StoneCo Reports Third Quarter 2020 Financial Results
StoneCo Ltd. (Nasdaq: STNE) reported robust Q3 2020 results, with Total Payment Volume (TPV) of R$69.7 billion, up 113.8% year-over-year. Revenue reached R$934.3 million, a 39.2% increase, and adjusted net income grew 42.6% to R$287.9 million, marking a net margin of 30.8%. The active client base expanded to 582.9 thousand, showing a 40.9% year-over-year increase. Notably, operational leverage led to an adjusted pre-tax margin of 45.2%. Despite challenges from COVID-19, Stone's diverse financial solutions have positioned it for continued growth.
- TPV grew 113.8% year-over-year, reaching R$69.7 billion.
- Revenue increased by 39.2% to R$934.3 million.
- Adjusted net income rose 42.6% to R$287.9 million, with a 30.8% adjusted net margin.
- Active client base surged 40.9%, totaling 582.9 thousand clients.
- Strong operational leverage resulted in a 45.2% adjusted pre-tax margin.
- Take rate decreased to 1.30%, a drop from 1.91% year-over-year.
- Net income was R$249.1 million, up only 30.2%, showing slower growth compared to adjusted metrics.
GEORGE TOWN, Grand Cayman, Oct. 29, 2020 (GLOBE NEWSWIRE) -- StoneCo Ltd. (Nasdaq: STNE) (“Stone” or the “Company”), a leading provider of financial technology solutions that empower merchants to conduct commerce seamlessly across multiple channels, today reports its financial results for its third quarter ended September 30, 2020.
To our shareholders:
“After two years as a public company, we are very proud to report a historic performance in the third quarter of 2020, with record TPV, active client base, revenue and adjusted net income levels, despite the economic and health challenges brought by COVID-19.
Our business model proved itself resilient and well positioned to capture opportunities that arose amid the increase in electronic payments, digital commerce and recovery of overall retail sales. We believe the combination of the hard work of our client-centric team with our technology and distribution capabilities were key differentiators for Stone at a moment like this when merchants need our support the most.
Our growth has reaccelerated rapidly, and net margin has expanded over 800 bps sequentially
Compared to the third quarter of 2019, our TPV grew
Our SMB business in the hubs has also recovered very strongly, presenting the same trend of acceleration in each and every month since April, going back to over
We have also seen a strong recovery in the addition of net new active clients, which surpassed 63 thousand this quarter,
Combined with a strong growth pace, our adjusted net margin has expanded over 800 bps sequentially, surpassing
Stone continues to evolve to become a complete financial platform
During the third quarter we have rolled out our ABC platform to all our banking clients and expect to do the same for all acquiring clients during the fourth quarter. The new ABC dashboard is simple and easy to use, offering our clients key features such as acceptance of all payments methods, prepayments, credit, wire transfers, boleto issuance and bill payments, pre-paid cards, payment links and a virtual shop. In mid-November, we will enable our clients to accept PIX transactions directly on the POS, using a dynamic QR code, bringing more security and convenience to retailers.
The number of transactions in our banking platform multiplied by impressive 8x in the third quarter compared with the second quarter of 2020 and our credit portfolio more than doubled in the same period, surpassing R
Our Fintech-as-a-Service business is evolving
We continue to advance our Fintech-as-a-Service business, with the capabilities of our platform evolving to attend the increasing needs of our clients. Our platform serves a range of clients and business model needs, from the small digital SMBs to large marketplaces. The growth in online transactions has been helping the strong growth pace in that business front. Our online TPV grew an impressive
We have given important steps in building a Full-Commerce software platform
Regarding our full-commerce software platform, we have given important steps: we have announced the transaction with Linx, a big step forward to achieve our strategic roadmap. Also, we have invested in Questor, an ERP for accounting offices and SMBs. Their 6 thousand accounting clients serve more than 450,000 businesses across the whole country. In the third quarter we had strong, fully organic growth in our software client base, which increased more than
Two years ago, when we reported our third quarter 2018 results just after we became a public company, we mentioned that ‘looking to the balance of 2018 and beyond, we are excited about the breadth of opportunities available to us to continue to expand our business, offer more solutions to merchants and build long-term shareholder value.’
Our team did a great job in addressing those opportunities and when we look ahead today, we are even more excited with what we can achieve. Even though we are happy with our growth trajectory we think that we are still far from our potential and therefore we will keep investing heavily on technology, team development and channel distribution as we see ourselves still in the early days of our business.
We will keep running our business with a young, fast and small company mentality where we are passionate about customers and obsessed about details even though we already have some scale. We will continue betting on culture and people development, operational leverage and disciplined capital allocation.”
Thank you
Thiago Piau, CEO
Operating and Financial Highlights 3Q20
| Total Payment Volume (TPV) R$ 69.7 BN Up | Take rate 1.30% Or |
| Total Revenue and Income R$934.3 MM An increase of | Net Addition (ex-TON) of 63.5k similar to pre-COVID levels and |
| Adjusted Pre-tax Margin 45.2% 15.3 p.p. higher than 2Q20, and similar to pre-COVID levels | Adjusted Net Income R$ 287.9 MM Up |
| Net Income R$ 249.1 MM Up | Adjusted EPS (diluted) R$ 0.99 per share An increase of |
| EPS (basic) R$ 0.87 per share An increase of | Adjusted Free Cash Flow R$ 288.6 MM |
Update on Our Strategy Roadmap
We are evolving our business strategy into three complementary and synergistic fronts:
(i) Financial Platform for SMBs: includes payments, banking, credit and other financial solutions for small and medium businesses. When we started our company, we chose to begin with payments, as we understood that this was the main pain point of merchants in Brazil. In the last few years, we have evolved our financial offering, beginning to pilot and then scale our banking and credit solutions in a separate manner. In parallel, we have been creating our integrated financial platform, which integrates these three solutions in a single product, with the high level of service that Stone has always provided. We are now rolling out this platform, with all acquiring, banking and credit clients expected to have access to the new product by the end of 2020.
In addition to our solutions for SMBs, we have TON, our venture in the micromerchant space, from which we can learn more about the huge target audience of autonomous workers in Brazil, and enhance our ecosystem of solutions.
(ii) Fintech-as-a-Service Platform: what we deliver as a product for SMBs we offer as a service for a range of digital clients and integrated partners, such as small and large e-commerces, marketplaces, wallets, subacquirers and third party software, allowing them to connect to the APIs of our proprietary end-to-end infrastructure of financial services. We are in the process of integrating our PSP, gateway and core platforms into a unified offering. We offer solutions to enable acceptance with better conversion rates, processing, split payments and settlement, reconciliation, fraud prevention, chargeback disputes, wire transfers, boleto issuance, bill payments, prepayments, credit and management of clients' businesses, among other features within our roadmap. All that with a simple and comprehensive offering in order for clients to have a centralized way of managing their businesses, using as a product or white label.
(iii) Full-Commerce Platform: We are building a full-commerce platform available to merchants of all sizes, both traditional retailers in the offline world who want to digitize their businesses and digital-native players who want to quickly scale their businesses based on our software platform, providing a seamless omnichannel experience. We started investing in a portfolio of software companies in the past two years and the acquisition of Linx is a big step forward in our plans.
These three pillars represent the strategic direction that we are pursuing in the company. While each one of them is at a different level of maturity, their results are already evident.
