Q1 2024 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 welcome to the stone Cold first quarter 'twenty 'twenty four earnings conference call Bye.
Roberta Noronha: Welcome to the StoneCo first quarter 2024 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.
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 Dot stone 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 <unk> Perez.
Roberta Noronha: 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 everyone 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.
Reconciliations of the company's non <unk> financial information to the <unk> financial information appear in today's press release.
Finally, before we begin our formal remarks I would like to remind everyone that today's discussion may include forward looking statements.
These 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.
Roberta Noronha: 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. 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, and good evening, everyone.
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: Joining me today on the call is our CEO, Pedro Zinner, our Chief Financial and Investment Relations Officer, Mateus Scherer, our Chief Strategy and Marketing Officer, Lia Matos, and our Head of Credit, Gregorio. Today, we will present our first quarter 2024 results and provide an updated outlook for our business. I will now pass it over to Pedro so he can share some highlights of our performance. Pedro, Thank you, Roberta.
I would now like to turn the conference over to your host how better <unk> head of Investor Relations at Stone Cold. Please proceed.
Investor Relations: Thank you operator, and good evening everyone.
Investor Relations: Joining me today on the call is our CEO, Peter as being at our Chief Financial and Investor Relations Officer, Matthew Sherman, Our Chief strategy and marketing Officer via Masters and now ahead of Crazy good anybody.
Speaker Change: Today, we will present, our first quarter 2024 results and provide an updated outlook for our business.
Peter: I will now pass it over to Pedro so he can share some highlights of our performance.
Peter: Thank you Roberto and good evening everyone.
Pedro Zinner: And good evening, everyone. I would like to begin by briefly talking about our first quarter 2024 results, which I believe are the kickoff to a great year ahead of us. Our business continued to grow strongly, while we kept on delivering our strategic priorities. Financial Service, We perform well across all of our clients. Starting with payments, we posted strong TPV growth, including PITs, and nearly matched the same volumes from the holiday shopping season in the fourth quarter.
Peter: I would like to begin by briefly talking about our first quarter 2024 results.
Pedro: I believe the kick off a great year ahead of us.
Pedro: Our business continued to grow strongly while we kept on delivering our strategic priorities.
In financial services, we performed well across all of our client offerings.
Pedro: Starting with payments with posted strong PPV growth.
Pedro: <unk> picks.
Pedro: Nearly matched the same volumes from the holiday shopping season in the fourth quarter.
Pedro Zinner: This quarter, we launched instant payments in TOM, fielding a key request from our micro-emerging clients. We continue to show progress in onboarding new and existing clients to our bundled banking and payment solution. And today, approximately 80% of our active client base has our bundled offer.
Pedro: This quarter, we launched eastern payments you Tom.
Pedro: Clearly a key request from our micro merchant clients.
Pedro: In banking.
Pedro: We continue to show progress in Onboarding, new and existing clients to our bundle banking and payment solutions and today approximately 80% of our active client base cash our bundled offering.
Pedro Zinner: A couple of highlights I'd like to make are the start of our pilot with credit cards in Tome and the evolution of the banking solution for SMBs in Stone, with features such as peaks in lodging for our clients to simplify their workflows around paying their employees. Finally, our credit solution continues to grow according to plan. We maintain our conservative approach but are testing different client profiles to grow while making sure we balance our credit model.
Speaker Change: A couple of highlights I would like to make.
Part of our pilot with credit cards, and calm and the evolution of the banking solutions for Smbs install with features such as <unk> La <unk> for our clients to simplify their workflows around paying debt crisis.
Speaker Change: Finally, our credit solution.
Speaker Change: Genius to grow according to plan.
Speaker Change: We maintain our conservative approach, but testing different client profiles to grow while making sure we balance our private portal.
Pedro Zinner: We have set up a specialized desk to offer credit to larger clients, TPV above 500,000 per month. And this is just getting underway. Now, let me shift to our soft, which performed well this quarter, showing progress versus our previous quarter results and in line with our strategic priority. Our vertical software grew well in the first quarter, with an annual revenue increase of 12% that was purely organic. However, our enterprise software remains a detractor, moderating our total software revenue growth.
Speaker Change: We have set up a specialized cash to offer credit to larger clients with TPG above 500000 per month and this is just getting underway.
Speaker Change: Now, let me shift to our software business, which performed well the sponsored showing progress versus our previous quarter results in line with our strategic priorities.
Speaker Change: Our vertical software grew well in the first quarter, we have an annual revenue increase of 12%.
Speaker Change: Was purely organic.
Speaker Change: Our enterprise software remains a detraction.
Speaker Change: Our total software revenue growth.
Pedro Zinner: Considering that we're not emphasizing this part of the equation, However, the strong performance in our vertical software combined with our efficiency efforts continue to drive up total profitability in this cycle. As we discussed in our investor day, we will continue cross-selling financial solutions to areas of our software client base and evolve on creating software and financial services by 2024. We are focusing on the retail and gas station burden. The latter being a highlight in the quarter.
Speaker Change: Considering we're not emphasizing this part of the distance power.
However, the strong performance in our vertical software combined with our efficiency efforts continue to drive up total profitability in this segment.
Speaker Change: As we discussed in our Investor day.
Speaker Change: Continued cross selling financial solutions into areas of our software client base and evolve on creating software in financial services.
Speaker Change: In 2024, we're focusing on the retail and gas station vertical.
Speaker Change: <unk> being a highlight and acquire.
Pedro Zinner: In summary, I was pleased with the direction of our first quarter 2024 results, and I think we remain on track to deliver our guidance for the year. Now, I'd like to pass it over to Lia to discuss our first quarter 2024 performance and strategic updates. Thank you, Pedro. And good evening, everyone.
Speaker Change: In summary, our <unk> pleased with the direction of our first quarter 2024 results.
Speaker Change: I think we remain on track to deliver our guidance for the year.
Speaker Change: Now I'd like to pass it over to the year to discuss our first quarter 2020 for performance and strategic updates here.
Lia Machado de Matos: As Pedro mentioned, we made progress in the first quarter across our strategic priorities, advancing on critical areas as we progress towards our 2024 and long-term goals. Before we start discussing our main financial highlights, I would like to remind you that from the first quarter onwards, we have changed our internal accounting methodology for membership fees revenue. From now on, membership fees revenues will be deferred throughout the expected life of the merger.
Year: Thank you Pam and good evening everyone.
Speaker Change: As Peter mentioned, we made progress in the first quarter across our strategic priorities.
Year: Lansing on critical areas as we progress towards our 2024 and long term goals.
Speaker Change: Before we start discussing our main financial highlights I would like to remind you that from the first quarter 'twenty four onwards, we have changed our internal accounting methodology for membership fees revenues from now on membership fees revenues will be deferred throughout the <unk>.
Speaker Change: Expected life of the merchant instead of being recognized entirely at the time of the acquisition of the merchant.
Lia Machado de Matos: Instead of being recognized entirely at the time of the acquisition of the business, the materials we're presenting incorporate this new internal accounting methodology as of the first quarter of twenty-four. For this quarter, we will also present growth metrics using the previous methodology since this is the first and most impacted quarter. As you can see on slide 4, our consolidated revenues grew 14% year-over-year, and combined with lower other and administrative expenses, led to an increase of 75% in adjusted EBITDA.
Speaker Change: The materials, representing incorporate this new internal accounting methodology as of the first quarter of 'twenty four.
Speaker Change: For this quarter, we will also present growth metrics using the previous methodology. Since this is the first and most impacted quarter.
Speaker Change: As you can see on slide four our consolidated revenues grew 14% year over year, which combined with lower other and administrative expenses led to an increase of 75% and adjusted EBT. Despite an increase in selling expenses due to the seasonality of it.
Lia Machado de Matos: Despite an increase in selling expense, due to the seasonality of investments in marketing and provisions for loan loss. These factors resulted in Adjusted Net Income increasing by almost 90% year-over-year, reaching an Adjusted Net Margin of 14.6%, up around 650 basis. Now, let's take a look at our financial services segment performance on slides 5 to 9, starting on slide 5 with the performance of our payments business for MSNBC. Our payment's active client base increased 33% year-over-year, reaching almost 3.7 million active clients. In sequential order, this represented a net addition of 205,000 clients.
Speaker Change: Investments in marketing and provisions for loan losses.
Speaker Change: These factors resulted in adjusted net income increasing by almost 90% year over year, reaching an adjusted net margin of 14, 6% up around 650 basis points.
Speaker Change: Now, let's take a look at our financial services segment performance on slide five to nine starting on slide five with the performance of our payments business for Msnb's.
Speaker Change: Our payments active client base increased 33% year over year, reaching almost $3 7 million active clients.
Speaker Change: Sequentially. This represented a net addition of 205000 clients.
Lia Machado de Matos: The lower addition of clients compared to the previous year is primarily a result of the fact that we have caught up to the growth levels in the microsegments, as you will see in the pages that follow. Besides optimizing our commercial strategy for growth and market share gains, we are also putting a lot of focus on improving our Payments and Banking Bundle offerings to new client cohorts, both in tongue and in stone, as well as driving more engagement with our solutions for older cohorts of clients.
Speaker Change: The lower addition of clients compared to the previous year is primarily a result of the fact that we have caught up to the growth levels in the micro segment.
Speaker Change: As you will see in the pages that follow besides optimizing our commercial strategy for growth and market share gains were also putting a lot of focus on improving our payments and banking bundled offerings to new client cohorts, both in tongue and stone as well as driving more engagement with our solutions for all.
Alder cohorts of clients.
Lia Machado de Matos: As you can see on slide 6, this approach has resulted in profitable TPV growth and market share gains in the MSMB segment. MSM BTPV, including PIX B2N, increased 24% year over year. Excluding PICS B2M volumes, which were more than 8 billion Reais in the quarter, MS&BT PV increased more than 18% year-over-year.
Speaker Change: As you can see on slide six this approach has resulted in profitable CTV growth and market share gains in the msnb segments.
Speaker Change: MSNBC BV, including <unk> increased 24% year over year excluding.
Speaker Change: Excluding <unk> volumes, which were more than 8 billion has in the quarter <unk> increased more than 19% year over year.
Lia Machado de Matos: We achieved strong growth while also increasing take rates by 15 basis points year-over-year to reach 2.54%, with material contributions from all of our financial services solutions. We are continuously evolving our pricing and bundle strategy to achieve higher levels of client engagement. And we believe these strong numbers are the result of our competitive advantages in distribution, superior service, and our increasing ability to offer more complete solutions to our clients. Moving to slide 7, let's discuss our banking performance. Our banking active client base nearly doubled year over year to around 2.4 million active clients.
Speaker Change: We achieved this strong growth, while also increasing take rates by 15 basis points year over year to reach $2, 54% with a material contribution from all of our financial services solutions.
Speaker Change: We are continuously evolving our pricing and bundle strategy to achieve higher levels of client engagement and we believe these strong numbers are the result of our competitive advantages in distribution superior service and our increasing ability to offer more complete solutions to our clients.
Speaker Change: Moving to slide seven let's discuss our banking performance.
Speaker Change: Our banking active client base nearly doubled year over year to around $2 4 million active clients. This growth was a result of the launch of Super contact Tom in the beginning of 2023 and the continued activation of banking for stone clients through our bundled offers the decrease in growth.
Lia Machado de Matos: This growth was a result of the launch of SuperContaTon in the beginning of 2023 and the continued activation of Banking for Stone clients through our bundle offering. The decrease in growth rates compared to previous quarters is mainly due to the completion of our migration of Ton clients to our full banking solution. Going forward, we expect our banking active client base to grow more in line with the sequential increase in payments gross ads as we continue to effectively bundle payments and banking. This growth in our client base also helped drive a 53% year-over-year growth in client deposits, which reached 6 billion reais in the quarter.
Speaker Change: Rates compared to previous quarters is mainly due to the completion of our migration of clients to our full banking solution.
Speaker Change: Going forward, we expect our banking active client base to grow more in line with the sequential increase in payments gross adds as we continue to effectively bundle payments and banking.
Speaker Change: This growth in our client base also helped drive a 53% year over year growth in client deposits, which reached <unk> 6 billion has in the quarter.
