StoneCo Ltd. (Nasdaq: STNE) (“Stone” or the “Company”), a leading
provider of financial technology solutions that empower merchants
to conduct commerce seamlessly across multiple channels, today
reports its financial results for its first quarter ended March 31,
2020.
To our shareholders:
The world has been facing challenging times with COVID-19
developments, which has brought not only severe and tragic public
health consequences, but also one of the most abrupt economic
crises of modern history. The consequences of COVID-19 profoundly
affect all of us.
COVID-19 hit Brazil hard in mid-March, when infections
increased, physical commerce decreased, and economic uncertainty
soared. We believe that times of uncertainty require clear
priorities and decisive actions to adapt quickly to new realities,
and we acted promptly to keep our team safe and help our clients
and our country, all while keeping our business strong, our balance
sheet healthy, and our strategic focus steady.
During the months prior to the crisis, our Company had just
started to invest even more heavily into our future growth, as we
reported during our fourth quarter earnings call. By the end of
March we had increased our number of employees by over 530 people,
having added 70% more people to our technology team than in any
other quarter in our history. We also invested in creating more
density in our hubs in different regions, diligently allocated
capital to support our long-term strategy of becoming a unique SMB
platform in Brazil combining software and financial products with
superior customer service and direct physical and online
distribution to merchants throughout the country. As we evolve,
Stone becomes every day more a technology company with financial
services embedded in its roots.
Between January 1st and March 15th, we were able to accelerate
our growth, with year over year TPV growth of 52.2%, compared with
51.4% growth in the fourth quarter of 2019. Additionally, we
continued to scale our Credit, Banking and Software businesses,
achieving record growth metrics. By mid-March, when partial
lockdowns started to be enacted in the country and retail activity
declined sharply, TPV growth decelerated somewhat.
Even though we started to see gradual improvement in economic
activity in mid-April, in early May, we made the very tough
decision to reduce our workforce by 20%. We conducted this
difficult process with the same transparency, meritocracy, and
empathy to our team as always. We provided a generous package to
those who left, and we dedicated a team in HR to help them find
another good job through a partnership with other companies we
admire. We will always treat with care those who dedicate a portion
of their lives to the purpose of serving our clients with
excellence.
We’ve also implemented cost-management initiatives and a
redesign of processes in our Company to increase operational
efficiency. We have made tactical adjustments to our business, so
we can navigate safely through this crisis with a strong balance
sheet and a lean structure and be ready to support small and medium
businesses more than ever without compromising our long-term
strategy.
Over the course of this year to date, in addition to the organic
growth we’ve achieved, we have been dedicating a good amount of
time to strengthening our digital business and pursuing our
software strategy. This strategy provides diversification, adds
intelligence to our ABC strategy, and helps us improve the business
of our clients. We put ourselves in our clients’ shoes, and are
always thinking about ways to help them better manage and grow
their businesses. The investments we made in the first quarter do
just that: Delivery Much, Mlabs, Vitta and MVarandas are great
examples of software companies that add immediate value to our
clients and our ecosystem.
Our channel diversification and our hub strategy focusing on
small and mid-sized Brazilian cities has paid off. We have been
growing more than peers in the last years, and in the current
crisis, our business has been more resilient. We were also prepared
with a good amount of “safety capital” to protect our Company and
allow us to invest in tough times. StoneCo’s TPV grew +9% in April
and around 23% in until May 23rd compared with the same periods in
2019, and we are positioned for stronger growth in the second half
of the year.
Our credit approach, which includes a rigorous credit-scoring
system, receivables lock-up, and pay-as-you-sell model, has also
proven to be more resilient than even we expected, providing a
return on asset of 2.7% per month even after COVID-19-related
provisions.
Since the early days of our Company we’ve worked hard to build a
client-centric culture that becomes even stronger during
challenging times and we are more confident than ever in the future
and mission of our Company. We remain focused on our strategic
priorities of expanding and consolidating our presence in the SMB
market, becoming the main financial platform for our clients and
investing in great solutions to help SMBs manage their businesses,
grow and sell online. We are still in the early days of our
journey, and we have tremendous potential to grow.
We are grateful to all Stone team members for their
extraordinary efforts during this time of crisis. We believe that
together businesses and society will find new and innovative ways
to conquer COVID-19 and its effects using technology, care and
humanity as powerful allies.
Thiago Piau, CEO
Operating and Financial Highlights 1Q20
Total Payment Volume
(TPV) R$37.6 BNup
42.1% year over year, despite COVID-19 effects starting mid-March.
Pre-COVID-19, until March 15th, TPV was accelerating to 52%
y/y |
Take rate1.81%+ 1bp increase
quarter over quarter, including impacts from higher credit
provision due to the current scenario and COVID-19-related
financial relief provided to our clients |
Total Revenue and
IncomeR$716.8 MMAn increase of 33.8% year over
year. Excluding Other Financial Income, primarily interest on cash,
revenue grew 38.3% y/y |
Net Addition of
Active Clients (ex-TON)50.5 KTotal Active Clients
were 531.3 thousand (excluding TON), an increase of 73.9% year over
year, with net addition (excluding TON) of 50.5 thousand clients in
1Q191 |
Adjusted Net
IncomeR$162.3 MMwith
22.6% Adjusted Net Margin, despite COVID-19 impact of R$ 61.0 mm
pre-tax2 |
Net
IncomeR$158.6 MMwith Net
Margin of 22.1% |
Adjusted EPS
(diluted)R$0.58 per share |
EPS
(basic)R$0.57 per share |
Developments Related to COVID-19 Outbreak
Update on COVID-19 business-related trends
Over the course of March, the Coronavirus
outbreak has intensified in Brazil, resulting in social distancing
and store lockdown policies throughout the country, which forced
many of our clients to suspend their operations, either partially
or completely. While we began to see a gradual but significant
recovery in April, which has continued into May, many of our
clients' business activities remain partially or completely shut
down.
In our acquiring business, such lower retail activity has had a
direct impact in transaction volumes and onboarding of new clients.
Until mid-March, our TPV grew above 52% year over year, with faster
acceleration compared with fourth quarter growth of 51.4%. From
March 1-15, we saw a TPV growth of 62.9% year over year, showing
that our decision to invest heavily in our core business continued
to produce strong growth. With the intensification of the COVID-19
outbreak in the second half of March, we saw a corresponding
deceleration in the growth of our operations.
Despite COVID-19 effects, our TPV grew 42.1% in 1Q20 compared to
1Q19, reaching R$37.6 billion. This represents an addition of
R$11.2 billion of TPV year over year, our highest historical figure
for a first quarter.
In April and in May month to date3, we have seen gradual but
significant improvement in TPV growth when compared with the second
half of March, when TPV declined 36% compared with the first half
of March and 4% compared with the same period last year.
As shown in chart 1 below, in April, our TPV grew 9% year over
year and in May month to date3 growth has improved to 22.9%
compared with the same period of 2019.
Chart 1: StoneCo TPV Growth
(y/y)3 (See PDF)
Stone's measures to face the current
situation
Our client-centric culture is extremely reinforced during
challenging times. As the severity of the COVID-19 crisis became
apparent, our first response was to implement policies to support
our clients, our team and our community to better withstand this
crisis. We have also taken actions to strengthen the financial
position of our firm and to sustain our ability to generate
long-term value for our shareholders. We acted promptly to address
the following priorities:
- protect the health and safety of our team and clients;
- help SMBs navigate this crisis and continue their business
operations by providing various forms of financial relief and
additional tools to help them sell more online;
- contribute to our communities by sponsoring public health
initiatives and developing tools to support local businesses;
- keep our business financially strong, improving operational
efficiency and allocating capital wisely.
On priority 1, approximately 90% of Stone team members are now
working from home, including most customer service and salespeople,
who are onboarding and servicing clients through telephone and
chat. We have distributed protective equipment to our teams and are
providing regular information on how to prevent the disease,
identify symptoms and continue to serve clients safely. In addition
to our private health plan, we have established a 24/7 digital
health support through Vitta available to all our employees.
We have been closely tracking our team's behavior and
performance. Although we have seen some impact in the onboarding of
new clients due to the current situation, we have kept our high
levels of service, as demonstrated by our NPS score of 72, first
call resolution ratio of 89% and level of service of 96% in
April.
On priorities 2 and 3, we have acted on many fronts, including
creating a national campaign and a platform to encourage the public
to buy locally and help small and medium businesses. The campaign
"Compre Local" (https://cuidedopequenonegocio.com.br/), which
reached over 29 million views on YouTube, makes available tools and
contents to enable clients to sell online and better manage their
digital and social sales channels. To support our clients and
community we have also: (i) provided R$30 million in relief to our
clients, including subscription exemptions and lower prepayment
rates for the hardest-hit retailers; (ii) provided R$100 million in
microlending to meet our clients' working capital and liquidity
needs; (iii) contributed R$5 million to the construction of a
temporary hospital in Rio de Janeiro; and (iv) donated R$500,000
for the purchase of 8,000 COVID-19 tests.
We are also in constant contact with Brazilian authorities with
suggestions on how to get through this crisis and help small and
medium businesses recover and receive working capital aid from the
government, as done in different countries.
