Business Context and Reporting Period
StoneCo Ltd. (Stone), a Brazilian financial technology provider, reported financial results for the third quarter ended September 30, 2018, via Form 6-K filed on November 26, 2018. The Company, which went public in October 2018, focuses on empowering merchants with payment processing, working capital solutions, and software services.
Key Financial Metrics
| Metric | Q3 2018 | Q3 2017 | YoY Change |
|---|---|---|---|
| Total Revenue and Income | R$414.1 million | R$187.1 million | +121.4% |
| Net Income | R$90.4 million | R$(14.8) million | Turnaround to Profit |
| Adjusted Net Income (Non-IFRS) | R$89.3 million | R$5.7 million | +1,473% |
| Adjusted Net Income Margin | 21.6% | 3.0% | +18.6 p.p. |
| Total Payment Volume (TPV) | R$21.8 billion | R$11.9 billion | +83.7% |
| Take Rate | 1.87% | 1.49% | +38 bps |
| Active Clients (90-day) | 234.4 thousand | 103.3 thousand | +127.0% |
Cash Flow (Nine Months Ended Sept 30, 2018): Net cash used in operating activities was R$290.0 million, compared to R$776.6 million used in the prior year period. Net cash used in investing activities was R$100.2 million, and net cash used in financing activities was R$83.0 million.
Liquidity and Debt: As of September 30, 2018, Cash and cash equivalents were R$173.6 million. Total liabilities were R$7.15 billion, primarily driven by accounts payable to clients (R$4.61 billion) and obligations to FIDC senior quota holders (R$2.11 billion).
Material Changes vs. Prior Period
- Revenue Growth: Driven by an 83.7% increase in TPV and a shift in client mix toward Small and Medium Businesses (SMBs), which improved the take rate.
- Profitability: The Company moved from a net loss to a net profit, aided by operational leverage. Cost of services as a percentage of revenue dropped from 28.7% to 19.5%.
- Financial Income: Increased 107.7% to R$212.4 million, largely due to higher volumes of prepayments to clients.
- Expenses: Selling expenses rose 104.0% due to headcount growth for the "Hub" distribution strategy. Administrative expenses increased 44.8% due to public company preparation costs and facility expansion.
Guidance, Outlook, and Risks
Management Commentary: Management stated that Q4 2018 performance regarding growth, operational leverage, and profitability is "strong and on track." The Company emphasized its "Hub" distribution strategy and high Net Promoter Score (NPS) as key differentiators.
Subsequent Events:
- Completed Initial Public Offering (IPO) on October 25, 2018, pricing at $24.00 per share.
- Issued 4,166,666 Class A shares to Ant Financial for $100.0 million (closed November 21, 2018).
- Acquired 100% ownership of Equals, a receivables reconciliation platform.
Risks and Contingencies:
- Competition: The SMB market in Brazil is highly competitive; however, management views competition as positive for merchants.
- Regulatory: Subject to Brazilian regulatory measures and antitrust authority oversight.
- Forward-Looking Statements: Actual results may differ due to factors including intense competition, lower client acquisition, and higher-than-expected investment needs.
Investor Verification Checklist
- Verify the sustainability of the 1.87% take rate as the client base continues to expand.
- Monitor the impact of the Ant Financial investment ($100M) on future strategic partnerships.
- Assess the cash flow implications of the working capital model, specifically the reliance on FIDC structures versus internal capital.
- Review the integration progress of the newly acquired 100% stake in Equals.
- Confirm the execution of the "Hub" distribution strategy and its effect on selling expense efficiency.