StoneCo Q2 2025 Earnings Report

StoneCo EPS Results

• Actual EPS: $0.39
• Consensus EPS: $0.36
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: N/A

StoneCo Revenue Results

• Actual Revenue: $643.82 million
• Expected Revenue: $3.78 billion
• Beat/Miss: Missed by -$3.14 billion
• YoY Revenue Growth: N/A

StoneCo Announcement Details

• Quarter: Q2 2025
• Date: 8/7/2025
• Time: After Market Closes
• Conference Call Date: Thursday, August 7, 2025
• Conference Call Time: 5:00PM ET

StoneCo (NASDAQ:STNE) provides financial technology and software solutions to merchants and integrated partners to conduct electronic commerce across in-store, online, and mobile channels in Brazil. It distributes its solutions, principally through proprietary Stone Hubs, which offer hyper-local sales and services; and sells solutions to brick-and-mortar and digital merchants through sales team. The company served small-and-medium-sized businesses; and marketplaces, e-commerce platforms, and integrated software vendors. StoneCo Ltd. was founded in 2000 and is headquartered in George Town, the Cayman Islands.

StoneCo Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strategic divestitures of software assets—selling Linx to Totus and SimpliVet to PetLove—unlock over 25% of StoneCo’s market cap, refocusing resources on core payments, banking, credit and fintech services.
• Positive Sentiment: Updated 2025 guidance implies >14.5% gross profit growth and a raise in EPS growth forecast from 18% to 32%, reflecting strong performance and share buybacks reducing the share count.
• Positive Sentiment: Second-quarter results beat expectations with adjusted net income up 27% YoY to BRL 631 million, EPS up 45% to BRL 2.33, and expanded ROE—30% in Financial Services and 22% consolidated.
• Positive Sentiment: Banking client engagement drives deposits up 36% YoY, with 83% now in time deposits, strengthening StoneCo’s low-cost funding base and reducing financial expenses.
• Negative Sentiment: Provisions for expected credit losses jumped to BRL 82 million, pushing cost of risk to 20% and raising coverage from 256% to 280% amid a cautious view on macroeconomic headwinds.

Presentation

[Operator]

Good evening, everyone. Thank you for standing by. Welcome to StoneCo's second quarter twenty twenty five 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.

[Operator]

All material can be found online at investors.stone.co. Before we begin the call, I advise you to review the disclaimer included in the press release and presentation, which outlines important information about forward looking statements and non IFRS financial measures. In addition, many of the risks regarding the business are disclosed in the company's Form 20 F filed with the Securities and Exchange Commission, which is available at www.sec.gov. In hindsight, I would like to highlight that the company is restricting the number of questions to two per analyst. Joining the call today is Stone CEO, Pedro Zener the CFO and IRO, Matteo Scherer the Strategy and Marketing Officer, Lia Matos and the Head of IR, Roberta Noroya.

[Operator]

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

[Pedro Zinner, CEO at StoneCo]

Thank you, operator, and good evening, everyone. To begin, before diving into our second quarter performance, I want to briefly discuss our recently announced softer divestitures and how this strategic move aligns with our future direction. As many of you may recall from our Investor Day in 2023, we outlined our total addressable market across payments, banking, credit and software, roughly billion revenue opportunity. Our core focus remains on serving Brazil's more than 14,000,000 micro, small and medium sized business by providing solutions that meet their evolving needs and support their daily operations. We are now pursuing this mission with a much more focused approach and greater discipline in capital allocation.

[Pedro Zinner, CEO at StoneCo]

By sharpening our focus on financial services, we continue to target over 90% of that substantial TAM. It's important to note that our current share in this combined market is still very small, which indicates significant room for growth ahead. While software will remain part of our broader ecosystem, we now view it as a more of a value added layer, one with low capital requirements rather than a core offering. This strategic shift allow us to concentrate our efforts and resources on the areas of greatest long term value and impact for our MSNB clients and ultimately for our shareholders. We believe this sharper focus position us well to capture future growth opportunities in our core market.

[Pedro Zinner, CEO at StoneCo]

Now moving to Slide four, let me provide more detail on the divestments. The first and most significant transaction is the sale of links to Totus. As you know, we agreed to sell this group of software businesses for an enterprise value of billion dollars addition, we will receive the net cash position of these assets currently estimated at million, plus any cash generated between signing and closing of the deal. Notably, the BRL3.8 billion in goodwill from our original Lynx acquisition in 2021 will remain with us, and we expect to amortize that goodwill over the next eight years, providing additional value beyond the sale price. Payment for the linked assets will be made in cash at closing, which is pending regulatory approvals, including from CADI, the Brazilian antitrust authority.

[Pedro Zinner, CEO at StoneCo]

There are no earn outs associated with this deal. In a separate transaction, we have also sold SimpliVet, a veterinary ERP software company, to PetLove for an enterprise value of R114 million dollars plus the net cash position of R15 million dollars totaling R155 million dollars This deal was approved by CALI and closed in July with a payment in cash, a portion already paid and the reminder to be paid over three installments. There are no earn outs on this deal either. Regarding our remaining software assets, our approach is straightforward. We're evaluating our assets individually.

