Good evening, ladies and gentlemen, thank you for standing by. Welcome to the StoneCo First Quarter 2023 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.com.br 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.

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, Pedro Zinner; and our Chief Strategy Officer, Lia Matos. Today, we will present our first quarter 2023 results, discuss some recent trends and provide an updated outlook for our business.

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

Pedro?.

Thank you, Rafael, and good evening, everyone. First, I'd like to say that I'm honored and excited to join the Stone team. And I would like to thank Thiago for all that he has done for the company and to ease my transition into the CEO role. I'm confident that Thiago will continue to contribute to our success in his new role as a board member.

I'm also pleased to report that Stone has continued to build on its solid performance from 2022 and deliver stronger than expected top line and bottom line results in the first quarter of 2023. Let me provide some quick comments on the strong quarterly results and share some initial impressions on the company so far.

In our last earnings call, the team outlined our priorities for 2023. I'm quite happy with the results achieved so far, which you can follow on Slide 5. Our first priority was to grow with efficiency. I'm pleased to report that we have exceeded our expectations on both fronts.

We grew our revenues 31% year-over-year and delivered strong profitability with adjusted EBT of BRL324 million in the quarter, 22% above our guidance. As a result, we were able to deliver adjusted net income of BRL237 million which was our best Q1 performance in our company's history. Our second priority was to generate cash.

In Q1, we had strong cash flows from operations and we were able to increase our adjusted net cash by approximately BRL500 million to reach BRL4 billion. Our third priority was to keep expanding our financial services business. As you can see, we have delivered a very strong performance in our MSMB segment.

We grew MSMB TPV two times above the industry, accelerated net addition of clients in both payments and banking and are in line with our plans to resume our credit business.

We have taken significant steps on the credit side, having dispersed to a small number of clients but most importantly, we have improved many aspects of the product and operation that will enable us to grow our portfolio in a sustainable manner.

I want to take a conservative approach towards the expansion of the solution and grow the portfolio depending on market conditions and the completion of the tests we're doing.

Finally, we were able to achieve this growth and evolution with a significant increase in monetization, with take rates reaching 2.39%, an 18 basis point improvement over the last quarter. The fourth priority was to evolve our software business. On this front, results were below my expectations.

The team is working hard to build the foundations that will enable us to deliver a unified experience to our clients. Integrating software and financial services and becoming the one stop shop solution for small and medium Brazilian retailers. We're making progress integrating and building of those capabilities, but we are not there yet.

In our software sales, our revenue growth was hurt mainly by a reduction in ad spending by some of our enterprise accounts, and our EBITDA margin was also impacted by an increase in selling expenses. Throughout the rest of this year, I want to put a strong focus on our team integration, cost discipline and streamlining of our software portfolio.

And finally, our fifth goal is to build a fit-for-purpose organization that will enable us to deliver on our long term priorities. We have to make sure our organization is properly equipped to withstand the additional pressures that come with a high-speed growth.

I don't think this guarantee success, but I believe not having the right resources in place is a leading indicator of failure. As part of this process, I want to welcome Luiz Andre Barroso as our new board member.

His experience as a Google fellow and a seasoned professional in the tech industry will help us on our path to differentiate ourselves and lead through innovation. Now I want to share some additional thoughts on the company and my experience in the role so far.

The first thing I'd like to highlight is the inspiring and fantastic people I have met over the last couple of months. Whether I've been spending time with teams in our hubs at our distribution centers are within our offices, the great ideas, the positivity and enthusiasts for the work we do is really inspiring.

I believe the superior talent in this company will continue to be a great driver for our long-term success. The second is that we have significantly improved the company's governance structure and management systems over the past year.

I see the company doing a better job, offsetting more clearly defined goals, cascading this to different layers within the organization more effectively and linking compensation more closely to our performance. This is improving decision-making and I see that we now have a better understanding of the key value drivers affecting our business.

This is certainly a continuous process, but I believe we now have better structure to maximize value and returns over the long term. The third is the strong foundation of our client-centric culture.

I think a key driver of Stone's success during its journey has been its ability to identify and ease the points of friction that MSMB clients have with traditional financial institutions.

This combined with the last mile and distribution capabilities that Stone has built over the past few years has become a significant competitive advantage that has enabled Stone to disrupt the market.

I think the same attributes can also extend our value proposition into banking and credit and longer term, extend our competitive advantage in our software business by solving the vertical specific complexity of our clients and creating a more cohesive ecosystem of integrated software, hardware and financial services.

For the short term, I believe that focusing and excelling on the basics we will emerge stronger and more resilient. For example, our cost management initiatives are already improving our operating leverage and our pricing discipline is impacting our profit margins.

Longer term, I am working with our team to design our strategy through 2030, setting clear goals and execution path ahead. We will provide you with more details on this new long-term plan at an upcoming Investor Day that we're working towards and we will share more details of the event a little later this year.

And now I'm going to pass it over to Lia, who will discuss our first quarter 2023 performance and strategic updates.

Lia?.

Thank you, Pedro, and good evening, everyone. I would like to begin by briefly going over our consolidated results on Slide 6. As Pedro mentioned, this was a strong quarter with growth and profitability above our expectations.

Total revenue reached BRL2.7 billion, growing 31% year-over-year and our adjusted EBT increased to BRL324 million, above our guidance of BRL265 million. As a result, our adjusted net income increased almost 6 times year-over-year to reach BRL237 million with a margin of 8.7%.

Now from Slide 7 to 12, I will double-click on the performance of our Financial Services segment, which continues to produce strong growth with consistent profitability improvements. Revenue in this segment increased 36% year-over-year and was flat sequentially despite the typical weaker seasonality in the first quarter.

This was driven by good performance in our MSMB client base which demonstrated strong TPV and client base growth, produced higher take rates and generated more revenue from our banking solutions and PIX.

In addition to this top line improvement, incremental cost efficiency gains generated higher profitability with adjusted EBT reaching BRL306 million in the segment and a 13.1% margin. Moving to Slide 8. I want to talk about some of the highlights in our MSMB performance.

MSMB active payments clients reached 2.8 million in the quarter with an acceleration in net adds to 232,000.

This good performance resulted from successful marketing campaigns, driven in part by our lead sponsorship of Brazil's most popular reality show, which increased our brand awareness in both Ton and Stone and from a significantly lower churn in all client tiers.

