Q3 2025 StoneCo Ltd Earnings Call
Speaker #2: Good evening everyone . Thank you for standing by . Welcome to Stone cow's Third Quarter 2025 Earnings Conference Call . By now , everyone should have access to our earnings release .
Speaker #2: The company also posted a presentation to go along with its call . All material can be found online at investors . Before we begin the call , I advise you review the disclaimer included in the press release and presentation , which outlines important information about forward looking statements and non-IFRS financial measures .
Speaker #2: In addition , many of the risks regarding the business are disclosed in the company's form 20 F filed with the Securities and Exchange Commission , which is available at .
Speaker #2: In hindsight, I would like to highlight that the company is restricting the number of questions to one per analyst. Joining the call today is Stone CEO Pedro Zinner.
Speaker #2: The CFO and I'ro . Mathieu Scherrer , the strategy and marketing officer . Lia Matos and the head of IR , Roberto Noronha .
Speaker #2: I would now like to to turn the conference over to your host Pedro Zinner . Please proceed .
Speaker #3: Thank you . Operator , and good evening , everyone . I'd like to start with a brief update on our key performance metrics and our capital allocation strategy in the third quarter , we continued to make solid progress toward our 2025 objectives .
Speaker #3: Even in a more challenging macro environment . Our adjusted gross profit grew 15.2% year to date . Despite our ongoing share buyback program , which has had some impact on this metric .
Speaker #3: Meanwhile , for the first nine months of 2025 , our adjusted basic EPs reached 6.9 per share , up 37% year to date , keeping us well on track to meet our full year target despite external headwinds .
Speaker #3: Our team is performing with discipline and focus , delivering consistent value to our clients and shareholders . Turning to capital , we have maintained a disciplined approach to returning capital to shareholders through our share buybacks in the last 12 months .
Speaker #3: We have returned 2.8 billion to shareholders , about 10% yield for the period . Building on the 3 billion in excess capital , we identified last year .
Speaker #3: I'm pleased to report that by the end of October , we had already returned 74% of that amount to investors . This underscores our commitment to return excess capital through buybacks or dividends .
Speaker #3: When we don't have immediate value accretive investment opportunities . Our goal remains the same . Exercise financial prudence . While maximizing long term value creation for our clients and shareholders .
Speaker #3: With that , I'll now hand it over to Lior for a closer look at our quarterly numbers . Leah , please go ahead .
Speaker #3: Thank you .
Speaker #4: Pedro . , and good evening everyone . Starting on slide four , we dive into our consolidated bottom line and return on equity results .
Speaker #4: We are pleased to see another quarter of consistent performance towards our goals . Despite a continued challenging macro environment . Our adjusted net income grew 18% year over year , with a 13% increase in continuing operations .
Speaker #4: This performance was driven by three key factors . The first one relates to the successful adjustment to our pricing policy implemented earlier this year , which helped offset the impact of higher interest rates in the country .
Speaker #4: Second , the strategic use of client deposits as a funding source helped improve efficiency by lowering our average funding spreads . And third , a lower effective tax rate compared to the same period last year .
Speaker #4: Also contributed to the results . These effects were partially offset by our decision to more evenly distribute marketing expenses . This year , which negatively affected the year over year comparison .
Speaker #4: Our adjusted basic EPs reached 2.57 per share , growing 31% year over year . The above net income growth was supported by continued execution in our share buyback program .
Speaker #4: Regarding returns . Our ROE continued to expand sequentially . Consolidated ROE expanded eight percentage points year over year to 24% , while financial Services ROE from continuing operations increased four percentage points over the same period to reach 33% in the quarter .
Speaker #4: Now , let's detail our continuing operations . Top line performance on slide five . Total revenue and income grew 16% year over year , reaching 3.6 billion reais , driven by continued solid execution in our core business .
Speaker #4: Importantly , this growth was achieved despite lower floating revenues as we began deploying client deposits as a funding alternative in our operations starting earlier this year .
Speaker #4: While the strategy naturally reduces floating revenues , it generates savings in financial expenses , reinforcing the strength of our funding model . Our adjusted gross profit from continuing operations was 1.6 billion reais in the quarter , growing 12% year over year .
Speaker #4: This growth was largely aligned with TPV as higher revenues were partially offset by increased financial expenses , driven by the higher CDI rates .
Speaker #4: On slide six , we highlight our operating metrics beginning with our payments business for MSMEs . Our active client base grew 17% year over year , reaching 4.7 million clients , with 38% classified as heavy users .
Speaker #4: Leveraging more than three of the solutions we offer . This demonstrates not only growth in the scale , but also the engagement across our product ecosystem .
Speaker #4: MSM , grew 11% year over year in the third quarter , reaching 126 billion reais . Such growth comes from a combination of a 49% growth in pix QR code volumes , which continues to outpace TPV and capture share from debit transactions .