3Q20 Performance Highlights
Financial Platform - Payments, Banking, Credit
After seeing a strong impact from the COVID-19 outbreak in the second quarter of 2020, we saw significant improvement in retail activity throughout the third quarter of 2020. Cities are slowly evolving to more flexible stages of economic reopening, allowing more businesses to resume their activities while following all safety measures and, in many cases, with limited capacity.
In that scenario, our acquiring business has posted significant growth throughout the third quarter, with strong growth in TPV and client base. TPV year over year reached
Chart 1: TPV growth (year over year) (See PDF)
Chart 2: TPV growth ex-Coronavoucher (year over year) (See PDF)
Such strong growth came from different channels, including the hubs, which presented accelerating growth trend every month from April to September culminating in
We have seen most economic sectors above pre-COVID levels in terms of TPV, except for Travel and Entertainment and Recurring Services. However, we already see those two sectors slowly resuming activities and starting to regain a larger share of TPV. In addition, we saw strong TPV and client base growth both quarter over quarter as well as year over year across all 27 Brazilian States.
Our client addition (ex-TON) numbers are back to pre-COVID levels, reaching 63.5 thousand net adds in the third quarter after being depressed in the second quarter by the immediate impact from COVID in mid-March. This led to a total client base (ex-TON) of 582.9 thousand in the third quarter.
Chart 3: Net Adds Evolution (90-days) (See PDF)
As of September 30, approximately
Our banking solution continues to evolve fast with increased engagement. We ended the quarter with a total of 357,100 open accounts, and 88,600 clients receiving their sales directly in a Stone digital account. Also, we have seen increased traction in the usage of our prepaid cards, with TPV multiplying by 2.4 times quarter over quarter. The strong evolution of our banking platform resulted in banking revenues in the third quarter almost five times what they were in the second quarter, coming both from SMB revenue growth as we increase our banking client base and from our partners, in our fintech-as-a-service strategy.
Chart 4: Banking Number of Accounts (Thousand) (See PDF)
Chart 5: Banking Revenue (Indexed to 100) (See PDF)
The Brazilian Central Bank's instant payment solution PIX will begin to be accepted throughout the country by November 16th. Our digital banking platform is directly connected to the Central Bank, which will allow us to settle PIX transactions for our clients, with good economics. Clients can open a Stone account and obtain a PIX key directly through their POS device within a couple of minutes, enabling them to offer a new form of payment to their clients.
On credit, we continue to scale the solution while looking to achieve the best combination of risk and return, with a ROA1 of approximately
Chart 6: Credit Number of Clients (Thousands) (See PDF)
Chart 7: Credit Portfolio (R$mn) (See PDF)
As mentioned in the previous quarter, we intend to scale our credit solution mainly through third-party funding. In that sense, we have set up a FIDC structure, through which we expect to raise third-party funding in the coming months. Also, we are in advanced stages to have BNDES funding of up to R
Fintech-as-a-Service and Online Business
Our fintech-as-a-service continued to show progress through the third quarter of 2020, with big contribution from an accelerated digitization trend in Brazil. Within this strategy, our online TPV grew
Chart 8: Online TPV growth year over year (See PDF)
Overall, the combination of our Integrated Partners and Digital clients increased from
In the fourth quarter, TPV from Coronavoucher is expected to decline compared with the third quarter, as the government reduces this temporary financial aid in terms of both value and eligible recipients as the economy recovers.
Full Commerce Platform through Software
Our total number of software clients, increased to 342,0003 in the third quarter of 2020, up from 283,000 in the second quarter of 2020. This represents
Chart 9: Number of Subscribed Software Clients (Thousand) (See PDF)
We currently have a comprehensive portfolio of software solutions among different segments including customer engagement, marketplace services, social media platform and different types of POS/ERP solutions addressing different verticals to help clients better manage their businesses and sell more.
In October 2020, we made an investment in Questor, a ERP for accounting offices and integrated cloud ERP offering for SMBs. Questor serves over 6,000 active clients and SMBs offering solutions related to accounting management, fiscal solutions and ERP.
Regarding the Linx acquisition, announced on August 11, Linx's shareholders meeting is scheduled for the 17th of November of 2020 to vote on the transaction with Stone. We are confident that our offer is the best option for all stakeholders, including clients, investors and employees and will help accelerate Stone's full commerce platform asset.
For more information about the transaction with Linx, please refer to Stone’s Investor Relations website at https://investors.stone.co/.
TON
We have evolved significantly in our TON venture throughout the quarter. We ended the quarter with 65.0 thousand active clients4 in TON compared with 35.2 thousand in the second quarter, an increase of
Chart 10: Number of TON Clients1 (See PDF)
TPV in TON has been growing sequentially, with a compounded monthly growth rate of
Consistent with Stone's commitment to provide the best service to clients, one of TON's differentials is also its level of service, which is adapted for its target client, the micromerchant. According to Reclame Aqui5, a website focused on evaluating customer complaints and level of service among companies in Brazil, TON leads in terms of service level with an 8.9 score compared to an average of 7.2 for the two market leaders.
Operating and Financial Metrics
Table 1: Operating and Financial Metrics
| Main Operating and Financial Metrics | 3Q20 | 3Q19 | Δ | 9M20 | 9M19 | Δ | |||||||||
| TPV (R$ billions) | 69.7 | 32.6 | 113.8 | % | 145.4 | 88.9 | 63.7 | % | |||||||
| Active Clients (ex-TON) (thousands) | 582.9 | 413.6 | 40.9 | % | 582.9 | 413.6 | 40.9 | % | |||||||
| Period Net Additions (ex-TON) (thousands) | 63.5 | 64.1 | (1.0 | %) | 102.0 | 145.7 | (30.0 | %) | |||||||
| Take Rate | 1.30 | % | 1.91 | % | (0.61 p.p.) | 1.53 | % | 1.87 | % | (0.35 p.p.) | |||||
| Total Revenue and Income (R$ millions) | 934.3 | 671.1 | 39.2 | % | 2,318.4 | 1,793.1 | 29.3 | % | |||||||
| Adjusted Net Income (R$ millions) | 287.9 | 201.9 | 42.6 | % | 600.4 | 582.1 | 3.1 | % | |||||||
| Adjusted diluted EPS | 0.99 | 0.71 | 38.2 | % | 2.12 | 2.06 | 2.9 | % | |||||||
Active client base
In the third quarter of 2020, we reached an active client base6 of 582.9 thousand, or a
Chart 11: Active Client Base (Excludes TON/Stone Mais)7 (Thousands) (See PDF)
Client base in TON8 reached 65.0 thousand clients in the third quarter of 2020,
Take rate
Our reported Take Rate was
Take rate excluding Coronavoucher was 15bps lower than in the third quarter of 2019, mostly explained by (i) stronger debit over credit mix, (ii) lower prepayment rates, especially in large clients, as a result of the lower base rate in the country and (iii) 3bps from the clients' lifetime revision in 3Q19 as explained in our 3Q19 results (please refer to our 3Q19 Earnings Release). These effects were partially offset by higher take rates in the hubs, helped by the cross-selling of new solutions, as we diversify our business to help clients among their different needs.