On priority 4 above, to keep our business financially strong we
have taken steps to fortify our balance sheet, enhance liquidity,
and improve our operational efficiency, while maintaining the
quality of our services. We have been a safe harbor for our
clients, providing daily liquidity for their working capital needs,
being able to fund almost R$11 billion in prepayment for our
clients through March and April. We have increased operational
efficiency through a redesign of processes and projects. Finally,
we are being very diligent in managing costs and expenses, as well
as capital expenditures to support our profitability and to enable
us to keep allocating capital wisely for future growth and the
evolution of our strategy.
The increase in operational efficiency through the redesign of
processes includes the reduction in our workforce by 1,300 people,
as announced on May 12th. Even though we are now at the right size
in terms of headcount for the current environment, we will keep
working hard to optimize our costs, expenses and capex structure,
through measures such as renegotiation of third-party services and
systems, rationalization of office space, streamlining of
additional processes, and other actions, without compromising our
long-term growth and strategy.
COVID-19 estimated financial impacts to our
business
The reduction in transaction volumes, combined with the
financial measures we have taken, which prioritize liquidity versus
margins, have generated a financial impact to our business in the
first quarter of 2020.
We estimate that COVID-19-related effects contributed to a
negative impact of R$61.0 million to our results in the first
quarter of 2020. This includes: (i) R$35.8 million impact in our
financial expenses and (ii) R$25.2 million resulting from
COVID-19-related financial relief offered to clients and higher
expected delinquencies in our credit solution, leading to higher
provisions and, consequently, a reduction in our credit revenue.
Even though we expect delinquency rates to be higher than
pre-COVID-19 levels, the return on assets of our credit products is
strong, and the payments received from credit clients remain above
expectations (see page 9). The R$61.0 million does not include the
impact from lower transaction volumes.
Outlook for the Second Quarter of 2020
We do not typically provide forward-looking guidance. However,
given the level of uncertainty brought by the COVID-19 crisis, we
have decided at this time to share our perspectives regarding the
second quarter of 2020, based on the trends we have identified
quarter to date.
In addition to the TPV data provided above, we are providing
management's perspective for 2Q20 Adjusted Pre-Tax Margin. We
expect to see the greatest impact from COVID-19 in the second
quarter. Nonetheless, we anticipate our Adjusted Pre-Tax Margin4,
which is reconciled in Table 1 below for 1Q20, to be positive, at
between 20% and 24% in 2Q20. This expected range takes into account
the negative effect on Pre-Tax Income of one-off severance expenses
related to the reduction in our workforce announced on May 12th, as
well as one-off expenses related to temporary incentives we are
giving clients in the context of COVID-19.
Table 1: Profit before Income Taxes Bridge
Profit before Income Taxes Bridge |
1Q20 |
% Rev. |
Profit before income taxes |
227.9 |
31.8% |
Share-based compensation expenses (a) |
2.1 |
0.3% |
Amortization of fair value adjustment (b) |
3.4 |
0.5% |
Adjusted profit before income taxes |
233.4 |
32.6% |
(a) Consists of expenses related to the vesting of
share-based compensation. |
(b) On intangibles related to acquisitions.
Consists of expenses resulting from the amortization of the fair
value adjustment on intangible assets and property and equipment as
a result of the application of the acquisition method, a
significant portion of which relates to the EdB and Equals
acquisitions. |
Update on Our Strategy Roadmap in 1Q20
Financial Platform - Payments, Banking,
Credit
Despite some effect from COVID-19 beginning in March as outlined
above, we reported strong performance in our acquiring business in
the quarter. Excluding our offering to micromerchants
(TON/Stone Mais), we posted net addition of 50.5 thousand clients
in the quarter, reaching a total base of 531.3 thousand active
clients and TPV growth north of 42% year over year, with stable
take rates on a quarterly basis, even after an estimated impact of
approximately six basis points from COVID-related effects.
Regarding credit, we have evolved our product with the launch of
a revolving credit feature, adding flexibility and allowing clients
to roll their outstanding balances as they mature. We ended the
first quarter of 2020 with 30,900 active clients and an outstanding
balance of R$ 332 million. In April, the portfolio grew to an
outstanding balance of over R$386 million and we reached 34,500
clients, mainly due to our commitment to provide R$100 million in
microlending to help our clients navigate through the pandemic
situation. We have been able to help merchants who sometimes do not
have access to credit while also having healthy returns on the
credit solution, with the down payments from the April client
cohort equivalent to 152% of the amounts expected up to May
14th.
Given the uncertainty surrounding the current scenario, we
expect higher delinquency rates in our credit portfolio, especially
from older cohorts of clients. However, our credit business has
four key elements that help us keep healthy returns, even with
higher delinquency rates:
- Our policy has always been to not provide credit for some
sectors that we deem to be riskier, such as airlines, seasonal
businesses, clients that already have a lock on their receivables
and merchants exposed to high chargeback levels.
- We have improved significantly our scoring system over time,
with daily enhancements to our algorithms, new talents brought in
2019 and a requirement of a minimum relationship period (data) that
help us to be more assertive on the credit scoring.
- Our business model works in a merchant cash advance mode, in
which clients pay with their sales; the deduction of a percentage
of clients´ daily processed volumes provide both alignment of our
interests with theirs and protection for us, as we receive down
payments immediately when they engage in electronic transactions,
regardless of their payment provider. Additionally, we have local
agents who know clients personally, which reduces the risk of fraud
significantly.
- Our pricing management provides significant protection against
delinquency.
These elements have helped maintain a healthy 2.7% per month
return on assets (ROA5) of our portfolio, despite conservative
higher delinquency levels from COVID-19 impact already factored in
our results.
Also, up to May 14th, all cohorts of credit clients have already
paid us more than we anticipated in our models due to higher
volumes in our platform, with the exception of the March cohort,
from which we have received 83% of expected amounts. In total, we
have received 108% of the expected amounts within our consolidated
credit portfolio.
Chart 2: Accumulated Payments Received from
Credit Clients vs. Expected by cohort of
clients (%) (See PDF)
Our banking solution has also evolved significantly
ending March with 122,000 open accounts, compared with 79,000 in
January 2020. In April, we opened a monthly record number of new
accounts, with total number of banking accounts increasing to
158,000. We have also expanded to 45,000 clients in our ABC
platform pilot as of April, compared with approximately 10,000 in
January 2020. During the quarter, we have evolved the platform with
new features such as payment link and boleto issuance.
Our Online Business - Acquiring, Payment Service
Provider (PSP), Gateway
Our online business continues to evolve fast, especially during
the COVID-19 outbreak, when people started to handle more
transactions digitally. According to eBit/Nielsen, approximately
R$8.4 billion was transacted in Brazilian e-commerce during the
first weeks of COVID-19, between March 17th and April 27th. We
estimate that approximately 51% of that volume went through Stone´s
platforms, either through our online acquiring solutions or through
our agnostic gateway and PSP solutions.
Chart 3: TPV eCommerce (R$ billions) Mid
Mar-20 to Apr-206 (See PDF)
These volumes demonstrate the strength of our online business,
which was where we started our company in 2014. Our processing
capabilities, high conversion and availability rates, anti-fraud
solutions and easy-to-integrate APIs are based on a single
end-to-end technology platform, which was built by our team from
the ground up less than eight years ago. Those capabilities,
combined with a high level of service from our dedicated team, has
attracted many clients of different sizes and sectors in the
digital space since our company started.
Besides our evolution in offering a variety of software tools
and features to help the brick-and-mortar SMBs sell online, we have
an entire business front dedicated to clients that sell mostly
online.
We operate our digital business on two main fronts: (i) our
acquiring and PSP (Payment Service Provider) businesses, in which
we authorize and process transactions, and complete the clearing
and settlement processes; and (ii) our agnostic gateway solution,
in which we connect online merchants to their acquirer of choice,
enabling them to accept a wide variety of electronic payment
options.
Our PSP solution (Pagar.me) focuses on digital SMBs, with quick
and simple API integration, enabling omnichannel or fully-digital
players to accept a wide array of electronic payments in a simple
way.
The acquiring part of our digital business, which includes
e-commerce clients and online partners, has experienced significant
growth since the COVID-19 outbreak. From January to April, our
online acquiring volumes have grown by 42%, as shown in the indexed
chart below. Despite the strong growth, we have seen no additional
chargeback rates arising from the COVID-19 situation. Also, we have
no exposure to Airlines sector.
Chart 4: Online Acquiring TPV (Jan-20
indexed to 100) (See PDF)
In the gateway part of our digital business, we
have an agnostic full-featured e-commerce solution (Mundipagg) that
seamlessly connects e-commerce platform operators to the acquirers
of their choice and offers a set of robust analytics, reporting and
auditing capabilities. The volumes processed through our gateway
solution, which are not included in our reported TPV numbers, have
also been growing strongly, with April volumes 18% higher than in
January. We see a big opportunity to grow our acquiring solution in
the volumes processed by our gateway.
We believe the online opportunity in Brazil is huge, with
e-commerce still a mid-single-digit percent of total retail sales.
We are confident that Stone is in a unique position to navigate
digital commerce growth and will continue to be the best choice for
those looking to sell online, with technology robustness, easy
integration, transparency, and the great level of service that is
in our DNA.
Software and additional solutions to SMBs
We continue to provide merchants additional software solutions,
integrated with our payments and financial platform, to help them
better manage and grow their businesses.
