Good evening ladies and gentlemen. Thank you for standing by. Welcome to the StoneCo Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. By now, everyone should have access to our earnings release. The company also posted a presentation to go along with its call. All material can be found at www.stone.co on the Investor Relations section.

Throughout this conference call, the company will be presenting non-IFRS financial information including adjusted net income and adjusted net cash. These are important financial measures for the company, but are not financial measures as defined by IFRS.

Reconciliations of the company's non-IFRS financial information to the IFRS financial information appear in today's press release. Finally, before we begin our formal remarks, I would like to remind everyone that today's discussion might include forward-looking statements.

These forward-looking statements are not guarantees of future performance and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the company's expectations.

Please refer to the forward-looking statements disclosure in the company's earnings press release. In addition many of the risks regarding the business are disclosed in the company's Form 20-F filed with the Securities and Exchange Commission which is available at www.sec.gov.

I would now like to turn the conference over to your host Rafael Martins, VP of Finance and Investor Relations Officer at StoneCo. Please proceed..

Thank you operator and good evening everyone. Joining us today on the call we have our CEO and Board member, Thiago Piau and our Chief Strategy Officer, Lia Matos. Today, we will present our fourth quarter 2022 results, discuss some recent trends, and provide an updated outlook for our business.

I will now pass it over to Thiago, so he can share some highlights of our performance.

Thiago?.

Thank you, Rafa and good evening everyone. Let me start by reviewing the key highlights for the year and fourth quarter 2022 that we lay out on slide four of our presentation. We successfully drove strong growth with improvement in profitability. Our revenue doubled in 2022, while our adjusted net income reached R$526 million.

In the quarter, adjusted net income reached R$235 million, a 44% sequential growth. This achievement was largely a result of a successful price execution and strong operational leverage, while we improve engagement with our clients and continue to invest in our growth. We generated increasingly stronger cash flows.

Our company is generating cash in a very consistent way and has a strong balance sheet and liquidity to fund its growth ahead. Our adjusted net cash increased by R$1.2 billion in 2022 and R$385 million in the fourth quarter alone. We expect that our cash flow generation will remain strong in 2023.

In Financial Services, we expanded our client base, offered new solutions, and captured higher take rates. In 2022, we generated strong profitable growth in our client base, while improving unit economics both through price execution and increase in monetization from our banking solutions.

In the fourth quarter, MSMB TPV grew 23% year-on-year almost two times the industry growth. Active client base grew 48% year-on-year to 2.5 million merchants at the same time that we increased take rates by 50 bps compared to last year.

Additionally, total banking deposits reached R$4 billion, R$3.6 billion of which in the MSMB segment, reaching almost 693,000 active banking clients. I think such results show our ability to pass along price increases, gain market share and improve engagement with our clients at the same time.

In Software, we gained scale improved operating margins and advance our product integrations. Software revenue grew 21% year-on-year in the fourth quarter, and our adjusted EBITDA margin reached 16.2% in the fourth quarter, the highest margin since we acquired the business.

We gained efficiency, while also investing in several areas to better serve our clients, like customer service and product integrations. We've integrated our financial services platform to POS and ERP solutions in strategic verticals, opening a key cross-sell opportunity, which we believe is unique within the industry.

Last, we enhanced the capabilities necessary to execute the next phase for Stone. We added to our team experienced and seasoned leaders, strengthening key capabilities in banking, credit, product, tech, and risk, which will be crucial for our plans in the coming years.

I'm excited to share these results with you, which marks the completion of our turnaround in 2022, with the company well positioned to continue its successful story. Most importantly, we have executed our turnaround, maintaining our special culture and strong devotion to serve our clients.

Finally we're also successfully completing our CEO transition and I'm confident that under Pedro's leadership, Stone will evolve on an even stronger future and 2023 will start a new chapter in our journey. Now, I'm very happy to bring Pedro to send the message to all of you..

Thank you, Thiago and good evening everyone. I'm really excited to be here and looking forward to leading the team in our journey. Over the first months of this transition, I was able to see how much has been delivered in 2022 and how well said the company is to address the opportunities we see ahead of us.

I was also positively impressed by the quality of our people and our strong culture. The team has defined clear priorities for 2023 and I see this as an important first step for the path ahead. I'll take the CEO role in April. And today, we'll participate in the call only as a listener. I look forward to meeting all of you soon. Thiago, back to you. .

Thank you, Pedro. It's great to have you on board and I wish you great success. I will now pass it over to Lia, who will provide more details about our fourth quarter performance and strategic update.

Lia?.

Thank you, Thiago, and good evening everyone. I will start on slide five, with some highlights of our overall performance. In the fourth quarter, we surpassed our guidance in all metrics, reaching R$2.7 billion in total revenue, R$316 million in adjusted EBITDA and R$235 million in adjusted net income.