[Pedro Zinner, CEO at StoneCo]

The goal is to determine whether each one should be fully integrated into our core fintech ecosystem to enhance existing solutions and product differentiation or whether it's better to let it operate independently, while we assess its long term strategic fit. We will allocate the proceeds from these divestitures in line with our capital allocation framework we have outlined. Essentially, if we do not identify immediate value accretive growth opportunities, we intend to return this excess capital to our shareholders. We truly believe these transactions represent a significant strategic step and will be accretive to our company. Consider that the total value unlocked from these sales combining the transaction proceeds and the goodwill retention benefit is over billion dollars roughly 25% of our current market capitalization.

[Pedro Zinner, CEO at StoneCo]

Yet, for the 2025, these software assets accounted for only about 8% of our revenues and 5% of our consolidated bottom line. By divesting them, we have unlocked substantial capital and most importantly, refocused our energy on our highest growth, most profitable segments. We are confident that this sharper focus will allow us to drive greater shareholder value in the years to come. Before I hand over to Lia to discuss the quarterly results, let me first walk you through some important updates to our reporting and 2025 guidance in Slide six. Following the sale of our software assets, we are now reporting discontinued operations as a single line item above consolidated net income.

[Pedro Zinner, CEO at StoneCo]

As a result, we are shifting our forward looking metrics to better reflect the core of our ongoing business. Starting with gross profit, our guidance now reflects only continuing operations. We have also updated our assumptions to incorporate year to date performance and the impact of share repurchases executed since our original guidance in February. Our updated gross profit guidance now implies over 14.5% year over year growth, surpassing billion dollars Turning to EPS. We continue to guide on a consolidated basis, including discontinued operations.

[Pedro Zinner, CEO at StoneCo]

Here, the update is more substantial. We have increased our expected EPS growth from 18% to 32% year over year, a 14 percentage point upgrade. This reflects both the impact of share buybacks and stronger than anticipated net income performance so far this year. To put it simply, even after incorporating a lower share count, we are still revising our implied adjusted net income guidance upward from R2.4 billion dollars to R2.6 billion dollars based on the prospects we've seen for the business. These updates also reflect our strong confidence in the company and in our team's ability to execute.

[Pedro Zinner, CEO at StoneCo]

In that context, we remain fully committed to returning the R3 billion dollars in excess capital generated in 2024 back to shareholders. I'm pleased to report that by the June, we had already returned 41% of that amount through share buybacks, about R2.6 billion over the last twelve months. With that, I'll now turn the call over to Lia for a deeper dive into our quarterly numbers. Leah, please go ahead.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

Thank you, Pedro, and good evening, everyone. Diving into our second quarter twenty twenty five results, we're very pleased to see that despite the challenging macroeconomic scenario with higher interest rates and signs of economic deceleration, we have successfully executed on our strategy, evolving the multiple ways in which we help our clients, while delivering solid results. Moving to Slide seven, let's take a look at our bottom line results and ROEs, which are reported on a consolidated basis, including both continuing and discontinued operations. Our adjusted net income accelerated to a 27% year over year increase, reaching BRL631 million. The majority of this growth came from our financial services operation, which saw an impressive 21% growth over the same period.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

This strong performance is a direct result of some key factors, notably our successful pricing adjustments in a higher interest rate environment, the growing use of deposits as a low cost funding source for operation and the lower effective tax rate. Our adjusted basic EPS reached BRL2.33 per share, representing a 45% year over year increase. Beyond the solid net income performance, the increase was further strengthened by our share repurchase program, in which we bought back almost 42,000,000 shares over the last twelve months. Finally, ROEs continued to expand. Our Financial Services segment ROE achieved 30%, and our consolidated ROE reached 22.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

Both of these figures grew by three percentage points sequentially and showed even more significant growth on a year over year basis. Now let's dive deeper into our top line performance, focusing on our continued operations. Revenues from continuing operations grew 20% year over year to BRL3.5 billion, given continued solid execution in our core business. This increase was primarily driven by our repricing initiatives, even while negatively impacted by a reduction in floating revenues, resulting from the use of client deposits as a source of funding. To clarify, as we transform these deposits into time deposits to fund our operations, we stop recognizing floating revenue.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

As we explained previously, this shift is more than compensated by the significant reduction in our financial expenses, given the much lower cost of funding related to deposits compared to other funding alternatives. Adjusted gross profit from continuing operations reached billion this quarter, a year over year growth of 14%, broadly in line with guidance implied growth. It's useful to compare our gross profit growth with TPV growth because this highlights the multiple ways in which we monetize our relationship with clients in an efficient way. In the second quarter, gross profit grew ahead of TPV by two percentage points, mainly driven by our continued pricing discipline, more client engagement and a more efficient funding strategy. In Slide nine, we will discuss our payments operation for MSNBs.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

Our payments active client base grew 17% year over year to reach 4,500,000 clients. Out of those, 38% are considered as heavy users, meaning they utilize more than three of our different solutions. Our MSNB TPV grew 12% year over year in the quarter to BRL122 billion. This growth results from two key trends: first, a 59 growth in MSNB Pix QR code volumes, which continues to gain share over traditional debit card transactions and second, a 6.4% year over year growth in card TPV. Two main factors drove the TPV growth deceleration this quarter.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

First, this was an expected reflection of our repricing initiatives. Second, we saw a reduction in our clients' same store sales, which were impacted by a tougher macroeconomic environment and a quarter with more holidays. As we look ahead, we will continue to keep a close eye on the macroeconomic environment. We anticipate that the second half of the year will continue to face a tougher environment, but MS and BTPV growth should stabilize at low double digits in the period. In Slide 10, let's move to our banking performance.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

