think the strategy that we unveiled at Investor Day is really not about increasing these present payments, right? I think when you look at the guidance that we provided for take rates for 2027, all the increase can be attributed to the higher engagement of our banking solutions and also the rollout of new products, especially credit. So again, in the short to medium term, we think because of this pricing dynamics, it is likely that the benefits of falling interest rates will flow to the P&L. Longer term, the focus is not there. The focus is really on improving engagement with the new solutions.

Bill: And what that means is that if any player wants to be aggressive in SMB, there's no such thing as being at risk for the whole base.

Bill: The behavioral occurs in the new sales and then it really takes a while for the whole beef to recycle into two halves.

Bill: On the P&L.

Bill: That's why we don't see any likelihood of having the negative impact regarding interest rates in terms of pricing, but longer term I think the strategy that we are in fields.

Bill: The Investor day.

Bill: It's really not about increasing these present theme. It's rice I think when you look at the guidance that we provided for a peak rates for 2027.

Bill: The increase can be attributed to the higher engagement for our banking solutions and also with the rollout of new products, especially credits. So again short to medium term, we see because of this pricing dynamics. It is likely that the benefits of volumes is free to flow through the P&L longer term.

Bill: The focus is not there the focus is really on improving the engagement with the new solutions.

Mateus Scherer Schwening: Thank you. Next question from Yuri Fernandes with JP Morgan. You can activate your microphone. Yuri, I don't know if you're trying to state your question. We can't hear you. I believe he dropped out of the queue.

Speaker Change: Great. Thank you.

Speaker Change: Next question from you and he said and then just with the Jpmorgan you can activate your microphone.

Speaker Change: Yes.

Speaker Change: Judy I don't know if youre trying to.

Speaker Change: State Your question, we can't hear you.

Speaker Change: I believe he dropped out of the queue.

Mateus Scherer Schwening: Can we move on to the next question? Sure, let's move on. Sir, you can activate your microphone.

Can we pass to the next question.

Speaker Change: Sure let's move on next.

Speaker Change: Our next question from Tayo, Washington, with Greenwich Capital you can activate your microphone.

Mateus Scherer Schwening: Let's move to the next person on the queue. Sure. Next question from Daniel with Unrevealed Investing. You can activate your microphone.

Tayo: Sir you can activate your microphone.

Let's move to the next.

Tayo: First of all the Q.

Tayo: Sure next question from Daniel with Unrevealed investing you can activate your microphone.

Operator: [inaudible] Yeah, we can hear you. Oh, great. Thank you so much for taking my question. And I wanted to say thank you.

Daniel: Hi, there can you hear me.

Daniel: Yeah, we can hear you Oh, great. Thank you so much for taking my question and I wanted to say. Thank you you guys have done a wonderful job communicating.

Pedro Zinner: You guys have done a wonderful job communicating the strategy and the presentation materials. And I really appreciate the long form letter from Pedro Zinner this quarter. And I hope to see more in the coming quarters.

Daniel: The strategy.

Daniel: And the presentation materials and I really appreciate the long form letter from Petros <unk> this quarter and I hope to see more in the coming quarters.

Pedro Zinner: So once again, my name is Daniel from Unrivaled Investing. My question, actually, two questions, really: the first is regarding capital allocation. You know, it's been a treat to hear the commentary on, you know, your value proposition, why you think you're winning, and that you think you're, you know, going to continue growing faster than the underlying market. So that is very helpful, you know, the rational marketplace perspective. Do you have any sort of thoughts on capital allocation? Because, you know, I still think that there's this disconnect with, you know, what you're saying, which is that you have this very strong value proposition and you expect to continue winning. And what Wall Street's pricing was, you know, the stock is trading around a low teens earnings multiple. And I loved to see the buyback last year. So that's the first question. I can ask the second one later.

Danielle: So once again my name is Danielle from unrivaled investing my question two questions really the first is regarding capital allocation.

Danielle: It's been a treat to hear the commentary on your value proposition and why you think you're winning and that you think you're going to continue growing faster than the underlying market. So that is very helpful. The rational marketplace perspective, do you have any sort of thoughts on though the capital allocation because I still think that.

