June 02, 2022 16:05 ET | Source: StoneCo Ltd. StoneCo Ltd.
Revenue growth of 138.6% year-over-year in 1Q22 to R$2.07 billion; Strong improvement in profitability, with Adj. Pre-Tax Income of R$163 million in 1Q22, up from R$17 million in 4Q21 and above our guidance of over R$140 million; MSMB take rate improvement from 1.71% in 4Q21 to 2.06% in 1Q22
GEORGE TOWN, Grand Cayman, June 02, 2022 (GLOBE NEWSWIRE) -- StoneCo Ltd. (Nasdaq: STNE) (“Stone” or the “Company”), a leading provider of financial technology and software solutions that empowers merchants to conduct commerce seamlessly across multiple channels, today reports its financial results for its first quarter ended March 31, 2022. “Dear Shareholders,
We are encouraged by the results through the first quarter of 2022. As we highlighted during our year-end results, in 2022 we are committed to execute on our core growth engine, simplify our business and start to show proof of our profitability recovery.
The first quarter results are the first step on this journey. Our growth engine, the central pillar of how we onboard and serve our clients, remains strong and we started to see margin recovery as evidenced by our first quarter Adjusted EBT margin of 7.9% up from 0.9% in the fourth quarter of 2021. The prudent price initiatives we implemented during the fourth quarter have continued to gain traction and the quality of our client base is improving, as expected. On the leadership front, we have brought on new talents that provide a wealth of knowledge and experience to our team. I would also like to highlight that we continue to evolve both in management capabilities and governance.
As you will see, effective in the first quarter of 2022, we have implemented segment reporting around our Financial Services and Software businesses. This reporting change aligns with the way we manage our business and, we believe, provides greater clarity and transparency to the drivers of performance. As we look to the rest of the year, we will build on the achievements of the first quarter and demonstrate a pattern of consistency. We are energized by our recent results and remain focused on our central purpose of serving Brazilian Entrepreneurs.”
Operating and Financial Highlights for 1Q22
Table 1: Main Consolidated Financial Metrics
As we announced in 4Q21 earnings release, from 1Q22 onwards, we will report our financial and operating metrics in two segments, Financial Services and Software, and non-allocated activities comprised of non-strategic businesses. Note that our segment reporting is performed on an Adjusted basis, adjusting for items such as the mark-to-market and the bond financial expenses related to Banco Inter investment, amortization of fair value adjustments on acquisitions, among other factors.
Financial Services: comprised of our financial services solutions serving both MSMBs and Key Accounts, which includes mainly our payments solutions, digital banking, credit, insurance solutions and our registry business TAG.
Software: comprised of two main fronts, namely: (i) Core, which includes POS/ERP solutions, TEF and QR Code gateways, reconciliation and CRM and (ii) Digital, which includes OMS, e-commerce platform, engagement tools, Ads solution and Marketplace Hub. The results of the Linx Pay legacy business are accounted for in both Core and Digital revenues and costs. Despite having concluded the client base migration to the Stone platform, we still incurred expenses related to such legacy business during 1Q22.
Below, we provide our main financial metrics broken down into our two reportable segments.
Table 2: Financial metrics by segment
Table 3: Financial Services Main Operating and Financial Metrics
Table 4: Software Main Operating and Financial Metrics
On June 2nd we announced a new incentive plan pool as an important step towards attracting and retaining talent to support the execution of our strategy. For more details refer to our S-8 filling with the SEC.
Partial Sale of Banco Inter shares
During 2Q22, we have sold 21.5% of our stake in Banco Inter through the cash-out option offered in their corporate restructuring. As a result of such transaction, we decided, from 2Q22 onwards, to stop adjusting in our Adjusted Statement of Profit or Loss the financial expenses related to our bond, which was raised to fully fund the acquisition of our stake in Banco Inter.
The outlook below constitutes forward-looking information within the meaning of applicable securities laws and is based on a number of assumptions and subject to a number of risks. Actual results could vary materially as a result of numerous factors, including certain risk factors, many of which are beyond StoneCo´s control. Please see “Forward-looking Statements” below. In view of these factors, we expect the following:
Table 5: Statement of Profit or Loss (IFRS, as Reported)
Table 6: Statement of Profit or Loss (Adjusted9)
Total Revenue and Income in 1Q22 was R$2,070.3 million, an increase of 138.6% from R$867.7 million in 1Q21, with R$267.9 million contribution from the consolidation of Linx’s results. Pro-forma for Linx, Total Revenue and Income grew 87.2% year over year.