We're very pleased with the continued growth in our client base and their increased engagement with our banking solutions, which is ultimately reflected by a larger balance of deposits. Our active banking client base grew 23% year over year, reaching 3,300,000 clients. Client deposits also grew significantly, up 36% year over year or 7% quarter over quarter. We're very encouraged by this growth, and it's almost three times higher than our MSNB TPV growth on a sequential basis, meaning that our clients are shifting from using mainly our payment solution to relying on Stone as their end to end provider of financial services and workflow tools. Regarding deposits, as we mentioned last quarter, we have been strategically shifting our deposit mix towards a higher concentration of time deposits.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

This includes both the investment solutions we offer our clients, which have been performing well, as well as our cash sweep strategy, a valuable funding source for our own operations. The most significant shift happened late in the first quarter, which means we saw more complete impact to our P and L in the second quarter. Currently, 83% of our total deposits are already considered as time deposits. Now let's turn to Slide 11, where we'll give some color on our credit product evolution. The main highlight here is that we continue to grow consistently while keeping our credit quality indicators healthy.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

Our credit portfolio grew 25% sequentially to BRL1.8 billion. Of this total, BRL1.6 billion refers to our merchant solutions, comprised mainly of working capital to MSNBs, where disbursements increased significantly by 41% on a quarter over quarter basis. The remaining million refers to our credit card portfolio, which grew 19% sequentially. We monitor credit quality very closely and continue to see steady, healthy NPL levels. Our fifteen to ninety day NPL has been relatively stable, decreasing 10 basis points sequentially, while our over ninety day NPL increased by 10 basis points.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

This is a smaller increase than in the past, reflecting our accelerated disbursements this quarter. Despite the healthy NPL levels, we saw a significant increase in our provisions for expected losses this quarter, from $34,000,000 in the first quarter to $82,000,000 in the second quarter. This increase was driven by three main factors: first, by the continued expansion of our credit portfolio, supported by a very strong sequential increase in working capital disbursements second, an increased mix towards limit based offerings such as overdraft and credit cards. Most importantly, despite our stable asset quality as evidenced by our consistent NPL performance, we made a deliberate decision to increase coverage levels in light of a weaker macro outlook. As a result, our coverage ratio increased from 256% in the first quarter to 280% in the second quarter.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

This higher level of provisions also pushed our cost of risk metric, which is based on the provision for the current quarter to a level of 20%, up from 10% in the first quarter. However, if we were exclude our decision to take a more conservative approach given the weaker macro environment, our cost of risk would have been 13.5% in the period. All in all, I'm very pleased with our quarterly performance even amid a more challenging macro environment. It highlights the strength of our execution and our continued commitment to our priorities and the guidance we've laid out to the market. We continue to work hard to evolve our business towards fulfilling our mission to become the preferred partner when our clients think of financial services and tools that help them better manage their business and grow.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

While doing this, we maintain a steadfast commitment to generating value to our shareholders. Now I want to pass it over to Matteos to discuss our more detailed financial performance. Matteos?

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

Thank you, Lia, and good evening, everyone. Before we dive into the numbers, I'd like to highlight a few important changes we've made to our financial reporting. As Pedro mentioned, our p and l now focuses exclusively on continuing operations, with discontinued operations presented separately as a single line item above consolidated net income. To maintain comparability, we've adjusted past figures to align with this new approach. On the balance sheet, discontinued operations are now represented by single line items within current assets and current liabilities, while prior periods remain as originally reported.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

Our cash flow statement remains on a consolidated basis, meaning our adjusted net cash metric still reflects cash generated by both continuing and discontinued operations. As a quick note, all updated figures for '24 and '25 reflecting these changes are available in the spreadsheet posted on our website. Now let's discuss our adjusted consolidated p and l for continuing operations. Cost of services increased 22% year over year or 40 basis points as a percentage of revenues due to higher provisions for expected credit losses as we highlighted earlier. This was partially offset by lower payments and banking provisions as a percentage of revenue and operating leverage in key areas of our operation, especially in technology and customer support.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

Administrative expenses increased 12% year over year, resulting in a reduction of 50 basis points as a percentage of revenues, driven by continued operating leverage across our support functions. Selling expenses increased 17% year over year, but decreased 40 basis points relative to revenues, reflecting stronger operating leverage in marketing spend. Financial expenses increased 29% year over year, representing a 210 basis points increase as a percentage of revenues. This was largely due to a higher average CDI rate compared to the lower rates seen in the second quarter of last year. Importantly, this impact was partially mitigated by increased use of client deposits as a lower cost funding source.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

Other expenses increased 12% year over year, but declined 20 basis points relative to revenues, benefiting from a onetime disposal of PP and E, partially offset by higher share based compensation, mostly driven by higher share price in the period. Our effective tax rate was 15% in the quarter, down from 22.5% in second q twenty four. The year over year decrease was driven primarily by higher benefits from Lidobain. Moving to slide 13. Our adjusted net cash position ended the quarter at 3,700,000,000.0 reais, a sequential decrease of just a 118,000,000 reais despite executing share repurchases totaling almost 400,000,000 reais during the quarter.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

Excluding these buybacks and the present value adjustments to accounts receivable from card issuers, which flows through other comprehensive income, adjusted net cash would have increased by nearly 400,000,000 reais. Before we move on to questions, I'd like to thank you all for your time and continued support. We keep fully committed to our strategy, and our focus remains on disciplined execution and creating sustainable long term value for both our clients and shareholders. With that said, we are now ready to open the call up to questions.

