STNE - StoneCo Ltd.

Operator: Good evening, everyone. Thank you for standing by. Welcome to StoneCo's Third Quarter 2025 Earnings Conference Call. By now, everyone should have access to our earnings release. The company also posted a presentation to go along with its call. All material can be found online at investors.stone.co. Before we begin the call, I advise you to review the disclaimer included in the press release and presentation, which outlines important information about forward-looking statements and non-IFRS financial measures. In addition, many of the risks regarding the business are disclosed in the company's Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov. [Operator Instructions] Joining the call today is Stone's CEO, Pedro Zinner; the CFO and IRO, Mateus Scherer; the Strategy and Marketing Officer, Lia Matos; and the Head of IR, Roberta Noronha. I would now like to turn the conference over to your host, Pedro Zinner. Please proceed. Pedro Zinner: Thank you, operator, and good evening, everyone. I'd like to start with a brief update on our key performance metrics and our capital allocation strategy. In the third quarter, we continue to make solid progress toward our 2025 objectives, even in a more challenging macro environment. Our adjusted gross profit grew 15.2% year-to-date despite our ongoing share buyback program, which has had some impact on this metric. Meanwhile, for the first 9 months of 2025, our adjusted basic EPS reached BRL 6.9 per share, up 37% year-to-date, keeping us well on track to meet our full year target. Despite external headwinds, our team is performing with discipline and focus, delivering consistent value to our clients and shareholders. Turning to capital allocation. We have maintained a disciplined approach to returning capital to shareholders through our share buybacks. In the last 12 months, we have returned BRL 2.8 billion to shareholders, about 10% yield for the period. Building on the BRL 3 billion in excess capital we identified last year, I'm pleased to report that by the end of October, we had already returned 74% of that amount to investors. This underscores our commitment to return excess capital through buybacks or dividends when we don't have immediate value-accretive investment opportunities. Our goal remains the same, exercise financial prudence while maximizing long-term value creation for our clients and shareholders. With that, I'll now hand it over to Lia for a closer look at our quarterly numbers. Lia, please go ahead. Lia de Matos: Thank you, Pedro, and good evening, everyone. Starting on Slide 4, we dive into our consolidated bottom line and return on equity results. We are pleased to see another quarter of consistent performance towards our goals despite a continued challenging macro environment. Our adjusted net income grew 18% year-over-year with a 13% increase in continuing operations. This performance was driven by 3 key factors. The first one relates to the successful adjustment to our pricing policy implemented earlier this year, which helped offset the impact of higher interest rates in the country. Second, the strategic use of client deposits as a funding source helped improve efficiency by lowering our average funding spreads. And third, a lower effective tax rate compared to the same period last year also contributed to the results. These effects were partially offset by our decision to more evenly distribute marketing expenses this year, which negatively affected the year-over-year comparison. Our adjusted basic EPS reached BRL 2.57 per share, growing 31% year-over-year. The above net income growth was supported by continued execution in our share buyback program. Regarding returns, our ROE continued to expand sequentially. Consolidated ROE expanded 8 percentage points year-over-year to 24%, while Financial Services ROE from continuing operations increased 4 percentage points over the same period to reach 33% in the quarter. Now let's detail our continuing operation’s top line performance on Slide 5. Total revenue and income grew 16% year-over-year, reaching BRL 3.6 billion, driven by continued solid execution in our core business. Importantly, this growth was achieved despite lower floating revenues as we began deploying client deposits as a funding alternative in our operations starting earlier this year. While this strategy naturally reduces floating revenues, it generates savings in financial expenses, reinforcing the strength of our funding model. Our adjusted gross profit from continuing operations was BRL 1.6 billion in the quarter, growing 12% year-over-year. This growth was largely aligned with TPV as higher revenues were partially offset by increased financial expenses driven by the higher CDI rates. On Slide 6, we highlight our operating metrics, beginning with our payments business for MSMBs. Our active client base grew 17% year-over-year, reaching 4.7 million clients with 38% classified as heavy users, leveraging more than 3 of the solutions we offer. This demonstrates not only growth in the scale, but also the engagement across our product ecosystem. MSMB TPV grew 11% year-over-year in the third quarter, reaching BRL 126 billion. Such growth comes from a combination of a 49% growth in PIX QR code volumes, which continues to outpace card TPV and capture share from debit transactions and the 6% growth in card volumes. Compared to the previous quarter, the yearly growth showed a slight deceleration reflecting a more challenging macro environment and softer same-store sales among our clients, trends that are persisting in the fourth quarter, and we're monitoring carefully. On Slide 7, we highlight the performance of our banking operation. We're pleased to report continued growth in our active client base, which increased 22% year-over-year, reaching 3.5 million clients. This sustained expansion reflects both strong client acquisition and the evolution of our payments and banking bundle offers. Client deposits grew 32% year-over-year and 2% quarter-over-quarter, reaching BRL 9 billion during the period. While we observed a slight decline in our deposit base relative to MSMB TPV from 7.2% in the second quarter to 7.1% in the third quarter, this primarily reflects daily seasonality driven by clients' cash out obligations, and we saw a quick rebound on the days that followed. Viewed from another perspective, the average daily deposit base increased 40% year-over-year and 6% quarter-over-quarter, expanding relative to TPV. The composition of deposits in the quarter moved slightly towards more time deposits, which now accounts for 84% of total deposits, slightly up from 83% in the previous quarter. This growth underscores increased adoption of our investment solution, leading to a higher engagement with our banking features. Now turning to Slide 8. We review the evolution of our credit operation. In the quarter, we observed an acceleration in portfolio growth, combined with disciplined asset quality and in strict alignment with our risk appetite statement parameters. The total credit portfolio grew 27% sequentially, accelerating compared to the previous quarter and reaching BRL 2.3 billion. Of this, BRL 2.1 billion is attributable to our merchant solutions, primarily working capital financing for MSMBs, which grew 28% quarter-over-quarter. Additionally, just over BRL 200 million relates to credit cards, which increased 18% over the same period. Despite the acceleration in portfolio growth, our credit quality remains strong. NPLs 15 to 90 days reached 3.12%, while NPLs over 90 days stood at 5.03%. The rise in NPLs over 90 days reflects the natural maturation of the portfolio, whereas increase in NPLs 15 to 90 days was primarily due to specific client payment delay, which has already normalized in the fourth quarter. As you may recall, in the second quarter, we made a deliberate decision to increase coverage ratio levels in response to the weaker macro outlook. With no additional adjustments required this quarter, the coverage ratio declined slightly to 265%, yet remaining at a conservative level. Similarly, our cost of risk, which reflects provisions recorded during the quarter, decreased from 20.2% to 16.8% sequentially, staying within the expected mid-teens range and reflecting disciplined risk management. Following the provision adjustments in Q2, we implemented corresponding pricing changes. This ensures a disciplined balance between risk and return while supporting sustainable growth. As you can see in the slide, the average monthly credit rate was 2.9% in Q3, up from 2.7% in Q2. The metric is calculated by dividing the credit revenues by the average credit portfolio. However, the result is significantly impacted by product mix as the inclusion of nonfinance credit card portfolio and higher growth in specialized debt disbursements can dilute the rates. In summary, I'm pleased with how our company has evolved and remained resilient despite ongoing macroeconomic headwinds. We continue to execute with focus on our clients, confident that there are multiple opportunities to help them grow further and manage their business in a more seamless and effective way. Now I want to pass it over to Mateus, who will discuss our financial performance in more detail. Mateus? Mateus Schwening: Thank you, Lia, and good evening, everyone. Let's discuss our adjusted consolidated P&L for continuing operations, which is shown on Slide 9. Our cost of services increased 12% year-over-year, decreasing 90 basis points as a percentage of revenues. This reduction reflects the combination of efficiency gains in logistics, lower transaction and technology costs and lower provision for acquiring losses, which were partially offset by higher loan loss provisions in the period. Administrative expenses increased 7% year-over-year, resulting in a reduction of 50 basis points as a percentage of revenues, driven by continued operating leverage across our support functions. Selling expenses increased 21% year-over-year, increasing 50 basis points relative to revenues. This reflects a more evenly distributed marketing spend in 2025 compared to last year, when they were skewed towards the first half of the year given the strong investments in sponsoring a specific reality show. Financial expenses increased 28% year-over-year, representing a 280 basis points increase as a percentage of revenues. This was largely due to a higher average CDI rate year-over-year, which was partially mitigated by increased use of client deposits as a lower cost funding source, which intensified since the end of the first quarter. Lastly, I would just like to remind that the execution of our capital distribution strategy negatively affects our financial expenses. Other expenses increased 2% year-over-year and reduced 40 basis points relative to revenues, which was mainly due to an increase in gains related to the sale of POS. Our effective tax rate was 15.3% in the quarter, down from 18.6% in the third quarter of '24. The year-over-year decrease was primarily driven by an intragroup interest on equity operation and higher benefits from Lei do Bem. Moving to Slide 10. Our adjusted net cash position ended the quarter at BRL 3.5 billion, decreasing BRL 140 million sequentially despite BRL 465 million in share buybacks executed in the quarter. Excluding these buybacks, adjusted net cash would have increased by BRL 325 million. Once again, I want to thank you all for your time and continued support. Our focus remains on executing our strategy effectively and in a value-accretive manner while listening closely to our clients, meeting their needs and ultimately creating long-term value for our shareholders. With that said, we are now ready to open the call to questions. Operator: [Operator Instructions] Our first question comes from Kaio Prato with UBS. Kaio Penso Da Prato: I have 2 on my side, please. First, on your prepayment business, would you say that you are at the all-time high level of spreads in the business post the pricing adjustments now? And how do you see the sustainability of this level going forward, given the current competitive scenario and the potential beginning of the cycle? So, this is the first. And then my second, which is also linked. Looking forward, what do you think are the main drivers for earnings growth of the company apart from the policy rates that should be a clear support. So, what do you think should be the main source of growth? Is this an acceleration in credit growth? Is this efficiency or any other initiatives? You can help us understand what should be the drivers for 2026, given the slowdown also on TPV that we are seeing, except from the policy rates would be good. Mateus Schwening: [Audio Gap] overall gross profit. But in terms of pricing specifically, I think what we did successfully was to pass through the increase in interest rates, but I don't think we are at the all-time high spreads. The second question around earnings growth levers… Lia de Matos: Kaio, can you hear us? Kaio Penso Da Prato: Now I can hear you, but I think we missed the answer. Lia de Matos: Oh okay. Sorry, we just got noticed that you weren't hearing. I think maybe Mateus... Mateus Schwening: Can you hear me well? Lia de Matos: Worth replaying the answer. Kaio Penso Da Prato: Yes. Now I can hear you. If you can repeat, please. Mateus Schwening: Okay. Sorry for that. Let me replay the answer. So, the first one around prepayments and pricing. I would not agree with you that we are at the all-time high spreads. I think when we look at the gross profit yield, so gross profit as a percentage of TPV, it is higher than it was in the past at 1.26% for the third Q '25 versus, for example, 1.21% in the beginning of '24. But that increase has been mostly due to the increased penetration of banking and credit over time and not a result of prices on prepayments on a stand-alone basis. And I think this is consistent with the overall strategy. I think what we did quite well was indeed to pass through the increase in interest rates that we saw in the country. But I wouldn't say it's all-time high. I think when we look at spreads, we think that they are at a healthy level. And then in terms of earnings growth levers for next year, I think we've been growing especially the credit portfolio in a pretty good pace according to the plan. But when you look at the contribution for credit in the P&L now in '25, it is still quite small because whenever we grow the portfolio, we upfront the provisions. Now as we go into 2026, I think probably credit is going to be of a larger contribution to the overall P&L, simply as a result of maturing the offering and having a much higher base to start with. And other than that, I think OpEx in general is something that we are paying special attention given the weaker macro environment. So, we feel that there may be some levers in terms of OpEx management to boost earnings growth in 2026 as well. Operator: Our next question comes from Guilherme Grespan with JP Morgan. Guilherme Grespan: My question is going to be on the payments TPV and environment. I know this is basically a common question in every call, but we have been seeing a deceleration on part of the volumes, and we see some players starting to come up more hitting the tape. To mention a few, we have iFood going after, I think, a very important part of your base, which is restaurants. We have BTG launching [ acquiring ]. We have smaller players such as CloudWalk also appear a little bit more. So, my question to you is how you're sensing the competitive environment in your base, if you're feeling is there any specific player being an aggressor here? And how do you see the pricing trends going forward? Because the rate that Kaio mentioned, I think it's been postponed a little bit, the potential tailwind coming from the funding cost. So, I wonder just to check if you see any environment for the spreads in the business to stay where they are or even increase in the next 6 months? Lia de Matos: Thank you, Guilherme. Let me start maybe elaborating a little bit on market share and TPV dynamics and then pass it over to Mateus to talk a little bit about thoughts on pricing. So -- we still have to wait for the official ABECS numbers, right? But in our view, the third quarter should be roughly stable in terms of market share. In the second quarter, we did see a bigger market share loss as a result of our decision to reprice, as we've said before. This was sort of a onetime effect as we see it, in the quarter. We expect this to stabilize somewhat in the third quarter. And we reinstate that this decision was accretive overall for the business. That said, when we look ahead in terms of TPV growth, we continue to see gradual deceleration, and this is primarily a reflection of industry dynamics, meaning industry itself decelerating, but also a weaker macro environment, which we expect to impact more the smaller clients within our base, right? So, I think that's the message regarding market share and TPV dynamics. But looking ahead, we remain confident in our ability to continue to evolve in our plan consistently, like Mateus mentioned, more and more, we expect credit to be a driver of profitability and growth looking forward. And we're not with the sole purpose of pursuing market share at any cost. So, profitability remains our priority. And the path forward is not -- it's not simply through pricing adjustments, right? It should be through enhancing our value proposition to clients, evolving on our product offerings, scaling credit, evolving on our bundling strategy and really making sure that we can consistently win clients within the segment overall, in line with our strategic priority. Mateus Schwening: And if I may add and then talk also about pricing, I think you mentioned other new players or new entrants in the market. I think we've seen these kinds of movements before, players bringing new offerings or expanding their sales footprint. They tend to come in waves. At any given point in time, there's always someone trying something new in the market, and I think this is normal. That said, when you look at the actual economics behind these new players or new initiatives, it seems that overall players remain rational, and I don't see anyone pursuing growth at any cost. That said, when we talk about rate cuts, I think we've been vocal about this a couple of times, which is short term, for sure, there is a positive impact to us. Every 100 basis point cut in interest rates, there's a positive benefit of around BRL 200 million to BRL 250 million in EBT. But in terms of overall spreads, I don't think it's reasonable to assume that we're going to keep the benefit from interest rates long term. I think it's a matter of timing, how long we can keep these prices until we pass it through. So, I think the message here is, yes, there's going to be a positive impact 2026 if rates goes down. I don't think we should assume that we're going to be able to keep those spreads longer term. I think overall, the level of spreads are healthy in our view. Operator: Our next question comes from Renato Meloni with Autonomous Research. [Technical Difficulty] I believe we are having some technical issues with Renato. I'm going to go with Eduardo Rosman with BTG. Eduardo Rosman: My question, I think, would be to Pedro, right? Where do you believe the company stands in the organizational redesign, right? I think you've been highlighting over the last few quarters that the goal is to be like a stronger unified brand and product offering with a more kind of a team-oriented culture and trying to build like a truly kind of a customer-centric mindset. How do you feel about the progress so far on that front? Pedro Zinner: Rosman, thank you for the question. I think this is -- I think we evolved a lot. I think as you mentioned, we made a big shift from a kind of a BU organization, very much silo-centric in some ways to a fully functional organization as we have as of today, right? I think this is really helping us in terms of setting the strategy from a bundle perspective and how we actually put this bundle offering into our clients in the best way for them and for the company. So, I think in a nutshell, I think we are almost there. I think there are some pain points that we have to adjust over time. But in a nutshell, I think we are in the right direction. Operator: Our next question comes from Antonio Ruette with Bank of America. Antonio Gregorin Ruette: So, I have 2 questions on my side. So, first on credit, you mentioned that now your credit product is more mature and it should start to represent more on your P&L. So, if you look at your portfolio today, do you have a better estimate on what should be your cost of risk, your NPL and your ideal coverage ratio now that you have a better sense of what your portfolio should be? Also, I have a second question on your revenue composition. If you look at your accounting statement, you can see like revenues for transactions declining over 20% and revenues for the financial income growing more than 30%. I understand here that there is an allocation that you can do between these 2 revenues in terms of prepayment and MDR. But -- and the ideal answer here would be -- would look at both together. But if you were to split, what would explain the movements? If you could go through them, it would be great. Mateus Schwening: Thanks for the question, Antonio. So, let's just start with credit first. In terms of cost of risk, I think the expectation is that they should remain in the mid-teens going forward. I think we've mentioned this before, but part of the impact that we saw in second Q '25 was retroactive, movement that we did due to macro and now it's normalized in third Q '25. That said, when we look ahead, we do expect cost of risk to stay above the levels we had in the first quarter of '25 due to the macro-driven updates we did in our credit models. So that's the expectation on that end. In terms of NPLs, I think the answer is actually dependent on the rate of growth for the portfolio. When we look at the expected credit losses that we have for the product, they should be in the very high singles or either very low double digits. When you look at the NPL metric, it now stands at around 5%. But the main reason for that is because we have still a lot of vintages that are not fully mature, right? The portfolio is still growing. So, as we mature, NPL over 90s, they should continue to grow probably towards that very high single-digit mark. But in terms of targets, I think we're not really targeting a level of cost of risk or a level of NPL metrics. I think what we're trying to maximize here is the NPV of the cohorts and especially the NPV of the client relationships. And I think a good point around that is that when you look at the interest rates that we charge for the product, we had an increase in the cost of risk in the past 2 quarters, but that increase was also followed by an increase in the interest rates that we're charging to our clients. And as long as we see this opportunity to make these kinds of trade-offs, we're happy to do as long as it increases the NPV for our client relationships. So that's on the credit piece. On the revenue side, I think you touched on the answer, which is these movements between transaction revenue and financial income is mostly a result of rebalancing between the 2 lines. Now that we have most of the volume from the company flowing through a single platform, we have a lot more flexibility in how we set up these bundles and how we allocate revenues internally. So, I know you asked us to try to segregate these lines. But when you look at the bundles that we're offering nowadays, there is no such thing. So, the client usually pays a single fee and embedded in that fee, we have the prepayment revenues and the transactional revenues. So honestly, I think the best way to look at it is looking at both lines combined. Operator: Our next question comes from Marcelo Mizrahi with Bradesco BBI. Marcelo Mizrahi: I have a question regarding the changes on the stages of the credit. We saw in the last quarters, especially in this last one, the cure of the Stage 2, Stage 2, a higher amount. So can you guys please explain a little bit the concept of what's the kind of the credit that is classified at Stage 2 that are the ones that come back to Stage 1. So why we were seeing such a lot of changes on the stages in the last 2 quarters? And probably it's because of the type of the credit. So just to understand how do you guys classify this credit? You know that -- we know that looking forward, the company will grow a lot. So, it's very important to understand. Mateus Schwening: Yes, for sure. Thanks for the question, Mizrahi. So, around Stage 2 and 3, especially, I think when you look at Stage 3, it's much simpler. So, most of the increase that we had in Stage 3 amounts from the balances overdue over 90 days. So that's pretty much the maturation of the portfolio. When it comes to Stage 2, I think we have 2 different factors here. The first is actually the maturation of the portfolio as well, but we also have the entry of some credit restrictions affecting a portion of clients in the market. So, for example, if a merchant defaults somewhere else, even if that merchant is not defaulting our portfolio, we move that client to Stage 2. And this can create a lot of volatility between the stages because, as you know, credit restrictions in Brazil are quite volatile. So that's the main explanation. Operator: Our next question comes from Daniel Vaz with Safra. Daniel Vaz: Pedro, Lia, Mateus, just to go back to Lia's comment on the credit side, I think it was something about increasing the pricing, right? I just wanted to touch base on that and elaborate a bit more on what exactly this scenario refers to. I mean, should we interpret this repricing or upward pricing as a reflection of a somewhat riskier environment? And just to double-click on that, how sensitive have the clients been to these adjustments, right? So, I think when we see, for example, on the retail end, not a good comparison, but new bank has been like testing a lot pricing upwards, and we don't see too much elasticity on that. So, it will be good to hear on the elasticity of your product and how sensitive clients have been to these adjustments. Mateus Schwening: Daniel, Mateus here. Thanks for the question. So, I think that's actually a great point, which is I think credit is probably the product that we started the latest. So naturally, when we think around pricing credit, it started as a cost-plus model, and we are now starting to test real sensitivity from our clients and test the right pricing point. So I think what we did in second Q and third Q, if you look at Slide 8 from the earnings presentation, the average yield of the portfolio increased from 2.6% in the first Q to 2.9% in the third Q, even though we have a higher mix of credit cards in the portfolio, which have no interest right for the part that is on [indiscernible]. And I think that happens at the same time that the macro environment is becoming more complex, but it's not a response from the macro environment. I think the reason why we've been able to price upwards is mostly because we are maturing on the overall pricing process for the product. And I think like you mentioned, other players were successful in terms of increasing pricing without too many sensitivity from the customers. And I think we're figuring out the same thing on our side. Daniel Vaz: If I may follow up, have you just tested like way higher yields on the credit and to some group of clients, to control group of clients? How have this test performed so far? If you could comment on that, it would be great as well. Mateus Schwening: Yes I think we are early beginnings on the testing side. We avoided to do like huge spikes in prices because of selection bias on the cohorts. So, I think what we had here were gradual increases. But again, I think it's early beginnings in terms of actually figuring out how much the clients are willing to pay in the product. And I think there's more opportunity to come. Operator: Our next question comes from Renato Meloni with Autonomous Research. Renato Meloni: Can you guys hear me? Mateus Schwening: Yes. Lia de Matos: Yes. Renato Meloni: Sorry, I had an issue with my mic earlier. I wanted to ask on the COGS reduction, and you mentioned about the efficiency gains on logistics or transaction technology costs. So, I wonder if you could expand a little bit on those gains. And I'm trying to understand here if this is a one-off or you can still keep doing this and maybe what's a normalized level that you could see? Mateus Schwening: Thanks for the question, Renato. So, in terms of cost to serve, I think broadly speaking, when we look at the metric, excluding the credit provisions, we're starting to see signs of operational leverage, particularly in customer service, where the adoption of AI has been driving a lot of efficiency gains and in logistics, where scale is generating also meaningful cost benefits. In the quarter, specifically, we also benefited from lower transactional costs in tech and lower provisions for acquiring losses, which were partially offset by higher amortization of intangible as we are completing a lot of projects that were started in previous years. Now in terms of what is one-off or recurring, I think the only portion of cost to serve that is not recurring is the level of provisions for acquiring losses because they were positively impacted by a specific collection initiative in the quarter. And when we look ahead, we do expect more amortization of technological projects to come because we are more and more completing a lot of projects that were started a couple of quarters ago. So, this trend of elevated D&A should continue throughout the next year. So, I think the message in terms of cost of service, overall, we are indeed seeing a lot of efficiency and operational leverage coming, but I wouldn't take the third quarter levels as a new normal. Operator: Our next question comes from Neha Agarwala with HSBC. Neha Agarwala: Congratulations on the results. A quick one on asset quality. I think in your opening remarks, you mentioned there was one particular case regarding nonpayment or delay in payments. Could you elaborate on that? What happened? And my second question is on the volumes. I think Lia mentioned that we expect deceleration in volume growth in the coming quarters. For the MSMB segment, we are already at 11% year-on-year for this quarter. What do you mean by deceleration in the coming year? Should we expect something like 8%, 9% or it could go lower than that? Any color about the level in the next 2, 3 quarters would be very helpful. Mateus Schwening: Thanks for the question. I will start with the asset quality and then Lia can add on the TPV side. So, on the asset quality, I think it's quite simple. We had a specific issue with a client in the specialized desk, which delayed a couple of days, but it's already normalized. This was not a big case. So, we're talking around 40 basis points of the NPL 15 to 90 days. So, if you do the math, it's around between BRL 2 million and BRL 4 million, so a very small low one. But again, I think the main message here is that it affected the NPL 15, 90 days in the quarter, but it's already -- it has already been addressed. Lia de Matos: Good. Neha, just complementing on the question regarding TPV dynamics and what to say looking ahead, right? It's hard to pinpoint a number, but the general trend and what we've been monitoring and what we've been seeing is growth which is slightly above the industry growth. The general trend of deceleration is mostly driven by the industry, right? We are seeing this year more specific macro impact to our client base, but we expect that to soften throughout next year. But in general, I think what we can say is industry deceleration as we've been vocal about for several quarters already and our growth sustaining above the industry with slight market share gain in the long run. So, I think that's the overall trend that we can talk about. Pinpointing whether it's 11%, whether it's more or less, I think it's a little bit more difficult. Our perspectives on industry growth for next year is on high single digits, low double digits, but hard to pinpoint specific figures. We prefer to wait and see how the year will close out. Operator: Our next question comes from Gustavo Schroden with Citi. Gustavo Schroden: Sorry to insist about the interest rates topic, but I think that we've seen changes regarding the expectations for interest rates next year. So maybe the easing cycle should be less pronounced than before expected, right? So especially assuming yesterday's minutes from the Central Bank. So, my question here is that you are -- I mean, I think that everybody here is modeling and thinking on Stone assuming this low interest rates next year. But if you take into consideration that the average interest rates next year should be also even slightly above this year. So my question is how sensitive is Stone funding costs to this average interest rates for next year? So again, we've seen you increasing prices. Lia mentioned about the higher interest rates for SMBs. And so my point here is, in this scenario of a higher average interest rates, how should we think the funding costs and prices next year? Mateus Schwening: Thanks for the question, Gustavo. So first of all, in terms of the actual environment, I don't think we have a strong view. So we set up the operation in a way that we respond to the changes that we have in interest rates. We don't spend a lot of time trying to forecast the scenario. But indeed, if you were to look at the scenario now, there is a small decline embedded in the yield curve. And our sensitivity to that decline is that for every 100 basis points reduction in interest rates, all else being equal, so meaning no price reductions, we have a positive impact in our pretax earnings of around BRL 200 million and BRL 250 million. Now in terms of what's actually going to happen, I think our intention and our desire is to keep our time. So we tend to pass it through to clients, but there is kind of a lag every time interest rates decline. But like I said a couple of answers ago, long term, when you look at the actual gross profit yield that we're having on the payment side, we think it's in a very healthy level. So I don't think it's reasonable to assume that we're going to keep it long term. As for the trend for financial expenses, again, I think it's very dependent on the level of interest rates. So we're going to see the scenario and adjust accordingly. Gustavo Schroden: Great, Mateus. Just let me do a follow-up here because you said the sensitivity that you mentioned for each 100 basis point decrease, it is for, I mean, end of period interest rates or average interest rates? Mateus Schwening: It is for average. So whenever we have an average decline of 100 basis points, then we will have the impact for the full year. Operator: Our next question comes from Tito Labarta with Goldman Sachs. Daer Labarta: My question is on your gross profit, right? I mean you're still on track to deliver your guidance for the year, but it has been decelerating. Given some of the questions on slower TPV growth, rates are stable, you're mostly done repricing, should we expect the gross profit to continue to decelerate a bit from here, at least all else equal, just given the trends in the industry? Should we expect any positive seasonality in 4Q? And we did see a bit of a jump in your loan book this quarter. Like at what point do you think you could get to where the loan book is enough that it starts to boost that gross profit, right? I think it's still -- it's growing fast, but from a low base, right? So just to think about the evolution of gross profit given where we are today and when that can maybe inflect and maybe grow faster from here? Mateus Schwening: Tito, thanks for the question. So, I think when you look at the gross profit yield, usually 4Q is seasonally lower because we have more debit and PIX transactions in the mix, which tend to have a lower take rate on the payment side. But I think in general, when we look long term, I think the expectation is that payment spreads, they are at a healthy place. So, we don't see a lot of pressure, but also not a lot of upside in that part of the business. I think what's going to be the defining factor for '26 on that end is actually the interest rate movements that we just discussed. But other than that, I think the expectation is indeed that banking and credit will continue to grow at a faster pace than the TPV growth. And then over time, that should be accretive to gross profit yields. In terms of the credit that you asked, I think we are already starting to see the signs of a bigger contribution in the P&L. So, if you look at the revenue jump versus the delta in provisions that we had between the second Q and the third Q, it was already significant. Of course, when you look at gross profit as a whole, it is still a very small factor. But I think it has already started, and I think it gets more significant throughout 2026. Daer Labarta: Thanks Mateus. That's helpful. And yes, I understand the negative seasonality on the gross profit yield, but you should also have some positive seasonality on volumes. So net-net, I mean, not asking for guidance, but just a little bit how that could potentially impact gross profit in 4Q? Mateus Schwening: Yes. I think when you look at gross profit on a nominal basis, then the seasonality in the first Q is positive for sure. I think when you look at the yields, then you have a negative seasonality because of the mix. But overall, I think if you're thinking about nominal terms, then the seasonality for first Q is positive. Operator: Our next question comes from Pedro Leduc with Itaú. Pedro Leduc: Congrats on the results. Two quick questions. I know you guys have lifted the 2027 guidance once you did the Linx deal. I know it's not in the presentation here. But wondering if you plan on reinstating it at some point, maybe with the 4Q release, if it's '27, maybe it's something another period of time? It seems like you're tracking for this year extremely well and for most of the 2027 figures as well. But just trying to get a sense if you guys plan on reinstating it, if it's in the same time period, same inflows. And then the second question, kind of tying up to this one as well. In that previous '27 slide, you talked about a 20% effective tax rate. You're running at 15%. In the meanwhile, we're having changes in taxation for several of the Brazilian entities. Just trying to get a sense from you how we can think about this income tax rate maybe next year and then thinking whenever you guys plan on releasing a longer-term guidance. Pedro Zinner: Pedro, Pedro here. I'll address the first part of the question, then I'll turn it over to Mateus. I think it's true that TPV performance has been more challenging than we initially anticipated back in 2023. And I think as Lia mentioned, partly, I think it's due to the macro environment, which is worse than we initially expected. But we want to see how the year will close out first before we can talk more concretely about 2027 guidance revision, right? So, in fact, we plan to adjust gross profit indicator to reflect only continuing operations. And we may take the opportunity for a more comprehensive review of 2027 guidance when we do that. But that said, I think it's important to note that when we look at the long-term plan as a whole, our execution remains broadly on track with the credit book, deposit base and the overall profitability, I think we are on the right track since we established back in 2023. I'll hand it over to Mateus. Pedro Leduc: Thank you, Pedro. Mateus Schwening: Yes, so on the effective tax rate, I think 2 messages here. So yes, we are indeed operating below the 20% mark that we provided at the long-term guidance. And if you look at the 4Q, usually 4Q tends to be lower than third Q because of seasonality and also we have more [ lead ] demand in the last quarter. But longer term, if we're thinking about the effective tax rate for 2026 and onwards, I think it's still too early to provide a precise view as there are too many moving pieces. I think you have also seen the number of proposed changes that are being discussed through provisional measures and draft bills. But that said, when we take everything into account, we continue to believe that the effective tax rate should land in mid- to high teens over time. More specific than that, I think we still need more visibility on how the proposed changes will ultimately unfold. But that's the perspective we have at this moment. Pedro Leduc: Okay. So mid- to high teens without seeing if there's any changes, right? Mateus Schwening: Yes, I think mid- to high teens broadly, then whether it's going to be mid or high, I think it's dependent on the changes. Operator: The question-and-answer session is now closed. We would like to hand the floor back to Pedro Zinner for closing remarks. Pedro Zinner: Well, thank you all for participating in the call and for the questions made. And I'm looking forward with the team to see you in our full year-end results in March next year. Okay. Thank you. Operator: Stone's conference call is now closed. We thank you for your participation and wish you a good evening.

Operator: Good evening, everyone. Thank you for standing by. Welcome to StoneCo's Second Quarter 2025 Earnings Conference Call. By now, everyone should have access to our earnings release. The company also posted a presentation to go along with its call. All material can be found online at investors.stone.co. Before we begin the call, I advise you to review the disclaimer included in the press release and presentation, which outlines important information about forward-looking statements and non-IFRS financial measures. In addition, many of the risks regarding the business are disclosed in the company's Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov. In hindsight, I would like to highlight that the company is restricting the number of questions to 2 per analyst. Joining the call today is Stone's CEO, Pedro Zinner; the CFO and IRO, Mateus Scherer; the Strategy and Marketing Officer, Lia Matos; and the Head of IR, Roberta Noronha. I would now like to turn the conference over to your host, Pedro Zinner. Please proceed. Pedro Zinner: Thank you, operator, and good evening, everyone. To begin, before diving into our second quarter performance, I want to briefly discuss our recently announced software divestitures and how this strategic move aligns with our future direction. As many of you may recall from our Investor Day in 2023, we outlined our total addressable market across payments, banking, credit and software, roughly BRL 100 billion revenue opportunity. Our core focus remains on serving Brazil's more than 14 million micro, small and medium-sized business by providing solutions that meet their evolving needs and support their daily operations. We are now pursuing this mission with a much more focused approach and greater discipline in capital allocation. By sharpening our focus on financial services, we continue to target over 90% of that substantial TAM. It's important to note that our current share in this combined market is still very small, which indicates significant room for growth ahead. While software will remain part of our broader ecosystem, we now view it as a more of a value-added layer, one with low capital requirements rather than a core offering. This strategic shift allow us to concentrate our efforts and resources on the areas of greatest long-term value and impact for our MSMB clients and ultimately, for our shareholders. We believe this sharper focus position us well to capture future growth opportunities in our core markets. Now moving to Slide 4. Let me provide more detail on the divestments. The first and most significant transaction is the sale of Linx to TOTVS. As you know, we agreed to sell this group of software businesses for an enterprise value of BRL 3.05 billion. In addition, we will receive the net cash position of these assets currently estimated at BRL 360 million plus any cash generated between signing and closing of the deal. Notably, the BRL 3.8 billion in goodwill from our original Linx acquisition in 2021 will remain with us, and we expect to amortize that goodwill over the next 8 years, providing additional value beyond the sale price. Payment for the Linx assets will be made in cash at closing, which is pending regulatory approvals, including from CADE, the Brazilian antitrust authority. There are no earnouts associated with this deal. In a separate transaction, we have also sold SimplesVet, a veterinary ERP software company to PetLove for an enterprise value of BRL 140 million plus the net cash position of BRL 15 million, totaling BRL 155 million. This deal was approved by CADE and closed in July with a payment in cash, a portion already paid and the remainder to be paid over 3 installments. There are no earnouts on this deal either. Regarding our remaining software assets, our approach is straightforward. We are evaluating our assets individually. The goal is to determine whether each one should be fully integrated into our core fintech ecosystem to enhance existing solutions and product differentiation or whether it's better to let it operate independently while we assess its long-term strategic fit. We will allocate the proceeds from these divestitures in line with our capital allocation framework we have outlined. Essentially, if we do not identify immediate value-accretive growth opportunities, we intend to return this excess capital to our shareholders. We truly believe these transactions represent a significant strategic step and will be accretive to our company. Consider that the total value unlocked from these sales, combining the transaction proceeds and the goodwill retention benefit is over BRL 4 billion, roughly 25% of our current market capitalization. Yet for the first half of 2025, these software assets accounted for only about 8% of our revenues and 5% of our consolidated bottom line. By divesting them, we have unlocked substantial capital and most importantly, refocus our energy on our highest growth, most profitable segments. We are confident that this sharper focus will allow us to drive greater shareholder value in the years to come. Before I hand over to Lia to discuss the quarterly results, let me first walk you through some important updates to our reporting and 2025 guidance in Slide 6. Following the sale of our software assets, we are now reporting discontinued operations as a single line item above consolidated net income. As a result, we are shifting our forward-looking metrics to better reflect the core of our ongoing business. Starting with gross profit. Our guidance now reflects only continuing operations. We have also updated our assumptions to incorporate year-to-date performance and the impact of share repurchases executed since our original guidance in February. Our updated gross profit guidance now implies over 14.5% year-over-year growth, surpassing BRL 6.3 billion. Turning to EPS. We continue to guide on a consolidated basis, including discontinued operations. Here, the update is more substantial. We have increased our expected EPS growth from 18% to 32% year-over-year, a 14 percentage point upgrade. This reflects both the impact of share buybacks and stronger-than-anticipated net income performance so far this year. To put it simply, even after incorporating a lower share count, we are still revising our implied adjusted net income guidance upward from BRL 2.4 billion to BRL 2.6 billion based on the prospects we've seen for the business. These updates also reflect our strong confidence in the company and in our team's ability to execute. In that context, we remain fully committed to returning the BRL 3 billion in excess capital generated in 2024 back to shareholders. I'm pleased to report that by the end of June, we had already returned 41% of that amount through share buybacks, about BRL 2.6 billion over the last 12 months. With that, I'll now turn the call over to Lia for a deeper dive into our quarterly numbers. Lia, please go ahead. Lia Machado de Matos: Thank you, Pedro, and good evening, everyone. Diving into our second quarter '25 results, we're very pleased to see that despite the challenging macroeconomic scenario with higher interest rates and signs of economic deceleration, we have successfully executed on our strategy, evolving the multiple ways in which we help our clients while delivering solid results. Moving to Slide 7. Let's take a look at our bottom line results and ROEs, which are reported on a consolidated basis, including both continuing and discontinued operations. Our adjusted net income accelerated to a 27% year-over-year increase, reaching BRL 631 million. The majority of this growth came from our financial services operation, which saw an impressive 21% growth over the same period. The strong performance is a direct result of some key factors, notably our successful pricing adjustments in a higher interest rate environment, the growing use of deposits as a low-cost funding source for operation and the lower effective tax rate. Our adjusted basic EPS reached BRL 2.33 per share, representing a 45% year-over-year increase. Beyond the solid net income performance, the increase was further strengthened by our share repurchase program in which we bought back almost 42 million shares over the last 12 months. Finally, ROEs continued to expand. Our Financial Services segment ROE achieved 30% and our consolidated ROE reached 22%. Both of these figures grew by 3 percentage points sequentially and showed even more significant growth on a year-over-year basis. Now let's dive deeper into our top line performance, focusing on our continued operations. Revenues from continuing operations grew 20% year-over-year to BRL 3.5 billion, given continued solid execution in our core business. This increase was primarily driven by our repricing initiatives, even while negatively impacted by a reduction in floating revenues resulting from the use of client deposits as a source of funding. To clarify, as we transform these deposits into time deposits to fund our operations, we stopped recognizing floating revenue. As we explained previously, this shift is more than compensated by the significant reduction in our financial expenses, given the much lower cost of funding related to deposits compared to other funding alternatives. Adjusted gross profit from continuing operations reached BRL 1.6 billion this quarter, a year-over-year growth of 14%, broadly in line with guidance implied growth. It's useful to compare our gross profit growth with TPV growth because this highlights the multiple ways in which we monetize our relationship with clients in an efficient way. In the second quarter, gross profit grew ahead of TPV by 2 percentage points, mainly driven by our continued pricing discipline, more client engagement and a more efficient funding strategy. In Slide 9, we will discuss our payments operation for MSMBs. Our payments active client base grew 17% year-over-year to reach 4.5 million clients. Out of those, 38% are considered as heavy users, meaning they utilize more than 3 of our different solutions. Our MSMB TPV grew 12% year-over-year in the quarter to BRL 122 billion. This growth results from 2 key trends: first, a 59% growth in MSMB PIX QR Code volumes, which continues to gain share over traditional debit card transactions; and second, a 6.4% year-over- year growth in card TPV. Two main factors drove the TPV growth deceleration this quarter. First, this was an expected reflection of our repricing initiatives. Second, we saw a reduction in our clients' same-store sales, which were impacted by a tougher macroeconomic environment in a quarter with more holidays. As we look ahead, we will continue to keep a close eye on the macroeconomic environment. We anticipate that the second half of the year will continue to face a tougher environment, but MSMB TPV growth should stabilize at low double-digits in the period. In Slide 10, let's move to our banking performance. We're very pleased with the continued growth in our client base and their increased engagement with our banking solutions, which is ultimately reflected by a larger balance of deposits. Our active banking client base grew 23% year-over-year, reaching 3.3 million clients. Client deposits also grew significantly, up 36% year-over-year or 7% quarter-over-quarter. We're very encouraged by this growth, and it's almost 3x higher than our MSMB TPV growth on a sequential basis, meaning that our clients are shifting from using mainly our payment solution to relying on Stone as their end-to-end provider of financial services and workflow tools. Regarding deposits, as we mentioned last quarter, we have been strategically shifting our deposit mix towards a higher concentration of time deposits. This includes both the investment solutions we offer our clients, which have been performing well as well as our cash sweep strategy, a valuable funding source for our own operations. The most significant shift happened late in the first quarter, which means we saw a more complete impact to our P&L in the second quarter. Currently, 83% of our total deposits are already considered as time deposits. Now let's turn to Slide 11, where we'll give some color on our credit product evolution. The main highlight here is that we continue to grow consistently while keeping our credit quality indicators healthy. Our credit portfolio grew 25% sequentially to BRL 1.8 billion. Of this total, BRL 1.6 billion refers to our merchant solutions comprised mainly of working capital to MSMBs, where disbursements increased significantly by 41% on a quarter-over-quarter basis. The remaining BRL 192 million refers to our credit card portfolio, which grew 19% sequentially. We monitor credit quality very closely and continue to see steady, healthy NPL levels. Our 15- to 90-day NPL has been relatively stable, decreasing 10 basis points sequentially, while our over 90-day NPL increased by 10 basis points. This is a smaller increase than in the past, reflecting our accelerated disbursements this quarter. Despite the healthy NPL levels, we saw a significant increase in our provisions for expected losses this quarter from BRL 34 million in the first quarter to BRL 82 million in the second quarter. This increase was driven by 3 main factors. First, by the continued expansion of our credit portfolio, supported by a very strong sequential increase in working capital disbursements. Second, an increased mix towards limit-based offerings such as overdraft and credit cards. Most importantly, despite our stable asset quality as evidenced by our consistent NPL performance, we made a deliberate decision to increase coverage levels in light of a weaker macro- outlook. As a result, our coverage ratio increased from 256% in the first quarter to 280% in the second quarter. This higher level of provisions also pushed our cost of risk metric, which is based on the provision for the current quarter to a level of 20%, up from 10% in the first quarter. However, if we were to exclude our decision to take a more conservative approach given the weaker macro environment, our cost of risk would have been 13.5% in the period. All in all, I'm very pleased with our quarterly performance, even amid a more challenging macro environment. It highlights the strength of our execution and our continued commitment to our priorities and the guidance we've laid out to the market. We continue to work hard to evolve our business towards fulfilling our mission to become the preferred partner when our clients think of financial services and tools that help them better manage their business and grow. While doing this, we maintain a steadfast commitment to generating value to our shareholders. Now I want to pass it over to Mateus to discuss our more detailed financial performance. Mateus? Mateus Scherer Schwening: Thank you, Lia, and good evening, everyone. Before we dive into the numbers, I'd like to highlight a few important changes we've made to our financial reporting. As Pedro mentioned, our P&L now focuses exclusively on continuing operations, with discontinued operations presented separately as a single line item above consolidated net income. To maintain comparability, we've adjusted past figures to align with this new approach. On the balance sheet, discontinued operations are now represented by single line items within current assets and current liabilities, while prior periods remain as originally reported. Our cash flow statement remains on a consolidated basis, meaning our adjusted net cash metric still reflects cash generated by both continuing and discontinued operations. As a quick note, all updated figures for '24 and '25, reflecting these changes are available in the spreadsheet posted on our website. Now let's discuss our adjusted consolidated P&L for continuing operations. Cost of services increased 22% year-over-year or 40 basis points as a percentage of revenues due to higher provisions for expected credit losses, as Lia highlighted earlier. This was partially offset by lower payments and banking provisions as a percentage of revenue and operating leverage in key areas of our operation, especially in technology and customer support. Administrative expenses increased 12% year-over-year, resulting in a reduction of 50 basis points as a percentage of revenues, driven by continued operating leverage across our support functions. Selling expenses increased 17% year-over-year, but decreased 40 basis points relative to revenues, reflecting stronger operating leverage in marketing spend. Financial expenses increased 29% year-over-year, representing a 210 basis points increase as a percentage of revenues. This was largely due to a higher average CDI rate compared to the lower rates seen in the second quarter of last year. Importantly, this impact was partially mitigated by increased use of client deposits as a lower cost funding source. Other expenses increased 12% year-over-year, but declined 20 basis points relative to revenues, benefiting from a one-time disposal of PP&E, partially offset by higher share-based compensation, mostly driven by higher share price in the period. Our effective tax rate was 15% in the quarter, down from 22.5% in 2Q '24. The year-over-year decrease was driven primarily by higher benefits from Lei do Bem. Moving to Slide 13. Our adjusted net cash position ended the quarter at BRL 3.7 billion, a sequential decrease of just BRL 118 million despite executing share repurchases totaling almost BRL 400 million during the quarter. Excluding these buybacks and the present value adjustments to accounts receivable from card issuers, which flows through other comprehensive income, adjusted net cash would have increased by nearly BRL 400 million. Before we move on to questions, I'd like to thank you all for your time and continued support. We keep fully committed to our strategy, and our focus remains on disciplined execution and creating sustainable long-term value for both our clients and shareholders. With that said, we are now ready to open the call up to questions. Operator: [Operator Instructions] Our first question comes from Tito Labarta with Goldman Sachs. Daer Labarta: Congratulations on the strong results. I have 2 questions, if I can. Just first, how do you think -- I know Pedro, you mentioned you will revise the 2027 guidance after Linx is done. But just thinking operationally in payments, given the slower growth environment that we're seeing for TPV. How comfortable do you feel about being able to deliver that 2027 guidance? And maybe more specifically, how are you thinking about TPV growth both in cards and PIX? And if that's lower than expected, can you still deliver on the guidance? And then my second question, just on the Linx sale. Can you give an update just on -- what should we expect for timing? And is the plan to return all of the BRL 3 billion in capital to investors? Or do you have any color on what the plan is for the cash that you'll get from the sale of Linx? Lia Machado de Matos: Tito, Lia here. Thank you for the question. I'm going to take the question regarding guidance for 2027 and then pass it over to Mateus to take the second question. So I think regarding 2027 guidance and your specific question on TPV, we're monitoring this TPV dynamics closely given what we're seeing in the macro environment this year and also sort of the short-term impact in TPV that we had from repricings in the first quarter. When we laid out our 14% TPV CAGR throughout 2027, the assumption really was a combination of a modest market share gain and an industry growth in the low teens. So while we remain really confident in our ability to continue to win clients and gain share within the segment in the long run, overall market growth has been softer than expected, and that does introduce some risk to our 2027 TPV outlook. But that said, regarding us looking at only from the perspective of TPV, it's important to emphasize really that TPV growth and share gains is not a sole focus. Rather, it really should be a consequence of our ability to evolve our business and the value proposition that we bring to clients in the long run. And TPV is one dimension of a bigger plan in which we're performing really well. So we continue to advance in extending our offers beyond payments to become a complete financial provider for our clients, which is highlighted by the evolution that we see this quarter in credit, in banking and ultimately in profitability. So on the profitability side, when we think about the combination of multiple monetization drivers, our cost discipline and capital allocation, including share buybacks, we're driving stronger-than-expected results, and we're really confident in delivering those long-term targets. So I think the message on TPV is we need to monitor. But from the overall plan, we're really confident with the long-term guidance. Mateus Scherer Schwening: Yes. And regarding the second question around excess capital position and use of proceeds from the deal, I think maybe it's worthwhile to give a broader overview on the topic. So as you may remember, we ended last year with a little over BRL 3 billion in excess capital. In the first half of this year, we executed about BRL 1.2 billion in buybacks. And when we compute the excess capital position of the 2Q '25, we actually ended the quarter with BRL 2.4 billion in excess capital, excluding the assets available for sale. So we generated a little over BRL 600 million in excess capital in the first half of this year. Again, if we were to include the net asset value from discontinued operations this quarter, we would be sitting at close to BRL 6 billion in excess capital as of today. Of course, when we look ahead, there is still a long road until the deal actually closing. And throughout this period, we're going to be both generating additional excess capital, but also executing on the buybacks that we have approved. So in terms of actual use of proceeds and clarity on timing, we're basically going to provide that upon the closing of the transaction. But like Pedro mentioned in the presentation, in the absence of new opportunities available, the commitment and the idea is to return the capital back to shareholders. Daer Labarta: Okay. No, that's great. And Lia, just to clarify your comments, so there could be some downside risk on the TPV. But on the other metrics, which perhaps are more important, you still feel comfortable on that outlook, even if TPV growth is lower. Correct? Lia Machado de Matos: Perfect. That's correct, Tito. Operator: Our next question comes from Gustavo Schroden with Citi. Gustavo Schroden: Congrats on the conclusion of the deal. Indeed, we could see that the continued operations generate more value than before. So my question is, I'm trying to understand how sustainable is this financial income growth because we've seen that so far, the strategy to diversify and to focus in on banking business, it is paying off and it is offsetting these weaker transaction activities. So my question is, is it sustainable to -- I mean, to continue to see this financial income offsetting and sustaining this higher level of gross profit generation? And my second question is you showed that the ROE would be around 30% considering the continued operations. So do you think that this is the level that we should see the company delivering of ROE. So do you think that the 30% is a good number for us? I know that it's not an official guidance, but just an indication of what would be the sustainable ROE in the coming years? Mateus Scherer Schwening: Thanks for the questions, Gustavo. So maybe I'll start and then Lia or Pedro may add. So the first question regarding financial income, I think towards the end of your question, you actually got the answer, which is we're looking more and more towards gross profit generation rather than the individual line items on a stand-alone basis. And when we look at the gross profit growth with our updated guidance, we're basically guiding for a growth of 14.5% for the year. I think, Lia, mentioned in the presentation that when we look at TPV MSMB, we're actually seeing growth at about low double- digits. So this gap between the low double-digits of TPV growth and the 14.5% growth for gross profit is the result of the continued engagement with the other products that we have and also the price discipline that we've been showing throughout the year. So I think what the message here is that we're comfortable with that level of growth. Of course, when you look at the individual lines, it's going to become harder and harder to forecast because we have a lot of mix movements with the usage of deposits and so on and so forth. And in your second point about the ROE, indeed, when you look at the financial services platform, we are already delivering the 30% ROEs. The only caveat here is that this 30% ROE is including the excess capital position that we still have. So in a way, we have kind of a drag in these numbers. So what I would say looking ahead is that probably the 30% number is on the lower bound. Operator: Our next question comes from Mario Pierry with Bank of America. Mario Lucio S Pierry: Congrats on the results. Let me ask you 2 questions as well then. When do you expect this Linx transaction to be closed? And why are you already showing the figures without Linx? Like I understand that you want to make it clear, but this might be a transaction that only closes next year. So just wanted to understand what are you thinking about timing and why to do it now? And the second question is related to the price hikes, right? You did your price hikes at the beginning of the year. Are you still raising prices? Or are you done? Is the full benefit of the price hikes already reflected on take rates? And do you think that these price hikes led to a slowdown in volumes? Because, again, right, you show card volumes growing only 6% year-on-year. This is just slightly above inflation. So I'm thinking maybe you were too aggressive in your price hikes and you lost some market share. How do you think about that? Mateus Scherer Schwening: Mario, thanks for the questions. So I'll take the first one and then pass it over to Lia to talk about pricing versus TPV as well. In regards first to the timing of the transaction, we are very confident in the outcome of the process. But as you know, the timing of the approval is hard to predict because in the end of the day, it's largely outside of our control. What we know is that according to the legislation, we have a maximum period of 330 days for antitrust approval. And we believe that given the high complementarity of the operations between Linx and TOTVS, this approval could be concluded faster. But again, giving a specific timeline is not something that we can do at this stage. But then connecting to the second piece of the question, which is why we are reporting continued versus discontinued operation, we have no choice of doing otherwise. So according to IFRS, whenever we make the decision to sell the assets and there is a reasonable expectation to be done in at least 12 months, we need to reclassify those assets as held for sale. So we're basically following the rule here. Lia? Lia Machado de Matos: Yes. So Mario, regarding your question around prices and if there are additional price hikes. So let me talk about pricing and TPV dynamics in general. Regarding pricing, the biggest repricing waves were, in fact, in the first quarter. I would say that in terms of the interest rate hikes that we saw, all the repricing has been done to adjust for that. Beyond those repricings that were done in the first quarter, what will happen is normal course of business, right? We always have a dynamic repricing strategy. So when we price a client according to a specific TPV or a specific offering commitment, there may be repricings in the future depending on that -- how that client behaves, but that's incremental, and that's always been part of the day-to- day of the business. But maybe taking a broader look at TPV dynamics. The repricings sort of had a one-time kind of short-term impact on TPV growth. We talked about this in the first quarter. So as much as we understand these repricing waves as having been very successful, even seeing like churn levels below our expectations, some level of churn is always expected, right, given the dimension of these repricing waves that happened in the first quarter. And really, those repricing waves were, just to be clear, extremely related to the interest rate increase. So we don't think that, that was excessive. It was actually what we had to do in terms of a discipline -- in terms of financial discipline. But overall TPV dynamics, I think, was also very impacted by the macro. And when we look at granular data from TPV at the client level and when we look at same-store sales across different segments, what we see is that market growth this year has been very uneven. So when we look at different client tiers, right? Larger clients have generally performed better, while SMBs and especially micro merchants have faced more challenges when we look at a same-store sales TPV growth, which is expected given the higher interest rates. Typically, they will affect smaller clients and less structured businesses first. So the TPV dynamics relates to both the macro and the one-time short-term impact from the repricings. And as far as interest rates remain at the levels that they are, we don't expect further big repricing waves this year. Mario Lucio S Pierry: That's clear. And let me -- just one thing. In your remarks, you mentioned that you expect MSMB volumes or TPV to stabilize at low double-digits for the remainder of the year. Can you discuss what was the evolution of TPV growth throughout the quarter? Because my understanding, right, talking to other players and to the banks in Brazil, everybody is expecting a weaker economy in second half of the year. What are you seeing that makes you confident that you can maintain this low double-digit growth? Mateus Scherer Schwening: Yes, that's a good point, Mario. I think there's some room when we talk about double-digit growth because growth in this Q was actually 12%, right? So you have some room for a couple of percentage points there. But answering your question, we did indeed see the growth slowing down throughout the quarter. But when we look at more recent data, it's consistent with this double-digit growth. So that's why we are confident on these dynamics. The other thing that I would point out is that 4Q and 3Q last year, we have somewhat easier comps as well. So that helps with the dynamics. Operator: Our next question comes from Daniel Vaz with Safra. Daniel Vaz: Congrats on the results. Also I want to touch base on the TPV growth that has been slowing down, and we already discussed that in the call. But on the positive side, your gross profit remains resilient and supported by high customer engagement or penetration of the other financial services, right? So you revised your net income upwards by approximately BRL 200 million. So I wanted to touch base and understand to what extent this is driven only by stronger-than-expected top line. And in my numbers here, I can see a good cash generation. So the other financial income is growing well as well. So you're doing buybacks while generating cash. So is it only top line driven? Or is there any other meaningful contribution for operating expenses or cost to serve or any tax rate thing that we should know about? Mateus Scherer Schwening: Thanks for the question, Daniel. So when we compare the implied growth for adjusted net income versus the growth for gross profit, you can see that adjusted net income implied in the guidance is growing at 18% and gross profit is actually growing 14.5%. So the reason behind those 2 lines is basically 2 main dynamics. The first one is indeed related to effective tax rate. So in the beginning of the year, we guided around 20% as a benchmark for the year. But given the strong performance in the first half and our updated expectations, we now believe that we can land below that mark with second half tracking closer to the 2Q levels. So that's one point. And the second point, in the beginning of the year, we also anticipated selling expenses to grow faster than gross profit. But what we're actually seeing now is a healthier trend on that front. So those 2 lines are the main reason why adjusted net income growth outpaces the growth in gross profit. Other than that, I think you touched upon the 2 main drivers on the gross profit side is around pricing plus engagement with new products and as well the buyback execution for sure. Daniel Vaz: If I could just follow-up on your selling expenses commentary. What do you attribute that to? Is it you're seeing less of competition there or you're having to do less of a marketing expenses? Is there any, for example, Big Brother thing that you used to do a lot very harsh in the first half of the year. Can you elaborate more on the selling part? Lia Machado de Matos: Yes. So Daniel, just quickly on selling expenses, operational leverage. This quarter, it had to do with operational leverage and marketing expenses. And we do expect less of an impact, right, in those marketing expenses as we have concluded Big Brother Brasil, and we still have to plan ahead how that's going to go, but we do expect this leverage to continue. I think in general, because selling expenses is something that has received a lot of attention over the past quarters, and we feel it's somewhat misunderstood, maybe it's worth highlighting a couple overlooked aspects on selling expense dynamics. First, I think it's important to highlight that our investments in sales, particularly in expanding our sales force is really focused on acquiring new clients and generating incremental TPV, right? That sounds kind of obvious, but it's important to remember that each new cohort brings in new TPV that compounds over time. Naturally, as the installed base grows, the rate of TPV growth slows, but the absolute value generated, so the absolute incremental TPV continues to increase as our sales force matures and scales. That's a mathematical reality. In other words, lower TPV growth does not mean that sales investment isn't working. We're actually building a larger base that monetizes over time, and which incrementally dilutes those selling expenses. Second, let's remember that we don't invest in selling solely to grow TPV. We invest in selling to grow revenues and ultimately profitability. So to the point that on your initial question and what Mateus just mentioned, TPV starts a monetization cycle, which extends beyond payments to banking and credit. These dynamics is also why selling expenses as a percentage of revenue is expected to trend downwards in the long term, and we're starting to see this effect this quarter. So it's important to highlight that we remain disciplined in growing our sales force, and we do believe there is room for efficiency gains in a few dimensions, such as marketing, as I just mentioned, and eventually efficiency gains in some specific channels. But the message that we want to stick with is that we're not optimizing for TPV growth alone. We're optimizing for profitable growth and long-term value creation. Operator: Our next question comes from Neha Agarwala with HSBC. Neha Agarwala: Congratulations on the results. Just quickly on the lending side of the business. We saw good growth this quarter. What should we expect for the remainder of the year given that you're a bit more cautious on the macro side? Should we expect strong growth? Which lines would you be focusing more on? And then if you could also talk about the cost of risk, you increased it to around 20% level this quarter. Should we expect that going forward as the run rate for the credit business? Mateus Scherer Schwening: Neha, thanks for the questions. So I'll probably start with cost of risk, and then we can talk about growth as well. So in regards to cost of risk, I think we've mentioned this in the presentation as well. There are basically 3 drivers when we look at the quarter. The first 2 drivers will continue, which are the growth of the disbursements and also more and more the growth of other products, especially the credit cards. But if we only account for these elements, the cost of risk would actually be around 13.5%. The remainder has to do with a cautious approach towards the macro environment. And of course, that tends to be one-time. So when we look ahead, I think we should look closer to the 13.5% or maybe mid-teens, but we're not expecting the 20% levels. And then the second question around the growth of the portfolio. I think this is a message that we like to always emphasize. The growth of the credit book is not linear at all in our trajectory because we continuously do a lot of tests, test and learning with our approach. And whenever we feel confident about those tests, then we tend to scale disbursements in a nonlinear fashion. So indeed, when we look at the 2Q, the disbursements grew about 41% in the working capital loans. But if we were to look at the 1Q '25, the disbursements were actually flattish versus the fourth quarter of '24. So I wouldn't read too much in the growth of disbursements that we had in the second quarter. This is not a view of the macro environment or nothing of the sort. What we think about growth is that the penetration of working capital loans in the base is still low. So there is a lot of space to grow, but we're basically following the trajectory that we originally planned, nothing new on that regard. Neha Agarwala: Can you also talk a bit about the features, how things are going? What is the response you're getting from the merchants? How has the payback been on the loans that you've given out so far? Any color on how the progress has been so far would be very helpful. Lia Machado de Matos: Yes, Lia here. So on your question regarding the overall credit strategy evolution, I think we continue to focus like we said last quarter on maybe I would separate in 2 big dimensions. So when we talk about working capital solutions, which is the majority of the portfolio, as much as we continue to invest in digital distribution, we're sort of learning and scaling our ability to scale on the larger clients through specialist distribution. I think that's a focus for us. On the shorter duration types of products, it's relatively less mature, right? We're still learning and growing more cautiously, I would say. I think one thing that the team is very focused on is on the credit building itself. So how do we enable clients that don't necessarily have an initial offering to build sort of this credit limit over time. And hopefully, longer-term, what we expect this to enable us to achieve is some sort of credit offer to the majority of the clients in the base, naturally within our risk appetite, but this credit building process will enable us to expand the ways in which we scale. So I think the message is really consistent, nothing very different. And yes, we're happy with the evolution. Operator: Our next question comes from Marcelo Mizrahi with Bradesco BBI. Marcelo Mizrahi: Congratulations for the results. Regarding about the credit again, so I understand so the strategy and the message, but really the amount of money that was disbursed in this quarter was the highest since you guys started this strategy. So just want to understand more. So even this view that to be more conservative in terms of provision and cost of risk, why the volumes were so higher than the last quarters. So that's any different product or any different type of clients that you guys are starting to develop and to give credit. So just please give me some idea here to understand the strategy looking forward. Mateus Scherer Schwening: [ Sure, Miz. ] Mateus here. So again, there wasn't any specific event driving the BRL 620 million in disbursements this quarter. So no new features or no new products. I think the message here is maybe to look at a longer window. So the credit operation continues to grow, but it's not linear at all. If we were to look at the past quarters, not only the 1Q, but also last year, there are quarters in which disbursement tends to become flat because we're either testing new offerings or the results from a given hypothesis are not yet validated, but then that tends to follow a bigger growth in the subsequent quarters. I think that's pretty much what happened. And probably the best way to look at it is actually the disbursements from the 1Q '25 were lower. I don't think the 2Q were bigger. That's probably the best way to think about it. And then the question on how that connects with the view of increasing provision amidst the weaker or the more uncertain macro environment. I think here, it's more of a cautious decision. So when we look at the actual portfolio performance, we're not seeing material changes. You can see that the delinquency levels remain stable, NPL 15 to 90 days actually decreasing a little bit, NPL over 90 days flattish. But we did observe some softening in our client same-store sales, which we mentioned affected the TPV growth. So in light of that signal, we decided to strengthen the provisioning to ensure that we are appropriately covered even if the broader environment remains under pressure. And the second thing that I think is also worth highlighting here, what we've been doing since the beginning of the year is also to increase the prices of the new cohorts that we are disbursing. So if you were to look at the average rate for the portfolio towards the end of last year, it was closer to 3% per month. Now it's trending actually closer to 4% per month. So even despite the higher cost of risk, when we look at the actual profitability of the new cohorts, they're still tracking really well, and that's what gives us comfort to continue to scale and continue to improve the product as well. So those are the main thinking about here. Marcelo Mizrahi: Looking forward, there is any guidance to give us to think about cost of risk. So it's more the level is 20% in the next quarters or lower than that? Mateus Scherer Schwening: No, I think the 20%, we think is a one-off. So probably the best way to think about cost of risk moving forward is on the mid-teens, so closer to the 13.5% to 15% range, which again embeds the growth of the portfolio, but we shouldn't continue to add layers of protection for the macro environment as we move ahead. Operator: Our next question comes from Renato Meloni with Autonomous Research. Renato Meloni: Congrats on the results. So I wanted to explore a bit competitive environment in the second half of the year. I mean you already mentioned that you don't expect to increase prices. But I'm wondering, even if you continue to optimize your cost of funding, if you could offer more competitive prices as the economy slows down. And then if you can expand this even a bit further to 2026 when there are some rate cuts expected, what do you think is going to be your strategy there when rates start to come down? Lia Machado de Matos: So I think -- Renato, Lia here. So on your question -- so I think regarding the first part of your question -- sorry, the first part of your question was about, can you repeat Renato? Renato Meloni: Yes, the competitive environment in the second half... Lia Machado de Matos: Competitive, yes. So I think we don't expect any news on the competitive environment. We see a very rational competitive environment. And to be really honest, we price very much based on the bundling and the offerings that we offer our clients and based on our return hurdles. That's been our philosophy since we implemented these repricing strategy way back in 2022. So we don't expect to change that, and we don't see any changes in the competitive dynamics at all. I think long-term, if interest rates go down, that mindset won't change. Of course, what will happen is there will be a bigger gap potentially between repricings between -- sorry, pricings being applied to new sales versus the spreads of clients within the base. So there may be kind of competitive adjustments that will happen once that dynamic takes place. But that competitive adjustment will be a slower one, right, because the base is the base, nobody is expected to change the repricings of the base downwards. So I think that there will be a readjustment, a reequilibrium that may be reached, but that's going to be kind of a multi-year process in our view. So that's how we see the overall dynamics. Renato Meloni: Perfect. That's clear. So for the second half year, pretty much stable prices and gaining some share. Lia Machado de Matos: Yes. So nothing different than what we already said in terms of TPV dynamics and repricing strategy. Operator: Our next question comes from Eduardo Rosman with BTG. Eduardo Rosman: I have 2 questions here regarding competition as well. The first one is about PIX. I think Itau recently, they launched an initiative focused on small businesses, where I think among other things, they announced 3 PIX transactions, right, for our clients using the POS of [ hedge, ] right? So how do you see that? And if you see other players doing the same? And the second one would be about the deposits, right? You've been growing pretty well here, and I think this is relevant for your profitability. How do you see competition evolving for deposits? Do you see any pressure for higher remuneration? Lia Machado de Matos: Hi, Rosman. Lia, here. So regarding your first question around competitive dynamics and some players implementing no charges on PIX, I think those offers, they really come and go. In our view, PIX is one monetization driver among many depending on what sort of is the overall offer to a specific profile of clients, we do sometimes offer PIX for free, depending on what the overall economics of that client is. I think the message is that as we evolve our banking road map and our overall Stone road map really, right, the more features that we have to bundle, the more we can play with those levers. So I think this is really a dynamic process. And the better -- the more features we have in terms of to respond to this dynamic process, the better. So I think the message that we want to bring across when we talk about the overall road map is really it's about 2 things, right? Evolving and launching the new features that really addresses our clients' needs and the more features we have, the more bundles we can create. This is sort of a virtuous cycle that at the end of the day reflects in our ability to win clients and bring TPV within the ecosystem. But then more importantly, to really engage, right, make sure that our clients engage with our ecosystem overall. And ultimately, that will reflect in deposits growth. So I think deposits growth comes from multiple drivers. Every new feature that we launch is another reason for the client to operate within our ecosystem, and there is a pretty extensive road map ahead in terms of how we address more needs of those clients to operate more within the Stone ecosystem. Operator: The Q&A session is now over. I would like to hand the floor back to StoneCo team for their concluding remarks. Pedro Zinner: Well, thank you all for participating in the call, and see you in the next quarter. Thank you. Operator: StoneCo conference call is now closed. We thank you for your participation and wish you a nice day.

Operator: Good evening, everyone. Thank you for standing by. Welcome to StoneCo's First Quarter 2025 Earnings Conference Call. By now, everyone should have access to our earnings release. The company also posted a presentation to go along with its call. All material can be found online at investors.stone.co. Throughout this conference call, the company will present certain non-IFRS financial information, including adjusted net income, adjusted gross profit, adjusted net cash, adjusted basic EPS, and ROE. These are important financial measures for the company, but are not financial measures as defined by IFRS. Reconciliations of the company non-IFRS financial information to the IFRS financial information appears in today's press release. Finally, before we begin our formal remarks, I would like to remind everyone that today's discussion may include forward-looking statements. These forward-looking statements are not guarantees of future performance and, therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the company's expectations. Please refer to the forward-looking statements disclosure in the company's earnings press release. In addition, many of the risks regarding the business are disclosed in the company's Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov. In hindsight, I would like to highlight that the company is restricting the number of questions to two per analyst. Joining the call today is Stone's CEO, Pedro Zinner; the CFO and IRO, Mateus Scherer; the Strategy and Marketing Officer, Lia Matos; and the Head of IR, Roberta Noronha. I would now like to turn the conference over to your host, Pedro Zinner. Please proceed. Pedro Zinner: Thank you, operator, and good evening, everyone. I'd like to begin by reaffirming our annual goals and expressing how pleased I am with our first quarter performance. It was another successful chapter in our journey, marked by disciplined execution and continued progress toward our long-term objectives. This quarter, we focused on profitability, executing a new cycle of price adjustments across our client base in response to the yield curve increase observed in the second half of last year. At the same time, we continued to develop solutions and features that truly make a difference in our clients' lives. I believe our results reflect the strength of our client-centric approach, disciplined execution, and a rational competitive environment. When we take a step back and look at our performance in the context of our 2025 guidance, it becomes clear that we are on the right path. In the first quarter of 2025, we grew gross profits by 19% year-over-year, driven by effective repricing execution and a reduction in our average funding spreads. This result outpaces the 14% annual gross profit growth outlined in our guidance. On the EPS front, we accelerated year-over-year growth to 36%, significantly above the 18% growth implied in our full-year outlook. This acceleration was primarily driven by strong adjusted gross profit growth, improved efficiency in administrative expenses, and a more balanced distribution of marketing spends throughout the year. In addition, we repurchased R$843 million or 15.1 million shares during the quarter, including 5.7 million shares repurchased in March, which were not included in the share count used in our guidance. Over the past 12 months, our distribution yield reached 12%, underscoring our strong conviction in our strategy, our business, and our ability to execute. As a reminder, in our last earnings call, we laid out a disciplined capital allocation strategy based on three restrictive pillars, above which we would return excess capital to shareholders. With the close of 2024, we reached R$3 billion in excess capital. Of that, approximately R$1 billion has already been returned through share repurchases year-to-date. Today, we are announcing a new share repurchase program of up to R$2 billion, replacing the previous program. This move reaffirms our commitment to the framework and distribution policy we shared with you just a few months ago. With that, I believe we are well-positioned to continue executing our strategy, achieving our goals, and generating long-term value for our shareholders. Now, I'll turn it over to Lia, who will take you through our first quarter results in more detail. Lia? Lia Matos: Thank you, Pedro, and good evening, everyone. Diving into our first quarter '25 results, we're very excited with the milestones we have achieved. Such results reflect our execution in a less favorable macroeconomic environment with interest rates trending higher and we believe we have been successfully navigating this challenging scenario. On Slide 4, we highlight our main financial metrics on a consolidated basis. As you can see, we have shown good traction in revenues, gross profit, and bottom line. Our revenues grew 19% year-over-year and 2% quarter-over-quarter, despite seasonality in 4Q, resulting in revenues usually reducing sequentially in first quarters. This trend shows that we are on the right path. Our repricing initiatives have started to yield positive results despite the fact that it impacted in the quarter only partially. Adjusted gross profit also grew 19% year-over-year and decreased 3% on a sequential basis, mostly on lower quarter-over-quarter TPV, timing mismatch between the increase in prices and cost of funding, and on higher cost of services. Finally, our adjusted net income grew 23% year-over-year and decreased 17% quarter-over-quarter. This sequential reduction was mainly a result of our lower adjusted gross profit combined with higher investments in our distribution channels and higher effective tax rates. Looking on a per-share basis, adjusted basic EPS was R$1.97 per share, 36% higher year-over-year and 13% lower sequentially. The better per share performance compared to nominal net income is a result of our commitment to returning excess capital to our shareholders, with R$2.4 billion returned in share buybacks over the last 12 months and R$843 million in this quarter. On Slide 5, we dive deeper into our Financial Services segment performance. Starting with our payments business for MSMBs. Our MSMB payments active client base increased 17% year-over-year and 4% quarter-over-quarter to 4.3 million clients. We also continue to see increased engagement of this client base with our different financial services solutions, with our heavy user metric reaching 38% in the first quarter compared to 37% in the previous quarter. This trend is a natural result of our execution with regards to bundling financial services solutions and offering new features that address our clients' specific needs. MSMB TPV grew 17% year-over-year, even with the repricing efforts throughout the quarter. Going forward, we expect some deceleration in volume growth as a natural outcome of changes in our repricing policy, which should impact volumes throughout the remainder of the year as we prioritize profitability over pure volume growth in this scenario. Breaking down by types of transactions, MSMB card transaction volumes grew 10%, while MSMB PIX volumes grew 95% over the same period as PIX continues to cannibalize debit volumes. We believe this shift to be accretive to our results as we monetize PIX in line with debit and we see increased flow generating higher deposits with the usage of PIX. Moving on to Slide 6, we dig deeper into our banking performance. On the left side of the slide, we show the retail deposits evolution and breakdown. Our total client deposits reached R$8.3 billion, 38% higher year-over-year and 5% down sequentially due to seasonality. Deposits continued to outpace MSMB TPV growth, reaching 6.9% of MSMB TPV in the first quarter. As payments and banking bundles already have a high penetration within our base, the focus shifts increasingly towards driving further engagement with our solutions, where we expect to see steady evolution going forward. I would also like to recall that in our last earnings report, we have highlighted the changes in the mix of our time deposits going forward, aligned with what we call our cash sweep strategy. As we noted, we expect to convert a significant portion of our retail deposits into on-platform time deposits by issuing certificate of deposits. This will allow us to utilize such amounts to fund our operations and thus reduce our funding costs in line with a reduction also in our floating revenues. Such strategy is accretive to our bottom-line and also optimizes our capital structure. In line with this strategy, we have already started to ramp up time deposits. And by the end of the first quarter, R$6.3 billion of our total R$8.3 billion in retail deposits were already accounted as time deposits. The majority of such time deposits are a result of the cash sweep strategy and the remaining is related to investment product offerings to our clients. We expect this movement to finalize in the coming months, contributing to the diversification of our funding sources. Moving on to Slide 7, we give some color on our credit product evolution. Our total credit portfolio keeps growing consistently, reaching R$1.4 billion by the end of the quarter. Out of the total, R$1.3 billion relates to our merchant solutions, mainly comprised of working capital offerings to our SMB clients, and R$161 million amounts to credit card offerings with a special focus on micro-merchants. This steady portfolio growth continues to be supported by the good quality of our cohorts with 15 days to 90 days NPLs at 2.61% and NPLs over 90 days of 4.57%, increasing as a natural outcome of our portfolio maturation process. In terms of provisions, we have stabilized at a 12% provision level relative to our portfolio as we outlined in our last earnings call. And as a result, we will now transition to a cost of risk view, which was 10% in the quarter. Finally, our coverage ratio was 256% in the period, converging to more meaningful levels versus the previous quarters. To wrap up, on Slides 8 and 9, we bring our segmented view between Financial Services and Software. Our Financial Services segment revenues grew 20%, accelerating from 11% in the fourth quarter of '24 as a direct effect of our repricing initiatives throughout the quarter, which led to a sequential increase in revenues despite strong seasonal effects. Our adjusted EBT for the segment grew 21% year-over-year, reaching R$637 million and a flat margin despite macro headwinds. The improved year-over-year results combined the repurchase of R$2.4 billion in shares in the last 12 months also led to an enhanced ROE of 27% for Financial Services in the first quarter of '25 compared with 23% in the same quarter of last year. Lastly, on the Software segment, we saw revenues growing 11% year-over-year, mainly driven by higher software recurring revenues, led by an increase in our Software active client base, combined with a higher average ticket. Stronger revenues combined with gains in costs and expenses led to Software adjusted EBITDA growing 12% year-over-year and posting a slight EBITDA margin expansion compared to the first quarter of '24. We're also starting to share our Software CapEx, which has shown improvement compared to Software adjusted EBITDA having reduced from 71% of EBITDA in the first quarter of '24 to 51% this quarter, contributing to stronger cash conversion in our Software business. To sum it up, this quarter's results present one more step towards achieving our short- and long-term targets. We believe we're on the right track to continue to help our clients by providing superior service and solutions and further generate value to our shareholders. Now, I want to pass it over to Mateus to discuss in more detail our overall financial performance. Mateus? Mateus Scherer: Thank you, Lia, and good evening, everyone. On Slide 10, we detail the evolution of our consolidated P&L on an adjusted basis. As Lia mentioned, total revenue grew 19% year-over-year and 2% sequentially. This quarter, I'd like to reemphasize a notable shift within our revenue composition. Beginning in late 2024, we've optimized our bundled offerings, significantly shifting revenue from transactional revenues to financial income. Consequently, financial income has increased notably, while transactional revenue has decreased on both quarterly and yearly comparisons. As we've consistently highlighted, that's another reason why it's important to track gross profit rather than individual revenue lines for a comprehensive understanding of our business. Now, moving to our costs and expenses lines. Cost of services increased 15% year-over-year, translating to a decrease of 90 basis points as a percentage of revenues. This was driven primarily by lower provision for loan losses, reflecting reduced provisioning requirements as we aligned working capital provisions more closely with our expected credit loss models and efficiency gains in customer service. Administrative expenses increased 5% year-over-year, resulting in a reduction of 90 basis points as a percentage of revenues as a result of continued cost discipline within G&A expenses. Selling expenses increased 12% year-over-year and down 100 basis points as a percentage of revenues. This decrease was primarily due to a more balanced distribution of marketing spend throughout the year. Financial expenses increased 23% year-over-year, representing a 90 basis point rise as a percentage of revenues. This increase was primarily driven by the higher average CDI during the periods. On the other hand, our cash sweep strategy allowed us to begin using client deposits as an additional funding source, which helped partially offset this impact by contributing positively to our funding costs. Our other expenses line increased by 109% year-over-year or 140 basis points, primarily driven by a positive non-recurring share-based expense reversal recorded in the first quarter of '24. Our effective tax rate was 19.7% in the quarter, down from 20.6% in first quarter '24 and in line with the level provided in our guidance. The year-over-year decrease was driven primarily by higher benefits from Lei do Bem combined with unutilized tax loss carryforwards generated in the sale of PinPag in first quarter '24, which did not happen again this quarter. Turning now to Slide 11. Our adjusted net cash position was R$3.8 billion at the quarter-end, representing a sequential decrease of R$0.9 billion. This decrease mainly reflects ongoing share repurchase totaling R$843 million in the quarter, in addition to investments to grow our credit book. Before we move on to questions, I'd like to thank everyone for your continued support. We remain fully committed to executing our strategy and creating sustainable long-term value for our clients, team and shareholders. With that said, we're now ready to open the call up to questions. Operator: Okay. At this time, we are going to open it up for questions and answers. [Operator Instructions] Our first question comes from Tito Labarta with Goldman Sachs. Tito Labarta: Hi. Good evening, Pedro, Lia, Mateus. Thank you for the call and taking my question. A couple of questions. One, just on the outlook for TPV growth, right, because you're seeing the card TPV growth growing high-single-digits, low-double-digits, if you strip out the key accounts. How do you think about that growth? And then, also the PIX TPV growth, right, still strong year-over-year, kind of stable-ish quarter-over-quarter. I know you have the seasonality, but just to see how you think about the outlook for TPV growth, both within the MSMB and key accounts and within without PIX. And then, my second question, we saw the announcement from Totvs that now you guys are in negotiation for Linx. Just any color you can provide about that in terms of timing? I'm sure you can't discuss valuation at this point, but yeah, just any color you can provide there? And if you were to sell Linx, what would you potentially do with the proceeds of that? Thank you. Lia Matos: Hi, Tito. Lia here. Thank you for your questions. I'm going to take the TPV question and then pass it over to Pedro. So, regarding TPV trends, talking first about MSMB TPV, there are three key points to highlight. First is that our long-term guidance already implies some deceleration on TPV growth. So, the guidance that we provided for 2027 on TPV last quarter implies a 14% CAGR. So, this growth performance that we see is in line with this trend that we have already talked about. The second fact is that, naturally, in response to higher interest rates, as Mateus mentioned, we have implemented a broader repricing this quarter across our client base. These repricing efforts, they have performed very well, better than we expected, but some level of churn is always inevitable. So, this will modestly impact TPV growth in the short term. Third, obviously, macroeconomic environment does remain challenging. So, it's still a little bit early to say the full extent of its impact in the year. So, the message regarding the year is that TPV growth will decelerate somewhat. But overall, general trend regarding TPV is very much in line with our long-term guidance. Regarding PIX, we continue to see PIX strongly cannibalizing on debit volumes. This is also what we see on the industry. So, when we look at ABEX industry data, for example, it does point out to very different behavior in terms of growth when we talk about credit card volumes versus debit volumes. And that is consistent also with what we observe in our base, right? So, PIX TPV cannibalizing on debit volumes, which is why we see the stronger pace of growth for PIX TPV versus card TPV. Regarding key accounts, I think nothing really different to say about key account TPV trends other than what we've already said. It's not the focus of our strategy. So, the majority of our investments, both in product roadmap and in go-to-markets are focused on MSMB clients. That said, our platform does address needs of some large enterprise clients and we do serve those clients on an opportunistic basis. But those are not the focus of our strategy. And because, normally, these clients can shift very large volumes very quickly, that tends to be a more volatile TPV behavior. So, you can see kind of strong shifts quarter-on-quarter. Those shifts have little impact on gross profit, but they do impact overall TPV. So, I think those are the general trends in TPV that we can highlight. And I'll pass it over to Pedro to talk about transaction. Pedro Zinner: Sure. Thank you, Lia. Thank you, Tito. Well, I think, as you all know -- as you noted, we have entered with -- into an exclusivity agreement with Totvs to negotiate the sale of the asset. I think, at this stage, I think it's really hard to provide any additional details regarding the valuation, as you already highlighted, or the duration of the exclusivity period. I think what we can say is that negotiations are progressing positively. However, given the complexity involved in the transaction of such a magnitude, I think there are a lot of factors that still need to be negotiated and agreed upon. And therefore, I think it's still challenging to specify an exact timeline for reaching a final agreement, but be certain that we'll keep the market informed as the discussions moves ahead. On the allocation side, I think it's hard to talk about the future, given the uncertainty in terms of the closing of the transaction. What I can say is, if we were to make the decision today, I think we would do exactly what we're doing in terms of share buybacks. Because, when we assess the long-term implied returns of repurchasing shares, at current levels, we believe that buybacks represent a very attractive use of capital and seem to be value-accretive in terms of decisions for shareholders. So, that's the position as of today. Okay. Thank you. Tito Labarta: Okay. No, perfect. Thank you, Pedro. That's a helpful color on that. Maybe if I can, just one quick follow-up on the TPV with Lia. Just on the cannibalization of debit, do you see a lot more room for cannibalization there? Any way to quantify that? And have you seen any cannibalization of credit, particularly with the PIX financing at all? So, has it impacted credit at all? Lia Matos: Hi, Tito. So, I think the answer to the first part of your question is yes. I think we can continue to expect debit volumes to be cannibalized by PIX. When you look at ABEX industry data versus Central Bank data, it also points to that direction because debit card TPV in the industry is sort of flattish, right? It was flattish throughout last year and it had actually a slight decrease in the first quarter. And when you look at PIX growth data, it's a very different trend. It's a strong growth. So, I do believe that this trend will continue. But also let's not forget that PIX cannibalizes on debit volume, but it also cannibalizes on cash. So, in general, it's accretive for us because PIX volumes become more deposits in the banking ecosystem and we continue to monetize on PIX. So, I think that's the first part of the answer. The second part is, no, we do not see any cannibalization on credit volumes and neither the industry trends are suggestive of that either, right? When you look at ABEX data for credit card TPV growth, it's 13.5% in the first quarter, which is a healthy growth level and it's not suggestive in our view of PIX cannibalization of credit volumes in the industry either. Tito Labarta: Okay. That's clear. Thank you, Lia. Lia Matos: Thanks, Tito. Operator: Our next question comes from Mario Pierry with Bank of America. Mario Pierry: Hi, guys. Good afternoon. Congratulations on the quarter. I wanted to explore a little bit more about your price increases. As you mentioned, right, like you started repricing in the beginning of this year because of the yield curve had widened last year. Now, we're seeing the opposite trend, right? We're seeing the yield curve tighten. What does it mean for your outlook for prices? Would you consider passing on some of the benefits to your clients maybe later in the year? I ask this because, as you mentioned, right, Lia, you are -- seems like you're losing some market share. It seems like you're growing slightly below the industry. You said that churn has increased. So, trying to understand from your perspective, if you're seeing -- if you eventually see lower funding costs because of the lower rates in Brazil, if you consider repricing your clients? And if we can explore a little bit more also like what percentage of your clients have been repriced already? Like you said, you started fairly late repricing beginning of this year. What percentage of your client base has already been repriced? Thank you. Mateus Scherer: Hey, Mario. Mateus here. Thanks for the question. So, the first part of the question regarding whether we plan to pass through or change the pricing policy, given the recent movements in terms of the yield curve, I think the short answer here is no. So, just to give a step back and a little bit of a recap, we decided to do a really extensive repricing wave in the first Q. But in terms of magnitude of the adjustments, when we did the repricing wave, we basically targeted the yield curve of the half of the year, which back then was around 15%. If we were to look at the yield curves nowadays, again, it's really close to that. It's 14.7%, 14.8%. So, the impacts of the yield curve tightening now are not big in the short run. I think it's the curve of the second half that really tightens. But that was not built into the repricing waves that we did back then. So, it really doesn't move the needle. The only thing that, I would say, disagree with your question is that in terms of market share, we're not actually losing market share when we look at the target segment, which is MSMBs. So, market share was about flattish in the quarter. If you were to look at a longer-term window for the past 12 months, we actually gained like 0.1% or 0.08% market share. And again, like Lia said, in terms of our plan, that's pretty much what was embedded in the plan. The plan embeds a 14% CAGR until 2027. So, the expectation was always to keep a healthier pricing policy, focus on profitability, and not on growth at any cost. And I think the final piece of the question in regards to the extent of the base that was already repriced, the vast majority of the base was already repriced. Last earnings call, I think the message that we provided was that in our Stone brands, pretty much all the repricing wave was done. In the second Q, we did the repricing in our Ton brand as well. Results were also really good when we look at the churn levels versus the price increases that we did. There are still a few waves to be done in the second Q, but they are really small. I think the vast majority of the base was already repriced. Mario Pierry: That's clear. Mateus, let me ask you then on the market share. As you mentioned, like your market share has been stable then. You used to be a story of gaining market share, right? How do you see your ability to grow your market share in the next couple of years? Lia Matos: Mario, just to complement on Mateus point regarding market share trends, the 14% implied CAGR in our long-term TPV guidance does mean that we believe we will continue to grow above the industry and gain share, albeit at a slower pace than in the past. That's natural as we have achieved a significant level of scale and our presence in the MSMB segment. So, I think that's the first message that we want to really convey. So, the net positive market share gains on a yearly basis, albeit at a lower level than historically to us, is in line with our plan. Now to your question on what are the drivers, right, I think the drivers are really the continuation of the execution of our plan of bringing more solutions to our clients. So, more and more, we believe that we have new levers to pull regarding how we address the pain points of our clients and how we actually price those solutions from a bundling and offering strategy perspective. So, that's the first -- and I would say most important element is the element of how we believe we will continue to differentiate ourselves in the way that we serve our clients from a product, from an offering, and from a service perspective. I think the second important element, let's not forget that Stone is also about a big differentiator around our distribution capabilities, where more and more we're driving the organizations towards a unified growth and distribution approach, really leveraging data and technology. So, we want to be, I would say, more and more assertive over time in terms of addressing the pockets of growth opportunities that we still see in the market, like the more scale we achieve, the more sophisticated we need to be, right? So, we need to have very clear visibility on granular market data and where the growth opportunities are. And by implementing a more unified go-to-market approach, really leveraging market data and technology, we believe that we still have opportunities to grow. So, distribution is also an important part of the equation as it has always been in our business model. Mario Pierry: Okay. No, that's very clear. Thank you very much. Lia Matos: Thank you, Mario. Operator: Our next question comes from Neha Agarwala with HSBC. You can open your microphone. Neha Agarwala: Hi. Can you hear me? Lia Matos: Yes, Neha. We can hear you. Hi. Neha Agarwala: Perfect. Hi. Congratulations on the numbers. Just a quick follow-up on the previous questions, and sorry to harp on that. What I cannot piece together is expectation of further slowdown, deceleration in TPV growth. And I'll tell you why because you have already done the depricing in the 1Q already. So, if there was a churn, you would see that more in 1Q. So -- and acknowledging that all the players in the market have been quite aggressive in terms of repricing. Everybody's pushing the pricing up. So, why should volume decelerate in the MSMB segment in the coming quarters? That is something that I'm still not very clear about. Second question is on competition. Do you see with players like Mercado Pago being more aggressive, growing very strongly in Brazil acquiring, also adding some salespeople on the ground, adding some software, moving up market? Do you see that having any impact on your core MSMB segment? And also, we saw that Fiserv is entering Brazil. They did us a transaction recently. And do you think that could be competition with their offering of Clover? Could that be a competition on the software side of the business that you've been trying to build out with the key verticals? So, any thoughts on that would be very helpful. Mateus Scherer: Hey, Neha. Mateus here. I'll take the first part of how you piece together, typically, growth deceleration over the short term versus the repricing has been done in the first Q, and then pass it over to Lia to talk about the other part of the question. So, on the first piece, two things here. So, the first one is that when you think about the impacts of repricing, it's right that we did the majority of the repricing waves in the first Q, but they were done throughout the quarter. So, in terms of the impact of churn, even though it's small, you have the full impact on the following quarters, right? There is some lag. And the second thing is that, when you talk about the growth generally decelerating over the medium to long term, it's not only about the repricing waves. I think the repricing waves are important in the short-term, but not material when we look at the longer-term. I think there is also a matter of the overall size of the business here, which again was already embedded in the plan. So, given the size of the company, it's natural that, on a percentage basis, the growth rates over the long-term will be somewhat smaller, right? Lia Matos: Perfect. Maybe just to elaborate on competitive dynamics, Neha, to -- on the question regarding global players entering the market, we haven't really seen, to be honest, any relevance of such global players becoming like important on the competitive dynamics. That said, we do monitor competitive dynamics very, very closely and very, very granularly because of the data capabilities that we have through our operational platform. We can really understand what the local competitive dynamics is. So, on to the second part of your question regarding local players, deploying a similar distribution strategy as ours, I mean, we do see that in some specific regions, in some specific areas. But it's again not very significant when we think about the SMB focus that we have, which is, let's not forget that we're continuously moving our distribution approach upwards towards a specialist distribution that can really address the larger SMBs with a very differentiated service level and offering. So, I think the message here is, yes, players are replicating our model. We are continuously running to stay ahead. And staying ahead is about how we evolve the model, how we use technology, and how we use data to be really precise on addressing where the pockets of growth are. Regarding your point about product, we talked about this extensively in Investor Day. We are evolving our Stone solution to address workflow needs of our clients. That's going to be -- there's a pillar of software in this strategy, right, where we connect financial workflows with business workflows of our clients. We don't talk about this so much as being software, but Stone is evolving more and more towards being a software and a management solution for our clients as well. So -- and I think we have the advantage that we're very close to those clients already, our distribution covers 99% of GDP, and we already have a pretty clear picture on where the market opportunities are throughout Brazil. Neha Agarwala: Very clear, Lia. If I can just follow up on that? So, I do understand that the reason why Stone gained a lot of market share in the SME segment is because of the reach that you just mentioned and the good quality service that you provided. But what Mercado Pago was saying that they're seeing very strong volumes and that is because of the more comprehensive suite of products that they are providing, and one of that product is credit, right? They are being quite active in terms of giving credit to the merchants that are working with them. Do you feel that there is probably going to be more pressure, given competition to do, be more active in credit? And do you see any risk in that sense or do you see any pricing pressure coming from more intense competition in the SMB space? Mateus Scherer: Neha, I'll take the first part of the question and then Lia may jump in to complement. So, for the pricing piece of the question, the short answer is also no. So, when you look at the pricing environment, it's pretty much stable. And I think the repricing waves are a good indication of that. In the end of the day, I think there was a big worry with market participants on whether the market was going to be rational with these interest rate increases and I think what we saw pretty much for the industry as a whole was everyone repricing and being pretty much rational in terms of pricing. In terms of credit, I'll begin and then Lia may add. It's true that credit is a very important piece of the equation. I think when you mentioned a few competitors that we're seeing, I think we're talking about different client profiles here. So, in terms of our core SMB clients with the average sizes that we operate, I don't think there are too many other players focused on our target niche. But again, I think the general concept that you provided, which is credit being a very important part of the offering is undeniable. And on that front, when you look at the progress on our credit book, again, there is a big challenge in terms of our long-term plan. But I think if you look at the performance since the Investor Day, we're pretty much online or even slightly better than what we anticipated on that front. So, that's progressing well. Lia Matos: Yeah. I would have nothing to add, Neha. I think Mateus said it all. Neha Agarwala: That's great. Very clear. Thank you so much for your comments. Lia Matos: Thank you, Neha. Operator: Our next question comes from Guilherme Grespan with JPMorgan. Guilherme Grespan: Thank you so much, team, for the presentation and the questions. The first question -- two questions on our side. The first one is related to net cash. There was a pretty decent decline in net cash, almost R$1 billion. I understand almost R$900 million is going to be buyback. But all the rest, basically, all the net income you generated in the quarter, you didn't convert into cash and you explained the presentation, right, you put several balance sheet items that kind of dragged the cash conversion. But my question is more looking forward. I just want to understand if those items were one-off of the quarter. And next quarter, if you print again, I don't know, R$0.5 billion in earnings, we're going to see R$1 billion in cash generation is going to revert this cash conversion or if it's something that is going to last and you basically did not convert and it's not going to happen in the second Q. And then, the second question is related to take rates. I just want to have your sense on how should we think about take rates, net of funding cost into the second quarter. I think you have the benefit of repricing not having impacted the full quarter, right? So, probably the gross financial income is going to move up, but at the same time, the financial costs are going to continue to move up [indiscernible] move higher. So, just want to understand how you think about this net take rate, already net of funding cost, if we should see it going up or down? And by the way, congratulations on the repricing. If it's worth anything, we appreciate more of the profitability than market share. Okay. Thank you. Mateus Scherer: Thanks, Grespan. Thanks for the question as well. So, I'll take both. The first one was around net cash. So, I think you pretty much touched upon the answer here. So, when you look at the quarter, there were both seasonal and also -- seasonal effects and also some one-offs. In terms of the one-offs, we had some prepaid expenses related to our contract with Grupo Global. So, as you may well know, this year, we were also subject to the contract agreements and we're doing Big Brother Brasil and a few other shows. And most of the disbursement around this contract happened in the first Q. And also, when you look at the other balance sheet lines, especially the higher labor and social security liabilities affect, that's really much related to the payment of variable compensation, which happens in the first Q. And again, when you look at the following quarters, we don't have both effects. So, I think the dynamics is similar to what you described, which is cash generation should be higher than net income, of course, excluding the effect of credit and buybacks, right? The second question around take rates. So, to be really honest, I think we're looking less and less into take rates internally because it's becoming harder, given the shifting lines that we have. You saw in the earnings release that we did a big movement in terms of advancing with our cash-sweeping strategy, which shifts lines between financial income and financial expenses net. So, the metric that we're looking more now is, of course, adjusted gross profit. When you look at the adjusted gross profit in relation to TPV, then we saw an increase from the first Q to the first Q already. It came from 1.18% to 1.23%, so a 5 bps increase. That was pretty much the effect of both the repricing and also some seasonality as, in the 4Q, we have higher mix of debit. When we look at the second Q, given that the repricings were done throughout the quarter, we should expect some level of increase, but again, we need to keep in mind that even though we have the full effect from the repricing waves, we also have a higher interest rates in the second Q as compared to the first Q, right? So, that's why it's not such a big jump, but that's the general trend there. Guilherme Grespan: That's clear. Thank you, Mateus. Operator: Our next question comes from Renato Meloni with Autonomous Research. Renato Meloni: Hi, everyone. Congrats on the results here, and thanks for taking my question. So, just first on your deposit strategy, right? So, there was this big shift compared to the last quarter on your time deposits. Do you think you have achieved the right mix here, or do you still expect to grow time deposits? And are you still going to be reaping benefits from lower-cost of funding based on deposits here or we are already seeing most of it, right? And then just still on this, are you facing more competition from other peers? We've seen some higher yields being announced recently. So, I wonder if that's affecting your strategy and if you're rethinking anything there. And then, just a quick follow-up on financial income. I wonder if you can break down how much of the financial income growth came from repricing and how much was just from the reclassification from transactional revenues. Thank you. Mateus Scherer: Thanks, Renato. I'll take the first and the last piece of the question and then Lia may add on the competition side. So, first on the cash-sweeping effects, I think it's worthwhile to give a little bit of a step back here on the strategy around deposits as a whole. So, as we anticipated in the last earnings call, this first Q is started to really roll out the cash-sweeping strategy, which basically consists on migrating our retail deposits towards time deposits. Just as a reminder, whenever we do that, on one hand, we lose the financial income we have from the floating on our deposits, but that is more than offset by the gains that we have in financial expenses net because we don't need to use other funding sources, right? In terms of the quarter, this R$6.3 billion is a big step in terms of the migration of the cash-sweeping, but it's not the end results. I think the remainder of the deposit base, the vast majority should also be migrated over the coming months as well. But in terms of the P&L impact, given that we did this migration towards the end of the quarter, the impacts on our P&L in the quarter were minimal, so really immaterial. And we should see the effects -- this effect on the P&L on the coming quarters. Just as a reminder, we lose 100% of CDI on our revenue. We gain our cost of funding. So, the net result should be around 75 basis points to 125 basis points per year that we gain on the amount of deposits that we migrate. And with that, I think you can make the math on the impact on the P&L going forward. The second question, I think, was on financial income, if we can break down the effects of the bundling. Again, I think the message here is pretty similar to the take rate question, which is it's really hard to break down because there are too many moving pieces now. We had the migration between transactional revenues towards financial income, but we also have other effects, right, the credit portfolio growing, the cash-sweeping strategy. So, I think the best way to understand is not on a line-by-line basis, but rather looking towards the combined gross profit or the combined revenue streams. Lia Matos: Perfect. So, let me just complement the question -- on your question around competition. I think, almost every week, we see new offerings regarding investment products in the market. So, it is a very dynamic space, I would say. But our take and we have tested ourselves different offerings as well and tested conversion and elasticity. What we observed is that for our client profile, which is a merchant, the investment product is important, but very much from the perspective of saving for specific purposes, right? So normally, these promotions, they will tend to be more impactful when we talk about consumer banking and less on business banking. So, I mean, nothing really new. We have ourselves tested different offerings. And from our perspective, the really important aspect of this offering is to give our clients the opportunity to save for different objectives within the Stone ecosystem. That's much more important than the actual spreads. Renato Meloni: That's pretty clear. Thanks, everyone. Lia Matos: Thank you, Renato. Operator: Our next question comes from Daniel Vaz with Safra. Daniel Vaz: Congrats on the results. Two on my end. I think about the repricing during the quarter, you did several adjustments, right? So, you arrived in a higher take rate from that. But I want to ask if it's fair to assume that you should still increase take rates in the next quarter, as we would see the full impact from the repricing, right? You -- probably you did part of -- on January, part on February. So, wanted to take the full impact from the repricing on the next quarter if it is positive. And if also is there any further adjustments on any specific niche of customers that you would do? And a follow-up to Renato's question and Mateus's answer about the net positive effect, right? So, you have potential lower floating revenues and lower funding costs. Can you give us a color about this conversion you already did in the first quarter if has any positive effect already or should we expect that from the second quarter going forward? Thank you. Mateus Scherer: Hey, Daniel. Thanks for the question. So, the first one around the effects of repricing, you are right in the concept, which is we made the repricing waves throughout the first Q. So, the full effect will be felt on the second Q. Also, a small reminder on that end is that we did the full repricing waves for the Stone product in the first Q. On the Ton product, they were done throughout the second Q. So, there will also be some leftover for the third Q as well. Again, in terms of the metric, we're not looking at take rates internally anymore. The metric that we're tracking is gross profit versus TPV. And on that front, the message is the one that you just said, which is given that the full effects will be felt in the second Q, there is still some room for improvement there. The second part of the question, just to make sure that I got, I think it's whether the effects of the cash-sweeping were significant on the first Q or whether we should feel those effects on the second Q? Daniel Vaz: Yeah, that's it. Mateus Scherer: Yeah. So, on that front, even though we did the migration of a significant part of the deposits on the first Q, they were done really towards the end of the quarter. So, from a P&L perspective, we had a minimal impact in the first Q. Most of the benefits will also be felt from the second Q onwards. Daniel Vaz: Right. And I believe that you mentioned about R$20 million for every R$1 billion conversion in the last quarter. Is it right, like pre-tax benefits? Mateus Scherer: Yeah. It's from 75 basis points to 125 basis points over the volume that we migrate per year. So, if you do the math, it's pretty much around those levels. Daniel Vaz: Okay. Thanks again. Operator: Our next question comes from Marcelo Mizrahi with Bradesco BBI. You can open your microphone. Marcelo Mizrahi: Hi, guys. Congratulations for the results. My question is related to the volume. So, in the conference calls of many companies like Visa and some malls, they were referred about the impact of Easter on their volumes of sales. So, my question here is to understand the impact of Easter in the TPVs and volumes of Stone during the first quarter and the potential impact on the second quarter. So, could you give us some color about the volumes year-to-date, putting April together with the first quarter, or some color about that? Thank you. Lia Matos: Hi, Marcelo. Thanks for the question. So, no specific trends on our side. I think that possibly has to do with the profile of the client base. When we talk about our overall industry, there is a big proportion of volumes that come from large retail that we serve very minimally, right? So, we -- I think no specific trends to highlight there. Marcelo Mizrahi: Okay. Thanks. Lia Matos: Thank you. Operator: Our next question comes from Thiago Paura with BTG. Thiago Paura: Hi, everyone. Thanks for the opportunity here to ask a question. I have one on the credit front. Maybe a follow-up of another questions made previously. We just saw another quarter of very strong growth in the credit portfolio. I mean, 20% on a sequential basis. So, my question is really about better understanding the competitive advantage you believe Stone has in this segment, especially after the restructuring phase, the product went through. Mateus mentioned that the niche that Stone is targeting could be slightly different from other peers. But just try to understand how do you believe your approach or your underwriting model differs from -- differ from other players who might be offering similar products to the similar client base and what you considered to be your structural advantage on this front to support your 2027 guidance you are committed to on the credit portfolio? Thank you. Lia Matos: Thank you, Thiago. Let me elaborate a little bit taking a step back and talking about overall credit strategy. I think I'm going to address some of your points in this answer. So, first, I think there's two pieces -- two important pieces that are somewhat distinct within the credit strategy. First, regarding our longer duration working capital loan, this is really the product that we have developed and perfected and continue to evolve over time to serve the needs of our small and medium clients, so the larger, more sophisticated SMBs. And while we continue to pursue growth there through a digital approach, we're incrementally investing in what we call our credit specialist distribution. So, part of this specialist distribution is focused around credit. So, this really has enabled us to make the right types of offer for those larger SMB clients. Again, on the product experience, I think we've talked about this many times, it is very differentiated for an SMB because they repay really according to their sales. So, this alignment that the product provides, I think, is a differentiated aspect that we have observed since the beginning of our credit offerings. So, I think we continue to be optimistic on the growth trend there. And when we look at the portfolio growth, that is the big driver of growth, right, that we have observed. But there is a second part to the credit strategy that is less mature, more recent, but we're also seeing very positive results. And I think there's a lot of work to do, but -- and it's really regarding addressing what we call shorter-duration credit solutions. They address different types of needs of our clients. For example, when we talk about credit cards that we are scaling, although, at still less mature levels than we compare with working capital loans, this product is much more suited for micro clients. They have more consumer-like needs. So, I think there's a lot for us to do on the credit card side and it will address more the base of the pyramid when we talk about the profile of clients. But even when we go back to our SMB clients, we have seen also very positive response from our clients in terms of the offerings of products that we have developed around -- shorter-duration products that we have developed around fixed rails. For example, helping them pay suppliers, giving them more terms or some short-term loans to pay suppliers, or even overdraft solutions. So, there's kind of a group of shorter-term duration products that we are developing for SMBs as well. So, I think the message is, there's a lot to do. We continue to be optimistic about our long-term guidance. And the differentiation really will be about the way that we offer the product, the product experience itself, and our distribution approach. Thiago Paura: Perfect. Thanks. Thanks, Lia. Thanks very much. Lia Matos: Thank you. Operator: There are no questions at this time. This concludes the question-and-answer session. I will now turn over to Pedro Zinner, CEO at StoneCo for final considerations. Pedro Zinner: Well, thank you very much for you all for participating in our call. Hope to see you again in the next quarter. Thank you very much. Operator: This concludes today's presentation. You may disconnect. And have a nice evening.