By optimizing our commercial strategy of Ton and Stone offerings across our multiple sales channels, we were once again able to drive client base growth in all client tiers this quarter. This approach continues to produce good levels of profitable TPV growth, as I will show on the next page.

As seen on Slide 9, we grew TPV in MSMB clients by 25% year-over-year, over 2 times the industry growth to reach BRL79 billion. We generated this growth while also increasing our take rates on a year-over-year and quarter-over-quarter basis.

Our MSMB take rate reached 2.39% this quarter, up from 2.21% in the fourth quarter of 2022 and 2.06% in the first quarter of 2022. Our take rate improvement is a result of higher monetization of prepayment, stronger growth in our Ton brand, higher contribution from banking revenues and higher credit TPV mix compared to the fourth quarter.

We continue to execute pricing discipline across our initiatives. On Slide 10, we will move to the performance of our key account segments. Given that sub-acquire volumes have become immaterial to our TPV, we have decided to stop disclosing the breakdown of our key account volumes this quarter to simplify our disclosure.

Overall, key accounts TPV decreased 26% year-over-year to reach BRL15 billion in the quarter as we continue to shift our priority from sub-acquiring business to platform services within the segment. However, as a result of our priority shift, our take rates in key accounts increased 31 basis points year-over-year.

On a quarter-over-quarter basis, TPV declined, especially due to first quarter seasonality and continued deprioritization of sub-acquires. Take rate remained flattish sequentially, mainly due to lower prepayment penetration. Now I will give some highlights of our banking performance on Slide 11.

As we mentioned in our last earnings call, this quarter we launched Super Conta Ton, our full banking solution for micro clients. As a result of this launch, we saw significant growth in our banking active client base to BRL1.3 million in the first quarter of 2023, 2.5 times higher year-over-year and a growth of 81% quarter-on-quarter.

This has also led to a quarter-on-quarter decrease in ARPAC from BRL45 in the fourth quarter of 2022 to BRL37 in the first quarter of 2023, as micro clients generate lower revenue contribution in comparison to SMB clients. We have also started piloting debit cards in Stone, which is an important step in evolving our banking solution for MSMB.

Client deposits reached BRL3.9 billion which was roughly stable quarter-over-quarter despite a seasonal decrease in TPV which in an important driver of deposits as it is the main cash in method for clients that use the complete acquiring and banking solution.

With the ramp-up of new clients and the launch of new features, we expect deposits to continue to grow over time. On Slide 12, I want to give a quick update on the credit front and on the results we have so far achieved with our pilots.

We enhanced our working capital loan product by combining a flexible daily settlement mechanism with minimum monthly down payments, which increases predictability for both our clients and for us.

We're in advanced stages of improving our system automation and credit life cycle monitoring and making our decision models more sophisticated through enhancements of data. We have also fully integrated our systems with the register of receivables and formalized personal guarantees as a form of collateral, which has already been executed as expected.

We're currently working to rebuild our recovery and renegotiation process to give our clients the possibility to renegotiate directly through the Stone app if they wish to do so.

Until the end of April, we have disbursed around BRL6 million to approximately 200 clients with key credit performance indicators in line with our business model and our credit underwriting standards. We're in line with our plans to test our credit card solution in the second half of this year.

As Pedro said previously, we will take a conservative approach towards the expansion of this solution and grow the portfolio depending on market conditions, and the completion of the test we're doing. Now I'm going to shift to the discussion of the performance and strategic updates of our software business in Slide 13 and 14.

In the first quarter of 2023, software revenue increased to BRL358 million, with a 10% year-over-year growth, representing a deceleration from past quarters given some weakness in our ads business from large enterprise accounts that reduced spending this quarter, adjusted EBITDA for software was BRL40 million in the first quarter, with a margin of 11.1%, a 120 basis point decrease compared to the first quarter of 2022, which was mainly driven by the software revenue growth in the quarter and an increase in selling expenses as we invested in our sales team.

On Slide 14, I want to give the main highlights of our performance and priorities. Software revenues this quarter was positively affected by a higher number of POS and ERP locations in smaller client tiers as well as inorganic expansion.

The growth in number of locations focused on lower tier clients was in line with our strategy to increase our presence in medium and small clients with our software solutions. This shift towards smaller client tiers is also expected to drive average tickets down, while it should open up a broader TAM opportunity ahead.

Looking ahead, I would also like to share with you our priorities for software for this year, and we emphasize our long-term view. We have five key priorities for this year.

A strong focus on cost discipline, integrating teams and functions across StoneCo, increasing operational leverage, continue to expand our presence by scaling our distribution channels, driving growth within medium and small client segments, continued efforts to build an end-to-end value proposition of software and integrated financial services in select verticals and segments.

We believe this is key for us to strengthen our differentiation in some client segments where we have a relevant opportunity to address. Streamlined software assets to increase strategic focus and expand our addressable market by entering in new retail verticals through M&A.

In the long term, our goal is to build a unified commerce solution for our clients, and our software business is an integral part of the strategic vision. We believe we have a lot of work ahead of us, but we're on an exciting path to become the only end-to-end integrated software and financial services provider for Brazilian merchants.

Now, I want to pass it over to Rafael, so he can discuss in more detail some of our key financial metrics.

Rafael?.

Thank you, Lia. I would like to begin on Slide 15, where we discuss the evolution of our costs and expenses. As we have mentioned in the past, 2023 should be a year with more cost discipline and OpEx control. In the first quarter, we have started to see initial results of that approach, especially in administrative expenses, as I will detail shortly.

Cost of services increased 7% year-over-year to BRL721 million. As a percentage of revenue, it was 26.6% in the quarter, 600 basis points lower than last year. Compared to previous quarter, it grew 3%, mainly driven by higher investments in technology.

As we said in our last earnings call, we expected administrative expenses to reduce on an absolute basis and to increase below inflation for the year.

In the first quarter, administrative expenses decreased 11.5% sequentially, mainly explained by lower third-party advisory expenses and more normalized levels of personnel expenses that was seasonally higher in the fourth quarter.

As a percentage of revenue, administrative expenses improved 70 basis points year-over-year and 130 basis points quarter-over-quarter to reach 9.7% of revenue. Selling expenses grew 1.6% year-over-year and decreased 4% sequentially, with operational leverage gains in both comparisons.

The main reason for the quarter-over-quarter improvement was lower personnel expenses, partially compensated by higher marketing and sales commissions. Financial expenses increased 10 basis points as a percentage of revenue to reach 33.5%.