[Operator]

We are now going to start the question and answer session. If you wish to ask a question, please click on raise hand. If your question has already been answered, you can leave the queue by clicking on put hand down. Our first question comes from Tito Labarta with Goldman Sachs.

[Tito Labarta, Vice President at Goldman Sachs]

Hi. Good evening, everyone. Thank you for the call and taking my questions. Congratulations on the strong results. I have two questions, if I can.

[Tito Labarta, Vice President at Goldman Sachs]

Just first, how do you think I know you Pedro, you mentioned you'll revise the 2027 guidance after Links is done. But just thinking operationally in payments, given the slower growth environment that we're seeing for TPV, how comfortable do you feel about being able to deliver that 2027 guidance? And or maybe more specifically, how are you thinking about TPV growth both in cards and picks? And if that's lower than expected, can you still deliver on the guidance? And then my second question, just on the Lynx sale, can you give an update just on what should we expect for timing?

[Tito Labarta, Vice President at Goldman Sachs]

And is the plan to return all of the 3,000,000,000 reais in capital to investors, or do do you have any color on on what the plan is for for the cash that you'll get from the sale of Lynx? Thank you.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

Hi, Tito. Leah here. Thank you for the question. I'm going to take the question regarding guidance for 2027 and then pass it over to Matteus to take the second question. So I think regarding 2027 guidance and your specific question on TPV, we're monitoring this TPV dynamics closely given what we're seeing in the macro environment this year and also sort of the short term impact in TPV that we had from repricings in the first quarter.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

When we laid out our 14% TPV CAGR throughout 2027, the assumption really was a combination of a modest market share gain and an industry growth, in the low teens. So while we remain really confident in our ability to continue to win clients and gain share within the segment in the long run. Overall market growth has been softer than expected, and that does introduce some risk to our 2027 TPV outlook. But that said, regarding us looking at only from the perspective of TPV, it's important to emphasize really that TPV growth and share gains is not a sole focus. Rather, it really should be a consequence of our ability to evolve our business and the value proposition that we bring to clients in the long run.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

And TPV is one dimension of a bigger plan in which we're performing really well. So we continue to advance in extending our offers beyond payments to become a complete financial provider for our clients, which is highlighted by the evolution that we see this quarter in credits, in banking and ultimately in profitability. So on the profitability side, when we think about the combination of multiple monetization drivers, our cost discipline and capital allocation, including share buybacks, we're driving stronger than expected results and we're really confident in delivering those long term targets. So I think the message on TPV is we need to monitor. But from the overall plan, we're really confident with the long term guidance.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

Yeah. And regarding the second question around excess capital position and use of proceeds from the deal, I think maybe it's worthwhile to give a broader review on the topic. So as you may remember, we ended last year with a little over BRL3 billion in excess capital. In the first half of this year, we executed about BRL1.2 billion in buybacks. And when we compute the excess capital position of the second Q twenty twenty five, we actually ended the quarter with BRL2.4 billion in excess capital, excluding the assets available for sale.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

So we generated a little over BRL600 million in excess capital in the first half of this year. Again, if we were to include the net asset value from discontinued operations this quarter, we would be sitting at close to R6 billion dollars in excess capital as of today. Of course, when we look ahead, there is still a long road until the deal actually closing. And throughout this period, we're gonna be both generating additional excess capital, but also executing on the buybacks that we have approved. So in terms of actual use of proceeds and clarity on timing, we're we're basically going to provide that upon the closing of the transaction.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

But like Pedro mentioned in the in the presentation, in the absence of new opportunities available, the commitment and the idea is to return the capital back to shareholders.

[Tito Labarta, Vice President at Goldman Sachs]

Okay. No. That's great. Thanks, Matteo and Lea. So and Lea, just to clarify your comments.

[Tito Labarta, Vice President at Goldman Sachs]

So, you know, there could be some downside risk on that CPP. But on the other metrics, which, you know, perhaps are more important, you you still feel comfortable on that outlook even if TPV gets slower.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

Correct?

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

Perfect. That's correct, Tito.

[Tito Labarta, Vice President at Goldman Sachs]

Okay. Great. Thanks a lot, Lia. Thanks, Matthias.

[Operator]

Our next question comes from Gustavo Schroding with Citi.

[Gustavo Schroden, Equity Research Director at Citi]

Good evening, everybody. Thanks for the call and taking my question. And congrats on the conclusion of the deal. Indeed, could see that the continued operations generate more value than before. So my question is, I'm trying to understand how sustainable is this financial income growth because we've seen that so far the strategy to diversify and to focus on banking business, it is paying off and it is offsetting this weaker transaction activities.