As Thiago already mentioned, this quarter reinforced a good balance between growth and profitability within our business. Now let's move directly to slide seven, so we can discuss our performance in the Financial Services segment. In the fourth quarter of '22, revenue increased 49% year-over-year to reach R$2.3 billion.

Adjusted EBITDA increased to R$286 million with margins increasing from negative levels in the fourth quarter of 2021 to 12.4% in the fourth quarter of 2022 showing our discipline in allocating capital to grow our financial services platform. Moving to slide 8.

Our MSMB payments client base increased by 48% year-over-year to 2.5 million active merchants, with 212,000 net additional clients.

Regarding our net adds strength, our focus has been and will continue to be on on-boarding the best clients both in SMB and in micro segments, reaching healthy levels of contribution margin per client, higher average TPV within each client's tier and lower churn.

Also, by optimizing our commercial strategy of tone and stone offerings, within our multiple sales channels. We were once again able to see client base growth in all client tiers this quarter. I think this approach is pretty unique in the market and has led us to good levels of profitable TPV growth, as I will show on the next page.

MSMB TPV reached R$82 billion in the quarter 4% higher than the high end of our guidance of between R$78 million and R$79 billion and growing 23% year-over-year almost two times industry growth levels. We were able to produce that growth, while increasing our take rates by 50 basis points year-over-year.

MSMB take rate remained stable sequentially at 2.21% which was positively impacted by higher average prices in the quarter and positive client mix, offset by a seasonal increase in debit over credit volumes. On slide 10, I show some highlights of our banking business, which has evolved significantly in 2022.

This quarter, we have reached 693,000 merchants actively using our banking solution, a 41% year-over-year increase with client deposits growing 84% in the same period, reaching R$3.6 billion in the fourth quarter of 2022.

I think the evolution in overall client deposits speaks to the quality of our client base, with a healthy mix in terms of average TPV, and the value of having our banking solution attached to our acquiring solution, with no incremental marketing investments.

Not only does that provide a superior experience to our clients, who can rely on having the complete banking and acquiring experience in one single application, it also provides us with a steady flow of cash and volumes from card TPV, PIX and other payment methods.

As an example of this additional engagement, PIX and volumes tripled in 2022 to R$44 billion, and increased 22% quarter-over-quarter mainly driven by higher fixed PIX and volumes. Another important highlight worth mentioning is the launch of Super Conta Ton in the first quarter of 2023, our full banking solution for micro clients.

We expect Super Conta Ton to drive growth of overall level of deposits and banking revenue going forward. I also want to take a brief moment to update you on where we are on credit. Our focus in the second half of 2022 was on building a fully automated process for credit underwriting and grants to include the Stone App.

We also made our decision models more sophisticated through enhancement of data, strengthen the team reviewed and approved our risk policies, and run the first test with a small number of clients, with positive initial results.

In the first half of 2023, we expect to expand the size of our testing with clients with an emphasis on management guarantees, testing and improving the quality of the decision models and credit life cycle monitoring and renegotiation through the app. In the second half of the year, we want to begin scaling working capital loans to our clients.

We will take a conservative approach and the level and speed at which we do so will depend on the macro scenario and our risk appetite. Our initial focus will be providing working capital loans to the SMB segment.

We're also planning the launch of credit cards to both micro and SMB segments and are exploring opportunities for cross-selling credits and links. Moving to slide 11. I want to briefly talk about key accounts.

As we've been reinforcing for some quarters already, we have been shifting our priority from sub-acquiring business to platform services within this segment.

I want to remind our investors that platform services encompass a range of client segments that distribute our solution by integrating our payments and banking platforms to their own offerings such as software providers, e-commerce platforms and omnichannel retailers.

We see an attractive opportunity to continue to serve these client segments, which is evidenced by the strong level of growth in Platform Services TPV. The effect of this decision is the decline in sub-acquiring volumes and an improvement in overall key account take rates.

This quarter key account TPV decreased 18% year-over-year due to a 57% decrease in sub acquired volumes and an increase of 32% in Platform Services TPV. On slides 12 and 13, I'm going to shift to discuss some performance highlights of our software segment.

On slide 12, we can see a consistent growth in our top-line combined with improvement in our operating margins. Revenue grew 21% year-over-year to BRL376 million and our adjusted EBITDA more than doubled year-over-year to BRL61 million with adjusted EBITDA margin increasing 760 basis points to 16.2%.

This improvement in margins is mainly related to dilution of fixed costs, normalized cloud costs and ongoing cost control efforts. In slide 13, I will recap some elements of our strategic evolution and software.

