StoneCo Ltd. (Nasdaq: STNE) (“Stone” or the “Company”), a leading
provider of financial technology solutions that empower merchants
to conduct commerce seamlessly across multiple channels and help
them grow their businesses over time through technology, today
reports financial results for its fourth quarter and fiscal year
ended December 31, 2018.
“We are pleased to report strong fourth quarter
and fiscal year 2018 financial results”, said Thiago Piau, chief
executive officer of StoneCo. “Our company is very well positioned
to continue to help our clients grow and improve their businesses,
by providing them a superior value proposition and the best
customer experience. We believe we have created a unique business
model, which has brought us great achievements. First, our clients
love us, as evidenced by our Net Promotor Score which has
consistently been in the range of 65 to 70, on average. We
are also proud that we have been able to grow quickly while also
posting strong profitability, which is shown in our Q4 results of
total revenue and income growth of 114% year over year and adjusted
net margin of almost 30%. Finally, our business model is allowing
us to build a much bigger future, with new products - such as
software, banking services and credit - that help our clients
manage their business better and grow over time”.
Operating and Financial Highlights for the Fourth
Quarter of 2018 and Fiscal Year 2018
- Total Revenue and Income increased 113.7% year over year in the
fourth quarter of 2018 and 106.0% in fiscal year 2018 compared to
fiscal year 2017, reaching R$1,579.2 million in the year
- Adjusted Net Income was R$155.9 million in the fourth quarter
of 2018, compared to R$20.9 million in the fourth quarter of 2017,
an increase of 646.3%. Adjusted Net Margin in the fourth quarter of
2018 improved 21.0 percentage points year over year to 29.5%,
compared to 8.4% in the fourth quarter of 2017
- In fiscal year 2018, the Company reported an Adjusted Net
Income of R$342.8 million, up 659.6% from fiscal year
2017
- Net Income reached R$127.1 million in 4Q18, compared to a Net
Loss of R$14.3 million in 4Q17. Net Margin was 24.0%, up 29.8
percentage points versus 4Q17. In fiscal year 2018, the Company
reported a Net Income of R$305.2 million, up from a Net Loss of
R$105.0 million reported in fiscal year 2017
- The number of active clients increased by 136.7 thousand in
fiscal year 2018, reaching a total of 267.9 thousand clients at the
end of the year, up 104.1% compared to 2017
- The Company’s take rate reached 1.88% in the fourth quarter of
2018 compared to 1.58% in the fourth quarter of 2017, a 30 basis
point increase year over year
Other Highlights and Comments from
Management
- In 2018, we saw that our strategy of better serving merchants
continued to yield positive results. Our key operational metrics,
such as productivity of our sales force, churn and take rate,
remained strong in the fourth quarter of 2018. Our focus is, and
will always be, to listen to our clients and serve them
better.
- We remain focused on adding capabilities to our platform that
help our clients manage their business better and sell more. Our
software solutions are showing traction and increasing penetration
in clients through our subscription model, though still in early
stages. Currently, approximately 14,000 clients use at least one
type of software we provide1, and a much larger number of clients
use the client portal dashboard and mobile app account.
- More recently, in February 2019, we invested in Collact, a
provider of customer relationship management (CRM) software for
customer engagement, focused mainly in the food service segment,
which enables merchants to increase their sales consistently by
increasing recurrence while also leveraging on customer
data.
- Our banking digital account solution is currently in pilot
mode, with nearly 2,500 open accounts and progressing according to
plan. We have developed a proprietary technology, directly
integrated to the Brazilian Central Bank’s system. Like our
experience in merchant acquiring, the roll-out will happen when all
necessary adjustments have been made and the platform and
operations have been fully tested.
- We are on track with our plans operationally and financially
and are excited to continue to expand our business by increasing
our penetration in Brazil´s more than 5,000 cities through our hub
strategy and providing our clients with a complete set of products
and best in-class service.
Operating Metrics
Table 1: Operating Metrics
Operating
Metrics |
4Q18 |
4Q17 |
|
Δ |
|
2018 |
2017 |
|
Δ |
TPV (R$
billions) |
26.6 |
15.3 |
|
73.8% |
|
83.4 |
48.5 |
|
71.8% |
Active
Clients (thousands) |
267.9 |
131.2 |
|
104.1% |
|
267.9 |
131.2 |
|
104.1% |
Take Rate |
1.88% |
1.58% |
|
0.30 p.p. |
|
1.83% |
1.53% |
|
0.31 p.p. |
Total Payment Volume (TPV) was R$26.6 billion in the fourth
quarter of 2018, an increase of 73.8% from R$15.3 billion in the
fourth quarter of 2017. The incremental TPV in the fourth quarter
of 2018 was R$4.8 billion from 3Q18, 39.6% higher than the R$3.4
billion incremental TPV in the fourth quarter of 2017 versus the
third quarter of 2017. In fiscal year 2018, TPV reached R$83.4
billion, 71.8% above 2017. This increase is in-line with the
Company’s strategy of further penetrating the SMB merchants in
Brazil.
The Company ended 2018 with 267.9 thousand
active clients, up 104.1% compared to the previous year, when it
had 131.2 thousand clients. The net addition of active clients in
the fourth quarter was 33.5 thousand, an improvement in net
addition per sales force working day compared to the third quarter
of 2018 by approximately 10%.
Take rate in the fourth quarter of 2018
increased by 30 basis points versus the fourth quarter of 2017,
reaching 1.88%.