Total Revenue and Income is composed of (i) R$1,721.3 million from our Financial Services segment, (ii) R$326.6 million from our Software segment and (iii) R$22.4 million non-allocated.
Financial Services segment revenue grew 107.8%, mainly a result of our performance in MSMBs, with strong year over year TPV and client base growth, in addition to a higher take rate of 2.06% in 1Q22 compared with 1.87% for the prior year-period, as we successfully adjusted our pricing policy amid a higher interest rate environment in Brazil. In Key Accounts, revenue grew double digits as a result of higher take rates and volumes from platform services, and despite significantly lower volumes from sub-acquirers.
Software revenue growth comes primarily from the consolidation of Linx results, which added R$256.3 million to our software segment in the quarter. Pro-forma for Linx, Software revenue growth was 26.9%, mainly driven by growth in our core POS/ERP solutions. This was partially offset by a decrease in revenue from sub-acquiring business, as its migration to the Stone Platform was concluded in 1Q22.
Net Revenue from Transaction Activities and Other Services
Net Revenue from Transaction Activities and Other Services was R$554.9 million in 1Q22, an increase of 74.3% compared with 1Q21. Pro-forma for Linx, Net Revenue from Transaction Activities and Other Services increased 60.2%. This increase was mostly due to (i) 63.1% year over year consolidated TPV growth; (ii) higher revenue from TON, including its membership fee and (iii) new revenue streams, including banking and PIX and our registry business TAG. The latter contributed with revenue of R$22.7 million in 1Q22, compared to virtually zero in the prior-year period.
Net Revenue from Subscription Services and Equipment Rental
Net Revenue from Subscription Services and Equipment Rental was R$432.2 million in 1Q22, 208.8% higher than 1Q21, with R$236.0 million revenue coming from Linx. Pro-forma for Linx, Net Revenue from Subscription Services and Equipment Rental increased 26.0%, primarily due to (i) a higher SMB active client base; (ii) higher POS/ERP revenue, driven by both an increase in number of locations and average ticket and (iii) the contribution from our insurance solutions. These effects were partially offset by lower POS average subscription per client, which is mainly a result of additional new-client subscription exemptions.
Financial Income in 1Q22 was R$949.8 million, an increase of 157.5% year over year or 155.3% pro-forma for Linx. This increase is mostly a result of higher prepaid volumes and the effect from higher prices as we started to adjust our commercial policy in November 2021, following CDI increases.
Other Financial Income was R$133.4 million in 1Q22 compared with R$40.6 million in 1Q21 (R$44.5 million pro-forma for Linx). This increase was mainly due to higher yield on cash & equivalents which was a result of the higher base rate in the country year over year. This effect was partially compensated by a lower average cash balance.
Cost of Services were R$674.4 million in 1Q22, 181.4% higher year over year or 87.8% higher pro-forma for Linx. This increase was mainly due to (i) investments in TAG, which amounted to R$31.8 million in the quarter compared with R$3.6 million in 1Q21 and higher expenses with datacenter and cloud; (ii) higher investments in technology, customer support and logistics; (iii) higher D&A costs, as we continue to expand our client base and (iv) higher provisions and losses.
Compared with 4Q21, Cost of Services increased 4.4%, lower than revenue growth, as we (i) improved our efficiency in TAG, decreasing our costs with TAG from R$64.5 million in 4Q21 to R$31.8 million in 1Q22 and (ii) gained efficiency in our logistics.
Administrative Expenses were R$238.2 million, 102.6% higher year over year or 33.3% pro-forma for Linx. This increase was mainly explained by (i) higher personnel expenses and (ii) higher amortization of fair value adjustments due to the Linx acquisition and other software acquisitions. As a percentage of Total Revenue and Income, Administrative Expenses decreased from 13.6% in 1Q21 to 11.5% in 1Q22, especially due to gains of operating leverage with the growth of our business.
Administrative Expenses in 1Q22 were 11.3% higher than in 4Q21, mainly explained by higher amortization of fair value adjustments on acquisitions, partially offset by lower expenses with third-party services, facilities, travel and courses and training in 1Q22.