Operator: Good evening, everyone. Thank you for standing by. Welcome to StoneCo's Fourth Quarter 2024 Earnings Conference Call. By now, everyone should have access to our earnings release. The company also posted a presentation to go along with its call. All material can be found online at investors.stone.co. Throughout this conference call, the company will be presenting non-IFRS financial information, including adjusted net income, adjusted net cash and adjusted basic EPS. These are important financial measures for the company, but are not financial measures as defined by IFRS. Reconciliations of the company's non-IFRS financial information to the IFRS financial information appears in today's press release. Finally, before we begin our formal remarks, I would like to remind everyone that today's discussion may include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the company's expectations. Please refer to the forward-looking statements disclosure in the company's earnings press release. In addition, many of the risks regarding the business are disclosed in the company's Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov. In hindsight, I would like to highlight that the full conference call will last until 7:15 pm BRT time, by which time the company will take no further questions. Analysts that are still in line after that time will have their questions addressed by the IR team. Joining the call today is Stone's CEO, Pedro Zinner; the CFO and IRO, Mateus Scherer; the Strategy and Marketing Officer, Lia Matos; and the Head of IR, Roberta Noronha. I would now like to turn the conference over to your host, Pedro Zinner. Please proceed. Pedro Zinner: Thank you, operator, and good evening. As detailed in our Annual Shareholder Letter, 2024 was a pivotal year of execution, marked by significant progress despite market challenges. We strengthened our position for sustainable growth, successfully executing our strategy, delivering exceptional client service and generating value for shareholders. Our key accomplishments reflect substantial progress across our three strategic priorities: MSMB market leadership; enhanced client engagement; and scalable platform growth. This is clearly demonstrated by the achievements against our 2024 targets for MSMB card TPV, deposits, MSMB take rate, credit portfolio, adjusted administrative expenses and adjusted net income. With the exception of MSMB card TPV, we exceeded expectations across all other key performance indicators, demonstrating successful strategy execution. In 2024, MSMB card TPV reached BRL403 billion, representing 15% year-over-year growth. While this fell slightly short of our BRL412 billion guidance due to the faster-than-expected adoption of PIX, total MSMB TPV exceeded expectations, reaching BRL454 billion, a 22% year-over-year increase. Looking ahead to 2025, we are confident in our ability to continue outpacing market growth and expanding our share of the MSMB payments market. Retail deposits closed 2024 at BRL8.7 billion, exceeding our BRL7 billion guidance. This success reflects the strong performance of our bundled payments and banking offerings and increasing client engagement with our banking solutions. While this is a significant milestone, we view it as the initial phase of our strategy to establish Stone accounts as the primary financial hub for our clients. As we enhance our value proposition with a comprehensive product ecosystem extending beyond payments, we project retail deposit growth to outpace TPV growth. In 2025, we will focus on key initiatives, including our investment products and workflow tools to further accelerate deposit growth. Our second priority, enhancing client engagement, yield strong results beyond core monetization metrics like TPV and deposits. We achieved an MSMB take rate of 2.55% in 2024, exceeding our 2.49% guidance. This success reflects not only disciplined pricing and payments, but also the growing contribution from our banking and credit solutions. Our credit portfolio reached BRL1.2 billion in 2024, significantly exceeding our BRL800 million target while maintaining controlled risk and healthy profitability. Our non-performing loans over 90 days remained at a controlled 3.61%. These results highlight the success of our 2023 credit relaunch and represent a key step in our strategic evolution toward becoming our clients' primary financial provider. Our third priority, scalable platform growth, focuses on delivering continuously evolving value to clients' profitability. This is reflected in our net income of BRL2.2 billion, exceeding our BRL1.9 billion guidance despite macroeconomic headwinds and over BRL100 million in negative impacts from accounting methodology changes for membership fees. The strong performance resulted from successful monetization, ongoing efficiency improvements and the initial benefits of cost control initiatives as evidenced by adjusted administrative expenses of BRL994 million compared to our BRL1.125 billion guidance. I am extremely pleased with our strong performance in 2024 and the progress we made executing our strategy. We remain focused on empowering our clients by simplifying their financial lives and providing the solutions they need. Now, I'll hand it over to Lia, to discuss our fourth quarter 2024 results and provide further strategic updates. Lia? Lia Matos: Thank you, Pedro, and good evening, everyone. Taking a closer look into our fourth quarter '24 results, we're pleased with our performance in the quarter. We were able to deliver solid results despite a less favorable macroeconomic environment towards the end of the year when yield curves trended upwards. In spite of this scenario, we decided not to increase prices for our clients in the quarter, given the important holiday season. As you can see on slide four, we posted strong bottom line results. Our adjusted EBT grew 22% compared with the fourth quarter of '23, while adjusted net income grew 18% over the same period. Adjusted net margin was 18.4% in the quarter, 1 percentage point higher year-over-year. As a result of the execution of share buybacks throughout 2024, our adjusted basic EPS growth exceeded net income growth, increasing 26% compared to the fourth quarter of '23. These results, as seen on slide five, stem primarily from an 11% year-over-year increase in total revenues for the quarter, which resulted from active client base growth and higher monetization of clients among different client segments. In addition to that, we saw significant gains in efficiency while we continue to invest for future growth. As you can see on the right side of the slide, we are now introducing gross profit as a key measure of our performance. Gross profit is measured as our revenues deducted by cost of services and financial expenses. We believe this metric better represents the nature of our operation and our ability to monetize clients through multiple levers, such as payments, banking and credit. On the cost side, it considers the cost to fund our operation as well as the direct cost to serve our client base. Our gross profit in the quarter reached BRL1.7 billion, growing 13% year-over-year. This growth ahead of revenue growth reflects a lower level of provision for loan losses as well as a lower cost to fund our business. Note that on a quarter-over-quarter basis, we started to be impacted by the higher yield curve. While we had a hit in our financial expenses from higher rates in the fourth quarter, we understand the end of the year as a critical moment for our clients. And thus, we took the decision to not increase prices in the fourth quarter and wait for the beginning of the year instead. On slide six, we dig deeper in our Financial Services segment performance, starting with our payments business for MSMBs. Our MSMB payments active client base increased 19% year-over-year to 4.1 million clients. This represents an acceleration in our addition of clients to 157,000 from 108,000 in the previous quarter. Net adds performance in the quarter resulted from end of year campaigns, including Black Friday, while churn levels remained under control. While we welcome this acceleration and believe it reflects the strength of our value proposition as well as excellence in distribution, we note that our focus continues to be to guarantee healthy unit economics in every cohort through a dynamic pricing strategy, effective bundling and increased client engagement. I think it is important to remind everyone that net adds dynamics can vary quarter-over-quarter, slightly above or below the average over several quarters. Speaking of engagement, we saw yet again an increase in our heavy user metric this quarter from 34% in the previous quarter to 37% in the fourth quarter. We believe this is a result of both the effectiveness of our payments and banking bundle offers and on the launching of new solutions that are accretive over time. MSMB TPV increased 21% year-over-year in the quarter, showing an acceleration compared to previous quarter growth of 20%, driven by card TPV growth of 13%, while PIX continued to grow at much higher rates as adoption continues to accelerate and visibly cannibalize debit volumes as well as cash. PIX continues to open new avenues of product development, such as recently implemented NFC capture, while monetization remains accretive to our ecosystem. In spite of the solid volume growth, we also saw encouraging trends in our take rates, which increased 11 basis points year-over-year, with a soft reduction sequentially due to typical fourth quarter seasonality. As I mentioned, going forward, we will focus more on total gross profit as a better metric to reflect our monetization strategy, achieved through multiple monetization drivers and trade-offs. We believe that take rates are more limited in showing the whole picture, given that we may decide on different balances between solutions given a specific macro environment. Also, as we intend to use our deposits in a more relevant way to fund our operation, which is accretive to us, this would impact take rate while it would be neutral to gross profits. We will, however, continue to disclose this metric in earnings materials and will adapt it to include fixed volumes in TPV when calculating take rates. Moving on to slide seven, we show our banking performance. We continue to see strong growth in our banking active client base, which increased 46% year-over-year to 3.1 million banking clients, outgrowing the increase in our payments client base. The combination of success in our bundle offers and continued engagement with our banking features led to a 42% increase in retail deposits or a strong 28% sequential increase boosted by seasonality, reaching BRL8.7 billion by year-end. As expected, deposits have been growing well above TPV, reaching 6.8% of MSMB TPV in the quarter compared with 6% in the third quarter of '24 and 5.8% in the fourth quarter of '23. Within retail deposits, we have seen a 3.6 fold increase in time deposits, which reached BRL430 million, mostly related to our savings solution. Although still small, this solution has been a key driver of engagement, enabling our clients to save money for specific purposes, and therefore better organize their finances. An important aspect to note is that from the remaining BRL8.3 billion in deposits, we expect to convert a significant portion of it to time deposits by issuing certificate of deposits. This will allow us to utilize such amounts towards funding of our operation. As we pursue this strategy over the coming quarters, we expect to see a shift in our retail deposit mix from deposits from retail clients to on-platform time deposits. This shift will contribute to a better and more efficient capital structure and will significantly reduce the cost to fund our operation, reducing financial expenses. At the same time, we will no longer earn CDI on top of those deposits, which means we will experience a significant reduction in our floating revenues throughout the year as well. The effect will be an accretive outcome to our bottom line as we implement this strategy over time. On slide eight, I'm going to give some highlights of our credit performance. The fourth quarter showed a trend of continuity versus previous quarters with positive results both in growth and in quality. Our credit portfolio reached BRL1.2 billion, increasing 31% in the quarter. This portfolio is comprised of BRL1.1 billion of merchant solutions composed in its majority of working capital solutions to SMBs and BRL114 million of credit card offerings to our clients, mainly to micro clients. Despite the more challenging macroeconomic scenario, we still see credit as an important avenue of growth given the significant opportunity to support our clients through multiple credit offerings where we still have limited presence. Nevertheless, we remain aware of macro trends that may lead to an impact in future disbursements and performance. Credit quality remains healthy, with NPLs 50 to 90 days of 2.47% and NPLs over 90 days of 3.61%, with increases being expected as a natural consequence of portfolio maturation. Regarding provisions, as we have been communicating over the past quarters, we have been gradually reducing the amount of working capital provisions we hold compared with its respective portfolio balance. When we relaunched the solution, we decided to overprovision until we could have a clear view of multiple vintages performance and slowly converge those provisions to the actual expected loss levels. The ratio of accumulated loan loss provision expenses over the working capital portfolio reached 12% in the quarter compared with the 14% in the third quarter and 20% a year ago. Given the current macroeconomic scenario and a conservative approach from our side, we believe this is an appropriate level to stabilize in at the moment. As such, we will now transition away from tracking this ratio to follow more widely used credit metrics. Our coverage ratio currently stands at 331%, which is still at a high-level for comparable credit players in the markets. To summarize, on slide nine, as a result of the performance highlights I just described, our Financial Services segment grew revenues at 11% year-over-year to BRL3.2 billion, with an adjusted EBT growth of 16% reaching BRL700 million and a 90 basis points margin increase to 21.9% in the quarter. The solid results of the year within the Financial Services segment, driven by the successful execution of our strategic priorities around win, engage and scale led us to reach an ROE of 27% in 2024, 5 percentage points higher than in 2023. Finally, on slide 10, I will go through our Software segment performance. As you can see, our execution on cross-selling financial services to software clients has been yielding positive results. We have increased our CTPV overlap 20% year-over-year compared with a 13% growth of overall MSMB card TPV for the same period. Sequentially, we grew CTPV overlap two times higher than our MSMB card TPV growth, which gives us confidence to keep seeking the strategic avenue ahead. On a standalone basis, Software revenue grew 15% year-over-year in the quarter, mainly driven by a good performance in one of our portfolio companies, Reclame Aqui and the non-recurring revenue of BRL8 million. Software adjusted EBITDA posted a strong 54% growth year-over-year, reaching an all-time high margin since the acquisition of Linx of 21.6%. This margin improvement was largely led by the combination of a strong revenue performance with our continued focus on gaining efficiencies in the operation. As Pedro mentioned, we're pleased with the 2024 results and remain committed and excited to bring more value to our clients throughout 2025, and to continue our journey towards reaching our long-term targets and creating value to our shareholders. Now, I want to pass it over to Mateus to give important updates on our Software segment and discuss in more detail our overall financial performance. Mateus? Mateus Scherer: Thank you, Lia, and good evening, everyone. Before we dive into financials, on slide 11, I'd like to briefly update you on our Software division. During our Investor Day in November 2023, we outlined our software strategy focused on cross-selling financial services to four priority verticals and managing our other software assets for efficiency and cash generation. As previously discussed, while executing the cross-sell strategy, we achieved greater success leveraging our financial services distribution channels rather than relying on our software-specific sales force. This insight led us to conclude that owning the software asset isn't essential for executing our cross-selling strategy, although the strategy itself remains relevant. As a result of this shift in how we execute, a larger share of the economics from the cross-sell is now being recognized within our Financial Services segments rather than the softer cash-generating units. Additionally, recent standalone organic growth trends in the Software business prompt us to lower our growth expectations for the segments. These factors, along with a more challenging macroeconomic environment, led us to recognize a goodwill impairment charge of BRL3.6 billion for the software cash generating units. This impairment is a non-cash accounting adjustments and has been excluded from our adjusted financial results. Regarding our ongoing assessment of strategic alternatives for the software assets, we have received and reviewed several proposals from interested parties. However, as of now, none have met our assessment of the intrinsic value of the assets. Thus, we will continue maximizing the value of the assets and executing our cross-selling strategy as we have done to date. Now let's turn to slide 12 and explore the quarter-over-quarter evolution of our costs and expenses on an adjusted basis. Cost of services increased 10% year-over-year and 2% sequentially, leading to a 130 basis points sequential reduction as a percentage of revenues. This improvement was primarily driven by operational efficiencies in customer support and logistics and lower provisions and losses. Thanks to the reversal of a provision that did not materialize. These benefits were partially offset by higher loan loss provisions related to the growth of our credit products. Administrative expenses decreased 2% year-over-year and increased 6% quarter-over-quarter, resulting in a sequential reduction of 10 basis points as a percentage of revenues. This reduction reflects operational leverage achieved in the period. Selling expenses rose by 21% year-over-year and 9% sequentially, increasing 30 basis points as a percentage of revenues. The rise was primarily due to increased investments in our specialty sales team, partially offset by reduced marketing expenses. We continually assess growth opportunities and remain committed to investing where it's value accretive. Financial expenses increased 10% year-over-year and 14% sequentially, or 160 basis points as a percentage of revenue. The sequential increase was primarily driven by the higher yield curve in the quarter. We expect to ramp-up the usage of our deposits as funding for our operation throughout the year, which will enable us to further diversify our liability management, while continuing to reduce our average funding spreads. Our other expenses line decreased by 24% year-over-year, but remained relatively stable sequentially. As our revenues grew, other expenses as a percentage of revenue declined by 20 basis points. Our effective tax rate was 14.5% in the quarter, down notably from 20% in Q3. This reduction was driven primarily by gains from entities abroad, including the full effect from the partial repurchase of our bonds and the transfer of the remaining portion to a local entity, which allowed us to benefit from the tax shoots on associated interest expenses. Additionally, we benefited from tax incentives under Lei do Bem, which typically peak in the fourth quarter. Turning now to slide 13. Our adjusted net cash position was BRL4.7 billion at quarter-end, representing a sequential decrease of BRL0.2 billion. This decline primarily reflects our ongoing share repurchase activity. We have an active BRL2 billion buyback program, under which BRL608 million or 10.9 million shares were repurchased in the first quarter of 2024. For the full-year, our adjusted net cash decreased by just BRL0.3 billion despite BRL1.6 billion in total share repurchase during 2024, covering both our current and previous buyback programs. Excluding share repurchase activity and the capital we allocated in our credit product, we would have generated BRL1.9 billion in adjusted net cash for the year. Before I finalize, I would like to discuss two additional topics. The first on slide 14, concerns our approach to capital allocation. Throughout the past year, we conducted a comprehensive review of our capital structure, resulting in the creation of appropriate model to assess our excess capital position based on three key pillars. The first pillar focuses on our capitalization ratio. Considering our business trajectory and rapid growth, we've decided to maintain a minimum common capital ratio at StoneCo equal to 20% of our risk-weighted assets, though this level could be reassessed over time. The second pillar addresses our credit ratings. Given the nature of our operations, maintaining credit rating metrics aligned with our banking peers is essential. Therefore, we have set specific KPIs to monitor regularly, ensuring we maintain at least our current global ratings, which are constrained by the sovereign rating. The third pillar revolves around our adjusted net cash position. We have historically emphasized net cash as a critical indicator of our business capitalization and have accordingly chosen to maintain a positive net cash balance. Based on these pillars, we estimate that as of December 31, we had an excess capital of over BRL3 billion. We expect to return this capital to shareholders over time when value accretive growth opportunities are not immediately available. Notably, this amount is already net of the BRL1.6 billion distributed in 2024 through our share buyback programs, and does not account for any potential capital release from strategic discussions regarding our software division. Finally, turning to slide 15, I'd like to discuss our guidance. At our Investor Day in November 2023, we provided detailed short and long-term guidance metrics, which helped investors clearly understand our strategic direction and enabled transparent tracking of our progress. In 2024, we delivered strong results across these metrics, reinforcing our confidence in achieving our 2027 targets. Now, given the ongoing evolution and increased maturity of our business, we've made certain adjustments to better align our metrics with recent industry dynamics and our increased focus on capital structure, while maintaining our strategic priorities. For 2025, we have simplified our guidance to two key financial indicators that best reflects our business performance. The first indicator, adjusted gross profit, captures the consolidated execution of our strategy across our various products and services. The second, adjusted basic EPS, incorporates both our capacity to grow efficiently and benefits from the optimization of our capital structure. The simplified guidance approach enhances our flexibility while maintaining disciplined tracking of our core value drivers. As for our long-term outlook, our 2027 guidance maintains our original projections for retail deposits and credit portfolio. However, we've adjusted our MSMB CPTV metric to MSMB TPV to include PIX volumes, reflecting industry developments and the importance of PIX following its widespread adoption in the markets. Additionally, we've replaced our MSMB take rate guidance with gross profits. Gross profits, as previously explained, accounts for revenues minus cost of services and financial expenses, capturing the true economics of our business. It also accounts for lower floating revenue resulting from increased use of deposits as funding, which despite lowering the take rate remains accretive to our bottom line due to reduced fund costs. Lastly, we replaced our adjusted administrative expenses and adjusted net income guidance with adjusted basic EPS, as EPS effectively captures our overall bottom line performance while allowing greater flexibility in capital allocation decisions. For 2025, on slide 16, we expect adjusted gross profit above BRL7.05 billion and adjusted basic EPS above BRL8.6 per share, reflecting year-over-year growth of 14% and 18%, respectively. This EPS calculation assumes a share count of 279.5 million shares, taking into account the repurchase of 33.5 million shares since our Investor Day. Moving to slide 17, our updated guidance for 2027 projects MSMB TPV surpassing BRL670 billion, implying a 2024 to 2027 CAGR above 14%. Adjusted gross profit is expected to exceed BRL10.2 billion, translating to a CAGR of over 18%. Adjusted basic EPS is expected to exceed BRL15 per share, representing a CAGR of over 27%. Notably, despite aggressive share repurchase, our implicit adjusted net profit guidance remains at BRL4.3 billion, indicating an upgrade in our original implicit guidance for EPS. To wrap up, I would like to pass it over to Pedro for some final remarks. Pedro Zinner: Thank you, Mateus. Finally, on slide 18, I'd like to acknowledge our consistent track record of delivering strong results over recent years. Over the past two years, we have repeatedly exceeded market consensus and delivered on our commitments, reflecting disciplined execution and strategic clarity. Moving forward, our goal remains clear, maximizing long-term intrinsic business value growth measured on a per share basis rather than merely emphasizing overall company size or scale. As we conclude 2024 and enter 2025, we recognize potential macroeconomic challenges, but remain firmly committed to delivering sustainable long-term value creation. Our strategy remains focused on disciplined execution, prudent capital allocation and enhancing intrinsic business value per share. We deeply appreciate the trust, support and partnership from our shareholders as we navigate this journey together. The road ahead is field of opportunity, and we are more determined than ever to drive sustainable growth and lasting success. With that said, we are now ready to open the call to questions. Operator: Okay. At this time, we are going to open it up for questions-and-answers. [Operator Instructions] Our first question comes from Eduardo Rosman with BTG. Eduardo Rosman: Hi. Hi, everyone. Congrats on the numbers. Two questions here. The first one on your banking solution, if you could share with us why do you think you are outperforming, right, performing really well and where do you see room for improvement? And the second question, it's on the capital structure, right? What's your view on dividends, right, given the very big excess capital and the ongoing share buyback program? Why not distribute dividends as well? Thanks. Lia Matos: Hi Rosman, Lia here. Thank you for the question. I'm going to take the first one and then pass it over to Pedro. So I think overall message on banking is the following. As we said in the Investor Day, we continue to see deposits grow ahead of TPV, right? And the message behind this is that deposit growth is ahead of TPV because clients further engage with our banking solution. And this is mainly driven by two factors. Number one is our success in bundling payments and banking, which has something that we've done over the last years, and we're getting increasingly better at. And also as we evolve on the banking roadmap and develop more solutions, our clients further engage with the platform. So the way they want to understand this is pretty much we've captured most of the value associated with cash in because we take most of the cash in of the client through TPV that that becomes deposit in the banking account. But also as we develop more and more solutions, deposits stay for longer and we see a trend -- a positive trend regarding deposits. Naturally, in the fourth quarter, there was a seasonal impact in deposits, because of the holiday season, right, that's natural to expect. Some of that seasonality has sort of been reversed in the first quarter, but the overall trend has not. So the overall trend continues to be that deposits grow ahead of TPV, and also that's implied by our long-term guidance, right? We continue to expect deposits to grow ahead of TPV as we further develop the banking solution. The development is really around resolving incrementally workflow needs of our clients, right? So we launched a simplified payroll solution. We're evolving a lot on that on that payroll solution this year. We launched different investment products for our clients to save with different purposes. And I think the roadmap has a lot to come still, and we expect this trend to continue. So pass it over to Pedro for the next question. Pedro Zinner: Thank you, Lia. Thank you, Rosman, for the question. I think the first point that I think we have to recognize is that the -- we evolved a lot in terms of providing transparency in terms of how we allocate capital within the company, right? You might recall that, that was part of our commitment in our last call to provide you some visibility in terms of our framework. And I think, in some ways, I think we evolved a lot. But just as a wrap I think over the past 12 months, we have already returned more than BRL2 billion in terms of share buybacks, right? So this really demonstrates both, I think, our commitment in terms of returning capital to shareholders and actually our ability to execute this distribution efficiently when we deem appropriate. However, having said that, I think at this time, we are not committing to specific targets in terms of how we're going to allocate capital in terms of distribution. I think it's going to be through dividends or buybacks. We do expect to provide you some more visibility over the next quarters or so. Mateus Scherer: Yes. And if I may add, Pedro. Mateus here Rosman. I think the main message is that we see this as a journey. So step one was basically defining the amount of excess capital that we have. I think we have a clear framework for that. Step two is defining how much, how fast and which instrument we're going to use to give this capital back to shareholders. But something to bear in mind is that we still have an active buyback program for which we have executed until the end of February around BRL1.1 billion. So we remain with BRL900 million available to be bought back under that program. So we still have some room under that program before we need to make a second decision in terms of the instruments that we're going to use. So it's under discussion. Pedro Zinner: And it's an evolution process. Eduardo Rosman: Great. Super clear. Thanks a lot and congrats again. Lia Matos: Thanks, Rosman. Operator: Our next question comes from Mario Pierry with Bank of America. Mario Pierry: Hey, guys. Thanks for taking my question, and congratulations on the quarter. Let me ask you two questions as well. You guys made comments that you did not increase prices in the fourth quarter, but that you started repricing in the first quarter. Can you give us a little bit more color, how you seeing this price increases going through? What level of price increases are we talking about? Is it for your entire client base? And the impact so far in the quarter, right, like we're almost at the end of the first quarter. So I'm just trying to get a sense of the size of this price increases and if you plan on keeping increasing prices throughout the year?. And then my second question is related to your guidance. I was just surprised that you're guiding basic EPS rather than fully diluted EPS. I do think that most investors look on a fully diluted basis. So just wanted to understand from your view, why guide basic rather than fully diluted? And if you can give us -- just remind us of the difference in the share count between basic and fully diluted? Thank you. Pedro Zinner: Hi Mario, Pedro here. Thank you for the question. I'll try to address the first one and Mateus feel free to jump in at any point in time. So I think since the significant upward shift that we've seen in the yield curve by the end of the fourth-quarter of 2024, we have proactively actually executed a substantial repricing initiative at the beginning of the first quarter of '25. I think Lia highlighted part of this in her statements in the call that we didn't start in the last part of last year. And I think over the recent months, we have effectively completed repricing across our eligible Stone client base. And we are now actually actively progressing with our Stone clients. And I think we aim to finalize these adjustments over the upcoming months. I think what we might say is our repricing strategy has proven effective. And now we are seeing rapid low churn on our repricing waves. So -- and another point to highlight is, I think, we are pleased to see the broader industry aligning around profitability rather than prioritizing volume growth alone. So this is in line with what we've been saying over the past quarters in terms of the rationale in terms of the competitive landscape and what we've been advocating for over the past year or so. Mateus Scherer: And Matt, if I may add, in terms of the extent of the repricing, in terms of the size of the adjustments, we basically calibrated the adjustments looking at the yield curve projections for the mid of the year, which were approximately 15%. And in terms of how many clients we repriced, we basically only excluded those clients we engaged with multiple solutions and that remain profitable despite the higher funding costs given by the rising interest rates. So it was an extensive repricing wave. And in terms of whether we're going to reassess and do more waves throughout the year, I think, by June, we will reassess the market conditions and then determine if additional repricing actions are needed or not. So this is the first question regarding pricing. The second question I think was around the decision to guide basic EPS instead of diluted. So first of all, I think it's a great question. It's something that we debated internally extensively. I think the decision that was made to guide basic EPS this year had two key reasons in mind. The first reason is that when you look at the accounting rules governing the diluted share counts, they can introduce a lot of volatility in the calculation. Just to give a few examples, depending on the share price levels, the performance share units from the turnaround plan may or may not be included in the diluted share count in a binary way. Or a second example, given that we had an IFRS accounting loss in the quarter as a result of the impairment, the diluted is equal to the basic share count in the quarter. And we thought that this year this created some complexity. Second reason is that as you well know, we do not adjust share-based compensation expenses at all. Everything flows through the P&L. So if we were to use the diluted share count in the denominator as well, we feel that this would result in some degree of double counting. So given these factors, we believe that basic EPS this year is the better metric. That was basically the decision. Mario Pierry: Okay. Let me ask then two follow-ups on this program that you said that you have, right, that the turnaround plan and the share count could either be zero or a number based on share price performance. Can you remind us of the size of how many shares are we talking about? And then on the repricing, when should we see the full benefit of this repricing that you did at the beginning of the quarter? Is this going to be already fully evident in second quarter results or is this more in the third quarter? And how do your prices compare to your peers today? Are you just catching up to the level of your peers? Or are you pricing above your peers? Thank you. Pedro Zinner: Yes, for sure. So in terms of the size of the program, we have a lot of detail in the footnotes 2024. If you look at the PSU instruments by the end of the year, we had 5.9 million shares outstanding that program. But again, you have the full details in that footnotes there. And in terms of the full effect of the repricing waves in the P&L, most of the -- largely the full effect will be felt in the second quarter. There are still some waves done through the quarter, but they are smaller in size. How do you compare to your peers now? Mateus Scherer: Oh, sorry, I forgot that one. I think that the message, and I think Pedro touched upon this, the whole industry is repricing and passing through the increasing interest rates. So we feel that with the movements that we did in terms of pricing, basically everyone now has very similar prices across the industry. So it's basically a dynamic of catching up to the increase in interest rates and not an increasing spreads per se. Mario Pierry: Okay. Thank you very much. Operator: Our next question comes from Tito Labarta with Goldman Sachs. Tito Labarta: Hi, good evening. Thank you for the call and taking my question. Also I have two questions. I guess one, just following up on the guidance on the EPS. The guidance that you gave, it's based on the share buybacks that you've done. But as you mentioned, Mateus, you still have about another BRL900 million that you could do. So does that mean that there can be -- and I mean, I know the guidance is above BRL8.6, but if you do buybacks, that would imply the EPS will be higher. And just to make sure I understood because you bought back around 6% of the shares roughly. So that would imply net income growing around 11% and then the rest is sort of coming from the share buybacks, if my math is correct. And then my second question on the sale of the Software business, right? I understand you haven't received, I guess, an offer that you think meet your intrinsic value. I guess, one, are there still potential offers out there? Is there a chance that you can still sell it? Or do you think this is off the table at this point? Just so want to understand if that's still a possibility of being sold or not. Thank you. Mateus Scherer: Thanks for the questions, Tito. I'll take the first one and then pass it over to Pedro for the second one. So in terms of the EPS guidance, I think you are spot on. So when you look at the implicit guidance for net income in 2025, it's BRL2.4 billion. So this reflects an adjusted net income growth of approximately 9% while the EPS guidance exceeds 18%, right? The difference here is primarily driven by the share buybacks executed since 2023. And apart from this, it basically reflects the operational expectations and does not factor in any additional share buybacks, whether from existing or new programs. That said, as we move forward, again, if market conditions are favorable, we will continue repurchasing shares under the current program, which could represent an additional upside to the guidance. So I think you are right in your point. Pedro Zinner: Hi. Well, regarding the asset -- the software asset, I think first, I just wanted to highlight, and I think I tried to make this crystal clear in some ways in the letter to the shareholders. So we've been following a disciplined approach in terms of our decisions regarding our software assets, right? So despite changes in interest rates and despite receiving many offers over the past quarter or so, we didn't receive any offer that actually met our established intrinsic value for the specific asset. So what we will continue and what we will do is really we're going to stick in part to the strategy we defined back in our Investor Day. So we will continue cross-selling financial services to our software clients and really focus in terms of maximizing value of the asset on a standalone basis. I think the big difference from the past is really that the -- we have actually implemented all the synergies required to manage this asset appropriately and we have set the right governance in place to really ensure that owning the asset is not a distraction to the cost strategy of the company. Tito Labarta: Okay. Thanks for that, Pedro and Mateus. So -- sorry, just a follow-up because I don't know if my question was more, is there a possibility of this still being sold? Or do you think you sort of exhausted the offers and likelihood is that it's not sold at this point? Pedro Zinner: I think at this point, what we'll do is really focus on the execution and maximizing value for the asset. Tito Labarta: Okay, great. Okay. Makes sense. And maybe just to help us think about what that intrinsic value might be, just a simplistic calculation here, you have paid about BRL6.3 billion for Linx, if I remember correctly, and you wrote off around BRL3.5 billion. I don't know if that was all 100% Linx, but that would leave maybe BRL2.7 billion. Is that a ballpark number that kind of makes sense for what that intrinsic value could be? Mateus Scherer: Hi Tito, Mateus here. So I don't think we're going to comment specifically on what we see as intrinsic value. But as a reference point, if you look at the impairments line, you're going to see that the equity for the Software segment after the impairment is around BRL4 billion for the Software segment as a whole. And of course, when we're talking about any potential transaction, there are other considerations besides the intrinsic value of the asset per se, right, including the commercial agreements and so on and so forth. But as a reference, I think that's the best number that you have publicly available. Tito Labarta: Okay. That's helpful. Thanks, Mateus. Thank you, Pedro. Operator: Our next question comes from Daniel Vaz with Safra. Daniel Vaz: Hi, everyone. Good evening, and congrats on the results. Very clear presentation. First, I'd like to hear more about Lia's comment on funding. I think at some point she mentioned there will be a meaningful change in float revenue, but that should be EPS accretive over time. Could you share more details on this rollout and timing? And if the entire base will be migrated, what will be the details here? It would be very helpful to hear about it. And if there is any clear indication on of what levels of spread over CDI or percentage of CDI you should accommodate as cost of funding? And a second question following up on capital. I think at some point, you will arrive on an optimal level of ROE. So there will be enough organic capital to support future growth and possibly continue with future buybacks. And how far do you think you're from this situation? And what's the current scenario that you expect this to happen? Is 2027 guidance really Northstar to it? Thank you. Lia Matos: Hi Daniel, Lia here. I'm going to take the first part of the question,. Then Mateus, please add and continue to the second question. So regarding the rollout, we expect this rollout to happen incrementally throughout the year. No more specific information regarding that, but it's going to happen throughout this year. Like I already said and to address your question, we anticipate a positive impact. So just talking directionally about it. This impact comes from a shift between financial lines, obviously. So specifically, while we will lose financial income from the float on our deposits, this will be offset by a reduction in our funding costs. And there will be a positive impact as we benefit from lower taxes by having less float revenue and then the spread between our funding costs and CDI as we switch these funding sources. So directionally, this is the effect. So this shift is going to be accretive to our P&L, and we expect to roll it out throughout the year. Pedro Zinner: Just to give some more color here, Daniel. So in terms of the rollout, what we're doing right now is what we call our cash sweeping strategy, which is basically using the deposits that we already have in place as a funding source, which we didn't do because we didn't have the licenses. As we do that, we expect a significant increase in the time deposits line within our retail deposits line with virtually zero cost, and then over time, after we do this cash sweep, of course, we include other time deposits products, which are more closely related to investment products to the base. And then as this scales, this will lead to a gradual increase in the average cost of the deposit base. But again, I think we're going to start to give some figures on these numbers when they become relevant. For the moment being, I think it's more around using the deposits that we already have in place with virtually zero costs. The second question I think was related to excess capital and how we see the funding of organic growth, if I got that right. So when I think about the framework that we put in place, we believe it already takes into account the capital that is needed to fund the growth of the 2027 plan. So if you look at the hurdles that we implemented, for example, for the first pillar, which is the regulatory capital, we're talking about a 20% hurdle, which is fairly high. And we feel that this already takes into account not only the current plan that we have in place, but also potential optionality’s in terms of growing credit and so on and so forth. So the BRL3 billion figure, we feel it's really an excess in terms of capital that we have and the discussion is more around how we're going to return that capital back to shareholders in the most efficient way. I don't know if I fully answered your question on that point, Daniel. Daniel Vaz: Yes. I think you did. And if I may follow-up on maybe, Pedro, to ask his view about the company's structure size. I mean, many of your competitors were expanding the sales force a year ago, which contributed to a worsening of efficiency across the industry. But now a year later, we see some of them to reverse in that movement, right? So I mean, any views on when do you expect the business to have better room to economies of scale because so far, I think in the past two years, it was like more sales force, more aggressiveness in between competition and now we see some reversion of that trend. So very helpful to hear about if you could, Pedro. Pedro Zinner: Well, thank you for the question, Daniel. I think it's -- well, we've tried to highlight this over the past also calls. I think there is a maturity process in terms of productivity of our sales force as we move ahead. And I think one of the key competitive advantages we have is really on the distribution channels. I think we tried to highlight that also in the Investor Day and it takes time to mature. Having said that, I think more and more, we're going to rely on our operation, our technology-driven operational distribution platform. And I think this will leverage and improve more -- improve efficiency as we move ahead over the next years. I don't see this happening in the short term. I don't believe we're going to see big changes in terms of -- then your question is more driven to sales expenses related to revenues in some ways. I think there will be -- they're going to be flat in 2025, but we're going to improve efficiency over time from a technology-driven platform. I don't believe that the competitors are doing that. So I think it's a different strategy in some ways. But that's the way we're positioned to set ourselves up until 2027. Lia Matos: Yes. And Danielle, if I can just complement what Pedro said, maybe separating in kind of three time horizons, right, talking about the fourth quarter and then the year and then longer term. In the fourth quarter, we saw selling expenses increase sequentially as a percentage of revenues, primarily due to ongoing investments in our salesforce, especially the specialist salesforce, which is, number one, pretty critical in terms of going up the pyramid as we call it. So we have seen significant growth in what we call larger SMB clients specialist salesforce are critical also for the cross-selling initiatives to sell financial services to software client -- installed client base. And naturally, also, it is critical on the credit side as well because more and more, we are implementing direct distribution to scale on the credit side. So that was more the rationale for how selling behaved in the fourth quarter. Throughout this year, we expect mild dilution in selling expenses relative to revenues. But as Pedro mentioned, there's not going to be -- we shouldn't expect a big shift shorter term. I think over the longer term, as Pedro highlighted, we will see greater dilution, naturally, as the operation matures and those scale efficiencies materialize, as you mentioned. But also we're very optimistic. And I think in some sense, ahead of the game, in terms of how we think about technology applied to our operation, I think our operations technology platform has been a pillar of our -- of the differentiation of our business model since day one. But we're working very hard to stay ahead in making sure that, for example, we can better leverage GenAI, and more data to be more and more effective on how we approach distribution. So that should all contribute to selling that greater dilution over time. Daniel Vaz: Thanks again, guys, and congrats. Operator: Our next question comes Renato Meloni from with Autonomous Research. Renato Meloni: Hi everyone. Thanks for the call. Thanks for taking the questions here. Just first, just a quick follow-up on the deposit side. And I just wanted to know if long term, you have a ratio of where deposits can stabilize as a percent of TPV. I think that will be helpful. And my question is on the credit side. So first, how is your risk appetite this year, really given the potential credit cycle that we might enter in Brazil? And then secondly here, given all the initiatives that you have, how are you seeing -- and changes that private payroll lending is facing in Brazil, how do you see this opportunity? And are you planning to explore it? Thank you. Lia Matos: Hi, Renato. Lia here. So let me just start with the question around deposits. I think that math is easy to work out when you take out our long term -- when you consider our long-term guidance for deposits in TPV. The general trend is where I talked about at the beginning of the call, right? We continue to expect deposits grow -- to grow ahead of TPV growth. That is implied in the long-term guidance when you consider deposit growth versus TPV growth. And as much as we talk about engagement and we talk about heavy user metrics, and how we are evolving on the banking road map, ultimately, we see the ratio between deposits as TPV as the best way to see how we're further engaging our clients with our banking solutions. So that can be worked backwards from the long-term guidance on deposits and TPV. And then to talk about credit, I'll pass it over to Pedro. Pedro Zinner: Yes. I'll kick off, and Mateus can complement me as we move ahead. So I think at the end of last year, we have actually proactively adjusted our credit models to reflect the evolving -- and I think, as you all know, more challenging macroeconomic environment. So this led to a moderate increase in provisioning levels, which have now stabilized at around 12% of our portfolio. So additionally, we're also continuously adjusting the pricing of new disbursement to better reflect this changing macroeconomic and market conditions. So having said that, in terms of growth, I think we are closely monitoring our cohort performances and daily amortizations, a feature that is actually unique to our product. And we still -- I think we feel that there is room to grow the portfolio in 2025, given the low penetration of our credit products within our client base, and the scaling of new offerings, such as credit cards and our overdraft solution. I don't know if Mateus want to add any point? Mateus Scherer: No, just a quick complement, I think the message here that we're trying to convey is the following. So I think we're being -- trying to be really cautious in terms of the macro environment. So we have set up many controls and monitoring of the amortization and the health of the portfolio. But at the same time, we need to keep in mind that the base is still really small. So when you think about the penetration of the product in the base, we are in the early beginnings. We have just resumed the offering of the product couple of quarters ago. So different than maybe other players, I think there is still room to grow while maintaining this cautious approach for the portfolio as a whole. So that's the message here. And I think there's a last one on payroll, maybe, Lia, wants to take that one? Lia Matos: Yes. I think just quickly on the discussion around regulation around payroll loans. Naturally, we are monitoring it closely. I think for us, it is beginning stages, right, as we think about how we can deploy this as an opportunity. Naturally, within our ecosystem as we launch our payroll solution to SMBs that becomes a natural extension. But it's very early to say anything more specific than that. Renato Meloni: Thank you. And then as the regulation evolves, do you plan to explore this further and even like try to get by customers from other competitors? Or the focus would still be within your base? Lia Matos: I think it's early to say, Renato, I think we'll be giving more clarity on this as we evolve. Renato Meloni: Okay. Thank you very much. Operator: Our next question comes from Yuri Fernandes with JP Morgan. Yuri Fernandes: Hey, everyone, and congrats on the quarter. I have one on the capital position. I'm just trying to have like an easier framework to think on this. Usually for banks, we look to loan growth, right, as a RWA growth. On your case, I guess, TPV may be the best proxy, right, when we go to RWA and we break down this by credit and the market, we see payments is still the main component and we do see your TPV ex-PIX growing around, I don't know, low-teens, right? And when we go through your ROE, really depends how we adjust it. But if you do a -- some kind of tangible ROE for you removing all the intangibles, we see Stone printing, 30% 35% tangible ROEs, right? So it's a pretty nice return. The question I have is, if this math makes sense, if you are growing your RWA around 12%, 13% and you are printing those 35% tangible ROEs, and I think you also reported like the financial unit ROE on your release, does it make sense to think like your excess capital generation is around like 60%, 65%, 70%? And if that's the case, is this a good proxy for your payout or buyback kind of potential? Just trying to get to this number because the 20% core capital, it's useful. But your capital component has so many moving parts, right, on operational risk phase out. So for payments, we have so many moving parts on how we calculate our capital that I'm trying to think about the easier framework, like just trying as like we do for banks, like what is the RWA growth versus the ROE potential? And when I try to do this exercise, I get to those numbers and just want to make I'm sure I'm not missing anything. Thank you. Mateus Scherer: Hey, Yuri. Thanks for the question. Mateus Here. So I think it's a great question and great rationale there. What I would say is the following. We have to divide here short versus longer term. So when you look short term, I think you've answered part of the question, which is we still have a lot of regulation changes in terms of how we calculate the RWAs, right? We have the phasing, the new regulations and so forth. So shorter term, I think this rule of thumb does not necessarily work. Longer term, I think you're going to be pretty close to the final answer of the model. But the second point that is important to make is that maybe differently than more mature peers. We need to keep in mind that there are other pillars in the framework. So it's not only around regulatory capital. We also have the ratings, the credit rating components and the adjusted net cash. Adjusted net cash in the end of the day, I think it's the easiest of the three pillars because we report the number, and the figure by the end of the year was BRL4.7 billion. So clearly, it was not the constraint. Credit ratings, you have to go through a little bit more math to get to the number. But if you look at the credit rating agencies, we use Moody's and S&P. They disclose the criteria’s for financial companies. So you can pretty easily map the metrics that they use for our current global ratings and then work the math out in terms of how much capital we have in excess for that pillar. I think putting all together, nowadays, the more restrictive constraint is indeed the regulatory capital. But I just want to be mindful as well that as you project forward, on a given year, maybe the credit rating can also play a role. Yuri Fernandes: No. No, thank you very much, Mateus. And if I may, just a quick second one. Just on the buybacks, what should we expect with the shares? Like are going to cancel those shares? Are you going to use those shares to -- for the SBC? Like what is the outcome here for those treasury shares? Thank you. Mateus Scherer: Yes. So we're still finishing the valuation, but the most likely scenario is that most of the shares are going to be canceled. And we're going to use some of them to issue share-based compensation. So it's both. Yuri Fernandes: Okay. No. Thank you very much and congrats again. Mateus Scherer: Thanks, Yuri. Operator: Our next question comes from Jamie Friedman with Susquehanna. Jamie Friedman: Hi. Good evening, and congratulations on the strong finish to last year. I had two questions. I'll just ask them upfront. Lia, with regard to the Software growth of 15%, it was a reacceleration. But I thought in your prepared remarks, you may have alluded to it coming from a partner or -- and then you have the financial attachment strategy. So I was just trying to get the clarification on that. And then if I could ask, so Pedro, in the shareholder letter, I mean, it's a very thoughtful letter. But I wanted to ask actually about navigating the AI landscape. And just I guess you have a lot of metrics in here about penetrating with AI and customer service interactions, et cetera. How do you think about the efficiencies that you're delivering relative to this type of automation? Thank you. Lia Matos: Hi Jamie, Lia here. So I'm going to take your first question, and then pass it over to Pedro. So regarding Software revenue growth, in the Software segment specifically, we had a non-recurring effect in the amount of BRL8 million. That's not uncommon when we think about the dynamics of our enterprise software clients. And additionally, there was one specific company within the software portfolio, [Indiscernible] that had a good performance in the quarter. So that kind of explains the specific revenue trend in the quarter. But if we think more broadly about it, so we're not guiding on specific figures for our Software segment. But as a general trend, I think what we can expect is that organic growth should continue to be in line with recent trends. And we still have some opportunities to improve margins within the business. So to think about margins more aligned with what we saw in the fourth quarter that's kind of a good way to think about trends in the Software segment. So I'll pass it over to Pedro to address your second question. Pedro Zinner: Well, thank you for the question. In some ways, you actually provided answers. I think what we've done so far are really quick wins in terms of how we use predictive models and GenAI into our operations. So it's -- for me, it's really peripherical wins that are quick wins that we can put in place to optimize results, right? I think the challenge we have, and that's not only to ourselves but to the industry as a whole is, how we use GenAI to actually disrupt our own model and improve our business model as we move ahead. I tried to address part of this when we talked about sales distributions and the channels that we have established as of today. I think this is where the big change might come from. And whoever takes the first step, we'll take the lead in terms of new industry dynamics and how we're going to move ahead. So that's a long answer to say it's really short term efficiency gains. And I think what we're preparing is really for the infinite game as we move ahead. That's where the big changes will come. James Friedman: Okay. Thank you both. Pedro Zinner: Thank you, James. Lia Matos: Thank you, James. Operator: This concludes the question-and-answer session. I will now turn over to Pedro Zinner, CEO at StoneCo for final considerations. Pedro Zinner: Well, thank you. Thank you all very much for participating in the call. I think the company presented strong results in 2024, and we are really looking forward for 2025 in the coming years. Thank you very much. Operator: This does conclude today's presentation. You may disconnect now and have a nice evening.

Operator: Good evening, everyone. Thank you for standing by. Welcome to StoneCo's Third Quarter 2024 Earnings Conference Call. By now, everyone should have access to our earnings release. The company also posted a presentation to go along with its call. All material can be found online at investors.stone.co. Throughout this conference call, the company will be presenting non-IFRS financial information, including adjusted net income and adjusted net cash. These are important financial measures for the company, but are not financial measures as defined by IFRS. Reconciliations of the company's non-IFRS financial information to the IFRS financial information appears in today's press release. Finally, before we begin our formal remarks, I would like to remind everyone that today's discussion may include forward-looking statements. These forward-looking statements are not guarantees of future performance and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the company's expectation. Please refer to the forward-looking statements disclosure in the company's earnings press release. In addition, many of the risks regarding the business are disclosed in the company's Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov. Joining the call today is Stone's CEO, Pedro Zinner; the CFO and IRO, Mateus Scherer; the Strategy and Marketing Officer, Lia Matos; and the Head of IR, Roberta Noronha. I would now like to turn the conference over to your host, Pedro Zinner. Please proceed. Pedro Zinner: Thank you, operator, and good evening, everyone. Today, we will present our results for the third quarter of 2024 and provide an updated outlook for our business. I'd like to begin by highlighting some of the key milestones from our third quarter. A period marked by solid performance and significant business improvements, bringing us closer to achieving our annual targets, if not already meeting some of them. Upon reviewing the quarter, I can confidently state that we maintain committed to executing our strategies across various areas of our Financial Service segment. On the Payment side, we continue to observe encouraging trends in a healthy competitive environment. MSMB total payment volume grew by 20% year-over-year, reaching BRL114 billion and serving 4 million MSMB clients, all while maintaining healthy unit economics, a key priority for us. In banking, demand deposits amounted to BRL6.7 billion, representing a 50% increase compared to the previous year. Having made significant strides in scaling our payments and banking bundles for clients, our current focus is on enhancing client engagement. To achieve this, we are improving our clients' experience by developing additional solutions such as our savings product, which despite being in its initial stages, has already shown positive results. Regarding credit, we are pleased to announce that we have surpassed our annual guidance and in the quarter, we have a portfolio of BRL923 million, an impressive growth of nearly 30% quarter-over-quarter. This portfolio is performing better than expected in terms of NPL levels, indicating that our credit offerings are aligned with our internal expectations and risk appetite. Our specialized credit desk, which commenced operations at the beginning of the year has delivered promising results in generating new deals and enhancing our distribution. Additionally, we have successfully executed our roadmap for loan products, making advancements in credit cards and launching Giro Facil a revolving credit facility. We also continue to refine the experience our clients have throughout their credit cycle with us. In light of the performances I have just outlined, I'm proud to report that our MSMB take rate has reached a record of 2.58% in the quarter, setting a positive trajectory towards achieving our annual guidance of 2.49% and indicating sustained strong results in payments. In terms of software, we continue to see significant progress in cross-selling our financial service solutions to our software clients. Card TPV growth among these clients has exceeded twice the growth observed in MSMB volumes on a quarter-over-quarter basis. In addition, we are fully committed to executing our efficiency and cash-generating initiatives. As a result, our EBITDA margin increased by 1.6 percentage points sequentially, now surpassing 18%. Given our commitment to acting in the best interest of our shareholders, we are currently evaluating options to maximize value, which I will discuss further in the end of this call. Finally, on the efficiency front, we have seen our adjusted administrative expenses decreased by 7% year-to-date compared to last year, positioning us well to meet our 2024 guidance, which implies a 7% growth. I would also like to highlight that we have nearly completed our 1 billion share repurchase program in the third quarter. We recognize that we currently have excess capital, leaving us with a strong balance sheet position. We continuously evaluate the optimal use of capital to maximize shareholder returns and are now developing a more structured decision-making framework in consultation with our Board. We expect to provide further visibility over the coming quarters. As a result of our adjusted net income growth of 35% and the execution of our buyback program, our adjusted basic earnings per share increased significantly by 43% year-over-year. Now, I'd like to turn the floor over to Lia, who will discuss our performance for the third quarter of 2024. Lia? Lia Matos: Thank you, Pedro, and good evening, everyone. As Pedro mentioned, we're happy with our performance in the third quarter and with how we've been able to drive value to clients with our solutions and service. As presented on Slide 4, we saw good traction in our consolidated financial results. Our total revenue and income grew 7% year-over-year or 8% when we disregard the change in our internal accounting methodology for membership fees revenues held in the first quarter of '24. This growth is mainly a result of our performance in the MSMB segment, where we continue to grow client base and increase monetization. Our adjusted EBIT and net income both grew 35% year-over-year with margin up 4.5 and 3.6 percentage points respectively to 21.8% and 17.5%. This improvement in margins was driven mainly by the combination of our topline growth and lower financial expenses. Combining our adjusted net income growth with the significant repurchase of shares in the quarter, our adjusted basic EPS grew 43% year-over-year to reach BRL1.97 per share. Now let's dive further into our Financial Services segment performance. Starting with Payments on Slide 5. Our MSMB client base reached almost 4 million active clients, a 21% growth year-over-year. The implied deceleration in the net addition of clients in the quarter results from different factors. First, to the phasing out of marketing investments made in the first half of the year. And second, due to a bigger focus on the quality of clients onboarded with healthy unit economics as well as allocating capital towards client engagement rather than purely increasing our base. As you might also remember, we usually start the relationship with our clients with a payments and banking bundle, which opens the door for higher engagement with our multiple payments, banking and credit solutions. We're proud to see that our focus on improving such bundles and products to our clients has driven positive results illustrated by our heavy user metric, which shows the percentage of MSMB clients with more than three products with us. Heavy users have been growing consistently, going from 21% a year ago to 34% this quarter. Regarding payment volumes, MSMB TPV grew 20% year-over-year to reach BRL114 billion in the quarter. This growth is composed of a 12.4% growth in Card TPV and a 2.4 times growth in PIX QR code volumes as PIX continues to gain ground and cannibalize on debit volumes with net positive economic benefits for us and for our clients. As a result of a stable competitive environment in payments, allowing for healthy take rates, our focus on growing with good unit economics and the increased engagement of our clients with more solutions, we have reached a record take rate for MSMBs of 2.58% in the third quarter, nine basis points higher year-over-year and three basis points higher than the second quarter of '24. Moving to Slide 6, we highlight our banking performance in the quarter. Our banking active client base grew 47% year-over-year to 2.8 million clients. As Pedro mentioned, our efforts to sell bundled banking and payment solutions to new clients has achieved a good maturity level since the majority of new clients today on board with a payments and banking offer. Thus, our focus has shifted towards increasing engagement within our ecosystem. As a result, total deposits from clients reached BRL6.8 billion in the quarter, 53% higher year-over-year. Our financier license received at the beginning of the year has allowed us to expand the array of solutions that we can offer to our clients. Of the BRL6.8 billion total retail deposits in the quarter, BRL6.7 billion referred to demand deposits and BRL121 million relates to on-platform time deposits from our savings products, which we haven't actively marketed yet. Though still in its early stage, we've been carefully managing the balance between tightened deposits and demand deposits and we have seen accretive results while offering our clients a new alternative to manage their money within our ecosystem. In addition to on-platform time deposits, which are directed to our clients, we're also issuing time deposits distributed in third-party platforms outside our ecosystem, which we're calling off-platform time deposits. Those deposits have shown strong growth in the quarter, reaching BRL1.7 billion in funding for the company. Now let's move to credit on Slide 7. We have BRL923 million in credit outstanding with our clients, which is already 15% above our annual guidance with still one quarter left to go. Out of this portfolio, BRL864 million is related to Merchant Solutions, which currently comprises our working capital solution and our revolving credit facility solution Giro Facil launched in the beginning of this quarter. The other BRL59 million relate to our credit card offer, which we're currently focusing on scaling within micro clients as it is an important part of the credit value proposition for this segment. When we look at provisions, we have been slowly converging the provision of the working capital solution to reach levels closer to the expected loss in our models. Thus, provision related to the working capital portfolio has been decreasing from 20% in the beginning of the year to 14% in the third quarter. As a result of this convergence and since working capital is still our most relevant credit solution by far, total provision expenses have reduced to virtually zero this quarter compared with BRL19 million one year ago and BRL18 million in the second quarter of '24, contributing positively to our results when compared to previous periods. Regarding NPLs, the NPL 90 days for Merchant Solutions continues to increase as expected, while the portfolio matures, reaching 3.7% in the quarter compared with 2.6% for the previous quarter. The decrease observed in the NPL 15 to 90 in the quarter was due to the better vintages when compared with the second quarter. Finally, on Slide 8, we summarize the performance of our Financial Services segment. The strong evolution of our main strategic drivers coupled with a stable competitive environment in payments has led to a solid financial performance. As such, financial services revenue reached BRL3 billion, 8% higher year-over-year with an EBT margin of 22.8%, 5.1 percentage points higher over the same period. Now let's talk briefly about our software performance on Slide 9. We see positive trends from our cross-selling initiative of offering financial services to our software client base, the strategic focus for the software segment. This can be seen by the Card TPV of our clients that use both our financial services solutions and software solutions, which has reached BRL5.8 billion in the quarter, growing more than twice the sequential growth seen in our MSMB Card TPV. This result was boosted by our financial services specialist team, which has been doing a great job driving this cross-sell to strategic verticals within our software segment. Regarding software revenues, we have seen relatively stable performance year-over-year, growing 2.5% sequentially. On the bottom line, software adjusted EBITDA reached BRL72 million in the quarter with a margin of 18.3%, 1.6 percentage points higher quarter-over-quarter as we continue to manage the business for efficiency and cash generation. Now I want to pass it over to Mateus to discuss in more detail some of our key financial metrics. Mateus? Mateus Scherer: Thank you, Lia, and good evening, everyone. I would like to start on Slide 10, where we discuss the quarter-over-quarter evolution of our costs and expenses on an adjusted basis. Cost of services decreased as a percentage of revenue from 26.2% in the second quarter of '24 to 25.6% in the third quarter of '24 due to the reduction in loan loss provisions. Excluding credit provisions, the costs remained relatively stable as a percentage of revenue. Administrative expenses increased 5% year-over-year or 9% quarter-over-quarter, resulting in a sequential increase of 30 bps as a percentage of revenues. This increase was mainly attributed to higher provisions for variable compensation, which are seasonally higher in the second half of the year. Selling expenses increased 13% year-over-year and decreased 5% quarter-over-quarter or 150 basis points as a percentage of revenues. This decline was mainly driven by reduced marketing expenses considering that in the first half of the year, we sponsored a reality TV show, which ended in the second quarter. Financial expenses decreased 13% year-over-year and increased 7% sequentially or 50 basis points as a percentage of revenues. The sequential increase was driven by higher funding needs due to TPV growth, lower share of equity in our funding mix following significant share buybacks this quarter and a higher number of working days. These effects were partially offset by lower average funding spreads. This quarter, our proactive liability management played a key role in optimizing our funding costs as we repurchased 60% of our 2021 bond issuance, our most expensive debt instrument and refinanced at significantly lower spreads through the issuance of new financial bills. Our other expenses line increased by 12% year-over-year, but remained relatively stable sequentially. As our revenues grew, other expenses as a percentage of revenues decreased by 20 basis points. Finally, our tax rate was 20% in the quarter, down from 23.8% in Q2. This reduction was primarily due to the repurchase of approximately 60% of our bonds and the transfer of the remaining portion to a local entity, allowing us to benefit from a tax shield on the associated interest expense. This operation had a partial impact in Q3 and is expected to further benefit the company from Q4 onwards. Turning to Slide 11. Our adjusted net cash position reached BRL4.9 billion by the end of the quarter, a decrease of BRL0.3 billion on a sequential basis. The main reason for the reduction was the execution of our 1 billion share buyback program with an outflow of BRL742 million in the third quarter and BRL979 million year-to-date. Finally, let's move to Slide 12 to discuss our guidance. We are very pleased with our performance in these nine months of 2024. On the financial front, I feel we are well positioned to deliver our guidance despite factors that impacted our P&L like our decision to make a sizable share buyback, the internal changes in the methodology of membership fees and macroeconomic headwinds with the unexpected rise of the yield curve. On the operating side, I'm excited to share that we have already met our guidance for the credit portfolio while maintaining NPLs completely under control and within our expectations are even better. On the banking front, the business is also evolving as expected with clients engaging with our solutions and keeping their deposits within our ecosystem, placing us on the right path to reach our targets. On the payment side, MSMB CTPV continues to be the most challenging KPI. As it continues to grow at a faster pace than anticipated, we are still seeing the impact on our debit volumes. While this is accretive to our P&L, it shows a negative impact on our CTPV metric. Additionally, as the outlook for interest rates significantly changed this quarter, we decided to prioritize on the side of profitability versus growth. While this may penalize our short-term CTPV growth, we continue to believe in our ability to grow above market longer term as we continue to strengthen our value proposition towards a complete solution to our clients. Regarding industry growth, we continue to see significant growth opportunities in the Brazilian market. We have a very dynamic and innovative environment and we see electronic payment methods expanding well beyond private consumption. While the pace of growth may differ from previous years, by engaging our clients with a broader suite of solutions, we establish a solid foundation for achieving our long-term targets. To that end, on monetization, our year-to-date results reflect an MSMB take rate of 2.55%, exceeding our guidance of 2.49% with significant contributions from banking credits and continued healthy pricing, particularly in payments. We have successfully bundled our products and maintain the dynamic pricing strategy, allowing us to increase the level of engagement with our solutions while improving our target returns. It's important to note that our banking and credit solutions are already playing an important role in our P&L, providing us with more tools to engage and monetize the relationship with our clients. With that said, we posted yet another quarter of consistent results and continue to focus on the strategic priorities set forth in our Investor Day. Before we wrap up, I would like to hand it over to Pedro to discuss what we see for the software business ahead. Pedro Zinner: Thank you, Mateus. Before we move into the Q&A session, I want to take a moment to address some recent developments by sharing our perspective on our software business, our outlook for this asset and our strategic decisions as we move forward. As we have consistently communicated, we are fully executing our strategy, focused on cross-selling financial services to our software clients in priority verticals. Our approach also emphasizes efficiency and cash generation and we firmly believe this strategy not only creates substantial value for our clients, but also drives long-term success for us. We remain steadfastly committed to this strategy and I'm pleased to report that we are on-track with its execution. Our efforts are resulting in the growth of bundled software and financial services solutions that address critical client pain points within key strategic verticals. While we have made significant strides with our financial services specialist distribution channel, we acknowledge the opportunity for further engagement with the Linx salesforce. The success of our execution is reflected in our unwavering guidance and the strategic framework we established during our Investor Day, both of which remain firmly in place. At the core of our mission is the objective to maximize shareholder value. And we approach this with an open-minded towards innovative strategies. A key area we are exploring is whether we can achieve our cross-selling objectives through a commercial partnership instead of directly owning the software assets. This approach would allow for a lighter asset footprint and better allocation of our capital. To that end, we have engaged advisers who are diligently analyzing and exploring potential alternatives for our software business. I want to emphasize that there is no set timeframe or predetermined outcome at this stage. We are thoughtfully considering all options with our shareholders' best interest as our top priority. We are committed to keep you informed about our progress as we navigate this assessment. Before we begin our Q&A, I want to express my sincere gratitude to each of you for your ongoing support. We are excited about our long-term goals and our commitment to delivering value for our shareholders. With that, operator, could you please open the call for questions? Operator: Okay. At this time, we are going to open it up for questions-and-answers. [Operator Instructions] Our first question comes from Tito Labarta with Goldman Sachs. Tito Labarta: Hi. Good evening. Thank you for the call and taking my questions. A couple of questions, if I may. First, just to think on your TPV, a very strong growth on the QR code, on the PIX QR code, offsetting maybe a bit slower growth on the Card TPV than you had originally guided for. How do you think about that continuing to evolve both the growth in the Card TPV and the PIX QR code? Because also you had a very nice improvement in the take rates. We would think as the PIX QR code should have a lower take rate. So just help us understand how that's impacting the take rate and then I have a second question after that. Thank you. Lia Matos: Hi, Tito, Lia here. Thank you for your question. So regarding TPV trends and how PIX impact that, so we continue to see PIX growth ahead of expected. And now we can say that there is visible cannibalization from debit volumes. But as we've said many times before, that's accretive for us because PIX substitutes debit and substitutes physical money. So it's accretive both from the perspective of payments monetization, but also increased deposits and more money within the ecosystem. We expect this trend to continue. So no reason for us to believe that PIX won't continue to gain ground, especially as efforts even within the Central Bank roadmap to improve usability of PIX will probably even improve adoption in the future. But as we -- if you were to consider the impact of PIX in our overall TPV, naturally take rates would be smaller. But again it's important to highlight that this is all accretive because not only this is substitutes debit, but it's also incremental because it substitutes physical money. Tito Labarta: Great. Thank you, Lia. And then just my second question, just want to understand the provisioning on the credit portfolio because you mentioned it's like near zero. I know the -- you mentioned that the expected credit losses improved and we see that early NPLs improved, but the 90 day NPLs are going up. I think maybe you're still growing the loan portfolio quite a bit. I mean 30% quarter-over-quarter growth. So I'm not sure I completely understand why provisions would go to zero in the quarter when you're doing that type of growth even if the expected losses may be improving. Mateus Scherer: Hey, Tito. Mateus here. Thanks for the question. So I think we've mentioned this in a couple of quarters ago, but when we resumed our credit offering, we started to provision 20%, even though our expectations for expected credit losses were in the 10% range. What we're seeing right now is that as the results are evolving according to our expectation, we are reducing this access in terms of provisioning. So we're basically converging the level of provisions with our expected credit losses. And the way to look at that is that last quarter we had 18% of the portfolio provisions and now we're getting to 14% this quarter and this is an ongoing process. So over the coming quarters we're going to continue to have this conversions of both models and that's why you see a low provision in the quarter. Tito Labarta: Okay. So this low level should probably continue as you continue to adjust to get closer to that 10%? Mateus Scherer: Yes, that's correct. Tito Labarta: Okay. Great. Thanks, Mateus. Operator: Thanks, Tito. Our next question comes from Daniel Vaz with Safra. Daniel Vaz: Hi, everyone. Hi, Pedro, Lia, Mateus congrats on the results and thank you for the opportunity to ask questions. I wanted to get your view on the Card TPV for 2025. I was looking into the new Stone Retail Index Data for September and October. And it looks like physicals kind of struggling to show relevant growth month-after-month. So is that any concern on your side? I see the digital growing well, but probably have a lower breakdown on your early revenues. So how can we cross that data from the Stone Index to your expectations for 2025 on the Card, especially on the Card TPV for 2025? Thank you. Lia Matos: Hi, Daniel. Lia here. So thank you for the question. We're not going to point out numbers for '25 at this point. But in terms of trends, what we can say is that we see the growth levels that we are at right now at 20% as very healthy. Naturally, there is this shift between debit volumes and PIX volumes and that shift for us from an economics perspective is accretive as we've mentioned several times before. And what's important for us to highlight is as long as we can maintain this healthy and solid pace of growth in clients and TPV this is really the driving force for the monetization cycle within our business as it drives not only payments monetization, but also deposit growth and engagement with our overall banking and credit. So as much as we continue to see this shift between PIX and debits, we don't think that that's going to go away as I just mentioned. And we will take that into account when we talk about 2025 TPV guidance because remember that when we set the guidance last year for TPV, we were at a very different place in terms of PIX penetration in the overall industry. So PIX is here to stay. We will take that into account in our -- when we talk about 2025 but that's ahead and that's what we can say right now. Daniel Vaz: Okay. Thank you. And if I may follow up you mentioned a shift in the panorama of PIX penetration, but we also have a shift in the macroeconomic environment. So how does that impact your maybe sales force capacity that you added like marketing expenses are still on a high level. So any changes in the way you want to run your business in 2025 due to the macroeconomic deterioration in Brazil? Mateus Scherer: Thanks for the question, Daniel. So in terms of salesforce planning, it doesn't really change the outlook. The way that we plan salesforce internally is more towards a bottoms-up approach. So looking at the markets at a very granular level and making sure that we have the time to address. But when we talk about the change in the yield curve, I think the other side of it is the pricing side. And to that end, I think we've been emphasizing this in a couple of quarters as well, but pricing has become a lot more dynamic within the company, meaning that we continuously evaluate the profitability of our cohorts and then we adjust prices accordingly. And with the new interest rate environment, what we're going to do is basically we're going to gradually incorporate this new yield curve in our decision making and evaluate the economics of passing through these shifts to our clients. So it should be a natural progress. The only important note here is that we tend not to make big price movements in the 4Q given the strong seasonality. So I think these waves of passing through the new yield curve should be stronger from the first quarter of '25 onwards. Daniel Vaz: Okay. Thank you. Very, very clear. Thank you again for the opportunity. Mateus Scherer: Thank you. Lia Matos: Thank you. Operator: Our next question comes from Mario Pierry with Bank of America. Mario Pierry: Hey, guys. Good evening. Congratulations on the quarter. I wanted to explore a little bit more exactly on the take rate and I think you answered part of that question -- in the previous question. But basically when we look at your MSMB take rates right like you were running at 2.58%, you were guiding for 2.49%. The mix has been weaker than expected given PIX. So why is your take rate higher than what you were expecting? Is it because you already started to implement higher prices for your clients? You said a lot, right, that the competitive environment is very rational or is it because the banking product is more profitable for you? Mateus Scherer: Mario, thanks for the question. Mateus here. So when you look at the delta between the take rates that we are reporting, the 2.58% and the 2.49% that was the guidance. Basically, the whole delta is explained by a higher penetration of both credit and banking. Mainly, of course, we're going to start to have the impact of the yield curve over the deposits. But when you look at the actual level of deposits, we're also ahead of guidance, right? And in terms of credits, again, in the 3Q, we already met the guidance. So the contribution that we're seeing in the P&L is bigger than what we anticipated. So I think it has less to do with the mix of PIX versus Card TPV and more to do with the penetration of new solutions in the company. Mario Pierry: Okay. That's clear. So and based on your previous answer then even though we're still seeing higher rates in Brazil that you could implement that we're going to see, right, a shift in your pricing to reflect this higher yield curve. So what you're saying basically is that the take rate should be going higher from these levels correct? Mateus Scherer: Yes, that's right. So when you look at 3Q, you don't see yet a big impact from repricing because the yield curve is expected to rise from Q4 onwards. So this will probably take place from the first quarter of '25 onwards and then that's correct. So the take rate should go up as a result of this repricing waves. Mario Pierry: Perfect. And let me ask you a second question unrelated. We saw right that the credit card portfolio is growing at a faster pace. I think I read somewhere that you said that you increased the attractiveness of the credit card product. Can you explain what do you mean by that? What changes have you made to the credit card product? Lia Matos: Hi, Mario. Lia here. So essentially the message here is we're still at the beginning of scaling our credit card products. We've launched it now for both Ton and Stone. We do believe that credit card has a strong value proposition for the micro segment. And we're taking a similar approach here in terms of carefully increasing our offer according to what we observe in terms of performance making sure that we maintain a conservative approach with regards to risk. So pretty similar to what we did at the beginning of the scaling of our working capital solution. We are still fine tuning from the perspective of the offer. So basically what is the right value proposition for credit cards within SMBs versus micro. We know it is different. They have different needs. These are different segments that behave differently. So the message here is that it's very much at the beginning of the growth of this product and we're still kind of learning with these early stages. And naturally, as we evolve, we will provide more visibility as we continue to scale. Mario Pierry: Perfect. Thank you very much. Lia Matos: Thank you, Mario. Operator: Our next question comes from Neha Agarwala with HSBC. Neha Agarwala: Hi. Congratulations on the results and thank you for taking my question. If you can dive a bit into PIX. Right now you mentioned that the take rate that you get from PIX is pretty similar to what you have on the debit cards. So technically cannibalization of debit cards does not really have an impact on your overall take rate. Do you expect this dynamic to change? Would you see expect as PIX gains prevalence, would you see competition in terms of pricing among your peers, which leads to lower pricing for PIX and makes it a bit less attractive? And on that we have more new features coming on PIX, right? We have the automatic and the recurring PIX payments. What is your expectation as these new products are launched and adopted? Would you think that this could cannibalize credit cards as well? And if so what are the ways that it could impact your business? So if you can just start with that first? Thank you. Lia Matos: Hi, Neha. Lia here. So let me elaborate a little bit further on PIX QR code and our perspectives on monetization. So it is very clear that PIX QR code, the dynamic QR code integrated to the POS machine is a very different user experience, especially for SMB clients because it allows reconciliation. There's a big difference in terms of fraud. We know that PIX P2P, so the types of static QR code or other capture methods in PIX that are not dynamic. They tend to have a much higher level of fraud. So we firmly believe that this is kind of a value-add in terms of offering a new payment solution for our clients and that is here to stay, right? So PIX NFC is just another step in that direction. We do believe that as PIX NFC improves the user experience, especially on the side of the consumer, that's going to likely accelerate the trend where PIX cannibalizes on debit volumes. We do not see PIX cannibalizing on credit volumes. I think ABEX data on Card TPV growth kind of points to that direction, right? We continue to see healthy growth in credit card TPV. Within our base, we do not see any evidence of PIX cannibalizing on credit volumes, especially because of the nature of installments, right? So we haven't seen this as a relevant trend at all within our base. Our base case scenario is really PIX continuing to grow in adoption versus debit volumes. And because this is a value-added solution that we offer clients in terms of all the features associated to any payment method, we don't believe that monetization is likely to change. But then again a very important aspect of PIX for us is that it substitutes cash and that's all accretive right? So more deposits within our ecosystem, everything I've already said. But that kind of summarizes the picture in terms of how we see PIX. Neha Agarwala: And you're not seeing any pressure from your peers in terms of pricing for PIX processing? Lia Matos: No, no news around that. Mateus Scherer: And on that front, if I may add, Lia, remember that how we price PIX nowadays is closer to the dynamics of net MDRs to debits. And if you think about the pricing of debit transaction, it was a fee that was supposed to cover the distribution costs, the reconciliation features and so on and so forth. And that pricing is stable for quite a while now in the market. So we're not really worried about these trends or these challenges in terms of pricing per PIX. I think it's quite an stable environment nowadays. Neha Agarwala: Great. Two more questions. First, on the take rate, in the key account segment, there was a big 14 basis points quarter-on-quarter jump. So if you could just explain what led to that improvement in the take rate for key accounts? And my second question is on the credit book. You mentioned that you expect about a 10% expected loss and that's why you want to bring the reserves as percentage of your loan book to around 10%, which is currently 14%. When I look at some players like for instance MercadoLibre, who kind of breaks down it by segment and they do credit to merchants both on and off platform, their reserves as percentage of loan book is around 30%, 40%. So is there a difference in the kind of merchants? What are you seeing that makes you think that to have reserves of 10%. Why not, I mean, given that Brazil is a difficult market and it's your first time doing great, why not maintain a higher level of provisioning than what you expect just to have some safeguard? Thank you so much. Lia Matos: Okay. Neha, I'll take the quickly the key accounts question and then pass it over to Mateus to elaborate on NPL dynamics. So within our key accounts, it was an 11.3% sequential reduction in TPV. That's basically because we lost remember that there is volume concentration within the segment. So we lost a significant volume from one specific sub-acquirer and evidently because this is a large player that counts positively towards shift mix in terms of take rates. So this move was also happened with an observed take rate improvement of 14 basis points. So it's simply a mix effect. So Mateus you want to elaborate a little bit on NPLs? Mateus Scherer: Yeah, for sure. So on the question of why we're talking about 10% as a level of expected credit losses when other peers are reporting on the 30% level, I think, we're talking about a different mix of clients here. So if you look at the average ticket of our current credit portfolio, we're talking about BRL30,000 in average loan size. If you look at the peers, we're talking about maybe 10 times lower. And I think if you were to look at the profile of clients that these other players are targeting, it would be more similar to a micro merchant and not an SMB merchants. Of course, we have initiatives to test and learn on that segment. But when we talk about our current working capital offering, it's mostly targets within SMB. So that's the difference. Neha Agarwala: Understood. Thank you so much, Lia and Mateus. Very helpful. Lia Matos: Thank you, Neha. Mateus Scherer: Thank you. Operator: Next question from Jamie Friedman with SIG. James Friedman: Hi. Congratulations guys. I have one for Mateus and one for Lia. The first one is, how should we think about financial expenses going forward because those were a little bit below Mateus what we were anticipating on a sequential basis. And then Lia in terms of the bundling strategy is that actually impacting merchant growth, bundling strategy and merchant growth? Thank you. Mateus Scherer: Hey, Jamie. So I'll start with the financial expenses question and then pass it over to Lia. So in terms of financial expenses, when you think about the drivers of that line, there are basically four main factors. Our funding needs are the first one. The mix of funding sources, funding from third parties versus equity, the level of interest rates and the funding spreads, right? When you look at the 3Q, financial expenses rose by 7% quarter-over-quarter basically given the following impacts. So first, we had an increase in the number of working days in the quarter, which were 5% higher. Second, it's related to the funding needs piece. So we had growing TPV and therefore bigger funding needs. And third we did a sizable buyback in the quarter as well. So our mix of equity versus debt, of course, was lower. On the other hand, we're talking a lot about the new financial instruments that we're issuing because of the financier license. And what we're seeing overall in our financial expenses is a reduction in the funding spreads. So that's the offsetting factor here that bridges the gap. Now when we look ahead, I think, the only difference that we're going to see starting in the 4Q is that interest rates should start to rise, right, according to the yield curve. So when we think about the dynamics of financial expenses in relation to revenues, I think that's the big shift. So we should have a more challenging scenario in terms of financial expense, solely due to the yield curves, but all the other factors, I think they are on a positive trend. So we're going to continue to generate cash. Funding spreads are also showing a positive trend and funding needs are basically a result of TPV growth. So those are the main factors there. Lia? Lia Matos: Yeah. Jamie, so just taking your question on bundling and bundling strategies and how that has affected client-based growth. So there's not a direct relationship. So our net-adds and the dynamics of client-based growth is really a result of two main factors. First, what Mateus mentioned, that is the effect of the sponsorship and our marketing investments and the sponsorship in the reality show that happened in the first half of the year phasing out. So there is a seasonal impact in terms of client-based growth. And second our decision to really weigh on the side of profitability versus growth. So really paying attention on the quality of the clients versus the actual number of clients that we onboard. Speaking more broadly, when we think about bundling, I think, there's two slightly different dynamics there. Number one is bundling when we talk about cross-selling financial services to our software clients. We disclosed the cross-sell TPV metric. I think that's a good guide of that evolution. It doesn't impact so much client base growth because of a mix effect. Basically those are larger clients, right, the nature of those software clients is medium clients within SMBs. So in actual number of clients, it's not that relevant, but it is significant in terms of TPV growth and we're seeing pretty good performance of our specialist sales channel within financial services. Cross-selling financial services bundled to software -- to our software clients. So that's one part of the strategy. We're happy with the evolutions there. And when we think about our micro and SMB client base, both with Stone and Ton offerings, we're basically at the point now that the vast majority of clients already on board with a payments and banking bundle. That's been the reality for a while. I would say that, that part of the strategy of bundling payments and banking, that's already reached relative maturity and that's really driven a big part of the deposits growth in the past. Now naturally, that's going to be more about engaging further with the banking and the credit et cetera. But I would say that those bundling strategies, they will continue to evolve naturally as our roadmap evolves. But that's not what's driving the dynamics in terms of client-based growth. James Friedman: Got it. Thank you both so much. Lia Matos: Thank you, Jamie. Mateus Scherer: Thank you. Operator: Next question from Guilherme Grespan with JPMorgan. Guilherme Grespan: Good evening, everyone. Thank you for the Q&A. My question is going to be on capital allocation. I think Zinner started the call talking a little bit that you guys are studying a little bit more the requirements of allocation to the business and maybe you have excess cash and I think it's a fair discussion. We discussed a lot. You basically you were sitting at 5 billion excess cash, you generate almost 2 billion net cash per year. And when we discuss here, we basically see two restrictions, I think, to the capital distribution. The first one would be capital. But when we do our math here, you were already sitting in our estimates more than 40% capital ratio in Brazil. And the second would be the working capital funding need, which in our impression is that the securitization market in Brazil, it's already fairly developed. So my question to you is basically out of the 5 billion that we're sitting in excess cash, the internal analysis that you guys are carrying, how much you think you can distribute or out of the 2 billion net cash that you generate per year, how much can you distribute? And the second question is basically the management incentive to that. I think part of the alignment here come from the KPIs. If we're planning to change the management KPI from nominal profit to ROE or at least TPS profit per share? Thank you. Mateus Scherer: Thank you, Grespan. So I'll take the first part of the question regarding the framework of capital allocation. So I think in general your view is the right one. So when we look at the capital structure of the company nowadays. We think that we are maintaining a solid and conservative capital structure with room for optimization. And I think we can see that not only by the adjusted net cash position that you mentioned, but also when you think about capitalization levels and the level of diversification in our funding sources, we're in a good shape nowadays. Like you mentioned, I think, the company continues to generate cash each quarter, even after accounting for the growth of the credit book. And based on those factors, again, we think that we have some excess of capital. And our mindset here is not to accumulate capital within the company. If we judge that we have capital in excess of what we need to execute the plan, the idea is to develop a framework to distribute that to shareholders in one way or the other. As for these specific figures, given that we are still finishing this framework, we're not going to be sharing right now how many biddings we think that are available to be distributed or so on and so forth? But like Pedro mentioned in the call, I think the idea is to provide this visibility to the market in the coming quarters. So we're working on that right now. And on the incentive question, do you want to take this one, Pedro. Pedro Zinner: Yeah, on the incentive side, I think you reached a fair point. And I think it's part of the whole framework in terms of the discussion on how we're going to allocate capital and make the decisions over time. I think the discussion is as of today is really centered, as you mentioned, more on the EPS side rather than ROE itself. But it's part of the whole framework discussion that we're having. And I think we're going to be providing more visibility on the first quarter of next year. Guilherme Grespan: Okay. Thank you. Operator: Our next question comes from Renato Meloni with Autonomous Research. Renato Meloni: Hi, everyone. Thanks for the call here and taking the questions. So my first question was on the software business. And thinking here of Pedro's comments last call, it seemed that he was still I'd say more convicted on owning the asset to benefit from the cross-selling opportunities. So I wonder here what drove the strategy change here now that you're considering potential sale on the asset? And then if you allow me for a quick second question, just wondering what you expect to be the recurring effective tax rate now that you might have some benefits here on the bond repurchase? Thank you. Pedro Zinner: Hi, Renato. Thank you for the question. I think we remain confident that offering software to our clients is a key pillar of our strategy as we highlighted in Investor Day presentation. But now the product integrations are established, we believe that we can drive cross-selling opportunities through commercial partnerships without necessarily owning the asset. And I think this is what I tried to highlight in the call. So while we're very confident in terms of our ability to execute our strategy that way, any transaction will only be pursued if it will add shareholder value. And we believe that, sorry, we believe that there is no big change in the strategy at all. I think the way we want to move is really in terms of a more asset-light strategy using commercial contracts to actually revamp our balance sheet in some ways and improve our capital allocation. So the strategy remains pretty much the same. Mateus Scherer: And in terms of the tax rate question, I think, we've mentioned in the past that we see the range for our tax rate has been between 20% to 25%. And of course, this is a big range, right? I think what the change that we have now with the bond buyback does is basically take us to the lower end of that range. But I think in terms of expectations going ahead, that remains quite the same. Of course, you may remember that we also have some seasonality on the tax rate. So 4Q tends to be lower than the remainder of the year. But as a benchmark, I think, the 20% to 25% range remains in place, but we should be on the lower end of that. Renato Meloni: That's good. Thank you. Pedro Zinner: If I might, yeah, sorry, and if I might come back, just to reinforce, I think the core message that I wanted to convey is on our belief that we have a unique software asset, right? But while we are confident in our ability to execute the strategy without necessarily owning the asset, we really believe that the transaction would add shareholder value. Renato Meloni: Thank you. That's good. Operator: Our next question comes from Kaio Da Prato with UBS. Kaio Da Prato: Hello, everyone. Good evening. Thanks for the Q&A. I have two on my side, please. The first one, I want to touch base again on your Card TPV growth and especially for the MSMBs. I understand the shift from cards to PIX, but if we look at the quarter-on-quarter, your growth was slightly below the cards industry that was out a few days ago. So just would like to understand in your view why we saw this implied market-share loss if it was related to some specific segment or no? And what's your expectation going forward thinking about market share especially as you probably have one of the largest salesforce in the MSMB industry nowadays? And the second one, just following up from Grespan's question on capital allocation. And the last one, given your evaluation about the potential option for the software business, engagement with advisors and so on. Is it fair to assume that if you decide for a sale of the main option to maximize shareholder value today would be exactly distributing this capital or if you are looking for any specific allocation in a specific product or project please. Thank you. Lia Matos: Hi, Kaio. Lia here. Let me talk a little bit about TPV dynamics and your question regarding our growth versus industry. So when we think about market share, we prefer to look at our market share dynamics in a longer time horizon than only on a quarter-over-quarter basis. So our long-term target does imply continued market share gains over the long run, albeit at a lower pace than we had in the past naturally just because of the scale of the business, right? Given that we phase marketing and sales investments differently throughout the year, this may mean that we slightly lose share 1/4, but gain on the other to compensate for that. What's important for us is to maintain a consistent pace of growth and market share gains in the long run. That is also implied in our overall guidance for TPV, right, that we pointed out in the Investor Day. We do need to consider when we talk about TPV guidance for 2025 and even longer term, the dynamics of PIX because that's played out differently than we had anticipated last year, but nothing changes in terms of our perspective and our ability to continue to win clients and gain market share overall. Regarding shorter term, right, the recent TPV growth dynamics, nothing structurally different happened this quarter other than what we have already said. So PIX growth ahead of expected with visible cannibalization from debit volumes. Our decision, as Mateus mentioned, to prioritize on the side of profitability versus growth, which may have an impact in short-term Card TPV. And there's also some negative seasonality in the quarter since we had a September with less Saturdays than usual. So I mean these three were the main effects shorter term, but that, it doesn't change our perspective on the longer-term dynamics. And we see our third quarter growth levels at 20% year-over-year considering PIX as very healthy and driving the overall monetization possibilities through banking and through credit in the future, throughout the lifecycle of our clients. So that's our take on overall dynamics of TPV. Mateus Scherer: And on the second question around the software business and a potential use of proceeds I think like Pedro mentioned, first of all, we have not even made a decision yet on whether a transaction will take place or not. We are evaluating options. So to that end, I think, it's premature to discuss potential use of proceeds. But in general like I mentioned in my answer regarding capital allocation, we feel good. We feel comfortable in terms of our capital structure nowadays. So of course if we have excess cash from a potential transaction either buying back or distributing that excess cash would be a plausible option that we're going to evaluate. Kaio Da Prato: Okay. Thank you very much Lia and Mateus. Lia Matos: Thanks, Kaio. Operator: Next question from William Barranjard with Itau BBA. William Barranjard: Thank you, everyone. Thank you for your time. My question here is quite fast frankly. So regarding your software slide regarding the possible sales of the asset, I just wanted to ask a little bit into which players you could be looking at to sell it. So as you mentioned that you are looking into a commercial partnership if the sales really happen. So can I exclude as potential buyers every player that has acquiring capabilities or has already partners on the acquiring space? Mateus Scherer: Thanks for the question, William. So take the first part regarding the commercial agreements. So I think the idea here is that when we look at our operational days, we currently collaborate with various software companies through our partner program. And we have some of those partnerships under exclusivity agreements as well. So if we decide to proceed with any transaction, indeed, maintaining those agreements would be a very important condition. And of course, we're going to factor that into the decision-making process. I think the second question if you could repeat. William Barranjard: No, I think it's just one question really regarding like potential buyers and if like automatically if you exclude automatically players that already have like payments capabilities and so on. But I guess it's clear. Pedro Zinner: Yeah, I think at this stage, we really cannot share the specific details. However, what we can confirm is there has been a strong interest in the asset from a diverse group of more than 20 players and that includes both financial investors and strategic companies. So at this point, it's really, it's an open discussion. William Barranjard: Yeah, perfect. Thank you. Operator: Our next question comes from John Coffey with Barclays. John Coffey: Thank you very much. This is John. I guess one of the questions I had for you is on the impact of the SELIC rate in pricing. I think we look back a number of years ago and SELIC started climbing to like I think it was 13.75. There were some pricing changes that you made in some of your competitors as well. And I think there was some concern later that when the rates started to decline that you would actually have to maybe reduce price. So now that we seem to be in a bit of a rising interest rate environment in Brazil, what are your thoughts on changing prices, raising prices, maybe what you've done already in Q3, if you have done any and going forward maybe particularly as we get into 2025? Mateus Scherer: Thanks for the question, John. So I think I touched upon this on the other question, but I think the emphasis here is that pricing is really becoming a dynamic process within the company nowadays. So we literally evaluate the unit economics of the whole client base every single month. And we take a lot of factors into that calculation, both product usage and of course, the macroeconomic conditions. And then we make a judgment on whether we're going to adjust prices or not. Of course now that we're seeing interest rates rising implied in the curve, that goes into the calculation and what ends up happening is that we're going to have most likely a higher level of repricing and adjustments going forward. And so to answer your question, I think, the idea is indeed to pass through some of the increase that we're going to see. This is a process that usually has some lag and takes a while. So if you look at the numbers from 3Q and also 4Q, we shouldn't see a big impact from repricing waves. But as time goes by, I think, the expectation is indeed to pass through some of those increases. John Coffey: All right. Thank you very much. Operator: There are no questions at this time. This concludes the question-and-answer session. The questions that have not been answered in this conference call will be addressed later by the StoneCo team. I will now turn over to Pedro Zinner, CEO at StoneCo for final considerations. Pedro Zinner: Well, thank you very much for everyone for participating the call and hope to see you in the next quarter. Thank you. Operator: This does conclude today's presentation. You may now disconnect.

