StoneCo Reports Second Quarter 2023 Results

Strong Revenue Growth and Profits Above Expectations
R$3 billion in Revenues, R$447 million in Adjusted EBT and R$322 million in Adjusted Net Income,
a year over year growth of 28%, 489% and 477%, respectively

GEORGE TOWN, Grand Cayman, Aug. 16, 2023 (GLOBE NEWSWIRE) -- StoneCo Ltd. ( STNE, B3: STOC31) (“Stone” or the “Company”) today reports its financial results for its second quarter ended June 30, 2023.

Operating and Financial Highlights for 2Q23

Note about our non-IFRS Adjusted P&L metrics: as anticipated in our 4Q22 Earnings announcement, from 1Q23 onwards we no longer adjust the expenses related to share-based compensation, which may affect the comparability of our current Adjusted results to our Adjusted numbers prior to 1Q23. To allow for better understanding of our business performance trends, the tables in this Earnings Release will make reference to our Adjusted P&L metrics including share-based compensation expenses (i.e. not adjusting those expenses out), both in 1Q23 and in prior periods for comparability purposes.

MAIN CONSOLIDATED FINANCIAL METRICS

Table 1: Main Consolidated Financial Metrics

• Total Revenue and Income reached R$2,954.8 million, growing 28.2% year over year. This was primarily driven by (i) 32.0% increase in financial services platform revenues, which reached R$2,551.2 million mainly due to above-market TPV growth in our MSMB segment and higher take rate; and (ii) 9.2% increase in software platform revenues, which reached R$382.9 million due to organic growth in our Core POS and ERP solutions.
• Adjusted EBITDA in 2Q23 was R$1,498.8 million, up 46.0% year over year and 19.8% quarter over quarter. Adjusted EBITDA Margin increased 4.6 percentage points sequentially to 50.7% mainly due to higher sequential Total Revenue and Income, excluding other financial income and continued realization of operating leverage across costs and expenses.
• Adjusted EBT in 2Q23 was R$447.0 million, up 489.3% year over year and 38.0% quarter over quarter, with adjusted EBT margin increasing 3.2 percentage points sequentially to 15.1%. This higher margin was primarily driven by consolidated revenue growth and costs improvements, aided by operating leverage across all expenses lines. These effects were partially offset by increased financial expenses as percentage of revenues.
• Adjusted Net Income in 2Q23 was R$322.0 million, 476.9% higher year over year, with adjusted net margin of 10.9%. This compares with R$236.6 million and a margin of 8.7% in 1Q23. Sequential margin improvement was driven by the same factors that impacted Adjusted EBT margin, and partially offset by a higher effective tax rate in the quarter.
• Adjusted Net Cash position was R$4,327.2 million in 2Q23, increasing 57.1% year over year or 8.5% quarter over quarter. The sequential increase of R$338.4 million was driven by (i) R$647.0 million of cash net income (net income plus non-cash income and expenses as reported in our statement of cash flows), (ii) plus a R$67.3 million inflow from labor and social security liabilities, and (iii) partially offset by R$332.2 million of capex and R$28.7 million from M&A expenses. Other effects contributed negatively with R$14.9 million.

SEGMENT REPORTING

Below, we provide our main financial metrics broken down into our two reportable segments and non-allocated activities.

Table 2: Financial metrics by segment¹

FINANCIAL SERVICES SEGMENT PERFORMANCE HIGHLIGHTS

Table 3: Financial Services Main Operating and Financial Metrics²³

• Financial Services segment Revenue reached R$2,551.2 million in 2Q23, a 32.0% increase year over year. Segment growth was driven by strong performance in our MSMB client segment, attributed mainly to (i) a 19.3% year over year TPV growth - in line with guidance and above overall industry of 5.2%, (ii) a higher take rate of 2.48% in 2Q23, up 38 basis points year over year, and (iii) a robust client base expansion of 43.3% year over year. The ongoing strength of our MSMB client segment continues to offset our strategic de-emphasis on Key Accounts.
• Financial Services segment Adjusted EBT grew 646.5% year over year and 30.1% quarter over quarter to R$398.2 million in 2Q23. Adjusted EBT margin reached 15.6%, an improvement of 2.5 percentage points sequentially from 13.1% in 1Q23. This increase was driven by the compounding effect of strong segment revenue growth combined with the continued operating leverage within segment operations, including (i) reduced cost of services and other operating expenses, (ii) efficiency gains in administrative and selling expenses, and partially offset by higher financial expenses as a percentage of revenues quarter over quarter.

• Consolidated TPV grew 7.4% year over year to R$97.4 billion in 2Q23, as a result of 19.3% growth in the MSMB segment and partially offset by a decrease of 32.5% in Key Accounts’ TPV.
• Total Payments Active Client base reached 3.0 million⁴ representing a total quarterly net addition of 196,600 active clients.