Administrative Expenses in 1Q22 include R$23.5 million that are adjusted in our Adjusted Income Statement, related to amortization of fair value adjustments on acquisitions, mostly related to the Linx and other software companies’ acquisitions (see table 15 in Appendix for the Adjustments by P&L line). Adjusting for those effects and pro-forma for Linx, Administrative Expenses were R$214.8 million in 1Q22, compared with R$159.3 million in 1Q21 and R$230.5 million in 4Q21. We realized operating leverage in Administrative Expenses both on a sequential basis and year over year, with Administrative Expenses as a percentage of Total Revenue and Income reducing from 14.4% in 1Q21 and 12.3% in 4Q21 to 10.4% in 1Q22. This efficiency gain was mainly driven by dilution of expenses amid the growth in our business.
Selling Expenses were R$383.7 million in the quarter, an increase of 135.8% year over year or 86.4% pro-forma for Linx. Such increase was mainly explained by (i) higher expenses related to usage of credits from prepaid marketing expenses with Globo, as well as TON marketing investments and (ii) expenses with our salespeople, mostly related to our hubs personnel.
Compared with 4Q21, Selling Expenses increased 20.5%, mostly due to item (i) mentioned above.
Financial Expenses, Net were R$708.2 million, 665.7% higher compared with 1Q21 or 559.3% pro-forma for Linx. This variation is mainly because of (i) higher prepayment volumes; (ii) increased cost of funds, mainly due to the higher base rate in the country over the period, which increased from an average of 2.02% in 1Q21 to 10.27% in 1Q22 and (iii) financial expenses related to our bond, which totaled R$80.6 million in the quarter.
Compared with the previous quarter, Financial Expenses, net were 2.9% higher, mainly explained by the higher base rate in the country quarter over quarter, partially offset by lower prepaid volumes due to seasonality in 1Q22 and lower duration of receivables assignment.
Financial Expenses include R$86.7 million that are adjusted in our Adjusted Income Statement, including R$80.6 million cost from our bond and R$6.1 million from one-off effects related to (i) earn out interests on business combinations and (ii) financial expenses from fair value adjustments on acquisitions related to acquisitions (see table 15 in Appendix for the Adjustments by P&L line). Adjusting for those effects and pro-forma for Linx, Financial Expenses, net were R$103.2 million in 1Q21, R$610.6 million in 4Q21 and R$621.5 million in 1Q22 or 9.3%, 32.6% and 30.0% as a percentage of Total Revenue and Income, respectively. The year over year increase was mainly due to items (i) and (ii) from the accounting explanation above.
Mark-to-market on equity securities designated at FVPL
In 1Q22, we have recognized R$323.0 million in mark-to-market losses in our investment in Banco Inter.
Mark-to-market on equity securities designated at FVPL is fully adjusted in our Adjusted Income Statement (see table 15 in Appendix for the Adjustments by P&L line).
Other Expenses, Net were R$31.8 million in 1Q22, 23.3% lower year over year or 28.4% lower pro-forma for Linx, mostly explained by (i) lower civil and tax contingencies and (ii) gains on property and equipment sale, partially offset by (iii) higher share-based compensation expenses year over year, as in 1Q21 we had unusually low share-based expenses related to lower tax and social charges provisions due to high depreciation of our shares in 1Q21.
Compared with 4Q21, Other Expenses, net were R$19.3 million lower, mostly because of lower civil and tax contingencies and lower provisions for POS losses.
Other Expenses, net include R$19.7 million that are adjusted in our Adjusted Income Statement, including earn-out and call options related to acquisitions and share-based compensation expenses related to the one-time IPO grant (see table 15 in Appendix for the Adjustments by P&L line). Adjusting for those effects and pro-forma for Linx, Other expenses, net, were R$17.6 million in 1Q21, R$49.0 million in 4Q21 and R$12.1 million in 1Q22 or 1.6%, 2.6% and 0.6% as a percentage of Total Revenue and Income, respectively. The year over year decrease was mainly explained by the same reasons as for the accounting explanation above.
Income Tax and Social Contribution
During 1Q22, the Company recognized income tax and social contribution expense of R$23.2 million, compared with R$51.7 million in the prior-year period (R$55.3 million pro-forma for Linx). This difference is a result of (i) lower taxable income in the period and (ii) temporary differences in some of our subsidiaries, which resulted in the creation of deferred tax assets.
