Q1 2025 StoneCo Ltd Earnings Call

Good evening, everyone. Thank you for standing by.

Welcome to stone Coast first quarter 2025 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 Dot stone Darko.

Throughout this conference call the company will present, certain non <unk> financial information, including adjusted net income adjusted gross profit adjusted net cash adjusted basic EPS and ROE.

These are important financial measures for the company, but are not financial measures as defined by IRS.

Reconciliations of the company and non <unk> financial information to the <unk> financial information appears 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 requirements 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.

Please refer to the forward looking statements disclosure in the company's earnings press release. In addition, many of their 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 S E C Dot Gov.

Speaker Change: In hindsight I would like to highlight that the company is restricting the number of questions to two per analyst joining the call today is stone CEO Pedro Z net the CFO and iroh motto shaded the strategy and marketing officer, Leah markers and the head of IR <unk> <unk>.

Speaker Change: I would now like to turn the conference over to your host paid their zenith. Please proceed.

Speaker Change: Thank you operator, and good evening everyone.

Speaker Change: I'd like to begin by reaffirming our annual goals and expressing how pleased I am where our first quarter performance.

Speaker Change: It was another successful chapter in our journey.

Speaker Change: Mark by disciplined execution and continued progress toward our long term objectives.

Speaker Change: This quarter, we focused on profitability.

Speaker Change: Executing a new cycle of price adjustments across our client base.

Speaker Change: In response to the U curve increase observed in the second half of last year.

Speaker Change: At the same time, we continue to develop solutions and features that truly make a difference in our client lives.

Speaker Change: I believe our results reflect the strength of our client-centric approach, discipline execution and a rational competitive environment.

Speaker Change: When we take a step back and look at our performance in the context of our 2025 guidance it becomes clear that we are on the right path.

Speaker Change: In the first quarter of 2025, we grew gross profits by 19% here over here, driven by effective reprising execution and our reduction in our average for new spreads.

Speaker Change: This result outpaces the 14% annual gross profit growth, outlined in our guidance.

Speaker Change: On the EPS front, we accelerated year-over-year growth to 36%. Significantly above, the 18% growth implied in our four-year outlook.

Speaker Change: This acceleration was primarily driven by strong adjusted gross profit growth, improved efficiency in administrative expenses, and a more balanced distribution of marketing

Speaker Change: In addition, we repurchased 843 million hives, core 15.1 million shares during the quarter.

Speaker Change: including 5.7 million shares, repurchasing March, which were not included in the share count used in our guidance.

Speaker Change: Over the past 12 months, our distribution yield reached 12 percent, underscoring our strong conviction in our strategy, our business, and our ability to execute.

Speaker Change: As a reminder, in our lesson is called, we laid out a discipline capital location strategy based on three restrictive pillars above which we would return access capital to shareholders. [inaudible]

Speaker Change: With the close of 2024, we reached 3 billion highs in excess capital. Of that, approximately 1 billion highs has already been returned to share with purchases here to date.

Speaker Change: Today, we are announcing a new shared repurchase program of up to two billion highs replacing the previous program.

Speaker Change: With that, I believe we're a well-positioned to continue executing our strategy, achieving our goals and generating long-term value for our shareholders.

Speaker Change: Now, I'll turn it over to Lia, we'll take it through our first quarter results in modete.

Lee Anthony

Speaker Change: Thank you, Pedro, and good evening, everyone. Diving into our first quarter 25 results, we're very excited with the milestones we have achieved.

Speaker Change: Such results. We reflect our execution in the less favorable macroeconomic environment with interest rates trending higher, and we believe we have been successfully navigating this challenging scenario.

Speaker Change: On slide four, we highlight our main financial metrics on a consolidated basis. As you can see, we have shown good traction in revenues, growth profit and bottom line.

Speaker Change: A revenues grew 19% year-over-year and 2% quarter-over-quarter. Despite his annality in 4Q, resulting in revenues usually reducing sequentially in first quarters. [inaudible]

Speaker Change: This trend shows that we are on the right path. Our reprising initiatives have started to yield positive results despite the fact that it impacted in the quarter only partially.

Speaker Change: Adjusted Gross Profit also grew 19% year over year and decreased 3% on a sequential basis, mostly on lower quarter over quarter to BZ, timing mismatch between the increase in prices and cost of funding and on higher cost of services.

Speaker Change: Finally, our adjusted net income grew 23% year over year and decreased 17% quarter of a quarter.

Speaker Change: This sequential reduction was mainly a result of our lower adjusted gross profit combined with higher investments in our distribution channels and higher effective tax rate.

Speaker Change: Looking on a per share basis, adjusted basic EPS was 1.97 reais per share, 36% higher year over year, and 13% lower sequentially.

Speaker Change: The better for share performance compared to nominal net income is the result of our commitment to returning excess capital to our shareholders with 2.4 billion reais returned in share by backs over the last 12 months and 843 million in this quarter.

Speaker Change: On Flight 5, we dive deeper into our financial services segments performance, starting with our payments business for MSNB.

Speaker Change: Our MSNB payments active client base increased 17% year-over-year and 4% quarter-over-quarter to 4.3 million clients.

Speaker Change: This trend is a natural result of our execution with regards to bundling financial services solutions and offering new features that address our client's specific needs.