1. MSMB (Micro and SMB clients)
   • MSMB Active Payment Clients grew 43.3% year over year. Net Adds was 203,900, increasing 4.3% year over year to reach 2,962,000⁵ Active MSMB clients, with positive trends across all MSMB tiers in 2Q23. The net additions for the quarter were slightly lower than the 231,900 reported in the previous quarter, largely due to the conclusion of a specific marketing campaign in 1Q23.
   • MSMB TPV was R$83.3 billion, up 19.3% year over year and 3.7x above industry growth, driven primarily by the growth in our MSMB active payment client base. MSMB TPV was in-line with our guidance range of between R$83 to R$84 billion.
   • MSMB Average Monthly TPV per client decreased 22.5% year over year. Consistent with previous quarters, this decline is primarily due to the mix shift in the composition of our MSMB TPV, as a result of the rapid growth in the adoption of our Ton solution for micro-merchants, which have a lower average TPV compared to our SMB merchants, which predominantly use our Stone and Pagar.me solutions.
   • MSMB Take Rate was 2.48% in 2Q23, up from 2.39% in 1Q23, mainly explained by (i) higher monetization of clients, including the effect from the interchange cap regulation for prepaid and debit cards (effective as of April 2023), and (ii) stronger growth in micro and small clients, which have higher take rates. Year over year, MSMB take rate increased 38 bps explained by the same factors abovementioned for the sequential evolution, combined with (i) adjustments in our commercial policy and (ii) contribution from our banking solution, mainly floating and PIX revenues.
   • Banking solutions⁶
     • Banking client base has consistently increased, reaching almost 1.7 million, 217.8% higher year over year and 33.4% quarter over quarter, driven by (i) the strong increase in the number of Ton clients with our full banking solution, following the launch of our “Super Conta Ton” in 1Q23 and (ii) the continued activation of new banking accounts within our Stone payments client base.
     • Total deposits grew slightly to R$3,918.6 million in the quarter, despite an unusual negative impact of R$286.0 million (with no impact to P&L). This was associated with a shift in our chargeback and cancellation collection process for Ton, following client migration to Super Conta TON. Adjusting for this impact, overall deposits would have grown 7.8% sequentially, compared to 5.6% growth in MSMB TPV, illustrating the continued increase in client engagement within our banking solution.
     • Banking ARPAC⁷ (average revenue per active client) decreased 35.1% year over year and 31.0% quarter over quarter to reach R$25.3 per client per month. As explained in previous earnings announcements, the decrease in ARPAC reflects the mix effect of selling more banking into our Ton client base, with positive impacts to our number of accounts and overall banking revenues, despite lower average revenue per active client, as micro-merchants have naturally smaller revenue contribution.
   • Credit Solutions:
     • New Credit Product Disbursement - As of July 31, 2023, we disbursed a total of R$26.0 million of the new credit product to approximately 850 clients, with an outstanding balance of R$23.5 million at month-end.
2. Key Accounts Clients
   • Key Accounts TPV of R$14.1 billion, 32.5% lower year over year and 3.5% lower quarter over quarter, in-line with our expectations as we continued to de-emphasize and offboard low margin sub-acquirer volumes.
   • Key Accounts take rate was 1.14% in 2Q23, relatively flat sequentially and 28 basis points higher than in 2Q22. The year over year variation is mainly driven by a positive mix shift within our Key Accounts portfolio due to the roll-off of lower margin clients and volumes, combined with higher prices and partially compensated by lower prepayment penetration in Key Account clients.

SOFTWARE PERFORMANCE HIGHLIGHTS

Table 4: Software Main Operating and Financial Metrics

RECENT DEVELOPMENTS

Management and board changes

On May 26, the Company issued a press release announcing the appointment of Mateus Scherer Schwening to the role of Chief Financial Officer effective as of July 1^st, 2023, a position previously held by interim CFO Silvio Morais. The Company also announced the retirement of President Augusto Lins from full-time responsibilities, transitioning to a part-time senior advisory role.

In addition, the Board of Directors’ Finance & Risk committee was split into two separate committees. Silvio Morais has returned to his role on the Board of Directors and now leads the Finance committee, which also includes Thiago Piau and Diego Fresco. The Risk committee is comprised of Patricia Schindler as Head of the committee, Luciana Aguiar and Conrado Engel.

Furthermore, on June 23, the Company announced changes in Investor Relations, with Rafael Martins Pereira, VP of Finance and Investor Relations Officer, departing from the Company effective July 31, 2023. Mateus Scherer, who was recently appointed CFO, has also assumed the role of Investor Relations Officer.

OUTLOOK FOR 3Q23

The outlook below constitutes forward-looking information within the meaning of applicable securities laws and is based on a number of assumptions and subject to a number of risks. Actual results could vary materially as a result of numerous factors, including certain risk factors, many of which are beyond StoneCo´s control. Please see “Forward-looking Statements” below. In view of these factors, we expect the following:

Income Statement
Table 5: Statement of Profit or Loss (IFRS, as Reported)

Table 6: Statement of Profit or Loss (Adjusted