StoneCo Q4 2024 Earnings Report

StoneCo EPS Results

• Actual EPS: $0.39
• Consensus EPS: $0.32
• Beat/Miss: Beat by +$0.07
• One Year Ago EPS: N/A

StoneCo Revenue Results

• Actual Revenue: $582.20 million
• Expected Revenue: $3.59 billion
• Beat/Miss: Missed by -$3.01 billion
• YoY Revenue Growth: N/A

StoneCo Announcement Details

• Quarter: Q4 2024
• Date: 3/18/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, March 18, 2025
• Conference Call Time: 5:00PM ET

StoneCo (NASDAQ:STNE), commonly known as Stone, is a Brazilian financial technology company that provides integrated digital payment solutions and related financial services to merchants. Through its cloud-based platform, Stone enables businesses of all sizes to accept a variety of payment methods, including point-of-sale (POS) terminals, mobile card readers and e-commerce gateways. In addition to payment acceptance, the company offers value-added services such as working capital loans, digital banking products and automated billing tools designed to help merchants manage cash flow and streamline operations.

Since its founding in 2012 by André Street and Eduardo Pontes, Stone has focused on serving over half a million merchants across Brazil’s retail, restaurant and services sectors. The company’s headquarters are in São Paulo, and it has established regional offices to support local sales, customer service and technical assistance. Stone’s platform emphasizes reliability, transparent pricing and customer support, positioning it as a challenger to traditional payment networks and banks in Latin America’s rapidly evolving digital economy.

Stone went public on the Nasdaq Stock Market in October 2018 under the ticker STNE, marking one of the largest Latin American tech IPOs of that year. The firm continues to expand its product suite through partnerships and in-house innovation, developing APIs that allow third-party developers to integrate Stone’s payment and banking features into their own applications. With a leadership team rooted in technology and payments expertise, Stone remains committed to enhancing financial inclusion and operational efficiency for merchants throughout Brazil.

StoneCo Q4 2024 Earnings Call Transcript

Key Takeaways

• StoneCo’s full-year MSMB TPV reached BRL454 billion (+22% YoY), beating guidance despite a slight miss in card TPV at BRL403 billion.
• Retail deposits closed 2024 at BRL8.7 billion vs guidance BRL7 billion, reflecting strong client engagement and a strategy to use deposits to fund operations.
• Q4 adjusted net income grew 18% YoY to BRL2.2 billion with adjusted gross profit up 13% YoY to BRL1.7 billion, while adjusted EPS rose 26% thanks to share buybacks and cost control.
• StoneCo recognized a BRL3.6 billion goodwill impairment for its software division following a strategic shift to cross-sell financial services, though it was excluded from adjusted results.
• For 2025, management set simplified guidance of adjusted gross profit above BRL7.05 billion (+14%) and basic EPS above 8.6 (+18%), while 2027 targets include MSMB TPV > BRL670 billion and EPS > BRL15.

Presentation

[Operator]

Good evening, everyone. Thank you for standing by. Welcome to StoneCo's Fourth Quarter 2024 Earnings Conference Call. By now, everyone should have access to our earnings release. The company also posted a presentation to go along with its call. All material can be found online at investors.stone.co. Throughout this conference call, the company will be presenting non-IFRS financial information, including adjusted net income, adjusted net cash, and adjusted basic EPS. These are important financial measures for the company but are not financial measures as defined by IFRS. Reconciliations of the company's non-IFRS financial information to the IFRS financial information appear in today's press release. Finally, before we begin our formal remarks, I would like to remind everyone that today's discussion may include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore you should not put undue reliance on them.

[Operator]

These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the company's expectations. Please refer to the forward-looking statements disclosure in the company's earnings press release. In addition, many of the risks regarding the business are disclosed in the company's Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov. In hindsight, I would like to highlight that the full conference call will last until 7:15 PM BRT time, by which time the company will take no further questions. Analysts that are still in line after that time will have their questions addressed by the IR team. Joining the call today is Stone's CEO, Pedro Zinner, the CFO and IRO, Mateus Scherer, the Strategy and Marketing Officer, Lia Matos, and the Head of IR, Roberta Noronha.

[Operator]

I would now like to turn the conference over to your host, Pedro Zinner. Please proceed.

[Pedro Zinner, CEO at StoneCo]

Thank you, Operator, and good evening. As detailed in our annual shareholder letter, 2024 was a pivotal year of execution, marked by significant progress despite market challenges. We strengthened our position for sustainable growth, successfully executing our strategy, delivering exceptional client service, and generating value for shareholders. Our key accomplishments reflect substantial progress across our three strategic priorities: MSMB market leadership, enhanced client engagement, and scalable platform growth. This is clearly demonstrated by the achievements against our 2024 targets for MSMB card TPV, deposits, MSMB take rate, credit portfolio, adjusted administrative expenses, and adjusted net income. With the exception of MSMB card TPV, we exceeded expectations across all other key performance indicators, demonstrating successful strategy execution. In 2024, MSMB card TPV reached BRL 403 billion, representing 15% year-over-year growth.

[Pedro Zinner, CEO at StoneCo]

While this fell slightly short of our BRL 412 billion guidance due to the faster-than-expected adoption of BICs, total MSMB TPV exceeded expectations, reaching BRL 454 billion, a 22% year-over-year increase. Looking ahead to 2025, we are confident in our ability to continue outpacing market growth and expanding our share of the MSMB payments market. Retail deposits closed 2024 at BRL 8.7 billion, exceeding our BRL 7 billion guidance. This success reflects the strong performance of our bundled payments and banking offerings and increasing client engagement with our banking solutions. While this is a significant milestone, we view it as the initial phase of our strategy to establish Stone accounts as the primary financial hub for our clients. As we enhance our value proposition with a comprehensive product ecosystem extending beyond payments, we project retail deposit growth to outpace TPV growth.

[Pedro Zinner, CEO at StoneCo]

In 2025, we'll focus on key initiatives, including our investment products and workflow tools, to further accelerate deposit growth. Our second priority, enhancing client engagement, yields strong results beyond commoditization metrics like TPV and deposits. We achieved an MSMB take rate of 2.55% in 2024, exceeding our 2.49% guidance. This success reflects not only disciplined pricing and payments but also the growing contribution from our banking and credit solutions. Our credit portfolio reached BRL 1.2 billion in 2024, significantly exceeding our BRL 800 million target while maintaining controlled risk and healthy profitability. Our non-performing loans over 90 days remained at a controlled 3.61%. These results highlight the success of our 2023 credit relaunch and represent a key step in our strategic evolution toward becoming our client's primary financial provider. Our third priority, scalable platform growth, focuses on delivering continuously evolving value to clients' profitability.

