StoneCo : Q1 2021 Earnings Release

1Q21 Earnings Release

June 1st, 2021 investors.stone.co

StoneCo Reports First Quarter of 2021 Financial Results

George Town, Grand Cayman, June 1, 2021 - StoneCo Ltd. (Nasdaq: STNE) ("Stone" or the "Company"), a leading provider of financial technology solutions that empower merchants to conduct commerce seamlessly across multiple channels, today reports its financial results for its first quarter ended March 31, 2021.

"Dear Shareholders,

As the pandemic unfolded in Brazil in the first quarter and up to May, we continued to work hard to stay close to our clients and bring to them the best service and solutions. We monitored their level of activity closely, as well as how vaccinations and economic activity evolved in Brazil and in other countries. Based on (i) our learnings with lockdowns last year, (ii) recent client transactional data and

1. learnings from the dynamics of countries where vaccines are widespread, we expect that once vaccination scale (which we think will happen in the second half of 2021), the economic recovery will be fast and - although delayed - Brazil is moving in the right direction. For these reasons, we have made an informed decision to be ready for recovery by investing in growth.

In the first quarter, we decided to increase our salesforce headcount by 24%, marketing investments by 33%, customer service and logistics headcount by 32% and technology headcount by 20%, in order to be the fastest player when our economy comes back to normal levels.

We have a high quality and solid core business in terms of growth, profitability and cash flow generation that continues to scale both in terms of client base, TPV and engagement of clients with new solutions, that we build on our new Financial Operating System for SMBs.

Our SMB core business presented strong growth metrics in the quarter and to date: our active payments clients in SMBs grew 67% in the quarter versus last year, achieving 857.8 thousand active clients. Additionally, 257 thousand clients are active in our digital account and of those, 188 thousand use it as their banking domicile, settling all of their transactions in the Stone Account. Overall SMB TPV grew 45% in the first quarter versus last year, with strong acceleration in the second quarter to date: TPV grew 122% in April and 111% in May up to May 20th. While April and May compare to weaker comps due to lockdowns in the second quarter of 2020, we still see strong growth acceleration when looking at a two-year CAGR, of 42% and 50% annual growth respectively in April and May to date.

In terms of revenue and profitability in our core SMB operation, our Take Rates decreased from 2.20% in the 1Q20 to 1.87% in the 1Q21, due to additional provisions on our credit product caused by commerce restrictions. Excluding these effects, we believe our Take Rates would have been 2.22%. Even though we have experienced R$116 million impact in revenue reduction, our credit portfolio grew and remains healthy, reaching a risk adjusted return net of funding costs between 1.5% and

1.9% on a monthly basis, notwithstanding the short-term impact from Covid. We continue to evolve in our strategy to fund our product with third party capital and thus limit our exposure to credit risk. We have recently concluded another issuance of FIDC, raising additional R$ 340mm in third party capital. In total, we now have available R$833mm in third party funding to be disbursed in our credit operation.

Regarding our vision and product evolution, we are building a Complete Financial Operating System for SMBs. In the past, we took the approach of building separate solutions as it was the best way to grow fast, learn about the market and gather client feedback. We have now decided to integrate our solution set and we have already migrated approximately 70% of Stone SMB client base to our new platform.

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Regarding our software strategy, we will continue to invest in and acquire brick and mortar POS/ERP solutions built by great people and focused on strategic verticals where we have great chances of (i) integrating our financial operating system and (ii) executing on the digitization of commerce in order to help our clients to sell online. The acquisition of Linx (which is still pending anti-trust approval) is a big step towards our vision and will broaden our vertical coverage as well as expand our set of digital solutions. Our current software solutions grew pro-forma revenue by 43% organically to R$55 million in the first quarter of 2021. If we consider the acquisition of Linx, our pro-forma revenue in the quarter would be R$286 million, or a R$1.1 Billion on an annualized basis.

By executing both on the Stone SMB core business and our software strategy we believe that we will be in a much stronger position to capture the evolution of the approximately BRL 4.7 Trillion GMV of household consumption. We seek to be the player that can best help our merchants to do business and reach consumers. To that extent, our investment in Banco Inter and the commercial partnerships that we intend to build will be very accretive in terms of learning and new experiences.

We remain confident in our core business and excited with our future growth and opportunities. We will continue our efforts to be a protagonist in the financial and commerce revolution of our country, finding the best people we can and serving our client with maximum care and devotion.

Thank you for your support!"