Speaker #4: And a 6% growth in card volumes compared to the previous quarter . The yearly growth showed a slight deceleration , reflecting the more challenging macro environment and softer same store sales among our clients .
Speaker #4: Trends that are persisting in the fourth quarter, and we are monitoring carefully. On slide seven, we highlight the performance of our banking operation.
Speaker #4: We're pleased to report continued growth in our active client base , which increased 22% year over year , reaching 3.5 million clients . This sustained expansion reflects both strong client acquisition and the evolution of our payments and banking bundle offers .
Speaker #4: Client deposits grew 32% year over year and 2% quarter over quarter , reaching 9 billion reais during the period . While we observed a slight decline in our deposit base relative to MSM , TPV from 7.2% in the second quarter to 7.1% in the third quarter , this primarily reflects daily seasonality driven by clients cash out obligations , and we saw quick rebound on the days that followed .
Speaker #4: Due to another perspective , the average daily deposit base increased 40% year over year . And 6% quarter over quarter , expanding relative to TPV .
Speaker #4: The composition of deposits in the quarter moved slightly towards more time deposits , which now account for 84% of total deposits , slightly up from 83% in the previous quarter .
Speaker #4: This growth underscores increased adoption of our investment solution , leading to a higher engagement with our banking features . Now , turning to slide eight .
Speaker #4: We review the evolution of our credit operation in the quarter . We observed an acceleration in portfolio growth combined with disciplined asset quality .
Speaker #4: And in strict alignment with our risk appetite statement parameters . The total credit portfolio grew 27% sequentially , accelerating compared to the previous quarter , and reaching 2.3 billion reais .
Speaker #4: Of this , 2.1 billion reais is attributable to our merchant solutions , primarily working capital financing for MSMEs , which grew 28% quarter over quarter .
Speaker #4: Additionally , just over 200 million relates to credit cards , which increased 18% over the same period . Despite the acceleration in portfolio growth , our credit quality remains strong .
Speaker #4: NPLs 15 to 90 days reached 3.12% , while NPLs over 90 days stood at 5.03% . The rise in NPLs over 90 days reflects the natural maturation of the portfolio , whereas increase in NPLs 15 to 90 days was primarily due to specific client payment delays , which has already normalized in the fourth quarter .
Speaker #4: As you may recall , in the second quarter , we made a deliberate decision to increase coverage ratio levels in response to the weaker macro outlook , with no additional adjustments required this quarter .
Speaker #4: The coverage ratio declined slightly to 265% , yet remaining at a conservative level . Similarly , our cost of risk , which reflects provisions recorded during the quarter , decreased from 20.2% to 16.8% sequentially , staying within the expected mid-teens range and reflecting disciplined risk management .
Speaker #4: the provision adjustments in Q2 , we implemented corresponding pricing changes . This ensures a disciplined balance between risk and return while supporting sustainable growth .
Speaker #4: As you can see in this slide , the average monthly credit rate was 2.9% in Q3 , up from 2.7% in Q2 . The Following metric is calculated by dividing the credit revenues by the average credit portfolio .
Speaker #4: However , the result is significantly impacted by product mix as the inclusion of non-financial credit card portfolio and higher growth in specialized desk disbursements can dilute the rate .
Speaker #4: In summary , I'm pleased with how our company has evolved and remained resilient despite ongoing macroeconomic headwinds . We continue to execute with focus on our clients confident that there are multiple opportunities to help them grow further and manage their business in a more seamless and effective way .
Speaker #4: Now I want to pass it over to Mateos , who will discuss our financial performance in more detail . Mateos .
Speaker #5: Thank you and good evening , everyone . Let's discuss our adjusted consolidated PNL for continuing operations , which is shown on slide nine .
Speaker #5: Our cost of services increased 12% year over year , decreasing 90 basis points as a percentage of revenues . This reduction reflects the combination of efficiency gains in logistics , lowering transaction and technology costs , and lower provisions for acquiring losses , which were partially offset by higher loan loss provisions in the periods .
Speaker #5: Administrative expenses increased 7% 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 .
Speaker #5: Selling expenses increased 21% year over year . Increasing 50 basis points relative to revenues . This reflects a more evenly distributed marketing spend in 2025 compared to last year , when they were skewed towards the first half of the year .
Speaker #5: Given the strong investments in sponsoring and specific reality shows, financial expenses increased 28% year over year, representing a 280 basis point increase in the percentage of revenues.
Speaker #5: This was largely due to a higher average CDI rate year over year , which was partially mitigated by increased use of client deposits as a lower cost funding source , which intensified since the end of the first quarter .
Speaker #5: Lastly , I would just like to remind that the execution of our capital distribution strategy negatively affects our financial expenses . Other expenses increased 2% year over year and reduced 40 basis points relative to revenues , which was mainly due to an increase in gains related to the sale of Pos .