Financial Metrics
Table 2: Income Statement
Income Statement
(R$mn) |
4Q18 |
%
Rev. |
4Q17 |
%
Rev. |
|
Δ
% |
Δ
p.p. |
|
2018 |
%
Rev. |
2017 |
%
Rev. |
|
Δ
% |
Δ
p.p. |
Net
revenue from transaction activities and other services |
174.4 |
32.9% |
83.4 |
33.6% |
|
109.2% |
(0.7
p.p.) |
|
514.6 |
32.6% |
224.2 |
29.2% |
|
129.5% |
3.3
p.p. |
Net
revenue from subscription services and equipment rental |
69.5 |
13.1% |
29.2 |
11.8% |
|
138.3% |
1.4
p.p. |
|
213.7 |
13.5% |
105.0 |
13.7% |
|
103.6% |
(0.2
p.p.) |
Financial
income |
255.8 |
48.3% |
129.0 |
52.1% |
|
98.4% |
(3.7
p.p.) |
|
801.3 |
50.7% |
412.2 |
53.8% |
|
94.4% |
(3.0
p.p.) |
Other
financial income |
29.6 |
5.6% |
6.3 |
2.5% |
|
371.8% |
3.1
p.p. |
|
49.6 |
3.1% |
25.3 |
3.3% |
|
96.2% |
(0.2
p.p.) |
Total net
revenue and income |
529.4 |
100.0% |
247.8 |
100.0% |
|
113.7% |
0.0 p.p. |
|
1,579.2 |
100.0% |
766.6 |
100.0% |
|
106.0% |
0.0 p.p. |
Cost of
services |
(101.3) |
(19.1%) |
(73.5) |
(29.7%) |
|
37.7% |
10.5
p.p. |
|
(323.0) |
(20.5%) |
(224.1) |
(29.2%) |
|
44.1% |
8.8
p.p. |
Administrative expenses |
(73.4) |
(13.9%) |
(62.6) |
(25.3%) |
|
17.2% |
11.4
p.p. |
|
(252.9) |
(16.0%) |
(174.6) |
(22.8%) |
|
44.8% |
6.8
p.p. |
Selling
expenses |
(58.7) |
(11.1%) |
(33.7) |
(13.6%) |
|
74.2% |
2.5
p.p. |
|
(190.2) |
(12.0%) |
(92.0) |
(12.0%) |
|
106.7% |
(0.0
p.p.) |
Financial
expenses, net |
(75.1) |
(14.2%) |
(61.4) |
(24.8%) |
|
22.2% |
10.6
p.p. |
|
(301.1) |
(19.1%) |
(237.1) |
(30.9%) |
|
27.0% |
11.9
p.p. |
Other
operating income (expense), net |
(41.6) |
(7.9%) |
(30.3) |
(12.2%) |
|
37.4% |
4.4
p.p. |
|
(69.3) |
(4.4%) |
(134.2) |
(17.5%) |
|
(48.4%) |
13.1
p.p. |
(Loss)
income from investment in associates |
(0.1) |
(0.0%) |
(0.1) |
(0.0%) |
|
61.3% |
0.0
p.p. |
|
(0.4) |
(0.0%) |
(0.3) |
(0.0%) |
|
43.5% |
0.0
p.p. |
Profit (loss)
before income taxes |
179.3 |
33.9% |
(13.8) |
(5.6%) |
|
n.m |
39.4 p.p. |
|
442.3 |
28.0% |
(95.7) |
(12.5%) |
|
n.m |
40.5 p.p. |
Income
tax and social contribution |
(52.2) |
(9.9%) |
(0.5) |
(0.2%) |
|
10824.3% |
(9.7
p.p.) |
|
(137.1) |
(8.7%) |
(9.3) |
(1.2%) |
|
1373.7% |
(7.5
p.p.) |
Net income
(loss) for the period |
127.1 |
24.0% |
(14.3) |
(5.8%) |
|
n.m |
29.8 p.p. |
|
305.2 |
19.3% |
(105.0) |
(13.7%) |
|
n.m |
33.0 p.p. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Net Income |
155.9 |
29.5% |
20.9 |
8.4% |
|
646.3% |
21.0 p.p. |
|
342.8 |
21.7% |
45.1 |
5.9% |
|
659.6% |
15.8 p.p. |
|
|
|
|
|
|
Total Net Revenue and Income (see Graphs 1 &
2)
Total Net Revenue and Income was R$529.4 million
in the fourth quarter of 2018, an increase of 113.7% from R$247.8
million in the fourth quarter of 2017. Total Net Revenue and Income
growth was driven primarily by an increase in TPV and an increase
in the number of SMBs as a proportion of Stone’s total client base.
In fiscal year 2018, Total Net Revenue and Income reached
R$1,579.2 million, more than doubling compared to fiscal year
2017.
Net Revenue from Transaction Activities and Other Services
Net Revenue from Transaction Activities and
Other Services was R$174.4 million in the fourth quarter of 2018,
an increase of 109.2% compared to the fourth quarter of 2017. This
increase was primarily attributable to (i) the R$11.3 billion
growth in TPV year-over-year, which translated to an increase of
R$61.5 million in Net Revenue from Transaction Activities and Other
Services, and (ii) an improvement in average rates, mainly driven
by a mix shift in the Company’s client base, with a greater
proportion of SMBs, accounting for an increase in Net Revenue from
Transaction Activities and Other Services of R$29.5 million. In the
fiscal year, Net Revenue from Transaction Activities and Other
Services increased 129.5% to R$514.6 million, mainly due to an
increase in TPV combined with an increase in take rate as a result
of the continued penetration in the SMBs, providing a positive mix
effect.
Net revenue from Subscription Services and Equipment Rental
Net Revenue from Subscription Services and
Equipment Rental was R$69.5 million in the fourth quarter of 2018,
138.3% above the fourth quarter of 2017. This increase was
primarily attributable to the increase in the number of SMB active
clients. For the fiscal year, the Company increased its Net Revenue
from Subscription Services and Equipment Rental by 103.6% reaching
R$213.7 million.
Financial Income
Financial Income was R$255.8 million in the
fourth quarter of 2018, an increase of 98.4% compared to the fourth
quarter of 2017, primarily attributable to the increase in number
of clients and the 73.8% growth in TPV year-over-year. An increase
in TPV generally increases Financial Income from Stone’s working
capital solutions, due to an overall increase in volume of
prepayments. Financial Income as a percentage of TPV increased from
0.84% in the fourth quarter of 2017 to 0.96% in the fourth quarter
of 2018, as the number of customers who elected earlier settlement
increased. For fiscal year 2018, financial income increased 94.4%
to R$801.3 million, also due to the higher TPV and the increase in
the number of clients.