Due to the market dynamics this quarter, we conservatively decided to hold a higher average cash position during part of the quarter, which indirectly impacted our financial expenses.

Lastly, other expenses decreased 17.5% sequentially and 90 basis points as a percentage of revenue as our fourth quarter results were affected due to the impairment of proprietary software and write-off of some noncore assets. Moving to Slide 16. I would like to talk about our cash generation.

This quarter, we have increased our adjusted net cash position by almost BRL500 million to reach BRL4 billion. The main driver for this was the strong cash flow from our operations as well as the sale of our stake in Banco Inter for net proceeds of BRL218 million.

Compared to the first quarter of last year, adjusted net cash increased by BRL1.5 billion. Now moving to our second quarter 2023 outlook on Page 17. We expect total revenue and income above BRL2.875 billion in the second quarter, representing a year-over-year growth above 24.8%.

For MSMB TPV, we expect volumes between BRL83 billion and BRL84 billion in the second quarter compared with BRL69.9 billion in the second quarter of 2022, representing a year-over-year growth between 18.8% and 20.2%. Finally, we expect adjusted EBT of more than BRL375 million compared to BRL324 million for the first quarter.

This number is not adjusted for any share-based compensation expenses.

With that said, operator, can you please open the call up to questions?.

Thank you. We will now begin our question-and-answer session. [Operator Instructions] And the first question will come from Sheriq Sumar from Evercore ISI. Please go ahead..

Hey, thanks a lot for taking my question. On the take rate front, can you provide us some color as to how should we think about for 2Q and 3Q and even 4Q as well. And in terms of how much more pricing upside can we see and I think the current economic stake, the average is expecting a decline in the rates -- in the [indiscernible] rates going forward.

So can you remind us as to how should take rates evolve if interest rates are going to go down in the back half of the year and in 2024 as well?.

Hi, Sheriq. This is Lia. Thank you for [Technical Difficulty] regarding take rates, the first message is, we continue to see positive take rate trends going forward. I think regarding repricing, as we've said many times before, this is like the dynamic and continuous process.

So we always take into account where we are and the opportunities that we have to reprice the base based on our return hurdles. So I think that's the message and that we can expect to continue to see a positive trend going forward..

Sheriq, Rafael here. Just to add to Lia's answer. Over time, over the coming years what we do expect is that, new revenue streams like banking credit, they should also contribute more and more to take rates over time. So not only the pricing in acquiring alone, but also the monetization and other fronts..

Got it. And just one more follow-up. On the banking front, this new macro led this new product or this new offering for the macro clients.

Can you talk about what's the cost of acquisition for these clients and the profitability of that going forward? The main reason I ask is, is there a way in which you could increase your ARPA from these accounts to kind of drive better margins for the overall business?.

Thank you for the question, Sheriq. I think regarding trends and talking a little bit about Super Conta Ton, so the full banking solution for micro clients. This is a solution that is completely bundled to the acquiring solution. So there's no incremental tax when we sell the banking solutions to micro clients.

It's one completely [Technical Difficulty]. Regarding ARPAC trends, as we have been saying for a couple of quarters already, ARPAC will trend downwards basically due to a mix effect, right? Because the economics of the micro clients is naturally smaller than the economics of an SMB clients.

So as we grow faster in the micro segment, this will contribute to ARPAC overall, trending downwards due to a mix effect.

But the important message is that overall, because this is incremental to our banking business in Stone, overall deposits [indiscernible] both as we grow banking clients itself in Stone and Ton products, but also as we expect to -- as we advanced on the banking portfolio, the banking road map, we expect to increase engagement of our clients with banking.

So I think those are the trends that you can expect..

Thank you..

Thank you, Sheriq..

The next question will be from Tito Labarta from Goldman Sachs. Please go ahead..

Hi. Good evening. Thank for the call and taking my question and congratulation Pedro on the new role. A couple of questions also. I guess, first on your TPV continues to be pretty healthy, particularly in a decelerating environment. But just kind of curious if you can give any color, I know you don't break out micro merchants versus SMB.

But just to understand a little bit the competitive dynamics in those two segments.

I don't know if any color you can give, like how much of your growth is coming more so from growing faster in micro merchants? How is the competitive environment there? And similarly, how you're seeing that on the SMB side? And then my second question, just a little bit more of a regulatory question.

There's been a lot of discussions about potentially capping revolving credit card rates and some discussions have talked about maybe reducing interest installments.

I don't know if you've been involved at all in any of those conversations at all, but just kind of curious your thoughts on some of the regulations being the cost and potential impact on your business. Thank you..

Hi, Tito. Lia here. Thank you for the questions. I'm going to take the first one regarding TPV trends, and then I'm going to pass it over to Rafael. So overall trends in TPV, Tito, is that, looking ahead we expect to continue to see growth in MSMB business above the industry over time. While, of course, we maintain pricing discipline.

When we look at consolidated volumes, we have to take into account the effect of the deprioritization of sub-acquirers, right? But within MSMB, we expect to continue to grow and gain market share, so grow above the industry.

Market share is in the goal in itself, but it's a consequence of everything that we're doing to the value proposition to our clients, the investments that we make behind all of our distribution channels. And on your question regarding mix between micro and SMBs.

What we can say is that, we've seen positive net adds, so growth in client base in all client tiers. And we continue to execute on this strategy, of course, always focusing on bringing the best clients with pricing discipline, but continuing to grow and balance that growth with profitability.

Rafa, you want to take on the question on micro -- on regulatory?.

Sure. So Tito, we know that there have been discussions with Brazilian authorities about the possibility of implementing a cap on interest rates for revolving credit card. This is not a new topic in Brazil and it's been carefully considered by regulator in consultation with different industry participants, particularly large banks.

Some players argue that high revolving rates are only necessary because they subsidize installment transactions in Brazil, the so-called [indiscernible] reducing rates would require a decrease in installment transactions.

However, based on the profitability of the card business in Brazil, it does not appear to us that the revolving credit business relies on the [indiscernible] parts allowed us to be profitable, and this is especially true considering that Brazil has one of the highest interchange fees in the world and that those fees also remunerate the institutions for the risk they take.

So additionally, one other consideration is that a significant part of the consumption in Brazil is based on credit and [indiscernible], right? So 50% of credit card transactions in the country are done in that type, and this is especially true for lower-income people.