Our strategy is twofold. First, we offer some software solutions
through our own distribution channel, integrating them with our
core SMB operation. Secondly, we also invest in and acquire
software companies with great people, scalable technology, and
their own distribution channels and we seek to integrate our
financial platform into their offerings. We provide the
entrepreneurs of these software companies with financial incentives
to make sure our interests are completely aligned over the
long-term. We aim to invest in great business models and
entrepreneurs, and we are always very diligent regarding valuation
discussions to ensure we have accretive deals.
In the fourth quarter of 2019 we reported that we had over
135,000 subscribed clients with at least one of our software
solutions. Approximately 86% of those clients had their software
solutions distributed primarily by Stone and 14% of those clients
had their software solutions primarily distributed by the
distribution channels of our portfolio of invested companies.
By mid-May 2020 the number of subscribed clients in our software
solutions has increased to approximately 237,000, including 49,000
new clients brought organically and 53,000 new clients brought by
the recent investments listed below.
During 2020, we have invested in some companies that will help
us provide even more services to SMBs, including:
(i) MLabs, a leading social media software platform for SMBs in
Brazil, with big potential to become a major social commerce
platform.
(ii) Delivery Much, a food delivery marketplace company focused
on small-and-midsize cities, which is our focus of activity in our
hubs. We believe this is an opportunity to provide more fair prices
and great level of service for a segment that has been growing
significantly in Brazil.
(iii) Vitta, a health plan management and EHR7 software solution
company. The company, which has a network of 15,000 doctors and
manages 100,000 lives, offers health plans tailored for SMBs and
startups, with an asset-light model in which it bears no insurance
risk. Many of our clients do not have satisfactory healthcare plans
either for their families or their employees. We believe that Vitta
created an innovative business model in the health tech market
combining better negotiation terms with white glove customer
service based on 24/7 telemedicine and WhatsApp support. This
investment is very synergistic with our client base.
(iv) MVarandas: An ERP/POS software for food service with a
strong regional presence in the northeast of Brazil and an
expanding operation throughout the country, with focus on
small-and-midsize cities. In addition to ERP/POS general features,
it serves as a platform that connects merchants to a set of
suppliers, allowing them to run their businesses in a consolidated
platform. The company also provides a white-label delivery app for
its merchants and has a seamless integrated solution with
payments.
We believe that the combination of technology, great services
and financial solutions in a single provider like Stone has the
power to transform the Brazilian small and medium businesses
environment. We define ourselves by the clients we serve, not by
the products we offer. That is one of the reasons our vision is to
become more and more a software company with financial solutions
embedded, as well as a financial services company that provides
technology tools to help merchants manage better their businesses
and sell more. We are on track to becoming the partner of choice
for SMBs in Brazil.
Some of the companies we invested in are already helping
merchants to go digital and face the current situation caused by
the COVID-19 outbreak in the country.
TON - "Se liga no TON"
In January, we received regulatory approval to proceed with our
partnership with Grupo Globo in the micro merchant space and we
closed the deal on March 12th. Our agreement contemplated an
investment by Grupo Globo equivalent to R$461 million in media.
Given Stone´s strong liquidity position, we have decided to
negotiate an upfront media package of R$100 million, in which TON
has access to a very attractive media deal to be used in the next
three years. This amount was fully funded by Grupo Globo's upfront
cash contribution to TON.
On March 1st, we launched our initial campaign for TON - "Se
liga no Ton". We are still in our initial phase of TON, in which we
are making small marketing investments to determine the LTV/CAC
ratio required to meaningfully scale the business. On March 11th,
we realized that COVID-19 would create an unfavorable market
dynamic to scale a business in this initial phase and we decided to
focus on continuing to improve the platform and test different
distribution channels while we protect TON´s cash position to
allocate this capital in a more favorable scenario. We will
intensify TON´s investments as we see an improvement in the market
environment.
TON ended the first quarter with 23.2 thousand active
clients8.
Operating and Financial
Metrics
Table 2: Operating and Financial Metrics
|
|
|
|
|
Main Operating and Financial Metrics |
1Q20 |
1Q19 |
|
Δ |
TPV (R$ billions) |
37.6 |
26.5 |
|
42.1% |
Active Clients (ex-TON) (thousands) |
531.3 |
305.5 |
|
73.9% |
Period Net Additions (ex-TON) (thousands) |
50.5 |
37.6 |
|
34.2% |
Take Rate |
1.81% |
1.86% |
|
(0.05 p.p.) |
Total Revenue and Income (R$ millions) |
716.8 |
535.8 |
|
33.8% |
Adjusted Net Income (R$ millions) |
162.3 |
186.3 |
|
(12.9%) |
Adjusted diluted EPS |
0.58 |
0.66 |
|
(12.7%) |
Despite the challenges brought by the COVID-19 pandemic, in the
first quarter of 2020 we delivered strong operating performance, as
a result of the investments we made, our diligence in allocating
capital and the commitment of our team.
Active client base
Because we launched our TON brand in partnership with Grupo
Globo in early March, from now on, we will report the number of TON
clients separately in order to provide more clarity to the market
about the dynamics in our core SMB market and in the micro-merchant
space. We are also reporting separately because of a difference in
the way we define active clients in TON versus our SMB customer
base. For TON, the definition of active clients is a client who has
transacted over the past 12 months, which is consistent with the
way peers define active clients. For SMBs, active clients are
defined as those who have transacted over the preceding 90
days.
Chart 5 on the left below shows our historical number of active
clients including Stone Mais, our previous product for
micromerchants, which is the way we reported up to the fourth
quarter of 2019. The chart on the right (chart 6 below) shows our
total number of active clients excluding our offering to
micromerchants (Stone Mais up to March and TON after that).
In the fourth quarter of 2019, for example, we had 495,100
active clients, including clients using our Stone Mais solution.
Excluding Stone Mais clients, our client base in the fourth quarter
was 480,900, mostly comprised of SMBs.
Chart 5: Active Client Base (Includes Stone
Mais) (Thousands) (See PDF)
Chart 6: Active Client Base (Excludes
TON/Stone Mais) (Thousands) (See
PDF)
Our base of clients excluding TON/Stone Mais, reached 531,3009
in the first quarter of 2020, a 73.9% increase year over year, with
net addition of 50.5 thousand in the quarter. Net additions were
strong despite weak seasonality and the impact of COVID-19 on SMB
businesses in some regions of the country.
The TON brand began operating on March 1st after its first
regional marketing campaign and ended the quarter with 23.2
thousand clients10.
Take rate
Take Rate was 1.81% in the first quarter of 2020, roughly in
line with the fourth quarter of 2019, despite COVID-19-related
client incentives and the effect on our revenue from higher
provisions for delinquencies in our credit solution, which had a
combined estimated impact of R$25.2 million on our 1Q20 Total
Revenue and Income; this translates into approximately six basis
points of take rate.
Compared with the first quarter of 2019, take rate was five
basis points lower, mostly explained by higher mix and lower take
rate from Key Accounts and COVID-19 related effects, as mentioned
above.
Chart 7: Evolution of Take Rate11 (See
PDF)
TPV
Total Payment Volume (TPV) was R$37.6 billion, up 42.1% or
R$11.2 billion compared to the prior year period.
TPV growth year over year was 52% up to March 15th, when
COVID-19 impacts on Brazilian retail contributed to a deceleration
in our volumes.
The recent improvement we have seen in our TPV growth, (See
"Update on COVID-19 business-related trends" on page 5), has been
driven both by recovery in TPV from our SMB clients in the hubs,
our digital clients and integrated partners, as well as by addition
of new clients to our base.
Our digital clients and integrated partners are already
presenting TPV above pre-COVID-19 levels, while TPV in the hubs are
still below pre-COVID-19 levels.
Table 3: Quarterly Statement of Profit or
Loss
Statement of Profit or Loss (R$mm) |
1Q20 |
% Rev. |
1Q19 |
% Rev. |
|
Δ % |
Δ p.p. |
Net revenue from transaction activities and other services |
227.3 |
31.7% |
168.8 |
31.5% |
|
34.7% |
0.2 p.p. |
Net revenue from subscription services and equipment rental |
93.1 |
13.0% |
71.2 |
13.3% |
|
30.8% |
(0.3 p.p.) |
Financial income |
359.3 |
50.1% |
251.4 |
46.9% |
|
42.9% |
3.2 p.p. |
Other financial income |
37.0 |
5.2% |
44.4 |
8.3% |
|
(16.7%) |
(3.1 p.p.) |
Total revenue and income |
716.8 |
100.0% |
535.8 |
100.0% |
|
33.8% |
0.0 p.p. |
Cost of services |
(149.9) |
(20.9%) |
(85.4) |
(15.9%) |
|
75.6% |
(5.0 p.p.) |
Administrative expenses |
(73.9) |
(10.3%) |
(64.8) |
(12.1%) |
|
14.2% |
1.8 p.p. |
Selling expenses |
(111.8) |
(15.6%) |
(62.7) |
(11.7%) |
|
78.4% |
(3.9 p.p.) |
Financial expenses, net |
(148.4) |
(20.7%) |
(66.6) |
(12.4%) |
|
122.6% |
(8.3 p.p.) |
Other operating expenses, net |
(3.5) |
(0.5%) |
(11.5) |
(2.1%) |
|
(69.6%) |
1.7 p.p. |
Loss on investment in associates |
(1.3) |
(0.2%) |
0.0 |
0.0% |
|
n.a. |
(0.2 p.p.) |
Profit before income taxes |
227.9 |
31.8% |
244.8 |
45.7% |
|
(6.9%) |
(13.9
p.p.) |
Income tax and social contribution |
(69.3) |
(9.7%) |
(67.8) |
(12.7%) |
|
2.2% |
3.0 p.p. |
Net
income for the period |
158.6 |
22.1% |
177.0 |
33.0% |
|
(10.4%) |
(10.9
p.p.) |
|
|
|
|
|
|
|
|
Adjusted Net Income |
162.3 |
22.6% |
186.3 |
34.8% |
|
(12.9%) |
(12.1 p.p.) |
|
|
|
|
|
|
|
|
Total Revenue and Income
Total Revenue and Income was R$716.8 million in the first
quarter of 2020, an increase of 33.8% from R$535.8 million in the
first quarter of 2019. Total Revenue and Income growth was driven
primarily by the 42.1% increase in TPV.