Speaker #5: Our effective tax rate was 15.3% in the quarter , down from 18.6% in the third quarter of 24 . The year over year decrease was primarily driven by an intergroup interest on equity operation and higher benefits from leading .
Speaker #5: Moving to slide ten , our adjusted net cash position ended the quarter at 3.5 billion reais , decreasing 140 million reais sequentially . Despite a 465 million reais in share buybacks executed in the quarter .
Speaker #5: Excluding these buybacks , adjusted net cash would have increased by 325 million reais . Once again , I want to thank you all for your time and continued support .
Speaker #5: Our focus remains on executing our strategy effectively and in a very aggressive manner . While listening closely to our clients , meeting their needs and ultimately creating long term value for our shareholders .
Speaker #5: With that said , we are now ready to open the call to questions .
Speaker #2: Thank you . We are now going to start the question and answer session of our call . If if you would like to ask a question , please click on the raise hand button .
Speaker #2: If your question has already been answered , you can leave the queue by clicking on foot . Hand down . Please limit your question to 2 to 1 per analyst .
Speaker #2: Our first question comes from Carlo Prato with UBS .
Speaker #6: Hi everyone . Good evening . Thanks for the opportunity to ask questions here . I have two on my side . Please . First , on your prepayment business , would you say that you are at the all time high level of spreads in the business ?
Speaker #6: Post the pricing adjustments now . And how do you see the sustainability of this level going forward , given the current competitive scenario and the potential beginning of the aging cycle ?
Speaker #6: So this is the first and then my second , which is also linked . Looking forward , what do you think are the main drivers for for earnings growth of the company apart from the policy rates ?
Speaker #6: That should be a clear support . So what do you think should be the main source of growth ? Is this an acceleration in credit growth ?
Speaker #6: Is this efficiency or any other can help us understand what should be the drivers for 2026 ? Given this slowdown . Also in TPV that you are , we are seeing except from the policy rates would be good .
Speaker #6: Thank you . initiative you
Speaker #5: So overall gross profit . But in terms of pricing specifically , I think what we did successfully was to pass through the increase in interest rates .
Speaker #5: But I don't think we are at the all time high spreads . The second question around earnings , earnings growth levers .
Speaker #4: Caio , can you hear us ?
Speaker #6: Now I can hear you , but I think we missed the answer .
Speaker #3: Oh , okay .
Speaker #4: Sorry . We just got notice that you were hearing . I think maybe Mateo's .
Speaker #5: Can you hear me ? Well .
Speaker #4: Replaying the answer .
Speaker #6: Yes . No . Now I can hear you . If you can repeat .
Speaker #5: Please . Okay . Sorry . Sorry for that . Let me replay the the answer . So the first one around prepayments and pricing .
Speaker #5: I wouldn't agree with you that we are at the all time high spreads . I think when we look at the gross profit yield .
Speaker #5: So gross profit as a percentage of TPV , it is higher than it was in the past at 1.26% for the third Q 25 versus for example , 1.21% in the beginning of 20 .
Speaker #5: For . But that increase has been mostly due to the increased penetration of banking and credit over time . And not result of prices on prepayments on a standalone basis .
Speaker #5: And I think this is consistent with the overall strategy . I think what we did quite well was indeed to pass through the increase in interest rates that we saw in the country , but I wouldn't say it's all time high .
Speaker #5: I think when we look at spreads , we think that they are at a healthy level . And then in terms of earnings growth levers for next year , I think we've been growing , especially the credit portfolio in a pretty good pace .
Speaker #5: According to the plan . But when you look at the contribution for credits in the PNL , now in 25 , it is still quite small because whenever we grow the portfolio , we are promptly provisions .
Speaker #5: Now , as we go into 2026 , I think probably credits is going to be of of a larger contribution to the overall PNL simply as a result of maturing the offering and having a much higher base to start with .
Speaker #5: And other than that , I think opex in general is something that we are paying special attention given the weaker macro environment . So we feel that there may be some levers in terms of opex management to boost earnings growth in 2026 , as well .
Speaker #6: Okay . That's clear . Thanks . Thanks , Leo .
Speaker #5: Thank you .
Speaker #7: Thanks .
Speaker #2: Our next question comes from Gilead with J.P. Morgan . You can open your microphone .
Speaker #8: Hi . Hello , everyone . Thank you for the call . My question is going to be on on on the payments TPV and environment I know is this is basically a common question in every call .
Speaker #8: But we have been seeing a deceleration on part of the volumes . And we see some players starting to to come up more hitting the tape to , to mention a few .
Speaker #8: We we have a food going after , I think a very important part of your base , which is restaurants . We have BTG launching , acquiring .
Speaker #8: We have smaller a smaller players such as Cloudwalk also a pure a little bit more . So my question to you is how you're sensing the competitive environment in your base .