[Gustavo Schroden, Equity Research Director at Citi]

So my question is, it is sustainable to, I mean, to continue to see this financial income offsetting and sustaining this higher level of gross profit generation? And my second question is, you showed that the ROE would be around 30% considering the continued operation. So do you think that this is the level that we should see the company delivering of ROE? So do you think that the 30% is a good number for us as I know that is not a not a official guidance, but just an indication of what would be the sustainable ROE in the coming years? Thank you.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

Thanks for the questions, Gustavo. So maybe I will start, and then Lee or Pedro may add. So the first question regarding financial income, I think towards the end of your question, you actually got the the answer, which is we're looking more and more towards gross profit generation rather than the individual line items on a stand alone basis. And when we look at the gross profit growth, with our updated guidance, we're we're basically guiding for a growth of 13.5% for the year. I think Lia mentioned, in the presentation that when we look at TPV MSMB, we're actually seeing growth at about low double digits.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

So this gap between the low double digits of TPV growth and the 14.5% growth for gross profit is the result of the continued engagement with the other products that we have and also the price discipline that we've been showing throughout the year. So I think what the message here is that we're comfortable with that level of growth. Of course, when you look at the individual lines, it's going to become harder and harder to forecast because we have a lot of mixed movements with the usage of deposits and so on and so forth. And in your second point about the ROE, indeed, when we look at the financial services platform, we are already delivering the 30% ROEs. The only caveat here is that this 30% ROEs is including the excess capital position that we still have.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

So in a way, we have kind of a drag in these numbers. So what I would say looking ahead is that probably the 30% number is on the lower bound.

[Gustavo Schroden, Equity Research Director at Citi]

Perfect, Matthias. Very clear. Thank you.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

Thank you.

[Operator]

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

[Mario Pierry, Managing Director at Bank of America Merrill Lynch]

Hi, guys. Congrats on on the results. Thanks for taking my question. Let me ask you two questions as well then. When when do you expect this LYNX transaction to be closed, and why why are you already showing the figures without Lynx?

[Mario Pierry, Managing Director at Bank of America Merrill Lynch]

You know, like, I I understand that you wanna make it clear, but, you know, this might be a transaction that only closes next year. So just wanted to understand what are you thinking about timing and why to do it now? And the second question is related to to the price hikes. Right? You you you you did your price hikes at the beginning of the year.

[Mario Pierry, Managing Director at Bank of America Merrill Lynch]

Are are you still raising prices, or are you done? Is the full benefit of the price hikes already reflected on take rates? And do you think that these price hikes, led to a slowdown in in volumes? Because, again, radio show card volumes growing only 6% year on year. This is just slightly above inflation.

[Mario Pierry, Managing Director at Bank of America Merrill Lynch]

So I'm thinking maybe you were too aggressive in your price hikes and you lost some market share. How do you think about that? Thank you.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

Hey, Mario. Thanks for the questions. So I'll take the first one and then pass it over to Leo to talk about pricing versus TPV as well. In regards first to the timing of the transaction, we are very confident in the outcome of the process. But as you know, the timing of the approval is hard to predict because in the end of the day, it's largely outside of our control.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

What we know is that according to the legislation, we have a maximum period of three thirty days for antitrust approval. And we believe that given the high complementarity of the operations between Linx and Totus, this approval could be concluded, faster. But again, giving a specific timeline is not something that we can do at this stage. But then, connecting to the second piece of the question, which is, why we are reporting continued versus discontinued operation, we have no choice of doing otherwise. So according to IFRS, whenever we make the decision to sell the assets and there is a reasonable expectation to be done, in at least twelve months, we need to reclassify those assets as held for sale. So we're basically following the rule here. Yes?

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

Yes. So, Mario, your question around prices and if there are additional price hikes. So let me talk about pricing and TPV dynamics in general. Regarding pricing, the biggest repricing waves were in fact in the first quarter. I would say that in terms of the interest rate hikes that we saw, all the repricing has been done to adjust for that.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

Beyond those repricing that were done in the first quarter, what will happen is normal course of business, right? We always have a dynamic repricing dynamic repricing strategy. So when we price a client according to a specific TPV or a specific offering commitment, there may be repricings in the future depending on that how that client behaves. But that's incremental, and that's always been part of the day to day of the business. But maybe taking a broader look at TPV dynamics, the repricings sort of had a onetime kind of short term impact on TPV growth.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

We talked about this in the first quarter. So as much as we understand these repricing ways as having been very successful, even seeing like churn levels below our expectations, Some level of churn is always expected, right, given the dimension of these repricing waves that happened in the first quarter. And really those repricing waves were, just to be clear, extremely related to the interest rate increase. So we don't think that, that was excessive. It was actually what we had to do in terms of a discipline in terms of financial discipline.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

But overall TPV dynamics, I think, were was also very impacted by the macro. And when we look at granular data from TPV at the client level and when we look at same store sales across different segments, what we see is that market growth this year has been very uneven. So when we look at different client tiers, right, larger clients have generally performed better, while SMBs and especially micro merchants have faced more challenges when we look at a same store sales TPV growth, which is expected given the higher interest rates. Typically, they will affect smaller clients and less structured businesses first. So the TPV dynamics relates to both the macro and the onetime short term impact from the repricings.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

And as far as interest rates remain at the levels that they are, we don't expect further big repricing waves this year.

[Mario Pierry, Managing Director at Bank of America Merrill Lynch]

That's clear. Let me just one thing. In your remarks, you mentioned that you expect MSMB volumes or TPV to stabilize at low double digits for the remainder of the year. Can you discuss what was the evolution of TPV growth throughout the quarter? Because my understanding, right, talking to to other players and to the banks in Brazil, everybody is expecting a a weaker economy in second half of the year.

[Mario Pierry, Managing Director at Bank of America Merrill Lynch]

What what are you seeing that makes you confident that you can maintain, this low double digit growth?