Excluding Other Financial Income, which is mainly comprised of
interest on cash, our Total Revenue and Income grew 38.3% to
R$679.7 million in the first quarter of 2020.
We estimate that our COVID-19-related client incentives and
higher provisions for delinquencies in our credit solution had a
negative impact on our Total Revenue and Income in the quarter of
R$25.2 million.
Chart 8: Total Revenue and Income in the Quarter
(R$mm) (See PDF)
Net Revenue from Transaction Activities and Other
Services
Net Revenue from Transaction Activities and Other Services was
R$227.3 million in the first quarter of 2020, an increase of 34.7%,
compared with the first quarter of 2019. This increase was
primarily due to the R$11.2 billion growth in TPV year over year,
partially offset by lower take rate from transaction activities on
a year over year basis.
Net Revenue from Subscription Services and Equipment
Rental
Net Revenue from Subscription Services and Equipment Rental was
R$93.1 million in the first quarter of 2020, 30.8% above the first
quarter of 2019. This increase was primarily due to the higher
number of SMB Active Clients, partially offset by lower average
subscription per client, which is mainly a result of additional
new-client subscription incentives, including R$4.1 million of
COVID-19-related incentives given in March 2020 to the most harshly
impacted sectors.
Financial Income
Financial Income was R$359.3 million in the first quarter of
2020, an increase of 42.9% year over year, primarily due to the
42.1% growth in TPV year over year combined with a higher
prepayment penetration over credit TPV and some contribution from
our credit offering. Financial Income was negatively affected by
R$21.1 million in the quarter mostly due to higher provisions for
expected delinquencies in our credit solution, as well as
incentives in prepayment rates for some clients that were more
strongly affected by COVID-19. Revenue from our credit solution is
accounted for at fair value of credit portfolio and factors in
expected delinquency rates.
Other Financial Income
Other Financial Income was R$37.0 million in the first quarter
of 2020, a decrease of 16.7% compared to the first quarter of 2019.
This decrease was mainly due to the lower base rate, which resulted
in lower yields on the Company's cash balance and short-term
investments.
Costs and Expenses
In our fourth quarter 2019 earnings call, prior to the COVID-19
outbreak, we said we would continue to invest in our operations and
strategic initiatives, especially in the first half of 2020. That
is one of the reasons why we have seen Operating Costs and Expenses
increase as a percentage of Total Revenue and Income.
Overall, Operating Costs and Expenses as a percentage of Total
Revenue and Income increased by 7.1 percentage points year over
year and 7.3 percentage points on a sequential basis to 46.8%,
mostly explained by (i) higher investments in the growth of the
business, such as hiring of additional sales and technology
professionals, marketing investments and investing behind our new
solutions and (ii) lower than expected TPV and revenues in March
due to the effect of social distancing and store closures in
response to the COVID-19 outbreak.
Chart 9: Operating Leverage12 (See
PDF)
We have been redesigning our processes and our structure to
adjust to the changes brought by the COVID-19 environment, for
example, having our commercial team conduct sales through the phone
and chat.
We have taken different measures to manage costs and expenses,
including reducing our workforce by 1,300 people, as announced on
May 12th. We will continue to optimize our costs, expenses and
capex structure, through measures such as renegotiation of
third-party services and systems, rationalization of office space,
streamlining of additional processes, among others.
Cost of Services
Cost of Services were R$149.9 million or 20.9% of Total Revenue
and Income in 1Q20, an increase of five percentage points over the
first quarter of 2019. This increase was mainly due to higher
depreciation and amortization costs, higher provisions and losses13
as a percentage of Total Revenue and Income, investments in
customer service and last-mile logistics operations, as well as
investments in our technology team.
Compared with 4Q19, Cost of Services increased as a percentage
of Total Revenue and Income to 20.9% from 16.4%, mainly due to
higher transaction costs as a percentage of Total Revenue and
Income, investments in our customer service and last-mile logistics
operations, and investments in our technology team and higher
provisions and losses.
Administrative Expenses
Administrative Expenses were R$73.9 million, or 10.3% of Total
Revenue and Income, compared with 12.1% in the prior year-period.
This reduction was primarily due to dilution of our personnel
expenses.
Compared with 4Q19, Administrative Expenses increased by R$1.5
million, mainly because of higher facilities expenses.
Selling Expenses
Selling Expenses were R$111.8 million in the quarter, an
increase of 78.4% versus 1Q19, mainly due to higher personnel and
marketing expenses, in line with the company's strategy of
investing in the growth of its operations.
Compared with 4Q19, Selling Expenses as a percentage of revenues
increased by 1.7 percentage points, mostly explained by the strong
addition of salespeople in the quarter.
Financial Expenses, Net
Financial Expenses, Net were R$148.4 million, an increase of
122.6%, compared with 1Q19, mainly due to (i) higher prepayment
volumes; (ii) sale of longer duration receivables to increase
short-term liquidity in the face of economic uncertainty related to
COVID-19, and (iii) higher cost of funding for spot lines, higher
liquidity pool and mark-to-market losses from some short-term
investments in bonds as a result of strong market volatility.
Financial Expenses, Net as a percentage of Revenue increased
from 13.7% in 4Q19 to 20.7% in 1Q20 mainly due to the items (ii)
and (iii) above, as well as lower revenues due to COVID-19 impact.
We estimate that items (ii) and (iii) above had a combined negative
impact of R$35.8 million on our Financial Expenses, Net during
1Q20.
Other Operating Expenses, Net
Other Operating Expenses, Net were R$3.5 million in the first
quarter of 2020, 69.6% lower than in the first quarter of 2019.
This lower figure is mainly related to the R$1.1 million gain in
share-based compensation in the quarter compared with an expense of
R$10.1 million in the first quarter of 2019. This lower share-based
compensation expense is mainly explained by the reversion of tax
and social charges provisions in relation to the STNE stock
devaluation.
Profit Before Income Taxes
Profit Before Income Taxes was R$227.9 million, or a 6.9%
decrease year over year, with a pre-tax margin of 31.8% compared
with 45.7% in the first quarter of 2019. This reduction is mainly
related to (i) COVID-19 effects, which consist of client
incentives, lower credit revenue, mainly due to higher expected
delinquency rates, and higher financial expenses related to
reinforcement of balance sheet and mark-to-market of corporate
bonds in short-term investments; (ii) selling investment, which
consists of investments in the hiring of new salespeople as well as
marketing and commissions; (iii) new products investments, which
consists of investments in TON, banking and software solutions; and
(iv) capital structure optimization, as a result of an increased
proportion of our prepayment operations being funded by third-party
capital (e.g. debt, FIDC quotas plus sale of Accounts Receivables
from Card Issuers) as opposed to own capital, when compared with
1Q19, which is a natural consequence of the fast growth of our
prepaid TPV, that has been growing faster than our pool of own
capital, providing us better ROE.
Income Tax and Social Contribution
During the first quarter of 2020, the Company incurred R$69.3
million in Income Tax and Social Contribution expenses, or a 30.4%
effective tax rate, compared with a 27.7% tax rate in 1Q19. The
increase is mainly due to lower gains from entities not subject to
the payment of income taxes and other permanent differences,
partially compensated by higher R&D tax benefits.
Net Income and EPS
Adjusted Net Income was R$162.3 million in the first quarter of
2020, with a margin of 22.6%, compared with R$186.3 million and a
margin of 34.8% in the first quarter of 2019. The main factors that
contributed to the 12.9% decrease in Adjusted Net Income were the
four factors mentioned above for Profit Before Income Taxes plus
higher effective tax rate.Compared with 4Q19, Adjusted Net Margin
was 12.5 percentage points lower, mainly explained by the five
factors mentioned above in the comparison with 1Q19, combined with
strong margin seasonality in the fourth quarter.
Chart 10: Adjusted Net Income in the Quarter
(R$mm) (See PDF)
Chart 11: Adjusted Net Margin in the Quarter (See
PDF)
Net Income was R$158.6 million in 1Q20, compared with Net Income
of R$177.0 million in 1Q19. Net Margin decreased by 10.9 percentage
points to 22.1% year over year in the first quarter of 2020. This
reduction is mainly due to the same factors mentioned above for the
variation in Adjusted Net Income.
Adjusted diluted EPS for the Company was R$0.58 per share in the
first quarter of 2020, 12.7% lower than in the first quarter of
2019, mostly explained by the 12.9% lower Adjusted Net Income. GAAP
basic EPS was R$0.57 per share, a decrease of 10.4% year over year,
explained by the 10.4% lower GAAP Net Income in the period.
