StoneCo : Q2 2021 Earnings Release

2Q21 Earnings Release

August 30th, 2021 investors.stone.co

StoneCo Reports Second Quarter of 2021 Financial Results

George Town, Grand Cayman, August 30, 2021 - StoneCo Ltd. (Nasdaq: STNE) ("Stone" or the "Company"), a leading provider of financial technology solutions that empowers merchants to conduct commerce seamlessly across multiple channels, today reports its financial results for its second quarter ended June 30, 2021.

"Dear Shareholders,

Despite strong underlying growth in our core business and evolution of our strategic roadmap, we had some mixed results this quarter primarily driven by a challenging short-term scenario in our credit product, which was strongly affected by industry problems with the credit receivables registry system and the resulting actions we took to address them, which we discussed in our August 25, 2021 press release (New Dynamics of Registration of Receivables in Brazil).

Our core business is very strong. During the quarter we accelerated the growth of our SMB business, reaching over 1 million SMB clients and growing SMB TPV by 104% year over year. This accelerating growth was achieved with healthy unit economics, with TPV per client and revenue per client excluding credit both increasing quarter over quarter. Our TON product has moved from being an experiment and optionality to becoming a proven and high growth solution that added over 140,000 new clients in the quarter. Also, the engagement of our SMB clients within our digital banking platform showed a significant improvement in the quarter, with prepaid card TPV, banking money-in and money-out volumes, and total banking accounts balance all growing between 4 and 5.5 times. Overall, our consolidated Total Revenue and Income increased by 68% year over year when we exclude credit revenues.

Our credit business remains in the early stages and we made some mistakes in our execution, especially not foreseeing how the malfunctioning of the registry system could harm our business. So we decided to take a cautious approach and implemented some prudent actions, like temporarily stopping the disbursement of credit and increasing coverage for potential future losses, which impacted our reported results for the quarter. While conservative, we think this was the best course of action to try to deal with the issue head-on. We will wait for the system to be fixed, all parties to begin playing by the same rules and turnaround our execution before resuming our operations, which we think could take three to six months. We have learned a lot in the past two years of building our credit product and we remain very excited about the long-term opportunity and the material benefits to our clients.

Also, we closed the acquisition of Linx on July 1st, when we started managing the company. We remain very excited with the opportunity to integrate software, payments and financial solutions. We see Linx as a rare asset built over decades with very sticky client relationships and high switching costs. Linx has an unparalleled level of data from retailers that is very granular for each vertical, which we think we can use more aggressively to identify great cross-sellor up-sellopportunities. We see a number of avenues to create value with Linx and are focused on executing on the combination of the businesses.

We have continued to make sizeable investments in the growth of our business focused on areas such as technology, distribution and customer service operation. We believe that the incredible learnings from this quarter will take us to a new phase of our business. We are even more convinced of the opportunities ahead and we keep our devotion to making our clients happy and to the evolution of our team."

Thiago Piau, CEO

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Operating and Financial Highlights 2Q21

Total Payment Volume (TPV)

R$ 60.41 BN

Up 58.6% year over year, or R$58.6 billion excluding Coronavoucher, an increase of 62.7% year over year

Take Rate

0.91%

Impacted by R$397.2 million negative revenue contribution from credit product, mainly due to higher provision for losses.

Excluding credit, take rate was 1.57%, + 7bps2 year over year

Take Rate ex-Coronavoucher was 0.94%

Total Revenue and Income

R$613.4 MM

A decrease of 8.1% year over year, explained by R$397.2 million negative revenue contribution from credit, mainly due to adjustments in credit fair value and significantly lower credit disbursements. Total Revenue and Income excluding our credit product2 grew 68% year over year.

SMB Net Addition of Clients

188,0003

leading to an SMB Active Client base of 1.05 million2.

Adjusted Net Income

R$ (150.5) MM

Impacted by credit fair value adjustments, lower credit disbursement, strong investments in the operation and higher financial expenses

Adjusted EPS (diluted)

R$ (0.47) per share

Compared with R$0.54 in the prior year-period

Net Income

R$ 526.0 MM

With R$715.0 million post-tax contribution from mark-to-market from our investment in Banco Inter.

EPS (basic)

R$ 1.72 per share

Compared with R$0.46 in the prior year-period.

