StoneCo Ltd. Reports Third Quarter 2018 Financial Results
SÃO PAULO,
“We are pleased to report strong third quarter 2018 financial and operating results and excited to begin a new chapter as a publicly traded company,” said
Financial Highlights for the Third Quarter of 2018
• Total revenue and income increased 121.4% to
• Net Income was
• Adjusted Net Income1, a non-IFRS metric, was
Operating Highlights for the Third Quarter of 2018
• As of
• R$21.8 billion in total payment volume (TPV), up 83.7% compared to
• Take rate2 of 1.87%, an improvement of 38 bps compared to 1.49% in the third quarter of 2017.
Other Highlights for the Third Quarter of 2018 and Comments from Management
• Recruta Stone, the Company’s semiannual recruitment campaign, has attracted nearly 30,000 applicants. The 3 main goals of the program are: 1. Hire motived and talented entrepreneurs with high potential; 2. Train leaders in our culture and hiring practices; 3. Improve the Stone brand as an employer.
• Equals, our reconciliation platform, and Linked Gourmet, our foodservice ERP/POS software, have shown continued positive traction, while still in their early beginnings.
• Given recent discussions about the competitive environment in
- The SMB market in
Brazil is very competitive and we have been facing competition with incumbents since day one. We were born in a constantly changing environment and we are a very dynamic organization, with the right team, culture, technology and innovation capabilities not only to adapt to market changes but also to drive those changes ourselves, as we have been doing for the last six years.
- We believe competition is positive for the market, especially for those who matter the most: the merchants. The Brazilian regulators and antitrust authority have been successfully fostering competition and innovation in the country. This has allowed players like ourselves to enter the market and set higher standards at more fair prices for merchants. We are very happy to have contributed to market changes that have improved the ability of our clients to grow and manage their business more effectively over time.
- We will always monitor competition very closely. However, our commitment is towards our clients. Our actions are driven by our client´s needs and our priority will be to continue to listen to them and to provide them with a superior value proposition.
- Our performance so far in the fourth quarter 2018 in terms of growth, operational leverage, profitability and take rate has been strong and on track. The Company’s strategy of having the best customer experience, a disciplined execution and being very close to the clients has been paying off. 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.
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1 Reconciliations of IFRS to non-IFRS financial measures are provided on page 9.
2 Take rate means the sum of net revenue from transaction activities and other services, net revenue from subscription services and equipment rental and financial income, divided by TPV.
Subsequent Events
• On
• On
• We issued 4,166,666 Class A common shares to Ant Financial for
For the Three Months Ended September 30 | For the Nine Months Ended September 30 | |||||||||||||
2018 | 2017 | Var.% | 2018 | 2017 | Var.% | |||||||||
Main operational and financial indicators | ||||||||||||||
Total revenue (R$ millions) 3 | 414.1 | 187.1 | 121.4% | 1,049.8 | 518.8 | 102.3% | ||||||||
Adjusted net income (loss) (R$ millions) | 89.3 | 5.7 | 1,473% | 186.9 | 24.3 | 669.7% | ||||||||
Adjusted net income margin (%) | 21.6% | 3.0% | 18.6 p.p. | 17.8% | 4.7% | 13.1 p.p. | ||||||||
Active clients – 90 days (in thousands) | 234.4 | 103.3 | 127.0% | 234.4 | 103.3 | 127.0% | ||||||||
TPV (R$ billions) | 21.8 | 11.9 | 83.7% | 56.8 | 33.3 | 70.9% | ||||||||
Take rate | 1.87% | 1.49% | 38 bps | 1.81% | 1.50% | 31 bps | ||||||||
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3 Total revenue and income.
Profit or Loss for the Third Quarter of 2018
Total net revenue and income
Total net revenue and income was
For the Three Months Ended September 30 | |||||||
2018 | 2017 | Variation (R$) |
Variation (%) |
||||
R$ millions, except for percentages | |||||||
Net revenue from transaction activities and other services | 136.1 | 47.4 | 88.7 | 187.1% | |||
Net revenue from subscription services and equipment rental | 59.2 | 26.5 | 32.7 | 123.7% | |||
Financial income | 212.4 | 102.3 | 110.1 | 107.7% | |||
Other financial income | 6.4 | 10.9 | (4.5) | (41.6)% | |||
Total revenue and income | 414.1 | 187.1 | 227.0 | 121.4% | |||
Net revenue from transaction activities and other services
Net revenue from transaction activities and other services was
Net revenue from subscription services and equipment rental
Net revenue from subscription services and equipment rental was
Financial income
Financial income was
Other financial income
Other financial income was
Cost of services
Cost of services was
Administrative expenses
Administrative expenses were
The increase in administrative expenses is primarily attributed to growth in headcount, third-party services, facilities costs to support growth and preparation to be a public company, in addition to higher depreciation expenses. This consists of: (i)
Selling expenses
Selling expenses were
Financial expenses, net
Financial expenses, net were
Financial expenses, net as a percentage of financial income were 39.3% and 55.6% for third quarter of 2018 and 2017, respectively, as in the third quarter the Company was able to fund the prepayment operation with more cash from operations in lieu of external financing.