Our core POS and ERP continues to be the driver of segment growth with revenues increasing 23% year-over-year due to an increase in locations and in average ticket.

The performance in the core reflects the unique attributes and vertical breadth of our solutions that have a leadership position in several retail verticals such as apparel, footwear, optics, pharma among others.

As we evolve our software strategy, we see the central priority of our digital solutions being to enable those brick-and-mortar clients to sell more through digital channels by using our marketplace hub, e-commerce platform or order management system.

Digital Solutions had a lower growth of 4% this quarter, especially, due to the weaker performance of our ads and impulse businesses. A crucial evolution in 2022 was the integration of our financial services platform to POS and ERP solutions in strategic software verticals.

We believe this will be key for us as it opens up an important cross-sell opportunity to be explored through differentiated offerings to our clients. The focus for 2023 on that front will be to build the optimal go-to-market strategy, leveraging both the Stone distribution through the hubs as well as our software distribution franchisees.

Finally as we did in 2022, in 2023 we will maintain the same approach to cost discipline, while we invest in developing new products, improve our clients' experience and explore selective M&A opportunities to gain ground on new strategic verticals. Now, I want to pass it over to Rafa so he can discuss in more detail some of our key financial metrics.

Rafa?.

Thank you, Lia. I will now begin on slide 14 to discuss the evolution of our costs and expenses. Before I talk about the quarterly evolution, I would like to zoom out to the evolution in the year because I think it shows the tangible results of our focus in improving the profitability of the business.

Throughout 2022 we saw operating leverage gains in almost all lines. Our cost and expenses as a percentage of revenue decreased more than 1,400 basis points in the fourth quarter compared to the prior year. Cost of services decreased from 34.5% of revenue in the fourth quarter 2021 to 25.8% this quarter, a gain of 870 basis points.

Our selling expenses as a percentage of revenue decreased 200 basis points to 15%. Administrative expenses grew less than our revenue gaining 130 basis points of operational leverage.

Financial expenses decreased 270 basis points as a percentage of revenue as our positive cash flow generation gave us comfort to use more of our own cash to fund our prepayment business. Now let me give the main highlights of our sequential quarterly evolution.

Cost of services as a percentage of revenue decreased 100 basis points to 25.8% mainly due to lower costs in software and efficiency gains in our registry business tags, logistics and banking.

Administrative expenses as a percentage of revenue increased 100 basis points to 11%, mostly driven by nonrecurring, higher expenses related to third-party advisory and seasonal personnel expenses. As Lia will detail shortly, in 2023 a key priority for us is OpEx discipline and we do not expect this line to grow more than inflation along this year.

We expect that administrative expenses will reduce on an absolute basis in the first quarter 2023. Selling expenses decreased around 40 basis points as a percentage of revenue as a result of roughly stable marketing expenses and despite increased investments in our sales force.

Following the trend seen in the third quarter 2022, financial expenses decreased 3.1% quarter-over-quarter and as a percentage of revenue decreased 380 basis points to reach 33.4%. This is mainly explained by higher use of our own cash to fund our prepayment operations.

Although, having a positive effect in financial expenses this has on the other hand led to a decrease of interest on cash as noted by other financial income decreasing BRL20.6 million quarter-over-quarter. Other expenses increased to BRL85.2 million in the quarter increasing 90 basis points as a percentage of revenue.

The quarterly increase was mainly due to impairment from proprietary operational software and write-off of non-core assets amounting to BRL33.7 million, which were partially compensated by a gain in the sale of POS. As shown in slide 15, in addition to our P&L evolution, we have been consistently generating cash and improving our liquidity.

Our adjusted net cash balance improved by around BRL385 million in the quarter reaching BRL3.5 billion at year-end. In the year, adjusted net cash increased by BRL1.2 billion. As I just mentioned, we have used a little more of the cash generated by our business to fund our prepayment operations, given our already very strong cash position.

Before I talk about our first quarter 2023 outlook, a brief comment on a change we are making starting next quarter regarding our non-IFRS adjusted metrics. Starting next quarter, our managerial adjustments to IFRS results will no longer include adjustments related to share-based compensation expenses.

Until now, we adjusted those expenses related to extraordinary grants and already did not adjust share-based expenses related to annual recurring incentive plans.

To better align calculation, comparability and simplifying the understanding of our financial results, we decided to be closer to IFRS reported metric and stop adjusting all share-based compensation expenses from our results from the first quarter 2023 onwards.

To help you reconcile our future results, we have provided in the appendix of our presentation and in our earnings release, historical numbers with the new adjustment policy. Now, moving to our first quarter 2023 outlook on page 16.