[Pedro Zinner, CEO at StoneCo]

This is reflected in our net income of BRL 2.2 billion, exceeding our BRL 1.9 billion guidance despite macroeconomic headwinds and over BRL 100 million in negative impacts from accounting methodology changes for membership fees. The strong performance resulted from successful monetization, ongoing efficiency improvements, and the initial benefits of cost control initiatives, as evidenced by adjusted administrative expenses of BRL 994 million, compared to our BRL 1.125 billion guidance. I am extremely pleased with our strong performance in 2024 and the progress we made executing our strategy. We remain focused on empowering our clients by simplifying their financial lives and providing the solutions they need. Now, I'll hand it over to Lia to discuss our fourth quarter 2024 results and provide further strategic updates. Lia?

[Lia Matos, Strategy and Marketing Officer at StoneCo]

Thank you, Pedro, and good evening, everyone. Taking a closer look into our fourth quarter 2024 results, we're pleased with our performance in the quarter. We were able to deliver solid results despite a less favorable macroeconomic environment towards the end of the year when yield curves trended upwards. In spite of this scenario, we decided not to increase prices for our clients in the quarter, given the important holiday season. As you can see on slide four, we posted strong bottom-line results. Our adjusted EBT grew 22% compared with fourth quarter 2023, while adjusted net income grew 18% over the same period. Adjusted net margin was 18.4% in the quarter, one percentage point higher year-over-year. As a result of the execution of share buybacks throughout 2024, our adjusted basic EPS growth exceeded net income growth, increasing 26% compared to fourth quarter 2023.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

These results, as seen on slide five, stem primarily from an 11% year-over-year increase in total revenues for the quarter, which resulted from active client base growth and higher monetization of clients among different client segments. In addition to that, we saw significant gains in efficiency while we continued to invest for future growth. As you can see on the right side of the slide, we are now introducing gross profit as a key measure of our performance. Gross profit is measured as our revenues deducted by cost of services and financial expenses. We believe this metric better represents the nature of our operation and our ability to monetize clients through multiple levers, such as payments, banking, and credit. On the cost side, it considers the cost to fund our operation as well as a direct cost to serve our client base.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

Our gross profit in the quarter reached BRL 1.7 billion, growing 13% year-over-year. This growth, ahead of revenue growth, reflects a lower level of provision for loan losses as well as a lower cost to fund our business. Note that on a quarter-over-quarter basis, we started to be impacted by the higher yield curve. While we had a hit in our financial expenses from higher rates in fourth quarter, we understand the end of the year as a critical moment for our clients, and thus we took the decision to not increase prices in fourth quarter and wait for the beginning of the year instead. On slide six, we dig deeper in our financial services segment performance, starting with our payments business for MSMBs. Our MSMB payments active client base increased 19% year-over-year to 4.1 million clients.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

This represents an acceleration in our addition of clients to 157,000 from 108,000 in the previous quarter. Net adds performance in the quarter resulted from end-of-year campaigns, including Black Friday, while churn levels remained under control. While we welcome this acceleration and believe it reflects the strength of our value proposition as well as excellence in distribution, we note that our focus continues to be to guarantee healthy unit economics in every cohort through a dynamic pricing strategy, effective bundling, and increased client engagement. I think it is important to remind everyone that net adds dynamics can vary quarter-over-quarter, slightly above or below the average over several quarters. Speaking of engagement, we saw yet again an increase in our heavy user metric this quarter, from 34% in the previous quarter to 37% in fourth quarter.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

We believe this is a result of both the effectiveness of our payments and banking bundle offers and on the launching of new solutions that are accretive over time. MSMB TPV increased 21% year-over-year in the quarter, showing an acceleration compared to previous quarter growth of 20%, driven by card TPV growth of 13%, while BICs continue to grow at much higher rates as adoption continues to accelerate and visibly cannibalize debit volumes as well as cash. BICs continue to open new avenues of product development, such as recently implemented NFC capture, while monetization remains accretive to our ecosystem. In spite of the solid volume growth, we also saw encouraging trends in our take rates, which increased 11 basis points year-over-year, with a soft reduction sequentially due to typical fourth quarter seasonality.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

As I mentioned, going forward, we will focus more on total gross profit as a better metric to reflect our monetization strategy achieved through multiple monetization drivers and trade-offs. We believe that take rates are more limited in showing the whole picture, given that we may decide on different balances between solutions given a specific macroenvironment. Also, as we intend to use our deposits in a more relevant way to fund our operation, which is accretive to us, this would impact take rate while it would be neutral to gross profits. We will, however, continue to disclose this metric in earnings materials and will adapt it to include BICs volumes in TPV when calculating take rates. Moving on to slide seven, we show our banking performance.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

We continue to see strong growth in our banking active client base, which increased 46% year-over-year to 3.1 million banking clients, outgrowing the increase in our payments client base. The combination of success in our bundle offers and continued engagement with our banking features led to a 42% increase in retail deposits, or a strong 28% sequential increase boosted by seasonality, reaching BRL 8.7 billion by year-end. As expected, deposits have been growing well above TPV, reaching 6.8% of MSMB TPV in the quarter, compared with 6% in third quarter 2024 and 5.8% in fourth quarter 2023. Within retail deposits, we have seen a 3.6-fold increase in time deposits, which reached BRL 430 million, mostly related to our savings solution. Although still small, this solution has been a key driver of engagement, enabling our clients to save money for specific purposes and therefore better organize their finances.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

An important aspect to note is that from the remaining BRL 8.3 billion in deposits, we expect to convert a significant portion of it to time deposits by issuing certificates of deposit. This will allow us to utilize such amounts towards funding of our operation. As we pursue this strategy over the coming quarters, we expect to see a shift in our retail deposit mix from deposits from retail clients to on-platform time deposits. This shift will contribute to a better and more efficient capital structure and will significantly reduce the cost to fund our operation, reducing financial expenses. At the same time, we will no longer earn CDI on top of those deposits, which means we will experience a significant reduction in our floating revenues throughout the year as well. The effect will be an accretive outcome to our bottom line as we implement this strategy over time.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

On slide eight, I'm going to give some highlights of our credit performance. The fourth quarter showed a trend of continuity versus previous quarters, with positive results both in growth and in quality. Our credit portfolio reached BRL 1.2 billion, increasing 31% in the quarter. This portfolio is comprised of BRL 1.1 billion of merchant solutions, composed in its majority of working capital solutions to SMBs, and BRL 114 million of credit card offerings to our clients, mainly to micro-clients. Despite the more challenging macroeconomic scenario, we still see credit as an important avenue of growth, given the significant opportunity to support our clients through multiple credit offerings where we still have limited presence. Nevertheless, we remain aware of macro trends that may lead to an impact in future disbursements and performance.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

Credit quality remains healthy, with NPLs 50 to 90 days of 2.47% and NPLs over 90 days of 3.61%, with increases being expected as a natural consequence of portfolio maturation. Regarding provisions, as we have been communicating over the past quarters, we have been gradually reducing the amount of working capital provisions we hold compared with its respective portfolio balance. When we relaunched the solution, we decided to over-provision until we could have a clear view of multiple vintages' performance and slowly converge those provisions to the actual expected loss levels. The ratio of accumulated loan loss provision expenses over the working capital portfolio reached 12% in the quarter, compared with the 14% in third quarter and 20% a year ago. Given the current macroeconomic scenario and a conservative approach from our side, we believe this is an appropriate level to stabilize in at the moment.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