Chart 12: Evolution of Take Rate9 (See PDF)
Chart 13: Take Rate ex-Coronavoucher (See PDF)
TPV
Total Payment Volume (TPV) was R
Coronavoucher is a government financial aid program targeting the most vulnerable part of the population as autonomous and informal workers and people without income. Those individuals receive the amounts in a prepaid card and many of them used the card to transfer money to different digital wallets and to buy goods. Whenever those digital wallets use Stone fintech-as-a service platform to process the cash-in transactions, we capture the related TPV, which amounted to R
TPV growth was strong both in the hubs as well as for Digital and Integrated Partners. In the hubs, TPV growth was strong among all Brazilian States, following the same accelerating trend as total TPV and reaching growth levels in September similar to pre-COVID levels.
Table 2: Quarterly Statement of Profit or Loss
| Statement of Profit or Loss (R$mm) | 3Q20 | % Rev. | 3Q19 | % Rev. | Δ % | Δ p.p. | ||||||
| Net revenue from transaction activities and other services | 354.1 | 37.9 | % | 193.9 | 28.9 | % | 82.6 | % | 9.0 p.p. | |||
| Net revenue from subscription services and equipment rental | 92.5 | 9.9 | % | 94.2 | 14.0 | % | (1.7 | %) | (4.1 p.p.) | |||
| Financial income | 460.1 | 49.2 | % | 335.1 | 49.9 | % | 37.3 | % | (0.7 p.p.) | |||
| Other financial income | 27.6 | 3.0 | % | 48.0 | 7.1 | % | (42.5 | %) | (4.2 p.p.) | |||
| Total revenue and income | 934.3 | 100.0 | % | 671.1 | 100.0 | % | 39.2 | % | 0.0 p.p. | |||
| Cost of services | (208.1 | ) | (22.3 | %) | (112.5 | ) | (16.8 | %) | 84.9 | % | (5.5 p.p.) | |
| Administrative expenses | (106.2 | ) | (11.4 | %) | (71.2 | ) | (10.6 | %) | 49.1 | % | (0.8 p.p.) | |
| Selling expenses | (139.5 | ) | (14.9 | %) | (101.7 | ) | (15.1 | %) | 37.3 | % | 0.2 p.p. | |
| Financial expenses, net | (64.7 | ) | (6.9 | %) | (101.2 | ) | (15.1 | %) | (36.1 | %) | 8.2 p.p. | |
| Other operating expenses, net | (43.3 | ) | (4.6 | %) | (11.4 | ) | (1.7 | %) | 278.3 | % | (2.9 p.p.) | |
| Gain (Loss) on investment in associates | (1.1 | ) | (0.1 | %) | 0.9 | 0.1 | % | n.m | (0.2 p.p.) | |||
| Profit before income taxes | 371.5 | 39.8 | % | 274.0 | 40.8 | % | 35.6 | % | (1.1 p.p.) | |||
| Income tax and social contribution | (122.4 | ) | (13.1 | %) | (82.7 | ) | (12.3 | %) | 48.0 | % | (0.8 p.p.) | |
| Net income for the period | 249.1 | 26.7 | % | 191.3 | 28.5 | % | 30.2 | % | (1.8 p.p.) | |||
| Adjusted Net Income | 287.9 | 30.8 | % | 201.9 | 30.1 | % | 42.6 | % | 0.7 p.p. | |||
Table 3: Quarterly Statement of Profit or Loss
| Statement of Profit or Loss (R$mm) | 9M20 | % Rev. | 9M19 | % Rev. | Δ % | Δ p.p. | ||||||
| Net revenue from transaction activities and other services | 808.9 | 34.9 | % | 539.9 | 30.1 | % | 49.8 | % | 4.8 p.p. | |||
| Net revenue from subscription services and equipment rental | 266.1 | 11.5 | % | 239.9 | 13.4 | % | 10.9 | % | (1.9 p.p.) | |||
| Financial income | 1,146.0 | 49.4 | % | 883.7 | 49.3 | % | 29.7 | % | 0.1 p.p. | |||
| Other financial income | 97.5 | 4.2 | % | 129.5 | 7.2 | % | (24.7 | %) | (3.0 p.p.) | |||
| Total revenue and income | 2,318.4 | 100.0 | % | 1,793.1 | 100.0 | % | 29.3 | % | 0.0 p.p. | |||
| Cost of services | (556.7 | ) | (24.0 | %) | (298.7 | ) | (16.7 | %) | 86.4 | % | (7.4 p.p.) | |
| Administrative expenses | (270.0 | ) | (11.6 | %) | (213.3 | ) | (11.9 | %) | 26.6 | % | 0.3 p.p. | |
| Selling expenses | (366.0 | ) | (15.8 | %) | (251.6 | ) | (14.0 | %) | 45.5 | % | (1.8 p.p.) | |
| Financial expenses, net | (275.7 | ) | (11.9 | %) | (246.6 | ) | (13.8 | %) | 11.8 | % | 1.9 p.p. | |
| Other operating expenses, net | (86.8 | ) | (3.7 | %) | (55.2 | ) | (3.1 | %) | 57.2 | % | (0.7 p.p.) | |
| Gain (Loss) on investment in associates | (3.9 | ) | (0.2 | %) | 0.3 | 0.0 | % | n.m | (0.2 p.p.) | |||
| Profit before income taxes | 759.2 | 32.7 | % | 728.0 | 40.6 | % | 4.3 | % | (7.9 p.p.) | |||
| Income tax and social contribution | (227.9 | ) | (9.8 | %) | (187.8 | ) | (10.5 | %) | 21.4 | % | 0.6 p.p. | |
| Net income for the period | 531.3 | 22.9 | % | 540.2 | 30.1 | % | (1.6 | %) | (7.2 p.p.) | |||
| Adjusted Net Income | 600.4 | 25.9 | % | 582.1 | 32.5 | % | 3.1 | % | (6.6 p.p.) | |||
Total Revenue and Income
Total Revenue and Income was R
Excluding Other Financial Income, which is mainly comprised of interest on cash, our Total Revenue and Income grew
Chart 14: Total Revenue and Income in the Quarter (R$mm) (See PDF)
Chart 15: Accumulated Total Revenue and Income (R$mm) (See PDF)
Net Revenue from Transaction Activities and Other Services
Net Revenue from Transaction Activities and Other Services was R
Net Revenue from Subscription Services and Equipment Rental
Net Revenue from Subscription Services and Equipment Rental was R
Financial Income
Financial Income was R
Revenue from our credit solution is accounted for at fair value and factors in expected delinquency rates.
Other Financial Income
Other Financial Income was R
Costs and Expenses
In the third quarter of 2020, we continued to invest in our business. We hired new talents for many areas in the Company, mostly in operations, and continued to invest in technology and in the growth of our new solutions.
Chart 16: Operating Leverage10 (See PDF)
Operating Costs and Expenses as a percentage of Total Revenue and Income was
Cost of Services
Cost of Services were R
Compared with the second quarter of 2020, Cost of Services decreased as a percentage of Total Revenue and Income to
Administrative Expenses
Administrative Expenses were R
Compared with the second quarter of 2020, Administrative Expenses decreased from
Selling Expenses
Selling Expenses were R
Compared with the second quarter of 2020, Selling Expenses as a percentage of revenues decreased by 2.2 percentage points, mostly explained by lower average number of salespeople, as well as severance costs accounted for in the second quarter of 2020.