Speaker #8: If your feeling is there any any specific player being an aggressor here ? And how do you see the pricing trends going forward ?
Speaker #8: Because the rate that you mentioned , I think it's been postponed a little bit . The potential tailwind coming from from the funding cost .
Speaker #8: So I want just to to check if you see any environment for the spreads in the business to stay where they are or even increase in the next six months .
Speaker #8: Thank you .
Speaker #4: Thank you . Let me start . Maybe elaborating a little bit on market share in TPV dynamics and then pass it over to Mateo's to talk a little bit about thoughts on pricing .
Speaker #4: So we still have to wait for the official apex numbers , right ? But in our view , the third quarter should be roughly stable in terms of market share .
Speaker #4: In the second quarter , we did see a bigger market share loss as a result of our decision to reprice as we've said before , this was sort of a one time effect as we see it in the quarter .
Speaker #4: We expect this to stabilize somewhat in the third quarter , and we reinstated this decision was accretive overall for the business . That said , when we look ahead in terms of TPV growth , we continue to see gradual deceleration .
Speaker #4: And this is primarily a reflection of industry dynamics , meaning industry decelerating . But also a weaker macro environment , which we expect to impact more .
Speaker #4: The smaller clients within our base . Right . So I think that's the message regarding market share and TPV dynamics . But looking ahead , we remain confident in our ability to continue to evolve in our plan consistently .
Speaker #4: Like Mateo's mentioned , more and more , we expect . Credit to be a driver of of profitability and growth . Looking forward .
Speaker #4: And we're not with the sole purpose of pursuing market share at any cost . So profitability remains our priority . And the path forward is not it's not simply through pricing adjustments .
Speaker #4: Right ? It should be through enhancing our value proposition to clients , evolving on our product offerings , scaling credits , evolving on our bundling strategy , and really making sure that we can consistently win clients within the segment overall , in line with our strategic priority .
Speaker #5: And if I may add, and then talk also about pricing, I think you mentioned other new players or new entrants in the market.
Speaker #5: I think we've we've seen these kinds of movements before . Players bringing new offerings or expanding their sales footprints . They tend to come in waves at any given point in time .
Speaker #5: There's always someone trying something new in the market . And I think this is normal . That said , when we look at the actual economics behind this , new players or new initiatives , it seems that overall players remain rational and I don't see anyone pursuing growth at any cost .
Speaker #5: That said , when we talk about rate cuts , I think we've been vocal about this a couple of times , which is short term for sure .
Speaker #5: There is a positive impact to us every hundred basis point cut in interest rates . There's a positive benefit of around 200 to 250 million in it .
Speaker #5: But in terms of overall spreads , I don't think it's reasonable to assume that we're going to keep the benefit from interest rates long term .
Speaker #5: I think it's a matter of timing . How long we can keep these prices until we pass it through . So I think the message here is , yes , there's going to be a positive impact .
Speaker #5: 2026 if rates goes goes down , I don't think we should assume that we're going to be able to keep those spreads longer term .
Speaker #5: I think overall , the level of spreads are healthy in our view .
Speaker #8: That's clear . Thank you .
Speaker #4: Thank you .
Speaker #2: Our next question comes from Renato Melone with Autonomous Research . You can open your microphone .
Speaker #4: We can't .
Speaker #7: Hear you .
Speaker #2: I believe we are having some technical issues with Hannatu . I'm gonna go with Eduardo Holzmann with BTG . You can open your microphone .
Speaker #9: Hi . Hi , everyone . My question , I think , would be to Pedro . Where do you believe the company stands in the organizational redesign .
Speaker #9: Right . I think you've been highlighting over the last few quarters that the goal is to build like a stronger , unified brand and product offering with a more kind of a team oriented culture and trying to build , like a truly kind of a customer centric mindset .
Speaker #9: How do you feel about the progress so far on that front ? Thanks .
Speaker #3: Hi . Thank you for the question . I think this is I think we evolved a lot . I think as you mentioned , we made a big shift from a kind of a , a bu organization , very much silo centric in some ways to a fully functional organization , as we have as of today .
Speaker #3: I think this is really helping us in terms of setting the strategy from a bundle perspective and how we actually put this bundle offering into our clients in the best way for them and for the company .
Speaker #3: So I think in a nutshell , I think we are almost there . I think there's some pain points that we have to adjust over time .
Speaker #3: But in a nutshell , I think we are in the right direction .
Speaker #9: No . Great . Thanks a lot .
Speaker #2: Our next question comes from Antonio Hueck with Bank of America . You can open your microphone .
Speaker #10: Hey , thank you for your time . So I have two questions on my side . So first on credit , you mentioned that .
Speaker #10: Now your credit product is more mature and it should start to to represent more on your PNL . So if you look at your portfolio today , do you have a better estimate on what should be your cost of risk or your NPL and your your ideal coverage ratio ?