As such, we will now transition away from tracking this ratio to follow more widely used credit metrics. Our coverage ratio currently stands at 331%, which is still at a high level for comparable credit players in the market. To summarize, on slide nine, as a result of the performance highlights I just described, our financial services segment grew revenues at 11% year-over-year to BRL 3.2 billion, with an adjusted EBT growth of 16%, reaching BRL 700 million, and a 90 basis points margin increase to 21.9% in the quarter. The solid results of the year within the financial services segment, driven by the successful execution of our strategic priorities around win, engage, and scale, led us to reach an ROE of 27% in 2024, 5 percentage points higher than in 2023. Finally, on slide 10, I will go through our software segment performance.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

As you can see, our execution on cross-selling financial services to software clients has been yielding positive results. We have increased our CTPV overlap 20% year-over-year, compared with a 13% growth of overall MSMB card TPV for the same period. Sequentially, we grew CTPV overlap two times higher than our MSMB card TPV growth, which gives us confidence to keep seeking this strategic avenue ahead. On a standalone basis, software revenue grew 15% year-over-year in the quarter, mainly driven by a good performance in one of our portfolio companies, Hecla, and a non-recurring revenue of BRL 8 million. Software-adjusted EBITDA posted a strong 54% growth year-over-year, reaching an all-time high margin since the acquisition of Linx, of 21.6%. This margin improvement was largely led by the combination of a strong revenue performance with our continued focus on gaining efficiencies in the operation.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

As Pedro mentioned, we're pleased with the 2024 results and remain committed and excited to bring more value to our clients throughout 2025 and to continue our journey towards reaching our long-term targets and creating value to our shareholders. Now, I want to pass it over to Mateus to give important updates on our software segment and discuss in more detail our overall financial performance. Mateus?

[Mateus Scherer, CFO and IRO at StoneCo]

Thank you, Lia, and good evening, everyone. Before we dive into financials, on slide 11, I'd like to briefly update you on our software division. During our Investor Day in November 2023, we outlined our software strategy, focused on cross-selling financial services to four priority verticals and managing our other software assets for efficiency and cash generation. As previously discussed, while executing the cross-sell strategy, we achieved greater success leveraging our financial services distribution channels rather than relying on our software-specific sales force.

[Mateus Scherer, CFO and IRO at StoneCo]

This insight led us to conclude that owning the software asset is not essential for executing our cross-selling strategy, although the strategy itself remains relevant. As a result of this shift in how we execute, a larger share of the economics from the cross-sell is now being recognized within our financial services segment rather than the software cash-generating units. Additionally, recent standalone organic growth trends in the software business prompt us to lower our growth expectations for the segment. These factors, along with a more challenging macroeconomic environment, led us to recognize a goodwill impairment charge of BRL 3.6 billion for the software cash-generating units. This impairment is a non-cash accounting adjustment and has been excluded from our adjusted financial results. Regarding our ongoing assessment of strategic alternatives for the software assets, we have received and reviewed several proposals from interested parties.

[Mateus Scherer, CFO and IRO at StoneCo]

However, as of now, none have met our assessment of the intrinsic value of the assets. Thus, we will continue maximizing the value of the assets and executing our cross-selling strategy as we have done to date. Now, let's turn to slide 12 and explore the quarter-over-quarter evolution of our costs and expenses on an adjusted basis. Cost of services increased 10% year-over-year and 2% sequentially, leading to a 130 basis points sequential reduction as a percentage of revenues. This improvement was primarily driven by operational efficiencies in customer support and logistics and lower provisions and losses, thanks to the reversal of a provision that did not materialize. These benefits were partially offset by higher loan loss provisions related to the growth of our credit products. Administrative expenses decreased 2% year-over-year and increased 6% quarter-over-quarter, resulting in a sequential reduction of 10 basis points as a percentage of revenues.

[Mateus Scherer, CFO and IRO at StoneCo]

This reduction reflects operational leverage achieved in the period. Selling expenses rose by 21% year-over-year and 9% sequentially, increasing 30 basis points as a percentage of revenues. The rise was primarily due to increased investment in our specialist sales team, partially offset by reduced marketing expenses. We continually assess growth opportunities and remain committed to investing where it's value accretive. Financial expenses increased 10% year-over-year and 14% sequentially, or 160 basis points as a percentage of revenue. The sequential increase was primarily driven by the higher yield curve in the quarter. We expect to ramp up the usage of our deposits as funding for our operation throughout the year, which will enable us to further diversify our liability management while continuing to reduce our average funding spreads. Our other expenses line decreased by 24% year-over-year but remained relatively stable sequentially.

[Mateus Scherer, CFO and IRO at StoneCo]

As our revenues grew, other expenses as a percentage of revenue declined by 20 basis points. Our effective tax rate was 14.5% in the quarter, down notably from 20% in Q3. This reduction was driven primarily by gains from entities abroad, including the full effect from the partial repurchase of our bonds and the transfer of the remaining portion to a local entity, which allowed us to benefit from the tax shields on associated interest expenses. Additionally, we benefited from tax incentives under Lei do Bem, which typically peak in the fourth quarter. Turning now to slide 13, our adjusted net cash position was BRL 4.7 billion at quarter end, representing a sequential decrease of BRL 0.2 billion. This decline primarily reflects our ongoing share repurchase activity.

[Mateus Scherer, CFO and IRO at StoneCo]

We have an active BRL 2 billion buyback program, under which BRL 608 million, or 10.9 million shares, were repurchased in the fourth quarter of 2024. For the full year, our adjusted net cash decreased by just BRL 0.3 billion, despite BRL 1.6 billion in total share repurchase during 2024, covering both our current and previous buyback programs. Excluding share repurchase activity and the capital we allocated in our credit product, we would have generated BRL 1.9 billion in adjusted net cash for the year. Before I finalize, I would like to discuss two additional topics. The first, on slide 14, concerns our approach to capital allocation. Throughout the past year, we conducted a comprehensive review of our capital structure, resulting in the creation of a proprietary model to assess our excess capital position based on three key pillars. The first pillar focuses on our capitalization ratio.

[Mateus Scherer, CFO and IRO at StoneCo]

Considering our business trajectory and rapid growth, we've decided to maintain a minimum common capital ratio at StoneCo equal to 20% of our risk-weighted assets, though this level could be reassessed over time. The second pillar addresses our credit ratings. Given the nature of our operations, maintaining credit rating metrics aligned with our banking peers is essential. Therefore, we have set specific KPIs to monitor regularly, ensuring we maintain at least our current global ratings, which are constrained by the sovereign rating. The third pillar revolves around our adjusted net cash position. We have historically emphasized net cash as a critical indicator of our business capitalization and have accordingly chosen to maintain a positive net cash balance. Based on these pillars, we estimate that as of December 31st, we had an excess capital of over BRL 3 billion.