Speaker Change: MSNBTPV, grew 17% year over year, even with the repricing efforts throughout the quarter.

Speaker Change: Going forward, we expect some deceleration in volume growth as a natural outcome of changes in our repricing policy, which should impact volumes throughout the remainder of the year, as we prioritize profitability over pure volume growth in this scenario.

Speaker Change: Breaking down by types of transactions, MSNB part transaction volumes grew 10% while MSNB picks volumes grew 95% over the same period, as picks continues to cannibalize debit volumes.

Speaker Change: We believe this shift to be a creative to our results as we monetize peaks in line with debits and we see increased flow generating higher deposits with the usage of peaks.

Speaker Change: Moving on to slide six, we dig deeper into our banking performance. On the left side of the slide, we show the retail deposit evolution and breakdown.

Speaker Change: Our total client deposits reached 8.3 billion reais, 38% higher year-over-year and 5% down sequentially due to seasonality.

Speaker Change: Deplazits continue to outpace MSNBTPV growth, reaching 6.9% of MSNBTPV in the first quarter.

Speaker Change: As payments and banking bundles already have a high penetration within our base, the focus shifts increasingly towards driving further engagement with our solutions, where we expect to see steady evolution going forward.

Speaker Change: I would also like to recall that in our last earnings report, we have highlighted the changes in the mix of our time deposits going forward.

Speaker Change: Aligned with what we call our cash-sweets strategy. As we noted, we expect to convert a significant portion of our rip-tail deposits into on-platform time deposits by issuing certificate of deposits.

Speaker Change: This will allow us to utilize such amounts to fund our operations and thus reduce our funding costs in line with the reduction also in our floating revenues. Such strategy is accretive to our bottom line and also optimizes our capital structure.

Speaker Change: Inline with this strategy, we have already started to ramp up time deposits, and by the end of the first quarter, 6.3 billion reais of our total 8.3 billion reais in retail deposits were already accounted as time deposits. [inaudible]

Speaker Change: The majority of such-time deposits are a result of the cash-free strategy and the remaining is related to investment product offerings to our clients.

Speaker Change: We expect this movement to finalize in the coming months, contributing to the diversification of our funding sources.

Speaker Change: Moving on to Life 7, we give some color on our credit product evolution. Our total credit portfolio keeps growing consistently, reaching 1.4 billion reais by the end of the quarter.

Speaker Change: Out of the total, 1.3 billion reais relates to our emerging solutions mainly comprised of working capital offerings to our SMB clients and 161 million reais amounts to credit card offerings with a special focus on my promotions.

Speaker Change: This steady portfolio growth continues to be supported by the good quality of our cohorts with 15 to 90 days NPLs at 2.61 percent and NPLs over 90 days of 4.57 percent, increasing as a natural outcome of our portfolio maturation process.

in terms of provisions. [inaudible]

Speaker Change: We have stabilized at a 12% provision level relative to our portfolio as we outline in our last earnings call and as a result we will now transition to a cost of risk view which was 10% in the quarter.

Speaker Change: Finally, our coverage ratio was 256% in the period, converging to more meaningful levels versus the previous quarters.

Speaker Change: Our financial services segment revenues grew 20% accelerating from 11% in the fourth order of 24 as a direct effect of our reprise initiatives throughout the quarter, which led to a sequential increase in revenues despite strong seasonal effects. [inaudible]

Speaker Change: Our Adjusted EBT for the Segment grew 21% year-over-year, reaching 637 million highs, and the flat margin, despite macro headwinds.

Speaker Change: The intro of the year-over-year results, combined with the repurchase of 2.4 billion highs and shares in the last 12 months.

Speaker Change: also led to an enhanced ROE of 27% for financial services in the first quarter of 25, compared with 23% in the same quarter of last year.

Speaker Change: Lastly, on the software segment, we saw revenues growing 11% year-over-year mainly driven by higher software recurring revenues led by an increase in our software active client base combined with a higher average ticket.

Speaker Change: Stronger revenues combined with gains in costs and expenses led to softer adjusted EBITDA growing 12% year over year in posting a slight EBITDA margin expansion compared to the first quarter of 24.

We're also starting to share our software topics.

Speaker Change: To sum it up, this quarter's results present one more step towards achieving our short and long-term targets.

Speaker Change: We believe we're on the right track to continue to help our clients by providing superior service and solutions and further generate value to our shareholders. Now, I want to pass it over to Mateus to discuss in more detail our overall financial performance. Mateus?

Thank you, Lia, and good evening everyone.

Mateus: On slide 10, we detailed the evolution of our consolidated P&L on energy surveys.

Speaker Change: As Lia mentioned, Total revenue grew 19% year-over-year and 2% sequentially.

Speaker Change: This corridor, I'd like to bring emphasize a notable shift within our revenue composition, beginning in late 2024, we've optimized our bundled offerings, significantly shifting revenue from transactional revenues to financial income.

Speaker Change: Consequently, financial income has increased notably while transactional revenue has decreased on both quarterly and yearly comparisons.

Speaker Change: As we've consistently highlighted, that's another reason why it's important to track growth profits rather than individual revenue lines for a comprehensive understanding of our business.

Speaker Change: Now, moving to our cost and expenses lines, cost of service is increased 15% year over year, translating to a degrees of 90 basis points as a percentage of revenues.