Table 4: Adjusted Net Income Reconciliation
(Quarter)
Net Income Bridge (R$mm) |
1Q20 |
% Rev. |
1Q19 |
% Rev. |
|
Δ % |
Δ p.p. |
Net
income for the period |
158.6 |
22.1% |
177.0 |
33.0% |
|
(10.4%) |
(10.9 p.p.) |
Share-based compensation expenses (a) |
2.1 |
0.3% |
10.1 |
1.9% |
|
(79.7%) |
(1.6
p.p.) |
Amortization of fair value adjustment (b) |
3.4 |
0.5% |
3.8 |
0.7% |
|
(9.1%) |
(0.2
p.p.) |
Tax effect on adjustments |
(1.8) |
(0.3%) |
(4.6) |
(0.9%) |
|
(60.5%) |
0.6
p.p. |
Adjusted net income |
162.3 |
22.6% |
186.3 |
34.8% |
|
(12.9%) |
(12.1 p.p.) |
|
|
|
|
|
|
|
|
GAAP basic
EPS (c) |
0.57 |
n.a. |
0.64 |
n.a. |
|
(10.4%) |
n.a. |
Adjusted
diluted EPS (d) |
0.58 |
n.a. |
0.66 |
n.a. |
|
(12.7%) |
n.a. |
Basic Number
of shares |
277.4 |
n.a. |
277.2 |
n.a. |
|
0.1% |
n.a. |
Diluted Number of shares |
281.8 |
n.a. |
282.4 |
n.a. |
|
(0.2%) |
n.a. |
|
(a) Consists of
expenses related to the vesting of share-based compensation. |
(b) On intangibles
related to acquisitions. Consists of expenses resulting from the
amortization of the fair value adjustment on intangible assets and
property and equipment as a result of the application of the
acquisition method, a significant portion of which relates to the
EdB and Equals acquisitions. |
(c) Calculated as Net
income attributable to owners of the parent (Net Income reduced by
Net Income attributable to Non-Controlling interest) divided by
basic number of shares. For more details on calculation, please
refer to Note 17 of our Unaudited Interim Condensed Consolidated
Financial Statements, March 31st, 2020. |
(d) Calculated as
Adjusted Net income attributable to owners of the parent (Adjusted
Net Income reduced by Net Income attributable to Non-Controlling
interest) divided by diluted number of shares. Adjustments consider
share-based compensation expenses and amortization of fair value
adjustments, in line with previous disclosures. |
Cash Flow
Because of the nature of the prepayment and credit businesses of
the Company, the dynamics of the sale of receivables in Brazil,
Stone management looks at Adjusted Net Cash Provided by/ (Used in)
Operating Activities and Adjusted Net Cash Provided by/ (Used in)
Financing Activities, both non-IFRS metrics. These metrics consist
of transferring the following four working capital items14 from our
operating cash flow to our financing cash flow: (i) changes in
Accounts Payable to Clients; (ii) changes in Accounts Receivables
from Card Issuers; (iii) Interest Income Received, Net of Costs15,
which is shown separately in our Cash Flow Statement but is
directly linked to the funding of our prepayment operation and (iv)
Loans Held for Sale related to our credit operation (see Appendix
"Notes on Cash Flows" for further details).
The table below is a summarized version of our Statement of Cash
Flows and Adjusted Free Cash Flow (a non-IFRS metric), along with a
reconciliation of these metrics with our managerial (non-IFRS) view
of them, as well as reconciliation of Adjusted Net Cash Provided
by/ (Used in) Operating Activities and Adjusted Net Cash Provided
by/ (Used in) Financing Activities to Net Cash Provided by/ (Used
in) Operating Activities and Net Cash Provided by/ (Used in)
Financing Activities.
Table 5: Summarized Statement of Cash Flows and Free
Cash Flow
Summarized Statement of Cash Flows |
1Q20 |
|
1Q19 |
(R$mm) |
IFRS |
(+)Adjustments |
Managerial (Non-IFRS) |
|
IFRS |
(+)Adjustments |
Managerial (Non-IFRS) |
|
|
|
|
|
|
|
|
Net
Income |
158.6 |
|
158.6 |
|
177.0 |
|
177.0 |
(+)
Adjustments to Net Income |
138.5 |
|
138.5 |
|
45.3 |
|
45.3 |
(+) Working
capital adjustments |
65.3 |
(372.6) |
(307.3) |
|
(517.1) |
470.3 |
(46.9) |
(+) AR, AP, interest income received, net of costs (a) |
556.4 |
(556.4) |
0.0 |
|
(470.3) |
470.3 |
0.0 |
(+) Changes in Loans Held for Sale |
(183.8) |
183.8 |
0.0 |
|
0.0 |
0.0 |
0.0 |
(+) Other working capital changes |
(307.3) |
|
(307.3) |
|
(46.9) |
|
(46.9) |
(=)
Cash provided by (used in) operating activities |
362.5 |
|
(10.1) |
|
(294.8) |
|
175.4 |
|
|
|
|
|
|
|
|
(-) Capex
(b) |
(112.2) |
|
(112.2) |
|
(66.6) |
|
(66.6) |
(+) Other
investing activities |
606.6 |
|
606.6 |
|
156.9 |
|
156.9 |
(=)
Cash provided by (used in) investing activities |
494.5 |
|
494.5 |
|
90.3 |
|
90.3 |
|
|
|
|
|
|
|
|
(+)
Debt/FIDC issuance (repayment) |
(487.1) |
|
(487.1) |
|
(6.1) |
|
(6.1) |
(+) Working
capital related to credit operation |
|
(183.8) |
(183.8) |
|
|
0.0 |
0.0 |
(+) Working
capital related to AR/AP |
|
556.4 |
556.4 |
|
|
(470.3) |
(470.3) |
(+) Capital
events (c) |
182.8 |
|
182.8 |
|
(0.2) |
|
(0.2) |
(=)
Cash provided by (used in) financing activities |
(304.4) |
|
68.2 |
|
(6.4) |
|
(476.6) |
|
|
|
|
|
|
|
|
(+) Effect
of foreign exchange on cash and cash equivalents |
(2.3) |
|
(2.3) |
|
(0.0) |
|
(0.0) |
(=)
Change in cash and cash equivalents |
550.3 |
|
550.3 |
|
(210.9) |
|
(210.9) |
|
|
|
|
|
|
|
|
Free Cash Flow (R$mm) |
1Q20 |
|
1Q19 |
Cash provided by (used in) operating activities |
362.5 |
(372.6) |
(10.1) |
|
(294.8) |
470.3 |
175.4 |
(-) Capex
(b) |
(112.2) |
|
(112.2) |
|
(66.6) |
|
(66.6) |
Free Cash Flow |
250.3 |
|
(122.3) |
|
(361.5) |
|
108.8 |
(a) Includes changes in accounts receivables from card issuers,
accounts payable to clients and interest income received, net of
costs. |
(b) Includes purchase of property and equipment, plus purchases and
development of intangibles assets. |
(c) Includes capital increase, repurchase of shares, acquisition of
non-controlling interest and cash proceeds from non-controlling
interest |
Adjusted (non-IFRS) Free Cash Flow
The Company defines Adjusted Free Cash Flow16, a non-IFRS
metric, as Adjusted net cash provided by (used in) operating
activities (non-IFRS), less purchase of property and equipment and
purchases and development of intangible assets ("Capex").
The Company reported a negative Adjusted Free Cash Flow of
R$122.3 million in 1Q20, or R$231.1 million lower than 1Q19, when
the Company reported R$108.8 million in Adjusted Free Cash Flow
generation. Excluding the effects from Items (i) and (ii) below,
which we view as exceptional items, our Adjusted Free Cash Flow in
the quarter was R$30.7 million.
The main reasons for the decrease in Adjusted Free Cash Flow in
1Q20 compared with 1Q19 were (i) higher Net Cash Used in Operating
Activities from Trade Accounts Receivable and Other Assets, of
which R$53.0 million relates to a temporary tax withholding already
released in the first week of April; (ii) Prepaid Expenses, with
R$100.0 million related to prepaid marketing expenses from TON,
which was fully funded by Grupo Globo upfront cash contribution to
TON and (iii) higher Capex.
Net Cash Provided by (Used in) Operating
Activities
In 1Q20, Net Cash Provided by Operating Activities was R$362.5
million, R$657.3 million higher than 1Q19, when the Company
reported Net Cash Used in Operating Activities of R$294.8 million.
This positive variation is mainly explained by the Company's
decisions in face of the COVID-19 crisis to safeguard a higher
liquidity pool by rapidly translating more Accounts Receivable into
cash. This effect was partially offset by (i) R$286.5 million
higher Net Cash Used in Operating Activities from Trade Accounts
Receivable and Other Assets, which includes R$183.8 million related
to Loans Held for Sales from our credit operation, showing the
Company´s decision to fund the credit solution with the sale of
Accounts Receivables from Card Issuers during this period of
crisis, as well as R$53 million related to a temporary tax
withholding already released in the first week of April; and (ii)
R$100.0 million in prepaid marketing expenses from TON, which was
fully funded by Grupo Globo's upfront cash contribution to TON,
which is not included in the Net Cash Provided by (Used in)
Operating Activities, as mentioned in the section " TON - 'Se liga
no TON' " above.