Financial Expenses, Net
Financial Expenses, Net were R
Compared with the previous quarter, Financial Expenses, net as a percentage of Total Revenue and Income decreased from
Other Operating Expenses, Net
Other Operating Expenses, Net were R
Compared with the second quarter of 2020, Other Operating Expenses, net were
Profit Before Income Taxes
Profit Before Income Taxes was R
Compared with the second quarter of 2020, pre-tax margin was 15.8 percentage points higher with contribution from all Costs and Expenses lines, mainly reduction in Cost of Services and Financial Expenses, net.
Income Tax and Social Contribution
During the third quarter of 2020, the Company incurred R
Net Income and EPS
Adjusted Net Income was R
Compared with the second quarter of 2020, Adjusted Net Margin was 8.3 percentage points higher, mainly due to the 15.8 percentage points higher Profit Before Income Taxes, partially compensated by a higher effective tax rate.
Chart 17: Adjusted Net Income in the Quarter (R$mm) (See PDF)
Chart 18: Adjusted Net Margin in the Quarter (See PDF)
Chart 19: Accumulated Adjusted Net Income (R$mm) (See PDF)
Chart 20: Accumulated Adjusted Net Margin (See PDF)
Net Income was R
Adjusted diluted EPS for the Company was R
Table 4: Adjusted Net Income Reconciliation (Quarter)
| Net Income Bridge (R$mm) | 3Q20 | % Rev. | 3Q19 | % Rev. | Δ % | Δ p.p. | ||||||
| Net income for the period | 249.1 | 26.7 | % | 191.3 | 28.5 | % | 30.2 | % | (1.8 p.p.) | |||
| Share-based compensation expenses (a) | 30.8 | 3.3 | % | 11.2 | 1.7 | % | 174.5 | % | 1.6 p.p. | |||
| Amortization of fair value adjustment (b) | 6.9 | 0.7 | % | 4.6 | 0.7 | % | 51.6 | % | 0.1 p.p. | |||
| Gain on previously held interest in associate (c) | 0.0 | 0.0 | % | 0.0 | 0.0 | % | n.a. | 0.0 p.p. | ||||
| Other expenses (d) | 13.5 | 1.4 | % | 0.0 | 0.0 | % | n.a. | 1.4 p.p. | ||||
| Tax effect on adjustments | (12.5 | ) | (1.3 | %) | (5.3 | ) | (0.8 | %) | 136.2 | % | (0.5 p.p.) | |
| Adjusted net income | 287.9 | 30.8 | % | 201.9 | 30.1 | % | 42.6 | % | 0.7 p.p. | |||
| GAAP basic EPS (e) | 0.87 | n.a. | 0.69 | n.a. | 26.3 | % | n.a. | |||||
| Adjusted diluted EPS (f) | 0.99 | n.a. | 0.71 | n.a. | 38.2 | % | n.a. | |||||
| Basic Number of shares | 292.8 | n.a. | 277.4 | n.a. | 5.6 | % | n.a. | |||||
| Diluted Number of shares | 297.2 | n.a. | 282.2 | n.a. | 5.3 | % | n.a. | |||||
Table 5: Adjusted Net Income Reconciliation (Accumulated)
| Net Income Bridge (R$mm) | 9M20 | % Rev. | 9M19 | % Rev. | Δ % | Δ p.p. | ||||||
| Net income for the period | 531.3 | 22.9 | % | 540.2 | 30.1 | % | (1.6 | %) | (7.2 p.p.) | |||
| Share-based compensation expenses (a) | 70.7 | 3.1 | % | 49.7 | 2.8 | % | 42.3 | % | 0.3 p.p. | |||
| Amortization of fair value adjustment (b) | 13.8 | 0.6 | % | 12.6 | 0.7 | % | 9.2 | % | (0.1 p.p.) | |||
| Gain on previously held interest in associate (c) | (3.0 | ) | (0.1 | %) | 0.0 | 0.0 | % | n.a. | (0.1 p.p.) | |||
| Other expenses (d) | 15.2 | 0.7 | % | 0.0 | 0.0 | % | n.a. | 0.7 p.p. | ||||
| Tax effect on adjustments | (27.6 | ) | (1.2 | %) | (20.4 | ) | (1.1 | %) | 35.1 | % | (0.1 p.p.) | |
| Adjusted net income | 600.4 | 25.9 | % | 582.1 | 32.5 | % | 3.1 | % | (6.6 p.p.) | |||
| GAAP basic EPS (e) | 1.91 | n.a. | 1.95 | n.a. | (1.9 | %) | n.a. | |||||
| Adjusted diluted EPS (f) | 2.12 | n.a. | 2.06 | n.a. | 2.9 | % | n.a. | |||||
| Basic Number of shares | 282.6 | n.a. | 277.3 | n.a. | 1.9 | % | n.a. | |||||
| Diluted Number of shares | 287.0 | n.a. | 282.3 | n.a. | 1.7 | % | n.a. | |||||
(a) Consists of expenses related to the vesting of share-based compensation.
(b) On intangibles related to acquisitions. Consists of expenses resulting from the amortization of the fair value adjustment on intangible assets and property and equipment as a result of the application of the acquisition method, a significant portion of which relates to the EdB and Equals acquisitions.
(c) Consists of the gain on re-measurement of our previously held equity interest in Linked to fair value upon the date control was acquired.
(d) Consists of the fair value adjustment related to associates call option, M&A expenses and earn-out interests related to acquisitions.
(e) Calculated as Net income attributable to owners of the parent (Net Income reduced by Net Income attributable to Non-Controlling interest) divided by basic number of shares. For more details on calculation, please refer to Note 17 of our Unaudited Interim Condensed Consolidated Financial Statements, September 30th, 2020.
(f) Calculated as Adjusted Net income attributable to owners of the parent (Adjusted Net Income reduced by Net Income attributable to Non-Controlling interest) divided by diluted number of shares. Adjustments consider share-based compensation expenses and amortization of fair value adjustments, in line with previous disclosures.
Cash Flow
Because of the nature of the prepayment and credit businesses of the Company, the dynamics of the sale of receivables in Brazil, Stone management looks at Adjusted Net Cash Provided by/ (Used in) Operating Activities and Adjusted Net Cash Provided by/ (Used in) Financing Activities, both non-IFRS metrics. These metrics consist of transferring the following four working capital items13 from our operating cash flow to our financing cash flow: (i) changes in Accounts Payable to Clients; (ii) changes in Accounts Receivables from Card Issuers; (iii) Interest Income Received, Net of Costs14, which is shown separately in our Cash Flow Statement but is directly linked to the funding of our prepayment operation and (iv) Loans Held for Sale related to our credit operation (see Appendix "Notes on Cash Flows" for further details).
The table below is a summarized version of our Statement of Cash Flows and Adjusted Free Cash Flow (a non-IFRS metric), along with a reconciliation of these metrics with our managerial (non-IFRS) view of them, as well as reconciliation of Adjusted Net Cash Provided by/ (Used in) Operating Activities and Adjusted Net Cash Provided by/ (Used in) Financing Activities to Net Cash Provided by/ (Used in) Operating Activities and Net Cash Provided by/ (Used in) Financing Activities.