We expect total revenue and income above R$2.6 billion in the first quarter, representing a year-over-year growth above 25.6%. For MSMB TPV, we expect volumes between R$77 million and R$78 billion in the first quarter compared with R$63.4 billion in the first quarter of 2022, representing a year-over-year growth between 21.5% and 23.1%.

Finally, already considering share-based compensation, fully expensed in our income statement, we expect adjusted EBT of more than R$265 million compared to BRL 276 million for the fourth quarter.

As a reminder, the first quarter is usually seasonally weaker compared to fourth quarters, because of higher volumes transacted during holiday season at year-end. With that, let me turn the conference back to Lia, so she can comment a bit on our priorities for 2023.

Lia?.

Thanks Rafa. In 2022, we have set up a strong foundation to execute on our 2023 and longer-term priorities. Let me just highlight where our focus as a team will be this year. You can follow those highlights on page 17 of our presentation. First, we will keep growing efficiently.

Our plans for this year contemplate more OpEx discipline and a continued focus on MSMB growth, while maintaining our approach to pricing based on internal return hurdles allocating capital wisely. It is also imperative that we maintain a strong cash flow generation and overall liquidity position.

This provides us with more flexibility to invest in the growth of our business. We will continue to work hard to expand our core through the evolution of our banking offers to micro and SMB clients, leading to higher client engagement.

Together with this, we are on track to re-launch our working capital solution and launch our debit and credit cards to MSMB clients. We will further develop the execution of our software strategy, strengthening our approach to cross-sell financial services into software client base with differentiated integrated solutions.

Finally, after an enormous evolution on this front in 2022, we will maintain focus on evolving our management system and enhancing Stone's unique culture. With that said, operator, can you please open the call up to questions..

We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Sheriq Sumar with Evercore ISI. Please, go ahead..

Yes. Thanks a lot for taking my question. I just wanted to get a sense on the margin outlook for 2023. I mean, I know operating efficiency is one of the key priorities.

But how should we think about the trajectory for margin expansion? Like, based on the guidance that you have said, it seems like first quarter is going to be more or less flattish, but can we expect to see a good ramp-up for the remaining three quarters after that? Thank you..

Hi, Sheriq, Rafael here. Thank you for the question. So, although, we are not providing specific guidance for the full year, I think that, as you said, our guidance for the first quarter implies pretty much the same EBITDA margin as the fourth, despite the weaker seasonality of the first quarter.

When we look over time, we do expect to continue improving the profitability of our business. So there are quarterly seasonalities, but this is the overall trend that we expect.

And I think that the main drivers for this improvement over time is as you said, number one, OpEx discipline, especially, in administrative expenses, higher client monetization, right, new solutions when they kick in and we start to have contribution margins from those solutions.

We are seeing this already happening with banking, for example, which is evolving very well. And I think that the natural operational leverage, as we continue to grow our business with a healthy pricing policy, I think, this naturally tends to dilute fixed costs in the company.

So, I think, that those are the main drivers that we see over time for margins..

Thank you. And just have a quick follow-up on the top line guidance of about R$2.6 billion. I mean, I understand that there is some sort of seasonality that is factored in, in the first quarter, but if I look back historically, like you have been gaining top line growth sequentially by more than or approximately R$200 million.

So is that like a good trend? Like, what would make the -- this cost to a slowdown in 2023?.

Yes. So, as you said, Sheriq, usually top line of companies involved in retail, they tend to be soft in the first quarter. And if you remember, the first quarter of 2022 was the quarter that we strongly increased prices, for example. So, of course, this makes the comps for in terms of year-over-year growth tougher.

But I think that we -- as we said in previous calls, we have been balancing growth and profitability to levels that we think is healthy for the company and that will enable us to deliver on our [indiscernible], while improving the profitability of the company..

Thank you so much. Yes..

Thank you..

The next question comes from Josh Siegler with Cantor Fitzgerald. Please, go ahead..

Hey, team. This is Will Carlson on for Josh Siegler. Congrats on the quarter. Wondering if you guys can give any color on, if there's been any material shift in terms of TPV year-to-date? And additionally, are you seeing any payment headwinds in the industry? Thank you..

No. Hi Will, this is Lia here. No different trends, I think in terms of TPV trends. The guidance that you gave last quarter for MSMB TPV implied a growth of around 18%. And we indicated in that call that our MSMB TPV growth in 2023 should be higher than that.

And our current guidance in the first quarter of 2023 reinforces this indication and our view didn't really change since what we have said in the last earnings call.

Thiago, do you want to add something?.

Yeah. Lia thank you. Hi Will, this is Thiago speaking. I think in terms of trends, the only thing that we are seeing which is actually a good result is that peak in is increasing a lot.