Operator: Good evening, everyone. Thank you for standing by. Welcome to the StoneCo Second Quarter 2024 Earnings Conference Call. By now, everyone should have access to our earnings release. The company also posted a presentation to go along with its call. All material can be found online at investors.stone.co. Throughout this conference call, the company will be presenting non-IFRS financial information including adjusted net income and adjusted net cash. These are important financial measures for the company but are not financial measures as defined by IFRS. Reconciliations of the company's non-IFRS financial information to the IFRS financial information appears in today's press release. Finally, before we begin our formal remarks, I would like to remind everyone that today's discussion might include forward-looking statements. These forward-looking statements are not guarantees of future performances and therefore you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause results to differ materially from the company's expectations. Please refer to the forward-looking statements disclosure in the company's earnings press release. In addition, many of the risks regarding the business are disclosed in the company's Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov. I would now like to turn the conference over to your host, Roberta Noronha, Head of Investor Relations at StoneCo. Please proceed. Roberta Noronha : Thank you, operator, and good evening everyone. Joining me today on the call is our CEO, Pedro Zinner; our Chief Financial and Investor Relations Officer, Mateus Scherer; our Chief Strategy and Marketing Officer, Lia Matos. Today, we will present our second quarter 2024 results and provide an updated outlook for our business. I will now pass it over to Pedro so he can share some highlights of our performance. Pedro? Pedro Zinner : Thank you, Roberta and good evening everyone. After reviewing our second quarter results and our performance at midyear, I am pleased with our progress across our strategic priorities and believe we are on schedule to meet our 2024 goals. In payments, we continue to win in the MSMB market and take more market share. Our client base grew 30% year-over-year. TPV grew 25% and current TPV increased over 17%. We are also executing on our pricing and bundling strategies to enhance client engagement as we discussed during our Investor Day. As a result, our MSMB take rates also continue to expand, increasing seven basis points year-over-year to reach 2.54%. We believe these strong results arrive from our competitive advantages in distribution, superior service, and our growing ability to provide more comprehensive solutions to our clients. In banking, we are making similar progress. Our client base grew 62% year-over-year and client deposits increased 65% as our team continues to cross-sell effectively. We now have 2.7 million active banking clients and R$6.5 billion in deposits, which are approaching our 2024 targets. We have also started to pilot interest bearing products such as time deposits, which I believe is being well received by our clients and could be an exciting new area for us. In Credit, we're also evolving well towards our goals even above set targets. Our total credit portfolio increased 32% quarter-over-quarter to reach R$712 million. Within that, our working capital portfolio grew over 28%, reaching R$682 million this quarter with strong quality as shown with our NPL over 90 days, still at 2.6% very much in line with our expectations. I'm also excited with some new initiatives underway. Our specialized project desk, which is focused on addressing the opportunity within our larger SMB client base, successfully completed its first disbursement this first quarter. And we finalize the structuring of our zero fast food product. This is a short term of address solution designed to address the immediate capital needs of our clients, which is set to launch in the third quarter. In our software business, we are making progress on our cross-sell initiatives and we are improving the quality mix of our business towards more recurring revenues. Total software and vertical software revenue growth remain modest, but we are seeing underlying signs are improving. For example, we are getting better cross-sell traction in our gas station and retail verticals, and we generated stronger Card TPV growth from our software clients in priority verticals than our overall MSMB card TPV growth rates. We still have a lot of work to do in our software business over the long term, as I have mentioned, but I'm seeing some encouraging trends from our efforts. We have also maintained our focus on efficiency gains in the streamlining of administrative expenses, which decrease by 13% year-over-year. In the quarter, we achieved a 180 basis point reduction in administrative expenses as a percentage of revenues when compared to the second quarter of 2023. As a result of this positive developments, our adjusted basic EPS demonstrated strong growth reaching R$1.61. As I mentioned earlier, we remain committed to our business plan and the targets established during our Investor Day. In light of this commitment and considering short-term market fluctuations, we allocated capital to repurchase an additional 9.67 million shares, totaling R$724 million, bringing us closer to completing the R$1 billion share repurchase program announced in November, 2023. Additionally, as part of our liability management strategy, we allocated $295 million to the tender offer for our 2028 bonds, achieving nearly 60% participation. In summary, I'm very satisfied with the trajectory of our results for the second quarter of 2024, and I have full confidence in our team's execution. Now, I'd like to pass the floor to Lia, who will discuss our second quarter of 2024 performance and strategic updates. Lia? Lia Matos : Thank you, Pedro, and good evening, everyone. As Pedro mentioned, we were pleased to see the progress across our strategic priorities and initiatives in the second quarter, which I think positions as well to meet our 2024 and long-term goals. As you can see on Slide 4, our consolidated revenues grew 8% year-over-year, mainly as a result of consistent TPV growth and higher client monetization. It is also important to remember that in the first quarter of ‘24, we changed our internal accounting methodology for membership fees revenues, deferring this revenue stream over the expected life of a merchant rather than recognizing it at the time of acquisition. This change reduced our reported revenue by around R$50 million in the second quarter. If we exclude this change, our total revenue growth would have been 10% in the quarter. Despite this effect, adjusted EBT increased 46% year-over-year. This was driven by the combination of our top line growth and the ongoing benefits of our financial and administrative expenses efficiencies. As a result, our adjusted net income increased 54% year-over-year, and now our adjusted basic EPS increased 57% year-over-year reaching R$1.61. Now, let's dive further into our financial services segment performance on Slide 5 to 9. Starting with payments on Slide 5, our MSMB client base increased 30% year-over-year reaching almost 3.9 million active clients. We generated a net edition of 184,000 clients during the quarter. On a year-over-year basis, this growth was impacted by the fact that we have caught up to the growth levels in the micro segment and on a quarter-over-quarter basis, our net ads were impacted by the grow over effect of higher net ads in the first quarter, which benefited from our sponsorship of a popular reality TV show in the period. As you will see in the pages that follow: Besides optimizing our commercial strategy for growth and market share gains, we're also putting a lot of focus on improving our payments in banking bundle offerings to new client cohorts, both in Ton and Stone. As you can see on Slide 6, this approach has resulted in more profitable TPV growth in market share gains in the MSMB segments. Before we dive deeper into our TPV performance in payments, I would like to point out that we have refined our disclosure of TPV due to the increasing relevance of PIX QR Codes in the market and in our transactional volumes. From now on, whenever we talk about TPV, we will refer to transaction settled through cards and PIX dynamic QR codes. When we talk about Card TPV, we will be referring to transactions settled with cards only. Now moving to vitamin take rate results. MSMB TPV increased 25% year-over-year as a result of a 17.4% year-over-year growth in MSMB Card TPV and a 2.6 fold increase in PIX QR code, which reached R$11.5 billion in the quarter. We achieved this strong growth while also increasing take rates by seven basis points year-over-year, which reached 2.54% as a result of higher credit and banking revenues and higher prepaid volumes partially offset by a lower duration from prepayment transactions. On Slide 7, let's shift to discuss our banking performance. Our banking active client base increased 62% year-over-year to 2.7 million active clients as a result of growth in both Ton and Stone payments client base with an increase in penetration of clients using banking and payments bundles. This growth in our client base also helped drive a 65% year-over-year increase in client deposits, which reached R$6.5 billion in the quarter, despite the sequential 8.1% growth in deposits. ARPAC decreased to R$25.7 per month, mainly as a result of lower average CDI in the period. Moving to Slide 8, let me give some highlights on our credit performance, our credit portfolio increased to R$712 million with the working capital portfolio alone increasing 28% sequentially to reach R$682 million in the quarter. The remainder of the portfolio is the result of the very initial results of our credit card products, both within Ton and Stone, because such cohorts are very early vintages. We highlight on the page the credit quality metrics of our working capital loan product alone. NPLs increased slightly this quarter with NPLs between 15 and 90 days reaching 2.9% and NPLs over 90 days reaching 2.6%. As highlighted before, because these cohorts are also relatively new, the ratio of past due loans should continue to increase as they mature. Provision expenses for working capital expected losses were R$17 million in the period, decreasing significantly quarter-over-quarter. This reduction reflects the beginning of a conversion of provision levels to expected loss levels as the portfolio matures with provisions now representing 18% of the working capital portfolio down from 20% in previous quarters. Finally, to summarize the performance of our financial services segment, the second quarter was again marked by strong year-over-year TPV growth and the successful development of our banking and credit initiatives. These resulted in segment revenue of R$2.8 billion, an adjusted EBT of R$608 million in the quarter, up 11% and 53% respectively year-over-year, and an increase of 590 basis points in our adjusted EBT margin to reach 21.5%. Moving to Slide 10, let's talk about software performance and its strategic evolutions. Quarter-over-quarter, the Card TPV of clients that use both financial services and software solutions increased 8%, primarily driven by the gas station and retail verticals, which have been our priority focus since last year. This result has been mostly driven by the cross-selling efforts from our financial services specialist distribution team, cross-selling bundles to software clients. As Pedro mentioned, cross-sell volumes outperform growth of MSMB Card TPV in the quarter by almost a factor of two. We're happy with the execution of our cross-selling initiatives so far in 2024, but I believe, we still have a lot of room to grow, particularly as we gear up to enable our link software channels to also sell software and financial services bundles. On Page 11, you can see the standalone performance of our vertical software business where we're seeing some improvements in the quality of our revenues. Vertical software revenue grew 3% year-over-year due to an increase in recurring revenue growth offset by a decrease in non-recurring revenues in priority verticals. As a result, we believe the revenue quality of our priority verticals is improving with recurring revenue as a percentage of total revenues increasing by more than 450 basis points year-over-year. In Slide 12, we present the consolidated performance of software. As you can see, total software segment revenues reached R$384 million remaining flattish year-over-year, driven by the trends I just described in our vertical software business offset by slower growth in the enterprise business. Adjusted EBITDA in the software segment decreased to R$64 million in the quarter, down 4% year-over-year, and 3% quarter-over-quarter impacted by a non-recurring seven expense of R$3.2 million, and by our decision to focus on growing recurring versus non-recurring revenues, which has a negative impact in the short term, but should be accretive for the business in the long run. We continue our efforts to implement the software strategy that we presented in our Investor Day. While we're happy with our evolution in cross selling initiatives in the gas station and retail verticals, we're still working and learning how to best enable our software distribution channels to sell financial services and software bundles via commercial incentives and systems integrations. We also continue to pursue efficiency initiatives and a more disciplined capital allocation approach within our software settings. Now, I want to pass it over to Mateus to discuss in more detail some of our key financial metrics. Mateus? Mateus Scherer: Thank you, Lia, and good evening everyone. I would like to begin on Slide 13, where we discuss the quarter-over-quarter revolution of costs and expenses on an adjusted basis. Cost of services reached at R$831 million, increasing by 23% year-over-year and 4% quarter-over-quarter. Sequentially, cost of services is a percentage of revenues decreased by 10 basis points, primarily due to a reduction in low loss provisions, which were reduced to R$18 million this quarter from R$45 million in the first quarter of ‘24. This reduction reflects the beginning of the process of aligning our provision levels with expected credit losses as a portfolio matures with provisions now representing 18% of the working capital portfolio. This decrease was offset by higher provision for losses in the quarter on our acquiring and banking solutions. Administrative expenses decreased by 13% year-over-year, resulting in a 180 basis point reduction as a percentage of revenues compared to the second quarter of ’23. Sequentially, administrative expenses increases by 1.4%, but declining by 20 basis points as a percentage of revenues. This was driven by lower expenses in the software segments due to efficiency gains, as well as by the divestment of impact in the first quarter of ‘24, which eliminated expenses in the non-allocated segments. Selling expenses increased at 27% year-over-year and decreased 0.9% quarter-over-quarter down 80 basis points sequentially as a percentage of revenues. This decrease is primarily due to a reduction of approximately R$26 million in marketing expenses related to the sponsorship of reality TV show that Lia mentioned, partially offset by increasing investments in sales teams. Looking ahead, we anticipate gradual dilution of selling expenses as these investments in sales teams mature. Financial expenses decreased 20% year-over-year and decrease at 4.5% sequentially, leading to a 230 basis points reduction as a percentage of revenues. This decrease was a result of lower average CDI in the period, a reduction in our funding spreads and our decision to reinvest for our cash generation towards the funding of our operation. These effects were partially offset by higher funding needs for our repayment and credit operations, as well as by a higher number of working days in the quarter. Lastly, other expenses increase at 26% year-over-year and 80% sequentially, or 140 basis points as a percentage of revenues. This variation was a result of more normalized levels of share-based compensation expenses as the first quarter of ‘24 included a non-recurring positive impact of R$40.5 million from the net effect of the consolidation and new grants of incentive plans. Excluding this effect, other expenses net would have been flattish as a percentage of revenues. Turning to Slide 14, our adjusted net cash position was R$5.3 billion by the end of the quarter, reflecting an increase of almost R$1 billion year-over-year and R$117 million for the quarter. We continued to deploy capital towards the expansion of our credit portfolio and executing on our share buyback program in the amount of R$237 million this quarter. As Pedro mentioned, I would like to highlight that in July, we are located capital to purchase in additional 9.6 million shares amounting to R$724 million, nearly completing the R$1 billion buyback repurchase program announced that in November, 2023. Additionally, we allocated $295 million in July to the tender offer for our 2028 bonds, which will further optimize our funding spreads as we move forward. Finally, let's move to Slide 15 to discuss our guidance. We are very pleased with our performance in the first half of the year. The profitability achieved in the first half of ‘24 has positioned us favorably to meet our full year guidance, despite several headwinds. This include R$120 million reduction in revenues due to the changes in recognition of membership fee revenues, and a challenging microeconomic environment with a higher yield curve. In our banking credit solutions, which are key drivers for our long-term growth, we have exceeded initial expectations not only in volume, but also in quality. This strong performance may put us on track to surpass our year-end guidance in these areas. From my perspective, the most challenging area so far has been our MSMB Card TPV. PIX QR Code penetration in the market and within our client base has been higher than we anticipated when setting our guidance in November of last year. This has affected our overall volume mix towards less Card TPV and more PIX QR Code TPV. Although this trend is positive for the business, it also means that current TPV is growing a little tighter within our expected range. We ended the first half ‘24 with 18% growth exactly in line with our guidance. Despite a more challenging comparable base in the second half of ‘24, we remain laser focused on our efforts to meet this guidance. Overall, I believe our second quarter results are trained in favorably and we are on track to achieve our long-term goals. With that said, operator, can you please open the call up to questions? Operator: [Operator Instructions] Our first question comes from Mario Pierry with Bank of America. Mario Pierry : Let me ask you a question about competition. Have you seen any changes in the competitive environment over the last three months? Especially coming from maybe some of the incumbent banks and any changes at CLO, because we did notice that you increase or you talked about making higher investments in your sales team. Can you -- so like I wanted to understand that a little bit better. Why are you investing in sales team? Do you think like you had a disadvantage, you're catching up or you're seeing a more competitive environment? And if you're seeing a competitive environment, if you can discuss like how you're seeing take rates trending. Pedro Zinner : I’ll jump start and then I’ll pass over to Lia to make further comments. I think on the pricing piece, I think the way we see it is, it has become really a dynamic process within the company, meaning that we continuously evaluate the profitability of our cohorts and we adjust prices accordingly. So in terms of the new interest rate environment and competition, I think we'll gradually incorporate the new yield curve and changes in the competition environment in our decision making. And I think we evaluate the economics of passing through these shifts into our clients. I think as a direction, I think we'll continue to prioritize profitability and to price based on returns. Still on the competition piece and I’m not going to address specific on the -- piece, but I think the market has evolved a lot and I think other players have been behaving in a similar way. Just another point I wanted to highlight is, that more and more we have more levers to price the relationship with clients through the bundles as the core of our strategy between payments, banking credit and software. So, I think to some extent this is a kind of a hedge against short terms interest rate dynamics and in some ways on the competition side. I’ll pass over to Lia to talk about selling. Lia Matos : So, talking a little bit about dynamics around selling, I think there's two relevant dynamics to highlight. First is more of a short-term discussion, which is we've already seen a reduction in selling expenses as a percentage of revenue, as Mateus mentioned, due to R$26 million impact decrease given that we sponsored Big Brother Brazil in the first quarter. So that's more of a short term dynamics and it's going to continue to sort of impact positively throughout the year. But longer term, regarding selling, we continue to invest and we talked about this especially scaling our specialist distribution as we continue to move up to onboard larger SMBs within the SMB segments. And as there's a dynamics regarding, our selling expenses in distribution, which is we front load investments in sales. So there's a front load of OpEx, and the results will come as we continue to onboard those clients. So we are going to see this impact for a few more quarters, but longer term we do anticipate gradual dilution in those selling expenses as the salesforce matures and we bring in more clients. Mateus Scherer : And if I may add. Its Mateus here. I think in summary, the investments that we're doing in terms of hiring these specialists is not a reaction on any sort in terms of reacting to the competitive environment in the short term. It's because we're basically seeing a huge opportunity to go up market within SMBs with variable profit -- very profitable type of clients, good unit economics, and our decision is much more of a bottom-up decision and not a reaction to anything that any player is doing. Mario Pierry: That's clear. Can, can you just give us like a sense of the size of how many people are we talking about? Lia Matos: We don't disclose the breakdown Mario, but I think the way to see this is it's kind of proportional to the distribution of the TAM you have. When we talk about what we call medium clients, so the larger SMBs naturally from a density perspective, there are less of them spread throughout the country. So we always kind of allocate sales teams in terms of the opportunity that we see locally in terms of the TAM. And although there are less medium clients within a specific hub or within a specific region, these clients are have very attractive economics, they have larger TPV, there's a lot of opportunity to upsell credit. So we kind of see this from the perspective of the addressable market. And if you think about the overall salesforce specialists are a smaller percentage of that and pretty much in line with the distribution of the addressable market. Operator: Our next question comes from Eduardo Rosman with BTG. Eduardo Rosman : Congrats on the numbers. I have two questions here. The first one is a follow-up to what I asked during the last conference call and it's what about the software division. Why not consider divesting from a least part of it to given that the number of verticals likely to have synergies with Stone’s not that large? So that's the first one. And the second one is kind of a follow-up as well on the competitive front. We saw a big surge on the number of acquirers in recent years. What do you think about this marketing in terms of consolidation? Do you see room for M&A in the sector? So that would be the second question. Thanks a lot. Pedro Zinner : I think on the first one, I think we remain focused on executing the strategy we unveiled at our Investor Day. I think in software, our efforts really concentrated on driving cross-sell in our priority verticals and improving overall business efficiencies. And I think, you can see that from the results that we presented. So while we are pleased with the progress we made so far, I think we do recognize that there is still work to be done on both fronts. And regarding the potential sale, I'd like to emphasize that we're not selling the asset. I think in some ways, there have been some rumors and what we said is that we continually evaluate all options to maximize value from our assets and really allocate capital within the company. But our focus at this point in time is really on executing the strategy we have laid out. And on the second question, could you please -- I apologize, but can you please repeat? Eduardo Rosman: Yes. No, it’s in terms of -- let's say consolidation, right? You had a -- we saw like a big number of acquirers and payment companies coming to the market in recent years many of them, naturally they don't have probably the scale. We do have the ones linked to the big banks which are becoming kind of a cost center so how do you guys see the market evolving? Do you see room for consolidation? Lia Matos: Let me highlight our view on the competitive environment regarding number of players and then pass it over to Pedro to complete the answer. So, if anything, I think we see less players entering the markets over the last couple years, I think this dynamics has been much more intense in the past. What we do see is different players being relevant within each segment of the market. So micro, there's a very clear competitive landscape. SMBs, it's different as you move up. Naturally, we compete more with incumbents, but I think the overall trend of five key players more or less playing out consistently in terms of market share evolution, I think that has kind of been consistent and the group, which [Abes] calls other does gain share as a group, but I don't think that there's been a lot of difference in who those players are. So I think from the competitive dynamics front, I don't think that we see a lot of change. If anything, we see less intense, like new entrants and new players coming into the market more recently. Pedro, do you want to complete on --. Pedro Zinner : I don't believe that the many other points to highlight is, briefly, they're not really any big news regarding the competitive environment. I think it's been quite stable over the past couple of quarters and no big changes on this front. Operator: Our next question comes from Neha Agarwala with HSBC. Neha Agarwala : On the OpEx side, the delivery so far has been quite strong despite some amount of expenses. Is there upside to your guidance, could you have better costs and that could drive your bottom line? Or are there any other costs or investments that you're looking to make that could weigh in on the second half of the year? And my second question is on the credit book. The originations, I saw this score, the disbursements were slightly one quarter. Any particular dynamics there? The NPL ratio is increasing as expected, but are you comfortable with the risk? If you can share more color about the uptake of the working capital? Is it directed more towards the SMBs? Any particular type of merchants who are more willing to take the loan or whom, you are more willing to lend to, any color on the credit book would be very helpful. Mateus Scherer : I'll start by addressing the credit one and then we talk about OpEx. So regarding credit, in terms of quality, I think we're really happy with the performance of the portfolio, so no worries whatsoever. But in terms of growth, I think the message here is that when we think about the growth in disbursement, it's not going to be linear over time. What we're doing now is that basically what we're making a series of experiments to test new criteria in the cohorts. And whenever the results from those tests are positives, we roll out new offerings and then we unlock a bigger wave of disbursement. That has been the behavior of the best quarter as well. And when we look at the guidance, we guided for a portfolio above R$800 million by the year end, we're already with R$712 million the first half of the year. So actually, when we compare to our plan, even though the disbursement for this quarter was a little bit smaller than the previous one, we're actually above the initial plan. And that said, when we look ahead, I'd say in terms of the economics of the product, we're becoming increasingly comfortable over time. I think the challenge and the opportunity now is that there is a lot to be done in terms of improving the conversion of their profit pool, but also, increasing the percentage of clients to which we extend a credit line as a result of those tests. Keep in mind that when we look at the product nowadays, it's still pretty much fully digital. So with very low participation from the distribution channels, which is key in terms of increasing conversion and penetration in the future. So that's pretty much the message around credit. On the OpEx side, I think we're correct. We had a good performance in the first half of the year, especially on the administrative expenses. When we look at administrative expenses, it's down 13% year-on-year when we look at the Q2, we guided actually for a growth. So it's becoming more clear that we're probably going to land with upside in that line. But more broadly when we think about operational leverage looking ahead, I think the message here is twofold. So within the operation, when we look at selling expenses and cost to serve specifically, I think we should continue to see operational leverage in the next quarter. So there's still work to be done there. We're probably also going to see tax rates conversion more towards the bottom of the range that we provided on the 20% to 25% range. I think the place where it's going to become more challenging the second half is probably going to be financial expenses, simply given to the fact that interest rates are expected to increase in second half versus decreasing the first half, and we also did a sizeable buyback, which is a creative when we look at EPS over time, but has a short-term negative impact to the P&L. So those are pretty much the main movements that we see going ahead. Operator: Our next question comes from Tiago Binsfeld with Goldman Sachs. Tiago Binsfeld : The first one is on PIX, I think you mentioned that has been an area of challenge, so I wonder how you see the evolution of the PIX agenda. We're following news off PIX type pay. We also see within the open banking agenda some initiatives, we not direct payments. So how are you preparing for those changes and do you think there can be a meaningful impact to TPV? And I can ask my second question after that. Lia Matos: I believe that it was chopping a little bit. The whole question is around PIX dynamics, correct? Tiago Binsfeld : Yes, that's right, Lia. Lia Matos: Let me give an overview of PIX dynamics in terms of the performance and then how we see the outlook regarding PIX. So I think the first message is we continue to see a strong growth from increased penetration of PIXs QR code dynamic QR code, which is the peaks that we see as a payment method. That's been true both within our base and the market based on Central Bank figures. So that's been an evolution beyond our expectations at the beginning of the year. So, PIX penetration is now higher than we initially expected. I think for us, this is net positive, as we said many times before, because number one, we see PIX as being incremental to our overall volumes. So if you look at the overall -- I think the way to illustrate this is the following: If you look at electronics penetration and how that has evolved as a percentage of household consumption over the past year, we see that penetration of credit has more or less re remained stable, even slightly increasing year on year. While if you look at the sum of debit, plus PIX, plus PIX volumes, this has increased significantly. So from 25% around a year ago to around 33% today. So what this means to us is that this volume is taking -- there is a slight cannibalization of debit, but overall it's taking volume from cash. So the reason why it's a created for us is because we monetize this in line with net MDRs for debits, but it is a creative from the perspective of more engagement with our banking solutions and naturally more cash in and more overall deposits. So, that's kind of the big message around PIX performance so far. When we look ahead, I think there's a roadmap that we know that the Central Bank has put out. There's an evolution around PIX NFC, and I guess our take on this is the following: All of this evolution opens up opportunities for us to improve client experience for us to evolve our product development roadmap around the PIX rails. So, there's a lot that we have already developed on PIX rails, and there's a lot that we will continue to do. We think that PIX NFC may accelerate the cannibalization of debit volumes as I just described because it's going to greatly improve the user experience around paying through PIX. But as I just said, I think this is a creative for us and our mission here is to make sure that we stay ahead of the Central Bank's roadmap, kind of anticipating how we can turn this regulatory evolution into better products and better solutions to our clients. I think the same is true regarding open banking. Naturally we expect that with more access to data and an ability to create better product experience, we can also gain from that by giving better experience and solutions to our clients. So I think that's the overall message. Tiago Binsfeld : And if I may a second question on software. Just to follow-up, what do you think are the main KPIs we should follow? If execution is going according to plan? I think in the past you may have provided some guidance on margins in that segment. If you could provide an update on that as well, would be helpful. Thank you. Lia Matos : Good question. So I think the two main metrics sort of to look out for, which are in line with the two pieces of the strategy that we communicated in the Investor Day is number one; how we are evolving in cross-selling financial services to links clients. So we disclose the metric of TPV overlap. TPV is of course only one part of the story, because as we get better at cross-selling financial services to software clients, we also want to advance on the banking and on the credit opportunity. But for now, sort of tracking this TPV overlap is an indicator of our traction regarding this part of the strategy. And I think the second big message that we brought out is the opportunity to increase efficiency within the software segments. And so monitoring margin evolution is an important aspect of this naturally. We did talk about margin behavior this quarter. There was an one-off effect from restructuring costs, but in the long run we continue to see still opportunity to improve margins within the software segment. So I think those are that's kind of the main, those two main things to track. Operator: Our next question comes from Kaio Da Prato with UBS. Kaio Da Prato: I have two on my side please, mostly related to your cash. The first one is in terms of the tender offer of your bond. Should we expect the usage of own cash for this operation? And also given your current cash generation, or should we expect the insurance of a new bond with probably lower cost. And by the end of the day, when we think about your P&L in the 3Q, and in the upcoming quarters, what type of impacts could we expect as we'll probably see savings related to the interest rates; and also a potential tax sheet for the reminder of the bond that was not bought. If you could help us walk through the impacts would be good, please. And the second one, also looking at your cash generation, just would like to understand what could be the next steps here. Where could we see the usage of cash, if it could go more to repayment or credit product? And if you plan to open a new buyback program as you almost completed the one analysis last year in August. Mateus Scherer : Thank you, Kaio, Mateus here. So first let's talk about the tender of the bonds. In terms of impact to the P&L, the buyback of the bonds itself had a neutral impact in terms of financial expenses upfront. But when we look ahead, there is indeed a relevant savings going ahead, because first we saw up a debt that was running at CDI plus 3%, which is the bond. For other loans in our balance sheet that are going to be which much lower spreads. So to the first part of your question in terms of the balance sheet itself, we're basically swapping the bonds with other debt instruments. It's not going to be a bond issuance. And they run at a much lower spread. And like you mentioned, besides the savings in terms of having lower financial expenses on these new debt instruments, we now also have the tax shield on the financial expenses that were associated with the bonds, both because these new issuances are happening onshore. And also because in the tender offer of the bonds, we included a provision to switch the debt holder of the bonds to a local entity. So when you add that together, you have a positive impact to the P&L moving ahead. The second part of the question, I think was around what we're going to do in terms of the cash generation going forward. Right? Kaio Da Prato: Right. And if you plan to open a new buyback program as well. Mateus Scherer: First in terms of opening a new buyback plan, we still view buybacks as very attractive capital location especially considering that we are in our view, outperforming the expectations outlined in the initial plan in the Investor Day. But, when we consider additional share buybacks, we need to also remain mindful that our business is growing very fast and we have a lot of new avenues for future growth that may require additional capital. So in short, I think we haven't yet made a decision on whether we're going to announce a new buyback program on second half or not, but it's certainly something that we will evaluate and provide updates on the coming quarter. Now, in terms of uses for the cash that we're generating. When we look at the capital structure for the company, we think we are in a very good and strong position. The company had a net cash position of around R$5 billion prior to the buybacks. And if even after purchasing around R$1 billion in this first half plus July, the company should still increase its suggested net cash position simply given the fact that the cash flow generation from the business has been really strong. And in terms of what we're going to do with that cash generation, I think the message is pretty much the same. We continuously evaluate the best use of capital in order to maximize shareholder returns. We feel that if there is an opportunity to buybacks shares, given how discounted the companies versus our plan, we can do. So what we need to balance here again, is the opportunity for the company to grow and to deploy capital in the business itself. When you look at our industry, I think it's a huge industry and we want to ensure that we have the firepower to pursue the opportunities that we have, especially within credit. So, that's pretty much the message here. Operator: Our next question comes from Jorge Kuri with Morgan Stanley. Jorge Kuri : Congrats on the numbers. I wanted to ask, go back, I'm sorry to the question about selling expenses. And for the -- I know, you're looking at it on a quarter on quarter basis, but given the investments in people and how long they take to take results, I think it's just better to look at them on a year-on-year basis. But your marketing expenses are up 27% year-on-year, and for a revenue growth of 8% year-on-year. So that's 3x revenues and relative to TPV is around 2x TPV, and so I went back and look at that relationship last year and it's not necessarily getting any better. So I wanted to go back and ask to what extent maybe the business is getting more competitive and maybe it's not getting more competitive on prices, but it's just getting more competitive on the ability, on the productivity of the infrastructure that you need in order to generate revenues, because there's just more and more companies looking for the same pool of clients. So if you can just give us a little bit more confidence on why we're going to see a reversal of this negative trend, and then my second question is on your banking ARPAC, which was down 13% quarter-on-quarter, even though your loan book has really exploded, it's up like many fall year and year 35%. I think quarter-on-quarter and rates were lower on the float, meaningfully lower if you look at it on year-on-year basis. But on a quarter-on-quarter basis, average rates were only like 5% lower. So can you just walk us through why your banking ARPAC was down 13% quarter-on-quarter? Mateus Scherer: So I'll start from the last question and then we'll talk about selling. In terms of the banking ARPAC, the revenues from credits are not included in the banking ARPAC. It's basically the transactional banking revenues plus loading. So the main driver that it explains why banking ARPAC went down quarter-on-quarter is mainly CDI. So CDI actually went down 6.9% quarter-on-quarter, and that pretty much covers the GAAP. Now in terms of selling --. Jorge Kuri : Before you go ahead, sorry. Is there any reason why the credit revenues are not included in the banking ARPAC? Mateus Scherer : Yes. The way that we see the business, we look at credit on a standalone piece, and then when we talk about banking on our segmentation and reporting, we decided to only include the floating and transactional piece. So it's basically a decision on how we disclose the numbers. Lia Matos: And also, Jorge, just to compliment, Mateus the answer on this. Remember that we extend credit to only small amount of clients whereas we have a very high penetration of banking, so if we were to include credit revenues in our ARPAC, that there would be a huge sort of average effect, because you're diluting this small cohort of clients that has credits in a big banking base, right? So it doesn't make sense to us to include for that reason. So maybe Mateus on selling. Mateus Scherer : Yes. So on sale, maybe we'll start with the dynamics that we expect as a percentage of revenues, and then Lia can add on your piece about the relationship between selling and competition. So in terms of the selling expenses the way we see it, given the nature of the business, there's a lag between upfront investments in sales teams and the resulting benefits. And the same is true for marketing. So every time that we either hire new sales team or do a marketing campaign, we get the OpEx upfront and then it generates an increase in sales over time and it takes time to build this new portfolio of clients and to dilute selling as a percentage of revenues given the recurring nature of the business. So, it's a different dynamic from a transactional business where you really get the revenues at the same time that you spend the money. The way that we see, we did an increase in investments in the 1Q due to Big Brother Brazil and also because we're building out the specialist salesforce. So, it's true that when you look at the annual comparison for selling experiences, it increases, but I think the reason why we're really confident that we're going to see dilution in the coming quarters is because it's already happening. So when you look at the 1Q, selling was 17.2% as a percentage of revenues. 2Q, it's down to 16.4%, and as we mature the investments in the sales personnel that we hired, we're looking at the productivity and the numbers that are coming from those investments. We're confident that we're going to produce the bigger client base, the bigger TPV and then the dilution will follow. Lia, do you want to add on the relationship versus the competitive environment? Lia Matos: Sure. So Jorge, we've talked a few times about this. So I think in general terms, we kind of agree with you on the assessment of how the acquiring industry will evolve regarding growth. So big message is we're going to see less growth in the industry when we think about acquiring specifically over the next five years than we saw in the last five years. But I think we see competitive dynamics play out a little bit differently from what you mentioned. So I think number first important message is as we emphasize in the Investor Day, and since then, there's still a lot of room for us to grow in financial services beyond payments. And we've seen a clear trend around all players offering more complete solutions. So this is not something exclusive to stone. I think the overall industry has moved away from fewer play acquiring to more complete financial solutions offerings. And given that we still have a large opportunity to improve monetization beyond payments and penetrate more on banking and on credit, this is how we see the investments in selling that we make. So this will drive better returns on our investments in selling in the long term. So that's how we see the equation. I think the second piece of the answer revolves around what we've already talked about as well, which is as we have observed in recent quarters within acquiring, what we believe is that the trend will continue be one where players focus their growth within specifics niches of the markets, be those specific tiers of clients or specific regions. So for example, incumbents as a group gaining more share in the key account space, even though as a group incumbents are losing share. Also, dynamics where we see regional pockets of growth and regional competitive dynamics playing out. So I think that the message is, yes, in an industry that grows less in the future, we have to be better and better at assessing where the pockets of growth are. But as we continue to evolve our operating model, and we talked about specialist salesforce as one example of this, but it's not the only one. We continue to make sure that we can stay ahead and really understand where these pockets of growth are within our focus, which is serving MSMBs and continue to grow and gain share within MSMB. So I think as a result of these two factors, future growth rates in acquiring will be lower overall, and this is already implied in our TPV long-term guidance that we gave in the investor day. Just to remember, we talked about 13% CAGR in terms of acquiring TPV towards 2027. So this is built into a dynamics of what we understand the industry evolution to be, but our focus is a lot more on growth as a result of more monetization coming from the clients that we onboard to our ecosystem. Operator: Our next question comes from Gustavo Schroden with Bradesco BBI. Gustavo Schroden : Congrats on the numbers and thanks for taking my question. Most of my questions were answered, but I'd like to explore a little bit to your guidance. It seems to me that it is a little bit conservative at this point, because if you analyze for example, the TPV, it is running very healthy and I'm assuming that there is a seasonality in the fourth quarter maybe that will be I mean easily above this 18% growth deposit is also growing very fast. Credit portfolio take rate is above the 2.49% as you expected. A net income is running, also assuming the seasonality in the fourth quarter is running to be above this R$1.9 billion for the year. So why are you still like keeping this R$1.9 billion as a minimum? Do you think that it is a conservative approach should we indeed expect something above to bid on our R$2.1 billion for the year? That would be reasonable, that's my question. Pedro Zinner : Hi, Gustavo, Pedro here. Thank you for the question. I think, I'll try to provide the whole concept. And I think we emphasize in our Investor Day, I think, we transition to a policy of providing annual guidance, unless there is an extremely material change in the business or in the macro environment, I don't believe that we anticipate, revisiting our guidance by mid-year. And also, when we look at the numbers, I think the guidance as you mentioned, the guidance provided for the year, they're kind of a set, they set the floor for our key indicators. So for most of these, we are indeed seeing more positive trends. I think, you're right. And we do expect to exceed our targets, but I think it's part of the game. So the only metric, as you mentioned that may prove more challenging is really Card TPV as we are really witnessing stronger growth in peaks transactions, which were not included in the TPV metric. We provided for guidance despite being monetized in line with net MDRs for debit transactions. So PIX QR Code penetration in the market within our client base has been higher than we anticipated when we set our guidance in November last year. So this would affect our overall volume mix to address Card TPV specifically on debit and more on PIX QR code. But in general terms, I think we're keeping the guidance as I mentioned before. Gustavo Schroden : Very clear. And just to follow-up here, very clear your point about the Card TPV and the PIX potential impacts and about interest rates. Anything that you see here that could change or could impact their guidance as now we have a different environment or different expectations for rates? Anything that you could comment here would be great. Mateus Scherer: When you think about interest rates, they're going to be a drag on second half. Again, first half, I think the expectation was that interest rates would decrease when we look now they're expected to increase on the second half, but we need to keep in mind that when we did the Investor Day and provided the guidance in November the interest rate curve was not that low as well. So there is a negative headwind there, but it's not really material and not enough to change the guidance. Operator: Our next question comes from Yuri Fernandes with JP Morgan. Yuri Fernandes : Quick one of Rio Grande do Sul. I think this was a topic you discussed in the past quarter. You were giving grace spirits, like subscription free for some clients. Any impact to this quarter? Like what was the final number here and how Rio Grande do Sul, how your earnings would have behaved? That's the first one. And a second one on, I think already explore a lot the bank initiatives, but just on the pause, it's I know you are testing these remuneration for deposit to put these on your the pilot test is, on your release. If you can provide more color on timing, what you plan to do the risks of cannibalization of your deposit free of free of yield nowadays. So just some color on the remuneration of deposit strategy here. Pedro Zinner: I’ll kick off with the Rio Grande do Sul question. I'm happy to say that the impact was smaller than we initially anticipated. And I think this is really thanks to the swift recovery of TPV in the affected region. So good news on that side. But overall, we really experienced a negative impact of approximately R$150 million on our TPV in ballpark numbers around R$10 million on our overall results. And just a quick note that this impact was not only due to the TPV reduction, but also because of the series of actions that we really, really took to support our clients during this critical time when they most needed us. And I'll pass it over to Mateus. Mateus Scherer : In terms of the remuneration of deposits, we're still testing. I think we started to disclose on the balance sheet the amounts that we have with time deposit with merchants. We're going to see that's really immaterial yet. And we're basically still testing to ensure that we don't cannibalize the economics of the current banking offering. So in terms of timing, I think that during the next quarters, we'll gradually extend the pilots to a larger base, but it should only start to make a difference in the balance sheet and in the results next year. I think we shouldn't expect anything big for 2024 on that front. Operator: Our next question comes from Renato Meloni with Autonomous Research. Renato Meloni : My first one is related to the credit portfolio. Given the large success that you had so far, and look at the guidance, I think it'd be interesting to explore a bit what went well and what was ahead of your expectation here. And also, if you could maybe provide some KPI or some way to look at the growth for the upcoming years up to the 2027 guidance that you provided. My second question is somewhat related to this, but it's about financial expenses. You've been able to keep them relatively low by using a lot of your own cash generation. But then going back to your comments on the large growth opportunities that you have, and the potential cash usage of that. Do you see financial expenses growing further? And then if that's the case, if it's there a timeline they expect for that to happen. Mateus Scherer : So first on the financial expenses piece. I think, like I said, even after the share buyback of R$1 billion, when you look at the adjusted net cash generation for the company, I think we're still going to be in a position where we continue to generate cash, and naturally, unless we have an additional decision to locate capital elsewhere, we're going to keep reinvesting and it's going to continue to be a positive effect on our financial expenses. That said, when we look, especially for the dynamics of the second half of this year, I think the big factor that is going to change is really the effect of interest rates, when we look at the first half interest rates decreased substantially, and that naturally helps financial expenses. Second half, I think the expectation now is that it's probably going to increase. So I think that's the main dynamic there. Interest rates in terms of the other dynamics, reinvesting cash generation and also with spreads, I think there are training really well. Now in terms of the credits, I'll kick start talking a little bit about what went right versus what went wrong, and then pass it over to Lia to talk about the future. So like I mentioned in the beginning, I think when I look at the economics of the credit product, were really becoming increasingly confident with the profitability of the product. I think that's an area where we were really cautious at the beginning given the results that we had in the first wave. So I would say that when we look at the core offering that we have of credit within SMBs, it's really training well and we're becoming more and more comfortable. That's why when you look at the provisions as well, it has started to come down right from the 20% levels to 18%, and over time it's going to continue to converge towards our models. I think, we've mentioned this a few times, but when you look at the portfolio, the R$700 million portfolio, the vast majority of that portfolio is really on what we call this core offering around SMBs. But of course, embedded in this number, we're running a series of tests. So we're running tests on micro, tests on different profiles within SMBs, different kinds of credit ratings. And this is a continuous effort where we really test and learn a lot. There are many mistakes that we did, many things that we got right, but I would say that net-net the main message here is that we're really optimistic around the economics of the product. In terms of challenges and opportunities moving ahead. I think in terms of distribution, it's really a place where we have a lot to improve and there's a huge opportunity because like I said, when we look at the offering nowadays, it's still pretty much 40 digital. So very low participation from distribution channels and this is probably going to be key to increase conversion and penetration in the future and therefore grow the portfolio. Don’t know if you want to add Lia? Lia Matos: No, I think perhaps I have, just to add a little bit on our perspectives on the longer term guidance, regarding the credit portfolio. Naturally when we consider this long-term guidance, it's guidance, it's not restricted to what Mateus is calling the core offer, which is working capital loans for SMBs. So there's an extensive roadmap around other credit solutions. We talked about some products that we have started to pilot, so credit cards for both Ton and Stone the [indiscernible] product within SMBs, which is kind of an overdraft solution. So the message is there's a big opportunity we have work to do in terms of building more relevant capabilities that will enable us to expand the product offering. So the types of credit solutions that we offer our clients. But we're confident with the guidance this year in the long-term guidance as well. Operator: Our next question comes from Gabriel Gusan with Citi. Gabriel Gusan: One quick question about peer to merchant fixed pricing. You guys seeing any pressure so far? Do you envision seeing pressure in the rates that you're charging? You are saying something similar to debit levels. We hear from competition too, but we do understand that economics on that probably make better than the debit with less cost associated to that. So anything we share on that from. Lia Matos: So in terms of pricing, PIX P2M, basically we price it in line with debit net MDRs. It naturally depends on the client tier. So prices will be lower for bigger merchants, higher for smaller merchants. But essentially, I think that's the message. It's naturally a win-win for us and for our clients because they pay less, we gain the same and it's accretive to our banking engagement. And I think that's the message. So there's a value add around offering PIX Dynamic QR code, because it greatly facilitates our client's ability to reconcile this as a payment method. If they were to use sort of a P2P type PIX transfer, that would be a challenge, and that's very relevant within SMBs. So there's a clear value add around this offer and we don't see any pressure on pricing and that's kind of the dynamics. Operator: There are no questions at this time. This concludes the question-and-answer session. Questions that were not answered will be addressed later by the StoneCo team. I will now turn over to Pedro Zinner, CEO at StoneCo for final considerations. Pedro Zinner: Well, I just want to thank you all for participating in the call and I hope to see you again in the next quarter. Thank you. Operator: This concludes StoneCo presentation. You may now disconnect.

Operator: Good evening, ladies and gentlemen. Thank you for standing by. Welcome to the StoneCo First Quarter 2024 Earnings Conference Call. By now, everyone should have access to our earnings release. The Company also posted a presentation to go along with its call. All material can be found online at investors.stone.co. Throughout this conference call, the company will be presenting non-IFRS financial information including adjusted net income and adjusted net cash. These are important financial measures for the company but are not financial measures as defined by IFRS. Reconciliations of the company's non-IFRS financial information to the IFRS financial information appears in today's press release. Finally, before we begin our formal remarks, I would like to remind everyone that today's discussion might include forward-looking statements. These forward-looking statements are not guarantees of future performances and therefore you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the company's expectations. In addition, many of the risks regarding the business are disclosed in the company's Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov. I would now like to turn the conference over to your host, Roberta Noronha, Head of Investor Relations at StoneCo. Please proceed. Roberta Noronha: Thank you, operator, and good evening everyone. Joining me today on the call is our CEO, Pedro Zinner; our Chief Financial and Investor Relations Officer, Mateus Scherer; our Chief Strategy and Marketing Officer, Lia Matos; and our Head of Credit, Gregor Ilg. Today, we will present our first quarter 2024 results and provide an updated outlook for our business. I will now pass it over to Pedro, so he can share some highlights of our performance. Pedro? Pedro Zinner: Thank you, Roberta, and good evening everyone. I would like to begin by briefly talking about our first quarter 2024 results, which I believe are the kickoff to a great year ahead of us. Our business continued to grow strongly while we kept on delivering our strategic priorities. In financial services, we performed well across all of our client offerings. Starting with payments, we posted strong TPV growth, including PIXs, and nearly matched the same volumes from the holiday shopping season in the fourth quarter. This quarter, we launched instant payments in TON, fulfilling a key request from our micro-merging clients. In banking, we continue to show progress in onboarding new and existing clients to our bundle banking and payment solution. And today, approximately 80% of our active client base has our bundle offering. A couple of highlights I would like to make. The start of our pilot with credit cards in TON and the evolution of the banking solution for SMBs in in Stone with features such as PIXs [indiscernible] for our clients to simplify their workflows around paying their employees. And finally, our credit solution continues to grow according to plan. We maintain our conservative approach, but are testing different client profiles to grow while making sure we balance our credit model. We have set up a specialized desk to offer credit to larger clients with TPV above $500,000 per month, and this is just getting underway. Now let me shift to our software business, which performed well this quarter, showing progress versus our previous quarter results, and in line with our strategic priorities. Our vertical software grew well in the first quarter, with an annual revenue increase of 12%, which was purely organic. Our enterprise software remained a detractor, moderating our total software revenue growth, considering that we're not emphasizing this part of the business. However, the strong performance in our vertical software, combined with our efficiency efforts, continue to drive up total profitability in this segment. As we discussed in our Investor Day, we will continue cross-selling financial solutions into areas of our software client base and evolve on creating software and financial services by most. In 2024, we are focusing on the retail and gas station vertical, the latter being a highlight in the quarter. In summary, I was pleased with the direction of our first quarter 2024 results, and I think we remain on track to deliver our guidance for the year. Now, I'd like to pass it over to Lia to discuss our first quarter 2024 performance and strategic updates. Lia? Lia Matos: Thank you, Pedro, and good evening, everyone. As Pedro mentioned, we made progress in the first quarter across our strategic priorities, advancing on critical areas as we progress towards our 2024 and long-term goals. Before we start discussing our main financial highlights, I would like to remind you that from the first quarter 2024 onwards, we have changed our internal accounting methodology for membership fees revenues. From now on, membership fees revenues will be deferred throughout the expected life of the merchant, instead of being recognized entirely at the time of the acquisition of the merchant. The materials we're presenting incorporate this new internal accounting methodology as of the first quarter of 2024. For this quarter, we will also present growth metrics using the previous methodology, since this is the first and most impacted quarter. As you can see on Slide 4, our consolidated revenues grew 14% year-over-year, which combined with lower other and administrative expenses, led to an increase of 75% in adjusted EBITDA, despite an increase in selling expenses due to the seasonality of investments in marketing and provisions for loan losses. These factors resulted in adjusted net income increasing by almost 90% year-over-year, reaching an adjusted net margin of 14.6%, up around 650 basis points. Now let's take a look at our financial services segment performance on Slide 5 to 9, starting on Slide 5, with the performance of our payments business for MSMBs. Our payments active client base increased 33% year-over-year, reaching almost 3.7 million active clients. Sequentially, this represented a net addition of 205,000 clients. The lower addition of clients compared to the previous year is primarily a result of the fact that we have caught up to the growth levels in the micro segment. As you will see in the pages that follow, besides optimizing our commercial strategy for growth and market share gains, we're also putting a lot of focus on improving our payments and banking bundle offerings to new client cohorts, both in TON and Stone, as well as driving more engagement with our solutions for older cohorts of clients. As you can see on Slide 6, this approach has resulted in profitable TPV growth and market share gains in the MSMB segment. MSMB TPV including PIX P2M increased 24% year-over-year. Excluding PIX P2M volumes, which were more than R$8 billion in the quarter, MSMB TPV increased more than 18% year-over-year. We achieved a strong growth while also increasing take rates by 15 basis points year-over-year to reach 2.54% with material contributions from all of our financial services solutions. We are continuously evolving our pricing and bundle strategy to achieve higher levels of client engagement and we believe these strong numbers are the result of our competitive advantages in distribution, superior service, and our increasing ability to offer more complete solutions to our clients. Moving to Slide 7, let's discuss our banking performance. Our banking active client base nearly doubled year-over-year to around 2.4 million active clients. This growth was a result of the launch of Super Conta Ton in the beginning of 2023 and the continued activation of Banking for Stone clients through our bundle offers. The decrease in growth rates compared to previous quarters is mainly due to the completion of our migration of Stone clients to our full banking solution. Going forward, we expect our banking active client base to grow more in line with the sequential increase in payments gross ads as we continue to effectively bundle payments and banking. This growth in our client base also helped drive a 53% year-over-year growth in client deposits, which reached R$6 billion in the quarter. Despite the seasonal grow over effects from the fourth quarter and the lower average CDI in the period, ARPAC increased to R$29.3 per month, driven by higher average deposits per clients as a result of increased engagement with our banking solutions. As Pedro mentioned, this quarter we made good progress in our product roadmap, starting to pilot credit cards for Stone clients, as well as launching features that help our SMB clients to simplify their cash management workflows, such as paying suppliers and employees. Moving to Slide 8, I will talk about our credit performance. This quarter we disbursed around R$295 million, reaching a portfolio of almost R$532 million, an increase of roughly 72% quarter-over-quarter. Provision expenses for working capital expected losses totaled R$44 million in the period, resulting in accumulated provision expenses of R$106 million, as we are still constituting provisions in the amount of 20% of our portfolio. Although we are doing this conservatively, the performance of our vintages is above our expectations, with NPLs between 50 and 90 days of 2.2% and NPLs over 90 days of 1.5%. As we've highlighted before, this is still a recently launched portfolio, so the ratio of past due loans should increase as our cohorts mature. This year, we will continue with disbursements without changing our approach towards risk evaluation and close monitoring of market conditions. To summarize the performance of our financial services segments, the first quarter was again marked by strong TPV growth and higher take rates, resulting in financial services revenue growth of 16% year-over-year in the first quarter, reaching R$2.7 billion. As a result, our adjusted EBITDA reached R$529 million, with an adjusted EBITDA margin of 19.5%, which increased more than 600 basis points year-over-year. Moving to Slide 10, let's talk about our software performance and strategic evolutions. Quarter-over-quarter, the payments TPV of clients that use both financial services and software solutions decreased 13%, primarily due to the seasonal effect in our retail vertical, which is strongly impacted by the higher volumes in the holiday shopping season of the fourth quarter. However, our gas station vertical which has been a priority focus since last year, has a positive performance quarter-over-quarter. These SMB clients have been increasingly receptive to our efforts to provide an end-to-end solution that combines management software, payments, and banking. On Page 11, you can see the highlights of the performance of our vertical software business. As you can see, vertical software revenue grew 12% year-over-year. The priority verticals, where we're focusing our initial strategic efforts to integrate financial services, now account for 47% of total software revenues. Our software solutions in other verticals also had a strong quarter across different products. As a result, our vertical software now accounts for 76% of our total software revenue. In Slide 12, you can see that total software segment revenue reached R$369 million, but grew slower than our vertical software. This is because overall software revenues include our more mature enterprise business. However, as a result of our focus on vertical software and our efficiency initiatives, our adjusted EBITDA in the software segment increased to R$66 million in the quarter, up 65% year-over-year, improving our adjusted EBITDA margin by over 650 basis points to reach 17.8% in the quarter. As Pedro mentioned, the first quarter marked the beginning of an important year of strategic advancement for our business trajectory. Now, I want to pass it over to Mateus to discuss in more detail some of our key financial metrics. Mateus? Mateus Scherer: Thank you, Lia, and good evening, everyone. I'd like to begin on Slide 13, where we discuss the quarter-on-quarter evolution of our costs and expenses as percentage of revenues on an adjusted basis. Cost of services reached 810 million, increasing 12% year-on-year, and staying flattish quarter-on-quarter. Sequentially, cost of services increased 160 bps as percentage of revenues, as a result of higher transaction, logistics, and E&A costs as we grow our client base, and higher provision for loan losses, which amounted to R$44 million in the first quarter of 2024 versus R$39 million in the fourth quarter of 2023. Administrative expenses decreased 12% year-on-year, leading to a 220 basis points reduction as percentage of revenues when compared to the first quarter of 2023. Sequentially, administrative expenses decreased 16%, down 100 basis points as percentage of revenues due to seasonally higher personal expenses in the fourth quarter and lower third-party services expenses in the first quarter. We remain committed to our guidance of spending less than R$1.125 million in administrative expenses for 2024, which implies a growth of less than 7% for the year. Selling expenses increased 36% year-on-year and 17% quarter-on-quarter up to 120 basis points sequentially as percentage of revenues. This increase is mainly attributed to higher market investments as a result of a planned sponsorship for a reality television show combined with higher investments in our sales team. Financial expenses decreased 2.2% year-on-year leading to 470 basis points reduction as percentage of revenues. Quarter-on-quarter financial expenses decreased 5.5% and remained flattish as percentage of revenues. Lastly, other expenses decreased 58% sequentially and 230 basis points as percentage of revenues, as a result of lower share-based compensation expenses which includes a non-recurring positive impact of R$40 million from the net effect of cancellation and new grants of incentive plans and lower contingencies. Turning to Slide 14, our adjusted net cash position was R$5.1 billion, reflecting an increase of R$ 1.2 billion year-on-year and R$87 million for the quarter. Lower when compared to previous quarters as we continue to deploy capital towards the expansion of our credit portfolio and also as a result of seasonally higher cash consumption in labor and social liabilities in the quarter. As we kickstart the year, I believe our first quarter results demonstrates we are executing on our plan and we remain well on track to deliver our 2024 guidance. With that said, Operator, can you please open the call up to questions? Operator: [Operator Instructions] Our first question comes from Eduardo Rosman with BTG. Eduardo Rosman: Hi, hi everyone. Good evening. I do have two questions here. The first one is on capital allocation, right. We know that you already did a lot, but you still have a lot of exposure to software, right? With many verticals, they are not a priority. You own TAG, for instance, which is seeing a big decline in revenues. You also have a big stake in Reclame Aqui and potentially other stakes in other companies as well, right? So just wanted to hear from you if there is room to keep improving the capital allocation, and the cash position in the following quarters. That's the first question. And the second one, just trying to understand here your expectations for deposits, right? You have a guidance which is above R$7 billion for the year, but you ended the first quarter with R$6 billion, right? Which is very good given that usually it's a weak quarter from a seasonality point of view, right? So just wanted to understand your thoughts here, if the expectations are now looking conservative for the year. Mateus Scherer: Thanks. Hi, Rosman, thank you for the question. Mateus here. I'll take the first part regarding capital allocation and then pass it over to Lia on the banking side. So on capital allocation, I think it's fair to divide the question into two parts. First, I think we mentioned this yesterday, but we do have a buyback plan in place at this moment, right? It's a R$1 billion program for, which we did not buy any shares yet. I think the message here is that, we remain committed to our long-term targets and therefore we continue to believe that this is a good alternative for capital allocation. So it's basically a matter of planning the execution for the new product, so that we have a solid framework in place and decision process. So that's the first piece. I think the second piece is also regarding the M&A, right? You mentioned Reclame Aqui, TAG and other companies that we have. Here, I think the message is that currently we're still focused on improving the efficiency of those businesses. And I think you can see from the EBITDA margins on software that this is making progress quarter-by-quarter. But in regards to selling those assets, I mean, we always analyze different options in order to maximize shareholder value. But the business as a whole is performing well and generating cash. So, we have no urgency to sell any assets. So to be direct here, I think there is indeed an optionality to exit some assets for, which we don't see as strategic. But that's not the focus at this moment. The focus is on efficiency. Pedro Zinner: Yes, if I might just add, I think it's in line with the last comment from Mateus. I think what we're trying to do, is really improve cost efficiency initiatives to maximize value along these verticals that were not prioritized in the business plan. And when the time comes, we'll provide more visibility in terms of how we're going to position ourselves. Lia Matos: Great. Hi, Rosman. Lia here just to talk a little bit about trends in deposits. So indeed, we saw strong performance in deposits in the first quarter, and results were to some extent above our expectations. So the growth is driven by two main factors, right? As Pedro mentioned, we continue to successfully bundle payments and banking to new sales, which leads to higher penetrations of clients that choose Stone as their main banking solution and their banking domicile. And we're also seeing higher levels of engagement, with our clients leaving money within our ecosystem for a longer period as we go. So, we're very happy with this evolution. It is, like you mentioned, beyond our expectation and does point to us surpassing the guidance that we gave for the year. That said, we need to monitor this trend a little bit further throughout the year. And of course, if this remains consistent, we're naturally going to keep you updated. But we think it's a bit early to talk about reviewing guidance. Eduardo Rosman: Great. Thanks a lot. Lia Matos: Thanks, Rosman. Operator: Next question. Sorry. Next question from Kaio Prato with UBS. Kaio Da Prato: Hi, everyone. Good evening. Thanks for the opportunity. I have two questions on my side, please. The first one is related to your other expenses line. You had like a non-recurring adjustment of R$70 million this quarter. I just would like to better understand what exactly it is about, because it seems that the net effect from the divestment is lower than that. And still on other expenses line, if you could please explain why we had like a reversal in share-based competition this quarter. And my second question, please, if I may, is related to your MDRs. Even considering the adjustment to the membership fee model, we can see that consolidated MDRs actually reduced this quarter. In a quarter where we usually see the opposite, because of seasonal effects. So I just would like to understand the moving parts here. If this could be reflecting any type of pricing pressure or discounting in order to incentivize deposits. And what can we expect going forward? Thank you. Mateus Scherer: Thank you. So let me pick up the first question and then we move on to revenues. So in regard to other expenses, you're right. We have basically two effects. The first one is on the IFRS P&L, right, which we don't adjust. And here we have a negative impact from the divestment of PinPag, which amounts to around R$55 million. Other than that, we basically have the revaluation of call and put options on the other companies that we have this right, for example, Reclame Aqui. So it's nothing new that is adjusted here. It's basically the same effect of options on the M&A side. And then talking about the share base piece, which impacts our adjusted net income. Here, you're also right. We have a one-off effect which contributed to around R$40 million, positive to the number. And basically on the line, we had two big effects on the quarter. The first one is a recurring one, where we had some movement operatives related to our annual equity bonus, which includes more than 1.3000 employees. And the second effect, which was the one-off, is basically related to the Board changes that we announced in the first quarter. So when you look at these two effects together, what we had was basically a grant of 2.49 million shares, but a cancellation of 3.94 million shares. So in the quarter, we had a net reduction in share-based instruments outstanding, which also contributed to the P&L by around R$40 million. And again, you have a piece that is one-off and another piece that is recurring, which is the fact that we have less share-based instruments outstanding right now. Now, the second question, I think it was related to MDRs and price in general, right? Here, I think there are also two pieces to the question. The first piece, when you look at the take-rate evolution as a whole, you saw basically a 15-basis point increase year-on-year. And also a sizable increase quarter-on-quarter. Both of these changes, they were basically related to the contribution of the new solutions. So if you break down the 15-basis points increase in take-rates that we had year-on-year, it's basically a function of banking and credit contributing more to our revenues. On the MDR side, I think the variation month-over-month is basically attributed to the seasonality on TPV. You're right that we had the effect from membership fees there, which impacted R$68 million. But when we exclude that from the calculation, it's basically a matter of seasonality. Kaio Da Prato: Okay. Thank you. Just a follow-up in terms of the seasonality that I mentioned. Shouldn't it be more positive in terms of your MDRs Q-on-Q, because of the card mix and so on? So I just would like to understand this part? Mateus Scherer: Yes, the seasonality on the MDR piece alone is positive. Again, we had a lower take-rate in the first quarter as a result of more debit mix, and now it's positive. But then you also have the seasonality in terms of client mix, right? And that I think answers the question. Kaio Da Prato: Okay. Thank you, Mateus. Operator: Our next question comes from Antonio Ruette with Bank of America. Antonio Ruette: Hi guys, thank you for your time and congratulations on the results. So, I would like to focus on credit. So first, if you could explore what you found different since you restarted the product. So in terms of the credit and asset quality, the credit growth, what has been a surprise so far? Also, if you could explore a little bit of possible guidance revision, since as you added more than R$200 million in portfolio quarter-over-quarter, I guess you could reach guidance by the end of the second quarter or close to that. Also, if you could explore a little bit of competition. So we see peers getting increasingly intense in the competition segment. We see banks going down the pyramid - corporate pyramid. We also see other acquirers more focused on credit. So how do you see competition on the SME segment that you are focusing on? And finally, to conclude here, provisions. If you expect to continue to provision 20% of your loan book? Thank you. Pedro Zinner: Hi, thank you for the question. Pedro speaking. I'll kick off with the guidance. I think as you said, the results for the first Q were indeed better than what we initially expected, especially on banking and credit. If we see these trends to be consistent throughout the year, we will mostly likely land above our guidance. But that said, our guidances were already set as a lower bound. And I think it's still premature to talk about changing that in the first quarter of the year. So I'll pass it over to Gregor, who will talk about the credit, and then we'll move to you, Lia, Mateus. Gregor Ilg: Yes, hi, Antonio. With regards to your first question, what we did differently, we explored this extensively in our Investor's Day last year. And what I can tell you now is what happened over the last 12 years. Well, we completed one year since the soft launch of our working capital facility. And looking backwards, I really believe we accomplished quite a lot. On the positive side, I will point out that we were able to structure the entire credit cycle and not only the concession phase. We have all the controls in place, to monitor the growth from a very close perspective, and prepare to react in a timely manner. This monitoring process has allowed us, to test and improve a variety of models and policies, always challenging ourselves to improve efficiency and to unlock new cohorts. This is also the reason why we're still growing on a nonlinear mode, almost on a step-like curve, reflecting the release of offers to new customers. Besides policies and models, we also managed to test quite a lot our pricing strategy, which is adjusted to size, risk, amongst others. We also succeeded in test bundling banking and acquiring features. The team is practically formed and complete, one of the major challenges we faced by the beginning of the process. And we managed to keep the performance of the portfolio within our risk appetite parameters and pretty much without any major bumps on the road. On the improvement opportunities, I would say that we still have a huge opportunity to extract more value from our hubs. So far, the growth of our credit portfolio has been more focused on our app, and we understand that there is a huge potential to be unlocked by using this channel more efficiently. There are also many opportunities to improve communication overall. We are still in the beginning of our journey to interact with our clients in a deeper way, and this is reflected in less than expected conversion rates. We strongly believe that we can and will evolve on this matter, and we will accelerate. Although we already tested bundling, we understand that we could have begun earlier, and also believe that we barely scratched the surface here. Besides strengthening the relationship, we believe that the more we interact with our clients, combining different products and platforms, the better the performance of the portfolio will be. And last but not least, we did not advance over our Linx customers yet. The potential here is huge. We are implementing new processes to capture these opportunities that should lead to a significant increase in share over time. Lia Matos: Great. Antonio, let me complement here with some thoughts on competition, which I believe was one of your questions. So I think regarding competition, nothing really new regarding the competitive environment. We continue to see benefits in our P&L from the reduction in interest rates. With financial expenses as a percentage of revenues decreasing 4.7 percentage points year-over-year. And in our view, this is consistent with the fact that over the short to medium-term, the competitive environment is much more rational and stable, and players will benefit from decreasing interest rates. So we see, if anything, a much more rational competitive environment. That's the first message. But another important message is that longer term, we're going to remain focused on executing the strategy that we talked about in the Investor Day. We're going to continue to strengthen our execution and evolve our product roadmap. And as Mateus mentioned, over the last year, we've seen tangible impact in take rates already - coming from monetization leverage beyond payments. But the other way to look at this, is that we're only at the beginning of this trajectory. There's still a lot of work for us to do in the evolution of our banking, in scaling our credit portfolio, building bundles with software to better monetize financial services relationship with our clients. So essentially, to finalize the thought here is, we really believe we're on the right track. And each step is only going to strengthen our differentiation in serving MSMBs. So I think, this is a start on competition. Mateus Scherer: I think the last piece was around the overlay, right? Whether we're going to keep provisioning 20% or converge to the risk models. And to that end, I think the message is that in 2024, we will converge to a risk-based approach. It's probably going to start either in the second Q or third Q. But towards the end of the year, we should have the provisions converging to our models. Lia Matos: Many questions, Antonio. I think we've covered them, right? Antonio Ruette: Yes, yes. Thank you. Thank you very much. Lia Matos: Thank you, Antonio. Operator: Next question from Neha Agarwala with HSBC. Neha Agarwala: Hello. Can you hear me? Lia Matos: Yesh, Neha. We can hear you. Hello? Neha Agarwala: Perfect. Thank you so much for taking my question. Just a quick one. Regarding the registry of receivables, has there been more operational improvement? How have you been able to use the data from the registry of receivables? And how is it helping in terms of underwriting? Any update there would be very helpful. Thank you so much. Mateus Scherer: Neha, Mateus here. So there are two sides to the question. First, regarding the registry business on a standalone basis. To that end, I think TAG has been profitable for a while, but no big changes in terms of the operation. And then there is a piece on the credit side, right? And to that end, I think the message, is that it's mostly working on this. We are being able to access the collateral for all the main providers when we are underwriting. And that's a very important collateral to our business. Neha Agarwala: Okay. So you have been able to access the wallet from other players, and the collateral is working well as of now? Mateus Scherer: Yes. Yes, it is. Neha Agarwala: Has there been any instance where you've made use of that collateral so far? Mateus Scherer: Yes. So in our renegotiation process in general, I think the first step is basically accessing the receivables that we have against the clients, the collateral. And then only afterwards that we move towards the phase where we actually renegotiate the credits. So it has been the first, I would say, gatekeep in terms of collecting the credits and it's fully operational now. Neha Agarwala: Perfect. Super helpful. Thank you. Operator: Next question from Yuri Fernandes with JPMorgan. Yuri Fernandes: Hi guys, good evening and thank you for letting me ask some questions. I have a follow-up on Kaio's question on the adjustment on your net income. Just confirming that both the net effect of PinPag, the R$53 million is there and also the lower compensation, the lower share base compensation, the R$40 million. When I checked the table before, it's not clear for me where those two items are there. So just making sure that the negative was removed, but also the positive is out of your recurring adjustment. That's the first one. And on my second question would be on your administrative expenses. They were pretty good. I know there is some seasonality here, but even over a year, it's done a lot. I think you mentioned 30 party services are helping you. So if you can provide more color, which are those services, like how this line should behave going forward? Thank you. Mateus Scherer: Hi Yuri, thank you for the question. So on the first piece, let's talk about the adjustments. So, we only adjust basically mark-to-market related to M&E transactions. We don't adjust share base compensation whatsoever. So it's fully expensed and therefore the positive one-off is not adjusted, right. The only thing that is adjusted to that end is the loss on the divestment of PinPag in this quarter. And keep in mind that in the first quarter we had the opposite effect. We had a gain on the amount of [VITA], which was not adjusted as well. So that's the first piece. The second piece I think is related to administrative expenses. And here I think you're right. There was a sizable reduction quarter-on-quarter, but also year-on-year. When we look at the quarter-on-quarter evolution, it's mostly due to seasonality. I think we've been vocal on the call from the first quarter. The administrative expenses was seasonally higher back then, and it's the opposite way right now. But when you look at an annual comparison, then most of the benefits are related to the initiatives that we have in place in the company. Namely the zero-basis budgeting initiative and also the implementation of the shared services center. And here on a macro level, basically what we're doing is unifying processes in our corporate functions. And over time this leads to lower expenses related to third-party services and administrative expenses in general. So that's the main trend on the line. Yuri Fernandes: Super clear, Mateus. Both replies. Thank you very much. Mateus Scherer: Thank you, Yuri. Operator: Next question from Jorge Kuri with Morgan Stanley. Jorge Kuri: Hi, everyone. Thanks for the opportunity to ask questions. I wanted to ask about selling expenses. You mentioned the 36% year-on-year jump, 17% quarter-on-quarter was partly due to a marketing expense related to a sponsorship of a TV show and investments in your sales team. Would it be possible for you to quantify how much of that 529 was the TV show? And I'm asking this, because as you look at marketing expenses going up 36% for a revenue growth of 14% or a TPV growth of 13% for the quarter, it's actually concerning if it's not most of it, the TV show, right? Where you're actually having to spend much more in sales and marketing for the underlying business in order to grow revenues at a lower pace. And even if I just look at over the last 12 months, forget about this quarter, if I just look at the last 12 months, your marketing expenses, 12 months-over-12 months are up 21% for a TPV growth, which is much less than that. And so, I'm just wondering, to what extent some of it also is a more competitive industry. And I did hear the response that Lia posed to question, a couple of questions before that the competition remains rational, but this level of incremental marketing expenses to grow the business at a much lower pace, especially considering that you have, I don't know, 25%, 30% market share in your core business of SMBs, maybe 20%. How should we think about that? And how do you think that's going to evolve going forward in order for you to keep this pace of revenue growth? Are we going to continue to see these just outgrowth in marketing expenses? How do you think about all of those things? Thank you. Mateus Scherer: Thanks for the question, Jorge. So let me start with the explanation of marketing expense, and then we'll talk about the link with revenues, right? So on selling expense first, I think we have to segregate the sequential evolution from the yearly evolution. When you look on a year-over-year perspective, in the first quarter of '23, we had some one-offs related to reallocation of variable compensation, between selling and admin. So this makes the year-on-year evolution less relevant here. Now, I think the best way to look at the number is indeed looking at the sequential evolution, which was 17%. And on that front, basically everything is related to our investments in the Big Brother Brazil. So the sequential increase in selling is mostly a function of that, which basically impacts first quarter and to a lesser extent, second quarter as well. Now, when you look ahead, we still see some opportunities to invest in distribution channels. And I think, we've been vocal to say that as long as we see healthy return hurdles, we'll continue to do so. But with that said, as percentage of revenues, I think we should start to see operational leverage kicking in in this line throughout the year. So that's the first piece referring to the selling evolution in general. I think the second piece that I mentioned is whether we are seeing some kind of effect from competition and the link between those investments and the top line growth, right? And to that end, first of all, I think the best way to look at the number is not looking at the consolidated TPV. The investments we do in selling have very little to do with the growth in key accounts, which I think we've mentioned we are being opportunistic. So on quarters it can grow more, on other quarters it can grow less. But when you look at the evolution of MSMB TPV, I think the message is not that we are decelerating, actually. So if you look at the evolution of TPVs including peaks, which we monetize the same manner as debits, basically we grew 24% this quarter, about 25% in the fourth quarter, and 30% was in the low 20s. So the message here is either stable or accelerating, but not decelerating. So again, that's pretty much how we see the line. The evolution is mostly explained by the reality TV show investments that we did. And in terms of link to growth, I think the proper way to look at the number is looking at MSMB volumes and not TPV in general. I don't know if I answered all your questions, Jorge. Jorge Kuri: Yes, that was clear. Thank you very much, Mateus. I appreciate it. I mean, if I just adjust for this quarterly jump, yes, there seems to be some operating leverage on a last 12 month basis of your selling expenses, but not a lot. And so I guess, I'm still just wondering, how should we think about the amount of expenses that you needed to put into the business, given the big market share that you have, and how does that relate to competition? So anything, any view that you have around that would be helpful? Mateus Scherer: Yes, for sure. So like I said, I think the sequential increase that we had was mostly due to the reality TV show investments. And going forward on a nominal basis, it shouldn't grow that much. So most of the leverage will come from continuing to grow top line, having this baseline in terms of selling. And then a last piece, I think when talking about operational leverage in the line. Especially looking at the first quarter, it's also important to remind that we had a negative one-off in the revenue side, right, which was the R$68 million from the change in the recognition of membership fees. When you factor that in, and then you look excluding the investments of Big Brother Brazil, I think it's more, clear to see the operational leverage that is kicking in there. Jorge Kuri: Thank you. Mateus Scherer: You're welcome. Operator: Next question from Daniel Vaz with Safra. Daniel Vaz: Hi, everyone. I have a question regarding credit. So we know you're offering your working capital solution for a limited portion of your client base, right? So mainly in the upper part of the SMB. So I wanted to ask you if you have already been testing pilots in smaller clients, and how has been this the outcome of this testing so far? So are you willing to expand the eligible base at some point in this year? Have you been doing that? So it will be good to hear from you? Thank you. Gregor Ilg: Yes, hi, Daniel. Yes, we have expanded our offer to lower customers, both on the working capital facility. And also we're initiating now a test with credit cards on our top business. So, we are evolving on covering the entire client basis with a credit offer. And so far, I mean, the tests have been successful. And we think that there's opportunity to expand here and reaching out for more customers. Pedro Zinner: I think the one caveat here, Daniel, like Gregor mentioned, it's still on test phase here. So I wouldn't say we are right to roll out yet. I think the message is that the early indicators are good. But again, we're taking the cautious approach in credit in general, and then especially on micro merchants, which we know are more volatile and risky, right, by nature. It's good to be even more cautious. So I wouldn't expect a big evolution already contributing to results this year. It's most about testing and learning this year. Daniel Vaz: Okay. Thank you. And if I may, just a quick one in the change of the accounting method. So how are you recognizing revenues now? It's a 12-month base. It's a '24. Could you just give a little refresh for us? Mateus Scherer: Yes, so up until the last quarter, membership fees were basically recognized as soon as a client was on boarded. So it was up front. Now it's basically deferred throughout the lifetime of the client. We don't disclose the specifics in terms of how many months we're using. But I mean, it's very close to market standards. So if you look at the peers, I think you should have a good benchmark for that. Daniel Vaz: All right, thanks for that. Congrats on the results. Mateus Scherer: Thank you. Operator: Next question from Tiago Binsfeld with Goldman Sachs. Tiago Binsfeld: Hi, good evening, everyone. Thank you for taking my question. I have just one on financial expenses. If you could discuss what are your main expectations for [Terminal Elite]? And also, if you could discuss if you have any initiatives to lower financial expenses by year end? And finally, if you have any plans to remunerate deposits, remind us what has been your strategy here? Thank you so much. Mateus Scherer: Thanks for the question, Tiago. So first, let's start with our perspective for Terminal Elite. I think to be really honest here, we don't have a perspective here. I think our approach is basically to look at the market data that we have, and then we adjust our pricing accordingly. I think we mentioned this a few times, but our pricing has become a lot more dynamic nowadays. So basically, we have the price that we use to onboard a client. But over time, we adjusted upwards or downwards according to the volumes that we're seeing, the solutions that the clients are using. So it has become a dynamic process. And to that end, I think it allows us to adjust whatever we see in our funds in a very quick manner. So that's piece number one. Second piece regarding initiatives to lower financial expenses. I think our team has done a great job over the past for 15 years, not only of being more efficient in terms of the spreads that we have, but also being a lot more conservative. So if you look at the credit profile of the company, we're having longer and longer funding, which is good. Now, when you look at structural initiatives that we have in place, I think the main one to mention is, the financier license, which we got end of last year. And that basically allows us to access retail funding and also to access the deposit base that we have to fund prepayments and credits. But on both of these fronts, our approach is really cautious, because we want to make sure that we don't cannibalize our current deposit base for, which we don't remunerate anything. And as you can see by the results, it's getting quite a lot of traction without that, right? So basically what we're doing right now is testing. We have a very small pilot in terms of remunerating deposits. We're also testing the waters in terms of retail funding. And that's pretty much the mode of the year. I wouldn't expect any big movements on the balance sheet in 2024. And the final question, can you remind me what was it? Tiago Binsfeld: My final question was on the deposits. What's your strategy for remuneration or paying for deposits eventually? Mateus Scherer: Well, I think we covered that. But basically the message here is the following. We have a very good business in our banking products, which is basically built upon the working capital needs of our clients. So, we offer a simple solution for them. And we're able to get this deposit base without remunerating. But we also see space to advance on banking on the remunerated side. So basically tackling the savings pocket of our clients. If you look back at the Investor Day, I think the approach that we shared was basically creating an automated savings product, which is basically using the same engine that we have in credit where we get a percentage of the TPV, but redirecting that feature towards clients that are savers. So we're basically able to help our clients to save towards their goals. And on that product, the idea is to remunerate the deposit base. But again, being really cautious here not to cannibalize the product that we have in place. So that's basically the strategy there. Tiago Binsfeld: Clear. Thank you, Mateus. Operator: Next question from Jamie Friedman with SIG. Jamie Friedman: Hi, let me echo the congratulations. I wanted to ask about the take rate on key accounts. It was up 14 basis points year-on-year and 15 basis points sequentially. So I'm just and I understand that's part of the strategy. I'm wondering, though, how high can this go? Because it seems like you got a very good cadence there? Lia Matos: Hi, Jamie. Lia here. So I think regarding take rates, transit key accounts. So the one basis point increase quarter-on-quarter is basically product mix, credit versus debit. And the 14 basis points increase year-over-year is really a consequence of our strategy in terms of repricing and offering spot free payments for some clients. So I think the overall message here is let's remember that key accounts for we see key accounts as sort of an opportunistic strategy. So, if we find a key account clients where we can have a good relationship in terms of pricing and good returns, or even a more broad sort of product discussion that enables us to have a more profitable relationship, we will do so. But that's not really the focus of our execution. So, we're a lot - we've been a lot more opportunistic there. It's hard to pinpoint what the trend will be. I think that the trend that we are seeing, is more or less kind of in line with what we expect, right. So take rates slightly positive from this effect of a higher emphasis on profitability and repricing. But on the TPV side, it tends to be volatile. So it's hard to pinpoint a trend. I think those are the takeaways. Jamie Friedman: Thank you, Lia. And then in answer to a previous question, I think you had addressed the opportunity to lend into the Linx merchant base, which my understanding is - I don't believe you begun. And so, how and when are you thinking about that opportunity? If you could elaborate on that? Thank you. Lia Matos: So we disclosed this metric that we. Pedro Zinner: It's about lending on Linx, right? Lia Matos: Is it lending on Linx was the question, Jamie? Jamie Friedman: Oh, yes. I'm sorry if I didn't say it right. That's what I meant to say. Yes. Lia Matos: Okay. Yes. So like Gregor mentioned, right, we we're just starting to look at the opportunity for credit in the Linx client base. So what we know is that it is a big opportunity and it's very in line with what Pedro said at the beginning of the call today to sort of implement a specific process for higher average TPV clients, because that is the profile of Linx clients overall. Even within those priority verticals, the average TPV of those clients tends to be somewhere around 200,000 to 500,000 a month. So these are medium clients within the SMB space. We know that there is a very significant opportunity there, and this will fall into the context of the whole the overall front selling initiative, right. So in order to provide lending to those clients. We want to do so in a context where we actually offer the full solution integrated software. So it's really very early days. We know the opportunity is big. We're starting to organize ourselves around that opportunity. But at this point, the focus on cross-selling is a lot more really the structural go-to-market initiatives that enable us to actually start to offer financial services solutions to software clients. So, yes, we are excited with the credit opportunity in Linx client base, but it's very early days to give any more precise figures on that. Jamie Friedman: Perfect. Thank you, Lia. Lia Matos: Thank you, Jamie. Operator: Next question from Pedro Leduc with Itau BBA. Pedro Leduc: Thank you, guys, for the question. Good evening. Two, first on the financial side that you're guys are looking at for the - I've had the new document recently out from what you have seen and the revenues or the funding side, early thoughts and maybe how you can manage around that. And the second from the early portfolio that you have on the credit side, if you've already seen benefits, be it on churn, be it on higher share of wallet, all those clients, is credit helping you? You believe it's just through credit, but is it bringing positive side effects on other things? Lia Matos: Hi, Pedro. I'm not sure we understood the first part of your question. If you could please repeat it. You're chopping a little bit. Sorry. I think you're chopping a little bit for us. I don't know if you can go to a spot where there's a little better connection. Pedro Leduc: I'll join the line back in. Sorry. Lia Matos: Okay Pedro. Thank you. Operator: Okay. While we wait for Pedro. Next question from Renato Meloni. Please, Renato. Renato Meloni: Hi, everyone. Thanks for the space here for questions. My first question is on the asset quality of the credit portfolio. I know it's a bit early to look at NPLs, but I wonder what you're seeing the margin here. And if you can compare that to what we're seeing in the industry numbers. And then maybe if you have an expectation of where NPLs will stabilize and why. And then I have a second question here on your funding strategy. And if you - how do you see space to continue using your own cash generation as a funding source here? Or if you expect that to the mix to shift going forward? Thank you. Mateus Scherer: Thank you, Renato. Let me start on the latter question. So basically, we fund credit nowadays using our capital structure, right? So we have a mix of equity and debt. I think we're not looking towards having a specific instrument for credit, like factoring out risk nowadays. Basically, because it's too expensive in Brazil. So if there is an option at an attractive rate, we will for sure consider. But given the structure that we have in Brazil, I think it's likely that the strategy for funding may continue the same. And then on asset quality, I think you're right that looking at NPLs alone, it's basically really affected by the speed of growth, right? I think what we can share from nowadays is basically two things. So first, in terms of expected losses, our models are pointing towards the 10% threshold. So when you think about NPLs over 90, it should increase, right? It shouldn't stay at 1.5% or 2% area. It should move towards this expected credit loss level and be slightly below that. So that's the first piece of the message. The second, I think, is looking at cohort data. So, I think in the Investor Day, we shared over [indiscernible] for the portfolio. And I think we disclosed at that time between 3% and 4% for the cohorts. And that pretty much remains the same nowadays. So I think the performance for the portfolio has remained really consistent over the past many months. And the final point I think you mentioned is around returns, so the margin for credit. I think we're not disclosing the margin itself. But what we can say in terms of rates, we usually charge, between 3% to 5% per month. We are on the lower end of that range nowadays, basically because we are choosing clients that have a better risk profile in general. And then, if you combine the 3% per month with the 10% expected credit losses, I think you should arrive at the margin for the product pretty easily. So that's the message there. Renato Meloni: Very good. Thank you. Operator: Next question from John Coffey with Barclays. John Coffey: Hi. Thank you very much for taking my question. I just had two questions for you. For one, on your TPV, it looks like - it seems like your top line TPV number now includes picks. And so if that's the case and that's kind of your primary TPV metric, how should I think about your guidance, especially your MSMB TPV of that 412 floor? Is that just tying to the TPV without picks? And then likewise, when we think about the MSMB take rate, would that be considered with TPV, again, including picks or excluding? And just the last question I had, the second question, for the MSMB payment net ads, I think Lia said in her prepared remarks that we saw a little bit of a decline this quarter, because now Stone is reaching, I think, like market growth rates, if I understood that correctly, for MSMBs. Does that mean like we should that's a good cadence in that 200 range to think about net ads going forward? Or am I off on that? Thanks. Lia Matos: Hi, John. Lia here. So I'm going to take both questions. First on TPV, I think it's important to note that we disclosed both, right? So both TPV considering PIX P2M and TPV only considering cards, right? So the reason why we're disclosing, we've always disclosed both, but PIX P2M has more and more incrementally become a relevant and important acceptance method for our clients. Let's also remember that we monetize PIX P2M in line with debit net MDRs, and we allow our clients to reconcile PIX P2M as a payment method. So I think this is just a little bit of context to start answering the question. So in fact, regarding the guidance of TPV, we are seeing TPV trends considering only card volume closely aligned with our guidance. But additionally, we're positively surprised with the strong performance that we're seeing in PIX P2M volume, where we're going strongly on a sequential basis. And like I said, it's net positive for us, because we monetize that in line with debit net MDRs. And it is very positive for our clients because for them, it is a cheaper solution in terms of payments acceptance, and money gets settled instantaneously. So just to give the numbers again, TPV including PIX grew 24%. While if we exclude PIX P2M, we saw 18% growth. And the 18% growth is very much in line with what our guidance for the year implies. So the message is we remain committed with the TPV guidance, and we're going to continue to disclose both figures, right? TPV with PIX P2M and TPV considering only cards. The second part of the question was net ads, right? John Coffey: Yes. Lia Matos: Yes, so you were right in that what we expect going forward in terms of net ads is more levels more or less in line, with what we saw this quarter. So since over the last year, we strongly increased our penetration in the Micro segments. It's not surprising that incremental growth is smaller. That said, we're really, happy with the commercial performance in the quarter. It is associated with our participation in BBB. I think we discussed this earlier in the fall. But importantly, regarding this investment in BBB that we made this quarter, we did see a very positive impact in the quarter. But we also expect a tail effect throughout the year. It's important for us to maintain the consistency of the communication so that we can really capture the value in terms of more brand recognition, stronger communication to a broader audience, right. So all of that for us is a positive trend, and we expect net ads to be in line with what we're seeing. And we're happy with that level. But also, as you remember, we don't have net ads as a single objective function, because it's important that we are always looking at healthy payback hurdles and that we can grow with good profitability. So I think that's the big message, John. John Coffey: Great. Thank you. Operator: There are no questions at this time. This concludes the question-and-answer session. I will now turn over to Pedro Zinner, CEO at StoneCo for final considerations. Pedro Zinner: Well, thank you very much. I think before we end the call, I just wanted to provide an update in terms of the tragedy in Rio Grande do Sul. I think we are engaged and committed to the situation, supporting our clients, employees, and local communities with a series of programs and initiatives. Our commitment to Brazilian entrepreneurs is, above all, a commitment to people. And we have partnered with União Brasil, which is an NGO that has been on the front lines of the floods for months, to support those who need it most at this time. I think the other question is regarding the impact in terms of our TPV and guidance and so forth. So we've seen a significant impact in TPV within the region, with some cities reducing TPV by up to 40%. But that said, our exposure to Rio Grande do Sul is about 4% to 6% of our TPV. So the impact will be most likely limited, and should not impact our guidance. In terms of the P&L, there will be a negative impact in the second quarter, not only as a result of the TPV impact, but also because we are fully committed to supporting our clients and employees within the region. We have already accepted the subscription fees of our clients in the region, have reduced the payment fees, provided a grace period of 90 days in credit repayments, among many other actions. I think it's still too early to quantify the impact for the quarter, but the message here, is that we remain committed to the guidance despite those effects, and we are concerned about the tragedy that is actually happening in the country. With that said, I would like to thank you all for participating in the call, and see you in our next quarter results. Thank you very much. Operator: Thank you. This does conclude today's presentation.

Operator: Good evening, ladies and gentlemen. Thank you for standing by. Welcome to the StoneCo Fourth Quarter 2023 Earnings Conference Call. By now, everyone should have access to our earnings release. The Company also posted a presentation to go along with its call. All material can be found online at investors.stone.co. Throughout this conference call, the company will be presenting non-IFRS financial information including adjusted net income and adjusted net cash. These are important financial measures for the company but are not financial measures as defined by IFRS. Reconciliations of the company's non-IFRS financial information to the IFRS financial information appears in today's press release. Finally, before we begin our formal remarks, I would like to remind you that today's discussion might include forward-looking statements. These forward-looking statements are not guarantees of future performances and therefore should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the company's expectations. In addition, many of the risks regarding the business are disclosed in the company's Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov. I would now like to turn the conference over to your host, Roberta Noronha, Head of Investor Relations at StoneCo. Please proceed. Roberta Noronha: Thank you, operator, and good evening everyone. Joining me today on the call is our CEO, Pedro Zinner; our CFO and Investor Relations Officer, Mateus Scherer; and our Chief Strategy and Marketing Officer, Lia Matos. Today, we will present our fourth-quarter 2023 results and provide an updated outlook for our business. I will now pass it over to Pedro, so he can share some highlights of our performance. Pedro? Pedro Zinner: Thank you, Roberta, and good evening everyone. As I have outlined in our Annual Shareholders Letter, after a year into my role as CEO, I have taken a deeper look at our Company, better spotting our strengths and areas of improvement. This journey has been, revealing as it has provided valuable lessons and enhanced my perspectives on the opportunities we face. Reflecting on the successful year we had it is impressive how well our company performed. I'm not only referring to our strong financial performance but also acknowledging the strategic milestones that have strengthened our position in the market and paved the way for future growth, as we detailed in our Investor Day. In response to the initial insights and assessment in my role as CEO, in 2023, we have initiated several strategic adjustments to better position our business for the future. We have reorganized ourselves to deliver our solutions more effectively across different client segments from micro to medium businesses, tailoring our go-to-market approach to meet their unique needs. Our new organizational structure aligns with each client segment, while it also strengthens key capabilities around engineering, product, marketing, and innovation, enhancing our ability to address client needs in a unique way. We have sharpened our strategic focus around three strategic priorities, which we outlined in our Investor Day. These three priorities to win MSMBs to drive engagement with our clients and to scale through platforms help us to set key focus areas for the coming years. The first one, defining where our focus will be in terms of the software and financial services integration efforts. By focusing our execution around four priority verticals of retail, gas stations, food, and drug stores. We are increasing our competitive edge and opening a significant growth avenue for the future. Lia will present some initial encouraging results we achieved in the fourth quarter. The second one, to leverage the power of the combination of payments, banking, and software. There is a huge opportunity in our installed base to increase engagement with our solutions. As an example, today, only a fraction of our client base can be considered heavy users of our solutions. And there is a substantial potential to improve our unit economics, as we continue to engage the bids. The results we saw in our Financial Services segment in the fourth quarter reflect the success of this strategy around payments and banking. And the third one, the creation of the strong platform. Our rapid growth initially focus on development speed, sometimes at the expense of consistency and reusability. This resulted in the existence of multiple data platforms. But over the last year and a half, we've made a significant change. We've brought our technology teams together, streamline how we work, and started to build a solid foundation that we all share, the strong platform. As we move forward, especially with new tech like artificial intelligence, we are setting ourselves up to generate new synergies and use our insights even more effectively to serve our clients. Our last strategic adjustment focus on the implementation of cost management and spending controls. Recognizing the potential to unlock substantial operating leverage, we have embarked on initiatives aimed at enhancing profitability even further. Through sustainable cost optimization, we're setting the stage for more efficient and profitable operations. By implementing a shared-services center and a zero-based budgeting, we are enhancing our financial discipline across the organization. While the opportunity is huge, we will seize it through a targeted approach, ensuring we do not anticipate our efforts. Before handing it over to Lia, I'd like to briefly talk about our 2023 Results. Last year was a milestone for us, marking a complete rebound from the challenges faced in 2021. We closed the year with exceptional results, particularly in the fourth quarter when we accomplished a significant progress in our key strategic initiatives. We posted remarkable growth achieving a notable increase in MSMB TPV, both annually with MSMB TPV increasing 21% to BRL350 billion. And in the fourth quarter with an acceleration from the previous period. Our banking services also recorded impressive growth, with deposits reaching BRL6.1 billion by the end of December, a significant increase from 2022. This growth not only reflects higher engagement but also a better conversion of TPV into deposits. Monetization improved substantially throughout the year, with MSMB take rates achieving 2.43% up 22 basis points year-over-year. In the fourth quarter, we saw a slight decline of 6 basis points compared to the previous quarter, but that was already expected and purely a result of seasonality. More importantly, we continued to advance in our credit solution reaching our working capital portfolio of BRL309 million by the end of the year, with very encouraging results regarding the health of the portfolio and NPLs strictly under control. Additionally, our integration efforts in the four prioritized verticals have just started to be fruitful, with participation in TPV from these software clients surpassing BRL20 billion in the year. The push to Scale Through Platforms yielded substantial operational leverage, boosting our EBT to BRL2 billion, an increase of 3.3 times over the previous year. This leap forward improved our EBT margin by more than 10 percentage points. And our adjusted net profit surged to BRL1.6 billion up 3.8 times from the previous year. Our profitability also translated into cash generation and we ended the year with an adjusted net cash position of BRL5.1 billion, even after significant investments in our credit portfolio and share buybacks. On a separate note, the Software segment faced challenges in 2023, particularly in non-strategic verticals where growth was lower. However, our efficiency initiatives already started showing results with EBITDA margins in 2023, improving by 1.9 percentage points to 16.4%. The fourth quarter recorded a dip due to one-off restructuring costs, but these moves are poised to generate savings in 2024. In summary, 2023 was a year of significant achievements and strategic advancements for us, and our fourth-quarter results are positioning us in a good place to deliver our 2024 and 2027 outlook. Now I would like to pass it over to Lia, to discuss our fourth quarter 2023 performance and strategic updates. Lia? Lia Matos: Thank you, Pedro, and good evening, everyone. We had important evolutions over the last year in our strategic priorities, while we continue to balance growth with profitability, which you can see on slide five. Compared with the fourth quarter of '22, our consolidated revenues grew by 20%, which combined with lower financial expenses led to an increase of almost 2.3 times in adjusted EBT. These factors combined with a lower effective tax rate, resulted in adjusted net income increasing by almost three-fold year-over-year, with an adjusted net margin of 17.4%, up about 10 percentage points in the period. Taking a closer look at our Financial Services segment performance on slide six to 11. I will start on slide six with the performance of our payments business, for MSMBs. Payments active client base increased 37% year-over-year, reaching almost 3.5 million active clients. Sequentially, this represented a net addition of 192,000 clients, lower compared to the previous quarters, mainly as a result of our strategic shift towards larger clients in the hubs and the fact that we have caught up to growth levels in the micro-segments. This growth in client base also resulted in healthy and profitable cohorts in all client tiers. As you'll see in the pages that follow and in line with our strategic priorities to win in the MSMB segment and to drive engagement with our solutions. Besides optimizing our commercial strategy for growth and market-share gains, we're also putting a lot of focus on improving bundle offerings of payments and banking to new client cohorts, both in Ton and Stone, as well as driving further engagement with our solutions for more mature cohorts of clients. As I will show on slide seven, this approach has resulted in profitable TPV growth with market share gains in the MSMB segment versus the overall markets. MSMB TPV increased 20% year-over-year, growing more than twice the industry levels, considering Pix P2M volumes which were almost BRL8 billion in the quarter. MSMB TPV increased 25% year-over-year and an extra 5 percentage points of growth, when considering PIX P2M in our overall TPV. We achieved the strong growth performance, while also increasing take rates by 22 basis points year-over-year to 2.43%. Take rates were lower versus the third quarter as the natural result of seasonality in the fourth quarter, which always presents higher debit volumes. We are continuously evolving our pricing and bundle strategy to achieve higher levels of engaged clients, helping them more with their jobs to be done. We believe the strong numbers are the result of our competitive advantages, around our distribution capabilities, our superior service and more and more the ability to offer more complete solutions to our clients. Now a quick update on our key accounts performance on slide eight. Key Accounts TPV decreased 17.6% year-over-year to BRL15 billion. As we have continued to deprioritize and offboard low-margin clients year-over-year Key Accounts take rates increased 11 basis points as a result of the adjustments in our commercial policies and a mix shift within the segments. Now let's discuss our banking performance on slide nine. Banking active client base increased three-fold year-over-year to 2.1 million active clients. This evolution was a result of the launch of Super Conta Ton in the beginning of 2023 and the continued activation of banking for Stone clients through our bundle offers. The decrease in growth levels compared to the previous quarters is mainly due to the end of the migration of Ton clients to our full banking solution. This growth in client base was associated with a 52% year-over-year growth in deposits, which reached BRL6.1 billion in the quarter. This new level of deposits derived both from a positive impact in the cash-in level and engagement, due to the effectiveness of our payments in banking bundles. And second, from a seasonal and calendar effect at the end of the quarter. As a result, ARPAC increased 11.4% quarter-over-quarter to BRL28.4 per month. Despite lower seasonality, this positive trend in client deposits is also seen throughout the first quarter of 2024. On slide 10, we'll talk about our credit performance. As you know, we've relaunched our working capital solution to SMBs in 2023 and have seen very positive initial results. In the fourth quarter of '23, we disbursed more than BRL230 million to around 7,000 clients, reaching a portfolio of BRL309 million, an increase of 2.7 times quarter-over-quarter. Loan-loss provision expenses totaled BRL39 million in the period, an increase of 2.1 times sequentially as we constitute provisions of 20% of our portfolio. Although we are taking a conservative approach, the performance of our vintages is above our expectations, with NPLs between 15 and 90 days of 1.96% and NPLs over 90 days of 0.29%. As we have highlighted before, this is a recently launched portfolio, so the ratio of past-due loans should increase as our portfolio matures. This year we will continue with disbursement without changing our diligence toward risk evaluation and close monitoring of market conditions. Beyond our working capital solution for SMBs, the principal driver of our portfolio growth. This year will mark also the launch of more credit solutions to our clients, such as credit cards and overdrafts. To summarize, the fourth quarter was again marked by above industry TPV growth and higher take rates, resulting in financial services revenue growth of 24% year-over-year in the fourth quarter, reaching BRL2.9 billion. In turn, adjusted EBT reached BRL604 million with an adjusted EBT margin of 21%, an increase of more than 10 percentage points year-over-year. Moving to slide 12, let's talk about our software performance and strategic evolutions. Quarter-over-quarter MSMB TPV overlap between financial services and software clients increased 19.3%, almost twice the growth we had in our MSMB TPV in the same period. Among the four strategic verticals, this performance was mainly driven by gas stations. This relative performance illustrates our continued efforts and first signs of success of our strategy to provide an end-to-end solution that combines management software, payments and banking to our SMB clients. Going forward we have listed three main priorities in order to drive growth and engagement in the four priority verticals. First, we're focusing on setting up our go-to-market strategy in order to scale our distribution model for combined software and financial services offerings. Second, we're enhancing the product value proposition to seize the opportunity in the four key strategic verticals with gas stations and retail being the main focus for 2024. And third, we're integrating the pole sales process to guarantee we maintain the superior levels of service our clients expect from us. There still is a huge opportunity for us to target within our software installed point base and to drive engagements with our bundled solutions and this will be a key focus for the next years. Moving to slide 13, Software segment revenues decreased 3.5% year-over-year to BRL363 million, as a result of lower revenues from the enterprise business, which was down 16% in the period. Sequentially, software revenues decreased 6.4% due to lower yields on cash, as well as lower revenues from enterprise business. As a result of this weaker top line, combined with one-time restructuring costs in the amount of BRL11.5 million, adjusted EBITDA decreased to BRL59 million in the quarter, with an adjusted EBITDA margin of 16.2% compared with 20.5% in the third quarter of '23. Excluding these restructuring costs, adjusted EBITDA margin would have been 19.3% in the fourth quarter. And as we continue to focus on diligent cost-savings and process improvements in our Software segments, we expect margins to improve in 2024. As Pedro mentioned, the fourth quarter marked the closing of an important year of strategic advancements for our business. The combined evolution of our strategic priorities around win, engage, and scale through platforms led to the strong results we have seen in the fourth quarter. Reinforcing what Pedro already said, I believe we're well-positioned for a strong 2024 and 2027 outlook. Now, I want to pass it over to Mateus, for him to discuss in more detail our key financial metrics. Mateus? Mateus Scherer: Thank you, Lia, and good evening, everyone. I would like to begin on slide 13, where we discuss the quarter-on-quarter evolution of our costs and expenses on an adjusted basis. Cost of services reached BRL803 million, increasing 15% year-on-year and 3.8% per quarter. Cost of services was sequentially flattish as a percentage of revenues despite provisions for expected credit losses in the amount of BRL39 million realized in the first quarter, as we grow our credit book and higher investments in technology. Excluding provisions for expected credit losses, cost of services would have decreased 50 basis points sequentially as a percentage of revenues, showing continued operational leverage. Administrative expenses decreased 6.5% year-on-year, leading to a 250 basis points reduction as a percentage of revenue when compared to the first quarter 2022. Sequentially, administrative expenses increased 14%, up 70 basis points as a percentage of revenues, due to higher third-party service expenses combined with personal expenses which are seasonally higher in the first quarter. As we have shared in our Investor Day, achieving efficiency in G&A, we will continue to be a priority going forward. We remain committed to our guidance of less than BRL1.125 million of administrative expenses for 2024, which implies a growth of less than 7% for the year. Selling expenses increased 2.6% quarter-on-quarter and remained flat as a percentage of revenues, despite higher provisions for variable compensation in the periods. Financial expenses decreased 10% quarter-on-quarter, down 430 basis points as a percentage of revenues. This evolution was a result of lower interest rates with average CDI decreasing in the quarter, lower number of working days, a seasonal decline in the average duration of funding lines and a lower average cash balance in the periods. Other expenses increased 47.6% sequentially and 120 basis points as a percentage of revenues, because of higher contingencies and tax provisions related to share-based compensation, as a result of the share price appreciation in the first quarter. Lastly, adjusted effective tax rate reached 11.7% in the first quarter. The lower effective tax rate in the period was a result of higher utilization of tax benefits from Lei do Bem, as well as gains from subsidiaries abroad, subject to different statutory tax rats. By 2024, we continue to expect the effective tax rate between 20% to 25%. Turning to slide 15, our adjusted net cash position reached BRL5.1 billion, reflecting an increase of BRL1.6 billion year-on-year and BRL196 million for the quarter. The growth in adjusted net cash is especially notable as it came after the deployment of BRL290 on share buybacks within the quarter, while also continuing to deploy capital towards the expansion of our credit portfolio. Now, I would like to turn it back to Pedro. Pedro Zinner: Thank you, Mateus. To wrap it up, today we also announced a pivotal transition in our leadership. André Street, our Founder and Chairman has also chosen to conclude his tenure on the Board, stepping aside from reelection at the forthcoming Annual General Meeting scheduled for April 2024. Similarly, Vice Chairman Conrado Engel and Board member Patricia Verderesi will not seek reelection, honoring their two-year commitment. Andre will remain connected to the company as a Reference Shareholder, bolstered by special protections Shareholders' Agreement and Articles of Association, including the privilege to nominate the Chairman of the Board. This transition marks the culmination of a deliberate, multi-year effort led by Andre to professionalize management and enhance governance standards, a mission that was crystallized by our strong 2023 results and the robust, strategically aligned team now at the helm. The candidates recommended for the upcoming AGM will be Mauricio Luchetti as Chairman and Gilberto Caldart as Vice Chairman. Additionally, a new member will be indicated, Jose Alexandre Scheinkman. We have shared more details about the succession in a separate 6-K filing. We are committed to keeping alive the entrepreneurial spirit created by our founders. Our goal is to maintain high standards of governance as our company grows and continues to be a leader in entrepreneurship and client-centricity. With a committed shareholder like Andre, a great team, and a strong business, we are well set to continue to advance our mission forward. Before moving to Q&A, I would like to reinforce our guidance given for 2024. For our growth metrics, we expect MSMB TPV to reach more than BRL412 billion, an increase of more than 18% compared with 2023, while we expect client deposits of more than BRL7 billion increasing more than 14% year-over-year. For monetization. We expect our credit portfolio to surpass BRL800 million, increasing 2.6 times year-over-year with MSMB take rates higher than 2.49%, implying an increase of more than 4 basis points. Lastly, in efficiency we expect adjusted net income to be higher than BRL1.9 billion, representing more than 22% year-over-year growth, with administrative expenses of less than BRL1,125 million, decreasing 7% compared with 2023. As we close 2023 and kick off 2024, I am more enthusiastic than ever about our business. There is growth ahead of us and we are closer to demonstrating the power of combining. With that said, operator, can you please open the call up to questions? Operator: Okay. At this time, we are going to open it up for questions-and-answers. [Operator Instructions] Our first question comes from Mauricio Ricardo with Evercore. Mauricio, you can open your microphone. Sheriq Sumar: Hi, this is Sheriq Sumar from Evercore ISI. I had a question on the Software business. Coming to slide 13, just wanted to get a sense as to, you know, I mean, how should we think about the potential benefits of the four key verticals heading into 2024, given that it just grew like 0.5 percentage point in the fourth quarter? And when can we expect the impact of the enterprise to decline, so that we can see a growth in the Software business from here? Thank you. Lia Matos: Hi, Sheriq. Lia here. Thank you for the question. So I'm going to kick off, talking a little bit about what we highlighted on page 14, which is regards to how we are advancing on our initiatives to cross-sell financial services into our software client base. So this page talks about the evolution of this strategic priority. And as we shared in the Investor Day last year, we selected those four key verticals, because they represents the majority of the opportunity and financial services revenues with our installed client base. So we believe that in order to capture this opportunity, it's going to be essential for us to offer our clients better solutions that combine software and financial services. And that we can do this in a way that we can leverage the capabilities of our vast distribution footprint and sustain our service differentiation, which really is a cornerstone of our value proposition. So, in that regard, the main metric for success in this initiative is the TPV overlap between financial services and software. And this metric reached BRL5.8 billion in the quarter, which represents a sequential growth of 19%, so we compare this growth with the growth of our MSMB TPV overall. And we can see that this growth is significantly higher than the sequential growth of MSMB TPVs. And as long as we can continue to grow the financial services TPV overlap in our software client base above the growth of the overall client base. This means, we capturing additional value from this combination. So I think this is the essence of what we talked about in this page. Maybe Mateus can give a bit more highlight on the revenue trends. Mateus Scherer: Yes, for sure. So I think you also touched upon the software revenues on a standalone basis which we show on page 13. And here, I think especially on enterprise we had some negative effects on the quarter related from IAS 29, so hyperinflation especially in Argentina. That was a direct top line in their price. But I think, Lia, you've said, the priority here is really not under the revenues for software standalone. Actually, the focus is really on improving that gross cross-sell metric for TPV. So again, yes, I think there can be some upside for enterprise software revenues in the future because there wasn't a one-off related to hyperinflation. But the focus is really not there. Sheriq Sumar: Got it. Thank you. I just have one follow-up question. On the financial expenses, can you help us understand as to how should we think about the first quarter and even for 2024 as well given the prospect of lower interest rates and the use of cash versus going for third-party funding? And also I know this might be a pretty small impact but implications of the leap year or for like an extra day, in the month of Feb -- like would that have an impact on the financial expenses? Thank you. Mateus Scherer: Sure. I will start with the first part and then I’ll ask you to repeat the second part, you've got here a little bit. But just to start on financial expenses, I think the trends for 2024 are pretty much similar to what we saw in the quarter, which is that financial expenses should be driven by the changes in interest rates. So as we have net interest rates reducing, this should be a positive impact for financial expenses. Cash generation, which I think is a similar trend as the business evolves, it's cash generation and we use part of this cash to funds payments and credit. This has a positive effect on financial expenses. And of course, this will be offset from TPV growth. But again I think these are the same trends that we saw in the quarter itself and it should remain consistent throughout the year. Can you please repeat the second part of the question, Sheriq? Sheriq Sumar: Yes. Sure. So, in your comments, you have said that there was a lower number of working days in the fourth quarter. But in the first quarter you're going to see an extra working day because you have an additional day in the month of February. So I know the impact is going to be pretty small, but just wanted to get a sense as to, you know what should -- how should we think about that? Mateus Scherer: Yeah. I think this was the smallest of the effects that we mentioned. So again, when we talk about one extra or lower extra during the quarter, it's about 3% impact maximum. So on the delta, right? So it's not material at all, I think. Sheriq Sumar: Thank you so much. That's all from me. Lia Matos: Thank you, Sheriq. Operator: Our next question from Eduardo Rosman with BTG. You can activate your microphone. Eduardo Rosman: Hi. Hi, everyone. I have two questions here. The first one is on your credit business. You are booking your results now on an accrual basis and also booking upfront provisions rate, which I think makes total sense. But you're still using a cost-of-risk of 20% while you believe actual losses will be under 10%. So just trying to understand here, how much time you need, you know, to be able to use in our lower-cost of risk in or eventually how much time we need here to be able to see that like a convergence in all of the cost-of-risk to your actual kind of losses, that would be the first question. And the second one, just trying to understand because the stock is down 10% in the aftermarket. And my sense is here that the numbers were strong, right? So trying to understand here, what could be behind you know the sell-off and many investors, clients, you're asking about departure. So just wanted to underwrite, so just wanted to if you could help us understand how -- what was really his role in the last 12 to 24 months? He remains naturally an important kind of a partner of the company. But if you can remind us like his economic stake is not that large anymore. So if you can help us understand a little bit more about the changes in the Board you know maybe that could explain a little bit the sell-off, which to me, it doesn't make a lot of sense given the results. Thanks. Mateus Scherer: Hey, Rosman. Mateus here. I will start with the credit piece and then hand it over to Pedro to talk about the governance changes. Regarding credit, you're totally right. So we're booking credits on an accrual basis and we're using the expected credit losses of 20% until we have more confidence on the models itself. The migration for a risk-based approach will occur throughout this year, so it probably will be gradual. So we're going to start to converge the provisioning models towards our risk models. And then maybe, I think it's also worthwhile to provide an update on how we're seeing NPLs as well, which touches upon your comment about the 10% versus the 20% expected loss levels. So this quarter we started to report NPLs. As you can see, 90 days NPLs are still really low at 0.24, and NPLs from 15 to 90 days are still at 2%. Of course, this metric is affected by the speed of growth of the portfolio, and that's why the numbers are so low. But even when you look at the cohort data, our over 30 remains roughly at the same level that we disclosed in Investor Day, in the 2% -- between 2% and 4% area. So I think you're right in that point, that overall when we look at the numbers, that continues to put us on the right track to land at an expected loss below the 10% level. But again, it is still really soon and we're taking the cautious approach here. So the migration will be gradual over time. Then maybe Pedro, if you want to comment about the governance. Pedro Zinner: Yes. Hi, Rosman. I think what I'll try to do, I think it's hard to talk about rational or irrational reactions on the investor side. I think I'll try to be a little bit pragmatic in terms of changes we had at the Board in -- how we see this as we move ahead. So I think, Andrea, transition is kind of a natural step in the company's journey. And I think over the past two years or so, the company has been professionalizing its Board of Directors, bringing a mix of technical expertise, industry, and company knowledge, right? I think I was even part of this changing process a couple of years ago. Two years ago I joined the Board in April. I think 2022 was a year of a turnaround and I think 2023 we presented very solid results. I think we have a strong management team and a clear strategy as we move ahead. And I think Andre played a key role in terms of changing the governance and setting the directions as we move ahead. And I think he felt it was the right time to make the transition, right? I think the important point here to highlight is that despite him stepping back from his formal role, he remained as a reference shareholder of the company. I think addressing the question he holds as of today, roughly 7% of the economic -- in terms of economic value for the company and a voting power of roughly 37%. I think another point which is worth highlighting is safeguards regarding the company shareholders agreement and articles of association that is held by Andre, right? The first one is that as long as he holds at least 15% of the voting rights, he can indicate a Board member. The other safeguard which is building on that is that while he holds more than 25% of the voting rights, he decides who is the Chairman among the Board members. So I think in a nutshell, Andrea is still very committed to the company as a reference shareholder. And I think he played an important role in terms of changing the governance and setting the directions as we move ahead. Eduardo Rosman: No, thanks a lot Pedro for the tough question. And thanks a lot, Mateus as well. Mateus Scherer: Thank you, Rosman. Pedro Zinner: Thank you. Operator: Our next question from Mario Pierry with Bank of America. You can activate your microphone. Mario Pierry: Hi guys, thanks for taking my question. Let me ask you two questions as well. The first one is you recently acquired a Financiera license that should help your funding costs going forward. Have you seen any benefits of that so far? Also, if we look at your deposit base, strong growth. Can you explain to us better what drove this growth? Is it because all of your clients now have a banking account with you, or what percentage of your clients already have a banking account? And maybe that's why you're seeing the benefits. And can you just remind us if you continue not to remunerate these deposits? And then the second question is related to your tax rate. We saw an effective tax rate of only 11%. Can you remind us what is the effective tax rate that you are forecasting on your guidance for the year? So when you talk about net income, adjusted net income of more than BRl1.9 billion, are you assuming that tax rate should stay around the current levels, or should we see a more normalized tax rate, which I think had been running closer to 20%? Thank you. Mateus Scherer: Hi, Mario, thank you for the questions. I will start with the tax rate piece and then hand it over to Lia to talk about banking. So in terms of the tax rates, I think the main driver for the lower tax rates in the quarter was that we were able to maximize the usage of tax benefits associated with research and development, the [Indiscernible]. And just to give some perspective here, even though our company as a whole has been profitable for many years, some of our entities where we had significant R&D expenses were not. So we have been working really hard to make sure that we improve profitability, not only at the consolidated level but also in those main legal entities. As a result of this effort, we were able to revert accounting losses at some of our subsidiaries in the fourth quarter and increase the usage of legal bank, which was really concentrated in the first quarter of '23. As we move ahead, the level of legal bank usage across the year will not materially change, but the benefits should be more spread out throughout the year. So when we look ahead in terms of tax rates, we continue to expect a tax rate between 20% to 25%, which is what we guided during the Investor Day, and that's what is embedded in the guidance that we provided. Lia Matos: Yeah. So Mario, just to give you some color on the -- your questions regarding banking, right? So in terms of the strong results in deposits that we saw, these results were mainly a result -- a consequence of two main factors. First is that we continue to put significant efforts around bundling payments and banking. So we talked a lot about this in the Investor Day, right? So payments, TPV becomes a relevant cash in to clients that use banking as a domicile. And that was an important driver in increase in deposits, but also our ability to continue to engage more and more clients with our banking solutions. Of course, the fourth quarter does have seasonality in deposits, so there is a seasonality effect there. But we continue to see the same very positive trends throughout the first quarter of '24. So with regards to your question about the Financera license, we talked -- we gave a lot of color on this in the Investor Day, right? Roadmap that we have ahead of us in terms of banking this year. So investment products are a part of our roadmap and we gave some color on that. And there's not much to say beyond what we already said. We are testing this product to our clients. Our focus is really that we develop a roadmap that can prioritize the main jobs to be done for our clients. So investment is a part of that roadmap. And we will be giving more color on this throughout 2024. Mario Pierry: Thanks. Lia, just let me ask you then on the banking domicile what percentage of your clients today have a banking account? Lia Matos: Today, Mario, between -- around 50% of our clients have a banking domicile, of course, there has been a significant shift towards 2023 when we migrated all of our Ton clients to the full banking solution. But we continue to drive payments and banking bundles to new sales as well as upsell banking to current clients in the base. Mario Pierry: Okay. And then just confirm that, you are not remunerating these deposits and you do not plan on remunerating rating them, correct? Lia Matos: So you are correct in the sense that deposits currently we do not pass through any of the floats. But of course, as long as we decide to scale investment products that may change, but too early to give any more specifics about that. Mario Pierry: Okay. Thank you very much. Lia Matos: And just to be clear, our guidance that we gave in the Investor Day for the level of deposits of 2024 that considers that we do not pass through any of the interests to clients. Operator: Our next question is from Tiago Binsfeld with Goldman Sachs. You can activate your microphone. Tiago Binsfeld: Hi everyone. Thanks for taking my question. I have just one on expenses. When we look at your guidance growing below 7% in 2024, what do you think are the main challenges and opportunities here? And especially thinking that third-party services and personnel picked up this quarter. Are there any new trends to read from these two lines, but more broadly, we would appreciate any color you can give on expenses in 2024. Thank you. Mateus Scherer: Hey, Tiago, thank you for the question, Mateus here. So I'll first address the fourth quarter and then talk about 2024. In regards to the first quarter, administrative expenses are seasonally higher in this quarter and this is mostly a result of two drivers. The first one in general is variable compensation because we provision variable compensation according to the expected EBT of each quarter. Naturally, the fourth quarter has a higher result and drives more variable compensation. But also we have a concentration of more corporate events in the quarter and that drives a lot of the third party expenses. So I wouldn't read too much into the trends for the quarter. I think that's seasonally expected. Now when it comes to the guidance, we guided 1.125 million in 2024, this implies a growth slightly below 7% when we compare to the numbers we closed in 2023. And here I think you had basically two drivers. On one end, we've been doing a lot of efforts to implement zero basic budgeting and shared services center throughout the company. And when we talk about these two processes, I think the main driver behind them is really unifying processes throughout the company that either because we grew too fast or either because we have the software segment not integrated yet, we may have duplicate processes for some corporate functions. On the other hand, we still need to invest more, especially in the financial services segments as we're bringing more capability to the company and improving the processes as a whole. So I think the 7% figure in terms of growth is really the net effect of these two trends. On one hand, seeking efficiency and implementing these initiatives. And on the other hand, continuing to invest in what we feel we need to deliver our plans. Tiago Binsfeld: Thank you, Mateus. It's very clear. Operator: Our next question from Neha Agarwala with HSBC. You can activate your microphone. Neha Agarwala: Hi, congratulations on the results, and thank you for taking my question. Just a quick one on volume growth for '24, the guidance remain strong after the good year in 2023. How are you seeing the competition evolve given that most of your competitors are focusing on the SMB segment? You mentioned that you maintain your benchmark status in the SMB segment, but are you seeing a bit more competition from the competitors, both in terms of price aggressiveness as well as adding new sales force on the street? Is that putting pressure on the volumes? So any color on that would be very helpful. Thank you so much. Lia Matos: Hi, Neha, Lia here. Thank you for your question. So I'm going to start talking a little bit about TPV trends in the guidance and then give some color on the competition. So I think regarding TPV, nothing really new in terms of the dynamics that we're seeing. Abex released recently their outlook for market growth in 2024. And when you contrast that with our guidance for 2024 of BRL412 billion in MSMB TPV, this implies that we will continue to grow more or less twice the market rate of growth, which means essentially we will continue to gain share in the MSMB segment versus the overall market. So we remain committed to this guidance. In terms of competition, nothing really new regarding the competitive environment. Based on the fourth quarter results, we can see that we're starting to experience benefits from reduction in interest rates with financial expenses as a percentage of revenue decreasing 4.3 percentage points. And this is consistent with what we have been saying over time, that in the short term to medium term, the competitive environment is much more rational and stable and players will benefit from a decrease in interest rates. In terms of competitive dynamics, overall, this is pretty much what we see, a rational market, not anything much new to say about that. Neha Agarwala: Super helpful. Thank you so much, Lia. Lia Matos: Thank you, Neha. Operator: Next question from Renato Meloni with Autonomous Research. You can activate your microphone. Renato Meloni: Hi, everyone. Thanks for the space here to ask a question. So first on take rates, I wondering if you can give me some more granularity on the decline in 4Q, how much comes from seasonality, and how much is coming from the shift in client mix? And then the expectation on how that's going to behave throughout 2024? And my second question is a follow-up on financial expenses. The -- did the sequential decline, I think it's a little bit more than we expected, given the declining rates. So, I wonder if there is a other factor here at play? And then if you have some ratio that could help us estimate this for the year. Thank you. Mateus Scherer: Hi, Renato. I will start with the take rate piece and then move to financial expenses. In regards to take rates, the vast majority of the decline was a result of a mix, credit versus debit. We also noticed a slight client mix change, but this time around it was the opposite effect, with Stone TPV gaining relevance over Ton's TPV in the quarter, which was a different trend than the previous quarters. And this likely offset the increased contribution from banking and credits, which is growing above the pace of payments overall. So in general tech rate, I think the vast majority is purely seasonality. That's why we remain committed with the guidance that we provided, and it was pretty much in line with what we expected. Now, in terms of financial expenses, you are right that this quarter there is a second minor effect. This is related to the mix between sale of receivables versus total debt outstanding. But again, we've always mentioned in the past that from quarter to quarter, you can have small effects related to the mix of receivables versus debt. But this is not much material at all when we look at the numbers. I think when we compose the reduction in CDI, the lower amount of working days, and the lower average cash balance in the period, you got pretty close to where financial expenses should land. So again, when we look at 2024, I think it's safe to forecast based on these drivers alone and forget about these small variations due to the mix of funding lines that we use. Renato Meloni: That's very clear. Thank you. Operator: Next question from John Coffey with Barclays. You can activate your microphone. John Coffey: Great, thank you very much. So I said, two questions which are sort of tied to some of the questions that Lia had had. So given that the silica has been declining over time and you benefit from that and you haven't really seen any irrational behavior in the market just yet. I'm just wondering like at a very-high level, is there a way to think about what has to happen in order for you to start becoming more aggressive on pricing, is it generally like one key competitor makes a significant change to pricing or you start to see this more broadly over the market? And I guess my second question is, as far as the TPV guidance for 2024, is there any kind of view you can give us on the cadence of that growth on a quarter-to-quarter basis? That's it. Thank you. Lia Matos: Thank you, John. I'll take the TPV question and then pass it over to Mateus. So I think loan yields in terms of the cadence of TPV, I think our TPV growth dynamics has been pretty consistent. So the important thing to look out for is the guidance for the year overall, so I think not much to say beyond that. And of course the seasonality that tend to be pretty consistence. Mateus, you want to go ahead? Mateus Scherer: Yes. And in regards to the sensitivity of changes in pricing for the changes in interest rates, I think here we have to talk about the dynamics of pricing within each segments. So when we look at Micro, we mostly addressed Micro through our brand TON. And when I look at TON, the dynamics in terms of pricing is one-off public prices. So the prices on the websites and if you look today is very similar to pricing project for all the main players. Why is that important? With public pricing whenever you make a move, it's a very expensive move because your clients in Europe then they can call you and request seeing public price. So we don't think there is an incentive for any player to make a move in the short term. Of course, longer-term, if rates really go down in a significant manner, a smaller player has incentives to reduce prices and then the others will most likely follow suit over time, but we don't see that happening in the short to medium term. And then in the SMB, the dynamics in terms of pricing is the opposite. But the effect is quite the same. Because on SMB, the pricing is done on an individual basis. So very common in Brazil to have let's say it, should drugstores same neighborhood same size but with two very different pricing profiles. And what that means is that if any player wants to be aggressive in SMB, there is no such thing as being aggressive for the whole base. The behavioral occurs in the new sales and then it really takes a while for the whole base to recycle and to have the effects on the P&L. So that's why we don't see any likelihood of having the negative impact regarding interest rates in terms of pricing. But longer term, I think the strategy that we viewed at the Investor Day is really not about increasing these present payments, right? I think when you look at the guidance that we provided for take rates for 2027, all the increase can be attributed to the higher engagement of our banking solutions and also with the rollout of new products, especially credits. So again, short to medium term, we think because of this pricing dynamics, it is likely that the benefits of all interest rates will flow through the P&L. Longer term, the focus is not there, the focus is really on improving the engagement with the new solutions. John Coffey: Great. Thank you. Operator: Next question from Yuri Fernandes with JPMorgan. You can activate your microphone. Lia Matos: Yuri, I don't know if you're trying to state your question. We can't hear you. Operator: I believe he dropped out of the queue. Can we pass to the next question? Lia Matos: Sure, let's move on. Operator: Next question from Kyle Washington with Greenwich Capital. You can activate your microphone. Sir, you can activate your microphone. Lia Matos: Let's move to the next person in the queue. Operator: Sure. Next question from Daniel with Unrivaled Investing. You can activate your microphone. Daniel: Hi there. Can you hear me? Lia Matos: Yeah, we can hear you. Daniel: Oh, great. Thank you so much for taking my question, and I wanted to say thank you. You guys have done a wonderful job communicating the strategy and the presentation materials and I really appreciate the long-form letter from Pedro Zinner, this quarter and I hope to see more in the coming quarters. So once again, my name is Daniel from Unrivaled Investing. My question -- two questions really. The first is regarding capital allocation. It's been a treat to hear the commentary on your value proposition, why you think you're winning, and that you think you're going to continue growing faster than the underlying market. So that is very helpful, the rational marketplace perspective. Do you have any sort of thoughts on though the capital allocation? Because I still think that there is this disconnect with what you're saying, which is, you have this very strong value proposition, you expect to continue winning, and what Wall Street's pricing where the stock is trading around low-teens earnings multiple. And I love to see the buyback last year. So that's the first question and I can ask the second one later. Thank you. Pedro Zinner: Thanks for the question, Daniel. So I think in regards to capital allocation, you're pretty spot on. So when you look at the cash generation of the company, the company has consistently generating cash. First part we generated cash despite BRL300 million in buybacks and also deploying capital in credits. And that's why at the end of the day, we approved and announced a new BRL1 billion buyback plan in Investor Day, right? I think the only question here is that we're planning the execution of this buyback. And we also have to be mindful because when you look at the guidance, especially for the credit book, the BRL5.5 billion is a sizable increase versus what we have now. But it's really small when compared to the overall credit markets in Brazil. So the only thing we need to be mindful in terms of capital allocation longer term is that if we get it right in terms of the credit, there is potentially a lot more to be done in terms of deploying credit there and we want to have this optionality in maintaining a really strong balance sheet. So again, general terms, we're aligning doing the buyback plan. It's just a matter of planning the execution. And longer-term, we need to be mindful about the credit book. Daniel: Got it. Super helpful. So it sounds like the buyback may not be at full capacity if you're thinking about the underlying credit book and the incredible growth you could have there in the coming years. So that's sort of the takeaway there. But the second half of the question, this is a bit of a tougher question which is, do you see a future where the software segment, which clearly hasn't performed as well as the financial segment, which has done very well, do you see a future where the software segment turns around and really starts to accelerate in the future, really starts to -- where you could say it has that type of value proposition where you're growing significantly faster than the underlying industry where you say, hey, the value proposition here is very strong and that's why we're going to win? Thank you. Lia Matos: Yeah, so I'm going to take this question. I think, Daniel, so in terms of the growth prospects for software, as Mateus said at the beginning, right? I think there is a mix -- a little bit of a mixed bag when we talk about the software business standalone. In the Investor Day, we communicated sort of the software business fragmented in three buckets. Number one, the four key priority verticals. Number two, the enterprise business. And number three, the other software assets that we have not prioritized in terms of cross-sell of financial services at this point. I think in the first bucket those core priority verticals there's a lot that we're doing in terms of driving the integration of software and financial services. We really have set three key priorities there and we believe that there is a vast opportunity for us to continue to grow. Naturally, this growth will come from two drivers. Number one, our ability to penetrate Financial Services to the current installed software base, but also as we improve our go-to-market, improve our wholesales process, improve our value proposition around products. We expect to also continue to drive growth on software revenues standalone. The bucket that we have not prioritized in terms of the other verticals and other software assets that also has a pretty healthy growth and we see it continuing to grow at healthy levels going forward. I think the dynamics in the enterprise business is a little different because we already have a pretty large market share there, so I think we can expect less growth from the enterprise business going forward. So it's hard to talk about one single answer in terms of the software business. It's really those three main buckets that I have just mentioned. Mateus, maybe you can talk a little bit about margin evolution. Mateus Scherer: Yeah, for sure. So I think we touched upon this in the Investor Day as well and also in the answer about administrative expenses. But when it comes to efficiency in the software as a standalone segment, there is a lot to be done in terms of implementing a shared services center and also the zero-basic budget in there. I think 2023 was the first year that we ran the ZBB. But it was mostly focused on the Financial Services segments. We're now rolling it out for this software segments as well. And that's why we guided that when you look at the EBITDA margins for the software segments, we reached mid-teens in 2023 and we should be significantly above the 20% threshold for 2024. Most of that will most likely be driven by efficiency in OpEx and loss from top line of the software standalone, like Lia said. Daniel: Great. Thank you very much. Lia Matos: Thank you, Daniel. Operator: Next question from Jorge Kuri with Morgan Stanley. You can activate your microphone. Jorge Kuri: Hi, everyone, thanks for taking my questions. I have two questions. The first one is on your NPL ratio on slide 10, the way you measure it is the -- what do you consider to be non-performing is the total amount of the loan outstanding or only the installment that was missed? And then I'll ask my second question. Thank you. Mateus Scherer: Thank you for the question. Kuri, for the first one, in the slide 10, we measured the full amount of the loan. And then on foot -- on the note 6.6.1, you have also the information regarding the amount of only the installment that was passed through. So we have both information, but in this slide this is the full amount of the loan. Jorge Kuri: Great. Thank you very much. And then my second question is regarding on the news on Andre Street. Thanks for telling those shares, that still loans on the company which if I understood correctly, is around 7% of economic value. My question is, with this announcement, is there any modification or existing lockup that he has on those shares? Is he able, if he wanted to? I'm not saying he will, theoretical. Is he able to sell all of the shares at any point in time? Or is there any sort of like local -- lock-up agreement? And then also, is there -- now or will there be, with this move, a non-compete agreement signed with Mr. Street? Pedro Zinner: Hi, Jorge, Pedro speaking. I think, regarding the first question, I don't believe there are any changes at all, right? On the second point, I think our non-compete is actually being elaborated in which we will give -- he will not engage in any business that competes for Stone's primary activities in Brazil. So -- and this non-compete should be ready before the AGM, which is expected to be held on April 23. So you're going to see more flavor of that in the documents for the AGM. Jorge Kuri: Thank you, and that's very clear. But just to clarify the first part, when you say there is no changes, it means that he doesn't have any lock-up on his shares? Mateus Scherer: That's right. Correct. Jorge Kuri: Okay. Got it. Thank you very much. Operator: There are no questions at this time. This concludes the question-and-answer session. I will now turn over to Pedro Zinner, CEO at StoneCo for final considerations. Pedro Zinner: Well, thank you very much everyone for participating in the call. And as I mentioned in the letter, I appreciate the value of our shareholders. Hope to see you again next quarter. Thank you very much. Operator: This concludes today's presentation. Thank you for participating.

