StoneCo (STNE) Q3 2025 Earnings Call Transcript

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DATE

Thursday, November 6, 2025 at 5 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Pedro Zinner
• Chief Operating Officer — Lia Matos
• Chief Financial Officer — Mateus Scherer

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TAKEAWAYS

• Adjusted Gross Profit -- Year-to-date growth reached 15.2%, despite the ongoing share buyback program's partial dilution effect on this metric.
• Shareholder Return -- $1 billion was returned via share buybacks over the last twelve months, equating to approximately a 10% yield for the period.
• Adjusted Basic EPS -- For the first nine months, $1.37 per share, representing a 37% increase.
• Adjusted Net Income -- Rose 18% year over year, including 13% growth in continuing operations, attributed to pricing policy adjustments, use of client deposits for funding, and a lower effective tax rate.
• ROE (Consolidated) -- Increased by eight percentage points year over year to reach 24%, while financial services ROE from continuing operations grew four percentage points to reach 33%.
• Total Revenue and Income -- Increased 16% year over year to $1 billion, even as floating revenue declined due to client deposit deployment as a funding source.
• Adjusted Gross Profit (Continuing Operations) -- BRL1.6 billion, up 12% year over year, with growth largely aligned with TPV and offset by higher financial expenses from increased CDI rates.
• Active MSNB Client Base -- Expanded 17% year over year to 4,700,000, with 38% classified as heavy users of more than three solutions.
• MSNB TPV -- Increased 11% year over year to $1 billion, driven by 49% QR code volume growth and 6% card volume growth; growth rate reflected a slight deceleration from the previous quarter.
• Active Banking Client Base -- Expanded 22% year over year to 3,500,000, with client deposits increasing 32% year over year and 2% quarter over quarter to BRL9 billion.
• Credit Portfolio -- Grew 27% sequentially to BRL2.3 billion, with BRL2 billion attributed to merchant solutions (28% sequential growth) and credit cards at just over BRL200 million (18% sequential growth).
• Asset Quality (NPL Ratios) -- NPLs 15–90 days at 3.12%, NPLs over 90 days at 5.03%, with both impacted by the maturation of the credit portfolio and a specific payment delay event now resolved.
• Credit Coverage Ratio -- Declined to 265% after no extra adjustments this quarter, but still described as conservative by management.
• Cost of Risk -- Decreased from 20.2% to 16.8% sequentially, remaining within management’s expected mid-teens range.
• Average Monthly Credit Rate -- Rose from 2.7% to 2.9% quarter over quarter; product mix changes can influence this metric.
• Cost of Services -- Increased 12% year over year, but as a percentage of revenues declined by 90 basis points, reflecting efficiency gains in logistics and technology.
• Administrative Expenses -- Rose 7% year over year but decreased as a percentage of revenues by 50 basis points due to operating leverage gains.
• Selling Expenses -- Increased 21% year over year and rose by 50 basis points relative to revenues, a result of more evenly distributed marketing spend throughout the year.
• Financial Expenses -- Grew 28% year over year, increasing by 280 basis points as a percentage of revenues, mainly due to higher average CDI rates, partially offset by use of client deposits for funding.
• Effective Tax Rate -- Fell to 15.3% in the quarter from 18.6% a year earlier, mainly driven by intragroup interest on equity operations and higher benefits from Lidomain.
• Adjusted Net Cash Position -- Ended at BRL3.5 billion, a sequential decrease of BRL140 million attributed to BRL465 million in share buybacks; net cash would have increased BRL325 million absent these buybacks.
• Gross Profit Yield (as % of TPV) -- Stood at 1.26%, up from 1.21%, primarily from increased banking and credit penetration, not higher prepayment spreads.
• Deposit Composition -- Time deposits represented 84% of the total, slightly higher than the prior quarter (83%), indicating higher investment product adoption.
• Interest Rate Sensitivity -- For every 100 basis point reduction in average rates, management estimates a $200 million to $250 million positive impact to pre-tax earnings.
• Credit Cost of Risk Guidance -- Management expects cost of risk to remain in the mid-teens and at elevated levels compared to 2024, due to updated macroeconomic assumptions in credit models.
• NPL Target Commentary -- Management expects NPLs over 90 days to migrate toward high single-digit levels as the portfolio matures but does not target a specific ratio, instead focusing on maximizing relationship NPV.
• Operational Efficiency -- Adoption of AI in customer service and scale benefits in logistics are delivering notable efficiency gains.
• Future Platform Guidance -- Long-term effective tax rate expected in the mid- to high-teens, but pending legislative clarity and final regulatory developments.

SUMMARY

StoneCo (NASDAQ:STNE) delivered double-digit year-over-year growth in both revenue and profitability metrics, supported by ongoing expansion of its client base and increased adoption of its bundled solutions. Management highlighted significant capital returns through a sustained share buyback program and reiterated its commitment to balancing financial prudence with shareholder value creation. The credit portfolio showed accelerated sequential growth with disciplined risk management, while use of client deposits as a funding alternative contributed to operating efficiency despite a challenging macroeconomic environment.