Other operating expenses, net
Other operating expenses, net were
In
Profit (loss) from investment in associates
Profit (loss) from investment in associates for the third quarter of 2018 was
Profit (loss) before income taxes
Profit before income taxes was
Income tax and social contribution
Stone incurred in
Net Income (loss)
As a result of the foregoing, net income for the third quarter of 2018 was
Adjusted net income (loss)
In connection with the earnings release, the Company has provided an analysis of adjusted net income which is a non-IFRS measure, which we believe is an important metric to evaluate the operating performance of the Company.
Adjusted Net Income was
Cash Flows
Note on the impact of different funding sources in operating and financing cash flows
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 derecognizes accounts payable by the corresponding prepaid amount plus fees earned by providing such prepayment service. In order to fund the prepayment operation, the Company principally 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 quotas by FIDCs to institutional investors or (iii) by deploying its own capital from capital contributions or cash flows from operations. These funding options lead to different impacts on the Company’s statement of cash flows and balance sheet:
- 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 senior quotas by FIDCs4: when the Company launches a new FIDC in order to raise capital, the amount raised from senior quota holders less structuring and transaction costs will be recognized on its balance sheet as cash and as a non-current liability to senior quota holders. The Company then transfers its receivables from card issuers from 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. These set of transactions generate a positive impact on the Company’s cash flows from financing activities in the amount received by the FIDC from senior quota holders less structuring and transaction costs. However, as 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.
- Deploying 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.
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4
Net cash used in operating activities
Net cash used in operating activities for the nine months ended
• Net income of
• Net cash from changes in working capital, arising from changes in operating assets and liabilities, totaled an outflow of
- an increase in the balance of accounts receivable from card issuers which led to negative cash flows of
R$1,361.1 million , an increase in tax credits ofR$67.0 million , an increase in other accounts receivable ofR$34.4 million and an increase in prepaid expenses ofR$16.4 million ;
- partially offset by an increase accounts payable to clients of
R$395.9 million , an increase in tax payable ofR$106.5 million , an increase in labor and social balance ofR$46.0 million and an increase in other accounts payable ofR$22.4 million
• In addition, amounts received from interest income of
Net cash used in operating activities for the nine months ended
• Net loss of
• Net cash from changes in working capital, arising from changes in operating assets and liabilities, totaled an outflow of
- a decrease in accounts payable which led to a negative cash flow of
R$564.4 million , an increase in the balance of accounts receivable from card issuers ofR$438.1 million , an increase in the balance of recoverable taxes ofR$12.0 million and a decrease in other accounts receivable ofR$10.2 million , and;
- partially offset by an increase in labor and social balance of
R$16.1 million , an increase in other accounts payable ofR$12.5 million and an increase in taxes payable ofR$8.5 million
• In addition, amounts received from interest income of
Net cash provided by (used in) investing activities
Net cash used in investing activities was
Net cash provided by financing activities
Net cash used in financing activities was
Conference Call
Stone will discuss its third quarter 2018 financial results during a teleconference today,
About Stone
Stone is a leading provider of financial technology solutions that empower merchants and integrated partners to conduct electronic commerce seamlessly across in-store, online, and mobile channels in
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. Words such as "expect," "anticipate," "should," "believe," "hope," "target," "project," "goals," "estimate," "potential," "predict," "may," "will," "might," "could," "intend," variations of these terms or the negative of these terms and similar expressions are intended to identify these forward-looking statements. 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, among other factors.
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 and Adjusted Net Income per share.
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 and should not be considered a measure of liquidity. 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 core operating 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) one-off gains and (5) tax expense relating to the foregoing adjustments.