Operator: Good evening, ladies and gentlemen. Thank you for standing by. Welcome to the StoneCo Third Quarter 2023 Earnings Conference Call. By now, everyone should have access to our earnings release. The Company also posted a presentation to go along with its call. All material can be found online at investors.stone.co. Throughout this conference call, the Company will be presenting non-IFRS financial information, including adjusted net income and adjusted net cash. These are important financial measures for the Company but are not financial measures as defined by IFRS. Reconciliations of the Company's non-IFRS financial information to the IFRS financial information appear in today's press release. Finally, before we begin our formal remarks, I would like to remind everyone that today's discussion might include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the Company's expectations. In addition, many of the risks regarding the business are disclosed in the Company's Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov. I would now like to turn the conference over to your host, Roberta Noronha, Head of Investor Relations at StoneCo. Please proceed. Roberta Noronha: Thank you, operator, and good evening, everyone. Joining me today on the call is our CEO, Pedro Zinner, our Chief Financial and Investor Relations Officer, Mateus Scherer, and our Chief Strategy and Marketing Officer, Lia Matos. Today, we will present our third quarter 2023 results, discuss some recent trends and provide an updated outlook for our business. I will now pass it over to Pedro so he can share some highlights of our performance. Pedro? Pedro Zinner: Thank you, Roberta, and good evening, everyone. Overall, I was very pleased with the results delivered and the improvement we made within the organization. As I did in the previous quarters, I want to begin by making a brief evaluation of our performance related to the priorities set for the quarter. In our first priority, to grow with efficiency, we once again had very positive results. Total revenue increased 25% year-over-year to reach R$3.1 billion, exceeding our guidance by 2%. Combined with top line improvement, adjusted EBT increased 3.3 times year-over-year, reaching R$545 million and surpassing our guidance by 16%. As a result, adjusted net income grew 4 times year-over-year to reach R$435 million, the highest bottom line figure in our history. Our second priority was to generate cash. Adjusted net cash increased by R$1.8 billion year-over-year and R$530 million quarter-over-quarter, reaching R$4.9 billion. Part of this excess cash was allocated in the repurchase program as approved by the Board in September 2023 and totaled R$300 million. In our third priority, to expand financial services business, MSMB TPV continued to grow consistently at a strong pace, increasing 20% year-over-year and more than twice the industry rate. Combined with this, we have also presented a healthy client base increase and an improvement in monetization. Our MSMB client base increased 42% year-over-year. We have a client net addition of 317,000 quarter-over-quarter, reaching almost 3.3 million merchants using our payment solutions. And at the same time, our MSMB take rate increased 28 bps year-over-year to reach 2.49%. We have also evolved in our banking and credit solutions. Banking active clients increased to 1.9 million with R$4.5 billion in deposits, demonstrating the successful strategy on the development of our platform and client engagement with our solutions. And lastly, we have expanded our credit portfolio, reaching R$113 million in this quarter and concluded the testing of many features in line with our expectations. In our fourth priority, to evolve our software business, we continue to improve our results, focusing on increasing efficiency as we promised. Software revenues reached R$388 million with adjusted EBITDA increasing significantly to R$79 million, reaching a margin of 20.5%. This bottom line evolution is a result of our continuous focus on improving operational leverage and integration plans with StoneCo. Lastly, we have recently taken important steps towards building our fit-for-purpose organization. In October, we announced our new management structure to better align the Company around specific go-to-market strategies per client segment and to accelerate the integration of our software and financial solutions. We will further detail our strategic priorities in our Investor Day on November 15th, providing a better understanding on how the new organizational design will support us in executing our strategy. Before passing it over to Lia, I would like to say that I'm looking forward to meet investors in our Investor Day in a few days from now. I believe it will be a great opportunity for us to share our views on the business and our long-term plans. Now, I'd like to pass it over to Lia to discuss our third quarter 2023 performance and strategic updates. Lia Matos: Thank you, Pedro, and good evening, everyone. As Pedro mentioned, we had an important evolution over the last years in terms of balancing growth and profitability, which you can see on slide 5. We increased consolidated revenues by 25% while improving our adjusted net margin by around 10 percentage points in a one-year period. As Mateus will detail further, this amazing margin improvement was a result of operational leverage across all main P&L lines. Moving to highlights of our Financial Services segment on page 6. In the third quarter of '23, revenue in this segment increased to R$2.7 billion, a 29% year-over-year growth, mainly driven by our consistent performance in the MSMB segment with above-industry MSMB TPV growth and higher take rates. This, coupled with operational leverage in costs and expenses, led to a 3.6 times increase in the segment’s adjusted EBT to reach R$485 million with a 17.7% EBT margin, an increase of 2.1 percentage points sequentially. Moving to slide 7, we will deep dive on our MSMB performance. MSMB payments client base increased 42% year-over-year to reach 3.3 million active clients. Sequentially, this represented a net addition of 317,000 clients driven by our continued investments in performance marketing combined with better levels of churn. Also, through strategic optimization of our Ton and Stone offerings across our sales channels, we continue to see positive trends in our client base across all tiers within the MSMB segment. We believe this approach is unique and has led us to profitable TPV growth, as I will show on the next page. On slide 8, we show that MSNB TPV increased 20% year-over-year, a growth twice above the industry, demonstrating our continued ability to win new clients due to our competitive advantages around distribution, service and our combined financial services offerings. This TPV performance was above our guidance of between R$87 billion and R$88 billion. Also, we were able to produce that growth while increasing our take rates by 28 basis points year-over-year and 1 basis-point sequentially to 2.49%. The yearly take rate improvement was a result of our continued financial services offerings expansion, strong pricing execution and client mix. Now, on slide 9, I will briefly update you on our Key accounts performance. Key accounts TPV decreased 22.8% year-over-year and was stable sequentially to reach R$14.4 billion as we have continued to deprioritize and offboard low margin clients. Year-over-year, key accounts take rate increased 18 basis points as a result of the adjustment in our commercial policy and a mix shift within the segment. Now, let's shift to our banking performance on slide 10. Banking active client base increased 3.4 times year-over-year to 1.9 million active clients. This evolution was a result of the launch of Super Conta Ton in the first quarter of '23 and the continued activation of banking combined with acquiring solutions for Stone clients. The growth in banking active clients combined with an increase in engagement, led deposits to reach R$4.5 billion in the quarter, a 51% year-over-year growth, which outpaced our MSMB TPV growth by 30 percentage points. Since TPV is the main source of cash and volumes to our banking solution, this relative performance is a strong illustration of our continued ability to improve engagement as we launch new features and offerings. In our upcoming Investor Day, we will give more color on how we are evolving our value proposition around our combined solutions for MSMBs. On slide 11, let me give a brief update on our credit offering. Until September, we reached the portfolio of R$113 million, a 6.1 times quarter-over-quarter increase. The performance of our vintages is above our expectations, with NPL 15 to 90 days of 0.4% and NPL over 90 days of virtually zero. I would like to note that this is a recently launched portfolio, so the ratio of past due loans should increase as our portfolio matures. We will gradually accelerate disbursements by extending the credit offering to a larger number of clients without changing our diligence towards risk assessment and close monitoring of market conditions. Lastly, this quarter, we have concluded the main improvements in our product features as we have finalized rebuilding our renegotiation process. Now on slide 12, we will discuss our Software segment. Software revenue increased 6% year-over-year to R$388 million, driven by the continued organic active store expansion in our core POS and ERP business, especially in the SMB segment. Software revenue growth decelerated compared to the previous quarters because of weaker performance of sour transactional revenues within our digital business, combined with lower average inflation, which affects price adjustments, especially in enterprise accounts contracts. Software segment adjusted EBITDA increased 50% year-over-year to reach R$79.4 million with a margin of 20.5%, an increase of 3.1 percentage points compared to the second quarter of '23. This strong figure was a result of higher revenue in the period and lower administrative expenses, especially as a result of more normalized levels of personnel expenses after a reduction in headcount in the second quarter of '23. On the strategic front, we have prioritized four verticals to focus to drive financial services and software bundles. During our Investor Day, we intend to share additional details about how we see this opportunity ahead. Now, I want to pass it over to Mateus for him to discuss some of our key financial metrics. Mateus? Mateus Scherer: Thank you, Lia, and good evening, everyone. I would like to begin on slide 13, where we discuss the quarter-on-quarter evolution of our costs and expenses on an adjusted basis. Cost of services reached R$773 million increasing 15.2% year-on-year and decreasing 220 basis points as a percentage of revenues due to operating leverage gains. Quarter-on-quarter, cost of services increased 12.9% and a 140 basis points as a percentage of revenues. The sequential increase in cost of services is explained by higher provision for losses and increased investments in technology and logistics as we continue to expand our business and client base. Administrative expenses decreased 3.3% year-on-year and 9.5% sequentially, leading to a 130 basis points reduction as a percentage of revenues when compared to second quarter '23. This improvement can be attributed to more normalized levels of personnel expenses in our Software segment following a reduction in headcount in second quarter '23, combined with higher than usual provisions for variable compensation last quarter. I'm very happy to see that we are starting to collect the benefits of the initiatives we implemented more than a year ago around zero-based budgeting and integration of back office functions in our Software segment. Increasing efficiency in administrative expenses will continue to be a priority going forward, and we'll give additional details around that in the Investor Day. Selling expenses increased 7.5% quarter-on-quarter and 20 basis points as a percentage of revenues due to higher investments in our distribution channels, mainly with partner commissions combined with increased investments in performance marketing. Financial expenses decreased 1.4% quarter-on-quarter with a reduction of 260 basis points as a percentage of revenues, reaching 33.3%. This evolution was driven by lower interest rates in the period, coupled with our decision to reinvest our cash generation towards funding our operation and was slightly offset by quarterly TPV growth. Lastly, other expenses increased 11.8% sequentially and 20 basis points as a percentage of revenue as a result of normalized levels of share-based compensation expenses as in second quarter '23, we incurred in a nonrecurring positive net effect of R$19.6 million. Moving to slide 14, our adjusted net cash increased by R$1.8 billion year-on-year and R$530 million in the quarter, reaching R$4.9 billion. This strong sequential increase is a result of our strong cash flow from operations as well as a sequential decrease in CapEx, as expected. As Pedro mentioned, given our strong cash flow generation and our long-term perspectives for the business, In September, our Board approved a share repurchase program of R$300 million, which was already fully executed. With that said, operator, can you please open the call up to questions? Operator: Okay. At this time, we are going to open it up for questions and answers. [Operator Instructions] Our first question comes from Tito Labarta from Goldman Sachs. Tito Labarta: A couple questions, I guess, to start. Maybe good growth, on the TPV continuing to take market share there, it seems. Maybe can you give some color on, do you think you'll be able to continue to take share, particularly between the micro-merchant segments and SMB? Are you gaining more share? I imagine maybe a micro-merchant since it's smaller for you, but just, the different dynamics between the micro and the SMB. And also with the take rates beginning to stabilize there, how do you see the take rates evolving from here, particularly as rates start to come down? And then, if you can just give an update on sort of the regulatory environment, particularly talks of changes to interest free installments. There's also recently some news about not being able to potentially monetize PIX. Any thoughts you have on that given the ongoing discussions there? Thank you. Lia Matos: I'm going to take the first part and then pass it on to Pedro. So, a few thoughts regarding TPV growth, both ours and the industry. So, ABAC just released numbers for market growth this quarter, 9% growth in the quarter, and they continue to guide the year between 9% and 11%. So, this implies that TPV growth will be slightly higher in the market for the fourth quarter. Looking ahead, we expect industry growth to be slightly higher next year because we do see a recovery in credit card limits after delinquency reached the peak. And regarding your mention on PIX, more and more we see PIX P2M, volumes as parts of the market, right, that's a volume that it is a payment method, which we enable our clients to accept, and it is a driver of TPV growth. If you consider our 20% TPV growth this quarter and you include in that number PIX P2M volumes, that growth would have been higher around 24%. So, we see this as a healthy level of growth. And I think regarding overall trends, Tito, we continue to gain share within the MSMB segment. We continue to allocate capital towards growth in both micro and SMB segments. And we do see positive trends in all client tiers. And we think this has to do with the elements of differentiation that we provide clients around the offers that we provide them, the service, the distribution model. So, it's really about a combination. And the overall message is we continue to gain share across the MSMB segment. Pedro, you want to take on the regulatory? Pedro Zinner: Yes. Hi, Tito. Well, thank you all for taking the call. I think there has been a lot of debate around the interest rate caps on revolving loans, delinquency rates and interest free installments. And I think I'll just extend a bit myself and try to highlight a few messages around the topic. So first, we believe that the imposing limitations on interest fee installments violates the principle of free competition. Any issuer as of today is already capable of deciding to limit, restrict, or increase the offering of installments, and that's really an economic decision. Just to give you an example, we've seen a few Black Friday offers this week where large issuers have substantially increased the maximum number of installments to differentiate their own offers. Second, contrary to what has been said, there is strong empirical evidence that there is no relationship between the number of installments and delinquency levels. And just to give an example, according to a study that has been sponsored by [indiscernible], using, frontier empirical methods and over a million observation of consumer purchase behavior, if any, the relationship between installment free transactions and delinquency rates is actually negative. Therefore, again, I think this reinforces our view that there shouldn't be any regulatory [Technical Difficulty] free installments. Just a few more points because I think it's important for ourselves to position. And I think, third, a regulatory change that takes away from merchants, the possibility of offering installment transactions in Brazil would significantly impact private consumption and consequently the overall economy. So, I think this -- just to provide some data and according to the Central Bank, credit card transactions represented about 20% of the Country's GDP in 2022. Of the total, about half was executed in interest free installments just showing the relevance of this payment method to the country. So, I think for these reasons, I think it's quite clear why we continue to hold our position that there shouldn't be any restriction on interest rate free transactions. Mateus Scherer: Pedro, if I may only add, I think Tito also asked about the prohibition of charges in any kind of PIX transactions. On that discussion, there were indeed some rumors about this discussion, but our understanding is that this debate didn't advance. And we think it's unlikely that any regulation will prohibit charges on PIX as a whole. Lia Matos: Perfect. And, Tito, there was also -- you also asked about take rates, and I left that out of the answer. So regarding take rates, we didn't change our pricing policy this quarter, and we do not intend to change it anytime soon. Competitive dynamics remains the same. If anything, we see, more rational behavior in the market as a whole. When we look at take rate trends this quarter, we had a sequential improvement, which was small, 1 basis points, which was driven by roughly stable prices, a small positive impact from mix, which was slightly offset by a higher debit mix. So, regarding prices, we're not changing our strategy at all. We don't intend to do so. Tito Labarta: Lia, maybe just one quick follow-up on that. Do you think the mix can continue to benefit the take rate from here, if you're growing more, say, micro than an SMB? Lia Matos: Yes. I think that -- that is correct, Tito. Tito Labarta: Okay. Great. Thank you. Lia Matos: We're going to give more color on these trends on the Investor Day, so we intend to provide a little bit more of a long-term perspective on take rate's evolution. Operator: Our next question is from Mario Pierry from Bank of America. Mario Pierry: Congratulations on the quarter. It looks quite good. Let me ask you two questions also. On software, we saw a slowdown in revenue generation, like revenues growing 6% from 9%. But on the other hand, EBITDA is up 50%. You talked about some headcount reductions. Can you specify the size of these reductions? Do you expect to make more -- or have we already seen the full benefit of this cost reduction? And then on the credit side, as you talked about, right, you increase disbursements or you made disbursements of about a R$100 million, I'm calculating here about R$33,000 per client. Can you give us a little bit more of a perspective? What type of clients are you targeting, specific regions, specific characteristics? What is the interest rates that you're charging on these loans as well? And how big do you think this portfolio can get to within a year? Thank you. Lia Matos: Thank you, Mario, for the question. I'm going to take the first part on top line trends in software and then pass it over to Mateus to elaborate on margin evolution and credit. So, regarding top line growth, if we sort of double click on the drivers of software revenue evolution. First, we really are focusing on allocating capital to grow where we see the biggest opportunity, which is in the verticals that we have prioritized and within the MSMB segments. There, we're happy with the level of growth that we are seeing, and we remain optimistic with the opportunities that we have ahead. We will give more color on this in the Investor Day. The biggest detractors to growth in software are the transactional revenues in our digital business and the enterprise business itself. Let's remember that in the enterprise business specifically, we already have a very high market penetration. And our focus there is a lot more towards, driving efficiency and cash generation. And I want to also highlight that, yes, we do monitor top-line growth, and it is important for us. And we are allocating capital to grow where we see opportunity. But there is also a disproportional value to be captured in installed base of software clients. So, more and more, we are driving our execution towards providing software and financial services bundles and really capturing the financial services opportunities that exist within the software clients that we already have. And there is a very attractive opportunity in the priority verticals that we will have a chance to talk more about in the Investor Day within the MSMB segment, which is our focus. So that's a little bit on trends on top-line. Maybe Mateus can elaborate more on the efficiency side. Pedro Zinner: Yes. For sure. So regarding the margin evolution on software, you are correct. I think most of the evolution quarter-on-quarter came from more normalized levels of personal expenses in the Software segment. And I think this is related to something that we disclosed last quarter, which was basically reduction in headcount that had a negative impact on the second quarter of 6.5 million in severance costs. And now we are basically collecting the benefits, from this reduction. Now, when we look ahead, I think it's important to highlight that we still see additional room for improvements in software margins overall. It's not necessarily a 100% related to personnel expenses. But I think in general, we see more benefits to come from the integration between the two platforms. I think the second question regarding credits. So, you're also right. We scaled the portfolio from 19 million in the second quarter to a 113 million this quarter. In terms of who we're focusing at this time, I think the offering is mostly focused on our SMB segment. So, when we look at that volume of around R$30,000 per operation. We're basically talking, about around 1 month of the client's TPV. So it's still a very conservative approach. But regarding the evolution in terms of sizing of the portfolio and the rates that we're charging, I think the idea is to provide more color on the overall performance and strategy of the credit business on the Investor Day. So, I think we have to wait a little bit to give more details on that. Operator: Our next question is from Geoffrey Elliott. Geoffrey Elliott: In terms of the debit share increasing, what was behind that? Is that seasonality? Is that an industry trend? Is that specific to you? And is that something that continues -- I know you have more debit in the fourth quarter, but looking further ahead, I'm just curious why debit, was higher this time? Lia Matos: So, this is a market trend. It hasn't to do with us specifically. We believe that this -- from what we have seen in terms of other players releasing their results. This has been a trend in the market. Our hypothesis for this is credit delinquency is still limiting credit limits on credit cards. We think that this trend will improve going forward. Geoffrey Elliott: And then, if I could squeeze it in on the buyback, you did the R$300 million very quickly. Do you kind of see that as the beginning of a process? Should we be looking out for more of these going forward? Pedro Zinner: Yes. So good question. Maybe taking a step back to give you some context on how we think about the topic. So, when I look at the third quarter results, we can see that the Company is generating strong cash flows. We generated R$530 million net cash in this quarter, even after increasing the credit portfolio and also even after investing for future growth. And as our business evolves, we do expect our profitability to continue to increase, and this should drive even more cash generation. So, I think the decision of how we're going to allocate this cash is becoming increasingly important for us. And if you look at the past few quarters, our decision was basically to reinvest most of this cash generation towards strengthening our capital structure. And when we look ahead, we still see a lot of room to reinvest in the business in general. So, even when we expand the credit business or the banking solutions, there's still room to move money towards debt. But whenever we feel there's a good opportunity to allocate excess cash, for example, towards repurchases, we're certainly going to evaluate this option. And, again, I think this is a common trend in the call, but we're going to share more details about our philosophy for capital location in the Investor Day, but it is an option that we are constantly evaluating here. Operator: Our next question is from Gabriel Gusan from Citi. Gabriel Gusan: Hey, guys. Good evening. I hope the answer to my question is not that you talk about it in the Investor Day next week. But, can you please share, if you have plans to go full banking in your release and in our discussions? It seems that having this service become bigger and bigger to our client base makes sense at this point? You probably have above 2 million clients in the micro-merchant segment? So, going for banking wise and all makes sense. Pedro Zinner: Yes. So I think in terms of the banking license, we are in the process to obtain this license. We don't control the full road map, but I think we are in the last stages of the regulatory approval, and we should have access to the license soon. Now, when I think about what does that license allow us to do, I think it's mostly using the deposits that we have as another funding lever. In terms of the products, we're going to discuss a lot in the Investor Day the road map and how we're thinking about the banking product evolution. There's certainly a lot of potential there. But I think the license itself is not a restriction in our road map. It's more about enabling us to use the deposits going forward. Operator: Next question from Neha Agarwala from HSBC. Neha Agarwala: Hi. Congratulations on the results, and thank you for taking my questions. My first question is on CapEx. You saw a nice decline quarter-on-quarter in your CapEx. Despite strong jump in your net adds, could you give us some color as to how can you break down the net adds between SMB and long tail? And, is the CapEx trend that we saw in this quarter, should that be maintained? Should they continued without trend or this level, is what to expect in the coming quarters? And my second question is on Linx. Could you give us a sense of, what percentage of the Linx clients, Linx merchants are now using Stone acquiring? How, are you trying to cross-sell bundles to some of the large clients which came from Linx? So, some granularity on that would be helpful. Thank you so much. Mateus Scherer: Thank you, Neha. I'll take the first question regarding CapEx, and then maybe Lia can give some color regarding Linx. Lia Matos: And net adds, I think there was a question on net adds. I'll take it too. Mateus Scherer: So talking about CapEx first, few things to highlight here. So, usually, there are differences between the cash outflow and the activation of PP&E. As for example, we can purchase PP&E and pay it later as a result of negotiations with suppliers or maybe pay down purchases of PP&E related to previous periods. We give a lot of data about the dynamics in the financial statements, the footnote 18.5. So, when we look at this quarter, we added 232 million of PP&E and intangibles, but the actual cash outflow was a 176 million. As part of the additions that we did this quarter will be effectively paid in a future period. So that's part of the explanation. But in any case, when you take a longer term perspective, [Technical Difficulty] comes off CapEx management. So just to give you a little bit more color on that, when you look at CapEx as a percentage of revenues, for example, it has been trending downwards from 7.9% in the 9 months of 2022 to 5.7% in the 9 months of 2023. and I think that has a lot to do with the efficiencies that we have been seeking in our logistics operation. Again, not to spoiler too much, but it's another topic that we're going to give additional details in Investor Day next week. Maybe, Lia? Lia Matos: Yes. On Neha, on net adds, and then I'll talk a little bit about software. I believe your question was around cross selling bundles. In net adds, so what we can say is the following. Year-to-date, we have consistently invested in selling both in our hubs and distribution channels that are focused on SMBs, but also performance marketing to drive growth in micro clients. While our investments in selling expenses in the hubs, they have a more stable evolution, performance marketing capital allocation can be more volatile quarter-over-quarter. But the message here is those investments have been yielding great returns, and they have enabled us to continue to invest and to continue to grow. But we also want to highlight that net additions in itself is not a target per se. We do allocate towards growth in TPV and gaining share across the MSMB segment as a whole, and most importantly, with discipline on pricing execution and healthy levels of return, so that this TPV growth can also drive profitable growth. So, I think that's the message regarding -- on net adds trends. When we talk about software, and we will give more color on this, but let me qualify a little bit. When you look at the TPV pool, so as a proxy of the financial opportunity that exists within software client base, around 60-40 is between MSMB versus enterprise or key accounts. So, there is a significant opportunity in terms of not only payments, but also banking and eventually credits on some verticals that we have prioritized our execution towards. Today our penetration of financial services within these verticals is still small. We're at the beginning of that journey. But we're seeing, extremely positive results in terms of number one, our ability to offer better value proposition by combining software and financial services. I think the big example here is gas stations where we have started very recently a big effort across the company, across all of our channels around offering, embedded software and payments and banking solutions to gas station clients, which is a relevant vertical within Linx, but there are other verticals that we will deploy this execution as well. And when we look at clients that are actually using those solutions, not only is that a lever of growth, because we bring in more TPV and more deposits from banking, but it's also a strong monetization lever, because when we look at the unit economics of these clients, it is significantly better than the unit economics of clients that use only financial services. So, the message is, we are excited. We're at the beginning of the journey. We really feel that now we have the right organizational elements in place to continue to advance on this, but it's it is very early days. We will give more color in this both on where we are and what our sort of our long-term perspectives on this, next Wednesday. Operator: Our next question is from Carlos Gomez-Lopez from HSBC. Your microphone is open. Lia Matos: Maybe we can move on to the next. And if Carlos wants to go back to the line, he can. Operator: Okay. Our next question is from Sheriq Sumar from Evercore ISI. Sheriq Sumar: I just wanted to ask about the about the financial expense in this. How should we think about for the fourth quarter? I mean, depending on -- like, given the fact that Brazil's inflation rate has come down, how should we think about the mix of using cash versus third-party deposits? And also some of the other levers within the overall expenses to drive margins higher. I mean, I know you talked about lowering some headcount within the software business. But what are the other measures that we could think about in brief for the fourth quarter and in 2024 that you would take? Pedro Zinner: So maybe starting talking about financial expense. I think we've mentioned this in the past, but, we think over the medium term, our financial expense should be driven by three factors, basically. First one being the interest rates in the country, second one being the overall cash generation, and the third one being TPV growth. I think when we look at the evolution this quarter, the slight decrease that we had in financial expenses was basically a function of these three factors. So, in the third quarter, we saw CDI rates in Brazil reducing from 13.65% to 13.27% on average. Secondly, we basically decided to reinvest our cash generation towards funding the operation. And third, I think these two factors were slightly offset by the quarterly TPV growth. When we look forward, I think the perspective is to have some reduction in terms of the CDI rate. So, we're going to have that tailing going forward. And the business, I think, like we mentioned, the earlier question continues to generate a lot of cash, so this should also contribute to the overall trends. I think the second question regarding overall costs and expenses, leverage for the Company. Something that we mentioned in the call, it's the general trends in terms of administrative expenses. I think it's something that we also highlighted a few quarters ago, but if you look at a long-term trend for this line, after the first quarter '22, we started implementing a lot of measures in the Company in terms of zero-based budgeting, implementation of shared services center, and also advancing the software integration. And I think this has led this line to decline in a nominal basis since the beginning of the year, declining from R$296 million first quarter last year to around R$240 million this quarter. And we still see room to improve this line as a percentage revenue going forward. I think the idea is to keep these expenses at control while we scale the business. But another very important trend when we look at cost to serve, I think we gain more than two percentage points in terms of margins in a yearly basis when we look at that line. And when we deep dive in this line, we're really seeing gains across all the main lines of the business, be it logistics, customer service, or losses, for example. I think the only different trends that we are starting to see and that it's important to highlight is that as we expand our credit book, we're booking the provision for losses upfront due to IFRS 9. So, in this quarter alone, as we expanded the book from 19 million in the third quarter to a 113 million in this quarter, we're provisioning at 20% because we don't have enough data in our models to provision more aggressively. So, when you look at this effect alone, it impacted negatively our cost to serve by R$18 million, which is around 50 basis points as a percentage of revenue. So I think overall, when we look forward, the idea is to continue to gain efficiency in all the main lines, but we have to bear in mind that we're going to have this effect from credits as we scale this business. Sheriq Sumar: I just wanted to double click on the previous question on the -- on the MSMB. Is there any particular vertical that you saw, any particular strength, or is it like prior to the holidays coming in, you had more people sign up for that. And what is the early read for fourth quarter? Like, are you seeing the same level of activity, or has it kind of slowed down? Lia Matos: Sheriq, you were dropping up a little bit. So if I didn't understand your question, please repeat it. I believe it was about net adds, correct? Sheriq Sumar: That's right. I'm sorry about the background noise. Lia Matos: No, no. That's okay. So, I talked a little bit in a prior question that we had made, I believe around, net adds evolution. So, our main sort of objective function here is to continue to grow and gain share in a profitable way. So it is true that net adds may, fluctuate from quarter-to-quarter, but that's going to be our driver. As long as we can continue to see opportunities to allocate investment in growth in a profitable way, we'll continue to do so. So, I think this is, more or less we can say in terms of color around net adds evolution. The metric that we like to track really closely is the evolution of our TPV and market share and that this TPV comes in at healthy level, providing the healthy levels of return. Operator: Next question from Yuri Fernandes from JP Morgan. Yuri Fernandes: I would like to ask on taxes here. It was lower this quarter, you mentioned more revenues coming from entities abroad among other things. What are those results coming from abroad? I'm asking this because we see some peers booking, having some FIDCs [ph] abroad. So just would like to check if that's the case for you also. And on taxes, what should we think about this line? Should we remain low? What is your view here? Thank you. Pedro Zinner: So regarding taxes, we mentioned in the past that we see our normalized tax rate has been between 20% to 25%. But over the past few quarters, we were operating closer to 27%. So I think what happened in the third quarter is that we basically reverted back to what we see as the normalized trend for the business. What's also worth mentioning here is that in this quarter, we had a one-off effect also in taxes related to the recognization of deferred tax assets in the amount of 23.5 million as we reverted losses in some subsidiaries that had accumulated tax credits related to losses during previous periods. I think the footnote 7.1 and 7.3 of the financial statements bring more detail on this topic. So, the first part of the question, we basically see when we look ahead, the effective tax rate continue to be within the 20% to 25% level. As for the second part of the question, we do have a part of our FIDCs, [ph] offshore as we are a Cayman entity, and this, indeed, contributes to a bit of our tax rates. But when we look at the general trend, I think our tax rate is not, unusual when we compare to all the benchmarks. Yuri Fernandes: Can you share how much is FIDCs [ph] abroad and how much are local based? Mateus Scherer: I think we do have this disclosure in footnote, 7.1 until 7.3. But, basically, when you show the profits on offshore entities, it's all related to FIDCs. [Ph] Operator: Next question from John Coffey from Barclays. John Coffey: So, I saw one thing, one new disclosure you had in your press release was PIX TPV R$5.5 billion, which is quite a bit of your overall TPV, about 5% or a little bit more. I was wondering, if -- and if you could just sort of provide some general comments about where you're seeing those PIX volumes, any kind of verticals or kinds of merchants? And furthermore, could the PIX volumes be one contributor to the higher take rate? Because as I understand it, you don't include PIX TPV in your overall TPV numbers, but you do include the revenues that do come from PIX? Lia Matos: Hi, John. So yes. Giving a little bit more color on PIX, more and more, we believe it is important to provide visibility to the impact of PIX because it is becoming more and more significant. So I think, big message is on where it's relevant. So PIX P2M is more relevant in the SMB space. Why is that so? Because, PIX P2M is essentially a payment method that our clients need to reconcile just as any other payment method. So, the capture method that we offer in PIX P2M is a dynamic QR code that the transaction can be reconciled in the dashboard. So, that for larger SMBs, more sophisticated clients that have multiple SKUs that's important. And, that's a monetization driver for us, like you mentioned. You are correct that because we don't consider PIX P2M TPV in the overall TPV, that this does have a slightly accretive impact on take rates. So we see PIX as an important driver of overall market growth going forward. The way that we look at it is overall household consumption and mix by payment method. And we do see PIX P2M taking away not only from cash, but from growth in debit volumes itself. For us, this is sort of net neutral because we monetize PIX P2M in line with debit net MDRs, but for our clients, it's much better. Because for our clients, they get money settled instantaneously and they do not pay interchange. We think there is evolution to happen around the UX and the user experience, it's not fantastic yet because for example, PIX NFC doesn't exist. But, as product, usage and functionality evolves and the central bank is likely pointing that roadmap forward in the next years, PIX will become more and more relevant. And for us, we've said this many times before, more and more we see PIX as an opportunity and a way in which we can leverage the PIX rails to develop new products, new offerings to our clients. So to us, the message is that we see this as a positive trend. John Coffey: I just wanted one follow-up. Just on take rates in general. As we look out next quarter and the quarters ahead, could you help contextualize the effects of -- competitive effects, which could pressure take rates, the move you're having down to smaller merchants which could push them up as well as just the seasonality, which I think generally in Q4, debit is bigger in Brazil? Just kind of try to like evaluate the pressures going up and down on your take rates going forward. Lia Matos: Sure, John. So I think, aside from sort of short-term fluctuation in debit versus credit that has seasonality effects like you mentioned, fourth quarter, we always expect debit mix to be higher. Aside from that, I think the overall trends that we can point to -- and sorry to give -- continue to give these spoilers, but we will provide a little bit more color on this in the Investor Day. Is that -- we continue to execute our pricing strategy as we have said. We will not change our approach to pricing discipline. We do not have that in our plans. More and more new monetization drivers come into the picture, not only PIX but overall banking. And the more that we evolve on our banking solution, the more we have levers to monetize the relationship with our clients. So, we do see that as a positive trend in overall take rates going forward. I don't think we're going to see too many changes in terms of mix shifts, to be honest. Because I think that the pace of growth is more or less -- if you look at longer time horizons, it's more or less stable across tiers. So I think that the trends that we can think of are pricing, execution and more and more monetization drivers from banking, other solutions. Operator: Our next question is from Josh Siegler from Cantor Fitzgerald. Josh Siegler: First question, I was just wondering as we head into 4Q, how should we be thinking about the seasonality aspects, and are there any abnormalities to this quarter as compared to previous years? Pedro Zinner: So no big news, I think, as usual, fourth quarter tends to have a better TPV performance, because of the Christmas and Black Friday. So nothing new on that regard. Josh Siegler: And then from a strategy perspective, I was wondering if you could elaborate a little bit on how you're thinking about a potential rollout of credit cards, especially given, the increase in credit delinquencies that you're seeing across the macro right now? Lia Matos: I think, the message around the speed of rollout is the same as we have said regarding credit. We're being conservative in terms of the speed at which we scale. We remain attentive to the macro environment. So I think no different message as to our overall strategy in credits. We will take our time to scale at the speed that our risk appetite allows us to and we will remain observant of the macro environment. Operator: Next question from Jamie Friedman from SIG. Jamie Friedman: Good evening, and congratulations on the strong results. Good progress here. I just wanted to ask, well, the first one is, philosophically, how are you thinking about guidance? There's been years in the evolution where you guide. There are some that you don't. So we're just wondering where your mind is now about your approach to guidance? Mateus Scherer: Yes. For sure, Jamie. So we mentioned this in the previous call. Up until the last quarter, we were following the policy of giving quarterly guidance. And we're no longer providing this kind of guidance. But starting on the Investor Day, the idea is to give guidance on a few metrics on a longer term perspective. So, we're going to share figures for 2024, but also provide a perspective on 2027 for the business, so that you can have a longer term outlook for the business as a whole. Jamie Friedman: And then, if I could just have one follow-up. With regard to the PIX, can you see if those are the, like prepaid PIX, or are you seeing volumes for PIX parcelado as well at this point? Any color on that would be helpful. Lia Matos: No. We do not see, any relevance from PIX parcelado at this point. We do know that some players are putting a lot of investments around, PIX parcelado. But for us, it's a payment method that it's mostly taking away from, like I said, cash and the growth of debit. Operator: Our next question is from Kaio Da Prato from UBS. Kaio Da Prato: I have two questions here quickly please. Looking to your stake rates and breaking it down, looks like the increase came mainly from financial revenue. So just would like to understand what were the moving parts here if you increased the penetration of prepayment during the third quarter for any specific segment if there was any change in prices? Because you mentioned, in your press release the effect of adjustments in commercial policy, so just would like to double click here. Or if this is only related, to the mix shift, and I mean, on a Q-on-Q perspective as year-over-year, it's clear the effects of prices. And moreover, if I may, looking to the net take rates of your financial revenues, net of banking deposit effects, and financial expenses, it actually expanded a lot, also Q-on-Q, suggesting that you also used more of your own cash to fund the prepayment business. So I know that you talked a bit about that in one of the questions before, but just would like to confirm if that indeed happened, why did you decide to use it, and what should we expect going forward as well? Thank you. Mateus Scherer: So maybe starting from the last question. Indeed, our net take rates, when we look net of financial expenses increased a lot on a q-on-q. But I think it's less related to the decision of using more of our cash towards funding and more related to the fact that interest rates started to decline in Brazil in general, and we're not passing that through to clients. So, it's more about disciplining pricing and less about capital structure movements. Now, the second part to the question, we did not make any big changes in our pricing policy in the quarter. So, when you look at the take rate evolution quarter-on-quarter, it's mostly about mix shift, a little bit towards micro. And, also, this was slightly offset by debit mix, like Lia mentioned. But I think what's worth mentioning is that when we think about pricing, we price for our clients as a whole and not by revenue line or revenue stream. So from time to time, we can see some rebalance in terms of how much we monetize in each lever, be it financial income or transactional revenues, for example. So, I wouldn't read too much into those kinds of changes. I would track the take rates in general as a whole. Operator: Next question from Nicolas Riva from Bank of America. Nicolas Riva: Thanks very much for the chance to ask questions. So, you reported once again a net cash position to about R$3.7 billion in cash. You used some of the liquidity to repurchase R$300 million of your shares in November. You're also starting slowly to grow your credit or loan book. My question is why not use some of these liquidity to buy back some of your 2020 bonds at R$0.80? Thanks. Mateus Scherer: So great question. Indeed, in our view, when you look at our bonds, they are trading at levels that don't reflect the Company's credit worthiness, honestly. And therefore, buying back bonds is indeed a plausible option to allocate capital that we constantly evaluate. However, when you think about capital allocation, we think capital allocation is about choices. So, in our view, given the current environment and the current prices, buying back shares offers greater return to shareholders when compared to buying back the bonds. So, that's why we're focused on that option right now. Operator: There are no questions at this time. This concludes the question-and-answer session. I will now turn over to Pedro Zinner, CEO at StoneCo for final considerations. Pedro Zinner: Well, thank you very much to all of you for participating on the call. And I hope to see you all in our Investor Day meeting next Wednesday. Thank you very much.

Operator: Good evening, ladies and gentlemen, thank you for standing by. Welcome to the StoneCo Second Quarter 2023 Earnings Conference Call. By now, everyone should have access to our earnings release. The company also posted a presentation to go along with its call. All material can be found online at investors.stone.co. Throughout this conference call, the company will be presenting non-IFRS financial information, including adjusted net income and adjusted net cash. These are important financial measures for the company but are not financial measures as defined by IFRS. Reconciliations of the company's non-IFRS financial information to the IFRS financial information appear in today's press release. Finally, before we begin our formal remarks, I would like to remind everyone that today's discussion might include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the company's expectations. In addition, many of the risks regarding the business are disclosed in the company's Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov. Please note, this event is being recorded. I would now like to turn the conference over to your host, Pedro Zinner, Chief Executive Officer at StoneCo. Please proceed. Pedro Zinner: Thank you, operator, and good evening, everyone. Joining me today on the call is our Chief Financial Officer and Investor Relations Officer, Mateus Scherer; our Chief Strategy Officer, Lia Matos; and our Head of IR, Roberta Noronha. I will start today's call by giving you some of my thoughts on the second quarter, and then I will turn it over to the team to walk through our results in more detail. Overall, I was pleased with our performance in the second quarter. Externally, from a commercial perspective, we generated strong growth by continuing to win in the areas we want to prioritize. Internally, within the company, we made progress across a broad range of initiatives to make our services and operations better and more efficient. And financially, we produced results above our expectations as we continue to ramp our profitability and accumulated more cash firepower. As I evaluated the quarter, I also looked at how we performed relative to the priorities we outlined at the beginning of the year. Our first priority was to grow with efficiency. In the second quarter, I think we met our objectives by generating strong top line growth with a significant improvement in our profitability. Our total revenue reached R$3 billion, an increase of 28% year-over-year and exceeding our guidance by 3%. Coupled with the top line improvement, adjusted EBT surpassed guidance by 19%, reaching R$447 million, the highest mark for quarterly adjusted EBT in our history. As a result, adjusted net income grew 5.8x year-over-year, reaching R$322 million and yielding a net margin of 10.9% in the quarter. Our second priority was to generate cash. Adjusted net cash increased R$1.6 billion year-over-year and R$338 million quarter-over-quarter to reach R$4.3 billion. This increase was mostly driven by the consistent cash flow generation of the business while we continued to invest in client growth and product and technology development. Our third priority consisted on focusing the expansion of our Financial Services business. The Financial Services segment presented healthy TPV and client base growth and showed the improvements in monetization from clients. MSMB TPV increased 19% year-over-year to reach R$83.3 billion despite macroeconomic headwinds in the period from higher interest rates, higher industry delinquency and declining consumer credit card limits. Our growth in the quarter was 3.7x the industry growth. It's also important to highlight that during the quarter, we consistently grew our MSMB client base with 204,000 net adds. MSMB take rate increased 9 basis points sequentially to reach 2.48%. We have also expanded our banking solutions with the launch of debit cards, and we are now piloting credit cards for Stone clients. And we continue to test our credit product with early results very much in line with our expectations. Our fourth priority was to evolve our software business. After delivering a first quarter below expectations, we were able to improve our software results. Revenue for this segment reached R$383 million with a 17% adjusted EBITDA margin and a 620 basis point improvement on a quarter-over-quarter basis. I'm happy to see that while we're evolving the strategic fit of our software business, we are also capturing short-term efficiency gains. Last but not least, it's also worth highlighting that this quarter, we took another important step towards having all the right resources in place to build a fit-for-purpose organization. As announced in May, I would like to formally welcome Mateus Scherer as our CFO and IRO and Roberta Noronha as our Head of Investor Relations. I'm very excited to be working with Mateus and Roberta as we set the next stage of growth for the company. I would also like to thank [offline COO] for all the work they've done and to all the valuable contributions they made to Stone. I'm also pleased to announce that we're hosting our first StoneCo Day in New York this November. I am excited to share our views on the business and how we are building an end-to-end value proposition for Brazilian commerce in the future. As we approach the event, we will share further details with you. Now I'd like to pass it over to Lia for a discussion on the second quarter 2023 performance and strategic updates. Lia? Lia Machado de Matos: Thank you, Pedro, and good evening, everyone. I'm going to start with the highlights of our Financial Services segment on Page 6. In the second quarter of '23, revenue in the segment increased 32% year-over-year to R$2.6 billion, mainly attributed to the performance in our MSMB client segment. MSMB performance was mostly influenced by above-industry TPV growth, higher take rates and an increase in our client base. This, combined with operational leverage realized in our cost and expenses, resulted in adjusted EBT of R$398 million and a 15.6% EBT margin, representing a sequential improvement of 250 basis points. On Slide 7, let's review the MSMB performance in a little bit more detail. Our payments client base experienced robust growth, reaching approximately 3 million active merchants, an annual increase of 43.3%. Quarter-over-quarter, this represented net additions of 204,000 active clients. The sequential deceleration in net additions from the first quarter '23 was driven by the conclusion of targeted marketing campaign efforts within the period. Through strategic optimization of our Stone and TON offerings across our sales channels, we successfully sustained the expansion of our client base across all tiers within the MSMB segment. Moving to Slide 8. MSMB TPV increased to R$83.3 billion, a 19.3% year-over-year growth and a 3.7x above-industry growth. Despite being impacted by slower overall industry growth, we're very happy with this result, which was in line with our second quarter '23 guidance and illustrates our strong relative performance and the power of our value proposition and offerings. Looking ahead, we're confident that this relative performance will continue and that we will continue to gain market share in the segment. Our MSMB take rates also presented notable improvements on a quarterly and yearly basis. This quarter, take rate reached 2.48%, increasing 9 basis points quarter-over-quarter and 38 basis points year-over-year. The annual improvement can be attributed to continued adjustments in our commercial policy, stronger growth in our micro and small clients which have higher take rates, the effect of changes in debit and prepaid card interchange cap regulation, which went into effect as of April 2023, and contribution from our banking solutions, mainly floating and fixed revenues. On Slide 9, I give a quick update on key accounts TPV. TPV decreased 32.5% year-over-year, in line with our expectations due to our deemphasis of low-margin sub acquired volumes. As a result of adjustments in our commercial policy and mix shift within the segment, key account take rates increased 28 basis points year-over-year. Now let's move to the banking performance on Slide 10. Our banking active client base increased 3.2x year-over-year and 33.4% quarter-over-quarter to reach 1.7 million active merchants. This strong growth was a result of the launch of Super Conta TON in the first quarter of '23 and the continued activation of banking combined with our acquiring solution for Stone clients. Total deposits reached R$3.9 billion, slightly up quarter-over-quarter. This quarter, we had a onetime decrease in client deposits of R$286 million as a result of the shift in the chargeback and cancellation collection process for TON with no impact to our P&L. Excluding this onetime effect, our overall deposits would have increased 7.8% sequentially compared to 5.6% growth in our MSMB TPV, which illustrates the increasing engagement with our banking solutions. Due to the significant increase in banking clients driven primarily by growth in micro client accounts, which generate lower revenue contribution in comparison to SMB clients, ARPAC decreased to R$25 from R$37 in the first quarter of '23 and R$39 in the second quarter of '22. We strongly believe in the power of combining our banking and acquiring offerings to MSMB clients. As such, we're working hard to enhance existing features and develop and launch new banking products. As an example, this quarter, we launched debit cards and have already started piloting credit cards for Stone clients. We're also working to enhance client experience related to the different features that we offer as well as the integration of our banking to select TRPs within our software portfolio. On Slide 11, I'd like to provide a quick overview of our credit offering. Through the end of July, we had disbursed R$26 million to around 850 clients with an outstanding balance of R$23.5 million. The early performance of our vintages is in line with our enhanced credit underwriting standards with personal guarantees and lien on receivables being executed as expected. As we have discussed, we will take a conservative and disciplined approach towards the expansion of this solution, growing the portfolio depending on market conditions and taking the necessary time to observe full cohort performances. Now let's move to Slide 12 and shift to the highlights of our software business. In the second quarter of '23, software revenue increased 9.2% year-over-year to reach R$383 million. This growth was driven by continued organic active store expansion in our core POS and ERP business, mainly in the SMB segment. Top line grew 6.9% sequentially mostly due to an increase in setup revenues in our core segment related to the client base growth. Software adjusted EBITDA increased 25.1% year-over-year to reach R$66.5 million, which equates to a 17.4% margin and a sequential margin improvement of 620 basis points. The EBITDA margin expansion is a result of higher revenue in the period and operating leverage and cost and expenses, which included a reduction in share-based compensation expenses and lower levels of cost of services, mainly due to increased capitalization of R&D projects. These effects were partially offset by our continuous investments in our sales team and marketing as well as severance cost in the amount of R$6.5 million related to an adjustment made to our organizational structure. In the second quarter of '23, we reduced headcount associated with our ongoing integration efforts within StoneCo, which should drive additional benefits going forward. As Pedro mentioned, while we evolve on capturing short-term efficiency gains, we are advancing on the strategic fit of software within StoneCo. We have advanced on prioritizing two important verticals for driving Financial Services and software cross-sell while also testing different go-to-market initiatives. As we have mentioned, the process of building our end-to-end platform is a multiyear journey, but we believe we are taking the right steps to enhance and sustain our value proposition to our clients in the future. We expect to provide further details during our StoneCo Day in November. Now I want to pass it over to Mateus to discuss some of our key financial metrics. Mateus? Mateus Scherer Schwening: Thank you, Lia. I'm excited to take on this new role within Stone and look forward to working with the team in building the future of StoneCo together. Moving to Slide 13, let's discuss our costs and expenses on an adjusted basis. Cost of services reached R$685 million, increasing 9% year-on-year and decreasing 400 basis points as a percentage of revenue to reach 23.2%. Compared to the previous quarter, it decreased 5% and 340 basis points as a percentage of revenue. This sequential improvement can be explained by: lower technology expenses driven by R&D projects reassessments that led to higher capitalization and a R$21 million nonrecurring benefit in the quarter, and changing the allocation of variable compensation between our costs and expenses, which reduced allocation to cost of services. I would like to highlight that even if we excluded the unusual positive effect of R$21 million from our results, we would still have gained operating leverage in cost of services of 270 basis points compared to the previous quarter. Administrative expenses increased 2.5% sequentially, which resulted in a 60 basis points reduction as a percentage of revenue compared to the previous quarter. Important to highlight that administrative expenses for the second quarter of '23 are 9% below the levels of the first quarter of '22, mainly as a result of the efficiency initiatives associated with our zero-based budgeting process. Our expectation is that from this point onwards, administrative expenses should grow sequentially, broadly in line with inflation, leading to further operating leverage. Selling expenses grew 22.6% year-on-year and 5.6% sequentially, decreasing 50 basis points as a percentage of revenue on a quarter-on-quarter basis. This slight sequential improvement is due to lower marketing investments in the period. Financial expenses decreased 16.6% quarter-on-quarter and 240 basis points as a percentage of revenue to reach 35.9%. The increase was driven by three factors: growth in prepaid volumes, our conservative decision to hold a higher cash balance in the quarter, and a slight increase in the duration of receivables sold. Lastly, other expenses decreased 22.2% sequentially and 110 basis points as a percentage of revenue. The variation in other expenses can be mainly attributed to a positive net effect of R$19.6 million in our share-based compensation expenses, primarily due to lower tax provision. Moving to Slide 14, I would like to talk about our cash generation. Adjusted net cash increased by R$338 million this quarter to reach R$4.3 billion. The main driver for this was a strong cash flow from our operations as well as a sequential decrease in CapEx as in the first quarter '23, it was higher than usual due to a specific marketing campaign in the period that drove additional POS inventory. On a year-on-year basis, adjusted net cash increased by R$1.6 billion. Now moving to our third quarter '23 outlook on Page 16. We expect total revenue and income of growth R$3,075 million in the third quarter of '23, representing year-on-year growth above 22.6%. For MSMB TPV, we expect volumes between R$87 billion, and R$88 billion in the third quarter '23, compared with R$74.7 billion in the third quarter of 2022 representing year-on-year growth between 16.4% and 17.8%. Finally, we expect adjusted EBT of more than BRL470 million. Before I jump into our Q&A, I would like to highlight that this is the last quarter, we are providing quarterly guidance as we begin to provide a longer-term outlook of our results during StoneCo Day in November. With that said, operator, can you please open the call up to questions? Operator: [Operator Instructions] The first question is from Sheriq Sumar with Evercore ISI. Please go ahead. Sheriq Sumar: Hi. Thanks a lot for taking my questions. My question is on the competitive dynamics within Brazil on the payment side. Are you seeing any increasing traction or increased competition mainly coming in from like the U.S. or any other countries outside Brazil? And within Brazil as well as to how is, the competitive landscape right now, and where is the biggest market share gains that you are seen so far? Thank you. Lia Machado de Matos: Hi, Sheriq, Lia here. And thank you for the question. I think regarding competitive dynamics, no big news, the dynamics that we saw this quarter is very similar to what we had seen in the past quarters. So if we look at the market share evolution and this [technical difficulty] as a group, they continue to lose share at a slower pace, but they do. When we look at the volumes, it suggests that they have been shifting market share amongst each other at the top of the pyramid, more towards larger clients. And what we have seen is very granular in local dynamics that we're able to react given that we have a very specific view of the market dynamic in each region, and can react through our hub operations and all of the data that we can capture locally. So, no really big news, same trends that we're seeing. And as you have seen, we have been able to continue to gain share in the MSMB segment this quarter. And we strongly believe that that's a dynamic that's going to continue going forward. Sheriq Sumar: Thank you so much. My one follow-up is on the software EBITDA margins. I mean it looks like it keeps fluctuating around, but any color on, where do you think that this could stabilize? I mean how much more runway do you have to increase the margins and what do you think could be the long-term sustainable margin for this segment? Mateus Scherer Schwening: Hi, Sheriq, Mateus here. So first, talking about the EBITDA for the software division on the quarter, we had an improvement in top-line of 7% in the quarter, fueled by setup revenues from new sales while we maintain costs and expenses under control. So when we look about the effect on costs and expenses, this was mostly a result of firstly, is slightly higher capitalization of R&D expenses in the quarter. But also most of this was offset by severance costs associated with a reduction in headcount, which was driven by the integration process of some of the [cost functions] within StoneCo. So this reduction in headcount had a one-time negative impact in our EBITDA of R$6.5 million, but this should drive savings of around R$10 million per quarter going forward. So our expectation for the next quarter is that topline should continue to grow, while we have cost discipline associated with the savings. So, we're optimistic about margins in software, going up. Sheriq Sumar: Thank you so much. Appreciate it. Operator: The next question is from Juan Recalde with Scotiabank. Please go ahead. Juan Recalde: Hi, congratulations on the strong results. And thank you for taking my question. My question is related to the improving operational leverage on the cost of services. So when I see, this is like sequential improvement of 340 basis points. And you mentioned that part of this is driven by the reassessment of the R&D projects that led to higher capitalization. So my question is how much of this improvement of 340 basis points was driven by - this change in the R&D? Mateus Scherer Schwening: Hi Juan, Mateus here. So you're right, we had two effects related to capitalization of intangible assets in the quarter that impacted cost to services. So firstly, we standardized the software segment's capitalization process to mirror the practice within our financial services units. And secondly, we also reviewed all the ongoing projects in our tech team, and identify the few more projects related to new features that were not being capitalized previously. So as we highlighted in the earnings release, these adjustments resulted in a one-time positive effect of R$21 million on our quarterly cost of services. But even if we excluded this unusual positive effect from our results, we would still have gained operating leverage and cost of services of around 270 basis points compared to the previous quarter. So when we look ahead, we anticipate that operational leverage gains in the corporation in this line, may be balanced out by provisions as we begin to expand our credit offering. But in the core itself, we should continue to have operating leverage in cost to services. Juan Recalde: That's helpful. And one follow-up if I may. When I look at the third quarter guidance, I think that it is implied that - there is going to be a small improvement in the adjusted EBITDA margin. So if we - if the margins end up being better than expected, what do you think that can be the drivers there of? What can be the positive surprises that we can have in terms of margins in the third quarter? Mateus Scherer Schwening: Yes. So, I think the margin dynamics should be similar to the previous quarters. So, we continued to have a big focus in terms of efficiency, and driving savings in the whole company with a focus on a zero-based budgeting process, and implementation of our shared services center. And on the other hand, we also expect to keep growing our TPV MSMB. So when you combine these two effects, I think if we have any outperformance in terms of top-line, this should flow to the bottom line as well. Juan Recalde: Understood. That's helpful. Thank you very much. Operator: The next question is from Tito Labarta with Goldman Sachs. Please go ahead. Tito Labarta: Hi, good evening. Thanks for the call and taking my questions. Actually, one question on the regulatory front there is a lot of noise about the elimination of revolving credit cards, and some talks about reducing interest-free installments. Just curious, any thoughts from your end, I know that there is no final decision on that, but just what you heard, any color you can provide on - what happened, what could happen, [reducing] interest installments impact on the business here? Thank you. Pedro Zinner: Hi, Tito, Pedro here. Thank you for the questions. I think - you gave the flavor in some ways. I think it's a bit too early to tell. I think we're closely following the debate. And as you are aware, we would support all changes that would cause the competition and benefit merchants and consumers as we have always done, right? I think a regulatory change that takes away from merchants, the possibility of offering installment transactions would definitely significantly impact private consumption, and consequently the overall economy. I think, how would, this impact us. I think it's a bit premature to comment on specific P&L impacts, given that there is nothing concrete being discussed, what we can say is that any modification in the interest rate free installment structure would significantly affect the industry. But so potential outcomes might involve a decrease in overall private consumption since the majority of the credit transactions in Brazil are done through these installments, and a possible repricing to balance industry economics is foreseeable in some ways. Tito Labarta: Okay, great. Thanks for the color. Pedro, it's helpful. And just second question, just with interest rates coming down, I mean, you still have some leverage there as your financial expenses come down. But just reminds us the benefit or impact from 100 bps reduction in rate. And I know the plan isn't just to reduce any pricing on the prepayments, but just given the competitive environment, any potential risk there on the take rate as rates come down as well? Thank you. Mateus Scherer Schwening: Yes, so Mateus here. So first part of the question related to the impact of 100 basis cut to our P&L. All else being equal, 100 basis points cut should positively impact our results by around R$200 million. Important to remind that this is the net effect of the impact on our funding costs but also on the floating revenue and other financial income. Now talking about price, [technical difficulty] react. We told a few times in the past but pricing in our view is a dynamic process. We will continue to manage our pricing in the way that we have been doing in the previous quarters, which is pursuing target returns for new sales, having minimal contribution margin hurdles in our client base. We also believe that the acquiring industry continues to behave rationally as it has been the case for the previous 18 months. We noticed that all players had to deal with an abrupt change in interest rates and had to adjust their offerings to a new reality. So nowadays, we don't see any [technical difficulty] by market share with nonprofitable offers, including ourselves. So given that said, the effective impact of the cut will depend on the market's overall response but we don't anticipate any initiative to pass through the benefits of declining rates in the short term from our side. Nonetheless, we'll continue to actively monitor the market dynamics and adjust our pricing as necessary as long as it meets our internal hurdles. Tito Labarta: Great. Thanks Mateus for that. And maybe just one follow-up on that, if I can. Just in the quarter, we did see a bigger increase in the financial expenses compared to the financial income. So just to understand a little bit there why the spike in the financial expenses this quarter is relatively stable. Mateus Scherer Schwening: Yes, sure. So we mentioned this previously already as well, but there are [technical difficulty] expenses due to changes in our funding mix between debt and sale of receivables even without relevant changes in our funding spreads. So with that said, the increase in this quarter can be mainly explained by three factors: first factor is the growth in MSMB TPV; second factor is also the conservative decision to hold a slightly higher cash balance in the quarter; and also, we had a slight increase in the duration of receivables sold in the quarter. Over the medium term, we already said a few times that these expenses are primarily influenced by TPV curve. So this is more an effect of the quarter and not a general trends going forward. Tito Labarta: Great. Perfect. Thank you, Mateus. Operator: The next question is from Gabriel Gusan with Citibank. Please go ahead. Mr. Gusan, is your line mute perhaps? Gabriel Gusan: Yes, sorry for that. Good evening, guys. Could you elaborate a bit on the TPV slowdown you're seeing for the entire market? And how do you feel this could affect, especially for your MSMB TPV, could we see also a slowdown even if you continue to gain share, but do you see a slowdown overall TPV growth there? Thank you. Lia Machado de Matos: Thank you, Gabriel. Lia here. Thank you for the question. So I think regarding TPV trends and focusing on the MSMB TPV dynamics, even though we reached our guidance and we presented healthy growth, TPV was indeed a little bit softer than our initial forecast in the beginning of the quarter. Especially in May, we noticed the deceleration in same-store sales of our clients, which is consistent with the lower growth for the overall market as reported by ABAC. We saw that ABAC reviewed the range of TPV growth, of the market growth in the year, so we think that, that's in line with the behavior that we saw within the base. But still on a relative basis, we grew almost 4x more than the industry on average. Despite like Mateus said, keeping our pricing discipline unchanged. So we're pretty happy with the TPV performance that we saw. And our July data shows early signs of improvement compared [technical difficulty] which really makes us comfortable with the guidance that we have provided and continuing to grow above industry and gain share within the segment. I think another important thing to mention, Gabriel, is that looking at dynamics regarding PIX, we have seen a very strong growth of PIX P2M within the base. If we look at overall trends in PIX growth within our base, it's similar to what has happened in the market, so there was a very strong initial growth of PIX P2P, but more recently, growth has been mainly driven by PIX P2M. Just reminding everyone that PIX P2M is a payment method which we enable our clients to accept through a dynamic QR code in the POS, and we monetize that very much in line with debit card net MDRs. And when we looked at PIX P2M volumes in the quarter, they grew above 240% year-over-year. And if we were to look at a consolidated growth considering credit cards -- card TPV, sorry, card TPV plus PIX P2M, we would see a yearly growth of 23%. So we think that there is not, per se, a cannibalization of PIX within the base when we think about debit volumes but PIX definitely seems to be taking away from the growth of debit volumes. So this is a trend that we think is important to highlight. And that for us, it really -- it benefits us because we monetize it very much in line with debit cards. And it naturally benefits clients because for them, it's cheaper and settlement is instantaneous. So yes, I think that's what we can say regarding overall TPV trends. Gabriel Gusan: Perfect. Thanks a lot. Operator: The next question is from Antonio Ruette from Bank of America. Please go ahead. Antonio Ruette: Hi team. Congrats on the results, and thank you for your time. So two questions on my side. So first on expenses, I was just wondering if you could explain a little bit more the major drivers for the increase in the capitalization of expenses, and if we should continue to see this trend going forward in terms of CapEx. And also, a broader question on strategy. If you could elaborate a little bit on execution. And if you look at today's challenges, you have a very competitive acquiring business, challenges to integrate Linx and also your banking product. I'm just wondering when looking at all this, what do you consider to be your main execution challenges today? Thank you. Mateus Scherer Schwening: Yes. So I'll start with the capitalization question and CapEx and then pass it over to Lia to comment on the integration. So regarding the capitalization, so we basically had two primary factors influencing these movements: firstly, we standardized the software segment's capitalization process to equalize those within our Financial Services unit; and secondly, we reviewed all the ongoing projects in our tech team and identified a few more projects related to new features that were not being capitalized previously. This resulted in a onetime positive effect of R$21 million in the quarterly cost of services, which should not repeat these dynamics in the future. Now talking about CapEx, it's also important to highlight that as we indicated previously, our CapEx decreased sequentially from R$460 million in the first quarter -- in the previous quarter to R$332 million in this quarter. And we expect a slightly lower CapEx for the coming quarters. So it's not a general trend. Pedro Zinner: Pedro speaking here. Let me jump in. I think on the strategy side, I think throughout the rest of the year, we want to put a strong focus of the team in the integration, cost discipline, incentives alignment and streamlining our software portfolio. I think this would be the key drivers for the short term. However, at the same time, we have several priorities in place regarding top line growth so we're attacking both sides of our P&L in some ways. The improvements we have to make in the software business, in reality, they are not a short-term challenge. It will take time, though I'm really confident that the rewards are worth it. In the long term, our goal is really to build a unified commerce solution for our clients, and our software business is really an integral part of our strategic vision. We believe that we have a lot of work actually ahead of us, but we're really excited on the path to become the only end-to-end integrated software and financial services provider for Brazilian merchants. I think we'll be providing more flavor on this on the Investor Day by mid-November, how we set our long-term KPIs and our strategic view up until 2030. But I'll pass it over to Lia so that she can provide you maybe with more color on our key initiatives. Lia Machado de Matos: Sure, Pedro. Thank you. So just to elaborate a little bit more on those challenges, Antonio. I think on the banking side, we are very happy with the evolution that we have seen. So we have seen increased engagement of our clients with our banking solution. Of course, we see as a big value the fact that we combine our offering to clients. In acquiring and banking, acquiring provides a powerful cash-in, which then can drive further engagement as we offer more features for our clients to solve their main business pain points. We have a lot of work to do on the banking side, so a lot of work being put into providing more and more features that address our clients' needs. And I think like Pedro said, on the software side, this is really a multiyear journey. But we have, I think, started to take some very important steps this year regarding having the right setup in terms of organization, of having the right incentives, of really prioritizing what we feel are the most important initial steps that we have to take. So just to give a little bit of color on that, we have prioritized what we see as the key verticals for us to address as opportunities for cross-selling financial services to software clients. And the initiatives that we're undertaking regarding those verticals are initiatives around product bundles, product integration, go-to-market initiatives. When we look at the cross-sell today, about 17% of our software clients use our financial services. That's up from about 15% at the beginning of the year. It's very early stages but we started to see some initial traction, and we're very confident with the direction that we're taking. So just to give a little bit more color on those evolution points. Antonio Ruette: That's great. Thank you, Lia and Pedro. Operator: The next question is from Josh Siegler with Cantor Fitzgerald. Please go ahead. Josh Siegler: Hi guys, thanks for taking my question and congratulations on the execution this quarter. I wanted to dive a little bit deeper into what you guys were just talking about, which is on the software side. So there was some noticeable improvement in the software revenue this quarter. Can you help us understand how you achieved such a strong improvement in the number of active locations and how you got that cross-selling flywheel to really start spinning between financial services and software. Lia Machado de Matos: Yes. Thank you for the question, Josh. So we're really putting -- focusing the investments in growth within our software business around our less mature channels, so namely, franchises inbound and inbound. Those channels, they really address kind of the middle of the pyramid in terms of client segments, right? So remember that Linx has a strong presence in the enterprise segment and is growing more and more in the middle of the pyramid, what we call mid- to large clients. So that's really what drove the growth in locations. And that's an area where we will continue to invest going forward because it is very strategic for us when you think about the opportunity to combine software and financial services to offer a more -- a stronger value proposition to our clients. So I think regarding the cross-sell, not much more to say than what I have already said. I think we've -- we're organizing a lot more around that front this year and really having kind of a financial services team and software team aligned on the objective to achieve this cross-sell and making sure that we have initiatives around product, around offering, around go-to-market in a very structured way. There's a lot of opportunities. There are several verticals for us to address within Linx. So we really started focusing on the ones where we see there's the largest opportunity within our software client base today and within the market overall, right? So we want a big verticals that have a large TAM for us to address in the market and that have a relevant client base and software for us to tackle. So this is pretty much where we're focused on. And yes, that's the color that we can provide right now. We'll be able to give more color on this, like Pedro said, at Stone Day in November. Josh Siegler: Great. Thank you, Lia. And looking forward to that additional color. I also want to ask about the rollout of the new credit card product. What's the timing on actually getting that fully to market? And do you believe the mix of credit cards will have a significant impact on your banking segment moving forward? Lia Machado de Matos: Yes. So like we said, we are piloting the credit card products, and we hope to be able to scale towards the end of this year. Yes, not much more to say at this point. I don't know, Pedro, if you want to add a little bit more color. Pedro Zinner: Yes. I think you might remember that in the last call, we actually highlighted that we're taking a conservative approach in some ways, a conservative and disciplined approach toward the expansion of our credit book, taking the necessary time to observe the full cohort performing and also being mindful that the current macroeconomic environment conditions were not the best ones to quickly expand the credit book, right? So we're keeping the conservative approach in some ways, but you see a bit more scale-up over the next semester. And I think regarding our portfolio performance, I think it's premature to draw definitive conclusions. I think initial results are a bit better than expected by our models, and I think that's pretty much that we have to say at this point. Josh Siegler: Great, thank you very much for the color, guys, I appreciate it. Operator: The next question is from Neha Agarwala with HSBC. Please go ahead. Neha Agarwala: Hi, thank you for taking my question. My first question is on the MSMB segment. You seem to continue to gain market share in that particular segment. Is that right? And what's allowing you to gain market share, especially in the SMB segment, which is -- which has always been so competitive, but currently, all players are very keenly focusing on that segment. And is there any particular player from whom you are gaining market share? My second question is on the long tail. There was a decline in the active clients. I presume it's due to the long-tail segment. If you could elaborate on that. And we also hear that you probably are a bit more price aggressive in the long-tail segment. Is that right? And how do you expect to continue gaining share in the long tail? Neha Agarwala: Thank you so much. Lia Machado de Matos: Neha, I think there were -- Lia here. Thank you for the question. I think there were a few questions within your question, so let me start answering and then let me know if there's -- if I covered it all, okay? So I think regarding market share gains in the MSMB segment, just going back to fundamentals here, we created a model centered around providing the best service and really owning the touch points with our clients from distribution to service and logistics. Regarding distribution, we continue to see white spaces where we have room to grow across Brazil in our hubs and also to further allocate capital in marketing to grow in the micro segment. So I think that's an important point to highlight that we continue to invest in growth both in SMB and micro segments. A second important point is that over the past years, we have invested in expanding our product offering to clients. That's another layer that really strengthens our value proposition, and we did this while we continued to expand distribution footprint, and at the same time, sustain the best customer service in the market. And I think a third important factor, which is part of your question, is our ability to optimize Stone and TON offerings across our multiple channels, gave us an assertiveness and allowed us to optimize unit economics for different client tiers and maximize our ability to gain share in both micro and SMB segments with attractive economics. So I think that, that's an important point, right? We've said this many times, but it's very important for us to balance this growth with profitability. In the end, it's the combination of these factors that I mentioned that creates a strong value proposition and sustains our ability to continue to win clients every day across the spectrum of client profiles with attractive economics. So I think that's our take on market share evolution, Neha. Neha Agarwala: Perfect. And in terms of the decline in the active clients? Lia Machado de Matos: Yes, sure. So that's because in the first quarter, we had a big marketing campaign around Big Brother Brazil, a reality show in Brazil that had -- it's almost like you had a stronger impact in net adds in the first quarter due to these targeted marketing campaigns that subsided within the first quarter. So that's the reason why we saw this evolution. Any color Mateus, you want to add? Mateus Scherer Schwening: I want to complement, the active client base itself is still growing. So we grew from 2.7 million in the first quarter '23 up to roughly 3 million active clients in the second quarter. What decelerated was the net addition of clients and like Lia said, this was related to the marketing campaign that we ran in the first quarter. Neha Agarwala: Okay, perfect. That's great, thank you so much, and congratulations on the quarter. Lia Machado de Matos: Thank you, Neha. Operator: The next question is from John Coffey with Barclays. Please go ahead. John Coffey: Hi, thank you very much for taking my question. The question I have is a bit of a follow-up on Neha's question, and it was regarding the MSMB TPV growth of 19%. I was wondering if you could just maybe paint that growth in some broad strokes. When we think about this, is a lot of this coming from -- is any of this coming from green space? Is it taking away market share from more like some of the incumbents like the acquirers have been in Brazil for some time? Or maybe some of the newer fintechs? Just trying to get an idea of where this is coming from, again, especially as you said that it almost quadrupled the overall market growth. And then just my last follow-up is, it looks like on a sequential basis, key accounts, their TPV was only down about 3%. Are we nearing the bottom here where we can start to see some growth in known account -- or sorry, key accounts TPV? That's it. Lia Machado de Matos: John, Lia again here. So I think -- sorry, the first part of your question was around TPV dynamics, right? John Coffey: Yes, for MSMBs and where that's coming from, greenfields, old incumbents, fellow fintechs? Lia Machado de Matos: Yes, it's really a mix. So first message is we've always taken market share from competitors, right, since day one of our existence. So that's always a very strong dynamics that drive our TPV growth. TPV growth also is impacted by same-store sales growth within the base. But as long as we can continue to win new clients and sustain those relationships over a healthy lifetime, that will allow us to continue to gain market share. I think I just explained on Neha's question the reasons behind this continuous market share gain, but it's really a combination of same-store sales growth, new client wins. And I don't see that the competitive dynamics in terms of players has really changed much recently. I don't think that there's any difference in terms of who are the main competitors. It varies by region, it varies by client segment, but there hasn't been really significant changes recently. John Coffey: Okay. Thank you. And is the pain over for key accounts as far as quarter-over-quarter declines in TPV? Lia Machado de Matos: I think we can expect to see these TPV dynamics stable from now on. Like we said, this is an opportunistic segment for us. So yes, not much to say there. I think we can expect stable TPV behavior. John Coffey: Perfect. Thank you very much. Lia Machado de Matos: Thank you, John. Operator: The next question is from Guilherme Grespan with JPMorgan. Please go ahead. Guilherme Grespan: Hello, thank you, everyone, for the call. Two questions on my side. The first one is related to the long tail. You talked a little bit about the competition on SMB that seems still healthy. We did saw some marketing campaigns on the long tail a little bit more aggressive this quarter. There was also some news flow on one specific player focusing on the segment. I think they are targeting to grow in the segment going forward. So just separating here the SMB from the long tail, if you still see the same economics, how has been the competitive dynamics? And the second one is just to cross-check. You mentioned the chargeback impact on the banking deposits. If you can just clarify a little bit what is this impact. Wasn't 100% clear to us. Thank you. Lia Machado de Matos: Okay. Guilherme, thank you. I'm going to take the first part of the question and then pass it over to Mateus. So regarding micro segment, I think one key point to highlight here is our ability to really optimize strategically our TON and Stone offering to maximize market share gains with attractive economics within the MSMB client segment. Regarding -- our target within the micro segment is really about how we structure offerings in a way that we attract the healthy economic clients within the micro segment. So our clients' profile within micro is a client profile of higher average TPV. And we do, like we said many times before, return hurdles for all client segments and products. So we're able through the offerings to really optimize the clients that we bring. So dynamics that we can say regarding micro segments. Maybe Mateus can take the second part of the question on banking. Mateus Scherer Schwening: Yes, for sure. So like you mentioned, we indeed had a one-off in the quarter with a negative impact of R$286 million in deposits but without any P&L impact. And this impact was associated with a shift in our chargeback and cancellation collection process. Just to give you a little bit of more color, whenever we receive the chargeback or cancellation associated with a TON merchant, we use it to block the same amount from the merchant's outstanding deposits to guarantee the collection. In the process of migration from TON's old merchant accounts to Super Conta TON, we settled this amount instead of only reserving them, which had a onetime negative impact on deposits but no P&L impact whatsoever. Also important to highlight that adjusted -- our deposit base would have seen a 7.8% sequential growth, which outpaces the 5.6% growth in MSMB TPV, which we think illustrates the continued increase in client engagement that we are seeing within our banking products. Guilherme Grespan: Super clear. Just one follow-up, if I may, on the banking side. I was also looking at the presentation. You mentioned that the performance of the early vintages has been in line with the credit underwriting standards. Can you share to us what is the expected credit loss in this product that you were working with at maturity, not necessarily now but like on a sustainable basis? What do you believe is the loss ratio for this type of working capital loan? Mateus Scherer Schwening: Yes, for sure. So it's still too early to talk about definitive conclusions regarding the portfolio performance. But what we can share is that currently, our model predicts an expected loss slightly below 10%. We are conservatively provisioning nearly 20% due to the limited track records of our models and also prevailing market benchmarks. But the performance itself of the cohorts has been better than what the model forecasts. Again, it's too early to draw any big conclusions on this, but as the portfolio grows over time, we will improve the disclosure on our credit performance so you can also track the progress. Guilherme Grespan: Perfect. Thank you. Operator: The next question is from Kaio Prato with Banco UBS. Please go ahead. Kaio Prato: Hello, everyone. Good evening. Thanks for the opportunity. I have a question related to the competitive dynamics on the commercial teams in the industry today. So while we saw you and other players talking about the still rational behavior in terms of price, we have been seeing some players talking about an increase in sales force. So in this front, I would like to get your sense about the view on the industry sales force, if you are indeed seeing higher competition in that front or not, if that concerns, and what do you think about your current sales force today if we could expect any expansion? Or actually the opposite, given your head count is way higher than some peers. So just a few thoughts here would be good. Thank you. Lia Machado de Matos: Yes. Kaio, Lia again. So I think on the dynamics regarding what perhaps competitors have been saying regarding hiring sales people, we like to highlight this in our calls to remind our investors that it's not only about distribution, right? Our model is not only about putting salespeople on the street. It's about the combination of several factors. It's about our agents that actually have a role not only in the sales process but also in the lifecycle process of our clients. The fact that we have this combined with last mile logistics, customer service and that we have an operation, which is really integrated through technology, that technology enables us to gain efficiency and provide intelligence to the way that we serve clients. We think that the results of this is really the level of satisfaction that our clients have with us, both in Stone and TON products. And as much as we see these efforts to kind of copy the distribution aspect of the model, the model is about more than that. Now regarding the opportunities that we see, the fact that we have this technology that supports our operation gives us a very granular level of data that enables us to identify at a very local level where the white spaces are. So we can take a route, a city, a hub and see exactly what the competitive -- vision of whether or not we allocate more sales teams to that specific hub, to that specific city. So when we look at it from that broad perspective, thinking about the vast geography of Brazil, we still see a lot of white spaces where we can grow. So I think that's the message regarding sales headcount and dynamics going forward. Kaio Prato: Okay. Thank you very much. And if I may, just a quick follow-up on the key accounts TPV. We saw it contracting more than 30% this quarter, so just would like to understand how much of your TPV on key accounts is still related to the sub-acquiring business. And on the Platform Services, what is the perspective going forward if this is a focus of the company or not? and if competition has been increasing here? Thank you. Lia Machado de Matos: Yes, Kaio. I mean, like I said, no big news there. I think we expect a more stable TPV dynamics. We can provide more on the sidelines but we don't expect different -- very different dynamics going forward. More and more volumes have contributions from Platform Services as opposed to sub-acquirers, but not much more to say here. Kaio Prato: Okay, Lia. Thank you very much. Operator: The next question is from William Barranjard with Itaú BBA. Please go ahead. William Barranjard: Good night, everyone. Thanks for the question. So I would like to pick your brains here on the new cohorts of clients. So I would like to understand how these new cohorts, they compare to your current pace in terms of take rates, especially in the MSMB segment. So I guess in other words, how much smaller is the average volume of those new clients versus the current pace? And if it's fair to assume that only by maintaining the current mix of added clients, we should see an improvement in take rates ahead. Lia Machado de Matos: Thank you for your question, William. I'm going to take the first part and then maybe pass it over to Mateus to talk a little bit about the pricing side. But I think on the first part -- sorry, what was the first part of your question again? Can you repeat? William Barranjard: Yes, sure. Just... Lia Machado de Matos: Sorry, average TPV, yes. So I think trends that we can expect going forward, there's more and more we're focusing our hub operation on larger SMBs. So more and more, we're onboarding average TPVs that are larger than the average TPV of the base within SMB clients. Of course, when you look at average TPV in the MSMB on a consolidated basis, there is a big mix shift effect that comes from micro versus SMB. But I think important to say is regarding our strategic evolution within our SMB strategies that we're more and more focusing on the larger SMBs within the segment. So that's not going to show up in the overall average TPV number, but that's a trend that we are seeing when we look within the hub strategy and the SMB client segment itself. Mateus Scherer Schwening: Yes. And just complementing regarding take rates, since the micro segment is still growing faster than the SMB segment, we do have some effect in terms of mix in the take rate. If we look at the evolution of take rates between the previous quarter and this one, this mix shift accounted for 4 bps in the increasing take rates. William Barranjard: Okay. That's very clear. Thank you. Operator: The next question is from Jamie Friedman with Susquehanna. Please go ahead. Jamie Friedman: Hi. Thank you. And let me compliment you on the investor presentation. I like the new format. I wanted to ask first about the software and I realize others are as well. And Lia, I understand you're saying that it's a multiyear journey, but the deal was announced August 11, 2020, so this is multiple years. So I was hoping either you or Pedro, could share your perspective on what has gone less than right or what's gone wrong? 9% growth is okay, but I don't think that, that was what you aspire to at the time of the Linx merger. And right now, it's actually dilutive to growth. So, I think I understand what you're going to try and do going forward, because you said it. I'm just curious what's gone wrong. Pedro Zinner: Hi. Jamie, it's Pedro speaking. Thank you for the question. Well, to be honest, I think that was a decision made by the company in the past. I think you are right in some ways. I think the acquisition actually happened two years ago. But when you look back, I think a lot had happened within the company over the past two years, right? I think there was the whole credit situation in some ways. Interest rates went all the way up, and I believe that the company was not that well-prepared to deal with these new interest rate dynamics and pass-through on prices. So, the decision at that point in time was really to focus on putting the company on track into the Financial Services business. In my view, it was the right one. I think Linx was our stand-alone business, was running by itself, and the decision was to leave the decision to integrate for a later point in time. And I think this is exactly what we're doing as of today, right? And I think there the part of the question is also focus, right? I think you cannot do everything at the same time. And when you look back even a couple of months ago, I think the company had over 100 initiatives being run at the same time. We downplayed this to 20 or 21, which is still a big number. But we're more in terms providing focus within the company. So that we set the stage and the plan to do what we want. Lia gave you some flavor in terms of the verticals we are prioritizing. Again, a good example of focus. And I think we're moving to the right direction and how we set the stage for the long-term. I really would invite you to wait up until the Investor Day presentation, because we're going to provide a full picture on that. Jamie Friedman: Okay, that's a good answer. Thank you, Pedro. And then Mateus, if I could just ask, what level of provisions is contemplated in the operating margin of 15.3% at the midpoint of the Q3 guidance? Mateus Scherer Schwening: The same level that we are provisioning nowadays, which is 20%. Jamie Friedman: Okay. And did you say what the originations would be? Mateus Scherer Schwening: No, no. We are not disclosing the outstanding portfolio for the next quarter. Jamie Friedman: Okay. Thank you. Thank you all. Operator: The next question is from Soomit Datta with New Street Research. Please go ahead. Soomit Datta: Yes. Hi there. Thanks. Fair enough. Just a quick one, please. I just wanted to go back to the - briefly to the discussion on debit volumes and PIX P2M. And first of all, can I just double check, I think you gave an indication as to what the contribution of those volumes is for Stone you don't include in your TPV, but it would be great to get that number. And then just a sense check following kind of idea really, because if P2M in the industry is being monetized in line with debit. The current narrative around soft card volumes in the sector is pretty misleading, isn't it, for the acquirers, because when we look at the BCP data on PIX P2M and we look at [ABAC] and put them together, actually, those volumes in entirety are growing at a healthier level around 20%. So I just wanted to see if I was on the right track with that. And then finally, again, if P2M continues to be relevant, isn't this super supportive for gross margins going forward and maybe already supportive for current gross margins? Thanks very much. Lia Machado de Matos: Hi. So I think, I've given the overall numbers regarding PIX P2M evolution. So, if you consider overall TPV including PIX, the 19% growth would increase to 23% - slightly over 23% growth, and that's because of much stronger growth of PIX P2M volumes. That trend that we have seen within the base is similar to the trend we've seen in the market. Some players do disclose TPV including PIX. We have not made the decision to disclose TPV including PIX, but it is a trend going forward that is here to stay. We saw a very quick early adoption of PIX P2P, and then now more recently, we've seen more adoption of PIX P2M. So, I think that's a point that we will - see going forward. And yes, it is a solution that is a payment method that many consumers decide to use and that many merchants may want to incentivize, because of the settlement characteristics, and the economics associated with accepting these transactions. But naturally, there's a usability around PIX that is still, I would say, not at the level of cards, right? So this is an evolution. We still have to see how this is going to play out, but more and more, we were going to - we are going to give color on this. Soomit Datta: And just to double check, it is currently - if it's being priced at the same level as debit, it's a much higher gross profit business at the moment, right? Lia Machado de Matos: Yes. Go ahead, Mateus. Mateus Scherer Schwening: When we see price similar to the EBIT, we mean on the net MDRs of the EBIT. So it contributes to take rates, but it's not that accretive to gross margins. Lia Machado de Matos: Yes similar. Soomit Datta: Okay. Correct. Thanks. Operator: And our final question today is from Nicolas Riva with Bank of America. Please go ahead. Nicolas Riva: Thanks for the chance to ask questions. I wanted to ask on your debt. I see that the balance outstanding of the FIDC continue to decline in the quarter to R$318 million. So I wanted to ask about your ability to access the FIDC, and in general, the local debt market in Brazil? And then second, one thing that Tito Labarta asked about was your funding cost, your financial expenses, which increased 16% in the quarter to R$1.1 billion despite total debt not increasing in the quarter. And you mentioned some changes in your fund mix driving this increase in financial expenses. I wonder if you could talk, a bit about now that the Central Bank in Brazil has started to cut reference rates, and more is expected in this regard. How we should think about funding costs and in general, the overall profitability of the prepayment business going forward? Thanks. Mateus Scherer Schwening: Yes. So Mateus here. Thanks for the questions. So talking about the mix of debt versus sale of receivable, I think we mentioned when we talked about financial expenses - that one of the reasons why financial expenses increased more than MSMB TPV was, because we did more sale of receivables compared to debt in the quarter. And that's one of the reasons why when you look at our balance sheet, you see total debt decreasing but financial expenses increasing. This decision was made mostly, because it was the better economic decision, so because the spreads for sale of receivables were better in this quarter. But this is not an overall trend or a long-term trend. Like we mentioned in the past, when we look at longer-term trends for financial expenses, we think that this line should trend with the yield curves in Brazil, and also with the growth in TPV. So as the yield curve in Brazil is decreasing, we expect financial expenses to have some positive effect from that in the future. Nicolas Riva: Okay. Thanks Mateus. Operator: Thank you. This concludes our question-and-answer session. I will now turn the call over to Pedro Zinner for final considerations. Pedro Zinner: Thank you, all. And thank you all for participating on the call, and I hope to see you again in the next quarter. Thank you. Have a good night. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Good evening, ladies and gentlemen, thank you for standing by. Welcome to the StoneCo First Quarter 2023 Earnings Conference Call. By now, everyone should have access to our earnings release. The company also posted a presentation to go along with its call. All material can be found at www.stone.com.br on the Investor Relations section. Throughout this conference call, the company will be presenting non-IFRS financial information, including adjusted net income and adjusted net cash. These are important financial measures for the company but are not financial measures as defined by IFRS. Reconciliations of the company's non IFRS financial information to the IFRS financial information appear in today's press release. Finally, before we begin our formal remarks, I would like to remind everyone that today's discussion might include forward-looking statements. These forward-looking statements are not guarantees of future performance and therefore you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the company's expectations. In addition, many of the risks regarding the business are disclosed in the company's Form 20-F filed with the Securities and Exchange Commission which is available at www.sec.gov. I would now like to turn the conference over to your host, Rafael Martins, VP of Finance and Investor Relations Officer at StoneCo. Please proceed. Rafael Martins: Thank you, operator, and good evening, everyone. Joining us today on the call, we have our CEO, Pedro Zinner; and our Chief Strategy Officer, Lia Matos. Today, we will present our first quarter 2023 results, discuss some recent trends and provide an updated outlook for our business. I will now pass it over to Pedro so he can share some highlights of our performance. Pedro? Pedro Zinner: Thank you, Rafael, and good evening, everyone. First, I'd like to say that I'm honored and excited to join the Stone team. And I would like to thank Thiago for all that he has done for the company and to ease my transition into the CEO role. I'm confident that Thiago will continue to contribute to our success in his new role as a board member. I'm also pleased to report that Stone has continued to build on its solid performance from 2022 and deliver stronger than expected top line and bottom line results in the first quarter of 2023. Let me provide some quick comments on the strong quarterly results and share some initial impressions on the company so far. In our last earnings call, the team outlined our priorities for 2023. I'm quite happy with the results achieved so far, which you can follow on Slide 5. Our first priority was to grow with efficiency. I'm pleased to report that we have exceeded our expectations on both fronts. We grew our revenues 31% year-over-year and delivered strong profitability with adjusted EBT of BRL324 million in the quarter, 22% above our guidance. As a result, we were able to deliver adjusted net income of BRL237 million which was our best Q1 performance in our company's history. Our second priority was to generate cash. In Q1, we had strong cash flows from operations and we were able to increase our adjusted net cash by approximately BRL500 million to reach BRL4 billion. Our third priority was to keep expanding our financial services business. As you can see, we have delivered a very strong performance in our MSMB segment. We grew MSMB TPV two times above the industry, accelerated net addition of clients in both payments and banking and are in line with our plans to resume our credit business. We have taken significant steps on the credit side, having dispersed to a small number of clients but most importantly, we have improved many aspects of the product and operation that will enable us to grow our portfolio in a sustainable manner. I want to take a conservative approach towards the expansion of the solution and grow the portfolio depending on market conditions and the completion of the tests we're doing. Finally, we were able to achieve this growth and evolution with a significant increase in monetization, with take rates reaching 2.39%, an 18 basis point improvement over the last quarter. The fourth priority was to evolve our software business. On this front, results were below my expectations. The team is working hard to build the foundations that will enable us to deliver a unified experience to our clients. Integrating software and financial services and becoming the one stop shop solution for small and medium Brazilian retailers. We're making progress integrating and building of those capabilities, but we are not there yet. In our software sales, our revenue growth was hurt mainly by a reduction in ad spending by some of our enterprise accounts, and our EBITDA margin was also impacted by an increase in selling expenses. Throughout the rest of this year, I want to put a strong focus on our team integration, cost discipline and streamlining of our software portfolio. And finally, our fifth goal is to build a fit-for-purpose organization that will enable us to deliver on our long term priorities. We have to make sure our organization is properly equipped to withstand the additional pressures that come with a high-speed growth. I don't think this guarantee success, but I believe not having the right resources in place is a leading indicator of failure. As part of this process, I want to welcome Luiz Andre Barroso as our new board member. His experience as a Google fellow and a seasoned professional in the tech industry will help us on our path to differentiate ourselves and lead through innovation. Now I want to share some additional thoughts on the company and my experience in the role so far. The first thing I'd like to highlight is the inspiring and fantastic people I have met over the last couple of months. Whether I've been spending time with teams in our hubs at our distribution centers are within our offices, the great ideas, the positivity and enthusiasts for the work we do is really inspiring. I believe the superior talent in this company will continue to be a great driver for our long-term success. The second is that we have significantly improved the company's governance structure and management systems over the past year. I see the company doing a better job, offsetting more clearly defined goals, cascading this to different layers within the organization more effectively and linking compensation more closely to our performance. This is improving decision-making and I see that we now have a better understanding of the key value drivers affecting our business. This is certainly a continuous process, but I believe we now have better structure to maximize value and returns over the long term. The third is the strong foundation of our client-centric culture. I think a key driver of Stone's success during its journey has been its ability to identify and ease the points of friction that MSMB clients have with traditional financial institutions. This combined with the last mile and distribution capabilities that Stone has built over the past few years has become a significant competitive advantage that has enabled Stone to disrupt the market. I think the same attributes can also extend our value proposition into banking and credit and longer term, extend our competitive advantage in our software business by solving the vertical specific complexity of our clients and creating a more cohesive ecosystem of integrated software, hardware and financial services. For the short term, I believe that focusing and excelling on the basics we will emerge stronger and more resilient. For example, our cost management initiatives are already improving our operating leverage and our pricing discipline is impacting our profit margins. Longer term, I am working with our team to design our strategy through 2030, setting clear goals and execution path ahead. We will provide you with more details on this new long-term plan at an upcoming Investor Day that we're working towards and we will share more details of the event a little later this year. And now I'm going to pass it over to Lia, who will discuss our first quarter 2023 performance and strategic updates. Lia? Lia Matos: Thank you, Pedro, and good evening, everyone. I would like to begin by briefly going over our consolidated results on Slide 6. As Pedro mentioned, this was a strong quarter with growth and profitability above our expectations. Total revenue reached BRL2.7 billion, growing 31% year-over-year and our adjusted EBT increased to BRL324 million, above our guidance of BRL265 million. As a result, our adjusted net income increased almost 6 times year-over-year to reach BRL237 million with a margin of 8.7%. Now from Slide 7 to 12, I will double-click on the performance of our Financial Services segment, which continues to produce strong growth with consistent profitability improvements. Revenue in this segment increased 36% year-over-year and was flat sequentially despite the typical weaker seasonality in the first quarter. This was driven by good performance in our MSMB client base which demonstrated strong TPV and client base growth, produced higher take rates and generated more revenue from our banking solutions and PIX. In addition to this top line improvement, incremental cost efficiency gains generated higher profitability with adjusted EBT reaching BRL306 million in the segment and a 13.1% margin. Moving to Slide 8. I want to talk about some of the highlights in our MSMB performance. MSMB active payments clients reached 2.8 million in the quarter with an acceleration in net adds to 232,000. This good performance resulted from successful marketing campaigns, driven in part by our lead sponsorship of Brazil's most popular reality show, which increased our brand awareness in both Ton and Stone and from a significantly lower churn in all client tiers. By optimizing our commercial strategy of Ton and Stone offerings across our multiple sales channels, we were once again able to drive client base growth in all client tiers this quarter. This approach continues to produce good levels of profitable TPV growth, as I will show on the next page. As seen on Slide 9, we grew TPV in MSMB clients by 25% year-over-year, over 2 times the industry growth to reach BRL79 billion. We generated this growth while also increasing our take rates on a year-over-year and quarter-over-quarter basis. Our MSMB take rate reached 2.39% this quarter, up from 2.21% in the fourth quarter of 2022 and 2.06% in the first quarter of 2022. Our take rate improvement is a result of higher monetization of prepayment, stronger growth in our Ton brand, higher contribution from banking revenues and higher credit TPV mix compared to the fourth quarter. We continue to execute pricing discipline across our initiatives. On Slide 10, we will move to the performance of our key account segments. Given that sub-acquire volumes have become immaterial to our TPV, we have decided to stop disclosing the breakdown of our key account volumes this quarter to simplify our disclosure. Overall, key accounts TPV decreased 26% year-over-year to reach BRL15 billion in the quarter as we continue to shift our priority from sub-acquiring business to platform services within the segment. However, as a result of our priority shift, our take rates in key accounts increased 31 basis points year-over-year. On a quarter-over-quarter basis, TPV declined, especially due to first quarter seasonality and continued deprioritization of sub-acquires. Take rate remained flattish sequentially, mainly due to lower prepayment penetration. Now I will give some highlights of our banking performance on Slide 11. As we mentioned in our last earnings call, this quarter we launched Super Conta Ton, our full banking solution for micro clients. As a result of this launch, we saw significant growth in our banking active client base to BRL1.3 million in the first quarter of 2023, 2.5 times higher year-over-year and a growth of 81% quarter-on-quarter. This has also led to a quarter-on-quarter decrease in ARPAC from BRL45 in the fourth quarter of 2022 to BRL37 in the first quarter of 2023, as micro clients generate lower revenue contribution in comparison to SMB clients. We have also started piloting debit cards in Stone, which is an important step in evolving our banking solution for MSMB. Client deposits reached BRL3.9 billion which was roughly stable quarter-over-quarter despite a seasonal decrease in TPV which in an important driver of deposits as it is the main cash in method for clients that use the complete acquiring and banking solution. With the ramp-up of new clients and the launch of new features, we expect deposits to continue to grow over time. On Slide 12, I want to give a quick update on the credit front and on the results we have so far achieved with our pilots. We enhanced our working capital loan product by combining a flexible daily settlement mechanism with minimum monthly down payments, which increases predictability for both our clients and for us. We're in advanced stages of improving our system automation and credit life cycle monitoring and making our decision models more sophisticated through enhancements of data. We have also fully integrated our systems with the register of receivables and formalized personal guarantees as a form of collateral, which has already been executed as expected. We're currently working to rebuild our recovery and renegotiation process to give our clients the possibility to renegotiate directly through the Stone app if they wish to do so. Until the end of April, we have disbursed around BRL6 million to approximately 200 clients with key credit performance indicators in line with our business model and our credit underwriting standards. We're in line with our plans to test our credit card solution in the second half of this year. As Pedro said previously, we will take a conservative approach towards the expansion of this solution and grow the portfolio depending on market conditions, and the completion of the test we're doing. Now I'm going to shift to the discussion of the performance and strategic updates of our software business in Slide 13 and 14. In the first quarter of 2023, software revenue increased to BRL358 million, with a 10% year-over-year growth, representing a deceleration from past quarters given some weakness in our ads business from large enterprise accounts that reduced spending this quarter, adjusted EBITDA for software was BRL40 million in the first quarter, with a margin of 11.1%, a 120 basis point decrease compared to the first quarter of 2022, which was mainly driven by the software revenue growth in the quarter and an increase in selling expenses as we invested in our sales team. On Slide 14, I want to give the main highlights of our performance and priorities. Software revenues this quarter was positively affected by a higher number of POS and ERP locations in smaller client tiers as well as inorganic expansion. The growth in number of locations focused on lower tier clients was in line with our strategy to increase our presence in medium and small clients with our software solutions. This shift towards smaller client tiers is also expected to drive average tickets down, while it should open up a broader TAM opportunity ahead. Looking ahead, I would also like to share with you our priorities for software for this year, and we emphasize our long-term view. We have five key priorities for this year. A strong focus on cost discipline, integrating teams and functions across StoneCo, increasing operational leverage, continue to expand our presence by scaling our distribution channels, driving growth within medium and small client segments, continued efforts to build an end-to-end value proposition of software and integrated financial services in select verticals and segments. We believe this is key for us to strengthen our differentiation in some client segments where we have a relevant opportunity to address. Streamlined software assets to increase strategic focus and expand our addressable market by entering in new retail verticals through M&A. In the long term, our goal is to build a unified commerce solution for our clients, and our software business is an integral part of the strategic vision. We believe we have a lot of work ahead of us, but we're on an exciting path to become the only end-to-end integrated software and financial services provider for Brazilian merchants. Now, I want to pass it over to Rafael, so he can discuss in more detail some of our key financial metrics. Rafael? Rafael Martins: Thank you, Lia. I would like to begin on Slide 15, where we discuss the evolution of our costs and expenses. As we have mentioned in the past, 2023 should be a year with more cost discipline and OpEx control. In the first quarter, we have started to see initial results of that approach, especially in administrative expenses, as I will detail shortly. Cost of services increased 7% year-over-year to BRL721 million. As a percentage of revenue, it was 26.6% in the quarter, 600 basis points lower than last year. Compared to previous quarter, it grew 3%, mainly driven by higher investments in technology. As we said in our last earnings call, we expected administrative expenses to reduce on an absolute basis and to increase below inflation for the year. In the first quarter, administrative expenses decreased 11.5% sequentially, mainly explained by lower third-party advisory expenses and more normalized levels of personnel expenses that was seasonally higher in the fourth quarter. As a percentage of revenue, administrative expenses improved 70 basis points year-over-year and 130 basis points quarter-over-quarter to reach 9.7% of revenue. Selling expenses grew 1.6% year-over-year and decreased 4% sequentially, with operational leverage gains in both comparisons. The main reason for the quarter-over-quarter improvement was lower personnel expenses, partially compensated by higher marketing and sales commissions. Financial expenses increased 10 basis points as a percentage of revenue to reach 33.5%. Due to the market dynamics this quarter, we conservatively decided to hold a higher average cash position during part of the quarter, which indirectly impacted our financial expenses. Lastly, other expenses decreased 17.5% sequentially and 90 basis points as a percentage of revenue as our fourth quarter results were affected due to the impairment of proprietary software and write-off of some noncore assets. Moving to Slide 16. I would like to talk about our cash generation. This quarter, we have increased our adjusted net cash position by almost BRL500 million to reach BRL4 billion. The main driver for this was the strong cash flow from our operations as well as the sale of our stake in Banco Inter for net proceeds of BRL218 million. Compared to the first quarter of last year, adjusted net cash increased by BRL1.5 billion. Now moving to our second quarter 2023 outlook on Page 17. We expect total revenue and income above BRL2.875 billion in the second quarter, representing a year-over-year growth above 24.8%. For MSMB TPV, we expect volumes between BRL83 billion and BRL84 billion in the second quarter compared with BRL69.9 billion in the second quarter of 2022, representing a year-over-year growth between 18.8% and 20.2%. Finally, we expect adjusted EBT of more than BRL375 million compared to BRL324 million for the first quarter. This number is not adjusted for any share-based compensation expenses. With that said, operator, can you please open the call up to questions? Operator: Thank you. We will now begin our question-and-answer session. [Operator Instructions] And the first question will come from Sheriq Sumar from Evercore ISI. Please go ahead. Sheriq Sumar: Hey, thanks a lot for taking my question. On the take rate front, can you provide us some color as to how should we think about for 2Q and 3Q and even 4Q as well. And in terms of how much more pricing upside can we see and I think the current economic stake, the average is expecting a decline in the rates -- in the [indiscernible] rates going forward. So can you remind us as to how should take rates evolve if interest rates are going to go down in the back half of the year and in 2024 as well? Lia Matos: Hi, Sheriq. This is Lia. Thank you for [Technical Difficulty] regarding take rates, the first message is, we continue to see positive take rate trends going forward. I think regarding repricing, as we've said many times before, this is like the dynamic and continuous process. So we always take into account where we are and the opportunities that we have to reprice the base based on our return hurdles. So I think that's the message and that we can expect to continue to see a positive trend going forward. Rafael Martins: Sheriq, Rafael here. Just to add to Lia's answer. Over time, over the coming years what we do expect is that, new revenue streams like banking credit, they should also contribute more and more to take rates over time. So not only the pricing in acquiring alone, but also the monetization and other fronts. Sheriq Sumar: Got it. And just one more follow-up. On the banking front, this new macro led this new product or this new offering for the macro clients. Can you talk about what's the cost of acquisition for these clients and the profitability of that going forward? The main reason I ask is, is there a way in which you could increase your ARPA from these accounts to kind of drive better margins for the overall business? Lia Matos: Thank you for the question, Sheriq. I think regarding trends and talking a little bit about Super Conta Ton, so the full banking solution for micro clients. This is a solution that is completely bundled to the acquiring solution. So there's no incremental tax when we sell the banking solutions to micro clients. It's one completely [Technical Difficulty]. Regarding ARPAC trends, as we have been saying for a couple of quarters already, ARPAC will trend downwards basically due to a mix effect, right? Because the economics of the micro clients is naturally smaller than the economics of an SMB clients. So as we grow faster in the