Lia Machado de Matos: Despite the seasonal growth-over effects from the fourth quarter and the lower average CDI in the period, RPEC increased to 29.3 reais per month, driven by higher average deposits per client as a result of increased engagement with our banking solution. As Pedro mentioned, this quarter, we made good progress on our product roadmap. We are starting to pilot credit cards for Tone clients, as well as launching features that help our S&B clients simplify their cash management workflows, such as paying suppliers and employees.
Speaker Change: Despite the seasonal grow over effect from the fourth quarter and the lower average CDI in the periods or <unk> increased to $29 three per month, driven by higher average deposits for clients as a result of increased engagement with our banking solutions.
Speaker Change: Pedro mentioned this quarter, we made good progress in our product roadmap starting to pilot credit cards for clients as well as launching features that help our SMB clients to simplify their cash management workflows, such as paying suppliers and employees.
Lia Machado de Matos: Moving to slide 8, I will talk about our credit. This quarter, we disbursed around 295 million reais, reaching a portfolio of almost 532 million reais, an increase of roughly 72% quarter over quarter. Provision expenses for working capital, including expected losses, totaled 44 million reais in the result, resulting in accumulated provision expenses of 106 million reais, as we are still constituting provisions in the amount of 20% of our. Although we're doing this conservatively, the performance of our vintages is above our expectation. NPLs between 50 and 90 days were 2.2%, and NPLs over 90 days were 1.5%.
Speaker Change: Moving to slide eight I will talk about our credit performance.
Speaker Change: This quarter, we disbursed around 295 million reais, reaching a portfolio of almost 532 million highs and increase of roughly 72% quarter over quarter.
Speaker Change: Provision expenses for working capital expected losses totaled $44 million has in the periods, resulting in accumulated provision expenses of 106 million eyes. As we are still constituting provisions in the amount of 20% of our portfolio.
Although we are doing this conservatively the performance of our vintages is above our expectations with Npls between 50, and 90 days of two 2% and Npls over 90 days of one 5%.
Lia Machado de Matos: As we've highlighted before, this is still a recently launched portfolio, so the ratio of past-due loans should increase as our cohorts mature. This year, we will continue with disbursements without changing our approach to risk evaluation and close monitoring of market conditions. Summarizing the performance of our financial services segment, the first quarter was again marked by strong TPG growth and higher take, resulting in financial services revenue growth of 16% year-over-year in the first quarter, reaching 2.7 billion reais. As a result, our adjusted EBT reached 529 million reais.
Speaker Change: As we've highlighted before this is still a recently launched portfolio. So the ratio of past due loans should increase as our cohorts mature.
Speaker Change: This year, we will continue with disbursements without changing our approach towards risk evaluation and close monitoring of market conditions.
To summarize the performance of our financial services segment. The first quarter was again marked by strong TPG growth and higher take rates.
Speaker Change: <unk> in financial services revenue growth of 16% year over year in the first quarter, reaching $2 7 billion Reais as a result, our adjusted EBT reached 529 million highs within adjusted EBT margin of 19, 5%, which increased.
Lia Machado de Matos: With an adjusted EBT margin of 19.5%, which increased more than 600 basis points year-over-year. Moving to slide 10, let's talk about our software performance and strategic evolution. Quarter over quarter, the payments TPV of clients that use both financial services and software solutions decreased 13% primarily due to the seasonal effect in our retail vertical, which is strongly impacted by the higher volumes in the holiday shopping season of the fourth quarter.
Speaker Change: More than 600 basis points year over year.
Speaker Change: Moving to slide 10, let's talk about our software performance and strategic evolutions.
Speaker Change: Quarter over quarter, the payments to PV of clients that use both financial services and software solutions decreased 13%, primarily due to the seasonal effect in our retail vertical which is strongly impacted by the higher volumes in the holiday shopping season of the fourth quarter.
Lia Machado de Matos: However, our gas station vertical, which has been a priority focus since last quarter, has had a positive performance quarter over. These SMB clients have been increasingly receptive to our efforts to provide an end-to-end solution that combines management software, payments, and banking. On page 11, you can see the highlights of the performance of our vertical software. As you can see, vertical software revenue grew 12% year-over-year. The priority verticals, where we're focusing our initial strategic efforts to integrate financial services, now account for 47% of total software revenue. Other verticals also had a strong order across different products. As a result, our vertical software now accounts for 76% of our total software revenue.
Speaker Change: However, our gas station vertical which has been a priority focus since last year has a positive performance quarter over quarter.
Speaker Change: These SMB clients have been increasingly receptive to our efforts to provide an end to end solution that combines management software and payments and banking.
Speaker Change: On page 11, you can see the highlights of the performance of our vertical software business.
Speaker Change: As you can see vertical software revenue grew 12% year over year.
Speaker Change: The priority verticals, where we're focusing our initial strategic efforts to integrate financial services now account for 47% of total software revenues are.
Speaker Change: Our software solutions in other verticals also had a strong quarter across different products as a result, our vertical software now accounts for 76% of our total software revenues.
Mateus Scherer: In slide 12, you can see that total software segment revenue reached 369 million reais but grew slower than our verticals. This is because overall software revenues include our more mature enterprise. However, as a result of our focus on vertical software and our efficiency initiatives. Our adjusted EBITDA in the software segment increased to 66 million in the quarter, up 65% year-over-year, improving our adjusted EBITDA margin by over 650 basis points to reach 17.8% in the quarter.
Speaker Change: In Slide 12, you can see that total software segment revenue reached $369 million highs, but grew slower than our vertical software.
Speaker Change: This is because overall softer revenues include our more mature enterprise business.
Speaker Change: However, as a result of our focus on vertical software and our efficiency initiatives. Our adjusted EBITDA in the softer segment increased to $66 million in the quarter up 65% year over year, improving our adjusted EBITDA margin by over 650 basis points.
Speaker Change: To reach 17, 8% in the quarter.
Mateus Scherer: As Pedro mentioned, the first quarter marked the beginning of an important year of strategic advancement for our business. Now, I want to pass it over to Mateus to discuss in more detail some of our key financial metrics. Mateus, Thank you, Lia, and good evening, everyone. I'd like to begin on slide 13, where we discuss the quarter-on-quarter evolution of our costs and expenses as a percentage of revenues on an adjusted basis. Cost of services reached 810 million, increasing 12% year on year and staying flat quarter on quarter.
Speaker Change: As Pedro mentioned, the first quarter marked the beginning of an important year of strategic advancements for our business trajectory.
Speaker Change: Now I want to pass it over to Mark deals to discuss in more detail some of our key financial metrics materials.
Mateus Scherer: sequentially, the cost of services increased 160 BPS as a percentage of revenues, as a result of higher transaction, logistics, and E&A costs as we grow our client base, and higher provision for loan losses, which amounted to R$44 million in the first quarter of 2014 versus R$39 million in the first quarter of 2014. Administrative expenses decreased 12% year-on-year, leading to a 220 basis points reduction as a percentage of revenues when compared to the first quarter of 2020.
Mark: Thank you Leah and good evening, everyone I would like to begin on slide 13, where we discussed the cardroom Burger evolution of our <unk> expenses as percentage of revenues.
Mark: These.
Mark Deals: Cost of services reached 810 million, increasing 12% year on year.
Mark Deals: Flattish quarter on quarter.
Mark Deals: Sequentially cost of services increased to 160 bps as a percentage of revenues as a result of higher transaction logistics in Germany.
Mark Deals: As we grow our client base.
Mark Deals: And higher provision for loan losses, which amounted to <unk> <unk> in the first quarter of 24 versus 39 million Reais in the first quarter drove 23.
Mark Deals: Administrative expenses decreased 12% year on year, leading to a 220 basis points reduction as a percentage of revenues when compared to the first quarter of 'twenty three.
Mateus Scherer: Sequentially, administrative expenses decreased 16%. Down 100 basis points as a percentage of revenues due to seasonally higher personal expenses in the first quarter and lower third-party services expenses in the first quarter. We remain committed to our guidance of spending less than R$1.125 million in administrative expenses for 2024, which implies a growth of less than 7% per year. Selling expenses increased 36% year-on-year and 17% quarter-on-quarter.
Mark Deals: Sequentially administrative expenses decreased 60%.
Mark Deals: Only 100 basis points as a percentage of revenues due to seasonally higher personnel expenses in the first quarter and alerted brightest services expenses in the first quarter.
Mark Deals: We remain committed to our guidance of spending less than one 5 million reais in administrative expenses for 2024, which implies a growth.
Mark Deals: And 7% for the year.
Mark Deals: Selling expenses increased 36% year on year, and 17% quarter on quarter.
Mateus Scherer: Up to 120 basis points sequentially as a percentage of revenue. This increase is mainly attributed to higher market investments as a result of a planned sponsorship for a reality television show, combined with higher investments in our sales. Financial expenses decreased 2.2% year-on-year, leading to a 470 basis points reduction as a percentage of revenue. Quarter on quarter, financial expenses decreased 5.5% and remained flattish as a percentage of revenue. Lastly, other expenses decreased 58% sequentially and 230 basis points as a percentage of revenues, as a result of lower share-based compensation expenses, which includes a non-recurring positive impact of R$40 million from the net effect of cancellation and new grants of incentive plans and lower. Turning to slide 14, our adjusted net cash position was R$5.1 billion
Mark Deals: Sure.
Mark Deals: This points sequentially as a percentage of revenues.
This increase is mainly attributed to higher marketing investments as a result of our planned sponsorship for a reality TV show combined with higher investments in our sales team.
Mark Deals: Financial expenses decreased <unk>, 4% year on year, leading to 170 basis points reduction as a percentage of revenues.
Mark Deals: June quarter financial expenses decreased five 5% and remained flattish as a percentage of revenues.
Mark Deals: Lastly, other expenses decreased 16% sequentially and shipowners.
Mark Deals: 30 basis points as a percentage of revenues as a result of lower share based compensation expenses, which includes a nonrecurring positive impact of <unk> <unk> from the net effect of constellation annual rents of incentive plans and lower something is.
Mark Deals: Turning to slide 14, our adjusted net cash position was five 1 billion, reflecting an increase of one point <unk> year on year, and 87 million Reais for departure.
Mateus Scherer: Reflecting an increase of R$1.2 billion year-on-year and R$87 million for the port, although lower when compared to previous quarters as we continue to deploy capital towards the expansion of our credit portfolio, and also as a result of seasonally higher cash consumption in labor and social liabilities in the quarter. As we kickstart the year, I believe our first quarter results demonstrate we are executing on our plan, and we remain well on track to deliver our 2024 guidance.
Mark Deals: Lower when compared to previous quarters, as we continue to deploy capital towards the expansion of our credit portfolio and also as a result of seasonally higher cash consumption and labor and social debuted as in the quarter.
Mark Deals: As we start the year I believe our first quarter results demonstrates we are executing on our plan and we remain well on track to deliver 24 guidance.
Mateus Scherer: With that said, Operator, can you please open the call up to questions? Okay, at this time, we are going to open it up to questions and answers. If you have a question, please write it down in the Q&A section or click on raise hand for an audio question. 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, you pick up your headset to provide optimum sound quality.
Speaker Change: That said operator can you. Please open the call up to questions.
Speaker Change: Okay. At this time, we are going to open it up for questions and answers. If you have a question. Please read it down into Q&A section or click on raise hand for audio questions.
Speaker Change: Please remember that your company's name should be visible for your question to be taken we.
Speaker Change: We do ask that when you pose your question that you pick up your headset to provide optimal sound quality.
Operator: Please hold while we pull for questions. Our first question comes from Eduardo Hosna with BTG. Hi, hi, everyone.
Speaker Change: Please hold while we poll for questions.
Speaker Change: Our first question comes from Eduardo <unk> with BTG.
Eduardo Rosman: Good evening. I do have two questions here. The first one is on capital allocation, right? We know that you have already done a lot, but you still have a lot of exposure to software, right?
Eduardo: Hi, Hi, everyone. Good evening.
Eduardo: I do have two questions here. The first one is on capital allocation right. We know that you already did a lot but he has to have a lot of exposure to software right with many vertical with are not a priority.
