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, today
reports its financial results for the third quarter of 2019.
To our shareholders: We reported another quarter of strong
performance with continued top line growth and high profitability.
I remain very excited to continue to implement our vision of
becoming more present in our merchants’ daily activities, helping
them to manage their businesses more effectively, become more
productive and grow faster.
This quarter we reached a total base of 428,900 active clients
and continued the roll-out of our new software, credit and banking
solutions. We are looking forward to launching our integrated
financial platform in the first quarter of 2020, which will
represent an unparalleled combination of a unique financial
platform with best-in-class customer service.
Despite our strong growth and expansion, I am pleased that we
have continued to maintain our high NPS by staying focused on our
client relationships, delivering a differentiated value proposition
and providing high quality customer service across the
organization. This is always our top priority.
We have also been able to attract many new talented people to
join us in our journey through one of the biggest recruiting
processes in the country. We completed our 2019 recruiting process
with a total of ~109,000 applications from people who wanted to
work for Stone, compared to ~29,000 in 2018. We continue to be
inspired and humbled by the strong demand of talented people across
the country who want to join our mission and be part of our
team.
As planned, we continued to invest in our operations during the
quarter, but still benefited from improved operating leverage in
business compared to the previous quarter, which continues to
demonstrate the powerful efficiency and economics of our unique
business model. Since we went public one year ago, we have seen a
huge improvement in our operations and today we are a much better
company. However, our entire team remains driven by our mission and
focused on continuing to innovate and make investments to drive
future growth.
We remain focused on managing our business towards long term
growth and value creation.
Thank you for your continued support, Thiago
Piau, CEO
Operating and Financial Highlights
Total Revenue and
Income+62.1%Total Revenue and Income was
R$671.1 million, an increase of 62.1% year over year |
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Net Addition of Active Clients68.7
KTotal Active Clients were 428.9 thousand,
an increase of 82.8% year over year, with a record
net addition of 68.7 thousand clients in 3Q19 |
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Adjusted Net
IncomeR$ 201.9 MMan increase of 126.0%
year over year |
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Adjusted Net
Margin30.1%an increase of 8.5 percentage
points year over year |
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Net
IncomeR$ 191.3 MMan increase of 111.6%
year over year |
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Net
Margin28.5%an increase of 6.7 percentage
pointsyear over year |
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Total Payment Volume
(TPV)R$ 32.6 BNup 49.8%
or R$10.9 billion year over year |
|
|
Take
Rate11.88%comparable to previous
quarters, with client lifetime upward revision taking actual
take rate to 1.91% |
____________________________1 According to IFRS 15,
subscription revenue is accounted over the expected life of
merchants on a linear basis. As part of the annual assessment of
assumptions for linearization of subscription revenue, life of
merchants was revised upwards, contributing positively 3 bps to
3Q19 take rate of 1.91% compared to 2Q19.
Important Developments for Our Strategy Roadmap in
3Q19
Acquiring, Banking and Credit
In acquiring, we continue to grow fast. We accelerated our net
addition of clients, reaching a total base of 428.9 thousand active
clients by the end of the third quarter. Our top line grew over 62%
year over year despite tougher comps from 3Q18. Finally, we also
posted a consistent take rate level in the quarter.
Our performance in the hubs remain strong, with acceleration in
the quarterly addition of active clients and TPV compared to last
quarter.
Our performance with digital clients and integrated partners
also remains solid. However, lower quarter over quarter growth in
TPV coming from those clients in 3Q19 compared to 2Q19 contributed
to lower incremental TPV for the Company.
Regarding credit, we already provided over R$185.0 million in
credit to ~13,400 clients until October 2019, with mid-single digit
NPLs and improved customer experience.
In banking, we reached approximately 29,000 open accounts by the
end of October, with number of transactions per account going up.
We have recently launched our banking platform and prepaid credit
card with a national campaign through different media channels.
We continue focused on the integration of acquiring, banking and
credit in a single platform in order to provide a more seamless
experience to our merchants. Merchants will have access to a
complete financial platform, with the same service levels that they
had in acquiring alone.
Software
We continue to roll out our software solutions and engage new
clients to our base by offering them tools that drive improvement
in their businesses. In the third quarter, we had over 100,000
clients with at least one of our software solutions, up organically
compared to the over 70,000 clients as of July 2019, with
increasing engagement in both our reconciliation and CRM and
loyalty solutions.
Partnership with Grupo Globo in the Micromerchant
Space
We expect the partnership with Globo (announced on July 30th) to
be operational in 1Q20, pending antitrust (CADE) approval. We are
very excited with the new solution and brand we are launching and
the opportunity to redefine micromerchant business services, as we
did for SMBs in Brazil.
Recruiting Program
Recruta, our semiannual recruiting program, received 70,000
applications in 2H19 for a total of almost 110,000 applications in
2019. This continues to show the strength of Stone’s employer brand
in the market and our ability to find and engage the most talented
people in Brazil.