Other Financial Income
Other Financial Income was R$29.6 million in the
fourth quarter of 2018, an increase of R$23.3 million when compared
to the fourth quarter of 2017. This increase was primarily
attributable to the interest income from the IPO proceeds on
Stone’s cash balance and short-term investments.
Costs and Expenses (see Graph 3)
Stone has seen strong operating leverage as it continues to
roll-out its hub strategy. In the fourth quarter of 2018, operating
costs and expenses as a percentage of Total Net Revenue and Income
reached 44.1%, down from 68.5% in the fourth quarter of 2017.
Cost of Services
Cost of Services was R$101.3 million in the
fourth quarter of 2018, an increase of R$27.7 million or 37.7% from
the fourth quarter of 2017. Cost of Services as a percentage of
Total Net Revenue and Income decreased from 29.7% in the fourth
quarter of 2017 to 19.1% in the fourth quarter of 2018, an
efficiency gain of 10.5 percentage points. This efficiency gain was
seen in most lines, especially transaction and deployment costs and
personnel costs, as the Company dilutes the costs related to its
proprietary platform and gains operating leverage in customer
service and technology. In 2018, Cost of Services reached 20.5% of
Total Net Revenue and Income, representing a dilution of 8.8
percentage points from 2017.
Administrative Expenses
Administrative Expenses were R$73.4 million in
the fourth quarter of 2018, an increase of R$10.8 million or 17.2%
from the fourth quarter of 2017, mainly driven by personnel
expenses and depreciation and amortization. Administrative Expenses
as a percentage of Total Net Revenue and Income was 13.9% in the
fourth quarter of 2018, compared to 25.3% in the fourth quarter of
2017, an efficiency gain of 11.4 percentage points in the
period.
For the fiscal year 2018, Stone was able to
dilute Administrative Expenses by 6.8 percentage points, reaching
16.0% of Total Net Revenue and Income.
Selling Expenses
Selling Expenses were R$58.7 million in the
fourth quarter of 2018, an increase of R$25.0 million or 74.2%
compared to the same period of the prior year, primarily
attributable to an increase of R$21.3 million of personnel expenses
due to additional headcount in the sales team in line with the
Company’s strategy to grow in the Hubs. For fiscal year 2018,
Selling Expenses reached R$190.2 million or 12.0% of Total Net
Revenue and Income. Compared to 2017, Selling Expenses were in line
with the prior year as a percentage of Total Net Revenue and
Income, mainly due to the opening of new hubs, in which we invest
in selling expenses upfront and yield revenue over time, as the
hubs ramp up.
Financial Expenses, Net
Financial Expenses, Net were R$75.1 million in
the fourth quarter of 2018, an increase of R$13.7 million compared
to the fourth quarter of 2017. This increase was primarily
attributable to an increase in funding expenses of R$12.5 million
due to higher prepayment volumes.
Financial Expenses, Net as a percentage of
Financial Income reduced from 47.6% in the fourth quarter of 2017
to 29.3% in the fourth quarter of 2018. This reduction is explained
by (i) a higher financial income and especially by (ii) lower cost
of funds due to the lower base rate, cheaper funding lines
contracted by the Company and use of a higher amount of own cash to
fund prepayment operations.
Other Operating Expenses, Net
Other Operating Expenses, Net were R$41.6
million in the fourth quarter of 2018, an increase of 37.4% from
the fourth quarter of 2017. This was primarily attributable to
share-based compensation expenses in the amount of R$36.0 million.
The 4Q18 share-based compensation expense is related to the
one-time pre-IPO grants, which are booked over time, according to
the different vesting periods of each grant. These awards are
equity classified and the majority of the awards are subject to
performance conditions.
Profit (Loss) before Income Taxes
Profit before Income Taxes was R$179.3 million
in the fourth quarter of 2018, with a pre-tax margin of 33.9%
compared to a negative margin of 5.6% in the fourth quarter of
2017. In fiscal year 2018, Profit before Income Tax increased to
R$442.3 million from a R$95.7 million loss, reaching a margin of
28.0% compared to a negative 12.5% margin in 2017. This improvement
is mainly related to the increase in Total Net Revenue and Income
in addition to operating leverage in Cost of Services,
Administrative Expenses and Financial Expenses.
Income Tax and Social Contribution
During the fourth quarter of 2018, the Company
incurred in R$52.2 million in Income Tax and Social Contribution
expense or a 29.1% effective tax rate, compared to R$0.5 million in
Income Tax and Social Contribution in the fourth quarter of
2017. In 2018, StoneCo’s effective rate was 31.0%.
Net Income (Loss) for the
Period
Net Income was R$127.1 million in 4Q18, compared
to a Net Loss of R$14.3 million in 4Q17. Net Margin increased 29.8
percentage points to 24.0% year over year in the fourth quarter of
2018. This improvement was mainly due to the strong operating
leverage of 24.5 percentage points in the period, combined with a
10.6 percentage points reduction in Financial Expenses, Net, as the
Company reduces its cost of funding.
Net Income in fiscal year 2018 reached R$305.2
million, with a 19.3% margin, compared to a Net Loss of R$105.0
million and a negative Net Margin of 13.7% in 2017.