Speaker Change: There's this disconnect with what you're saying, which is you have this very strong value proposition you expect to continue winning and what wall Street pricing, where the stock is trading around a low teens earnings multiple and I love to see the buyback last year. So that's the first question I can ask the second one later thank you.

Mateus Scherer Schwening: Thank you. Thanks for the question, Daniel. So I think in regards to capital allocation, you're pretty spot on. So, when you look at the cash generation of the company, the company is consistently generating cash. In the first quarter, we generated cash despite doing 300 million in buybacks and also deploying capital in credit.

Speaker Change: Okay.

Speaker Change: For the question Danielle.

Speaker Change: I think in regards to capital location Youre pretty spot on.

Speaker Change: So when you look at the cash generation of the company. The company has consistently generating cash first quarter, we generated cash despite doing 300 million in buybacks and also deploying capital in credit.

Mateus Scherer Schwening: And that's why, at the end of the day, we approved and announced the new one billion reais by best plan anniversary, right? I think the only question here is that we're planning the execution of this buyback. And we also have to be mindful because when you look at the guidance, especially for the credit book, the five and a half billion is a sizable increase versus what we have now, but it's really small when compared to the overall credit market in Brazil.

Speaker Change: And Thats why at the end of the day, we approved and announced a new 1 billion Reais buyback plan and the Investor day right.

Speaker Change: The only question here is that we're planning the execution of this buyback and we also have to be mindful because when you look at the guidance, especially for the credit book. The 5 billion is a sizable increase versus what we have now, but it's really small when compared to the overall credit markets in Brazil. So the.

Mateus Scherer Schwening: So the only thing we need to be mindful in terms of capital allocation, longer term, is that if we get it right in terms of credit, there's potentially a lot more to be done in terms of deploying credit there, and we want to have this optionality and maintain a really strong balance sheet. So again, general terms, we're aligning with the buyback plan, it's just a matter of planning the execution, and longer term, we need to be mindful about the credit book. Got it. Super helpful.

Speaker Change: Only thing we need to be mindful in terms of capital allocation.

Speaker Change: Longer term is that if we get it right in terms of the credit this potentially look more to be done in terms of the blend credit Derrick and we also have this optionality and maintain a really strong balance sheets.

Speaker Change: So again general terms allow.

Speaker Change: <unk> doing the buyback plan, it's just a matter of planning execution and longer term, we need to be mindful of the credit book.

Speaker Change: Got it Super helpful. So it sounds like the buyback may not be it at full capacity, if you're thinking about the underlying credit book and the incredible growth you could have there in the coming years.

Lia Machado de Matos: And so it sounds like the buyback may not be at full capacity if you're thinking about the underlying credit book and the incredible growth you could have there in the coming years. So that's sort of the takeaway there. But the second half of the question, which is a bit of a tougher question, which is, do you see a future where the software segment, which, you know, clearly hasn't performed as well as the financial segment, which has done very well? Do you see a future where the software segment turns around and really starts to accelerate in the future, really starts to, you know, where you could say it has that type of value proposition, where you Yeah, so I'm going to take this question.

Speaker Change: That's sort of the takeaway there, but the second half of the question. This is a bit of a tougher question, which is do you see a future where the software segment, which clearly hasn't performed as well as the financial segment, which has done very well.

Speaker Change: Do you see a future where the software segment turns around and really starts to accelerate in the future really starts to where you could say it has that type of value proposition, where you're growing significantly faster than the underlying industry, where you say hey did the value proposition here is very strong and that's why we're going to win.

Speaker Change: Yeah, so I'm going to take.

This question I think Daniel so in terms of the growth prospects for software.

Lia Machado de Matos: I think, Daniel, so in terms of the growth prospects for software, as Mateus said at the beginning, right, I think there's a mix, a little bit of a mixed bag when we talk about the standalone software business. Indeed, yesterday, we communicated sort of the software business fragmented into three buckets. Number one, the four key priority verticals, number two, the enterprise business, and number three, the other software assets that we have not prioritized in terms of cross-seller financial services at this point.

Speaker Change: As Michael said at the beginning right I think there is a mix a little bit of a mixed bag. When we talk about the software business stand alone.