Speaker Change: One target for next dose, which youre seeing a big decline in revenues you also have a fixed take care clinic.
Speaker Change: Potentially other other stakes in other companies as well right. So just wanted to hear from you. If there is room to keep improving the capital location and the cash position.
Speaker Change: In the following quarters.
Speaker Change: The first question and the second one just trying to understand here your expectations for deposits right. You have you have.
Speaker Change: <unk>, which is which was above 7 billion reais for the year, but body. We ended the first quarter was 6 billion right, which is very good given the.
Speaker Change: Usually it's a weak quarter for us.
Solid point of view right. So just wanted to understand your thoughts here if the expectations are now looking conservative for the year. Thanks.
Eduardo Rosman: With many verticals, they are not a priority. You own TAG, for instance, which is seeing a big decline in revenues. You also have a big stake in Recliner Key, and potentially other stakes in other companies as well, right? So just wanted to hear from you if there's room to keep improving the capital allocation and the cash position in the following quarters. That's the first question.
Speaker Change: Hey, welcome and thank you for the question Mark is here all day.
Speaker Change: The first bank regarding capital allocation, and then pass it over to the year on the banking side.
Speaker Change: So on capital allocation I think it's fair to divide the question in two parts.
Speaker Change: First I think we mentioned in Investor day, but we do have our buyback Glenn. Please at this moment, Brian So 1 billion program for which we did not buy any shares yet.
Speaker Change: Yes.
Speaker Change: I think the message here is that we remain committed to our long term targets and therefore, we continue to believe that this is a good alternative for capital allocation.
Speaker Change: It's basically a matter of planning and execution for the new broadband. So that we have are funded framework you bleed and decision for us.
Speaker Change: So thats the first piece the second piece is also regarding the M&A <unk>.
Speaker Change: <unk> and other companies that we have.
Speaker Change: I think the message is that currently we're still focused on improving the efficiency of those business and I think you can see from the beach the margin on software and this is making progress quarter by quarter.
Speaker Change: But in regards to selling those losses.
Speaker Change: We always analyze different options in order to maximize shareholder value, but the business as a whole is performing well and generating cash. So we have more urgency to sonya acids. So it can be direct here I think.
Speaker Change: And optionality to exited some asking for which we don't see as strategic but that's not the focus at this moment the focus is on efficiency.
Speaker Change: If I might just add I think it's in line, but nonetheless coming from my peers.
Speaker Change: What we're trying to do is really improved cost efficiency initiatives to maximize value along with these verticals that will not prioritize the business plan.
Speaker Change: Thanks, <unk>, so we'll provide more visibility in terms of how we want to position ourselves.
Eduardo Rosman: And the second one, just trying to understand here your expectations for deposits, right? You have a guidance, which is, which is above 7 billion reais for the year. But, but you ended the first quarter with 6 billion, right? Which is very good, given the fact that that's usually it's a week, quarter for from a seasonality point of view, right? So just wanted to understand your thoughts here, although expectations are now looking conservative for the year. Thank you. Hey Rosman, thank you for the question. Mateus here.
Speaker Change: Hi, Bob <unk> here, just to talk a little bit about <unk>.
Bob: Funds and deposit flow EDC, we saw solid performance indeed.
Bob: In deposits in the first quarter and results were in some extent above our expectations.
Mateus Scherer: I'll take the first part regarding capital allocation and then pass it over to Lia on the banking side. So on capital allocation, I think it's fair to divide the question into two parts. First, I think we mentioned it yesterday, but we do have a buyback plan in place at this moment, right? It's a one billion program for which we have not bought any shares yet.
Bob: This growth is being driven by two main factors right as Peter mentioned, we continued to successfully bundle payments and banking to use sales, which lead to higher penetration of clients.
Mateus Scherer: I think the message here is that we remain committed to our long-term targets, and therefore we continue to believe that this is a good alternative for capital allocation. So it's basically a matter of planning the execution for the new product so that we have a solid framework in place and decision process. So that's the first piece.
Bob: Q4 is their main banking solution and they are banking on file and we're also seeing higher levels of engagement with our clients needing money within our ecosystem for a longer period.
Bob: So we're very happy with this evolution it is.
Bob: Like you mentioned beyond our expectation and thus pointed to put back into the guidance that we gave for the year that said, we need to monitor this trend a little bit.
Bob: Further throughout the year and then of course, if this remains consistent natural going to keep you updated but we think it's a bit early to talk about with you in guidance.
Speaker Change: Great. Thanks, a lot.
Speaker Change: Next question.
Oh, sorry next question from Kyle <unk> with UBS.
Kyle: Hi, everyone. Good evening, thanks for the percentage I have two questions on my side. Please.
Kyle: The first one is related to your other expenses line.
Kyle: Like a nonrecurring adjustment of 72 million this quarter.
Kyle: I would like to better understand what.
Kyle: What's exactly is about because the net effect from the divestments is lower than that.
And Steve one other expenses line. If you could please explain why we had like a reversal of share based compensation. This quarter and my second question. Please if I may is related to your <unk>, even considering the adjustment to the neighbor ship fee model, we can see that alright closer to the data.
Kyle: Actually reduce it this quarter.
Kyle: Or where do we usually see.
Kyle: All policies because of seasonal effects. So just would like to understand the moving parts here. If this could be reflecting any type of pricing pressure.
Kyle: Or discounting in order to incentivize the path.
Kyle: And what can we expect going forward. Thank you.
Mateus Scherer: I think the second piece is also regarding the M&A, right? You mentioned Reclame Aqui, TAG, and other companies that we have. Here, I think the message is that currently, we're still focused on improving the efficiency of those businesses. And I think you can see from the reach of the margins on software that this is making progress quarter by quarter. But in regards to setting those assets, I mean, we always analyze different options in order to maximize shareholder value. But the business as a whole is performing well and generating cash. So we have no urgency to sell any assets.
Speaker Change: Thank you.
Speaker Change: Let me pick up the first question and then we move on to the revenues. So in regard to other expenses you are right. We have basically two effects. The first one is on the.
Mateus Scherer: So to be direct here, I think there is indeed an optionality to exit some assets which we don't see as strategic. But that's not the focus at this moment. The focus is on efficiency. Yeah, if I might just add, I think it's in line with the last comment from Mateus. I think what we're trying to do is really improve cost efficiency initiatives to maximize value along these verticals that were not prioritized in the business plan. I think when the time comes, we'll provide more visibility in terms of how we're going to position ourselves. Great
Lia Machado de Matos: Hi everyone, Lia here just to talk a little bit about trends and deposits. So, indeed, we saw strong performance in deposits in the first quarter, and the results were, to some extent, above our expectations. So this growth is driven by two main factors, right? As Pedro mentioned, we continue to successfully bundle payments and banking into new sales, which leads to higher penetrations of clients that choose Stone as their main banking solution and their banking domicile, and we're also seeing higher levels of engagement with our clients leaving money within our ecosystem for a longer period as we vote. So we're very happy with this evolution.
Speaker Change: P&L right, which we don't do.
Speaker Change: And here, we have a negative impact from the divestment of the bargain, which amongst fluor around 55 million reais.
Speaker Change: That would basically.
Speaker Change: Evaluation of call options on the other companies that we have just right for example, Heiko Mickey.
Speaker Change: It's nothing new that is adjusted here is basically the same effect.
Speaker Change: Auctions on their many sites.
Speaker Change: And then talking about the share base.
Speaker Change: Which impacts our adjusted net income.
Speaker Change: Here you are also right we have a one off effects, which contributed to our own FERC <unk> positive to the number and basically on the line. We had two big effects in the quarter. The first one is a recurring loan where we had some movement offer issue was related to our annual equity bonus which includes more than 1000 employees.
And the second effect, which was the one off is basically related to the board changes that we announced in the first quarter.
Speaker Change: So when you look at these two effects together, what we had was basically have rent of $2 49 million shares, but a conciliation of $3 94 reinsurance cylinder forward through we had a net reduction in share based instruments outstanding which also contribute contributed to the P&L by our own <unk>.
Speaker Change: And again, you'll have a piece that is one off and another piece that is recurring which is effect that we have less share based instruments outstanding right now.
Speaker Change: No. The second question I think it was related to <unk> and pricing in January right.
Speaker Change: Here I think that are also two pieces to the question. The first piece when you look at the peak rates of evolution as the who you saw basically a 16 basis point decrease year on year and also a sizable increase broken any broker both of these changes there were released to the contribution of <unk>.
Speaker Change: Our new solutions. So we can break down the 60 basis point decrease the decrease that we have.
Speaker Change: Year on year, it's basically a function of banking and credit is contributing more to our revenues.
Speaker Change: On the Mds side, I think the variation on a month over month.
Speaker Change: Basically attributed to the seasonality in CTV Youre right that we had the effect from membership fees there.
Speaker Change: But when we exclude that from the calculation, it's basically a matter of seasonality.
Speaker Change: Okay.
Speaker Change: Okay. Thank you just a follow up in terms of this is another that it makes it shouldnt it be like more positive in terms of your MBS Q on Q.
Speaker Change: Because of the mix and so on.
Speaker Change: So just would like to understand the sports.
Yes. This is.
Speaker Change: <unk> positive again, we had a lower decrease in the first quarter as a result of more David mix and positive.
Speaker Change: But then you also have this season, noting through clients' needs rate and that answered the question.
Speaker Change: Okay. Thank you.
Speaker Change: Our next question comes from Antonio <unk> with Bank of America.
Antonio: Hey, guys. Thank you for your time and congrats on the results.
Antonio: So I would like to focus on credit. So first if you could explore a walk through from difference since we restarted the product so in terms of.
Antonio: The credit and asset quality the credit growth what has been a surprise so far.
Antonio: Also if you could.
Antonio: Explore a little bit.
Antonio: Possible guidance revision since.
Antonio: You added more than 200 million in portfolio quarter over quarter.
Antonio: I guess you could be you.
Antonio: Could reach guidance, but endless said, the second quarter or close to that.
Antonio: So.
Antonio: If you could explore a little bit of competition. So we see peers getting.
Antonio: Grizzly intensifying competition segment that we see banks going down the pyramid the Dakota corporate pyramid. We also see order requires more focus on credit so how do you see competition.
On the SME segment that you are focusing on all of them.
Speaker Change: Finally to conclude here.
Speaker Change: Revisions issue ex Tac to continue to provision 20% of your loan book. Thank you.
Lia Machado de Matos: It is, like you mentioned, beyond our expectations and does point to us surpassing the guidance that we gave for the year. That said, we need to monitor this trend a little bit further throughout the year, and of course, if this remains consistent, we're naturally going to keep you updated, but we think it's a bit early to talk about reviewing guidance. Great. Thanks a lot. Next question is from Kaio Prato with UBS. Hi, everyone.
Speaker Change: Hi, Thank you for the question Peter speaking.
Speaker Change: I'll kick off with the guidance.
Speaker Change: As you said the results for the first Q, where indeed better than what we initially expected, especially on the banking and credit.
Peter: If we see these trends to be constant consistent throughout the year.
Speaker Change: Mostly likely to land above our guidance.
Speaker Change: But that said our guidance is were already set.
Speaker Change: Lower ball and we think it's still premature to talk about changing.
Speaker Change: Quite often.
Speaker Change: So I'll pass it over to Greg who will talk about the credit kind of been where most of the materials.
Kaio Penso Da Prato: Good evening. Thanks for the opportunity. I have two questions on my side, please. The first one is related to your other expenses line. You had a non-recurring adjustment of 70 million reais this quarter. I just would like to better understand what exactly it is about, because it seems that the net effect from the divestment is lower than that.
Greg: Yes, Hi Antonio.
Greg: With regards to your first question, what we did differently we explored this extensively.
Greg: Our Investor day last year, and what I can tell you now it's what happened over the last 12 years, well, we completed one year since the soft launch launch of our working capital facility and looking backwards I really believe we accomplished quite a lot on the positive side I would point out that we were able to structure the entire credit cycle.
Greg: Not only the concession fees, we have all the controls in place to monitor the growth from a very close perspective and prepared to react on a timely manner.