Operating and Financial Metrics
Table 1: Operating Metrics |
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Main Operating and Financial Metrics |
3Q19 |
3Q18 |
|
Δ |
|
9M19 |
9M18 |
|
Δ |
TPV (R$ billions) |
32.6 |
21.8 |
|
49.8% |
|
88.9 |
56.8 |
|
56.3% |
Active Clients (thousands) |
428.9 |
234.7 |
|
82.8% |
|
428.9 |
234.7 |
|
82.8% |
Period Net Additions (thousands) |
68.7 |
34.1 |
|
101.7% |
|
159.8 |
103.4 |
|
54.5% |
Take Rate |
1.91% |
1.87% |
|
0.04 p.p. |
|
1.87% |
1.81% |
|
0.06 p.p. |
In 3Q19, we saw continued improvement in our main operating
metrics as we continue to invest in our operation.
- Our Total Active Clients reached 428,900, representing an
acceleration of net client additions from 50,500 in 2Q19 to 68,700
in 3Q19. This increase came mostly from SMB clients, as
micromerchant additions from the Stone Mais product represented
only 4,600 in the quarter, totaling a base of 15,600
micromerchants2. When launched, we expect the partnership with
Globo will enable us to build a solid business in the micromerchant
space.Chart 1: Active Client Base (Thousands)
(See PDF)Chart 2: Net Additions of Active
Clients per Quarter
(Thousands) (See PDF)
- Our Take Rate increased to 1.91% in 3Q19 from 1.85% in 2Q19. In
the quarter, we had our take rate increased by 3 bps due to
favorable business trends, such as stronger mix of hub clients
compared to Digital and Integrated Partner clients. We also had a 3
bp positive impact due to an upward revision of client lifetime
assumptions related to our subscription revenue line
3.Chart 3: Evolution of Take
Rate4 (See PDF)
____________________________2 Measured as clients that have
transacted with Stone Mais product at least once in the last 90
days.3 According to IFRS 15, subscription revenue is accounted over
the expected life of merchants on a linear basis. As part of the
annual assessment of assumptions for linearization of subscription
revenue, life of merchants was revised upwards, contributing
positively 3 bps to 3Q19 take rate compared to 2Q19.
- Total Payment Volume (TPV) was R$32.6 billion, a 49.8% increase
year over year, despite an unusually strong 3Q18 comparison, when
the company presented 83.7% annual growth. TPV growth came mostly
from our hub operation, where we had an acceleration in quarterly
TPV addition.
Table 2: Quarterly Statement of Profit or
Loss |
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Statement of Profit or Loss (R$mm) |
3Q19 |
% Rev. |
3Q18 |
% Rev. |
|
Δ % |
Δ p.p. |
Net revenue from transaction activities and other services |
193.9 |
28.9% |
136.1 |
32.9% |
|
42.5% |
(4.0
p.p.) |
Net revenue from subscription services and equipment rental |
94.2 |
14.0% |
59.2 |
14.3% |
|
59.2% |
(0.3
p.p.) |
Financial income |
335.1 |
49.9% |
212.4 |
51.3% |
|
57.7% |
(1.4
p.p.) |
Other financial income |
48.0 |
7.1% |
6.4 |
1.5% |
|
652.6% |
5.6
p.p. |
Total revenue and income |
671.1 |
100.0% |
414.1 |
100.0% |
|
62.1% |
0.0 p.p. |
Cost of services |
(112.5) |
(16.8%) |
(80.7) |
(19.5%) |
|
39.4% |
2.7
p.p. |
Administrative expenses |
(71.2) |
(10.6%) |
(62.1) |
(15.0%) |
|
14.6% |
4.4
p.p. |
Selling expenses |
(101.7) |
(15.1%) |
(50.0) |
(12.1%) |
|
103.1% |
(3.1
p.p.) |
Financial expenses, net |
(101.2) |
(15.1%) |
(83.4) |
(20.1%) |
|
21.3% |
5.1
p.p. |
Other operating expenses, net |
(11.4) |
(1.7%) |
(6.9) |
(1.7%) |
|
65.6% |
(0.0
p.p.) |
Gain on investment in associates |
0.9 |
0.1% |
0.1 |
0.0% |
|
1287.1% |
0.1
p.p. |
Profit before income taxes |
274.0 |
40.8% |
130.9 |
31.6% |
|
109.3% |
9.2 p.p. |
Income tax and social contribution |
(82.7) |
(12.3%) |
(40.5) |
(9.8%) |
|
104.3% |
(2.5
p.p.) |
Net
income for the period |
191.3 |
28.5% |
90.4 |
21.8% |
|
111.6% |
6.7 p.p. |
|
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Adjusted Net Income |
201.9 |
30.1% |
89.3 |
21.6% |
|
126.0% |
8.5 p.p. |
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Table 3: Accumulated Statement of Profit or
Loss |
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Statement of Profit or Loss (R$mm) |
9M19 |
% Rev. |
9M18 |
% Rev. |
|
Δ % |
Δ p.p. |
Net revenue from transaction activities and other services |
539.9 |
30.1% |
340.2 |
32.4% |
|
58.7% |
(2.3
p.p.) |
Net revenue from subscription services and equipment rental |
239.9 |
13.4% |
144.2 |
13.7% |
|
66.4% |
(0.4
p.p.) |
Financial income |
883.7 |
49.3% |
545.5 |
52.0% |
|
62.0% |
(2.7
p.p.) |
Other financial income |
129.5 |
7.2% |
20.0 |
1.9% |
|
549.2% |
5.3
p.p. |
Total revenue and income |
1,793.1 |
100.0% |
1,049.8 |
100.0% |
|
70.8% |
0.0 p.p. |
Cost of services |
(298.7) |
(16.7%) |
(221.8) |
(21.1%) |
|
34.7% |
4.5
p.p. |
Administrative expenses |
(213.3) |
(11.9%) |
(179.5) |
(17.1%) |
|
18.9% |
5.2
p.p. |
Selling expenses |
(251.6) |