Adjusted Net Income (Loss) (see Graphs 4,
5, 6 & 7)
Table 3: Adjusted Net Income Reconciliation
Net Income
Bridge (R$mn) |
4Q18 |
%
Rev. |
4Q17 |
%
Rev. |
|
Δ
% |
Δ
p.p. |
|
2018 |
%
Rev. |
2017 |
%
Rev. |
|
Δ
% |
Δ
p.p. |
Net income (loss) for the
period |
127.1 |
24.0% |
(14.3) |
(5.8%) |
|
n.m |
29.8 p.p. |
|
305.2 |
19.3% |
(105.0) |
19.3% |
|
n.m |
33.0 p.p. |
Share-based compensation expenses (a) |
36.0 |
6.8% |
36.0 |
14.5% |
|
0.0% |
(7.7
p.p.) |
|
60.8 |
3.9% |
138.9 |
18.1% |
|
(56.2%) |
(14.3
p.p.) |
Amortization of fair value adjustment (b) |
4.3 |
0.8% |
2.8 |
1.1% |
|
54.2% |
(0.3
p.p.) |
|
12.6 |
0.8% |
14.8 |
1.9% |
|
(14.9%) |
(1.1
p.p.) |
Gain on
previously held interest in associate (c) |
0.0 |
0.0% |
0.0 |
0.0% |
|
n.a. |
0.0
p.p. |
|
(21.4) |
(1.4%) |
0.0 |
0.0% |
|
n.a. |
(1.4
p.p.) |
One-time
impairment charges (d) |
0.0 |
0.0% |
0.0 |
0.0% |
|
n.a. |
0.0
p.p. |
|
8.4 |
0.5% |
0.0 |
0.0% |
|
n.a. |
0.5
p.p. |
Tax
effect on adjustments |
(11.5) |
(2.2%) |
(3.6) |
(1.4%) |
|
224.6% |
(0.7
p.p.) |
|
(22.8) |
(1.4%) |
(3.6) |
(0.5%) |
|
542.4% |
(1.0
p.p.) |
Adjusted net income (loss) |
155.9 |
29.5% |
20.9 |
8.4% |
|
646.3% |
21.0 p.p. |
|
342.8 |
21.7% |
45.1 |
5.9% |
|
659.6% |
15.8 p.p. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Consists of non-cash expenses related to the grant of
share-based compensation, as well as fair value (mark-to-market)
adjustments for share-based compensation expense classified as a
liability in our consolidated financial statements. For 4Q18 and
2018, represents a one-time share-based expense related to the IPO.
(b) On intangibles related to acquisitions. Consists of expenses
resulting from the amortization of the fair value adjustment on
intangible assets and property and equipment as a result of the
application of the acquisition method, a significant portion of
which relate to the EdB acquisition. (c) Consists of the gain on
re-measurement of our previously held equity interest in Equals to
fair value upon the date control was acquired. (d) Consists of (i)
impairment charges associated with certain processing system
intangible assets acquired in the EdB acquisition that we no longer
use, in an amount of R$6.4 million in 2Q18 and (ii) impairment
associated with improvements made to certain leased office space
upon the termination of the lease, in an amount of R$2.0 million
for 2Q18. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the earnings release, the Company has
provided an analysis of Adjusted Net Income which is a non-IFRS
measure, which the Company believes is an important metric to
evaluate the operating performance.
Adjusted Net Income was R$155.9 million in the
fourth quarter of 2018, with a margin of 29.5%, compared to R$20.9
million and a margin of 8.4% in the fourth quarter of 2017. The
main factors that contributed to the growth in Adjusted Net Income
were: (i) increase in Total Net Revenue and Income, primarily due
to higher TPV and focus on growing the Company’s base of SMB
merchants; (ii) operating leverage in most lines, specially Cost of
Services and Administrative Expenses; and (iii) reduced cost of
funds, as the Company switches to cheaper funding and increases the
use of own cash to fund the prepayment operation.
In 2018, the Company reported Adjusted Net
Income of R$342.8 million, 659.6% above 2017 with an Adjusted Net
Margin of 21.7%.
Cash Flows
Note on the impact of different funding
sources in operating and financing cash flows
A natural consequence of TPV growth is the
corresponding increase in both Accounts Receivable from Card
Issuers and Accounts Payable to Clients. When the Company makes a
prepayment to its clients as part of its working capital solutions
offering, it derecognizes accounts payable by the corresponding
prepaid amount plus fees earned by providing such prepayment
service. In order to fund the prepayment operation, the Company
principally uses one of the following sources of funding: (i) the
sale of its receivables from card issuers to third party banks or
financial institutions, (ii) the issuance of senior quotas by FIDCs
to institutional investors or (iii) by deploying its own capital
from capital contributions or cash flows from operations. These
funding options lead to different impacts on the Company’s
statement of cash flows and balance sheet:
(i) Sale of receivables:
the true sale of receivables results in the derecognition of
Accounts Receivable from Card Issuers. As a result, when a
prepayment operation is funded through the true sale of
receivables, both Accounts Receivable from Card Issuers and
Accounts Payable to Clients are derecognized from the balance sheet
in the same amount and the combined effect to the cash flows is a
positive operational cash flow equivalent to net fees earned by
providing such prepayment service.
(ii) Issuance of senior quotas
by FIDCs2: when the Company launches a new FIDC in order to raise
capital, the amount raised from senior quota holders less
structuring and transaction costs will be recognized on its balance
sheet as cash and as a non-current liability to senior quota
holders. The Company then transfers its receivables from card
issuers from its operating subsidiary to the FIDC and uses the cash
to fund the prepayment operations. As a result of consolidating the
FIDC in the Company’s financial statements, the Accounts Receivable
from Card Issuers held by the FIDC remain on its consolidated
balance sheet. These set of transactions generate a positive impact
on the Company’s cash flows from financing activities in the amount
received by the FIDC from senior quota holders less structuring and
transaction costs. However, as Accounts Receivable from Card
Issuers remains on the balance sheet but the Accounts Payable to
Clients are derecognized, these transactions also cause a negative
impact on our cash flow from operations.
(iii) Deploying the Company’s capital:
when the Company uses its own capital to fund prepayment
operations, it does not sell its receivables from card issuers and
they remain on its balance sheet. However, its Accounts Payable to
Clients are derecognized, and therefore these transactions cause a
negative impact on the Company’s cash flow from operations.
