1Q22 Earnings Release

June 2, 2022 investors.stone.co

StoneCo Reports First Quarter 2022 Results

Revenue growth of 138.6% year-over-year in 1Q22 to R$2.07 billion;

Strong improvement in profitability, with Adj. Pre-Tax Income of R$163 million in 1Q22, up from

R$17 million in 4Q21 and above our guidance of over R$140 million; MSMB take rate improvement from 1.71% in 4Q21 to 2.06% in 1Q22

George Town, Grand Cayman, June 2, 2022 - StoneCo Ltd. (Nasdaq: STNE) ("Stone" or the "Company"), a leading provider of financial technology and software solutions that empowers merchants to conduct commerce seamlessly across multiple channels, today reports its financial results for its first quarter ended March 31, 2022.

"Dear Shareholders,

We are encouraged by the results through the first quarter of 2022. As we highlighted during our year-end results, in 2022 we are committed to execute on our core growth engine, simplify our business and start to show proof of our profitability recovery.

The first quarter results are the first step on this journey. Our growth engine, the central pillar of how we onboard and serve our clients, remains strong and we started to see margin recovery as evidenced by our first quarter Adjusted EBT margin of 7.9% up from 0.9% in the fourth quarter of 2021. The prudent price initiatives we implemented during the fourth quarter have continued to gain traction and the quality of our client base is improving, as expected. On the leadership front, we have brought on new talents that provide a wealth of knowledge and experience to our team. I would also like to highlight that we continue to evolve both in management capabilities and governance.

As you will see, effective in the first quarter of 2022, we have implemented segment reporting around our Financial Services and Software businesses. This reporting change aligns with the way we manage our business and, we believe, provides greater clarity and transparency to the drivers of performance. As we look to the rest of the year, we will build on the achievements of the first quarter and demonstrate a pattern of consistency. We are energized by our recent results and remain focused on our central purpose of serving Brazilian Entrepreneurs."

- Thiago Piau, CEO

2

Operating and Financial Highlights for 1Q22

MAIN CONSOLIDATED FINANCIAL METRICS

Table 1: Main Consolidated Financial Metrics

Main Consolidated Financial Metrics

1Q22

4Q21

1Q21

y/y %

q/q %

Total Revenue and Income (R$mn)

2,070.3

1,873.0

867.7

138.6%

10.5%

Adjusted EBITDA (R$mn)

817.3

684.7

377.0

116.8%

19.4%

Adjusted EBT (R$mn)

163.1

17.2

247.6

(34.1%)

850.5%

Adjusted Net Income (R$mn)

132.2

33.7

187.4

(29.4%)

292.5%

Adjusted Net Cash (R$mn)

2,406.9

2,146.9

11,849.5

(79.7%)