(14.0%) |
(131.5) |
(12.5%) |
|
91.4% |
(1.5
p.p.) |
Financial expenses, net |
(246.6) |
(13.8%) |
(226.0) |
(21.5%) |
|
9.1% |
7.8
p.p. |
Other operating expenses, net |
(55.2) |
(3.1%) |
(27.7) |
(2.6%) |
|
99.3% |
(0.4
p.p.) |
Gain (loss) on investment in associates |
0.3 |
0.0% |
(0.3) |
(0.0%) |
|
n.m |
0.0
p.p. |
Profit before income taxes |
728.0 |
40.6% |
263.1 |
25.1% |
|
176.8% |
15.5 p.p. |
Income tax and social contribution |
(187.8) |
(10.5%) |
(84.9) |
(8.1%) |
|
121.2% |
(2.4
p.p.) |
Net
income for the period |
540.2 |
30.1% |
178.2 |
17.0% |
|
203.2% |
13.2 p.p. |
|
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|
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Adjusted Net Income |
582.1 |
32.5% |
186.9 |
17.8% |
|
211.4% |
14.7 p.p. |
____________________
4 According to IFRS 15, subscription revenue is accounted over
the expected life of merchants on a linear basis. As part of the
annual assessment of assumptions for linearization of subscription
revenue, life of merchants was revised upwards, contributing
positively 3 bps to 3Q19 take rate compared to 2Q19.
Total Revenue and Income
Total Revenue and Income was R$671.1 million in the third
quarter of 2019, an increase of 62.1% from R$414.1 million in the
third quarter of 2018. Total Revenue and Income growth was driven
primarily by the 49.8% increase in TPV combined with a higher take
rate.
Chart 4: Total Revenue and Income in the Quarter (R$mm)
(See PDF)Chart 5: Accumulated Total Revenue and Income
(R$) (See PDF)
Net Revenue from Transaction Activities and Other
ServicesNet Revenue from Transaction Activities and Other
Services was R$193.9 million in the third quarter of 2019, an
increase of 42.5%, compared with the third quarter of 2018. This
increase was primarily due to the R$10.9 billion growth in TPV year
over year.
Net Revenue from Subscription Services and Equipment
RentalNet Revenue from Subscription Services and Equipment
Rental was R$94.2 million in the third quarter of 2019, 59.2% above
the third quarter of 2018. This increase was primarily due to the
higher number of SMB Active Clients.
Financial IncomeFinancial Income was R$335.1
million in the third quarter of 2019, an increase of 57.7% year
over year, primarily due to the 49.8% growth in TPV year over year
combined with a higher prepayment penetration.
Other Financial IncomeOther Financial Income
was R$48.0 million in the third quarter of 2019, an increase of
R$41.6 million compared with the third quarter of 2018. This
increase was mainly due to the interest income from the IPO
proceeds on Stone’s cash balance and short-term investments.
Costs and Expenses
Operating Costs and Expenses as a percentage of Total Revenue
and Income decreased by 2.8 percentage points on a sequential basis
to 42.5%, despite continued investments in our operation in
3Q19.
Chart 6: Operating
Leverage* (See PDF)
* Includes Cost of Services, Administrative Expenses and Selling
Expenses as a percentage of Total Revenue and Income. Quarterly
unaudited data.
Cost of ServicesCost of Services was R$112.5
million or 16.8% of Total Revenue and Income in 3Q19. This
represented 2.7 percentage points in operating leverage versus
3Q18, mainly due to lower provisions and losses, efficiency gains
in human resources and brand fees.
Compared to 2Q19, Cost of Services decreased as a percentage of
Total Revenue and Income to 16.8% from 17.2%, mainly due to lower
provisions and losses and brand fees.
Administrative ExpensesAdministrative Expenses
were R$71.2 million in the third quarter of 2019, up 14.6% year
over year. As a percentage of Total Revenue and Income,
Administrative Expenses were 4.4 percentage points down, as the
Company gains positive operating leverage from its personnel and
facilities expenses.
Compared with 2Q19, Administrative Expenses decreased by 2.6
percentage point, mainly because of lower third-party services
expenses, as well as lower travel expenses as in 2Q19 the Company
hosted its annual sales convention.
Selling ExpensesSelling Expenses were R$101.7
million in the quarter, an increase of 103.1% versus 3Q18, mainly
due to higher personnel and marketing expenses. Compared with 2Q19,
Selling Expenses increased to 15.1% of Total Revenue and Income
from 14.9%, as we continued to hire new salespeople and invest in
our operation.
Financial Expenses, NetFinancial Expenses, Net
were R$101.2 million in the third quarter of 2019, an increase of
21.3%, compared with 3Q18. This increase was mainly due to higher
prepayment volumes, which were partly offset by higher use of own
cash to fund our prepayment operations. Financial Expenses, Net as
a percentage of Financial Income decreased to 30.2% in the third
quarter of 2019 compared with 39.3% in the third quarter of 2018.
