Q2 2025 StoneCo Ltd Earnings Call
Welcome to zoom, enter your meeting ID, followed by pound.
Enter your participant ID, followed by pound. Please enter the meeting password followed by pound.
You have joined the meeting as an attendee and will be muted throughout the meeting. Important to note that our current share in this combined Market is still very small, which indicates significant room for growth ahead.
While software will remain part of our broader ecosystem.
We now view it as a more of a value added layer.
1 with low Capital requirements, rather than a core offering.
This strategic shift allow us to concentrate our efforts and resources on the areas of greatest long-term value, and impact for our msmb clients and ultimately for our shareholders.
We believe this sharper Focus position as well to capture. Future growth opportunities in our core Market.
Now, moving to slide 4, let me provide more detail on the divestments.
The first and most significant transaction. If the sale of links to totus
as, you know, we agreed to sell this group of software businesses for an Enterprise value of 3.05 billion High
In addition, we will receive the net cash position of this assets currently estimated at 36060 million highs.
Plus any cash generated between signing and closing of the deal.
Notably the 3.8 billion high in Goodwill from our original links, acquisition in 2021.
We remain with us.
And we expect to amortize that goodwill over the next 8 years.
Providing additional value beyond the sale price.
Payment for the linked assets will be made in cash at closing.
Which is pending regulatory approvals, including from Kaji.
The Brazilian antitrust Authority.
There are nowhere else associated with this View.
In a separate transaction. We have also sold, simply vet.
A Veterinary Erp software company to pet love for an Enterprise value of 140 million highs plus the net cash position of 15 million highs.
Totally 155 million highs.
This deal was approved by kadi and closed in July with a payment in cash.
A portion already paid in the reminder to be paid over to install.
There are nowhere else on this deal either.
Regarding our remaining software assets, our approach is straightforward.
We evaluating our assets individually.
The goal is to determine whether each 1 should be fully integrated into our coughing Tech ecosystem.
To enhance existing Solutions and product differentiation.
Or whether it's better to let it operate independently.
While we assess each long-term strategic fit.
We will allocate the proceeds from this diversities in line with our Capital location framework. We have outlined.
essentially, if we do not identify immediate value accretive growth opportunities,
we intend to return this Access Capital to our shareholders.
We truly believe this transactions represent a significant strategic step and will be accredited to our company.
Consider that the total value unlocked from this sales, combining the transaction proceeds and the Goodwill retention benefit is over 4 billion. Highs roughly 25% of our current market capitalization.
Yet.
3% of our revenues and 5% of our Consolidated, bottom line.
By divesting them, we have a lot of substantial capital and most importantly, we focus our energy on our highest growth, most profitable segments.
We are confident that the sharper Focus will allow us to drive greater shareholder value in the years to come.
Before I hand over to Leah to discuss the quarterly results, let me first walk you through some important updates to our reporting and 2025 guidance, things like 6.
Following the sale of our software assets. We are now reporting discontinued operations as a single line item above Consolidated, net income,
as a result, we are shifting our forward-looking metrics to better reflect the core of our ongoing business.
Starting with gross profits, our guidance. Now, reflects only continuing operations,
we have also updated our assumptions to incorporate year-to-date performance and the impact of share with purchases executed since our original guidance in February,
Our updated gross profit guidance. Now implies over 14.5% year-over-year growth, so passing 6.3 billion highs
22 Epps.
We continue to guide on a Consolidated basis, including discontinued operations.
Here, the update is more substantial.
We have increased our expected EPS growth from 18% to 32% year over year.
A 14 percentage Point upgrade.
This reflects, both the impact of share, BuyBacks, and stronger than anticipated. Net income performance so far this year.
To put it simply.
Even after incorporating a lower share count, we are still revising our implied digestion. Net income and guidance are upward.
From 2.4 billion highs to 2.6 billion highs.
Based on the prospects, we've seen for the business.
These updates also reflect our strong confidence in the company and in our team's ability to execute
In that context, we remain fully committed to returning the 3 billion high in excess Capital generated in 20124 back to shareholders.
I'm pleased to report that by the end of June.
We had already returned 41% of that amount.
Through share BuyBacks.
About 2.6 billion highs over the last 12 months.
With that, I'll now turn the call over to Leah for a deeper dive into our quality numbers. Leah, please go ahead.
Thank you, Pedro and good evening, everyone.
Diving into our second quarter, 25 results. We're very pleased to see that despite the challenging macroeconomic scenario with higher interest rates and signs of economic deceleration. We have successfully executed on our strategy, evolving, the multiple ways in which we help our clients while delivering solid results.
Moving to flight 7. Let's take a look at our bottom line results. And our OES, which are reported on a Consolidated basis including both continuing and discontinued operations.