• Chief Financial Officer Scherer stated, "I think what we did successfully was to pass through the increase in interest rates, but I do not think we are at the all-time high spreads," distinguishing the gross profit yield uplift from prepayment pricing.
• Management noted that spreads in payments "are at a healthy level" and signaled that future gross profit is likely to be driven by scaling credit rather than further payment pricing actions.
• Chief Executive Officer Zinner cited progress in shifting the organizational structure to a fully functional, bundled solution model aimed at enhancing both client value and profitability.
• Management explicitly linked credit cost of risk and NPL expectations to ongoing macro uncertainty, but refrained from quantifying specific portfolio loss targets.
• Operational leverage and AI-driven efficiencies were highlighted as ongoing, but management cautioned that some cost improvements—such as lower provisions for acquiring losses—should not be considered recurring.

INDUSTRY GLOSSARY

• TPV: Total Payment Volume, representing the aggregate value of all payment transactions processed through StoneCo's platforms.
• MSNB: Micro, Small, and New Businesses segment within StoneCo's client base, a core market for growth and volume expansion.
• NPL: Non-Performing Loans, a standard credit metric measuring the percentage of credit balances overdue by defined periods (e.g., over 90 days).
• CDI: Interbank Deposit Certificate rate, the primary overnight interest rate benchmark in Brazil, which influences StoneCo’s funding costs.
• Lidomain: Refers to specific internal tax or benefit arrangements cited by StoneCo management in effective tax rate drivers; precise regulatory context is Brazil-specific.

Full Conference Call Transcript

Pedro Zinner: Thank you, operator, and good evening, everyone. I'd like to start with a brief update on our key performance metrics and our capital allocation strategy. In the third quarter, we continued to make solid progress toward our 2025 objectives, even in a more challenging macro environment. Our adjusted gross profit grew 15.2% year to date despite our ongoing share buyback program, which has had some impact on this metric. Meanwhile, for the first nine months of 2025, our adjusted basic EPS reached $1.37 per share, up 37% year to date, keeping us well on track to meet our full-year target. Despite external headwinds, our team is performing with discipline and focus, delivering consistent value to our clients and shareholders.

Turning to capital allocation, we have maintained a disciplined approach to returning capital to shareholders through our share buybacks. In the last twelve months, we have returned $1 billion to shareholders, about a 10% yield for the period. Building on the $3 billion in excess capital we identified last year, I am pleased to report that by October we had already returned 74% of that amount to investors. This underscores our commitment to return excess capital through buybacks or dividends when we do not have immediate value-accretive investment opportunities. Our goal remains the same: exercise financial prudence while maximizing long-term value creation for our clients and shareholders.

With that, I'll now hand it over to Lia for a closer look at our quarterly numbers. Lia, please go ahead.

Lia Matos: Thank you, Pedro, and good evening, everyone. Starting on Slide four, we dive into our consolidated bottom line and return on equity results. We are pleased to see another quarter of consistent performance towards our goals, despite a continued challenging macro environment. Our adjusted net income grew 18% year over year with a 13% increase in continuing operations. This performance was driven by three key factors: The first one relates to the successful adjustment to our pricing policy implemented earlier this year, which helped offset the impact of higher interest rates in the country. Second, the strategic use of client deposits as a funding source helped improve efficiency by lowering our average funding spreads.

And third, a lower effective tax rate compared to the same period last year also contributed to the result. These effects were partially offset by our decision to more evenly distribute marketing expenses this year, which negatively affected the year-over-year comparison. Our adjusted basic EPS reached BRL2.57 per share, growing 31% year over year. The above net income growth was supported by continued execution in our share buyback program. Regarding returns, our ROE continued to expand sequentially. Consolidated ROE expanded eight percentage points year over year to 24% while financial services ROE from continuing operations increased four percentage points over the same period to reach 33% in the quarter. Now let's detail our continuing operations top-line performance on Slide five.

Total revenue and income grew 16% year over year, reaching $1 billion, driven by continued solid execution in our core business. Importantly, this growth was achieved despite lower floating revenues as we began deploying client deposits as a funding alternative in our operations starting earlier this year. While this strategy naturally reduces floating revenues, it generates savings in financial expenses, reinforcing the strength of our funding model. Our adjusted gross profit from continuing operations was BRL1.6 billion in the quarter, growing 12% year over year. This growth was largely aligned with TPV, as higher revenues were partially offset by increased financial expenses driven by the higher CDI rate.

On Slide six, we highlight our operating metrics, beginning with our payments business for MSNBs. Our active client base grew 17% year over year, reaching 4,700,000 clients with 38% classified as heavy users, leveraging more than three of the solutions we offer. This demonstrates not only growth in scale but also engagement across our product ecosystem. MSNB TPV grew 11% year over year in the third quarter, reaching $1 billion. Such growth comes from a combination of a 49% growth in peak QR code volumes, which continues to outpace Card TPV and capture share from debit transactions, and the 6% growth in card volumes.