[Mateus Scherer, CFO and IRO at StoneCo]

We expect to return this capital to shareholders over time when value-accretive growth opportunities are not immediately available. Notably, this amount is already net of the BRL 1.6 billion distributed in 2024 through our share buyback programs and does not account for any potential capital release from strategic discussions regarding our software division. Finally, turning to slide 15, I'd like to discuss our guidance. At our Investor Day in November 2023, we provided detailed short and long-term guidance metrics, which helped investors clearly understand our strategic direction and enabled transparent tracking of our progress. In 2024, we delivered strong results across these metrics, reinforcing our confidence in achieving our 2027 targets. Now, given the ongoing evolution and increased maturity of our business, we've made certain adjustments to better align our metrics with recent industry dynamics and our increased focus on capital structure, while maintaining our strategic priorities.

[Mateus Scherer, CFO and IRO at StoneCo]

For 2025, we have simplified our guidance to two key financial indicators that best reflect our business performance. The first indicator, adjusted gross profit, captures the consolidated execution of our strategy across our various products and services. The second, adjusted basic EPS, incorporates both our capacity to grow efficiently and benefits from the optimization of our capital structure. The simplified guidance approach enhances our flexibility while maintaining disciplined tracking of our core value drivers. As for our long-term outlook, our 2027 guidance maintains our original projections for retail deposits and credit portfolio. However, we've adjusted our MSMB CTPV metric to MSMB TPV to include PIX volumes, reflecting industry developments and the importance of PIX following its widespread adoption in the markets. Additionally, we've replaced our MSMB take rate guidance with gross profits.

[Mateus Scherer, CFO and IRO at StoneCo]

Gross profit, as previously explained, accounts for revenues minus cost of services and financial expenses, capturing the true economics of our business. It also accounts for lower floating revenue resulting from increased use of deposits as funding, which, despite lowering the take rate, remains accretive to our bottom line due to reduced funding costs. Lastly, we replaced our adjusted administrative expenses and adjusted net income guidance with adjusted basic EPS, as EPS effectively captures our overall bottom line performance while allowing greater flexibility in capital allocation decisions. For 2025, on slide 16, we expect adjusted gross profit above BRL 7.05 billion and adjusted basic EPS above BRL 8.6 per share, reflecting year-over-year growth of 14% and 18%, respectively. This EPS calculation assumes a share count of 279.5 million shares, taking into account the repurchase of 33.5 million shares since our Investor Day.

[Mateus Scherer, CFO and IRO at StoneCo]

Moving to slide 17, our updated guidance for 2027 projects MSMB TPV surpassing BRL 670 billion, implying a 2024-2027 CAGR above 14%. Adjusted gross profit is expected to exceed BRL 10.2 billion, translating to a CAGR of over 18%. Adjusted basic EPS is expected to exceed BRL 15 per share, representing a CAGR of over 27%. Notably, despite aggressive share repurchase, our implicit adjusted net profit guidance remains at BRL 4.3 billion, indicating an upgrade in our original implicit guidance for EPS. To wrap up, I would like to pass it over to Pedro for some final remarks.

[Pedro Zinner, CEO at StoneCo]

Thank you, Mateus. Finally, on slide 18, I'd like to acknowledge our consistent track record of delivering strong results over recent years. Over the past two years, we have repeatedly exceeded market consensus and delivered on our commitments, reflecting disciplined execution and strategic clarity.

[Pedro Zinner, CEO at StoneCo]

Moving forward, our goal remains clear: maximizing long-term intrinsic business value growth measured on a per-share basis, rather than merely emphasizing overall company size or scale. As we conclude 2024 and enter 2025, we recognize potential macroeconomic challenges but remain firmly committed to delivering sustainable long-term value creation. Our strategy remains focused on disciplined execution, prudent capital allocation, and enhancing intrinsic business value per share. We deeply appreciate the trust, support, and partnership from our shareholders as we navigate this journey together. The road ahead is filled with opportunity, and we are more determined than ever to drive sustainable growth and lasting success. With that said, we are now ready to open the call to questions.

[Operator]

Okay. At this time, we are going to open it up for questions and answers.

[Operator]

If you have a question, please write it down in the Q&A section or click on "Raise Hand" for audio questions. I would like to highlight that questions will be answered up to 7:15 PM BRT. Analysts that are still on the waiting line will have their questions addressed by the IR team. Also, keep in mind that two questions are allowed per analyst. Please remember that your company's name should be visible for your question to be taken. We do ask that when you pose your question, that you pick up your headset to provide optimum sound quality. Please hold while we poll for questions. Our first question comes from Eduardo Rosman with BTG.

[Eduardo Rosman, Financial Institutions Analyst at BTG]

Hi, hi everyone. Congrats on the numbers. Two questions here. The first one on your banking solution, if you could share with us, you know, what do you think you are outperforming, right?

[Eduardo Rosman, Financial Institutions Analyst at BTG]

Performing really well, and where do you see room for improvement? The second question, it's on the capital structure, right? What's your view on dividends, right? Given the very big excess capital and the ongoing share buyback program, why not distribute dividends as well? Thanks.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

Hi, Rosman, Lia here. Thank you for the question. I'm going to take the first one and then pass it over to Pedro. I think the overall message on banking is the following. As we said in the Investor Day, we continue to see deposits grow ahead of TPV, right? The message behind this is that deposit grows ahead of TPV because clients further engage with our banking solution. This is mainly driven by two factors.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

Number one is our success in bundling payments and banking, which is something that we've done over the last years and we're getting increasingly better at. Also, as we evolve on the banking roadmap and develop more solutions, our clients further engage with the platform. The way they want to understand this is pretty much we've captured most of the value associated with cash in because we take most of the cash in of the client through TPV, but that becomes deposited in the banking account. Also, as we develop more and more solutions, deposits stay for longer and we see a trend, a positive trend regarding deposits. Naturally, in the fourth quarter, there was a seasonal impact in deposits because of the holiday season, right? That's natural to expect.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

Some of that seasonality has sort of been reversed in the first quarter, but the overall trend has not. The overall trend continues to be that deposits grow ahead of TPV. Also, that's implied by our long-term guidance, right? We continue to expect deposits to grow ahead of TPV as we further develop the banking solution. The development is really around resolving incrementally workflow needs of our clients, right? We launched a simplified payroll solution. We're evolving a lot on that payroll solution this year. We launched different investment products for our clients to save with different purposes. I think the roadmap has also a lot to come still, and we expect the strength to continue. Pass it over to Peter for the next question.

[Pedro Zinner, CEO at StoneCo]

Thank you, Lia. Thank you, Rosman, for the question.

[Pedro Zinner, CEO at StoneCo]

I think the first point that I think we have to recognize is that we evolved a lot in terms of providing transparency in terms of how we allocate capital within the company, right? You might recall that that was part of our commitment in our last call to provide you some visibility in terms of our framework. I think in some ways, I think we evolved a lot. Just as a reference, I think over the past 12 months, we have already returned more than BRL 2 billion in terms of share buybacks, right? This really demonstrates both, I think, our commitment in terms of returning capital to shareholders and our, actually, our ability to execute this, this distribution efficiently when we deem appropriate.