micro segment, this will contribute to ARPAC overall, trending downwards due to a mix effect. But the important message is that overall, because this is incremental to our banking business in Stone, overall deposits [indiscernible] both as we grow banking clients itself in Stone and Ton products, but also as we expect to -- as we advanced on the banking portfolio, the banking road map, we expect to increase engagement of our clients with banking. So I think those are the trends that you can expect. Sheriq Sumar: Thank you. Lia Matos: Thank you, Sheriq. Operator: The next question will be from Tito Labarta from Goldman Sachs. Please go ahead. Tito Labarta: Hi. Good evening. Thank for the call and taking my question and congratulation Pedro on the new role. A couple of questions also. I guess, first on your TPV continues to be pretty healthy, particularly in a decelerating environment. But just kind of curious if you can give any color, I know you don't break out micro merchants versus SMB. But just to understand a little bit the competitive dynamics in those two segments. I don't know if any color you can give, like how much of your growth is coming more so from growing faster in micro merchants? How is the competitive environment there? And similarly, how you're seeing that on the SMB side? And then my second question, just a little bit more of a regulatory question. There's been a lot of discussions about potentially capping revolving credit card rates and some discussions have talked about maybe reducing interest installments. I don't know if you've been involved at all in any of those conversations at all, but just kind of curious your thoughts on some of the regulations being the cost and potential impact on your business. Thank you. Lia Matos: Hi, Tito. Lia here. Thank you for the questions. I'm going to take the first one regarding TPV trends, and then I'm going to pass it over to Rafael. So overall trends in TPV, Tito, is that, looking ahead we expect to continue to see growth in MSMB business above the industry over time. While, of course, we maintain pricing discipline. When we look at consolidated volumes, we have to take into account the effect of the deprioritization of sub-acquirers, right? But within MSMB, we expect to continue to grow and gain market share, so grow above the industry. Market share is in the goal in itself, but it's a consequence of everything that we're doing to the value proposition to our clients, the investments that we make behind all of our distribution channels. And on your question regarding mix between micro and SMBs. What we can say is that, we've seen positive net adds, so growth in client base in all client tiers. And we continue to execute on this strategy, of course, always focusing on bringing the best clients with pricing discipline, but continuing to grow and balance that growth with profitability. Rafa, you want to take on the question on micro -- on regulatory? Rafael Martins: Sure. So Tito, we know that there have been discussions with Brazilian authorities about the possibility of implementing a cap on interest rates for revolving credit card. This is not a new topic in Brazil and it's been carefully considered by regulator in consultation with different industry participants, particularly large banks. Some players argue that high revolving rates are only necessary because they subsidize installment transactions in Brazil, the so-called [indiscernible] reducing rates would require a decrease in installment transactions. However, based on the profitability of the card business in Brazil, it does not appear to us that the revolving credit business relies on the [indiscernible] parts allowed us to be profitable, and this is especially true considering that Brazil has one of the highest interchange fees in the world and that those fees also remunerate the institutions for the risk they take. So additionally, one other consideration is that a significant part of the consumption in Brazil is based on credit and [indiscernible], right? So 50% of credit card transactions in the country are done in that type, and this is especially true for lower-income people. So basically, I think that before implementing any changes that we don't have any visibility. We are not directly participating in this discussion because we are not directly involved as we are not big issuers. We believe that Brazilian authorities will consider various economic and social aspects of that measure. Tito Labarta: Okay. That's great. Thanks, Rafael for the color and thanks Lia. Just one follow-up, I guess, on Lia's response on the [indiscernible] micro and SMB. Just any comments you can give on the competitive environment within those two different segments? Any differences that you're seeing in the micro merchant space relative to the SMB base from a competitive perspective? Lia Matos: Tito, yes, so I think regarding competition, if anything, the competitive landscape has been more stable compared to [Technical Difficulty] three important trends happening in the industry, right, that are worth mentioning? First is the industry overall has adjusted prices upwards over the last year. Cost of capital, of course, has increased and that makes it more difficult for new entrants to come into the market. So we see a market that is more stable from that perspective. And third, overall, players have evolved, right, beyond a pure acquiring to a more complete financial services offering. And we think that strategies are more and more taking into account this complete financial offering mindsets. And more broadly, players like ourselves, the integrated financial services offering, both from a product and from a go-to-market perspective will be better positioned to win client relationships and gain market share overall in the future. So I think that's what -- those are our main perspectives on the industry. Tito Labarta: Okay. That’s great. Thank you Lia. Operator: The next question will come from Juan Recalde from Scotiabank. Please go ahead. Juan Recalde: Hello, Pedro, Lia, Rafael, congratulations on the extraordinary result and thank you for the opportunity to ask question. My question is related to the software business. So we saw that the revenue growth accelerated there at the EBITDA margin compressed. So I was wondering, first, if this was expected? Second, what drove the top line deceleration and the profitability deterioration? And third, what kind of growth and profitability do you see for this segment going forward? Lia Matos: Hi, Juan. Lia here. I'm going to start answering regarding top line and maybe pass it to Rafa to give some more color on margin evolution. So we did expect a deceleration in terms of growth, but as Pedro mentioned, the revenue performance still came behind our expectations. This weaker growth was mainly driven by our ads digital business, as I mentioned, this business declined 8.7% year-over-year, while core POS and ERP revenues actually grew 12% year-over-year. And on the positive side, core revenue growth was driven by an increase in the number of locations and consolidation of [indiscernible] while average tickets remained relatively stable. And this dynamics as a result of us investing in the growth in medium and small client segments. That's where we see the biggest market opportunity ahead. So that performance in terms of growing in smaller client here is in line with our plans. And I think the message going forward is a scenario of lower inflation and more volatility in the digital business should continue to weigh on software top line growth, but we continue to execute on the priorities that we have both on the revenue side, mainly growing in medium and smaller client tiers and defending the revenue in the enterprise clients, but also focusing on cost discipline. Rafa, you want to complement on margin trends or maybe… Pedro Zinner: Yes, maybe I'll jump in. Juan, I think looking ahead, I think we're going to remain focused on investing behind our franchise and inbound channels to grow in the middle of the pyramid because that's where we see the biggest opportunity, both in terms of software and cross-sell. And I think regarding the margin that you asked, I think we already expected a lower margin this quarter, especially due to the seasonality of the revenues. However, the margin was a bit lower than we expected as a combination of two main factors. I think the first one is the lower revenue growth, which, of course, reduces dilution of fixed costs and also higher selling expenses this quarter as we invested in commercial headcount, which weighted on selling expenses for the software. The revamping margins should be driven by efficiency initiatives associated to the integration of back-office functions across Stone company to be executed with the implementation of our shared service center, amongst other initiatives that we have in the pipeline. The improvement -- I think it's important to highlight that the improvements we have [Technical Difficulty] are not a short-term challenge. It will take time. But as I mentioned during the call, we are confident that the rewards are really worth it. We are aiming to bring together the software and financial services to the Brazilian merchants through better products and services. And we really believe this is very hard to replicate by any other type of competitor. I don't know if we address all the questions you had. Juan Recalde: Yes. That's very helpful. Thank you for the comments. Operator: Thank you. And the next question will come from Kaio Prato from UBS. Please go ahead. Kaio Prato: Hello everyone. Good evening. Thank you for the opportunity to ask question. I have two questions here. If I may start with the one related to the guidance, if we look to your guidance of BRL375 million plus earnings before taxes in the second quarter. I understand that this is the bottom of the guidance, but this is an only BRL50 million increase on a quarter-over-quarter basis. And in the second quarter, we will see the first effect of the caps on interchange fees of prepaid and debit cards which tend to be positive. And in addition to that, expectation of continued healthy growth on SMB, TPV and so on. So just wondering what type of impacts could reduce your ability to have a higher EBT? Is this financial expense, more investments or any type of price reduction due to competition? Just would like to hear your thoughts about the dynamics in the next quarter. Or if you can consider that you were more conservative on that guidance. This is the first, and then I can follow up with the second. Thank you. Rafael Martins: Okay, Kaio, thank you for the question, Rafael here. So when you look to our guidance of the second quarter, you do see an implied margin expansion, while, as you said, we keep TPV growth between 19%, 20%, which we think is a healthy level. And what we have been looking for, as we have been mentioning over the last few calls is to grow with profitability and that's what this guidance implies. We do see a positive effect from the cap, as you said, in the guidance. And as you said, it's above BRL375 million, right? So this is the floor and that's what we are comfortable at this moment in providing. Of course, we'll keep discipline in growth with profitability. So we are not providing any specific guidance about the cap impact. This is net positive for us, and we believe for the whole industry. So -- and regarding TPV, if you look at our TPV guidance, you have -- the first half of this year, we should be growing TPV around 22%. We see that the industry was growing 10.7% in the first quarter. So it's a good balance between growing more than the industry, and at the same time, improving profitability and increasing the grades. Kaio Prato: Okay. Thank you, Rafael. And the second one is around the key accounts, TPV, as you mentioned, it went down a lot this quarter, and you didn't break down between the sub-acquirer and platform services in order to simplify the reporting. But if you could please help us understand how much of this quarter-over-quarter drop was related to platform services and to sub-acquirers? And moreover, if you could please share us the competitive landscape in the key account segment and what we can expect in terms of TPV growth going forward. Rafael Martins: Sure, Kaio. Rafael, again. The big majority of the drop is related to sub-acquirer. So if you look at sub-acquire volumes, they have dropped very significantly both quarter-over-quarter and year-over-year. As you said, it's -- they are not relevant anymore to the company nor TPV or bottom line. That's why we decided to simplify it. And -- but overall, when we look at other key accounts, I think if you look at key accounts players like e-commerce, marketplaces, big retailers, it's obviously a lower-margin business versus SMBs and micro. So it is a competitive environment in payments there. And of course, we do see opportunities there to penetrate also software, not only with hand alone. So I think that's the main focus when we look strategically to the key accounts regarding payments. Kaio Prato: Okay. Thank you very much. Rafael Martins: Thank you. Operator: And the next question is from Geoffrey Elliott from Autonomous. Please go ahead. Geoffrey Elliott: Hello. Thanks very much for taking the question. You mentioned a couple of times the weakness in the ads business. Can you just give us a bit more detail? What does that business look like? Who are the clients? And why was it weak in the quarter? Thank you. Lia Matos: Hi, Geoffrey. This is Lia here. So our ad business is basically a portion of our digital business within Linx that is -- its nature is transactional. So it isn't -- its nature is not recurring revenues. So what that means is that, our clients can have more -- larger or bigger volumes, depending on what their needs are and what their demands are. Most of the clients there are enterprise clients. And this effect that we saw this quarter was basically those enterprise clients using less ad volume as compared to last quarter. So essentially, that's a -- like we [Technical Difficulty] compared to the recurring software business that we have, part of it in digital, but mostly in core software. So I think those are the main messages in our ads business. Geoffrey Elliott: Thanks. And if I could just squeeze another one in. You've talked about growing TPV faster than the industry, but what's your latest view on industry TPV growth this year? Lia Matos: Yes. So like Rafa said, we saw industry growth around at 10.7% this quarter. [ABAC's] (ph) pointed to between 14% and 18% this year. We think it's going to be in the lower end of this range. So that's our view on the market. We have to continue to observe the numbers as they come out, but we expect on the lower end of ABAC's guidance. Geoffrey Elliott: Great. Thanks very much. Lia Matos: Thanks, Geoffrey. Operator: The next question is from John Coffey from Barclays. Please go ahead. John Coffey: Great. Thank you very much for taking my call. So the first part I had was actually echoed or was reminiscent of the question you just had regarding the industry growth. So when I think of what you're seeing or we were expecting for the first half, I think you said around 22%. If we were to extend that out to the second half of the year, is there anything that you would caution us on any tough comps or anything that might be specific to Q3 or Q4 that might actually push that rate higher or lower? And the second question is, as far as key accounts go, when does the pain of the declines end? When do you get to that bottom point at which TPV starts to grow again? Rafael Martins: Hi, John. Rafael here. So regarding [Technical Difficulty] there's nothing that calls our attention right now that should change significantly those 20-ish percent growth levels in the MSMB TPV in the second half of the year. Of course, as we have said, we do rely on different factors and macro factors that -- like inflation and economic activity in retail that we do not control. But as of now, there is no big indication or big changes from those levels. When -- your second part of the question regarding key accounts, can you please repeat it, please? John Coffey: Yes. Well, I mean the TPV has been declining for a while. I thought a lot of that is due to lower volumes from the sub-acquirers. When does that sub-acquire volume become negligible and then you really start to see the TPV start to grow again quarter-over-quarter or year-over-year? Rafael Martins: Oh, yes. Yes, perfect. I think that if you look at our key accounts policy in payments and TPV, of course, the sub-acquire has declined strongly, but overall, we have been more strict in pricing in key accounts. And I think that, that policy does have some negative effect in TPV. And so I would say that the coming quarters, we should still see year-over-year growth in key accounts being sort of depressed at those levels that you see now. But of course, at the end of this year, we believe that you had [Technical Difficulty] and then we might see an acceleration there. But [Technical Difficulty] or so. John Coffey: Thank you. Operator: And the next question is from Josh Siegler from Cantor Fitzgerald. Please go ahead. Josh Siegler: Yes. Hi, thanks for taking my question. Congrats on the strong results this quarter. For my first question, I think in your prepared remarks, you mentioned being significantly lower churn on the MSMB vertical. I'm curious what some of the drivers were behind the strong retention this quarter and if you expect that to persist throughout the year. Lia Matos: Hi, Josh. Lia here. So yes, we saw a significant lower churn across all client tiers and both in Stone and Ton brands. And we think that this is a trend that will continue. It's the result of the expansion of our product offering, also a greater focus on client life cycle monitoring. So we've done a lot in terms of actions towards the base. So agents visiting -- making more life cycle visits, more engagement throughout client life cycles. And also, we cannot ignore the fact that industry is much more rational, right? So that also impacts positively our term. So those are the three main messages that we have regarding churn trends, and we think that these trends are going to continue. Josh Siegler: Understood. That's very helpful color. Thank you. And then for my follow-up, I'm curious how you're thinking about sizing the opportunities to continue to cross-sell the banking solutions to Ton customers. Do you expect increased acceleration in banking active clients as you roll out the new Super Conta Ton consist product? Lia Matos: Yes, Josh, great question there. Just to give some color on this. There was a big incremental contribution this quarter because not only we grew Super Conta Ton, the new Ton clients, but we also migrated clients that had the simple wallet to the full banking solution, right? So I think what we can say looking ahead is that, every single Ton clients will have both an acquiring and a banking solution, so growth in Super Conta Ton will be in line with growth in Ton itself. Josh Siegler: Perfect. Thank you very much Lia. Appreciate it. Lia Matos: Thank you, Josh. And I think another important comment is just to also emphasize this. That's also the reality in Stone products, right? So as much as it's not a bundle where 100% of the clients actually use acquiring banking in Stone. We have a very high penetration of banking solutions to acquiring clients in Stone as well. So that's also going to drive growth in banking clients looking ahead. Operator: Thank you. And the next question will be from James Friedman from Susquehanna. Please go ahead. James Friedman: Hi. Yes, it's Jamie wit Susquehanna. Greetings, Pedro and welcome [indiscernible]. A question for Lia, about Slide 14, the software strategy layout. I was just wondering if you could step back and say at a higher level, how the strategy articulated in Slide 14 has changed now versus when you originally acquired Linx? What's -- I know the world changes, but what's -- how are you are thinking about it now? And what may have changed your thinking in that process? Lia Matos: Thanks, Jamie. I'm going to take this question first and then maybe pass it over to Pedro also to hear his thoughts. I think we've always believe very strongly in the opportunity to combine software and financial services, right? We are intensifying our integration efforts this year. I think the reason is about focus, right? Perhaps there wasn't such a big focus before. We mentioned many times that in 2021, there was all the issues with credit, and then we really started sort of focusing a lot on the overall turnaround of the business last year and changing the management system. Of course, that was true for financial services platform and for software platform. But now we're really putting a lot more emphasis on the integration efforts. And so, strategically, the thought is the same. I think it's just about how we're prioritizing and where we're putting the focus. And I would say around the integration, our focus is really threefold, right? Number one is around back office. We already did a lot on that last year, but I think that there's still a lot of work to be done. Pedro talked a little bit about this already. The second is really on product integration and integrated offerings. So a lot of our effort last year was around product integration. Now we're shifting to really things from the client perspective, how we can really build the best combined offering of software and integrated payments and financial services. And the third is really around go-to-market and how do we really incentivize and coordinate our go-to-market efforts, both in financial services and software so that we maximize this combination, right? So I think it's more about the how as opposed to the what. The strategic rationale hasn't really changed. But I think we've changed a little bit how we've been focusing on the initiatives. Pedro, do you want to comment. Pedro Zinner: Yes. I think -- if I might add, I think one of the points that Lia raised is really -- my view is the key reason, which is focus. But another point that is really important is that -- we do believe that the opportunities within the software business are huge, right? If Linx clients sell around BRL0.5 trillion, which is equivalent to 5% of Brazil's GDP and we still have a low penetration of payments and financial services into those clients. So we haven't put all the effort and the focus we needed if that offering the integrated solutions will bring a very differentiated value proposition to our clients. And I think there is another point that it should be highlighted is. we may optimize capital allocation within the software business, really trying to focus on select [trends] (ph) that are more strategic to us. James Friedman: Got it. Thank you for the context. I’ll jump back in the queue. Lia Matos: Thank you, Jamie. Operator: And the next question is from Mario Pierry from Bank of America. Please go ahead. Mario Pierry: Hi, guys. Thanks for taking my question. Let me ask the first question on -- during your speech, you talked a lot about cost discipline and expense control. Can you talk about some of the measures that you're taking and help us quantify the benefits of these measures? And I ask because when we look at your headcount, it's much larger than some of your peers. And we have seen some of your peers reducing headcount. So indirectly, I'm asking if there are any plans to reduce headcount or what are any initiatives that you have to control costs? And then I'll ask the second question. Rafael Martins: Hi, Mario, Rafael here. Thank you for the question. So I think there are many initiatives that we have been implementing in the company. We have created, for example, a shared service center, which tends to incorporate more activities in the future and bring back office gains. We are also focused on structural efficiency improvements, technology, platformization of the business. I think that if you look at the headcount, and I think Pedro can talk a little bit about this, there is a business model thing, which when you compare to other companies, our business model is more verticalized. So part of what other companies might outsource, we do internally in-house, and that all, of course, reflects in our headcount. But as we have mentioned last -- in last earnings call, we do expect administrative expenses to go below inflation this year. So I would say that we are working towards more structural measures, we have different measures in operational efficiency, in customer service, logistics and technology, cloud [indiscernible] so on and so forth. So -- but I would say that the headcount reflects -- a big part of the difference is business model difference versus other players. Pedro, do you want to add? Pedro Zinner: Yes. I think one point that is really important to highlight, you mentioned in terms of KPIs and so forth. I think last year, there was a huge effort put in place to [indiscernible] and within the process, you had the package owners for the main expenses within the company. So that brought us visibility in terms of where we should attack, how we should attack and when we should attack in terms of streamlining expenses and actually having better control as we move ahead and set the company for its growth strategy. In terms of headcount, I think I mentioned at the beginning of the call that we're really setting the stage to position Stone throughout 2030. And so, we have to make sure that we have the right people at the right roles to build a fit-for-purpose organization, as I mentioned before. So having the ZBB tool in place and understanding where we want to be over the next couple of years, will be an important tool in terms of how we manage headcount as we move ahead. All we want to do [Technical Difficulty] how can I say, back and forth review in terms of headcount finding and hiring people. So it's really building a fit-for-purpose organization as we move ahead, right? Mario Pierry: Okay. Thanks for that. My second question, then let me change the subject a little bit, focus on your funding costs. Can you talk about your ability to tap third-party funding, given recent events in Brazil? How are you seeing the market? Rafael Martins: Hi, Mario. So we are not seeing problems in tapping funding sources, especially because the company has been generating cash, increasing liquidity. So we have a very robust balance sheet. So we are not seeing any problems there. We did see in the industry a very slight increase in funding cost that as you can see, it was not anything that reflected in our P&L. So we are -- we have different funding sources in the company, and we believe that those will be even more diversified, I mean, in the coming future. So it's not something that worries us. Mario Pierry: Okay. And Rafa, if you can just remind us your sensitivity to a lower rate environment, what would be the impact of 100 basis points reduction in [indiscernible] assuming all else e-com. Rafael Martins: Mario, so I think that this question is hard to answer because there could be like a theoretical answer that consider [indiscernible] but we know that when rates change, the commercial dynamics might change as well. So we don't like to provide a specific guidance around that sensitivity. If you look at our interest rates, our financial expenses, sorry, they have been evolving over time basically with TPV and CDI. So you can pretty much do a simple math on where they are today. And if CDI decrease, you'll see a percentage decrease there. But of course, it is a net positive for us if rates decrease, but it's very hard for us to say a number because we would otherwise assume that commercial activity and competitive environment will be the same. We do believe that players would not rush to decrease prices and [Technical Difficulty] it's really hard for us to guarantee that. So if you look at our financial expenses, a little over BRL900 million with CDI almost 14%, you can do some math there and see, 100 bps is relevant impact. Mario Pierry: Okay. So -- but basically, you're saying that it depends on how your competitors are going to behave, not necessarily -- so it doesn't mean that you are going to be the first mover in case if rates come down, that first mover in reducing prices. Rafael Martins: Yes, Mario. So we will not be first movers in bringing down prices. I think that -- and of course, we do have our internal hurdles, our internal return goals. It's not 100% reliant on what our competitors will do, but we do look at competition and environment to decide what we're going to do. But this is not something that will do proactively bringing down prices if rates come down. Mario Pierry: Okay, guys. Thank you very much. Operator: And the next question will be Neha Agarwala from HSBC. Please go ahead. Neha Agarwala: Hi. Thank you for taking my question. First, on the software business, if I understood correctly, you mentioned that you've not been able to penetrate the large clients that have come from Linx and that presents a huge opportunity for you to cross-sell your payment services to them. Why -- I mean it's been a while since you integrated Linx. I thought it would be an easier opportunity, a low-hanging fruit to cross-sell your payments business to the Linx clients versus bringing the software expertise from Linx to your SMB segment. So why haven't you been able to integrate that part? And that's related to my question on TPV as well. So TPV growth has been almost twice that of the industry as a whole. What are the reasons for this strong growth? Whom are you gaining market share in the SME segment from because with most of your peers when we talk to them and we see the numbers, they are mostly close to the low teens in terms of TPV growth. So what is driving the strong growth in terms of your TPV? Is -- has there been some contribution from growth in larger accounts, which might have led to the stronger TPV growth? If you could shed some light in case there's a change in mix? And then I'll ask my next question. Thank you. Lia Matos: Thank you, Neha. Your question cut a little bit in the middle, but I think I got it all. Let me take it and then if there's anything missing, let me know, okay? So I think your first question was payments in financial services penetration within Linx clients and where our focus is. So our focus is really on the middle of the pyramid. I think that's the best way to describe it. Those are medium and a little bit the upper tier of SMBs, right, the larger, small clients and the medium clients and a little bit of large clients as well. That's where we see the biggest fit in terms of offering both the offerings that we have on the financial services side as well as the product portfolios that Linx has. So just to clarify this point, our focus really is -- the initial focus really is on cross-selling financial services to software clients. But there's actually a convergence in terms of our strategy when we consider software and financial services because Linx is very highly penetrated already on the very large clients and the opportunity for us to grow in software itself is going lower in the pyramid, right, going to the medium of the pyramid with software. But that's going to be -- continue to be done through Linx's channels, Linx's franchise channels, and Linx's inbound channels. So there's a convergence there. I think that's the important message regarding software and where we're looking at in terms of cross-sell. I think on your TPV question, message is, we take market share from pretty much every competitor, right? And we have actually pretty granular view of who we're taking market share from, in which client tiers and in which regions. Of course, the dynamic changes a little bit region by region and tier by tier, but the message is, we take market share from all competitors, right? And the growth in TPV trends that we see is both driven by our growth in the micro segment, that was also a big driver of net adds in the quarter. But let's remember that our strategy within the hub has been to focus on larger SMB clients, right? So more and more, we're shifting our hub strategy to look at the top tier of the SMB segment, and we're seeing pretty healthy growth there, and that's driving TPV growth. Did I get all your questions? Neha Agarwala: Yes. Yes, Lia, largely. So there has been some move upmarket, not particularly large accounts, but maybe somewhere in between the large accounts and the SMB. So more higher-tier SMBs. That's the focus. Lia Matos: That's exactly. Higher tiers within SMB, exactly. Neha Agarwala: Okay. My second question is on the credit. So we finally see you piloting your credit product. You mentioned that you've been fully debated it with the receivables registry. Could you talk a bit about that as to is the registered receivables fully operational? Is there a complete transparency in terms of data and do all the registries communicate with each other? And secondly, on -- what other -- has it been integrated with the hubs? And what are the other product changes that we can see in the coming quarters? And when do you think you can fully launch it. Thank you. Lia Matos: Yes. Neha, great questions about credit. Let me start with your question on the registry. So the message is, with this initial group of clients, we already did them with the integration to the registry system working. It's working, but we're using it as an extra data point, not as a single mechanism of collateral. I think that's an important message. And regarding on your question of how we're involving the hubs, this is something that we're starting to test the level of involvement of the hubs in the current life cycle of our clients. Initially, we have been distributing the product mostly digitally. But remember [Technical Difficulty] group of clients still. And so we're running several tests in terms of the involvement of agents in the credit life cycle overall, we think that we have a very big edge to leverage there, but the way in which we're going to do it is still a learning process. Operator: Thank you. And the next question is from Soomit Datta from New Street Research. Please go ahead. Soomit Datta: Yes. Hi there. A couple of questions, please. One, just on the balance sheet. There's a nice slide in the deck showing cash position just steadily rising and obviously, the business is moving into greater profitability. So how are you thinking about use of cash going forward? Has that number presumably continues to inflate? Are there any acquisition opportunities you would be considering at this time? That's the first question, please. And then just a quick follow-up, if I could, just back to industry TPV. I know it's come up a couple of times. Just curious, the 10.7% growth is a little bit softer than we were looking for. As you look through to the rest of the year, would you expect that to increase? Are there any kind of comps that you can think of, which would be impacting that? And I say that because it feels like in the context of the kind of cash to digital shift, it's not as impressive as it might be. So just curious of your thoughts there. Rafael Martins: Thank you for the question, Soomit. Rafael here. So regarding your first part of the question, we do have a strong balance sheet, as you said, BRL4 billion in adjusted net cash. This enables us to have flexibility to grow faster whenever we want and to invest in different fronts of the business. One of the -- as we have been mentioning for a couple of calls already, one of the use of that cash is to reduce a little bit of the debt that we have in the balance sheet, as you can see over time. That's why financial expenses have stopped increasing a lot mid-last year, but we also look very carefully capital allocation opportunities. And of course, it's better to have that flexibility. One other element here is environment scenario, any more uncertain micro scenario, we do have cash to keep growing the business, for example, in the pandemics, we had our prepayment business working during even the worst week of pandemics because we have flexibility and cash on hand. So I think that's sort of a policy of the company. And we're closely looking to different capital allocation opportunities with a lot of discipline. Regarding the industry, I think that 11% growth sort of is coherent with our view that the industry growth in the year should be more closer to the bottom of the range of what the ABAC association guided to, which is 14%. So I think that's hard for us to estimate for the whole year, but it's close to the bottom range. So it's not something that calls our attention. Soomit Datta: Got it. Thank you. Rafael Martins: And just to reinforce one point, Soomit, -- having said that, this is for the industry, right? When we look at our TPV as we have guided, it's running a little over 20% in the first half of this year, and we expect that those growth levels should continue to be above industry this year. Of course, looking at pricing discipline always, not growing but by growing [indiscernible] rate. Soomit Datta: Yes. Absolutely. Thank you. Operator: And the next question will be from Pedro Leduc from Itau BBA. Please go ahead. Pedro Leduc: Thank you, guys. A little bit on financial -- sorry, on pricing dynamics. So this quarter, we saw a little bit the last rounds that you have implemented when you look at your take rate. If you've noticed some competitors moving recently, some are saying they're moving up. Hence, if you're seeing room for maybe another round there given the lower churn that you mentioned? And if in 2Q, we should see a little more pricing effects or just the better take rate coming from the interchange cap. Thank you. Rafael Martins: Thank you, Pedro. Rafael here. I think that we did reprice clients in the first quarter. We do expect to reprice clients in the second quarter. I think this is a continuous process of pricing optimization. It's not -- as I said before, it's not a big price change as we saw in the beginning of last year to adjust for higher interest rates in the country, but it's a continuous optimization process that we do see opportunities to optimize prices further. As I said, there is the gap of prepaid cards. This also helps in the take rate. So I think that the message here is very disciplined pricing policy and a balance between growth and profitability that we think is healthy. Pedro Leduc: Thanks, Rafa. And taking back a bit on that, of course impressive guidance for the upcoming second quarter. But you also have been beating guidance at least three quarters that I remember it. Things have been ending up better than what you see mid-quarter. How should we think about that a bit? Again, it is a strong figure for 2Q. I'm just wondering if what is an upside scenario that we've been seeing consistently beat it. Rafael Martins: Yes, Pedro. So when we look -- when we define the guidance, we look at the forecast we have for the quarter, we see potential deviations around that, both the upside or downside and we try to provide a number to the market that we are confident in achieving. Of course, there's always upside on the number. But of course, macro scenarios that we don't control -- so I think that the idea is really to be precise given the timing of the macro scenario involved in our results that we cannot control. So Pedro, do you want to add? Pedro Zinner: Yes. I think in terms of the guidance, I think it's important to highlight that we do not expect to change our policy of quarterly guidance in the next quarter. However, in the future, we do plan to provide a longer-term perspective of the business rather than a quarterly number, which we believe is more aligned with our long-term value creation strategy. Pedro Leduc: Superb. Thank you both for the answers. Operator: And the next question is from Nicolas Riva from Bank of America. Nicolas Riva: Thanks very much for the chance to ask question. A few questions on your debt going back to Mario's questions. So I appreciate your comments about saying that you continue to see access to be able to top funding sources. But I did see that in the quarter, your bet with the [indiscernible] declined a bit over BRL300 million in the quarter, and it's been down even more over the last year. So if you can comment on your access to financing in the [indiscernible] market? And maybe is the reason why we are seeing less [indiscernible] in the balance sheet is because you're using more off-balance sheet financing where you do not keep equity stakes in the [indiscernible]? And then also a similar question on your bank debt. If I look at your short-term bank debt, it declined by about BRL500 million in the quarter. So if you can comment a bit on your access also to bank financing after the [indiscernible] of Americanas and also many other stressed Brazilian corporate right now. And then I will have a separate question. Thanks. Rafael Martins: Thank you, Nicolas. Rafael here. So I think that the effect that you see, as I said, when someone asked about the allocation of cash, is part of that is because we are increasing cash generation, right? And we are using part of that to both amortize the [indiscernible] that you mentioned and also short-term debt. Remember that in the first quarter, we did sell our stake in Banco Inter for BRL218 million, so they help the BRL0.5 billion increase in adjusted net cash. So I think that this has nothing to do to access to funding lines, but rather cash on hand with a good capital allocation to reduce leverage and reduce debt given where interest rates are. Nicolas Riva: Okay. Thanks, Rafa. And then my other question is on your financial expense. So in the income statement, you booked a very large amount of financial expense, a bit over BRL900 million a quarter or about BRL3.7 billion over the last 12 months. But if I compare that with your total debt size, if I include the 2028 bonds, bank loans [indiscernible] debt and deposits for the banking product, I get BRL8.5 billion in total debt at the end of March. I'm not including the payables to the merchants. So again, about BRL3.7 billion in financial expense in a year compared to BRL8.5 billion in total debt. It seems a very large amount of financial expense. I believe this -- the financial expense you book in the P&L also includes some of the noncash discount on receivables sold to [indiscernible] but if you can tell us why that's the case? Why such a large amount of financial expense in the P&L compared to your debt side? Rafael Martins: Thank you, Nicolas, for the question. Very good question. I think it's good to clarify. So whenever we sell receivables, card receivables and transform them into cash, we are incurring financial expenses, right? So if you look at our adjusted net cash position, that's why we look [Technical Difficulty] as an asset and card payables as liabilities. We still have a surplus of, we have more receivables than payables. And it's basically our option to convert them into cash as this is a very liquid market. To help investors understand that dynamics we have provided -- started providing in our financial statements in Note 16, the breakdown of our financial expenses, how much of it comes from sale of receivables, how much of it is interest related to that, that you see in our balance sheet. So I think that is very detailed there. And this is basically the dynamics which is important to remind everyone is that whenever we sell receivables and we incur financial expenses, we decided every day how -- if we want to incur those expenses are not based on the spreads we have in our prepayment business. So -- we incur in financial expenses, but we have financial income related to those expenses that are appropriate for us in terms of returns. So it's not something that we are -- we have those financial expenses at any cost, we will only incur them if we think the spreads are attractive and you'll see the net result in our P&L as an attractive one. Nicolas Riva: Thank you very much for that Rafa. And maybe just one last follow-up on this subject. Would you have kind of a proxy or I guess, ballpark for your cash? So if I compare to this BRL900 million plus of interest -- accrued interest expense in the P&L what will be kind of a ballpark for your cash interest payments? I mean there are three lines that you use as reconciliations in the cash flow statement. And using those three lines and getting cash interest payments of about BRL423 million in the quarter, so roughly a bit less than half the size of the accrued interest expense in the P&L, which would mean funding costs of about 18.7%. Does that make sense? Or if you can give us an idea of if your cash funding cost or cash interest payments right now, per quarter? Thanks. Rafael Martins: Yes, Nicolas. So I think that if you look at our cash flow, we do have the amount of interest paid there. And I think that one additional element is that our cash flow, we have interest paid, and we have the net effect of the interest income received from prepayment business and how much is the funding cost for that only for the sale of receivables that we have. So I think that if you look in our cash flow statement, and you'll see the interest income received net of costs and you see the income -- the interest paid you have pretty much the information to do the reconciliation you want to do. So I think that if you want to go off-line as well, of course, we are fully available to make those details for you. Nicolas Riva: Sure. Maybe just one last one. Since you mentioned generating cash and in some cases, using this additional cash level to repay some that debt, would that potentially -- and I know that we have asked this question a few times in earnings calls, would that potentially include buying back some of your [indiscernible] given they are trading at about BRL0.80. Rafael Martins: Yes. So I think we answered that question last time, I think it doesn't change the answer. We are looking closely to different capital allocation opportunities, including that you said. As I said, we like to have flexibility in terms of cash. And if we look at the bonds, you have to look at the discounts. We have to look at the cost to unwind the hedge of the bond, which is negative right now. So I think there is many factors that we have to take into consideration when deciding to do that. And we are always looking very closely to that sort of alternative. Nicolas Riva: All right. Thanks very much, Rafa. Operator: Ladies and gentlemen, there are no further questions at this time. This concludes our question-and- session. I would like to turn the call back over to Pedro Zinner for any final considerations. Pedro Zinner: Well, I just want to thank everyone for participating in the call, and hope to see you again soon in our next quarter conference meeting. Thank you very much. Operator: And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Good evening ladies and gentlemen. Thank you for standing by. Welcome to the StoneCo Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. By now, everyone should have access to our earnings release. The company also posted a presentation to go along with its call. All material can be found at www.stone.co on the Investor Relations section. Throughout this conference call, the company will be presenting non-IFRS financial information including adjusted net income and adjusted net cash. These are important financial measures for the company, but are not financial measures as defined by IFRS. Reconciliations of the company's non-IFRS financial information to the IFRS financial information appear in today's press release. Finally, before we begin our formal remarks, I would like to remind everyone that today's discussion might include forward-looking statements. These forward-looking statements are not guarantees of future performance and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the company's expectations. Please refer to the forward-looking statements disclosure in the company's earnings press release. In addition many of the risks regarding the business are disclosed in the company's Form 20-F filed with the Securities and Exchange Commission which is available at www.sec.gov. I would now like to turn the conference over to your host Rafael Martins, VP of Finance and Investor Relations Officer at StoneCo. Please proceed. Rafael Martins: Thank you operator and good evening everyone. Joining us today on the call we have our CEO and Board member, Thiago Piau and our Chief Strategy Officer, Lia Matos. Today, we will present our fourth quarter 2022 results, discuss some recent trends, and provide an updated outlook for our business. I will now pass it over to Thiago, so he can share some highlights of our performance. Thiago? Thiago Piau: Thank you, Rafa and good evening everyone. Let me start by reviewing the key highlights for the year and fourth quarter 2022 that we lay out on slide four of our presentation. We successfully drove strong growth with improvement in profitability. Our revenue doubled in 2022, while our adjusted net income reached R$526 million. In the quarter, adjusted net income reached R$235 million, a 44% sequential growth. This achievement was largely a result of a successful price execution and strong operational leverage, while we improve engagement with our clients and continue to invest in our growth. We generated increasingly stronger cash flows. Our company is generating cash in a very consistent way and has a strong balance sheet and liquidity to fund its growth ahead. Our adjusted net cash increased by R$1.2 billion in 2022 and R$385 million in the fourth quarter alone. We expect that our cash flow generation will remain strong in 2023. In Financial Services, we expanded our client base, offered new solutions, and captured higher take rates. In 2022, we generated strong profitable growth in our client base, while improving unit economics both through price execution and increase in monetization from our banking solutions. In the fourth quarter, MSMB TPV grew 23% year-on-year almost two times the industry growth. Active client base grew 48% year-on-year to 2.5 million merchants at the same time that we increased take rates by 50 bps compared to last year. Additionally, total banking deposits reached R$4 billion, R$3.6 billion of which in the MSMB segment, reaching almost 693,000 active banking clients. I think such results show our ability to pass along price increases, gain market share and improve engagement with our clients at the same time. In Software, we gained scale improved operating margins and advance our product integrations. Software revenue grew 21% year-on-year in the fourth quarter, and our adjusted EBITDA margin reached 16.2% in the fourth quarter, the highest margin since we acquired the business. We gained efficiency, while also investing in several areas to better serve our clients, like customer service and product integrations. We've integrated our financial services platform to POS and ERP solutions in strategic verticals, opening a key cross-sell opportunity, which we believe is unique within the industry. Last, we enhanced the capabilities necessary to execute the next phase for Stone. We added to our team experienced and seasoned leaders, strengthening key capabilities in banking, credit, product, tech, and risk, which will be crucial for our plans in the coming years. I'm excited to share these results with you, which marks the completion of our turnaround in 2022, with the company well positioned to continue its successful story. Most importantly, we have executed our turnaround, maintaining our special culture and strong devotion to serve our clients. Finally we're also successfully completing our CEO transition and I'm confident that under Pedro's leadership, Stone will evolve on an even stronger future and 2023 will start a new chapter in our journey. Now, I'm very happy to bring Pedro to send the message to all of you. Pedro Zinner: Thank you, Thiago and good evening everyone. I'm really excited to be here and looking forward to leading the team in our journey. Over the first months of this transition, I was able to see how much has been delivered in 2022 and how well said the company is to address the opportunities we see ahead of us. I was also positively impressed by the quality of our people and our strong culture. The team has defined clear priorities for 2023 and I see this as an important first step for the path ahead. I'll take the CEO role in April. And today, we'll participate in the call only as a listener. I look forward to meeting all of you soon. Thiago, back to you. Thiago Piau: Thank you, Pedro. It's great to have you on board and I wish you great success. I will now pass it over to Lia, who will provide more details about our fourth quarter performance and strategic update. Lia? Lia Matos: Thank you, Thiago, and good evening everyone. I will start on slide five, with some highlights of our overall performance. In the fourth quarter, we surpassed our guidance in all metrics, reaching R$2.7 billion in total revenue, R$316 million in adjusted EBITDA and R$235 million in adjusted net income. As Thiago already mentioned, this quarter reinforced a good balance between growth and profitability within our business. Now let's move directly to slide seven, so we can discuss our performance in the Financial Services segment. In the fourth quarter of '22, revenue increased 49% year-over-year to reach R$2.3 billion. Adjusted EBITDA increased to R$286 million with margins increasing from negative levels in the fourth quarter of 2021 to 12.4% in the fourth quarter of 2022 showing our discipline in allocating capital to grow our financial services platform. Moving to slide 8. Our MSMB payments client base increased by 48% year-over-year to 2.5 million active merchants, with 212,000 net additional clients. Regarding our net adds strength, our focus has been and will continue to be on on-boarding the best clients both in SMB and in micro segments, reaching healthy levels of contribution margin per client, higher average TPV within each client's tier and lower churn. Also, by optimizing our commercial strategy of tone and stone offerings, within our multiple sales channels. We were once again able to see client base growth in all client tiers this quarter. I think this approach is pretty unique in the market and has led us to good levels of profitable TPV growth, as I will show on the next page. MSMB TPV reached R$82 billion in the quarter 4% higher than the high end of our guidance of between R$78 million and R$79 billion and growing 23% year-over-year almost two times industry growth levels. We were able to produce that growth, while increasing our take rates by 50 basis points year-over-year. MSMB take rate remained stable sequentially at 2.21% which was positively impacted by higher average prices in the quarter and positive client mix, offset by a seasonal increase in debit over credit volumes. On slide 10, I show some highlights of our banking business, which has evolved significantly in 2022. This quarter, we have reached 693,000 merchants actively using our banking solution, a 41% year-over-year increase with client deposits growing 84% in the same period, reaching R$3.6 billion in the fourth quarter of 2022. I think the evolution in overall client deposits speaks to the quality of our client base, with a healthy mix in terms of average TPV, and the value of having our banking solution attached to our acquiring solution, with no incremental marketing investments. Not only does that provide a superior experience to our clients, who can rely on having the complete banking and acquiring experience in one single application, it also provides us with a steady flow of cash and volumes from card TPV, PIX and other payment methods. As an example of this additional engagement, PIX and volumes tripled in 2022 to R$44 billion, and increased 22% quarter-over-quarter mainly driven by higher fixed PIX and volumes. Another important highlight worth mentioning is the launch of Super Conta Ton in the first quarter of 2023, our full banking solution for micro clients. We expect Super Conta Ton to drive growth of overall level of deposits and banking revenue going forward. I also want to take a brief moment to update you on where we are on credit. Our focus in the second half of 2022 was on building a fully automated process for credit underwriting and grants to include the Stone App. We also made our decision models more sophisticated through enhancement of data, strengthen the team reviewed and approved our risk policies, and run the first test with a small number of clients, with positive initial results. In the first half of 2023, we expect to expand the size of our testing with clients with an emphasis on management guarantees, testing and improving the quality of the decision models and credit life cycle monitoring and renegotiation through the app. In the second half of the year, we want to begin scaling working capital loans to our clients. We will take a conservative approach and the level and speed at which we do so will depend on the macro scenario and our risk appetite. Our initial focus will be providing working capital loans to the SMB segment. We're also planning the launch of credit cards to both micro and SMB segments and are exploring opportunities for cross-selling credits and links. Moving to slide 11. I want to briefly talk about key accounts. As we've been reinforcing for some quarters already, we have been shifting our priority from sub-acquiring business to platform services within this segment. I want to remind our investors that platform services encompass a range of client segments that distribute our solution by integrating our payments and banking platforms to their own offerings such as software providers, e-commerce platforms and omnichannel retailers. We see an attractive opportunity to continue to serve these client segments, which is evidenced by the strong level of growth in Platform Services TPV. The effect of this decision is the decline in sub-acquiring volumes and an improvement in overall key account take rates. This quarter key account TPV decreased 18% year-over-year due to a 57% decrease in sub acquired volumes and an increase of 32% in Platform Services TPV. On slides 12 and 13, I'm going to shift to discuss some performance highlights of our software segment. On slide 12, we can see a consistent growth in our top-line combined with improvement in our operating margins. Revenue grew 21% year-over-year to BRL376 million and our adjusted EBITDA more than doubled year-over-year to BRL61 million with adjusted EBITDA margin increasing 760 basis points to 16.2%. This improvement in margins is mainly related to dilution of fixed costs, normalized cloud costs and ongoing cost control efforts. In slide 13, I will recap some elements of our strategic evolution and software. Our core POS and ERP continues to be the driver of segment growth with revenues increasing 23% year-over-year due to an increase in locations and in average ticket. The performance in the core reflects the unique attributes and vertical breadth of our solutions that have a leadership position in several retail verticals such as apparel, footwear, optics, pharma among others. As we evolve our software strategy, we see the central priority of our digital solutions being to enable those brick-and-mortar clients to sell more through digital channels by using our marketplace hub, e-commerce platform or order management system. Digital Solutions had a lower growth of 4% this quarter, especially, due to the weaker performance of our ads and impulse businesses. A crucial evolution in 2022 was the integration of our financial services platform to POS and ERP solutions in strategic software verticals. We believe this will be key for us as it opens up an important cross-sell opportunity to be explored through differentiated offerings to our clients. The focus for 2023 on that front will be to build the optimal go-to-market strategy, leveraging both the Stone distribution through the hubs as well as our software distribution franchisees. Finally as we did in 2022, in 2023 we will maintain the same approach to cost discipline, while we invest in developing new products, improve our clients' experience and explore selective M&A opportunities to gain ground on new strategic verticals. Now, I want to pass it over to Rafa so he can discuss in more detail some of our key financial metrics. Rafa? Rafael Martins: Thank you, Lia. I will now begin on slide 14 to discuss the evolution of our costs and expenses. Before I talk about the quarterly evolution, I would like to zoom out to the evolution in the year because I think it shows the tangible results of our focus in improving the profitability of the business. Throughout 2022 we saw operating leverage gains in almost all lines. Our cost and expenses as a percentage of revenue decreased more than 1,400 basis points in the fourth quarter compared to the prior year. Cost of services decreased from 34.5% of revenue in the fourth quarter 2021 to 25.8% this quarter, a gain of 870 basis points. Our selling expenses as a percentage of revenue decreased 200 basis points to 15%. Administrative expenses grew less than our revenue gaining 130 basis points of operational leverage. Financial expenses decreased 270 basis points as a percentage of revenue as our positive cash flow generation gave us comfort to use more of our own cash to fund our prepayment business. Now let me give the main highlights of our sequential quarterly evolution. Cost of services as a percentage of revenue decreased 100 basis points to 25.8% mainly due to lower costs in software and efficiency gains in our registry business tags, logistics and banking. Administrative expenses as a percentage of revenue increased 100 basis points to 11%, mostly driven by nonrecurring, higher expenses related to third-party advisory and seasonal personnel expenses. As Lia will detail shortly, in 2023 a key priority for us is OpEx discipline and we do not expect this line to grow more than inflation along this year. We expect that administrative expenses will reduce on an absolute basis in the first quarter 2023. Selling expenses decreased around 40 basis points as a percentage of revenue as a result of roughly stable marketing expenses and despite increased investments in our sales force. Following the trend seen in the third quarter 2022, financial expenses decreased 3.1% quarter-over-quarter and as a percentage of revenue decreased 380 basis points to reach 33.4%. This is mainly explained by higher use of our own cash to fund our prepayment operations. Although, having a positive effect in financial expenses this has on the other hand led to a decrease of interest on cash as noted by other financial income decreasing BRL20.6 million quarter-over-quarter. Other expenses increased to BRL85.2 million in the quarter increasing 90 basis points as a percentage of revenue. The quarterly increase was mainly due to impairment from proprietary operational software and write-off of non-core assets amounting to BRL33.7 million, which were partially compensated by a gain in the sale of POS. As shown in slide 15, in addition to our P&L evolution, we have been consistently generating cash and improving our liquidity. Our adjusted net cash balance improved by around BRL385 million in the quarter reaching BRL3.5 billion at year-end. In the year, adjusted net cash increased by BRL1.2 billion. As I just mentioned, we have used a little more of the cash generated by our business to fund our prepayment operations, given our already very strong cash position. Before I talk about our first quarter 2023 outlook, a brief comment on a change we are making starting next quarter regarding our non-IFRS adjusted metrics. Starting next quarter, our managerial adjustments to IFRS results will no longer include adjustments related to share-based compensation expenses. Until now, we adjusted those expenses related to extraordinary grants and already did not adjust share-based expenses related to annual recurring incentive plans. To better align calculation, comparability and simplifying the understanding of our financial results, we decided to be closer to IFRS reported metric and stop adjusting all share-based compensation expenses from our results from the first quarter 2023 onwards. To help you reconcile our future results, we have provided in the appendix of our presentation and in our earnings release, historical numbers with the new adjustment policy. Now, moving to our first quarter 2023 outlook on page 16. We expect total revenue and income above R$2.6 billion in the first quarter, representing a year-over-year growth above 25.6%. For MSMB TPV, we expect volumes between R$77 million and R$78 billion in the first quarter compared with R$63.4 billion in the first quarter of 2022, representing a year-over-year growth between 21.5% and 23.1%. Finally, already considering share-based compensation, fully expensed in our income statement, we expect adjusted EBT of more than R$265 million compared to BRL 276 million for the fourth quarter. As a reminder, the first quarter is usually seasonally weaker compared to fourth quarters, because of higher volumes transacted during holiday season at year-end. With that, let me turn the conference back to Lia, so she can comment a bit on our priorities for 2023. Lia? Lia Matos: Thanks Rafa. In 2022, we have set up a strong foundation to execute on our 2023 and longer-term priorities. Let me just highlight where our focus as a team will be this year. You can follow those highlights on page 17 of our presentation. First, we will keep growing efficiently. Our plans for this year contemplate more OpEx discipline and a continued focus on MSMB growth, while maintaining our approach to pricing based on internal return hurdles allocating capital wisely. It is also imperative that we maintain a strong cash flow generation and overall liquidity position. This provides us with more flexibility to invest in the growth of our business. We will continue to work hard to expand our core through the evolution of our banking offers to micro and SMB clients, leading to higher client engagement. Together with this, we are on track to re-launch our working capital solution and launch our debit and credit cards to MSMB clients. We will further develop the execution of our software strategy, strengthening our approach to cross-sell financial services into software client base with differentiated integrated solutions. Finally, after an enormous evolution on this front in 2022, we will maintain focus on evolving our management system and enhancing Stone's unique culture. With that said, operator, can you please open the call up to questions. Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Sheriq Sumar with Evercore ISI. Please, go ahead. Sheriq Sumar: Yes. Thanks a lot for taking my question. I just wanted to get a sense on the margin outlook for 2023. I mean, I know operating efficiency is one of the key priorities. But how should we think about the trajectory for margin expansion? Like, based on the guidance that you have said, it seems like first quarter is going to be more or less flattish, but can we expect to see a good ramp-up for the remaining three quarters after that? Thank you. Rafael Martins: Hi, Sheriq, Rafael here. Thank you for the question. So, although, we are not providing specific guidance for the full year, I think that, as you said, our guidance for the first quarter implies pretty much the same EBITDA margin as the fourth, despite the weaker seasonality of the first quarter. When we look over time, we do expect to continue improving the profitability of our business. So there are quarterly seasonalities, but this is the overall trend that we expect. And I think that the main drivers for this improvement over time is as you said, number one, OpEx discipline, especially, in administrative expenses, higher client monetization, right, new solutions when they kick in and we start to have contribution margins from those solutions. We are seeing this already happening with banking, for example, which is evolving very well. And I think that the natural operational leverage, as we continue to grow our business with a healthy pricing policy, I think, this naturally tends to dilute fixed costs in the company. So, I think, that those are the main drivers that we see over time for margins. Sheriq Sumar: Thank you. And just have a quick follow-up on the top line guidance of about R$2.6 billion. I mean, I understand that there is some sort of seasonality that is factored in, in the first quarter, but if I look back historically, like you have been gaining top line growth sequentially by more than or approximately R$200 million. So is that like a good trend? Like, what would make the -- this cost to a slowdown in 2023? Rafael Martins: Yes. So, as you said, Sheriq, usually top line of companies involved in retail, they tend to be soft in the first quarter. And if you remember, the first quarter of 2022 was the quarter that we strongly increased prices, for example. So, of course, this makes the comps for in terms of year-over-year growth tougher. But I think that we -- as we said in previous calls, we have been balancing growth and profitability to levels that we think is healthy for the company and that will enable us to deliver on our [indiscernible], while improving the profitability of the company. Sheriq Sumar: Thank you so much. Yes. Rafael Martins: Thank you. Operator: The next question comes from Josh Siegler with Cantor Fitzgerald. Please, go ahead. Will Carlson: Hey, team. This is Will Carlson on for Josh Siegler. Congrats on the quarter. Wondering if you guys can give any color on, if there's been any material shift in terms of TPV year-to-date? And additionally, are you seeing any payment headwinds in the industry? Thank you. Lia Matos: No. Hi Will, this is Lia here. No different trends, I think in terms of TPV trends. The guidance that you gave last quarter for MSMB TPV implied a growth of around 18%. And we indicated in that call that our MSMB TPV growth in 2023 should be higher than that. And our current guidance in the first quarter of 2023 reinforces this indication and our view didn't really change since what we have said in the last earnings call. Thiago, do you want to add something? Thiago Piau: Yeah. Lia thank you. Hi Will, this is Thiago speaking. I think in terms of trends, the only thing that we are seeing which is actually a good result is that peak in is increasing a lot. So we are seeing that as the banking increased engagement with our clients, we experienced more cash in volumes coming from PIX both from P2P and P2M type of transactions. So I think that we are capturing this evolution. And this -- and we do not account in our TPV that additional volume that comes from PIX. So it's a positive effect that we are seeing in our banking execution. Will Carlson: Thanks team. That's very helpful. Thiago Piau: Thank you, Will. Lia Matos: Thanks Will. Operator: The next question comes from Tito Labarta with Goldman Sachs. Please go ahead. Tito Labarta: Hi. Good evening. Thank you for the call and taking my question. A couple of questions, I guess, first I think good job on maintaining the take rate despite the seasonality and the TPV growth was still strong. So just, how do you think about, I guess when the competitive environment and your ability to further re-price because it does seem that you were able to gain some share in SMB segment. Do you think that's sustainable? Do you think there's still room to increase pricing anymore from here? Just to think about how that can evolve? And then my second question also good on the financial expenses. You continue to use your balance sheet there. Do you see more room to sort of view some of the cash on your balance sheet to continue to reduce financial expenses here, or what's the level that you feel comfortable with to kind of reduce the financial expenses further? Thank you. Thiago Piau: Hi, Tito Thiago here. I will take the first part of your question. I think that regarding competition the landscape has been much more stable throughout the year and we continue to do so in the fourth quarter. In terms of take rate as you just said, there are some seasonality between third and fourth quarter because of additional debit volumes. So maintaining take rate is a positive for us. And because of that seasonality we expect take rates to increase in the MSMB in the first quarter, as the seasonality gets more credit and debit on the first quarter. So we think that the industry now have a very healthy level in terms of prices. All players' adjusted prices upwards over the last year mainly because of the cost of capital that obviously increased to everybody and our competition continues to be on a rational level. Rafael Martins: Hi. Tito, Rafael here. Regarding your second part of the question about financial expenses, as we have mentioned, the cash generation of the business gave us comfort to use part of our own cash to reduce financial expenses. I think that we are a more stable level now. So when you look at our financial expenses compared to our revenue, I think that we shouldn't change much from where we are right now. So we have been doing this for two quarters in a row. And as we have also indicated previously, financial expenses should grow over time more in line with our TPV and the changes in interest rates in the country. So I think that we are comfortable where we are right now. And, of course, we'll keep looking at opportunities to optimize our funding. Tito Labarta: Okay. Great. Thanks, Thiago. Thanks, Rafael. Rafael Martins: Thanks, Tito. Operator: The next question comes from Jeff Cantwell with Wells Fargo. Please go ahead. Jeff Cantwell: Hey, thank you. I appreciate this and nice results. I wanted to ask you if you could help us think through what we're seeing right now in MSMB both on the TPV side and with take rate for the go forward understanding that there are a lot of moving pieces with the macro right now. I was hoping we can kind of unpack the 50 basis point increase over the past 12 months and help us take that through in the take rate going forward. And also any thoughts on MSMB TPV as it's growing 23% right now? Just trying to get a little more clarity on what -- how that might play out over the course of 2023? Thanks very much. Rafael Martins: Hi, Jeff. Rafael here. Thank you for the question. I will start and then I'll pass it to Lia to add. So when we think about take rates, I think, we still have opportunity to improve MSMB take rate. I think and when we look at not only pricing right, which mostly drove our 50 bps take rate year-over-year increase, we'll keep optimizing prices, and of course, trying to improve unit economics, but also having the new solutions, especially banking and in the future credit helping us with take rate.. So the idea that we have is to keep improving monetization of our clients. We are already seeing that not only in payments. And I think that the nice -- what we observed that we liked was we were able to increase by 50 bps the take rate, while growing faster than the market in the industry. So I think that this is something also for us to note. Lia, do you want to add? Lia Matos : Rafael, if I may. I want to add three comments here. One Jeff is that the card association in Brazil have indicated that the industry should grow between 14% and 18% this year. And we expect to continue to gain market share, so we will continue to grow faster than the industry. As we said, we see space to continue to increase take rates. We expect to do so in the first quarter and continue this trend, because of our strategy of how we price our clients seeing all the relationships that they have with us, with all the projects. So as we add more capabilities to our offering, we have better space to offer a superior value proposition to them and then have a better monetization. And I think that the ability to grow game market share and increase take rates prove how strong our value proposition is. So those are the three comments I would like to add. Jeff Cantwell: Okay. That's great color. Thanks very much. And I wanted to ask a follow-up in the financial services segment with key accounts, and this is in reference to Slide 11. What's interesting -- this is in the presentation. What's interesting is the platform services that you're averaging, I mean, that increased by 32% and you're highlighting that the take rate has increased by 35 bps over the past year. So the question is how much it does that have to go, because we could see the sub-acquire piece declining. I'm curious if you can help us think through a little more about the go forward for key account TPV coming from Platform Services and also what that could mean for the take rate in the key account piece going forward? Thanks very much. Lia Matos: Hi, Jeff, I'm going to start here Lia and then if Thiago wants to complement. So this shift that we're seeing in terms of TPV in key accounts, I mean we've been talking about this over the last quarters. In terms of deprioritizing sub-acquire volumes, our approach there is completely opportunistic. We have our pricing policies and our hurdles and TPV may come or may not. That's not a focus for us. Our focus really is on the platform services clients. And those clients they have higher take rates simply as a result of the value that we offer to those clients by enabling them to integrate to our payments and banking platforms and distribute those solutions integrated to their offerings like software clients, e-commerce platforms, marketplaces. So we continue to see an opportunity to invest in this client segment. So we can expect healthy TPV growth in that part of the key accounts business and that will impact positively take rates as well. Thiago, anything you want to add? Thiago Piau: I think you said it all. Just a small comment is that Jeff we see platform services almost like a type of distribution channel where we can access more merchants and more SMBs through third parties. I think that the team has the ability to keep a similar pace of what we are executing today and that will result in better take rates for the whole key accounts segment as Lia just mentioned. Jeff Cantwell: Okay. That's great. Thanks very much. Appreciate it. Lia Matos: Thanks, Jeff. Operator: The next question comes from Kaio Da Prato with Banco UBS. Please go ahead. Kaio Da Prato: Hello, everyone. Good evening. So thank you for the participated questions. I have two on my side please. The first one is related to the Banking business. So we reached BRL 3.6 billion deposit this quarter. And I'm wondering here what are the next steps of the company in this front? Have you already requested any main license to the Brazilian Central Bank? If yes, what type of license and what is the time line for this? And finally, if you think about starting paying any yield on the port in order to foster growth going forward please? And then I will follow-up with my second question. Thank you. Thiago Piau: Hi, Kaio. This is Thiago speaking. Actually, we have BRL 4 in deposits BRL 3.6 billion from the MSMB segment. So there are some deposits from the key account segments too but the total deposits today is BRL 4 billion. We expect that our deposits will continue to increase, as engagements with the banking solutions are increasing in all segments, mainly the MSMB ones. In the first quarter, we launched a new offering from micro merchants called Super Conta Ton and we have good initial results. So we think that these trends will continue. And I think that in terms of the yields, today we don't offer yields on deposits to our clients. However, those deposits, they stay 100% in collateralized treasury floating bills by the Central Bank. So, we take interest on those deposits. And I think that we will continue to execute the bank strategy like that. We are not executing any different type of license at this moment. We think that the execution we have has a very low risk and provide good economics to the company. Kaio Da Prato: Okay. Lia Matos: Kaio may just add one point. I think it's on other relevant aspects of the evolution of banking, which is we're planning the launch of our credit cards in this year both for micro and SMB clients. So, that's an example of additional feature that we will offer that we expect to increase engagement with our banking solution. And I think I spoke about this in the call but the evolution in outstanding deposits really speaks to the quality of the client base and having the banking attached to the acquiring solution. So that pretty much guarantees that cash and volume from TPV from PIX as Thiago mentioned and other payment methods into the banking account. So, I think that was just wanted add. Kaio Da Prato: Okay. Thank you very much Lia as well. And those are questions I made which elicit to your funding source, if you can please detail a little bit more like what are the breakdowns or funding sources from prepayment operations this quarter? And if you can explain what you are seeing in terms of funding cost evolution since the beginning of the year in those lines please? Thank you very much. Rafael Pereira: Hi Kaio Rafael here. So, the majority of our funding sources for prepayment is the sale of receivables that we do to fund that operation. We also have some debt, right, on our balance sheet. When we look at the cost and the spreads, they have both in debt and in the sale of receivable. They have even slightly decreased quarter-over-quarter. So, I think that we are not seeing big changes there. Of course as we generate more cash and bring additional cash from our operations, we have more flexibility to deploy that in our business. But still today is the minority part of our fundings being that own cash, right, from own capital. So -- and that's even important because when you have different capital structures and different players with more equity for example deployed in that operation, of course, you could have less financial expenses, right? So, -- but in our case, I think that this has been the case given the growth of the company, right? Kaio Da Prato: Okay. Thank you very much. Had fun chat with you. Rafael Pereira: Thank you, Kaio. Operator: The next question comes from William Barranjard with Itaú BBA. Please go ahead. William Barranjard: Good night everybody. Thanks for the opportunity. So, I have a question related to the MSMB volume growth and how it reflects into your SG&A. So, it seems selling expenses are growing above TPV growth even the MSMB growth okay. So, I'd like to understand how do you expect this dynamic to unfold in 2023? And if -- as volumes growth are already healthy, so should we assume you will prioritize in 2023 controlling this -- the selling expenses? And if this is not the case why is this your choice? Rafael Pereira: Hi William, Rafael here. So I think that one of the dynamics in the selling expenses is when we think about the quality of merchants that Lia said for only is not only important to bring a client not only with a better TPV given the cohort of the client -- the tier of the client, but also a profitable client with a good contribution margin. So that's why when we look at selling expenses and compared to revenue we have seen an improvement quarter-over-quarter. This year we will continue to invest in our distribution because we do see profitable unit economics. So the way we look at selling expenses is whenever we see the new clients, the new vintages coming with healthy unit economics above the hurdles of return we have we continue to invest, right? As it is public information we are -- we have a marketing campaign in Brazil in the first quarter right with Big Brother. This has marketing expenses in there of course. A big part of that is non-cash because we have is non-cash. This is a part of our agreement with Global back in 2021-2020. And we believe that this is something that brings returns to the company. So the selling expenses is really aligned that when we have the opportunity to increase with good returns we are happy, right? So I think that's the dynamics that we see in that line. Thiago Piau: Hi. Thiago, here. William just to complement the picturing summary. Selling expenses as a percentage of revenues are gaining leverage there's still space to continue that trend although we continue to invest on our growth. And as Rafa, I think, that the agreement we made with Global give us the ability to create a powerful brand in Brazil both in Stone and Ton and the differentiation of those brands are an important part of our strategy with a non-cash investment because of the agreement we did with Grupo Globo before. So I think that this is a positive and a good differentiation in terms of how we are building our brands. William Barranjard: Okay. That’s clear. Thanks for the answer. Rafael Martins: William: Operator: The next question comes from Antonio [indiscernible] with Bank of America. Please go ahead. Unidentified Analyst: Hi, guys. Congrats on the results. So two questions on my side. The first one, if you could help us to better understand the figures from Abaco disclosed the guidance for well their perspectives of 14% to 18% of TPV growth for the year. When you look at this number how to think about it we have some players considering number of not very conservative what will the main drivers to reach this number here? And also a second one on funding costs. Do you intend to keep using cash as a way to reduce your funding costs in the coming quarters? That's it for my side. Thank you. Rafael Martins: Hi, Antonio. Rafael here. So regarding your first question that's right Abaco mentioned 14% to 18% growth in the industry this year. They do have a lot of data, right? So more data than we have. And I think, I would say that we are internally looking at the lower end of that range and -- but at the same time we are looking at as Thiago said to grow more than the industry. So we are not very worried with that if it will be 14% or 18%. Regarding the second part of your question in funding, I think, that as I mentioned before we think that the financial expenses compared to the revenue they should be pretty much where they are. We all -- we are always very conservative in the level of cash that we keep in our balance sheet. We have a lot of flexibility, strong liquidity to be able to address opportunities for growth quickly. And I think that this will continue to be the case, right? So I think that we are pretty much stabilized now in terms of funding. We'll always look to improve efficiency in funding, negotiation with our counterparties but I think we are at a more stable level right now. Unidentified Analyst: Great. Thank you guys. Rafael Martins: Thank you. Operator: The next question comes from Neha Agarwala with HSBC. Please go ahead. Neha Agarwala: Hi. Thank you for taking my question. I just wanted a clarification on the TPV growth. I understand the OpEx guidance. But I think you mentioned that the MSMB segment for you would grow north of 18%. Is that number right, or could the growth be stronger? My second question is on PIX. So I understand that you do not include the PIX volume in your TPV. But would it make sense to include that we'd be acquiring PIX TPV to the total volume base, because you can charge for the PIX TPV volume. And could you tell us what is the pricing for these PIX volumes -- TPV volumes? Thanks so much. Lia Matos: Hi Neha. I'm going to start your -- to answer your question regarding PIX and then I will pass it over to Rafa. I think regarding PIX, although we do monetize PIX P2M because that's a payment method that we enable our clients to accept through the POS. So I explained that the evolution in PIX TPV was mostly driven by PIX P2M volumes what we've seen in terms of behavior within our client base. Also reflects overall trends in the market, which is the first growth of TPV really came from substituting wire transfers and substitution for cash. But more recently what we've seen is a trend more strong towards PIX P2M. So that's a modality that we do monetize. We do not include PIX in our overall TPV, but we will continue to bring color on that evolution going forward, which we see as very positive because not only the PIX P2M is something that we monetize but also it really improves engagement with our banking solution in all client tiers. So I think that's the message regarding PIX. So I'll pass it over to Rafa to get to your other question. Neha Agarwala: Lia, if I could just clarify you monetized the P2M fixed transaction and you include the revenues, in your total revenues but the volumes are currently not included in the TPV base? Lia Matos: Perfect. Exactly that. So we monetize PIX P2M, Neha, in line with debit net MDRs and that's included in our transactional revenue. Neha Agarwala: Okay. So that would be about 60 basis points or so 50 basis points to 60 basis points? Lia Matos: Depends on client segment that we're talking about. It can range because larger clients naturally are going to have a lower net MDR, smaller clients are going to have a higher but it's in line with that debit net MDR. Rafael Martins: Neha, Rafael here. Regarding your first part of the question of TPV, I think you're right, right, when we say the 14% to 18% growth of OpEx, we have mentioned in our last earnings call that MSMB TPV should grow over – above 18% right this year. And I think that, this still holds true. Our guidance for the first quarter implies over 20% growth. So I think answering your question, yes, it is possible to be better right than the high end of CapEx range. Neha Agarwala: Perfect. If I could ask, please in just one more question. Competition in the SMB space, I believe, it is much more disciplined. You're not seeing anybody being aggressive on pricing. And you don't want to be aggressive on pricing. You want to focus on profitability this year. Please correct me, if I'm wrong. What about the long tail? In the long tail would you like to be more aggressive in pricing taking more shares, or are you seeing players being more aggressive in terms of pricing in the long tail. If you could just give us some color on both these segments separately that would be very helpful. Thank you. Thiago Piau: Hi, Neha, Thiago here. I think that, about competition as I said, I think that competition is much more stable now in the SMB, we priced higher than our competitors. And in the micro space, we price in line with our competitors I think that that's the color I can give you. Neha Agarwala: Perfect. Thank you so much. Lia Matos: Thank you, Neha. Operator: The next question comes from William Tang with Susquehanna. Please go ahead. William Tang: Hi, guys. Thank you very much for taking my question. I was thinking about credit. And I guess, this is very broad, but how do you think investors should think about the timing of the expansion of credit? I know it's a big part of the business but then the company took a bit of a break recently. So, just how should we think about the timing of the expansion of credit there? Lia Matos: Hi, William, Lia here. So as I mentioned just now, we are planning to start scaling credit in the second half of 2023. So I think in terms of the timing that's what we're planning for and we can expect expansion to happen more significantly towards 2024. That's what we have in our plans and we can give color on. William Tang: Okay. Perfect. And then I guess my follow-up here. While the company doesn't give longer-term guidance, do you generally see margin expansion from current levels over time? So, I guess phrased another way, do you feel that profitability margins now are – have peaked, or do they have more runway? Thiago Piau: Hi, William, Thiago here. I think that in terms of margin as Rafael said, we see a space to continue to increase margins. As we said, first quarter has a seasonal effect. So on a quarter-over-quarter basis margins should improve. And in terms of outlook, we are giving the outlook for the first quarter, and we are giving space for Pedro to come in the first quarter earnings call, and give more color about future outlook. William Tang: Okay. Perfect. Thank you, guys. Thiago Piau: Thank you, William. Lia Matos: Thanks, William. Operator: The next question comes from Natalia Corfield with JPMorgan. Please go ahead. Natalia Corfield: Hi, guys. Thank you for taking my question. I have two questions for you. The first one, I know that you are not considering buybacks of your bonds. However, given current prices at around like $0.68 on the dollar, I'm wondering if that has changed. And my second question is back to funding. Just to understand, how and you mentioned here the sale of receivables. Just to understand, how sales receivables have been both Americanas, and you're funding the local market in general for Americanas not only the sales of receivables, but also the CGX and loans with banks. How has this been post Americanas for you? Those are my questions. Thiago Piau: Hello Natalia, this is Thiago speaking. In terms of sales of receivables, we do have many outer parts in Brazil in the local market. So I think that we have the ability to continue our strategy to fund our business with sale of receivable without relevant changes in terms of funding prices. So that's why we are confident with the guidance we gave. So, if you see in the implied guidance, there is no material change in terms of how we fund our business or the prices we pay to get access to funding. So, it's pretty much a regular execution for first quarter. In terms of the bond, we do see an opportunity in terms of our bonds, in terms of the implied spread -- and we are always evaluating options to allocate capital wisely and we are following closely that. And we think that that is a good capital allocation opportunity for investors and we are following this very closely. Natalia Corfield: All right. So now, you consider a possible buyback of the bonds at current prices? Thiago Piau: I think that that's not the statement I'm saying. I'm just saying that we are following closely. And we see this as a good investment opportunity. We are following closely. Natalia Corfield: Right. And your sales receivables, you're saying that it hasn't changed from both Americanas or like is not even... Thiago Piau: It hasn't changed in terms of volume and almost no change in terms of price because of the number of counterparts we have. So no big changes in our execution. That's why we are confident with our guidance. There are no changes in terms of how we fund the business, no impact from the Americanas event in Brazil. Natalia Corfield: Okay. Thank you, very much. Thiago Piau: Thank you, Natalia. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Thiago Piau for any closing remarks. Thiago Piau: Hi everyone. As this is my last earnings call, I just would like to say a big thank you to all of you, especially to the incredible Stone team. It's a pleasure to lead this company. I learned a lot. I'm really excited with the path ahead. I think that this thing will do amazing and I'm here to support the business as a shareholder, very happy with the transformation of Stone in the previous years. Thank you, very much and bye-bye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Good evening, ladies and gentlemen, and thank you for standing by. Welcome to the StoneCo Third Quarter 2022 Earnings Conference Call. By now, everyone should have access to our earnings release. The company also posted a presentation to go along with its call. All materials can be found online at investors.stone.co. Throughout this conference call, the company will be presenting non-IFRS financial information, including adjusted net income and adjusted net cash. These are important financial measures for the company, but are not financial measures as defined by IFRS. Reconciliations of the company's non-IFRS financial information to the IFRS financial information appear in today's press release. Finally, before we begin our formal remarks, I would like to remind everyone that today's discussion may include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the company's expectations. Please refer to the forward-looking statements disclosure in the company's earnings press release. In addition, many of the risks regarding the business are disclosed in the company's Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov. I would now like to turn the conference over to your host, Rafael Martins, Vice President of Finance and Investor Relations Officer at StoneCo. Please proceed sir. Rafael Martins: Thank you, operator, and good evening, everyone. Joining us today on the call, we have our CEO, Thiago Piau; and our Chief Strategy Officer, Lia Matos. Today, we will present our third quarter 2022 results, discuss some recent trends and provide an updated outlook for our business. I will now pass it over to Thiago, so he can share some highlights of our performance. Thiago? Thiago Piau: Thank you, Rafa, and good evening, everyone. This quarter, we had strong growth with market share gains, doubled our profit sequentially, accelerated our net addition of clients and generated strong liquidity with improving adjusted net cash. Our profitability recovery is also gaining momentum. Five things that I would like you to keep in mind about this quarter. First, our business is growing at a very strong pace. Our revenue grew 71% year-over-year. We accelerated quarterly MSMB net additions to reach 2.3 million clients, and we accelerated our market share gains in payments. Two, we saw a consistent improvement in our profitability. We doubled our profit versus last quarter, with strong margin improvement and an adjusted EBT of R$211 million in the quarter, significantly above our guidance of over R$125 million. Three, our banking business continues to perform very well. We accelerated the growth of active banking clients and the volume of our client deposits, resulting in an increase in the average revenue per client. Fourth, growth in our software business exceeded 20% year-over-year, driven by our core POS and ERP solutions. The adjusted EBITDA margin in this segment increased significantly year-over-year and was stable quarter-over-quarter. We expect our adjusted EBITDA margin in software to improve in the fourth quarter. Finally, our business continues to generate cash. Our adjusted net cash balance grew faster, increasing by R$350 million this quarter and R$813 million year-to-date. I will now pass it over to Lia, who will provide more details about our third quarter performance and strategic updates. Lia? Lia Matos: Thank you, Thiago, and good evening, everyone. I'd like to jump straight to Slide 6, where we show the performance of our Financial Services segment. We're growing at a very strong pace, with revenue up 84% year-over-year and adjusted EBT up 70% or 111% quarter-over-quarter, resulting in over 400 basis points of margin expansion in the quarter. These strong results were driven by TPV growth, higher monetization of clients and more efficiency in cost and expenses as we will detail further. Moving to Slide 7. This quarter, we reached more than 2.3 million active MSMB clients with net adds increasing to 248,000. As we have been explaining over the last two quarters, this performance in net adds reflects the continued optimization of our commercial strategy to offer stone and stone products for each client segment needs resulting in positive net adds in both micro and SMB segments. I think this is a key indicator of the success we are having in our two-brand and multi-channel, go-to-market strategy. This strong growth in our client base was the main driver of our MSMB TPV growth. As shown in Slide 8, MSMB TPV grew 45% year-over-year to R$74.7 billion, above our guidance range of between R$73 and R$74 billion. I am particularly encouraged that this growth resulted in MSMB market share gains of 66 basis points compared to the total industry. Our MSMB take rate increased 11 basis points quarter-over-quarter, reaching 2.21%, mainly a result of more repricing in the third quarter. Moving to Slide 9, our banking active client base increased 33% year-over-year, reaching 561,000 clients, with deposits from MSMBs more than doubling to R$2.7 billion. We also increased the monetization on a per client basis, with ARPAC reaching R$44 compared with R$39 last quarter. I want to highlight an important trend in our banking business that will begin to take effect especially in 2023. As we sell more banking into our Ton client base, we expect to see a significant increase in our number of accounts, total accounts balance and overall banking revenues, although the average revenue per client should decrease, as micro merchants have naturally smaller revenue contribution. I also wanted to give you a brief update on credit. We have started testing our new credit product and Gregor, our new Head of Credit, is already onboard. Our focus with the new credit product is to enhance our understanding of clients’ ability to pay on one hand, and, at the same time, enable our clients to better manage their cash flows when they use our credit solutions. Some of the elements that we are currently testing include an increased set of variables within our credit models, automated processes that makes it easier to renegotiate the credit, and the inclusion of our hub operations in the credit lifecycle of clients. We will start with a working capital and a credit card-related product, but we expect to expand our portfolio to provide a broader set of products in the future. We will take a conservative approach given the credit cycle the market is facing and expect to ramp up our credit client base in 2023. Moving to Slide 10, I want to remind you that over the last year, we have been continuously deprioritizing subacquirer volumes because of their low profitability, but we remain focused on platform services. As a result, subacquirer volumes decreased 56%, while platform services TPV grew 63% year-over-year. The net result was that Key Accounts total TPV decreased 20% year-over-year. We expect Key Accounts TPV growth to trend upwards once we have rolled off more subacquirer volumes. Due to this mix shift and higher prepayment prices, take rates increased sequentially to 0.95% from 0.86% in the second quarter of 2022. I will now shift to software on Slide 11. Software revenues increased 22% year-over-year, reaching R$366 million. Adjusted EBITDA more than doubled year-over-year to R$55 million, with a margin of 15%, relatively stable versus last quarter and approximately 830 basis points higher year-over-year. This quarter, software margin was affected by non-recurring cloud costs, which we expect to normalize in the fourth quarter of 2022. We expect our EBITDA margins to improve in the short-term. On Page 12, I want to highlight a few points on the evolution of Software. Core POS and ERP solutions continue to drive the growth in the segment, increasing revenue by 23% year-over-year, mainly due to the increase in the number of POS and ERP locations as well as average ticket. Digital solutions returned to growth this quarter, increasing revenues by 10% year-over-year, benefitting in part from the acquisition of Plugg.To, a solution that helps clients sell online through integration with marketplaces. The integration of our financial services and software products continues to progress. We integrated Payments and PIX acceptance in all software verticals and Stone Banking into the ERPs of 12 verticals. While we're still evolving our go-to-market strategy, I believe that this will be a strong differentiator in the way we bring financial services and software to our clients, and we're monitoring our progress here very closely. Now I want to pass it over to Rafa, so he can discuss in more detail some of our key financial metrics. Rafa? Rafael Martins: Thanks, Lia. In Slide 13, I would like to highlight our trajectory of solid growth, combined with a strong recovery in our profitability. Our revenue grew 71% year-over-year to R$2.5 billion and our adjusted net income more than doubled sequentially to R$163 million. As Lia mentioned, our MSMB TPV grew faster than the industry, but we also gained market share on a consolidated TPV basis even though we continue to deprioritize sub-acquire volumes. Based on industry data, our MSMB segment gained 66 basis points of share this quarter, and our consolidated payment business, including key accounts, gained 41 basis points of share. As shown in Slide 14, our adjusted EBT reached R$211 million, 69% above our guidance, representing significant year-over-year and quarter-over-quarter growth. The outperformance relative to our guidance was mainly driven by better-than-expected revenue net of funding costs in financial services including a successful repricing strategy. In Slide 15, I'll talk about our costs and expenses, focused mainly on quarter-over-quarter trends. Cost of services as a percentage of revenue decreased 40 basis points to 26.8%. This gain in efficiency was driven by strong growth in revenue, which more than offset a nominal increase of R$45 million in cost of services in the quarter. The increase was a result of higher investments in technology and logistics, increased costs with cloud and data center and depreciation and amortization. Cost of services include upfront costs related to acquisition of new clients and despite strong growth in our client base, this line reduced as a percentage of revenues, both year-over-year and quarter-over-quarter. Administrative expenses as a percentage of revenue had a slight decrease to 10%. Nominally, it grew R$20 million sequentially, mainly due to higher personnel expenses. Selling expenses had an increase of around 80 basis points as a percentage of revenue, mainly due to investments in the sales team largely focused on the hubs as well as marketing expenses. Finally, financial expenses decreased 1.4% quarter-over-quarter. This was mainly due to a lower and more normalized duration of receivables sold to fund the prepayment business and the use of cash generated by our operations to pay down debt, reducing debt levels from R$6.8 billion in the second quarter to R$6 billion in the third quarter. Those two factors more than offset the higher prepayment volumes and higher interest rates quarter-over-quarter. In addition to our P&L evolution, this quarter, we continued to generate cash and improve our liquidity. Our adjusted net cash balance improved by around R$350 million in the quarter, reaching R$3.1 billion. In the first nine months of 2022, adjusted net cash increased by R$813 million. As I just mentioned, we have used cash generated by our business year-to-date to pay down part of our debt given our already very strong cash position. With that, let me turn back to Thiago, so he can comment a bit on our performance since the IPO, talk about the recent changes in our management and our outlook for the fourth quarter 2022. Thiago? Thiago Piau: Thank you, Rafa. This quarter, we are completing four years as a public company. I think that what the team has accomplished since then is remarkable. As shown on Slide 16, in the last four years, our active client base increased tenfold, reaching 2.4 million clients. Despite that growth, we still have only 11% market share in payments in Brazil, and we see an addressable market of more than 13.5 million MSMBs in the country. So there's still plenty of room to grow. Over that same period, we grew TPV by 4x, our revenue 6x and our adjusted net income by 83%. In four years, we've also created our banking business from scratch and currently have over 560,000 clients actively using our banking solutions. There’s still a lot to do in banking in terms of new products and features and we have a big opportunity with our credit products. While we are in the early days of our financial platform evolution, I’m very excited for the future of this business. Since 2018, we have also evolved from having a very small presence in software to becoming the number one player for retail workflow tools in Brazil, reaching approximately R$1.5 billion in annualized revenue. The combination of our financial solutions and software is a powerful differentiator in the market and puts us in a unique position to offer a superior value proposition to our clients. While we have expanded our business significantly, we have kept our devotion to serving clients with the highest standards of service. We also believe that our people and our culture are our most valuable assets. As you can see on Slide 17 we have continued to enhance our team, to support our expansion, attracting more talent and strengthening our company for the next decade. This quarter, we are pleased to welcome André Monteiro as our Chief Risk Officer, and Pedro Zinner, our next CEO. As we previously announced, I will become a Board member of StoneCo next year to focus my attention on developing key strategic and financial initiatives to drive the future expansion of the Company. Pedro Zinner will join the executive team no later than March 31, 2023 and will begin working closely with me and the management team in a transition period before taking on the CEO role. I have a deep trust in Pedro and I am excited to work with him as we continue to evolve the business. I remain strongly committed to Stone as a partner and look forward to supporting the team in this new part of our journey. With that said, I wanted to move to our fourth quarter outlook. While the World Cup and the macroeconomic environment may impact our results, we continue to expect strong core growth and improving profitability in our business. We expect a total revenue and income above R$2.6 billion, representing a year-over-year growth above 38.8% For MSMB TPV, we expect volumes between R$78 billion and R$79 billion, compared with R$74.7 billion in the third quarter. Finally, we expect adjusted EBT of more than R$250 million compared with R$211 million for the third quarter, With that said, operator, can you please open the call up to questions? Operator: We’ll now begin the question-and-answer session. [Operator Instructions] And it looks like our first question here will come from Geoffrey Elliott with Autonomous. Please go ahead. Geoffrey Elliott: Hello, thanks very much for the call and for taking the question. Could we get a little bit into the TPV numbers and outlook? Maybe first of all, could you just confirm the TPV numbers that you report? Do they contain PIX? And what’s the contribution from PIX in the third quarter? And then thinking about MSMB TPV growth going forward. There’s clearly a bit of a slowdown implied by the guidance for the fourth quarter, if we look at the year-on-year growth rate? Can you give us any preliminary thoughts about what sort of MSMB TPV growth we should be expecting in 2023? Thank you. Rafael Martins: Thank you, Geoffrey. Rafael here. Thanks for the question. I will start the answer, and then I will move it to Lia to complement the answer. So regarding the second part of your question of the MSMB TPV, as we have mentioned in our release, our guidance does have some negative impact from the World Cup between R$2 billion and R$3 billion. And I think that if you look at a year-over-year perspective, last year in the fourth quarter, we had a very strong comp as we grew TPV by 87%. So it’s natural to see that is – that you mentioned. Looking ahead, we expect that the growth in 2023 should stabilize at a higher level than in the fourth quarter as we will continue to balance growth and profitability and do not anticipate further headwinds such as the World Cup. So I think that is looking quarter-over-quarter, we continue to see continued growth in our MSMB TPV. Lia, do you want to add? Lia Matos: Yes. Just complementing on the question related to PIX, Geoffrey. So this number does not contain PIX. And just a few words about big trends within our base. The – we see two main groups, and we talk about PIX. First, is the PIX substitute wire transfers, which we do not monetize. And second is PIX that we see as a payment method as an acceptance method, which can be reconciled and is integrated to the POS. And this mode of PIX we do monetize, we see gaining significant traction in our base. It’s growing a lot. And in terms of monetization, it’s more or less in line with debit net MDRs. It’s still small compared to overall credit card PV, but we see it gaining a lot of traction. Geoffrey Elliott: Great. Thanks very much. Thiago Piau: Thank you. Lia Matos: Thanks, Geoff. Operator: And our next question will come from Josh Siegler with Cantor Fitzgerald. Please go ahead. Josh Siegler: Yes. Hi, good afternoon. Thanks for taking my question. I’d love to start by diving a little deeper onto what you’re seeing in the competitive landscape, specifically for MSMB. I’m curious if you could provide some more color on the drivers behind your market share gains this quarter while the entire industry continues to experience higher take rates. Thank you. Thiago Piau: Hi, Josh, Thiago here. Thank you very much for your question. We see no big changes here in terms of competition from what we said in the previous quarters. We see that the market is much more rational and the industry still adjusted prices in the third quarter given the level of the volatility in interest rates. We continue to be very disciplined in terms of making pricing decisions based on minimum unit economic hurdles, and we are always balancing growth and profitability. I think that over this year, we have built new distribution channels. We have access in new markets like the micro merchant segment, and we are focused on improving our speed of growth in the MSMB. So I think that the combination of focusing ourselves is on creating more distribution channels and having the discipline to create the minimum return hurdle in the way that we allocate capital towards growth has produced these results. And in terms of competition, I think it’s more of the same, but the industry is being very rational and paying attention to interest rate volatility and adjusting prices as I think that happened last quarter. Josh Siegler: Understood. That’s very helpful. Thank you. And how are you thinking about the M&A environment right now in Brazil, specifically in the software vertical? Thank you. Thiago Piau: Hey, Josh, Thiago here back again. I think that in terms of software, we have opportunities in terms of the core POS and ERP solution in new verticals. But we think that valuations still have to adjust in this new interest rate environment. In order to produce returns, we think that we still have to wait for valuations to adjust. And while we are observing the market, we are focused on our organic evolution. So basically, the growth that you saw this quarter was based on organic execution. So we’ll keep paying attention, but we still have to see valuations adjusting better here in Brazil. Josh Siegler: Got it. Thank you for answering my questions. Thiago Piau: Thank you very much, Josh. Operator: And our next question will come from Sheriq Sumar with Evercore ISI. Please go ahead. Sheriq Sumar: Hi, thanks a lot for taking my question. I have a question on financial expenses. It came down sequentially. Just wanted to get a sense as to how should we think about going forward? And a second part to that question is that on the last call, you had mentioned lower CapEx in the second half of the year. So can we assume that you would be using this cash to pay down your debt? And how should we think about the use of cash in 2023 versus in CapEx versus paying down debt? Thank you. Rafael Martins: Thank you, Sheriq, for your question. Rafael here. So regarding financial expenses, we have a decrease this quarter, as you mentioned, for two main reasons. As we said in our last earnings call, last quarter, we have decided to increase the duration of our funding. And in this quarter, we have a more normalized level of duration. And also, we have paid down debt, which reduced financial expenses. We believe that in the short term, there is still space to have financial expenses growing less than revenue. Over the medium-term, like we said, our financial expenses should grow more in line with prepaid TPV and average interest rates. We always optimize our funding cost, the most efficient for any lines. So it’s natural that in our business, we sell shorter or longer duration receivables from quarter-to-quarter. Over time, such fluctuations should not be relevant. So, I think that -- and to your second point of your question about CapEx, as we anticipated previously, the CapEx levels for 2022 should be lower than last year, 2021. Of course, next year, this tends to normalize. We have decided to use part of our cash generation over the last year to pay down some debt, as you said, given that we have already a very strong cash position in our balance sheet. We will continue to invest in the growth of our business development of new solutions next year, but we’ll always evaluate those type of decisions and financial decisions depending on the cost of interest rates and our debt so we can become more and more efficient. Thiago Piau: Rafael, Thiago here. Can I complement? Rafael Martins: Of course. Thiago Piau: So Sheriq, Thiago here. Just to give a little bit more color on 2023. Although we will continue to invest heavily on our growth, we think that the company will continue to generate cash additionally to the investments we are making to grow and we will use that cash generation to strengthen our capital structure next year. So, I think that this effect or maybe decreasing a little bit, the level of liabilities of the company will continue because we expect strong cash flow generation next year. Sheriq Sumar: Thank you so much. And just one follow-up. On the macro front, it seems like, obviously, the forecast for Brazil GDP and inflation has been improving, I would say, slightly though. But can you talk about as to where are you seeing trends change? And where are you seeing still weaknesses happen in the spending pattern in Brazil? Thiago Piau: Hey Sheriq, it’s very difficult for us to comment on that front right now. I think that the macroeconomic environment changed a lot in the last three weeks. What I can say is that we are paying attention very closely to inflation in order to adjust our contracts in software, and we are paying a lot of attention to interest rates to adjust the price in our financial segment solutions, and we will reflect the macroeconomic environment in our pricing immediately. So, we are managing prices very closely, and we will create much more dynamic into the next quarters. But I think that now it’s a time to paying attention and move as fast as we can to adjust the entire company, but difficult to say where this will end. We have to wait and see a little more. Sheriq Sumar: Thank you so much. Appreicated. Thiago Piau: Thank you very much Sheriq. Operator: And our next question will come from Tito Labarta with Goldman Sachs. Please go ahead. Tito Labarta: Hi good evening everyone. Thank you for the call and taking my question. I wanted to get some more color on sort of the credit outlook, and you talked about some kind of in pilot mode. But can you talk to us a little bit some of those pilots? When do you think credit could become an important part of the business again? What would you need to see to get more aggressive there? Just to understand when that can be a contributor at some point? And then just second question, just any color you can give in with the cap on the prepaid interchange, do you expect to realize all the benefits of that? How much could you benefit from it? Would you give some of that to your customers to help offset sort of the lower interchange anyway? Thank you. Lia Matos: Hi Tito, Lia here for the question. So first, regarding credit, I think no big update other than what I just said in the call and what we also highlighted last quarter. We’re still in test mode, and we’ll keep you posted as we have more updates. Our plan looking ahead is really to be ready to relaunch towards the first half of next year. But we really want to take a conservative approach to be able to test the full credit cycle with clients before making the decision to scale further, which will probably happen more towards the second half of next year. Now, we have Gregor on Board, which is really great and the team is in place and working really hard towards this plan. So I think that’s the update that we can give regarding credit. We still think that that’s a big opportunity ahead like Thiago said. And we’re really focused on implementing this plan. I think regarding interchange cap, the impact is really going to be very dependent on competitive dynamics. We do believe that players will be more rational and it will take some more time until the full effect this past due to merchants. With that said, we believe that this benefit could be somewhere between a 100 million and 200 million in our EBT for 2023. Tito Labarta: Thank you, Lia. It’s very helpful. Thiago Piau: Tito, Thiago here. Just to complement Lia’s answer about the interchange changes. I think that if we pass anything to our clients, it’ll be a small amount. We are focusing on improving margins. With that, I think that we gave away our margins in order to benefit our client base over time. I think that this change creates a more balance in the industry and should be recognized as an improvements in terms of margins for our industry. So we’ll be focused here on trying to keep as much as we can to benefit our margins. Tito Labarta: Great, thanks, Thiago. Thanks, Lia. One follow up on the credit, any of the under receivables market and do you plan to eventually ever use that the collateral to back the credit? Have all those issues been resolved? Is that something that you won’t consider? Again, just curious, any updates on that? Thiago Piau: Hi, Tito. Thiago, here. Yes, they are part of our execution in our plans, but I think that the big evolution we are doing here is increasing the level of data that we can take from other providers of our clients and including the information relationship that we have in our hub. So yes, we are considering the receivables as collateral. We’ve defined our strategy previously based on that. I think that what we are doing is improving our ability to access – the ability of our clients to pay back the loans and improving the data that we can take from third-party partners and improving our ability to access our clients through the hubs. Tito Labarta: Great. Thank you, Thiago. Thiago Piau: Thank you very much, Tito. Lia Matos: Thanks, Tito. Operator: Our next question will come from Kaio Prato with UBS. Please go ahead. Kaio Prato: Hello, everyone. Good night. Thanks for the opportunity for asking questions. I have just one here on my side, please. I would like to talk a little bit more about the future trends. So I think this year you were vocal about mentioning that net income and profitability would gradually recover throughout the year. So I just would like to understand if this speech is maintained for 2023, if we should continue to see higher profits sequentially also in 2023. And what should be the drivers for this going forward, please? Thank you. Thiago Piau: Hi, Kaio. Thiago, here. Yes, I think that this continues – this trend will continue to 2023 based on two effects. We continue to allocate capital towards growth and we are finalizing, a very how can I say this, a very straight zero based budget made by our team that is rationalizing the way that we see COGS [ph] and SG&A. So I think that the discipline in terms of OpEx of the companies improving a lot. So revenue should grow faster than OpEx and I think that this operational leverage will take place in 2023, better than we what we did this year. So we expect that the trend of improving overall results and margins continues for 2023. Kaio Prato: Okay, thank you. And just a quick follow-up on your answer, you mentioned like cost discipline just to have a view if you can talk a little bit more your hub strategy for next year. If you foresee any additional investment to support market share gain or given what you said, you consider that at this current stage you are able to continue to gain share without accelerating investments? Thank you. Thiago Piau: Hi, Kaio. Yes, we see space to continue to invest in our hubs. I think that we are creating more density in the locations that we already have presence. With this discipline that we said that we are calculating minimum hurdles of return and pricing is something that we are using to adjust our speed of growth. But in the balance that we have today, we see space to continue to allocate capital towards the growth of the SMB using our hubs as the main strategy. So we will create more density next year and continue to grow. Kaio Prato: Okay, thank you very much. Thiago Piau: Thank you very much Kaio. Operator: And our next question will come from Mario Pierry with Bank of America. Please go ahead. Mario Pierry: First of all, congratulations on the results. Let me ask you two questions, okay? The first one is, when we look at your guidance, you met your guidance for revenues in TPV. But basically, those are two variables where you don't have much control. And you surprised us on COGS and OpEx. And that's what you control. So I'm trying to understand like why were you surprised on COGS and OpEx? Are there any specific initiatives that you have underway here to improve efficiency? Or are we seeing any synergies from the Linx transaction? And then I'll ask my second question. Rafael Martins: Mario, Rafael here. Thank you for the question. So I think that when we look to the outperformance versus our guidance, I think, the main driver of that was that we underestimated a little bit the level of impact of the repricing waves we have done in the quarter. So I think it was less related to costs and expenses, but more related to the extent of the pricing wave as we have done. We have even done some additional pricing in September. So I think that, that was reason behind the outperformance of the guidance, which led to a revenue net funding costs higher than we expected. Thiago Piau: Rafael if I may complement, Mario, just regarding synergies with Linx. We are doing two things here in terms of OpEx. One is integrating the portfolio of companies that we have invested over time into the Linx management system and the other one is integrating the back office of Linx into Stone. So I think that this is creating more efficiency, and we will see more results of that next year. So those are the things in terms of OpEx that we are focused right now. Mario Pierry: Okay. And then my second question then, Thiago, is related right to the change that you're going to the Board, you're bringing in Pedro. Someone that has a very different experience, right, like a completely different industry. So what attracted you guys to look for Pedro? How do you think the strategy changes? And as you guys pointed right on Page 16 of the presentation, fairly successful last four years since the IPO, we have over-delivered. So how should we see the strategy change and what exactly do you think Pedro brings to Stone given that the experience is completely different from what you guys do? Thiago Piau: Great, Mario. I met Pedro in March, between March and April, and I created a very strong relationship with him since he joined the Board, seeking his advices, talking about the opportunities and the challenges of our company. And I think that over that time, it was clear to me that Pedro has the capabilities and the personal values required for the next phase of our company. I trust him a lot. I will remain committed as a partner to support the company and the team in his new role as a Board member. And I think that we are always trying to evolve bringing in new people with additional capabilities to support the expansion of the company. And that's what we are doing. I think that we are adding more talent. Pedro will be, I think, a very good leader for the company. And I think that we will be stronger. So we are very happy with this movement. And basically, that is the rationale of it. He has the capabilities and the personal values for this next phase. Mario Pierry: And how do you think the strategy changes then? Again, as you highlighted on Page 16, you increased the presence in software, you were able to grow market share. If you were to think about the next like three years, how do you see the company evolving in which segments? Thiago Piau: Great, Mario. I think that we evolved a lot both in financial platform and software. And I think that we will continue to execute on our growth plans but with more discipline. And I think that the capabilities in terms of leadership, management, we move over a lot, and Pedro will be a very big contribution on that front. I think that in terms of strategy, once Pedro is here, 100% on board. I think that you will be able to listen from him. But I think that the company is well set in terms of the results we are delivering and the direction we are heading, but always evolving. So I think that we will continue to evolve. Once we have our investor, they will be able to give more color about what we are planning for the next five years. We are just finalizing our five-year plan revision now. So I'm very excited with the business. And I think that we will be happy to listen more about this from Pedro in the next coming months when he is here 100% on board. Mario Pierry: Okay, now that’s perfect. Thank you very much and good luck with your new role at the board. Thank you. Thiago Piau: Thank you very much, Mario. Thank you very much. Operator: And our next question will come from James Friedman with Susquehanna. Please go ahead. James Friedman: Hi, Thiago, let me congratulate you. It's been a great four years, and we appreciate your leadership and accomplishments. So I had two questions. First for Lia and then for Rafa. So Lia, did you – I heard you say the call-outs about Pagar.me key accounts. But did you -- I don't see it in here, maybe I missed it, I apologize, but did you decompose the relative growth rates of Stone, Ton and the key accounts? And if not, could you just talk qualitatively about the relative growth rates? Thiago Piau: Hi James, Thiago here. I would just like to say thank you very much for your kind words, and I'll pass it over to Lia. Lia Matos: Hi, James, yes, so regarding TPV growth and breakdown, so the TPV growth in MSMB contains both Ton and Stone products and key accounts, we breakdown between sub-acquire volumes, which had a decrease as we've been communicating over the last quarter that we've deprioritized sub-acquire volumes within key accounts. And the other part of key accounts is platform services. So Platform Services contains our integrated partnerships that are software providers, that sell software integrated to our payments platforms, marketplaces, e-commerce platforms. So a lot of those platform integration solutions and embedded payment solutions are contained within Platform Services TPV. So I think that's the breakdown that I just wanted to clarify. James Friedman: Okay. And then. I’m sorry go ahead. Rafael Martins: James, sorry. To your question is that, when we look at our client tiers, SMBs and micros, we continue to grow the client base in all those years. So I think that although we report MSMB, we do have a focus to offer the right product for the right claims, the best-suited products for them. So – and I think that sort of a dual brand strategy has been very successful, and we have been able to grow both in SMB and micro. James Friedman: And then Rafa, if I could just follow up. So when you're expanding the financial and credit-specific products again. How do you view the relative importance of margin as you lean into the credit business next year? [Technical Difficulty] Operator: Pardon me, ladies and gentlemen; it appears we have lost connection to our speaker line. Please stand by while we reconnect. Thank you very much for your patience. Again, Mr. James Friedman, if you'd like to continue with your follow-up there. James Friedman: Thank you. And thank you for the prior answer. And I was just going to ask Rafa, as you lean into credit next year, how should we think about the importance of margin? Is that a key criteria for you as you roll that out further? Thank you. Rafael Martins: Hi James, I think that, as Lia said, the – we are being very conservative with the credit relaunch rate. So I don't think that credit will be relevant to our results next year if you look on a – like a bottom line perspective. I think that one of the measures, of course, is we have to have good quality credit with the NPLs that we want. So I think this is important. That, of course, should lead to margin contributions to our business. But I think that what is important for us is to see the credit cycle of clients, good quality, us helping the client to manage their cash flows and have very healthy cohorts of credit clients. So I think that over time, this should bring additional contribution margin to the company. Thiago Piau: Hi James, Thiago here just to help to complement. So in summary, low impact on margins on 2023, almost no impact on margin of 2023 from credit. Margins should continue to improve because of the trends we are already seeing. And then we expect positive contribution for 2024, 2025 and onwards. James Friedman: Understood. Thank you. Thank you Thiago. Thank you, Rafael. Rafael Martins: Thank you very much James. Operator: And our next question will come from Soomit Datta with New Street Research. Please go ahead. Soomit Datta: Two for me, please. One is just on the funding cost. I think you've talked about normalizing the duration of receivables. I mean this seems to make quite a big difference to the funding cost. I wondered just whether there was any difference in the level of kind of prepayment of TPV. And also wondered, I think when you talked about adjusting the duration of receivables in the second quarter have been around a slightly more cautious macro outlook. But when I look at your TPV guidance, we've kind of discussed on this call and when I take into account what's happened to the acquiring TPV market in Q3, which I think was down on Q2, it feels like there's a cautious outlook on the macro. But again, that doesn't seem reflected quite in the way you're kind of funding the prepayment. So it would be helpful just to get some clarity around that, please. Rafael Martins: Sure, Soomit, Rafael here. So I think that first, if we look at our liabilities, they have longer duration than our assets in prepayment business. So I think we are already conservative in the way we deal with our capital structure. Also, we have generated significant cash over the last year. And if we think about the amount of cash balance we had sit on balance sheet was a little over R$6 billion last quarter, and I think that we had, and we saw a space to keep being conservative and high liquidity levels, but also be a little more efficient in the way we fund the prepayment business. So I think that we're always looking at to be more efficient in that capital structure management. And of course, in the fourth quarter TPV trends that we saw, it does have some effects that shouldn't be recurring effects regarding World Cup. So I think that this is sort of the financial expenses dynamics this quarter. I don't know, Thiago, would like to add? Thiago Piau: Yes, Rafa, please. So Soomit, Thiago here. Just to help you understand trends, our prepayment business continued to perform very well. And as Rafa said, we think that in the short term, we still have space for funding cost to grow less than revenue from prepayments. But over time, we think that the funding cost should grow in line with TPV and the CDI rate. So short term, we think that it will grow less in revenue. Over the medium term, it should grow in line with TPV and CDI rates. Soomit Datta: Okay, that’s very helpful thank you. Thiago Piau: Thank you very much, Soomit. Operator: And our next question will come from Pedro Leduc with Itaú BBA. Please go ahead. Pedro Leduc: Thank you, good evening. Thank you for taking the question. A little bit on the banking side of things, thinking about your broader ecosystem, there for SMEs. You've mentioned deposits, R$2.7 billion. If you can give us a little bit of color on what the profile is, how fast they turn. And of course, you reinforced the banking team, you will increase product features as we think about Stone Bank in 2023, what do we think about products, the client profile, SMEs I imagine. And you also reignited your credit, you're still piloting it. But if you can give us a rough sense on how big of a loan book it could be in 2023 by the end, assuming it goes well. It would be much appreciated. Thank you. Thiago Piau: Hi Pedro, Thiago here. I will start, and then I will pass it over. Thank you for the question. I think that regarding banking, what we can say is that today, banking is basically focused on the SMB. We still have space to continue to grow our banking client base in the SMB space because of the client base we have in payments, and we still have room to increase the engagement of our clients with our solutions as we rolled over more functionalities. Today, our clients, they still have to use bank accounts from other players because we are still lacking some functionalities. I think that once we have the full feature that we have planned to the segment, the engagement will increase, and this will produce better results. More than this, we are now moving our attention to provide more banking solutions to micro merchant space. Because Stone today has a very limited account, so we are not taking account in our numbers, clients from micro merchants. Once we expand our offering of banking to micro merchants that we create positive effects both on total standing balance revenues from interchange from the cards and activation of PIX. So there is a positive movement towards next year of moving banking towards the micro merchant space. So we see this as a very big avenue of growth for 2023. Lia, do you want to complement, please? Lia Matos: Yes. Just some quick additional comments. I think Thiago said most of this, Pedro. The evolution in deposits came from naturally the growth in the number of accounts, but also average outstanding balance per client increasing as well. So a lot of work to do there to increase the feature set, to increase engagement that we're already seeing very positive traction within SMB. I think one additional color regarding opportunity is we're excited to opportunity within Linx space, so integrating banking to the ERP of Linx clients. It's still early stages. So although the absolute number of clients is small, we're seeing very positive feedback from clients because this is an integration that really adds tangible value to facilitating client workflows, helping them better manage cash flows, automate their financial processes in a much better way. So that's the only additional color that I would give. I think our focus – our big focus right now is on SMB client base and selling banking into Ton client base, but we see a big future opportunity within PIX client base as well. Pedro Leduc: That’s very helpful. And a quick follow-up just on the potential number if you guys have budgeted loan book target for 2023 already. But on the banking side as well, understood very interesting. Thank you. Lia Matos: Hi Pedro, yes, no specific guidance on that. I think that the message that we gave on credit is the way that we see how 2023 will play out right now. Of course, we’ll give more color as we evolve. So I think that’s the message there. Pedro Leduc: Super. Thank you, guys so much. Lia Matos: Thank you, Pedro. Operator: And our next question will come from Domingos Falavina with JPMorgan. Please go ahead. Domingos Falavina: Yes. Hi, Piau, Lia, Rafael, everyone, thanks for taking the question as well. First, congrats, very nice to see the – I guess, the pricing dynamics. It’s been a while we see growing 3% Q-on-Q and revenues growing 16%, I mean a massive increase, especially adding the cost of funding. We see basically a 20 bps improvement in Plugg.To rate all inclusive Q-on-Q. My question on that front is, I know things are pretty spread, but if you had to simplify when did you pass the price adjustments, especially on the prepayments, like in which month of the quarter so that we kind of can guesstimate how much has been baked in, in the overall quarterly volumes. Second one is on taxes. Like you guys reached a 20% tax. You mentioned basically the mark-to-market does an impact. We remove into the valuation from the EBT and we get to like 36% tax, which seems pretty high. And when we look at the tax reconciliation, we actually see a lining effect of tax rates on mark-to-market of equity, about R$37.9 million and R$38 million. So I’m just a little curious like what exactly is the moving parts around this tax bracket that looks high if you remove a guess. Thiago Piau: Hi, Domingos. Thiago here. I think that the price initiatives we did were spread around the quarter. We see space for some slight increase for fourth quarter, but we are not focusing on that. I think that the spreads will continue to evolve on fourth quarter because as we said, we think that cost of funding should grow less than revenue, so that can produce better spreads for fourth quarter. That’s why we’re giving stronger guidance for 4Q. And we still have to see the dynamics in the industry between debit and credit as a very seasonal quarter. But I think that the trend of improving spreads will continue from fourth quarter and to 2023. And regarding tax, I think that you are right in your analysis. So we’re seeing exactly the same way. We think that we still have space to improve our efficiency, both on our entities and our treasury. So we’ll be focused on that. And we have a specific plan in terms of tax in our zero-based budget. So we are paying attention to that line very much. But we are seeing exactly the way you see it. Domingos Falavina: Perfect. And just to confirm, so you’re basically saying you’re starting in August – July, August and September. So it equally spread, it was not concentrated towards the end of the quarter. Price adjustments? Thiago Piau: Yes, you’re right. Domingos Falavina: All right. Thank you, guys. Congrats on the results. Thiago Piau: Thank you very much, Domingos. Operator: And our last question today will come from Nicolas Riva with Bank of America. Please go ahead. Nicolas Riva: Thanks for the chance to ask questions. So my first question is on the decline in your cash position by R$1.4 billion. So you mentioned you paid down some debt in the quarter. If you can discuss what type of debt it was, if it was bank debt, data insurers. And if it was basically because you couldn't refinance this debt at a good rate. And if you're paying down debt, then my question would be, why not buy back some of the 2028 bonds, given they're trading well below par. If you can talk about the way you think about buying back debt. And finally, on your adjusted cash position, so you make a lot of adjustments to the cash and their position. But I notice a new adjustment this quarter, which is included in the cash position the deposits from the banking customers, which has an offset liability for roughly – for basically, the same amount. So there's no impact on the net debt position. But my question is why this adjust – why this new adjustment? Why the change in disclosure now? Thanks. Rafael Martins: Nicolas, Rafael here. Let me try to answer all parts of your question. So first, when you think about the decrease in the cash position, as I said, this was our decision to be more efficient in capital structure, right? So if you think about one of the debts that we have prepaid was $400 million of our debenture on the beginning of July, right? And also some other CCBs that we haven't prepaid. It has nothing to do with our ability to refinance. By the opposite, I think that as the company has generated more liquidity, we have more and more funding lines from different counterparties. So, I think that was – it was really a decision to be more efficient there. And if – as you said, the adjusted net cash position that we have has increased. That adjustment that you mentioned about the banking is actually, our decision to be even more conservative in the way we look internally and managerially about net cash, because we have banking deposits with us. We do consider this as our adjusted debt, right? And we have banking assets as well that we consider as an asset. There is a technicality that part of the banking deposits that are in transit. We do have the ability, for example, to take that cash for ourselves. We don't need regulatory wise to put that in treasury. But when we look at the adjusted net cash position, we do consider this as a debt. So I think that we decided to do that way, not to like have the illusion that cash that belongs to the client in transit is our cash. So I think that we can go in details with you, but this reflects our approach internally of how we manage the liquidity. Nicolas Riva: Thanks very much [indiscernible]. Thiago Piau: I'm sorry, Nicolas. Just to complement and trying to summarize a little bit. In the end of last year, during the third quarter and fourth quarter when our margins decreasing, we decided to increase our cash position in order to give comfort for our debt holders. And I think that that was a very good strategy, but in the other way, we created some inefficient carrying a very big cash position. We decided to better manage and better balance this at this quarter. So we are very comfortable with the level of cash and the capital structure we have. And actually what is happening today as our results are improving is that the spreads that debtholders and the liability lines we have today, they're decreasing. So I think that as the results of the company are improving, we are accessing more lines with better prices and that's why we are comfortable to decrease a little bit the cash position and better balance to carry too much inefficiency on our treasury. But it's a very conservative approach. Nicolas Riva: Just one follow-up then, if I may. As you pay down some of this debt in the quarter, was there any thought given to buying back some of the 28s given they're trading at R$0.75? Thiago Piau: Not yet. We are paying attention to the opportunities regarding our bonds, but we are not – we didn't started to buy back our bonds yet. Nicolas Riva: Okay. Thanks very much Thiago. Thiago Piau: Thank you very much Nicolas. Operator: This concludes our question-and-answer session. I'd like to turn the conference back over to Thiago for any closing remarks. Thiago Piau: Hello, everyone. Thiago here. I'd just like to say thank you very much for your support. I'm very happy to see the evolution of our business. And today, I would like to pass the final remarks to Lia. Lia? Lia Matos: Thank you, Thiago. I want to say thank you for everyone for listening in. Big thank you to our investors for their continued support. And I just want to say that the team is happy with the results this quarter and really looking ahead for a great 2023. Thank you, everyone. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