Compared to the previous quarter, the yearly growth showed a slight deceleration reflecting a more challenging macro environment and softer same-store sales among our clients. Trends that are persisting in the fourth quarter and we're monitoring carefully. On Slide seven, we highlight the performance of our banking operation. We're pleased to report continued growth in our active client base, which increased 22% year over year, reaching 3,500,000 clients. This sustained expansion reflects both strong client acquisition and the evolution of our payments and banking bundle offers. Client deposits grew 32% year over year and 2% quarter over quarter, reaching BRL9 billion during the period.

While we observed a slight decline in our deposit base relative to MSNB TPV, from 7.2% in the second quarter to 7.1% in the third quarter, this primarily reflects daily seasonality driven by clients' cash-out obligations, and we saw a quick rebound on the days that followed. Viewed from another perspective, the average daily deposit base increased 40% year over year and 6% quarter over quarter, expanding relative to TPV. The composition of deposits in the quarter moved slightly towards more time deposits, which now account for 84% of total deposits, slightly up from 83% in the previous quarter. This growth underscores increased adoption of our investment solution, leading to higher engagement with our banking features.

Now turning to Slide eight, we review the evolution of our credit operation. In the quarter, we observed an acceleration in portfolio growth combined with disciplined asset quality and in strict alignment with our risk appetite statement parameters. The total credit portfolio grew 27% sequentially, accelerating compared to the previous quarter and reaching BRL2.3 billion.

Pedro Zinner: Of this,

Lia Matos: BRL2 billion is attributable to our merchant solutions, primarily working capital financing for MSNBs, which grew 28% quarter over quarter. Additionally, just over BRL200 million relates to credit cards, which increased 18% over the same period. Despite the acceleration in portfolio growth, our credit quality remains strong. NPLs fifteen to ninety days reached 3.12%, while NPLs over ninety days stood at 5.03%. The rise in NPLs over ninety days reflects the natural maturation of the portfolio, whereas the increase in NPLs fifteen to ninety days was primarily due to a specific client payment delay, which has already normalized in the fourth quarter.

As you may recall, in the second quarter, we made a deliberate decision to increase coverage ratio levels in response to the weaker macro outlook. With no additional adjustments required this quarter, the coverage ratio declined slightly to 265%, yet remaining at a conservative level. Similarly, our cost of risk, which reflects provisions recorded during the quarter, decreased from 20.2% to 16.8% sequentially, staying within the expected mid-teens range and reflecting disciplined risk management. Following the provision adjustments in Q2, we implemented corresponding pricing changes. This ensures a disciplined balance between risk and return while supporting sustainable growth. As you can see in the slide, the average monthly credit rate was 2.9% in Q3, up from 2.7% in Q2.

The metric is calculated by dividing the credit revenues by the average credit portfolio. However, the result is significantly impacted by product mix, as the inclusion of non-financed credit card portfolio and higher growth in specialized debt disbursements can dilute the rates.

In summary, I'm pleased with how our company has evolved and remained resilient despite ongoing macroeconomic headwinds. We continue to execute with a focus on our clients, confident that there are multiple opportunities to help them grow further and manage their business in a more seamless and effective way. Now I want to pass it over to Mateus, who will discuss our financial performance in more detail.

Mateus Scherer: Thank you, Lia, and good evening, everyone. Let's discuss our adjusted consolidated P&L for continuing operations, which is shown on Slide nine. Our cost of services increased 12% year over year, decreasing 90 basis points as a percentage of revenues. This reduction reflects the combination of efficiency gains in logistics, lowering transaction and technology costs, and lower provision for acquiring losses, which were partially offset by higher loan loss provisions in the period. Administrative expenses increased 7% year over year, resulting in a reduction of 50 basis points as a percentage of revenues, driven by continued operating leverage across our support functions. Selling expenses increased 21% year over year, increasing 50 basis points relative to revenues.

This reflects a more evenly distributed marketing spend in 2025 compared to last year when they were skewed towards the first half of the year given the strong investment in sponsoring a specific reality show. Financial expenses increased 28% year over year, representing a 280 basis points increase as a percentage of revenues. This was largely due to a higher average CDI rate year over year, which was partially mitigated by increased use of client deposits as a lower-cost funding source, which intensified since the end of the first quarter. Lastly, I would just like to remind that the execution of our capital distribution strategy negatively affects our financial expenses.

Other expenses increased 2% year over year and reduced 40 basis points relative to revenues, which was mainly due to an increase in gains related to the sale of POS. Our effective tax rate was 15.3% in the quarter, down from 18.6% in 2024. The year-over-year decrease was primarily driven by an intragroup interest on equity operation and higher benefits from Lidomain. Moving to slide 10, our adjusted net cash position ended the quarter at BRL3.5 billion, decreasing BRL140 million sequentially despite BRL465 million in share buybacks executed in the quarter. Excluding these buybacks, adjusted net cash would have increased BRL325 million. Once again, I want to thank you all for your time and continued support.