Our adjusted net income accelerated to a 27% year-over-year increase reaching 631 million High.
The majority of this growth came from our financial services operation which saw an impressive 21% growth over the same period.
The strong performance is a direct result of some key factors. Notably. Our successful pricing adjustments in a higher interest rate environment, the growing use of the deposits as a low cost funding source for operation and the lower effective tax rate.
Our adjusted basic EPS reached 2.33. High per share representing a 45% year-over-year increase.
The last 12 months.
Finally arrow is continued to expand.
Our financial services segment Roe achieved 30%, and our Consolidated Roe reached 22%.
Both of these figures grew by 3 percentage points sequentially and showed even more significant growth on a year-over-year basis.
Now, let's dive deeper into our Top Line, performance focusing on our continued operations.
Revenue from continuing our operations group 20% year-over-year to 3.5 billion. AI giving continued solid execution in our Core Business.
This increase was primarily driven by our repricing initiatives, even while negatively impacted by a reduction in floating revenues resulting from the use of client deposits as a source of funding.
To clarify as we transformed these deposits into time, deposits to fund our operations, we stopped recognizing floating Revenue.
As we explained previously, this shift is more than compensated by the significant reduction in our financial expenses, given the much lower cost of funding related to deposits compared to other funding alternatives.
Adjusted gross profit from continuing operations reached $1.6 billion this quarter, a year-over-year growth of 14%, broadly in line with guidance implied growth.
It's useful to compare our gross profit growth with tpv growth because this highlights the multiple ways in which we monetize our relationship with clients in an efficient way. In the second, quarter, gross profit. Grew ahead of tpv by 2% percentage points. Mainly driven by a continued pricing discipline more climate engagement and the more efficient funding strategy.
In Flight 9, we will discuss our payments operation for MSNBC.
Our payments active client base, grew 17% year-over-year to reach 4.5 million clients out of those 38% are considered as heavy users. Meaning, they utilize more than 3 of our different solutions.
our MSNBC V grew 12% year-over-year in the quarter to 122 billion heis
This growth results from 2 key trends first. A 59% growth in MSNBC, QR code volumes which continues to gain. Share over traditional debit card transactions. And second is 6.4% year-over-year growth in card tpv.
2 main factors, drove the tpv growth deceleration. This quarter.
First, this was an expected reflection of our repricing initiatives.
Second, we saw a reduction in our clients same store sales, which were impacted by a tougher macroeconomic environment and a quarter with more holidays.
As we look ahead, we will continue to keep a close eye on the macroeconomic environment.
We anticipate that the second half of the year will continue to face a tougher environment. But MSNBC V growth should stabilize at low double digits in the period.
In slide 10, let's move to our banking performance. We're very pleased with the continued growth in our client base and their increased engagement with our banking Solutions, which is ultimately reflected by a larger balance of deposits.
Our active banking client base route. 23% year-over-year. Reaching 3.3 million clients.
Client deposits also grew significantly up 36% year-over-year or 7% quarter over quarter.
We're very encouraged by this growth and it's almost 3 times higher than our MSNBC growth on a sequential basis. Meaning that our clients are shifting from using mainly our payment solution to relying on Stones as their end to end provider of financial services and workflow tools.
Regarding the deposits. As we mentioned last quarter, we have been strategically shifting. Our deposit mix towards a higher concentration of time deposits.
This includes both the investment Solutions. We offer our clients which have been performing well as well as our cash sweep strategy, a valuable funding source for our own operations
The most significant shift happened late in the first quarter, which means we saw more complete impact to our p&l in the second quarter.
Currently 83% of our total deposits are already considered as time deposits.
Now, let's turn to slide 11, where we'll give some color on our credit product evolution.
The main highlight here is that we continue to grow consistently while keeping our credit quality indicators healthy.
our credit portfolio grew 25% sequentially to 1.8 billion heads,
Of this total 1.6 billion AI refers to our Merchant Solutions comprised mainly of working capital to MSNBC where this birth months increase significantly by 41% on a quarter of a quarter basis.
The remaining 192 million heis refers to our credit card portfolio, which grew 19% sequentially.
We monitor our credit quality, very closely and continue to see steady healthy npl levels.
Our 15 to 90 day npl has been relatively stable, decreasing 10 basis points sequentially while our over 90-day npl, increased by 10 basis points,
This is a smaller increase in the past reflecting our accelerated, disbursements this quarter.
Despite the healthy npl levels. We saw significant increase in our Provisions for expected losses. This quarter
from 34 million in the first quarter, 282 million in the second quarter.
This increase was driven by 3 main factors.