This reduction occurred due to the combination of (i) a higher
financial income and (ii) a lower cost of funds due to lower base
rate, cheaper funding sources, and use of a higher amount of
Company cash to fund prepayment operations.
Financial Expenses, Net as a percentage of Revenue, increased
from 13.4% in 2Q19 to 15.1% in 3Q19 mainly due to a higher mix of
third-party capital to fund the prepayment business, as the Company
takes advantage of attractive funding alternatives.
Other Operating Expenses, NetOther Operating
Expenses, Net were R$11.4 million in the third quarter of 2019,
mainly related to the R$11.2 million in share-based compensation
expenses from one-time IPO grants. This represents a decrease of
R$20.9 million compared with the prior quarter mainly due to the
follow-on acceleration of vesting, which happened in 2Q19. These
awards are equity classified and the majority are subject to
performance conditions.
Profit Before Income TaxesProfit Before Income
Taxes was R$274.0 million in the third quarter of 2019,
representing 109.3% growth year over year, with a pre-tax margin of
40.8% compared with 31.6% in the third quarter of 2018. This
improvement was mainly related to the increase in Total Revenue and
Income in addition to operating leverage in Cost of Services,
Administrative Expenses and Financial Expenses.
Income Tax and Social ContributionDuring the
third quarter of 2019, the Company incurred R$82.7 million in
Income Tax and Social Contribution expenses, or a 30.2% effective
tax rate, compared with a 30.9% tax rate in 3Q18.
Net IncomeAdjusted Net Income was R$201.9
million in the third quarter of 2019, with a margin of 30.1%,
compared with R$89.3 million and a margin of 21.6% in the third
quarter of 2018. The main factors that contributed to the 126.0%
growth in Adjusted Net Income were: (i) increase in Total Revenue
and Income, primarily due to higher TPV and take rate; (ii)
operating leverage in Cost of Services and Administrative Expenses;
and (iii) reduced cost of funds, as the Company switched to cheaper
funding and increased the use of Company cash to fund the
prepayment operation on a year over year comparison.
Compared to 2Q19, adjusted net margin was 3.0 percentage points
lower, explained by lower than usual tax rate in 2Q19, as well as
higher financial expenses in 3Q19 as the mix of funding is higher
towards third-party capital.
Chart 7: Adjusted Net Income in the Quarter
(R$mm) (See PDF)Chart 8: Adjusted Net Margin in the
Quarter (See PDF)Chart 9: Accumulated
Adjusted Net Income (R$mm) (See PDF)Chart 10: Accumulated
Adjusted Net Margin (See PDF)
Net Income was R$191.3 million in 3Q19, compared with Net Income
of R$90.4 million in 3Q18. Net Margin increased 6.7 percentage
points to 28.5% year over year in the third quarter of 2019. This
improvement was mainly due to the operating leverage of 4.1
percentage points in the quarter, combined with a reduction of 5.1
percentage points in Financial Expenses, Net, as a percentage of
Total Revenue and Income.
Reconciliation of Net Income to Adjusted Net
Income
Table 4: Adjusted Net Income Reconciliation
(Quarter) |
|
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|
|
|
|
Net Income Bridge (R$mm) |
3Q19 |
% Rev. |
3Q18 |
% Rev. |
|
Δ % |
Δ p.p. |
Net income for the period |
191.3 |
28.5% |
90.4 |
21.8% |
|
111.6% |
6.7 p.p. |
Share-based compensation expenses (a) |
11.2 |
1.7% |
24.8 |
6.0% |
|
(54.7%) |
(4.3
p.p.) |
Amortization of fair value adjustment (b) |
4.6 |
0.7% |
2.8 |
0.7% |
|
61.1% |
(0.0
p.p.) |
Gain on previously held interest in associate (c) |
0.0 |
0.0% |
(21.4) |
(5.2%) |
|
(100.0%) |
5.2
p.p. |
One-time impairment charges (d) |
0.0 |
0.0% |
0.0 |
0.0% |
|
n.a. |
0.0
p.p. |
Tax effect on adjustments |
(5.3) |
(0.8%) |
(7.3) |
(1.8%) |
|
(28.2%) |
1.0
p.p. |
Adjusted net income |
201.9 |
30.1% |
89.3 |
21.6% |
|
126.0% |
8.5 p.p. |
Table 5: Accumulated Adjusted Net Income
Reconciliation |
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|
Net Income Bridge (R$mm) |
9M19 |
% Rev. |
9M18 |
% Rev. |
|
Δ % |
Δ p.p. |
Net income for the period |
540.2 |
30.1% |
178.2 |
17.0% |
|
203.2% |
13.2 p.p. |
Share-based compensation expenses (a) |
49.7 |
2.8% |
24.8 |
2.4% |
|
100.3% |
0.4
p.p. |
Amortization of fair value adjustment (b) |
12.6 |
0.7% |
8.3 |
0.8% |
|
51.3% |
(0.1
p.p.) |
Gain on previously held interest in associate (c) |
0.0 |
0.0% |
(21.4) |
(2.0%) |
|
(100.0%) |
2.0
p.p. |
One-time impairment charges (d) |
0.0 |
0.0% |
8.4 |
0.8% |
|
(100.0%) |
(0.8
p.p.) |
Tax effect on adjustments |
(20.4) |
(1.1%) |
(11.4) |
(1.1%) |
|
79.2% |
(0.1
p.p.) |
Adjusted net income |
582.1 |
32.5% |
186.9 |
17.8% |
|
211.4% |
14.7 p.p. |
(a) |
|
Consists of expenses related to the vesting of share-based
compensation. |
(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 relates to the EdB and Equals acquisitions. |
(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. |
Cash Flow
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 reduces accounts payable by the corresponding prepaid
amount plus fees earned by providing such prepayment service. In
order to fund the prepayment operation, the Company predominantly
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, (iii) the issuance of debentures and
private loans or (iv) its own capital from capital contributions or
cash flows from operations. These funding options lead to different
effects on the Company’s statements of balance sheet and cash
flows:
- 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.