Adjusting for the effects on table 4 above, our Adjusted
(non-IFRS) Net Cash Used in Operating Activities17 was R$10.1
million, compared with R$175.4 million in Adjusted Net Cash
Provided by Operating Activities in 1Q19. The R$185.6 million lower
Adjusted Net Cash Provided by (Used in) Operating Activities is
mainly explained by items (ii) and (iii) from the Net Cash Provided
by Operating Activities explanation above.
Net Cash Provided by Investing Activities
Net Cash Provided by Investing Activities was R$494.5 million
for 1Q20, R$404.2 million higher compared with 1Q19, when the
Company reported R$90.3 million of Net Cash Provided by Investing
Activities. The higher Net Cash Provided by Investing Activities
for 1Q20 was primarily driven by R$444.0 million higher Net Cash
Provided by Investing Activities from Proceeds from Short-Term
Investments, net compared with 1Q19, partially offset by higher Net
Cash Used in Investing Activities from Purchase of Property and
Equipment and Purchases and Development of Intangible Assets
("Capex"), which were R$112.2 million in 1Q20, compared with R$66.6
million in 1Q19.
Net Cash Used in Financing Activities
Net Cash Used in Financing Activities was R$304.4 million for
1Q20, compared with Net Cash Used in Financing Activities of R$6.4
million for 1Q19. Net Cash Used in Financing Activities for 1Q20
was R$298.0 million higher mainly driven by the Payment of
Borrowings in the amount of R$3,370.0 million, compared with R$0.2
million in 1Q19. Payment of Borrowings in 1Q20 were mainly related
to the amortization of CCB ("Cédula de Crédito Bancário") contracts
in the amount of R$2,870 million, as well as R$500 million in FIDC
amortization. These payments were partially offset by Proceeds from
Borrowings in the amount of R$2,889.1 million in 1Q20 (zero for
1Q19), of which USD200 million comes from two new bilateral loans
(USD100 million each) and R$1.9 billion from new CCB
agreements.
Net Cash Used in Financing Activities was also affected by
repurchase of shares of R$47.5 million.
Adjusting for the effects on table 4 above, our Adjusted
(non-IFRS) Net Cash Provided by Financing Activities18 was R$68.2
million in 1Q20, compared with Adjusted (non-IFRS) Net Cash Used in
Financing Activities of R$476.6 million in 1Q19, a difference of
R$544.9 million. This improvement is related to (i) R$1,026.7
million positive working capital contribution compared with 1Q19 as
a result of increased sale of receivables to financial institutions
in order to increase the Company's liquidity pool in face of the
COVID-19 crisis; and (ii) capital increase from Grupo Globo in TON
in the amount of R$230.5 million. These effects were partially
offset by (i) R$481.0 million higher Payment of Borrowings (net of
issuance), mostly from CCB contracts and FIDC amortization, as well
as R$183.8 million from credit given to our clients and R$47.5
million in repurchase of shares.
Adjusted Net Cash
Management assesses net liquidity of the Company by Adjusted Net
Cash, a non-IFRS metric. It consists of the items detailed in the
Table 6 below:
Table 6: Adjusted Net Cash
|
|
|
Adjusted Net Cash (R$mm) |
1Q20 |
4Q19 |
Cash and cash equivalents |
1,518.6 |
968.3 |
Short-term investments |
2,407.0 |
2,937.0 |
Accounts receivable from card issuers |
12,592.6 |
14,066.8 |
Loans held for sale |
308.5 |
124.7 |
Derivative financial instrument (b) |
5.3 |
12.3 |
Adjusted Cash |
16,831.9 |
18,109.2 |
|
|
|
Accounts payable to clients |
(5,580.2) |
(6,500.1) |
Loans and financing (a) |
(2,918.3) |
(2,912.0) |
Obligations to FIDC quota holders |
(3,239.3) |
(3,710.9) |
Derivative financial instrument (b) |
(41.0) |
(1.4) |
Adjusted Debt |
(11,778.8) |
(13,124.4) |
|
|
|
Adjusted Net Cash |
5,053.1 |
4,984.8 |
(a) Loans and financing were reduced by the effects of leases
liabilities recognized under IFRS 16. |
(b) Refers to economic hedge of cash and cash equivalents and
short-term investments denominated in U.S. dollars |
Accounts Receivable from Card Issuers and Loans Held for Sale
are accounted for at their fair value in our balance sheet.
As of March 31, 2020, the Company´s Adjusted Net Cash position
was R$5,053.1 million compared with R$4,984.8 million on December
31, 2019, an increase of R$68.2 million.
This increase can be explained by the following factors:
- Cash and Cash Equivalents plus Short-term Investments increased
by R$20.2 million, from R$3,905.4 million on December 31, 2019 to
R$3,925.6 million on March 31, 2020;
- Loans and financing plus Obligations to FIDC quota holders
decreased R$465.3 million from R$6,622.9 million on December 31,
2019 to R$6,157.6 million on March 31, 2020 as the company was able
to partially amortize its FIDC obligations;
- This amortization was mostly funded with higher sale of
receivables, which can be seen by the fact that Accounts Receivable
from Card Issuers, net of Accounts Payable to Clients decreased
R$554.4 million, from R$7,566.7 million on December 13, 2019 to
R$7,012.4 million on March 31, 2020.
- The Company invested R$183.8 million in its Loans Held for
Sale, going from R$124.7 million on December 31, 2019 to R$308.5
million on March 31, 2020. As soon as the market conditions
improve, the Company expects to fund its Credit business with
third-party funding.
- Finally, derivative financial instruments net position
decreased from R$11.0 million on December 31, 2019 to a negative
position of R$35.7 million on March 31, 2020.
Combined, these factors generated R$1,345.5 million lower
Adjusted Debt, mostly offset by the R$1,277.3 million lower
Adjusted Cash, which explains the improvement in Adjusted Net Cash
of R$68.2 million.
Other Information
Conference Call
Stone will discuss its first quarter financial results during a
teleconference today, May 26, 2020, at 5:00 PM ET / 6:00 PM BRT.
The conference call can be accessed at +1 (412) 317 6346 or +1
(844) 204 8586 (US), or +55 (11) 3181 8565 (Brazil), or +44 (20)
3795 9972 (UK).
The call will also be broadcast simultaneously on Stone’s
Investor Relations website at https://investors.stone.co/.
Following the completion of the call, a recorded replay of the
webcast will be available on Stone’s Investor Relations website at
https://investors.stone.co/.
About Stone Co.
Stone Co. is a leading provider of financial technology
solutions that empower merchants to conduct commerce seamlessly
across multiple channels and help them grow their
businesses.
Investor Contact
Investor Relations investors@stone.co
Forward-Looking Statements
This press release contains "forward-looking
statements" within the meaning of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are made as of the date they were first
issued and were based on current expectations, estimates, forecasts
and projections as well as the beliefs and assumptions of
management. These statements identify prospective information and
may include words such as “believe,” “may,” “will,” “aim,”
“estimate,” “continue,” “anticipate,” “intend,” “expect,”
“forecast,” “plan,” “predict,” “project,” “potential,”
“aspiration,” “objectives,” “should,” “purpose,” “belief,” and
similar, or variations of, or the negative of such words and
expressions, although not all forward-looking statements contain
these identifying words.Forward-looking statements are subject to a
number of risks and uncertainties, many of which involve factors or
circum- stances that are beyond Stone’s control.Stone’s actual
results could differ materially from those stated or implied in
forward-looking statements due to a number of factors, including
but not limited to: more intense competition than expected, lower
addition of new clients, regulatory measures, more investments in
our business than expected, and our inability to execute
successfully upon our strategic initiatives, among other factors.
In particular, due to the high level of uncertainty with respect to
the duration and scope of the COVID-19 crisis, the quantification
of impacts on our financial and operating results beyond the second
quarter of 2020 cannot reasonably be estimated at this time.
About Non-IFRS Financial
Measures
To supplement the financial measures presented
in this press release and related conference call, presentation, or
webcast in accordance with IFRS, Stone also presents the following
non-IFRS measures of financial performance: Adjusted Net Income,
Adjusted EPS (diluted), Adjusted Net Margin, Adjusted Net Cash
Provided by / (Used in) Operating Activities, Adjusted Net Cash
Provided by (Used in) Financing Activities, Free Cash Flow and
Adjusted Free Cash Flow, Adjusted Net Cash / (Debt) and Adjusted
Pre-Tax Margin.A “non-IFRS financial measure” refers to a numerical
measure of Stone’s historical or future financial performance or
financial position that either excludes or includes amounts that
are not normally excluded or included in the most directly
comparable measure calculated and presented in accordance with IFRS
in Stone’s financial statements. Stone provides certain non-IFRS
measures as additional information relating to its operating
results as a complement to results provided in accordance with
IFRS. The non-IFRS financial information presented herein should be
considered in conjunction with, and not as a substitute for or
superior to, the financial information presented in accordance with
IFRS. There are significant limitations associated with the use of
non-IFRS financial measures. Further, these measures may differ
from the non-IFRS information, even where similarly titled, used by
other companies and therefore should not be used to compare Stone’s
performance to that of other companies.Stone has presented Adjusted
Net Income to eliminate the effect of items from Net Income that it
does not consider indicative of its continuing business performance
within the period presented. Stone defines Adjusted Net Income as
Net Income (Loss) for the Period, adjusted for (1) non-cash
expenses related to the grant of share-based compensation and the
fair value (mark-to-market) adjustment for share-based compensation
classified as a liability, (2) amortization of intangibles related
to acquisitions, (3) one-time impairment charges, (4) unusual
income and expenses and (5) tax expense relating to the foregoing
adjustments. Adjusted Net Margin is calculated by dividing Adjusted
Net Income by Total Revenue and Income.Stone has presented Adjusted
Net Cash Provided by/ (Used in) Operating Activities, in order to
provide an addition view of cash flow from operations without the
effect of funding decisions related to our financial solutions,
that include prepayment business and credit solutions. Stone has
presented Adjusted Free Cash Flow metric, which has limitations as
it omits certain components of the overall Cash Flow Statement and
does not represent the residual cash flow available for
discretionary expenditures. For example, this metric does not
incorporate the portion of payments representing principal
reductions of debt or cash payments for business acquisitions.