Operator: Good evening, ladies and gentlemen. Thank you for standing by. Welcome to the StoneCo Second Quarter 2022 Earnings Conference Call. By now, everyone should have access to our earnings release, and the company also posted a presentation to go along with this call. All material can be found at www.stone.com on the Investor Relations section. Throughout this conference call, the company will be presenting non-IFRS financial information, included adjusted net income and adjusted free cash flow. These are important financial measures for the company but are not financial measures as defined by IFRS. Reconciliations of the company's non-IFRS financial information to the IFRS financial information appears in today's press release. Finally, before we begin our formal remarks, I would like to remind everyone that today's discussion might include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the company's expectations. Please refer to the forward-looking statements disclosure in the company's earnings press release. In addition, many of the risks regarding the business are disclosed in the company's Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov. I would now like to turn the conference over to your host, Rafael Martins, VP of Finance and Investor Relations at StoneCo. Please go ahead. Rafael Martins: Thank you, operator, and good evening, everyone. Joining us today on the call, we have our CEO, Thiago Piau; and our Chief Strategy Officer, Lia Matos. Today, we will present our second quarter 2022 results, discuss some recent trends and provide an updated outlook for our business. I will now pass it over to Thiago, so he can share some highlights of our performance. Thiago? Thiago Piau: Thank you, Rafa, and good evening, everyone. In the second quarter, we demonstrated consistent execution combining strong growth with improving profitability. We produced this strong performance in both TPV and revenue growth, while improving our operating margins in both of our segments. We achieved total revenue of BRL 2.3 billion, which was 5% above our guidance and up 83% year-over-year, excluding the negative revenue impact from the credit product in the second quarter '21 in pro forma for Linx. On the profitability front, our adjusted EBITDA margins increased sequentially from 4% in the first quarter to 4.6% in the second quarter, driven by improved operating efficiency in our financial services and in our software businesses. As we noted previously, following the partial sale of our stake in Banco Inter, we decided to stop adjusting the bond financial expenses in our results from the second quarter onwards. As a result, our adjusted EBITDA in the second quarter reached BRL 107 million, 19% higher than our guidance of over BRL 90 million. In our Financial Services segment, we were especially encouraged by 5 factors. First, the strong evolution of our payments client base, which crossed the 2 million mark with an acceleration of net adds in the quarter. Second, the strong MSMB TPV growth of 78% year-over-year, driven by both our active client base growth and a continued improvement in go-to-market strategy for TON and Stone products. Third, we were able to continue increasing our take rates, while we increased our average TPV for both Stone and TON products sequentially. Fourth, the expansion of our banking platform, generating more engagement and increasing opportunity to monetize clients in the future. And finally, efficiency gains in costs and expenses. As a result, the Financial Services segment revenue grew 3.4x year-over-year and 102% excluding the effects associated with the credit product last year. At the same time, EBT margins in the segment increased 3.8% in the first quarter to 4.3% in the second quarter. In our Software segment, revenue growth pro forma for Linx reached 23%, mostly driven by a strong performance in our core software. I'm encouraged by the margin evolution is softer with sequential improvement of almost 300 basis points in EBITDA margin, which reached over 15% in the quarter. This improvement was the result of continued efficiency gains and back-off synergies, even though we continue to invest in our distribution, customer service and marketing capabilities. We expect to continue ramping up our software margins in the second half of the year. I'm pleased with the consistency and direction of our results in the second quarter, and I think this is a solid step forward to producing strong results by year-end. Looking to the second half of the year, we will maintain our focus on building on these achievements. With that said, I will now pass it over to Lia, who will provide more details about our second quarter performance and strategic updates. Lia? Lia Matos: Thank you, Thiago, and good evening, everyone. As Thiago just summarized the main financial and operating highlights, I will dive a bit deeper into the drivers of our performance. Starting on Slide 7, I will focus on our client base trends. During the quarter, we reached over 2 million MSMB clients with net adds of 196,000, driven by strong commercial performance in both TON and Stone products despite some churn impact from our continuous pricing initiatives. We have continued optimizing our commercial strategy to onboard smaller clients onto our TON product, while we focus the Stone product on bigger SMBs. This approach addresses our clients' needs more effectively and provide superior unit economics for us. As you can see on Page 8, this strategy has led to better quality in our client base for Stone and TON, both of which grew average TPV over 30% year-over-year. This, combined with our client base growth, resulted in an MSMB TPV of BRL 69.9 billion, 3% above our guidance for the quarter and 78% higher year-over-year. At the same time, we improved our monetization with take rates increasing sequentially from 2.06% to 2.09% in the second quarter. On Slide 9, we highlight the continued expansion and engagement with our banking platform. On top of the growth in number of clients actively using our digital banking account, I want to highlight the sequential improvement in ARPAC, which reached BRL 39 per month this quarter compared to BRL 33 last quarter and 3x higher year-over-year, mostly driven by higher interest rates on average deposits from clients bank accounts. I also want to briefly update you on the performance of our legacy portfolio. This quarter, we received BRL 134 million of cash inflows, which decreased the fair value of the credit portfolio on our balance sheet to BRL 129 million. On Slide 10, we will move on to our key accounts business. As we show on the left side of the page, TPV from key accounts had a slight decrease during the period as we continue to deprioritize sub-acquires. On the other hand, the TPV growth in platform Services was strong at 95% year-over-year. Due to this mix shift and the increase of CDI rates, take rates have increased sequentially to 0.86%. Now let's shift to our Software segment on Slides 11 and 12. Software revenue in the second quarter of '22 reached BRL 351 million, representing 23% year-over-year growth pro forma for Linx. At the same time, adjusted EBITDA also improved, reaching BRL 53 million with 15.2% adjusted EBITDA margin compared to 12.3% in the first quarter and 9.2% in the second quarter of '21 pro forma for Linx. We expect profitability improvements to continue throughout the year as we capture these efficiency gains and cost synergies even while we continue to invest on several fronts. On Slide 12, I want to highlight the main drivers of this performance and the progress of our software strategy. First, software revenue growth was driven mainly by core revenue growth that was up 28% year-over-year, driven by the higher number of POS and ERP locations and average ticket as well as the consolidation of [indiscernible]. This result was partially offset by the digital business, which decreased revenues by 6%. In order to strengthen our strategy of helping our software clients to sell through multiple channels, we concluded the acquisition of Plugg.To, which streamlines integrations with marketplaces. We believe we have a huge opportunity here to help our clients become truly omnichannel and increase their sales. The second point I want to highlight is that we're gaining scale and improving margins. With annualized revenues of BRL 1.4 billion, we continue to generate operating leverage from our integration efforts and efficiency gains in costs and expenses, and we expect this trend to continue in the second half of this year. Finally, we see significant room to grow organically and through new investments in our core POS and ERP products, cross-sell financial services to our existing client base and help our clients sell more through multiple channels. Now I would like to pass it over to Rafa so he can discuss in more detail some of our key financial metrics. Rafa? Rafael Martins: Thanks, Lia. Before I go over our financial results, I would like to clarify that as anticipated in our last earnings release from the second quarter 2022 onwards, we will no longer adjust our results for the financial expenses related to our bond. To allow for like-to-like comparison, we have included in our earnings material historical numbers in the same criteria that we are now adopting. That said, starting on Slide 13, I would like to highlight a few key points. As you can see, our results are consistently improving with revenue and margins from both our Financial Services and Software segments increasing sequentially. Our adjusted net income was BRL 76.5 million compared with BRL 51.7 million last quarter, a 48% sequential improvement. For the rest of the year, we expect profitability to keep increasing while balancing it with healthy growth levels. As we have already detailed our top line trends, I will move directly to Slide 15 to focus on our cost and expenses pro forma for Linx. Following the trend, we started seeing last quarter, we gained leverage in most of our cost and expenses lines both quarter-over-quarter and year-over-year with cost of services and selling expenses being the highlights for the quarter. We will focus on our quarter-over-quarter evolution, which better shows our current trends. Cost of services as a percentage of revenue decreased 540 basis points, driven mainly by lower data center cost, efficiency gains related to our registry business and lower D&A. In administrative expenses, we had a small gain in efficiency as a percentage of revenue. As our business kept growing, we had higher third-party services expenses, which was the main responsible for the absolute growth in this line. As we continue to rationalize G&A growth, we expect to continue gaining leverage in this line over time. Regarding selling expenses, this line decreased almost 400 basis points as a percentage of revenue as our marketing expenses returned to more normalized levels. We will keep investing in our growth through commercial efforts in the second half of the year. Financial expenses, with the bond included in the previous quarters for comparison purposes, presented a sequential growth of around 710 basis points as a percentage of revenue, mainly due to 3 factors: first, the further increases in CDI rates that increased, on average, 20% quarter-over-quarter; second, a larger mix of prepayment revenue; and finally, our decision to increase the duration of our funding lines. Lastly, other expenses as a percentage of revenue had an increase of almost 190 basis points, mainly explained by the write-off of assets from the discontinued Linx Pay business in the amount of BRL 16.6 million, the write-off of POS equipment and other smaller effects. We are encouraged by the trends we are seeing, and we will keep looking for opportunities to be more efficient in the second half of the year. In addition to our P&L evolution, this quarter, we continued to generate cash and improve our liquidity. Our adjusted net cash improved by BRL 195.6 million in the quarter and BRL 455.6 million in the first half of the year, reaching BRL 2.6 billion. With that said, I will pass it back to Thiago, so he can provide you additional updates about our team and our outlook for the third quarter. Thiago? Thiago Piau: Thank you, Rafa. Before we move to our outlook for the third quarter, I would like to give you an update about some additional changes to our executive team. Marcelo Baldin, our Chief Financial Officer, is departing from the company after 5 years of services building out our finance functions and helping the company execute on its IPO. Baldin will be replaced by Silvio Morais, who was named as our interim CFO. Silvio, who has extensive experience in finance, including serving 20-plus years as controller at Ambev, will temporarily step down from our Board to assume his new duties. Also, Tatiana Malamud was appointed our Chief Legal Officer, a new role which will serve as part of the Executive Committee. Tatiana has 30 years of experience as in-house counsel and Head of Legal department for different financial institutions as well as deep experience in capital markets. We would like to thank Baldin for his valuable contributions to Stone over the past 5 years and wish him success in his new endeavors. I'm excited to have Silvio join the management team and benefit from his significant experience in finance. Also, I would like to welcome Tatiana to our team, and look forward to her developing this critical new role for the company. Finally, let's move to Slide 16, where we will share with you our third quarter outlook for the business. We expect a total revenue and income above BRL 2.4 billion, representing a year-over-year growth above 63.3%. For MSMB TPV, we expect volumes between BRL 73 billion and BRL 74 billion, with year-over-year growth between 41.4% and 43.3%. Finally, regarding adjusted EBT, we expect more than BRL 125 million without adjusting for the bond financial expenses compared to BRL 106.7 million for the second quarter. We still have a long path ahead of us, but we believe the consistent results achieved in the first half of the year demonstrates we are on the right track with an encouraging outlook for the second half of 2022, in which we continue to expand margins, while keeping strong growth levels. With that said, operator, can you please open the call up to questions. Operator: [Operator Instructions] And our first question today will come from Tito Labarta with Goldman Sachs. Tito Labarta: A couple of questions. I guess, first on the take rate on MSMB take rate. So a little bit more expansion this quarter. Just help us think about -- are you done with repricing there? Is there any more room to reprice? Is this kind of the take rate that we should expect from here? Because you also saw net margin adds accelerate. Just help us think about with repricing versus sort of merchant adds and your ability to add more merchants, how is like the competitive environment still allow you to do that? And second question, good job on costs and expenses, definitely seeing some improvements there. Is there more to do? Help us think about how that can evolve from here, where else can you save on cost and control expenses to improve margins from here? Thiago Piau: Tito, Thiago here. I will start with the first part of your question. Thank you for all the questions. If I miss something, please help me here to remind all the points. So first, regarding take rates, we have continued to reprice clients according to CDI. In the second quarter, repricing efforts were a little bit smaller than what we did in the first quarter. But now in the third quarter, we have intensified these repricing efforts. And so far, we are doing very well. We expect that in the third quarter, the improvement in take rates will be greater than the improvements that we had in the second quarter. So I think that we had the time to adjust our pricing policy to the value proposition of both TON and Stone products. And I think that we are performing well, the client base is performing well, and the net adds that we have shown this quarter, I think that proves our ability to navigate this environment. We are seeing a better performance in terms of commercial activities that we were expecting. So we expect better net adds for the third quarter too. Regarding competition, what I can say here is that in payments, it has been the same dynamics as always. We see the 6 main players in the market being rational regarding prices, which is good. In the banking credit, we continue to build capabilities to allow us to compete head-to-head with the incumbent banks. So we still have a lot of room in these additional financial services to our clients. And in software, competition tends to be more vertical specific and very fragmented, Tito. We continue to consolidate the industry given the strength of our solution and the strength of the team. So there's no big news in competition, but I think that the 6 main players in the market that dominate the majority of the market share are being rational in terms of pricing, and I think that this is positive for everyone. In terms of cost and expenses, we are improving discipline in the way we manage capital allocation in OpEx in our business. So we expect to continue to gain leverage in our lines. So we expect a better second half of the year in terms of discipline in managing OpEx. Tito Labarta: Great. That's very clear. Maybe just one quick follow-up on the competitive environment. You mentioned that everybody is being more rational now. How long does that rationality last? I mean, do you think once rates come down, do people start to get more aggressive again? Is everybody just kind of normalizing for the higher interest rates? Just help us think kind of long term how competition can evolve just given how competitive it's been in the past. Thiago Piau: All players were impacted by the CDI almost in the same way. There are some difference in terms of capital structure between players. But in the end of the day, I think that when the interest rates were moving up very, very fast and the competitors are trying to see what each other were doing, there are some delay on the pricing strategies of all the players. But I think that now this is behind us, we are not pricing our products based on competition. We are pricing our products based on the relationship we have with our clients and the evolution of our solutions for them. But we are seeing that the other players are more stable in relation to price and their strategy. So I think that these dynamics we have today will continue. If interest rate goes down, of course, some of that, it will be moved to clients. But I think that the industry will keep margins when interest rates ease. That’s what I expect. Operator: And our next question will come from Josh Siegler with Cantor Fitzgerald. Josh Siegler: So the average revenue per active client in banking continues to trend higher. Do you believe there's more room for it to expand in the back half of 2022 as interest rates remain elevated? Lia Matos: Josh, this is Lia. Thank you for the question. I think the short answer is yes. So as we continue to see our clients engage further with our banking solution, I think there's a few drivers there, right? Number one is average deposits are, of course, a big impact in the ARPAC, as I just mentioned, the evolution in the quarter. And that is correlated with interest rates. So as long as interest rates go up, that monetization will improve, but also average deposits are trending upwards. And also, as we deploy more features and help our clients in new banking solutions that also will contribute positively to monetization. So I think the trend in monetization in banking as we see it is very positive going forward. Josh Siegler: Great. And then if I could just have a follow-up. MSMB TPV came in above your expectations this quarter. Was that largely driven by higher TON adds? Or did average spending per merchant also surpassed your original outlook? Thiago Piau: Josh, Thiago here. I think that the positive surprise was the average TPV on both products. We were already expecting these improvements in net adds and we are adding net adds in all client tiers from the micro merchant space to the SMB and the medium clients. In all tiers of clients, we have a positive net add. But the average spending per merchant on both Stone and TON products came a little bit above our expectations, and this was a positive. I think that the client base has a better quality now. Let’s see how this movement will continue for the second half of the year. As I said, we expect to continue improving our net addition of clients because I think that we are managing the client base and the new sales much better now. So let’s see how the average [indiscernible] will behave, but I think that this trend will continue. Operator: And our next question will come from Mario Pierry with Bank of America. Mario Pierry: Congratulations on the results. Let me ask you 2 questions. One is on the efficiency gains that you talked about. I would assume a lot of this gain is coming from the incorporation of Linx, right, and there was a significant overlap. Can you talk about how much of the Linx's cost base has been reduced or how much do you expect to reduce? And just trying to get a better feel here for how much more cost savings we can see. And the second question is related to financial expenses, right. They are running close to BRL 1 billion per quarter now. But it seems to us that interest rates in Brazil are close to a peak. So just -- can you give us some type of sensitivity of your financial expenses to movements in interest rates in Brazil? That will be very helpful. Rafael Martins: Mario, Rafael here. Thank you for the question. So regarding your first question of efficiency, I think it's important to highlight that we are gaining efficiency not only in Linx and Software business, but also in the Financial Services front. So if we look at both segments, we are having OpEx efficiencies there. We do have an improvement in margins in software, right? The EBITDA margin went up from 12% to 15% this quarter. So yes, we are capturing cost savings in the software front. But also if some of the cost efficiency we had. For example, we had lower data center cost efficiencies with our registry business, our banking business also some cost efficiencies. So we do have cost efficiencies related to the whole business. And as Thiago said, this is something that refers to the whole Stone goal. When we think about financial expenses, as you said, our financial expenses, they tend to increase both with the average interest rates in Brazil and also the growth of our business. So if you look at our TPV, the consolidated TPV grew 9% quarter-over-quarter. The CDI increased on average 20% quarter-over-quarter. And if you add up those 2 changes, you'll see that it's pretty much what our financial expenses increased. So as the CDI rate tends to flatten, of course, it does have a benefit into financial expenses. But of course, as Thiago said, we do adjust pricing policies also accordingly. So I think that over time, you should see financial expenses stop increasing as a percentage of revenue as we have seen over the last year when the CDI sort of flattens. Thiago Piau: Rafa, can I add some comments here? Mario, Thiago here speaking, just to make 100% clear. When interest rate goes down, if it happens, we expect that we are close to the peak, as you said. If the trend in interest rates change and interest rate goes down, we expect direct POS contribution to our margins. So if we have an ease in interest rates, we expect to capture this as benefits in our margins in our results. Mario Pierry: Okay. That's clear. Just a follow-up then. On your headcount, can you talk about your total headcount today versus like 2 quarters ago or versus 1 year ago when you integrated Linx? Rafael Martins: Mario, Rafael here. Yes. So the head count today is a little over 14,000 people. It's pretty much flattish over the last half year. This is a result we commented on OpEx discipline, right? So the headcount is pretty much flattish. The increase in personnel expenses that you see in our results is pretty much the adjustments we have to do both legally and bringing new talents and more senior people. But overall, headcount is pretty much flattish. Mario Pierry: Do you see -- sorry, Thiago, go ahead. Thiago Piau : Thiago here. Just a comment. As I told you last quarter, I think that we already have the infrastructure we need in terms of people, both in distribution, logistics, customer service to attend our client base, and the growth that we have projected for the medium short term, and we are improving our productivity in the way that we design our processes. And now we have a new wave of growth, adding more products to our clients that we have not to increase our number of people. So we expect to continue to gain leverage in the personnel expense line. Operator: And our next question will come from Kaio Prato with UBS. Kaio Prato: So I have two here on my side, please. I think you completed a new partial sale of your stake in Banco Inter this quarter. The first one is, can you please confirm this to us? What was the impact in our earnings and cash? And what is your current stake in Banco Inter today? And what is your strategy on this going forward? And the second, we see that your cash generation was negative in this quarter again, and it's close to BRL 700 million cash burn year-to-date. So just wondering if you can please share with us what's your view about that. When do you expect to return to a positive cash generation? And what should be the main drivers for these going forward, please? Rafael Martins: Kaio, thank you for your question. So regarding the partial sale of the stake in Banco Inter, you're right. We have -- we had a little under 5% stake of Banco Inter. We have today around 4%. So basically, we sold that 1% stake that we had before. This was -- we received those proceeds at the end of June. So there is a very small effect in terms of those proceeds. And of course, when you look at the mark-to-market that we have, after we have sold, the mark-to-market refers to the stake we have remained. So as we have mentioned in the past, this is an investment we have made back then. And this is like not the core of our strategy right now to look at it. We have admiration for the Inter team, but this is not a big focus now. And we keep the stake we have in the Banco Inter. Regarding your second part of the question, we have actually generated cash and increased liquidity this year, almost BRL 0.5 billion. So our adjusted net cash position has led to BRL 2.6 billion. So that's the -- when we expect, of course, to continue to generate cash, our lower CapEx in the second half of this year versus the first half. And the idea is that our business continues to generate cash. Thiago Piau: Kaio, Thiago here. Just an additional color. We made just 1 partial sale of Banco Inter when we choose to receive the cash option when they migrated to NASDAQ. So there was – we have no news in our investment in Banco Inter. We remain at the same position we had, and we talked to the market in the last earnings call. So there’s only 1 sale when we choose the cash option in their migration in NASDAQ, and no updates on that. Operator: And our next question will come from Geoffrey Elliott with Autonomous. Geoffrey Elliott: You mentioned being 5% ahead of the outlook you provided. But in the sense, you were kind of further ahead really in June because the outlook was given at the start of June, and I guess, at that point, you had pretty good visibility into the April and May numbers. So can you help us understand where did you perform better than expected? And was it a particularly strong June? And then is there anything we can read into that as we look out into the third quarter? Rafael Martins: Geoffrey, Rafael here. Thank you for the question. So I think, yes, along the lines that what Thiago mentioned regarding the TPV that we saw a better performance than expected, I think we did see a strong June, as you mentioned. And that's pretty much the reason why we delivered a number that is higher than the previous guidance. So yes, when we look at top line, both TPV and revenue, they came above what we initially expected. Geoffrey Elliott: And given the strength in June, is there anything we can extrapolate from that? I guess, were you performing better than you expected in June? And can we kind of read through from that into July, August, September? Rafael Martins: Yes, I think that we -- the guidance we have provided for the third quarter already has some of those improvements versus the initial expectations. So as Thiago mentioned, when we look, for example, at the take rate evolution, we see a bigger evolution in the third quarter compared to the second versus the evolution we had now from the second versus the first. So I think we have incorporated those effects already in our guidance, and we are very committed to that guidance. Thiago Piau: Can I add a comment here? Jeffrey, Thiago here speaking. That’s a great question. I think that in our outlook for the third quarter, what we’re assuring here is that although we are comparing our growth to tougher comps because every quarter, it is harder to continue to grow at the same pace because the base of TPV is big. But we are saying that at the top of the range, we will be growing 3% on MSMB TPV, but total revenue would be growing at 63.3% at the top of the guidance. So I think that here, we show our ability to improve take rates through this guidance, and we are committed to the top of the range of the guidance. Operator: And our next question will come from Neha Agarwala with HSBC. Neha Agarwala : Could you please give us an update on your software business? How are you indicating the Linx products to your own SMB client base? Have you started cross-selling some products to your client base? And how is that process going? And the second question is on your credit business. Is that something -- you already mentioned that you are trying to design a product and do a pilot. How is that coming along? Lia Matos: Neha, Lia here. I understood you made 2 questions, 1 regarding software and 1 regarding credit, right? Neha Agarwala: Yes, Lia. Perfect. Lia Matos: Good. Good. Good. Okay. So let me start first with software and how we see penetration of financial services evolving into our software client base. So the penetration of financial services into our software client base has evolved sequentially, and this had a positive impact on the growth of platform services TPV, the 95% growth year-on-year on platform services TPV, because that's where we account for the TPV within our software client base. But to be clear, we still see a lot of opportunity not only in acquiring, but in integrating banking to the ERP. And when the time is right, in credit. So a few updates on the product side, Neha. We have made good recent advancements in product integration. So regarding fixed integration to the POS, which is when PIX is integrated as a payment method and it can be reconciled as a payment method, which greatly facilitates reconciliation for the clients, we have a big coverage of Linx POS with PIX enabled. The second point is a native integration of Stone banking into the ERP. This is in advance -- is a recent advancement that we have made. In the majority of the verticals, we have integrated the ERP to our strong banking, and it really facilitates clients' cash management workflow. We also have integrated our reconciliation platform to most of the vertical ERPs. And we have made also advancements in integration of mobile POS in some verticals where this really improves productivity in the store by streamlining checkout process. So these are examples of recent advancements we've made in integrations, and we expect naturally that these will help strengthen our software value proposition in the verticals that we offer them. When we think about credit within the software base, we think that this is an opportunity to address a little bit longer term because our priority in credit right now is focused on SMB clients within the Stone product. But if you -- I think we've talked about this before, right? If you look at the Linx client base, there is a big fraction of clients that are middle of the pyramid there. So what we call within the SMB space, and we think that there's an opportunity there to leverage the software data to be more assertive in giving credit to those clients. And regarding where we are on credit itself, I think the message is the same that we gave last quarter. So on the working capital product, we started testing in a very small scale, the product and the system improvements that we have made. We're really in test mode right now to test systems, collateral, the user experience, some features and enhancements that we've done in the product. And the idea is to continue these tests to run a full cycle before we actually decide to scale. So I think our plans haven't changed, and we are on track regarding those plans. We're also on track to start a pilot very soon with our credit card products and continue this pilot throughout the second half of the year. So I think those are the main messages regarding software and credit, Neha. Neha Agarwala: Could you also update us if the registered receivables, which had some operations problems, is that working better now? Is that something that you are keeping an eye on to see how that is improving? Thiago Piau: Neha, Thiago here. Can I go on Lia? Lia Matos: Go ahead. Thiago Piau: Okay. So Neha, regarding the registry of receivables, I think no big update here. We continue to follow the evolution of the 3 main players closely. We are integrated with the 3 of them, both in terms of our credit products and now we are starting to pay more attention in using the registry receivable to create projects to prepay receivables for our clients with acquirers. But we don’t feel that we have the system that is stable enough in order for us to incur in the risk only looking to that receivables that are being processed by the register. So we are still being careful on that. But I think that in the second half, that industry will evolve, and it will open big opportunities for us, both in terms of prepaying receivables that clients have with other acquirers, and this is a very big opportunity for Linx, for example, and to improve our collaterals in the credit project. So let’s see what the second half of the year will bring. Operator: And our next question will come from Pedro Leduc with Itau BBA. Pedro Leduc: Two for me, please. One, just seeing your guidance figure for 3Q revenues, BRL 2.4 billion. It's almost flat in respect to 3Q, mid-single, low single-digit expansion at most, which maybe it's just you guys have been conservative because of what we just heard net add strong, further repricing business evolving. It seems like this deceleration, I can't really reconcile them unless there's a big drop in the key accounts to come. So I just like to pick your brains around this, if maybe it's just conservatism or what you're seeing so far in the quarter. That's that. Rafael Martins: Pedro, Rafael here. Thank you for the question. So I think that we -- as you said, I think it's an important point. When we look at our revenue, we do have MSMB revenues and key accounts revenue in the financial services. Of course, key accounts revenue, they are more volatile, and also we are discontinuing some sub-acquiring business. So they can be more volatile. And of course, we want to make sure that we'll reach the guidance that we give. And of course, the guidance is above 2.4%. But I think that this is the best number we have right now that we are very confident that we will reach. But overall, when we look at the growth that this guidance implies, it's still a very strong growth year-over-year, over 60% growth in revenue that we think is a healthy pace versus the improvement in profitability that we want to have. So as Lia and Thiago mentioned, we are balancing growth and profitability in the second half of this year still, and we want to keep that consistent pace. So this is sort of the net effect of all those elements in our business. Pedro Leduc: Super clear. And the other question is a little more on the strategic business side. You recently saw -- you guys bring in Rodrigo Cury, former BTG banking, like retail or digital banking lead. Former -- before that, he was a part of big retail bank as well. And I've seen you guys mention banking services a couple of times in this call. I can't avoid thinking that you have all this budget to spend with global, maybe to boost that avenue as well. Am I correct in the line of thinking that this should be a major attention point for you guys in the near future? Thiago Piau: Thiago here. Yes, you are right in the line of thinking. We want to be a protagonist in financial services for merchants in Brazil. We are creating big efforts to improve our client base with the main projects. But on top of that, transform the company being perceived from our clients as the main financial provider to all their needs. And one of the big steps we are doing is improving our team and improving our ability to create new products, integrate it in a very simple way for our clients. So I think we have the capability, the distribution, the culture and how the team to execute. So let's see how we will evolve for the next 6 months and a year. But I believe that the new thing that we are bringing out Redrigo, João, Marcos combined with the pool of talent we have here and with Gregor will be a big boost in our strategy and our evolution. So yes, that's the direction we are heading. Operator: And our next question will come from Domingos Falavina with JPMorgan. Domingos Falavina: My question is just kind of trying to pick your brains on the pricing and what you guys take into consideration. So when we look at your MDR revenues, it basically grew about 9% Q-on-Q, which is good, is about in line with what we saw TPV growth. But when we add financial expenses, it basically shrink 1% Q-on-Q. And the part I struggle a little bit is hearing you say that your price not based on competition, which has, from what we hear, improvement in margin, but instead based on the relationship with your existing clients. So I guess my question is, when you're pricing is -- or you're baking in this rise in financial expenses, and I'm adding all the financial expenses because it's pretty hard to allocate managerially, where you're booking prepayment versus debentures or other weighted average cost of funding. And I guess, to a certain extent, like if you're not really pushing that hard on this price adjustment, if you're go seeking that kind of take rate all inclusive, inclusive in costs, if that's a figure you're satisfied because we did see good compression Q-on-Q. And lastly, like what exactly is your senior management's main goals or remunerated on? If this is on TPV growth or if it is on profitability because obviously, we're seeing a big shift in investor sentiment on that kind of position? Rafael Martins: Domingos, Rafael here. Very, very good question regarding the financial expenses. So when we look in the second quarter, we saw less contribution. If you look at the change in our pretax profits, we saw less contribution from revenue, net of financial expenses and the improvement in profitability was mainly from OpEx discipline. I think that in the third quarter, these dynamics will be a little different because we have -- we expect a better dynamics of revenue net of the financial expenses and there is always some lagging effect between how the CDI evolves and brings the financial expenses versus our pricing. What we try to do is always to look -- and to your question about how we see it, we look at the unit economics of our clients and the returns we have from investing our tack there. And we have some hurdles that we look. So after the CEI increases, we do adjust prices to adjust accordingly. So I think that lighting effect may have some impacts there. I think one other effect that you have in financial expenses this quarter, we have taken the decision to have a little longer funding line. So this also has some negative effect there. So it's not 100% the funding cost that we have in our clients. So this also has impacted there. And I think Thiago would like to add to that answer. Domingos Falavina: So if OpEx surpassed to the positive here still, so congrats on that. But if I understood you're right, basically, the wave of price adjustments comes a little bit behind slake. So when I look at that take rate inclusive of financial expenses, if nothing drastic happens, the expectation is that it moves up. So you continue to recompose that margin. Thiago Piau: Yes. Domingos, it’s Thiago here. Let me add on that. So first, let me talk about the cadence of repricing. We did a significant improvement in the first quarter, and we don’t want to create too much stress both in our client base and our team. So the improvements that we did in the second quarter was smaller because it’s hard for you to keep improving prices frequently in your client base without stressing the relationship. That’s why we took longer for the clients to adapt to this new reality. And now on July and August, but basically on August, we did another significant movement already. And I think that we did it well. So creating some space from those 2 big movements I think that was good to the client base and to the team. So I think that we are now creating more predictability in the way that we execute our price strategy. And with a big client base, that’s really important. So it was a big jump in the first quarter, a little bit smaller on the second quarter and now we improved at the pace back again in the third quarter. And I think that, that strategy is performing well, both in the base and in commercial activity. So that's the scenario you're seeing. And you are right when you see that revenue less funding cost was basically in line with last quarter. And there’s this effect that Rafa just mentioned. But we increased the duration of our funding lines a little bit too, mainly because of the microenvironmental actions in Brazil, we think that it was good to be a little bit conservative and improve duration in our funding lines, so we did it. So there’s some of that effect in that line, too. You will see in third quarter a different effect. So you will see in the third quarter, revenues growing faster than funding. So we are managing this, I think, appropriately. Domingos, one last comment – sorry, Domingos, just your last question, you asked what is the focus of management, if it’s TPV or revenue or profitability? We are focused on the quality of the client base and we are focused on profitability. We will continue to grow at a fast pace. You see that we are committed to net adds. But if we have to choose today our focus, our focus is to improve profitability, balancing better our growth with profitability, and I think that we are delivering that. So we will continue to evolve on our pricing. So that’s where we have our minds here. I’m sorry that I forgot to answer previously. Operator: And the next question will come from Jeff Cantwell with Wells Fargo. Jeff Cantwell: I wanted to ask you about your software revenue and really about your software EBITDA, which it looks like it's up about 300 basis points sequentially to 15%. So can you just sort of give us a little more color on what's driving that expansion in the margin there? And then any color you can give us on the go forward from a margin perspective for the software piece of it would be great? Thiago Piau: Jeff, Thiago here. Two main things. One, we are integrating our portfolio of companies into Linx management system, creating 1 big business units that combines all of our software businesses. And I think that this provides us an ability to continue to grow at the pace we are. I think that in the medium term, we expect to continue to grow at this pace, but improved margins. We got to 15% EBITDA, which was -- I think that we can get to 20% quickly. I expect to have positive news about margins close to 20% at the end of the year. So I think that the discipline that the team has to provide efficiency to all of our software products and continue to invest behind growth and improve our customer service to clients in software is really performing well. So if we continue to grow at this pace, which is I think it's a help level to the medium term and continue to improve margin, and I believe in our ability to get close to 20% EBITDA margin in the end of the year, it will be a very good first step. And in next year, we have to continue to improve our efficiencies and continue to improve our cross-sell in our base. So I think that those are the 2 main things. Jeff Cantwell: Okay. Great. And just a follow-up on that. Can you sort of prioritize or explain what are the biggest drivers to get from 15% to 20%? Is that top line growth? Is it something with the efficiency that we should be aware of? I just wanted to drill down on that area to the best we can. Rafael Martins: Jeff, Rafael here. So I think it's a combination of those elements. So the fact that we are able to grow -- have strong growth organically does help to dilute G&A expenses. I think this is number 1. We have been able to improve efficiency in some costs, like, for example, cloud cost negotiation. So I think those are the main drivers of the margins there that we see. And of course, when we do have less mature solutions in our software business, not only Linx. And as those solutions mature and grow and we expand them and integrate into Linx itself, I think that this also contributes to a higher margin. So remember that we have invested in software solutions in the past that were basically 0 margins. And as we evolve those solutions, big in traction, we are able to get more mature and also increase margins. So I think those are some of the main elements that should help us there. Operator: And this will conclude our question-and-answer session. I'd like to turn the conference back over to Thiago for any closing remarks. Thiago Piau : I would just like to say a big thank you to our team for the amazing work in the quarter and for the support of our shareholders. We expect a very good second half. We are very excited of our business and see you next quarter. Thank you very much. Bye-bye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.

Operator: Good evening, ladies and gentlemen, and thank you for standing by. Welcome to the StoneCo First Quarter 2022 Earnings Conference Call. By now, everyone should have access to our earnings release. The company has also posted a presentation to go along with this call. All material can be found online at investors.stone.co. Throughout this conference call, the company will be presenting non-IFRS financial information, including adjusted net income. These are important financial measures for the company, but are not financial measures as defined by IFRS. Reconciliations of the company’s non-IFRS financial information to the IFRS financial information appear in today's press release. Finally, before we begin our formal remarks, I would like to remind everyone that today's discussion may include forward-looking statements. These statements are not guarantees of future performance and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the company's expectations. Please refer to the forward-looking statements disclosure in the company's earnings release. In addition, many of the risks regarding the business are disclosed in the company's Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov. I would now like to turn the conference over to your host, Rafael Martins, Vice President of Finance and Investor Relations Officer at StoneCo. Please go ahead, sir. Rafael Martins: Thank you, operator, and good evening, everyone. Joining us here on the call, we have our CEO, Thiago Piau; Lia Matos, Chief Strategy Officer; and our CFO, Marcelo Baldin. Today, we will present our first quarter 2022 results, discuss some recent trends and provide an updated outlook for our business. I will now pass it over to Thiago so he can share highlights of our performance and some key insights starting on page 4 of our presentation. Thiago? Thiago Piau: Thank you, Rafa, and good evening, everyone. As I said in our previous earnings call, I believe we are well-positioned to drive strong growth and improving profitability in 2022. Our first quarter results show that we are on the right track. We produced strong TPV and revenue growth, together with a significant improvement in our operating margins. Our growth engine remains strong. Despite seasonality, we achieved our all-time high revenue of BRL 2.1 billion, that is 10% above the midrange of our guidance. As a result, pro forma revenue growth accelerated to 87% in first quarter, up from 51% in last quarter, our highest growth rate since the fourth quarter 2018. This strong revenue growth was driven by two key factors: a higher client monetization driven by our new pricing policies; and an accelerated MSM TPV growth, which reached 93% in first quarter, exceeding the top of our guidance of 83%. This strong TPV growth was a result of both active client base growth and a continued improvement in our go-to-market strategy for TON and Stone products. On the profitability side, our adjusted earnings before taxes reached BRL 163 million in the quarter, which was 16% above our guidance represents an almost ten-fold increase on a sequential basis. As we mentioned last quarter, we reorganized the company into two segments; Financial Services and Software because we believe this will increase transparency, reduce complexity and enable us to better manage our business. As you can see from our reporting both of our segments performed well in the quarter. Within Financial Services, revenue increased by 107.8% driven by solid expansion of client monetization. As a result of our new price initiatives, MSMB take rates reached 2.06%, which was 35 basis points above the previous quarter, and the quality of our client mix improved within both TON and Stone products. The net addition of clients decelerated in the quarter, but this was mainly driven by the churn of lower-profitability clients. Finally, we continue to expand our banking platform with transactional products, generating more engagement and increasing opportunities to monetize clients in the future. In our Software segment, pro forma revenue growth reached 27%, driven by a strong performance in the Core Software and the consolidation of certain acquisitions made in the period. Within the Core, we generated revenue growth of 32%, driven by stronger new sales and higher average ticket per client. We are also gaining operating leverage in the Software segment with 12% adjusted EBITDA margin in first quarter, a significant improvement compared with 9% adjusted EBITDA margins in the fourth quarter 2021. To help us execute our extensive roadmap, we will be welcoming two seasoned leaders to our team, a new CTO and a new Head of Credit. We have also assigned a new VP of Finance for our Software division. The company has also recently welcomed two new Board members, resulting in a Board composed of 90% independent members with very diverse background and deep experience in technology and financial services. I'm pleased with the direction of our results in first quarter, and I think this is a solid first step to producing strong results in 2022. I'm also encouraged that we are seeing the same positive trends so far in the second quarter. With that, I will now pass it over to Lia, who will provide more detail about our first quarter performance and strategic update. Lia? Lia Matos: Thank you, Thiago, and good evening, everyone. I will start today with some performance highlights and then do a quick deep dive on the main drivers of our performance. On page 5, we show a summary of our main financial and operating highlights. And I just want to touch on a couple of points here. As Thiago mentioned, our total revenue surpassed a record mark of BRL 2 billion this quarter, with growth accelerating to 139%, and or 87% pro forma for Linx. I think one takeaway of our strong growth performance is it does confirm our ability to implement the new pricing strategies laid out in the fourth quarter of 2021 while maintaining strong TPV growth. These strategies, together with the tighter cost management, enabled us to also see a significant recovery in profitability with an adjusted EBT margin of 7.9% compared to 0.9% in the fourth quarter of 2021. Moving to page 6. As you can see, we're presenting our financial results in two segments. Our fintech businesses are managed in our Financial Services segment and our vertical POS and ERP solutions as well as the digital commerce solutions are managed within our Software segment. Lastly, we have a third bucket for non-allocated activities, which we manage separately. This change in reporting aligns with how we manage the business and is consistent with the changes we have implemented in our leadership team and management systems. We have made the historical data for these segments available for your review in the appendix of this earnings release. Let's now take a closer look at each of our two businesses. I'll talk first about Financial Services on pages 7 to 12 and then move to Software on slide 13. In Financial Services, we produced very strong growth during the quarter with more than BRL 1.7 billion in revenue, more than doubling compared with last year and increasing on a sequential basis, despite historical seasonality. Perhaps more importantly, profitability rebounded significantly with adjusted EBT of BRL 146 million, a more than fourfold increase from the previous quarter and a 620 basis point sequential margin improvement. I think this begins to show a shift in our profitability trajectory, which we will continue to focus on throughout 2022. On slide 8, I want to talk about our client base trends. During the quarter, we reached 1.9 million MSMB clients and the net addition of 168,000 clients. As anticipated in our last earnings call, we saw a sequential deceleration in net adds, but this deceleration was mostly a result of churning of lower-profitability clients. Taking a closer look, the 168,000 net adds was comprised of 184,000 new additions in the TON product while the Stone and Pagar.me products experienced a decrease of 15,000 clients. Let me take a moment to break this down further and explain to you what is happening. As we've mentioned, we have shifted the commercial strategy to onboard smaller clients onto the TON product as opposed to the Stone product, because it better suits their needs and has a better unit economic profile for us. As a result, there are two effects taking place here. First, the majority of our new sales for smaller clients are directed towards TON. And second, the majority of our churn comes from less-profitable small clients still using the Stone product. Moving on to slide 9, we can see that our strong TPV growth was a result of not only the client base growth, but also of the improvement in the quality of our client base. TPV in the MSMB segment grew over 93%, above the top range of our guidance, while the average TPV per client also increased in both Stone and TON products as a result of the shift in commercial strategy that I just mentioned. Take rates also improved materially in the first quarter of 2022 to 2.06%, an increase of 35 basis points compared with the previous quarter. As a result of our evolving commercial strategy, where we're optimizing our client mix of solutions based on customer needs, we're increasingly focused on our overall MSMB TPV and client base metrics versus thinking about our business separately between Stone, Pagar.me and TON. To align with this strategy and provide investors a better and more consistent perspective on our performance, we will focus on reporting on overall MSMB metrics, rather than by specific products starting now in the second quarter. In slide 10, we highlight the continued expansion and engagement with our banking platform. This quarter, we surpassed 0.5 million clients actively using our digital banking accounts, more than doubled compared with the previous year. We have been growing our base, while also increasing ARPAC, which reached BRL 33 in the first quarter, growing 32% sequentially. Shifting to slide 11, I want to quickly update you on our credit business. Our legacy credit portfolio is performing in line with our expectations. This quarter, we had a cash inflow of around BRL 250 million from clients paying us back, and we are on track to entirely derisk principal capital. Given this performance, our portfolio was recognized at a fair value of BRL 268 million in our balance sheet in the first quarter of 2022 compared with over BRL 2 billion one year ago. Finally, on slide 12, we show some KPIs of our key accounts business. TPV grew 9% versus last year as we continue to deprioritize our sub-acquirer operation. In contrast, our Platform Services business continues to grow fast, accelerating its growth to 114%. Our take rate for the key account business continued to improve at 0.84% for the quarter, increasing sequentially as a result of both repricing and mix shift towards Platform Services, which have higher take rates than Sub-acquirers. Now let's shift to give some highlights on our Software business performance on slide 13 and 14. Starting with the top-line, Software revenue reached BRL 327 million in the quarter, up 27% pro forma for Linx and our pro forma adjusted EBITDA margin improved 370 basis points this quarter to 12.3%. On slide 14, I want to touch a little bit on the drivers of this performance and the progress of our software strategy. First, the core software business produced a strong growth of 32% as a result of the increase in number of locations using our POS and ERP solutions and an increase in the average ticket, while the digital segment revenue decreased 2% as a reflection of tougher comps and the need for performance improvement. Second, we're gaining scale and improving margins with an annualized revenue of BRL 1.3 billion we are able to continue to generate operating leverage from our integration efforts and efficiency gains in costs and expenses, and we expect this trend to continue. Finally, we see plenty of room to grow organically in current verticals, expand vertical coverage with new investments, increasing our reach to help merchants become more productive, sell more and grow. Now I want to pass it over to Rafael, so we can discuss in more detail some of our key financial metrics. Rafa? Rafael Martins: Thanks, Lia. Starting on slide 15. Without going into too much detail on the numbers that Thiago and Lia have already walked you through, I do want to note three things; first, we see strong continued growth trends; second, we see these results in both Software and Financial Services segment; third and most importantly, we are starting to see our profitability rebound. On slide 16 and 17, we show our P&L and adjusted P&L for the quarter. As we have already discussed top-line trends in detail, I will move directly to slide 17 to focus on our costs and expenses pro forma for Linx. In this quarter, we observed operating leverage across all our costs and expenses line items, both on a sequential and annual basis, with the minor exception of selling expenses quarter-over-quarter, which were impacted by additional marketing expenses that are part of our contract with Global. It is important to note here that most of this institutional marketing will not affect our cash flow since we prepaid BRL 230 million of marketing expenses in the first quarter of 2021, which was fully funded by cash received from Grupo Globo. Now let me highlight the most relevant efficiency gains quarter-over-quarter. Our costs with TAG, our platform of receivables, decreased from BRL 64 million in the fourth quarter of 2021 to close to BRL 32 million in this quarter. We still have room to improve on this line and we expect to continue gaining operating leverage in our cost to serve in the coming quarters. We gained almost 200 basis points margin in administrative expenses due to better cost control in third party services, facilities, travel expenses, among others. And for the first time over the last year, we saw financial expenses decreased as a percentage of revenue by 260 basis points. Despite continued increase in interest rates in Brazil, our new pricing policy more than offset the higher absolute level of financial expenses. Now moving to page 18, as we indicated in our previous earnings call, we are taking important steps to reorganize the business and bring in additional seasoned and talented people to strengthen our team. This quarter, I'm happy to announce that we are welcoming Marcus Fontoura, formerly at Microsoft, Google, Yahoo! and IBM as our Chief Technology Officer; and Gregor Ilg, former Head of Santander Brasil SME's retail risk, who has 15 years of experience in credit and is expected to join the team as Head of Credit after his garden leave. Also, Osmar Castellani, who has joined our team last year, was designated as the new VP of Finance for our Software division. We would also like to highlight that we welcome two new independent Board members, Patricia Verderesi Schindler, former JPMorgan Chief Risk Officer, Chair of Audit Committee at Raizen, and Board member at Credit Suisse Brazil; and Mauricio Luchetti, who has 19 years' experience at Ambev, deep expertise in HR and Management and also an extensive board experience. As a result, our Board is currently comprised of 90% independent directors. Lastly, as we just announced in a separate filing, we have recently approved a new incentive plan pool, an important step towards attracting and retaining talent to support the execution of our strategy and to align incentives between our shareholders and the management partners, who will lead the next phase of our growth. With these steps, we believe that we are moving in the right direction to strengthen our team and governance practices, increasing the long-term value generation for our stakeholders. To finalize our presentation, let's move to page 19, where we share our second quarter 2022 outlook for the business. For the second quarter, we expect the total revenue and income between BRL 2.15 billion and BRL 2.2 billion, representing year-over-year growth pro forma for Linx between 148% and 154%. If we exclude the credit product, which had a negative impact on our second quarter 2021 top line, the pro forma revenue should grow between 70% and 74%. We expect revenue growth to be driven substantially by the growth of our MSMB business, projected to reach TPV between BRL 67 billion and BRL 68 billion, representing a year-over-year growth between 71% and 73%. Because of the extent of the repricing that took place in the first quarter, we still expect our net client adds to continue to be affected in the second quarter. Regarding our EBT guidance, we expect our business to continue improving profitability with adjusted EBT above BRL 185 million in the second quarter when adjusting for financial expenses of our bond. This compares with BRL 163 million achieved in the first quarter. From the second quarter onwards, we have decided to stop adjusting the financial expenses related to the bond from our adjusted P&L. This decision was driven by the partial sale of our stake in Banco Inter, an investment which was fully funded by the issuance of our bond. We have sold 21.5% of our stake in Banco Inter through the cash-out option offered in their corporate restructuring. With this change in adjustment, the adjusted EBIT EBT should be above BRL 90 million in the second quarter 2022, compared to BRL 82 million in the first quarter 2022, considering the same metric. We believe 2022 marks the recovery of our profitability, while maintaining strong levels of growth and advancing on our purpose of serving Brazilian entrepreneurs. With that said, operator, can you please open the call up to questions? Operator: Yes. We will start the question-and-answer session. [Operator Instructions] And the first question will come from Tito Labarta with Goldman Sachs. Please go ahead. Tito Labarta: Hi. Good evening Thiago and Lia and Rafael, thank you for the call and taking my questions. A couple of questions, I guess. One, in terms of repricing, I know you kind of gave the guidance for Q2, but is there still more room to continue repricing do you think in the second half of the year? Or do you think that, once interest rates stabilize, then you won't be able to reprise anymore? Just to get a sense of how that should relate going forward and how that can impact the take rates and margins more for the second half of the year and if there's some operating leverage there or not. And then, my second question, just to understand -- I understand you had the cash-out option for Banco Inter. So why sell the stake so soon, right? Is that a loss compared to when you bought it? Do you think that, that may have been a mistake? Or do you see -- what are the benefits of that partnership at this point, anything that you can highlight there in terms of where you can leverage from the partnership with Banco Inter? Thiago Piau: Hello Tito, Thiago here. Thank you very much for your question. I will the repricing and flat margins question, and then I will talk about Inter? So first talking about repricing margins, we still saw interest rates increasing significantly year-to-date in Brazil. And as this has been the main factor driving our margin here, we decided to set a balanced approach in order to consistently increase our margins, while keeping strong growth levels and protecting our relationship with our clients, which in the end of the day is what matters in our company. So we believe that we are improving our balance. And this trend will continue in the coming quarters. So I think, Tito, that there was a very good first step on first quarter. The guidance that we are giving in the second quarter is because we are seeing the same trend in the first quarter in the second quarter. So we are confident with the numbers we gave. And these trends of better balancing our profitability using a new pricing, margins will continue across the year. It's not a one-time thing. I think it's a new dynamic regarding the company, and this is driving our profitability. Regarding Banco Inter, we really like the team, as we always say. We continue to collaborate with them in many fronts, but we are driving our focus to our core business. We decided to sell this partial stake in connection with the organization, given the premium that was involved and the environment around interest rates in Brazil and tax. So it was a tactical decision. The rest of our shares, we will receive BDRs and then shares of Banco Inter in [indiscernible]. So that was our decision. Regarding the bond as we said, despite the fact that it was issued to fully fund these investments, now we are seeing this as part of our capital structure going forward, given that the asset has decreased in value, and therefore, we decided to stop adjusting for the second quarter onwards. So I think that no big change in terms of our relationship with Banco Inter and how much we are admire them. But this was a tactical move given the opportunity presented to us. Tito Labarta: Okay. Great. Thank you, Thiago. That's helpful. If I can ask just one follow-up on the repricing. How much does it depend on the competitive environment? Because, I think, a lot of your competitors have been repricing just from higher interest rates. Is it very dependent on what your competitors do? As you mentioned, prime net adds will continue to be impacted due to the repricing. So I just wanted to get a sense in terms of like thinking of like future growth. Is there -- how do you -- how are you balancing that growth with margins and the repricing? Just to get a sense of if one could potentially offset the other at some point. Thiago Piau: Great, Tito. I think that I can talk about competition, and I can talk a little bit about net adds as you just mentioned too. In the end of the day, I don't see that competition changes the way we decide to price our products. But given that competition is being much more rational today, it opens more space for this balance to be made with much better room, I would say. So I'm not seeing any change in terms of competition from what we have discussed last quarter. We see players overall taking rational pricing decisions here. In small and medium clients, we see more competition for new players. In large clients, we see more acquire strong incumbent banks. So I think that that's the take regarding competition. If I can give you some color regarding net adds, what we can say is that there are two elements here to consider. You have churn and new sales. But before I double-click on both, it's important to highlight that we are seeing a good balance between pricing policy and net adds in the pace that we have here. Our MSMB client base, as you saw increased 10% quarter-on-quarter, but the profitability of that client base is much better. So I think that the balance that the company is reaching is a good balance. When we talk about churn, as we mentioned during the call the majority is concentrated on less-profitable clients. Those clients have lower average TPV. We are talking about clients that transact between BRL 0 and BRL 7,000 a month. Additionally, as we mentioned we are shifting our commercial strategy, directing those smaller clients to TON product. So what you can see here as an effect of this strategy is that the TPV growth is accelerating. So we have 93% TPV growth in the MSMB. And both the two products, Stone and TON, the average TPV on both products are increasing as well. So we think that the balance between both products are set in the right place. Regarding new sales, the pace in the first quarter we are seeing 72% of the pace that we had in the fourth quarter. So still a strong pace in sales. They are a little bit impacted by our pricing policy, but we think that we have a much better balance now. So, those are the main highlights in terms of net adds. So, I think that in the end of the day, it's much more about how we are organizing our products to address the needs of our clients than only competition, but those are the color that they can provide. Tito Labarta: Okay, great. That’s very helpful. Thank you, Thiago. Thiago Piau: Thank you very much, Tito. Operator: Your next question will come from Josh Siegler with Cantor Fitzgerald. Please go ahead. Josh Siegler: Yes. Hi. Thanks for taking my questions and congratulations on the results. Can you provide some more color on the banking solutions, specifically around your ability to greatly improve monetization? Lia Matos: Hi, Josh. This is Lia here. Thank you for the question. So regarding banking, I think there's two key takeaways here. So, we continue to see the number of digital accounts grow as well as ARPAC on a sequential basis. It's important to remember that active account growth is mainly driven by the growth of our payments client base, so there was a little bit of the effect similar to the trends in net asset that Thiago just described, but we did see increased penetration of banking within our overall payments client base. So, we continue to see this expansion happening. And regarding ARPAC, we also saw this improvement, the sequential improvement that I explained. And this is driven by increased engagement, which is reflected in, of course, floating revenue, but also activation of new features, such as insurance, which we highlight the growth and the scaling that we're having with our insurance solutions. So over time, what we expect is, as we continue to increase our client base in payments, we will continue to penetrate those relationships also with banking. The way that we scale our banking solution is, when we sell Stone to a new client, we sell the acquiring solution with a sort of bundled offering of banking as well. And that's the entry point of the banking relationship. And over time, as the TPV from the acquiring gets -- becomes a cash in the banking, this is the first step towards activating new features and monetizing that relationship. So, in the summery, I think those are the takeaways that we can highlight in terms of banking. I don't know, Thiago, do you want to add anything? Thiago Piau: Just a little bit here in terms of monetization today. We are focused on three main products, which is, as more engagement we have from our clients, more account balance we have. So the floating revenue that we produce taking interest rates on those deposits to the company, it's a good monetization roadmap. The second one is interchange in the cash out that they used -- when they use the cash-out is a very good role to monetize banking through the cards. And I think that insurance now is starting to produce better results. We are increasing our exposure to the insurance product, because we are confident in the product we built. And what I like this execution is that we don't take the risk in the insurance project. So we designed the project with other insurance partners. They kept the product in their balance sheet. We received the fee on this relationship, but we don't bear the risk. So, it's a very light execution. So I think that the combination of the floating revenue with increased engagement revenue that we have in the cash-outs when client is using the card and now the insurance product produced monetization in a very good level. Josh Siegler: Excellent. Thank you very much. That's helpful detail. I'd like to switch gears now over towards the software side. So now that Linx sub-acquiring business has fully migrated to the Stone platform, are you turning your attention towards cross-selling Stone payments to Linx' legacy client base? How have those cross-selling efforts been performing so far? Lia Matos: So great question, Josh. So in terms of penetrating Linx client base or software in general, right, client base with payments -- we provided some color on those numbers last quarter. What we can say right now is, those numbers are more or less in line this quarter, but with the difference that we have fully migrated the residual volume that existed still in Linx space into Stone's platform. So now we have fully concluded that migration process. And our focus right now is really driven towards, improving those integrations in the acquiring side, but also fixed in the QR Code gateway integration onto the POS, so that we can prioritize on those two areas in terms of cross-sell of payment solutions to software client base. The platform TPV growth that you saw of 114% is very much driven by those Linx pay volumes migrating on to the Stone platform. And we continue to see opportunity to increase that up-sell looking forward. So I think that's the main takeaway. Josh Siegler: Great. Thank you very much. Operator: The next question… Thiago Piau: Thank you, Josh. Operator: The next question will come from Jamie Friedman with Susquehanna. Please go ahead. Jamie Friedman: Hi. Thank you and good results here. Rafa, I had a question for you. I think its slide 17 there, but it's in -- it's not entirely intuitive to me why the Financial Service expenses would have declined. I realize you say in the side of this slide that you repriced, but that's a revenue observation. That's not an expense observation. Yes, so it's slide 17, when you talk about financial expenses and it being down 20 basis points sequentially. So what's that about? Rafael Martins: Hi Jamie, thank you for the question. So what we show here, if you look at our financial expenses, there are two main drivers here. One is a CDI in Brazil, right, the average interest rates and the other one is TPV. So if you look at the TPV in the first quarter for seasonal reason, the TPV decreases a little bit, so it tends to decrease the financial expenses. By the other hand, the CDI continued to increase. That's why, on an absolute number basis, you see our financial expenses increasing from BRL 611 million to BRL 622 million. What I mentioned regarding the financial expenses was, as a percentage of revenue, it decreased by 2.6 percentage points. And the main reason was our repricing that we did, especially in prepayment that more than offset the increase in absolute number in financial expenses. So I was mentioning regarding the revenue, as compared to revenue. But on an absolute basis, given the CDI increase the financial expenses still increased a little bit quarter-over-quarter. Jamie Friedman: Okay. I understand now. And then on slide 14, Lia, the digital revenue declining 2%, so is that just because of tough comps in e-commerce, or is there something else going on there? Lia Matos: Hi, Jamie, thank you for the question. So as I mentioned, I think, there's two drivers. Number one, tough comps. I think we saw many digital-focused players, sort of, posting the same, sort of, tough comps regarding the market just because of easing out of pandemic restrictions and the comparison in terms of digital volumes, right? But on top of that, we do have the need to improve some of our digital solutions. So when we think about our digital solution set within Linx, it's a combination of ads, engagement solutions and platforms, both OMS and Linx Commerce. And when we look at the combination of that, we see OMS performing well in terms of the operational drivers, so increasing the number of omnichannel stores and increasing the GMV overall, which is really where our focus is, because our focus in the digital strategy is to help those core clients to digitize. However, some of the solutions, like engagement solutions, did see some performance problems and the need to improve that performance. So overall, I think our focus really continues on to driving the digitization of those core clients. And on those operational metrics, we are evolving positively. Thiago Piau: Lia, can I add… Jamie Friedman: Thank you. Thiago Piau: Add some comments here? Jamie Friedman: Please go ahead. Thiago Piau: Thiago here speaking. Just a comment about the digital. I think, we do have different comps. But here, we have different solutions. So when you see the OMS, which is the solution that makes our clients through sell-through channel the firm is doing quite well. E-commerce platform is evolving well. The engagement tools that we have I think that they are working well. But on the other hand we have two solutions like retargeting that regulation change in the way that use cookies and all the protection about the data. It impacted the business, and we have another business with solutions for clients to manage different profiles in social media that was impacted by changes that Facebook did. So bundling all of our solutions, I think that you saw that decrease in 2%. We are focused on improving our execution there, but the most strategic solutions we have in digital are really working well and we do have tougher comps. So I think that in the next quarters, we will bring better results of digital as the team is working to produce better solutions here for our clients. Jamie Friedman: Got it. Thank you for that. I will jump back in the queue. Thiago Piau: Thank you very much, Jamie. Lia Matos: Thanks, Jamie. Operator: The next question will come from Kaio Prato with UBS. Please go ahead. Kaio Prato: Hi, team. Good evening, everyone. So I have two questions on my side here, please. The first one is related to the prepayment business. So we have been hearing that with the mandatory register of card receivables and the platforms, I would say, working more properly nowadays some players are already bidding for the agendas of some competitors. So I just would like to understand if indeed you are seeing this movement in the industry nowadays? And how is the company positioning for it? And also as a consequence, if we could see this positive effect of your repricing in the industry reducing again and quicker going forward because of this new environment? And then I will follow-up with my second question, please. Thiago Piau: Hi Kaio, Thiago here. Thank you very much for the question. What I can say about the registry environment and the dynamics with prepayments is that, we are still not seeing this in our client base, so it's not relevant in our client base still, and we are still not confident to put efforts on the product of prepaying other acquirers. Because for us, the execution in terms of the registry and the settlement of those transactions, we still have risks, operational risks involved, so we are still not confident. I know that there are some executions in the market. I think that there -- by the way, that we are seeing there is still very small, but we would like to see that part of the industry much better in terms of performance, because we see this as a very big opportunity for us. But I think that we don't have still the maturity needed on the system to bring this risk for us, because at the end of the day, if we full prepay and not [indiscernible] result then the settlement will not come to us and it can put risks for the company. So, let's see if the registry system matures and we get comfortable to start this execution with more efforts. Kaio Prato: Okay, great. Thanks. And the second one, I just would like to understand how are you thinking about your commercial team. So we are seeing some players discussing an increase in the sales team, and we know that Stone is always assessing team. So, I would like to know what's your view, first about the overall commercial team in the payments industry and specifically about if you already made any change during the first half of this year or if you foresee anything going forward, and what could this mean in terms of expenses and operating leverage going forward? Thanks. Thiago Piau: Great, Kaio. In terms of the team, what I can say is in the fourth quarter when we saw our margins dropped and it took us too long to adjust our pricing policies, so the contribution margin per clients decreased in the fourth quarter, we decided to not be aggressive in terms of hiring. So we stopped the hiring process. We lost some of our personnel with regular turnover. So, the average number of people from the fourth quarter to the first quarter diminished a little bit. Now that we have put our pricing policy on track and we have our execution organized in the way that we expect, we are increasing our sales force back again, because at the end of the day, the key differentiation that Stone has is the presence in the counter of our clients, the proximity that we generate with them, the level of service. So we will invest on growing our team, our commercial and sales team, but we are not seeing that this will decrease our margin at all. I think that we already learned how to go through those cycles. So when we say that we will increase our margins and we will increase our profitability in the next quarters, we are already factoring in our expectation to increase our sales personnel. And I think that what I can tell you regarding that, and I think just an additional color on the net adds is that in the second quarter, we are seeing basically the same trends that we saw last quarter, in the first quarter. But we see a much better performance in terms of sales. So it is possible that we deliver a better net adds in the second quarter than we delivered in the first quarter. Let's see. Part of that is because we are improving our sales strategy and our sales team. Lia Matos: Just -- Thiago, if I may add one point, Kaio. It's important to also emphasize that we still see a lot of white space to continue to grow through our hub strategy. So not only by increasing the density where we're already present, opening new hubs. And I think this view hasn't changed at all. Regarding this evolution of our commercial strategy, we are focusing our sales agents and the hub operation on those larger SMB clients because that value proposition of proximity that was explained really coupled with a much better service, right, and an attractive unit economic profile of those clients. We really see that that's a very strong value proposition, and we see a lot of white space to continue to grow there. So we really see vast opportunity for continuing to grow. Kaio Prato: Okay, great. Thank you very much. Thiago Piau: Thank you, Kaio. Lia Matos: Operator: The next question will come from Sheriq Sumar with Evercore ISI. Please go ahead. Sheriq Sumar: Hey, everyone. Thanks a lot for taking my question. Just wanted to get a sense on the inflation aspect as to, how much was it a helper in the first quarter? And does your 2Q guidance also factor in the -- increase in inflation? Thiago Piau: Hello Sheriq, Thiago here. Thank you very much for the question. I think that we're experiencing here, it's much more related to us gaining market share on the MSMB segment than inflation. Of course, that inflation creates an effect on our TPV and contributed to our revenue. But when you see the level of growth that we are presenting in our overall TPV and mainly on the TPV on the MSMB clients with 93% year-on-year, I think that the inflation is a very small component compared to the market share gain that we are experiencing. And when you see the expansion with the guidance that we are giving for the second quarter what has driven that expansion is market share gains. Sheriq Sumar: Understood. Thank you. And one last question from my end. On the credit, the revenue front, any update on the timing as to when would you -- when would we see credit disbursement begin? Again I mean I see that you have appointed a new Head of Credit, and he's not supposed to join until October 2022. So would that be like a good time frame to consider, or would you prefer starting of disbursing credit prior to that? Thiago Piau: I think you have -- you did a very good observation regarding the beginning of Gregor. And I think that Gregor as the new Head of Credit will help us a lot in terms of knowledge in how to conduct the credit product. In credit, we are trying to promise less and deliver more in the end of the day. I think that the team is doing a very good job rebuilding our product and our infrastructure to connect our credit solutions with our hubs and create a better experience and renegotiation capabilities for our clients with a better scoring process. So I think that the team is moving well. I'm trying not to create too many promises in terms of timing, because we want to have the time to make it right. I think that we keep in the same way that we were in the last quarter. Sheriq Sumar: Thanks a lot. Thank you very much. Thiago Piau: Thank you, Sheriq. Thank you very much for the questions. Operator: The next question will come from Jason Mollin with Scotiabank. Please go ahead. Jason Mollin: Hello, everyone. Thanks, Thiago, Lia, Rafael and team. My question is on something, Lia, you mentioned, I guess, the reset and focus on smaller clients at TON given the better unit economics. If you can share some color on that and how you think about that -- that would be helpful. And then I just had a quick question on the insurance side, the fees that you're registering. Are those cash payments upfront from the providers that you're registering, or are those revenues are going to be recurring overtime? Like is it going to be registered as over the life of the product, or is it an upfront fee? Thank you. Lia Matos: Hey, Jason. Thank you for the question. So just regarding the commercial strategy that I mentioned so within the MSMB segment, the shift that I explained was smaller clients shifting on to the TON product because overall the TON value proposition is a better -- much better fit for that subsegment within MSMB both from the perspective of the model itself, right? So the acquisition cost that we have through this digital distribution and a much lower cost to serve because these clients, they accept a more self-service type of offering at more attractive prices for them. So we've been really able to adapt and improve our go-to-market strategy for this subsegment, right? And really target the most profitable clients within the subsegment. As Thiago explained, we look at this client more or less between zero and 7,000 of average TPV monthly. But when you look at the evolution of average TPV within this segment that we disclosed on page 9 of the presentation, I think this highlights the evolution that we saw, right? So it's not so much about us focusing there, but it's about us really improving our commercial strategy to optimize the go-to-market and the offerings between the micro clients that we focus more with the TON product and the larger SMB clients that we focus more with the Stone products through the hub model that I just said. So it's really this optimization that we've been talking about. Thiago Piau: Lia, can I add small comments? Lia Matos: Sure. Thiago Piau: Jason, Thiago here. Thank you very much for the question. I just don't want to give a sense that we are changing focus and focus on the micro merchant segment. We continue to be laser focused on the SMB, where you see -- where we see the best unit economics. If you see the TPV in Stone and Pagar.me product in the SMB segment grew 74% year-on-year, so we continue to be focused there. We found a very good value proposition with the TON product to address a new avenue of growth in the micro segment. And the clients that had small volumes that we were onboarding in Stone, we are redirecting them through TON, but we continue to be focused on the SMB where you see -- where we see the best profitability in the industry. But as we have the capability, we built the product, I think that the team could have found a very good value proposition and a good balance with unit economics, we decided to allocate capital to the micro merchant space, and we will continue to do so, but our focus is in the SMB. Rafael Martins: Hi, Jamie, Rafael here. Regarding your second question about insurance, yes, you're right. So as we have a commission-based business in insurance, we earn the fee upfront, regardless of what happens then with the relationship of the insurance company with a client. We aim to make this business -- despite upfront cash, we aim to make this business a recurring one, because after it expires, usually after a year, we aim to renew and resell that same product to that client. So that's the idea. When you look at our ARPAC numbers that we put out there in our banking system, what we do is, for that operational metric, we make it monthly over a year. So we don't put that upfront in our ARPAC calculation. So, that's the way our insurance product works. Jason Mollin: That's helpful. And just as a follow-up on a comment about resuming credit origination. I think from what I understood looking to what was done in the first quarter, we should be waiting probably some time until your new Head of Credit is on board. So it's probably a next year story at best, I guess. Thiago Piau: In terms of tests -- this is Thiago here again. I think that in terms of testing the product, we will continue to test the functionalities that we built. But in order to expand the sale of the credit product, I think that it will be much more to end towards the end of the year. Jason Mollin: Thank you very much. Thiago Piau: Thank you. Operator: The next question will come from Mario Perry with Bank of America. Please go ahead. Mario Perry: Hi, guys. Good afternoon. Thanks for taking my question. Two questions here from my side. Thiago, how should -- how do you think about your overall employee base, right? I was looking at your 20-F. You recently disclosed you have more -- close to 15,000 employees. Do you think there's room to improve in headcount? You being a tech company, how do you see the size of your employee base today? And if you can make any changes? And then the second question is related to the recent press release that you issued that your co-founder selling shares in the company, if you can give us what is your interpretation, how we should interpret this news? Thank you. Thiago Piau: Hi, Mario, Thiago here. Thank you very much for the question. When we think about the team and the size of the team, there's two things here. One is how we create capacity to give the services that we provide today to our clients and how we create overcapacity to continue to grow the business in the scale that we are. I think that what we are doing in the previous six months is that we are using part of the operational leverage that we've built in the past. And that's why you are seeing that we are not growing our team in the last four or five months. And you will see this as an operational leverage on the lines of administrative expenses, on the cost of service. So, I think that we will continue to gain operational leverage both in cost of service and administrative expenses, because we've built the operational leverage in the past. And now, I think that we have a very good size of team for the entire year. So we are not growing the team, because we did it in the past and it took the time to train the team. Regarding the second question, actually, I don't know about this news about any co-founder selling shares. What we -- is that Eduardo make the choice of changing his Class B shares to Class A shares that will be owned directly for -- through his family vehicles, but there's no news about any of the co-founders here selling shares, just to be precise. Mario Pierry: Okay. So -- yes, you're right. The news is that, as you published, right, he's converting his shares. And so I wanted to understand then what is the purpose of doing that. Thiago Piau: Mario, can you hear me? Mario Pierry: Yes. Thiago Piau: Okay. Well, it's working now. I think that I said -- as I said, Mario, this is a personal decision of Eduardo, following his departure from the Board, and it has to do with the personal restructuring in his family vehicles. He is just converting his Class B to Class A, and he will own this directly in the company. The two confounders will still have approximately 40% with power, which is a common level in other companies around the world, if you see tech companies in U.S. André continues as our Chairman and very close to the company. As always, Eduardo continue to be available whenever the company needs to give advice to be helpful to us. So there's nothing changing in the day-to-day of the company. It's just a personal decision of Eduardo as he left the Board three months ago, nothing major to comment here. Mario Pierry: Okay. And then final question for me, on Banco Inter, right, as you disclosed, you sold about, I disclosed, you sold about, I think it was 21% of your position in Inter. You took advantage right of the cash-out. How do you look at this stake going forward? Is this something that you still plan -- when you announced the acquisition, right, you had plans for developing potential business opportunities with Inter? Is this completely out of question now? Do you think that your remaining shares, there you're going to be seller of the shares, or how should we think of your relationship with Inter going forward and the need then to hold shares of Inter? Thiago Piau: Mario, I think that no update here about it. Relationship with them doesn't change. The way that we admire what they are building, it doesn't change. We continue to have some efforts in terms of creating synergies between, The Company but we have to focus on our core. So I think that the move that we made of selling this 21% stake was a tactical move because of the price that was offered, the environment that we are seeing, and it was as simple as that. We continue to have almost 80% of our shares there. We continue to be engaged to create future value. So no update here, but we are trying to be focused on the core of our business and the new organization that we have with our two segments. I think that we have a lot to deliver we are seeing that we are keeping growth for the year. We are balancing this with a much better profitability profile. We want to keep things simple, focus on the core, deliver results consistently quarter-over-quarter. I think it's much more about focus than any other thing. Mario Pierry: Okay. Thank you very much. Thiago Piau: Thank you very much, Mario. Operator: The next question will come from Jeff Cantwell with Wells Fargo. Please go ahead. Jeff Cantwell: Hi. How are you? Thanks for allowing me to join this call. Appreciate it. So I wanted to see -- most of the questions have been asked, but I wanted to see if we could focus on the financial expenses line? And given all the investor focus on that line, I was curious if you can walk us through your thoughts on next quarter and for the full year? Can you just, sort of, walk us through from a modeling standpoint? What is the right way to be thinking about that line? And maybe bring into play your thoughts on the central bank interest rates and so forth to help us understand what we might be expecting on that line. And if you want to discuss financial income as well, I'd love to kind of get a sense of both of those lines to the extent you're able to discuss. Thanks. Rafael Martins: Hi, Jeff, Rafael here. Thank you for the question. So, I think, as I said, if you think from a modeling perspective, the financial expenses, they should evolve with our TPV growth, right, and also the average interest rates in Brazil. So if you look, for example, the average CDI in Brazil in the first quarter of 2021, it was 2.02%. In the first quarter of 2022, that number increased to 10.27%. So if you look at that average CDI over time, our financial expenses should grow with that, together with the growth in our TPV. So you should expect the financial expenses line to keep growing on an absolute number over time. However, when we look at our topline and if you look at our financial income line is our line that's growing faster, right? Because especially the repricing of clients. So although we have an increase in financial expenses, we also expect a very strong increase in financial income. So that's, sort of, the dynamics that we see this year. And from the comments that Thiago made that we'll keep adjusting our pricing policy according to the CDI increase in a way that we balance the growth that we have with the level of profitability that is desirable for us. So I think those are in a very simple way, the main drivers of that line going forward. Jeff Cantwell: Okay. Great. Appreciate it. And then separately, I apologize if I missed this earlier, but similarly, on the active payment client lines, really it's your net adds. Are you able to give us a sense of what the right way to think about the next few quarters are on the net adds line? I'm just curious, if you can help us put together everything that's happening, especially, with SMBs. It seems like that did -- that was very strong this quarter. So just want to make sure we all have the right set of expectations as we're thinking ahead. Thank you. Thiago Piau: Hi, Jeff, Thiago here. I think that to give color about net adds going forward, as I said as we are seeing a better performance in terms of sales this quarter, but with still the same type of trends regarding churn in the lower clients, I think, that the balance will be the same or a little bit better net adds in the second quarter. Let's see. And I think that going forward that should increase. Because as we edge pricing policy, the churn effect will diminish and then the sales speed that we have will continue or be a little bit better if we execute better. So, what I can give you as a color is we will keep or increase a little bit for the second quarter, let's see, because sales are performing well. And then as churn reduce, and we are already starting to see some of that effect for the third quarter, I think the net adds will increase compared to first and second quarter. And I think that, on a quarter-on-quarter basis, I can give you more color about the dynamics. Jeff Cantwell: Okay, great. Thanks very much. Appreciate it. Thiago Piau: Thank you, Jeff. Jeff, just one comment. I think your question was very, very good. And I think that we are still missing to giving more perspective about long-term trends, both in terms of growth, TPV and margins. So we are targeting to do an Investor Day by the end of the year. And in the Investor Day, we will talk much more about medium and longer term to have the time to help everyone with modeling and to see the company with a much good perspective. So, I expect that we execute this in the end of the year. Until the end of the year, I think that we will continue to give more color on a quarter-on-quarter basis in our metrics. Operator: The next question will come from Neha Agarwala with HSBC. Please go ahead. Neha Agarwala: Hi. Congratulations on the results, and thank you for giving us additional disclosures. It's very helpful understanding the company. If I can just ask about the Software segment, the operations seem to have improved quarter-on-quarter. But how should we think about it in the coming year or two years? How much more potential of gaining synergies do you have with the Linx -- integration of the Linx operations? And what kind of margin, EBITDA margins can we expect from the software side of the business? Thank you so much. Lia Matos: Hi, Neha. Thank you for your question. Lia here. So I think regarding margin trends in Software, a few things to highlight. Number one, we still have impact in the software business regarding the costs related to Linx Pay. Because as we explained, we finalized 100% of the migration of those clients, but the costs associated with the Linx Pay legacy business has not been fully phased out yet. We expect that to happen over the next quarters. And of course, as this happens, this will impact positively our margins. I think the second element to highlight that both portfolio companies which were -- that were invested within Stone, that were integrated within our software business as well as the digital business, they are less mature. So as they mature, of course, we expect also that to contribute positively to margins. And even on top of those effects, we are already seeing, as I showed in the numbers, some operational leverage, right, through efficiency gains in cost and expenses and operational leverage, which have already positively impacted those margins. I think over the next quarters, what we can expect is, EBITDA margins continue to improve sequentially and to stabilize. We talked about this last quarter, more or less on the range of 20. So, I think this is what we can say regarding margin evolution in software. Neha Agarwala: Sorry, Lia. You mentioned EBITDA margin is around 20%? Your line got cut a bit. Lia Matos: Yes, yes, yes. 20%. Neha Agarwala: Okay, great. Thank you so much. That’s very … Thiago Piau: Neha… Neha Agarwala: Yeah. Thiago Piau: Hi Neha, Thiago here. Just an additional color, I think that the range between 20% -- 20% revenue growth in Software is a good range for medium-term. I think that this 20% level of EBITDA is really, really doable. The team is improving a lot the execution on software and the discipline around the way we manage the business. I'm very happy to see the integration between Linx and the portfolio of companies that we have invested and acquired overtime. Linx already operates with an EBITDA bigger than that, so we are bringing the efficiency of the Linx management team to the growth that our entrepreneurs built. And this combination is showing this profile that we are giving with revenue growing between 20% and 30%, EBITDA coming in to around 20%, I think that you will see positive news on a quarter-on-quarter basis this year. And I think that between the fourth quarter and first quarter next year, I think that the margin profile will be much closer to what we are talking here. So very happy to see the execution of software with discipline, focusing on clients in different segments is really working well. I think that now we have the execution in software on track. Neha Agarwala: Perfect, very helpful. Thank you so much. Lia Matos: Thank you, Neha. Thiago Piau: Thank you, Neha. Operator: The next question will come from Pedro Leduc with Itaú BBA. Please go ahead. Pedro Leduc: Thank you. Good evening everyone. First and foremost, thank you for the increased disclosure. I know a lot of ground has been covered in this call already. I would like to pick your brains a little bit around CapEx, if I may. You had BRL 242 million this quarter, lower than the last, as you had advanced the terminal purchases, obviously. Can you give us an update on this subject a bit? How your supply chains are doing? How is it flex playing a role, inventory vis-à-vis the growth you're seeing, which seems better than expected even, so an update on this. Thank you. Rafael Martins: Hi, Pedro Rafael here. Thank you for the question. So as you said, regarding CapEx we should see lower CapEx overall this year, right, as we mentioned in last call because especially at the end of last year, we prepaid a lot of CapEx regarding POS because of the microchip shortage that was being discussed last year. Of course, now we are much better adjusted regarding inventory and lead times so on. And in the first quarter, we actually still had part of that -- those contracts that we had done CapEx. So it's still pretty high. But if you look at overall in 2022, despite our very strong growth compared to 2021, we should see lower levels of CapEx. So I think that, we took the right decision last year to protect our growth and derisk our growth in terms of potential shortage of components. And I think that had give, us room to keep growing in the second half of last year. And now we are -- we have adequate inventory and lead times so we can continue to grow further. So I think that the situation has normalized much more this year. Pedro Ledu: Okay. Good. Good. Good. Thiago Piau: Can I add two points? Pedro just to add two points here and give you a little bit more color. I think that the decision in the fourth quarter was not an easy one. I think that the team made the right decision to advance investments in our inventory because we hold prices. We've got the supply we needed. But with that the team expanded the number of providers. So I think that now we have much more providers and new models of hardware that we use here. So I'm not worried with the inventory chain and the supply chain. And I'm not worried with the lead time. I think that the team did a very good job. It has put in pressure in the fourth quarter in terms of cash flows, but I think that it was the right decision over the long-term. That's why we are seeing lower CapEx expenditures -- capital expenditures quarter and we see in the second quarter the same trends. Pedro Ledu: Perfect. Thank you so much for adding. While we're talking about terminals, can you give us an update on the TON cap solution maybe on the terminal fee payment? How is it evolving? What have you learned so far? Is it maybe worth investing more behind it? Is it contributing relevantly already? So just on this a follow-up. Thank you. Thiago Piau: Yes, Pedro. I think to give a color on that, I think, the team did a good job to invest on that technology. We were the first one to launch this product view. When you see clients from zero to 7, 000 a month, as we say, there is a part of those clients which are clients that process BRL 1,000 or BRL 2,000 a month. And we think that for the future we have to focus more on these type of solutions where we don't have the hardware because it's too expensive -- this operation and it brings pressure for the cost of acquisition of clients. So we can offer a value proposition for them based on that functionality. So the test phase was really well. I think that the card brands increased the ability of clients to transact using that technology and we will put more efforts towards that direction in the rest of the year. I think that it was the right move, and we will continue to invest on the strategy on the second half of the year. Pedro Ledu: Thank you so much. Thiago Piau: Thank you, Pedro. Operator: The next question will come from Domingos Falavina with JPMorgan. Please go ahead. Domingos Falavina: Thank you for taking the question here. Two questions. Unfortunately, not very quick ones, one of them is a bit complex. But starting with the quicker one, I guess, my question is, we – where only have your margins moving back to the 20s, right? And when I'm looking here at the model, before 2018 when you had below 5% market share, you still are pretty much running a loss. And then you, sort of, break this breakeven and reach 30s in 2018 market share and you roll your way the market share to-date to something around 10% to 12%, like depending on how you look at the data? And your margins are obviously due to several reasons, but basically close to zero again, even adjusting for interest -- mark-to-market volatility. I look at the largest player is like a 25% market share. And it doesn't seem like your results are escalated by credit or anything anymore. This is your printing low margins as they are. So my question to you here is, how do you see kind of this margin bouncing back? I mean, you had as much as 40% margin. Is it -- it can come from a few factors, right? Either you're going to dilute a lot of your costs, which at 11% market share, growing 70%. You will be the biggest player probably in two years. Or you believe that you're going to increase your prices more than the average industry or you believe that you're nominally going to cut costs. So the bottom line of the question, I think, is pretty easy, right? We're like particularly more bullish on the industry. We're seeing everybody increasing prices. But that's not a reason why Stone should look better than the industry. And that's kind of the question I want to drill like the margin evolution, better than market, where exactly you see it coming from. My second one, asked already is -- my understanding is that you had something of BRL 200 million in losses realized with the sale of Inter stake. And I want to basically understand, if you hypothetically did the full, say, let's say, had BRL 1 billion in losses, could you have use the earnings or the pre-tax earnings of Stone in the following years to benefit from this tax credit or not? Because my understanding is that if you actually have bigger losses, you would probably be -- because of a non-operating investment, you would be limited to non-operating gains in future years. And basically, what I'm trying to get at is you would be tax inefficient to have sold everything this year, because you're probably not going to have repeat that rate. Those are my two questions. Sorry for running on. Thiago Piau: Hi, Domingos. It's Thiago here. Thank you very much for the question. I understood your point. I think that when we think about margin improvement in this consistently quarter-on-quarter work that we are doing, there are three main factors. One factor, as you mentioned, is the new pricing policy that we are using for the core products. And I think that we still have room to improve that. The other part, I think that is that we are choosing the mix of clients that have more profitability, and that contributes to the core, too. The second effect of more than the core is monetization in banking. Because as we increase engagements with banking solutions, it's basically we are not applying capital to acquire those clients, because we already have in our client base. We are increasing the engagement using our app in a self-service way, and the monetization role that we have with interest rates on the balance with the cash-out in the interchange in the card and for insurance will bring better margins for the company. And third, we will dilute cost and administrative expenses and then selling expenses, but not now because we are still growing a lot. And you will see those effects, too. I think that this year you will see a lot of cost dilution compared to revenue. And you see administrative expenses dilution compared to revenue. So you will see that effect on a quarter-on-quarter basis this year. And then we see that we will increase monetization and spreads on the core offering that we have and increase monetization with more activation of banking clients, because at the end of the day, we don't have two products for clients. It's one platform that they have payments, banking. Now they have access to insurance, and they will have access to more working capital projects. So I think that the strategy of improving margin has these three effects. Rafael Martins: Domingos, its Rafael here, let me answer your second part of the question. Thank you for that. I think regarding the loss in Banco Inter, if you look our P&L and our adjusted P&L, you'll see that we are not getting any tax benefit into the negative mark-to-market of Inter. We are constantly evaluating the best tax alternatives for our investments. But at this moment, there is no -- we are not considering tax benefit, as you said, for negative mark-to-market or losses with Banco Inter. And one complement to Thiago's answer regarding the first question is... Domingos Falavina: If I may, just before you go back to Thiago, I understand the mark-to-market… Rafael Martins: Sure. Domingos Falavina: …doesn't necessarily allow you to benefit from the tax credit. But once you realize the loss, you can. So my question is, if you realize, the BRL 300 million, you can use this year. My question is, if you realize the full, let's say, BRL 1 billion in losses, would you lose it, or be limited to non-operational gains, or could you use, 2023, 2024 earnings before taxes from Stone to amortize or to benefit from this product? Rafael Martins: Yes, Domingos, that's right. So if you look at the investment in Inter, it's a Cayman entity, right? So it's not tactical. So that's why today, even on a realized loss, we do not consider as of today us benefiting from such loss from a tax perspective. So this is related to the entity where it is located, right? Yeah, Thiago, do you want to add? Thiago Piau: Yes. Just a small comment here, Domingos, so we made the investment through our Cayman entity, Stone Co, which is the company that is listed, and we raised the bond on that same entity to. When we did the bond was made to fully fund the investment in Inter. I think that we just made the decision of taking this opportunity of the cash-out method. We have discussed with them about it. Now that we have decided to change the way we managerially see our capital structure, moving the bonds to fund prepayments and keeping the bond because of the prices that we have executed the bond in the past and the duration that the bond has I think it's accretive for us to keep. What we are doing is that we are looking -- going back to the drawing board in our tax strategy. And once we have in how we handle the bonds overtime and tax implication, we will give you more update on that. But today, it's in a different entity. That's why we're not capturing the benefit of the tax -- the tax shield. Domingos Falavina: Very clear, very clear, guys. Thank you. I'm listening to this, as I'm sure a lot of other investors who are listening in and thinking you through this vehicle, you're not going to benefit from any tax shield. So given how shares moved today, it wasn't like the best decision. Are we right, or are we wrong in listening this way? Thiago Piau: I don't understood quite, well Domingos. Can you please repeat the question? Domingos Falavina: Yeah -- no, what I meant is if you had invested this, let's say, let's say, underneath Brazil, you would have been able to use some of those credits in the operation. You're right you will be able to offset your profits in Brazil with the realized losses in Inter? Thiago Piau: I think that there is other factor that we factor in, in that decision, and we can chat, offline with you to give more update about the way we reason -- the reason why we use the entity and what we are doing now. But I think that it's just simple as that. We made through that entity, now that we are taking the bond managerially to the structure of the financial platform, we will reorganize the way that we handle this to the future. And we will give you more update about it. Domingos Falavina: Thank you, Thiago. You bet. Thiago Piau: Thank you very much, Domingos. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Please go ahead. Thiago Piau: Hello, everyone. Thiago here, back again. I'd just like to say, a big thank you to you all. A big thank you for our team for the efforts in the quarter and see you next quarter. Bye-bye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Good evening, ladies and gentlemen. Thank you for standing by. Welcome to the StoneCo Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. By now, everyone should have access to our earnings release. The Company also posted a presentation to go along with its call. All material can be found at www.stone.co on the Investor Relations section. As a reminder, this conference is being recorded. Throughout this conference call, the Company will be presenting non-IFRS financial information, including adjusted net income and adjusted free cash flow. These are important financial measures for the Company but are not financial measures as defined by IFRS. Reconciliations of the Company's non-IFRS financial information to the IFRS financial information appear in today's press release. Finally, before we begin our formal remarks, I would like to remind everyone that today's discussion might include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the Company's expectations. Please refer to the forward-looking statements disclosure in the Company's earnings press release. In addition, many of the risks regarding the business are disclosed in the Company's Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov. I would now like to turn the conference over to your host, Rafael Martins, VP of Finance and Investor Relations Officer at StoneCo. Please proceed. Rafael Martins: Thank you, operator, and good evening, everyone. Joining us here today, we have Thiago Piau, our CEO; Lia Matos, Chief Strategy Officer; and Marcelo Baldin, our CFO. Today, we will present our fourth quarter 2021 results, discuss some recent trends and provide an updated outlook for the business. I will now pass it over to Thiago so he can share some key messages and highlights of our performance. Thiago? Thiago Piau: Thank you, Rafa, and good evening, everyone. I want to start today's call by taking a moment to reflect on our performance in 2021, the challenge we encountered and what we learned from them. Then I want to discuss the core strengths in our business that have enabled us to continue to grow fast and take market share despite all the problems we faced last year. And finally, I will review some recent trends we are seeing in the business, why I have such confidence in our outlook and why I think Stone is poised to benefit in 2022 and beyond. So let's start by reflecting on 2021. This past year was unsatisfying for Stone. We executed well in some areas, but we certainly made some mistakes. We took an aggressive approach. This is how we built the Company and how we help lead the fintech revolution in Brazil. But I think at the end of the day, we tried to do a lot last year, and we simply did not execute it as well as we would have liked. We ramped our credit offering quickly, but we did not manage this expansion well. Our execution challenges were magnified by the problems of the National Registry System, which we were also not well prepared to deal with. So in mid-2021, we decided to pull our credit operation, regroup, learn from our mistakes and go back to the drawing board. In prepayment, we delayed repricing our solutions when interest rates in Brazil began to rise. We didn't want to hurt our customers with higher costs, which we felt we could absorb for a while. But in the end, the impact was too much on our bottom line, and so we began repricing in November. Despite these issues, we did not want to slow down our expansion plan. So we continue making significant investments in the business, which increased our operating costs. In the fourth quarter, we almost doubled our selling expenses, excluding Linx, and continue to invest in building our Stone products, banking ecosystem, software solutions and enhancing our technology and customer service, which remain a key competitive advantage for Stone. In hindsight, we should have spread out some of these investments to ease the near-term pressure on our bottom line. But I think overall, it was the right strategy for Stone to lay the groundwork for strong growth and market share gains over the next few years, and I'm already encouraged by the early results. Ultimately, I think we lost some of our focus and execution precision as we manage all of these issues, while at the same time, also integrating Linx, an entirely new part of our business. As a result, our performance suffered, and our profitability declined. So 2021 was not our best year. However, to be fair, we also did some pretty good things last year. We learned a lot from our mistakes, corrected our course, and despite all of our problems, we still produced very strong top line growth. In the fourth quarter, we generated 87% revenue growth year-over-year, 60% excluding Linx, which was our best performance since the third quarter of 2019. During the quarter, we also produced a record number of new client wins, accelerated our TPV growth, executed well in the MSMB segment with a big win in the Micromerchant space, which is new for us. We continue to expand our banking ecosystem and generated double-digit organic growth in our software solutions. So the core growth engine of our business remains quite strong. We are winning clients, taking market share and expanding our footprint to lay the foundation for future top line and bottom line growth. We learned a lot from last year's challenges, and we have also made some important changes in our structure and management team to strengthen our execution capabilities. We are reorganizing the Company into two operating segments: financial services and software, which we'll begin to report in 2022. The financial services segment is the Stone payments digital banking and credit business. The software segment will bring together Linx and all our other portfolio companies. We think this will provide greater transparency. As Lia will explain later, software is a strategic priority for us, and we will continue to drive growth and expansion in this area as well. Now let me shift to our outlook for this year, which is quite positive, with strong growth and improving margins. I think we are well positioned for 2022. The investments we made in our projects and operations will continue to help us drive growth on top of our strong core business, which keeps taking market share. In addition, the lessons we learned and the changes we made last year have positioned us to improve profitability this year. Looking at both top line and bottom line performance, I feel that 2022 will be a good year for Stone. I will discuss more of our outlook toward the end of our call. I will now pass it over to Lia, who will provide more detail about our fourth quarter performance and strategic direction. Lia? Lia Matos: Thank you, Thiago. Good evening, everyone. I'm going to start on Slide 5 with key performance highlights. In the fourth quarter, we had very strong top line growth with weaker profitability driven by the increase in funding costs resulting from the challenging macro scenario. On the top line, growth performance for Linx accelerated to 51% year-over-year in the quarter compared with 26% growth in the third quarter of '21. This performance was largely driven by an 87% year-over-year TPV growth in MSMB and by growth in our payments client base, which more than doubled to 1.8 million active clients compared with our previous guidance of between 1.4 million and 1.5 million clients. Pro forma for Linx. Software revenue grew 15.7% driven by 26% growth in our core software business of POS and ERP solutions, offset by lower Linx of acquired revenues, a result of client migration to the Stone platform. Regarding profitability, adjusted net income was $34 million in the quarter, which, as Thiago mentioned, was negatively affected by higher financial expenses resulting from a spike in CDI rates and our delay in repricing of clients, which we started in November and scaled in December and January. As we will highlight in the end of the presentation, we expect profitability to begin to recover in the first quarter. Let's now take a deeper dive into each of our two businesses. I will talk first about the financial services businesses on Page 6 to 11 and then move to software on Slide 12. In our financial services business, we serve both MSMBs, micro, small and medium businesses as well as key accounts, which we separate into sub-acquirers and platform businesses. On Slide 6, we show the evolution of our payments client base in the MSMB segment. Last year, we changed our approach to serving this segment. Previously, our sales strategy was to offer Stone products to micromerchants only and to offer Stone and Pagar.me solutions to our larger SMB clients. However, we discovered that some clients prefer a different mix of solutions or even a combination of solutions regardless of their size. So we changed our approach to better meet their needs. We now focus on the offerings sold into the client base rather than focusing on just the size of the clients' volume. During the quarter, we reached 1.7 million MSMB clients by achieving record net addition of 367,000 clients compared to 290,000 in Q3. Of these new additions, 312,000 are using Stone solution and 56,700 are using Stone and Pagar.me products. As a result, it grew the average TPV of Stone in the quarter almost threefold versus last year, and we increased average Stone and Pagar.me TPV by 22% over the same period. We believe that this new balance between TON and Stone products yields a better value proposition for our clients and better returns for our company. On Slide 7, we show that the TPV for MSMBs has grown 87% year-on-year, reaching R$66.7 billion, accelerating over the third quarter when it grew 81%. Stone continued to accelerate growth, roughly in line with last quarter at a 21-fold year-over-year increase, while growth accelerated in Stone and Pagar.me, with TPV growing normal 72% year-over-year compared to roughly 70% in the third quarter. Although our competitors don't disclose their main growth metrics broken down by segments, we believe we had strong market share gains within the MSMB segment in the fourth quarter. On the right side of the page, we show that we have been increasing take rates in MSMBs, from 1.66% in the third quarter to 1.71% in the fourth quarter and 2.02% in January of '22. January take rate figures reflect the positive results from scaling the waves of client repricing that started in November. Combined with the repricing, MSMB TPV growth both in January and February remained very strong, above 80%. On Slide 8, we show in more detail the initial recovery from higher interest rates after we started making pricing adjustments. As you can see, the average monthly interest rate increased faster in 2021, raising our funding costs, especially in our prepayment business. As Thiago mentioned, we decided not to pass along those higher costs to clients right away and started to do so in November. With that, in the first quarter of 2022, we already see positive results and expect higher take rates combined with better margins. Given the still expected CDI increase along 2022, we will have a more dynamic pricing strategy throughout the year to achieve a healthy balance between growth and profitability. Moving to Slide 9. We have continued to drive the expansion of our banking ecosystem, which is an important part of our strategy. Banking services for small businesses in Brazil are still largely dominated by incumbent banks, and we see a huge opportunity to offer those merchants a one-stop shop solution for all their financial needs in an affordable way. The number of clients that actively use our banking solutions has increased almost threefold year-over-year to 492,000 clients, the usage of our card as well as the total outstanding deposit that clients have with us have also increased significantly, both year-over-year and sequentially from last quarter. Most importantly, we have been growing our banking client base while also increasing ARPU, which reached R$25 in the fourth quarter, growing 39% sequentially, driven by increasing outstanding volume of deposits card TPV growth and the initial scaling of our insurance solutions. Shifting to Slide 10. I want to update you on our credit business and where we are in terms of resuming disbursements to our clients. We're implementing five major fixes and improvements. First, we have completely revamped the product [UX] for a more simplified experience based on monthly installments, pay through automatic retention using the Stone accounts cash-in. We believe this revamped [UX] preserves the strength of our original product to auto retention but improves clients' understanding of their payment schedules, more in line with the traditional credit products. Second, to decrease the reliance on the registry system. We have added personal guarantees to enhance protection against bad borrowers with focus on maintaining a simple and frictionless onboarding process. Third, we will implement a new sales process and scoring system based on enhanced data ingestion from multiple sources, including a more rigorous assessment and detailed data input from our hub sales personnel. Fourth, so that we can improve client life cycle management and enhanced recovery, we're rebuilding systems to improve client communication, have more flexible renegotiation analysis and agreements, improve the execution of warranties and better integrate with collection partners. Lastly, as effective risk monitoring is one of the cornerstones of the successful credit business, we're implementing an improved risk monitoring system to effectively resume disbursement with a more robust risk management. We will begin testing these improvements with clients in the second quarter of 2022. We will take a conservative approach to scale in order to observe client behavior in more detail. In addition, we also expect to launch a business credit card for SMBs in the second half of 2022. Despite the initial challenges we faced with the legacy credit portfolio in operation, we're committed to resuming credit offering to our best SMB clients as this is such an important solution for them. The opportunity is huge, and we're confident we will be better prepared to have a compelling offer that is great for our clients, and at the same time, profitable for us. Updating you on our legacy credit portfolio, it is performing in line with our expectations. This quarter, we had a cash inflow of R$430 million from clients paying us back. And we're close to receiving all the amounts we have disbursed since inception, derisking principal capital. Given this performance and collections, the portfolio decreased to R$1.2 billion by December from roughly R$1.6 billion at the end of the third quarter and is recognized at a fair value of R$511 million in our balance sheet. Our coverage ratio decreased slightly to 98% in December, which is a natural evolution of a portfolio being phased out. In January, we sold a distressed portion of the portfolio to a third party for R$12 million above its fair value. We continue to collect payments on the remaining portfolio and have reduced its size to R$850 million at the end of January 2022. Finally, moving to Slide 11. We show some KPIs for our key accounts business within financial services. TPV, excluding Coronavoucher, was roughly stable in the quarter compared to last year at R$22 billion. There are two different dynamics in our key accounts business. We continue to deprioritize sub-acquirers in which we had a volume decline of 28% year-over-year, while our platform services business continues to grow fast, up 93% year-over-year. Our sub-acquirer volumes should continue to decline significantly in 2022 with a very limited impact in our bottom line. As we penetrate the pool TPV within the Linx client base, we expect this to drive overall TPV growth in key accounts. Take rate for key accounts was 0.82% in the quarter, higher than third quarter levels, mainly as a result of higher prepayment rates and a mix shift towards platform services, which have higher take rates as compared to sub-acquirers. On Slide 12, I would like to recap important advancements we made on the software front. Since the closing of the Linx acquisition, we have taken an important step to integrate Linx and the portfolio of Stone software investments into a unified software division. We will focus execution of our enhanced software strategy along three main fronts. The first one is core software, which is the driving force of our software strategy. Our core software business comprises POS and ERP solutions for multiple retail and service verticals. Our TEF and QR Code gateways that enable payments and fixed integration to the POS and ERP, our reconciliation solution, which enables reconciliation of all payment methods within the POS and ERP, and our CRM solutions. Our focus in the core will be on driving organic growth through new locations and cross-sell as well as inorganic growth through selected strategic acquisitions. In 2022, this fund should represent approximately 85% of software revenues and should grow approximately 20%. We expect this part of the business to have a 20% plus EBITDA margin level. The second front is digital solutions where we will focus on enabling our core clients to digitize. Digital comprises the OMS, our omnichannel solution for physical stores, our e-commerce platform, engagement tools that help retailers to better reach consumers online, our marketplace hub that helps merchants sell in multiple marketplaces through a single integration and/or ad solution. This part of the business should represent 15% of software revenues in 2022 and grow approximately 20%. We still expect negative margins in digital in 2022 as the business continues to mature. The third front is the integration and cross-sell of financial services. This used to be the lengths of acquiring business, which is nearly shut down because we have migrated the majority of clients to the Stone platform. We will focus the strategy on cross-selling Stone financial services to our software client base. In 2022, we expect to have positive contribution margins from this part of the business as we execute our cross-selling strategy. Now let's talk a little bit about software performance in the fourth quarter of '21. Our revenue from software solutions reached R$328 million in the quarter, up eightfold compared to last year or 15.7% pro forma for Linx. When we look more closely at the growth trends across the different software fronts, we see very different growth dynamics. Core software had a strong growth of 26% year-over-year. As we show in more detail in our earnings release, the number of locations using Linx POS and ERP solutions increased 11.7% year-over-year, reaching 109,000 locations. Linx digital solutions grew revenue by 20% year-over-year, and Linx of acquiring business had a revenue decline of 53% as we discontinue this operation and transition it to the Stone payments platform, as I just described. Overall, given the early stage of many of the software solutions and the work we still have to do in cost management, integration of companies and synergies with our financial services business, software is still dilutive to margins. However, in 2022, we expect margins to improve as our business scales and we advance in these fronts. Finally, on Slide 14, we show some encouraging initial results of penetration of Stone financial services into the Linx client base. TPV from Linx' clients processed by Stone has increased 116% year-over-year in the fourth quarter of 2021 to R$5.9 billion. This was largely driven by the migration of Linx Pay volumes, but also by the cross-sell of Stone solutions and Linx client base as well as a natural overlap as Stone continues to grow organically. Compared to the second quarter, which was the latest quarter before the closing of the deal with Linx, volumes grew 47%. In the fourth quarter, we estimate that our TPV represents approximately 13% of overall TPV of the Linx client base, up from 8% in the fourth quarter of 2020 with a still huge opportunity ahead. Now I will pass it over to Rafael so he can discuss in more detail some of our key financial metrics. Rafa? Rafael Martins: Thanks, Lia. Starting on Slide 16, I will highlight some aspects of our 2021 performance. While our adjusted net income decreased to R$203 million, our adjusted cash flow from operations increased by 40% compared with 2020, reaching R$1.1 billion. That increase is mainly because some of the factors that affected our P&L in 2021 are noncash items such as the fair value adjustments related to our credit business. Cash net income, which grew 20% year-over-year, was the main growth driver in our cash flow from operations. Our adjusted free cash flow for the year was negative R$214 million, impacted by two decisions we made that, although very accretive to the business, generated additional cash outflows in the year. First, we decided to significantly increase our CapEx in the fourth quarter to R$548 million compared with R$50 million last year to make advanced purchases of POS terminals, derisking 2022 growth amidst supply chain uncertainty and microchip shortages. This proactive investment resulted in significant reductions in our POS lead time. Second, we prepaid R$230 million of marketing expenses in the first quarter 2021, which was fully funded by cash received from Grupo Globo and is still mostly available for us to use. We believe that those two measures were appropriate and necessary decisions for our business, strengthening our value proposition and our ability to grow at a strong pace. And of course, when we look at CapEx for the coming quarters, it should decrease substantially compared to the fourth quarter. Excluding the cash outflow from those two preemptive investments, full year adjusted free cash flow would have been positive and at a similar level as full year 2020 despite the negative headwinds and challenges we have highlighted throughout 2021, excluding these investments, we are continuing to generate solid adjusted free cash flow while driving strong growth and investing in existing and new solutions. In the following slides, I will provide more detail about costs and expenses that drove our bottom line results. On Slide 17 and 18, we show our P&L for the quarter as reported on Page 17 and pro forma for Linx on Page 18. In order to provide more transparency and help investors better understand our results, we have included this quarter our adjusted P&L where we allocate the same adjustments we do for our adjusted net income metric into each line item in our P&L. As we provide a detailed analysis of each line item in our earnings release, including a discussion of the item, excluding Linx, and have already talked extensively about top line, I will move directly to Slide 19 to focus on our cost and expenses pro forma for Linx. Although we continue to increase investments in our business, we are implementing and will continue to implement in 2022 more measures to better rationalize costs and expenses. We believe this is healthy for the business and for our culture of ownership. Compared with last quarter, we realized operating leverage in cost of services, administrative and selling expenses, which were all lower as a percentage of revenue compared to the third quarter. Financial expenses as a percentage of revenue continued to increase this quarter as a direct result of the substantial increase in CDI, while we only started our waves of repricing in November. Starting with cost of services. We saw a 96% year-over-year increase in the fourth quarter, growing from R$329 million to R$646 million. As a percentage of revenue, cost of services increased from 26.4% in the fourth quarter 2020 to 34.5% in the fourth quarter of 2021, an 8.1 percentage point increase. Within that increase, 3.7 percentage points was a result of the lack of credit revenue and 2.7 percentage points increase was driven by costs related to our registry business, which is a very early stage business. It started operating in June 2021, and therefore, to negatively impact our margins. We also increased investments in technology, customer service and logistics. Most of our costs tend to increase with the growth in our client base. We expect that as our registry business matures in the coming quarters, it should break even and start contributing positively to our pretax earnings. Also, we believe we can improve efficiency in costs related to data center, cloud costs and other overall costs. Looking at administrative expenses, we have gained operational leverage both year-on-year and on a quarter-over-quarter basis. Administrative expenses grew 41.7% year-over-year to R$230.5 million, decreasing from 13.1% of revenue in the fourth quarter 2020 to 12.3% of revenue this quarter. Main drivers of growth in this line are personnel expenses and third-party services. Although we are already seeing operational leverage here, we will seek additional efficiency as the business scales and we rationalize back-office expenses both in financial services and software. Our selling expenses increased 73.4% to R$318.4 million going from 14.8% of revenue in the fourth quarter of 2020 to 17% this quarter. This increase was mainly due to higher marketing expenses and investments in salespeople. We have been expanding our sales team in the hubs with a focus on increasing coverage density in existing regions. Compared with last quarter, selling expenses as a percentage of revenue decreased 4 percentage points, mainly due to operational leverage and slightly lower marketing expenses, we are constantly measuring the unit economics and payback of our CAC, and selling expenses is an important part of the calculation. Following the November and December repricing waves, our CAC payback of 8 to 13 months remain highly accretive and the reason why we continue to increase our selling investments compared to last year. Financial expenses were R$610.6 million in the quarter, roughly 8x last year levels. This increase was mainly led by higher funding costs combined with strong growth of our prepayment operations. Higher cost of funds is the result of a combination of several factors: first, a higher base CDI rate in the country, which increased from 1.9% at the start of the year to over 9% by year-end; also, there was some change in our capital structure with a higher percentage of third-party capital being used to fund our prepayment business; and finally, we had approximately R$90 million of financial expenses in the quarter arising from the sale of receivables to our new FDIC. As we have signed longer duration receivables to this fund, the result was a higher-than-usual impact in the quarter. As we started to reprice our clients in mid-November, we are already seeing a recovery in profitability. And in the first quarter of 2022, that will be translated into higher overall margins for the business when compared with the fourth quarter. Now I would like to pass it back to Thiago so he can close the presentation with our 2022 priorities and outlook. Thiago, back to you. Thiago Piau: Thank you, Rafa. As I mentioned earlier, and we announced today in a separate press release, we have taken important steps to reorganize the business and bringing in new seasoned and talented people to strengthen our team. We believe this change will help us simplify the management of our operations, enable our team to focus and manage our bigger and evolving mission more effectively and create greater strength and depth of expertise across our management structure. To highlight a few of these new appointments, Caio Fiuza, who is the Head of our Micro-Merchant business, TON, who was appointed COO of our Financial Platform division. Gilsinei Hansen, previously the Head of Linx Core, was appointed COO of our software division, which encompasses our Linx business and the Stone's portfolio of software solutions. João Bernartt, former Board member of several retail companies in Brazil and Founder of Chaordic, has joined the Company as Chief Information Officer, leading our efforts in product, technology and data with greater focus in the financial platform division. Sandro Bassili, former VP of People of Anheuser-Busch Inbev, is our Chief People and Management Officer, leading a big part of our organizational and management system changes as well as maintaining a focus on talent attraction, development and retention, a hallmark of the Stone culture. Diego Salgado, former Executive Director in LATAM debt capital markets team at JPMorgan, has joined our team in 2021 as Head of Treasury. In terms of the business reorganization, from the first quarter 2022 onwards, we will report our financial results in three reportable segments: financial services, software and other segments. We believe this will also provide more transparency to the market, helping investors to better understand the drivers behind our performance. Our 2022 priorities for each business are presented on Slide 20. In financial services, given the expected ongoing increases in the CDI in 2022, a key priority will be balancing profitability and growth through a more dynamic repricing strategy. We will continue to execute on our product road map to become the one-stop shop financial services solution for our MSMB clients. And in this rising interest rate environment, the banking strategy becomes even more compelling, as shown in our recent ARPU evolution. For this business, evolving our banking offering will also be a key focus this year. On top of this, we are obviously focused on relaunching our credit offering in 2022. We are certain that credit is one of the most pressing needs of our clients and a huge opportunity for us. We also believe that we are well positioned to win in this segment given the proximity with clients built into our business model and the expertise we have through our over 100,000 clients to whom we have previously extended credit. In addition to relaunching our working capital solution in the second half of 2022, we're also building a business credit card and overdraft product for SMB. In software, most efforts will be concentrated on driving organic growth and margin improvement in the par and continue to pursue selected strategic inorganic opportunities, an important part of our software growth playbook. We'll also focus on digitizing the core client base. And as Lia discussed, we see an attractive opportunity to increase penetration of financial services across our software client base, with our initial focus being on payments and banking. We'll also begin to explore different models by which to leverage our distribution to scale our software solutions to SMBs. Finally, three elements will be key to a successful execution of these priorities; first, the evolution of our management structure and a strong team, which is underway, as I have mentioned; second, our continued investments in technology to advance our multiproduct strategy; and lastly, the discipline to maintain a strong balance sheet and liquidity levels. I would like to close with some specifics on our first quarter 2022 outlook for the business. We expect revenue growth to accelerate in the first quarter of 2022 with total revenue and income between R$1.85 billion and R$1.9 billion, representing year-over-year growth of between 113% and 119% or 67% and 72% pro forma for Linx. We expect revenue growth to be driven substantially by the growth of our MSMB business, projected to reach TPV between R$58.5 billion and R$60 billion, representing year-over-year growth between 79% and 83%. A net effect of the repricing waves initiated in the fourth quarter is expected to be a lower pace of net client additions in the first quarter. We expect to see an improvement in profitability with adjusted pretax earnings above R$140 million in the first quarter, coupled with ongoing heavy investments in our business. In summary, for 2022, we will continue to invest in our growth avenues and strategic priorities while improving our margins. With that said, operator, can you please open the call up to questions? Operator: Thank you. At this time, we're going to open it up for questions and answers. [Operator Instructions] Our first question comes from Jorge Kuri with Morgan Stanley. Please go ahead. Jorge Kuri: Congrats on the quarterly results. Nice improvement across the board. I have two questions, if I may. The first one is on the lending business. I recall back in August, September of last year, Andre Street and some of the management team talked about moving the lending business to a distribution model where you were going to use partners to provide the balance sheet, the risk assessment, and you would do the distribution exclusively. It seems to me in listening to the call today that, that's not the case that you actually want to do this on your own, on your risk and your own balance sheet. And so, I just want to make sure if that assessment is correct. And if not, please let me know how that's going to work out. And my second question is on your guidance for the first quarter, particularly on the pretax income, above R$140 million. Just using the regular seasonality for the year, that number is -- ends up being roughly around $600 million or so, which is nicely above consensus. What do you -- as you think about consensus for 2022, where do you think the market is underestimating what you could do for the year? What do you think are the number one or number two areas of your business that you think the market is underestimating? Thiago Piau: Hello, Jorge, Thiago here speaking. Thank you very much for your questions. So regarding the credit operation, actually, we want to implement both models, Jorge, but we have to start in a model, which we have the origination in-house, we assess the credit risk, we sell to partners. So that's the first model because we want to make sure that in terms of the credit risk assessment, the way that we handle clients, the full life cycle of the clients we are executing within our plans and then we have the ability to sell the client that portfolio to partners that can bear the risks afterwards. So in both models, we have to make sure that the risk assessment is in the right track, but we will move to a model in which we distribute credit from third party, too. So we intend to execute both. But to make sure that the operation is working well, it's important to start originating in our own balance sheet and then selling the outstanding balance to third-party partners. I think that, that's the best way to begin. Regarding the guidance, I will pass it over to Rafa. I think that Rafa can be helpful here. Rafael Martins: Hi, Jorge. Rafael here. Thank you for the question. I think that the feedback we had received from investors, Jorge, over the last few months, I think there was two main elements, the concern about CDI increase and our ability to reprice. And I think that what our guidance shows is that we have been able to reprice clients successfully. I think this is one relevant factor And the other one was maybe last quarter, investors didn't have a view on our cost and expenses and a lot of details. And one of the reasons why we brought in this call here, a little more details about that, mainly because some of those expenses and costs are related to investments we are making. And that of course, when those investments mature and we have the results, we have more profitability. So I think those were the two main elements that we see. And if you look at the guidance and top line that we gave, despite the weak seasonality in first quarter, you don't see a big change compared to fourth quarter revenue, right? So -- and we have also provided details about take rate. So I think maybe we have derisked part of those concerns in the guidance that we gave, and that's the -- our impressions. Operator: Our next question comes from Tito Labarta with Goldman Sachs. Please go ahead. Tito Labarta: I have one follow-up on the margin guidance. And any color on how do you think that evolves from here as you continue to reprice merchants? And can you talk a little bit about the competitive environment to reprice those merchants? I mean you mentioned a little bit net adds should be a bit weaker next quarter perhaps because of that. And are you seeing a big difference between repricing SMBs and micromerchants? And then I have a second question on Linx, but maybe you can start with that one. Thiago Piau: Thiago here speaking. Thank you very much for your questions. So regarding the guidance, we are focused now on providing guidance for the quarter, but what I can say is that we expect the margins to continue to increase along the year. So we expect to improve our bottom line results along the year. We are implementing much more discipline in the way we manage costs and expenses. We will be -- we will continue to invest heavily on our growth. We'll continue to provide lots of resource to the team dedicated to our banking platform, to the credit platform, to the software unit that we are building, but more disciplined here in the way that we allocate capital and the way we think about costs and expenses. So I expect that this trend will continue along 2022. What is important to comment here is that we are trying to balance profitability with growth. So more than the guidance we are giving in the bottom line of the Company, I think that we decided to show results we have in the MSMB in January and February. So if you see in the presentation in Slide 7, in January and February, you already have growth of TPV in the MSMB above 80%. So I'm pretty confident with the guidance we gave and pretty confident in the ability of the team to deliver the results we expect. Tito Labarta: That's helpful. Maybe one follow-up on that. On the take rate, which you mentioned in January, is already above 2%. And as you reprice, any color -- how high do you think that can get? Yes, I mean, I guess that's the main question. How much more can that increase as you continue to reprice? Thiago Piau: Tito, we are seeing two things here. One is that we see competitors talking more about repricing in their own strategy. So I think that this is a trend in the market, and it's a positive trend. The second thing is that we are focused to use not only the repricing, but the offering itself. So we have created an offering. In TON, we adjust automatically with the SELIC improvements here in Brazil once we scale banking and we have more expanding balance for our clients, that money receive interest rates because we put that capital in investments in the Central Bank, and we receive interest rates on that outstanding balance. So, I think that more than only repricing the existing offerings, we are thinking more offerings to our clients better align what we are doing and with what it's best for them. So we expect that we will continue to drive more profitability for the business, but with the mindset of aligning the strategy of the Company with what is best for our clients. And regarding competition, as you said, I think that everybody is being more rational in this challenging environment regarding interest rates. So I think that, that's what we are seeing. Tito Labarta: Okay. Great. And then my question on Linx. You gave some good color there. I think you have about $5.9 billion in TPV from their clients. You continue to highlight around $200 billion addressable market. How much of that Linx TPV of the client base do you think you could potentially penetrate? Any color on the take rate you get on Linx' clients? And any update on when you think it becomes accretive since you had believed that last time? Thiago Piau: Yes, Tito. So regarding Linx, I think that we are in the early beginning of our ability to penetrate financial services in that client base. We decided to show here some numbers of our initial work. The take rate is more in line with the key accounts take rates that you show here separately. Those are larger clients who are more in line with that segment, much more close to the platform service than the sub-acquiring ones, but more in line with the key accounts take rate. I think that more than only penetrating payments -- and the first steps really providing the payment solution we have from the clients that already used the test gateway within Linx. We are focused in additional services using the banking platform. PIX, I think that it's a great opportunity for Linx. So the combination of PIX, our bank accounts with the front end of Linx, the checkout of Linx in the stores, I think that, that can be a big opportunity for us. So we're focused on creating the projects and integration between the checkouts and the point of sale of Linx with our banking and our financial platform in the right way. So there are good, encouraging results in the beginning, and we expect this to increase. So we will provide more information to you and to investors as we evolve. We expect this business to be accretive, as we said. We still have investments to do. And the digital part, we are finishing to -- the shutdown process of the sub-acquiring platform that they had there, but I think that we are evolving well. Tito Labarta: That's great. And sorry for a follow-up question. Just one quick follow-up on the margin. Just to understand that, that would be the pretax margin that you guided for in 1Q, you think that continues to increase throughout the year? Thiago Piau: Yes. That's what we are aiming here. Operator: Our next question comes from Sheriq Sumar with Evercore ISI. Please go ahead. Sheriq Sumar: I have a question on the financial expenses. We just wanted to get a sense as to how to think about for 2022, like would of 4Q '21 be like a good jumping off point, like assuming the rates kind of continue to grind higher, like, to say, around like 12-plus percent or something? And I do have a follow-up after that. Rafael Martins: Rafael here. Thank you for your question. When you look at financial expenses, I think that there are two main drivers that drive that line there. One is CDI evolution and the other one is the growth in our prepayment business. So when you look at our TPV for 2022 that we expect to continue to grow and the CDI evolution that you see, I think if you look at fourth quarter, this is a good base point with one exception that we mentioned in our earnings release and also we mentioned in our call here, which is in the fourth quarter, we had around R$90 million of financial expenses related to the sale of receivables to our FDIC, right? And from that amount, around R$60 million, they are related to longer duration receivables. That -- so I think that is sort of an element that you should not like project going forward for the full year calculation. But apart from that, you can go from the fourth quarter levels and look at CDI increase and our TPV growth as well. Sheriq Sumar: That's super helpful. My second question is on the loan origination. I just wanted to get a sense on the timing and the magnitude of how you would want to ramp up in 2022. And how much of that is incorporated in your 1Q 2022 guidance? What would be the revenue contribution if there's anything that's going to be in the first quarter? Thiago Piau: Thiago here speaking. Thank you very much for the question. So, first comment is that there's no credit origination incorporated in our first quarter guidance. We expect to start test the product between the second quarter and the third quarter. And then, we will evolve this -- the evolution as we see the life cycle of our clients, how the risk performs. So, we will take a more conservative approach. So I think that between second quarter and third quarter, we have much more data to provide you about the tests we will execute in our client base, but we will take a more conservative approach in the way we scale the business. One thing, which is important, is that once we start to disburse credit to our clients, we will count this in the new methodology. We will not use the fair value anymore. So it -- we will have the accrual methodology for the new credit disbursements, as we said before. So that's what we have in mind. And therefore, we don't have expectations of disbursement for the first quarter, and we are not contemplating that on our guidance. Sheriq Sumar: Got it. I'm sorry, I just want to squeeze in one more. Can you give a sense of as to how the attrition has tracked so far in this quarter given all the price increases that you have done? And also like I know you kind of talked about the incentives of your banking products, but is there any kind of incremental cost that you would have to generate because of kind of maintaining those clients on your platform while you increase your prices? Lia Matos: Thank you, Shariq, for this last question. It's Lia here. So regarding attrition, we gave some color on net adds -- trends for the first quarter. Naturally, as we ran several repricing waves between November and January, we expect -- we had a slightly higher level of churn in this period, and this is a natural effect of this repricing -- the set of repricing wave. So the biggest chunk of repricing waves were in fact done within this period. So we do expect almost like a onetime higher impact from churn in the first quarter. So I think that's the overall picture here regarding churn trends. Sheriq Sumar: Thank you so much. I appreciate. Thiago Piau: Yes. May I add? Lia Matos: Follow-up. Yes, yes. Go ahead. Thiago Piau: Yes. Hi, Shariq, Thiago here. Let me add some comments on that part. So when we think about repricing, that's actually two components. So we are moving prices for new sales, and we are repricing the outstanding client base. What we are seeing is that although we are pricing lower -- higher levels of pricing, our ability to sell our products and the interest we have of our clients, it hasn't changed. So I think that we keep the pace of adding clients, and we are seeing that the performance in the way that we invest in our channels, we are really doing well. We expect and we are seeing some additional churn in the client base. But what makes me be here more positive is that when we see that the TPV in the MSMB clients from January and February are above 80%, and that's why we are confident with the guidance we are giving and the trends we are seeing. I think that we are keeping the best part of our client base and the very small part of the client base that we can lose because of the decision we made. I think we are okay with that. We are not seeing a big impact in the Company. And I think that the offer we give in terms of service, the products, everything we deliver to our clients, it's worth it to make this movement. So I'm happy to see that the Company is balancing this repricing with the relationship we have with our clients. We keep the most important part of the client base, which are the best clients. That's why we are seeing this TPV increase in the first quarter, and we are confident with the guidance for the quarter. So I'm happy with that with both new sales and the way that we are dealing with the client base. Operator: Next question comes from Jason Mollin with Scotiabank. Please go ahead. Jason Mollin: My first questions are on the credit side. I mean I guess I understood the answer to the question that we should be waiting to the second or third quarter to get more of a sense of the timing and magnitude of the disbursements, but maybe you could give us some color on the sale of the distressed portfolio that was sold. I guess the data shows or what you released was that the price was over 2.5x the fair value. If you can give some comments on that, is that reflective of the portfolio payer pricing in general? And my second question would be a general question on the software business, particularly the core business that you talked about growing 20%. If you can talk about where you think you are in the market share there and where you think you're going with that 20% expected growth profile for 2022. Rafael Martins: Thank you, Jason. Rafael here. I will get your first question, and then I'll pass it over to Lia. Regarding the legacy credit, I think the legacy credit is performing as we expected. As we mentioned, we did that sale of that distressed portion of the portfolio to a collection company here in Brazil. It was above fair value. I don't think that if we look to the ratio, we should apply the same ratio to the whole portfolio. So the fair value that we have there in our balance sheet is a little over 100 -- R$500 million. But what I can tell you is that the legacy portfolio is performing as expected. As we mentioned in our call, we are almost having a cash flow payback of all the disbursed amounts we had since inception. So, I think that what you'll see over time is that the legacy portfolio will continue to go down in terms of outstanding balance and as we collect the cash inflows from clients. So in the fourth quarter, it was a little over R$400 million, and we expect this to phase out over this year. Lia Matos: Great. Jason, taking the question on software. So we tried to provide a little bit more color disaggregating the software business and showing the core digital and the financial services part separately. And regarding your question on market share and how we see growth in the core, I think there's two big messages here. So our software position right now is very strong in the mid- to large clients. So we do have relevant market share in many different verticals in retail and services. We do see opportunity to continue to gain market share within the mid- to large client base, both organically and also inorganically either within the verticals that we are or in new verticals that are strategic for us. But there's also a second part of this, which is the big opportunity we see to grow software within the SMB, and that's where we believe a lot in leveraging our business model and our distribution capabilities because we think that the software market overall in the SMB space in Brazil is still very fragmented and underpenetrated, and there's a big opportunity there. So those are the two areas where we really see opportunity to grow and gain market share in 2022 and beyond. So we gave color on how we see growth ahead. We will focus a lot on those two movements this year. And we do see a lot of opportunities to continue to gain market share both in mid- to large clients and also SMBs. Thiago Piau: Can I add comments? Jason, here's Thiago speaking. Just to put the software. One of the things we see here is that when we think about Linx and the position that Linx has in the middle of the pyramid in terms of client base, Linx has a very good market share. When you go to a shopping center here in Brazil -- in the main cities of Brazil, the market share of Linx is very big. But much more than that, as Lia said, the opportunity in the SMBs is very big in Brazil, Jason. I strongly believe that every merchant should use software to improve productivity, to manage their numbers better, to sell channels. This is a need in Brazil. We don't have a big champion here in Brazil. I think that in the retail segment, Linx was the champion here in Brazil. So there is a big untapped market for helping those merchants to use simple solutions to drive productivity, and that's our goal. That's our commitment to continue to invest in our distribution, in our project capabilities, implementation capabilities. I think that this opportunity in Brazil is still very big, and we will pursue this for the longer term. Operator: Our next question comes from Antonio Ruette with Bank of America. Please go ahead. Antonio Ruette: Can you hear me well? Thiago Piau: Yes. Lia Matos: Yes. Antonio Ruette: So I have a more specific follow-up, then I have a second broader question. So on the follow-up from a previous question, how is your churn going in respect to the prepayment -- the repricing of the premium product, but broken down, if you could explore a little bit by segment? So how have your multiple segments responded to this repricing? Thiago Piau: Antonio, Thiago here. So as we said, we saw churn a little bit higher, not something that we are too much worry about. The segment that we saw the churn increasing a little bit where the clients with TPV from zero to R$5,000 a month, so that was the segment that we experienced, it's a little bigger increase in churn, but it's not something that we are really worried. I think it happens when you do this type of repricing in the client base. However, we do not expect the change will be on high levels. And actually, what we are seeing now in February, March, the churn already got back to the levels we were used to. So there is a big movement now as pricing is a much more dynamic component in our operations. With pricing and repricing, I think that this will not be something that will impact too much our ability to grow. Antonio Ruette: All right. Super clear. Now on a broader question. Well, you have a very tough year. So you had impact from your credit product, the pandemic, the rest of receivables. I would ask you, what were your main learnings from this year? What do you believe it is wrong? What it is right? And after all this, what are the main issues do you think should still be addressed in 2022? Thiago Piau: Great question, Antonio. I tried to talk about this at the beginning of the call, and I wrote about this in the letter, myself, with the team. But I think that we tried to do too much last year. We took an aggressive approach towards the growth of the business and the many initiatives that we had at the same time. And in the end of the day, I think that we lost a little bit of focus in our execution. So we regroup with the team. We brought more experienced people close to us where we can learn from. We are very focused on the core strength of our business. And I really believe in what we are executing here. And I think that the team is focused to a very different year in 2022. This type of years that companies pass, and we have our in 2021, which is difficult, I think that it changes the way you see the business, and you learn a lot from them. So in one way, I'm happy that we learned. It was a good experience. Now we have to move on, execute what we believe and build this business, which is an amazing business that we are -- that we love and we are putting all of our efforts here. So we learned. We changed, and let's move forward for 2022. Antonio Ruette: Yes. Just a follow-up on this. Do you think something structural here that should still be changed? Are the ground base for your credit product -- your financial -- other financial products and our software products that is all in place, and now it's a matter of execution? Thiago Piau: The only structural part we are seeing is macro environment. So we know that the environment in Brazil and actually across the globe is not a very easy environment. We are seeing interest rates moving up faster than we were expecting. We are not expecting this new impact that we are seeing, but we learned to be more dynamic in the way that we see the environment and the way that we act on the environment we have in front of us. So I think that we are much stronger structure in wise macro environment and interest rates. The other part, I think that we have the execution now on track, good leaders in place. We have the assets and the team we wanted to have. Now it's a matter to execute and deliver on our results. Operator: The next question comes from Neha Agarwala with HSBC. Please go ahead. Neha Agarwala: Congratulations on these results. The first question is on the repricing effort. It's really good to see the numbers above 2% for January, very encouraging. Have you been able to reprice and pass on all of the higher cost of the customers or maybe only a part of it, which we're seeing in the higher take rate? And which segment has been easier to reprice, the [indiscernible] market or the core SMB market. And then I'll ask my second question. Lia Matos: Neha, so I think -- thank you for the question. Regarding repricing, the way that we actually conduct the processes and waves, right, and we don't do a standard process across the client base, right? So we select different clusters of clients and define the level of the appropriate level of repricing depending on that specific cluster. And there's a lot of testing before we decide to scale any pricing wave. So I don't think that there's one straight answer as to which clients are easier or more difficult to reprice. I think it's a matter of really not doing the process all at once, which is why we started in November, and we took all the way up to January to really do the repricing waves that we felt were necessary at this stage. So I think it's really, like Thiago said, a very dynamic process. The biggest chunk of repricing waves were done in this period, but we do expect a much more dynamic process moving ahead as we continue to see the interest rate environment pretty much in the same way throughout 2022. Neha Agarwala: And when you reprice, on average, how much of the higher funding costs have you been able to pass on to the customer? And how much are you observing? I understand maybe from a margin perspective, it doesn't have a similar impact. But just trying to understand how much of the higher prices you still maybe have to bet on average. Rafael Martins: Neha, Rafael here. So we are now passing along the CDI increase to clients. And I think one important element is what we focus and what we look when we do repricing is we look at the unit economics of clients, and we try to balance this with a healthy level of growth. So in some cases, when we look at payback returns, sometimes it doesn't mean necessarily that we passing along 100% is the best outcome. So in many clients, we are doing that. But what I can tell you is we are balancing the unit economics to have a healthy payback level, but also a healthy level of growth. So I think this is the way we think internally and how we are dealing with that dynamic environment, as Lia mentioned. Thiago Piau: Rafa, Thiago here. Can I complement? Just one additional point about pricing on a very high level, I think the Company should not focus only on pricing, the prepayment on the -- or the payment solution. I think that once we have the ability to create more engagement of our clients with our banking platform, and we have a more outstanding balance, they use our cash-out methods. They use our cards to purchase goods. We are focused now on building our credit cards for SMBs. Once we have the ability to improve our distribution of software to SMBs, then the conversation with clients changes completely. You are not only repricing a current product you have. You are trying to offer a better deal for them in terms of what you can offer. So that's where we are really focused for the longer term to have a completely different type of relationship with clients, not be only focused on the machine of the prepayment. So for the longer term, that's what we are trying to implement here. In the short term, yes, we are repricing -- we are passing along the CDI, but in a way that we balance and we do not break the relationship with our clients. Neha Agarwala: Understood. My next question is on the margin improvement that we should expect during the year. And not 100% clear. Could you give us some numbers or some sort of range to understand how much of a margin expansion are we talking about over here? And if you're looking at an adjusted pretax margin level or an adjusted net income margin level because if I look at the adjusted net income margin for the year, it was 4%? So what range should we look at for 2022? If you can just clarify that, that would be very helpful. And then lastly, any update on TAG. I understand you might want to do a partnership or share some stake in TAG. So any update on that would be very helpful. Rafael Martins: Hi, Neha, thank you for the question. So just to be clear, the guidance that we gave for the first quarter was pretax earnings. So this compares with R$17 million of pretax -- adjusted pretax earnings in the fourth quarter, which was a 0.9% margin. So if you look at the R$140 million with the guidance of top line that we gave, you'll see that is roughly 7%. So this was the guidance for the first quarter. We do believe that given pretax earnings provides a better view on operations, and that's why we didn't give like adjusted net income, which has a tax rate also in there. But that's just to make it clear what the number really means. Neha Agarwala: So, around -- pretax margin of around 7% for the year and maybe gradually improving in the remaining quarters? Rafael Martins: So as Thiago mentioned, we are not providing guidance for the full year at this moment. What Thiago mentioned is that we expect to continue improving our margins over time, right? So this is sort of the message we are convening at this moment. Neha Agarwala: Okay. And on that... Thiago Piau: Neha, Thiago here speaking. So just a comment on that. I think that the margins we are guiding for the first quarter, they are far away from the stabilized margins that we expect to have in the business. So this margin should improve by the way that we execute and as the business matures. So we continue to invest heavily on our growth in a strategy that we believe. But now you will see those margins increasing. So we decided to give the guidance for the first quarter. I think that that's the first step. And then we will help you to frame better. Once in the first quarter we provide more numbers on the two business segments we have, the two business units, I think that the levers will be much more clear. And we are planning a session to be helpful to the market to frame the levers and forecast the business better on your end. Regarding TAG, what I believe is that the infrastructure of the registry system is really important for credit for SMBs. We are a little bit frustrated that, that didn't evolve well nationally in Brazil last year, but we still believe that this can be a big change in the way that SMBs can access credit in Brazil, and they really need that. Those clients, they are not accessing credit in big banks or other players. They really need credit. But in order to decrease the risk, the system has to be working well. So I think that there's a good value in what the team builds. I think that the technology that we built is a very good technology. We still see problems in terms of governance between the registries and how the environment is working. So we're assessing the strategic options here we have. And regarding the financial impact, we expect the target achieved breakeven this year. So I think that from 2022 onwards, the financial impact in TAG will not be a burden, but we will continue to provide our efforts to make the National Registry System works. And I believe that the team is doing pretty good work in terms of technology. So we will keep improving our work on the registry front. Operator: The next question comes from Geoffrey Elliott with Autonomous. Please go ahead. Geoffrey Elliott: In terms of the repricing, can you give a sense, is it easier to reprice smaller clients, say, in the TON business? Is it easier to reprice larger clients? Where's that repricing happening faster? And where is it happening more slowly? Thiago Piau: Hi, Geoffrey, Thiago here speaking. It's difficult to talk too much about the strategy in terms of repricing because at the end of the day, we do have a competitive environment here in Brazil. But what I can tell you is that it's easier to reprice clients that have more installments in their operations. So I think that, that's what I can say here. Geoffrey Elliott: Okay. And who would typically have more installments? What sort of retailer would that be? What sort of merchant would that be? Thiago Piau: All verticals use installments, but the bigger they provide more installments to those clients. So I think that's not a matter of the difference between a fashion type of store or a bakery. It's much more a matter of the size of the merchant. But Geoffrey, I'm sorry, we take not to -- we try not to talk too much about the commercial strategy here. I think that this is a very sensitive information of the Company. So what I would say is more focused on bigger merchants, bigger SMBs, more focused on SMBs, they use more installments. So that's the color I can provide here. Operator: Our next question comes from Kaio Prato with UBS. Please go ahead. Kaio Prato: I have two here, if I may start with the first one. If you could detail a little bit what are the impacts that you are seeing in terms of peak in Brazil currently if the volumes come from the system is becoming more meaningful for you or not today. So if you could share with us any KPI related to this would be great. And on regulation, if those new capital requirements announced by the Brazilian Central Bank last week, just would like to understand better if you already have any estimate about the potential impact in the Company and to the implementation, please. And then I will follow up with the second one, if I may. Lia Matos: Hi, Kaio, thank you for the question. I'm going to take the first part and then pass the second part to Rafael. So regarding PIX, yes, we did see PIX growth significantly within our base in 2021, but mostly substituting wire transfers, wallet than cash. So, there was cannibalization of debit volumes. When we look at the PIX heavy users within our base, we estimate debit cannibalization to be less than 5%. So the overall impact to the base is very, very low. These trends, we believe, are very much in line with the market, but we do see PIX growing significantly within our base. And we do see PIX as an important part of our banking strategy because it increases engagement of our banking solution. We actually do see that our clients that use PIX, they have higher average outstanding deposits. So we see PIX very positively. So maybe Rafa, you can take the second part of the question. Rafael Martins: Sure. Kaio, thank you for the question. So when we look at the new regulation, the initial impression we have is that -- so first, the capital requirements were lower than initially indicated by the public consultation 78. And also look into our business, both today and to the future, we do have much more capitalization than what is required by the regulation. So I think that shouldn't be meaningful for us in terms of impact. The Company is very well capitalized. And even when we look at the growth that we expect going forward, so this is what we have to comment about those capital requirements. Kaio Prato: Okay. Great. And just a final one, if I may, is related to the investment in Banco Inter, please. When we look to your adjustments to net income, we see that you are taking out the cost of funding related to the investments. So I just would like to better understand your view on this effect, if this expense is expected to continue going forward at these levels and if you could see that as recurring. And finally, what are the improvements related to the partnership with Banco Inter expected for 2022, please? Rafael Martins: Sure, Kaio. Thank you for the question. I will start, and then maybe Thiago can complement. So yes, when you look at the adjustments we made, the reason why we made it is because when we look at the Inter investment in our assets, it doesn't flow through our P&L, right, Inter results. So what we thought is we have the asset as an investment. We do mark-to-market that investment in our balance sheet. So you'll see that moving up and down. So if we only bear the cost in the managerial view, we would have a cost that wouldn't have the counterpart of the asset, right? So that's why we adjusted managerially, and we show the adjustment in our P&L just for us to better understand the underlying performance of our business, excluding that part -- that investment. So this is why we do adjust that in our financial expenses item, as we have shown. And this time, I think it helps investors understand we provided the full P&L adjusted, so allocating each line item where the investment goes, so people can understand better in which line item the adjustments flow through. Do you want to complement, Thiago? Thiago Piau: Yes. Kaio, Thiago here speaking. Regarding the partnership with Banco Inter, I have no relevant update here. We strongly admired the team and what we are doing with the business. But our focus is toward our core and our goals for 2022. We have to relaunch the credit, expanding our banking offering and continue to execute on the core strength of Stone and our software business unit. So we're much more focused on the core we have, so no relevant update in the partnership with Inter so far. Operator: There are no questions at this time. This concludes the question-and-answer session. I will now turn over to your host for final considerations. Thiago Piau: Hello, everyone. Thiago here. Just final comments here. We are now in a high energy momentum with the changes that we are doing in the business and we're doing it with the learnings. We had from last year really focused on the front line of the business, our clients, our product road map. We're really passionate about what we are building our mission. And thank you very much for your time to follow our call and see you next quarter. Bye-bye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Good evening, ladies and gentlemen, thank you for standing by. Welcome to the StoneCo Third Quarter 2021 Earnings Conference Call. By now, everyone should have access to our earnings release. The Company also posted a presentation to go along with its call. All materials can be found at www.stone.co on the Investor Relations section. Throughout this conference call, the Company will be presenting non-IFRS financial information, including adjusted net income and adjusted free cash flow. These are important financial measures for the Company, but are not financial measures as defined by the IFRS. Reconciliations of the Company's non-IFRS financial information to the IFRS financial information appear in today's press release. Finally, before we begin our formal remarks, I would like to remind everybody that today's discussion might include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the Company's expectations. Please refer to the forward-looking statements disclosure in the Company's earnings press release. In addition, many of the risks regarding the business are disclosed in the Company's Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov. Please note this event is being recorded. I would now like to turn the conference over to your host, Rafael Martins, VP of Finance and Investor Relations Officer at StoneCo. Please proceed. Rafael Martins: Thank you, operator, and good evening, everyone. Joining us here today, we have Thiago Piau, our CEO; Lia Matos, Chief Strategy Officer; and Marcelo Baldin, our CFO. Today, we'll present our third quarter 2021 operational and financial results, as well as discuss some recent trends that we are observing. Now, I will pass it over to Thiago, so he can share the main highlights of our performance. Thiago? Thiago Piau: Thank you, Rafa, and good evening, everyone. As we start a new phase of our business with the full integration of Linx, and as we complete three years as a public Company, I want to start on Page 1 by talking about what motivates us to work hard every day, which is our purpose. Our purpose is to serve the Brazilian entrepreneur, transforming their dreams into results. In our point of view, any person who wakes up every morning to build or run a business is an entrepreneur. We want to help them think bigger, and turn their dreams into business results by serving them with excellence and helping their business to thrive. We believe that serving entrepreneurs is the best way we can positively impact Brazilian society. We want to do this by promoting fair financial relationships, enhancing business productivity, and providing more sales options. We aspire to be a positive force to transform the retail and financial industry for more balanced relationships. To achieve our goals, we decided to build the best financial operating system for Brazil entrepreneurs. Since our early beginnings, we have always strived to build our business around merchants. This has motivated us to build the hyperlocal distribution that enable us to be closer to our clients, the proprietary technology that provides cost efficiency and the reliability that our clients want, and the best customer service in our industry. With the acquisition of Linx in our current set of solutions for multiple retail verticals, we seek to build the best workflow tools to generate efficiency for our merchants, and help them sell more through multiple channels. We're only at the beginning of our journey in combining software and financial services to bring even more tangible results to our clients and we're really excited with the opportunities ahead. On Page 2, we show that at the end of third quarter, our consolidated TPV reached R$75 billion, representing 54% year-over-year growth and 26% quarter-over-quarter growth when excluding Corona voucher volumes. More importantly, our active client base increased twofold when compared to last year, reaching 1.4 million clients, driven by our record high net addition of clients in the quarter of 294,000. The number of active digital banking accounts grew at an even faster pace, surpassing 420,000 in the quarter. In software, with the inclusion of Linx, we had over 200,000 clients using at least one of our solutions, with annualized revenues close to R$1.3 billion, up 17 times year-over-year. Even more encouraging, the retention rate at Linx core stayed at high levels of 99%. Now, moving to Page 3, we show that TPV growth was primarily driven by The MSMB operation, which is the combination of micro and SMB operations. The MSMB TPV grew at a two-year CAGR of 61% in the quarter, accelerating from 48% in the second quarter and 42% in the first quarter. While the more mature SMB operation was able to grow TPV over 70%, the micromerchants volume surged to R$3.4 billion in the quarter, nearly 23 times higher than the previous year. On Page 4, we show that the consolidated net-adds in MSMB also accelerated to approximately 290,000 in the quarter. And as a result, we reached over 1.3 million active payment clients, over two times higher than last year and 3.3 times higher than two years ago. We also posted a record high net-adds when excluding the micro segment, with over 80,000 of which approximately 77,000 in MSMB segment, representing an 82% growth quarter-over-quarter. As Lia will detail further in the presentation, we balanced this accelerated growth with solid unit economics, we reduced client acquisition costs, improved the average revenue per merchant both in SMBs and micro, and kept payback periods under control, ranging from 11 to 15 months. Before I pass it over to Lia, I want to recap our main strategic movements and what lies ahead. As we indicated in the beginning of the year, we will keep investing heavily in our engineering, sales, marketing, and operational teams to expand our capability and deliver on our purpose. In the third quarter, we significantly increased the level of investment in our business. We have invested approximately R$120 million more OpEx in the growth of our operation and in new business when compared with the third quarter of 2020. These, combined with higher interest rates, impacted our margins. And even though we started to reprice clients, managing our payback strategy with discipline, we are doing this in a way that we keep good level of growth, and don't jeopardize our relationship with our merchants, which is the most important thing given the opportunities we have. Looking ahead, we see several avenues of growth that reinforce each other to create more value to clients with good unit economics. We still see a big room to expand our MSMB client base. Given that to estimate, there are over 8 million SMBs and over 20 million micro clients in Brazil. Our ability to grow active base compounds with the potential to increase revenue per merchant over time by offering additional solutions to our clients. In credit, we envision three products to attend to different client needs. Our current credit products that we're turning around, credit card and overdraft. We continue to focus on engineering, improvement of our operation, and the strengthening of the team. We will start testing our credit product in small scale shortly. Additionally, I would like to welcome the team of Gyra +, a recent investment that we expect to close in the fourth quarter. We see the software opportunity in SMBs at the very beginning. Our footprint and distribution, combined with vertical knowledge and integration capability provide the building blocks to our vision of software and integrated financial services in the SMB space. When we look at Linx clients, they have approximately R$350 billion in annualized GMV, and we monetize only 0.3% of such value. Also, those clients have approximately R$200 billion in annual TPV, and mid-single digits penetration with our payment solutions. We see plenty of room to grow organically in current verticals, expand vertical coverage through new investments, further help our clients with integrated financial services offers and with products to help them sell more through multiple channels. Lastly, we will always keep our eyes on the long-term opportunities, building a humble organization, eager to learn, devoted to serve our clients in the best way we can envision and helping the team to reach its full potential for an ownership mentality. With that said, I will pass it over to the Lia. Lia? Lia Matos: Thank you, Thiago, and thank you, everyone, for joining us today. I want to start on Page 5, talking about growth and engagement with our financial operating system. Active banking client base increased over fourfold when compared to last year, reaching approximately 423,000 clients, with the number of SMB clients who are settling transactions in the Stone account reaching 320,000. We also saw main engagement metrics improving on a quarterly and yearly basis, such as total accounts balance, which reached over R$1 billion at the end of the quarter, a threefold increase year-over-year. Net cash inflow from the legacy credit product in the third quarter was R$483 million, which reduce the credit portfolio to approximately R$1.6 billion from R$2 billion in the previous quarter. The coverage ratio remained above a 100% and our legacy credit portfolio is performing as expected. This quarter, we have shifted most of the focus in the credit business to building the team engineering capabilities, and operations, so we can resume credit offerings to our clients. We envisioned building three credit solutions based on their most important business needs. First, we're turning around our credit product by implementing improvements to our original short-term loan, so we can carefully move forward in test mode, even with the registry system not working as expected. Such improvements are the inclusion of personal guarantees from business owners and other businesses they may have; a better risk scoring through additional data; implementing minimum and maximum monthly payments to facilitate early signs of default while providing more flexibility on payment terms; improving the product for the clients can better understand impacts on their future cash flow. And lastly, enhancing our early negotiation capabilities. Also, we're working to launch 2 short-term lower ticket products. First, credit cards, which will provide our clients with a credit limit to use on day-to-day business expenses. Second, overdraft, giving our clients the convenience when they need to pay for unexpected or emergency expenses, and their cash flows are not enough to meet those needs. As a step towards strengthening our team, we are really happy to welcome the team of Gyra +, a data-driven SME lender, which operates under a fee-based asset-light approach. We plan to initiate assessing phase in small scale with short-term loans between the fourth quarter of '21 and the first quarter of '22, with focus driven towards getting feedback from engineering and improvements of the operation. Our insurance solution, though still in pilot mode, is showing encouraging initial results with 14,500 active contracts, in which we earn a fee without underwriting risk. Merchants, their families and employees have multiple insurance needs and we're working to provide them superior financial protection. This is another important step towards our goal to be the best financial operating system for Brazilian merchants. On Slide 6, 7, and 8, I will provide more color on unit economics and monetization opportunities we see ahead. In Slide 6, we show that we have been able to accelerate TPV growth and net additional clients in the MSNB segments while keeping healthy levels of monetization. Average revenue per merchants in SMB is around 365 high while micro is 117 highs showing improvement compared to last year. We also improved overall acquisition costs with CAC roughly stable for SMBs, and 17% lower for micro merchants, and maintain the stable operational costs of CRM, but with higher funding costs. As a net result, the payback period of new cohorts has ranged between 11 and 15 months. Due to the increase in the Brazilian base rate experienced throughout the past quarters. We have started to adjust our commercial policies to the new interest rate environment. In Slide 7, we show that in banking we have been able to not only to grow client base, but also improved monetization for each client. Banking number of clients increased fourfold and average revenue per user improved 30% year-over-year in the quarter. The insurance product, which is still in pilot mode, also improved the average revenue per user since its inception. In Slide 8, we want to show the rationale behind our investments in growth. Taking a broader look at the monetization opportunity in SMB merchants, we see that the average revenue per merchant that uses payments is R$340 and when they use our banking product with a prepaid card, they generate an additional R$30 monthly. If they decide to use the protection of life and business insurance, they generate an additional R$40 monthly. Clients that have fully paid down their loans with us generated a monthly revenue of R$327 when we look on an accrual basis. Lastly, the average monthly subscription for SMB client currently using our POS/ERP solutions is a R$160. In Page 9, we give a quick update on our Key Accounts business, which grew volumes by 10.5%, backed by 2 different underlying trends. First, sub acquirers’ volumes, which continued to decrease share in overall volumes and revenues, decreased when compared to last year. Currently, our top 2 sub acquirers represent only about 1% of our revenue net of funding costs, down from approximately 3% the previous quarter. Conversely, platform services increased volumes by 55%, and currently represent around 60% of Key Accounts ' revenue. Here, we enabled third-party software providers and platforms to embed payments and financial services through API integration. In Slide 10, I want to shift to talk about our software business. In the third quarter of '21, our consolidated software revenue was R$314.8 million with 200 thousand software clients, revenue was 17 times higher than the third quarter of 2020, or 27.5% higher on a pro forma basis considering links. Users ' recurring revenue grew 15.5% in the quarter with core POS and ERP solutions increasing 21.2%, driven by both higher average tickets, and an increase in the number of stores served. The consolidated software revenue from our portfolio ex-Linx, which encompasses 10 companies grew 182% year-over-year to R$53.1 million. On Page 11, we give an update on Linx integration and our priorities ahead. This quarter, we executed the new leadership organization, the integration of main back-office functions, especially finance, migrated half of Linx Pay sub-acquirer clients with approximately 80% having already opted in, and we plan to conclude the process by the end of the year. We're now shifting focus to capturing the growth opportunities we see ahead, and prioritize execution within different parts of the business. The first set of assets shown in the page is where we are investing in growth and quality. We will continue to drive organic and inorganic growth within each vertical and invest to expand presence in new verticals. Our OMS and impulse solutions, are key assets to help our clients digitize their catalogs, better reach consumers, and sell more through multiple channels. Linx's brick-and-mortar gateway and QR gateway are important building blocks to enable software and payments integration, and we will continue to strengthen and improve such solutions. On Page 12, I want to highlight the strength and opportunities within the Linx business, with its deep knowledge of different verticals, attracting a powerful set of brands within Brazilian retail. Linx's Software Solutions are present in over 106,000 locations, some of which are the main franchises of Brazilian retail, where the relationship with stores is similar to that of SMB. Linx store locations jointly transact close to R$350 billion of GMV, and around R$200 billion of TPV, of which we have only mid-to-single digit payments penetration. On Page 13, we take a broader look at our Software business, considering both Linx and Stone software portfolio, and the representation from different client tiers. Key Accounts currently represents 9% of total software revenues. For this client segment, our execution is geared towards the high level of customization of large retailers’ workflows. Given the digital/omni maturity of our clients, this is an important segment regarding partnerships we are building with consumer-facing companies related to marketplace integration. Mid-to-large clients account for 80% of software revenues. And in this segment, vertical expertise is key. We see an attractive monetization opportunity by creating Integrated Financial Services offerings specific to each vertical's needs. Also, we see the opportunity to help these clients to sell more through multiple channels, with an efficient omnichannel integration. SMBs account for 11% of overall software revenues. We have over 120,000 SMB clients using software and 1.3 million MSNB payments clients. We are working to leverage on our distribution capabilities to drive organic growth of software in this client's segment. On page 14, we wanted to share some initial experience where we are working to improve the efficiency of our clients ' processes through payments in open banking integrations with software. We highlight multiple benefits depending on their specific needs, such as enabling automatic settlement between service providers and higher professionals, such as hairstylists in hair salons. This specific feature is possible through the integration of [Indiscernible], our POS/ERP for beauty, with the Stone platform, and saves our clients time and money by avoiding double taxation. Like this example, there are several others highlighted in the page that are brought by different integrated solutions. We're only at the beginning of this journey, but we're very excited with the value we can bring to our clients in the future. Now, I will shift it over to Rafael, who will give an update on our financial performance in the quarter, and the evolution since our IPO. Rafa. Rafael Martins: Thanks Lia. Now, we're entering the last section of the presentation. The financial highlights. As shown on Slide 15, our total active client base grew over twofold, reaching nearly 1.4 million clients. While micro-merchants active base grew by over eight times to 545,000 clients, a record net adds, excluding micro of 80,000, ending the quarter with 847,000 plants. Our total revenue in income was R$1.47 billion in the quarter, representing a 57% increase when compared to last year. Linx consolidation, which added R$262 million in revenue, and the growth of our existing business contributed positively to this growth and the lack of revenue from our credit products contributed negatively. Our business excluding Linx in our credit products, grew revenue by over 55% year-over-year. The credit products on the other hand, which contributed with R$156 million revenue in the third quarter last year, didn't contribute to our revenue this quarter because we temporarily paused new disbursements as mentioned in our previous earnings call. Looking at our TPV, we reached R$75 billion in the quarter, or approximately R$300 billion on an annualized basis. This does not include Linx pay volumes. TPV ex Coronavoucher grew 53.6% year-over-year. In Slide 16, we show our consistent market share gains in payments. Looking at the main players in the market with public available data, StoneCo reached nearly 1% of market share in TPV. If we consider only our MSMB volumes, market share over total market volume is approximately 9%. More importantly, we can see that our MSMB business has been gaining share in a very consistent way with our highest ever quarterly market share gain of over 1.3 percentage points, as you can see on the chart in the bottom right of the page. Moving onto Slide 17, we show the pro forma results with Linx, both including and excluding the credit product. As Thiago mentioned, the pro forma growth of our business was 46% when excluding the credit product, and 26% when we see reported numbers with credit. There are 4 elements I would like to highlight here. First, our business kept high-growth levels after the acquisition of Linx. Interesting to highlight, our business model is protected against inflation, both in the Payments business, which captures a take rate of nominal transactions. And in the Software business, which have inflation-adjusted contracts. Second point to highlight is that in this quarter, we had significantly higher OpEx investment in growth and new solutions, as Thiago has mentioned previously. So, you can see cost of services and selling expenses increase at a higher pace than our revenue. In cost of services, we have investments in TAG our registry platform, and other data center costs to support the growth of our operation, incremental investments in our technology, customer service, and logistics teams. In selling expenses, we have investment in the expansion of our hub operations, higher marketing expenses, and higher investments in [Indiscernible] The third point to highlight is that our administrative expenses increased significantly over 100% year-over-year. Here, we had over R$63 million in this quarter of one-off fees paid to advisors relative to the Linx and [Indiscernible] transactions. Besides higher amortization of fair value adjustments on intangible assets related to acquisitions, and G&A expenses related to our software operations apart from Linx. Important to note that in this quarter, we have separately disclosed the mark-to-market results from our investment in Banco Inter. We had a loss of R$1.3 billion this quarter, compared to a gain of R$841 million in the previous quarter. The fourth point to highlight is financial expenses. As Lia mentioned, basic interest rates have increased significantly in Brazil over the last quarters. This combined with strong growth in our prepayment volumes, led to an increase in financial expenses pro forma for Linx of over 290%. We are adjusting our commercial policy to this new environment, balancing the pace we expand our business with healthy monetization, but we still see in the third quarter and in the fourth quarters of 2021, lower margins than usual because of that effect. As we mentioned a couple of times in the past, usually there is a lag between changes in CDI and our commercial strategy adjustment. As a result of those factors, our adjusted net income was R$133 million in the third quarter. If we exclude our credit solution, adjusted net income was R$152 million, mainly because of the financial expenses we still had in our P&L, related to our legacy credit portfolio. Now, let's move on to Page 18, where we show our reported P&L. We grew revenue by 57% with subscription revenue growing over 300% mainly as a result of Linx consolidation. Excluding Linx, subscription revenue grew 64% largely driven by higher active client base, combined with higher contribution from our software solutions. Transaction revenue grew less at 23% mainly because of Coronavirus -- revenue in the third quarter of last year. Excluding those, transaction revenue grew a little over 47% year-over-year. Our financial income grew by 32% year-over-year, including revenue from our credit solution, which contributed to R$156 million in revenue in the third quarter of 2020 and virtually 0 to this quarter's results. Our Prepayment business continues to grow at a strong pace, with our financial income excluding credit and Linx growing by approximately 100% year-over-year. Lastly, other financial income increased 96.7%, this increase was mostly because of a higher base rate in Brazil, which was partially compensated by lower average cash balance. Cost and expenses increased mainly because of Linx consolidation, and for the reasons I have just mentioned before in the previous page. In our press release, we give more details of the growth drivers, excluding Linx consolidation. Moving on to Slide 19, we can see the evolution of adjusted net income, which reached R$133 million in the quarter. Also, as we have mentioned in our earnings release last quarter, we have now evolved our managerial view of adjusted free cash flow and other cash flow metrics. We believe this provides a more assertive way to look at cash flow, especially given the dynamics of prepayment and credit solutions, as well as additional disclosure to investors to understand our business in our earnings release, we detailed the changes we have made. So, looking at the table on the right-hand side of the presentation, we see that our adjusted free cash flow, which does not take into account our cash flow from credit and prepayment operations, remained relatively stable year-over-year despite its strong increase in investments. We have generated R$238 million of adjusted free cash flow in the quarter. It was slightly higher than last year. The increase was mainly driven by a much higher cash net income, which grew by 168% and lower CapEx, partially offset by lower cash flow from working capital variations. In the quarter, our prepayment business has required R$2.5 billion of cash, which we funded mainly through sale of receivables. Our credit business has released over R$480 million in cash flow, as we are collecting loans from our legacy portfolio with no new disbursement. Also, we have disbursed R$4.7 billion in the quarter for the acquisition of Linx, which was funded by our follow-on offering in the third quarter of 2020. Moving to Slide 20, 3 years have passed since we became a public Company. And we believe it is a good moment to come back to some of the messages we have provided by our IPO. What we have done since then, and what we're doing now. By that time, we intended to develop solutions in the banking space and to serve micromerchants. Since then, our solutions in banking and micromerchants space have gained significant scale, despite being still in early days. Active clients in banking have surpassed 420,000, and we have surpassed the mark of 0.5 million merchants with our TON solution. Looking ahead, we aim to be the best financial operating system for Brazilian merchants, as Thiago has mentioned in the beginning of our call. Also, we have mentioned back in 2018 that we would selectively pursue acquisitions, especially in the software space. Since then, we have invested in 12 companies being today the number 1 Company in software for retail management in Brazil. And looking ahead, we aim to be the best workflow tool for Brazilian merchants and help them drive sales through multiple channels. By the IPO, we also said that we intended to continue to grow our base of Stone hubs. We have increased from 180 proprietary hubs in 2018, to over 450 hubs today, gaining density of coverage. Our client-base increased from a little over 230 thousand by the third quarter of 2018 to 1.4 million clients now, of which 1.34 million MSMBs As Thiago said, we believe there is still plenty of room to grow with nearly 30 million MSMBs in Brazil. Following to the next slide, we show how our metrics changed since our IPO. We grew our client base at over 80% 3-year CAGR, and our TPV in revenue in a 50% and 53% 3-year CAGR, respectively. Our adjusted net income has increased from R$89 million in the quarter to R$133 million now, although we continue to invest heavily in our business. We improved our ability to recruit talents, with over 130,000 applications to our recruiter program this year. We maintained very high service levels with calls rated at "Excellent " in our customer support, roughly stable at 92% and the [Indiscernible] from our logistics at 96%. Also, we have raised the bar for ourselves. Whereas in 2018, we had the goal to pick phone calls in 20 seconds. We now do it in 5 seconds. We're proud of what we achieved since we got our first client in 2014, but we are much more excited with the opportunities ahead of us. We're just in the beginning of our journey. With that said, operator, can you please open the call up to questions? Operator: At this time, we're going to open it up for questions and answers. [Operator Instructions]. Our first question will come from Tito Labarta with Goldman Sachs. Please go ahead. Tito Labarta: Hi. Good evening. Thanks for the call and presentation and taking my questions. A couple of questions. When -- maybe just to understand a little bit on Linx and some of the opportunities that you see there. I mean, you gave some color in terms of what you're looking to do, but I was curious on the payment volumes that you highlighted from Linx, around R$200 billion. Any indication on potentially capturing those volumes over time? And also, on the omni-channel strategy to -- as you get some of the software to your merchants, any color you can give in terms of like the potential synergies that can arise? And then the second question, I guess, in terms of your margin, I understand your financial expenses went up, you're investing a lot in the business. I think you said margin could fall again in 4Q. Your margin today is 9%, well below historical levels. Do you think you're going to continue to see pressure on that because of the higher financial expenses and investments in the business? Any pathway to get back to those historical margins that you had in the past? Any color on that would be helpful. Thank you. Lia Matos: Hi, Tito. This is Lia. Thank you so much for the question. I will get started and then pass it on to Thiago. So, regarding Linx, Tito, I think the big message here is we do see a bigger pool of TPV than we anticipated prior to actually administering the Company. And in many ways, we see more opportunities to add value to our clients here. But our focus is really about thinking more deeply about each vertical. And I think we tried to illustrate a little bit these initial test and pilots that we're running, so the direction that we will go here is not to think about pure commodity payments penetration, but thinking how can really add value to our clients and where in the workflow of those clients who can actually simplify their lives through these payments in open banking integration. We want to help our investors to see these opportunities as we see them, but we're not really ready to provide any synergy guidance at this point. I think -- oh, yeah, omnichannel was the second part of your question. So I think in omnichannel, the big focus is when we show that pyramid where we show the Linx clients by tier. And when we think about the big clients, right, the key accounts clients within Linx, those are naturally the clients that are more digitally mature. All of them already have omnichannel -- most of them already have omnichannel operations. And our initial focus will be on helping those clients connect to different consumer ecosystems, and I think Inter is an example, right? And I think as a second step on the mid-large clients, we do see a huge opportunity as well to help them in a more simplified way to become an omnichannel and digitize and be able to sell through multiple channels. And I think when we talk about the SMB opportunity, that's a slightly more long-term opportunity that we see. Thiago, want to talk about margins. Thiago Piau: Yeah, Lia. Thank you. Hi, Tito, Thiago here. Thank you for the question. I’ll try to be helpful about Linx, too. I think that we are executing the first space when we think about the payments and financial services, which is really migrating clients from the platform of Linx Pay to our own platform. And planning the execution with the integration and all the sales process in order for us to implement the strategy, we believe, into the client base of Linx. So, as we said, 80% of the clients already accepted to migrate. We're focusing on making this migration the best way possible. And we want to end this in this fourth quarter maximum in the beginning of first quarter and we’re implementing all the processes needed to penetrate the client base we have. We are happy to see that Linx is much more concentrated around the medium and small clients that we believe previously, so we see good opportunities here. In terms of omnichannel, as Lia said, when [Technical Difficulty] it's 12. There are some examples of very good brands. Can you hear me? Yes, working. Okay. Tito Labarta: Yes. I can hear you now. Thiago Piau: So, when you've seen Page 12, you can see some of the brands -- I'm sorry, the team was saying that it was not working here, sorry. So, we show some of the brands that we have here. But much more than this, I think that those clients, they're much more concentrated into brick-and-mortar sales. If we can in a very simple way, bring them the ability to sell through multiple channels through e-commerce platforms, through conversational platforms, through social, will really bring new sales for them, and that’s where we really change the relationship with merchants, we're really focused towards that. Talking about margins, as you said, I think that we have unusual margins. And in the short-term, you should see margins a little bit -- we should see margins lower than usually. And we see this as a temporary, not structural. Some elements here to have in mind when we think about margins. First, we've decided to set our Company to be much bigger in terms of scale and we're investing heavily with unit economics discipline. So, as we grow, Tito, we will get the benefit of operational leverage, given that we see good returns on investments we're doing and we're trying to show this by the payback period that we experienced in the MSMB. We think that worth it to keep high levels of growth in the business. Second is that we're investing in new fronts to serve our merchants. So, you can see the additional products in a very accretive way. We are trying to show what we want to build for the future to enhance the relationship with our merchants in Slide 14 and Slide 8. So as we progress towards our mission, we expect our margins to considerably expand. Third, our business has some exposure to macro environment, as Rafael said, in a positive and negative way. We're positively exposed to inflation, given that it increased TPV and the software contracts are naturally adjusted by inflation. But we're negatively impacted by interest rates, as funding is a very important resource to grow our Company. The way to mitigate this negative exposure is really for products and the right pricing strategy. So, when we scale our balance sheet, our banking solutions, we have more outstanding balance of our clients. Today, we have over R$1 billion in outstanding balance, and we're here building a natural hedge. And although there is a lag between interest rates increase and our repricing strategy because we don't want to jeopardize the relationship with our clients and keep good level of growth, you can see that the -- our strategy will move forward fast, but there is this lag that we have to pay attention. So, moving forward, we expect our margins to increase by the facts that I just told you. Tito Labarta: Thanks Thiago. That's helpful. Just to understand, going forward, does that means next quarter, next year? Is that a longer timeframe in terms of those margins increasing? And you also said it remains sort of below historical levels. Now, is there a downside from the 9% margin we saw this quarter, or you just mean relative to the near 25%, 30% margins, you should be below that? Just trying to quantify a little bit some of the evolution because -- big delta from where you were to where you are today. Thiago Piau: Yes Tito, so we are already executing the repricing strategy, both in the sales and in the current client base we have. We're taking a cautious approach, as we said, not to jeopardize relationship, but we're doing well. So we are executing this with discipline throughout November and December and I think that we are moving well. When we think long-term about margins, we expect to have a high-margin Company, mainly because we believe in our ability to drive much more engagements of our clients with the solutions we are building, keeping the cost to serve under control. So we think that we're fit to expand the base we have because of the strategic roadmap we see in front of us. So, I think that very short-term, you will see level of margins higher than what we had one year ago. But mid-term, we expect a very high margin Company because of the -- our expectations in terms of products. Tito Labarta: Okay. Got it. Thank you, Thiago. Operator: Our next question will come from David Togut with Evercore ISI. Please go ahead. David Togut: Thank you. Good evening. Could you expand upon your expected timeline to restart credit origination. How the integration with the registry of receivables is going, and when we might to see -- start to see some operating leverage in the credit business. Lia Matos: Hi David. Lia here. Thank you for the question. So, as I mentioned, we expect to start retesting our original port product, which is short-term loans. Between the fourth quarter of '21 in the first quarter '22. We're implementing in this product several improvements, so that we can start to test, and test the impact s of those improvements without needing to rely on the registry systems fully functioning. Those improvements are, for example, the inclusion of personal guarantees from the business owners and potentially other businesses they may have, improve risk scoring through additional data. And part of that has to do with an a very important fact that I didn't detail much which is incorporating hub operation into the credit and much better than we did before. So, part of that data has to do with the thousands of interactions that our sales agents, our green angels and our customer service teams have with our clients every day. Implementing some products adjustments as well. So, mix of minimum and maximum monthly payments that we will facilitate and make it more flexible for our clients to pay. It enables us to actually identify earlier signs of default and improving better just UX, right? Better experience for those clients that they can really interact with the product throughout its life cycle in a much better way, and enhancing our early negotiation capabilities. This also has to do with incorporating hubs better into the process. So, we really will pass all of these improvements as we start testing in the fourth quarter and the first quarter of 2022. We will not wait for the registry to be fully functional. And we want to do this without having to rely on that. But that said, we do expect that long-term, the registry systems will work and that will get into regime eventually. David Togut: Thanks for that. Just as a follow-up. When do you think you'll start to originate credit and volume? In other words, you talked about starting to retest in the fourth quarter of this year and the first quarter of next year. But when do you think your lending product will be back at volume levels that we saw prior to halting the origination of credit? Thiago Piau: Hi David, Thiago here. I think that we're not ready to provide a specific guidance in terms of scaling the credit. We're really focused towards engineering and getting the feedbacks of clients and all the clients experience that we have learned throughout this one year executing the credit. We expect to start disbursing this quarter, and we think that this mindset towards engineering, towards client experience, making sure that all the negotiation and renegotiation process works in the best way possible for clients; is the mindset that we need to have today. I think that by maybe the end of the first quarter or beginning of first quarter, it would be easier to provide you some guidance. In terms of scale, we want to keep our minds now towards engineering and getting the product in the way we want. David Togut: Understood. Thank you. Thiago Piau: Thank you, David. Lia Matos: Thanks, David. Operator: Our next question will come from Mario Pierry with Bank of America. Please go ahead. Mario Pierry: Hi, everybody. Good evening. Thanks for taking my questions. 2 questions as well. A little bit repetitive, but I wanted to be clear. So, on Linx, when you first made -- announced the acquisition, you expected Linx bps accretive in the first year. Is that still the case? When we look at Linx, the revenues are annualizing close to R$1 billion are you seeing -- should we expect any meaningful acceleration in revenues of Linx than in the next 12 months? Especially also on costs of Linx, right? As you mentioned, you have been investing a lot to make sure that you migrate clients into your platform. So, give me -- I wanted to understand them a little bit better. Is this transaction EPS accretive or not in the first year? And then the second question is about your ability to pass on higher prices, as you are having higher financial expenses. I understand that other players in the same position as you are, given the wholesale funding of the business. However, my concern is that some of the incumbents might see this as an opportunity to regain market share, might be reluctant to test prices. So can you discuss a little bit about the market dynamics and your ability to pass on higher prices going forward. Thank you. Rafael Martins: Hi, Mario. Rafael here. Thank you for the question. So, regarding your first question of EPS accretion. So Linx is a very healthy business in terms of margin. So, I did the margins very healthy. When we look at interest rates right now, Linx bottom line today is contributing negatively to our result. So, we are reassessing in our re-budgeting for next year, and the opportunities that we see. The EPS accretion, we do believe that this is a very accretive business. Regarding the timing of when this should be accretive, we'll come back to you on more details with the synergies. But I think that the interest rate scenario makes the bottom line in terms of net income and EPS slightly lower than we expected. But when we look at other opportunities, for example, as Linx core growth is performing better than we expected when we did the deal. So, I think it will be a trade-off that the opportunity here is not maximizing Linx bottom-line, but rather build into the future that Lia mentioned. So, we are testing already integrations in different segments of clients. And one important thing I think to mention is when we talk about penetrating financial services and Linx clients, we are much more focused on rather than going to the big clients and selling payments and penetrating payments with small fees, we're trying to have a deep knowledge on what product fits best for each vertical and client profile. And from the conversation we have been with the team, there is a lot more to explore than we thought and this will be a bit -- very accretive. This is the update on Linx. Marcelo Baldin: I might have changed here. Just a quick comment on Linx. If you see is like 11, we tried to group down what we've seen Linx in terms of solutions in 3 buckets. So, first bucket, I think it's about the core. We are positively impressed by how strong the core of Linx is. So, we were surprised by the growth of the core, the POS in ERP solutions, the growth of OMS, The TEF solution, which is the brick-and-mortar gateway. And in here we really want to invest in growth and quality, and we will see the combination of distribution channels that Linx has built through own force franchises and what Stone has built with the hubs, with franchises and all the channels we use. I think that we will have a greater chance of accelerating our software strategy with combination of both teams. So, we really like the execution on those assets, and we believe that this opportunity in terms of growth in software is bigger than what we thought in the beginning. When we think about the e-commerce platform, I think there's a turnaround here that we have to invest more in terms of scalability and feature. And we're fit, so we are taking the time to help the team to turn around the e-commerce platform. We have a 2-year CAGR of 39%, which is interesting to see because 2020 was a huge growth because of the pandemic. So, there is a good movement and traction. But we believe that in order to get the e-commerce platform where we want, there are investments in terms of technology to do here. And I think that the negative surprise was the payments platform, that we decided to shut down as fast as we could because we think that the quality of the platform and the risks involved was worse than we thought in the beginning. So, we decided to put our energy towards migrating clients fast and I think that it delayed a little bit [Indiscernible] in terms of penetration, but it hasn't changed our plans and the opportunities we see. When we think about the ability to reprice, we already changed pricing in terms of new sales and we started small, but we already started the repricing the clients [Indiscernible]. So, I'm seeing that we're moving towards the direction that we want having the [Indiscernible] to balance payback period and contribution margins for each client. We don't talk too much about repricing because it's very sensitive in terms of competition. But I can tell you is that we always -- every time that we have to talk about repricing with clients, we have to do in a very granular way, seeing client by client, the segment, the size, the products they use, and really create the best proposal that we can do for them. So, we're not rushing because we want to protect our client base. But the first results that we're seeing shows that we have the ability to execute the repricing without jeopardizing the relationships. So, we're doing a balanced way. Mario Pierry: Okay, guys. Now that's very clear. Thank you very much. Marcelo Baldin: Thank you, Mario. Operator: Our next question will come from Jamie Friedman with Susquehanna. Please go ahead. Jamie Friedman: [Indiscernible] here guys. I'll just ask my 2 upfront. About the Slide 11, Thiago and Lia with your comments, when you say 50% of the clients when [Indiscernible] migrated to Stone 81% opted in. My understanding was that you were targeting 20% in Year 1 run rate. I'm I just mixing things up here? What is Sub acquiring as a percentage of the TPV, I guess is my question. Thiago Piau: What's the first question? Jamie Friedman: Thiago, I thought you said earlier and maybe I misheard, I really apologize if I misheard, that you thought that the margins would be higher in the short-term. If you could just -- I realize you guys don't give guidance but if you could just clarify that because that seemed different than what I would've thought. Thank you Lia Matos: Hi, Jamie. I'll take the first part of the question and then pass it to Thiago. So yes, let me clarify your question regarding migration versus the synergy in terms of penetrating Linx's base. The number that we give here relates to Linx Pay. So Linx had a subacquirer within its Linx space set of assets. And that's where we put the first focus of the team, because we saw some risk there related to regulatory compliance, things like that. So, we really prioritized very quickly to migrate that volume, but that's volume wasn't that large, is about R$2 billion in the quarter. That's pretty much a process that we're completing by the end of the year, where we really see the opportunity is when we talk about the R$200 billion TPV that [Indiscernible] mentioned. And that's where we're really looking into, vertical by vertical, we're coming in -- the teams are coming in and really understanding from clients where the opportunities are, and where we can create value through payments, Open Banking Peaks. So, several different types of integrations between our financial services platforms and Linx's software. So that's really where our focus is. And then that's where we look ahead to penetrate that opportunity in terms of TPV. Was that clear, Jamie. Jamie Friedman: Yeah. That was a -- that totally cleared it up. Thank you, Lia. That's much -- I Got it. Thank you. Lia Matos: Thank you. Thank you. Thiago Piau: Hi, Jamie. Thiago here. So, regarding margins. Back again, I think that I didn't say in the right way actually. So, what we see is in the short-term, our margins are lower than the margins we had historically, right. And interest rate was going up much faster than what we thought in the beginning, and we decided to accept a little bit lower margins during a short period of time not to jeopardize the client base. And we are repricing the new sale in a way that we don't decrease level of growth too fast. We took the time to learn the dynamics of the market, the dynamic of the client base, and we accepted lower margins in the very short-term because of that. I don't want to make promises now about the margins next quarter, but what I can say is, the quarters ahead, the very short terms of quarters ahead, we will have margins lower than what we have historically. But our ability to drive margins in our business model in the medium-term, it hasn't changed. So, I think that we are balancing investments in terms of growth, looking to payback contribution margin from our clients, understanding what is our ability to drive more value in more unit economics for each segment and size give the strategy in terms of products road map we have, and now we are executing these with a lot of discipline. So, we believe that's worth it in the very short terms, to have margins that are lower than the historical margins that we had in order to gain much more scale and have a much stronger business model in the future. And we're doing this with discipline. But over the medium to long term, we expect to have a high-margins business with strong cash flow generation. Jamie Friedman: Got it. Thank you so much, Thiago. Thiago Piau: Thank you, Jamie. Operator: [Operator Instruction]. Our next question will come from Neha Agarwala with HSBC. Please go ahead. Pardon me Neha, your line might be muted. Neha Agarwala: Oh, sorry. Sorry. Yes, I was muted. Apologies for that. Could you give us a bit more color regarding competition? How do you see competition in the core SMB market? You say that you have 9% market share, where do you see that going in the next 2 to 3 years? And also, a bit more color on the long-tail segment. How has the progress been? Is it encouraging in terms of -- you gave us the number for the payback period? But is that a segment where you see you've already had to break even? And how do you see the profitability going forward in that segment? Thank you so much. Lia Matos: Sorry Thiago, you want to take it? Thiago Piau: Yeah, Lia, go on. Lia Matos: Hi Neha. Thank you for the questions. I'll take the first part and then pass it over to Thiago, perhaps to talk a little bit about the long tail. Neha, so regarding our SMB penetration, right? So, I think the number to keep in mind here is over 8 million SMBs in Brazil. Rafael showed the page where he was comparing the number of hubs, we have today versus the number of hubs we had at the IPO. We still see opportunity to continue to open hubs and to increase penetration in the locations where we already have coverage. Because remember that it's important to have coverage, but also to have density. And when you look at the size of our active base today versus a number of SMBs that exist, I think we're not yet at the point where we see the end of the road in terms of growing client base. So, I think there -- we still see a lot of opportunity, and we continue to expand with our hub strategy. I think in the long tail -- I'll make just a quick comment, thinking about the market and then passing it over to Thiago. There's a lot of greenfield opportunity here. Because autonomous workers, they are born every day, so to speak. So, we see a lot of opportunity when we think about the market itself, our market share there. When you think about penetration and the size of micro clients, we have today versus the number of autonomous works that exist in Brazil, that's -- we're still low single-digits in that journey, so we still see a lot of room to continue to investments -- to invest in growth. And maybe I can pass it over to Thiago to talk a little bit about break even, how we see this operation. Thiago Thiago Piau: Thank you, Lia. Hi, Neha, Thiago here, speaking. Regarding competition, no updates in terms of everything that we have said in the previous two quarters. But I would like to take a moment to talk briefly about medium-term. I think that when we see our industry and our business and what we are building into Stone, I think that this is really a lifetime opportunity. It's incredible to see the changes in terms of the merchant needs, in terms of how the industry is evolving. So, we took the challenge. We're moving from the payments relationship that brought us here to build entire financial platform that our clients need in order for us to be the only relationship when they think about financial services. I'm seeing that the team is really moving fast. We're now focused on the engineering side to take the credit, because we think that credit is a very important product to help our clients to sell more and I still some of the players in the market trying to do the same, evolving to the whole financial platform. But I think then in the end of the day, we have the best service level, we have the best team, we have the best execution. I really believe in what our team is doing. And there's one challenge that we took, and I think that nobody took the challenge yet, which is to win on the software side of the industry, to really drive efficiency in the operation of our merchants, and taking the challenge to bring additional sales for our merchants in the scale that we're doing. We believe that in the medium-term, the importance of the software, and our ability to connect the brick-and-mortar operation of our clients with multi-storefronts operation with the digital channel is something that we really transform our business in the next 3 to 5 years. I'm confident with our ability to win on the MSMB space. I'm confident with the ability of the team to build the whole financial platform, to change the way we have relationship with our clients, and to win on the software side to bring more sales to our clients. We want to create a Company which is humble to learn. And we made mistakes in the past, we learned with them, we are much stronger now. But the opportunities in the industry are very, very big. In the micro segment, what I'm happy to see, and we have disclosed this here on Page 6, is that the average revenue per merchant is actually better than we thought in the beginning, and we had the ability to decrease the cost of acquisition of clients. And those are very -- 2 very important factors for us. So, we're confident in our ability to execute in the micro segment. I think that the team is really performing well. And the capital allocation we did, I think that is on track in terms of our plans. So, we will continue to drive growth, and we will continue to invest in the Micromerchants segment because we believe in our ability to offer better products and better service to micro-merchants in Brazil and to help them to dream bigger. I think that this team is capable to do it and to win in this market. Lia Matos: Thiago, if I could quickly complement one important aspect related to your question, Neha about market share, right? I think what Thiago is saying is really important from the perspective of the number we show there has to do with market share in acquiring. But the way that I think is perhaps better to talk about this is, and Thiago talked a little bit about this at the beginning of the call, I think we really see a flywheel in terms of both, where the -- first element is the ability to grow client base, right? And then acquiring is the entry point of that relationship. But when we talk about market share, it's important to understand that there are other addressable markets, right? There are other pools of opportunity that we also see ahead. As we further offer more products, more solutions to our clients. I think it's really about the combination of our ability to grow client-base by bringing the best service to those merchants. And that -- we talked about that; how we built that model, where we built the distribution, we built the capabilities in terms of customer service, that we could actually serve those merchants really well. And acquiring, is there an entry point of that relationship, but then over time we will offer more solutions. And I think -- when you think 2, 3 years down the road, and our -- in thinking specifically about our distribution capabilities, I think that we will see a much, much different set of distribution capabilities as we have today. Because nowadays with the acquisition of Linx, we have a powerful distribution within Linx for software. And now we have within Stone not only the hubs strategies, but our distribution capabilities in the micromerchants space. And more and more, we're starting to think about how we could combine and really think about the best way to offer the right products to the right clients, through the right channels, right? So, I think there's a lot of work to do here, like Thiago said. We're at the beginning of this journey, but I think 2 or 3 years down the road, we're going to be a very different Company in terms of set of distribution assets that we have and the offerings that we bring to our clients. So, I think I just wanted to compliment on that, because I think that's an important aspect to think about. Neha Agarwala: Thank you so much, Lia and Thiago. If I can have 1 additional question. How easy do you think it will be to reprice and pass on these higher funding costs to your customers. Because if I understand correctly, for the hub business it also depends on what your competitors are doing. So how much of the higher funding costs do you think you can pass onto your customers. Thank you so much. Thiago Piau: Hi, Neha. I think that when we have our client base and the size we have and when we grow in the pace we're growing, it's never easy to make changes in terms of the pricing. But it's -- I think it's not about being easy or not, I think it's really about providing the best value proposition for each one of our clients. Because the way we think about pricing is that pricing depends on the products our clients really use, and the level of engagement that you have with each one of our prices -- of our products. So, we are taking the time to use the relationship we have with them, and we're very close, the data that we can see in terms of engagement with the multiple products we have, and the price points we want to execute in order to maximize the base we have with the capital allocation strategy and the contribution margin that we expect for each one of the clients. So, I think that it's much more about taking the time to follow the plan and not to rush and hurt the pace or hurt the growth. So, interest rates went up very, very fast. I understand that there is somehow an anxiety to pass along this first, but we have to put relationship with our clients first place and execute a plan based on the relationship we have, the products we're offering, and balancing this well. So, I believe in the ability of the team to execute the plan. We will bring much more information about this in the fourth quarter as we are putting the efforts of the repricing in November, December. I think that October was a month to plan. November, December is a time to execute, so it will be easier to talk about this in the end of the fourth quarter. But I'm confident with the plan we have in hands. Neha Agarwala: Great. Thank you so much. Very helpful. Thiago Piau: Thank you very much, Neha. Lia Matos: Thank you, Neha. Operator: There are no questions at this time. This concludes the question-and-answer session. I will now turn it over to your host for final considerations. Thiago Piau: Thank you, everyone for having the time to be here with us, and see you next quarter. Bye bye. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Good evening, ladies and gentlemen. Thank you for standing by. Welcome to the StoneCo Second Quarter 2021 Earnings Conference Call. By now, everyone should have access to our earnings release. The Company also posted a presentation to go along with the call. All materials can be found at www.stone.co in the Investor Relations section. Throughout this conference, the Company will be presenting non-IFRS financial information, including adjusted net income and cash flow. These are important financial measures for the Company but are not financial measures as defined by IFRS. Reconciliations of the Company's non-IFRS financial information to the IFRS financial information appear in today's press release. Finally, before we begin our formal remarks, I would like to remind everyone that today's discussion might include forward-looking statements. These forward-looking statements are not guarantees of future performance and, therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the Company's expectations. Please refer to the forward-looking statements disclosure in the Company's earnings press release. In addition, many of the risks regarding the business are disclosed in the Company's Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov. Please note, this event is being recorded. I would now like to turn the conference over to your host, Rafael Martins, VP of Finance and Investor Relations Officer at StoneCo. Please go ahead. Rafael Martins: Thank you, operator, and good evening, everyone. Joining us here today, we have Thiago Piau, our CEO; Lia Matos, our COO and Chief Strategy Officer; and Marcelo Baldin, our CFO. Today, we will present our second quarter 2021 operational and financial results as well as discuss the recent trends that we are observing. I will pass it over to Thiago, so he can share the main highlights of our performance. Thiago? Thiago Piau: Thank you, Rafa, and good evening, everyone. Thank you for participating in our second quarter earnings call. The second quarter of 2021 was marked by an acceleration of our core SMB business, an evolution in our strategic roadmap balanced by a challenging short-term scenario in our credit products. Our SMB fundamentals are very strong with accelerating TPV growth and record net addition of clients. The high growth in our SMB segment led us to be the fastest-growing player in the payments industry this quarter, largely driven by over 1 million SMB clients and over 100% SMB TPV growth. This accelerating growth was achieved with healthy unit economics with TPV per client and revenue per client, excluding credit, both increasing quarter-over-quarter. We have been looking more at revenue per client and take rates because we believe this is a metric that better demonstrates our ability to monetize the relationship with our clients. Nevertheless, take rate in SMB's ex-credit was stable quarter-over-quarter at 1.79% compared to 1.8% in the first quarter '21. 