- Issuance of FIDC5 senior quotas: 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 liability to
senior quota holders. The Company then transfers its receivables
from card issuers in 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. This set of transactions generates
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, since
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.
- Debentures and private loans: when the Company issues a
debenture or takes a private loan, the effect on the Company’s
statements of balance sheet and cash flows is similar to the
issuance of FIDC senior quotas.
- Deployment of 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.
_________________________________________________5 Receivables
Investment Fund (Fundo de Investimento em Direitos Creditórios) is
an investment fund legal structure established under Brazilian
law designed specifically for investing in credit rights
receivables
Net Cash Provided by Operating Activities
Net Cash Provided by Operating Activities for 3Q19 was R$190.2
million, primarily as a result of:
- Net Income of R$191.3 million, combined with non-cash expenses
consisting primarily of (i) Depreciation and Amortization of R$43.9
million; (ii) Other Financial Costs and Foreign Exchange, net of
R$28.4 million and (iii) Deferred Income Tax Expenses of R$22.5
million. The total amount of adjustments to Net Income from
non-cash items in the three months ended September 30, 2019 was
R$118.3 million.
- Net cash from changes in working capital, arising from changes
in operating assets and liabilities, totaled an outflow of R$119.5
million, principally due to:i. a decrease in Accounts Payable to
Clients of R$405.3 million; an increase in Trade Accounts
Receivable and Other Assets of R$45.5 million; Income Tax Paid in
the amount of R$33.7 million and Interest Paid of R$31.0
million;ii. The impact of these factors was partially offset by
Interest Income Received, Net of Costs of R$304.3 million; a
decrease in Accounts Receivable from Card Issuers of R$34.9 million
and an increase in Taxes Payable in the amount of R$31.5
million.
Net Cash Provided by Operating Activities for 3Q18 was R$83.0
million, primarily as a result of:
- Net Income of R$90.4 million, combined with non-cash expenses
consisting primarily of (i) Other Financial Costs and Foreign
Exchange, Net of R$31.0 million; (ii) Share Based Payments Expense
of R$24.8 million; and (iii) Depreciation and Amortization in the
amount of R$24.4 million. The total amount of adjustments to Net
Income from non-cash items in the three months ended September 30,
2018 was R$56.0 million.
- Net cash from changes in working capital, arising from changes
in operating assets and liabilities, totaled an outflow of R$63.4
million, mainly due to:iii. An increase in Accounts Receivable from
Card Issuers which led to negative cash flows of R$677.7
million;iv. partially offset by an increase in Accounts Payable to
Clients of R$427.9 million, Interest Income Received, Net of Costs
in the amount of R$139.1 million and an increase in Taxes Payable
of R$55.3 million.
Adjusted Net Cash Provided by Operating
Activities
Because of the nature of the prepayment business and dynamics of
the sale of receivables in Brazil, Stone management looks at
Adjusted Net Cash Provided by/ (Used in) Operating Activities, a
non-IFRS metric. This metric excludes three working capital
adjustments6 shown in our Consolidated Statement of Cash Flow: (i)
changes in Accounts Payable to Clients; (ii) changes in Accounts
Receivables from Card Issuers; and (iii) the Interest Income
Received, Net of Costs, which is shown separately in our Cash Flow
Statement but is directly linked to the change in our Accounts
Receivable from Card Issuers and Accounts Payable to Clients in our
balance sheet.
Table 6: Adjusted Net Cash Provided by Operating
Activities |
|
|
|
|
|
Adjusted Net Cash Provided by Operating Activities
(R$mm) |
3Q19 |
3Q18 |
|
9M19 |
9M18 |
Net cash provided by (used in) operating
activities |
190.2 |
83.0 |
|
(1,988.3) |
(290.0) |
(-) Adjustments in Operating Activities: |
|
|
|
|
|
Accounts receivable from card issuers |
(34.9) |
677.7 |
|
3,267.9 |
1,361.1 |
Accounts payable to clients |
405.3 |
(427.9) |
|
163.9 |
(395.9) |
Interest income received, net of costs |
(304.3) |
(139.1) |
|
(852.2) |
(356.4) |
(=) Adjusted net cash provided by operating
activities |
256.3 |
193.7 |
|
591.3 |
318.9 |
|
|
|
|
|
|
In 3Q19 Net Cash Provided by Operating Activities was R$190.2
million. Excluding the effect of changes in Accounts Receivables
from Card Issuers of R$34.9 million, changes in Accounts Payable to
Clients of R$405.3 million and Interest Income Received, Net of
Costs, of R$304.3 million, our Adjusted Net Cash Provided by
Operating Activities was R$256.3 million, compared with R$193.7
million in 3Q18.