Kaio Penso Da Prato: And still on the other expenses line, if you could please explain why we had a reversal in the share base composition this quarter. And my second question, please, if I may, is related to your MDRs. Even considering the adjustment to the neighborship fee model, we can see that consolidated MDRs actually decreased this quarter in a quarter where we usually see the opposite because of seasonal effects. So just would like to understand the moving parts here, if this could be reflecting any type of pricing pressure or discounting in order to incentivize deposits, and what we can expect going forward. Thank you. Thank you.
Greg: This monitoring process has allowed us to test and improve a variety of models and policies always challenging ourselves to improve efficiency and total lock lube cohorts. This is also the reason why youre still growing on a non linear mode almost on a step like curve, reflecting the release of offers to new customers.
Greg: Besides policies and models. We also managed to test quite a lot of our pricing strategy, which is adjusted to size risk amongst others. We also succeeded in past bundling banking and acquiring features.
Greg: <unk> is practically forming complete one of the major challenges we faced by the beginning of the process.
Greg: And we managed to keep the performance of the portfolio within our risk appetite per meters and pretty much without any major bumps on the road.
Greg: Although improvement opportunities I would say that we still have a huge opportunity to extract more value from our hubs.
Greg: So far the growth of our credit portfolio has been more focused on our app and we understand that there is a huge potential to be unlocked by using this channel more efficiently there are.
Greg: Also many opportunities to improve communication overall, we are still in the beginning of our journey to interact with our clients in a deeper way and this is reflected in less than expected conversion rates. We strongly believe that we can and will evolve in this matter and we will accelerate.
Greg: Although we already passed that bundling, we understand that we could have begun earlier and also believe that we barely scratched the surface here.
Greg: Strengthening the relationship we believe that the more we interact with our clients combining different product platforms. The better the performance of portfolio will be.
Greg: And last but not least we did not advance over our links customers yet the potential. He is huge we are implementing new processes to capture these opportunities that should lead to a significant increase in share over time.
Mateus Scherer: So let me pick up the first question and then we can move on to revenue. So in regard to other expenses, you're right, we have basically two effects. The first one is done on the IFRS P&L, right, which we don't adjust. And here we have a negative impact from the divestment of Pimpagi, which amounts to around $55 million.
Greg: Great.
Mateus Scherer: Other than that, we basically have the revaluation of call and put options on the other companies that we have this right, for example, ReclameKey, so it's nothing new that is being adjusted here. It's basically the same effect of options on the M&A side. And then talking about the share base piece, which impacts our adjusted net income. Here, you're also right; we have a one-off effect which contributed around 40 million reais to the number. And basically, on the line, we had two big effects in the quarter.
Speaker Change: Let me complement here with some thoughts on competition.
Speaker Change: Sure.
Speaker Change: One of your questions. So I think regarding competition.
Nothing really new regarding the competitive environment.
Mateus Scherer: The first one is a recurring one, where we had some movement of our SUs related to our annual equity bonus, which includes more than 1.3 thousand employees. And the second effect, which was unusual, is basically related to the board changes that we announced in the first quarter. So when you look at these two effects together, what we had was basically a grant of 2.49 million shares but a cancellation of 3.94 million shares. So in the quarter, we had a net reduction in share-based instruments outstanding, which also contributed to the P&L by around 40 million reais.
Speaker Change: We continue to see benefits in our P&L from the reduction in interest rates.
Speaker Change: <unk> expenses as a percentage of revenue decreased four seven percentage points year over year and in our view.
Mateus Scherer: And again, you have a piece that is one-off and another piece that is recurring, which is the fact that we have less share-based instruments outstanding right now. Now, the second question, I think it was related to MDRs and price in general, right? Here, I think there are also two pieces to the question. The first piece, when you look at the take rate evolution as a whole, you saw basically a 15 basis point increase year on year and also a sizable increase quarter on quarter.
Speaker Change: With the.
The fact that over the short to medium term the competitive environment is much more rational and stable and players will benefit from increasing interest rates. So.
Speaker Change: We see if anything a much more rational competitive environment, that's the first message.
Mateus Scherer: Both of these changes are basically related to the contribution of the new solutions. So if you break down the 15 basis points increase in take rates that we have year on year, it's basically a function of banking and credit contributing more to our revenue. On the MDR side, I think the variation month over month is basically attributed to the seasonality on CPV.
Speaker Change: But another important message is that longer term, we're going to remain focused on executing the strategy that we talked about at the Investor day.
Speaker Change: We're going to continue to strengthen our execution and evolve our product roadmap and as Matthew mentioned over the last year, we see tangible impacted take rates already.
Speaker Change: Coming from monetization lever beyond payments.
Speaker Change: But the other way to look at this is that we're only at the beginning of the trajectory. There is still a lot of work for us to do and the evolution of our banking in stating our credit portfolio building bundled with software to better monetize financial services relationship with our clients.
Speaker Change: So essentially flat.
Speaker Change: To finalize a box here, we really believe we're on the right track and each step is only going to strengthen our differentiation is serving.
Speaker Change: Well I think this is a thought on competition.
Speaker Change: I think the last piece was around overly rights, whether we're going to keep provisioning mechanic resilience for converge to be normal.
Speaker Change: And to that end I think the message is that 2020.
Sure we will converge.
Speaker Change: These approach.
Speaker Change: Probably going to start either in the second or third Q both towards the end of the year, we should have the <unk>.
Speaker Change: <unk> conversion for Automotives.
Speaker Change: Many questions. So I think you cover them right.
Mateus Scherer: You're right that we had the effect of membership fees there, which impacted 68 million. But when we exclude that from the calculation, it's basically a matter of seasonality. Okay, thank you. Just a follow up in terms of this is another that I mentioned; shouldn't it be more positive in terms of your MDRs queue on queue, because of the card mix and so on. So just would like to understand the seasonality of the MDR-P salon.
Speaker Change: Yeah. Thank you. Thank you very much.
Mateus Scherer: Again, we had a lower tick rate in the first quarter as a result of more debit mix, and now it's positive. But then you also have seasonality in terms of client mix, right? And that, I think, answers the question. Okay, thank you, Mateus. Our next question comes from Antonio Ruette with Bank of America. Hey guys, thank you for your time and congratulations on the results. So I would like to focus on credit. First, if you could explore what you found different since you restarted the product.
Ann Thornton: Thank you Ann Thornton.
Antonio Eduardo Gregorin Ruette: So in terms of the credit and asset quality, the credit growth, what has been a surprise so far? Also, if you could explore a little bit of possible guidance revision since you added more than 200 million to your portfolio quarter over quarter, I guess you could reach guidance by the end of the second quarter or close to that. Also, if you could explore a little bit of competition.
Ann Thornton: Next question from Neil <unk> with HSBC.
Antonio Eduardo Gregorin Ruette: So we see peers getting increasingly intense in the competitive segment; we see banks going down the pyramid, the corporate pyramid. We also see other acquirers more focused on credit. So how do you see competition in the SME segment that you are focusing on? Finally, to conclude here, provisions, if you expect to continue to provision 20% of your loan book. Thank you. Hi, thank you for the question. Pedro speaking.
Hello.
Can you hear me.
Pedro Zinner: Well, I'll kick off with some guidance. I think, as you said, the results for the first Q were indeed better than what we initially expected, especially in banking and credit. If we see these trends to be consistent throughout the year, we will most likely land above our guide. But that said, our guidance was already set as a lower bound, and I think it's still premature to talk about changing it in the first quarter of the year. So I'll pass it over to Greg, who will talk about the credit, and then we'll move to you, Mateus. Yeah, hi, Antonio.
Neil: Yeah, Hey, how do we give you.
Neil: Perfect. Thank you so much.
Gregorio: With regard to your first question, what we did differently, we explored this extensively at our investors' day last year. And what I can tell you now is what happened over the last 12 years. Well, we have completed one year since the soft launch of our working capital facility, and looking backwards, I really believe we have accomplished quite a lot. On the positive side, I will point out that we were able to structure the entire credit cycle, and not only the concession phase; we have all the controls in place to monitor the growth from a very close perspective and prepare to react in a timely manner.
Neil: Thank you so much for taking my question just a quick one.
Gregorio: This monitoring process has allowed us to test and improve a variety of models and policies, always challenging ourselves to improve efficiency and to unlock new cohorts. This is also the reason why we're still growing in a nonlinear mode, almost on a step-like curve, reflecting the release of offers to new customers. Besides policies and models, we also managed to test quite a lot our pricing strategy, which is adjusted to size, risk, amongst others.
Gregorio: We also succeeded in test bundling banking and acquiring fees. The team is practically formed and complete, one of the major challenges we face by the beginning of the process, and we managed to keep the performance of the portfolio within our risk appetite parameters and pretty much without any major bumps on the road. On improvement opportunities, I would say that we still have a huge opportunity to extract more value from our hubs.
Gregorio: So far, the growth of our credit portfolio has been more focused on our app, and we understand that there is a huge potential to be unlocked by using this channel more efficiently. There are also many opportunities to improve communication overall. We are still in the beginning of our journey to interact with our clients in a deeper way, and this is reflected in less than expected conversion rates. We strongly believe that we can and will evolve on this matter, and we will accelerate. Although we have already tested bundling, we understand that we could have begun earlier and also believe that we have barely scratched the surface.
Neil: Not even sure of receivables.
Gregorio: Besides strengthening the relationship, we believe that the more we interact with our clients, combining different products and platforms, the better the performance of the portfolio will be. And last but not least, we have not advanced to our links customers yet. The potential here is huge. We are implementing new processes to capture these opportunities, which should lead to a significant increase in share over time.
Speaker Change: Has that been more operational improvement how are.
Speaker Change: Have you been able to use the data from the registry of receivables and how is it how big in terms of underwriting any update there would be very helpful. Thank you so much.
Mateus Scherer: Antonio, let me complement this with some thoughts on competition, which I believe was one of your questions. So I think regarding competition, there is nothing really new regarding the competitive environment. We continue to see benefits in our P&L from the reduction in interest rates, with financial expenses as a percentage of revenues decreasing 4.7 percentage points year over year.
Speaker Change: Anyhow Matthew here. So there are two sides to the question first regarding the registry business on a standalone basis, so that and I think Doug as being profitable for wanting but no big changes in terms of the operation.
Mateus Scherer: And in our view, this is consistent with the fact that, over the short to medium term, the competitive environment is much more rational and stable, and players will benefit from decreasing interest rates. So we see, if anything, a much more rational competitive environment. That's the first message.
Mateus Scherer: But another important message is that, longer term, we're going to remain focused on executing the strategy that we talked about at investor day. We're going to continue to strengthen our execution and evolve our product roadmap. And as Mateus mentioned, over the last year, we've seen a tangible impact in take rates already coming from monetization leverage beyond payment. But the other way to look at this is that we're only at the beginning of this trajectory.
Mateus Scherer: There's still a lot of work for us to do in the evolution of our banking, in scaling our credit portfolio, and building bundles with software to better monetize our financial services relationship with our clients. So, essentially, to finalize the thought here, we really believe we're on the right track. And each step is only going to strengthen our differentiation in serving MS&Bs. So, I think this is a thought on competition. I think the last piece was around the overlay, right?
Matthew Sherman: And then there is a piece on the credit side right into that and I think the message is that it.
Matthew Sherman: <unk> working on this we are.
Matthew Sherman: Able to exit the collateral for Golden mean providers.
Matthew Sherman: We are underwriting and thats, a very important collateral core business.
Speaker Change: Okay. So you have been able to access.
Speaker Change: That was it from other <unk>.
Speaker Change: It is working.
Speaker Change: Yes, yes it is.
Speaker Change: Has there been any instance, where you made use of that collateral.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: So in our renegotiation process in general I think deferred to step is basically exited exiting two receivables that we have against the clients of collateral.
Speaker Change: And then only afterwards that we move towards the fee, we actually renegotiated the credit Suisse has been to first I would see.
Speaker Change: Keep in terms of collecting their credits and fully operational level.
Speaker Change: Perfect Super helpful. Thank you.