12.1%

  • Total Revenue and Income was R$2,070.3 million, up 138.6% year over year (87.2% pro-forma for Linx) and 10.4% above the mid-range of our guidance of between R$1,850.0 and R$1,900.0 million. This increase was mainly a result of (i) 107.8% growth in our financial services platform revenues, that reached R$1,721.3 million and (ii) 11x growth in our software platform revenues, that reached R$326.6 million. Non-Allocated revenue represented the remaining R$22.4 million in revenue. Financial services revenue growth was mostly a result of our performance in the MSMB segment, with strong TPV growth combined with increasing take rates, as we successfully adjusted our pricing policy amid a higher interest rate environment in Brazil. Our year-over-year software revenue growth was driven mostly by the consolidation of Linx into our results beginning in 3Q21. Software revenue pro-forma for Linx grew 26.9% year over year, mainly driven by the Core POS/ERP revenue growth.
  • Adjusted EBITDA in 1Q22 was R$817.3 million, up 116.8% year over year and 19.4% quarter over quarter. EBITDA Margin increased 2.9 percentage points sequentially to 39.5%, mainly due to efficiency gains in Cost of Services and Administrative Expenses.
  • Adjusted EBT in 1Q22 was R$163.1 million, 16.5% above our guidance of R$140.0 million and significantly above 4Q21 Adjusted Pre-tax Income of R$17.2 million.
  • Adjusted Net Income in 1Q22 was R$132.2 million, with a 6.4% net margin, representing a sequential increase from adjusted net income of R$33.7 million and a 1.8% margin in 4Q21. This improvement was mostly related to the successful implementation of our new pricing policy and efficiency gains in costs and expenses. We expect to continue to actively manage our pricing policy throughout 2022, with focus on balancing growth and profitability in our core MSMB payments operation.
  • Adjusted Net Cash was R$2,406.9 million in 1Q22, R$260.0 million higher quarter over quarter, mostly explained by: (i) R$132.2 million Adjusted Net Income; (ii) R$392.7 million of working capital variations excluding AR/AP1, mainly driven by R$253.5 million of net collections from our credit business; (iii) -R$241.8 million of capex; (iv) - R$41.9 million of M&A and (v) R$18.7 million of other factors and non-cash items that affect our Adjusted Net Cash position.
  • Working capital adjustments in our Consolidated Statement of Cash Flows excluding the following items: (i) Accounts receivable from card issuers; (ii) accounts payable to clients and (iii) interest income received, net of costs, as those three items are directly related to changes in accounts receivable from card issuers ("AR") and accounts payable to clients ("AP") in our balance sheet.

3

SEGMENT REPORTING

As we announced in 4Q21 earnings release, from 1Q22 onwards, we will report our financial and operating metrics in two segments, Financial Services and Software, and non-allocated activities comprised of non-strategic businesses. Note that our segment reporting is performed on an Adjusted basis, adjusting for items such as the mark-to-market and the bond financial expenses related to Banco Inter investment, amortization of fair value adjustments on acquisitions, among other factors.

Financial Services: comprised of our financial services solutions serving both MSMBs and Key Accounts, which includes mainly our payments solutions, digital banking, credit, insurance solutions and our registry business TAG.

Software: comprised of two main fronts, namely: (i) Core, which includes POS/ERP solutions, TEF and QR Code gateways, reconciliation and CRM and (ii) Digital, which includes OMS, e-commerce platform, engagement tools, Ads solution and Marketplace Hub. The results of the Linx Pay legacy business are accounted for in both Core and Digital revenues and costs. Despite having concluded the client base migration to the Stone platform, we still incurred expenses related to such legacy business during 1Q22.

Below, we provide our main financial metrics broken down into our two reportable segments.

Table 2: Financial metrics by segment

Segment Reporting (R$mn Adjusted)

1Q22

% Rev2

4Q21

% Rev2

1Q21

% Rev2

y/y %

q/q %

Total Revenue and Income

2,070.3

100.0%

1,873.0

100.0%

867.7

100.0%

138.6%

10.5%

Financial Services

1,721.3

100.0%

1,545.9

100.0%

828.4

100.0%

107.8%

11.3%

Software

326.6

100.0%

311.4

100.0%

30.9

100.0%

955.6%

4.9%

Non-Allocated

22.4

100.0%

15.7

100.0%

8.3

100.0%

168.8%

42.9%

Adjusted EBITDA

817.3

39.5%

684.7

36.6%

377.0

43.4%

116.8%

19.4%

Financial Services

771.8

44.8%

664.3

43.0%

375.1

45.3%

105.8%

16.2%

Software

40.3

12.3%

26.9

8.6%

6.0

19.4%

570.3%

49.6%

Non-Allocated

5.2

23.3%

(6.5)

(41.4%)

(4.1)

(49.3%)

n.m

n.m

Adjusted Profit Before Income Taxes

163.1

7.9%

17.2

0.9%

247.6

28.5%

(34.1%)

850.5%

Financial Services

146.4

8.5%

35.2

2.3%

250.2

30.2%

(41.5%)

316.3%

Software

12.3

3.8%

(15.2)

(4.9%)

0.6

1.9%

1972.4%

n.m

Non-Allocated

4.3

19.3%

(2.8)

(18.1%)

(3.2)

(38.7%)

n.m

n.m

  • Margins are calculated by dividing by the revenue of each segment.