Investor Day, we communicated sort of the software business.

Speaker Change: It fragmented in three buckets number one the four key priority verticals number two the enterprise business and number three the other software assets that we have not prioritized in terms of cross sell of financial services at this point.

Lia Machado de Matos: I think in the first bucket, those four priority verticals, there's a lot that we're doing in terms of driving the integration of software and financial services. We really have set three key priorities there, and we believe that there's a vast opportunity for us to continue to grow. Naturally, this growth will come from two drivers.

Speaker Change: I think in the first bucket those for priority verticals. There's a lot that we're doing in terms of driving the integration of software and financial services. We really have set three key priorities there and we believe that there is a vast opportunity for us to continue to grow naturally.

Speaker Change: This growth will come from two drivers number one our ability to penetrate financial services.

Lia Machado de Matos: Number one, our ability to penetrate financial services to the current installed software base, but also as we improve our go-to-market, improve our wholesale process, and improve our value proposition around products, we expect to also continue to drive growth in software revenue standalone. The bucket that we have not prioritized in terms of the other verticals and other software assets, that also has pretty healthy growth, and we see it continuing to grow at healthy levels going forward. I think the dynamics in the enterprise business are a little different because we already have a pretty large market share there, so I think we can expect less growth from the enterprise business going forward. It's hard to talk about one single answer in terms of the software business.

Speaker Change: So the current installed software base, but also as we improve our go to market improve our wholesales process improve our value proposition around product we expect to also.

Speaker Change: Continue to drive growth on software revenue stand alone.

Speaker Change:

The bucket that we have not prioritized in terms of the other verticals and other software assets that also has a pretty healthy growth and we think we see it continuing to grow at healthy levels going forward I think the dynamics and the enterprise business is a little different because we already have a pretty.

Is a large market share there. So I think we can expect less growth from the enterprise business going forward. So it's hard to talk about one single answer in terms of the software business, it's really those three.

Lia Machado de Matos: It's really those three main buckets that I have just mentioned. Mateus, maybe you can talk a little bit about margin evolution. Yeah, for sure. I think we touched upon this yesterday as well, and also in the answer about administrative expenses, but when it comes to efficiency in the software, the standalone segment, there's a lot to be done in terms of implementing a shared services center and also zero-based budgeting there. I think 2023 was the first year that we ran the ZBB, but it was mostly focused on the financial services segment.

Speaker Change: Main buckets that I have just mentioned motto is maybe you can talk a little bit about margin evolution.

Motto: Yes for sure. So I think with based upon these in the Investor Day, Israel and also in dealing through both a unique specific expenses, but when it comes to efficiency in the software as a standalone segment.

Motto: I'll also be done in terms of implementing a shared services center and also the zero based budgeting. There I think 2023 was the first year that we ran does ABB.

Motto: Mostly focus on the financial services segment, we are now rolling it out well produced software segments as well.

Mateus Scherer Schwening: We're now rolling it out for the software segments as well. And that's why we guided that when you look at the EBITDA margin for the software segments, we reached mid-teens in 2023, and we should be significantly above the 20% threshold for 2024. Most of that will most likely be driven by efficiency in OPEX and not from the top line of the software standalone, like Lia said.

Motto: And that's why we guided that when you look at the EBITDA margins for the software segments.

Motto: We reached mid teens in 2023, and we should be significantly above the 20% threshold. Firstly, if any for most of that we will most likely be driven by efficiency in opex and loss from top line of this focus and a lot lately.

Mateus Scherer Schwening: Right. Thank you very much. Thank you, Daniel. Next question from Jorge Kuri with Morgan Stanley. You can activate your microphone.

Motto: Okay.

Speaker Change: Great. Thank you very much.

Speaker Change: Thank you Daniel.

Speaker Change: Next question from Josh <unk> with Morgan Stanley you can activate your microphone.

Mateus Scherer Schwening: Hi, everyone. Thanks for taking my questions. I have two questions. The first one is on your NPL ratio on slide 10. The way you measure it is: What do you consider to be non-performing? Is the total amount of the loan outstanding, or only the installment that was missed?

Josh: Hi, everyone. Thanks for taking my questions.

Josh: Two questions. The first one is on your NPL.

