StoneCo Ltd.

Good evening, everyone. Thank you for standing by. Welcome to StoneCo's second quarter 2025 earnings conference call. By now, everyone should have access to our earnings release. The company also posted a presentation to go along with its call. All material can be found online at investors.stone.co. Before we begin the call, I advise you to review the disclaimer included in the press release and presentation, which outlines important information about forward-looking statements and non-IFRS financial measures. In addition, many of the risks regarding the business are disclosed in the company's Form 20-F, filed with the Securities and Exchange Commission, which is available at www.sec.gov. In hindsight, I would like to highlight that the company is restricting the number of questions to two per analyst. Joining the call today is Stone's CEO, Pedro Zinner, the CFO and IRO, Matheus Scherer, the Strategy and Marketing Officer, Lia Matos, and the Head of IR, Roberta Noronha. I would now like to turn the conference over to your host, Pedro Zinner. Please proceed.

Thank you operator and good evening everyone. To begin, before diving into our second quarter performance, I want to briefly discuss our recently announced software diversities and how this strategic move aligns with our future direction. As many of you may recall from our investor day in 2023, We outline our total addressable market across payments, banking, credit and software. Roughly, a 100 billion reais revenue opportunity. Our core focus remains on serving Brazil's more than 14 million micro, small and medium-sized business by providing solutions that meet their evolving needs and support their daily operations. We are now pursuing this mission with a much more focused approach and greater discipline in capital allocation. By sharpening our focus on financial services, we continue to target over 90% of that substantial term. It's important to note that our current share in this combined market is still very small, which indicates significant room for growth ahead. While software will remain part of our broader ecosystem, we now view it as more of a value-added layer, one with low capital requirements, rather than a core offering. This strategic shift allows us to concentrate our efforts and resources on the areas of greatest long-term value and impact for our MSMB clients and ultimately for our shareholders. We believe this sharper focus positions us well to capture future growth opportunities in our core market. Now, moving to slide 4, Let me provide more detail on the divestments. The first and most significant transaction is the sale of links to TOTUS. As you know, we agreed to sell this group of software businesses for an enterprise value of 3.05 billion reais. In addition, we will receive the net cash position of these assets, currently estimated at 360 million reais, plus any cash generated between signing and closing of the deal. Notably, the 3.8 billion reais in goodwill from our original Lynx acquisition in 2021 will remain with us, and we expect to amortize that goodwill over the next 8 years, providing additional value beyond the sale price. Payment for the linked assets will be made in cash at closing, which is pending regulatory approvals, including from CAGI, the Brazilian antitrust authority. There are no earn-outs associated with this deal. In a separate transaction, we have also sold SimplisVect, a veterinary ERP software company, to Petlove, for an enterprise value of 140 million reais plus the net cash position of 15 million reais, totally 155 million reais. This deal was approved by CADE and closed in July with a payment in cash, a portion already paid and the remainder to be paid over three instalments. There are no earnouts on this deal either. Regarding our remaining software assets, our approach is straightforward. We are evaluating our assets individually. The goal is to determine whether each one should be fully integrated into our core FinTech ecosystem, to enhance existing solutions and product differentiation, or whether it's better to let it operate independently, while we assess its long-term strategic fit. We will allocate the proceeds from these divestitures in line with our capital allocation framework we have outlined. Essentially, if we do not identify immediate value accretive growth opportunities, we intend to return this excess capital to our shareholders. We truly believe these transactions represent a significant strategic step and will be accretive to our company. Consider that the total value unlocked from these sales, combining the transaction proceeds and the goodwill retention benefit, is over R$ 4 billion, roughly 25% of our current market capitalization. Yet, For the first half of 2025, these software assets accounted for only about 8% of our revenues and 5% of our consolidated bottom line. By divesting them, we have unlocked substantial capital and, most importantly, refocused our energy on our highest growth, most profitable segments. we are confident that this sharper focus will allow us to drive greater shareholder value in the years to come. Before I hand over to Lia to discuss the quarterly results, let me first walk you through some important updates to our reporting and 2025 guidance in slide 6. Following the sale of our software assets, We are now reporting discontinued operations as a single line item above consolidated net income. As a result, we are shifting our forward-looking metrics to better reflect the core of our ongoing business. Starting with gross profit, our guidance now reflects only continuing operations. We have also updated our assumptions to incorporate year-to-date performance and the impact of share with purchases executed since our original guidance in February. Our updated gross profit guidance now implies over 14.5% year-over-year growth, surpassing R$ 6.3 billion. Turning to EPS. we continue to guide on a consolidated basis, including discontinued operations. Here, the update is more substantial. We have increased our expected EPS growth from 18% to 32% year-over-year, a 14 percentage point upgrade. This reflects both the impact of share buybacks and stronger than anticipated net income performance so far this year. To put it simply, even after incorporating a lower share count, we are still revising our implied adjusted net income guidance upward, from R$ 2.4 billion to R$ 2.6 billion, based on the prospects we've seen for the business. These updates also reflect our strong confidence in the company and in our team's ability to execute. In that context, we remain fully committed to returning the R$ 3 billion in excess capital generated in 2024 back to shareholders. I am pleased to report that by the end of June, we had already returned 41% of that amount through share buybacks. about R$ 2.6 billion over the last 12 months. With that, I'll now turn the call over to Lia for a deeper dive into our quarterly numbers. Lia, please go ahead.

