StoneCo Ltd. Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2022. The filing is an annual Form 20-F, not a standalone quarterly filing; selected fourth-quarter operating data are disclosed, but a complete Q4 income statement is not provided. Financial statements are prepared under IFRS in Brazilian reais (R$), with U.S. dollar translations for convenience.
Business Context
StoneCo is a Brazil-focused financial technology and software provider serving primarily micro, small and medium-sized businesses. Its two reportable segments are Financial Services, including payments, digital banking, working-capital prepayments, credit and registry services, and Software, including POS, ERP, CRM, e-commerce and omnichannel solutions, substantially expanded through the Linx acquisition.
- 2022 TPV was R$367.4 billion, up 33.4% from R$275.4 billion in 2021.
- Active payments clients were approximately 2.584 million at year-end, up 46.3% year over year.
- Digital banking had approximately 692,800 active accounts at December 31, 2022.
- Fourth-quarter TPV was R$100.1 billion, up 12.4% year over year; MSMB TPV increased 22.8%, while key-account TPV declined 18.5% as Stone deprioritized lower-margin sub-acquirers.
Financial Performance and Metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue and income | R$9,588.9 million | R$4,823.8 million | +98.8% |
| Transaction activities and other services | R$2,617.4 million | R$1,626.9 million | +60.9% |
| Subscription services and equipment rental | R$1,760.9 million | R$1,071.9 million | +64.3% |
| Financial income | R$4,638.0 million | R$1,877.7 million | +147.0% |
| Cost of services | R$2,669.8 million | R$1,713.8 million | +55.8% |
| Financial expenses, net | R$3,514.7 million | R$1,269.1 million | +177.0% |
| Net loss | R$526.4 million | R$1,377.3 million | Loss reduced |
| Adjusted net income | R$525.5 million | R$84.7 million | +R$440.8 million |
- Cost of services declined to 27.8% of total revenue and income from 35.5% in 2021, reflecting operating leverage and repricing in response to higher funding costs.
- The reported net loss attributable to StoneCo owners was R$519.4 million, or R$1.67 per basic and diluted share, compared with a R$1,358.8 million loss, or R$4.40 per share, in 2021.
- Adjusted net income is a non-IFRS measure. The 2022 reconciliation excludes, among other items, R$853.1 million of Banco Inter mark-to-market losses, R$138.6 million of acquisition-related intangible amortization and R$129.8 million of share-based compensation, net of tax effects.
- Software revenue was R$1,419.8 million, approximately 2.1 times 2021 revenue, primarily reflecting the Linx consolidation.
Cash Flow, Liquidity and Debt
- Net cash provided by operating activities was R$1,683.7 million, down from R$3,606.9 million in 2021.
- Net cash used in investing activities was R$1,871.1 million, including R$723.2 million of capital expenditures and R$116.7 million for acquisitions and investments.
- Net cash used in financing activities was R$2,810.1 million, primarily reflecting repayment of borrowings and FIDC obligations.
- Cash and cash equivalents declined to R$1,512.6 million from R$4,495.6 million. Short-term investments increased to R$3,453.8 million from R$1,993.0 million.
- Adjusted net cash, including regulated banking assets, card-issuer receivables and related operating liabilities, was R$3,489.6 million at year-end, compared with R$2,291.5 million on a recast 2021 basis.
- Debt and FIDC quota-holder obligations totaled R$5,551.1 million at December 31, 2022, down from R$8,362.3 million. The debt includes a US$500 million bond due June 2028 with a 3.95% coupon, R$1,787.8 million of bank borrowings and R$975.2 million of FIDC obligations.
- The company reported approximately R$1,094.0 million of unused capacity under uncommitted revolving credit lines and stated that current working capital was sufficient for present requirements.
- Undiscounted contractual obligations totaled R$7,677 million, including R$7,477 million of debt and FIDC obligations and R$200 million of leases.
