StoneCo Ltd. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 Achievements: Strengthened MSMB market leadership, enhanced client engagement, and scalable platform growth. Exceeded most 2024 targets except MSMB card TPV (which fell short due to PIX adoption).
• Fourth Quarter 2024: Adjusted EBT grew 22% YoY, adjusted net income up 18% YoY. Adjusted net margin 18.4% (up 1 pp YoY). Gross profit reached BRL1.7 billion (up 13% YoY).
• Capital Allocation: Reviewed capital structure, aiming to return excess capital to shareholders when value accretive growth opportunities are not immediate. Framework includes regulatory capital, credit ratings, and adjusted net cash position.

Segment Performance

• Payments Business for MSMBs: MSMB payments active client base grew 19% YoY to 4.1 million clients. MSMB TPV increased 21% YoY. Take rates rose 11 basis points YoY but saw a sequential soft reduction due to seasonality.
• Banking Performance: Banking active client base jumped 46% YoY to 3.1 million. Retail deposits closed 2024 at BRL8.7 billion (exceeding guidance), with time deposits surging 3.6-fold to BRL430 million.
• Credit Performance: Credit portfolio reached BRL1.2 billion, up 31% QoQ. NPLs over 90 days at 3.61%, coverage ratio at 331%.
• Software Segment: Software revenue grew 15% YoY. Cross-selling financial services to software clients increased CTPV overlap 20% YoY. Software adjusted EBITDA grew 54% YoY. A BRL3.6 billion goodwill impairment charge due to software asset reevaluation.

Guidance

• 2025: Simplified to adjusted gross profit (> BRL7.05 billion) and adjusted basic EPS (> BRL8.6 per share).
• Long-Term (2027): MSMB TPV > BRL670 billion, adjusted gross profit > BRL10.2 billion, adjusted basic EPS > BRL15 per share.

Risks

• Macroeconomic: Potential challenges in macroeconomic environment affecting business performance.
• Regulatory: Uncertainties around regulatory changes impacting credit and banking operations.
• Software Asset: Uncertainty around strategic alternatives for software assets and impacts of goodwill impairments.

Question and Answer

Q: On banking solution performance and room for improvement, and capital structure/dividends A: Banking growth driven by bundling and workflow solutions; excess capital returned via share buybacks, with future visibility on distribution via dividends or buybacks.

Q: Pricing repricing, EPS guidance vs diluted A: Repricing calibrated to yield curve; basic EPS chosen for less volatility and avoiding double counting in diluted share count.

Q: Software business sale, intrinsic value A: No offers met intrinsic value; focus on cross-selling and maximizing software asset value while continuing strategic reviews.

Q: Deposit funding rollout, capital ROE A: Deposit rollout incremental throughout 2025; excess capital framework in place with ROE driven by operational efficiency and capital structure optimization.

Q: Credit risk appetite, AI in operations A: Credit models adjusted for macro; AI used for quick operational efficiencies with long-term potential to disrupt business models.