Thank you, Pedro, and good evening, everyone. Diving into our second quarter 25 results, we're very pleased to see that despite the challenging macroeconomic scenario with higher interest rates and signs of economic deceleration, we have successfully executed on our strategy, evolving the multiple ways in which we help our clients while delivering solid results. Moving to slide 7, let's take a look at our bottom line results and ROEs, which are reported on a consolidated basis, including both continuing and discontinued operations. Our adjusted net income accelerated to a 27% year-over-year increase, reaching R$ 631 million. The majority of this growth came from our financial services operation, which saw an impressive 21% growth over the same period. This strong performance is a direct result of some key factors, notably our successful pricing adjustments in a higher interest rate environment, the growing use of deposits as a low-cost funding source for our operation, and the lower effective tax rates. Our adjusted basic EPS reached 2.33 reais per share, representing a 45% year-over-year increase. Beyond the solid net income performance, the increase was further strengthened by our share repurchase program, in which we bought back almost 42 million shares over the last 12 months. Finally, our OEs continued to expand. Our financial services segment ROE achieved 30% and our consolidated ROE reached 22%. Both of these figures grew by 3 percentage points sequentially and showed even more significant growth on a year-over-year basis. Now let's dive deeper into our top-line performance, focusing on our continued operations. Revenues from continuing operations grew 20% year-over-year to R$ 3.5 billion, giving continued, solid execution in our core business. This increase was primarily driven by our repricing initiatives, even while negatively impacted by a reduction in floating revenues, resulting from the use of client deposits as a source of funding. To clarify, as we transform these deposits into time deposits to fund our operations, we stop recognizing floating revenue. As we explained previously, this shift is more than compensated by the significant reduction in our financial expenses, given the much lower cost of funding related to deposits compared to other funding alternatives. Adjusted gross profit from continuing operations reached R$ 1.6 billion this quarter, a year-over-year growth of 14%, broadly in line with guidance-implied growth. It's useful to compare our gross profit growth with TPV growth, because this highlights the multiple ways in which we monetize our relationship with clients in an efficient way. In the second quarter, gross profit grew ahead of TPV by two percentage points, mainly driven by a continued pricing discipline, more client engagement, and a more efficient funding strategy. In slide 9, we will discuss our payments operation for MSNBs. Our payments active client base grew 17% year-over-year to reach 4.5 million clients. Out of those, 38% are considered as heavy users, meaning they utilize more than three of our different solutions. Our MSNB TPV grew 12% year-over-year in the quarter to R$122 billion. This growth results from two key trends. First, a 59% growth in MSNB PIX QR code volumes, which continues to gain share over traditional debit card transactions. And second, a 6.4% year-over-year growth in card TPV. Two main factors drove the TPV growth deceleration this quarter. First, this was an expected reflection of our repricing initiatives. Second, we saw a reduction in our clients' same-store sales, which were impacted by a tougher macroeconomic environment and a quarter with more holidays. As we look ahead, we will continue to keep a close eye on the macroeconomic environment. We anticipate that the second half of the year will continue to face a tougher environment, but MS and BTPV growth should stabilize at low double digits in the period. In slide 10, let's move to our banking performance. We're very pleased with the continued growth in our client base and their increased engagement with our banking solutions, which is ultimately reflected by a larger balance of deposits. Our active banking client base grew 23% year-over-year, reaching 3.3 million clients. Client deposits also grew significantly, up 36% year-over-year, or 7% quarter-over-quarter. We're very encouraged by this growth, and it's almost three times higher than our MS and BTPV growth on a sequential basis. meaning that our clients are shifting from using mainly our payment solution to relying on Stone as their end-to-end provider of financial services and workflow tools. Regarding deposits, as we mentioned last quarter, we have been strategically shifting our deposit mix towards a higher concentration of time deposits. This includes both the investment solutions we offer our clients, which have been performing well, as well as our cash sweep strategy, a valuable funding source for our own operations. The most significant shift happened late in the first quarter, which means we saw more complete impact to our P&L in the second quarter. Currently, 83% of our total deposits are already considered as time deposits. Now let's turn to slide 11 where we'll give some color on our credit product evolution. The main highlight here is that we continue to grow consistently while keeping our credit quality indicators healthy. Our credit portfolio grew 25% sequentially to 1.8 billion reais. Of this total, R$ 1.6 billion refers to our merchant solutions, comprised mainly of working capital to MSNBs, where disbursements increased significantly by 41% on a quarter-over-quarter basis. The remaining R$ 192 million refers to our credit card portfolio, which grew 19% sequentially. We monitor credit quality very closely and continue to see steady, healthy NPL levels. Our 15 to 90-day NPL has been relatively stable, decreasing 10 basis points sequentially, while our over 90-day NPL increased by 10 basis points. This is a smaller increase than in the past, reflecting our accelerated disbursements this quarter. Despite the healthy NPL levels, we saw a significant increase in our provisions for expected losses this quarter, from 34 million in the first quarter to 82 million in the second quarter. This increase was driven by three main factors. First, by the continued expansion of our credit portfolio, supported by a very strong sequential increase in working capital disbursements. Second, an increased mix towards limit-based offerings such as overdraft and credit cards. Most importantly, despite our stable asset quality as evidenced by our consistent NPL performance, we made a deliberate decision to increase coverage levels in light of a weaker macro outlook. As a result, our coverage ratio increased from 256% in the first quarter to 280% in the second quarter. This higher level of provisions also pushed our cost of risk metric, which is based on the provision for the current quarter, to a level of 20%, up from 10% in the first quarter. However, if we were to exclude our decision to take a more conservative approach, given the weaker macro environment, our cost of risk would have been 13.5% in the period. All in all, I'm very pleased with our quarterly performance, even amid a more challenging macro environment. It highlights the strength of our execution and our continued commitment to our priorities and the guidance we've laid out to the market. We continue to work hard to evolve our business towards fulfilling our mission, to become the preferred partner when our clients think of financial services and tools that help them better manage their business and grow. While doing this, we maintain a steadfast commitment to generating value to our shareholders. Now, I want to pass it over to Mateus to discuss our more detailed financial performance. Mateus?