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

Yeah. That's a good point, Mario. I think there's some room when we talk about double digit growth because growth in this queue was actually 12%, right? Yeah. So you have some room for a couple percentage points there.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

But answering your question, we did indeed see the growth slowing down throughout the quarter. But when we look, more recent data, it's consistent with this double digit growth. So that's why we are confident on these dynamics. The other thing that I would point out is that, fourth q and third q last year, we have somewhat somewhat, easier comps as well. So that helps with the dynamics.

[Mario Pierry, Managing Director at Bank of America Merrill Lynch]

Perfect, guys. Thank you very much.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

Thank you, Mario.

[Operator]

Our next question comes from Daniel Vaz with Safra.

[Daniel Vaz, Lead Analyst - Equity Research at Safra National Bank]

Hi, everyone. Good evening, and congrats on the results. Also, I want to touch base on the TPV growth that has been slowing down, and we already discussed that in the call. But on the positive side, your gross profit remains resilient and supported by high customer engagement or penetration of the other financial services, right? So you revised your net income upwards by approximately million.

[Daniel Vaz, Lead Analyst - Equity Research at Safra National Bank]

So I wanted to touch base and understand to what extent this is driven only by stronger than expected top line. And in my numbers here, I can see a good cash generation. So the other financial income is growing well as well. So you're doing buybacks while generating cash. So is it only, top line driven?

[Daniel Vaz, Lead Analyst - Equity Research at Safra National Bank]

Or is there any other meaningful contribution for, operating expenses or cost to serve or any any tax rate, thing that we should know about? Thank you.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

Thanks for the question, Daniel. So when we compare the implied growth for adjusted net income versus the growth for gross profit, you can see that adjusted net income implied in the guidance is growing at 18% and gross profit is actually growing 14.5%. So the reason behind those two lines is basically two main dynamics. The first one is indeed, related to effective tax rates. So in the beginning of the year, we guided around 20%, as the benchmark for the year.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

But given the strong performance in the first half and our updated expectations, we now believe that we can land below that mark with second half tracking closer to the second q levels. So that's one point. And the second point, in the beginning of the year, we also anticipated selling expenses to grow faster than gross profit. But what we're actually seeing now is a healthier trend on that front. So those two lines are the main reason why, adjusted net income growth outpaces the growth in gross profits.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

Other than that, I think you touched upon the two main drivers. On the gross profit, side is around pricing plus engagement with new products, and as well the buyback execution for sure.

[Daniel Vaz, Lead Analyst - Equity Research at Safra National Bank]

Thank you, Matteo. If I could, just follow-up on your selling expenses commentary. What do you attribute that to? Is it you're seeing less of, competition there, or you're having to do less of a marketing expenses? Is there any, for example, Big Brother, thing that you used to do a lot, very harsh in the first, first half of the year? Can you elaborate more on the selling part?

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

Yes. So Danielle, just quickly on selling expenses, operational leverage. This quarter, it had to do with operational leverage and marketing expenses. And we do expect less of an impact, right, in those marketing expenses as we have concluded Big Brother Brazil. And we still have to plan ahead how that's going go, but we do expect this leverage to continue.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

I think in general, because selling expenses is something that has received a lot of attention over the past quarters, and we feel it's somewhat misunderstood, maybe it's worth highlighting a couple overlooked aspects on selling expense dynamics. First, I think it's important to highlight that our investments in sales, particularly in expanding our sales force, is really focused on acquiring new clients and generating incremental TPV. Right? That sounds kind of obvious, but it's important to remember that each new cohort brings in new TPV that compounds over time. Naturally, as the install base grows, the rate of TPV growth slows, but the absolute value generated, so the absolute incremental TPV, continues to increase as our sales force matures and scales.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

That's a mathematical reality. In other words, lower TPV growth does not mean that sales investments isn't working. We'll be we're actually building a larger base that monetizes over time and which incrementally dilutes those selling expenses. Second, let's remember that we don't invest in selling solely to grow TPV. We invest in selling to grow revenues and ultimately profitability.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

So to the point that, on your initial question and what Matteo just mentioned, TPV starts some monetization cycle, which extends beyond payments to banking and credit. This dynamic is also why selling expenses as a percentage of revenue is expected to trend downwards in the long term, and we're starting to see these effects this quarter. So it's important to highlight that we remain disciplined in growing our sales force, and we do believe there's room for efficiency gains in a few dimensions, such such as marketing, as I just mentioned, and and eventually efficiency gains in some specific channels. But the message that we want to stick with is that we're not optimizing for TPV growth alone. We're optimizing for profitable growth and long term value creation. Thank you, Daniel.

[Operator]

Our next question comes from Neha Agarwala with HSBC.

[Neha Agarwala, SVP at HSBC]

Hi. Congratulations on the results. Just quickly on the lending side of the business, we saw good growth this quarter. What should we expect for the remainder of the year given that you're a bit more cautious on the macro side? Should we expect strong growth?