[Pedro Zinner, CEO at StoneCo]

However, having said that, I think at this time, we are not committing to specific targets in terms of how we are going to allocate capital in terms of distribution. I think it is going to be through dividends or buybacks. We do expect to provide you some more visibility over the next quarters or so.

[Mateus Scherer, CFO and IRO at StoneCo]

Yeah, and if I may add, Pedro, Mateus here, Rosman, I think the main message is that we see this as a journey. Step one was basically defining the amount of excess capital that we have. I think we have a clear framework for that. Step two is defining how much, how fast, and which instrument we are going to use to give this capital back to shareholders.

[Mateus Scherer, CFO and IRO at StoneCo]

Something to bear in mind is that we still have an active buyback program for which we have executed until the end of February around BRL 1.1 billion. We remain with BRL 900 million available to be bought back under that program. We still have some room under that program before we need to make a second decision in terms of the instruments that we're going to use. It is under discussion.

[Pedro Zinner, CEO at StoneCo]

It is an evolution process.

[Eduardo Rosman, Financial Institutions Analyst at BTG]

Oh, great. Super clear. Thanks a lot and congrats again.

[Operator]

Thanks, Rosman. Our next question comes from Mario Pierry with Bank of America.

[Mario Pierry, Managing Director at Bank of America]

Hey, guys, thanks for taking my question and congratulations on the quarter. Let me ask you two questions as well. You guys made comments that you did not increase prices in the fourth quarter, but that you started repricing in the first quarter.

[Mario Pierry, Managing Director at Bank of America]

Can you give us a little bit more color? How are you seeing this price increases going through? What level of price increases are we talking about? Is it for your entire client base? And the impact so far in the quarter, right? Like we're almost at the end of the first quarter. I am just trying to get a sense of the size of these price increases and if you plan on keeping increasing prices throughout the year. My second question is related to your guidance. I was just surprised that you were guiding a basic EPS rather than fully diluted EPS. I do think that most investors look on a fully diluted basis. I just wanted to understand from your view why guide basic rather than fully diluted?

[Mario Pierry, Managing Director at Bank of America]

If you can give us, just remind us of the difference in the share count between basic and fully diluted. Thank you.

[Pedro Zinner, CEO at StoneCo]

Hi, Mario, Pedro Zinner. Thank you for the question. I'll try to address the first one, and Mateus, feel free to jump in at any point in time. I think since the significant upward shift that we've seen in the yield curve by the end of the fourth quarter of 2024, we have proactively actually executed a substantial repricing initiative at the beginning of the first quarter of 2025. I think Lia highlighted part of this in her statements in the call that we did not start in the last quarter of last year. I think over the recent months, we have effectively completed repricing across our eligible Stone client base. We are now actually actively progressing with our Stone clients.

[Pedro Zinner, CEO at StoneCo]

I think we aim to finalize these adjustments over the upcoming months. I think what we might say is our repricing strategy has proven effective, and we are seeing record low churn on our repricing waves. Another point to highlight is I think we are pleased to see the broader industry aligning around profitability rather than prioritizing volume growth alone. This is in line with what we have been saying over the past quarters in terms of the rationale in terms of the competitive landscape and what we have been advocating for over the past year or so.

[Mateus Scherer, CFO and IRO at StoneCo]

Mario, if I may add, in terms of the extent of the repricing, in terms of the size of the adjustments, we basically calibrated the adjustments looking at the yield curve projections for the middle of the year, which were approximately 15%.

[Mateus Scherer, CFO and IRO at StoneCo]

In terms of how many clients we repriced, we basically only excluded those clients who engage with multiple solutions and that remain profitable despite the higher funding costs given by the rising interest rates. It was an extensive repricing wave. In terms of whether we are going to reassess and do more waves throughout the year, I think by June, we will reassess the market conditions and then determine if additional repricing action is needed or not. This is the first question regarding pricing. The second question I think was around the decision to guide basic EPS instead of diluted. First of all, I think it is a great question. It is something that we debated internally extensively. I think the decision that was made to guide basic EPS this year had two key reasons in mind.

[Mateus Scherer, CFO and IRO at StoneCo]

The first reason is that when you look at the accounting rules governing the diluted share count, they can introduce a lot of volatility in the calculation. Just to give a few examples, depending on the share price levels, the performance share units from the turnaround plan may or may not be included in the diluted share counts in a binary way. A second example, given that we had an IFRS accounting loss in the quarter as a result of the impairment, the diluted is equal to the basic share count in the quarter. We thought that this year this created some complexity. Second reason is that, as you well know, we do not adjust share-based compensation expenses at all. Everything flows through the P&L.

[Mateus Scherer, CFO and IRO at StoneCo]

If we were to use the diluted share count in the denominator as well, we feel that this would result in some degree of double counting. Given these factors, we believe that basic EPS this year is the better metric. That was basically the decision.

[Mario Pierry, Managing Director at Bank of America]

Okay, let me ask two follow-ups on this program that you said you have, right? The turnaround plan and the share count could either be zero or a number based on share price performance. Can you remind us of the size of how many shares we are talking about? On the repricing, when should we see the full benefit of this repricing that you did at the beginning of the quarter? Is this going to be already fully evident in second quarter results, or is this more in the third quarter?

[Mario Pierry, Managing Director at Bank of America]

How do your prices compare to your peers today? Are you just catching up to the level of your peers, or are you pricing above your peers? Thank you.

[Mateus Scherer, CFO and IRO at StoneCo]

Yeah, for sure. In terms of the size of the program, we have a lot of detail in the footnotes 20.4. If you look at the PSU instruments by the end of the year, we had 5.9 million shares outstanding in that program. You have the full details in that footnotes there. In terms of the full effect of the repricing waves in the P&L, largely the full effect will be felt in the second quarter. There are still some waves done through the quarter, but they are smaller in size. How do you compare to your peers now? Oh, sorry, I forgot that one.

[Mateus Scherer, CFO and IRO at StoneCo]

I think that the message, and I think Pedro touched upon this, the whole industry is repricing and passing through the increasing interest rates. We feel that with the movements that we did in terms of pricing, basically everyone now has very similar prices across the industry. It is basically a dynamic of catching up to the increasing interest rates and not in increasing spreads per se.

[Mario Pierry, Managing Director at Bank of America]

Okay, thank you very much.

[Operator]

Our next question comes from Tito Labarta with Goldman Sachs.

[Tito Labarta, VP at Goldman Sachs]

Hi, good evening. Thank you for the call and taking my question. Also, I have two questions. I guess one, just following up on the guidance on the EPS, with the guidance that you gave, it is based on the share buybacks that you have done. As you mentioned, Mateus, you still have about another BRL 900 million that you could do.