Speaker #10: Now that you have a better sense of what your portfolio should be ? Also , I have a second question on your revenue composition .
Speaker #10: If you look at your your accounting statement , you can see like revenues for transactions declining over 20% and revenues for the financial income growing more than 30% .
Speaker #10: I understand here that there is an allocation that you can do between these two revenues . In terms of repayment and MDR , but and the ideal answer here would be would look at both together .
Speaker #10: But if you were to split , what would explain this movement ? If you could go through them , it would be great .
Speaker #10: Thank you .
Speaker #5: Thanks for the question , Antonio . So let's just start with credit first . In terms of cost of risk , I think the expectation is that they should remain in the mid-teens , going forward .
Speaker #5: I think we've mentioned this before , but part of the impact that we saw in second Q25 was retroactive movement that we did due to macro , and now it's normalized in Q25 .
Speaker #5: That said , when we look ahead , we do expect cost of risk to stay above the levels we had in the first part of 25 .
Speaker #5: Due to this macro driven updates we did in our credit models . So that's expectation on that end . In terms of NPLs , I think the answer is actually dependent on the rate of growth for the portfolio .
Speaker #5: When we look at the expected credit losses that we had for the product , they should be in the very high singles or either very low double digits .
Speaker #5: When you look at the NPL metric . It now stands at around 5% . But the main reason for that is because we have still a lot of vintages that are not fully mature , right ?
Speaker #5: The portfolio is still growing . So as we mature , NPL over 90s , they should continue to grow , probably towards that very high single digit mark .
Speaker #5: But And I think a good point around that is that when you look at the interest rates that we charge for the products , we had an increase in the cost of risk in the past two quarters , but that increase was also followed by an increase in the interest rates that were charging to our clients .
Speaker #5: in terms of target , I think we're not really targeting a level of cost of risk or a level of NPL metrics . I think what we're trying to maximize here is the NPV of the cohorts and especially the NPV of the client relationships .
Speaker #5: And as long as we see this opportunity to make these kinds of trade offs , we're happy to do as long as it increases the NPV for our client relationships .
Speaker #5: So that's on the credit piece . On the revenue side , I think you touched on the answer , which is this movements between transaction financial income is mostly a result of rebalancing between the two lines .
Speaker #5: Now that we have most of the volume from the company flowing through a single platform , we have a lot more flexibility in how we set up these bundles and how we allocate revenues internally .
Speaker #5: So I know you asked us to try to to segregate these lines , but when you look at the bundles that we're offering revenue and nowadays , there's no such thing .
Speaker #5: So the client usually pays a single fee and embedded in that fee . We have the prepayment revenues and the transactional revenues . So honestly , I think the best way to look at it is looking at , at both lines combined .
Speaker #10: Okay . All right . Thank you .
Speaker #2: Our next question comes from Marcelo Mizrahi with Bradesco BBA . You can open your microphone .
Speaker #5: Hello everyone .
Speaker #3: Thanks for the opportunity . I have a question . regarding this . The . changes on the stages of the credit we saw in the last quarters , especially in this last one , the cure of the stage two .
Speaker #3: Stage two higher amount .
Speaker #5: So can you guys .
Speaker #3: Please explain a little bit .
Speaker #5: The concept .
Speaker #3: Of what's the the . kind of the credit that is classified as stage two that , that or the ones that that .
Speaker #5: Come back .
Speaker #3: To .
Speaker #5: Stage one .
Speaker #3: So why we .
Speaker #5: Were seeing .
Speaker #3: Such a lot of . changes on the stages in the last . two quarters and probably is because of the type of the credit .
Speaker #3: So just to understand . how do you guys classify this , this credit , you know , that .
Speaker #5: We know .
Speaker #3: That looking forward , the company is will grow a lot . So it's very important to understand . Thank you .
Speaker #5: Yeah for sure . Thanks for the question . So around stage two and three especially I think when you look at stage three it's much simpler .
Speaker #5: So most of the increase that we had in stage three amounts from the balances overdue over 90 days . So that's pretty much the maturation of the portfolio when it comes to stage two .
Speaker #5: I think we have two different factors here . The first is actually the maturation of the portfolio as well . But we also have the entry of some credit restrictions affecting a portion of clients in the market .
Speaker #5: So for example , if a merchant defaults somewhere else . Even if that merchant is not defaulting , our portfolio , we move that client to stage two .
Speaker #5: And this can create a lot of volatility between the stages . Because as you know , credit restrictions in Brazil are quite volatile .
Speaker #5: So that's the main explanation .
Speaker #2: Our next question comes from Daniel Vas with Safra . You can open your microphone .
Speaker #11: Hi . Hi , guys . Hi , Pedro . Lia Matos just to go back to Leah's comment on the credit side , I think it was something about increasing the pricing , right ?