Our focus remains on executing our strategy effectively, and in a value-accretive manner, while listening closely to our clients, meeting their needs, and ultimately creating long-term value for our shareholders. With that said, we are now ready to open the call to questions.

Operator: Thank you. We are now going to start the question and answer session of our call. If your question has already been answered, you can leave the queue by clicking on hand down. Please limit your question to one per analyst. Our first question comes from Kaio Da Prato with UBS.

Kaio Da Prato: Hi, everyone. Good evening. Thanks for the opportunity to ask questions here. I have two on my side, please. First, on your prepayment business, would you say that you are at the all-time high level of spreads in the business post the pricing adjustments now? And how do you see the sustainability of this level going forward, given the current competitive scenario and the potential beginning of the cycle? So this is the first. And then my second, which is also linked looking forward, what do you think are the main drivers for earnings growth of the company apart from the policy rates that should be a clear support?

So what do you think should be the main source of growth? Is this an acceleration in credit growth? Is this efficiency? Or any other initiative? You can help us understand what should be the drivers for 2026, given this slowdown also on TPV that we are seeing. Except from the policy rates, would be good.

Mateus Scherer: To overall gross profit. But in terms of pricing specifically, I think what we did successfully was to pass through the increase in interest rates, but I do not think we are at the all-time high spreads. The second question around earnings growth levers, Kaio, can you hear us?

Kaio Da Prato: Now I can hear you, but I think we missed Oh. The answer.

Lia Matos: Oh. Oh, okay. Sorry. We just got noticed that you were not hearing. I think maybe Mateus, can you hear me well? Replay.

Kaio Da Prato: Yes. Now I can hear you. If you can repeat, please. Okay. Sorry.

Mateus Scherer: Sorry for that. Let me replay the answer. So the first one around prepayments and pricing. I would not agree with you that we are at the all-time high spreads. I think when we look at the gross profit yield, so gross profit as a percentage of TPV, it is higher than it was in the past. At 1.26% for the third Q 2025 versus, for example, 1.21% in 2024. But that increase has been mostly due to the increased penetration of banking and credit over time, and not a result of prices on prepayments on a standalone basis. And I think this is consistent with the overall strategy.

I think what we did quite well was indeed to pass through the increase in interest rates that we saw in the country, but I would not say it's all-time high. I think when you look at spreads, we think that they are at a healthy level. And then in terms of earnings growth levers for next year, I think we've been growing especially the credit portfolio at a pretty good pace according to the plan. But when you look at the contribution for credit in the P&L, now in 2025, it is still quite small because whenever we grow the portfolio, we upfront the provisions.

Now as we go into 2026, I think probably credit is going to be of a larger contribution to the overall P&L, simply as a result of maturing the offering and having a much higher base to start with. And other than that, I think OpEx in general is something that we are paying special attention to, given the weaker macro environment. So we feel that there may be some levers in terms of OpEx management to boost earnings growth in 2026 as well.

Kaio Da Prato: Okay. That's clear. Mateus. Thanks, Lia.

Mateus Scherer: Thank you.

Lia Matos: Thanks.

Operator: Our next question comes from Guilherme Grespan with JPMorgan. You can open your microphone.

Guilherme Grespan: Hi. Hello, everyone. Thank you for the call. My question is going to be on the payments TPV and environment. I know this is basically a common question in every call, but we have been seeing a deceleration on part of the volumes and we see some players starting to come up more hitting the tape. To mention a few, we have a food going after, I think, a very important part of their base, which is restaurants. We have BTG launching, acquiring. We have smaller players such as CloudWalk also appear a little bit more. So my question to you is how you're sensing the competitive environment in your base?

If we're feeling is there any specific player being an aggressor here? And how do you see the pricing trends going forward? Because the rate that Kaio mentioned I think it's been postponed a little bit. The potential tailwind coming from the funding cost. So I wanted just to check if you see any environment for the spreads in the business to stay where they are or even increase in the next six months? Thank you.

Lia Matos: Thank you, Guilherme. Let me start maybe elaborating a little bit on market share and TPV dynamics. And then I'll pass it over to Mateus to talk a little bit about thoughts on pricing. So we still have to wait for the official ABEX numbers, right? But in our view, the third quarter should be roughly stable in terms of market share. In the second quarter, we did see a bigger market share loss as a result of our decision to reprice, as we've said before. This was sort of a one-time effect as we see it in the quarter. We expect this to stabilize somewhat in the third quarter.

And we reinstate that this decision was accretive overall for the business. That said, when we look ahead in terms of TPV growth, we continue to see gradual deceleration, and this is primarily a result of industry dynamics, meaning industries itself decelerating, but also a weaker macro environment which we expect to impact more the smaller within our base. Right? So I think that's the message regarding market share and TPV dynamics. But looking ahead, we remain confident in our ability to continue to evolve in our plan consistently. Like mentioned, more and more we expect credit to be a driver of profitability and growth looking forward.