[Tito Labarta, VP at Goldman Sachs]

Does that mean that there can be, and I mean, I know the guidance is above 8.6, but if you do more buybacks, that would imply the EPS will be higher. Just to make sure I understood, because you bought back around 6% of the shares roughly, that would imply net income growing around 11%, and then the rest is sort of coming from the share buybacks, if my math is correct. My second question on the sale of the software business, right? I understand you have not received, I guess, an offer that you think meets your intrinsic value. I guess one, are there still potential offers out there? Is there a chance that you can still sell it, or do you think this is off the table at this point? Just to understand if that is still a possibility of being sold or not.

[Tito Labarta, VP at Goldman Sachs]

Thank you.

[Mateus Scherer, CFO and IRO at StoneCo]

Thanks for the question, Tito. I'll take the first one and then pass it over to Pedro for the second one. In terms of the EPS guidance, I think you are spot on. When you look at the implicit guidance for net income in 2025, it's BRL 2.4 billion. This reflects an adjusted net income growth of approximately 9%, while the EPS guidance exceeds 18%, right? The difference here is primarily driven by the share buybacks executed since 2023. Apart from this, it basically reflects the operational expectations and does not factor in any additional share buybacks, whether from existing or new programs. That said, as we move forward, if market conditions are favorable, we will continue repurchasing shares under the current program, which could represent an additional upside to the guidance. I think you are right in your point.

[Pedro Zinner, CEO at StoneCo]

Hi.

[Pedro Zinner, CEO at StoneCo]

Regarding the asset, the software asset, I think first I just wanted to highlight, and I think I tried to make this crystal clear in some ways in the letter to the shareholders. We have been following a disciplined approach in terms of our decisions regarding our software assets, right? Despite changes in interest rates and despite receiving many offers over the past quarter or so, we did not receive any offer that actually met our established intrinsic value for the specific asset. What we will continue and what we will do is really, we are going to stick in part to the strategy we defined back in our investor day. We will continue cross-selling financial services to our software clients and really focus in terms of maximizing value of the asset on a standalone basis.

[Pedro Zinner, CEO at StoneCo]

I think the big difference from the past is really that we have actually implemented all the synergies required to manage this asset appropriately, and we have set the right governance in place to really ensure that owning the asset is not a distraction to the core strategy of the company.

[Tito Labarta, VP at Goldman Sachs]

Okay, thanks for that, Pedro and Mateus. Sorry, just to follow up, because I do not know if my question was more, is there a possibility of this still being sold, or do you think you sort of exhausted the offers and likelihood is that it is not sold at this point?

[Pedro Zinner, CEO at StoneCo]

I think at this point, what we will do is really focus on the execution and maximizing value for the asset.

[Tito Labarta, VP at Goldman Sachs]

Okay, great. Okay, makes sense. Maybe just to help us think about what that intrinsic value might be, just a simplistic calculation here.

[Tito Labarta, VP at Goldman Sachs]

You have paid about BRL 6.3 billion for Linx, if I remember correctly, and you wrote off around BRL 3.5 billion. I do not know if that was all 100% Linx, but that would leave maybe BRL 2.7 billion. Is that a ballpark number that kind of makes sense for what that intrinsic value could be?

[Mateus Scherer, CFO and IRO at StoneCo]

Thank you to Mateus here. I do not think we are going to comment specifically on what we see as intrinsic value, but as a reference point, if you look at the impairments line, you are going to see that the equity for the software segment after the impairment is around BRL 4 billion for the software segment as a whole. Of course, when we are talking about any potential transaction, there are other considerations besides the intrinsic value of the asset per se, right? Including the commercial agreements and so on and so forth.

[Mateus Scherer, CFO and IRO at StoneCo]

As a reference, I think that's the best number that you have publicly available.

[Tito Labarta, VP at Goldman Sachs]

Okay, no, that's helpful. Thanks, Mateus. Thank you, Pedro.

[Operator]

Our next question comes from Daniel Vas with Safra.

[Daniel Vaz, Lead Analyst of Equity Research at Safra]

Hi everyone, good evening and congrats on the results. Very clear presentation. First, I'd like to hear more about Lia's comments on funding. I think at some point she mentioned there will be a meaningful change in float revenue, but that should be EPS accretive over time. Could you share more details on this rollout and timing and if the entire base will be migrated? What will be the details here? It will be very helpful to hear about it. If there is any clear indication of what levels of spread over CDI or percentage of CDI you should accommodate as cost of funding.

[Daniel Vaz, Lead Analyst of Equity Research at Safra]

A second question following up on capital, I think at some point you will arrive on an optimal level of ROE. There will be enough organic capital to support future growth and possibly continue with future buybacks. How far do you think you're from this situation and what's the current scenario that you expect this to happen? Is 2027 guidance really north star to it? Thank you.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

Hi, Daniel, Lia here. I'm going to take the first part of the question, then Mateus, please add and continue to the second question. Regarding the rollout, we expect this rollout to happen incrementally throughout the year. No more specific information regarding that, but it's going to happen throughout this year, like I already said, and to address your question, we anticipate a positive impact.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

Just talking directionally about it, this impact comes from a shift between financial lines, obviously. Specifically, while we will lose financial income from the float on our deposits, this will be offset by a reduction in our funding costs. There will be a positive impact as we benefit from lower taxes by having less float revenue. The spread between our funding costs and CDI as we switch these funding sources. Directionally, this is the effect. This shift is going to be accretive to our P&L, and we expect to roll it out throughout the year.

[Mateus Scherer, CFO and IRO at StoneCo]

Just to give some recall here, Daniel.

[Mateus Scherer, CFO and IRO at StoneCo]

In terms of the rollout, what we're doing right now is what we call our cash sweeping strategy, which is basically using the deposits that we already have in place as a funding source, which we didn't do because we didn't have the licenses. As we do that, we expect a significant increase in the time deposits line within our retail deposits line with virtually zero cost. Over time, after we do this cash sweep, of course, we include other time deposits products, which are more closely related to investment products to the base. As this scales, this will lead to a gradual increase in the average cost of the deposit base. Again, I think we're going to start to give some figures on these numbers when they become relevant.

[Mateus Scherer, CFO and IRO at StoneCo]

For the moment being, I think it's more around using the deposits that we already have in place with virtually zero cost. The second question, I think, was related to excess capital and how we see the funding of organic growth, if I got that right. When we think about the framework that we put in place, we believe it already takes into account the capital that is needed to fund the growth of the 2027 plan. If you look at the hurdles that we implemented, for example, for the first pillar, which is the regulatory capital, we're talking about a 20% hurdle, which is fairly high. We feel that this already takes into account not only the current plan that we have in place, but also potential optionalities in terms of growing credit and so on and so forth.

[Mateus Scherer, CFO and IRO at StoneCo]

The 3 billion figure, we feel it's really an excess in terms of capital that we have. The discussion is more around how we're going to return that capital back to shareholders in the most efficient way. Don't know if I fully answered your question on that point, Daniel.