Contact:
+1 646-277-1200
StoneIR@icrinc.com
Unaudited consolidated statement of profit or loss
Three months September 30 | Nine months September 30 | |||||||||||
(R$ millions) | 2018 | 2017 | Var. % | 2018 | 2017 | Var. % | ||||||
Net revenue from transaction activities and other services | 136.1 | 47.4 | 187.1% | 340.2 | 140.9 | 141.5% | ||||||
Net revenue from subscription services and equipment rental | 59.2 | 26.5 | 123.7% | 144.2 | 75.8 | 90.2% | ||||||
Financial income | 212.4 | 102.3 | 107.7% | 545.5 | 283.2 | 92.6% | ||||||
Other financial income | 6.4 | 10.9 | -41.6% | 20.0 | 19.0 | 5.0% | ||||||
Total revenue and income | 414.1 | 187.1 | 121.4% | 1,049.8 | 518.8 | 102.3% | ||||||
Cost of services | (80.7) | (53.7) | 50.4% | (221.8) | (150.6) | 47.3% | ||||||
Administrative expenses | (62.1) | (42.9) | 44.8% | (179.5) | (112.0) | 60.2% | ||||||
Selling expenses | (50.0) | (24.5) | 104.0% | (131.5) | (58.3) | 125.5% | ||||||
Financial expenses, net | (83.4) | (56.9) | 46.7% | (226.0) | (175.7) | 28.6% | ||||||
Other operating income (expense), net | (6.9) | (19.3) | -64.2% | (27.7) | (103.9) | -73.3% | ||||||
(Loss) income from investment in associates | 0.1 | (0.1) | n.m. | (0.3) | (0.2) | 37.4% | ||||||
Profit (loss) before income taxes | 130.9 | (10.3) | n.m. | 263.1 | (81.9) | n.m. | ||||||
Income tax and social contribution - current and deferred | (40.5) | (4.4) | 811.9% | (84.9) | (8.8) | 861.9% | ||||||
Net income (loss) for the period | 90.4 | (14.8) | n.m. | 178.2 | (90.7) | n.m. | ||||||
Reconciliation of non-IFRS measures
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||
2018 | 2017 | 2018 | 2017 | |||||
(R$ millions) | (R$ millions) | |||||||
Net income (loss) for the period | 90.4 | (14.8) | 178.2 | (90.7) | ||||
Share-based compensation expenses | 24.8 | 17.7 | 24.8 | 102.9 | ||||
Amortization of fair value adjustment on intangibles related to acquisitions | 2.8 | 2.7 | 8.3 | 12.1 | ||||
Gain on previously held interest in associate upon business combination(a) | (21.4) | 0.0 | (21.4) | 0.0 | ||||
One-time impairment charges | 0.0 | 0.0 | 8.4 | 0.0 | ||||
Pre-tax subtotal | 96.6 | 5.7 | 198.3 | 24.3 | ||||
Tax effect on adjustments | (7.3) | 0.0 | (11.4) | 0.0 | ||||
Adjusted net income | 89.3 | 5.7 | 186.9 | 24.3 | ||||
(a) Consists of the gain on re-measurement of our previously held equity interest in Equals to fair value upon the date control was acquired
Main operational and financial indicators
For the Three Months Ended September 30 |
For the Nine Months Ended September 30 |
|||||||||||||
2018 | 2017 | Var.% | 2018 | 2017 | Var.% | |||||||||
Total revenue and income (R$ millions) | 414.1 | 187.1 | 121.4% | 1,049.8 | 518.8 | 102.3% | ||||||||
Adjusted net income (loss) (R$ millions) | 89.3 | 5.7 | 1,473% | 186.9 | 24.3 | 669.7% | ||||||||
Adjusted net income margin (%) | 21.6% | 3.0% | 18.6 p.p. | 17.8% | 4.7% | 13.1 p.p. | ||||||||
Active clients – 90 days (in thousands) | 234.4 | 103.3 | 127.0% | 234.4 | 103.3 | 127.0% | ||||||||
TPV (R$ billions) | 21.8 | 11.9 | 83.7% | 56.8 | 33.3 | 70.9% | ||||||||
Take rate | 1.87% | 1.49% | 38 bps | 1.81% | 1.50% | 31 bps | ||||||||
Unaudited interim consolidated statement of financial position
(In thousands of Brazilian Reais)
September 30, 2018 |
December 31, 2017 |
|||||
(unaudited) | ||||||
Assets | ||||||
Current assets | ||||||
Cash and cash equivalents | 173,588 | 641,952 | ||||
Short-term investments | 142,070 | 201,762 | ||||
Accounts receivable from card issuers | 6,592,595 | 5,078,430 | ||||
Trade accounts receivable | 36,630 | 23,120 | ||||
Recoverable taxes | 36,286 | 39,147 | ||||
Prepaid expenses | 26,788 | 10,391 | ||||
Other accounts receivable | 18,007 | 4,722 | ||||
7,025,964 | 5,999,524 | |||||
Non-current assets | ||||||
Receivables from related parties | 9,734 | 9,078 | ||||
Deferred income tax assets | 248,894 | 198,234 | ||||
Other accounts receivable | 3,871 | 3,446 | ||||
Investment in associate | 2,986 | 1,743 | ||||
Property and equipment | 252,789 | 189,631 | ||||
Intangible assets | 306,738 | 234,088 | ||||
825,012 | 636,220 | |||||
Total assets | 7,850,976 | 6,635,744 | ||||
Liabilities and equity | ||||||
Current liabilities | ||||||
Accounts payable to clients | 4,606,408 | 3,637,510 | ||||