Thank you, Lia, and good evening, everyone. Before we dive into the numbers, I'd like to highlight a few important changes we've made to our financial reporting. As Pedro mentioned, our P&L now focuses exclusively on continuing operations, with discontinued operations presented separately as a single line item above consolidated net income. To maintain comparability, we've adjusted past figures to align with this new approach. On the balance sheet, discontinued operations are now represented by single line items within current assets and current liabilities. while prior periods remain as originally reported. Our cash flow statement remains on a consolidated basis, meaning our adjusted net cash metric still reflects cash generated by both continuing and discontinued operations. As a quick note, all updated figures for 24 and 25 reflecting these changes are available in the spreadsheet posted on our website. Now, let's discuss our adjusted consolidated P&L for continuing operations. Cost of services increased 22% year-over-year, or 40 basis points as a percentage of revenues, due to higher provisions for expected credit losses, as Lia highlighted earlier. This was partially offset by lower payments and banking provisions as a percentage of revenue, and operating leverage in key areas of our operation. especially in technology and customer support. Administrative expenses increase at 12% 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. Setting expenses increase at 17% year-over-year, but decrease 40 basis points relative to revenues, reflecting stronger operating leverage in marketing spend. Financial expenses increased 29% year-over-year, representing a 210 basis points increase as a percentage of revenues. This was largely due to a higher average CDI rate compared to the lower rate seen in the second quarter of last year. Importantly, this impact was partially mitigated by increased use of client deposits as a lower-cost funding source. Other expenses increased 12% year-over-year, but declined 20 basis points relative to revenues, benefiting from a one-time disposal of PP&E, partially offset by higher share-based compensation, mostly driven by higher share price in the period. Our effective tax rate was 15% in the quarter, down from 22.5% in 2-24. the year-over-year decrease was driven primarily by higher benefits from LidoBank. Moving to slide 13, our adjusted net cash position ended the quarter at R$ 3.7 billion, a sequential decrease of just R$ 118 million, despite executing share repurchases totaling almost R$ 400 million during the quarter. Excluding these buybacks and the present value adjustments to accounts receivable from card issuers, which flows through other comprehensive income, adjusted net cash would have increased by nearly 400 million reais. Before we move on to questions, I'd like to thank you all for your time and continued support. We keep fully committed to our strategy and our focus remains on discipline execution and creating sustainable, long-term value for both our clients and shareholders. With that said, we are now ready to open the call up to questions.