Table 6: Summarized Statement of Cash Flows and Free Cash Flow
| Summarized Statement of Cash Flows | 3Q20 | 3Q19 | ||||||||||||
| (R$mm) | IFRS | (+) Adjustments | Managerial (Non-IFRS) | IFRS | (+) Adjustments | Managerial (Non-IFRS) | ||||||||
| Net Income | 249.1 | 249.1 | 191.3 | 191.3 | ||||||||||
| (+) Adjustments to Net Income | (116.4 | ) | (116.4 | ) | 118.3 | 118.3 | ||||||||
| (+) Working capital adjustments | (1,802.7 | ) | 2,140.4 | 337.7 | (119.5 | ) | 66.1 | (53.4 | ) | |||||
| (+) AR, AP, interest income received, net of costs (a) | (1,455.3 | ) | 1,455.3 | 0.0 | (66.1 | ) | 66.1 | 0.0 | ||||||
| (+) Changes in Loans Held for Sale | (685.1 | ) | 685.1 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||
| (+) Other working capital changes | 337.7 | 337.7 | (53.4 | ) | (53.4 | ) | ||||||||
| (=) Cash provided by (used in) operating activities | (1,669.9 | ) | 470.5 | 190.2 | 256.3 | |||||||||
| (-) Capex (b) | (181.9 | ) | (181.9 | ) | (215.2 | ) | (215.2 | ) | ||||||
| (+) Other investing activities | (7,442.0 | ) | (7,442.0 | ) | (82.9 | ) | (82.9 | ) | ||||||
| (=) Cash provided by (used in) investing activities | (7,623.9 | ) | (7,623.9 | ) | (298.1 | ) | (298.1 | ) | ||||||
| (+) Debt/FIDC issuance (repayment) | 862.7 | 862.7 | 190.5 | 190.5 | ||||||||||
| (+) Working capital related to credit operation | (685.1 | ) | (685.1 | ) | 0.0 | 0.0 | ||||||||
| (+) Working capital related to AR/AP | (1,455.3 | ) | (1,455.3 | ) | (66.1 | ) | (66.1 | ) | ||||||
| (+) Capital events (c) | 7,845.4 | 7,845.4 | (0.2 | ) | (0.2 | ) | ||||||||
| (=) Cash provided by (used in) financing activities | 8,708.0 | 6,567.7 | 190.3 | 124.2 | ||||||||||
| (+) Effect of foreign exchange on cash and cash equivalents | 1.3 | 1.3 | 2.1 | 2.1 | ||||||||||
| (=) Change in cash and cash equivalents | (584.5 | ) | (584.5 | ) | 84.5 | 84.5 | ||||||||
| Free Cash Flow (R$mm) | 3Q20 | 3Q19 | ||||||||||||
| Cash provided by (used in) operating activities | (1,669.9 | ) | 2,140.4 | 470.5 | 190.2 | 66.1 | 256.3 | |||||||
| (-) Capex (b) | (181.9 | ) | (181.9 | ) | (215.2 | ) | (215.2 | ) | ||||||
| Free Cash Flow | (1,851.8 | ) | 288.6 | (25.0 | ) | 41.1 | ||||||||
(a) Includes changes in accounts receivables from card issuers, accounts payable to clients and interest income received, net of costs .
(b) Includes purchase of property and equipment, plus purchases and development of intangibles assets.
(c) Includes capital increase, repurchase of shares, acquisition of non-controlling interest and cash proceeds from non-controlling interest
Adjusted (non-IFRS) Free Cash Flow
The Company defines Adjusted Free Cash Flow15, a non-IFRS metric, as Adjusted net cash provided by (used in) operating activities (non-IFRS), less purchase of property and equipment and purchases and development of intangible assets ("Capex").
The Company reported Adjusted Free Cash Flow of R
Net Cash Provided by (Used in) Operating Activities
In the third quarter of 2020, Net Cash Used in Operating Activities was R
Adjusting for the effects on table 6 above, our Adjusted (non-IFRS) Net Cash Provided by Operating Activities16 was R
Net Cash Used in Investing Activities
Net Cash Used in Investing Activities was R
Net Cash Provided by Financing Activities
Net Cash Provided by Financing Activities was R
Adjusting for the effects on table 6 above, our Adjusted (non-IFRS) Net Cash Provided by Financing Activities17 was R
Adjusted Net Cash
Management assesses net liquidity of the Company by Adjusted Net Cash, a non-IFRS metric. It consists of the items detailed in the Table 7 below:
Table 7: Adjusted Net Cash
| Adjusted Net Cash (R$mm) | 3Q20 | 4Q19 | ||
| Cash and cash equivalents | 2,192.3 | 968.3 | ||
| Short-term investments | 8,185.0 | 2,937.0 | ||
| Accounts receivable from card issuers | 15,919.5 | 14,066.8 | ||
| Loans held for sale | 1,192.0 | 124.7 | ||
| Derivative financial instrument (b) | 4.8 | 12.3 | ||
| Adjusted Cash | 27,493.6 | 18,109.2 | ||
| Accounts payable to clients | (8,477.3 | ) | (6,500.1 | ) |
| Loans and financing (a) | (1,193.7 | ) | (2,912.0 | ) |
| Obligations to FIDC quota holders | (4,555.7 | ) | (3,710.9 | ) |
| Derivative financial instrument (b) | (12.9 | ) | (1.4 | ) |
| Adjusted Debt | (14,239.7 | ) | (13,124.4 | ) |
| Adjusted Net Cash | 13,253.9 | 4,984.8 | ||
(a) Loans and financing were reduced by the effects of leases liabilities recognized under IFRS 16.
(b) Refers to economic hedge of cash and cash equivalents and short-term investments denominated in U.S. dollars
Accounts Receivable from Card Issuers and Loans Held for Sale are accounted for at their fair value in our balance sheet.
As of September 30, 2020, the Company´s Adjusted Net Cash position was R
This increase can be explained by the following factors:
- Cash and Cash Equivalents plus Short-term Investments increased by R
$6,472.0 million , from R$3,905.4 million on December 31, 2019 to R$10,377.3 million on September 30, 2020, mostly as a function of the follow-on proceeds in the amount of USD1,464.7 million; - Loans and financing plus Obligations to FIDC quota holders decreased R
$873.5 million from R$6,622.9 million on December 31, 2019 to R$5,749.4 million on September 30, 2020 as the company was able to partially amortize its debt obligations; - This amortization was funded mostly with own cash as Accounts Receivable from Card Issuers, net of Accounts Payable to Clients decreased only R
$124.6 million , from R$7,566.7 million on December 13, 2019 to R$7,442.2 million on September 30, 2020. - The Company invested R
$1,067.4 million in its Loans Held for Sale, going from R$124.7 million on December 31, 2019 to R$1,192.0 million on September 30, 2020. The Company expects to scale its credit business mostly through third-party funding. - Finally, derivative financial instruments net position decreased from R
$11.0 million on December 31, 2019 to a negative position of R$8.2 million on September 30, 2020.
Combined, these factors generated R
Other Information
Conference Call
Stone will discuss its third quarter financial results during a teleconference today, October 29, 2020, at 5:00 PM ET / 6:00 PM BRT. The conference call can be accessed at +1 (412) 317 6346 or +1 (844) 204 8586 (US), or +55 (11) 3181 8565 (Brazil), or +44 (20) 3795 9972 (UK).
The call will also be broadcast simultaneously on Stone’s Investor Relations website at https://investors.stone.co/. Following the completion of the call, a recorded replay of the webcast will be available on Stone’s Investor Relations website at https://investors.stone.co/.
About Stone Co.
Stone Co. is a leading provider of financial technology solutions that empower merchants to conduct commerce seamlessly across multiple channels and help them grow their businesses.
