TOTVS S A : 2T22 - Demonstrações Financeiras em Padrões Internacionais - Versão Inglês

TOTVS S.A.

Condensed individual and consolidated Interim Financial Statements as of and for the three and six-months periods ended June 30, 2022

(A free translation of the original in Portuguese)

Contents
Consolidated Operating and Financial Performance	3
Report on review of the interim financial information	15
Condensed Individual and Consolidated Statement of Financial Position	17
Condensed Individual and Consolidated Statements of Profit or Loss	18
Condensed Individual and Consolidated Statements of Comprehensive Income	19
Condensed Individual and Consolidated Statements of Changes in Shareholders' Equity	20
Condensed Individual and Consolidated Statement of Cash Flows	21
Condensed Individual and Consolidated Statements of Value Added	22
Notes to the Condensed Individual and Consolidated Interim Financial Statements	23
The Company and its operations	23
Basis of preparation and presentation of the interim financial information	23
Business combination	26
Techfin Dimension	29
Financial instruments and sensitivity analysis of financial assets and liabilities	31
Cash and cash equivalents	37
Financial investments	38
Trade and other receivables	38
Recoverable taxes	39
Income taxes	39
Related party balances and transactions	41
Other assets	42
Equity-accounted investees	43
Property, plant and equipment	44
Intangible assets and Goodwill	46
Labor liabilities	48
Taxes and contributions liabilities	49
Loans and lease liabilities	49
Debentures	51
Accounts payable from acquisition of subsidiaries	52
Provision for contingencies	53
Shareholders' equity	55
Dividends and Interest on shareholders' equity	56
Share-based compensation plan	56
Operating Segments	57
Earnings per share	59
Gross sales revenue	60
Costs and expenses by nature	61
Finance income and expenses	61
Private pension plan - defined contribution	62
Insurance coverage	62
Subsequent events	62

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(A free translation of the original in Portuguese)

Consolidated Operating and Financial Performance

Consolidated Result (in R$ thousand)	2Q22	2Q21	∆		1Q22	∆		1H22	1H21	∆
Net Revenue	914,571	702,431	30.2%		898,507	1.8%		1,813,078	1,367,073	32.6%
Management Revenue	838,996	678,854	23.6%	828,666	1.2%		1,667,662	1,339,119	24.5%
Business Performance Revenue	75,575	23,577	220.5%	69,841	8.2%		145,416	27,954	420.2%
Consolidated Contribution Margin	485,889	372,874	30.3%		483,920	0.4%		969,809	733,836	32.2%
Management Contribution Margin	449,345	360,853	24.5%	450,619	(0.3%)		899,964	720,316	24.9%
Biz Performance Contribution Margin	36,544	12,021	204.0%	33,301	9.7%		69,845	13,520	416.6%
% Consolidated Contribution Margin	53.1%	53.1%	0 bp		53.9%	-80 bp		53.5%	53.7%	-20 bp
% Management Contribution Margin	53.6%	53.2%	40 bp	54.4%	-80 bp		54.0%	53.8%	20 bp
% Biz Performance Contribution Margin	48.4%	51.0%	-260 bp	47.7%	70 bp		48.0%	48.4%	-40 bp
Sales and Marketing Expenses	(180,716)	(131,657)	37.3%	(176,650)	2.3%		(357,366)	(254,057)	40.7%
Adjusted G&A Expenses	(84,589)	(64,872)	30.4%	(88,817)	(4.8%)		(173,406)	(126,476)	37.1%
Equity Pickup	-	(564)	(100.0%)	7	(100.0%)		7	(564)	(101.2%)
Adjusted EBITDA	220,584	175,781	25.5%		218,460	1.0%		439,044	352,739	24.5%
Adjusted EBITDA Margin	24.1%	25.0%	-90 bp	24.3%	-20 bp		24.2%	25.8%	-160 bp

Net Revenue

Consolidated Net Revenue grew 30% in 2Q22 when compared with the same period of the previous year, being worth highlighting: (i) 27% growth in Recurring Management revenue, driven by a 37% growth in SaaS revenues;

1. consolidation of RD Station as of June 2021 on the Business Performance dimension, which results in a 8.2% organic growth if compared to the frst quarter of the year.

It is worth emphasizing that the consolidated net addition of ARR (Annualized Recurring Revenue) was again above R$200 million, with a record-breaking contribution of adding Business Performance.

Adjusted EBITDA

Adjusted EBITDA closed the quarter at R$221 million, overcoming the earning result in 1Q22, even without the record-braking positive effect of R$36.6 million of revenue from the 1Q22 Corporate Model License increase versus and with a partial dilution of the almost 2.3 times greater impact of collective bargaining agreement in 1Q22, while the impact of the adjustment for infation on revenue occurs more linearly. This Margin performance was mainly due to: (i) the increase of 70 basis points of the Business Performance Contribution Margin; and (ii) the reduction of Administrative and Other Expenses, which is a pace slower than that of the consolidated Net Revenue growth.

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(A free translation of the original in Portuguese)

Management dimension results

The Management dimension is composed largely of the vision called until 1Q21 as "Technology Earnings", excluding the solutions that have become part of the Business Performance dimension and the new Techfn products.