[Neha Agarwala, SVP at HSBC]

Which lines would you be focusing more on? And then if you could also talk about the cost of risk, you increased it to around 20% level this quarter. Should we expect that going forward as the run rate, for the credit business? Thank you so much.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

Hey, Neha. Thanks for the questions. So I'll probably start with cost of risk, then we can talk about growth as well. So in regards to cost of risk, I think we've mentioned this in the presentation as well. There were basically three drivers, when we look at the quarter.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

The first two drivers will continue, which are, the growth of the disbursements and also more and more the growth of other products, especially the credit cards. But if you if we only account for these these elements, the cost of risk would actually be around 13.5%. The remainder has to do with, cautious approach towards the macro environment. And of course, that tends to be one time. So when we look ahead, I think we should look closer to the 13.5% or maybe mid teens, but we're not expecting the 20% levels.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

And then the second question around the growth of the portfolio. I think this is a message that we like to always emphasize. The growth of the credit book is not linear, at all in our trajectory because we continuously do, a lot of tests, test and learning with our, approach. And whenever we feel confident about those tests, then we tend to scale disbursements in a nonlinear, fashion. So indeed, when we look at the second q, the disbursements grew about 41 in the working capital loans.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

But if we were to look at the first q twenty five, the disbursements were act actually flattish versus the '24. So I wouldn't read too much in the growth of disbursements that we had in the second quarter. This is not a view of the macro environment or nothing of the sorts. What we think about growth is that the penetration of working capital loans in the base is still low, So there is a lot of space to grow, but we're basically following the trajectory that we originally originally planned. Nothing new on that regard.

[Neha Agarwala, SVP at HSBC]

You so much, Matthias. Can you also talk a bit about the features, how things are going? What is the response you're getting from the merchants? How has the payback been on the loads that you've given out so far? Any color on how the progress has been so far would be very helpful.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

Yeah. Leah here. So on your question regarding the overall credit strategy of Evolution, I think we continue to focus, like we said last quarter on maybe, I would separate in two big dimensions. So when we talk about working capital solutions, which is the majority of the portfolio, As much as we continue to invest in digital distribution, we're sort of learning and scaling our ability to scale on the larger clients through specialist distribution. I think that's a focus for us.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

On the shorter duration types of products, it's it's relatively less mature. Right? We're still learning and, growing more cautiously, I would say. I think one thing that the team is very focused on is on the credit building itself. So how do we enable clients that don't necessarily have, an initial offering to build sort of this, credit limit over time?

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

And, hopefully, longer term, what we expect this to enable us to achieve is some sort of credit offer to the majority of the clients in the base, naturally within our risk appetite, but we this credit building app, process will enable us to expand the ways in which we scale. So I think the the message is really consistent. Nothing very different. And, yeah, we're happy with the evolution.

[Neha Agarwala, SVP at HSBC]

Thank you so much, Leah, for that.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

Thank you, Neha.

[Operator]

Our next question comes from Marcelo Mizari with Bradesco BBI.

[Marcelo Mizrahi, Equity Research - Head of Latam Banks & Financials at Bradesco BBI]

Hello, everyone. Thank you for the opportunity. Congratulations from the for for the results. Regarding, about the credit again, so I understand. So the strategy and the message, but really the the the amount of money that was disbursed in this quarter was the highest since the you guys started this strategy.

[Marcelo Mizrahi, Equity Research - Head of Latam Banks & Financials at Bradesco BBI]

So just want to understand more. So even this view that to be more conservative in terms of provision and cost of risk, Why the the volumes were so higher than the last quarters? So that's any different product or any any different type of clients that you guys are starting to to develop and to and to to, give credit. So just please, give me some idea here to understand the strategy looking forward.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

For sure, Miz, Matteo is here. So, again, there wasn't any specific, event, driving the 620,000,000 in disbursements this quarter. So no new features or no new new products. I think the message here is maybe to look at a longer window. So the credit operation continues to grow, but it's not linear at all.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

If we were to look at the past quarters, not only the first q, but also last year, there are quarters in which disbursement tends to become flat, because we're either testing new offerings or, the results from a given hypothesis are not yet validated. But then that tends to follow a bigger growth in the subsequent quarters. I think that's pretty much what happens. And probably the best way to look at it is actually the fir the disbursements from the first q twenty five were lower. I don't think the second q were bigger.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

That's probably the best way to think about it. And then the question, on how that connects with the view of increasing provision, amidst the the weaker or the more uncertain macro environment. I think here, it's more of a cautious decision. So when we look at the actual portfolio performance, we're not seeing material changes. You can see that the delinquency levels remain stable.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

NPL fifteen to ninety days actually decreasing a little bit, NPL over ninety days, flattish. But we did observe some softening in our client same store sales, which we mentioned affected the TPV growth. So in light of that signal, we decided to strengthen the provisioning to ensure that we are appropriately covered, even if the broader environment remains under pressure. And the second thing that I think is also worth highlighting here, what we've been doing since the beginning of the year is also to increase the prices of the new cohorts that we are dispersing. So if you were to look at the average rate for the portfolio towards the end of last year, it was closer to 3% per month.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

Now it's trending actually closer to four percent per month. So even despite the higher cost of risk, when we look at the actual profitability of the new cohorts, they're still tracking really well. And that's what give us comfort to continue to scale and continue to improve the product as well. So those are the main thinking about here.

[Marcelo Mizrahi, Equity Research - Head of Latam Banks & Financials at Bradesco BBI]

Looking forward, are there any guidance to to to give us to to think about cost of risk? So it's more the level is 20% in the next quarters or or lower than that?

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

No. I think the 20%, we think is a one off. So probably the best way to think about cost of risk moving forward is on the mid teens. So closer to the 13.5%, 15% range, which again embeds the growth of the portfolio, but we shouldn't continue to add layers of protection for the macro environment as we move ahead.