Investor Contact
Investor Relations
investors@stone.co
Forward-Looking Statements
This press release contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are made as of the date they were first issued and were based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. These statements identify prospective information and may include words such as “believe,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “forecast,” “plan,” “predict,” “project,” “potential,” “aspiration,” “objectives,” “should,” “purpose,” “belief,” and similar, or variations of, or the negative of such words and expressions, although not all forward-looking statements contain these identifying words.
Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond Stone’s control.
Stone’s actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to: more intense competition than expected, lower addition of new clients, regulatory measures, more investments in our business than expected, and our inability to execute successfully upon our strategic initiatives, among other factors. In particular, due to the high level of uncertainty with respect to the duration and scope of the COVID-19 crisis, the quantification of impacts on our financial and operating results cannot be reasonably estimated at this time.
About Non-IFRS Financial Measures
To supplement the financial measures presented in this press release and related conference call, presentation, or webcast in accordance with IFRS, Stone also presents the following non-IFRS measures of financial performance: Adjusted Net Income, Adjusted EPS (diluted), Adjusted Net Margin, Adjusted Net Cash Provided by / (Used in) Operating Activities, Adjusted Net Cash Provided by (Used in) Financing Activities, Free Cash Flow and Adjusted Free Cash Flow, Adjusted Net Cash / (Debt) and Adjusted Pre-Tax Margin.
A “non-IFRS financial measure” refers to a numerical measure of Stone’s historical or future financial performance or financial position that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with IFRS in Stone’s financial statements. Stone provides certain non-IFRS measures as additional information relating to its operating results as a complement to results provided in accordance with IFRS. The non-IFRS financial information presented herein should be considered in conjunction with, and not as a substitute for or superior to, the financial information presented in accordance with IFRS. There are significant limitations associated with the use of non-IFRS financial measures. Further, these measures may differ from the non-IFRS information, even where similarly titled, used by other companies and therefore should not be used to compare Stone’s performance to that of other companies.
Stone has presented Adjusted Net Income to eliminate the effect of items from Net Income that it does not consider indicative of its continuing business performance within the period presented. Stone defines Adjusted Net Income as Net Income (Loss) for the Period, adjusted for (1) non-cash expenses related to the grant of share-based compensation and the fair value (mark-to-market) adjustment for share-based compensation classified as a liability, (2) amortization of intangibles related to acquisitions, (3) one-time impairment charges, (4) unusual income and expenses and (5) tax expense relating to the foregoing adjustments. Adjusted Net Margin is calculated by dividing Adjusted Net Income by Total Revenue and Income.
Stone has presented Adjusted Net Cash Provided by/ (Used in) Operating Activities, in order to provide an addition view of cash flow from operations without the effect of funding decisions related to our financial solutions, that include prepayment business and credit solutions. Stone has presented Adjusted Free Cash Flow metric, which has limitations as it omits certain components of the overall Cash Flow Statement and does not represent the residual cash flow available for discretionary expenditures. For example, this metric does not incorporate the portion of payments representing principal reductions of debt or cash payments for business acquisitions. Therefore, the Company believes it is important to view Free Cash Flows measures only as a complement to our entire consolidated Statements of Cash Flows.
Stone has presented Adjusted Net Cash metric in order to adjust its Net Cash / (Debt) by the balances of Accounts Receivable from Card Issuers, Loans Held for Sale and Accounts Payable to Clients, since these lines vary according to the Company’s funding source together with the lines of (i) Cash and Cash Equivalents, (ii) Short-term Investments, (iii) Debt balances and (iv) Derivative Financial Instruments related to economic hedges of short term investments in assets, due to the nature of Stone’s business and its prepayment and credit operations.
Table 8: Unaudited Consolidated Statement of Profit or Loss
| Statement of Profit or Loss (R$mm) | 3Q20 | 3Q19 | 9M20 | 9M19 | |||||
| Net revenue from transaction activities and other services | 354.1 | 193.9 | 808.9 | 539.9 | |||||
| Net revenue from subscription services and equipment rental | 92.5 | 94.2 | 266.1 | 239.9 | |||||
| Financial income | 460.1 | 335.1 | 1,146.0 | 883.7 | |||||
| Other financial income | 27.6 | 48.0 | 97.5 | 129.5 | |||||
| Total revenue and income | 934.3 | 671.1 | 2,318.4 | 1,793.1 | |||||
| Cost of services | (208.1 | ) | (112.5 | ) | (556.7 | ) | (298.7 | ) | |
| Administrative expenses | (106.2 | ) | (71.2 | ) | (270.0 | ) | (213.3 | ) | |
| Selling expenses | (139.5 | ) | (101.7 | ) | (366.0 | ) | (251.6 | ) | |
| Financial expenses, net | (64.7 | ) | (101.2 | ) | (275.7 | ) | (246.6 | ) | |
| Other operating expenses, net | (43.3 | ) | (11.4 | ) | (86.8 | ) | (55.2 | ) | |
| Gain (loss) on investment in associates | (1.1 | ) | 0.9 | (3.9 | ) | 0.3 | |||
| Profit before income taxes | 371.5 | 274.0 | 759.2 | 728.0 | |||||
| Income tax and social contribution | (122.4 | ) | (82.7 | ) | (227.9 | ) | (187.8 | ) | |
| Net income for the period | 249.1 | 191.3 | 531.3 | 540.2 | |||||
Table 9: Unaudited Consolidated Balance Sheet Statement
| Balance Sheet (R$mm) | 30-Sep-20 | 31-Dec-19 | ||
| Assets | ||||
| Current assets | 28,346.8 | 18,404.9 | ||
| Cash and cash equivalents | 2,192.3 | 968.3 | ||
| Short-term investments | 8,185.0 | 2,937.0 | ||
| Accounts receivable from card issuers | 15,919.5 | 14,066.8 | ||
| Trade accounts receivable | 1,358.1 | 249.4 | ||
| Recoverable taxes | 60.1 | 50.4 | ||
| Prepaid expenses | 56.1 | 12.5 | ||
| Derivative financial instruments | 4.8 | 14.1 | ||
| Other assets | 570.8 | 106.3 | ||
| Non-current assets | 1,740.6 | 1,200.9 | ||
| Receivables from related parties | 9.2 | 12.8 | ||
| Deferred tax assets | 118.0 | 192.8 | ||
| Prepaid expenses | 60.6 | 0.0 | ||
| Other assets | 77.7 | 44.7 | ||
| Investment in associate | 55.0 | 28.2 | ||
| Property and equipment | 646.2 | 548.6 | ||
| Intangible assets | 774.0 | 373.7 | ||
| Total Assets | 30,087.4 | 19,605.7 | ||