Speaker Change: These was driven primarily by lower provision for low-on-losses, reflecting reduced provisioning requirements as we aligned working capital provisions marked closely with our expected credit loss models.

and Efficiency Gings in Cosmer Service.

Speaker Change: Administrative expenses increased 5% year-over-year, resulting in a reduction of 90 basis points as a percentage of revenues, as a result of continued cost discipline within GNA expenses. [inaudible]

Speaker Change: Sending expenses increased 12% year-over-year and down 100 basis points as a percentage of revenues.

Speaker Change: This decrease was primarily due to a more balanced distribution of marketing spend throughout the year.

Speaker Change: Financial expenses increased 23% year-over-year, representing a 90 basis point rise as a percentage of revenues.

Speaker Change: These increased was primarily driven by the higher average CDI during the periods.

Speaker Change: On the other hand, our catch-swip strategy allowed us to begin using client deposits as an additional funding source, which helped partially offset this impact by contributing positively to our funding costs . .

Speaker Change: Our other expenses line, increased by 109% year over year, or 140 basis points, primarily driven by a positive non-recurring share-based expense reversal, recorded in the first quarter of

Speaker Change: Our effective tax rate was 19.7% in the quarter, bound from 20.6% in first quarter 24, and in line with the level provided in our guidance.

Speaker Change: The year-over-year decrease was driven primarily by higher benefits from Lido Bain, combined with unutilized tax-loss carry-forward generated in the sale of Pimpag in 1st quarter 24, which did not happen again this quarter.

Speaker Change: Turning now to slide 11, our adjustment cash position was 3.8 billion reais at the quarter end, representing a sequential decrease of 0.9 billion reais. [inaudible]

Speaker Change: This decrease mainly reflects ongoing share repurchase, totaling 843 million reais in the quarter, in addition to investments to grow our credit book.

Speaker Change: Before we move on to questions, I'd like to thank everyone for your continued support. We remain fully committed to executing our strategy and creating sustainable long-term value for our clients, team and shareholders.

Speaker Change: With that said, we're now ready to 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 write it down in the 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 do ask that when you pose your question, that you pick up your headset to provide optimum sound quality.

Please hold while we pull for questions.

Our first question comes from Tito Labarta with Goldman Sachs.

Tito Labarta: Hi, good evening, Pedro, Lia, Mateus, thank you for the call.

Tito Labarta: and taking my question. A couple of questions. One just on the outlook for TPPV growth, right? Because you're seeing that the card TPPV growth.

Tito Labarta: Growing high single digits, low double digits, if you strip out the key accounts.

Tito Labarta: How do you think about that growth? And then also the PICS TPP growth, right? Still strong, year-to-year, kind of stable-ish quarter of a quarter. I know you have to see the Natalie, but just to see how you think about it.

Tito Labarta: The Outlook for TPV Growth, both within the MSNB and key accounts and within without picks.

Tito Labarta: And then my second question, we saw the announcement from TOTUS that you guys are in negotiation for links. Is there any color you can provide about that in terms of...

Tito Labarta: Timing. I'm sure you can't discuss that relation at this point, but yeah, just any any color you can provide there. And if you were to sell links, what would you potentially do with the proceeds of that? Thank you.

Tito Labarta: Hi, Tito, Lia here. Thank you for your questions. I'm gonna take the TPP question and then pass it over to Pedro. Thank you.

Tito Labarta: So regarding TPPV trends, talking first about MS&D TPPV, there are three key points to highlight first.

Tito Labarta: Is that our long-term guidance already implies some deceleration on TPD growth?

Tito Labarta: So the guidance that we provided for 2027 on TPG last quarter implies a 14% tager. So, you know, this growth performance that we see is in line with this trend that we have already talked about.

Tito Labarta: The second fact is that, naturally, in response to higher interest rates, as Mateus mentioned, we have implemented a broader repricing this quarter across our client base.

Tito Labarta: These reprising efforts, they have performed very well, better than we expected, but some level of turn is always inevitable, so this will modestly impact GPD Rose in the short term.

Third.

Tito Labarta: Obviously, macroeconomic environment does remain challenging, so it's still a little bit early to say the full extent of its impact in the year. So the message regarding the year is that GPT growth will decelerate somewhat.

Tito Labarta: But overall, general trend regarding TPPV is very much in line with our long-term guidance.

Regarding Bix, we continue to see Bix.

Tito Labarta: and that is consistent also with what we observed in our base, right? So, PIX TPV cannibalizing on debit volumes, which is why we see this stronger base of growth for PIX TPV versus CAR-TPV.

Tito Labarta: Regarding key accounts, I think nothing really different to say about it.

Tito Labarta: Key Accountivity Trends, other than what we've already said. It's not the focus of our strategy, so the majority of our investments, both in product roadmap and in go-to-market are focused on MSNB clients.

That said, our platform does address...

Tito Labarta: Needs of some large enterprise clients and we do serve those clients on an opportunistic basis.

Tito Labarta: But those are not the focus of our strategy and because...

Normalee,

Tito Labarta: These clients can shift very large volumes very quickly, that tends to be a more...

Tito Labarta: Volatile, TBB behavior. So you can see kind of a strong shift, quarter on quarter. Those shifts have little impact on growth profit, but they do impact overall TBD.