And we're not with the sole purpose of pursuing market share at any cost. So profitability remains our priority. And the path forward is not it's it's not simply through pricing. Right? It should be through enhancing our value proposition to clients, evolving on our product offerings, scaling credits, evolving on our bundling strategy, and really making sure that we can consistently win clients within the segment overall. In line with our strategic priority.

Mateus Scherer: And if I may add and then talk also about pricing, I think you mentioned other new players or new entrants in the markets. I think we've seen these kinds of movements before. Players bringing new offerings or expanding their sales footprints. They tend to come in waves. At any given point in time, there's always someone trying something new in the market, and I think this is normal. That said, when you look at the actual economics behind these new players or new initiatives, it seems that overall players remain rational and I don't see anyone pursuing growth at any cost.

That said, when we talk about rate cuts, I think we've been vocal about this a couple of times, which is short term. For sure, there is a positive impact to us. Every 100 basis point cut in interest rates there's a positive benefit of around $200 million to $250 million in EBT. But in terms of overall spreads, I don't think it's reasonable to assume that we're going to keep the benefit from rates long term. I think it's a matter of timing, how long we can keep these prices until we pass it through. So I think the message here is yes, there's going to be a positive impact in 2026 if rates go down.

I don't think we should assume that we're gonna be able to keep those spreads longer term. I think overall, the level of spreads are healthy in our view.

Guilherme Grespan: That's clear. Thank you.

Lia Matos: Thank you, Guilherme.

Operator: Our next question comes from Renato Meloni with Autonomous Research. You can open your microphone.

Pedro Zinner: We can't hear you.

Operator: I believe we are having some technical issues with Renato. I'm gonna go with Eduardo Rosman with BTG. You can open your microphone.

Eduardo Rosman: Hi, everyone. My question, I think, would be to Pedro. Right? Where do you believe the company stands in the organizational redesign? Right? I think you've been highlighting over the last few quarters that the goal is to build, like, a stronger, unified brand and product offering. With a more kind of a team-oriented culture and trying to build, like, a truly kind of a customer-centric mindset. How do you feel about the progress so far on that front? Thanks.

Pedro Zinner: Hi, Rosman. Thank you for the question. I think this is I think we evolved a lot. I think as you mentioned, we made a big shift from a kind of a BU organization very much a silo-centric in some ways to a fully functional organization as we have as of today. Right? I think this is really helping us in terms of setting the strategy from a bundle perspective and how we actually put this bundle offering into our clients in the best way for them and for the company. So I think, in a nutshell, I think we are almost there. I think there's some points that we have to adjust over time.

But in a nutshell, I think we are in the right direction.

Eduardo Rosman: No. Great. Thanks a lot.

Operator: Our next question comes from Antonio Hwet with Bank of America. You can open your microphone.

Antonio Hwet: Hey. Thank you for your time. So I have two questions on my side. So first on credit, you mentioned that now your credit product is more mature, and it should start to represent more on your P&L. So if you look at your portfolio today, do you have a better estimate on what should be your cost of risk, your NPL, and your ideal coverage ratio now that you have a better sense of what your portfolio should be? Also, I have a second question on your revenue composition. If you look at your statement, you can see, like, revenues for transactions declining over 20% and revenues for the financial income growing more than 30%.

I understand here that there is an allocation that you can do between these two revenues in terms of prepayment and through MDR. But and the ideal answer here would be would look at both together. But if you were to split what would explain these moments? If you could go through them, it would be great. Thank you.

Mateus Scherer: Thanks for the question, Antonio. So let's just start with credit first. In terms of cost of risk, I think the expectation is that they should remain in the mid-teens going forward. I think we've mentioned this before, but part of the impact that we saw in second Q 2025 was retroactive, a movement that we did due to macro. And now it's normalizing in third Q 2025. That said, when we look ahead, we do expect cost of risk to stay above the levels we had in 2024 due to this macro-driven updates we did in our credit models. So that's the expectation on that end.

In terms of NPLs, I think the answer is actually dependent on the rate of growth for the portfolio. When we look at the expected credit losses that we had for the product, they should be in the very high singles or either very low double digits. When you look at the NPL metric, it now stands at around 5%. But the main reason for that is because we have still a lot of vintages that are not fully mature. Right? The portfolio is still growing. So as we mature, NPL over nineties, they should continue to grow probably towards that very high single-digit mark.

But in terms of targets, I think we're not really targeting a level of cost of risk or a level of NPL metric. I think what we're trying to maximize here is the NPV of the cohorts and especially the NPV of the client relationships. And I think a good point around that is that when you look at the interest rates that we charge for the product, we had an increase in the cost of risk in the past two quarters, but that increase was also followed by an increase in the interest rates that we're charging to our clients.

And as long as we see this opportunity to make these kinds of trade-offs, we're happy to do as long as it increases the NPV for our client relationships. So that's on the credit piece. The revenue side, I think you touched on the answer, which is these movements between transaction revenue and financial income is mostly a result of rebalancing between the two lines. Now that we have most of the volume from the company flowing through a single platform, we have a lot more flexibility in how we set up these bundles and how we allocate revenues internally. So I know you asked us to try to segregate these lines.