So we are seeing that as the banking increased engagement with our clients, we experienced more cash in volumes coming from PIX both from P2P and P2M type of transactions. So I think that we are capturing this evolution. And this -- and we do not account in our TPV that additional volume that comes from PIX.

So it's a positive effect that we are seeing in our banking execution..

Thanks team. That's very helpful..

Thank you, Will..

Thanks Will..

The next question comes from Tito Labarta with Goldman Sachs. Please go ahead..

Hi. Good evening. Thank you for the call and taking my question. A couple of questions, I guess, first I think good job on maintaining the take rate despite the seasonality and the TPV growth was still strong.

So just, how do you think about, I guess when the competitive environment and your ability to further re-price because it does seem that you were able to gain some share in SMB segment.

Do you think that's sustainable? Do you think there's still room to increase pricing anymore from here? Just to think about how that can evolve? And then my second question also good on the financial expenses. You continue to use your balance sheet there.

Do you see more room to sort of view some of the cash on your balance sheet to continue to reduce financial expenses here, or what's the level that you feel comfortable with to kind of reduce the financial expenses further? Thank you..

Hi, Tito Thiago here. I will take the first part of your question. I think that regarding competition the landscape has been much more stable throughout the year and we continue to do so in the fourth quarter. In terms of take rate as you just said, there are some seasonality between third and fourth quarter because of additional debit volumes.

So maintaining take rate is a positive for us. And because of that seasonality we expect take rates to increase in the MSMB in the first quarter, as the seasonality gets more credit and debit on the first quarter. So we think that the industry now have a very healthy level in terms of prices.

All players' adjusted prices upwards over the last year mainly because of the cost of capital that obviously increased to everybody and our competition continues to be on a rational level..

Hi. Tito, Rafael here. Regarding your second part of the question about financial expenses, as we have mentioned, the cash generation of the business gave us comfort to use part of our own cash to reduce financial expenses. I think that we are a more stable level now.

So when you look at our financial expenses compared to our revenue, I think that we shouldn't change much from where we are right now. So we have been doing this for two quarters in a row. And as we have also indicated previously, financial expenses should grow over time more in line with our TPV and the changes in interest rates in the country.

So I think that we are comfortable where we are right now. And, of course, we'll keep looking at opportunities to optimize our funding..

Okay. Great. Thanks, Thiago. Thanks, Rafael..

Thanks, Tito..

The next question comes from Jeff Cantwell with Wells Fargo. Please go ahead. .

Hey, thank you. I appreciate this and nice results. I wanted to ask you if you could help us think through what we're seeing right now in MSMB both on the TPV side and with take rate for the go forward understanding that there are a lot of moving pieces with the macro right now.

I was hoping we can kind of unpack the 50 basis point increase over the past 12 months and help us take that through in the take rate going forward. And also any thoughts on MSMB TPV as it's growing 23% right now? Just trying to get a little more clarity on what -- how that might play out over the course of 2023? Thanks very much. .

Hi, Jeff. Rafael here. Thank you for the question. I will start and then I'll pass it to Lia to add. So when we think about take rates, I think, we still have opportunity to improve MSMB take rate.

I think and when we look at not only pricing right, which mostly drove our 50 bps take rate year-over-year increase, we'll keep optimizing prices, and of course, trying to improve unit economics, but also having the new solutions, especially banking and in the future credit helping us with take rate..

So the idea that we have is to keep improving monetization of our clients. We are already seeing that not only in payments. And I think that the nice -- what we observed that we liked was we were able to increase by 50 bps the take rate, while growing faster than the market in the industry. So I think that this is something also for us to note.

Lia, do you want to add?.

Rafael, if I may. I want to add three comments here. One Jeff is that the card association in Brazil have indicated that the industry should grow between 14% and 18% this year. And we expect to continue to gain market share, so we will continue to grow faster than the industry. As we said, we see space to continue to increase take rates.

We expect to do so in the first quarter and continue this trend, because of our strategy of how we price our clients seeing all the relationships that they have with us, with all the projects. So as we add more capabilities to our offering, we have better space to offer a superior value proposition to them and then have a better monetization.

And I think that the ability to grow game market share and increase take rates prove how strong our value proposition is. So those are the three comments I would like to add..

Okay. That's great color. Thanks very much. And I wanted to ask a follow-up in the financial services segment with key accounts, and this is in reference to Slide 11. What's interesting -- this is in the presentation.

What's interesting is the platform services that you're averaging, I mean, that increased by 32% and you're highlighting that the take rate has increased by 35 bps over the past year. So the question is how much it does that have to go, because we could see the sub-acquire piece declining.

I'm curious if you can help us think through a little more about the go forward for key account TPV coming from Platform Services and also what that could mean for the take rate in the key account piece going forward? Thanks very much..