So basically, I think that before implementing any changes that we don't have any visibility. We are not directly participating in this discussion because we are not directly involved as we are not big issuers. We believe that Brazilian authorities will consider various economic and social aspects of that measure..

Okay. That's great. Thanks, Rafael for the color and thanks Lia. Just one follow-up, I guess, on Lia's response on the [indiscernible] micro and SMB.

Just any comments you can give on the competitive environment within those two different segments? Any differences that you're seeing in the micro merchant space relative to the SMB base from a competitive perspective?.

Tito, yes, so I think regarding competition, if anything, the competitive landscape has been more stable compared to [Technical Difficulty] three important trends happening in the industry, right, that are worth mentioning? First is the industry overall has adjusted prices upwards over the last year.

Cost of capital, of course, has increased and that makes it more difficult for new entrants to come into the market. So we see a market that is more stable from that perspective. And third, overall, players have evolved, right, beyond a pure acquiring to a more complete financial services offering.

And we think that strategies are more and more taking into account this complete financial offering mindsets. And more broadly, players like ourselves, the integrated financial services offering, both from a product and from a go-to-market perspective will be better positioned to win client relationships and gain market share overall in the future.

So I think that's what -- those are our main perspectives on the industry..

Okay. That’s great. Thank you Lia..

The next question will come from Juan Recalde from Scotiabank. Please go ahead..

Hello, Pedro, Lia, Rafael, congratulations on the extraordinary result and thank you for the opportunity to ask question. My question is related to the software business. So we saw that the revenue growth accelerated there at the EBITDA margin compressed.

So I was wondering, first, if this was expected? Second, what drove the top line deceleration and the profitability deterioration? And third, what kind of growth and profitability do you see for this segment going forward?.

Hi, Juan. Lia here. I'm going to start answering regarding top line and maybe pass it to Rafa to give some more color on margin evolution. So we did expect a deceleration in terms of growth, but as Pedro mentioned, the revenue performance still came behind our expectations.

This weaker growth was mainly driven by our ads digital business, as I mentioned, this business declined 8.7% year-over-year, while core POS and ERP revenues actually grew 12% year-over-year.

And on the positive side, core revenue growth was driven by an increase in the number of locations and consolidation of [indiscernible] while average tickets remained relatively stable. And this dynamics as a result of us investing in the growth in medium and small client segments. That's where we see the biggest market opportunity ahead.

So that performance in terms of growing in smaller client here is in line with our plans.

And I think the message going forward is a scenario of lower inflation and more volatility in the digital business should continue to weigh on software top line growth, but we continue to execute on the priorities that we have both on the revenue side, mainly growing in medium and smaller client tiers and defending the revenue in the enterprise clients, but also focusing on cost discipline.

Rafa, you want to complement on margin trends or maybe….

Yes, maybe I'll jump in. Juan, I think looking ahead, I think we're going to remain focused on investing behind our franchise and inbound channels to grow in the middle of the pyramid because that's where we see the biggest opportunity, both in terms of software and cross-sell.

And I think regarding the margin that you asked, I think we already expected a lower margin this quarter, especially due to the seasonality of the revenues. However, the margin was a bit lower than we expected as a combination of two main factors.

I think the first one is the lower revenue growth, which, of course, reduces dilution of fixed costs and also higher selling expenses this quarter as we invested in commercial headcount, which weighted on selling expenses for the software.

The revamping margins should be driven by efficiency initiatives associated to the integration of back-office functions across Stone company to be executed with the implementation of our shared service center, amongst other initiatives that we have in the pipeline.

The improvement -- I think it's important to highlight that the improvements we have [Technical Difficulty] are not a short-term challenge. It will take time. But as I mentioned during the call, we are confident that the rewards are really worth it.

We are aiming to bring together the software and financial services to the Brazilian merchants through better products and services. And we really believe this is very hard to replicate by any other type of competitor. I don't know if we address all the questions you had..

Yes. That's very helpful. Thank you for the comments..

Thank you. And the next question will come from Kaio Prato from UBS. Please go ahead..

Hello everyone. Good evening. Thank you for the opportunity to ask question. I have two questions here. If I may start with the one related to the guidance, if we look to your guidance of BRL375 million plus earnings before taxes in the second quarter.

I understand that this is the bottom of the guidance, but this is an only BRL50 million increase on a quarter-over-quarter basis. And in the second quarter, we will see the first effect of the caps on interchange fees of prepaid and debit cards which tend to be positive.

And in addition to that, expectation of continued healthy growth on SMB, TPV and so on. So just wondering what type of impacts could reduce your ability to have a higher EBT? Is this financial expense, more investments or any type of price reduction due to competition? Just would like to hear your thoughts about the dynamics in the next quarter.

Or if you can consider that you were more conservative on that guidance. This is the first, and then I can follow up with the second. Thank you..

Okay, Kaio, thank you for the question, Rafael here. So when you look to our guidance of the second quarter, you do see an implied margin expansion, while, as you said, we keep TPV growth between 19%, 20%, which we think is a healthy level.

And what we have been looking for, as we have been mentioning over the last few calls is to grow with profitability and that's what this guidance implies. We do see a positive effect from the cap, as you said, in the guidance.

And as you said, it's above BRL375 million, right? So this is the floor and that's what we are comfortable at this moment in providing. Of course, we'll keep discipline in growth with profitability. So we are not providing any specific guidance about the cap impact. This is net positive for us, and we believe for the whole industry.

So -- and regarding TPV, if you look at our TPV guidance, you have -- the first half of this year, we should be growing TPV around 22%. We see that the industry was growing 10.7% in the first quarter. So it's a good balance between growing more than the industry, and at the same time, improving profitability and increasing the grades..

Okay. Thank you, Rafael. And the second one is around the key accounts, TPV, as you mentioned, it went down a lot this quarter, and you didn't break down between the sub-acquirer and platform services in order to simplify the reporting.

But if you could please help us understand how much of this quarter-over-quarter drop was related to platform services and to sub-acquirers? And moreover, if you could please share us the competitive landscape in the key account segment and what we can expect in terms of TPV growth going forward..

Sure, Kaio. Rafael, again. The big majority of the drop is related to sub-acquirer. So if you look at sub-acquire volumes, they have dropped very significantly both quarter-over-quarter and year-over-year. As you said, it's -- they are not relevant anymore to the company nor TPV or bottom line. That's why we decided to simplify it.