Mateus Scherer: Whether we're going to keep provisioning 20% or converge to the models. And to that end, I think the message is that in 2024, we will converge to this approach. It's probably going to start either in the second queue or third queue, but towards the end of the year, we should have the provisions converging to our model. Many questions, Antonio, but I think we've covered them, right? Yeah, yeah. Thank you. Thank you very much. Thank you, Antonio. Next question is from Neha Agarwala with HSBC. Hello. Can you hear me?
Speaker Change: Next question from <unk> <unk> with JP Morgan.
Neha Agarwala: Yeah, Neha, we can hear you. Oh, perfect. Thank you so much. Thank you so much for taking my question. Just a quick one regarding the registry of receivables. Has there been more operational improvement? How have you been able to use the data from the registry of receivables? And how is it helping in terms of underwriting? Any update there would be very helpful. Thank you so much. Neha, Mateus here
JP Morgan: Hey, guys. Good evening and thank you for letting me letting me asking asking questions I have a follow up on <unk> question on the adjustments on your on your net income.
JP Morgan: Just confirming that bolster the net effect of <unk>, the the $53 million.
JP Morgan: Is there and also the lower compensation, the lower share based compensation the $40 million.
Speaker Change: I check that they before it is not clear for me where.
Speaker Change: Those two items are there so just making sure that the negative it was removed with the bulk of the positive result of your recurring adjustment that's the first one and all.
Speaker Change: My second question would be on your administrative expenses they were pretty good I know there is some seasonality here, but evenly over a year. It's done a lot I think you mentioned 30 party services, helping you. So if you can provide more color.
Speaker Change: <unk> services are like how this line should behave going forward. Thank you.
Mateus Scherer: So there are two sides to the question, first regarding the registered business on a standalone basis. To that end, I think TAG has been profitable for a while, but there have been no big changes in terms of the operation. And then there is a piece on the credit side, right? And to that end, I think the message is that it's mostly working on this. We are able to access collateral from all the main providers when we are underwriting.
Speaker Change: Thank you for your question. So on the first let's talk about the adjustments. So we only have just basically mark to market related to women need transactions will also distribute compensation whatsoever. So it's fully expensed and therefore, everyone. The positive one off is non adjusted right.
Mateus Scherer: And that's a very important collateral for our business. Okay, so you have been able to access the wallets from other players, and the collateral is working well as of now? Yes, yes, it is.
Speaker Change: One of the things that is adjusted to that and is the loss on the divestment of <unk> and keep in mind that in the first quarter. We had the opposite effect, we had a gain on the amount of diesel which was logistics as well so let's deferred fees.
Mateus Scherer: Has there been any instance where you've made use of that collateral so far? Yeah, so in our renegotiation process, in general, I think the first step is basically accessing the receivables that we have against the clients as collateral. And then only afterwards did we move towards the phase where we actually renegotiate the credits. So it has been the first, I would say, gatekeeper in terms of collecting the credits, and it's fully operational now. Perfect. Very helpful.
Mateus Scherer: Thank you. Next question from Yuri Fernandes with JP Morgan. Hey guys, good evening.
Speaker Change: The second piece I think is related to administrative expenses.
Yuri Rocha Fernandes: And thank you for letting me ask questions. I have a follow-up on Kaio's question about the adjustment to your net income. Just confirming that both the net effect of PPAC, the 53 million reais, is there and also the lower compensation, the lower share base compensation, the 40 million. When I checked the table, it's not clear to me where those two items are there.
Speaker Change: I think youre right there was a sizable reduction Brexit on character, but also year on year.
Yuri Rocha Fernandes: So just making sure that the negative was removed, but also the positive is out of your recurring adjustment. That's the first one. And my second question would be about your administrative expenses. They were pretty good.
Speaker Change: When we look at the quarter on quarter evolution multi.
Speaker Change: Mostly due to seasonality I think we've been vocal on the pull from the FERC.
Speaker Change: Administrative expenses were seasonally higher beckman and it's the opposite way right now, but when you look at an annual comparison than most of the benefits related to the initiatives that we have been placing the company, namely the zero based budgeting initiative and also the implementation of the.
Speaker Change: Shared services center.
Speaker Change: And here on a macro level basically what we're doing is unifying processes.
Perfect function.
Speaker Change: And over time this leads to lower expenses related to third party services and administrative expenses in general.
Speaker Change: The main trades on the line.
Speaker Change: Super clear materials.
Speaker Change: Replace thank you very much.
Mateus Scherer: I know there is some seasonality here, but even over a year, it's done a lot. I think you mentioned 30 party services are helping you. So if you can provide more color, which those services are, and how these lines should behave going forward. Thank you, Hey Yuri, thank you for the question.
Speaker Change: Thank you Judy.
Speaker Change: Next question is from <unk> <unk> with Morgan Stanley.
Mateus Scherer: So on the first piece, let's talk about the adjustments. So we only adjust basically market to market related to M&E transactions; we don't adjust share base compensation whatsoever. So it's fully expensed. And therefore, the positive one-off is not adjusted, right?
Morgan Stanley: Hi, everyone.
Morgan Stanley: Thanks for the opportunity to ask questions.
Morgan Stanley: I wanted to ask about selling expenses you mentioned.
Morgan Stanley: The 36% year on year jumped 17% quarter over quarter was partly due to a marketing expense related to a sponsorship of a TV show and investments in your sales team would it be possible for you to quantify.
Morgan Stanley: How much of that $5 29.
Morgan Stanley: Was.
Morgan Stanley: Television show.
Speaker Change: Asking this because.
Speaker Change: As you look at <unk>.
Speaker Change: Marketing expenses.
Speaker Change: All in all 36%.
Speaker Change: For a revenue growth of 14% or eight.
Speaker Change: <unk> growth of 13% for the quarter.
Speaker Change: It's actually concern you gave it.
Speaker Change: Most of it the TV show right.
Speaker Change: You're actually having to spend much more in sales and marketing for the underlying business in order to grow.
Speaker Change: Our revenues at a lower pace than even if I just.
Speaker Change: Look over the last 12 months forget about this quarter if I just look at the last 12 months Youre marketing expenses.
Speaker Change: <unk> months over 12 months are up 21%.
Speaker Change: For TPB growth, which is much less than that and so I'm just wondering.
Speaker Change: To what extent some of it also is a.
Speaker Change: More competitive industry and I.
Speaker Change: And I did hear the response.
Speaker Change: Yes.
Speaker Change: Posed to a question a couple of questions before the competition remains rationale, but this level of incremental marketing expenses to grow their business at a much lower base, especially considering that you have.
Speaker Change: I don't know, 25%, 30% market share in your core business of Smbs, maybe 20%.
Speaker Change: How should we think about that and how do you think thats going to evolve going forward.
In order for you to keep this pace of revenue growth are we going to continue to see if it is just our.
Speaker Change: Growth in marketing expenses.
Speaker Change: Do you think about all of those things. Thank you.
Mateus Scherer: The only thing that is adjusted to that end is the loss on the divestment of PINPAG in this quarter, and keep in mind that in the first quarter we had the opposite effect. We had a gain on the sale of VITA, which was not adjusted as well. So that's the first piece.
Speaker Change: Thanks for the question.
Speaker Change: So let me start with explanation of American <unk> expense and then we've talked about the increased revenues.
Mateus Scherer: The second piece I think is related to administrative expenses. And here I think you're right, there was a sizable reduction per acre per caton, but also year on year. But when we look at the quarter-on-quarter evolution, it's mostly due to seasonality.
Speaker Change: So selling expense first I think we have to segregate the sequential evolution from the yearly evolution.
Mateus Scherer: I think we've been vocal on the call from the fourth quarter that administrative expenses were seasonally higher back then, and it's the opposite way right now. But when you look at an annual comparison, then most of the benefits are related to the initiatives that we have in place in the company, namely the zero-based budgeting initiative and also the implementation of the Shared Services Center. And here at a macro level, basically, what we're doing is unifying processes in our corporate functions. And over time, this leads to lower expenses related to third-party services and administrative expenses, in general. So that's the main training on the line. Super clear, Mateus. Both replies. Thank you very much.
Speaker Change: When you look on a year over year perspective in the first quarter of 'twenty. Three we had some one offs related to relocation of variable compensation between setting.
Yuri Rocha Fernandes: Thank you, Yuri. Next question from Jorge Kuri with Morgan Stanley. Hi, everyone.
Speaker Change: So this makes the year on year evolution less relevant here.
Jorge Kuri: Thanks for the opportunity to ask questions. I wanted to ask about selling expenses. You mentioned that the 36% year-on-year jump and 17% quarter-on-quarter was partly due to a marketing expense related to a sponsorship of a TV show and investments in your sales team. Would it be possible for you to quantify how much of that 529 was the TV show?
Now I think the best way to look at the number is indeed looking at the sequential evolution, which was 17%.
Speaker Change: And on that front basically everything is related to our investments in the broader Brazil. So the sequential increase in savings, mostly a function of that.
Speaker Change: Which basically impacts first quarter inflow, lesser extent second mercury as well.
Jorge Kuri: And I'm asking this because, as you see, marketing expenses going off 36% for a revenue growth of 14% or a TPV growth of 13% for the quarter, that's actually concerning if it's not most of it, the TV show, right, where you're actually having to spend much more on sales and marketing for the underlying business in order to grow revenues at a lower pace. And even if I just look at the last 12 months, forget about this quarter, if I just look at the last 12 months, your marketing expenses, 12 months over 12 months, are 21% for TPV growth, which is much less than that. And so I'm just wondering, you know, to what extent some of it is also a more competitive industry.
Speaker Change: Now when we look ahead.
Jorge Kuri: And I did hear the response that Lia posed to a question, a couple of questions before that the competition remains rational, but this level of incremental marketing expenses to grow the business at a much lower base, especially considering that you have, I don't know, a 25%, 30% market share in your core business of SMBs, maybe 20%. How should we think about that? And how do you think that's going to evolve going forward? In order for you to keep this pace of revenue growth, are we going to continue to see this just out growth in marketing expenses? How do you think about all those things?
Speaker Change: We still see some opportunities to invest in distribution channels and I think we've been vocal to see that as long as we see healthy return hurdles, we will continue to do so.
Speaker Change: As a percentage of revenues I think we should start to see operational leverage leverage keeping new line throughout the year.
Mateus Scherer: Thank you, Thanks for the question, Jorge. So let me start with the explanation of marketing expenses. And then we'll talk about the link if we're having this right.
Speaker Change: So that's the first piece, referring to the selling of evolution in general I think the second desalination is whether we are seeing some kind of effect from competition and the link between those investments and the topline growth right.
Mateus Scherer: So on selling expense, first, I think we have to segregate the sequential evolution from the yearly evolution. When you look at a year-over-year perspective, in the first quarter of 2023, we had some on-offs related to the reallocation of arable compensation between setting and admin. This makes the year-on-year evolution less relevant here.
Speaker Change: And to that end.
Speaker Change: First of all I think the best way to look at the number it is not looking at the consolidated <unk>.
Speaker Change: The investments, we do selling has very little to do with the growth in share count, which I think we've mentioned we are being opportunistic so awkward because it can move more ammonia report visit roulette.
Speaker Change: But when you look at the evolution of an SMB CPD.
Speaker Change: I think the message is not that we are accelerating actions.
Speaker Change: So if you look at the evolution of <unk>, including <unk>, which we monetize the same manner.
Speaker Change: Basically we grew 24% this quarter amongst 25% in the first quarter and third third <unk> was in the low to <unk>. So the message used either stable or accelerating not decelerating.
Mateus Scherer: Now, I think the best way to look at the number is indeed looking at the sequential evolution, which was 17%. And on that front, basically everything is related to our investments in Big Brother Brazil. So the sequential increase in selling is mostly a function of that, which basically impacts the first quarter and to a lesser extent, the second quarter as well. Now, when you look ahead, we still see some opportunities to invest in distribution channels. And I think we've been vocal to say that as long as we see healthy return hurdles, we will continue to do so.
Speaker Change: So again.
Speaker Change: Thats pretty much how we see the line.
Speaker Change: The evolution, mostly explained by the reality show investments that belief.
Speaker Change: And in terms of the need to grow Athena appropriate way to look at the numbers looking at and mentioned before early and multiples in general.
Speaker Change: The looser answered all your questions.