Tito Labarta: So I think those are the general trends in TV that we can highlight, and I'll pass it over to Pedro to talk about transaction transaction.

Chief, thank you, Lia. Thank you, Chief, too.

Pedro: Well, I think as you all know, as you've noticed, we have entered with...

Pedro: into an exclusivity agreement with Tortus to negotiate the sale of the asset.

I think at this stage

Pedro: I think it's really hard to provide any additional details regarding the valuation that's already highlighted, but the duration of the exclusivity period.

Pedro: I think what we can say is that negotiations are progressing positively

Pedro: However, given the complexity involved in the transaction of such a magnitude, I think there are a lot of factors that still need to be negotiated and agreed upon.

Pedro: Still challenging to specify an exact timeline for reaching the final agreement. But be certain that we'll keep the market informed, as the discussions moves ahead.

Pedro: on their location side. I think it's hard to talk about the future given their uncertainty in terms of...

of the clothing of the potty of the transaction. Thank you.

Pedro: What I can say is if we were to make the decision today, I think we would do exactly what we do in terms of share-by-backs.

Pedro: because when we assess the long term employee returns of reporters and shares at current levels,

Pedro: We believe that buybacks represent a very attractive use of capital and seem to be value-appreative.

in terms of decisions for shareholders.

So that's the position I was off today.

Okay, thank you. Okay.

Pedro: The Pixfinancing at all, so has it impacted credit at all?

Tito Labarta: Hi, Tito. So, I think the answer to the first part of your question is yes, I think we can continue to expect that it's, that it volumes to be cannibalized by fix.

Pedro: When you look at ABEC's industry data versus central bank data, it's also points to that direction because debit, card.

Pedro: TPPV in the industry is sort of flatish, right? It was flatish throughout last year and it has actually a slight decrease in the first quarter. And when you look at peaks

Pedro: Growth Data, it's a very different trend, it's a strong growth, so I do believe that this trend will continue, but also let's not forget that fixed cannibalizes on the bit volume, but it's also cannibalizes on cash.

Pedro: So in general, it's a creative for us because fixed volumes become more deposits in the banking ecosystem and we continue to monetize on fixed. So I think that's the first part of the answer. Thank you.

Pedro: The second part is, no, we do not see any cannibalization on credit volumes and neither

Pedro: The industry trends are suggested with that either, right? When you look at Apex data for credit card TPG rose, it's 13.5% in the first quarter.

Okay, that's clear. Thank you, Lia.

Thanks, Tito.

Speaker Change: Our next question comes from Mario Pierry with Bank of America.

Hi guys, good afternoon, congratulations on the quarter.

Speaker Change: I want to explore a little bit more about your pricing increases.

Speaker Change: As you mentioned, you started reprising in the beginning of the year because the youth curves had widened last year.

Speaker Change: Now we're seeing the opposite trend, right? We're seeing the yield curve tighten. What does it mean for your outlook for prices? Would you consider investing on some of the benefits to your clients maybe later in the year?

Speaker Change: I asked this because as you mentioned, right, Lia, you are things like you're losing some market share, things like you're growing slightly below the industry, you said that churn has increased.

So, try to understand from your perspective.

Speaker Change: Lower Rates in Brazil if you consider reprising your clients and if you can explore a little bit more also like what percentage of your clients have been reprised already like you said you sort of fairly late reprised in beginning of the year. What percentage of your clients base has already been reprised thank you.

Mato Matos, your thanks for the question.

Speaker Change: So, the first part of the question regarding whether we plan to pass through or change the pricing policy given the recent movements in terms of the yield curve.

Speaker Change: I think the short answer here is no. So just to give a step back and a little bit of a recap, we decided to do a really extensive repraising wave in the first cube.

Speaker Change: But in terms of magnitude of the adjustments, when we did the repressing wave, we basically targeted the yield curve of the half of the year, which back then was around 15%.

If we were to look at the youth curves nowadays.

Speaker Change: The curve of the second has that really tightens, but that was not built into the repressing waves that we did back then, so it really doesn't move the needle.

the only thing that I would stand.

Speaker Change: I disagree with your question, is that in terms of market share, we're not actually losing market share when we look at a target segment, which is MSNBs.

Speaker Change: So, market share was about flatish in the quarter and if you were to look at a longer term window for the past 12 months, we actually game like 0.1 or 0.08% market share.

Speaker Change: And again, like you said, in terms of our plan, that's pretty much what was embedded in the plan. The plan and beds of Archie Bridge from Kieger until 2027.

Speaker Change: So the expectation was always to keep our health, your privacy, focus on profitability and not on growth at any cost.

Speaker Change: And I think the final piece of the question in regards to the extent of the base that was already reprised.

The vast majority of the bees was already reprised. [inaudible]

Speaker Change: Lesser in his call, I think the message that we provided was that in our stone brands pretty much all the repracing move was done.

Speaker Change: In this second queue, we did the reprising in our tone brand as well.

Speaker Change: Results were also really good when we look at the turn levels versus the pricing increases that we did. There are still a few ways to be done in the second queue, but they are really small. I think the vast majority of the base was already reprised.