And -- but overall, when we look at other key accounts, I think if you look at key accounts players like e-commerce, marketplaces, big retailers, it's obviously a lower-margin business versus SMBs and micro. So it is a competitive environment in payments there.

And of course, we do see opportunities there to penetrate also software, not only with hand alone. So I think that's the main focus when we look strategically to the key accounts regarding payments..

Okay. Thank you very much..

Thank you..

And the next question is from Geoffrey Elliott from Autonomous. Please go ahead..

Hello. Thanks very much for taking the question. You mentioned a couple of times the weakness in the ads business. Can you just give us a bit more detail? What does that business look like? Who are the clients? And why was it weak in the quarter? Thank you..

Hi, Geoffrey. This is Lia here. So our ad business is basically a portion of our digital business within Linx that is -- its nature is transactional. So it isn't -- its nature is not recurring revenues. So what that means is that, our clients can have more -- larger or bigger volumes, depending on what their needs are and what their demands are.

Most of the clients there are enterprise clients. And this effect that we saw this quarter was basically those enterprise clients using less ad volume as compared to last quarter. So essentially, that's a -- like we [Technical Difficulty] compared to the recurring software business that we have, part of it in digital, but mostly in core software.

So I think those are the main messages in our ads business..

Thanks. And if I could just squeeze another one in.

You've talked about growing TPV faster than the industry, but what's your latest view on industry TPV growth this year?.

Yes. So like Rafa said, we saw industry growth around at 10.7% this quarter. [ABAC's] (ph) pointed to between 14% and 18% this year. We think it's going to be in the lower end of this range. So that's our view on the market. We have to continue to observe the numbers as they come out, but we expect on the lower end of ABAC's guidance..

Great. Thanks very much..

Thanks, Geoffrey..

The next question is from John Coffey from Barclays. Please go ahead..

Great. Thank you very much for taking my call. So the first part I had was actually echoed or was reminiscent of the question you just had regarding the industry growth. So when I think of what you're seeing or we were expecting for the first half, I think you said around 22%.

If we were to extend that out to the second half of the year, is there anything that you would caution us on any tough comps or anything that might be specific to Q3 or Q4 that might actually push that rate higher or lower? And the second question is, as far as key accounts go, when does the pain of the declines end? When do you get to that bottom point at which TPV starts to grow again?.

Hi, John. Rafael here. So regarding [Technical Difficulty] there's nothing that calls our attention right now that should change significantly those 20-ish percent growth levels in the MSMB TPV in the second half of the year.

Of course, as we have said, we do rely on different factors and macro factors that -- like inflation and economic activity in retail that we do not control. But as of now, there is no big indication or big changes from those levels.

When -- your second part of the question regarding key accounts, can you please repeat it, please?.

Yes. Well, I mean the TPV has been declining for a while. I thought a lot of that is due to lower volumes from the sub-acquirers.

When does that sub-acquire volume become negligible and then you really start to see the TPV start to grow again quarter-over-quarter or year-over-year?.

Oh, yes. Yes, perfect. I think that if you look at our key accounts policy in payments and TPV, of course, the sub-acquire has declined strongly, but overall, we have been more strict in pricing in key accounts. And I think that, that policy does have some negative effect in TPV.

And so I would say that the coming quarters, we should still see year-over-year growth in key accounts being sort of depressed at those levels that you see now. But of course, at the end of this year, we believe that you had [Technical Difficulty] and then we might see an acceleration there. But [Technical Difficulty] or so..

Thank you..

And the next question is from Josh Siegler from Cantor Fitzgerald. Please go ahead..

Yes. Hi, thanks for taking my question. Congrats on the strong results this quarter. For my first question, I think in your prepared remarks, you mentioned being significantly lower churn on the MSMB vertical. I'm curious what some of the drivers were behind the strong retention this quarter and if you expect that to persist throughout the year..

Hi, Josh. Lia here. So yes, we saw a significant lower churn across all client tiers and both in Stone and Ton brands. And we think that this is a trend that will continue. It's the result of the expansion of our product offering, also a greater focus on client life cycle monitoring. So we've done a lot in terms of actions towards the base.

So agents visiting -- making more life cycle visits, more engagement throughout client life cycles. And also, we cannot ignore the fact that industry is much more rational, right? So that also impacts positively our term. So those are the three main messages that we have regarding churn trends, and we think that these trends are going to continue..

Understood. That's very helpful color. Thank you. And then for my follow-up, I'm curious how you're thinking about sizing the opportunities to continue to cross-sell the banking solutions to Ton customers.

Do you expect increased acceleration in banking active clients as you roll out the new Super Conta Ton consist product?.

Yes, Josh, great question there. Just to give some color on this.

There was a big incremental contribution this quarter because not only we grew Super Conta Ton, the new Ton clients, but we also migrated clients that had the simple wallet to the full banking solution, right? So I think what we can say looking ahead is that, every single Ton clients will have both an acquiring and a banking solution, so growth in Super Conta Ton will be in line with growth in Ton itself..

Perfect. Thank you very much Lia. Appreciate it..

Thank you, Josh. And I think another important comment is just to also emphasize this. That's also the reality in Stone products, right? So as much as it's not a bundle where 100% of the clients actually use acquiring banking in Stone. We have a very high penetration of banking solutions to acquiring clients in Stone as well.

So that's also going to drive growth in banking clients looking ahead..

Thank you. And the next question will be from James Friedman from Susquehanna. Please go ahead..

Hi. Yes, it's Jamie wit Susquehanna. Greetings, Pedro and welcome [indiscernible]. A question for Lia, about Slide 14, the software strategy layout.

I was just wondering if you could step back and say at a higher level, how the strategy articulated in Slide 14 has changed now versus when you originally acquired Linx? What's -- I know the world changes, but what's -- how are you are thinking about it now? And what may have changed your thinking in that process?.

Thanks, Jamie. I'm going to take this question first and then maybe pass it over to Pedro also to hear his thoughts. I think we've always believe very strongly in the opportunity to combine software and financial services, right? We are intensifying our integration efforts this year.

I think the reason is about focus, right? Perhaps there wasn't such a big focus before. We mentioned many times that in 2021, there was all the issues with credit, and then we really started sort of focusing a lot on the overall turnaround of the business last year and changing the management system.

Of course, that was true for financial services platform and for software platform. But now we're really putting a lot more emphasis on the integration efforts. And so, strategically, the thought is the same. I think it's just about how we're prioritizing and where we're putting the focus.