We are now going to start the question and answer session. If you wish to ask a question, please click on raise hand. If your question has already been answered, you can leave the queue by clicking on put hand down. Our first question comes from Tito Labarta with Goldman Sachs.

Hi, good evening, everyone. Thank you for the call. Thank you for my questions. Congratulations on the strong results. Two questions, if I can. Just first, how do you think, I know you mentioned you'll revise the 2027 guidance after LINCS is done, but just thinking operationally and in payments, given the slower growth environment that we're seeing for TPV, how comfortable do you feel about being able to deliver that 2027 guidance? Or maybe more specifically, how are you thinking about TPV growth, both in cards and picks? And if that's slower than expected, can you still deliver on the guidance? And then my second question, just on the Lynx sale, can you give an update just on what should we expect for timing And is the plan to return all of the $3 billion in capital to investors, or do you have any color on what the plan is for the cash that you'll get from the sale of links? Thank you.

Hi, Tito. Lina here. Thank you for the question. I'm going to take the question regarding guidance for 2027 and then pass it over to Mateus to take the second question. So I think regarding 2027 guidance and your specific question on TPV, we're monitoring this TPV dynamics closely given what we're seeing in the macro environments this year and also sort of the short-term impact in TPV that we had from repricings in the first quarter. When we laid out our 14% TPV CAGR throughout 2027, the assumption really was a combination of a modest market share gain and an industry growth in the low teens. So while we remain really confident in our ability to continue to win clients and gain share within the segment in the long run, overall market growth has been softer than expected. And that does introduce some risk to our 2027 TPV outlook. But that said, regarding us looking at only from the perspective of TPV, it's important to emphasize, really, that TPV growth and share gains is not a sole focus. Rather, it really should be a consequence of our ability to evolve our business and the value proposition that we bring to clients in the long run. NTPV is one dimension of a bigger plan in which we're performing really well. So we continue to advance in extending our offers beyond payments to become a complete financial provider for our clients. which is highlighted by the evolution that we see this quarter in credit, in banking, and ultimately in profitability. So on the profitability side, when we think about the combination of multiple monetization drivers, our cost discipline, and capital allocation, including share buybacks, we're driving stronger than expected results, and we're really confident in delivering those long-term targets. So I think the message on CPV is we need to monitor, but from the overall plan, we're really confident with the long-term guidance.

Yeah. And regarding the second question around excess capital position and use of proceeds from the deal, I think maybe it's worthwhile to give a broader review on the topic. So as you may remember, we ended last year with a little over $3 billion in excess capital. In the first half of this year, we executed about 1.2 billion reais in buybacks, and when we compute the excess capital position of the second Q25, we actually ended the quarter with 2.4 billion reais in excess capital, excluding the assets available for sale. So, we generated a little over 600 million reais in excess capital in the first half of this year. Again, if we were to include the net asset value from discontinued operations this quarter, we would be sitting at close to R$6 billion in excess capital as of today. Of course, when we look ahead, there is still a long road until the deal actually closes. And throughout this period, we're going to be both generating additional excess capital, but also executing on the buybacks that we have approved. So, in terms of actual use of proceeds and clarity on timing, we're basically going to provide that upon the closing of the transaction. But like Pedro mentioned in the presentation, in the absence of new opportunities available, the commitment and the idea is to return the capital back to shareholders.