Hi, Jeff, I'm going to start here Lia and then if Thiago wants to complement. So this shift that we're seeing in terms of TPV in key accounts, I mean we've been talking about this over the last quarters. In terms of deprioritizing sub-acquire volumes, our approach there is completely opportunistic.

We have our pricing policies and our hurdles and TPV may come or may not. That's not a focus for us. Our focus really is on the platform services clients.

And those clients they have higher take rates simply as a result of the value that we offer to those clients by enabling them to integrate to our payments and banking platforms and distribute those solutions integrated to their offerings like software clients, e-commerce platforms, marketplaces.

So we continue to see an opportunity to invest in this client segment. So we can expect healthy TPV growth in that part of the key accounts business and that will impact positively take rates as well.

Thiago, anything you want to add?.

I think you said it all. Just a small comment is that Jeff we see platform services almost like a type of distribution channel where we can access more merchants and more SMBs through third parties.

I think that the team has the ability to keep a similar pace of what we are executing today and that will result in better take rates for the whole key accounts segment as Lia just mentioned..

Okay. That's great. Thanks very much. Appreciate it..

Thanks, Jeff..

The next question comes from Kaio Da Prato with Banco UBS. Please go ahead..

Hello, everyone. Good evening. So thank you for the participated questions. I have two on my side please. The first one is related to the Banking business. So we reached BRL 3.6 billion deposit this quarter.

And I'm wondering here what are the next steps of the company in this front? Have you already requested any main license to the Brazilian Central Bank? If yes, what type of license and what is the time line for this? And finally, if you think about starting paying any yield on the port in order to foster growth going forward please? And then I will follow-up with my second question.

Thank you..

Hi, Kaio. This is Thiago speaking. Actually, we have BRL 4 in deposits BRL 3.6 billion from the MSMB segment. So there are some deposits from the key account segments too but the total deposits today is BRL 4 billion.

We expect that our deposits will continue to increase, as engagements with the banking solutions are increasing in all segments, mainly the MSMB ones. In the first quarter, we launched a new offering from micro merchants called Super Conta Ton and we have good initial results. So we think that these trends will continue.

And I think that in terms of the yields, today we don't offer yields on deposits to our clients. However, those deposits, they stay 100% in collateralized treasury floating bills by the Central Bank. So, we take interest on those deposits. And I think that we will continue to execute the bank strategy like that.

We are not executing any different type of license at this moment. We think that the execution we have has a very low risk and provide good economics to the company..

Okay..

Kaio may just add one point. I think it's on other relevant aspects of the evolution of banking, which is we're planning the launch of our credit cards in this year both for micro and SMB clients. So, that's an example of additional feature that we will offer that we expect to increase engagement with our banking solution.

And I think I spoke about this in the call but the evolution in outstanding deposits really speaks to the quality of the client base and having the banking attached to the acquiring solution. So that pretty much guarantees that cash and volume from TPV from PIX as Thiago mentioned and other payment methods into the banking account.

So, I think that was just wanted add..

Okay. Thank you very much Lia as well.

And those are questions I made which elicit to your funding source, if you can please detail a little bit more like what are the breakdowns or funding sources from prepayment operations this quarter? And if you can explain what you are seeing in terms of funding cost evolution since the beginning of the year in those lines please? Thank you very much..

Hi Kaio Rafael here. So, the majority of our funding sources for prepayment is the sale of receivables that we do to fund that operation. We also have some debt, right, on our balance sheet. When we look at the cost and the spreads, they have both in debt and in the sale of receivable. They have even slightly decreased quarter-over-quarter.

So, I think that we are not seeing big changes there. Of course as we generate more cash and bring additional cash from our operations, we have more flexibility to deploy that in our business. But still today is the minority part of our fundings being that own cash, right, from own capital.

So -- and that's even important because when you have different capital structures and different players with more equity for example deployed in that operation, of course, you could have less financial expenses, right? So, -- but in our case, I think that this has been the case given the growth of the company, right?.

Okay. Thank you very much. Had fun chat with you..

Thank you, Kaio..

The next question comes from William Barranjard with Itaú BBA. Please go ahead..

Good night everybody. Thanks for the opportunity. So, I have a question related to the MSMB volume growth and how it reflects into your SG&A. So, it seems selling expenses are growing above TPV growth even the MSMB growth okay.

So, I'd like to understand how do you expect this dynamic to unfold in 2023? And if -- as volumes growth are already healthy, so should we assume you will prioritize in 2023 controlling this -- the selling expenses? And if this is not the case why is this your choice?.