First by the continued expansion of our credit portfolio supported by a very strong sequential increase in working capital disbursements.
Second, an increased mix towards limit based offerings such as overdraft and credit cards.
Most importantly, despite our stable asset quality, as evidenced by our consistent NPL performance, we made a deliberate decision to increase coverage levels in light of a weaker macro outlook.
As a result, our coverage ratio increased from 256% in the first quarter to 280% in the second quarter.
This higher level of Provisions. Also, pushed our cost of risk metric, which is based on the provision for the current quarter to a level of 20% up from 10% in the first quarter.
However, if you were to exclude our decision to take a more conservative approach, given the weaker macro environment, our cost of risk would have been 13.5% in the period.
All in all, I'm very pleased with our quarterly performance. Even a bit more challenging macro environment. It highlights the strength of our execution, and our continued commitment to our priorities, and the guidance, we've laid out to the market.
We continue to work hard to evolve our business, towards fulfilling our mission to become the preferred partner when our clients think of financial services and tools. That help them better manage their business and growth.
While doing this, we maintained a steadfast commitment to generating value to our shareholders.
Now I want to pass it over to Matt to discuss our more detailed financial performance Mateos
Thank you, Leah, and good evening, everyone.
Before we dive into the numbers, I'd like to highlight a few important changes we've made to our financial reporting.
mentions our PNA focuses exclusively on continuing operations, with discontinued operations, presented separately as a single line item above Consolidated, net income,
To maintain comparability we've adjusted past figures to align with this new approach.
On the balance sheet, discontinued operations are now represented by single line items within current assets and current liabilities.
While prior periods, remain as originally reported.
Our cash flow statements remains on a Consolidated basis, meaning our adjustment cash metric, still reflects cash generated by both continuing and discontinued operations.
As a quick note, all updated figures for 24 and 25 reflecting, these changes are available in the spreadsheet posted on our website.
Now, let's discuss our adjusted Consolidated pnl for continuing operations.
Cost of services increased at 22% year-over-year or 40 basis points as a percentage of revenues due to higher Provisions for expected credit losses, as the highlighted earlier.
Administrative expenses, increased, 12% year-over-year, resulting in a reduction of 50 basis points as a percentage of revenues driven by continued operating leverage across our support functions.
setting expenses increased 17% year-over-year, but decreased 40 basis points, relative to revenues reflecting stronger operating leverage in marketing spent
Financial expenses. Increased the 29% year-over-year representing a 210 basis points increase as a percentage of revenues.
This was largely due to a higher average CDI rate, compared to the lower rates in in the second quarter of last year.
Importantly, this impact was partially mitigated by increased use of client deposits as a lower cost funding source.
Other expenses increased, the 12% year-over-year but declined, to any basis points, relative to revenues benefiting from a 1-time, disposal of pp&e, partially offset by higher. Share based compensation, mostly driven by higher share price in the period.
Our effective tax rate was 15% in the quarter down from 22.5% in second, q24.
The year-over-year decrease was driven primarily by higher benefits from Little Bane.
Moving to slide 13, our adjusted, net cash position ended the quarter at 3.7 billion rise, a sequential decrease of just 118 million rise despite executing share repurchases totaling almost 400 million rise during the quarter.
Excluding this BuyBacks and the present value adjustments to accounts receivable from card issuers, which flows through other comprehensive, income are just a net cash would have increased by nearly 400 million REITs.
Before we move on to questions, I'd like to thank you all for your time and continued support.
We keep fully committed to our strategy, and our focus remains on disciplined execution and creating sustainable long-term value for both our clients and shareholders.
With that said, we are now ready to open the coop to questions.
We are now going to start the question and answer session.
If you wish to ask a question, please, click on raise hand. If your question has already been answered. You can leave the queue by clicking on foot hand down.
our first question comes from Tito Lara with Goldman Sachs,
Hi, uh, good evening. Uh,
Everyone, thank you for the call. I'm taking my questions. Uh, congratulations on the strong results. Uh, my I have 2 questions if I can. Um, just first, how do you think? I know you said that you mentioned you? You, you provide the 2027 guidance after links is done but just thinking uh operationally in payments given the slower growth environment that we're seeing for tpv. Yeah. How, how comfortable do do you feel about being able to deliver that 2027 guidance? And or, you know, maybe more specifically, how how are you thinking about ppv growth both in cards and pics and if that's slower than expected, can you still deliver on the guidance? Uh, and then my second question, just on on the links, uh, sale. Can you give an update just on, what, what should we expect for timing and is the plan to re, um, return all of the 3 billion V in capital to investors or do. Do you have any caller on on what the plan is for for the cash that you get from the
Sales links. Thank you.