Income Tax and Social Contribution include R$7.6 million that are adjusted in our Adjusted Income Statement, relating to taxes from the adjusted items (see table 15 in Appendix for the Adjustments by P&L line).
Adjusted EBITDA was R$817.3 million in the quarter, 116.8% higher than in 1Q21. This higher figure is mainly explained by higher Total Revenue and Income excluding Other Financial Income, which grew 134.2% year over year, partially compensated by higher costs and expenses excluding D&A. Adjusted EBITDA Margin was 39.5% in the quarter, compared with 43.4% in 1Q21 and 36.6% in 4Q21. The sequential improvement in EBITDA margin in 1Q22 compared with 4Q21 was mainly due to efficiency gains in Cost of Services and Administrative Expenses.
(a) Consists of expenses related to the vesting of one-time pre-IPO pool of share-based compensation.
(b) Consists of the fair value adjustment related to associates call option, M&A expenses and earn-out interests related to acquisitions.
EBITDA was R$469.8 million in the quarter mostly as a result of the (i) increase in revenue excluding Other Financial Income, and partially offset by (ii) higher costs and expenses, excluding D&A and (iii) the R$323.0 million pre-tax loss effect from mark-to-market from our investment in Banco Inter.
Net Income (Loss) and EPS
Adjusted Net Income was R$132.2 million in 1Q22, compared with R$187.4 million of Adjusted Net Income in 1Q21. This lower Adjusted Net Income is mainly explained by (i) higher base rate (CDI) in Brazil, which increased our Financial Expenses significantly; and (ii) higher costs and expenses. These include (i) resources to expand and improve our distribution and service to our clients; (ii) investments in the development and improvement of different financial solutions beyond payments, such as banking, credit, and more recently, insurance; (iii) expenses with software solutions that are not yet in a mature stage, (iv) marketing expenses, (v) investments in technology, (vi) expenses with TAG, our registry business, which contributed with a R$12.1 million loss in the period, (vii) personnel expenses, among others. Adjusted Net Margin for the Company was 6.4% in the quarter.
Compared with 4Q21 our Adjusted Net Income was R$98.6 million higher, mostly due to the successful repricing of clients given the new CDI environment in Brazil and efficiency gains in costs and expenses. As a result, our Adjusted Net Margin increased sequentially from 1.8% in 4Q21 to 6.4% in 1Q22.
Net Loss in 1Q22 was R$313.0 million, compared with a Net Income of R$158.3 million in 1Q21, mostly as a result of mark-to-market effects from the investment in Banco Inter and the same factors explained above for the variation in Adjusted Net Income.
Adjusted diluted EPS for the Company was R$0.43 per share in 1Q22, compared with R$0.60 per share in 1Q21, mostly explained by the lower Adjusted Net Income. On a sequential basis, Adjusted diluted EPS increased from R$0.13 per share in 4Q21 to R$0.43 per share in 1Q22. IFRS basic EPS was a negative R$1.01 per share, compared with a positive R$0.51 in the prior-year period. This difference was mainly due to the lower Net Income, with R$403.6 million negative impact from mark-to-market and cost of funds from the investment in Banco Inter.
Table 8: Adjusted Net Income Reconciliation
(a) Consists of expenses related to the vesting of one-time pre-IPO pool of share-based compensation.
(b) Related to acquisitions. Consists of expenses resulting from the changes of the fair value adjustments as a result of the application of the acquisition method.
(c) Consists of the fair value adjustment related to associates call option, M&A expenses, earn-out interests related to acquisitions.
(d) 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 16 of our Unaudited Interim Condensed Consolidated Financial Statements, March 31st, 2022.
(e) Calculated as Adjusted Net income attributable to owners of the parent (Adjusted Net Income reduced by Adjusted Net Income attributable to Non-Controlling interest) divided by diluted number of shares.
Our Adjusted Net Cash, a non-IFRS metric, consists of the items detailed in Table 9 below:
(a) Loans and financing were reduced by the effects of leases liabilities recognized under IFRS 16.
(b) Refers to economic hedge.
Accounts Receivable from Card Issuers are accounted for at their fair value in our balance sheet.