4

FINANCIAL SERVICES PERFORMANCE HIGHLIGHTS

Table 3: Financial Services Main Operating and Financial Metrics

Main Financial Services Metrics

1Q22

4Q21

1Q21

y/y %

q/q %

Financial Metrics (R$mn)

Total Revenue and Income

1,721.3

1,545.9

828.4

107.8%

11.3%

Adjusted EBITDA

771.8

664.3

375.1

105.8%

16.2%

Adjusted EBT

146.4

35.2

250.2

(41.5%)

316.3%

Adjusted EBT Margin

8.5%

2.3%

30.2%

(21.7 p.p.)

6.2 p.p.

Adjusted Net Income

125.9

53.2

191.4

(34.2%)

136.7%

TPV (R$bn)

83.2

89.0

51.0

63.1%

(6.6%)

MSMB

63.4

66.7

32.8

93.3%

(5.0%)

Key Accounts

19.8

22.3

18.2

8.4%

(11.4%)

Monthly Average TPV MSMB ('000)

11.8

14.6

13.8

(14.6%)

(19.2%)

Active Payments Client Base ('000)

1,926.2

1,766.1

909.3

111.8%

9.1%

MSMB

1,870.9

1,703.4

857.8

118.1%

9.8%

Key Accounts

60.2

67.4

54.4

10.8%

(10.6%)

Net Adds ('000)

160.1

377.7

134.8

18.7%

(57.6%)

MSMB

167.5

367.3

138.0

21.3%

(54.4%)

Key Accounts

(7.1)

11.3

(2.0)

256.3%

n.m

Take Rate

MSMB

2.06%

1.71%

1.87%

0.19 p.p.

0.35 p.p.

Key Accounts

0.84%

0.82%

0.80%

0.04 p.p.

0.02 p.p.

MSMB Banking

Active Banking Client Base ('000)

509.9

491.5

237.4

114.8%

3.7%

Total Accounts Balance (R$mn)

1,972.7

1,953.3

614.5

221.0%

1.0%

Stone Card TPV (R$mn)

514.5

498.7

218.8

135.1%

3.2%

Insurance Clients ('000)

50.0

29.2

0.5

9846.5%

71.5%

Banking ARPAC3

33.3

25.3

11.8

183.0%

31.6%

MSMB Credit

Portfolio (R$mn)

722.2

1,201.6

1,900.6

(62.0%)

(39.9%)

Credit Clients ('000)

55.3

85.4

102.3

(46.0%)

(35.3%)

  • Total Revenue and Income for Financial Services segment in 1Q22 was R$1,721.3 million, a 107.8% increase year over year. This growth was mostly a result of our performance in the MSMB segment, with strong year over year TPV and client base growth, in addition to increasing take rates, as we successfully adjusted our pricing policy amid a higher interest rate environment in Brazil.
  • Adjusted EBT for Financial Services segment in 1Q22 was R$146.4 million, a decrease of 41.5% year over year, with a margin of 8.5% compared with 30.2% for the prior-year period. This margin variation is explained by higher cost of funds in our operation as a result of the higher base rate in the country. Compared with 4Q21, Adjusted EBT increased 4.2x, up from R$35.2 million, with adjusted EBT margins increasing from 2.3% in 4Q21 to 8.5% in 1Q22, mainly as a result of our new pricing policy and increased efficiency in Cost of Services, Administrative Expenses and Financial Expenses as a percentage of revenue.
  • ARPAC means average revenue per active client and considers our banking and insurance revenues divided by our active banking client base.

5

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StoneCo Ltd. published this content on 11 July 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 11 July 2022 14:03:04 UTC.