And I would say around the integration, our focus is really threefold, right? Number one is around back office. We already did a lot on that last year, but I think that there's still a lot of work to be done. Pedro talked a little bit about this already. The second is really on product integration and integrated offerings.

So a lot of our effort last year was around product integration. Now we're shifting to really things from the client perspective, how we can really build the best combined offering of software and integrated payments and financial services.

And the third is really around go-to-market and how do we really incentivize and coordinate our go-to-market efforts, both in financial services and software so that we maximize this combination, right? So I think it's more about the how as opposed to the what. The strategic rationale hasn't really changed.

But I think we've changed a little bit how we've been focusing on the initiatives. Pedro, do you want to comment..

Yes. I think -- if I might add, I think one of the points that Lia raised is really -- my view is the key reason, which is focus.

But another point that is really important is that -- we do believe that the opportunities within the software business are huge, right? If Linx clients sell around BRL0.5 trillion, which is equivalent to 5% of Brazil's GDP and we still have a low penetration of payments and financial services into those clients.

So we haven't put all the effort and the focus we needed if that offering the integrated solutions will bring a very differentiated value proposition to our clients. And I think there is another point that it should be highlighted is.

we may optimize capital allocation within the software business, really trying to focus on select [trends] (ph) that are more strategic to us..

Got it. Thank you for the context. I’ll jump back in the queue..

Thank you, Jamie..

And the next question is from Mario Pierry from Bank of America. Please go ahead..

Hi, guys. Thanks for taking my question. Let me ask the first question on -- during your speech, you talked a lot about cost discipline and expense control.

Can you talk about some of the measures that you're taking and help us quantify the benefits of these measures? And I ask because when we look at your headcount, it's much larger than some of your peers. And we have seen some of your peers reducing headcount.

So indirectly, I'm asking if there are any plans to reduce headcount or what are any initiatives that you have to control costs? And then I'll ask the second question..

Hi, Mario, Rafael here. Thank you for the question. So I think there are many initiatives that we have been implementing in the company. We have created, for example, a shared service center, which tends to incorporate more activities in the future and bring back office gains.

We are also focused on structural efficiency improvements, technology, platformization of the business. I think that if you look at the headcount, and I think Pedro can talk a little bit about this, there is a business model thing, which when you compare to other companies, our business model is more verticalized.

So part of what other companies might outsource, we do internally in-house, and that all, of course, reflects in our headcount. But as we have mentioned last -- in last earnings call, we do expect administrative expenses to go below inflation this year.

So I would say that we are working towards more structural measures, we have different measures in operational efficiency, in customer service, logistics and technology, cloud [indiscernible] so on and so forth. So -- but I would say that the headcount reflects -- a big part of the difference is business model difference versus other players.

Pedro, do you want to add?.

Yes. I think one point that is really important to highlight, you mentioned in terms of KPIs and so forth. I think last year, there was a huge effort put in place to [indiscernible] and within the process, you had the package owners for the main expenses within the company.

So that brought us visibility in terms of where we should attack, how we should attack and when we should attack in terms of streamlining expenses and actually having better control as we move ahead and set the company for its growth strategy.

In terms of headcount, I think I mentioned at the beginning of the call that we're really setting the stage to position Stone throughout 2030. And so, we have to make sure that we have the right people at the right roles to build a fit-for-purpose organization, as I mentioned before.

So having the ZBB tool in place and understanding where we want to be over the next couple of years, will be an important tool in terms of how we manage headcount as we move ahead. All we want to do [Technical Difficulty] how can I say, back and forth review in terms of headcount finding and hiring people.

So it's really building a fit-for-purpose organization as we move ahead, right?.

Okay. Thanks for that. My second question, then let me change the subject a little bit, focus on your funding costs.

Can you talk about your ability to tap third-party funding, given recent events in Brazil? How are you seeing the market?.

Hi, Mario. So we are not seeing problems in tapping funding sources, especially because the company has been generating cash, increasing liquidity. So we have a very robust balance sheet. So we are not seeing any problems there.

We did see in the industry a very slight increase in funding cost that as you can see, it was not anything that reflected in our P&L. So we are -- we have different funding sources in the company, and we believe that those will be even more diversified, I mean, in the coming future. So it's not something that worries us..

Okay. And Rafa, if you can just remind us your sensitivity to a lower rate environment, what would be the impact of 100 basis points reduction in [indiscernible] assuming all else e-com..

Mario, so I think that this question is hard to answer because there could be like a theoretical answer that consider [indiscernible] but we know that when rates change, the commercial dynamics might change as well. So we don't like to provide a specific guidance around that sensitivity.

If you look at our interest rates, our financial expenses, sorry, they have been evolving over time basically with TPV and CDI. So you can pretty much do a simple math on where they are today. And if CDI decrease, you'll see a percentage decrease there.

But of course, it is a net positive for us if rates decrease, but it's very hard for us to say a number because we would otherwise assume that commercial activity and competitive environment will be the same. We do believe that players would not rush to decrease prices and [Technical Difficulty] it's really hard for us to guarantee that.

So if you look at our financial expenses, a little over BRL900 million with CDI almost 14%, you can do some math there and see, 100 bps is relevant impact..

Okay. So -- but basically, you're saying that it depends on how your competitors are going to behave, not necessarily -- so it doesn't mean that you are going to be the first mover in case if rates come down, that first mover in reducing prices..

Yes, Mario. So we will not be first movers in bringing down prices. I think that -- and of course, we do have our internal hurdles, our internal return goals. It's not 100% reliant on what our competitors will do, but we do look at competition and environment to decide what we're going to do.

But this is not something that will do proactively bringing down prices if rates come down..

Okay, guys. Thank you very much..

And the next question will be Neha Agarwala from HSBC. Please go ahead..

Hi. Thank you for taking my question. First, on the software business, if I understood correctly, you mentioned that you've not been able to penetrate the large clients that have come from Linx and that presents a huge opportunity for you to cross-sell your payment services to them. Why -- I mean it's been a while since you integrated Linx.

I thought it would be an easier opportunity, a low-hanging fruit to cross-sell your payments business to the Linx clients versus bringing the software expertise from Linx to your SMB segment. So why haven't you been able to integrate that part? And that's related to my question on TPV as well.

So TPV growth has been almost twice that of the industry as a whole. What are the reasons for this strong growth? Whom are you gaining market share in the SME segment from because with most of your peers when we talk to them and we see the numbers, they are mostly close to the low teens in terms of TPV growth.