The R$304.3 million Interest Income Received, Net of Costs,
consists of two items: (i) financial income from our prepayment
activity, less (ii) financial expenses related to the sale of
receivables. The first item has direct influence on the level of
Accounts Payable to Clients in our balance sheet; the second item
has direct influence on the amount of Accounts Receivables from
Card Issuers on our balance sheet.
_______________________6 Each “Accounts Payable to Clients”
recognized as a liability on our balance sheet is directly linked
to an “Accounts Receivable from Card Issuers” recognized as an
asset in our balance sheet. Originally, the Company received from
issuing banks first, and only then paid 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 requirements. 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, Net Cash Provided by/ (Used in) Operating
Activities may be affected, as discussed in “Note on the impact of
different funding sources in operating and financing cash flows” at
the beginning of the Cash Flow section. However, management does
not view such decision as translating into higher or lower ability
of our business to generate cash operationally.
Net Cash Provided by (Used in) Investing
Activities
Net Cash Used in Investing Activities was R$298.1 million for
3Q19, compared with R$23.1 million of Net Cash Provided by
Investing Activities in 3Q18. Net Cash Used in Investing Activities
for 3Q19 was primarily driven by (i) Purchases of Property and
Equipment of R$197.2 million related mainly to POS purchases, (ii)
Acquisition of Short-term Investments, net of R$78.7 million; and
(iii) Purchases and Development of Intangible Assets of R$18.0
million. The higher Purchases of Property and Equipment compared to
prior quarters is mainly explained by R$102.4 million in advanced
payment to suppliers of POS devices due to more favorable
commercial terms.
Net Cash Provided by (Used in) Financing
Activities
Net Cash Provided by Financing Activities was R$190.3 million
for 3Q19, compared with Net Cash Used in Financing Activities of
R$80.4 million for 3Q18. Net Cash Provided by Financing Activities
for 3Q19 was mainly driven by the R$388.6 million from Proceeds
from Borrowings, explained mostly by (i) a Debenture of R$150.0
million (R$250 million already liquidated in 2Q19 for a total of
R$400 million) and (ii) a CCB (Cédula de Crédito Bancário) of
R$180.0 million. This was partially offset by R$210.2 million in
amortization of debt instruments, mainly the maturity of a CCB.
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$41.1 million of Adjusted Free Cash Flow
in 3Q19, compared to R$151.1 million in 3Q18, as shown in the table
below.
Table 7: Adjusted Free Cash Flow |
|
|
|
|
|
Reconciliation of Adjusted Free Cash Flow
(R$mm) |
3Q19 |
3Q18 |
|
9M19 |
9M18 |
Net cash used in operating activities |
190.2 |
83.0 |
|
(1,988.3) |
(290.0) |
|
|
|
|
|
|
(-) Adjustments in Operating Activities: |
|
|
|
|
|
Accounts receivable from card issuers |
(34.9) |
677.7 |
|
3,267.9 |
1,361.1 |
Accounts payable to clients |
405.3 |
(427.9) |
|
163.9 |
(395.9) |
Interest income received, net of costs |
(304.3) |
(139.1) |
|
(852.2) |
(356.4) |
|
|
|
|
|
|
Purchases of property and equipment |
(197.2) |
(32.8) |
|
(314.2) |
(125.3) |
Purchases and development of intangible assets |
(18.0) |
(9.8) |
|
(47.7) |
(34.1) |
|
|
|
|
|
|
Adjusted free cash flow (R$mn) |
41.1 |
151.1 |
|
229.5 |
159.5 |
|
|
|
|
|
|
The main reason for the decrease in Adjusted Free Cash Flow in
3Q19 compared with 3Q18 was the R$164.4 million higher Purchases of
Property and Equipment. As mentioned in the “Net Cash Provided by
(Used in) Investing Activities” section above, the company paid in
advance a total of R$102.4 million in POS devices due to more
favorable commercial terms.
Adjusted Net Cash
Management assesses net liquidity of the Company by Adjusted Net
Cash, a non-IFRS metric. 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 September 30, 2019, the Company´s Adjusted Net Cash
position was R$4,589.8 million, compared with R$4,480.0 million on
December 31, 2018, an increase of R$109.8 million. This increase
was related to the R$3,275.7 million higher Adjusted Cash,
partially offset by the R$3,165.8 million higher Adjusted Debt.
Higher Adjusted Cash was mainly due to an increase of R$3,269.6
million in Accounts Receivable from Card Issuers, and the increase
in Adjusted Debt was mainly due to higher Obligations to FIDC
Senior Quota Holders of R$1,698.9 million, from a FIDC series
raised in the market in 2Q19.
Table 8: Adjusted Net Cash |
|
|
Adjusted Net Cash (R$mm) |
3Q19 |
4Q18 |
Cash and cash equivalents |
245.1 |
297.9 |
Short-term investments |
2,829.4 |
2,770.6 |
Accounts receivable from card issuers |
12,514.2 |
9,244.6 |
Adjusted Cash |
15,588.8 |
12,313.1 |
|
|
|
Accounts payable to clients |
(5,718.0) |
(4,996.1) |
Loans and financing |
(1,507.5) |
(762.5) |
Obligations to FIDC senior quota holders |
(3,773.5) |
(2,074.6) |
Adjusted Debt |
(10,999.0) |
(7,833.1) |
|
|
|
Adjusted Net Cash |
4,589.8 |
4,480.0 |
|
|
|
Other Information
Conference Call
Stone will discuss its third quarter financial results during a
teleconference today, November 21, 2019, at 5:00 PM ET / 7:00 PM
BRT. The conference call can be accessed at +1 (412) 317 6346 or +1
(844) 204 8586 (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 Co.