[Daniel Vaz, Lead Analyst of Equity Research at Safra]

Yeah, yeah, I think you did. If I may follow up on maybe Pedro to ask his view about the company's structure size. I mean, many of your competitors were expanding the Salesforce a year ago, which contributed to a worsening of efficiency across the industry. Now, a year later, we see some of them reversing that move, right? I mean, any views on when do you expect the business to have better room to economies of scale?

[Daniel Vaz, Lead Analyst of Equity Research at Safra]

Because so far, I think the past two years, it was more Salesforce, more aggressiveness between competition, and now we see some reversion of that trend. Very helpful to hear about it if you could, Pedro.

[Pedro Zinner, CEO at StoneCo]

Thank you for the question, Daniel. I think it's, we've tried to highlight this over the past also calls. I think there is a maturity process in terms of productivity of our Salesforce as we move ahead. I think one of the key competitive advantages we have is really on the distribution channels. I think we tried to highlight that also in the investor day, and it takes time to mature. Having said that, I think more and more we're going to rely on our operation, our technology-driven operational distribution platform. I think this will leverage and improve efficiency as we move ahead over the next years.

[Pedro Zinner, CEO at StoneCo]

I don't see this happening in the short term. I don't believe we're going to see big changes in terms of, I think your question is more driven to sales expenses related to revenues in some ways. I think they're going to be flat in 2025, but we're going to improve efficiency over time to a more technology-driven platform. I don't believe that the competitors are doing that. I think it's a different strategy in some ways, but that's the way we're positioned to set ourselves up until 2027.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

Yeah, and Daniel, if I can just complement what Pedro said, maybe separating in kind of three-time horizons, right? Talking about the fourth quarter and then the year and then longer term.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

In the fourth quarter, we saw selling expenses increase sequentially as a percentage of revenues, primarily due to ongoing investments in our Salesforce, especially the specialist Salesforce, which is, number one, pretty critical in terms of going up the pyramid, as we call it. We have seen significant growth in what we call larger SMB clients. Specialist Salesforce are critical also for the cross-selling initiatives to sell financial services to software client install client base. Naturally, also it is critical on the credit side as well, because more and more we are implementing direct distribution to scale on the credit side. That was more the rationale for how selling behaved on the fourth quarter. Throughout this year, we expect mild dilution in selling expenses relative to revenues. As Pedro mentioned, there is not going to be, we should not expect a big shift shorter term.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

I think over the longer term, as Pedro highlighted, we will see greater dilution naturally as the operation matures and those scale efficiencies materialize, as you mentioned. We are very optimistic, and I think in some sense ahead of the game in terms of how we think about technology applied to our operation. I think our operations technology platform has been a pillar of the differentiation of our business model since day one. We are working very hard to stay ahead and making sure that, for example, we can better leverage GenAI and more data to be more and more effective on how we approach distribution. That should all contribute to selling that greater dilution over time.

[Daniel Vaz, Lead Analyst of Equity Research at Safra]

Thanks again, guys, and congrats.

[Operator]

Our next question comes from Renato Meloni with Autonomous Research.

[Renato Meloni, LatAm Financials Senior Analyst at Autonomous Research]

Hi everyone, thanks for the call. Thanks for taking the questions here.

[Renato Meloni, LatAm Financials Senior Analyst at Autonomous Research]

Just a quick follow-up on the deposit side, and I just wanted to know if long term you have a ratio of where deposits can stabilize as a percentage of TPV. I think that would be helpful. My question is on the credit side. First, how is your risk appetite this year, particularly given the potential credit cycle that we might enter in Brazil? Second, given all the initiatives that you have, how are you seeing the changes that private payroll lending is facing in Brazil? How do you see this opportunity and are you planning to explore it? Thank you.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

Hi, Renato, Lia here. Let me just start with the question around deposits. I think that math is easy to work out when you take out our long-term, when you consider our long-term guidance for deposits and TPV.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

The general trend is what I talked about at the beginning of the call, right? We continue to expect deposits to grow ahead of TPV growth. That is implied in the long-term guidance when you consider deposits' growth versus TPV growth. As much as we talk about engagements and we talk about heavy user metrics and how we're evolving on the banking roadmap, ultimately, we see the ratio between deposits as TPV as the best way to see how we're further engaging our clients with our banking solutions. That can be worked backwards from the long-term guidance on deposits and TPV. To talk about credit, I'll pass it over to Pedro.

[Pedro Zinner, CEO at StoneCo]

Yeah, I'll kick off and Mateus can complement me as we move ahead.

[Pedro Zinner, CEO at StoneCo]

I think at the end of last year, we have actually proactively adjusted our credit models to reflect the evolving, and I think as you all know, more challenging macroeconomic environment. This led to a moderate increase in provisioning levels, which have now stabilized at around 12% of our portfolio. Additionally, we are also continuously adjusting the pricing of new disbursement to better reflect this changing macroeconomic and market conditions. Having said that, in terms of growth, I think we are closely monitoring our cohort performances and daily amortizations, a feature that is actually unique to our product. We still, I think we feel that there is room to grow the portfolio in 2025, given the low penetration of our credit products within our client base and the scaling of new offerings such as credit cards and our overdraft solution.

[Pedro Zinner, CEO at StoneCo]

I do not know if Mateus wants to add any point.

[Mateus Scherer, CFO and IRO at StoneCo]

Just a quick complement. I think the message here that we are trying to convey is the following. I think we are trying to be really cautious in terms of the macro environment. We have set up many controls and monitoring of the amortization and the health of the portfolio. At the same time, we need to keep in mind that the base is still really small. When you think about the penetration of the product in the base, we are in the early beginnings. We have just resumed the offering of the product a couple of quarters ago. Different than maybe other players, I think there is still room to grow while maintaining this cautious approach for the portfolio as a whole. That is the message here. I think there is a last one on payroll.

[Mateus Scherer, CFO and IRO at StoneCo]

Maybe Lia wants to take that one.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

Yeah, I think just quickly on the discussion around regulation around payroll loans. Naturally, we are monitoring it closely. I think for us, it is beginning stages, right, as we think about how we can deploy this as an opportunity. Naturally, within our ecosystem, as we launch our payroll solution to SMBs, that becomes a natural extension, but it's very early to say anything more specific than that.

[Renato Meloni, LatAm Financials Senior Analyst at Autonomous Research]

Thank you. As the regulation evolves, do you plan to explore this further and even try to get customers from other competitors, or the focus would still be within your base?

[Lia Matos, Strategy and Marketing Officer at StoneCo]

I think it's early to say, Renato. I think we'll be giving more clarity on this as we evolve.

[Renato Meloni, LatAm Financials Senior Analyst at Autonomous Research]

Okay, thank you very much.

[Operator]

Our next question comes from Yuri Fernandes with JP Morgan.

[Yuri Fernandes, Executive Director at JPMorgan]

Hey, everyone, and congrats on the quarter.