| Liabilities and equity | ||||
| Current liabilities | 12,196.3 | 11,872.5 | ||
| Accounts payable to clients | 8,477.3 | 6,500.1 | ||
| Trade accounts payable | 166.9 | 97.8 | ||
| Loans and financing | 842.1 | 2,947.8 | ||
| Obligations to FIDC quota holders | 2,070.4 | 2,090.9 | ||
| Labor and social security liabilities | 180.5 | 109.0 | ||
| Taxes payable | 89.9 | 44.9 | ||
| Derivative financial instruments | 12.9 | 1.4 | ||
| Other liabilities | 356.1 | 80.6 | ||
| Non-current liabilities | 3,289.0 | 1,760.2 | ||
| Loans and financing | 491.5 | 87.5 | ||
| Obligations to FIDC quota holders | 2,485.2 | 1,620.0 | ||
| Deferred tax liabilities | 37.6 | 10.7 | ||
| Provision for contingencies | 9.7 | 9.6 | ||
| Labor and social security liabilities | 46.9 | 27.4 | ||
| Other liabilities | 218.1 | 5.1 | ||
| Total liabilities | 15,485.2 | 13,632.7 | ||
| Equity attributable to owners of the parent | 14,508.8 | 5,972.4 | ||
| Issued capital | 0.1 | 0.1 | ||
| Capital reserve | 13,481.1 | 5,443.8 | ||
| Treasury shares | (76.4 | ) | (0.1 | ) |
| Other comprehensive income | (37.3 | ) | (72.3 | ) |
| Retained earnings | 1,141.3 | 601.0 | ||
| Non-controlling interests | 93.4 | 0.6 | ||
| Total equity | 14,602.2 | 5,973.0 | ||
| Total liabilities and equity | 30,087.4 | 19,605.7 | ||
Table 10: Unaudited Consolidated Statement of Cash Flows
| Cash Flow (R$mm) | 3Q20 | 3Q19 | 9M20 | 9M19 | ||||||
| Net income for the period | 249.1 | 191.3 | 531.3 | 540.2 | ||||||
| Adjustments on Net Income: | ||||||||||
| Depreciation and amortization | 61.6 | 43.9 | 184.9 | 107.7 | ||||||
| Deferred income tax and social contribution | 31.2 | 22.5 | 66.4 | 53.0 | ||||||
| Loss (gain) on investment in associates | 1.1 | (0.9 | ) | 3.9 | (0.3 | ) | ||||
| Interest, monetary and exchange variations, net | (199.4 | ) | 28.4 | (142.7 | ) | 55.7 | ||||
| Provision for contingencies | 0.4 | 0.5 | 2.2 | 2.2 | ||||||
| Share based payments expense | 12.1 | 6.1 | 19.8 | 23.1 | ||||||
| Allowance for expected credit losses | 5.4 | 6.6 | 26.4 | 26.8 | ||||||
| Loss on disposal of property, equipment and intangible assets | 12.7 | 3.6 | 27.0 | 6.4 | ||||||
| Fair value adjustment in financial instruments at FVPL | (41.6 | ) | 0.0 | (46.7 | ) | 0.0 | ||||
| Fair value adjustment in derivatives | 0.1 | 7.6 | 20.8 | (0.0 | ) | |||||
| Remeasurement of previously held interest in subsidiary acquired | 0.0 | 0.0 | (3.0 | ) | 0.0 | |||||
| Working capital adjustments: | ||||||||||
| Accounts receivable from card issuers | (2,976.8 | ) | 34.9 | (1,713.4 | ) | (3,267.9 | ) | |||
| Receivables from related parties | (1.4 | ) | 0.9 | 6.2 | 3.9 | |||||
| Recoverable taxes | 66.7 | 4.9 | (8.5 | ) | (54.5 | ) | ||||
| Prepaid expenses | 3.2 | 1.1 | (104.3 | ) | (6.4 | ) | ||||
| Trade accounts receivable and other assets | (517.1 | ) | (45.5 | ) | (1,026.4 | ) | (85.6 | ) | ||
| Accounts payable to clients | 1,317.3 | (405.3 | ) | 1,016.2 | (163.9 | ) | ||||
| Taxes payable | 35.0 | 31.5 | 208.7 | 159.2 | ||||||
| Labor and social security liabilities | 73.7 | 15.6 | 87.9 | 24.0 | ||||||
| Provision for contingencies | (0.5 | ) | 0.3 | (2.1 | ) | 0.4 | ||||
| Other Liabilities | 46.3 | 2.5 | 59.6 | (20.2 | ) | |||||
| Interest paid | (28.0 | ) | (31.0 | ) | (138.3 | ) | (117.6 | ) | ||
| Interest income received, net of costs | 204.3 | 304.3 | 865.3 | 852.2 | ||||||
| Income tax paid | (25.3 | ) | (33.7 | ) | (127.8 | ) | (126.6 | ) | ||
| Net cash provided by (used in) operating activity | (1,669.9 | ) | 190.2 | (186.2 | ) | (1,988.3 | ) | |||
| Investing activities | ||||||||||
| Purchases of property and equipment | (153.7 | ) | (197.2 | ) | (334.7 | ) | (314.2 | ) | ||
| Purchases and development of intangible assets | (28.2 | ) | (18.0 | ) | (70.7 | ) | (47.7 | ) | ||
| Acquisition of subsidiary, net of cash acquired | (28.0 | ) | 0.0 | (85.3 | ) | 0.0 | ||||
| Proceeds from (acquisition of) short term investments, net | (7,379.7 | ) | (78.7 | ) | (5,159.2 | ) | 59.8 | |||
| Proceeds from the disposal of non-current assets | 1.7 | 0.1 | 6.6 | 1.0 | ||||||
| Acquisition of interest in associates | (36.0 | ) | (4.4 | ) | (43.5 | ) | (11.5 | ) | ||
| Net cash used in investing activities | (7,623.9 | ) | (298.1 | ) | (5,686.8 | ) | (312.5 | ) | ||
| Financing activities | ||||||||||
| Proceeds from borrowings | 150.0 | 388.6 | 3,606.8 | 838.6 | ||||||
| Payment of borrowings | (1,244.0 | ) | (210.2 | ) | (5,331.1 | ) | (211.6 | ) | ||
| Payment to FIDC quota holders | (529.8 | ) | 0.0 | (1,646.3 | ) | 0.0 | ||||
| Proceeds from FIDC quota holders | 2,500.0 | 20.0 | 2,500.0 | 1,640.0 | ||||||
| Payment of leases | (13.6 | ) | (7.9 | ) | (28.1 | ) | (19.3 | ) | ||
| Capital increase, net of transaction costs | 7,845.6 | 0.0 | 7,845.6 | 0.0 | ||||||
| Repurchase of shares | 0.0 | 0.0 | (76.3 | ) | 0.0 | |||||
| Acquisition of non-controlling interests | (0.2 | ) | (0.2 | ) | (0.7 | ) | (0.7 | ) | ||
| Cash proceeds from non-controlling interest | 0.0 | 0.0 | 230.5 | 0.0 | ||||||
| Net cash provided by financing activities | 8,708.0 | 190.3 | 7,100.4 | 2,247.1 | ||||||
| Effect of foreign exchange on cash and cash equivalents | 1.3 | 2.1 | (3.4 | ) | 0.9 | |||||
| Change in cash and cash equivalents | (584.5 | ) | 84.5 | 1,224.0 | (52.8 | ) | ||||
| Cash and cash equivalents at beginning of period | 2,776.8 | 160.6 | 968.3 | 297.9 | ||||||
| Cash and cash equivalents at end of period | 2,192.3 | 245.1 | 2,192.3 | 245.1 | ||||||
Note on the impact of different funding sources for prepayment in the financial statements
A natural consequence of TPV growth is the corresponding increase in both Accounts Receivable from Card Issuers and Accounts Payable to Clients. When the Company makes a prepayment to its clients as part of its working capital solutions offering, it reduces accounts payable by the corresponding prepaid amount plus fees earned by providing such prepayment service. In order to fund the prepayment operation, the Company predominantly uses one of the following sources of funding: (i) the sale of its receivables from card issuers to third-party banks or financial institutions, (ii) the issuance of senior and/or mezzanine quotas by FIDCs to institutional investors, (iii) the issuance of debentures and private loans or (iv) its own capital from capital contributions or cash flows from operations. These funding options lead to different effects on the Company’s statements of balance sheet and cash flows:
- Sale of receivables: the true sale of receivables results in the derecognition of Accounts Receivable from Card Issuers. As a result, when a prepayment operation is funded through the true sale of receivables, both Accounts Receivable from Card Issuers and Accounts Payable to Clients are derecognized from the balance sheet in the same amount and the combined effect to the cash flows is a positive operational cash flow equivalent to net fees earned by providing such prepayment service.