As of March 31, 2022, the Company’s Adjusted Net Cash was R$2,406.9 million in 1Q22, R$260.0 million higher quarter over quarter, mostly explained by:
In 1Q22 we are simplifying our reporting and will no longer disclose Adjusted Free Cash Flow metric, focusing instead on IFRS Cash Flow metrics as well as the Adjusted Net Cash metric above. Our cash flow in the quarter was explained by:
Stone will discuss its 1Q22 financial results during a teleconference today, June 2, 2022, 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/.
Stone Co. is a leading provider of financial technology and software solutions that empower merchants to conduct commerce seamlessly across multiple channels and help them grow their businesses.
Investor Relations investors@stone.co
Consolidated Statement of Profit or Loss
Table 10: Consolidated Statement of Profit or Loss
Table 11: Consolidated Balance Sheet Statement
Consolidated Statement of Cash Flows
Table 12: Consolidated Statement of Cash Flows
Stone and Linx Proforma Historical P&L
Table 13: Stone and Linx Pro-forma Historical P&L (Accounting)
Table 14: Stone and Linx Pro-forma Historical P&L (Adjusted11)
Adjustments to Net Income by P&L Line
Table 15: Adjustments to Net Income by P&L Line
Table 16: Adjusted Historical Financial Services P&L
Table 17: Adjusted Historical Software P&L
Table 18: Adjusted Historical Non-Allocated P&L
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 circumstances 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 cannot be reasonably estimated at this time.
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 / (Debt), Adjusted Profit (Loss) Before Income Taxes, Adjusted Pre-Tax Margin, EBITDA and Adjusted EBITDA. 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. Adjusted EPS (diluted) is 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. Stone has presented Adjusted Profit Before Income Taxes and Adjusted EBITDA to eliminate the effect of items that it does not consider indicative of its continuing business performance within the period presented. Stone adjusts these metrics for the same items as Adjusted Net Income, as applicable. Stone has presented Adjusted Net Cash Provided by/ (Used in) Operating Activities, in order to provide an additional view of cash flow from operations without the effect of funding decisions related to our financial solutions. Stone has presented Adjusted Net Cash metric in order to adjust its Net Cash / (Debt) by the balances of Accounts Receivable from Card Issuers, 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 operations.
1 Working capital adjustments in our Consolidated Statement of Cash Flows excluding the following items: (i) Accounts receivable from card issuers; (ii) accounts payable to clients and (iii) interest income received, net of costs, as those three items are directly related to changes in accounts receivable from card issuers (“AR”) and accounts payable to clients (“AP”) in our balance sheet. 2 Margins are calculated by dividing by the revenue of each segment. 3 ARPAC means average revenue per active client and considers our banking and insurance revenues divided by our active banking client base. 4 Does not consider banking accounts from Pagar.me or TON. 5 Banking ARPAC includes card interchange fees, floating revenue, insurance and transactional fees. 6 From 4Q21 onwards, comprised of clients with store, life (regular or whole life) and/or health insurance products. 7 Comprises (i) our POS/ERP solutions across different retail and service verticals, which includes Linx and the portfolio of POS/ERP solutions in which we invested over time; (ii) our TEF and QR Code gateways; (iii) our reconciliation solution, and (iv) CRM. 8 Comprises (i) our omnichannel platform (OMS); (ii) our e-commerce platform (Linx Commerce), (iii) engagement tools (Linx Impulse and mlabs); (iv) our Ads solution and (v) Marketplace Hub. 9 Our adjusted P&L includes the same adjustments made for our Adjusted Net Income but broken down into each P&L line. The purpose of showing it is to make it easier to understand the underlying evolution of our Costs & Expenses, disregarding some non-recurring events associated with each line item. 10 Working capital adjustments in our Consolidated Statement of Cash Flows excluding the following items: (i) Accounts receivable from card issuers; (ii) accounts payable to clients and (iii) interest income received, net of costs, as those three items are directly related to changes in accounts receivable from card issuers (“AR”) and accounts payable to clients (“AP”) in our balance sheet. 11 Our adjusted P&L includes the same adjustments made for our Adjusted Net Income but broken down into each P&L line. The purpose of showing it is to make it easier to understand the underlying evolution of our Costs & Expenses, disregarding some non-recurring events associated with each line item.
A PDF accompanying this announcement is available at http://ml.globenewswire.com/Resource/Download/2a8c11c4-677b-4063-a9d5-5db977080d8d