But when you look at the bundles that we're offering nowadays, there's no such thing. So the client usually pays a single fee, and embedded in that fee, we have the prepayment revenues and the transactional revenues. So, honestly, I think the best way to look at it is looking at both lines combined.

Antonio Hwet: Okay. Alright. Thank you.

Operator: Our next question comes from Marcelo Mizrahi with Bradesco BBI. You can open your microphone.

Marcelo Mizrahi: Hello, everyone. Thanks for the opportunity. I have a question regarding these changes on the stages of the credit. We saw in the last quarters, especially in this last one, the cure of the stage two, Stage two, higher amount. So can you guys please explain a little bit the concept of what's the kind of the credit that is classified at a stage two that the ones that come back to stage one. So why we were seeing such a lot of changes on the stages in the last two quarters? And probably, it's because of the type of the credit. So just to understand, how do you guys classify this credit?

You know that the we know that looking forward, the company is will grow a lot. So it's very important to understand. Thank you.

Mateus Scherer: Yeah. For sure. Thanks for the question, Marcelo. So around stage two and three, especially, I think when I look at stage three, it's much simpler. So most of the increase that we had in stage three amounts from the balances overdue over ninety days. So that's pretty much the maturation of the portfolio. When it comes to stage two, I think we have two different factors here. The first is actually the maturation of the portfolio as well. But we also have the entry of some credit restrictions affecting a portion of clients in the market.

So for example, if a merchant defaults somewhere else, even if that merchant is not defaulting in our portfolio, we move that client to stage two. And this can create a lot of volatility between these stages because, as you know, credit restrictions in Brazil are quite volatile. That's the main explanation.

Operator: Our next question comes from Daniel Vaz with Safra. You can open your microphone.

Daniel Vaz: Hi. Hi, guys. Hi, Pedro, Lia, and Mateus. Just to go back to Lia's comment on the credit side, I think it was something about increasing the pricing. Right? I just wanted to touch base on that and elaborate a bit more on what exactly this scenario refers to. I mean, should we interpret this repricing or upward pricing as a reflection of a somewhat riskier environment? And just to double click on that, how sensitive have the clients been to these adjustments? Right? So I think when we see, for example, on the retail end, just not a good comparison, but Nubank has been like testing a lot pricing upwards and we don't see too much elasticity on that.

So it will be good to hear and on the elasticity of your audio product and how sensitive clients have been to these adjustments. Thank you.

Mateus Scherer: Hey, Daniel. Mateus here. Thanks for the question. So I think that's actually a great point. I think credit is probably the product that we started the latest. So naturally, when we think around pricing credits, it started as a cost-plus model. We are now starting to test real sensitivity from our clients and test the right pricing point. So I think what we did in second Q and third Q, you look at slide eight from the earnings presentation, the average yield of the portfolio increased from 2.6% in the first Q to 2.9% in the third Q.

Even though we have a higher mix of credit cards in the portfolio, which have no interest rate for the parts that is on due. And I think that happens at the same time that the macro environment is becoming more complex, but it's not a response from the micro environment. I think the reason why we've been able to price upwards is mostly because we are maturing on the overall pricing process for the product. And I think, like you mentioned, other players were successful in terms of increasing pricing without too much sensitivity from the customers, I think we're figuring out the same thing on our side.

Daniel Vaz: If I may, have you just tested, like, way higher yields on the credit and to some group of clients to control group of clients. How have this test performed so far? You could if you could comment on that, it would be great as well.

Pedro Zinner: Yeah. I think we are in early beginnings on the testing side. We avoided doing, like, huge spikes in prices because of selection bias on the cohorts. So I think what we had here were gradual increases. But, again, I think it's early beginnings in terms of actually figuring out how much the clients are willing to pay in the product. Then I think there's more opportunity to come.

Daniel Vaz: Alright. Thank you. Thank you.

Operator: Our next question comes from Renato Meloni with Autonomous Research. You can open your microphone.

Renato Meloni: Hey, everyone. Can you guys hear me now?

Mateus Scherer: Yes. Thanks. Sorry. I had an issue with my mic earlier. I want to ask on the COGS reduction.

Renato Meloni: And you mentioned about the efficiency gains on logistics or transaction technology costs. So I wonder if you could expand a little bit on those gains. And I'm trying to understand here if this is a one-off or you can still keep doing this and maybe what's a normalized level that you could see. Thank you.

Mateus Scherer: Thanks for the question, Renato. So in terms of cost to serve, I think broadly speaking, when we look at the metric excluding the credit provisions, we're starting to see signs of operational leverage, particularly in customer service, where the adoption of AI has been driving a lot of efficiency gains. And logistics where scale is generating also meaningful cost benefits. In the quarter specifically, we also benefited from lower transactional costs in tech, and lower provisions for acquiring losses, which were partially offset by higher amortization of intangible as we are completing a lot of projects that were started in previous years.