Hi Tito. Um, Leah here. Thank you for the question. I'm gonna take the question regarding guidance for 2027 and then pass it over to Martell to take the second part from. So I think regarding 2027 guidance and your specific question on tpv, we're monitoring this tpv Dynamics closely given what we're seeing in the macro environments this year and also sort of the short-term impact in tpv that we had from, uh, repricing in the first quarter.
All market growth has been softer than expected and that does introduce some risk.
To our 2027 tpv Outlook. But that said regarding us looking at only from the perspective of tpv, it's important to emphasize really that TPP growth and share. Gains is not a sole Focus, rather. It really should be a consequence of our ability to evolve.
Our business and the value proposition that we bring to clients in the long run. And tpd is 1 dimension of a bigger plan in which we're performing really well.
So we continue to advance and extending our offers Beyond payments to become a complete Financial provider for our clients.
Which is highlighted by the evolution that we see this quarter in credits in banking and ultimately in profitability. So on the profitability side, when we think about the combination of multiple monetization drivers, our cost discipline and capital allocation including share BuyBacks.
We're driving stronger than expected results. And we're really confident in delivering those long-term targets. So I think the message on tpvs we need to monitor, but from the overall plan, we're really confident with the long-term guidance.
Yeah, and uh, regarding the second question around excess, Capital position and use of proceeds from the deal. I think maybe it's worthwhile to give a broader review on that topic.
So, as you may remember, we ended last year with a little over $3 billion in excess capital.
In the first half of this year, uh, we executed about 1.2 billion realizing BuyBacks.
And when we compute the excess Capital position of the second q25, we actually ended the quarter with 2.4 Billion Rising excess Capital. Excluding the assets available for sale.
So we generated a little over uh 600 million realizing excess capital in the first half of this year.
Again if we were to include the net asset value from the discontinued operations, this quarter we would be seeing at close to 6 billion in excess Capital as of today.
Of course, uh, when we look ahead, there's still a long road until the new actually closing.
And throughout this period, we're going to be both generating additional Access Capital but also executing on the BuyBacks that we have approved.
So in terms of actual use of proceeds and Clarity on timing, uh, we're we're basically going to provide that upon the closing of the transaction but like Pedro mentioned in the, in the presentation in the absence of New Opportunities, available the commitment. And the idea is to return the capital back to shareholders
Okay, no, that's great. Thanks Mateos and Leah. So and Leah, just to clarify your comments. So, you know, there could be some downside risk on that cpv. But on the other metrics which you know, perhaps are more important. You, you still feel comfortable, uh, on that Outlook even if tpv does is lower correct, perfect, that's correct. Tito.
Okay, great. Thanks a lot. Yeah, thanks mate.
Our next question comes from Gustavo shing with City.
Hi. Hi. Good evening everybody. Uh, Thanks for for for the call and take my question and um congrats.
on the conclusion of the deal, um, indeed we could see that um
The the the the continued operations generate more value um than before. So my question is um um I I'm trying to understand how sustainable um is this uh Financial income growth because we've seen that so far the strategy to diversify and to focus on on uh uh uh banking business. Um it it is paying off and it is offsetting this weaker transaction activities.
Um, so my question is, it is sustainable? Um to I mean to continue to see this uh Financial income of setting and sustaining uh this higher level of uh of uh uh of uh uh uh gross profit generation. And my second question is, uh, you you showed that the Roe would be around 30%, uh, considering the continued operation. So do you think that this is a, the level that, that we should, uh, uh, see, uh, the company delivering, um, of our we so, do you think that a 30% is, um, a good number for, for us? As I know that is not a, it's not a official guidance, but just, uh, an indication of what would be the, the, the sustainable we in, in, in the, in the coming years. Thank you.
so, maybe I'll start and then leave me at
So the first question regarding Financial income. I think towards the end of her question, you actually got the the answer which is uh we're looking more and more towards gross profit generation rather than the individual line items on a standalone basis.
And when we look at the gross profit growth, uh, with our updated guidance, we're basically guiding for a growth of 14 and a half percent for the year.
I think Leah mentioned, uh, in the presentation. Then when we look at tpv msmb, we're actually seeing growth at about low double digits.
So this gap between the load double digits of tpv growth and the 14.5 growth for growth profits is the result of the continued engagement with the other products that we have and also the price discipline that we've been showing throughout the year. So, I think what the message here is that we're comfortable with that level of growth
Of course when you look at the individual lines, it's going to become harder and harder to forecast, because we have a lot of mixed movements with the usage of deposits and so on and so forth.
And in your second point about the ROV. Uh indeed when you look at the financial services platform, uh we are already delivering the 30% roof.