Speaker #11: I just wanted to to touch base on that and elaborate a bit more on what exactly this scenario refers to . I mean , should we interpret this repricing or upward pricing as a reflection of somewhat riskier environment and just to double click on that , how sensitive have the clients been to these adjustments ?
Speaker #11: Right . So I think when we see , for example , the retail and not not a good comparison , but Nubank has been like testing a lot , pricing upwards .
Speaker #11: And we don't see too much elasticity on that . So it will be good to hear on the elasticity of of your of your product and how sensitive clients have been to these adjustments .
Speaker #11: Thank you .
Speaker #5: Daniel . Matthews here . Thanks for the question . So I think that's actually a great point , which is I think credit is probably the product that we started .
Speaker #5: The latest . So naturally when we think around pricing credit , it started as a cost plus model . And we're now starting to test real sensitivity from our clients and tests the right pricing points .
Speaker #5: So I think what we did in second and third , if you look at like eight from the earnings presentation , the average yield of the portfolio increased from 2.6% in the first Q to 2.9 .
Speaker #5: In the third Q , even though we have a higher mix of credit cards in the portfolio , which have no interest , right , for the parts , that is on the and I think that happened at the same time that the macro environment is becoming more complex , but is not a response from the microenvironment .
Speaker #5: I think the reason why we've been able to price upwards is mostly because we are maturing on the overall pricing process for the product , and I think , like you mentioned , other players were successful in terms of increasing pricing without too many sensitivity from from the customers .
Speaker #5: And I think we're figuring out the same thing on our side .
Speaker #11: If I may follow up , have you just tested like way higher yields on the credit ? And to some group of clients to control group of clients , how have these tests performed so far ?
Speaker #11: If you could , if you could comment on that would be great as well .
Speaker #5: Yeah , I think we are . Early beginnings on the testing side , we avoided to do like a huge spikes in prices because of selection bias on the cohorts .
Speaker #5: So I think what we had here were gradual increases . But again , I think it's early beginnings in terms of actually figuring out how much the clients are willing to pay in the product .
Speaker #5: And I think there's more opportunity to come .
Speaker #11: All right . Thank you . Thank you .
Speaker #2: Our next question comes from Renato Meloni with Autonomous Research . You can open your microphone .
Speaker #3: Hey .
Speaker #12: Hey , everyone . Can you guys hear me now ?
Speaker #7: Yes , thanks .
Speaker #12: Sorry . I had an issue with my mic earlier . I want to ask on the cogs reduction . And you mentioned about the efficiency gains on logistics .
Speaker #12: All the transaction technology costs . So I wonder if you could expand a little bit on those gains . And I'm trying to understand here if this is a one off or you can still keep doing this and maybe what's a normalized level that you would see .
Speaker #12: Thank you .
Speaker #5: Thanks for the question , Renato . So in terms of cost to serve , I think broadly speaking , when we look at the metric excluding the credit provisions , we're starting to see signs of operational leverage , particularly in customer service , where the adoption of AI has been driving a lot of efficiency gains .
Speaker #5: And logistics , where scale is generating also meaningful cost benefits in the quarter , specifically , we also benefited from lower transactional costs in tech and lower provisions for acquiring losses , which were partially offset by higher amortization of intangible , as we are completing a lot of projects that were started in previous years .
Speaker #5: Now , in terms of what is one off or recurring ? I think the only portion of cost to serve that is not recurring is the level of provisions for acquiring losses , because they were positively impacted by a specific collection initiative in the quarter .
Speaker #5: And when we look ahead , we do expect more amortization of technological projects to to come because we are more and more completing a lot of projects that were started a couple quarters ago .
Speaker #5: So this trend of elevated DNA should continue throughout the next year . So I think the message in terms of cost of service overall , we are indeed seeing a lot of efficiency and operational leverage coming , but I wouldn't take the third quarter levels as a new normal .
Speaker #12: Understood . Thank you .
Speaker #2: Our next question comes from Nihar Agarwala with HSBC . You can open your microphone .
Speaker #13: Hi , team . Congratulations on the results . And thank you for taking my question . A quick one on asset quality . I think in your opening remarks , you mentioned there was one particular case regarding non-payment or delay in payments .
Speaker #13: Could you elaborate on that ? What happened ? And my second question is on the volumes . I think I mentioned that we expect deceleration in volume growth in the coming quarters for the MSME segment .
Speaker #13: We are already at 11% year on year for this quarter . What's what ? What do you mean by deceleration in the coming or should we expect something like eight nine ?
Speaker #13: Or it could go lower than that . Any color about the level in the next three , four , two , three quarters would be very helpful .
Speaker #13: Thank you so much .
Speaker #5: Anyhow , thanks for the question . I'll start with the asset quality . And then Leah can add on the TPV side . So on the asset quality , I think it's quite simple .
