StoneCo Ltd. — FY2021 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2021. The filing is an annual Form 20-F, not a standalone quarterly filing, although selected fourth-quarter metrics are disclosed. Financial statements are prepared under IFRS as issued by the IASB and presented in Brazilian reais.
Business context
StoneCo is a Brazil-focused financial technology and software provider serving merchants through payments, prepayment and banking solutions, credit, insurance, POS/ERP software, e-commerce and omnichannel tools. The July 2021 acquisition of Linx expanded the software business and led management to report StoneCo and Linx as separate segments for 2021. Management indicated that reporting will evolve toward financial services, software and other segments from 2022.
- 2021 active payments clients: approximately 1.77 million, including TON clients.
- Subscribed software clients: approximately 199,700.
- Payment market share in Q4 2021: estimated at 11.2%, versus 10.3% in Q4 2020.
- Outstanding shares at December 31, 2021: 266.5 million Class A and 46.0 million Class B shares.
Financial performance and key metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total revenue and income | R$4,823.8 million | R$3,319.8 million | +45.3% |
| Transaction activities and other services | R$1,626.9 million | R$1,144.1 million | +42.2% |
| Subscription services and equipment rental | R$1,071.9 million | R$388.0 million | +176.3% |
| Financial income | R$1,877.7 million | R$1,647.0 million | +14.0% |
| Net income attributable to owners | Loss of R$1,358.8 million | Income of R$854.1 million | Down R$2,212.9 million |
| Adjusted net income | R$203.3 million | R$958.2 million | -78.8% |
| TPV | R$275.4 billion | R$209.9 billion | +31.2% |
Revenue growth reflected a 79.4% increase in MSMB TPV, the Linx consolidation, and growth in banking and registry services. The filing states that consolidated TPV growth excluding Coronavoucher volumes was 51.8%. Linx contributed approximately R$532.6 million of revenue in 2021.
Profitability deteriorated materially. Cost of services increased to R$1,713.8 million, or 35.5% of revenue versus 23.2% in 2020. Administrative expenses were 16.9% of revenue versus 11.8%, and selling expenses were 21.0% versus 15.2%. The filing does not provide a consolidated operating margin under IFRS.
The net loss primarily reflected a R$1,264.2 million mark-to-market loss on the Banco Inter investment, R$1,269.1 million of net financial expenses, and weaker credit contribution. Adjusted net income excludes, among other items, the Banco Inter mark-to-market and funding effects, acquisition-related amortization, share-based compensation and unusual items; it is not an IFRS measure or a measure of cash available for discretionary use.
Cash flow, liquidity and debt
| Metric | FY2021 | FY2020 |
|---|---|---|
| Cash and cash equivalents | R$4,495.6 million | R$2,447.0 million |
| Short-term investments | R$1,993.0 million | R$8,128.1 million |
| Operating cash flow | R$3,606.9 million | R$56.5 million |
| Investing cash flow | Outflow of R$2,977.2 million | Outflow of R$5,809.0 million |
| Financing cash flow | Inflow of R$1,419.4 million | Inflow of R$7,216.2 million |
| Debt and FIDC obligations | R$8,362.4 million | R$6,083.8 million |
Operating cash flow benefited from a R$4,276.3 million increase in accounts payable to clients, partly offset by a R$2,993.4 million increase in card-issuer receivables. The strong operating cash flow should therefore be evaluated in the context of payment-processing working-capital movements and receivables funding structures.
Investing outflows included R$2,480.0 million for the Banco Inter investment, R$4,737.4 million for acquisitions, primarily Linx, and R$1,298.7 million of capital expenditures. POS and other equipment purchases represented most capital expenditures.
StoneCo issued US$500 million of seven-year notes in June 2021, bearing a 3.95% coupon and maturing in June 2028. Most proceeds funded the Banco Inter investment. The company reported approximately R$3,280 million of unused borrowing capacity under uncommitted revolving credit lines and stated that current working capital was sufficient for present requirements.
Management’s adjusted net cash measure was R$2,150.0 million at December 31, 2021, down from R$12,373.9 million in 2020. The calculation includes card-issuer receivables and client payables and differs from conventional net debt.
Material changes versus the prior period
- Revenue increased 45.3%, while TPV increased 31.2% and active payments clients increased 128.0% under the revised methodology that includes TON.
- Linx was acquired on July 1, 2021 for total consideration of approximately R$6.7 billion and contributed R$532.6 million of revenue from the acquisition date through year-end.