So what is driving the strong growth in terms of your TPV? Is -- has there been some contribution from growth in larger accounts, which might have led to the stronger TPV growth? If you could shed some light in case there's a change in mix? And then I'll ask my next question. Thank you..

Thank you, Neha. Your question cut a little bit in the middle, but I think I got it all. Let me take it and then if there's anything missing, let me know, okay? So I think your first question was payments in financial services penetration within Linx clients and where our focus is. So our focus is really on the middle of the pyramid.

I think that's the best way to describe it. Those are medium and a little bit the upper tier of SMBs, right, the larger, small clients and the medium clients and a little bit of large clients as well.

That's where we see the biggest fit in terms of offering both the offerings that we have on the financial services side as well as the product portfolios that Linx has. So just to clarify this point, our focus really is -- the initial focus really is on cross-selling financial services to software clients.

But there's actually a convergence in terms of our strategy when we consider software and financial services because Linx is very highly penetrated already on the very large clients and the opportunity for us to grow in software itself is going lower in the pyramid, right, going to the medium of the pyramid with software.

But that's going to be -- continue to be done through Linx's channels, Linx's franchise channels, and Linx's inbound channels. So there's a convergence there. I think that's the important message regarding software and where we're looking at in terms of cross-sell.

I think on your TPV question, message is, we take market share from pretty much every competitor, right? And we have actually pretty granular view of who we're taking market share from, in which client tiers and in which regions.

Of course, the dynamic changes a little bit region by region and tier by tier, but the message is, we take market share from all competitors, right? And the growth in TPV trends that we see is both driven by our growth in the micro segment, that was also a big driver of net adds in the quarter.

But let's remember that our strategy within the hub has been to focus on larger SMB clients, right? So more and more, we're shifting our hub strategy to look at the top tier of the SMB segment, and we're seeing pretty healthy growth there, and that's driving TPV growth.

Did I get all your questions?.

Yes. Yes, Lia, largely. So there has been some move upmarket, not particularly large accounts, but maybe somewhere in between the large accounts and the SMB. So more higher-tier SMBs. That's the focus..

That's exactly. Higher tiers within SMB, exactly..

Okay. My second question is on the credit. So we finally see you piloting your credit product. You mentioned that you've been fully debated it with the receivables registry.

Could you talk a bit about that as to is the registered receivables fully operational? Is there a complete transparency in terms of data and do all the registries communicate with each other? And secondly, on -- what other -- has it been integrated with the hubs? And what are the other product changes that we can see in the coming quarters? And when do you think you can fully launch it.

Thank you..

Yes. Neha, great questions about credit. Let me start with your question on the registry. So the message is, with this initial group of clients, we already did them with the integration to the registry system working. It's working, but we're using it as an extra data point, not as a single mechanism of collateral. I think that's an important message.

And regarding on your question of how we're involving the hubs, this is something that we're starting to test the level of involvement of the hubs in the current life cycle of our clients. Initially, we have been distributing the product mostly digitally. But remember [Technical Difficulty] group of clients still.

And so we're running several tests in terms of the involvement of agents in the credit life cycle overall, we think that we have a very big edge to leverage there, but the way in which we're going to do it is still a learning process..

Thank you. And the next question is from Soomit Datta from New Street Research. Please go ahead..

Yes. Hi there. A couple of questions, please. One, just on the balance sheet. There's a nice slide in the deck showing cash position just steadily rising and obviously, the business is moving into greater profitability.

So how are you thinking about use of cash going forward? Has that number presumably continues to inflate? Are there any acquisition opportunities you would be considering at this time? That's the first question, please. And then just a quick follow-up, if I could, just back to industry TPV. I know it's come up a couple of times.

Just curious, the 10.7% growth is a little bit softer than we were looking for.

As you look through to the rest of the year, would you expect that to increase? Are there any kind of comps that you can think of, which would be impacting that? And I say that because it feels like in the context of the kind of cash to digital shift, it's not as impressive as it might be. So just curious of your thoughts there..

Thank you for the question, Soomit. Rafael here. So regarding your first part of the question, we do have a strong balance sheet, as you said, BRL4 billion in adjusted net cash. This enables us to have flexibility to grow faster whenever we want and to invest in different fronts of the business.

One of the -- as we have been mentioning for a couple of calls already, one of the use of that cash is to reduce a little bit of the debt that we have in the balance sheet, as you can see over time. That's why financial expenses have stopped increasing a lot mid-last year, but we also look very carefully capital allocation opportunities.

And of course, it's better to have that flexibility. One other element here is environment scenario, any more uncertain micro scenario, we do have cash to keep growing the business, for example, in the pandemics, we had our prepayment business working during even the worst week of pandemics because we have flexibility and cash on hand.

So I think that's sort of a policy of the company. And we're closely looking to different capital allocation opportunities with a lot of discipline.

Regarding the industry, I think that 11% growth sort of is coherent with our view that the industry growth in the year should be more closer to the bottom of the range of what the ABAC association guided to, which is 14%. So I think that's hard for us to estimate for the whole year, but it's close to the bottom range.

So it's not something that calls our attention..

Got it. Thank you..

And just to reinforce one point, Soomit, -- having said that, this is for the industry, right? When we look at our TPV as we have guided, it's running a little over 20% in the first half of this year, and we expect that those growth levels should continue to be above industry this year.

Of course, looking at pricing discipline always, not growing but by growing [indiscernible] rate..

Yes. Absolutely. Thank you..

And the next question will be from Pedro Leduc from Itau BBA. Please go ahead..

Thank you, guys. A little bit on financial -- sorry, on pricing dynamics. So this quarter, we saw a little bit the last rounds that you have implemented when you look at your take rate. If you've noticed some competitors moving recently, some are saying they're moving up.

Hence, if you're seeing room for maybe another round there given the lower churn that you mentioned? And if in 2Q, we should see a little more pricing effects or just the better take rate coming from the interchange cap. Thank you..

Thank you, Pedro. Rafael here. I think that we did reprice clients in the first quarter. We do expect to reprice clients in the second quarter. I think this is a continuous process of pricing optimization.

It's not -- as I said before, it's not a big price change as we saw in the beginning of last year to adjust for higher interest rates in the country, but it's a continuous optimization process that we do see opportunities to optimize prices further. As I said, there is the gap of prepaid cards. This also helps in the take rate.