Speaker #5: We had a specific issue with a client in the specialized desk , which delayed a couple of days , but it's already normalized .
Speaker #5: This was not a big case . So we're talking around 40 basis points of the NPL 15 to 90 days . So if you do the math , it's around between 2 and 4 million reais .
Speaker #5: So a very small one . But again I think the main message here is that it affected the NPL 1590 days in the quarter .
Speaker #5: But it's already it has already been addressed .
Speaker #7: But .
Speaker #4: Neha just complementing on the question regarding TPV dynamics and what to say , looking ahead , right . It's hard to pinpoint a number , but the general trend and what we've been monitoring and what we've been saying is growth , which is slightly above the industry growth , the general trend of deceleration is mostly driven by the industry , right .
Speaker #4: We are seeing this year more specific macro impact to our client base , but we expect expect that to soften in throughout next year .
Speaker #4: But in general , I think what we can say is industry deceleration , as we've been vocal about for several quarters already , and our growth above the industry with slight market share gain in the long run .
Speaker #4: sustaining So I think that's the overall trend that we can talk about pinpointing whether it's 11 , whether it's more or less I think it's it's a little bit more difficult .
Speaker #4: Our perspectives on industry growth for next year is on , you know , high single digits , low double digits . But hard to pinpoint specific figures .
Speaker #4: We prefer to wait and see how the year will close out .
Speaker #2: Our next question comes from Gustavo Schrödinger with city . You can open your microphone .
Speaker #14: Hi . Thanks for taking my question . Sorry to insist about the the interest rates topic , but I think that we've seen changes in regarding the expectations for interest rates next year .
Speaker #14: So maybe these cycle less pronounced than than before expected , right . So especially assuming the yesterday's minutes from from from from the central bank .
Speaker #14: So my question here is that you are you are I mean I think that the everybody here is is modeling and and thinking on on stone , assuming this low interest rates next year .
Speaker #14: But if you take into consideration that the that the average interest rates next year should be close or even a slightly above this year .
Speaker #14: So my question is how how sensitive is this should be stone funding costs to to this average interest rates for next year . So again we've seen you increasing prices .
Speaker #14: Leah mentioned about the this higher interest rates for for SMEs and so my point here is that in this scenario of a higher average interest rates , how should we think these funding costs and prices next year ?
Speaker #5: Thanks for the question , Gustavo . So of all , in terms of the actual environment , I don't think we have a strong view .
Speaker #5: So we set up the operation in a way that we respond to the changes that we have in interest rates . We don't spend a lot of time trying to forecast the scenario , but indeed , if you were to look at this scenario now , there is a small decline embedded in the yield curve and our sensitivity to that decline is that for every hundred basis points , reduction in interest rates , all else being equal .
Speaker #5: So meaning no price reductions , we have a positive impact in our pre-tax earnings of around 200 and first 250 million reais . Now , in terms of what's actually going to happen , I think our intention and our desire is to keep our time .
Speaker #5: So we tend to pass it through to clients . But there is kind of a lag every time interest rates decline . But like I said , a couple answers ago , long term , when you look at the actual gross profit yield that we're having on the payment side , we think it's in a very healthy level .
Speaker #5: So I don't think it's reasonable to assume that we're going to keep it long term . As for the trend for financial expenses , again , I think it's it's very dependent on the level of interest rates .
Speaker #5: So we're going to see the scenario and adjust accordingly .
Speaker #14: Great . Just . Let me do a follow up here because you said the sensitive that you mentioned for each 100 basis point decrease , it is for I mean end of period interest rates or average interest rates .
Speaker #5: It is for average . So whenever we have an average decline of 100 basis points , then we you have the impact for the full year .
Speaker #14: Okay. Great. Thank you, guys.
Speaker #7: Thank you .
Speaker #2: Our next question comes from Tito Labarta with Goldman Sachs . You can open your microphone .
Speaker #15: Hi . Good evening . Thank you for the call . And taking my question . My question is on the your gross profit , right ?
Speaker #15: I mean , you're still on track to deliver your guidance for the year , but it has been decelerating . You know , given some of the questions on slower TPV growth rates are stable .
Speaker #15: You're mostly done . Repricing should should we expect the gross profit to continue to decelerate a bit from here at least ? All else equal , just given the trends in the industry , should we expect any positive seasonality in for Q and we did see a bit of a jump in your loan book this quarter .
Speaker #15: Like at what point do you think you could get to where the loan book is enough that it starts to boost that gross profit ?
Speaker #15: Right . I think it's still , you know , it's growing fast , but from a low base . Right . So just to think about the evolution of gross profit , given where we are today and you know , when that can maybe inflect and maybe grow faster from here .
Speaker #15: Thank you .
Speaker #5: Thanks for the question . So I think when you look at the gross profit yield , usually for RFQ seasonally lower because we have more debit and fixed transactions in the mix , which tend to have a lower take rates on a payment side .