1. From 1Q21 onwards, reported TPV figures consider all volumes processed and settled by StoneCo. As a result, from 1Q21 onwards we have included volumes processed by Pagar.me PSP with acquirers other than Stone. This change added R$157 million to total TPV in the quarter, implying a 58.2% growth excluding those volumes, or 62.3% ex-Coronavoucher.
2. Comparison excluding revenue from credit product both from 2Q20 and 2Q21.
3. From 1Q21 onwards, reported Active Client Base includes clients from our PSP solution which were not previously included in our reported numbers. Please refer to the reconciliation of historical numbers from previous and current metric in our 1Q21 earnings release.

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2Q21 Operational and Strategic Evolution

SMB Financial Operating Platform

The fundamentals of our SMB business remain very strong, with accelerating TPV growth and record net addition of clients in the quarter. Our SMB business grew TPV by 104% in the second quarter of 2021 and considering a two-year CAGR to normalize for the effects of COVID-19 in overall volumes in 2020, TPV growth accelerated to 48% in the quarter, compared with 42% in the first quarter of 2021. In July, we saw volumes accelerating even further, with a 2-year CAGR of 58%.

Chart 1: SMB TPV (R$bn)

+103.5%

39.3 32.8

19.3

Chart 2: SMB TPV 2-year CAGR4

58%

	42%	48%
34%

19%

2Q20

1Q21

2Q21

2Q20	1Q21	2Q21 July-21	Overall
			Market
			2Q21	4

We also continue to see a strong increase in the SMB active client base. Total number of SMB payment clients increased from 857,800 to 1.05 million, with accelerating net addition of clients, which increased from 138,000 in the first quarter of 2021 to a historical record of 188,000 this quarter.

Chart 3: SMB Acquiring Clients and Net Adds ('000)

517.3

+21.9% 1,045.8

857.8

719.8

606.7

	2Q20	3Q20	4Q20	1Q21	2Q21
SMB Net Adds	2.6	89.4	113.1	138.0	188.0
('000)

The increase in the SMB client base resulted from 140,000 net adds from TON product and 47,300 from Stone and Pagar.me SMB products5. We saw acceleration in the growth of TON's client base, reaching 330,300 clients in the second quarter of 2021, compared with 190,300 in the previous quarter, with net adds increasing by 83% quarter over quarter. At the same time, Stone and Pagar.me SMB clients reached 717,600, compared with 670,300 for the first quarter of 2021, or a client net addition of 47,300. This figure was lower than the 62,400 client net addition reported in the first quarter of 2021 mainly because we are seeking to maximize unit economics of clients based on their profile and size while offering solutions that are best suited for each clients' need. These guidelines resulted in better unit economics for both Stone and TON, with higher

1. Data from Abecs.
2. Total net addition of clients may not add up due to differences in client overlaps within quarters.

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TPV and revenue per new client, as we moved the lower TPV clients' demand from Stone product to TON

product, while the hub operations targeted larger SMBs.

Chart 4: TON Acquiring Clients ('000)

+74%

330.3

190.3

35.2

Chart 5: SMB ex-TON Acquiring Clients ('000)

670.3717.6

482.9

2Q201Q212Q21

2Q20

1Q21

2Q21

Chart 6: TON Average TPV per Client (Indexed to 100)

Chart 7: Average TPV per SMB Active Client (ex-TON) (Indexed to 100)

258 226

141 100

100

150

119 129

2Q20

1Q21

2Q21

July-21

2Q20 1Q21 2Q21 July-21

Beyond payments, we have continued to grow the number of clients with our banking solutions. The number of active clients in banking increased 43% quarter over quarter, from 237,400 in the first quarter of 2021 to 340,100 in the second quarter, with activation increasing sequentially. Also, the number of clients settling their sales directly in their Stone account reached 272,6006, compared with 188,400 in the previous quarter. In TON and Pagar.me, all clients settle sales in the digital account.

Chart 8: Stone SMB Active Banking Clients ('000)

+43%

340.1

237.4

167.7

105.6

67.0

2Q20 3Q20 4Q20 1Q21 2Q21

Clients also continue to engage with different types of money-in and money-out transactions. Banking money-in volumes7, which do not include our acquiring TPV, grew by 4.4x year over year or almost 2x quarter over quarter to reach R$4.9 billion. Total accounts balance reached R$862.0 million, or 3.8x year over year. Banking money-out volumes8 grew 5.5x year over year to reach R$14.6 billion, while prepaid card TPV grew 4.4x over the same period to R$293.7 million.

1. Considers clients liquidating in our Stone Digital Banking account regardless of which acquirer is being used.
2. Includes Pix In, wiretransfers, boleto issuance and TPV from other acquirers.
3. Includes Pix Out, wiretransfers, bill payments, boletos paid, withdrawals, recharge and others.

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