Speaker Change: Yes, yes.
Speaker Change: Clear thank you very much I.
Speaker Change: I appreciate it.
Speaker Change: If I if I just adjust for.
Speaker Change: If I adjust for this quarterly Joan.
Joan: Yes, there seems to be some operating leverage on a last 12 month basis of your selling expenses, but but not a lot and so I guess.
Joan: I'm still just wondering.
Joan: How should we think about the amount of expenses that you needed to put into the business given the big market share that you have and how does that relate to competition. So anything any view that you have around that would be helpful.
Mateus Scherer: But with that said, as a percentage of revenues, I think we should start to see operational leverage kick in in this line throughout the year. So that's the first piece referring to the selling evolution in general. I think the second piece that I mentioned is whether we are seeing some kind of effect from competition and the link between those investments and top-line growth, right? And to that end, first of all, I think the best way to look at the numbers is not looking at the consolidated PPV.
Speaker Change: Yes, yes for sure. So like I said I think the sequential increase that we had was mostly due to the reality TV show investments and moving forward on a nominal basis shouldnt grow that much. So most of the leverage will come from continuing to grow topline having this baseline in terms of selling.
And then unless these I think when when potent on boats operational leveraging the line, especially looking into first quarter. It's also important to remind that we had a negative one off in the revenue side ranked which was the $60 million from the change in the recognition of membership fees when you factor that in.
Mateus Scherer: The investments we do in selling have very little to do with the growth in key accounts, which I think we've mentioned we are being opportunistic. So in some quarters it can grow more; in other quarters it can grow less.
Mateus Scherer: But when you look at the evolution of MS and BTP genes, I think the message is not that we are decelerating. So if you look at the evolution of TPBs, including peaks, which we monetize in the same manner as debits, basically, we grew 24% this quarter, about 25% in the fourth quarter, and 30% was in the low 20s. So the message here is either stable or accelerating, but not decelerating. So again, that's pretty much how we see the line.
Mateus Scherer: The evolution is mostly explained indeed by the reality TV show investments that we did. And in terms of a link to growth, I think the proper way to look at the number is looking at MSMB volumes and not PV in general. Don't know if I answered all your questions. Um, yeah, yeah, that was clear. Thank you very much, Mateus.
Jorge Kuri: I appreciate it. I mean, if I just adjust for this quarterly jump. Um, yeah, there seems to be some operating leverage on a last 12 month basis for your selling expenses, but not a lot. And so I guess, you know, I'm still just wondering, how should we think about the amount of expenses that you need to put into the business, given the big market share that you have? And how does that relate to competition? So any, any views that you have around that would be helpful.
Jorge Kuri: Yeah, for sure. So, like I said, I think that the sequential increase that we had was mostly due to the reality TV show investment. And going forward, on a nominal basis, it shouldn't grow that much. So most of the leverage will come from continuing to grow the top line, having this baseline in terms of selling. And then a last piece, I think when talking about operational leverage in the line, especially looking at the first quarter, it's also important to remind you that we had a negative one-off in the revenue side, which was 60 million from the change in the recognition of membership fees.
Jorge Kuri: When you factor that in, and then you exclude the investment of Big Brother Brazil, I think it's more clear to see the operational leverage that is kick-in there. Thank you. You're welcome. Next question from Daniel Vaz with SAC. Hi, everyone.
Speaker Change: And then you look excluding the divestment of <unk>, Brazil, I think it's mark of the year to see the operational leverage that is kicking in here.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Youre welcome.
Speaker Change: Next question from Danielle <unk> with <unk> software.
Daniel Vaz: I have a question regarding credit. So we know you're offering your working capital solution for a limited portion of your client base, right? So, mainly in the upper part of the SMB. So I wanted to ask you if you have already been testing pilots with smaller clients, and what has been the outcome of this testing so far? So are you willing to expand the eligible base at some point this year? Have you been doing that?
Danielle: Hi, everyone I have a question regarding credit so we know you're offering your youre working capital solution for a limited portion of your client base right. So mainly in the upper part of the SMB.
So I wanted to ask you if you have already been testing pilots and smaller clients.
Danielle: And how have been the outcome of this testing so far so are you willing to expand the eligible base at some point in this year have you been doing that so it will be good to hear from you. Thank you.
Daniel Vaz: So it will be good to hear from you. Thank you. Yes, hi, Danielle.
Gregorio: Yes, we have expanded our offer to lower customers, both on the working capital facility and now we're initiating a test with credit cards on our top ton business. So we are evolving to cover the entire client basis with a credit offer. And so far, the tests have been successful.
Speaker Change: Yes, Hi, Danielle, yes, we have expanded our offering to lure customers.
Speaker Change: Both on the working capital facility and also we are initiating now a test with credit cards on our PON business. So we are evolving on covering the entire client base with a credit offer.
Gregorio: And we think that there's opportunity to expand here and reach out for more. Yeah, I think the one caveat here, Daniel, like Gregor mentioned, it's still in the test phase here. So I wouldn't say we are right to roll it out yet. I think the message is that the early indicators are good. But again, we're taking a cautious approach to credit in general, and then especially for micro merchants, which we know are more volatile and risky, right by nature. So I wouldn't expect a big evolution already contributing to results this year; it's mostly about testing and learning this year. Okay, thank you.
Speaker Change: And so far I mean, the tests have been successful.
And we think that there's opportunity to expand here and reaching out for more customers. Yes, I think the one caveat here Danielle like Ruger emissions. This is still in test phase here. So I wouldn't say, we are right to rollout yet I think the message is that the early indicators are good.
Speaker Change: But again, we're taking a cautious approach in credit in general and then, especially on micro merchants, which we more and more volatile and risky ranked by nature.
Speaker Change: We even more cautious so I wouldn't expect the mix evolution already contributing to results. This year, it's more about testing and learning this year.
Daniel Vaz: And if I may just a quick one on the change in the accounting method. So how are you recognizing revenues now? It's a 12 month basis. It's a 24.
Speaker Change: Okay. Thank you and if I may just a quick wanting the change of the accounting method. So how are you recognizing revenues now.
Speaker Change: 12 month base, it's a 24.
Speaker Change: Just give a little refresh for us.
Daniel Vaz: Could you just give us a little refresher for us? Yeah, so up until the last quarter, membership fees were basically recognized as soon as a client was onboarded. So it was up front.
Speaker Change: Yes so.
Speaker Change: Up until the last quarter membership fees were basically recognized as soon as the plant was awarded so it wasn't phones.
Mateus Scherer: Now, it's basically deferred throughout the lifetime of the client. We don't disclose the specifics in terms of how many months we're using, but I mean, it's very close to market standards.
Speaker Change: Now it's basically.
Speaker Change: Deferred throughout the lifetime of the clients.
Mateus Scherer: So if you look at your peers, I think you should have a good benchmark for that. All right, thanks for that. Congratulations on the results.
Speaker Change: We don't disclose the specifics in terms of how many months, we are using but I mean.
Speaker Change: It's very close to market standards. So if you look at the peers that you should have a good benchmark for that.
Alright, thanks for that congrats on the results.
Speaker Change: Thank you.
Daniel Vaz: Thank you. Next question from Tiago Binsfeld with Goldman Sachs: Hi, good evening, everyone. Thank you for taking my question. I have just one on financial expenses.
Speaker Change: Next question from Thiago <unk> with Goldman Sachs.
Thiago: Hi, Good evening, everyone and thank you for taking my question I have just one on cynosure.
Tiago Binsfeld: If you could discuss what are your main expectations for Terminals Elite, and also, if you could discuss any initiatives to lower financial costs by your end. And finally, if you have any plans to remunerate deposits, remind us what your strategy here has been. Thank you so much.
Thiago: If you could discuss what are your expectations for terminals, Italy.
Thiago: And and.
Thiago: And also if you could discuss.
Thiago: If you have any initiatives to lower financial expense by yearend.
And finally.
If you have any plans to remunerate deposits.
Thiago: Remind us what has been your strategy here. Thank you so much.
Mateus Scherer: Thanks for the question, Sean. So first, let's start with our perspective on Terminal SELIC. I think to be really honest here, we don't have a perspective here. I think our approach is basically to look at the market data that we have, and then we adjust our pricing accordingly. I think we mentioned this a few times, but our pricing has become a lot more dynamic nowadays. So basically, we have the prices that we use to onboard a client.
Speaker Change: Thanks for the question Sean.
Speaker Change: So first let's just starting to do our perspective for our three most elite and seem to be really honest here, we don't have.
Speaker Change: Respective here I think our groups basically to look at the market data that we have and then we adjust our pricing accordingly.
Speaker Change: We mentioned this a few times, but our.
Speaker Change: <unk> has become a lot more dynamic.
Speaker Change: So basically we have the price that you use to onboard a client, but overtime, we adjusted upwards or downwards. According to the volumes that we're seeing in the solutions that the clients are using so it has become a dynamic process Internet and I think it allows us to adjust whatever we see in our phones and a very brief manner.
Mateus Scherer: But over time, we have adjusted upwards or downwards according to the volumes that we're seeing, the solutions that the clients are using. So it has become a dynamic process. And to that end, I think it allows us to adjust whatever we see in front of us in a very quick manner. So that's piece number one.
Speaker Change: So let's be number one.
Speaker Change: Second is regarding initiatives to lower financial expenses.
Mateus Scherer: Second piece regarding initiatives to lower financial expenses. I think our team has done a great job over the past year, past quarters, and years, not only being more efficient in terms of the spreads that we have but also being a lot more conservative. So if you look at the credit profile of the company, we're having longer and longer funding, which is good. Now when you look at the structural initiatives that we have in place, I think the main one to mention is the financier license, which we got at the end of last year.
Speaker Change: I think our team has done a great job over the best first quarter for the year.
Speaker Change: <unk> of numerous additions in terms of the spreads that we have.
Speaker Change: But also we're conservative so if you look at the credit profile of the company.
Speaker Change: We're having longer and longer funding, which is good.
Speaker Change: When you look at structural initiatives that we have at least a few the mainland dimension is definitely see the license, which we got.
Speaker Change: And also this year.
Mateus Scherer: And that basically allows us to access retail funding and also to access the deposit base that we have to fund prepayment and credit. But on both of these fronts, our approach is really cautious because we want to make sure that we don't cannibalize our current deposit base, for which we don't remunerate anything. And as you can see from the results, it's getting quite a lot of traction without that, right? So basically, what we're doing right now is testing. We have a very small pilot in terms of rewarding deposits. We're also testing the waters in terms of retail funding. And that's pretty much the mode of the year.
Speaker Change: And that basically allows us to access received funding and mostly to access the deposit base that we have.
Speaker Change: To fund prepayment and credit.
Speaker Change: But on both of these fronts. Our approach is really caution because we want to make sure that we both cannibalize our current deposit beef for Richard We don't room, when you read anything and as you can see by the results getting quite a lot of traction without debt right. So basically what we're doing right now is there.
Speaker Change: <unk>, we have a very small pilots in terms of <unk> deposits were also testing the waters in terms of retail funding and thats pretty much the mood of the year I wouldn't expect any big movements on the balance sheets.
Speaker Change: 24.
Speaker Change: And the final question can you remind me.
Speaker Change: What was it.
Speaker Change: My final question was on the deposits, what's your strategy for remuneration or paying for deposits eventually.
Speaker Change: Well I think we've covered that but basically.
Speaker Change: The message here is the following.
Mateus Scherer: And the final question, can you remind me what it was? My final question was on deposits. What's your strategy for remuneration or paying for deposits in the end? Well, I think we covered that. But basically, the message here is the following. We have a very good business in our banking products, which are basically built upon the working capital needs of our clients, right? So we offer a simple solution for them.
Speaker Change: We have a very good business in our banking products, which is basically built upon the working capital needs. The FERC <unk> right. So we offer a single solution for Dan and Barry.
Speaker Change: <unk> able to get these deposit base without remunerating.
Mateus Scherer: And we're able to get this deposit base without remunerating. But we also see space to advance on banking on the remunerated side. So basically, tackling the savings pocket of our clients. If you look back at investor day, I think the approach that we shared was basically creating an automated savings product, which is basically using the same engine that we have in credit where we get a percentage of the TPD, but redirecting that feature towards clients that are savers.