Okay, no, that's great. Thanks, Mateos and Leah. And, Leah, just to clarify your comment, so there could be some downside risk on that TPV, but on the other metrics, which perhaps are more important, you still feel comfortable on that outlook, even if TPV goes slower, correct?

Perfect. That's correct, Tito.

Okay, great. Thanks a lot, Leah. Thanks, Mateos.

Our next question comes from Gustavo Schroding with CICI.

Hi, good evening everybody. Thanks for the call and take my question and congrats on the conclusion of the deal. Indeed, we could see that the continued operations generate more value than before. So, my question is, I'm trying to understand how sustainable is this financial income growth, because we've seen that so far the strategy to diversify and to focus in on banking business, it is paying off and it is offsetting this weaker transaction activities. So my question is, is it sustainable to continue to see this financial income offsetting and sustaining this higher level of gross profit generation? And my second question is, you showed that the ROE would be around 30% considering the continued operation. So, do you think that this is the level that we should see the company delivering of ROE? So, do you think that the 30% is... a good number for us. I know that it's not an official guidance, but just an indication of what would be the sustainable way in the coming years. Thank you.

Thanks for the questions, Gustavo. So, maybe I'll start, and then Lía or Pedro may add. So, the first question regarding financial income, I think towards the end of her question, you actually got the answer, which is We're looking more and more towards gross profit generation rather than the individual line items on a standalone basis. And when we look at the gross profit growth with our updated guidance, we're basically guiding for a growth of 14.5% for the year. I think Lia mentioned in the presentation that when we look at TPV MSNB, we're actually seeing growth at about low double digits. So this gap between the loadable digits of TPV growth and the 14.5% growth for gross profits is the result of the continued engagement with the other products that we have and also the price discipline that we've been showing throughout the year. So I think the message here is that we're comfortable with that level of growth. Of course, when you look at the individual lines, it's going to become harder and harder to forecast because we have a lot of mixed movements with the usage of deposits and so on and so forth. And in your second point about the ROE, indeed, when we look at the financial services platform, we are already delivering the 30% ROEs. The only caveat here is that these 30% ROEs is including the excess capital position that we still have. So in a way, we have kind of a drag in these numbers. So what I would say looking ahead is that probably the 30% number is on the lower bound.

Perfect, Matheus. Very clear. Thank you. Thank you.

Our next question comes from Mario Pieri with Bank of America.

Hi, guys. Congrats on the results. Thanks for taking my question. Let me ask you two questions as well then. What do you expect this links transaction to be closed, and why are you already showing the figures without links? You know, like, I understand that you want to make it clear, but, you know, this might be a transaction that only closes next year. So just wanted to understand what do you think about timing and why to do it now. And the second question is related to the price hikes, right? You did your price hikes at the beginning of the year. Are you still raising prices or are you done? Is the full benefit of the price hikes already reflected on take rates? And do you think that these price hikes led to a slowdown in volumes? Because again, right, you show card volumes growing only 6% year-on-year. This is just slightly above inflation. So I'm thinking maybe you were too aggressive in your price hikes and you lost some market share. How do you think about that? Thank you.

Hey Mario, thanks for the questions. So I'll take the first one and then pass it over to Lia to talk about pricing versus TPV as well. In regards first to the timing of the transaction, We are very confident in the outcome of the process, but as you know, the timing of the approval is hard to predict, because in the end of the day, it's largely outside of our control. What we know is that, according to the legislation, we have a maximum period of 330 days for antitrust approval. And we believe that given the high complementarity of the operations between links and totals, this approval could be concluded faster. But again, giving a specific timeline is not something that we can do at this stage. But then connecting to the second piece of the question, which is why we are reporting continued versus discontinued operation, we have no choice of doing otherwise. So according to IFRS, whenever we make the decision to sell the assets and there is a reasonable expectation to be done in at least 12 months, we need to reclassify those assets as held for sale. So we're basically following the rule here. Yep.