Stone Co. is a leading provider of financial technology
solutions that empower merchants to conduct commerce seamlessly
across multiple channels and help them grow their businesses.
Investor Contact
Investor Relations investors@stone.com.br
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 circum- stances 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, and our inability to execute successfully upon our
strategic initiatives, 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 / (Debt).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 business 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 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.
Unaudited Consolidated Statement of Profit or
Loss
Table 9: Unaudited Consolidated Statement of Profit or
Loss |
|
|
|
|
|
Statement of Profit or Loss (R$mm) |
3Q19 |
3Q18 |
|
9M19 |
9M18 |
Net revenue from transaction activities and other services |
193.9 |
136.1 |
|
539.9 |
340.2 |
Net revenue from subscription services and equipment rental |
94.2 |
59.2 |
|
239.9 |
144.2 |
Financial income |
335.1 |
212.4 |
|
883.7 |
545.5 |
Other financial income |
48.0 |
6.4 |
|
129.5 |
20.0 |
Total revenue and income |
671.1 |
414.1 |
|
1,793.1 |
1,049.8 |
Cost of services |
(112.5) |
(80.7) |
|
(298.7) |
(221.8) |
Administrative expenses |
(71.2) |
(62.1) |
|
(213.3) |
(179.5) |
Selling expenses |
(101.7) |
(50.0) |
|
(251.6) |
(131.4) |
Financial expenses, net |
(101.2) |
(83.4) |
|
(246.6) |
(226.0) |
Other operating expenses, net |
(11.4) |
(6.9) |
|
(55.2) |
(27.7) |
Gain (loss) on investment in associates |
0.9 |
0.1 |
|
0.3 |
(0.3) |
Profit before income taxes |
274.0 |
130.9 |
|
728.0 |
263.1 |
Income tax and social contribution |
(82.7) |
(40.5) |
|
(187.8) |
(84.9) |
Net income for the period |
191.3 |
90.4 |
|
540.2 |
178.2 |
|
|
|
|
|
|
Unaudited Consolidated Balance Sheet
Statement
Table 10: Unaudited Consolidated Balance Sheet
Statement |
|
|
Balance Sheet (R$mm) |
31-Sep-19 |
31-Dec-18 |
Assets |
|
|
Current assets |
15,889.2 |
12,437.8 |
Cash and cash equivalents |
245.1 |
297.9 |
Short-term investments |
2,829.4 |
2,770.6 |
Accounts receivable from card issuers |
12,514.2 |
9,244.6 |
Trade accounts receivable |
81.3 |
44.6 |
Recoverable taxes |
67.3 |
56.9 |
Prepaid expenses |
21.5 |
15.1 |
Derivative financial instruments |
1.0 |
1.2 |
Other assets |
129.2 |
6.9 |
|
|
|
Non-current assets |
1,127.6 |
855.4 |
Receivables from related parties |
7.7 |
8.1 |
Deferred income tax assets |
240.4 |
262.7 |
Other assets |
11.7 |
8.5 |
Investment in associate |
21.7 |
2.2 |
Property and equipment |
478.9 |
266.3 |
Intangible assets |
367.2 |
307.7 |
|
|
|
Total Assets |
17,016.7 |
13,293.2 |
|
|
|
Liabilities and equity |
|
|
Current liabilities |
8,767.7 |
6,054.8 |
Accounts payable to clients |
5,718.0 |
4,996.1 |
Trade accounts payable |
92.0 |
117.8 |
Loans and financing |
1,036.1 |
761.1 |
Obligations to FIDC senior quota holders |
1,740.5 |
16.6 |
Labor and social security liabilities |
120.7 |
96.7 |
Taxes payable |
40.0 |
51.6 |
Derivative financial instruments |
0.4 |
0.6 |
Other accounts payable |
20.1 |
14.2 |
|
|
|
Non-current liabilities |
2,613.9 |
2,145.5 |
Loans and financing |
471.5 |
1.4 |
Obligations to FIDC senior quota holders |
2,033.0 |
2,057.9 |
Deferred income tax liabilities |
100.5 |
80.2 |
Provision for contingencies |
3.8 |
1.2 |
Other accounts payable |
5.2 |
4.7 |
|
|
|
Total liabilities |
11,381.6 |
8,200.2 |
|
|
|
Equity attributable to owners of the parent |
5,635.5 |
5,093.3 |
Issued capital |
0.1 |
0.1 |
Capital reserve |
5,375.0 |
5,351.9 |
Other comprehensive income |
(77.6) |
(56.3) |
Retained earnings |
338.0 |
(202.3) |
|
|
|
Non-controlling interests |
(0.4) |
(0.3) |
|
|
|
Total equity |
5,635.1 |
5,093.0 |
|
|
|
Total liabilities and equity |
17,016.7 |
13,293.2 |
|
|
|
