StoneCo Ltd. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Payment: Encouraging trends in MSMB payments with 20% YOY growth in TPV and a record take rate.
• Banking: Focus on client engagement with demand deposits up, and savings product showing positive early results.
• Credit: Credit portfolio exceeded guidance, NPLs under control, and provisions aligning with expected losses.
• Efficiency: EBITDA margin increased 1.6 percentage points sequentially to over 18%. Adjusted administrative expenses down 7% year-to-date. Nearly completed 1 billion share repurchase program.
• Capital Allocation: Evaluating options to maximize shareholder value, with excess capital and work on a capital distribution framework.

Segment Performance

• Financial Service Segment:
  • Payment: MSMB total payment volume grew 20% year-over-year to BRL114 billion, serving 4 million clients. Take rate reached a record 2.58%. Card TPV growth among software clients exceeded twice MSMB volumes quarter-over-quarter.
  • Banking: Demand deposits amounted to BRL6.7 billion, a 50% increase year-over-year. Total deposits reached BRL6.8 billion, 53% higher year-over-year. On-platform time deposits from savings products and off-platform time deposits at BRL1.7 billion.
  • Credit: Credit portfolio was BRL923 million, a nearly 30% quarter-over-quarter growth, surpassing annual guidance. NPL 90 days for Merchant Solutions was 3.7%. Provisions reduced to near zero as expected credit losses converged.
  • Revenue: Financial services revenue was BRL3 billion, 8% higher year-over-year, with an EBT margin of 22.8%.
• Software Segment: Cross-selling financial services to software clients led to Card TPV of BRL5.8 billion, growing more than twice MSMB Card TPV quarter-over-quarter. Software revenues grew 2.5% sequentially, with adjusted EBITDA BRL72 million and a margin of 18.3%.

Guidance

• Financial: Well-positioned to meet 2024 guidance despite share buyback, membership fee changes, and macroeconomic headwinds.
• Operating: Credit portfolio met guidance, banking evolving as expected. Payment TPV growth impacting CTPV, prioritizing profitability over short-term growth.
• Industry: Brazilian market has growth opportunities with PIX expanding, focusing on monetization and client engagement.

Risks

• Macroeconomic: Unexpected yield curve rise affecting P&L.
• Competition: Potential pricing pressures in PIX market.
• Software Business: Uncertainty around potential sale of software asset and its impact on cross-selling.

Question and Answer

Q: Tito Labarta on TPV and provisioning A: Lia Matos discussed PIX cannibalizing debit volumes but being accretive. Mateus Scherer explained provisioning converging to expected losses.

Q: Daniel Vaz on Card TPV 2025 A: Lia Matos said PIX shift is accretive and will factor into 2025 guidance. Mateus Scherer on pricing dynamics.

Q: Mario Pierry on take rate and credit card A: Mateus Scherer on take rate increase from repricing. Lia Matos on scaling credit card product for micro segment.

Q: Neha Agarwala on PIX and NPLs A: Lia Matos on PIX monetization, Mateus Scherer on expected credit losses vs peers.

Q: Guilherme Grespan on capital allocation A: Mateus Scherer on capital structure, Pedro Zinner on management KPI alignment.

Q: Renato Meloni on software sale and tax rate A: Pedro Zinner on software strategy, Mateus Scherer on tax rate range.

Q: Kaio Da Prato on TPV and capital allocation A: Lia Matos on TPV long-term dynamics, Mateus Scherer on software sale use of proceeds.

Q: John Coffey on SELIC impact on pricing A: Mateus Scherer on dynamic pricing and repricing due to rising rates.