- StoneCo acquired or obtained control of SimplesVet, VHSYS, Linx, Collact and Trampolin during 2021; it also acquired Nodis as an asset acquisition.
- The credit product was paused for new clients beginning in July 2021 following higher non-performing loans, weaker collateral recovery expectations and problems associated with Brazil’s receivables-registration transition.
- The company’s Banco Inter stake generated a R$1,264.2 million mark-to-market loss and drove a substantial portion of the reported net loss.
- Financial expenses increased 273.5%, partly because Brazil’s CDI rate rose and the business used more third-party funding for prepayments.
- Capital expenditures increased to R$1,298.7 million from R$455.1 million, including advance POS purchases amid supply-chain and semiconductor concerns.
- StoneCo repurchased 3.1 million Class A shares for R$988.8 million under its former repurchase program; no shares were repurchased under the new 2021 program during 2021.
Guidance, outlook, commentary and risks
The filing does not provide quantified 2022 revenue, earnings or margin guidance. Management expects to relaunch the credit solution in 2022, continue expanding financial and software offerings, cross-sell between Linx and StoneCo customer bases, and fund expected 2022 capital expenditures through operating cash flow and existing liquidity.
- Credit risk: The credit portfolio was materially affected by higher delinquency and weaker collateral effectiveness. Loans outstanding under the prior fair-value model declined to R$511.2 million from R$1,646.7 million, and the portfolio recorded a R$381.4 million loss during 2021.
- Interest-rate and funding risk: R$5.3 billion of debentures, loans, bank borrowings and FIDC obligations were subject to variable rates, creating a potential mismatch against fixed-fee merchant pricing.
- Regulatory risk: Payments, credit, banking, receivables registration, data protection and Open Banking rules in Brazil continue to evolve. Pagar.me’s application for payment-institution authorization remained under Central Bank review.
- Operational and technology risk: The company relies on internal and third-party systems, including Buy4, TAG, card networks, cloud providers and a limited number of POS manufacturers. Some core systems lack full redundancy.
- Acquisition and impairment risk: Goodwill and intangible assets totaled R$8,370.3 million, including R$5,037.6 million of goodwill related to Linx. Impairment testing depends on projections, discount rates, growth assumptions and expected synergies.
- Legal contingencies: Provisions for probable legal losses were R$181.8 million, with additional possible losses of R$223.5 million not provided for. A securities class action filed in the United States concerning credit-product disclosure and other alleged risks remained pending; damages were not determinable.
- Macroeconomic exposure: Brazilian inflation was 10.06% in 2021, the CDI averaged approximately 4.42%, and the real depreciated to R$5.58 per U.S. dollar at year-end. Higher inflation, rates, political uncertainty or currency volatility could pressure demand, funding costs and margins.
- Governance and control: Founder shareholders controlled approximately 54.1% of combined voting power at year-end through the dual-class structure. The company follows certain Cayman Islands governance practices in lieu of Nasdaq requirements applicable to U.S. domestic issuers.
Management and Ernst & Young concluded that internal control over financial reporting was effective as of December 31, 2021. The assessment excluded Linx and certain other 2021 acquisitions, representing approximately 18.6% of total assets and 11.7% of revenue; the auditor’s opinion was unqualified.
Most important facts for investors to verify
- Whether the credit relaunch achieves acceptable underwriting, collateral control, delinquency and recovery performance.
- The sustainability of R$3.6 billion of operating cash flow after adjusting for payment-processing working-capital movements and receivables sales.
- The maturity profile, variable-rate exposure and refinancing requirements of the R$8.36 billion debt and FIDC obligations.
- Whether Linx integration produces expected revenue synergies, cost efficiencies and cash generation without additional material charges or impairment.
- The valuation and volatility of the Banco Inter investment and the effect of future mark-to-market changes on reported IFRS earnings.
- Whether R$8.37 billion of intangible assets and goodwill remain recoverable under higher rates, slower growth or weaker software performance.
- The outcome and potential exposure from the U.S. securities class action, tax contingencies, receivables-registration disputes and other possible-loss matters.
- Compliance status of Pagar.me and the impact of evolving Central Bank, Pix, Open Banking, data-protection and receivables-registration requirements.
- The comparability of active-client and segment metrics, particularly because TON was added to the active-client definition and segment reporting changed after the Linx acquisition.