Table 11: Unaudited Consolidated Statement of Cash
Flows |
|
|
|
|
|
|
Cash Flow (R$mm) |
|
3Q19 |
3Q18 |
|
9M19 |
9M18 |
Net income for the period |
|
191.3 |
90.4 |
|
540.2 |
178.2 |
|
|
|
|
|
|
|
Adjustments on Net Income: |
|
|
|
|
|
|
Depreciation and amortization |
|
43.9 |
24.4 |
|
107.7 |
64.5 |
Deferred income tax expenses |
|
22.5 |
(14.1) |
|
53.0 |
(19.3) |
Loss (gain) on investment in associates |
|
(0.9) |
(0.1) |
|
(0.3) |
0.3 |
Other financial costs and foreign exchange, net |
|
28.4 |
31.0 |
|
55.7 |
103.0 |
Provision for contingencies |
|
0.5 |
0.1 |
|
2.2 |
0.4 |
Share based payments expense |
|
6.1 |
24.8 |
|
23.1 |
24.8 |
Allowance for doubtful accounts |
|
6.6 |
6.7 |
|
26.8 |
15.7 |
Loss on disposal of property, equipment and intangible assets |
|
3.6 |
4.5 |
|
6.4 |
23.4 |
Onerous contract |
|
0.0 |
0.0 |
|
0.0 |
(0.4) |
Fair value adjustment in derivatives |
|
7.6 |
0.0 |
|
(0.0) |
0.0 |
Remeasurement of previously held interest in subsidiary
acquired |
|
0.0 |
(21.4) |
|
0.0 |
(21.4) |
|
|
|
|
|
|
|
Working capital adjustments: |
|
|
|
|
|
|
Accounts receivable from card issuers |
|
34.9 |
(677.7) |
|
(3,267.9) |
(1,361.1) |
Receivables from related parties |
|
0.9 |
1.3 |
|
3.9 |
0.3 |
Recoverable taxes |
|
4.9 |
(7.9) |
|
(54.5) |
(67.0) |
Prepaid expenses |
|
1.1 |
(10.5) |
|
(6.4) |
(16.4) |
Trade accounts receivable and other assets |
|
(45.5) |
(11.3) |
|
(85.6) |
(34.4) |
Accounts payable to clients |
|
(405.3) |
427.9 |
|
(163.9) |
395.9 |
Taxes payable |
|
31.5 |
55.3 |
|
159.2 |
106.5 |
Labor and social security liabilities |
|
15.6 |
18.7 |
|
24.0 |
46.0 |
Provision for contingencies |
|
0.3 |
(0.0) |
|
0.4 |
(0.0) |
Other Liabilities |
|
2.5 |
15.8 |
|
(20.2) |
22.4 |
Interest paid |
|
(31.0) |
(1.4) |
|
(117.6) |
(77.0) |
Interest income received, net of costs |
|
304.3 |
139.1 |
|
852.2 |
356.4 |
Income tax paid |
|
(33.7) |
(12.8) |
|
(126.6) |
(30.6) |
|
|
|
|
|
|
|
Net cash provided by (used in) operating
activity |
|
190.2 |
83.0 |
|
(1,988.3) |
(290.0) |
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
Purchases of property and equipment |
|
(197.2) |
(32.8) |
|
(314.2) |
(125.3) |
Purchases and development of intangible assets |
|
(18.0) |
(9.8) |
|
(47.7) |
(34.1) |
Acquisition of subsidiary, net of cash acquired |
|
0.0 |
(2.9) |
|
0.0 |
(2.9) |
Proceeds from (acquisition of) short term investments, net |
|
(78.7) |
66.6 |
|
59.8 |
59.3 |
Proceeds from the disposal of non-current assets |
|
0.1 |
3.2 |
|
1.0 |
4.3 |
Acquisition of interest in associates |
|
(4.4) |
(1.1) |
|
(11.5) |
(1.5) |
|
|
|
|
|
|
|
Net cash provided by (used in) investing
activities |
|
(298.1) |
23.1 |
|
(312.5) |
(100.2) |
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
Proceeds from borrowings |
|
388.6 |
0.0 |
|
838.6 |
0.0 |
Payment of borrowings |
|
(210.2) |
(0.3) |
|
(211.6) |
(0.8) |
Proceeds from FIDC senior quota holders |
|
20.0 |
10.0 |
|
1,640.0 |
10.0 |
Payment of finance leases |
|
(7.9) |
(3.7) |
|
(19.3) |
(9.0) |
Capital increase |
|
0.0 |
0.0 |
|
0.0 |
3.2 |
Repurchase of shares |
|
0.0 |
(63.2) |
|
0.0 |
(63.2) |
Acquisition of non-controlling interests |
|
(0.2) |
(23.2) |
|
(0.7) |
(23.2) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing
activities |
|
190.3 |
(80.4) |
|
2,247.1 |
(83.0) |
|
|
|
|
|
|
|
Effect of foreign exchange on cash and cash equivalents |
|
2.1 |
4.9 |
|
0.9 |
4.8 |
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
84.5 |
30.7 |
|
(52.8) |
(468.4) |
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
160.6 |
142.9 |
|
297.9 |
642.0 |
Cash and cash equivalents at end of period |
|
245.1 |
173.6 |
|
245.1 |
173.6 |
|
|
|
|
|
|
|
A PDF accompanying this announcement is available
at http://ml.globenewswire.com/Resource/Download/b21fa5ce-2c3e-4e53-a80e-519991b29914
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