Therefore, the Company believes it is important to view Free Cash
Flows measures only as a complement to our entire consolidated
Statements of Cash Flows.Stone has presented Adjusted Net Cash
metric in order to adjust its Net Cash / (Debt) by the balances of
Accounts Receivable from Card Issuers, Loans Held for Sale and
Accounts Payable to Clients, since these lines vary according to
the Company’s funding source together with the lines of (i) Cash
and Cash Equivalents, (ii) Short-term Investments, (iii) Debt
balances and (iv) Derivative Financial Instruments related to
economic hedges of short term investments in assets, due to the
nature of Stone’s business and its prepayment and credit
operations.Guidance for second quarter 2020, where adjusted, is
provided on a non-IFRS basis. Stone cannot reconcile its expected
Adjusted Pre-Tax Margin, calculated as profit before income taxes
excluding share-based compensation expenses, amortization of fair
value adjustments and other expenses divided by total revenue and
income, to expected profit before income taxes under “Outlook for
the Second Quarter of 2020” without unreasonable effort because
certain items that impact profit before income taxes and other
reconciling metrics are out of Stone's control and/or cannot be
reasonably predicted at this time, which unavailable information
could have a significant impact on the Company’s IFRS financial
results.
Unaudited First Quarter Consolidated Statement of Profit
or Loss
Table 7: Unaudited First Quarter Consolidated Statement
of Profit or Loss
Statement of Profit or Loss (R$mm) |
1Q20 |
1Q19 |
Net revenue from transaction activities and other services |
227.3 |
168.8 |
Net revenue from subscription services and equipment rental |
93.1 |
71.2 |
Financial income |
359.3 |
251.4 |
Other financial income |
37.0 |
44.4 |
Total revenue and income |
716.8 |
535.8 |
Cost of services |
(149.9) |
(85.4) |
Administrative expenses |
(73.9) |
(64.8) |
Selling expenses |
(111.8) |
(62.7) |
Financial expenses, net |
(148.4) |
(66.6) |
Other operating expenses, net |
(3.5) |
(11.5) |
Loss on investment in associates |
(1.3) |
0.0 |
Profit before income taxes |
227.9 |
244.8 |
Income tax and social contribution |
(69.3) |
(67.8) |
Net income for the period |
158.6 |
177.0 |
|
|
|
Unaudited First Quarter Consolidated Balance Sheet
Statement
Table 8: Unaudited First Quarter Consolidated Balance
Sheet Statement
Balance Sheet (R$mm) |
31-Mar-20 |
31-Dec-19 |
Assets |
|
|
Current assets |
17,344.0 |
18,404.9 |
Cash and cash equivalents |
1,518.6 |
968.3 |
Short-term investments |
2,407.0 |
2,937.0 |
Accounts receivable from card issuers |
12,592.6 |
14,066.8 |
Trade accounts receivable |
504.3 |
249.4 |
Recoverable taxes |
62.0 |
50.4 |
Prepaid expenses |
118.8 |
12.5 |
Derivative financial instruments |
7.0 |
14.1 |
Other assets |
133.7 |
106.3 |
|
|
|
Non-current assets |
1,277.5 |
1,200.9 |
Receivables from related parties |
22.3 |
12.8 |
Deferred income tax assets |
206.5 |
192.8 |
Other assets |
45.4 |
44.7 |
Investment in associate |
27.0 |
28.2 |
Property and equipment |
594.6 |
548.6 |
Intangible assets |
381.8 |
373.7 |
|
|
|
Total Assets |
18,621.5 |
19,605.7 |
|
|
|
Liabilities and equity |
|
|
Current liabilities |
10,229.6 |
11,872.5 |
Accounts payable to clients |
5,580.2 |
6,500.1 |
Trade accounts payable |
96.5 |
97.8 |
Loans and financing |
1,830.5 |
2,947.8 |
Obligations to FIDC quota holders |
2,429.3 |
2,090.9 |
Labor and social security liabilities |
126.2 |
109.0 |
Taxes payable |
31.4 |
44.9 |
Derivative financial instruments |
41.0 |
1.4 |
Other accounts payable |
94.5 |
80.6 |
|
|
|
Non-current liabilities |
2,069.1 |
1,760.2 |
Loans and financing |
1,208.9 |
87.5 |
Obligations to FIDC quota holders |
810.0 |
1,620.0 |
Deferred income tax liabilities |
16.9 |
10.7 |
Provision for contingencies |
9.1 |
9.6 |
Labor and social security liabilities |
19.3 |
27.4 |
Other accounts payable |
5.0 |
5.1 |
|
|
|
Total liabilities |
12,298.7 |
13,632.7 |
|
|
|
Equity attributable to owners of the parent |
6,229.2 |
5,972.4 |
Issued capital |
0.1 |
0.1 |
Capital reserve |
5,588.2 |
5,443.8 |
Treasury shares |
(47.6) |
(0.1) |
Other comprehensive income |
(71.3) |
(72.3) |
Retained earnings |
759.8 |
601.0 |
|
|
|
Non-controlling interests |
93.6 |
0.6 |
|
|
|
Total equity |
6,322.8 |
5,973.0 |
|
|
|
Total liabilities and equity |
18,621.5 |
19,605.7 |
|
|
|
Unaudited First Quarter Consolidated Statement of Cash
Flows
Table 9: Unaudited First Quarter Consolidated Statement
of Cash Flows
Cash Flow (R$mm) |
|
1Q20 |
1Q19 |
Net income for the period |
|
158.6 |
177.0 |
|
|
|
|
Adjustments on Net Income: |
|
|
|
Depreciation and amortization |
|
60.2 |
29.7 |
Deferred income tax expenses |
|
(8.2) |
(5.3) |
Loss on investment in associates |
|
1.3 |
0.0 |
Other financial costs and foreign exchange, net |
|
1.6 |
(1.7) |
Provision for contingencies |
|
1.0 |
0.8 |
Share based payments expense |
|
7.1 |
8.1 |
Allowance for doubtful accounts |
|
9.7 |
4.5 |
Loss on disposal of property, equipment and intangible assets |
|
11.8 |
1.4 |
Fair value adjustments in financial instruments |
|
7.4 |
0.0 |
Fair value adjustment in derivatives |
|
46.7 |
7.6 |
|
|
|
|
Working capital adjustments: |
|
|
|
Accounts receivable from card issuers |
|
1,534.7 |
(1,174.6) |
Receivables from related parties |
|
(7.4) |
2.0 |
Recoverable taxes |
|
(48.4) |
(2.4) |
Prepaid expenses |
|
(106.4) |
(13.6) |
Trade accounts receivable and other assets |
|
(293.4) |
(6.8) |
Accounts payable to clients |
|
(1,327.8) |
469.8 |
Taxes payable |
|
76.7 |
51.5 |
Labor and social security liabilities |
|
9.0 |
21.0 |
Provision for contingencies |
|
(1.4) |
0.0 |
Other Liabilities |
|
(11.2) |
(26.5) |
Interest paid |
|
(55.3) |
(20.6) |
Interest income received, net of costs |
|
349.5 |
234.6 |
Income tax paid |
|
(53.2) |
(51.5) |
|
|
|
|
Net cash provided by (used in) operating
activity |
|
362.5 |
(294.8) |
|
|
|
|
Investing activities |
|
|
|
Purchases of property and equipment |
|
(90.2) |
(54.6) |
Purchases and development of intangible assets |
|
(22.0) |
(12.0) |
Acquisition of subsidiary, net of cash acquired |
|
0.0 |
0.0 |
Proceeds from (acquisition of) short term investments, net |
|
601.2 |
157.2 |
Proceeds from the disposal of non-current assets |
|
0.0 |
0.2 |
Acquisition of interest in associates |
|
5.4 |
(0.6) |
|
|
|
|
Net cash provided by investing activities |
|
494.5 |
90.3 |
|
|
|
|
Financing activities |
|
|
|
Proceeds from borrowings |
|
2,889.1 |
0.0 |
Payment of borrowings |
|
(2,870.0) |
(0.2) |
Amortization to FIDC quota holders |
|
(500.0) |
0.0 |
Proceeds from FIDC quota holders |
|
0.0 |
0.0 |
Payment of finance leases |
|
(6.3) |
(5.9) |
Capital increase |
|
0.0 |
0.0 |
Repurchase of shares |
|
(47.5) |
0.0 |
Acquisition of non-controlling interests |
|
(0.2) |
(0.2) |
Cash proceeds from non-controlling interest and gain on
dilution |
230.5 |
0.0 |
|
|
|
|
Net cash used in financing activities |
|
(304.4) |
(6.4) |
|
|
|
|
Effect of foreign exchange on cash and cash equivalents |
|
(2.3) |
(0.0) |
|
|
|
|
Change in cash and cash equivalents |
|
550.3 |
(210.9) |
|
|
|
|
Cash and cash equivalents at beginning of period |
|
968.3 |
297.9 |
Cash and cash equivalents at end of period |
|
1,518.6 |
87.0 |
|
|
|
|
Appendix - Notes on Cash Flows
Note on the impact of different funding
sources for prepayment in the financial statements
A natural consequence of TPV growth is the
corresponding increase in both Accounts Receivable from Card
Issuers and Accounts Payable to Clients. When the Company makes a
prepayment to its clients as part of its working capital solutions
offering, it reduces accounts payable by the corresponding prepaid
amount plus fees earned by providing such prepayment service. In
order to fund the prepayment operation, the Company predominantly
uses one of the following sources of funding: (i) the sale of its
receivables from card issuers to third-party banks or financial
institutions, (ii) the issuance of senior and/or mezzanine quotas
by FIDCs to institutional investors, (iii) the issuance of
debentures and private loans or (iv) its own capital from capital
contributions or cash flows from operations. These funding options
lead to different effects on the Company’s statements of balance
sheet and cash flows:
- Sale of receivables: the true sale of receivables results in
the derecognition of Accounts Receivable from Card Issuers. As a
result, when a prepayment operation is funded through the true sale
of receivables, both Accounts Receivable from Card Issuers and
Accounts Payable to Clients are derecognized from the balance sheet
in the same amount and the combined effect to the cash flows is a
positive operational cash flow equivalent to net fees earned by
providing such prepayment service.