Hi William, Rafael here. So I think that one of the dynamics in the selling expenses is when we think about the quality of merchants that Lia said for only is not only important to bring a client not only with a better TPV given the cohort of the client -- the tier of the client, but also a profitable client with a good contribution margin.

So that's why when we look at selling expenses and compared to revenue we have seen an improvement quarter-over-quarter. This year we will continue to invest in our distribution because we do see profitable unit economics.

So the way we look at selling expenses is whenever we see the new clients, the new vintages coming with healthy unit economics above the hurdles of return we have we continue to invest, right? As it is public information we are -- we have a marketing campaign in Brazil in the first quarter right with Big Brother.

This has marketing expenses in there of course. A big part of that is non-cash because we have is non-cash. This is a part of our agreement with Global back in 2021-2020. And we believe that this is something that brings returns to the company.

So the selling expenses is really aligned that when we have the opportunity to increase with good returns we are happy, right? So I think that's the dynamics that we see in that line. .

Hi. Thiago, here. William just to complement the picturing summary. Selling expenses as a percentage of revenues are gaining leverage there's still space to continue that trend although we continue to invest on our growth.

And as Rafa, I think, that the agreement we made with Global give us the ability to create a powerful brand in Brazil both in Stone and Ton and the differentiation of those brands are an important part of our strategy with a non-cash investment because of the agreement we did with Grupo Globo before.

So I think that this is a positive and a good differentiation in terms of how we are building our brands. .

Okay. That’s clear. Thanks for the answer..

Rafael Martins:.

William:.

The next question comes from Antonio [indiscernible] with Bank of America. Please go ahead. .

Hi, guys. Congrats on the results. So two questions on my side. The first one, if you could help us to better understand the figures from Abaco disclosed the guidance for well their perspectives of 14% to 18% of TPV growth for the year.

When you look at this number how to think about it we have some players considering number of not very conservative what will the main drivers to reach this number here? And also a second one on funding costs. Do you intend to keep using cash as a way to reduce your funding costs in the coming quarters? That's it for my side. Thank you. .

Hi, Antonio. Rafael here. So regarding your first question that's right Abaco mentioned 14% to 18% growth in the industry this year. They do have a lot of data, right? So more data than we have.

And I think, I would say that we are internally looking at the lower end of that range and -- but at the same time we are looking at as Thiago said to grow more than the industry. So we are not very worried with that if it will be 14% or 18%.

Regarding the second part of your question in funding, I think, that as I mentioned before we think that the financial expenses compared to the revenue they should be pretty much where they are. We all -- we are always very conservative in the level of cash that we keep in our balance sheet.

We have a lot of flexibility, strong liquidity to be able to address opportunities for growth quickly. And I think that this will continue to be the case, right? So I think that we are pretty much stabilized now in terms of funding.

We'll always look to improve efficiency in funding, negotiation with our counterparties but I think we are at a more stable level right now..

Great. Thank you guys..

Thank you..

The next question comes from Neha Agarwala with HSBC. Please go ahead..

Hi. Thank you for taking my question. I just wanted a clarification on the TPV growth. I understand the OpEx guidance. But I think you mentioned that the MSMB segment for you would grow north of 18%. Is that number right, or could the growth be stronger? My second question is on PIX. So I understand that you do not include the PIX volume in your TPV.

But would it make sense to include that we'd be acquiring PIX TPV to the total volume base, because you can charge for the PIX TPV volume. And could you tell us what is the pricing for these PIX volumes -- TPV volumes? Thanks so much..

Hi Neha. I'm going to start your -- to answer your question regarding PIX and then I will pass it over to Rafa. I think regarding PIX, although we do monetize PIX P2M because that's a payment method that we enable our clients to accept through the POS.

So I explained that the evolution in PIX TPV was mostly driven by PIX P2M volumes what we've seen in terms of behavior within our client base. Also reflects overall trends in the market, which is the first growth of TPV really came from substituting wire transfers and substitution for cash.

But more recently what we've seen is a trend more strong towards PIX P2M. So that's a modality that we do monetize.

We do not include PIX in our overall TPV, but we will continue to bring color on that evolution going forward, which we see as very positive because not only the PIX P2M is something that we monetize but also it really improves engagement with our banking solution in all client tiers. So I think that's the message regarding PIX.

So I'll pass it over to Rafa to get to your other question. .

Lia, if I could just clarify you monetized the P2M fixed transaction and you include the revenues, in your total revenues but the volumes are currently not included in the TPV base?.

Perfect. Exactly that. So we monetize PIX P2M, Neha, in line with debit net MDRs and that's included in our transactional revenue..

Okay.

So that would be about 60 basis points or so 50 basis points to 60 basis points?.

Depends on client segment that we're talking about. It can range because larger clients naturally are going to have a lower net MDR, smaller clients are going to have a higher but it's in line with that debit net MDR..