The only caveat here is that this 30% are always is including the excess Capital position that we still have. So in a way we have kind of a drag in these numbers. So what I would say looking ahead is that probably the 30% number is on the lower bound.
Perfect. Nothing else. Very clear. Thank you.
Thank you.
Our next question comes from Mario Pi with Bank of America.
Hi guys. Uh, congrats on the results. Uh, thanks for taking my question. Let me ask you 2 questions, as well then.
What what do you expect? Is? Linked transaction to be closed and why why are you already um showing the figures without links, you know, like
I, I understand that you want to make it clear, but, you know, this might be a transaction that only closes next year. So just wanted to understand what are you thinking about timing and why to do it now? And the second question is related to, to the price hikes, right? You you you did your price hikes at the beginning of the year.
Uh, are, are you still raising prices or you don't is the full benefit of the price hikes already reflected on, take rates.
And do you think that this price hikes?
Uh, led to a Slowdown in in volumes because again, radio show card volumes growing only 6% year on year. This is just slightly above inflation.
So I'm thinking maybe you were too aggressive in your price highs and you lost some market. Share, how do you think about that? Thank you.
Hey Mario, thanks for the questions. So I'll take the first 1 and then pass it over to you to talk about price in versus uh, tpv as well. Uh, in regards first, uh, to the time of the transaction. Uh, we are very confident in the outcome of the process.
But as you know the timing of the approval is hard to predict because in the end of the day, it's largely outside of our control.
Uh, what we know is that according to the legislation, we have a maximum period of 330 days for any trust approval.
Uh, and we believe that given the high complimentary of the operations between links and totals. This approval could be concluded, uh, faster. But again, giving a specific timeline is not something that we can do at this stage.
But then uh connecting to the second piece of the question which is uh why we are reporting continued versus discontinued operation. Uh we have no choice of doing otherwise.
So according to IFRS, whenever we make the decision to sell the assets and there is a reasonable expectation to be done, uh in at least 12 months, we need to reclassify those assets as Healthcare.
so we're basically following the, the rule here,
Yep. Yeah.
So uh Mario regarding your question around, uh, price.
There are additional price hike. So let me talk about pricing and tpv Dynamics in general, um, regarding
Pricing the biggest.
For that Beyond those repricing that were done in the first quarter. What will happen is normal, of course, with business, right? We always have a dynamic through pricing Dynamic repricing strategy. So, when we price a clients,
According to a specific tpv or a specific offering commitment. Um there may be repricing in the future depending on that, how that client behaves but that's incremental and that's always been part of the day-to-day of of the business.
Um, but maybe taking a broader, look at tpv Dynamics, the repricing sort of had a 1-time kind of short-term impact on tpg growth. We talked about this in the first quarter. So as much as we understand these repricing ways, as having been
Very successful, um, even seeing like turn levels below, our expectations, some level of turn is always expected, right? Given the dimension of these repricing ways that happen in the first quarter. And really those representing ways were just to be clear extremely related to the interest rating. Pretty. So we don't think that that was excessive. It was actually um what we had to do uh in terms of a a discipline um in terms of financial discipline. Um, but overall tpv Dynamics, I think we're was also very impacted by the macro.
um, and when we look at granular data from tpv at the client level and when we look at same store sales across different segments,
What we see is that market growth this year has been very uneven, so when we look at different client tiers right larger clients have generally performed better while smbs and especially micro Merchants have faced more challenges. When we look at a same store sales TBD growth, which is expected given the higher interest rate.
Typically, they will affect smaller clients and less structured businesses first. So, the TPP dynamics relate to both the macro and, uh, the one-time short-term impact from the repricing.
And as far as interest rates remain at the levels that they are, we don't expect further big repricing wages this year.
That's clear. Clear, let me just 1, 1 thing you in your remarks you mentioned that you expect msmb volumes or tpv to stabilize a low double digits uh in the for for the remainder of the year. Can you discuss?
How what was the evolution of tpv growth throughout the quarter? Because my understanding right talking to to other players? And to the banks in Brazil, everybody is expecting a weaker economy in second half of the year. What, what are you seeing? That makes you confident that you can maintain uh this low double digit growth?
Yeah, that's a good point. Mario. Uh, I think there's some room when we talk about uh double digit growth because growth uh in this skill was actually 12%, right? So you have some room for a couple percentage points there but answering your question. Uh we did indeed uh see the growth is slowing down throughout the quarter but when we look uh more recent data it's consistent with this double digit growth.
Uh, so that's why we we are confident on this Dynamics. The other thing that I would point out is that uh, part q and third Q last year. We have some more somewhat uh easier comps as well. So that helps with the Dynamics.
Perfect. Yes, thank you very much.