Net Cash Provided by / (Used in) Operating
Activities
Net Cash Used in Operating Activities for the
twelve months ended December 31, 2018 was R$2,415.6 million,
primarily as a result of:
- Net Income of R$305.2 million,
combined with non-cash expenses consisting primarily of (i) Other
Financial Costs and Foreign Exchange, Net of R$126.8 million; (ii)
Depreciation and Amortization Expenses of R$92.3 million; (iii)
Share-based Payment Expenses of R$46.1 million; (iv) Allowance for
Doubtful Accounts of R$14.3 million, and (v) Loss on Disposal of
Property, Equipment and Intangibles of R$10.7 million. The total
amount of adjustment to Net Income from non-cash items in the
twelve months ended December 31, 2018 was R$255.9 million.
- Net cash from changes in working
capital, arising from changes in operating assets and liabilities,
totaled an outflow of R$2,976.7 million, principally due to:
- an increase in the
balance of Accounts Receivable from Card Issuers which led to
negative cash flows of R$3,990.4 million, an increase in
Recoverable Taxes of R$98.7 million, Interest Paid in the amount of
R$141.4 million, and Income Tax Paid in the amount of R$87.4
million;
- partially offset by an increase in
Accounts Payable to Clients of R$570.1 million, an increase in
Taxes Payable of R$183.9 million, an increase in Labor and Social
Security balance of R$59.1 million and a generation of cash from
Interest Income Received, Net of Costs in the amount of R$514.8
million
- The negative cash flow from the
increase in Accounts Receivable from Card Issuers is mainly related
to: (i) the increase in TPV, which naturally increases the Accounts
Receivable from Card Issuers and also the Accounts Payable to
Clients and, specially, (ii) the change of funding mix for the
prepayment operation by decreasing the amount of receivables sold
to financial institutions and increasing the use of own cash to
fund the prepayment.
Net Cash Used in Operating Activities for the
twelve months ended December 30, 2017 was R$1,283.9 million,
primarily as a result of:
- Net Loss of R$105.0 million,
combined with non-cash expenses consisting primarily of (i)
Share-based Payment Expenses of R$138.9 million; (ii) Other
Financial Costs and Foreign Exchange, net of R$71.9 million; and
(iii) Depreciation and Amortization Expenses of R$57.2 million. The
total amount of adjustment to Net Income from non-cash items in the
twelve months ended December 31, 2017 was R$277.0 million.
- Net cash from changes in working
capital, arising from changes in operating assets and liabilities,
totaled an outflow of R$1,456.0 million, mainly due to:
- An increase in Accounts
Receivable from Card Issuers which led to negative cash flows of
R$1.774.3 million and Interest Paid of R$47.5 million
- partially offset by an increase in
Accounts Payable to Clients of R$ 210.3 million and Interest Income
Received, Net of Costs of R$147.4 million
Adjusted Net Cash Provided by / (Used
in) Operating Activities
Due to the nature of prepayment business and
dynamics of sale of receivables in Brazil, our management looks
internally to Adjusted Net Cash Provided by/ (Used in) Operating
Activities, a non-IFRS metric. This metric excludes three working
capital adjustments3 shown in our Consolidated Statement of Cash
Flows: (i) changes in Accounts Payable to Clients; (ii) changes in
Accounts Receivables from Card Issuers, as well as (iii) the
Interest Income Received, Net of Costs, which is shown separately
in our Cash Flow Statement but is directly linked to the change in
our Accounts Receivable from Card Issuers and Accounts Payable to
Clients in our balance sheet.
Table 4: Adjusted Net Cash Provided by /
(Used in) Operating Activities
Adjusted net cash provided by /(used in) from operating
activities (R$mn) |
2018 |
2017 |
Net cash used in operating activities |
(2,415.6) |
(1,283.9) |
(-)
Adjustments in Operating Activities: |
|
|
Accounts
receivable from card issuers |
3,990.4 |
1,774.3 |
Accounts
payable to clients |
(570.1) |
(210.3) |
Interest
income received, net of costs |
(514.8) |
(147.4) |
(=) Adjusted net cash provided by /(used in) operating
activities |
489.9 |
132.7 |
In fiscal year 2018, Net Cash Used in Operating Activities was
negative R$2,415.6 million. Excluding the effect of changes in
Accounts Receivables from Card Issuers of R$3,990.4 million,
changes in Accounts Payable to Clients of R$570.1 million and
Interest Income Received, Net of Costs, of R$514.8 million, our
Adjusted Net Cash Provided by Operating Activities was R$489.9
million, compared to R$132.7 million in 2017.
The R$514.8 million Interest Income Received,
Net of Costs, consists of two items: (i) financial income from our
prepayment activity, less the (ii) financial expenses related to
the sale of receivables to financial institutions. The first item
has direct influence in the level of accounts payable to clients in
our balance sheet; the second item has direct influence in the
amount of receivables from card issuers in our balance sheet.
Net Cash Provided by (Used in) Investing
Activities
Net Cash Used in Investing Activities was
R$2,737.1 million for the twelve months ended December 31, 2018,
compared to R$299.7 million of Net Cash Used in Investing
activities in the twelve months ended December 31, 2017. Net Cash
Used in Investing Activities for the twelve months ended December
31, 2018 was mainly driven by (i) the acquisition of Short-term
Investment in the amount of R$2,557.3 million, related to the
investment of part of the proceeds from the IPO in short-term
securities, compared to net acquisition of Short-term Investments
of R$145.5 million for the twelve months ended December 31, 2017
(ii) Purchases of Property and Equipment, including POS equipment
and hardware for use in Stone’s data centers, amounting to R$140.9
million, compared to R$141.0 million for the twelve months ended
December 31, 2017, and (iii) Purchases and Development of
Intangible Assets amounting to R$44.8 million in the twelve months
ended December 31, 2018, mainly due to the acquisition of Equals
and R&D, compared to R$21.3 million in the twelve months ended
December 31, 2017.