So I think that the message here is very disciplined pricing policy and a balance between growth and profitability that we think is healthy..

Thanks, Rafa. And taking back a bit on that, of course impressive guidance for the upcoming second quarter. But you also have been beating guidance at least three quarters that I remember it. Things have been ending up better than what you see mid-quarter. How should we think about that a bit? Again, it is a strong figure for 2Q.

I'm just wondering if what is an upside scenario that we've been seeing consistently beat it..

Yes, Pedro. So when we look -- when we define the guidance, we look at the forecast we have for the quarter, we see potential deviations around that, both the upside or downside and we try to provide a number to the market that we are confident in achieving. Of course, there's always upside on the number.

But of course, macro scenarios that we don't control -- so I think that the idea is really to be precise given the timing of the macro scenario involved in our results that we cannot control.

So Pedro, do you want to add?.

Yes. I think in terms of the guidance, I think it's important to highlight that we do not expect to change our policy of quarterly guidance in the next quarter.

However, in the future, we do plan to provide a longer-term perspective of the business rather than a quarterly number, which we believe is more aligned with our long-term value creation strategy..

Superb. Thank you both for the answers..

And the next question is from Nicolas Riva from Bank of America..

Thanks very much for the chance to ask question. A few questions on your debt going back to Mario's questions. So I appreciate your comments about saying that you continue to see access to be able to top funding sources.

But I did see that in the quarter, your bet with the [indiscernible] declined a bit over BRL300 million in the quarter, and it's been down even more over the last year.

So if you can comment on your access to financing in the [indiscernible] market? And maybe is the reason why we are seeing less [indiscernible] in the balance sheet is because you're using more off-balance sheet financing where you do not keep equity stakes in the [indiscernible]? And then also a similar question on your bank debt.

If I look at your short-term bank debt, it declined by about BRL500 million in the quarter. So if you can comment a bit on your access also to bank financing after the [indiscernible] of Americanas and also many other stressed Brazilian corporate right now. And then I will have a separate question. Thanks..

Thank you, Nicolas. Rafael here. So I think that the effect that you see, as I said, when someone asked about the allocation of cash, is part of that is because we are increasing cash generation, right? And we are using part of that to both amortize the [indiscernible] that you mentioned and also short-term debt.

Remember that in the first quarter, we did sell our stake in Banco Inter for BRL218 million, so they help the BRL0.5 billion increase in adjusted net cash. So I think that this has nothing to do to access to funding lines, but rather cash on hand with a good capital allocation to reduce leverage and reduce debt given where interest rates are..

Okay. Thanks, Rafa. And then my other question is on your financial expense. So in the income statement, you booked a very large amount of financial expense, a bit over BRL900 million a quarter or about BRL3.7 billion over the last 12 months.

But if I compare that with your total debt size, if I include the 2028 bonds, bank loans [indiscernible] debt and deposits for the banking product, I get BRL8.5 billion in total debt at the end of March. I'm not including the payables to the merchants.

So again, about BRL3.7 billion in financial expense in a year compared to BRL8.5 billion in total debt. It seems a very large amount of financial expense.

I believe this -- the financial expense you book in the P&L also includes some of the noncash discount on receivables sold to [indiscernible] but if you can tell us why that's the case? Why such a large amount of financial expense in the P&L compared to your debt side?.

Thank you, Nicolas, for the question. Very good question. I think it's good to clarify. So whenever we sell receivables, card receivables and transform them into cash, we are incurring financial expenses, right? So if you look at our adjusted net cash position, that's why we look [Technical Difficulty] as an asset and card payables as liabilities.

We still have a surplus of, we have more receivables than payables. And it's basically our option to convert them into cash as this is a very liquid market.

To help investors understand that dynamics we have provided -- started providing in our financial statements in Note 16, the breakdown of our financial expenses, how much of it comes from sale of receivables, how much of it is interest related to that, that you see in our balance sheet. So I think that is very detailed there.

And this is basically the dynamics which is important to remind everyone is that whenever we sell receivables and we incur financial expenses, we decided every day how -- if we want to incur those expenses are not based on the spreads we have in our prepayment business.

So -- we incur in financial expenses, but we have financial income related to those expenses that are appropriate for us in terms of returns. So it's not something that we are -- we have those financial expenses at any cost, we will only incur them if we think the spreads are attractive and you'll see the net result in our P&L as an attractive one..

Thank you very much for that Rafa. And maybe just one last follow-up on this subject.

Would you have kind of a proxy or I guess, ballpark for your cash? So if I compare to this BRL900 million plus of interest -- accrued interest expense in the P&L what will be kind of a ballpark for your cash interest payments? I mean there are three lines that you use as reconciliations in the cash flow statement.

And using those three lines and getting cash interest payments of about BRL423 million in the quarter, so roughly a bit less than half the size of the accrued interest expense in the P&L, which would mean funding costs of about 18.7%.

Does that make sense? Or if you can give us an idea of if your cash funding cost or cash interest payments right now, per quarter? Thanks..

Yes, Nicolas. So I think that if you look at our cash flow, we do have the amount of interest paid there.

And I think that one additional element is that our cash flow, we have interest paid, and we have the net effect of the interest income received from prepayment business and how much is the funding cost for that only for the sale of receivables that we have.

So I think that if you look in our cash flow statement, and you'll see the interest income received net of costs and you see the income -- the interest paid you have pretty much the information to do the reconciliation you want to do. So I think that if you want to go off-line as well, of course, we are fully available to make those details for you..

Sure. Maybe just one last one.

Since you mentioned generating cash and in some cases, using this additional cash level to repay some that debt, would that potentially -- and I know that we have asked this question a few times in earnings calls, would that potentially include buying back some of your [indiscernible] given they are trading at about BRL0.80..

Yes. So I think we answered that question last time, I think it doesn't change the answer. We are looking closely to different capital allocation opportunities, including that you said. As I said, we like to have flexibility in terms of cash. And if we look at the bonds, you have to look at the discounts.

We have to look at the cost to unwind the hedge of the bond, which is negative right now. So I think there is many factors that we have to take into consideration when deciding to do that. And we are always looking very closely to that sort of alternative..

All right. Thanks very much, Rafa..

Ladies and gentlemen, there are no further questions at this time. This concludes our question-and- session. I would like to turn the call back over to Pedro Zinner for any final considerations..

Well, I just want to thank everyone for participating in the call, and hope to see you again soon in our next quarter conference meeting. Thank you very much..

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