Now in terms of what is one-off or recurring, I think the only portion of cost to serve that is not recurring is the level of provisions for acquiring losses because they were positively impacted by specific collection in the quarter. And when we look ahead, we do expect more amortization of technological projects to come because we are more and more completing a lot of projects that were started a couple of quarters ago. So this trend of elevated DNA should continue throughout the next year. I think the message in terms of cost of service overall, we are indeed seeing a lot of efficiency and operational leverage coming.

But I wouldn't take the third quarter levels as a new normal.

Renato Meloni: Understood. Thank you.

Operator: Our next question comes from Neha Agarwala with HSBC. You can open your microphone.

Neha Agarwala: Hi, team. Congratulations on the results, and thank you for taking my question. A quick one on asset quality. I think in your opening remarks, you mentioned there was one particular case regarding nonpayment or delay in payments. Could you elaborate on that, what happened? And my second question is on the volumes. I think, Lia, mentioned that we expect deceleration in volume growth in the coming quarters. The MSME segment, we are already at 11% year on year for this quarter. What's what do you mean by deceleration in the current? Or should we expect something like eight, nine, or it could go lower than that? Any color about it?

About the level in the next three, four, two, three quarters would be very helpful. Thank you so much.

Mateus Scherer: And, yeah, thanks for the question. I will start with the asset quality, and then Lia can add on the TPV side. So on the asset quality, I think it's quite simple. We have a specific issue with a client in the specialized desk, which delayed a couple of days, but it's already normalized. This was not a big case, so we're talking around 40 basis points NPL fifteen to ninety days. So if you do the math, it's around between 2 and 4 million reais. So a very small low one. But, again, I think the main message here is that it affected the NPL ninety days in the quarter, but it's already it has already been addressed.

Lia Matos: Good. Neha, just complementing on the question regarding TPV dynamics and what to say looking ahead. Right? It's hard to pinpoint a number, but the general trend in what we've been monitoring and what we've been saying is growth, which is slightly above the industry growth, the general trend of deceleration is mostly driven by the industry. Right? We are seeing this year more specific macro impact to our client base, but we expect that to soften throughout next year. But in general, I think what we can say is industry deceleration as we've been vocal about for several quarters already. And our growth, sustaining above the industry with a slight market share gain in the long run.

I think that's the overall trend that we can talk about. Pinpointing whether it's 11%, whether it's more or less, I think it's a little bit more difficult. Our perspectives on industry growth for next year is on, you know, high single digits, low double digits. But hard to pinpoint specific figures. We prefer to wait and see how the year will close out.

Operator: Our next question comes from Gustavo Schroden with SICI. You can open your microphone.

Gustavo Schroden: Hi. Thanks for taking my question. Sorry to insist about the interest rates topic, but I think that we've seen changes in regarding the expectations for interest rates next year. As pronounced than before expected. Right? So especially assuming the yesterday's minutes from the central bank. So my question here is that you are, I mean, I think that everybody here is modeling and then thinking on StoneCo assuming this low interest rates next year. But if you take into consideration that the average interest rates next year should be also you're gonna slightly above this year. So my question is, how sensitive is StoneCo's funding cost to this average interest rates for next year?

So again, we've seen you increasing prices. Lia mentioned about these higher interest rates for SMEs. And so my point here is that in this scenario of a high average interest rates, how should we think these funding costs and prices next year?

Pedro Zinner: Thanks for the question, Gustavo. So first of all, in terms of the actual environment, I don't think we have a strong view. So we set up the operation in a way that we respond to the changes that we have in interest rates. We don't spend a lot of time trying to forecast a scenario. But indeed, if you were to look at the scenario now, there is a small decline embedded in the yield curve. And our sensitivity to that decline is that for every 100 basis points reduction in interest rates, all else being equal, so meaning no price reductions, we have a positive impact in our pretax earnings of around $200 million to $250 million reais.

Now in terms of what's actually going to happen, I think our intention and our desire is to keep our time, so we tend to pass it through to clients but there is kind of a lag. Time interest rates decline. But like I said, a couple of answers ago, long term, when you look at the actual gross profit yield that we're having on the payment side, we think it's in a very healthy level. So I don't think it's reasonable to assume that we're going to keep it long term. As for the trend for financial expenses, again, I think it's very dependent on the level of interest rates. So we're gonna see the scenario adjust accordingly.

Gustavo Schroden: Great, Mateus. Just let me do a follow-up here because you said the sensitivity that you mentioned for each 100 basis point decrease it is for, I mean, end of period interest rates or average interest rates.

Pedro Zinner: It is for average. So whenever we have an average decline of 100 basis points, then we will have the impact for the full year.

Operator: Okay. Great. Thank you. Our next question comes from Tito Labarta with Goldman Sachs. You can open your microphone.

Tito Labarta: Hi. Good evening. Thank you for the call. Taking my question. My question is on your gross profit. I mean, you're still on track to deliver your guidance for the year, but it has been decelerating. Given some of the questions on slower TPV growth, rates are stable, you're mostly done repricing. Should we expect the gross profit to continue to decelerate a bit from here, at least all else equal just given the trends in the industry? Should we expect any positive seasonality in 4Q? And, you know, we did see a bit of a jump in your loan book this quarter.