Net Cash Provided by (Used in) Financing
Activities
Net Cash Provided by Financing Activities was
R$4,794.9 million for the twelve months ended December 31, 2018,
compared to Net Cash Provided by Financing Activities of R$2,053.4
million for the twelve months ended December 31, 2017. This was
mainly driven by (i) a contribution of R$4,229.2 million of Capital
Increase related to the company’s IPO at Nasdaq, compared to
R$529.0 million capital increase in 2017 and (ii) Proceeds from
Borrowing from a new financing line in the capital markets in the
amount of R$746.9 million.
Adjusted Free Cash Flow
The Company defines Adjusted Free Cash Flow, a
non-IFRS metric, as Net Cash Provided by/ (Used in) Operating
Activities, reduced by Purchases of Property and Equipment,
Purchases and Development of Intangible Assets, less the effects
from working capital adjustments related to changes in Accounts
Receivable from Card Issuers and Accounts Payable to Clients
mentioned in the section “Adjusted Net Cash Provided by /
(Used in) Operating Activities” above.
The Company generated R$304.2 million of
Adjusted Free Cash Flow in 2018, compared to negative R$29.6
million in 2017, as shown in the table below.
Table 5: Adjusted Free Cash Flow
Reconciliation
of Adjusted free cash flow (R$mn) |
2018 |
2017 |
|
4Q18 |
4Q17 |
Net cash used in operating activities |
(2,415.6) |
(1,283.9) |
|
(2,125.6) |
(507.3) |
|
|
|
|
|
|
(-)
Adjustments in Operating Activities: |
|
|
|
|
|
Accounts
receivable from card issuers |
3,990.4 |
1,774.3 |
|
2,629.3 |
1,336.2 |
Accounts
payable to clients |
(570.1) |
(210.3) |
|
(174.3) |
(774.7) |
Interest
income received, net of costs |
(514.8) |
(147.4) |
|
(158.4) |
(18.5) |
|
|
|
|
|
|
Purchases
of property and equipment |
(140.9) |
(141.0) |
|
(15.6) |
(53.0) |
Purchases
and development of intangible assets |
(44.8) |
(21.3) |
|
(10.7) |
(4.8) |
|
|
|
|
|
|
Adjusted free cash flow (R$mn) |
304.2 |
(29.6) |
|
144.7 |
(22.1) |
The main reason for the increase in Adjusted Free Cash Flow in
2018 compared to 2017 was the improvement in our Adjusted Net
Income, from R$45.1 million in 2017 to R$342.8 million in 2018,
despite the increase in non-cash Depreciation and Amortization
Expenses from R$57.2 million in 2017 to R$92.3 million in 2018.
Adjusted Net Cash / (Debt)
Management assesses net liquidity of the Company
by the Adjusted Net Cash/(Debt) metric4. It consists of our Cash
and Cash Equivalents, plus Short-term Investments and Accounts
Receivable from Card Issuers, reduced by Accounts Payable to
Clients, Loans and Financing and Obligations to FIDC Senior Quota
Holders.
As of December 31, 2018, Company´s Adjusted Net
Cash position was of R$4,480.0 million, compared to R$202.7 million
on December 31, 2017, an increase of R$4,277.3 million. The main
reason for the increase was the Capital Increase of R$4,229.2
million, primarily due to our IPO, as well as our Adjusted Free
Cash Flow of R$304.2 million. Those were partially offset mainly by
a R$142.4 million in Repurchase of Shares, a R$30.8 million in
Acquisition of Non-controlling Interests and a R$92.1 million fair
value adjustment of Accounts Receivable from Card Issuers.
Table 6: Adjusted Net Cash
Adjusted Net
Cash (R$mn) |
2018 |
2017 |
Cash and
cash equivalents |
297.9 |
642.0 |
Short-term investments |
2,770.6 |
201.8 |
Accounts
receivable from card issuers |
9,244.6 |
5,078.4 |
Adjusted Cash |
12,313.1 |
5,922.1 |
|
|
|
Accounts
payable to clients |
(4,996.1) |
(3,637.5) |
Loans and
financing |
(762.5) |
(16.9) |
Obligations to FIDC senior quota holders |
(2,074.6) |
(2,065.0) |
Adjusted Debt |
(7,833.1) |
(5,719.4) |
|
|
|
Adjusted Net Cash |
4,480.0 |
202.7 |
Conference Call
Stone will discuss its fourth quarter and fiscal
2018 financial results during a teleconference today, March 18,
2018, at 5:00 PM ET / 6:00 PM BRT. The conference call can be
accessed at +1 (412) 717 9224 or +1 (844) 763 8274 (US), or +55
(11) 3181 8565 (Brazil), or +44 (20) 3795 9972 (UK). The call will
also be broadcast simultaneously on Stone’s Investor Relations
website at https://investors.stone.co/. Following the completion of
the call, a recorded replay of the webcast will be available on
Stone’s Investor Relations website at https://investors.stone.co/.
About Stone
Stone is a leading provider of financial
technology solutions that empower merchants to conduct commerce
seamlessly across multiple channels and help them grow their
business over time through technology. For more information please
visit https://www.stone.co/.
Forward-Looking Statements
This press release contains "forward-looking
statements" within the meaning of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are made as of the date they were first
issued and were based on current expectations, estimates, forecasts
and projections as well as the beliefs and assumptions of
management. These statements identify prospective information and
may include words such as “believe,” “may,” “will,” “aim,”
“estimate,” “continue,” “anticipate,” “intend,” “expect,”
“forecast,” “plan,” “predict,” “project,” “potential,”
“aspiration,” “objectives,” “should,” “purpose,” “belief,” and
similar, or variations of, or the negative of such words and
expressions, although not all forward-looking statements contain
these identifying words. Forward-looking statements are
subject to a number of risks and uncertainties, many of which
involve factors or circumstances that are beyond Stone’s
control.
Stone’s actual results could differ materially
from those stated or implied in forward-looking statements due to a
number of factors, including but not limited to: more intense
competition than expected, lower addition of new clients,
regulatory measures, more investments in our business than
expected, among other factors.