Speaker Change: But we also see speeds to advancing banking on the ruminant <unk> site. So basically tackling this savings pockets of our clients.
Speaker Change: If you look back at the Investor Day, I think the approach that we shared was basically creating an automated savings products.
Speaker Change: Which is basically using the same engine that we have in credits, where we get a percentage of the CBD.
Mateus Scherer: So we're basically able to help our clients to save towards their goals. And with that product, the idea is to remunerate the deposit base. But again, we are being really cautious here not to cannibalize the product that we have in place. So that's basically the strategy there, clear. Thank you, Mateus.
Speaker Change: Redirecting that featured towards clients that our theaters. So we're basically able to help our clients to see move towards their goals.
Speaker Change: And the best product the idea is to remunerate, the deposit base, but again really caution you or not depending on the product that we have in place. So that's basically the strategy there.
Speaker Change: Clear Thank you Mike.
Tiago Binsfeld: Next question from Jamie Friedman with SID. Hi, let me echo the congratulations. I wanted to ask about the take rate on key accounts. It was up 14 basis points year on year and 15 basis points sequentially. So I'm just, and I understand that's part of the strategy. I'm wondering though, how high this can go.
Speaker Change: Next question from Jamie Friedman with S. ICD.
James Eric Friedman: Hi, let me Echo the congratulations I wanted to ask about the take rate on key accounts it was up.
Jamie Friedman:
James Eric Friedman: 14 basis points year on year end.
James Eric Friedman: 15 basis points sequentially, so im just and I understand that part of the strategy I'm wondering though.
James Eric Friedman: How high can this go cuz.
James Eric Friedman: It seems like you've got a very good cadence there.
James Eric Friedman: Because It seems like you got a very good cadence there. Hi Jamie, Lia here. So I think regarding take rates, transanti accounts, so the one basis point increase quarter on quarter is basically product mix, credit versus debit. And the 14 basis points increase year over year is really a consequence of our strategy in terms of repricing and offering spot-free payments for some clients. So I think the overall message here is to let's remember that key accounts. We see key accounts as sort of an opportunistic strategy.
Speaker Change: Hi, Jamie.
James Eric Friedman: So I think regarding take rates trended key accounts. So the one basis point increase quarter on quarter is basically.
James Eric Friedman: Product mix credit versus debit.
James Eric Friedman: 14 basis points increase year over year is really a consequence of our strategy in terms of re pricing and offerings plus prepayment for some clients. So I think the overall message here is let's remember that key account for us.
James Eric Friedman: We see key accounts as soybeans.
James Eric Friedman: So our domestic strategy. So if we find a key account clients, where we can have a good relationship in terms of pricing and good return or even a more broad sort of product discussion that enables us to have a more profitable relationship we will do so but that's not.
James Eric Friedman: So if we find a key account client where we can have a good relationship in terms of pricing and good returns, or even a more broad sort of product discussion that enables us to have a more profitable relationship, we will do so. But that's not really the focus of our execution.
James Eric Friedman: Really the focus of our execution.
James Eric Friedman: So we're a lot we've been a lot more opportunistic there is it's hard to pinpoint what the trends will be I think that's a trend that we're seeing is more or less in line with what we expect right. So thanks rates.
Lia Machado de Matos: So we've been a lot more opportunistic there. It's hard to pinpoint what the trends will be. I think that the trend that we are seeing is more or less kind of in line with what we expect, right? So take rates slightly positive from this effect of a higher emphasis on profitability and repricing. But on the TPG side, it tends to be volatile, so it's hard to pinpoint a trend. I think those are the takeaways.
James Eric Friedman: Slightly positive from this effect.
James Eric Friedman: A higher emphasis on profitability and repricing.
James Eric Friedman: But on the CPG side, it tends to be volatile so its hard to pinpoint and trends.
James Eric Friedman: I think those are the takeaways.
James Eric Friedman: Yes.
Lia Machado de Matos: Thank you, Lia. And then, In answer to a previous question, I think you addressed the opportunity to lend to the Lynx merchant base, which, my understanding is, if I don't, I don't believe you have begun. So how and when are you thinking about that opportunity?
Speaker Change: Thank you Lee and then.
Speaker Change: In an answer to a previous question.
Speaker Change: I think you had addressed the opportunity to lend into the links merchant base, which my understanding is if I don't.
Speaker Change: I don't believe you begun so how.
Speaker Change: And when are you thinking about that opportunity if you could elaborate on that thank you.
James Eric Friedman: If you could elaborate on that, please? Thank you. Yeah, so we disclosed this metric that we It's about lending our links, right? Lending our links was the question, Jamie. Oh, yeah. I'm sorry if I didn't say it right.
Speaker Change: Yeah. So we disclose this metric that we.
Speaker Change: So bottom line is it landing on link for the lesson Jamie.
James Eric Friedman: That's what I meant to say. Yes. Okay, yeah.
James Eric Friedman: Yes, I'm, sorry, if I didn't say it right that's what I meant to say yes.
Lia Machado de Matos: So like Gregor mentioned, right, we were just starting to look at the opportunity for credit in the Lynx client base. And what we know is that it is a big opportunity. And it's very in line with what Pedro said at the beginning of the call today to sort of implement a specific process for higher average CTV clients because that is the profile of Lynx clients overall; even within those priority verticals, the average CTV of those clients tends to be somewhere around 200-500,000 a month.
Speaker Change #100: Okay, Yes, so last Gregor mentioned right.
Speaker Change #101: We were just starting to look at the opportunity.
For credit and the links client base. So what we know is that it is a big opportunity and it's very in line with what Andrew said at the beginning of the call today to sort of implement a specific process for higher average CPG clients because that is the profile of linked clients overall, even within those priority.
Lia Machado de Matos: So these are medium clients within the SMB space; we know that there's a very significant opportunity there. And this will fall into the context of the whole overall front selling initiative, right? So in order to provide lending to those clients, we want to do so in a context where we actually offer the full Stone integrated software.
Speaker Change #101: Vertical the average <unk> expense to be somewhere around 200 500000 per month. So these are medium clients within the SMB space. We know that there is a very significant opportunity there and this will fall into the classic.
The overall cross selling initiative right. So.
Speaker Change #101: In order to.
Provide lending to those clients, we want to do so in a context, where we actually offer the full storm solution integrated software. So it's really very early days, we know the opportunity big we're starting to organize ourselves.
Lia Machado de Matos: So it's really very early days; we know the opportunity is big, and we're starting to organize ourselves around that opportunity. But at this point, the focus on cross selling is a lot more the structural go-to-market initiative that will enable us to actually start to offer financial services solutions to software clients. So yes, we are excited about the credit opportunity in Lynx's client base, but it's very early days to give any more precise figures on that. Perfect. Thank you, Liv.
Speaker Change #101: Around that opportunity.
Speaker Change #101: At this point the focus on cross selling is a lot more on really the structural go to market initiatives.
Speaker Change #101: That enable us to actually start to offer financial services solutions to software clients. So yes, we are excited with the <unk>.
Speaker Change #101: Credit opportunity only client base, but it's very early days to give you any more precise figures on that.
Speaker Change #102: Perfect. Thank you Lou.
Pedro Leduc: Next question is from Pedro Leduc with Ita BBH. Thank you guys for the question. Good evening. First, on the financial side that you guys are looking at for the, had the new document recently out on what you have seen and revenues or the funding side, early thoughts and maybe how you can manage around that. And the second, from the early portfolio that you have on the credit side, if you've already seen benefits, be it on churn, be it on higher share of wallet, all those clients, credit helping you, you believe just through Hi Pedro, I'm not sure you understood the first part of your question. If you could, please repeat it.
Speaker Change #102: Thank you Jamie listen next question from Pedro Leduc with <unk> BBA.
Thank you guys for the question good evening.
Pedro Leduc: First on the.
Speaker Change #102: Financial.
Speaker Change #102: Syed.
Pedro Leduc: That your guys are looking at for them.
Pedro Leduc: I have had the new document recently out from what you have seen and revenues are the funding side early thoughts and maybe how you can manage around that and the second from the early portfolio that you have on the credit side.
Pedro Leduc: If you are already seeing benefits beat on churn would be at a higher share of wallet all those clients as credit helping you you believe.
Pedro Leduc: Through credit, but it would bring positive side effects.
Speaker Change #104: Great. Thanks.
Speaker Change #105: Hi, I'm not sure I understood. The first part of your question if you could please repeat it.
Pedro Leduc: Pearl Ltd. You're talking a little bit, yeah. Sorry, I think you're chopping a little bit for us. I don't know if you can go to a spot where there's a little better connection.
Speaker Change #106: And all that.
Speaker Change #107: Finally, the topline yet.
Speaker Change #108: Sorry, I think you're chopping it a little bit for us I don't know if you can both the spots where there is a little better connection.
Pedro Leduc: I'll join the line back in. Sorry. Okay, Pedro, thank you. Ok, while we wait for Pedro... Next question from Renato Meloni. Hi, everyone.
Speaker Change #108: Our all joined up linebacker sorry.
Speaker Change #109: Okay. Thank you.
Speaker Change #110: Okay, well, we wafer Pedro.
Speaker Change #111: Next question from <unk>.
Please have them.
Renato Meloni: Thanks for the space here for questions. My first question is on the asset quality of the credit portfolio. I know it's a bit early to look at NPLs, but I wonder what your margin is here and if you can compare that to what we're seeing in the industry numbers. And then maybe if you have an expectation of where NPLs will stabilize and why.
Speaker Change #112: Hi, everyone. Thanks for the space here for questions. My first question is on the asset quality of the credit portfolio I know, it's a bit early to look at Npls, but I wonder what you're seeing the margin here and if you can compare that to what we're seeing in the industry numbers and then maybe if you have an expectation.
Speaker Change #112: Of where Npls will stay.
Speaker Change #112: Stabilize and why.
Renato Meloni: And then I have a second question here on your funding strategy. And if you, how do you see space to continue using your own cash generation as a funding source here if you expect that to the mix to shift going forward? Thank you. Thank you, Renato. Let me start with the letter question.
Speaker Change #112: And then I have a second question here on your funding strategy.
Speaker Change #112: And if you are.
Speaker Change #112: How do you see space to continue using your own cash generation as a funding source here. If you expect that to the mix to shift going forward.
Speaker Change #112: Yes.
Speaker Change #113: Thank you Hannah.
Speaker Change #114: Let me start on the latter question so basic.
Mateus Scherer: So basically, we fund credit nowadays using our capital structure, right? So we have a mix of equity and debt. I think we're not looking toward having a specific instrument for credit, like factoring out risk on this. Basically, because it's too expensive in Brazil.
Speaker Change #114: Basically refund credit non these using our attempt to structure right. So we have a mix of equity and debt.
Speaker Change #114: I think were not looking towards having a specific instruments for credits like factoring off risk on this basically because it's too expensive in Brazil. So if there is an auction at an attractive rate we will for sure can senior but even the structure that we have in Brazil, I think it's likely that the.
Mateus Scherer: So if there is an option at an attractive rate, we will for sure consider it. But given the structure that we have in Brazil, I think it's likely that the strategy for funding may continue the same, and then on asset quality, I think you're right that looking at NPLs alone is really affected by the speed of growth, right? I think what we can share from these data is basically two things. So first, in terms of expected losses, our models are pointing towards the 10% threshold. So, when you think about NPLs over 90, it should increase, right? It shouldn't stay at 1.5% or 2%.
Speaker Change #114: <unk> funding May continue in this thing.
Speaker Change #114: And then on asset quality.
Speaker Change #114: Stinker right Thats looking at Npls alone.
Speaker Change #114: It's basically really affected by the speed of roof right.
Speaker Change #115: Thank you for what we can share.
Speaker Change #115: From Nowadays is basically true.
Speaker Change #115: So first in terms of expected losses, our models are pointing towards the 10% threshold.
Mateus Scherer: It should move towards this expected credit loss level and be slightly below that. So, that's the first piece of the message. The second, I think, is looking at cohort data.
Speaker Change #115: So when you think about mpls over 19.