Like, at what point do you think you could get to where the loan book is enough that it starts to boost that gross profit? Right? I think it's still you know, it's growing fast but from a low base. Right? So just to think about the evolution of gross profit where we are today and, you know, when that can maybe inflect and maybe grow faster from here? Thank you.

Pedro Zinner: Hey, Tito. Thanks for the question. So I think when you look at the gross profit yield usually, first Q is seasonally lower because we have more debit and fixed transactions in the mix, which tend to have a lower take rate on a payment side. But I think in general, when we look long term, I think the expectation is that payments spreads, they are at a healthy place. We don't see a lot of pressure, but also not a lot of upside in that part of the business. I think what's going to be the defining factor in 2026 on that end is actually the interest rates movements that we just discussed.

But other than that, I think the expectation is indeed that bank and credit will continue to grow at a faster pace than the TPV growth. And then over time, that should be accretive to gross profit yields. In terms of the credit that you asked, I think we are already starting to see the signs of a bigger contribution in the P&L. So if you look at the revenue jump versus the delta in provisions that we had between the second Q and the third Q, it was already significant. Of course, when you look at gross profit as a whole, it is still a very small factor.

But I think it has already started, and I think it gets more significant throughout 2026.

Tito Labarta: Thanks, Mateus. So that's helpful. I understand the negative seasonality on the gross profit yield, but should also have some positive seasonality on volumes. So net, I mean, not asking for guidance, but just a little bit how that could potentially impact gross profit in April.

Pedro Zinner: Yeah. I think when you look at gross profit, on a nominal basis, then the seasonality in the first Q is positive for sure. I think when you look at the yields, then you have a negative seasonality because of the mix. But overall, I think if you're thinking about nominal terms, then the seasonality for first Q is positive.

Tito Labarta: Okay. Perfect. That's very clear. Thanks, Mateus.

Operator: Our next question comes from Pedro LeDuc with Itau.

Pedro LeDuc: Guys. Good evening, everybody. Congrats on the results. Two quick questions. I know you guys had lifted the 2027 guidance once you the links deal. I know it's not in the presentation here. But wondering if you plan on reinstating it at some point, maybe with the four Ks release, if it's '27, maybe it's something another period of time. It seems like you're tracking for this year extremely well. And for most of the 2027 figures as well. Just trying to get a sense if you guys plan on restating it in the same time period, same infos.

Then the second question, kind of tied up to this one as well, in that previous '27 slide, talked about a 20% effect tax rate, you're running at 15%. In the meanwhile, we're having changes in taxation for several of the Brazilian entities. Just trying to get a sense, from you how we can think about this income tax rate maybe next year and then thinking of whenever you guys plan on releasing a longer-term guidance. Thank you.

Pedro Zinner: Hi, Pedro. Pedro here. I'll address the first part of the question. Then I'll turn it over to Mateus. It's true that TPV performance has been more challenging than we initially anticipated back in 2023. And I think as Lia mentioned, partly, I think it's due to the macro environment, which is worse than we initially expected. But we want to see how the year closes out first before we can talk more concretely about 2027 guidance revision. Right? So in fact, we plan to adjust the gross profit indicator to reflect only continued operations. And we may take the opportunity for a more comprehensive review of 2027 guidance when we do that.

But that said, I think it's important to note that we look at the long-term plan as a whole, execution remains broadly on track. With the credit book, deposit base, and the overall profitability, I think we're on the right track since we established back in 2023. I'll hand it over to Mateus.

Mateus Scherer: Thank you, Pedro. So on the effective tax rate, I think two messages here. So, yes, we are indeed operating below the 20% mark that we provided at the long-term guidance. And if you look at the fourth Q, usually, fourth Q tends to be lower than third Q because of seasonality, and also, we have more lead domain in the last quarter. But longer term, if we're thinking about the effective tax rate for 2026 and onwards, I think it is still too early to provide a precise view as there are too many moving pieces. I think you have also seen the number of proposed changes that are being discussed through provisional measures and draft views.

But that said, when we take everything into account, we continue to believe that the effective tax rate should land in mid to high teens over time. More specific than that, I think we still need more visibility on how the proposed changes will ultimately unfold. But that's the perspective we have at this moment.

Pedro LeDuc: Okay. So mid-high teens, without seeing if there's any changes, right?

Mateus Scherer: Yes, I think you need to have mid to high teens broadly, then whether it's going to be mid or high, I think it's dependent on the changes.

Pedro LeDuc: That's great. Thank you so much.

Mateus Scherer: Thank you.

Operator: The question and answer session is now closed. We would like to hand the floor back to Pedro Zinner for closing remarks.

Pedro Zinner: Well, thank you all for joining the call and for the questions made. And I'm looking forward with the team to see you in our full-year end results in March next year. Okay? Thank you.

Operator: StoneCo's conference call is now closed. Thank you for your participation and wish you a good evening.

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