About Non-IFRS Financial
Measures
To supplement the financial measures presented
in this press release and related conference call, presentation, or
webcast in accordance with IFRS, Stone also presents the following
non-IFRS measures of financial performance: Adjusted Net Income,
Adjusted Net Cash Provided by / (Used in) Operating Activities ,
Adjusted Free Cash Flow and Adjusted Net Cash.
A “non-IFRS financial measure” refers to a
numerical measure of Stone’s historical or future financial
performance or financial position that either excludes or includes
amounts that are not normally excluded or included in the most
directly comparable measure calculated and presented in accordance
with IFRS in Stone’s financial statements. Stone provides certain
non-IFRS measures as additional information relating to its
operating results as a complement to results provided in accordance
with IFRS. The non-IFRS financial information presented herein
should be considered in conjunction with, and not as a substitute
for or superior to, the financial information presented in
accordance with IFRS. There are significant limitations associated
with the use of non-IFRS financial measures. Further, these
measures may differ from the non-IFRS information, even where
similarly titled, used by other companies and therefore should not
be used to compare Stone’s performance to that of other
companies.
Stone has presented Adjusted Net Income to
eliminate the effect of items from Net Income that it does not
consider indicative of its core operating performance within the
period presented. Stone defines Adjusted Net Income as Net Income
(Loss) for the Period, adjusted for (1) non-cash expenses related
to the grant of share-based compensation and the fair value
(mark-to-market) adjustment for share-based compensation classified
as a liability, (2) amortization of intangibles related to
acquisitions, (3) one-time impairment charges, (4) one-off gains
and (5) tax expense relating to the foregoing adjustments.
Stone has presented Adjusted Free Cash Flow
metric, which has limitations as it omits certain components of the
overall Cash Flow Statement and does not represent the residual
cash flow available for discretionary expenditures. For example,
this metric does not incorporate the portion of payments
representing principal reductions of debt or cash payments for
business acquisitions. Therefore, the Company believes it is
important to view Free Cash Flows measures only as a complement to
our entire consolidated Statements of Cash Flows.
Stone has presented Adjusted Net Cash / (Debt)
metric in order to adjust its Net Cash / (Debt) by the balances of
Accounts Receivable from Card Issuers and Accounts Payable to
Clients, since these lines vary according to the Company’s funding
source together with the lines of (i) Cash and Cash Equivalents,
(ii) Short-term Investments, and (iii) Debt balances, due to the
nature of Stone’s business and prepayment operation.
Contact:
ICR, Inc. +1 646-277-1200 StoneIR@icrinc.com
1 Includes online and offline gateways, reconciliation, POS/ERP
and CRM software.
2 Receivables Investment Fund (Fundo de Investimento em Direitos
Creditórios), an investment fund legal structure established under
Brazilian law designed specifically for investing in credit rights
receivables.
3 Each “Accounts Payable to Clients” recognized as a liability
in our balance sheet is directly linked to an “Accounts Receivable
from Card Issuers” recognized as an asset in our balance sheet.
Originally, the Company receives from issuing banks first, and only
then pays its clients, thus having no working capital requirement.
When a client opts to be paid early (prepayment), the Company has a
working capital requirement. However, the Company has the option
itself to sell the receivables from card issuers related to those
payables in order to meet such working capital requirement. The
combined effect to the cash flows is a positive operational cash
flow equivalent to net fees earned by providing such prepayment
service. Whenever management opts to fund its prepayment operation
with sources other than the sale of its own receivables, this may
have an impact in Net Cash Provided by/ (Used in) Operating
Activities, as discussed in the section “Note on the impact of
different funding sources in operating and financing cash flows”
above. However, management does not see such decision translating
itself into higher or lower ability of our business to generate
cash operationally.
4 Adjusted Net Cash / (Debt) is a non-IFRS metric
Table 7: Unaudited fourth quarter 2018 and audited
fiscal year consolidated Statement of Profit or Loss
Statement of
Profit or Loss (R$mn) |
4Q18 |
4Q17 |
|
2018 |
2017 |
Net
revenue from transaction activities and other services |
174.4 |
83.4 |
|
514.6 |
224.2 |
Net
revenue from subscription services and equipment rental |
69.5 |
29.2 |
|
213.7 |
105.0 |
Financial
income |
255.8 |
129.0 |
|
801.3 |
412.2 |
Other
financial income |
29.6 |
6.3 |
|
49.6 |
25.3 |
Total net
revenue and income |
529.4 |
247.8 |
|
1,579.2 |
766.6 |
Cost of
services |
(101.3) |
(73.5) |
|
(323.0) |
(224.1) |
Administrative expenses |
(73.4) |
(62.6) |
|
(252.9) |
(174.6) |
Selling
expenses |
(58.7) |
(33.7) |
|
(190.2) |
(92.0) |
Financial
expenses, net |
(75.1) |
(61.4) |
|
(301.1) |
(237.1) |
Other