- Issuance of FIDC18 senior and/or mezzanine quotas: when the Company launches a new FIDC in order to raise capital, the amount raised from senior and/or mezzanine quota holders less structuring and transaction costs will be recognized on its balance sheet as cash and as a liability to senior and/or mezzanine quota holders. The Company then transfers its receivables from card issuers in its operating subsidiary to the FIDC and uses the cash to fund the prepayment operations. As a result of consolidating the FIDC in the Company’s financial statements, the Accounts Receivable from Card Issuers held by the FIDC remain on its consolidated balance sheet. This set of transactions generates a positive impact on the Company’s cash flows from financing activities in the amount received by the FIDC from senior and/or mezzanine quota holders less structuring and transaction costs. However, since Accounts Receivable from Card Issuers remains on the balance sheet but the Accounts Payable to Clients are derecognized, these transactions also cause a negative impact on our cash flow from operations. The net effect of impacts in cash flow from operations and cash flow from financing activities is positive.
- Debentures and private loans: when the Company issues a debenture or takes a private loan, the effect on the Company’s statements of balance sheet and cash flows is similar to the issuance of FIDC senior and/or mezzanine quotas.
- Deployment of the Company’s capital: when the Company uses its own capital to fund prepayment operations, it does not sell its receivables from card issuers and they remain on its balance sheet. However, its Accounts Payable to Clients are derecognized, and therefore these transactions cause a negative impact on the Company’s cash flow from operations.
Note on the impact of different funding sources for our credit solution in the financial statements
Besides the prepayment operation, the Company has recently started to offer credit solutions to clients, which also require funding. In addition to the sale of receivables, debentures and private loans mentioned above, the Company has the following main funding alternatives for the credit business:
- Bilateral agreements with third-party financial institutions: the company may enter into agreement with third-party financial institutions, so that such institutions are the lenders of record for Stone´s clients. In such case, the third-party financial institution would bear the funding need and the credit risk of the transaction and the Company would recognize a fee for rendering services related to the transaction. This was the alternative the Company opted for its initial pilot phase of the credit solution, which has a positive effect in cash flow from operations.
- Issuance of Credit FIDC senior and/or mezzanine quotas: in that case, the company raises funds in the capital markets and issues senior and/or mezzanine quotas to investors, while keeping a very small amount of own cash invested in subordinated quotas. Besides providing most of the funding needed for the credit offering, this alternative also reduces the Company´s overall exposure to credit risk. The impact in our consolidated statement of cash flows has similar logic as the issuance of FIDC senior and/or mezzanine quotas mentioned in the section “Note on the impact of different funding sources for prepayment in the financial statements” above.
- Deployment of the Company’s capital: if the Company uses its own capital to fund its credit operations, it decreases its cash balance and recognizes loan assets in its balance sheet. If the Company increases the amount of such loan assets, this has a negative impact in our Net Cash provided by/(used in) Operating Activities.
- Sale of loan assets: the true sale of loan assets results in its derecognition from our balance sheet, impacting positively our Net Cash provided by/(used in) Operating Activities.
As of September 30, 2020, the credit portfolio outstanding to Stone´s clients was R
Loan assets held in the Company´s balance sheet are accounted for at their fair value, which factors in market discount rates and expected delinquency, thus representing the value that the Company would most probably be able to sell such assets.
_______________________
1 Monthly return on assets, calculated as credit revenue, net of expected losses, divided by disbursed amounts.
2 Expected delinquency calculated as the percentage of the disbursed amounts that we do not expect to receive any payments throughout the lifetime of each contract.
3 Does not Include Questor.
4 Clients that transacted at least once in the last 12 months.
5 Level of client satisfaction according to www.reclameaqui.com.br from Apr-20 to Sep-20 and website access on 20-Oct-20.
6 Excludes TON clients.
7 Active clients mean clients that have transacted at least once over the preceding 90 days.
8 For clients of TON, Active Clients mean clients that have transacted with TON or Stone Mais solution at least once over the last 12 months.
9 According to IFRS 15, subscription revenue is accounted for over the expected life of merchants on a linear basis. As part of the annual assessment of assumptions for linearization of subscription revenue, life of merchants was revised upwards in 3Q19, contributing positively 3 bps to 3Q19 take rate of
10 Includes Cost of Services, Administrative Expenses and Selling Expenses as a percentage of Total Revenue and Income. Quarterly unaudited data.
11 Does not include provisions for delinquency related to our credit product.
12 Mainly due to the change in depreciation period from 3 years with a residual value of
13 Each “Accounts Payable to Clients” recognized as a liability on our balance sheet is directly linked to an “Accounts Receivable from Card Issuers” recognized as an asset in our balance sheet. The Company receives payment from issuing banks first, and only then pays its clients, thus having no working capital requirement. When a client opts to be paid early (prepayment), the Company has a working capital requirement. However, the Company has the option to sell the receivables related to those payables from card issuers in order to meet such working capital requirements. The combined effect to the cash flow is a positive operational cash flow equivalent to net fees earned by providing such prepayment service. Whenever management opts to fund its prepayment operation with sources other than the sale of its own receivables, Net Cash Provided by/ (Used in) Operating Activities may be affected, as discussed in “Note on the impact of different funding sources for prepayment in the financial statements” in the appendix. However, management does not view such decision as translating into higher or lower ability of our business to generate cash operationally. In addition to prepayment, the Company has started to offer credit solutions to clients. The Company intends to fund its credit operation primarily through third parties (i.e. FIDC and debt), as well as with some own cash. Given the operational nature of our credit business, as in the case of prepayment mentioned above, management does not view related funding decision as translating into higher or lower ability of our business to generate cash operationally.
14 Interest Income Received, Net of Costs, consists of two items: (i) financial income from our prepayment activity, less (ii) financial expenses related to the sale of receivables to commercial banks. The first item has direct influence on the level of Accounts Payable to Clients in our balance sheet; the second item has direct influence on the amount of Accounts Receivables from Card Issuers on our balance sheet.
15 Adjusted Free Cash Flow is a non-IFRS measure. Refer to the discussion on non-IFRS financial measures and reconciliations included in this release.
16 Adjusted Net Cash Provided by (Used in) Operating Activities is a non-IFRS measure. Refer to the discussion on non-IFRS financial measures and reconciliations included in this release.
17 Adjusted Net Cash Provided by (Used in) Financing Activities is a non-IFRS measure. Refer to the discussion on non-IFRS financial measures and reconciliations included in this release.
18 Receivables Investment Fund (Fundo de Investimento em Direitos Creditórios) is an investment fund legal structure established under Brazilian law designed specifically for investing in credit rights receivables.
A PDF accompanying this announcement is available at http://ml.globenewswire.com/Resource/Download/e88a7039-85d8-4ecc-b7aa-9793ad3be518
FAQ
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