Neha, Rafael here. Regarding your first part of the question of TPV, I think you're right, right, when we say the 14% to 18% growth of OpEx, we have mentioned in our last earnings call that MSMB TPV should grow over – above 18% right this year. And I think that, this still holds true. Our guidance for the first quarter implies over 20% growth.

So I think answering your question, yes, it is possible to be better right than the high end of CapEx range..

Perfect. If I could ask, please in just one more question. Competition in the SMB space, I believe, it is much more disciplined. You're not seeing anybody being aggressive on pricing. And you don't want to be aggressive on pricing. You want to focus on profitability this year. Please correct me, if I'm wrong.

What about the long tail? In the long tail would you like to be more aggressive in pricing taking more shares, or are you seeing players being more aggressive in terms of pricing in the long tail. If you could just give us some color on both these segments separately that would be very helpful. Thank you..

Hi, Neha, Thiago here. I think that, about competition as I said, I think that competition is much more stable now in the SMB, we priced higher than our competitors. And in the micro space, we price in line with our competitors I think that that's the color I can give you..

Perfect. Thank you so much..

Thank you, Neha..

The next question comes from William Tang with Susquehanna. Please go ahead..

Hi, guys. Thank you very much for taking my question. I was thinking about credit. And I guess, this is very broad, but how do you think investors should think about the timing of the expansion of credit? I know it's a big part of the business but then the company took a bit of a break recently.

So, just how should we think about the timing of the expansion of credit there?.

Hi, William, Lia here. So as I mentioned just now, we are planning to start scaling credit in the second half of 2023. So I think in terms of the timing that's what we're planning for and we can expect expansion to happen more significantly towards 2024. That's what we have in our plans and we can give color on..

Okay. Perfect. And then I guess my follow-up here.

While the company doesn't give longer-term guidance, do you generally see margin expansion from current levels over time? So, I guess phrased another way, do you feel that profitability margins now are – have peaked, or do they have more runway?.

Hi, William, Thiago here. I think that in terms of margin as Rafael said, we see a space to continue to increase margins. As we said, first quarter has a seasonal effect. So on a quarter-over-quarter basis margins should improve.

And in terms of outlook, we are giving the outlook for the first quarter, and we are giving space for Pedro to come in the first quarter earnings call, and give more color about future outlook..

Okay. Perfect. Thank you, guys..

Thank you, William..

Thanks, William..

The next question comes from Natalia Corfield with JPMorgan. Please go ahead..

Hi, guys. Thank you for taking my question. I have two questions for you. The first one, I know that you are not considering buybacks of your bonds. However, given current prices at around like $0.68 on the dollar, I'm wondering if that has changed. And my second question is back to funding.

Just to understand, how and you mentioned here the sale of receivables. Just to understand, how sales receivables have been both Americanas, and you're funding the local market in general for Americanas not only the sales of receivables, but also the CGX and loans with banks. How has this been post Americanas for you? Those are my questions. .

Hello Natalia, this is Thiago speaking. In terms of sales of receivables, we do have many outer parts in Brazil in the local market. So I think that we have the ability to continue our strategy to fund our business with sale of receivable without relevant changes in terms of funding prices. So that's why we are confident with the guidance we gave.

So, if you see in the implied guidance, there is no material change in terms of how we fund our business or the prices we pay to get access to funding. So, it's pretty much a regular execution for first quarter.

In terms of the bond, we do see an opportunity in terms of our bonds, in terms of the implied spread -- and we are always evaluating options to allocate capital wisely and we are following closely that. And we think that that is a good capital allocation opportunity for investors and we are following this very closely..

All right.

So now, you consider a possible buyback of the bonds at current prices?.

I think that that's not the statement I'm saying. I'm just saying that we are following closely. And we see this as a good investment opportunity. We are following closely..

Right. And your sales receivables, you're saying that it hasn't changed from both Americanas or like is not even....

It hasn't changed in terms of volume and almost no change in terms of price because of the number of counterparts we have. So no big changes in our execution. That's why we are confident with our guidance. There are no changes in terms of how we fund the business, no impact from the Americanas event in Brazil..

Okay. Thank you, very much..

Thank you, Natalia..

This concludes our question-and-answer session. I would like to turn the conference back over to Thiago Piau for any closing remarks..

Hi everyone. As this is my last earnings call, I just would like to say a big thank you to all of you, especially to the incredible Stone team. It's a pleasure to lead this company. I learned a lot. I'm really excited with the path ahead.

I think that this thing will do amazing and I'm here to support the business as a shareholder, very happy with the transformation of Stone in the previous years. Thank you, very much and bye-bye..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..