- Issuance of FIDC19 senior and/or mezzanine quotas: when the
Company launches a new FIDC in order to raise capital, the amount
raised from senior and/or mezzanine quota holders less structuring
and transaction costs will be recognized on its balance sheet as
cash and as a liability to senior and/or mezzanine quota holders.
The Company then transfers its receivables from card issuers in its
operating subsidiary to the FIDC and uses the cash to fund the
prepayment operations. As a result of consolidating the FIDC in the
Company’s financial statements, the Accounts Receivable from Card
Issuers held by the FIDC remain on its consolidated balance sheet.
This set of transactions generates a positive impact on the
Company’s cash flows from financing activities in the amount
received by the FIDC from senior and/or mezzanine quota holders
less structuring and transaction costs. However, since Accounts
Receivable from Card Issuers remains on the balance sheet but the
Accounts Payable to Clients are derecognized, these transactions
also cause a negative impact on our cash flow from operations. The
net effect of impacts in cash flow from operations and cash flow
from financing activities is positive.
- Debentures and private loans: when the Company issues a
debenture or takes a private loan, the effect on the Company’s
statements of balance sheet and cash flows is similar to the
issuance of FIDC senior and/or mezzanine quotas.
- Deployment of the Company’s capital: when the Company uses its
own capital to fund prepayment operations, it does not sell its
receivables from card issuers and they remain on its balance sheet.
However, its Accounts Payable to Clients are derecognized, and
therefore these transactions cause a negative impact on the
Company’s cash flow from operations.
Note on the impact of different funding
sources for our credit solution in the financial
statements
Besides the prepayment operation, the Company
has recently started to offer credit solutions to clients, which
also require funding. In addition to the sale of receivables,
debentures and private loans mentioned above, the Company has the
following main funding alternatives for the credit business:
- Bilateral agreements with third-party financial institutions:
the company may enter into agreement with third-party financial
institutions, so that such institutions are the lenders of record
for Stone´s clients. In such case, the third-party financial
institution would bear the funding need and the credit risk of the
transaction and the Company would recognize a fee for rendering
services related to the transaction. This was the alternative the
Company opted for its initial pilot phase of the credit solution,
which has a positive effect in cash flow from operations.
- Issuance of Credit FIDC senior and/or mezzanine quotas: in that
case, the company raises funds in the capital markets and issues
senior and/or mezzanine quotas to investors, while keeping a very
small amount of own cash invested in subordinated quotas. Besides
providing most of the funding needed for the credit offering, this
alternative also reduces the Company´s overall exposure to credit
risk. The impact in our consolidated statement of cash flows has
similar logic as the issuance of FIDC senior and/or mezzanine
quotas mentioned in the section “Note on the impact of different
funding sources for prepayment in the financial statements”
above.
- Deployment of the Company’s capital: if the Company uses its
own capital to fund its credit operations, it decreases its cash
balance and recognizes loan assets in its balance sheet. If the
Company increases the amount of such loan assets, this has a
negative impact in our Net Cash provided by/(used in) Operating
Activities.
- Sale of loan assets: the true sale of loan assets results in
its derecognition from our balance sheet, impacting positively our
Net Cash provided by/(used in) Operating Activities.
As of March 31, 2020, the credit portfolio
outstanding to Stone´s clients was R$332 million. The Company
funded R$30 million from a third-party financial institution
through the funding model explained in the topic (1) above and
R$301 million is funded by the Company’s own capital through an
investment in a FIDC and this amount is recognized in Loans Held
for Sale in the Company´s balance sheet. The Company, however,
intends to scale its credit operation mainly through third-party
funding, especially alternative (2) mentioned above.
Loan assets held in the Company´s balance sheet
are accounted for at their fair value, which factors in market
discount rates and expected delinquency, thus representing the
value that the Company would most probably be able to sell such
assets.
1 See page 13 for historical numbers excluding TON.
2 Consists of (i) incentives given to clients, (ii) lower
revenue in our credit solution, mainly due to higher expected
delinquencies, and (iii) higher financial expenses. Does not
include COVID-19 impact on TPV.
3 May-20 (MTD) as of May 23rd, 2020.
4 Adjusted Pre-Tax Margin equals Pre-Tax Income excluding
share-based compensation expenses, amortization of fair value
adjustments and other expenses divided by Total Revenue and Income,
consistent with previous disclosures. Adjusted Pre-Tax Margin is a
non-IFRS measure. Refer to the discussion on
non-IFRS financial measures in this release.
5 ROA is calculated as credit revenue net of expected losses,
divided by average credit portfolio
6 Brazilian ecommerce numbers based on eBit/Nielsen data from
17-Mar-20 to 27-Apr-20.
7 Electronic Health Records
8 Clients that transacted at least once in the last 12
months.
9 For Stone clients, Active Clients mean clients that have
transacted at least once over the last 90 days
10 For clients of TON, Active Clients mean clients that have
transacted with TON or Stone Mais solution at least once over the
last 12 months.
11 According to IFRS 15, subscription revenue is accounted for
over the expected life of merchants on a linear basis. As part of
the annual assessment of assumptions for linearization of
subscription revenue, life of merchants was revised upwards in
3Q19, contributing positively 3 bps to 3Q19 take rate of 1.91%
compared with 2Q19.
12 Includes Cost of Services, Administrative Expenses and
Selling Expenses as a percentage of Total Revenue and Income.
Quarterly unaudited data.
13 Does not include provisions for delinquencies related to our
credit solution, as those are already deducted from our Financial
Income.
14 Each “Accounts Payable to Clients” recognized as a
liability on our balance sheet is directly linked to an “Accounts
Receivable from Card Issuers” recognized as an asset in our balance
sheet. The Company receives payment from issuing banks first, and
only then pays its clients, thus having no working capital
requirement. When a client opts to be paid early (prepayment), the
Company has a working capital requirement. However, the Company has
the option to sell the receivables related to those payables from
card issuers in order to meet such working capital requirements.
The combined effect to the cash flow is a positive operational cash
flow equivalent to net fees earned by providing such prepayment
service. Whenever management opts to fund its prepayment operation
with sources other than the sale of its own receivables, Net Cash
Provided by/ (Used in) Operating Activities may be affected, as
discussed in “Note on the impact of different funding sources for
prepayment in the financial statements” in the appendix. However,
management does not view such decision as translating into higher
or lower ability of our business to generate cash operationally. In
addition to prepayment, the Company has started to offer credit
solutions to clients. The Company intends to fund its credit
operation primarily through third parties (i.e. FIDC and debt), as
well as with some own cash. Given the operational nature of our
credit business, as in the case of prepayment mentioned above,
management does not view related funding decision as translating
into higher or lower ability of our business to generate cash
operationally.
15 Interest Income Received, Net of Costs, consists of two
items: (i) financial income from our prepayment activity, less (ii)
financial expenses related to the sale of receivables. The first
item has direct influence on the level of Accounts Payable to
Clients in our balance sheet; the second item has direct influence
on the amount of Accounts Receivables from Card Issuers on our
balance sheet.
16 Adjusted Free Cash Flow is a non-IFRS measure. Refer to the
discussion on non-IFRS financial measures and reconciliations
included in this release.
17 Adjusted Net Cash Used in Operating Activities is a non-IFRS
measure. Refer to the discussion on non-IFRS financial measures and
reconciliations included in this release.
18 Adjusted Net Cash Provided by Financing Activities is a
non-IFRS measure. Refer to the discussion on non-IFRS financial
measures and reconciliations included in this release.
19 Receivables Investment Fund (Fundo de Investimento em
Direitos Creditórios) is an investment fund legal structure
established under Brazilian law designed specifically for
investing in credit rights receivables
A PDF accompanying this announcement is available
at http://ml.globenewswire.com/Resource/Download/976d96f5-fe75-4181-a18a-7364c1ea51cc
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