Material Changes Versus the Prior Comparable Period
- Revenue growth accelerated substantially, driven by higher TPV, client additions, pricing adjustments and the continued contribution of Linx and other software businesses.
- Financial income rose sharply as Brazilian CDI rates increased and prepayment volumes expanded; however, financial expenses grew even faster because funding costs increased materially.
- The Banco Inter mark-to-market loss decreased to R$853.1 million from R$1,264.2 million. Stone sold 21.5% of its Banco Inter position in 2022 and sold its remaining 16.8 million shares for approximately R$218 million in the first quarter of 2023.
- Stone paused new-client credit disbursements in 2021 following credit losses and receivables-registry issues. Management expected to relaunch the credit product in the second half of 2023, initially focused on SMBs.
- Debt was reduced through significant repayments, while cash declined because of debt repayment, investing activity and working-capital movements.
- Stone lost control of StoneCo CI and Creditinfo Caribbean after a new investor’s capital contribution in October 2022; its remaining 47.75% interest was classified as an associate.
- Management changed its adjusted-results methodology in 2022 and announced that share-based compensation would no longer be excluded from adjusted results beginning in 2023.
Guidance, Outlook, Commentary and Risks
- Management’s stated strategy is to grow organically through broader financial-services adoption, software cross-selling, increased MSMB penetration and integration of the Financial Services and Software platforms.
- Expected 2023 priorities included relaunching credit in the second half of the year, launching a credit card by year-end and continuing software and technology investment. The filing does not provide formal revenue, earnings or margin guidance.
- Capital expenditures for 2023 were expected to focus on POS equipment, information technology, software licenses and capitalized developer costs, funded by operating cash flow and existing liquidity.
- Key risks include Brazilian interest-rate and inflation volatility, funding and liquidity risk, credit losses, merchant and card-issuer defaults, competition and pricing pressure, payment-scheme costs, regulatory changes, Pix and Open Finance competition, cybersecurity, data-protection compliance, service interruptions and dependence on third-party infrastructure.
- Brazil’s CDI rate averaged approximately 12.38% in 2022 versus 4.42% in 2021, increasing funding costs. Approximately R$2.8 billion of debt and FIDC obligations were subject to variable rates at year-end.
- Goodwill and other intangible assets were significant at R$8,632.3 million. No impairment was recorded, but the software cash-generating unit’s recoverable amount was sensitive to discount rates, growth assumptions, perpetuity rates and expected synergies.
- Legal provisions totaled R$210.4 million, with additional possible-loss matters of R$558.0 million. A municipal tax assessment had an updated possible-loss amount of approximately R$93.6 million and was being challenged administratively.
- A securities class action concerning alleged misstatements about the credit product remained pending; the amount at issue was not determinable at the filing date.
- Ernst & Young issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management excluded Reclame Aqui and Hubcount from its 2022 internal-control assessment because they were acquired during the year.
Most Important Facts for Investors to Verify
- Reconcile reported adjusted net income with IFRS net loss and assess the effect of changing adjustment policies in 2023.
- Review funding costs, variable-rate exposure, debt maturities and the company’s ability to maintain liquidity while funding merchant prepayments.
- Assess whether pricing increases can offset CDI, payment-scheme, credit-loss and operating-cost inflation without reducing merchant retention or TPV growth.
- Monitor the performance and relaunch economics of the credit product, including underwriting, collateral and delinquency trends.
- Evaluate the sustainability of goodwill and intangible-asset carrying values, particularly the software cash-generating unit.
- Track regulatory approvals and requirements for Pagar.me, payment institutions, credit services, card-receivables registration, Pix and Open Finance.
- Review the Banco Inter sale proceeds, their use and the effect of removing Banco Inter exposure from future earnings volatility.
- Quantify potential exposure from tax assessments, litigation, cybersecurity events and other possible-loss contingencies not fully accrued.
- Consider dilution from the remaining long-term incentive-plan awards, including approximately 18.9 million outstanding RSUs and PSUs at year-end.