Thank you, Mario.
Our next question comes from. Daniel vas with saffra.
Hi everyone. Good evening and congrats on the results. Uh, also wanted to touch base on the TPP growth that has been slowing down. And we already discussed that in the call. But on the, on the, on the positive side, your gross profit remains resilient and supported by higher customer engagement or penetration of the other Financial Services, right? So you revise your net income upwards by approximately, uh, 200 million Reis. So, I wanted to touch base and understand to what extent this is.
Driven only by stronger than expected Top Line. And in my numbers here I can see a a good cash generation. So the other Financial income is is growing well as well. So you're doing BuyBacks while generating generating cash. So is it only, uh, uh, Topline driven or is there any other meaningful contribution for uh for the expenses or cost to serve or any any tax rate? Uh thing that we should know about? Thank you.
Thanks for the question, Danielle.
So, uh, when we compare the implied growth for just an income versus the, the growth for a gross profits, you can see that just in any income, implied in the guidance is growing at 18% and gross. Profit is actually growing 14 and a half percent.
So the reason behind those 2, 2 lines is basically 2 main Dynamics. The first 1 is indeed, uh, related to effective tax rates.
So in the beginning of the year we guided around 20% um, as The Benchmark for the year, but given the strong performance in the first half and our updated updated expectations. Uh, we now believe that we can land below that Mark with second half tracking closer to the second cue levels.
So that's 1 point and the second Point, uh, in the beginning of the year, we also anticipated selling expenses to grow faster than growth profits. But what we're actually seeing now is a healthier trend on that front. So those your lines are the main reason why, uh, I just send an income out growth, outpaces the growth in Gross profits. Other than that, I think you touched upon the 2. Main drivers on the gross profit. Uh, side is around pricing plus engagement with new products.
Um, and as well, uh, the buyback execution for sure.
Thank you. If I could uh, uh, just follow up on your selling expenses commentary, uh, what do you attribute that to, uh, is it, you're seeing less of competition there or you're having to do less of a marketing expenses? Is there any for example, a big brother, uh uh uh thing that you used to do a lot, very harsh in the first uh first half of the year, can you elaborate more on the selling part?
Yeah, so uh, then they are just quickly on on selling expenses, uh, operational leverage. This quarter. It had to do with, uh, operational leverage and marketing expenses and we do expect, um,
You know, less of an impact, right? Uh in those marketing expenses as as we you know, have concluded, Big Brother Brasil. And uh, we still have to, you know, plan uh ahead how that's going to go. But we do expect this leverage to continue.
I think in general, um, because selling expenses is something that has received a lot of attention over the past quarters. And we feel it's somewhat misunderstood, maybe it's worth highlighting.
A couple overlooked aspects on on, uh, selling expense Dynamics. Um, first I think it's important to highlight that our investments in sales.
Particularly in expanding our sales force.
Is really focused on acquiring new clients and generating incremental tpv, right?
That sounds kind of obvious but it's important to remember that each new cohort brings in new tpv that compounds over time naturally. As the install base, grows the rate of tpv growth flows but the absolute value generated. So the absolute incremental tpv continues to increase as our sales force matures and scales.
Um, that's a mathematical reality. Um, in other words, lower tpv growth does not mean that sales Investments isn't working.
Um, we'll be, we're actually building a larger base that monetizes over time and which incrementally dilutes those selling expenses.
Second. Let's remember that we don't invest in selling solely to row tpv, we invest in selling to grow revenues and ultimately profitability. So to the point that, uh, on your initial question, and what Mattel just mentioned, tpv starts some of that monetization cycle which extends Beyond payments to Banking and credits. This Dynamics is also, why selling expenses as a percentage of Revenue is expected to Trend downwards, in the long term. And we're starting to see this effects, this, this quarter,
So, it's important to highlight that we remain disciplined in growing our sales force and we do believe there's room for efficiency gains in a few Dimensions search such as marketing as I just mentioned and, and eventually if efficiency gains in some specific channels, but the message that we want to stick with is that we're not optimizing for tpv growth alone, we're optimizing for profitable growth, and long-term value creation.
Thanks again for the good response.
Thank you, Daniel.
From Niha agarwala with HSBC.
Hi, congratulations, on the results. Uh, just quickly on the lending side of the business. Uh, we saw good growth this quarter, uh, what should we expect for the remainder of the Year? Given that you're a bit more cautious. On the macro side, should we expect strong growth, which lines would it be focusing more on? And uh then if you could also talk about the cost of risk, you increase it uh to around 20% level this quarter. Uh should we expect that going forward as the Run rate uh for the credit business? Thank you so much.