Speaker Change: That's clear. Mateus, let me ask you then on the market share, as you mentioned, like your market share has been stable then. You used to be a story of Danny market share, right? How do you see your ability to grow your market share in the next couple of years?

The 14% implied cager in our long-term 2D guidance thus. The 14% implied cager in our long-term 2D guidance thus.

Speaker Change: Mean that we believe we will continue to grow above the industry and gain share, albeit at a slower pace than in the past, that's natural as we have achieved a significant level of scale and our presence in the MSNB segment.

Speaker Change: I think that's the first message that we want to really convey.

Speaker Change: So the net positive market share gains on a yearly basis, albeit at a lower level than historically to us is in line with our plan.

Speaker Change: Now, for your question on what are the drivers, right? I think the drivers are really the continuation of...

Speaker Change: The execution of our plan of bringing more solutions to our clients, so more and more, we believe that we have.

New Levers to Paul regarding how...

Speaker Change: We address the pain points of our clients and how we actually price the solutions from a bundling and offering strategy perspectives. So that's the first and I would say most important element is the element of how we believe we will continue to differentiate ourselves in the way that we serve our clients from a product. Let's go ahead.

from an offering and from a service perspective.

I think the second important element that's not forget that... [inaudible]

Speaker Change: Stone is also about a big differentiator around our distribution capabilities where more and more we're driving the organization towards a unified. Thank you very much.

Speaker Change: Growth and Distribution Approach, Redeleveraging, Data and Technology. So, we want to be...

I would say more and more assertive. [inaudible]

Speaker Change: The more scale we achieve, the more sophisticated we need to be, right? So, we need to have very clear visibility on granular market data and where the growth opportunities are. [inaudible]

Speaker Change: and by implementing a more unified, go-to-market approach, really leveraging market data and technology, we believe that we still have opportunities to grow. So, distribution is also an important part of the equation, as it has always been in our business model. [inaudible]

Okay, now that's very clear. Thank you very much.

Thank you, Mario.

Our next question.

Hi, can you hear me?

Speaker Change: Expectation of further slowdown, deceleration in TPP growth, and I'll tell you because you have already done the deep pricing in the one queue already. So if there was a chance, you would see that more in one queue. So and.

Speaker Change: Acknowledging that all the players in the market have been quite aggressive in terms of repising. Everybody is pushing them pricing up.

So why should...

volume decinerate in the MSNB segment.

in the coming quarters.

That is something that I'm still not very clear about. [inaudible]

Speaker Change: Second question is that is on competition, do you see with players like Makarra Pago being more aggressive, going very strongly in Brazil acquiring, also adding some salespeople on the ground, adding some software.

Speaker Change: Moving up market, do you see that having any impact on your core MSNB segment?

Speaker Change: And also we saw that Pfizer was entering Brazil. They did a transaction recently.

Speaker Change: and do you think that could be competition with their offering of clothing, or could that be a competition on a software side of the business that you've been trying to build out with the key verticals? Any thoughts on that will be very helpful.

Speaker Change: Anya Mateus here? I'll take the first part of how you piece together. It grows the celebration over the short term versus the reprimations being done in the first queue, and then pass it over to Lia to talk about the other part of the question. So on the first piece.

Speaker Change: Chose things here, so the first one is that when you think about the impacts of reprising it's right that we did the majority of the reprising ways in the first few.

Speaker Change: But they were done throughout the quarter, so in terms of the impact of churn, even though it's small, you have the full impact on the following quarter, right? There's some leg.

Speaker Change: And the second thing is that when you talk about the PV growth, generally accelerating over the medium to long-term [inaudible]

Speaker Change: It's not only about the repressing waves. I think the repressing waves are important in the short term, but not material when it looked at the longer term.

Speaker Change: I think there is also a matter of the overall size of the business here which again was already embedded in the plan so even the size of the company it's natural that on a percentage basis the growth rates over the long term will be somewhat smaller right?

Speaker Change: Perfect. Maybe just to elaborate on competitive dynamics, Neha, on the question regarding global

Speaker Change: Any relevance of such global players becoming like important on the competitive dynamic? Thanks.

Speaker Change: That said, we do monitor competitive dynamics very, very closely and very, very granularly.

because of...

Speaker Change: The data capabilities that we have through our operational platform, we can really understand what the local competitive dynamics is. So, on to the second part of your question regarding local players, you know, deploying a similar distribution strategy as ours. Thank you very much.

Speaker Change: I mean, we do see that in some specific regions in some specific areas.

But it's again [inaudible]

Speaker Change: Not very significant when we think about the SMB focus that we have, which is...

Let's not forget that we're continuously moving our distribution approach.

Speaker Change: upwards for a specialist distribution that can really address the larger SMBs with a very differentiated service level in offering.

Speaker Change: So I think the message here is yes, players are replicating our model, we are continuously running to stay ahead and staying ahead is about how we evolve the model, how we use technology and how we use data to be really precise on addressing where the pockets of growth are.

regarding your point about fraud. [inaudible]

Speaker Change: We talked about this extensively in the investor day. We are evolving our stone solution to address workflow needs of our clients.

That's going to be...

Oh...

Speaker Change: You know, there's a pillar of software in the strategy, right? Where we connect financial workflows with. [inaudible]

This is workflows of our clients.