Josh: NPL ratio on slide 10.

Josh: The the way you measure it is.

Josh: And what do you consider to be nonperforming is the total amount of the low notes standing or OLED.

Josh: Installment Doug was missed.

Mateus Scherer Schwening: And then I'll ask my second question. Thank you. Thank you for the question, Kuri. For the first one, on slide 10, we measured the full amount of the loan.

Speaker Change: I'll ask my second question. Thank you.

Speaker Change: And thank you for your question included for the first one in the Slide 10, we measure just four months of the room and then on the low 661 Youll have also the information regarding the amount of OLED installment that was pass through so we have both information letting these licenses for multiple <unk>.

Mateus Scherer Schwening: And then on note 6.6.1, you also have information regarding the amount of only the installment that was past due. So we have both information, but on this slide is the full amount of the loan. Great, thank you very much. And then my second question is regarding the news on Andra Street.

Great. Thank you very much.

Speaker Change: Question is regarding on the news on <unk>.

Speaker Change: Andre Street.

Pedro Zinner: Thanks for telling us the shares that he still owns in the company, which, if I understand correctly, is around 7% of the economic value. My question is, With this announcement, is there any modification or existing lockup that he has on those shares? Is he able, if he wanted to, I'm not saying he will, theoretically, is he able to sell all of the shares at any point in time? Or is there any sort of like lockup agreement?

Speaker Change: Thanks for telling us.

Speaker Change: Shares of is the loan to the company, we tried to if I understood correctly is around 7%.

Economic value.

Mike: Mike My question is.

Mike: With this announcement is there any modification or existing.

Lockup that he has on those shares is he able if you wanted to I'm not saying you will theoretical is he able.

Mike: <unk> tool.

Speaker Change: Well all of the shares at any point in time or is there any sort of like local language local procurement and then also is there a.

Pedro Zinner: And then also, is there now or will there be, with this move, a non-compete agreement signed with Mr. Street? Hi Jorge, Pedro speaking. I think regarding the first question, I don't believe there are any changes at all, right? On the second point, I think a non-compete is actually being elaborated in which he will not engage in any business that competes with Stone's primary activities in Brazil.

Speaker Change: Is there now or will there be.

Speaker Change: With its more a noncompete agreement signed with Mr Street.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Hi, Jorge business speaking I think regarding the first question I don't believe there are any changes at all right.

Jorge: On the second point.

Jorge: I think a noncompete has actually been elaborated and Richard.

Jorge: He will not engage in any business that that competes.

Jorge: Stalls primary activities in Brazil.

Pedro Zinner: So and this non-compete should be ready before the AGM, which is expected to be held on April 23rd. So you're going to see more flavor of that in the documents for the AGM. Thank you. And that's very clear. But just to clarify the first part, when you say there are no changes, it means that he doesn't have any lockup on his shares.

Speaker Change: So is this noncompete should be ready before the AGM.

Speaker Change: Which is expected to be held on April 23rd So youre going to see more flavor on that.

Speaker Change: And the documents for the AGM.

Speaker Change: Thank you.

Speaker Change: That's very clear, but just to clarify the first part when you say there is no changes it means that he doesn't have any local owned your shares.

Pedro Zinner: That's right, that's right. (inaudible) There are no questions at this time. This concludes the question and answer session. I will now turn over to Pedro Zinner, CEO of StoneCo, for final considerations. Well, thank you very much, everyone, for participating in the call. And, as I mentioned in the letter, I appreciate the value of our shareholders. Hope to see you again next quarter. Thank you very much. This concludes today's presentation. Thank you for participating. Goodbye.

Speaker Change: Yeah.

Speaker Change: That's right.

Speaker Change: Okay got it thank you very much.

Speaker Change: There are no questions. At this time. This concludes the question and answer session I will now turn it over to Pedro Zinner CEO at stone co for final considerations.

Pedro Zinner: Well, thank you very much everyone for participating the call and.

As I mentioned in the latter I appreciate the Nevada, Ohio shareholders.

Pedro Zinner: This year again next quarter. Thank you very much.

Speaker Change: This concludes today's presentation. Thank you for participating.

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: [noise] Goodbye.