Speaker #5: But I think in general when we look long term , I think the expectation is that payments spreads . They are at a healthy place .
Speaker #5: So we don't see a lot of pressure , but also not not a lot of upside in that part of the business . I think what's going to be the defining factor for 26 on that end is actually the interest rate movements that we just discussed , but other than that , I think the expectation is indeed that banking and credit will continue to grow at a faster pace than the TPV growth .
Speaker #5: And then over time , that should be accretive to gross profit yields . In terms of the credit , the rest , I think we are already starting to see the signs of bigger contribution in the PNL .
Speaker #5: So if you look at the revenue jump versus the Delta in provisions that we had between the second Q and the third Q , it was already significant .
Speaker #5: Of course , when you look at gross profit as a whole , it is still a very small factor . But I think it has already started .
Speaker #5: And I think it gets more significant throughout 2026 .
Speaker #15: Thanks , Mateo . So that's helpful . And yeah , I understand the the negative seasonality on the gross profit yield , but you should also have some positive seasonality on volume .
Speaker #15: So that net I mean not not asking for guidance , but just a little bit how that could potentially impact gross profit in four Q .
Speaker #5: Yeah , I think when we look at gross profit on a nominal basis , then this is another in the first Q is positive for sure .
Speaker #5: I think when you look at the yields , then you have a negative seasonality because of the mix . But overall , I think if you if you're thinking about a nominal terms , then the seasonality preferred Q is positive .
Speaker #15: Okay , perfect . That's very clear . Thanks , Mathias .
Speaker #2: Our next question comes from Pedro Leduc with Itau .
Speaker #3: Thanks , guys .
Speaker #16: Good evening everybody . Congrats on on the results . Two quick questions I know you guys had listed the 2027 guidance . Once you did Linx deal I know it's not in the presentation here , but wondering if you plan on reinstating it at some point .
Speaker #16: Maybe with the 4K release, if it's a 27, maybe it's something from another period of time. It seems like you're tracking for this year extremely well and for most of the 2027 figures as well.
Speaker #16: We're just trying to get a sense if you guys plan on reinstating it , if it's in the same time period , same , same inflows , and then the second question kind of tied up to this one as well in that previous 27 slide , you talked about a 20% effective tax rate .
Speaker #16: You're running at 15 . In the meanwhile , we're having changes . In taxation for for several of the Brazilian entities just trying to get a sense from you if how we can think about this , this income tax rate .
Speaker #16: Maybe next year, and then thinking whenever you guys plan on releasing a longer-term guidance. Thank you.
Speaker #3: Hi , Pedro . Pedro here , I'll address the first part of the question . Then I'll turn it over to Mathias . I think it's true that TPV performance has been more challenging than we initially anticipated .
Speaker #3: Back in 2023 , and I think as Lee mentioned , partly , I think it's due to the macro environment , which is worse than we initially expected .
Speaker #3: But we want to see how the year will close out first before we can talk more concretely about 2027 guidance revision right . So in fact , we plan to adjust gross profit indicator to reflect only continued operations .
Speaker #3: And we may take the opportunity for a more comprehensive review of 2027 guidance . When we do that . But that said , I think it's important to note that when we look at the long term plan as a whole .
Speaker #3: Our execution remains broadly on track with the credit book deposit base and the overall profitability . I think we are on the right track .
Speaker #3: Since we established back in 2023 . I'll hand it over to Mathias .
Speaker #16: Thank you .
Speaker #7: So .
Speaker #5: On the effective tax rate , I think two messages here . So yes , we are indeed operating below the 20% mark that we provided at the long term guidance .
Speaker #5: And if you look at the fourth Q usually for Q tends to be lower than third Q because of seasonality . And also we have more domain in the last quarter .
Speaker #5: But longer term , if we're thinking about the effective tax rate for 2026 and onwards , I think it is still too early to provide a precise view as there are too many moving pieces .
Speaker #5: I think you have all seen the number of proposed changes that are being discussed through provisional measures and draft views , but that said , when we take everything into account , we continue to believe that the effective tax rate should land in mid to high teens over .
Speaker #5: More specific than that , I think we still need more visibility on how the proposed changes will ultimately unfold , but that's the perspective we have at this moment .
Speaker #16: Okay , thank you . So Mid-high teens without seeing if there's any changes right ?
Speaker #5: Yeah , I think mid to high mid to high time teens broadly . Then whether it's going to be mid or high I think it dependent on the the changes .
Speaker #16: That's great . Thank you so much .
Speaker #2: Thank you . The question and answer session is now closed . We would like to hand the floor back to Pedro Zinner for closing remarks .
Speaker #3: Well thank you all for participating in the call and for the questions made . And I'm looking forward with the team to see you in our full year end results in March next year .
Speaker #3: Okay . Thank you .