Speaker Change: We don't talk about this so much as being software but Stone is evolving more and more towards being a software and a management solution for our clients as well. So, and I think we have. Thank you very much.

Speaker Change: You know, the advantage that we're very close to those clients already are distribution covers 99% of GDP and we already have a pretty clear picture on where the market opportunities are throughout Brazil. [inaudible]

Speaker Change: Very clearly, if I can just follow up on that, so I do understand that the reason why Stone gained a lot of market share in the SME segment is because of the reach that he just mentioned and the good quality service that he provided.

Speaker Change: But what Ricardo Pago was saying that they're seeing very strong volumes and that is because of the more comprehensive suit of products that they are providing. And one of that products is credit, right? They are being quite active in terms of giving credit to the merchants that are working with them.

Speaker Change: I feel that there is probably going to be more pressure given competition.

Speaker Change: To do, be more active in credit, and do you see any risk? [inaudible]

Speaker Change: In that sense, or do you see any pricing pressure coming from more intense competition in the SMB space?

Speaker Change: Neha, I'll take the first part of the question and then Lia, me jumping to, to complain.

Speaker Change: So, for the pricing piece of the question, the short answer is also more. So, when you look at the pricing environment,

Pretty much stable.

Speaker Change: and I think the repressing waves are a good indication of the end of the day.

Speaker Change: I think there was a big worry with market participants on whether the market was going to be rational with these interest rates increases. And I think what we saw pretty much for the industry as a whole was everyone reprising and being pretty much rational in terms of pricing. Thank you.

Speaker Change: In terms of credit, I'll begin and then Diana may add.

Speaker Change: It's true that Friedman is a very important piece of the equation. I think when you mention that you compare the stories that were filmed.

Speaker Change: I think we're talking about different client profiles here. So, in terms of our core and some clients, with the average size that we operate, I don't think there are too many other players focused on our target niche.

Speaker Change: But again, I think the general concept that you provided which is credit being a very important part of the offering is undeniable. And on that front, when we look at the progress on our credit books.

Speaker Change: Again, there is a big challenge in terms of our long-term plan, but I think if you look at the performance since the investor day...

We're pretty much...

Speaker Change: Online or even slightly better than what we anticipated on that front, so that's progressing well. Yeah, I would have nothing to add, Neha. I think it's my daughter at all.

Thank you, Neha.

Our next question comes from Guilherme Grespa with JP Morgan.

Speaker Change: Thank you so much, team, for the presentation and the questions.

Speaker Change: The first question, two questions on our side. The first one is related to Nat Cash.

Speaker Change: There was a pretty decent decline in that cash, almost one billion. I understand almost 900 million is going to be by back.

Robert Matos, Roberta Noronha, Pedro Zinner, Mateus Schwening

Speaker Change: We're going to see one billion in cash generation is going to revert this cash conversion or if it's something that is going to last and you basically did not convert and it's not going to happen in the second queue. [inaudible]

Speaker Change: And then the second question is related to take rates. I just want to have your sense on how should we think about take rates. [inaudible]

Net of funding cost into the second quarter. I think you have the benefit of repricing not having affected the full quarter, right? So probably the gross. [inaudible]

Speaker Change: Financial income is going to move up, but at the same time the financial costs are going to continue to move up and select move higher.

Speaker Change: So just want to understand how you think about this net take rate, already net of funding cost, if we should see it going up or down. And by the way, congratulations on the repricing. If it's worth anything, we appreciate more the profitability than market share. Okay, thank you.

Speaker Change: Thank you very much and thank you for the person as well. So I'll take both. The first one was around that cash.

Speaker Change: So I think you're pretty much touched upon the answer here. So when you look at the quarter, they were both seasonal and also seasonal effects and also someone opts.

Speaker Change: In terms of the one-up, we have some prepared expenses related to our contract with Groupo Global. So, as you may well know, this year we were also subject to the contract agreement and we're doing big brother Brazil and a few other shows.

Speaker Change: and most of the disbursed men around this conflict happened in the first few.

Speaker Change: and also when you look at the other balance sheet lines, especially the higher labor and social security liabilities effects.

Speaker Change: That's pretty much related to the payment of a variable compensation, which happens in the first few

Speaker Change: And again, when you look at the following portraits, we don't have both effects. So I think the dynamics is similar to what you described, which is cash generation should be higher than an income, of course, excluding the effect of credit in my backs, right?

The second question around steep reeds.

to be really honest, I think. [inaudible]

Speaker Change: It's becoming harder, even the shifting lines that we have. Your soigners reduced that we did a big movement in terms of advancing with our cash sweeping strategy, which shifts lines between financial income and financial expenses net.

Speaker Change: So the metric that we're looking at now is of course adjusted growth profits.

Speaker Change: When you look at the adjusted growth profits in relation to TPPV, then we saw an increase from the first queue to the first queue already. It came from 1.18% to 1.23%, so a 5-pip increase.

Speaker Change: That was pretty much the effect of both the repricing and also some seasonality as in the first queue we have a higher mix of debits.

Speaker Change: We'll look at the second queue, given that the reprimations were done throughout the quarter, we should expect some level of increase.

Speaker Change: But again, we need to keep in mind that even though we have the full effect from the reprising waves, we also have a higher interest rate in the second queue as compared to the first queue, right? So that's why it's not such a big jump, but that's the general trend there.