Anyhow, thanks for the questions. So I'll probably start with cost of risk and then we can talk about growth as well.
So in regards to cost of risk, uh, I think we've mentioned this in the presentation as well. There are basically 3 drivers when we look at the quarter, the first 2 drivers will continue which are, uh, the growth of the disbursements, and also more and more, the growth of other products, especially the credit cards.
But if you if we only account for this, these elements the cost of risk would actually be around 13 and a half percent.
The remainder has to do with a cautious approach towards the macro environment, and of course that tends to be one-time. So when we look ahead, I think we should look closer to the 13 and a half or maybe meetings, but we're not expecting the 20% levels.
And then the second question, around the growth of the portfolio.
I think this is a message that we like to always emphasize.
The growth of the credit book is not linear uh at all in our trajectory.
Because we continuously do, uh, a lot of tests, uh, tests and learning with our, uh, approach. And whenever we feel confident about those tests, then we tend to scale this B in a nonlinear, uh, fashion.
So indeed, when we look at the second queue, uh the disbursements grew about 31% in The Working Capital Loans.
Uh, but if we were to look at the first skill, 25, the disbursements were actually flattish versus the fourth quarter of 24.
So I wouldn't read too much in the growth of disbursements that we had in the second quarter, this is not a view of the macro environment or nothing of the sort.
Uh, what we think about growth is that the penetration of working capital loans in the base is still low. So, there is a lot of space to grow, but we're basically following the trajectory that we originally planned. Nothing new in that regard.
Thank you so much, ma'am. Can you uh also talk a bit about uh the features, how things are going, what is the response you're getting from the merchants. How has the the payback been uh on the loans that you've given out? So far? Any color on how the progress has been so far would be uh, very helpful.
Yeah, Leah here. So on your question regarding, um, the over
Row, credit strategy, evolution. I think we continue to focus. Like, uh, we said last quarter on maybe,
Uh, I would separate into big Dimensions. So when we talk about working Capital Solutions, which is the, the majority of the portfolio as much as we continue to invest in digital distribution, where sort of learning and and scaling our ability, uh, to scale on the larger clients through specialist distribution. I think that's a focus for us on the shorter duration types of products. Um,
It's, it's relatively less mature, right? We're still learning and uh growing more cautiously I would say. I think 1 thing that the team is very focused on is on the credit building itself. So how do we enable clients that don't necessarily have uh an initial offering to build sort of this uh uh credit limit over time.
And hopefully longer term what we expect is to enable us to achieve if some sort of credit offer to the majority of the clients in the base naturally within our risk appetite. But we discredit building app uh uh process will enable us to expand the ways in which we scale. So I think the the message is really consistent nothing. Very different.
And yeah, we're happy with the evolution.
Thank you so much, Leah for that.
Thank you, Niha.
our next question comes from Marcelo my with pre
About the credit again. So I understand. So the strategy and the message was really the the the amount of money that was disbursed in this quarter was um the highest on since the you guys started this strategy. So just want to understand more. So even this view that uh to be more conservative in terms of provision and cost of risk, why the the volumes were so higher than the last quarters. So that's any different product or in different type of clients that you guys are starting to to develop and to
To to give credit. So just please uh give me some idea here to understand the strategy looking forward.
For sure. Mateos here.
So, again, there wasn't any specific event driving the $620 million in disbursement this quarter. So, no new features or new products.
Uh I think the message here is maybe to look at a longer window so the credit operation continues to grow but it's not linear at all. If we were to look at the best quarters uh not only the first few but also last year that are quarters in which disbursement tends to become flat uh because we're either testing new offerings or uh the results from a given hypothesis are not yet validated.
But then that tends to follow a bigger growth in the subsequent quarters. I think that's pretty much what happens. Uh, and probably the best way to look at it is actually the disbursements from the first skill, 25 or lower. I don't think the second you were, um, bigger. That's probably the best way to think about it.
And then the question on how that connects with the view of increasing provision, amidst the weaker or more uncertain micro environment.
I think here, it's more of a cautious decision. So when we look at the actual portfolio performance, we're not seeing material changes. You can see that the delinquency levels remain stable. NPL 15 to 90 days is actually decreasing a little bit, while NPO over 90 days is flat.
Uh, but we did observe some softening in our clients, cymstar sales, which we mentioned affected the dpv growth.
So, in light of that, we decided to strengthen the provisioning to ensure that we are appropriately covered, even if the broader environment remains under pressure.
And the second thing that I think is also worth highlighting here.
Uh, what we've been doing since the beginning of the year is also to increase the prices of the new cohorts that were dispersing.
So, if you were to look at the average rate for the portfolio towards the end of last year, it was closer to 3% per month.
Now, it's trending actually closer to 4% per month.