Trade accounts payable | 70,327 | 53,238 | ||||
Loans and financing | 5,484 | 13,839 | ||||
Obligations to FIDC senior quota holders | 52,722 | 8,695 | ||||
Labor and social security liabilities | 88,885 | 35,959 | ||||
Taxes payable | 41,987 | 35,905 | ||||
Other accounts payable | 122,743 | 38,417 | ||||
4,988,556 | 3,823,563 | |||||
Non-current liabilities | ||||||
Loans and financing | 1,371 | 3,032 | ||||
Obligations to FIDC senior quota holders | 2,057,962 | 2,056,331 | ||||
Share-based payments | 17,822 | 217,487 | ||||
Deferred income tax liabilities | 80,264 | 52,268 | ||||
Provision for contingencies | 894 | 486 | ||||
2,158,313 | 2,329,604 | |||||
Total liabilities | 7,146,869 | 6,153,167 | ||||
Equity | ||||||
Issued capital | 46 | 46 | ||||
Capital reserve | 1,047,829 | 967,749 | ||||
Other comprehensive income | (32,651) | 2,595 | ||||
Accumulated losses | (329,656) | (503,018) | ||||
Equity attributable to owners of the parent | 685,568 | 467,372 | ||||
Non-controlling interests | 18,539 | 15,205 | ||||
Total equity | 704,107 | 482,577 | ||||
Total liabilities and equity | 7,850,976 | 6,635,744 | ||||
Unaudited interim consolidated statement of cash flows
(In thousands of Brazilian Reais)
Nine months ended September 30 | |||||||
2018 | 2017 | ||||||
Operating activities | |||||||
Net income (loss) for the period | 178,162 | (90,719) | |||||
Adjustments to reconcile net income (loss) for the period to net cash flows: | |||||||
Depreciation and amortization | 64,474 | 39,975 | |||||
Deferred income tax expenses | (19,283) | 8,963 | |||||
Loss on investment in associates | 316 | 230 | |||||
Other financial costs and foreign exchange, net | 102,986 | 24,947 | |||||
Provision for contingencies | 432 | 627 | |||||
Share-based payments expense | 24,816 | 102,910 | |||||
Allowance for doubtful accounts | 15,687 | 2,169 | |||||
Loss on disposal of property, equipment and intangible assets | 23,370 | 5,773 | |||||
Onerous contract | (415) | (4,239) | |||||
Remeasurement of previously held interest in subsidiary acquired | (21,441) | - | |||||
Working capital adjustments: | |||||||
Accounts receivable from card issuers | (1,361,083) | (438,132) | |||||
Receivables from related parties | 252 | (255) | |||||
Recoverable taxes | (67,024) | (12,045) | |||||
Prepaid expenses | (16,397) | (580) | |||||
Other accounts receivable | (34,366) | (10,156) | |||||
Accounts payable to clients | 395,851 | (564,400) | |||||
Taxes payable | 106,522 | 8,505 | |||||
Labor and social security liabilities | 46,021 | 16,139 | |||||
Provision for contingencies | (24) | (45) | |||||
Other accounts payable | 22,379 | 12,453 | |||||
Interest paid | (76,996) | (5,858) | |||||
Interest income received, net of costs | 356,399 | 128,951 | |||||
Income tax paid | (30,605) | (1,826) | |||||
Net cash used in operating activities | (289,967) | (776,613) | |||||
Investing activities | |||||||
Purchases of property and equipment | (125,298) | (87,971) | |||||
Purchases and development of intangible assets | (34,104) | (16,478) | |||||
Acquisition of subsidiary, net of cash acquired | (2,940) | - | |||||
Acquisition of (proceeds from) short-term investments, net | 59,256 | (310,348) | |||||
Proceeds from the disposal of non-current assets | 4,305 | 10,994 | |||||
Acquisition of interest in associates | (1,465) | (270) | |||||
Proceeds from the disposal of assets held for sale | - | 300 | |||||
Net cash used in investing activities | (100,246) | (403,773) | |||||
Financing activities | |||||||
Payment of borrowings | (787) | (9,886) | |||||
Proceeds from FIDC senior quota holders | 10,000 | 1,000,000 | |||||
Payment of finance leases | (9,008) | (7,600) | |||||
Capital increase | 3,240 | 458,125 | |||||
Repurchase of shares | (63,230) | (280,825) | |||||
Acquisition of non-controlling interests | (23,200) | - | |||||
Net cash (used in) provided by financing activities | (82,985) | 1,159,814 | |||||
Effect of foreign exchange on cash and cash equivalents | 4,834 | 817 | |||||
Change in cash and cash equivalents | (468,364) | (19,755) | |||||
Cash and cash equivalents at beginning of period | 641,952 | 170,646 | |||||
Cash and cash equivalents at end of period | 173,588 | 150,891 | |||||
Source: StoneCo Ltd.