That's clear. Thank you, Mateus.

Our next question comes from Renato Meloni with Autonomous Research.

Renato Meloni: Hi everyone, congrats on the results here and thanks for picking my question. So just first on your deposit strategy, right? So there was this big shift compared to the last quarter on your time deposits.

Renato Meloni: Do you think you have achieved the right mix here, or do you still expect to grow time deposits?

Renato Meloni: and are you still going to be reaping benefits from lower cost of funding?

Renato Meloni: based on the positive here or we are ready to see most of them.

Right, and then...

Justion Des,

Thank you. Thank you.

Are you facing more competition from? [inaudible]

Other peers we've seen.

Renato Meloni: Some higher yields being announced recently so I wonder if that's affecting or strategy and if you're rethinking anything that and then just follow up on financial income. I wonder if you can break down how much of the financial income growth came from repricing and how much was just from the reclassification from transactional revenues.

Thank you

Speaker Change: Thanks a lot, Tom. I'll take the first and the last piece of the question and then Lia may add on the competition side.

Speaker Change: So, first on the cash sweeping effect, I think it's worthwhile to give a little bit of a step back here on the strategy around deposits as a whole. So, as we anticipated in the last year in school.

Speaker Change: This first kill was started to really roll out the cash sweeping strategy which basically consists on migrating our retail deposits towards time deposits.

Speaker Change: Just as a reminder, whenever we do that, on one hand we lose the financial income we have from the floating on our deposits.

Speaker Change: But that is more than offset by the gains that we have in financial expenses net because we don't need to use other funding sources, right?

in terms of the core dream.

Speaker Change: This 6.3 billion is a big step in terms of the migration of the cash sweeping, but it's not the end result. I think the remainder of the deposit base, the vast majority should also be migrated over the coming months as well.

but in terms of the piano impact. Thank you.

Speaker Change: Even that we did this migration towards the end of the corridor, the impacts on our P&L in the corridor were minimal, so really in material, and we should feel the effect, this effect on the C&L, on the coming corridors.

Speaker Change: Just as a reminder, we lose 100% of CDI on our revenue again, our deposit funding, so the net result should be around 75 to 125 basis points per year, that we gain on the amount of deposits that we migrate.

Speaker Change: and with that I think you can make the math on the impact on the panel going forward.

Kats.

The second question, I think, was on financial income.

if we can break down the sex of the bundling.

Speaker Change: Again, I think that the message here is pretty similar to the sacred question, which is it's really hard to break down.

Speaker Change: because there are too many moving pieces now. We had the migration between transactional revenues towards financial income, but we also have other effects, right, the credit portfolio growing, the cash sweeping strategy. Thank you.

Speaker Change: So, I think the best way to understand is not on a line by line, basis, but rather looking towards the combined and rust-crossed through the combined revenue streams.

Speaker Change: Perfect. So let me just compliment the question, your question around competition. I think almost every week we see new offerings regarding investment products in the market. So it is a very dynamic space if I would say, but...

Speaker Change: Arté, can we have that but ourselves different offerings as well and tested conversion and elasticity? What we observe is that for our client profile which is emergence. [inaudible]

The investment product is important.

Speaker Change: But very much from the perspective of of saving for specific purposes, right? So [inaudible] I'm sorry.

You know, normally...

Speaker Change: You know, these promotions they will tend to be more impactful when we talk about consumer banking and let us on business banking.

So...

Speaker Change: I mean, nothing really to you, we have ourselves that's a different offering. And from our perspective, the really important aspect of this offering is to give our clients the opportunity to save for different objectives within the Stone ecosystem. That's much more important than the actual spreads.

That's pretty clear. Thanks everyone. Thank you.

Thank you enough.

Speaker Change: and the results. Two on my end, I think I'm rather reprising during the crowd with you to the several adjustments, right? So you arrived in a higher take rate from that. But I want to ask if it's fair to assume that you should still increase the rate in the next quarter. Thank you.

Speaker Change: As we would see the full impact from the repressive right, you probably you did part of on January , part on February .

Speaker Change: So I wanted to take the full impact from the repricing on the next water if it is positive.

Speaker Change: and if also is there any further adjustments on any specific niche of customers that you would do? And the follow-up to Renato's question and Matos answered about the net positive effect, right? So you have...

Speaker Change: potential lower floating revenues and lower funding costs. Can you give us a color about this conversion you already did in the first quarter if has any positive effect already or should we expect that from the second quarter going forward. Thank you.

Antonio, thanks for the question.

Speaker Change: So the first one around the effects of reprising, you are writing the concept which is...

We made the reprisingly throughout the first queue. [inaudible]

Speaker Change: So the full effect will be felt on the second cue.

Speaker Change: Also, a small reminder on that end is that we did the full repricing waste for the stone product in the first queue. On the stone product, they were done throughout the second queue. So there will also be some leftover for the third queue as well.

Speaker Change: Again, in terms of the matrix, we're not looking at take rates internally anymore. The matrix that we're tracking is gross profit versus the PV. And on that front. Yeah.

Speaker Change: The messages don't want the two just said, which is even that the four effects will be felt on the second queue. There's still some room for improvement there.