Thiago Piau, CEO

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Operating and Financial Highlights 1Q21

Total Payment Volume (TPV)

R$ 51.01 BN

Up 35.5% year over year, or R$50.8 billion excluding Coronavoucher, an increase of 34.9%

Take Rate ex-Coronavoucher

1.63%

Broadly in line with the fourth quarter, despite

R$115.8 million impact from higher credit provisions and COVID-related financial incentives to clients; Reported Take Rate was 1.62%

Total Revenue and Income

R$867.7 MM

An increase of 21.1% year over year, despite R$115.8 million impact from higher credit provisions and COVID-related financial incentives to clients

Net Addition of Clients (ex-TON)

60,2002

leading to a Total Active Client base of 722,3002 (excluding TON). TON reached 190,300 clients in the quarter adding 76,600 in the period

Adjusted Net Income

R$ 187.4 MM

Up 15.5% year over year, despite higher level of investments and revenue impacts from higher credit provisions and financial incentives to clients

Adjusted EPS (diluted)

R$ 0.60 per share

An increase of 3.3% year over year

Net Income

R$ 158.3 MM

In line year over year, with Net Margin of 18.2%

EPS (basic)

R$ 0.51 per share

10.7% lower year over year

1. From 1Q21 onwards, reported TPV figures consider all volumes processed and settled by StoneCo. As a result, in 1Q21 we have included volumes processed by Pagar.me PSP with acquirers other than Stone. This change added R$160 million to total TPV in the quarter, implying a 35.1% growth excluding those volumes, or 34.5% ex-Coronavoucher.
2. From 1Q21 onwards, reported Active Client Base includes clients from our PSP solution which were not previously included in our reported numbers. PSP clients that were included in our client base totaled 10,600 in 1Q21. Please refer to the reconciliation of historical numbers from previous and current metric on page 13.

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1Q21 Key Highlights

In the first quarter of 2021, the second wave of the COVID-19pandemic in Brazilresulted in different commerce restrictions among the many Brazilian cities, imposing a more challenging scenario for our clients and commerce as a whole. Despite this fact, when we look at (i) the recovery patterns from the first COVID wave last year, (ii) current data trends from our clients and (iii) the commerce dynamics in other countries where vaccination is more advanced, we believe that once vaccination scales in Brazil, commerce activity will normalize, and our country's economic recovery will be fast.

Based on that and on the strength of our business, differently from last year, we have decided to keep increasing investments in growth, so we can be ready to take full advantage of economic recovery once commerce restrictions ease in Brazil. Some examples of investments we have made in the quarter are as follows:

• We continued to increase our distribution capacity, growing our salesforce headcount by 24% and our marketing investments by 33% quarter over quarter;
• We increased our investments in technology and infrastructure to support the strong growth of our business ahead of us, growing our technology team by 20% compared to the previous quarter; and
• We have expanded our client service operation, growing our customer service and logistics teams by 32% quarter over quarter.

Our SMB business continues to grow fast and consistently. This quarter was marked by strong growth in the core and continued engagement in our platform, despite short term impacts from COVID-19:

1. We continue to grow our base of clients among the different solutions that we offer. We added 62,400 SMB clients (ex-TON) in the quarter and increased TON's client base by 76,600 clients. This represents a record net addition of 138,000 unique clients in the quarter. The number of clients active in our credit solution reached 102,300 (+15% q/q) and the number of active digital accounts reached 237,400 (+42% q/q), of which 188,400 already use the Stone Account as their main settlement account.
2. Combining our SMB operations (both Stone and Pagar.me) with our micromerchant solution under TON, our TPV grew 45.0% year over year, higher than the growth reported one year ago, and a similar level to the fourth quarter of 2020. We have seen a strong recovery in terms of volumes since the second COVID wave low in March, with TPV per client in our Stone SMBs in May/21 higher than in the beginning of the year and prior to the second wave. The 45% growth in TPV of our SMB+micro operations in the first quarter of 2021 has accelerated to 122% in April and 111% in May up to May 20th. Looking at a two-year CAGR to normalize the effect from a weaker 2020 April, we see accelerating growth in May, at a two-year CAGR of 50%, as shown below.

Chart 1: SMB3 + Micro TPV y/y growth

122%

111%

45%

1Q21

Apr-21

May-21 TD (20-May)

Chart 2: SMB + Micro TPV 2-Year CAGR

		50%
42%	42%
1Q21	Apr-21	May-21 TD (20-May)

3 Includes both Stone and Pagar.me SMBs.

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