So, even despite the higher cost of risk, when we look at the actual profitability of the new cohorts,
There's still tracking really well, and that's what give us Comfort to continue to scale and continue to improve the product as well. So those are the main thinking about here.
I'm looking forward. Oh, there is any guidance to to, to give us to, to think about cost of really. So it's more. The level is 20% in the next quarters are uh, are lower lower than that.
No, I think the 20% uh we think as a 1 off, um so probably the best way to think about cost of risk. Moving forward is on the meetings so closer to the 13 and a half percent 15%, uh range
With chicken embeds, the growth of the portfolio. Uh, but we shouldn't continue to add layers of protection for the macro environment as we move ahead.
Okay, thank you guys.
Thank you.
Our next question comes from Hinata, Meloni with autonomous research.
Hi everyone. Congrats on the resulting thanks to you for taking the the questions. So I wanted to explore a bit competitive environment in the second half of the the year. I mean you already mentioned that you don't expect to increase prices but I'm wondering even if you continue to optimize your, uh, cost of funding. If you could offer more competitive prices uh as the economy slows down and then if you can expand this, even a bit further to 2026, when there are some rate Cuts expected at what do you think it's going to be your strategy there when Brits starts uh, to come down?
So I think, uh, hi, uh, here. So, on your question.
Hello. So
I think, um,
Uh, regarding the first part of your question.
sorry, the first part of your question was about
Can you repeat? Yeah, the competitive environment in the in the yeah. So I think we don't expect any news on the competitive environment. We see a very rational competitive environment
and,
To be really honest, we price very much based on the bonding, the bundling and the offerings that we offer our clients and based on our return hurdles that's been our philosophy, um, since we implemented these, uh, repricing strategy way back in 2022. So we don't expect to change that and we don't see any changes in the competitive Dynamics at all. I think long term if interest rates go down that mindset won't change.
Of course, what will happen is there will be a bigger Gap. Potentially between repricing between sorry, pricing is being applied to new sales versus the spreads of clients within the base. So there may be kind of a competitive adjustments that will happen once that Dynamics, uh, takes place, but that competitive adjustment will be a, a, a
Lower 1, right? Because uh, the base is the base. Nobody is expected to change the repricing of the base downwards. So I think that there will be a Readjustment, a ree equilibrium that may be reached, but that's going to be a kind of a, a multi-year process in our view. So that's how we see the overall Dynamics.
No, perfect that, that you. So, for the second half here pretty much, uh, stable prices and uh, gaining share
Yeah, so nothing different than what we already said in terms of TPV dynamics and repricing strategy.
Perfect, thank you, and congrats again on the results.
Thank you, Hannah.
Our next question comes from Eduardo, host with BTG.
Hi, good evening, everyone. I have two questions here regarding competition as well. The first one is about picks.
I think it was recently announced that they launched an initiative focused on small businesses, where I think among other things, they announced 3.6, right? For our clients, using the possibility, right? So, uh, how do you see that? You know, and if you see other players doing the same?
And the second one would be about the deposits, right? You've been growing pretty well here, and I think this is relevant for...
For your profitability, how do you see competition evolving for deposits? Do you see any pressure for higher remuneration? Thanks a lot.
Hi, Hoseman. Yeah, here. So, uh, regarding your first question around competitive dynamics and some players implementing.
Uh, no charges on pics. I think those offers, they really come and go, um, in our view.
Pics is 1 monetization driver among many depending on what sort of is the overall offer to a specific profile of clients. We do sometimes offer, uh, tips for free, depending on what the overall. Uh, economics of that, that client is, I think the message is that as we evolve our banking road map and our overall Stone road map, really write, the more features that we have to bundle the more we can play with those levers. So, I think this is really a dynamic process and the better.
The more features we have in terms of responding to this dynamic process, the better. So,
I think the message that we want to bring across when we talk about the overall roadmap is really about two things, right? Evolving and launching the new features that really address our clients' needs.
and,
The more features we have, the more bundles we can create. This is sort of a virtual cycle that, at the end of the day, reflects in our ability to win clients and bring TPV within the ecosystem. More importantly, it really engages.
Right? We need to ensure that our clients engage with our ecosystem overall, and ultimately, that will reflect in deposits growth.
Go ahead in terms of how we address more needs of those clients to operate more within the Stone ecosystem.
No, great. Thanks a lot, Aliyah.
Thank you, Hosman, for the question.
Thank you. The Q&A session is now over. I would like to hand the floor back to the Stone code team for their concluding remarks.
Oh, thank you all for participating in the call, and see you in the next quarter. Thank you.
So, the conference call is now closed. We thank you for your participation and wish you a nice day.