[Yuri Fernandes, Executive Director at JPMorgan]

I have one on the capital position. I'm just trying to have an easier framework to think on this. Usually, for banks, we look to loan growth, right, as RWA growth. In your case, I guess TPV may be the best proxy, right? When we go to RWA and we break down this by credit and mark, we see payments is still the main component. And we do see your TPV XPX growing around, I don't know, low teens, right? When we go to your ROE, it really depends how we adjust it. If you do some kind of tangible ROE for you, remove all the intangibles, we see Stone printing 30%-35% tangible ROEs, right? It is a pretty nice return. The question I have is if this math makes sense.

[Yuri Fernandes, Executive Director at JPMorgan]

If you are growing your RWA around 12%, 13%, and you are printing those 35% tangible ROEs, and I think you also reported the financial unit ROE on your release, does it make sense to think your excess capital generation is around 60%, 65%, 70%? If that's the case, is this a good proxy for your payout or buyback kind of potential? Just trying to get to this number because the 20% core capital, it's useful, but your capital component has so many moving parts, right, on operational risk, phase out. For payment, we have so many moving parts on how we calculate your capital that I'm trying to think about an easier framework, just trying as we do for banks, what is the RWA growth versus your ROE potential?

[Yuri Fernandes, Executive Director at JPMorgan]

When I try to do this exercise, I get to those numbers and just want to make sure I'm not missing anything. Thank you.

[Mateus Scherer, CFO and IRO at StoneCo]

Hey, Yuri, thanks for the question. Mateus here. I think it's a great question and great rationale there. What I would say is the following. We have to divide here short versus longer term. When you look short term, I think you've answered part of the question, which is we still have a lot of regulation changes in terms of how we calculate the RWAs, right? We have the phasing, the new regulations, and so forth. Shorter term, I think this rule of thumb does not necessarily work. Longer term, I think you're going to be pretty close to the final answer of the model.

[Mateus Scherer, CFO and IRO at StoneCo]

The second point that is important to make is that maybe differently than more mature peers, we need to keep in mind that there are other pillars in the framework. It is not only around regulatory capital. We also have the ratings, the credit rating components, and the adjusted net cash. Adjusted net cash, in the end of the day, I think it is the easiest of the three pillars because we report the number, and the figure by the end of the year was BRL 4.7 billion. Clearly, it was not the constraint. Credit ratings, you have to go through a little bit more math to get to the number. If you look at the credit rating agencies, we use Moody's and S&P.

[Mateus Scherer, CFO and IRO at StoneCo]

They disclose the criteria for financial companies, so you can pretty easily map the metrics that they use for our current global ratings and then work the math out in terms of how much capital we have in excess for that pillar. I think putting all together, nowadays, the more restrictive constraint is indeed the regulatory capital. I just want to be mindful as well that as you project forward, on a given year, maybe the credit rating can also play a role.

[Mateus Scherer, CFO and IRO at StoneCo]

No, thank you very much, Mateus. If I may, just a quick second one, just on the buybacks, what should I expect with the shares? Are we going to cancel those shares? Are we going to use those shares for the SBC? What is the outcome here for those treasury shares? Thank you.

[Mateus Scherer, CFO and IRO at StoneCo]

Yep.

[Mateus Scherer, CFO and IRO at StoneCo]

We're still finishing the evaluation, but the most likely scenario is that most of the shares are going to be canceled, and we're going to use some of them to issue share-based compensation. So it's both.

[Yuri Fernandes, Executive Director at JPMorgan]

Okay, no. Thank you very much, and congrats again.

[Mateus Scherer, CFO and IRO at StoneCo]

Thanks, Yuri.

[Operator]

Our next question comes from Jamie Friedman with Susquehanna.

[Jamie Friedman, Senior FinTech and IT Services Research Analyst at Susquehanna]

Hi, good evening, and congratulations on the strong finish to last year. I had two questions. I'll just ask them upfront. Lia, with regard to the software growth of 15%, it was a re-acceleration, but I thought in your prepared remarks, you may have alluded to it coming from a partner, and then you have the financial attachment strategy. I was just trying to get the clarification on that.

[Jamie Friedman, Senior FinTech and IT Services Research Analyst at Susquehanna]

If I could ask, Pedro, in the shareholder letter, and it is a very thoughtful letter, but I wanted to ask actually about navigating the AI landscape. I guess you have a lot of metrics in here about penetrating with AI and customer service interactions, etc. How do you think about the efficiencies that you are delivering relative to this type of automation? Thank you.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

Hi, Jamie. Lia here. I am going to take your first question and then pass it over to Pedro. Regarding software revenue growth, in the software segment specifically, we had a non-recurring effect in the amount of BRL 8 million. That is not uncommon when we think about the dynamics of our enterprise software clients. Additionally, there was one specific company within the software portfolio, Hekla, that had a good performance in the quarter.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

That kind of explains the specific revenue trend in the quarter. If we think more broadly about it, we are not guiding on specific figures for our software segment, but as a general trend, I think what we can expect is that organic growth should continue to be in line with recent trends. We still have some opportunities to improve margins within the business. To think about margins more aligned with what we saw in the fourth quarter, that is a good way to think about trends in the software segment. I will pass it over to Pedro to address your second question.

[Pedro Zinner, CEO at StoneCo]

Thank you for the question. In some ways, you actually provided the answer. I think what we have done so far, really quick wins in terms of how we use predictive models and GenAI into our operations.

[Pedro Zinner, CEO at StoneCo]

For me, it's really peripheral wins that are quick wins that we can put in place to optimize results, right? I think the challenge we have, and that's not only to ourselves, but to the industry as a whole, is how we use GenAI to actually disrupt our own model and improve our business model as we move ahead. I tried to address part of this when we talked about sales distributions and the channels that we have established as of today. I think this is where the big change might come from. Whoever takes the first step will take the lead in terms of new industry dynamics and how we're going to move ahead. That's a long answer to say it's really short-term efficiency gains, and I think what we're preparing is really for the infinite game as we move ahead.

[Pedro Zinner, CEO at StoneCo]

That's where the big changes will come.

[Jamie Friedman, Senior FinTech and IT Services Research Analyst at Susquehanna]

Okay, thank you both.

[Pedro Zinner, CEO at StoneCo]

Thank you.

[Lia Matos, Strategy and Marketing Officer at StoneCo]

Thank you.

[Operator]

This concludes the question and answer session. I will now turn over to Pedro Zinner, CEO at StoneCo, for final considerations.

[Pedro Zinner, CEO at StoneCo]

Thank you all very much for participating in the call. I think the company presented strong results in 2024, and we are really looking forward to 2025 and the coming years. Thank you very much.

Participants

Executives

• Lia Matos, Strategy and Marketing Officer
• Mateus Scherer, CFO and IRO
• Pedro Zinner, CEO

Analysts

• Jamie Friedman, Senior FinTech and IT Services Research Analyst at Susquehanna
• Mario Pierry, Managing Director at Bank of America
• Renato Meloni, LatAm Financials Senior Analyst at Autonomous Research
• Tito Labarta, VP at Goldman Sachs
• Eduardo Rosman, Financial Institutions Analyst at BTG
• Daniel Vaz, Lead Analyst of Equity Research at Safra
• Yuri Fernandes, Executive Director at JPMorgan