Speaker Change #115: It Shouldnt reiterated shouldnt see as 1.5% or 2% area it should move towards as.
Speaker Change #115: As expected credit loss level and be slightly below that so that's the first piece is the message. This second I think is looking at cohort data. So I think from the Investor day, we shared with you over 33%.
Mateus Scherer: So, I think on investor day, we shared over 30 MOP3 for the portfolio. And I think we disclosed at that time between 3% and 4% for the cohorts. And that pretty much remains the same nowadays.
Good for you and I think we disclosed at the time between three and appropriate Sam critical parts and.
Speaker Change #115: And that's pretty much remains the same on these.
Mateus Scherer: So I think the performance for the portfolio has remained really consistent over the past many months. And the final point I think you mentioned is around return. So, The margin for credit. I think we're not disclosing the margin itself. But what we can see in terms of race, we usually charge between 3 to 5% per month. We are on the lower end of that range, basically because we are choosing clients that have a better risk profile in general.
Speaker Change #115: So I think the performance for the portfolio has remained consistent.
Speaker Change #115: The past many months.
Speaker Change #115: And the final point I think you mentioned is around return so.
Speaker Change #115: The margin for Greg.
I think we're not disclosing the margin itself, but what we can see in terms of rates, we usually charge between 3% to 5% per month.
Speaker Change #115: We are on the lower end of that range model is basically because we are choosing clients that have a better risk profile in general.
Speaker Change #115: And then if you combine that to 3% per month with the 10% expect expected credit losses, I think you should arrive at the margin for the product.
Speaker Change #116: So that's the message there.
Mateus Scherer: And then if you combine the 3% per month with the 10% expected credit losses, I think you should arrive at the margin for the product pretty easily. So that's the message there. Very good. Thank you. Next question from John Coffey: Hi, thank you very much for taking my question. I just had two questions for you.
Speaker Change #117: Very good thank you.
Speaker Change #117: Okay.
Speaker Change #117: Next question from John Coffey with Barclays.
John James Coffey: For one, on your TPV, it looks like it seems like your top line TPV number now includes picks. And so if that's the case, and that's kind of your primary TPV metric, how should I think about your guidance, especially your MSMB TPV on that 412 floor? Is that just tying to the TPV without PICS?
Hi, Thank you very much for taking my question I just had.
John James Coffey: Two questions for you for one.
John James Coffey: When youre keeping the it looks like.
John James Coffey: It seems like your topline PPV number now includes picks and so if that's the case and that's kind of your primary PPV metric how should I think about your guidance.
Speaker Change #119: Yeah, especially your EMS SMB PPV of Stat for one two floor.
John James Coffey: And then likewise, when we think about the MSMB take rate, would that be considered with TPV, again, including PICS or not? And just the last question I had, the second question, about the MSMB payment net ads, I think Lia said in her prepared remarks that we saw a little bit of a decline this quarter because now Stone is reaching, I think, like market growth rates, if I understood that correctly, for MSMBs. Does that mean like we should, that's kind of a good cadence in that 200 range to think about net ads going forward? Or am I off on that?
Speaker Change #119: Does that is that just tying to the PPV without picks and then likewise when when you think about the msnb take rate would that be considered with TPB again, including pics or excluding and just.
Speaker Change #119: The last question I had the second question for the MSC Msnb payment. The net adds I think Lee has said in her prepared remarks that we saw a little bit of a decline this quarter. Because now stone is reaching I think like you know like market growth rates, if I understood that correctly for Msnb's.
Does that mean like we should that's kind of a good cadence of that 200 range to think about net adds going forward or am I off on that thanks.
Lia Machado de Matos: Thanks. Hi John, Lia here. So I'm going to take both questions. First on PPV.
Speaker Change #119: Hi, Joanne Lia here, so I'm going to take both questions.
Lia Machado de Matos: First on CTV.
Lia Machado de Matos: I think it's important to note that we disclosed both, right? So both TPV, considering 6P2M, and TPV only considering cards, right? So the reason why we're disclosing this: we've always disclosed both, but 6P2M has more and more incrementally become a relevant and important acceptance method for our clients. Let's also remember that we monetize PIXP2M in line with debit net MDRs, and we allow our clients to reconcile PIXP2M as a payment method. So I think this is just a little bit of context to start answering the question.
Lia Machado de Matos: I think it's important to note that the disposable right both CBD considering <unk> and.
Lia Machado de Matos: And CBD only considering.
Lia Machado de Matos: Cards right. So the reason why we're disclosing we've always disclosed ball, but each one has more and more incrementally become a relevant and important.
Lia Machado de Matos: <unk> methods for our clients.
Less.
Also remember that we monetize each one in line with debit net MBR.
Lia Machado de Matos: And we allow our clients to reconcile <unk> as a payment method. So I think this is just a little bit of context to start answering the question.
Lia Machado de Matos: So in fact regarding.
Lia Machado de Matos: The guidance of TPB, we arent seeing CPG trends, considering only card volumes are closely aligned with our guidance.
Lia Machado de Matos: So in fact, regarding the guidance for TPB, we are seeing TPB trends, considering only card volumes closely aligned with our guidance. But additionally, we're positively surprised by the strong performance that we're seeing in PICS P2M volumes, where we're going strongly on a sequential basis. And like I said, it's net positive for us because we monetize that in line with that net MDR. And it is very positive for our clients because, for them, it is a cheaper solution in terms of payment acceptance, and money gets settled instantaneously.
But additionally, we're positively surprised with the strong performance that we're seeing is this between volume where we're going strongly on a on a sequential basis and like I said, it's net positive for us.
Lia Machado de Matos: We monetize that in line with that the net MBR and it is very positive for our clients because for them. It is a cheaper solution in terms of payments acceptance and.
Lia Machado de Matos: Let me get settled instantaneous.
Lia Machado de Matos: So just to give the numbers again, TPV, including fixed, grew 24%. Well, if we exclude fixed P2M, we saw 18% growth. And the 18% growth is very much in line with our guidance for the year in place.
Lia Machado de Matos: So just to give the numbers again.
Lia Machado de Matos: TPG, including fixed grew 24%, while if we exclude 61, we saw 18% growth and the 18% growth is very much in line with what our guidance in the year for the year implies so the message is we remain committed with TPG guidance.
Lia Machado de Matos: So the message is we remain committed to the TPV guidance. And we're going to continue to disclose both figures, right, TPV with PICS-P2M and TPV considering only CARD. The second part of the question was metas, right?
Lia Machado de Matos: And we're going to continue to to disclose both figures right CBD with big steep one and peak TPB considering only carts.
Lia Machado de Matos: The second part of the question wasn't that right yes.
Lia Machado de Matos: Yes.
Lia Machado de Matos: Yes. Yeah, so you were right in that what we expect going forward in terms of NAAB is that it will be more leveled, more or less in line with what we saw this quarter. So, since, over the last year, we strongly increased our penetration in the micro segments, it's not surprising that incremental growth is smaller.
Speaker Change #121: Yes, So you are right in that.
Speaker Change #121: While we expect going forward in terms of net adds is it is more a level more or less in line with what we saw this quarter. So since over the last year, we strongly in laser penetration into micro segments, it's not surprising that into incremental growth of smaller that said we are really.
Lia Machado de Matos: That said, we're really, you know, happy with the commercial performance in the quarter. It is associated with our participation in BBB. I think we discussed this earlier in the fall. But importantly, regarding this investment in BBB that we made this quarter, we did see a very positive impact in the quarter. But we also expect a tail effect throughout the year. It's important for us to maintain the consistency of the communication so that we can really capture the value in terms of more brand recognition and stronger communication to a broader audience. Right?
Speaker Change #121: Happy with the commercial performance in the quarter. It is associated with our participation in a pandemic.
Speaker Change #121: We just we need to discuss this earlier in the fall, but importantly regarding this investment <unk> made this quarter.
Speaker Change #121: We did see.
Speaker Change #121: Very positive impact in the quarter, but we also expect a tail effect throughout the year. It is important for us to maintain the consistency of the communications market. We can recapture the value in terms of more brand recognition.
Speaker Change #121: All of our communications to a broader audience right. So all of that for US is a positive trend and we expect net adds to be in line with what we're seeing and we're happy with that level, but also have to remember we don't Ah.
Lia Machado de Matos: So, all of that for us is a positive trend, and we expect NAAB to be in line with what we're seeing, and we're happy with that level. But also, let's remember, we don't have NAAB as a single objective function, because it's important that we are always looking at healthy payback hurdles and that we can grow with good profitability. So, I think that's the big message, John. Great, thank you. There are no questions at this time.
Speaker Change #121: And have net adds as a single objective function because it's important that we're always looking at healthy payback hurdle and that we can grow and good profitability. So I think thats the big massive Sean.
Speaker Change #122: Thank you.
Operator: 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.
Speaker Change #122: There are no questions. At this time. This concludes the question and answer session I will now turn over to Pedro Zinner CEO at stone call for final considerations.
Pedro Zinner: Before we end the call, I just wanted to provide an update on the tragedy in Rio Grande do Sul. I think we are very engaged and committed to the situation, supporting our clients, employees, and local communities with a series of programs and initiatives. Our commitment to Brazilian Japanese is, above all, a commitment to people, and we have partnered with Unio Brasil, which is an NGO that has been on the frontlines of the floods for months, to support those who need it most at this time.
Pedro Zinner: Well. Thank you very much I think before we end the call just pointed out to provide.
Pedro Zinner: In terms of the tragedy.
Pedro Zinner: So.
Pedro Zinner: I think we are engaged and committed to the situation.
Pedro Zinner: Supporting our clients employees and local communities, we have a series of programs and initiatives.
Pedro Zinner: Our commitment to President Trump has is above all a commitment to people.
Pedro Zinner: And we have partner with when you're on Brazil, which is and then Joe has been on the fault lines of the floods from us.
Pedro Zinner: For those who need it most at this time.
Pedro Zinner: I think the other question is regarding the impact in terms of our TPV and guidance and so forth. So we've seen a significant impact in TPV within the region, with some cities reducing TPV by up to 40%. But that said, our exposure to Rio Grande do Sul is about 4% to 6% of our TPV.
Pedro Zinner: Yes.
Pedro Zinner: I think the other question is regarding.
Pedro Zinner: The impact in terms of our PPV and guidance and so forth.
Pedro Zinner: So we've seen a significant impact in PPV within the region.
Pedro Zinner: With some Cds are reducing PPV by up to 40%.
Pedro Zinner: But that said our exposure to hill granted to Sue is about four 6% of our PPV. So the impact will be most likely limited and should not impact our guidance.
Pedro Zinner: So the impact will most likely be limited and should not impact our guide. In terms of the P&L, there will be a negative impact in the second quarter, not only as a result of the TPV impact but also because we are fully committed to supporting our clients and employees within the region. We have already accepted the subscription fees of our clients in the region, have reduced the payment fees, and provided a great period of 90 days for credit repayment, among many other actions.
Pedro Zinner: In terms of the P&L, there won't be a negative impact in the second quarter. That's.
Pedro Zinner: Not only as a result of the PPV impact, but also because we are fully committed to supporting our clients and employees within the region.
Pedro Zinner: We have already accepted the subscription fees of our clients in the region.
Pedro Zinner: <unk> the payment fees.
Pedro Zinner: Provide a grace period of 90 days in credit prepayments among many other actions.
Pedro Zinner: I think it's still too early to quantify the impact for the quarter, but the message here is that we may commit to the guidance despite those effects, and we are concerned about the tragedy that is actually happening in the country.
Speaker Change #124: I think it's still too early to quantify the impact for the quarter, but the message here is that.
Speaker Change #124: We remain committed to the guidance despite of those effects.
Speaker Change #124: Yes.
Speaker Change #125: How about the treasury that is actually happening in the country.
Pedro Zinner: With that said, I'd like to thank you all for participating in the call and see you in our next quarter's results. Thank you very much. Thank you. This does conclude today's presentation. Goodbye.
Speaker Change #126: With that said I would like to thank you all for participating in the call.
Speaker Change #126: And a seal in our next quarter results. Thank you very much.
Speaker Change #127: Thank you. This does concludes today's presentation.
Speaker Change #127: Goodbye.