Speaker Change: The second part of the question, just to make sure that I got, I think it's whether the effects of the catch sweeping were significant from the first queue or whether we should fuel those effects from the second queue. Yeah. Yeah, let's just see.

Speaker Change: Yeah, so on that front, even though we did the migration of a significant part of the deposits on the first queue.

Speaker Change: They were done really towards the end of the quarter. So from a P&L perspective, we had a minimal impact in the first queue. Most of the benefits will also be felt from the second queue onwards. [inaudible]

Speaker Change: Right, and I believe that you mentioned about 20 million per every billion conversion in the last quarter. Is it right? Like a pretext benefits?

Speaker Change: Yeah, it's from 75 to 125 basis points over the volume that we migrate per year. So if you do the math, it's really much around those levels. [inaudible]

Okay, thanks again.

Marcelo Mizarri: Our next question comes from Madselo Mizzahi with Bethesco BBI. You can open your microphone.

Hi guys, congratulations for the results. My question is...

Speaker Change: Related to the volume, so in the conference calls of many companies like...

Speaker Change: Visa and some malls. They were referred about the impact of Vister on their volumes of sales.

So my question here is to...

Speaker Change: understand the impact of Eastern in the DPVs and worms of stone during the first quarter in the potential impact on the second part. So...

Speaker Change: Could you give us some color about the volumes here to date, putting April together with the first quarter or some color about that. Thank you.

Speaker Change: I have myself, thanks for the question. So, no specific trends on our side. I think that possibly has to do with the profile of the client base when we talk about.

Speaker Change: Overall industry, there's a big proportion of volumes that come from large retail that we serve very minimally, right? So we, I think no specific trends to highlight there. [inaudible]

Okay, thanks.

Thank you.

Our next question comes from Thiago Paura with BTG.

Tiago Paura: Hi everyone, thanks for the opportunity here to ask a question. I have one on the credit front.

Tiago Paura: Maybe a follow-up of another question made previously. We just saw another quarter of a very strong growth in the crowd to fall. I mean, 20% on sequential basis. So my question is really about better understanding the competitive advantage you believe Stone had in the segment. [inaudible]

especially after the restructuring phase the product went through. [inaudible]

Tiago Paura: Mateus mentioned that the niche that Stone is targeting could be slightly different from other peers.

Tiago Paura: but just try to understand how do you believe your approach or your writing model differs from other players who might be offering similar products to the similar client days.

Tiago Paura: and what you're considered to be your structural advantage on this front to support your 2027 guidance you are committed to on the credit portfolio. Thank you.

Tiago Paura: Thank you, Charlie. Let me elaborate a little bit, taking a step back and talking about overall credit strategy. I think I'm going to address some of your points.

in the sounds were so first. [inaudible]

Tiago Paura: I think there's two important pieces that are somewhat distinct within the credit strategy.

Tiago Paura: First, regarding our longer duration and working capital loan, this is really the product that we have developed and perfected and continue to evolve over time to serve the needs of our small and medium clients, so the larger, more sophisticated SMBs.

Tiago Paura: and while we continue to pursue growth there through a digital approach.

Tiago Paura: We're incrementally investing in what we call our Credit Specialist Distribution. So part of the Specialist Distribution is focused around credit.

Tiago Paura: So this really has enabled us to make the right types of offer for those larger and the clients.

Tiago Paura: Again, on the product experience, I think we talked about this many times. It is very differentiated for an SMB because

Tiago Paura: They really according to their sales, so this alignment that the product provides I think is a differentiated aspect that we have observed since the beginning of our credit offerings.

So I think we continue to...

Tiago Paura: The optimistic on the growth trends there, and when we look at the portfolio growth, that is the big driver of growth, right, that we haven't served. [inaudible]

Tiago Paura: But there's a second part to the credit strategy that isn't less mature, more recent, but we're also seeing very positive results.

Tiago Paura: and I think there's a lot of work to do, and it's really regarding addressing what we call shorter duration credit solutions. They address different types of needs of our clients. [inaudible]

Tiago Paura: For example, we're talking about credit cards that we are scaling, although, you know, at still less mature levels than we compare with working capital loans. This product is much more suited for micropliance.

Tiago Paura: They have more consumer like me, so I think there's a lot for us to do on the credit card side and it will address more the base of the pyramid when we talk about the profile of clients.

But even when we go back to our SMD clients, [inaudible]

We have seen also very positive.

Tiago Paura: Response from our clients in terms of the offerings of products that we have developed around, short of duration products that we have developed around fixed rails.

Tiago Paura: For example, helping them pay suppliers, giving them more terms or some short-term loans to pay suppliers.

or even over-depth solutions.

Tiago Paura: So there's kind of a group of shorter term duration products that we are developing for SMBs as well. So I think the message is there's a lot to do. We're continuing to be optimistic about our long-term guidance and the differentiation really will be about the way that we offer the product, the product experience itself and our distribution approach.

Perfect, thanks, Lia, thanks very much.

Thank you.

Tiago Paura: There are no questions at this time. This concludes the question and answer session. I will now turn over to Pedro Zinner, CEO at StoneCo, for final considerations.

Tiago Paura: Well, thank you very much for your all for participating in our call. But to see you again in the next quarter. Thank you very much.

Speaker Change: This concludes today's presentation. You may disconnect and have a nice evening.

Speaker Change: [music] Goodbye.