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, 83% more than the previous quarter and over 60% of net addition of clients of the leading player in the micro merchant space. Our Pagar.me SMB product, which enables clients to accept payments online, is proving the strength of the online opportunity in Brazil with 93% year-over-year TPV growth in second quarter '21 and a 63% two-year CAGR, while it represent take rates above 3%. Also, the engagement of our SMB clients with our financial 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. Besides the number of Stone SMB clients certainly in our digital accounts increased 45% quarter-over-quarter to 273,000 clients. The traction we are seeing in our banking transactional volumes, together with the strong growth in a number of active accounts, give us confidence to make sizable investments in our digital account infrastructure as we believe this will be key to improve engagement and the level of satisfaction of our clients. Our total revenue excluding credit grew by 68% year-over-year, and the acceleration of our SMB business was the main driver behind such growth. Encouraged by this growth, we have continued to invest in our business to drive further growth in areas such as technology, distribution, and customer service operations. Our consolidated results were significantly impacted by short-term challenges in credit products with higher level of NPLs and decreasing expectation of recovery of non-performing clients than we previously expected. Although we recognize that our underwriting risk capabilities and collection process still have to evolve, given the early stage of our credit solution, we are facing an expected deterioration of credit collaterals given the problems associated with the registry of receivable systems. For further details about these short-term challenges, you can refer to our recently released teach-in on August 25. As a result of a more uncertain scenario regarding the enforcement of guarantees, we decided to take a cautious approach and stopped disbursement while our team rebuilds our product, given the new environment and we follow the register of receivables evolution. We have also increased coverage for potential losses. And as a result, our credit project contributed negatively to our reported revenues by R$397 million in the quarter. Despite the short-term challenges, I want to highlight that our opportunity regarding credit is huge. In the short term, we will continue to serve the working capital needs of our clients through prepayments, which is running smoothly while we focus on a turnaround of our credit operation as Lia will double-click shortly. In software, our business continues to show great organic traction. As the deal with Linx closed on July 1 and we started managing the Company, we reinforced our beliefs about how valuable the asset is despite investments needed to enhance the business in the future. Linx is a scarce asset built over decades in which clients are sticky and switching costs are high. The Company has an unparalleled level of data for retailers in a very granular way for each one of the verticals, which will enable a more assertive and differentiated offering of financial products in the future. We are pleased to welcome aboard the Linx team this quarter that has an incredible knowledge about retail, and we are excited to work together on this journey onwards. As a reminder, Linx will start being consolidated into our financial results in the third quarter '21. Before I pass it over to Lia, I would like to close with some thoughts regarding how the quarter has helped us to reinforce our long-term vision. We recognize that we made mistakes in our execution in credit, especially not foreseeing how the malfunctioning of the register system could harm our business. However, this situation has also brought an impressive amount of learnings that we will use as fuel to boost the construction of what we envision as being a much better credit solution aimed at serving good merchants better. We are building our capabilities for the long term, and therefore we will continue to expand in enhancing our core SMB operation, opening new hubs and improving our execution. We will make significant investments behind our financial platform, which is a huge opportunity, and keep working hard to provide more financial solutions and workflow tools to our clients. We expect to further advancing our partnership with Inter with the ambition of creating more and better buying experience between Inter consumers and Stone sellers. Lastly, and more important, we keep our devotion to make our clients happy and to the evolution of our team. We believe that incredible learnings from this quarter will take us to a new phase of our business, and we are even more convinced of the opportunities ahead. When we look backwards, it is incredible to see the evolution of our team and our business, and it makes us confident and eager for the years ahead. We are in the early stages of our journey to become the partner of choice of SMBs in Brazil, and we will continue to work hard to make sure they can rely on us for the most important financial and technology needs. With that said, I will pass it over to Lia. Lia? Lia Matos: Thank you, Thiago, and thank you, everyone for joining us today. I want to start by talking about the evolution of our core SMB business, which includes the Stone product for brick-and-mortar SMBs, our Pagar.me product that enables SMB clients to sell online, and our TON product focused on micro merchants. As shown on Page 4, while Stone and Pagar.me had their volumes growing almost twofold, reaching close to R$38 billion in TPV, TON volumes in the quarter jumped to R$1.5 billion, a threefold when compared to the previous quarter and 27 times higher than the previous year. This solid growth in the SMB company to post the highest TPV growth in the industry this quarter. Since we had a weaker comp in the second quarter of '20 because of lockdowns, we're also showing our SMB two-year CAGR TPV growth, which accelerated from 42% in the first quarter of '21 to 48% in the second quarter of '21 and 58% in July. Moving to Page 5. We highlight that we have not only grown our SMB client base fast, but we also did so with quality. We have added 188,000 new active clients in the quarter with net adds in our Stone and Pagar.me products, reaching 47,000, and our micro merchant solution, TON, adding 140,000. The balance of net adds between Stone and TON are a result of our decision to maximize unit economics of clients based on their profile and size while offering solutions that are best suited for each client segment, as we move the lower TPV clients demand from Stone to TON product, while the hub operations targeted larger SMBs. As Thiago said, on top of having our historical record net addition of clients, we've also seen increasing average TPV per client in all products within our SMB segment. The average TPV of SMBs ex micro has grown 29% year-over-year and 8% quarter-over-quarter whereas average CPV of our micro merchant client base has grown 126% year-over-year and 60% quarter-over-quarter. Moving to Page 6. We have seen continued penetration and engagement with our financial solutions, especially banking transactional services. The number of active banking clients has increased over 5 times when compared to last year and 43% compared to last quarter, reaching 340,000 clients with a number of SMB clients in Stone that are settling transactions in Stone accounts increasing to 273,000. With that, the percentage of Stone clients using at least one financial solution increased from 20% last year to 48% in the second quarter of '21. Banking money in and money out volumes in SMBs have surged, increasing 4.4 times to R$4.9 billion and 5.5 times to R$14.6 billion, respectively, while total prepaid card TPV grew 4.4 times to R$294 million, and total banking accounts balance grew 3.8 times to R$862 million. Now moving on to Slide 7. I want to talk about the short-term challenges we're the short-term challenges we're with our credit product. As we have said in the release last week, the registry receivable system that was implemented in early June is not yet fully functioning. And since then, we better understood how relevant the problem of collateral leakage is. As a result of this, we see more uncertainty in the short term in our ability to enforce guarantees of non-performing contracts. This scenario has led us to take a cautious approach and stop disbursement already in June. As you can see in the chart, in July, the disbursements were nearly zero, with only a few exceptions to test the registry system. We also made an effort to adapt our credit metrics to more common market standards, as we are presenting here. In the top right of the page, we show that our group outstanding balance in this new methodology remain flat due to the combination of lower disbursements and loans repayments from clients. Even though we have the perspective of lower NPLs and improving recovery rates after the beginning of the new regulatory framework, before the transition, we already had provisions for over 100% of the outstanding balance of clients that were not paying us for 60 days or more. However, because of a potential deterioration in the quality of guarantees, given the challenges being faced with the registries, we decided to constitute an even higher reserve to cover not only for the portfolio in which we see no payments for 60 days or more, but all clients that are not being able to reduce principal for 60 days or more, even though they're still paying interest. So looking at the portfolio, we have an outstanding balance of roughly R$2 billion for which we have constituted bad debt reserves of R$781 million. These reserves represent a coverage of 209% for clients with more than 60 days without payments and 112% for clients not amortizing principal for 60 days or more. The overall scenario in credit has led us to make an adjustment in the fair value of our portfolio, which negatively impacted our revenues by R$397 million this quarter. Despite the worse-than-expected performance, we have received over 100% of the disbursed amount from the fourth quarter of '19 and first half of '20 cohorts as shown in the presentation. From now on, we will treat this legacy portfolio separately from new disbursements, so we can properly track the performance of each of them. Moving to Slide 8. As Thiago already mentioned, I want to do a quick recap of our vision, comment about recent learnings and what we're doing differently in order to have a more robust credit product. As we previously indicated, our vision for what we call internally as Stone Capital is to build an asset-light model in which funding and underwriting risk for credit stays with multiple partners. Our product has to be easy to sign up to completely embedded in our core financial platform and SMB operation. Rates must be attractive and simple to understand and reconcile. Repayment should be aligned with our clients' cash flows. And for better clients, we should present better conditions. Although we recognize that we have to work around the risk associated with our credit products, many of the features mentioned above we already built, and we understand that the opportunity to offer working capital solutions to SMBs is huge. The new receivables registry system will be transformational for Brazil. And when it is fully operational, it will create the basis for a much bigger market for collateralized credit. In this process, we believe that merchants' data will be key, and our software business gives us an edge for the future. Even though our credit solution was developed during a period with significant negative external factors, such as the lockdowns brought by the pandemic and the short-term problems with the transition to the new regulatory framework, we also had many learnings in this process. First, we developed the product with the assumption of a functioning registry system, which is yet to occur. Second, our previous assumption regarding recovery of non-performing contracts was higher than observed in the second quarter of '21, influenced by how relevant the problem of collateral leakage is. Finally, we also made in 2019, the decision to use the fair value methodology when accounting for credit results, which, although is an IFRS standard, brings a lot of volatility and creates more management complexity. We are working very hard to address all these points and have already taken some important steps. We brought in 2021 a more experienced team to improve our credit scoring model, risk management and funding capabilities. We're also enhancing policies and processes to improve underwriting risk through a broader set of collaterals, access guarantees that were contractually given to us and enhance our recovery, recovery process and renegotiation capabilities. Starting in the third quarter of '21, new '21, new credit contracts will be accounted for on an accrual basis. We are also exploring new partnerships to enable the asset-light model we envisioned. Now moving on to Page 9. We highlight the performance and strategic road map of our software business. We're happy with the advancements we've made in the quarter and really excited for what lies ahead, not only because our solutions continue to grow at a strong pace, but especially due to the conclusion of the Linx acquisition, which will be consolidated into our results from the third quarter '21 onwards. Pro forma software revenue increased threefold to R$62.4 million in the quarter, which organically represents a 52.5% growth. With Linx, pro forma revenue would have grown 31% to R$305 million, reaching over R$1.2 billion annualized software revenues. The number of subscribed clients in our software portfolio in the second quarter '21 grew fourfold to 143,000, while Linx reached 72,000 software clients, a 13% growth. In Page 10, we talk about our current focus and priorities in Linx. As Thiago mentioned, as the deal closed on July 1 and we started managing the Company, we reinforced our belief about how valuable the asset is. First, a profound knowledge of how retail operates in Brazil and products that have deep integrations to retail workflows, giving stickiness and high switching cost to the business as well as very low churn ratios. Second, the unparallel level data from retailers in each vertical will give us an edge in the future in terms of more differentiated financial offerings. These strengths of Linx made the Company increase net revenues by 13% year-on-year in the second quarter despite the noise related to the delay in the approval of the acquisition that took almost one year to occur. Today, we have five main priorities regarding Linx: First, to migrate Linx Stone platform and create offers to further penetrate financial products to Linx' client base; second, invest in technology capabilities to enhance the existing platform, aiming to improve client satisfaction and achieve scale in the SMB market; third, to build infrastructure and tools to enable merchants to have a multichannel storefront, selling their products seamlessly across multiple channels online and off-line; fourth, to build a data management architecture that enables us to create new financial and technology products; and lastly, capture synergies and cost efficiencies. On Page 11, we give a quick update on our key accounts business. We saw two different growth dynamics within this client segment in the second quarter. First, we saw low growth in sub-acquirer volumes, which present more volatility and lower unit economics. On the other hand, our platform clients to whom we can offer value-added services that result in better unit economics grew its volumes by 62% in the quarter. These platform clients encompass a wide range of business models, including marketplaces, e-commerce platforms, software companies and omni-channel retailers and are the strategic focus in our key accounts business. It is important to note that although we serve sub-acquirers because of their incremental contributions, these clients are less strategic. As an example, our top two sub-acquirers only represent approximately 3% of our consolidated revenue, net of funding costs, and we expect this number to decrease in the future. On Page 12, we'll bring an update on our strategic investment and partnership with Inter. We're very excited to work closely with Inter's team to advance on four main value creation drivers, which were mentioned in our first quarter '21 earnings call. First, we have three main focuses to integrate Linx' platform to Inter shop, enabling Linx clients inventory to be sold through Inter Shop digital channel, enabling an omni-channel purchase journey to Inter consumers, shop to serve non-account clients, leveraging Stone payments and risk management platforms, help to digitize Stone and Linx service clients through Inter shop. Second, we see an opportunity to create a data architecture that will enrich both consumer and seller ecosystems and through targeted offerings and incentives helped drive more buying experiences between Inter consumers and StoneCo sellers. Third, we are jointly working to offer credit and working capital solutions to StoneCo and Inter client base. as well as exploring cross-selling opportunities to strengthen both ecosystems. Lastly, we have finalized initial funding agreements and are further exploring opportunities to leverage Inter's retail distribution for Stone's funding capabilities. With that, I will pass it over to Rafael, who will discuss our financial results in more detail. Rafa? Rafael Martins: Thanks, Lia. Despite the short-term headwinds with the credit products that we previously discussed, we remain focused on the long term, investing heavily for growth. As shown on Page 13, we increased our investments by approximately R$180 million when compared to the same period last year, with our marketing investments growing over 230%, sales force headcount almost doubling, technology headcount increasing over 90% and our customer service and logistics personnel growing 88%. In Slide 14, we can see that our underlying business remains strong with a 45% client base growth, excluding TON, reaching 766,000 clients, while TON increased its client base by 9.4 times to 330,000 clients. The growth in client base was accompanied by an increase in average TPV in SMBs, which resulted in StoneCo presenting a 58.6% TPV growth to R$60.4 billion or R$58.6 billion when excluding Coronavoucher volumes. Our total revenue and income was R$613.4 million in the second quarter, representing an 8.1% decrease when compared to last year. The lower figure is primarily driven by a negative contribution of R$397 million from our credit product. Moving to Slide 15. We can see that our operating leverage was strongly impacted by the negative effect in revenue from credit and our decision to keep investing heavily in our business to support long-term growth. Also, financial expenses increased as a percentage of total revenue and income due to a higher CDI in Brazil. Now going into more detail on each P&L line item on Page 16. Our revenue from transaction activities grew 57.9% driven largely by the strong TPV growth in SMEs. Revenue from subscription services and equipment rental also presented strong results, growing 90.1% when compared to last year, driven by both an increase in our software revenue and a significantly larger Stone SMB client base. Our financial income, which combines the revenue from prepayment and the credit products was affected by the negative result of the credit product of minus R$397.2 million as a result of the increase in provisions for expected losses in credit and ended up decreasing 87.7% to R$40 million in the quarter. Excluding revenues from the credit product, our financial income would have grown by 67% year-over-year, demonstrating the strength of our prepayment operation. Our cost of services were R$302.4 million this quarter, 52.2% higher than previous year. This increase was mainly due to higher investments in our technology and customer support teams and higher investment in TAG as well as higher costs related to depreciation of POS. Administrative expenses were R$121.8 million, 35.5% higher than last year due to higher third-party services, mainly expenses with software services, higher depreciation and amortization expenses, especially due to amortization of fair value adjustment on intangibles related to acquisitions and higher travel expenses. Compared with the previous quarter, administrative expenses were 3.6% higher. Selling expenses were R$223.2 million in the quarter, an increase of 94.6% year-over-year, mostly as a result of higher marketing investments, mainly in TON and investments in hiring of salespeople. Compared with the first quarter of 2021, selling expenses increased by 37.1% to the same reasons that I just mentioned. Financial expenses were R$157.6 million, 151.8% higher than the previous year, mainly 151.8% higher than the previous year, mainly due to the higher outstanding volumes of prepayment and credit and higher cost of funds, mostly due to the higher and increasing base rate in Brazil. Other Income, net, was positive by R$777.0 million, mainly related to a mark-to-market gain of R$841.2 million related to our investment in Inter. Excluding this effect, Other Income was negative R$64.2 million, 60.2% higher year over year, mostly explained by share-based compensation expenses and issuance fees regarding the $500 million bond offering that was successfully concluded in June. Finally, moving to Slide 17. We show that our business, excluding the credit product, continues to grow at a strong pace. Total revenue and income grew by 68%, with take rates and adjusted earnings before taxes also increasing rapidly on a yearly basis. Before we start the Q&A, I would like to revisit our outlook for the year. Given the short-term challenges in credit, we decided to suspend previous guidance on take rate and adjusted net margin for 2021. We are keeping our guidance of active client base between 1.4 million and 1.5 million clients including TON and approximately 950,000 clients, excluding ton. It is important to highlight that Linx will be fully consolidated from third quarter 2021 onwards. With that said, operator, can you please open the call up to questions? Operator: At this time, we're going to open it up for questions and answers. [Operator Instructions] Our first question today comes from Tito Labarta with Goldman Sachs. Tito Labarta: Hi, good evening everyone. Thank you for the call and for all the information that you've provided. A couple of questions. I guess, first, just to understand a little bit more on the issues with the credit portfolio. Why do you think it was such a big write-off given that the receivables market really only started already in June? So, it was like you were already two-third through the quarter. And a lot of the loans you had done were pre the receivables market, so just to understand, why it became such a big issue for you and why other players haven't really experienced it? I think you were kind of expecting the receivables market to be a big growth factor. But just to understand, compared to other players, why you had such a much bigger impact? And then following up on that, in terms of -- I know you've mentioned three to six months to start lending again or till the issues potentially get resolved. Have you started lending again? How much confidence you have in that the issues do get resolved? I know you said it's still a big opportunity for you, but does that happen already in the second half of this year or do you think you'll have to wait for next year before seeing that opportunity? And then I have another question after that. Rafael Martins: Hi Tito, Rafael here. Thank you for the question. So, starting on the first point of your question, I think, there's two factors there that happened this quarter. So the first is we saw NPLs increasing, right? As we have mentioned in this release, the clients that are not paying us for 60 days or more are 19%. This number was around 12% last quarter. And I think the second factor that is very important to explain is that we -- our expectation of recovery of non-performing clients, we reduced that expectation a lot, especially given the problems in the registry. And for everyone to remember, our credit product was designed to be fully collateralized. So, when we saw that the new registry system was not working properly, we saw that we could not enforce those collaterals. So given the methodology that we have been using, the fair value methodology, and we saw this happening, what we did is we decreased our expectation of recovery of non-performing loans. So, it was pretty much a double effect, NPLs increased and our expectation of recovery of those NPLs also decreased. So that's why you see the size of the impact that you see there. One thing that is important to mention is we had already before over 100% coverage for those clients not paying us for 60 days or more. And when we saw the situation with the collaterals, what we did is we decided to increase the coverage significantly, so we could have over 100% coverage for clients not only not paying us for 60 days, but even for those clients that were paying us in the last 60 days, but they were not being able to amortize principal. So that's our decision in terms of being more conservative in terms of recovery, and I think that the registry had a big role in that decision. Regarding the second part of your question, as we mentioned in the teaching and here as well, the technical issues in the registry, they are complex, right? So that's why we mentioned three to six months. The product that we have today is a collateralized product. Of course, that we are developing and improving our products, it will depend on the risk appropriate opportunities that we have, so we can resume disbursements. We haven't yet resumed the disbursements. As we have mentioned in our materials, we have disbursed pretty much R$0.8 million in July, and we have not yet resumed. So, we are taking a cautious approach assessing the risk, not only, of course, in terms of improving product but also the externalities and how the environment is in terms of technical capability to start working, so that's the latest that we have for this. Lia Matos: Rafa, if I may just add to your point, Tito, just to talk a little bit about what we expect going forward in terms of the operation, right? I think as Rafa mentioned, there are a lot of things that we're doing right now to turn around our credit operations given all the learnings that we've had. So, I think number one is we're making an assessment of our collaterals, talking to players and regulators to see if some regulatory or legal action would be needed in order for us to access guarantees given to us. But of course, in the operational side as well, we have hired a lot of new experienced people that are working on processes and policies to evolve our products with the goal of really improving our underwriting risk capabilities, our recovery in credit scoring processes. And we're adjusting our products so that we can have a broader set of collateral from clients and working in these strategic partnerships as we mentioned to really look for this asset-light model that we talked about just now. So, we're following closely what's going on, but I just wanted to highlight that there's already many things that we're doing in the operations to turn around the product. Tito Labarta: Great. Thanks Rafael and Lia, that's helpful. Maybe a follow-up then on that, if I may. I guess, is it because it's a collateralized product and because of those issues, could you say that you're maybe even over provisioning more than you may need to because you're not sure about that collateral and you may still be able to recover some of these loans? You're just -- because if you're provisioning based on our collateral life product and you're not sure what’s going, maybe in the short term, you have to provision a lot more or is that the correct way to think about it and maybe you can get some of this back in the future? Rafael Martins: Yes, that's a great question. So of course, we will pursue those amounts and try to have part of it back, but we have to have our best estimate as of now. And what we are seeing now is that given the technical challenges, the system is not yet working, so many challenges there. When we look, for example, at the priorities of the credit contracts within the registries, they are not yet correct, and there's still something that has to be solved. So, I think it's possible that we have part of that flow back. What we have seen in the last few weeks is when we see players that were not settling in our bank account and some of the smaller players started to settle, we do see the flows coming back. So, I think this is positive but still very small given the total size of our non-performing loans. So, we decided to work with the information we have and take a cautious approach and do the increase in provisions to have coverage that we think is adequate given the profile of the portfolio, the maturity of the portfolio. So, we are very comfortable with the level of provisions we have now. And that's, I think, the latest we have. Thiago Piau: Just one follow-up. I think you're right, this product, the collateralized products, so in the end of the day, we have to see cash flows of our clients coming to our bank accounts as we had a lack of receivables to create expectations for future collections. So what we are doing now, we are talking to players to understand the problems and the problems in the registry and the reasons why some players are not selling transactions right and discuss things with regulators, how can we solve this. So I think that if the flows come to our bank accounts, as we were expecting, given that we had priority in the previous rule, I think that we can make a new assessment about our ability to recover the money that we have landed to our clients. But with the information we have, we decided to take a cautious approach and make the provision as we did. And in terms of your question about the future, it's difficult to talk about the future now in terms of projection. But in the end of the day, opportunities are huge, and we are 100% focused on the execution, as Lia said. The demand hasn't changed. And our client base grows a lot, both in terms of clients and TPV that in the end of the day, we want to see as potential collaterals, but the registry system has to mature in order for us to be comfortable with the collateral. And while we are observing the evolution of the industry, we are turning around our product and execution. So it can take anywhere from three to six months, as we've said, but the opportunity for the future are huge. And it didn't decrease what we expect as the product that we want to offer to our clients and the opportunities that we see to our business. Tito Labarta: Okay. Great. That's very helpful. And just one other question, if I may. I guess, on Pagar.me, you mentioned you're focusing on more profitable accounts. Do you think that's going to continue to be a headwind for volumes as you maybe lose some of the sub-acquired business and focus more on higher revenue-generating opportunities? Is that the right way to think about it? Lia Matos: Hi, Tito, just -- yes, to talk about Pagar.me, specifically the key accounts business, like we said, right, I think that we can separate that business in two groups. The first is the sub-acquirers, which, yes, the answer is we expect this low growth to continue, but the unit economics of that is really not relevant at all. So we mentioned that the top two sub-acquirers, which are a large part of the volume in the sub-acquire segment, they represent only 3% of our revenues net of funding costs. And we don't expect this number to increase, quite to the contrary. On the other hand, we do see this positive evolution and growth in the platform business, right? And I think that's very aligned with everything that's going on in terms of, number one, more platforms growing in the markets, not only marketplaces, but all different types of seller services platforms, many software providers that want to embed payments in their offerings to their clients, many retailers wanting to go omni-channel. So we do see a lot of opportunities there, but that's where we're going to focus on, right? We're going to focus on those platform services that we think are much better opportunities in terms of unit economics and growth. Operator: Our next question comes from David Togut with Evercore ISI. David Togut: Thank you. Good evening. You've been very clear that the next three to six months will be difficult for the credit business. But in terms of framing what financial income might be, should we think about the 88% year over decline in the second quarter to PLN40 million representing the approximate trough earnings for this business. Rafael Martins: Hi, David. Rafael here. Thank you for the question. So we have broken down that financial income line decrease. So if you look to the growth of our prepayment business, which is also embedded in that in that line that we have over 60% growth year-over-year. I think that when you have the credit product normalizing, you should see a growing very fast. And what we are seeing is the prepayment business is indeed growing very fast and varies mostly, as Thiago mentioned. So the R$397 million of negative effect that we have mentioned, this is all concentrated in the financial income line. So I think if you strip out that, you can take a look at what the normalized the normalized ex-credit financial income would be? David Togut: Understood. And then -- yes, sorry. Thiago Piau: David, Thiago here. Just to follow up on that. If you remember, previous to this situation with the collaterals and in the early beginnings of the credit during last year, we were expecting something around 1.5% to 2% risk-adjusted return for the product. So that's basically the rates that we are charging for clients less the provisions we have, less cost of funds we had. So I see this business as being a very profitable one. I think we had the problem in terms of collateral leakage. We are changing the way we account for this product. And in the third quarter onwards for the new credit disbursements, we use the accrual methodology that, basically, we will book the provisions upfront, and we will accrue the revenue over time. So there will be a margin to be accrued over time as we started to distribute the product back again, and we will help investors to reconcile both ways of booking because in the end of the day, cash flow doesn't change, but the way that you book your revenues, it changed. So I see this business as being a very profitable one. Our clients, they need credit to evolve, to buy more inventory and to grow. So we need to serve them, but we have to do with the proper risk. We learned that the collateral we were seeing, it didn't give us the protection that we were expecting, so we are turning around the operation. But it's a very profitable business. When we think about the expectation of profitability, I think that we were not too far from what we expect. But in the end of the day, we have to make sure that we have the risk assessment of collaterals and the clients' right to get the project back on track. David Togut: Understood. And just as a follow-up. How much visibility do you have that you'll be through this difficult period with the registry of receivables by the end of six months? Thiago Piau: Great question, David. So we have weekly meetings with the players with the three registry of receivables with associations of the card players in the market with Central Bank. So everyone is following closely the technical implementation that is being made by the three registries now. And we think that once that is done, the market will be very protected from collateral leakage. So I think that there are confidence that we will get fastest is these two factors. On one hand, following closely the industry evolution and the other hand, rebuilding the product and working around our execution. So this is something that we are, as you know, the size of the opportunity and the size of the impact we are following very, very closely. Operator: Our next question comes from Mariana Taddeo with UBS. Mariana Taddeo: Hi, hello everyone. Thanks for the opportunity. If I could make some follow-up related to the credit business, as you pass-through the issue with the registering of receivables, how do you plan to scale the portfolio? If you could give us a base maybe related to your past levels of origination, that was something around R$800 million per quarter, should we you keep this level or assume a more conservative approach going forward? And the second follow-up is when you said in the presentation that you are exploring new partnerships to enable asset-light model. Is this related to funding, something similar that you are doing with Banco Inter? Or should we expect a similar model that you had in the beginning with a partner that was assuming the credit risk. Thank you. Thiago Piau: Hi, Mariana, Thiago here. So regarding expectation of new disbursements, I think that our ability to scale the credit solution has to do with how we built the product. The product is 100% embedded to our financial core solution. So once we are comfortable with collaterals and with the behavior of clients, it's easy to show the value proposition for them, and the on-boarding process that we build for our clients are pretty easy. So I think that the demand for the product is high. The usability of the product and user experience is very good. And our ability to make all the process works seamless is very good. This helps us in terms of selling the product. But in the other hand, we have to be comfortable with the risk. So that's why we are paying so much attention to the collateral. In the end of the day, what we were doing was we were like advancing 1 month or 1.5 months of cash flows to clients. And we were selecting a very small percentage of that cash flow that we were taking back on a daily basis. So it was a product to be paid back in eight months. So the risk should not be that cash flow that we were taking back on a daily basis. So it was a product to be paid provisions in the amounts that we have today. So the first thing we have to do here is to make sure that the collaterals of the industry will be back that once we give credit to our clients, we can access those collaterals. And if not, we have to access other type of collaterals in order for us to be comfortable to scale the product back again. And we are making this so we are confident that once this solution has passed, we will be back on track in terms of growth of our products. And when we think about partnership, we will do two things. When we have very good risk opportunities and clients that we really understand and we can make a very good assessment of them and the quality of the credit, the amounts that we are disbursing are small and very comfortable, we can use the same methodology we had where we disperse the product and then we sell the outstanding balance to the market. That was our intention from the beginning. For the other type of clients, we want to use like a marketplace in where we provide access to players that want to give credit to our clients, but we have to keep the level of service that we have always offered. So we will balance those two methods and the partnerships that we are working is to use third-party balance to provide credit to our clients. And we beat the player in the middle, helping both the partners to make the assessment of data and our clients still have a very good experience. So we want to have both models working. Operator: Our next question comes from Jeff Cantwell with Guggenheim Securities. Jeffrey Cantwell: Hi, can you hear me? Thiago Piau: Yes, Jeff. Jeffrey Cantwell: Thanks for taking my question. On the credit product, this is going to sound similar to some of the earlier questions, but I wanted to ask on credit in a very specific way. My question is, can you walk us through the next three to six months from two areas, first, from a regulatory perspective; and second, from Stone's operational perspective, as you were thinking about those two areas right now? Because the question I have after reading the teaching paper and hearing the comments today is, what exactly is going to happen over the next three to six months from a regulatory level? And then there's also what should be happening concurrently by you, by Stone, as you move forward with the learnings you've had from this. I just want to put some markers down today for investors' sake, so they have an approximate understanding of what to expect. So can you talk to us a little more about those two things? Would be much appreciated. Thiago Piau: Jeff, yes, of course. Thank you for the question. Thiago here speaking. I think that from a regulatory perspective, the Central Bank is doing an incredible work of helping the market to get to a solution. And the solution is not about the regulation itself, it's about the technical implementation by the players. It was a big change in the way that you see and use collaterals, in the way that you register the assets and the technology that was made was not paid in the right place. So I think that as we disclosed in our teaching, there are many technical evolutions that the three registry of receivable has to implement, and that's what we'll be following in the next three to six months. It's about the technology of the registry of receivables and the interoperability between them to make sure that once we give credit to our clients and we contractually receive the guarantees of all the transactions from one specific card brands, we can access that collateral in all of the payment players regardless of the registry of receivables that we are using without having collateral leakage. So the interpretability in the system has to evolve. I think we have talked a lot about this in the teaching to be easier to understand, and we will be following that implementation very closely. In terms of the Stone perspective and what we are doing, as Lia said, we are improving our underwriting risky assessment and capability to make sure that we really understand the client and the behavior of the clients. because two things happen here. One is the industry has this collateral leakage type of problem, but in the end of the day, our clients, they decided to move from our payment solution to another acquired payment solution. And then we were not seeing that cash flow anymore because of the collateral leakage. So what we want to evolve is, why are our clients move to another acquiring player. At the end of the day, we understand that because of the pandemic, many of the clients, they are trying to protect cash flows and renegotiate the contracts later and decided to move, not to pay the credit in the beginning. So we want to evolve our risk assessment of our clients to make sure that we protect the business for this type of behavior in the future; although, it's important that the collateral is working pretty well. The other thing is that we have to evolve in terms of our recovery process, our renegotiation with clients because if a client has a problem, we have to renegotiate with them to give them the ability to repay us back in the way they should pass for them and for our risk and return assessment. So we are evolving a lot in terms of the recovery process and the renegotiation with clients. The other thing is improving the credit scoring process in order for us to see other collaterals, more than the TPV and the card transactions that the clients have. Many clients, for example, They are the owner of the store, and we are not seeing the store, the actual store, the real estate as collateral for -- as a collateral for the credit project, for example. So we're improving our ability to have more collaterals for the same clients. And in the end of the day, Jeff, as I just said, there are some profile of clients that maybe we will not be the one increasing credit risk to create the product, but we can provide for them the same level of experience with third-party partners providing the credit and being and having us as the originational partner with a fee in that relationship. So we are working on those fronts in terms of the turnaround that we are doing in our operation in order to get the product back on track. So it's a two-way execution here following the evolution of the industry and it's a two-way execution here following the evolution of the industry and rebuilding our product. But in the end of the day, what we have to keep in mind is the project has to be simple. Rate has to be simple and the client has to reconcile easily. We have to be paid back aligned with the cash flows of our clients, and we have to provide a better deal for the better clients. We have to work on a way to make our clients sell more by buying more products and evolving. That is the fundamental of the product. So that's what we are focused here in terms of our execution. Jeffrey Cantwell: Okay. Great. Appreciate all of that detail. Also, I wanted to shift gears and ask you about Linx because there has been significant focus over the past several months about that. And now it looks like that will begin being integrated into the numbers going forward. So you've had a significant amount of time to focus on this integration. Can you talk about the integration? How is it going so far? Are you selling optimistic about the potential for new synergies, revenue synergies and cost synergies. How are those looking for you right now? Can you help us size the opportunity for the combined company because there's a lot of interest in this combination? So I was hoping to get an update, any color you might be able to provide under pro forma outlook would be appreciated. Thiago Piau: Yes, Jeff, of course, Thiago here again. So about Linx, main message here is that it's incredible to see how resilient the business is. If you remember, even though the business faces the pandemic situation and with many of the clients closing their stores, the business proved to be very resilient. And it has the noise of the acquisition. It was delayed. It was more than one year. And even though you passed all of that, it delivered 13% net revenue growth. So it's impressive how resilient the business is. We are very impressed of how sticky and deeply integrated the products are to the retail workflow. So when we talk to clients, it's incredible to see how deeply integrated the solution is. I don't think that the clients are willing to change Linx systems. So it provides us a big opportunity to integrate with our financial solutions and to help our clients to move that inventory Orion because they really know how to use this Linx system. And I don't think that they are willing to change the POS and ERP that Linx has. So you can see by the client retention, which is very, very high. We are still making an assessment of the Linx numbers, but what I can say is that there are great opportunities in terms of cost and expense synergies on top of the top line synergies that we have talked in the past. So we are currently focused on mapping all of them, and we already initiated some of that execution. It will be easier to talk about Linx numbers in the third quarter after we consolidate them and use the same accounting standards and procedures that we use. So we decided to provide some preliminary numbers that we have received from the Company. And we will continue to be 100% focused on the execution. And once we consolidate in the third quarter, it will be much easier to talk about the synergies potential that we are seeing and putting some numbers in terms of OpEx. So, we just started to manage the Company 1st of July. So we had a plan, but now we are executing for almost two months. In the third quarter, it would be much easier to give color for you and follow the investors about synergies and numbers. Operator: Our next question comes from Mario Pierry with Bank of America. Mario Pierry: Hi, everybody. Thanks for the opportunity to ask the question. Two questions. Let me change the focus a little bit. You're maintaining your target of achieving 950,000 clients, excluding TON by the end of the year. It means that you have to add almost 190,000 clients in the next two quarters, when you're adding close to 45,000 to 50,000. So it seems like you're expecting a significant acceleration in client adds in the third and fourth quarter. Can you give us explanation why you're positive about that? And second question is related to this mark-to-market of the Inter stake, right? You know that it was a significant gain of almost $850 million. Is this something that should continue to create volatility to your results going forward? Thank you. Rafael Martins: Hi, Mario, Rafael here. Thank you for the question. So regarding your first question, we are -- as we said in the presentation, we are investing heavily in the growth of the operations. So we should see an acceleration in the net adds, excluding TON. And I think you'll see that in that second half. Of course, we will always balance the unit economics of clients, right? We cannot take the irrational economic decisions. If we have a client that is best suited for TON product, for example, we direct that client to that solution. But I think that we should see acceleration given the strong investments we have been doing. So as Thiago said, not all the investments that we do, you see the result in the same quarter, right? We have to upload investments upfront. Sometimes, then you'll see the results in the following quarters. So that's why we maintain that same guidance of active client base at the end of the year. Regarding your second question in the Inter, that's right. So you should see the volatility in the other income expenses line. We are adjusting that in our adjusted net income. But given that we don't have a significant influence in the Company, that's how we should account for it. So that's why you see that mark-to-market in that line item. I think that if people look, of course, it's a public traded company, you can follow the stock price and people can, I think, calculate that effect and try to estimate the impact that we'll have, and we'll keep adjusting this in our adjusted net income metric. Thiago Piau: Mario, Thiago here. Just to give an additional comment here, although we are balancing better, both products, TON and Stone, mainly focus on being the best NPS on our clients and the best cost of acquisition and lifetime value ratio in the products we have. We see that our hubs are doing very, very well in terms of productivity. We are opening new hubs. So our expansion for our core product and the core channels we use are doing pretty well. So that's why we are confident that we can get to the numbers that we have just talked. I'm very impressed about by the growth of the business. I think that the team understood how to manage revenue per client in a different way. And I think that now the product is much more robust. So I'm very positively impressed by the new balance that the team achieved and very confident with the growth of the core. Mario Pierry: Okay. Now that's helpful. Can you discuss then like to get to this level of clients, right, and again, I do realize you're making the investments and adding hubs and people, But the economy, can you tell us a little bit about how you've seen the economic scenario in Brazil? Because, again, there was a lot of optimism maybe two months ago, but given the high level of inflation, the right interest rate environment, people are getting less optimistic of the economy. So also, how does that tie into your guidance of 950,000 clients? Thiago Piau: Mario, I think that in the end of the day, I'm not a specialist in terms of macro, so I don't have much to say about it. But I think that in the end of the day, our market share is still very small. And the coverage that we have give us the ability to increase a lot the size of our operation because we still have a lot of regions that we have to cover. So despite of the macro environment -- and we have learned how to manage this. Keep in mind that we are growing the Company between 2015 and now, so it was not an easy macro scenario. But in the end of the day, our business has a lot to offer for retailers in Brazil. And the market is very big, and we have a very small market share yet. So I think that macro changes do not impact too much our ability to grow in terms of clients. We have always to pay attention to interest rates curve because in the end of the day, it can impact our cost of capital. As you know that we have a big outstanding balance of prepayments, so we have to adjust pricing over time to make sure that we are following the cost of capital of the Company. And that's a situation that we follow very closely on our treasury team and our pricing team. But that's the main KPI in terms of macro that we look. It's the yield curves of Brazil and how we adjust cost of funding and Brazil and how we adjust cost of funding and pricing of the products. of the products. In terms of number of clients, I think that's basically market share is still too small. The opportunities ahead that are very, very big, that's why we can increase our operation without being too much impacted by that. Mario Pierry: Okay. And just a final question related to the same topic, if you can discuss a little bit about the competitive environment, right? One of your peers is making a big push into the SMB segment. We know that another one was to IPO later this year. So can you just talk -- give us a little sense of the competitive environment? And my question is, I thought your net adds this quarter was a little bit weaker than what we were forecasting. So I don't know if that was a reflection of more competition or like if you can just then give us an overview of the competitive environment. That would be helpful. Thank you. Thiago Piau: Yes, Mario. Although we are happy for our growth, we don't want to let you down. So we will make sure that we keep the growth increasing in the speed we expect. I'm very happy with the level of growth we have now, but I think that we have much more things to do to increase our growth over time. For us, it's clear that competition has intensified a little bit. But on the other hand, we are much stronger than we were one year ago. So some comments here. One, we have a much more robust product. So engagement of clients are increasing. Our distribution is much more robust, and the service capabilities that we have invested are providing a better experience to our clients. I think the level of experience that we offer. You don't have a parallel to that in the market. We have learned this better balance between investment and return that I just said. So it gave us the opportunity to access new markets that we were not present. In the micro merchant segment, it's a very positive news that we had. We learned how to operate in that segment. So we expect good growth from that segment. We think that the numbers show the strength of the team, the strength of the business model. So we are very confident that we can keep winning in the SMB space. So I think that the dynamics of competition is pretty much what we have experienced. Our ability to manage through different products, new markets and balance investments, I think that is what makes our numbers be in the place they are. I'm very happy with the growth that we have presented and with the discipline of the team. Operator: Our next question comes from Domingos Falavina with JPMorgan. Eduardo Rosman: Thanks guys also for taking the question. First one is, I guess, on the operational side. So you mentioned basically 35% of your clients are not reducing principal. That's what's written in the presentation. And then I think you mentioned in the call may be paying interest or not, and 19% or generally flattish in some year and 19% are not paying either. My question is in between those two numbers, there are 16% of your clients who are being able to collect something. What's happening on those guys' case? So if the guy is swiping or they could, I guess, all be on relief. That's one option. So it's -- they're not paying because they're not charging. Or they're swiping such a small volume that you're only being able to poach a part of that? And if you could really elaborate with some examples, like we usually only go up to 10% of the sale volume or 20% and then it's what we're paying and that's what's not allowing us to get the principal. I just want to have a bit more visibility on that. And then I'll ask to second one. Rafael Martins: Hi, Domingos. It's Rafael here. Thank you for the question. That's right. So you have 19% of the outstanding balance not paying for 60 days or more and 35 not paying interest. So I think there's two things that can happen there. So one is clients that were -- their cash flows were impacted. So their sales reduced significantly. So they are being able to pay us back, but they are not being able to reduce amortized principle. And the other effect -- and those two effects might be correlated sometimes, which is they are shifting volumes away to what the acquirers try to sort of bypass the collateral. So you have a small percentage of their total sales being moved to us. And in that case, they also don't have the ability to amortize principal. And it's interesting because we cannot, of course, take all of their flows and all their sales to pay us back. Otherwise, this harms merchants and it's not healthy. So I think that's why you have that gap in between those two numbers. And I think it's an important point that we mentioned about the registry system. And the new system when it's working properly, it will be much better by the exact reason that when merchants will transact with all the acquirers, it should -- we should see those flows as well, and we should have the ability to withhold the amount that those clients owe us. And in that case, we would have a different scenario. But that's sort of the situation between those 35% and 19% outstanding balances. Domingos Falavina: Got you. And my second question is, let's assume it doesn't work, the collateral. Does your zero -- or virtually zero origination in August means Stone won't be doing un-securitized lending? Or should you adjust lending rates, maybe further adjust the addressable market within your client base and start migrating to these other business product? Because I would assume you have long enough relationship with select clients where you will be comfortable to land even in an uncollateralized way. And if we should read that uncollateralized is something that's just possible to do and something or that's Stone will do? Thiago Piau: Hi, Domingos. It's Thiago here. Thank you for the question. So two things. One is, I believe that the industry will stabilize shortly. So as we said, we are following very close the discussion. I think that that's a functionality of the ingress, which is very good for everyone. It decreases the risk for lenders and it decreases the price of the credit to clients. So by the focus that the industry is putting on this, I think that it will be resolved shortly. But to your question, we don't intend to have clean credit risk from our clients. So what we are doing is we are seeking for other collaterals and guarantees of the owner of the merchant. Personally, for example, if the owner has assets, we are seeking for guarantees that the real estate and other type of guarantees. We don't want to incur a clean credit risk. But in the end of the day, if the clients need a clean credit risk, we want to be the one accessing partnerships that can provide this to our clients without having this type of risk in our balance sheet. So our strategy is to have a collateralized product in which we can offer good rates to our clients in the -- aligned with their cash flow and have a very controlled execution. So that we were -- that's the reason why we're surprised by the collateral leakage. We don't intend to have two credit risk in our company as of today. Operator: Our next question comes from Neha Agarwala with HSBC. Neha Agarwala: Thank you for taking my question. Again, on the registry receivables, thank you for the teaching. It's very helpful to have that understanding. But this problem that you're having with the registry of receivables, it could have happened previously as well, right? I mean, before like last year, when you accelerated giving credit, at that point, we did not have the receivables operating. So why didn't we have this problem last year or earlier this year? Why is it happening now? Maybe I'm missing something here. And then I'll ask my next question. Thiago Piau: Thiago here. So I think two factors, as we have disclosed. NPLs are increasing. So NPLs are past during 2020. So in fact, when you see ability to collect cash flows, it decreased a lot by what we have observed until now. In the other hand, in June 7, the new registry systems begin to operate and the new regulation begin to operate. So our expectation was -- since we had the collateral set contractually with our clients, and we have the priorities in place, we have the lock of receivable in the old regulation, we were expecting that all players would be selling transaction in the right way. And then we would have the priority on the cash flow of the clients in the accounts that we have set in the registry system. So, we're expecting to have access to collateral that it was given to us in the past. But because of any issues on one of other players, we would be able to access that collateral. And it didn't happen until now. So that was the big frustration we have in terms of expectations to recover the flows, and that's what we are following closely to see where the situation will land. We expect to have the priorities once all the situation stabilized and a big part of that cash flow come back to us. So we make -- we made a research and the vast majority of clients that we give credit, they are operating. So we can see the account receivables that they have with other players. We can make visits to them. The vast majority is live, is transacting, but the flows is not coming to the bank accounts that we have set, so we don't have the ability to access the collateral. So we expect that once the situation evolves, maybe we can access the collateral that we were expecting. Neha Agarwala: And was this problem seen with any other acquirers as well because we haven't heard that from other participants? So was it that was Stone was targeted by some of the other acquirers, who are being aggressive in taking away your merchants, and that resulted in losses for you on the credit side? Or did you see this problem occur with other acquirers as well and other players as well in a similar manner as yours? Thiago Piau: I think banks were impacted in the credit product, but I don't see many other acquiring players offering credit in the way that we do in Brazil. Our prepayment product is running smoothly. We have disclosed the numbers of the prepayment product for everybody to understand that the prepayment was not impacted. The only impact we had, was in the credit product. So yes, I see that banks were impacted for this, too. But when you compare to acquirers, I think that the outstanding balance we had and the operation we build is different than what other players did. That's why we were more impacted than others. Neha Agarwala: Okay. Okay. Perfect. On the change in methodology that you implemented this quarter. So if I do the numbers for the previous quarters, you made about 150 million, say, in the third quarter and fourth quarter of 2020, down about -- that was the revenue from the credit. What would these numbers look like, if under the new methodology? What I'm trying to understand is that once you start accelerating credit again, what would be the impact in the revenue recognition because of the new methodology? Rafael Martins: Rafael here. So we have changed the accounting methodology for the new disbursements. So the contracts that we have until now in the portfolio that we are calling the legacy portfolio, this will continue to be accounted for at fair value methodology. So the accrual basis will be only for the new disbursements. And I think that the fair value methodology brings complexity and volatility that is higher than the actual volatility and complexity of the operation. So that' one of the reasons why we decided to change the methodology. But again, this is only valid for the new disbursements. The portfolio that we had until June 30, this will still be accounted for at fair value method. Neha Agarwala: Okay. But I understand why you changed it. What I'm trying to estimate is that, obviously, now the supposed any -- if you originated 500 million during a quarter previously, and your revenues were much higher during that quarter. Now, the revenues for the similar amount of origination is going to be much lower because of the new methodology. So could you quantify that a bit? How much could revenues from credit per quarter or year look like once you start giving credit again? Rafael Martins: Yes, Neha. So I think that the rationale to calculate, for example, revenue on an accrual method is the average outstanding balance and the rates that you actually charge the client. When you look at the past, we did the account is the way we were doing. So we don't have that number for you. I think we can chat off-line. If you want, we can try to reconcile the numbers. And -- but I think that the accrual method is actually much simpler than the fair value methodology, which embeds the estimates of cash flows from clients, so on and so forth. So I think we can try to chat off-line so I can help you to reconcile those numbers. Neha Agarwala: Okay. Sure. Perfect. And with this methodology, would you be recording provisions separately in the cost line, I believe, or not or be netted against the revenues? Rafael Martins: Yes. That's right. I mean the provision will be separate in the cost line instead of netted in the revenue as it is in the cremated. Neha Agarwala: Okay, perfect. And lastly, on the credit side, you said that you could also add as a marketplace in giving credit for the clients where you're not comfortable. So just wanted to clarify, would it be more like a marketplace where you're just getting a fee that is a percentage of the loan amount? Or would you have more like a partner bank model where you can split the profit on the loan? Thiago Piau: Hi, Neha. Thiago here. I think that the mindset is exactly what you just said. We want to have multiple partners in which we can rely to have the balance sheet and to offer the credit to our clients, and we want to split results with them. So -- but we are just analyzing what the best alignment with our partners. So I don't have too much to disclose now. I think the next quarter we have more color about the way that we will operate with third parties. And in terms of the reconciliation that you just asked, so taking into account that it's fair value, you have both revenues and costs and all the provisioning upfront. When we change to accrual basis, as we just said, we will book the provisioning upfront, and it will be on the cost line and then you will have the revenue coming over time as we accrue that. But we will give information to investors to understand what is this revenue going forward in terms of size of disbursement, rates. So it will be very easy to reconcile once we start to disburse under the new methodology. And we will always have the old legacy products with fair value and the new credit product, and the new disbursements will be based on an accrual basis, and we reconcile to be very simple to understand. We can bring this in the next quarter for you, and we can chat off-line after the call to help you better understand. Neha Agarwala: Perfect. Thank you so much for the disclosure. And I hope you will keep giving us some of these additional disclosures that you provided this quarter. It was very helpful in understanding the profitability of the credit and the prepayment business separately. Thank you so much. Thiago Piau: Thank you, Neha. We will continue. Count on us. Operator: There are no further questions at this time. So this will conclude the question-and-answer session. I will now turn over to your host for final considerations. Thiago Piau: Thank you. I just would like to say thank you very much for participating on our second quarter earnings call, and see you next quarter. Thank you very much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Good evening, ladies and gentlemen and thank you for standing by. Welcome to the StoneCo First Quarter 2021 Earnings Conference Call. By now everyone should have access to our earnings release. The company also posted a presentation to go along with this call. All materials can be found at www.stoneco.com on the Investor Relations tab. Throughout the conference call, the company will be presenting non-IFRS financial information, including adjusted net income and adjusted free cash flow. These are important financial measures for the company, but not all financial measures are defined as IFRS. Reconciliations of the company’s non-IFRS financial information to the IFRS financial information appears in today’s press release. Finally, before we begin for our formal remarks, excuse me, I would like to remind everyone that today’s discussion might include forward-looking statements. These statements -- these forward-looking statements are not guarantees of future performance and therefore you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the company’s expectation. Besides, we would like to remind you that the Linx acquisition is pending regulatory approval by the Brazilian Anti-trust Authority and management comments are based on only on publicly available information. Please refer to the forward-looking statements disclosure on the company’s earnings press release. In addition, many of these risks regarding business and disclose in the company’s Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov. Please note this event is being recorded. I would now like to turn the conference over to your host, Rafael Martins, Vice President of Finance and Investor Relations Officer at StoneCo. Please proceed, sir. Rafael Martins: Thank you, Operator, and good evening, everyone. Joining us here today we have Thiago Piau, our CEO; Lia Matos, our COO and Chief Strategy Officer; and Marcelo Baldin, our CFO. Today, we will present our operational and financial metrics for the first quarter 2021 results and discuss some that we are observing in the second quarter. I will pass it over to Thiago, so he can share with you the key messages regarding the quarter and future outlook. Thiago? Thiago Piau: Thank you, Rafael, and good evening, everyone. While Brazil face the challenging situation with the second wave of COVID in the first quarter, we continue to work hard to stay close to our client and bring to them the best service and solutions we envision. We monitored our client activity closely, as well as how vaccinations and economic activity evolved in Brazil and in other countries. And based on our experience with lockdowns last year, recent client transactional data and learnings from the dynamics of countries or vaccines are widespread, we expect that once vaccination scale, which we expect in the second half of 2021, the economic recovery will be fast and although delayed, looks like Brazil is moving in the right direction. In order to be the fastest player when our economy comes back to normal levels, in the first quarter, we decided to increase investments in our operation. We have a high quality and solid core business in terms of growth, profitability and cash flow generation that continues to scale both in client base and CPV, while also increasing engagement of clients with new solutions. Our core SMB business presented strong growth metrics in the quarter and to-date. As Lia will detail shortly, our active payment client in SMB grew 67% in the quarter versus last year, achieving 857.8,000 active clients. 257,000 clients are active in our digital accounts, and of those, 188,000 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 121.6% in April and 111.2% 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 2.2% in the first quarter 2020 to 1.87% in the first quarter 2021, 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$340 million in third-party capital. In total, we now have available R$833 million 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. Regarding our software strategy, we will continue to invest in and acquire brick-and-mortar POS and ERP solutions built by great people and focused on strategic verticals where we have great chances of integrating our financial operating system and 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. With this acquisition, we will reach R$1.1 billion annualized pro forma revenue in software. 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 R$4.7 trillion GMV of household consumption. We seek to be the player that best help our merchants to do business and reach consumers. To that extent, our investment in Banco Inter and the commercial partnerships we are building will be very accretive in terms of learning and new experiences. We are very confident in the growth of our core business and excited with the opportunities ahead. We will work hard as 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. With that said, I will pass it over to Lia. Lia? Lia Matos: Thank you, Thiago, and Good evening, everyone. Thanks for joining us today. I want to start our presentation on page three by highlighting that Brazil went through a second wave of COVID in the first quarter of 2021, which impose commerce restrictions in several cities throughout the country. Those restrictions were felt by our clients, with average TPV reaching a low in the end of March. But similar to the behavior we saw in the comeback from the first lockdown in 2020, we already observed significant and quick recovery, with average TPV in May, achieving levels above January 2021. As Thiago mentioned, we expect that once vaccination scale, the economic recovery of the country will be fast. In page four, we show our decision to increase investments in the growth of our business. We want to be ready to accelerate growth when our economy comes back to normal levels. Indeed, when we compared to the previous quarter, we increase our sales team headcount by 24% and our marketing investments by 33% to ramp up our distribution capacity. We expanded tech headcount by 20% to further drive the evolution of our platform and solutions and we increase our customer service and logistics teams by 32% to continue to bring the best service to our clients as our operation continues to scale. In page five, I want to highlight the performance of our SMB business. From now on, when we refer to SMBs, we are referring to our brick-and-mortar SMBs, SMBs that sell online to Pagar.me and TON our micromerchants solution. We continue expanding our SMB client base, which has increased 67% year-over-year, reaching close to 858,000 clients in the first quarter of 2021, with quarterly net additional clients of 138,000. From those over 62,000 are coming from online and offline SMBs and close to 77,000 are coming from TON, a strong acceleration when compared to last year. With the strong growth in TON, we are excited with the opportunity to become a relevant player in the micromerchants space. The number of open digital banking accounts increased to over 658,000, 30% higher than the previous quarter and 5.4 times higher than the first quarter of 2020. Clients with an active digital banking account reached more than 237,000, demonstrating an increasing level of engagement. From now on, we will only disclose the number of active accounts. Also within these accounts, more than 180,000 clients are already using Stone as their main settlement account. The number of clients using our working capital solutions also grew significantly. The number of clients using credit increased threefold year-over-year, reaching more than 102,000 in the first quarter of 2021 and the percentage of clients with prepayments grew from 62% in the first quarter of 2020 to 67% this quarter, a 5 percentage points increase. Moving over to page six, we show the TPV evolution of our SMB operation, which grew 45% year-over-year in the first quarter and has accelerated to 122% in April and the 111% in May, up to the 20th of the month. Looking at a two-year CAGR to normalize the effects from weaker April and May in 2020, we see our SMB clients TPV accelerating growth in May to over 50% two-year CAGR even with the impact of COVID in 2020 and 2021. In page seven, we highlight the performance of our credit operation in the quarter. Our take rates decrease as a result of an increase in our credit provisions and financial incentives to clients, due to commerce restrictions imposed by COVID second wave. This measure brought a negative impact in our results of R$116 million or 35 basis points in the SMB take rates. With that, our take rates in SMBs decreased from 2.2% in the first quarter of 2020 to 1.87% in the first quarter 2021. If we were to exclude these effects, we believe our take rates would have been 2.22%. Even though we have experienced this impact, our credit portfolio has grown and remains healthy, with monthly returns between 2.1% and 2.5% or between 1.5% and 1.9% when we already discount the funding costs. The total credit portfolio grew from R$1.5 billion in the fourth quarter of 2020 to R$1.9 billion in the first quarter of 2021. We continue to evolve in our strategy to fund our product with third-party capital and thus limit our exposure to credit risk. As of the second quarter 2021, we have concluded another issuance of FIDC raising an additional R$340 million in third-party capital. We now have a total of R$833 million available in funding to be disbursed in our credit operation. This second FIDC was raised at a cost of CDI plus 3.76% versus CDI plus 4.88% in the first issuance, lowering our marginal cost of funds by 112 basis points. As we show on page eight, the traction and engagement of our ABC Platform continues to increase, the heavy users of the platform defined as clients being active in payments, credit and banking products reached 7.7% of the total in the first quarter of 2021, compared to 5.3% in the previous quarter and only 0.4% one year ago. Also, we saw more clients being active in at least two financial solutions, with the number growing from 34% in the fourth quarter to 41% in the first quarter of 2021. On page nine, we discussed our vision and product evolution. As Thiago mentioned, we’re building a complete financial operating system for SMBs, online and offline. We have gotten to where we are today by developing different solution sets to help our SMB clients with their financial needs. We built the ABC Platform to help brick-and-mortar SMBs with an integrated payments, banking and working capital offering. This was an important step to drive the activation of new financial solutions beyond payments. We have already migrated approximately 70% of the SMB client base to this new platform and continue to see increased engagement. At the same time, we have enabled SMB clients to sell online through our Pagar.me platform. More recently we launched our TON solution for micromerchants and we have also acquired additional solutions to help our clients with value-added services, such as reconciliation and loyalty. As we have increased scale in those solutions, looking ahead, we have taken the challenge to integrate Pagar.me, SMB and TON products into the unified experience of the ABC Platform. As shown on this page, I want to highlight the elements of this platform in four feature sets. Money-In in which we enable our clients to collect money from their sales and cards and other non-cash payment methods, such as, Pix, wire transfers, Boletos and vouchers. We are evolving to enable reconciliation of all payment methods and providers, as well as online sales with risk management and chargeback disputes. One of the most mission critical needs of our clients is working capital and we address those needs both through prepayment and loans. Once our clients cashing their sales using our platform and can take working capital solutions to help them grow their business, we want to help them with a complete set of Money-Out features, such as, bill, tax and Boleto payments, wire transfers, Pix and card to pay other business related expenses and withdraw cash. We are working hard to launch our payroll feature, so our clients can pay their employees in a simple way. As our solution evolves, we will offer value-added services integrated to our core platform, such as loyalty and CRM. Now I want to show you some metrics to illustrate the evolution of these funds. In page 10 and 11, we show engagement metrics of the current users of the platform. While our TPV grew 45% when compared to the previous year, banking, money and volume, which include mainly fed, Pix and Boleto grew 4.6 fold year-over-year to R$2.6 billion. Finally, our total account balance grew 5 times reaching nearly R$614 million in the quarter. In Money-Out, prepaid card TPV grew close to 5 times year-over-year, reaching nearly R$290 million in the first quarter, driven by increasing penetration and adoption of cards within our overall client base. Banking Money-Out volumes composed by tax, Pix, Boleto and bill payments grew 5.7 times year-over-year, reaching close to R$9 billion in the first quarter. Our working capital solutions also continue to scale with credit portfolio increasing to R$1.9 billion, while we increase the percentage of the portfolio being funded with third-party capital up from 4% in the fourth quarter 2020 to 17% in the first quarter of 2021 as I already mentioned. As of to-date, we have R$833 million in third-party funding for our credit solutions. Additionally, in prepayments, we were able to grow the total prepaid volume in the segment by 38% year-over-year, fulfilling all our clients working capital needs during this challenging environment. Moving on to pages 12 and 13, we show how our vision and software has evolved. Back in the second quarter of 2019, we communicated our vision to investors and since then, we have taken several steps in the direction of helping merchants of all sizes with their workflow tools to drive their digitization and grow. As Thiago already mentioned, we have taken the approach to invest in and acquire POS and ERP software businesses with two main opportunities for value creation. Number one to upsell financial services and number two select segments where we could help drive the digitization of commerce. The acquisition of Linx, which is still pending anti-trust approval is a big step in achieving our vision and will broaden our vertical strategy, as well as expand our set of digital solutions. On page 13, we highlight where we are in the evolution of our vision and how the Linx acquisition will enhance our software ecosystem. In POS and ERP solutions, our current ecosystem covers retail, food and service vertical for SMB. With Linx we will expand to new verticals such as fashion, pharma and gas stations and gain strength in mid/large clients. Our strategy will continue to be driven by expanding presence in strategic vertical through M&A and continuing to support organic growth within each vertical. Additionally, with Linx we will enhance our presence in digital by helping large brick-and-mortar merchants to go omnichannel through Linx OMS, as well as SMB and mid/large retailers to sell directly to their consumers through eCommerce platform, marketplace gateway and food delivery apps. We help our clients engage with social media and with Linx improved products, we will expand the offering of engagement tools and help merchants better attract and engage with new consumers. Moving to page 14, we bring some numbers that show our evolution in software. Our pro forma revenue reached R$55.2 million in the first quarter of 2021, with organic growth of 43% year-over-year. If we include numbers from Linx, pro forma revenue would have reached R$285.8 million growing 16% year-over-year. In annualized terms, our combined revenue would have reached over R$1.1 billion. From this quarter onwards, we decided to exclude from our reported numbers of subscribed software clients, the SMB clients using our reconciliation and loyalty tools, since those solutions are being integrated in the ABC Platform and will be treated as value-added services. With that, we have reached 133,000 clients in the first quarter of 2021, combined with Linx, total client figures would have reached 202,000 in the quarter. On pages 15 and 16, we bring the evolution of our client base and pro forma revenue by segment. But from those I would like to highlight two important data points. First, we reached R$174.7 million pro forma revenues in POS and ERP solutions with 47.9000 clients in SMBs. And second, we reached R$1.6 billion in GMV in digital solutions considering both eCommerce platform, OMS and food delivery apps. Finally, we seek to be the player that can best help our merchants to do business and reach consumers. Our investments in Banco Inter that we discussed on page 17 and the commercial partnerships that we intend to build with them will be an important step in that direction. For those not familiar with Banco Inter, it is a leading digital bank in Brazil, with a growing 10 million active client base and a complete suite of products and services to individual including banking marketplace, credit insurance and investments. We’re investing up to R$2.5 billion for a maximum of 4.99% stake in Inter. Also we will have a seat on their Board and we will be entitled with a right of first refusal for a period of six years and according to certain price thresholds in case of change of control. We have already engaged with Inter’s team regarding commercial partnerships, such as to connect for merchants to InterShop, their fast growing marketplace, driving the digitization of phone merchant base and providing a multi-channel journey for InterShop consumers to enable a seamless mobile payment experience between Inter consumers and Stone merchants both online and offline. And to leverage Inter’s funding capabilities to increase efficiency in Stone’s working capital solutions, as well as give Inter clients access to new investment opportunities in fixed income through the offering FIDCs. We’re excited to work closely with Inter’s team to drive the conversion to its consumers and Stone’s merchants and we will update you in the future about advancements in our commercial partnerships. Lastly, on page 18, I want to give a quick update on Pagar.me key accounts, our fintech-as-a-service business. We continue to see short-term headwinds in TPV and revenues and expect this trend to continue in the short-term. That said, we want to highlight that this is a more volatile business and that the representativeness to our earnings is very small, despite being more relevant in TPV. Although we will continue to evolve Pagar.me key account offering to a broader set of features such as banking-as-a-service and credit-as-a-service, Pagar.me focus will be inclined towards digital native SMBs and the integration with the ABC Platform. In the first quarter of 2021, TPV increased by 21% to R$18.2 billion. In the second quarter to-date up to May 20th, TPV has increased by 26% year-over-year. Take rates have decreased from 1.1% in the first quarter of 2020 to 0.8% in the first quarter of 2021, a decrease of 30 basis points, mainly a result of lower prepayment rates, which were impacted by lower CDI rates in Brazil. Take rate net of funding cost has decreased from 0.55% in the first quarter of 2018 to 0.45% in the first quarter of 2021, a decrease of 10 basis points. With that, I will pass it over to Rafael, who will discuss our financial results in more detail. Rafael. Rafael Martins: Thanks, Lia. Starting on page 19, we show that, as Lia said, given the volatility in commerce activity as a result of a pandemic, we have decided to increase provisions for expected losses, which together with financial incentives to our clients has impacted negatively our consolidated revenue in the first quarter of 2021 by almost R$116 million and our adjusted net margins by 5.2 percentage points. Our consolidated take rates ex-Coronavoucher decreased from 1.81% in the first quarter of 2020 to 1.63% in the first quarter of 2021, with a 23 basis points negative impact from the effect I just mentioned. This was a similar level of take rate compared to last quarter when we reported a 1.64% take rate ex-Coronavoucher. Total revenue and income grew from R$716.8 million in the first quarter of 2020 to R$867.7 million in the first quarter of 2021, a 21% increase year-over-year. In terms of margins, we had a 21.6% adjusted net margin this quarter. We are already seeing much better trends for our topline in the second quarter as indicated by Lia before. Moving to slide 20, we show the evolution of the number of active payment clients, TPV and revenue. Despite the COVID impact, our payment client base grew by 34.5% when compared to the first quarter of 2020 reaching 722.3000 clients excluding TON. TON has reached 190.3000 active clients, posting a record net ads in the quarter of 76.6000 clients. Our consolidated TPV grew by 35.5% in the first quarter 2021 for the second quarter due to the strong performance in the first months of the period and easier comps we expect a significant acceleration in the TPV group. On slide 21, we discussed our operating leverage and profitability. Our operating leverage was impacted by lower revenue due to the increase of credit provisions and financial incentives to client, headwinds from COVID-19 in our volumes, and as Thiago mentioned, our decision to keep investing in our business aiming to accelerate growth. Also financial expenses increased as a percentage of total revenue and income due to the combination of a higher base rate in the country, mark-to-market from short-term investments and the revenue impacts that I just mentioned. With that, our adjusted net margin was 21.6% roughly in line with the first quarter of 2020. Now going over in more detail on each P&L line item on page 22, we see that we had stronger growth in our revenue from transaction activities, which grew 40% year-on-year and also in subscription services and equipment rental which grew 50% year-over-year. Both lines presented higher year-over-year growth than we saw last year in the first quarter of 2020. Our financial income revenue line grew 2.6% year-over-year, mainly due to the higher provision in our credit business and declines in prepayment rates in Pagar.me key accounts, which were influenced by lower CDI rates in Brazil. Our cost of services reached R$239.7 million or 27.6% of total revenue and income, an increase of 6.7 percentage points over the first quarter of 2020. This increase was mainly due to higher investment in our technology and customer support teams, cost associated to our software solutions, higher data center costs to support our operation and the increase in the unit costs of chargebacks. When compared to the previous quarter, cost of services as a percentage of revenue increased 6.3 percentage points primarily because of operational deleverage from lower revenue, higher investments in new solutions, brand fees related to the increase in the unit cost of chargebacks, higher POS depreciation mainly in TON as a result of significant increase in client base and higher investments in our customer support team. Administrative expenses were R$117.6 million or 13.6% of total revenue and income, 3.2 percentage point higher than the prior year period, mainly due to the expenses associated with our software solutions. When compared to the previous quarter, administrative expenses increased from 12.2% of total revenue and income to 13.6%, mainly due to lower revenue. Selling expenses were R$162.8 million in the quarter or 18.8% of revenue, 3.2 percentage points higher than the prior year period, mostly explained by higher marketing investments mainly in TON. Compared to previous quarter it increased 4.8 percentage points as a percentage of revenue, mostly explained by the lower revenue, the increase in our salesforce headcount and higher marketing expenses. Financial expenses were $92.5 million, the decrease of 37.7% compared to the prior year, mainly explained by lower cost of funds, driven by both the lower base rate and higher use of own cash to fund the prepayment operation, which more than compensated the higher volumes in the quarter. When compared to the previous quarter, financial expenses as a percentage of total revenue and income increased from 6.4% to 10.7%, mainly explained by lower revenue and higher cost of funds explained by the higher Brazilian base interest rate. Other operating expenses were $41.5 million in the quarter, compared to $3.5 million in the first quarter of 2020. This difference is mainly related to unusually low share based expense in the first quarter of 2020related to lower tax and social charges provisions due to high depreciation of shares in that quarter and fair value adjustments of call options related to affiliates, labor contingencies and tax claims, which together impacted other operating expenses in the first quarter 2021. When compared to the previous quarter, other operating expenses were 54% or 4.2 percentage points lower as the percentage of our revenue. This lower figure is mostly related to a higher share base expense in connection to the tax and social charges provisions resulting from the appreciation of shares in the fourth quarter, the R$10 million donation to help with the construction of a factory for the production of COVID-19 vaccines also in the last quarter and higher than usual POS losses due to the COVID-19 impact in SMBs in the fourth quarter. Turning to cash flow on page 23, we reported negative adjusted free cash flow of R$299.8 million in the first quarter of 2021, compared to a negative $122.3 million reported in the first quarter of 2020. The adjusted free cash flow figure of the first quarter 2021 was impacted by R$230 million in prepaid marketing expenses as a result of the agreement with Grupo Globo, R$160 million in prepaid POS purchases and R$46 million in prepaid software licenses. Important to highlight that the prepaid CapEx in the quarter was motivated by the opportunity to realize attractive discounts with suppliers. In addition to the first quarter 2021 adjusted free cash flow figures, I would like to highlight some important recent events regarding capital allocation. This year, we have completed our repurchase program as announced on May 20th, having purchased a total of 3.6 million shares at an average price of $55.4 per share. From this number of shares, 18% was executed in the first quarter 2021, totaling R$232 million. Also in the second quarter of 2021, we sold most of our minority stake in Cloud Walk [ph] a payment to startup in Brazil for R$209 million, realizing a gain of approximately R$200 million. On page 24, I would like to highlight some key messages of today’s presentation. First, our core SMB business experienced strong growth in the first quarter 2021, despite short-term impacts from COVID. Based on transactional data from our clients and examples of economic come back in countries where vaccination is more advanced, we have made an informed decision to increase investments in our business, so it will be ready to grow faster once our economy comes back to normal levels. Second, the strong signs of traction and engagement of current users of our ABC Platform, coupled with digitization trends have encouraged us to continue evolving our solutions to create a unified financial operating system for SME, online and offline. Third, we are excited with the increased breadth of our bricks-and-mortar software solutions, as well as the steps we have taken in helping clients go digital and with how the Linx acquisition we will enhance our ecosystem. Finally, we are confident with the continued evolution of our business in 2021, both in terms of our growth and our team’s ability to deliver a strong value proposition to our clients. For these reasons, we have decided to provide you some additional outlook for the year of 2021 as shown on slide 25. Our outlook excludes any impact from Linx acquisition, as this transaction was not yet closed. For the full year 2021, we expect between 1.4 million and 1.5 million active payment clients, including TON, approximately 950,000 claims excluding TON, a take rates ex-Coronavoucher for the full year between 1.85% and 2%, and a significant acceleration in total revenue and income growth compared to the growth levels we saw in 2020. With that said, Operator, can you please open the call up to questions. Operator: Yes, sir. [Operator Instructions] And the first question will come from Jorge Kuri with Morgan Stanley. Please go ahead. Jorge Kuri: Hi. Good afternoon, everyone. Congrats on the numbers. I wanted to ask two questions, if I may. The first one is on the provisions you took for your lending business. How do we get comfort that the amount of provisions taken is enough to cover some of the extraordinary risks that have surfaced due to COVID? Is there a way for us to get what -- how the NPL ratio has moved or what is your coverage ratio, meaning provision sitting on the balance sheet vis-à-vis the current non performing loans, any guidance on how those metrics look like and we would be helpful in trying to get our arms around potential more provisions going forward? And my second question is on and thank you for the 2021 outlook page. From that page, the take rate of 1.85% and 2%, I wanted to get a little bit of color on what drives each of those two numbers. Is it just purely your expectation on, if mix is better than we’ll get to 2%, if not, is 1.85% or what’s driving those two numbers, so we can also, as the year progresses, figure out if you’re likely to come at the high-end or the low-end of those two numbers? Thank you. Rafael Martins: Hello. Can you hear? Lia Matos: Yeah. Yeah. Rafael Martins: Yes. Thiago Piau: Yes. Jorge Kuri: Yeah. I can hear you. Thiago Piau: Sorry about that. Rafael was answering you, but I think that you are not listening. So I will take the first question and the second one too. Thank you for the question. So, first, regarding provisions in our credit products. There’s two really important methods, we are very confident with the level of risk adjusted return net of funding costs that we are showing and we decided to open the cohorts for you to see the impact on different cohorts from the first quarter 2020 to this quarter 2021. And basically, when you see the second quarter 2020 cohorts being mined [Technical Difficulty] We already received 82% of the cash flows of that quarters and we think we did everything we needed in terms of provisions because of the second wave of COVID. So we are very confident with the level of provisions with it. We think that it’s all done in terms of making sure that the book took all the impact of the second wave into account. In terms of take rates, the two main drivers here is really our ability to scale the SMB operation was you’re seeing that we are increasing growth on May and we decided to show the two-year CAGR growing 50% regardless of the impact of COVID in 2020, 2021 and our ability to further penetrate additional working capital solutions in which we are doing well. So we decided to migrate clients to our new platform, which is much seamless to our clients to take all their monies and their working capital based on those volumes. We will be ready for the new dynamic of the registry of receivable now on June 7th and with more collateral we can provide more working capital to our clients in the form of prepayment and credit and working capital products. So we are very confident with the range that we have provided, and as always, we are much more committed to the top of the range as we always did. So very confident with the provisions and the level of take rates and client based growth that you have provided. Jorge Kuri: Thank you, Thiago. Thanks for that clear response. Thiago Piau: Thank you, Jorge. Operator: The next question will come from Tito Labarta with Goldman Sachs. Please go ahead. Tito Labarta: Hi. Good evening. Thank you for the call and taking my question. A couple of questions also, I guess, one on the margin and the impact from some of the additional investments that you did in the quarter? Would you say those investments, I guess, in your headcount, it was that a one-time in 1Q and that should go away? You showed in, I think, in slide 26, there was about a 5% impact to margin, if you could just help to think about that going forward? And then, along those lines, I guess, is there more recurring level of margin, closer to what you show here like around that 36% giving you like another 9% impact related to COVID and provisions? And how quickly can you get back to those levels given the take rate seems to be increasing from here now? And then second question with the partnership with Banco Inter, thanks for the color on that. Is there any interest to get closer to the consumer, in the slide, it seems you want to offer a complete platform for merchants and then Inter can have complete platform for consumers? But I guess maybe, particularly as you’re growing TON more, do you need to have more products for the consumer, is that any part of the rationale there is strictly just to benefit your merchant base? Thank you. Rafael Martins: Thank you, Tito. Can you guys hear me now? Tito Labarta: Yes. Rafael Martins: Sorry, for the previous question, my mic was not working. So answering your first question, Tito. We’ll continue to invest in our business, of course. But I think that in the first quarter, this was unusually high in terms of impact in margins, because of the lower revenue because of the provisions. So I would say that we see margins going up already in the second quarter and the margins in the first quarter do not represent what we see as a steady state margin So we’ll -- and also this quarter as we disclosed, we have invested a lot in our business, even though we are going through this COVID scenario, right? Because basically we don’t think that -- those movements should influence our ability to invest in the long-term. But again, there is -- we are seeing margins going up again in the second quarter. Lia Matos: And Rafael, if I can just compliment on this topic on investments, I think just to re emphasize that we are really excited about continuing to invest in growth, right? So the mindset here for investments in the first quarter, Tito, was really to front load investments to be able to grow in the second quarter -- in the second half of the year and throughout 2022. So I think this is a very important message to come across as we continue to be very confident regarding growth looking ahead. And I -- and moving on to your question regarding Inter, I think, just to talk a little bit of about what we see in terms of this deal. We admire a lot the Inter team. I think they have very similar culture and vision as we do and they built a great business focus on consumer. So same industry, but very different business model focused on different client segments as us. But we have -- as we have been working a lot to drive the digitalization of our merchants, we’ve been learning with them a lot about how to think about that commerce revolution from the consumer perspective. So a lot of what we want to build together with them with these commercial partnerships has to do with really bringing this conversion of helping to drive the digitization of our merchant base by connecting our clients to InterShop. And helping InterShop consumers, on the other hand to undergo this more multi-channel, omnichannel journey of consumption, so that’s really where the mindset is and we think there’s a lot that we can build together with them. Thiago Piau: Lia, just to add some points here. Tito, thank you for your question. So I think that as we always said, levels around 25% to 30% margins are healthy levels. So we are committed to this range. As we always said that we think that in line with this, we have healthy margins, but we are always searching for new avenues of growth. And if we can find ways to grow faster, then margins will be much close to the bottom of this range. And if we can, if we don’t find too much avenues of growth margins we’ll be upper, but we are always committed to help margin levels, as we said before, and we will continue to find new avenues of growth and balanced growth and margins at the same time. It’s not very easy to do it, but I think that with discipline, we can do it. And yes, we expect margins to go up on a quarter-over-quarter basis. We think that we have these huge, almost one-time affect of the COVID and provisions that, as I said, I think that everything we should have done we did it in the first quarter. Now we expect margins to go up to the levels we are used to help. And regarding Banco Inter investment, I think, that as Lia said, we like the team, we like the culture and what they are building. We think that we have now a better opportunity to learn more about the financial revolution from the consumer perspective. We said last quarter that we want to be a protagonist in the convergence between consumers and merchants ecosystems. So we think that we will have the ability to be close and to learn a lot. Thank you Tito for the great question. Tito Labarta: Great. Yeah. Thank you, Thiago, Lia and Rafael. It’s very helpful. If I can just have one quick follow-up on the Inter again, but kind of linking it to the Linx, I don’t know how much you can comment there. But just given this whole omnichannel experience and with Linx you’ll get some more software. How important is like the InterShop to that whole omnichannel experience for your merchants? Thiago Piau: Great questions, Tito. So difficult to talk about Linx yet, we are still waiting for anti-trust for regulatory approval. But that we are working hard to make sure that we help our clients to sell more through digital channels. So to digitize their inventory and sell-through digital channels is something that we want to do, we are really working hard on that direction. So the combination of being present in the POS and ERP solutions with the OMS and the eCommerce platforms and being close to a marketplace, help us in that direction. So it’s a time to learn and work hard. But we believe that the next phase of the business will be about helping clients to sell online. So all the movements we did, they are going to that direction. So I think that we will always have a very strong core in financial services and we are evolving our core platforms and we believe that the SMB space is the best space in the market. But we are evolving the business towards helping our clients to sell more. And I think that those two investments give us a lot of learning and we can work hard with both teams to try to make this work. Tito Labarta: Great. Thank you, Thiago. Very helpful. Operator: The next question will come from Rayna Kumar with Evercore. Please go ahead. Rayna Kumar: Good evening. Thanks for taking my question. I have two. The first one is, could you help us think about how free cash flow or adjusted free cash flow could work for the remainder of the year? Obviously, you already addressed the heightened capital expenditure is in the first quarter. But how should we think about it for the remainder of the year? And my second question is, if you can help us frame the evolution of converting your client base into heavy users, which use payments, banking and credit. Clearly, there is an important dynamic supporting revenue growth acceleration here and we know that rates was 8% in the first quarter, up from 5% in the fourth quarter. So is there a target penetration rates that you have in mind for this year and next? Thank you. Rafael Martins: Thank you, Rayna for your question. Rafael here. So let me answer your first question regarding free cash flow. So this quarter we had an unusually low free cash flow because of higher CapEx. Always when we have opportunities, commercial opportunities with suppliers, we advance payments and that’s what we did this quarter. But when we look for the year without those seasonality we really intend to have a high conversion rate, cash conversion rate as we had in previous years. So our business is a cash generative business and we expect that to continue in the future. So when you look at our adjusted net income and you see our free cash flow, we do expect it to have high conversion rates. Lia Matos: And maybe I’ll take the second question Rayna regarding heavy users. I think that’s a great question. The two big elements here, Rayna, are about our customer service operations and how we interact with our clients on a very day-to-day basis and very effectively and about technology and product. So we talked a little bit in the presentation about how we are -- we have migrated already 70% of our clients to the experience of the ABC Platform. And what happens is through the experience of this platform, our clients can access digitally all of their solutions, all of the financial solutions that we offer through that experience of the ABC Platform. So once we onboard a new client, it tends to be the case that they start with us to a payments relationship, right? But over time, that payments relationship evolves to banking, loans and other solutions. So the fact that we can interact with them to the customer relationship team and the fact that they have this integrated experience through the ABC platform are really the two big elements that will drive further penetration of heavy users in our overall client base looking-forward and we are very excited that this evolution continues to happen on consistent basis. Thiago Piau: And Rayna, Thiago here. Rayna Kumar: Very helpful. Thiago Piau: … let me add some quick comments. Regarding CapEx, we always -- and free cash flow, we always had a very strong cash conversion rates in our business and we expect to keep the level of conversion rate that we have. And this quarter, we have an impact of the deal we made with Grupo Globo, because basically, we are buying the ownership that Grupo Globo had in TON migrating this ownership to the StoneCo level. And under this we are prepaying the marketing investments with the cash that we have received from Grupo Globo. So it’s a really net effect is almost zero, but we have to recognize this as a CapEx, but we raise the capital from them to do it. And regarding the heavy users, I think it’s really about investing more and more in technology to make sure that the convergence between the solutions are very strong and a very simple product. That’s what we are building into this new financial operating system that we started with the ABC Platform. And you can see that now, we have 15% of our SMB clients with credit using our credit product already. But we disclosed the new metric, which is 6% -- 7% of our clients use prepayments. So you can see the potential of working capital in our client base and we still have some clients that they don’t use credit or prepayments with us because they use in another bank. With the registry of receivables, we will have the ability to offer more prepayments and by seeing the collateral, we can have better working capital products for them. So if we have the best products, if we have the best service, if we are devoting to make the life of our clients better, I think that engagement with our solutions will increase. So it’s about devotion to product, customer service and making sure that we deliver everything on a very simple way with the best service possible to our clients. Rayna Kumar: Very helpful. Thank you. Operator: The next question will come from Craig Maurer with Autonomous Research. Please go ahead. Craig Maurer: Yeah. Hi. Good evening. Thanks for taking my questions. Couple questions, first on competition, while it’s hard for me to see any real improvement in the actual offering from incumbents. I am curious on your view, on the threat from embedded finance from the likes of companies like, InBev, who are going to sounds like start to offer financial services directly to merchants who are buying their goods? Second, if you could comment on what the take rates look like on the non-acquiring TPV that you’re seeing through your cards or through bill pay or other things? And lastly, cost of sales looked to be up significantly as a percentage of TPV or percentage of transaction revenue, so maybe a comment or two to help think about how we should look at that going forward? Thanks. Thiago Piau: Hi, Craig. Thiago here. Thank you for the questions. So I’ll start first in the competition part. I think that we still compete with the big incumbent players here in the market. Those are the players that we see day-to-day and we face competition. But I think that we have the ability to increase client base and increase engagement of the solution really because of the quality of the products and the services we offer. So if we think in terms of acquiring business itself, competition is what has always been, so take rates in acquiring has a small decrease, but much more than offset by the results from the additional solutions. That we’re so focused about providing more engagements with new solutions being the credit and additional prepayments the most relevant in terms of monetization. But we are putting a lot of efforts to increase our ability to create more engagement in the Money-In features and Money-Out features. We want to be present in the life of our merchants in all the financial needs they have. And when we see some effect on take rates, there are two things in terms of acquiring, first is that, we have higher debit mix, that’s one. And we have a slight mix shift towards bigger SMBs that they have a little bit lower take rate, but they have a much bigger LTV and we always start relationship through the payment first. So as we grow our client base fast, you have a wait in this payment’s first type of relationship, that then we’ll upsell working capitals to them. So that’s why you see the dynamics of take rates going up not in the speed of the client base, but coming up fast as you see increasing prepayments and credit and all the working capital solutions. The take rates in the money -- the banking Money-In and Money-Out today is still small, but the most important strategy now is to create more engagement. So we want to scale the Money-In and Money-Out features as fast as we can and then we will have many more -- much more ability to monetize those volumes. So we are working hard to create more functionalities to our clients, such as payroll for example, which will be a great avenue for us and we think we can deliver this in the second half of the year. Craig Maurer: Thanks. And the cost of sales that were up as a percentage of transaction revenue and TPV? Rafael Martins: Hi, Craig. Rafael here. So when you look at our cost of services, we do have many investments there, especially in customer service and technology team that it hasn’t -- it goes in that line, as well as software investments. So when you look on a year-over-year basis, those are the main effects. When you look on a quarter-over-quarter basis we have also investments new solutions like TAG, our registry of receivables and also banking, right? So those are the main effects that we see in that line is not only a transactional like technology transactional costs, but also those costs that I’ve just mentioned. Thiago Piau: And Craig… Craig Maurer: Yeah. Thank you, Rafael. Very helpful. Yeah. Thiago Piau: … last comment, just to be precise, so we expect to keep increasing take rates on our SMB operation, based on that experience of creating more engagement with solutions increasing client base. So we expect the take rates on the SMB operation will continue to grow and competition is mainly with incumbents today. Craig Maurer: Thank you very much. Thiago Piau: Thank you, Craig. Operator: The next question will come from Jeff Cantwell with Guggenheim. Please go ahead. Jeff Cantwell: Hi. Thanks for taking my question. Can you hear me? Thiago Piau: Yes. Jeff Cantwell: Okay. Great. You’re always very thorough in your prepared remarks. Thanks very much for that. Maybe let’s just think about, can you tell us more about what you’re seeing in the current operating environment and help us understand what’s been driving that improvement in TPV in April and in May versus March? I wondered if you can drill down on that for us, because we’ve been focused on what’s happening with your core, call it, ex-Coronavoucher growth in TPV? Is it SMB driven, where do you think you’re gaining market share right now and is there any noticeable change in mix debit versus credit? Just trying to get a sense of what happened since the end of the first quarter? Can you help us get a sense for why you feel the company is moving past the bottom, so to speak? Thanks. Lia Matos: Hi, Jeff. This is Lia. Thank you for the question. So regarding TPV evolution, the more recent TPV evolution, I think, like, we said in the beginning of today’s presentation. What we’re seeing is the fact of this fact that when restrictions ease the comeback tends to be fast. So, yes, the TPV growth has been driven by SMBs largely and we do expect that as restrictions ease that this comeback will continue to come and it will be fast and that is why we emphasize the fact that we’re investing continuing to grow our operation. So I think that -- that’s kind of what we can highlight in terms of the color of TPV growth. Thiago Piau: And Jeff, Thiago here… Jeff Cantwell: Okay. I guess… Thiago Piau: …so that the growth of TPV is mainly based on the SMB operation scaling fast, if it wasn’t for the second wave of COVID in the first quarter, the growth would be much stronger. But we expect this growth in terms of a client base and TPV to increase. I think we have more engagement of our clients. Our clients nowadays are a little bit bigger, which is much better for us in terms of our ability to help them with the needs they have. So the evolution of TPV and the growth that you’re seeing April and May is mainly driven by the comeback of the volume from the SMB base. If it wasn’t for the lockdowns and the second wave of COVID in the first quarter, the growth would be much bigger. So we expect to increase growth along the year. Jeff Cantwell: Got it. Got it. Great. And then my other question was, I guess, this is a high level one, but why increased investments now. I guess the question is what’s the calculation that you’re making about the future normalized environment, it seems the timing of these investments and this new product launch the unified financial operating system and somebody announced partnerships in Linx, I guess, the point is that, those will drive faster rates of topline growth for you guys, which makes sense? So I just wanted to see if you can tell us more about this timing and where these investments can turn into incremental revenue opportunities for you. Could you maybe highlight some of the areas where you’re seeing opportunities in the market? Thanks. Thiago Piau: Great, Jeff. That’s actually a great question. So it’s mainly two factors, Thiago here speaking, one is experienced and learning from the first wave of lockdown last year. So last year, when COVID hit and lockdowns happens, we decided to resize our operation and the operation was smaller. So once the client base came back, we were short in terms of our ability to serve and extend the client base. And we learned that that lockdowns are affects that happens, it’s very, very tough, very tough and we want to be the fastest player when the economy bounce back and we are learning from other countries that once you scale vaccination, then the economic recovery is fast. So I think that we are the right direction of investing more in the operation. I think that the growth of April and May show that it makes sense. So we will continue to invest in our operation. We have balance, as we always say it, always say margin and growth. But based on the experience of last year and the data that we are seeing from our clients and this year the impact was much less than last year. So our base were reducing volumes around 20%. We decided to keep investing to be the fastest player when the economy bounce back and we keeping in this plan. And it looks like by the clients data that this is the direction that we should continue to follow. Jeff Cantwell: Okay. Great. Thanks for all the color. Appreciate it. Thiago Piau: Thank you very much, Jeff. Lia Matos: Thanks Jeff. Operator: The next question will come from Jamie Friedman with Susquehanna. Please go ahead. Jamie Friedman: Great. Thank you very much for taking my question. I just had two quick ones. The April and May TPV growth rates look great. How should we think about Q2 take rates? Are there still any major voucher impacts that we should be thinking of? And then the second question is when it comes to active clients, it looks like for 2021 you’re now targeting about 950,000 excluding TON. Can you talk a little bit about the cadence for those in like how those adds work through Q2, Q3, Q4? Rafael Martins: Hi, Jamie. Rafael here. Thank you very much for your question. So regarding your first question on take rates, yes. So we do expect take rates to go up in the second quarter. I would say that the first quarter was sort of the bottom in terms of take rates. Coronavoucher volumes, there could be but not very relevant as we saw last year, but so that, that’s pretty much a trend that we are seeing. That’s why we are very comfortable in providing the guidance that we did and also take rates for the full year between 1.85% and 2% and we are already seeing this in the second quarter. Jamie Friedman: Okay. Thiago Piau: Let me add some comments here, Jamie. So two things, as we are -- as we gave you some visions about the take rates for the year. We obviously expect a significant increase in take rates in the following quarters. We are seeing the take rates in the second quarter has a relevant improvement compared to the first quarter. We don’t expect to have too much Coronavoucher this year. So the take rates ex-Coronavoucher or with Coronavoucher should not be too different this year by what we expect. And Pagar.me will continue to grow volume, maybe not in the pace that we were using last year, but we will continue to grow volume. So when we say that we expect to have in this range more close to 2% take rate, take rate is basically the SMB operation increasing the LTV, increasing the engagement of new solutions. So, yes, we expect relevant increasing in take rates in the second quarter and onwards to the fourth quarter of the year. Jamie Friedman: Great. Lia Matos: And Jeff, I believe you made a question regarding active base at the end of the year, right? Jamie Friedman: Yes. I did. Thank you. Lia Matos: Yeah. So just to address that point. So, yes, we provided this guidance of 950,000 clients by the end of the year excluding TON. And you asked about the cadence of that, we do expect that this cadence -- that the net adds will continue to increase throughout the year, right? So we emphasizing the message that Thiago talked about, we expect that restrictions will ease more and more as vaccinations become more widespread in Brazil. And once that happens, we really are front loading for growth. So we expect to reach the end of the year at about 3.5000 agents… Thiago Piau: Right. Lia Matos: … on the streets in the fourth quarter of 2021 and so we expect this cadence of net adds to increase throughout the year. Regarding that number, there are two effects that we also want to talk about which is important, which is of course, there was an impact from the first -- the second wave lockdowns in the first quarter. And we are driving some of the net adds of Stone into TON, the smaller client base, right, some of the inside sales client that provide much better economics in the TON offering than in the Stone offering, so that also impacted that number -- 950,000 number. Jamie Friedman: Okay. Thank you very much. Thiago Piau: Thank you, Jamie. Operator: The next question will come from Mario Pierry with Bank of America. Please go ahead. Mario Pierry: Hello, everybody. Good afternoon. Let me ask you just, let me go back to the credit business. And the Pagar.me [ph] provisions here, like just doing the math, right, you basically built provisions of R$116 million, this represents almost 8% of your average portfolio if I just look first quarter versus fourth quarter. So my question then is, was this a specific client that you had a problem with? Is this a specific segment? What are you -- what have you learned during this process? Why do we need to build so much provisions so quickly? Does it mean that you were under provisioning or you were too optimistic with your assumptions? Does it mean that you need to change your pricing going forward and does it change your appetite for lending? We did see a marginal slowdown in originations this quarter. Does it mean then that this should continue or are we -- do you think you’ve fixed the problem one-time event let’s go back to business as usual? Rafael Martins: Hi, Mario. Yeah. Thanks for your question. Rafael here. So the provisions that we built, this is mainly provisions for older cohorts, right? So we have to have our best estimate when we have our numbers out. And of course, we didn’t estimate a second wave of COVID back in the past. So that’s why we are provisioning here. So when we look going forward we see newer cohorts. Despite having all this in our model and the COVID impact and so on, we see our newer cohorts with better returns. So, for example, as Thiago said, if you look at clients of the second quarter last year cohorts. We’ve already received back over 80% of the cash that we should receive and so we are comfortable with those levels. So it does not change our appetite for credit for growing our solution. We remain very optimistic about the prospects there. So just to remind you, that the market is really, really big. So our credit solution is really in the early beginnings. So the opportunity is big and the returns even net of those delinquency -- expected delinquencies that we have, we see returns are on 2% a month net of delinquency. So this is a very healthy return and we remain very enthusiastic about that solution -- working capital solutions for our clients. Mario Pierry: Okay. Thiago Piau: Mario just to compliment a little bit, Thiago here speaking. I think that the reason why we decided to open the cohort for different quarters is to show you that, the major impact was the first quarter of 2020. Basically at that time, our model was not ready to deal with lockdowns and what happens with certain types of clients when they are close to a big period of time. So some of our clients they’re not in business anymore. So we had to adapt our models through first quarter and the beginning of the second quarter. And I think that the adjustments we did was based on the learnings and the effects on the last year cohorts and I think that that’s done. It do not reduce our appetite for this product, as Rafael have. It’s actually the opposite, because when you go through such difficult environments and you can operate with a healthy level of returns. You can see that the worst cohort is 0.5% a month return, it increase your ability to provide more working capital to your clients, but we have to do it based on three things. First, is to create a product that our clients need, understand and like that’s the first thing, create a product that our clients see value and wants to take it to do more businesses. The second thing is, our ability to create these products with profitability that we feel safe in order to scale our operation. And the third thing is our ability to raise capital from third-party partners that can limit our exposure to credit risk and to funding. That’s why we are happy for our ability to raise more capital. As Lia said, we have now more than R$ 800 million is committed from investors. And I think that we are doing exactly what we did in prepayments in the past. We put some of our money in the beginning as kind of our working capital for this product and we will scale this product with third-party capital exactly like we did in prepayment. So actually very confident with working capital solutions and credit, I think that the learnings we had during the COVID, and the lockdowns was very, very valuable for the future. Mario Pierry: Okay. If I look, right, at your loan book in the first quarter was about R$300 million, second quarter was about R$500 million. So you’re averaging about, let’s call it, like, R$450 million. And then now you have to increase your provisions by R$116 million. It just seems like a very large figure for the size of the loan book. So then I go back to the question, was this specific to one client or really it was across the Board? Rafael Martins: Hi, Mario. No. This was not a specific to one client. So our client base is a very pulverized. If we look at client concentration for example, in credit is nothing is really, really small. So it’s really has to do with the lockdowns scenario that affected many, many thousands of merchants and no specific client or concentration there. Thiago Piau: And Mario, just to give you another information, and I will triple check this with the team and we can connect offline then. But I think that the biggest size check that we give in terms of credit should be something around R$150,000 something like that. So we don’t have bigger clients, right? So I think that what we had in last year was really, we didn’t had the experience to deal with lockdowns and we have some segments that are very exposed to not selling through their brick-and-mortar operation, and we learned. So it’s not concentrated into one client or one segment. It’s much more about learning how to navigate through lockdowns with the credit product and I think that the returns we expect for this quarter represents the learnings we had. Mario Pierry: Okay. Thank you very much. Thiago Piau: Thank you, Mario. Operator: The next question will come from Neha Agarwala with HSBC. Please go ahead. Neha Agarwala: Hi. Thank you for taking my question. I’ll quickly follow-up on Mario’s previous question. Could you give us a sense of what is the NPL ratio for your loan book around just a rough range and how that has changed to get a sense of if we can see any additional provisioning in the coming months? And then my second question is on proximity [ph] move to the SMB segment. I believe in the first half of this year, they have also been more aggressive in opening more hubs hiring more people on street. Has that in anyway impacted your merchants the client that you target and have you been hearing more about them from your merchants? So any color on the competition from proximity would be helpful? And then lastly on Inter, with this partnership, do you have an ambition to go beyond being the pure B2B player? And really developing a relationship with the end consumer, maybe not today, maybe in future years time, is that a vision that maybe you have? Thank you so much. Rafael Martins: Hi, Neha. Thank you for your question. Rafael here. Let me answer your first question. So when we look at our expected delinquency rates, they’re a little above 10%, so around 12% or so. When we look at pre-COVID levels, last year we were talking about like 8%. So this is sort of the increased that we see. As I said, when we look at second quarter 2020 cohorts, we have already received over 82% of what we have lent. So that’s sort of the increase in risk that we have seen. Thiago Piau: Neha, regarding your second question. This is Thiago speaking here. I think that regarding competition, as I said, competition is -- are in the same level that we have always experienced. Our biggest competitions are still with the bigger banks and incumbent players. We don’t like to comment too much about our competitors movements. We pay attention in everything but we keep our mind focused on serving our clients in the best way possible we can. And I think that we do have the best value proposition for SMBs based on the product, the service, the engagement we have with them. And I think that the growth levels we have showed our ability to be the major player in the SMB space. And we will continue to be protagonists in this revolution of financial services for SMBs in Brazil. So I think that -- those are the comments regarding competition. And about Banco Inter, it’s not that we are moving towards consumers, that we are learning how consumers interact with merchants in the best way possible so we can serve our merchants better. Because in the end of the day, more than helping our clients with the financial needs they have, we want to help them to sell more. And in order to help them to sell more, we need to learn more about consumers, but it’s always about helping our merchants to thrive and to grow. So this is about learning. This is about creating synergies. This is about helping our clients to sell through digital channels. And I think that we will have very positive evolutions of this partnership with Banco Inter and other partnerships that we can do with consumer facing companies that wants to be close to our merchant base. Neha Agarwala: Understood. One additional question on the credit, the average duration of your portfolio seems to be going up, it was I think seven earlier last quarter, it was eight this quarter, it is nine. So any color on that, what is the duration increasing and where should it normalize in the coming year? Thank you. Rafael Martins: Hi, Neha. Thank you. So there is some affect there that, when our clients take the credit for the second time. So they have already paid us back fully and then they take the second credit for a second time. We usually extend a little more term for them. So that’s how -- that’s why we see that effect there. And of course, as we get comfortable, and as we learn, as Thiago said, we become, we release a little more, the terms the average ticket that is too small, a little below R$20,000, so that that’s something that we are evolving over time and that’s why you’ll see that number going up. Thiago Piau: One additional comment, as Rafael said, about the duration of the product. So two things, one is, the average size we give is roughly about one month of sales of our clients and now we are seeing that our clients that pay entirely the products, a big percentage that they want a new offering of credit. So they are rolling over the operation, pay entirely the first month and taking second credit operation. And with that we increase a little bit the duration in order for them to pay on an easier pace for them and for their cash flow. Because if they pay entirely the first product and they took it again, we are much more comfortable of the risk of those clients. So we can let them pay with a lower percentage of volumes, because in the end of the day, we have much less NPLs from those clients. So it’s about adjusting the credit for the cash flow of the clients and always for the best clients we need to bring a better deal. So it’s about adjusting the product for the better clients. Neha Agarwala: What is the maximum duration that you’re offering? Thiago Piau: Should be around 10 months, I don’t think we have much -- something much bigger than this. Lia Matos: I think average nine months so maximum 10 months. Neha Agarwala: Okay. Great… Thiago Piau: Yeah. Neha Agarwala: Great. Thank you so much for the answers. Rafael Martins: Thank you, Neha. Thiago Piau: Thank you. Lia Matos: Thanks, Neha. Operator: There are no questions at this time. This concludes the question-and-answer session. I would now like to turn it over to your host for final considerations. Please go ahead. Thiago Piau: Hello, everyone. Thiago here. Just want to say a big thank you to everyone and a big, big, big thank you to our team and to the support to our investor. The support we have from our investors is amazing. But really the star of the show here is our team putting a lot of hard work in terms of serving our clients through difficult times. And you keep counting on us on hard work in helping merchants in Brazil to win the situation and become better. Thank you everyone. Bye-bye. See you next quarter. Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.