operating income (expense), net |
(41.6) |
(30.3) |
|
(69.3) |
(134.2) |
(Loss)
income from investment in associates |
(0.1) |
(0.1) |
|
(0.4) |
(0.3) |
Profit (loss)
before income taxes |
179.3 |
(13.8) |
|
442.3 |
(95.7) |
Income
tax and social contribution |
(52.2) |
(0.5) |
|
(137.1) |
(9.3) |
Net income (loss) for the
period |
127.1 |
(14.3) |
|
305.2 |
(105.0) |
Table 8: Audited fiscal year consolidated
Statement of Financial Position
Balance Sheet
(R$mn) |
2018 |
2017 |
Assets |
|
|
Current assets |
12,437.8 |
5,999.5 |
Cash and
cash equivalents |
297.9 |
642.0 |
Short-term investments |
2,770.6 |
201.8 |
Accounts
receivable from card issuers |
9,244.6 |
5,078.4 |
Trade
accounts receivable |
44.6 |
23.1 |
Recoverable taxes |
56.9 |
39.1 |
Prepaid
expenses |
15.1 |
10.4 |
Derivative financial instruments |
1.2 |
0.0 |
Other
accounts receivable |
6.9 |
4.7 |
|
|
|
Non-current assets |
855.4 |
636.2 |
Receivables from related parties |
8.1 |
9.1 |
Deferred
income tax assets |
262.7 |
198.2 |
Other
accounts receivable |
8.5 |
3.4 |
Investment in associate |
2.2 |
1.7 |
Property
and equipment |
266.3 |
189.6 |
Intangible assets |
307.7 |
234.1 |
|
|
|
Total Assets |
13,293.2 |
6,635.7 |
|
|
|
Liabilities and equity |
|
|
Current liabilities |
6,054.8 |
3,823.6 |
Accounts
payable to clients |
4,996.1 |
3,637.5 |
Trade
accounts payable |
117.8 |
53.2 |
Loans and
financing |
761.1 |
13.8 |
Obligations to FIDC senior quota holders |
16.6 |
8.7 |
Labor and
social security liabilities |
96.7 |
36.0 |
Taxes
payable |
51.6 |
35.9 |
Derivative financial instruments |
0.6 |
0.0 |
Other
accounts payable |
14.2 |
38.4 |
|
|
|
Non-current liabilities |
2,145.5 |
2,329.6 |
Loans and
financing |
1.4 |
3.0 |
Obligations to FIDC senior quota holders |
2,057.9 |
2,056.3 |
Share-based payments |
0.0 |
217.5 |
Deferred
income tax liabilities |
80.2 |
52.3 |
Provision
for contingencies |
1.2 |
0.5 |
Other
accounts payable |
4.7 |
0.0 |
|
|
|
Total liabilities |
8,200.2 |
6,153.2 |
|
|
|
Equity attributable to owners of the
parent |
5,093.3 |
467.4 |
Issued
capital |
0.1 |
0.0 |
Capital
reserve |
5,351.9 |
967.7 |
Other
comprehensive income |
(56.3) |
2.6 |
Accumulated losses |
(202.3) |
(503.0) |
|
|
|
Non-controlling interests |
(0.3) |
15.2 |
|
|
|
Total equity |
5,093.0 |
482.6 |
|
|
|
Total liabilities and
equity |
13,293.2 |
6,635.7 |
Table 9: Audited fiscal year consolidated Statement of
Cash Flows
Cash Flow
(R$mn) |
2018 |
2017 |
Net income (loss) for the
year |
305.2 |
(105.0) |
|
|
|
Adjustments on Net Income: |
|
|
Depreciation and amortization |
92.3 |
57.2 |
Deferred
income tax expenses |
(17.8) |
3.6 |
Loss on
investment in associates |
0.4 |
0.3 |
Other
financial costs and foreign exchange, net |
126.8 |
71.9 |
Provision
of contingencies |
0.8 |
0.4 |
Share
based payment expense |
46.1 |
138.9 |
Allowance
for doubtful accounts |
14.3 |
2.7 |
Impairment of intangible assets |
4.8 |
0.0 |
Loss on
disposal of property, equipment and intangible assets |
10.7 |
5.5 |
Onerous
contract |
(0.4) |
(5.7) |
Fair
value adjustment to derivatives |
(0.6) |
0.0 |
Remeasurement of previously held interest in subsidiary
acquired |
(21.4) |
0.0 |
Others |
0.0 |
2.1 |
|
|
|
Working capital adjustments: |
|
|
Accounts
receivable from card issuers |
(3,990.4) |
(1,774.3) |
Receivables from related parties |
4.0 |
(7.1) |
Recoverable taxes |
(98.7) |
(33.7) |
Prepaid
expenses |
(4.7) |
(6.4) |
Other
accounts receivable |
(36.9) |
(15.6) |
Accounts
payable to clients |
570.1 |
210.3 |
Taxes
payable |
183.9 |
33.6 |
Labor and
social security liabilities |
59.1 |
15.9 |
Accounts
payable to related parties |
0.0 |
0.0 |
Provision
for contingencies |
(0.0) |
(0.1) |
Other
accounts payable |
50.9 |
24.7 |
Interest
paid |
(141.4) |
(47.5) |
Interest
income received, net of costs |
514.8 |
147.4 |
Income
tax paid |
(87.4) |
(3.2) |
Net cash used in operating activity |
(2,415.6) |
(1,283.9) |
|
|
|
Investing activities |
|
|
Purchases
of property and equipment |
(140.9) |
(141.0) |
Purchases
and development of intangible assets |
(44.8) |
(21.3) |
Acquisition of subsidiary, net of cash acquired |
(2.9) |
0.0 |
Proceeds
from (acquisition of) short term investments, net |
(2,557.3) |
(145.5) |
Proceeds
from the disposal of non-current assets |
13.4 |
9.0 |
Acquisition of interest in associates |
(4.5) |
(1.2) |
Proceeds
from the disposal of assets held for sale |
0.0 |
0.3 |
Net cash provided by (used in) investing
activities |
(2,737.1) |
(299.7) |
|
|
|
Financing activities |
|
|
Proceeds
from borrowings |
746.9 |
0.0 |
Payment
of borrowings |
(3.7) |
(11.7) |
Proceeds
from FIDC senior quota holders |
10.0 |
2,053.3 |
Payment
of finance leases |
(14.3) |
(13.0) |
Capital
increase |
4,229.2 |
529.0 |
Repurchase of shares |
(142.4) |
(280.8) |
Acquisition of non-controlling interests |
(30.8) |
(223.4) |
Net cash provided by financing
activities |
4,794.9 |
2,053.4 |
|
|
|
Effect of
foreign exchange on cash and cash equivalents |
13.8 |
1.5 |
Change in
cash and cash equivalents |
(344.0) |
471.3 |
Cash and
cash equivalents at beginning of period |
642.0 |
170.6 |
|
|
|
Cash and cash equivalents at end of period |
297.9 |
642.0 |
A PDF accompanying this announcement is available at:
http://ml.globenewswire.com/Resource/Download/67b17252-3dc7-4b39-af18-6712e322b58d
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