The earnings from the Management Dimension for this quarter refect the incorporation of the Gesplan and Vadu numbers as of April.

Management Result (in R$ thousand)	2Q22	2Q21	∆		1Q22	∆		1H22	1H21	∆
Net Revenue	838,996	678,854	23.6%		828,666	1.2%		1,667,662	1,339,119	24.5%
Recurring	713,401	559,861	27.4%	676,630	5.4%		1,390,031	1,094,292	27.0%
Non Recurring	125,595	118,993	5.5%	152,036	(17.4%)		277,631	244,827	13.4%
License	44,526	46,419	(4.1%)	80,751	(44.9%)		125,277	105,541	18.7%
Services	81,069	72,574	11.7%	71,285	13.7%		152,354	139,286	9.4%
Costs	(239,559)	(193,869)	23.6%	(231,257)	3.6%		(470,816)	(376,751)	25.0%
Gross Profit	599,437	484,985	23.6%		597,409	0.3%		1,196,846	962,368	24.4%
Gross Margin	71.4%	71.4%	0 bp	72.1%	-70 bp		71.8%	71.9%	-10 bp
Research and Development	(145,424)	(119,466)	21.7%	(140,126)	3.8%		(285,550)	(232,530)	22.8%
Provision for Expected Credit Losses	(4,668)	(4,666)	0.0%	(6,664)	(30.0%)		(11,332)	(9,522)	19.0%
Management Contribution Margin	449,345	360,853	24.5%		450,619	(0.3%)		899,964	720,316	24.9%
% Management Contribution Margin	53.6%	53.2%	40 bp	54.4%	-80 bp		54.0%	53.8%	20 bp

Net Revenue

Net Revenue from Management grew 24% year-over-year in 2Q22, driven by the 27% growth in Recurring Revenue, especially in the Education, Construction, and Projects and Distribution segments. Recurring Revenue represented 85% of the Net Revenue from Management, which is the highest level of quarterly recurrence ever recorded in this dimension.

Compared with 1Q22, Net Revenue from Management grew 1.2%, even with a 45% seasonal reduction in revenues from Licenses in the period.

Recurring Revenue

Recurring Revenue kept the pace of a 27% growth when compared with the same quarter of the previous year, and 5.4% quarter-over-quarter. This performance was due mainly to: (i) the increase in sales, especially SaaS, which will be addressed later; (ii) Pricing Power (capacity to adjust for infation); (iii) the high renewal rate; and (iv) the consolidation of Gesplan and Vadu's earnings as of April 2022.

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(A free translation of the original in Portuguese)

Revenue from SaaS Gestão, as noted in the previous graph, continued to accelerate and grew 37% in 2Q22, compared with 2Q21, because of the combination of the following elements: (i) 48% growth in Cloud; (ii) new SaaS signings, which grew 29%; (iii) contractual adjustments for the period; and (iv) maintenance of low churn levels.

As provided in the chart on the right, the Annualized Recurring Revenue (ARR) of Management reached R$3.3 billion, which translates into a net addition of R$214.3 million in the quarter, of which R$28.6 million refers to the consolidation of Gesplan and Vadu, and R$185.8 million of organic addition.

In the year-over-year comparison, the organic net addition of ARR in 2Q22 increased 56%, with emphasis on the growth in the Sales Volume ("signings"), which represented 72% of the gross addition of ARR, compared with 65% in 2Q21. The Price effect, due to the adjustment of contracts for infation, represented 28% of the gross addition of the ARR, which means a reduction of 7 percentage points when compared with 1Q22.

As shown in the chart, the Sales Volume line has been increasing its share in the gross addition of ARR. This behavior can be observed even excluding the effects of the Corporate model in 1Q21 and 1Q22, with the adjusted Volume growing from an LTM (last 12 months) level of 62% in 2Q21 to 67% in 1Q22, and 70% in 2Q22. This effect shows that, even with the Price component returning to absolute levels similar to those observed in 2Q21, with a natural trend of reduction in the contribution due to the fall in infation rates and the Renewal Rate having a slight reduction versus the record level of 1Q22, the growth in Volume allowed the Company to deliver a much higher Net Addition year-over-year. As already mentioned in previous quarters, the growth of the Sales Volume component refects initiatives implemented by the Company that resulted in: (i) the increase in productivity and effciency of

sales distribution; (ii) the improvement of quality and NPS; (iii) the increase in the portfolio; and (iv) the reduction in the total cost of ownership for clients.

In the quarter-over-quarter comparison, the organic net addition of ex-corporate ARR decreased by 5.2%, even with new progress in the volume of signings and with relative stability in the effect of the updating of contract prices, due to the natural fuctuation in the Renewal Rate. It is worth highlighting that this behavior had been already seen in previous periods and within the average level of the last 12 months, which did not change the trend of keeping high Renewal Rate levels seen in the comparison between 1H22 versus 1H21.

Non-Recurring Revenue

Non-Recurring Revenue increased 5.5% in 2Q22 when compared with 2Q21, mainly due to the seasonal growth of 11% in Service revenue.

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