[Marcelo Mizrahi, Equity Research - Head of Latam Banks & Financials at Bradesco BBI]

Okay. Thank you, guys.

[Mateus Scherer Schwening, CFO & IRO at StoneCo]

Thank you.

[Operator]

Our next question comes from Renato Meloni with Autonomous Research.

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

Hi, everyone. Congrats on the results, and thanks here for taking the question. So I wanted to explore a bit the competitive environment in the second half of the year. I mean, you already mentioned that you don't expect to increase prices. But I'm wondering, even if you continue to optimize your, cost of funding, if you could offer more competitive prices, as the economy, slows down.

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

And then if we can expand this even a bit further to 2026, when there are some rate cuts expected? What do you think is going be your strategy there when rates start to come down? Thanks.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

So I think hi, Anatolia here. On your hello. Question So I think regarding the first part of your question sorry. The first part of your question was about can you repeat, Sala?

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

Yeah. The competitive environment in the in the Yeah.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

So I think we don't expect any news on the competitive environment. We see a very rational competitive environment. And to be really honest, we price very much based on the bundling and the offerings that we offer our clients and based on our return hurdles.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

That's been our philosophy since we implemented these repricing strategy way back in 2022. So we don't expect to change that, and we don't see any changes in the competitive dynamics at all. I think long term, if interest rates go down, that mindset won't change. Of course, what will happen is there will be a bigger gap potentially between repricings between, sorry, pricings being applied to new sales versus the spreads of clients within the base. So there may be kind of competitive adjustments that will happen once the dynamics takes place.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

But that competitive adjustment will be a slower one, right, because the base is the base. Nobody is expected to change the repricings of the base downwards. So I think that there will be a readjustment, a re equilibrium that may be reached, but that's going to be a kind of multiyear process in our view. So that's how we see the overall dynamics.

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

Oh, perfect. That that's clear. So for the second half year, pretty much, stable prices and, gaining some share.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

Yeah. So nothing different than what we already said in terms of TPV dynamics and repricing strategy.

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

Perfect. Thank you, and congrats again on the results.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

Thank you, Renat.

[Operator]

Our next question comes from Eduardo Hosma with BTG.

[Eduardo Rosman, Analyst at BTG Pactual]

Hi. Good good evening, everyone. I have two two questions here regarding competition as well. The first one is about PICCs. I think, Itau, recently, they launched an initiative focused on on small businesses where I think among other things, they announced free fixed transactions, right, for our clients using the POS of HEIG.

[Eduardo Rosman, Analyst at BTG Pactual]

Right? So how do you see that, you know, and if you see other players doing the same? And the second one would be about deposits. Right? You've been growing pretty well here, and I think this is this is relevant for for your profitability.

[Eduardo Rosman, Analyst at BTG Pactual]

How do you see competition evolving for deposits? Do you see any pressure for higher remuneration? Thanks a lot.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

Hi, Hosman. Lia here. So regarding your first question around competitive dynamics and some players implementing no charges on PIX, I think those offers, they really come and go. In our view, Pix is one monetization driver among many. Depending on what sort of is the overall offer to a specific profile of clients, we do sometimes offer picks for free depending on what the overall economics of that that client is.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

I think the message is that as we evolve our banking road map and our overall stone road map, really, right, the more features that we have to bundle, the more we can play with those levers. So I think this is really a dynamic process. And the better the more features we have in terms of to respond to this dynamic process, the better. So think the message that we wanna bring across when we talk about the overall road map is really it's about two things. Right?

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

Evolving and launching the new features that really addresses our clients' needs. And the more features we have, the more bundles we can create. This is sort of a a virtual cycle that at the end of the day reflects in our ability to win clients and bring TPV within the ecosystem. But then more importantly, to really engage, right, make sure that our clients engage with our ecosystem overall. And ultimately, that will reflect in deposits growth.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

So I think deposits growth comes from multiple drivers. Every new feature that we launch is another reason for the client to operate within our ecosystem, and there is a pretty extensive road map ahead in terms of how we address more needs of those clients to operate more within the Stone ecosystem.

[Eduardo Rosman, Analyst at BTG Pactual]

Great. Thanks a lot, Leah.

[Lia Machado de Matos, Strategy & Marketing Officer at StoneCo]

Thank you, Hazmat, for the question.

[Operator]

Thank you. The Q and A session is now over. I would like to hand the floor back to StoneSco team for their concluding remarks.

[Pedro Zinner, CEO at StoneCo]

Well, thank you all for participating in the call, and see you in the next quarter. Thank you.

[Operator]

Stone's call conference call is now closed. We thank you for your participation and wish you a nice day.

Participants

Executives

• Pedro Zinner, CEO
• Lia Machado de Matos, Strategy & Marketing Officer
• Mateus Scherer Schwening, CFO & IRO

Analysts

• Tito Labarta, Vice President at Goldman Sachs
• Gustavo Schroden, Equity Research Director at Citi
• Mario Pierry, Managing Director at Bank of America Merrill Lynch
• Daniel Vaz, Lead Analyst - Equity Research at Safra National Bank
• Neha Agarwala, SVP at HSBC
• Marcelo Mizrahi, Equity Research - Head of Latam Banks & Financials at Bradesco BBI
• Renato Meloni, Senior Analyst - LatAm Financials at Autonomous Research
• Eduardo Rosman, Analyst at BTG Pactual