Yep. So, Mario, regarding your question around prices and if there are additional price hikes, so let me talk about pricing and CPV dynamics in general. Regarding pricing, the biggest... repricing waves were in fact in the first quarter, I would say that in terms of the interest rate hikes that we saw, all the repricing has been done to adjust for that. Beyond those repricings that were done in the first quarter, what will happen is normal course of business, right? We always have a dynamic repricing strategy, so when we price a client, according to a specific TPV or a specific offering commitment. There may be repricings in the future depending on how that client behaves, but that's incremental and that's always been part of the day-to-day of the business. But maybe taking a broader look at TPV dynamics, the repricings sort of have a one-time kind of short-term impact on TPV growth. We talked about this in the first quarter. So as much as we understand these repricing ways as having been very successful, even seeing, like, churn levels below our expectations. Some level of churn is always expected, right, given the dimension of these repricing waves that happen in the first quarter. And really those repricing waves were, just to be clear, extremely related to the interest rate increase. So we don't think that that was excessive. It was actually what we had to do in terms of a disciplined process. in terms of financial discipline. But overall TPV dynamics I think was also very impacted by the macro. And when we look at granular data from TPV at the client level and when we look at same-store sales across different segments, What we see is that market growth this year has been very uneven. So when we look at different client tiers, right, larger clients have generally performed better, while SMBs and especially micro-merchants have faced more challenges when we look at a same-store sales TPV growth, which is expected given the higher interest rates. Typically, they will affect smaller clients and less structured businesses first. So the TPP dynamics relates to both the macro and the one-time short-term impact from the repricings. And as far as interest rates remain at the levels that they are, we don't expect further big repricing waves this year.

That's clear. Cleo, just one thing. In your remarks, you mentioned that you expect MSNB volumes or TPV to stabilize at low double digits for the remainder of the year. Can you discuss what was the evolution of TPV growth throughout the quarter? Because my understanding, talking to other players and to the banks in Brazil, Everybody is expecting a weaker economy in the second half of the year. What are you seeing that makes you confident that you can maintain this low double-digit growth?

Yeah, that's a good point, Mário. I think there's some room when we talk about double-digit growth, because growth in this queue was actually 12%, right? So you have some room for a couple percentage points there. But answering your question, we did indeed see the growth slowing down throughout the quarter. But when we look at more recent data, it's consistent with this double-digit growth. So that's why we are confident on these dynamics. The other thing that I would point out is that for Q and Q3 last years, we have somewhat easier comps as well. So that helps with the dynamics.

Perfect, guys. Thank you very much.

Thank you, Mário. Our next question comes from Daniel Vaz with SAFE.

Hi, everyone. Good evening, and congrats on the results. I also want to touch base on the TPP growth that has been slowing down, and we already discussed that in the call. But on the positive side, your gross profit remains resilient and supported by high customer engagement or penetration of customers. the other financial services right so you revise your net income upwards by approximately 200 million reais so I wanted to touch base and understand to what extent this is driven only by stronger than expected top line and in my numbers here you can see a good cash generation so the other financial income is growing well as well so you're doing buybacks while generating cash so Is it only top line driven or is there any other meaningful contribution for trading expenses or cost to serve or any tax rate thing that we should know about? Thank you.

Thanks for the question, Daniel. So when we compare the implied growth for adjusted net income versus the growth for gross profit, you can see that adjusted net income implied in the guidance is growing at 18%, and gross profit is actually growing 14.5%. So the reason behind those two lines is basically two main dynamics. The first one is indeed related to effective tax rates. So in the beginning of the year, we guided around 20% as the benchmark for the year. But given the strong performance in the first half and our updated expectations, we now believe that we can land below that mark, with second half tracking closer to the second Q levels. So that's one point. And the second point, in the beginning of the year, we also anticipated selling expenses to grow faster than gross profits. But what we're actually seeing now is a healthier trend on that front. So those two lines are the main reason why adjusted net income growth outpaces the growth in gross profits. Other than that, I think you touched upon the two main drivers. On the gross profit side, it's around pricing plus engagement with new products and as well the buyback execution, for sure.

Thank you, Matheus. If I could just follow up on your selling expenses commentary. What do you attribute that to? Is it You're seeing less of competition there or you're having to do less of marketing expenses. Is there any, for example, Big Brother thing that you used to do a lot, very harsh in the first half of the year? Can you elaborate more on the selling part?

Yeah, so, Danielle, just quickly on selling expenses, operational leverage, this quarter it had to do with operational leverage and marketing expenses. And we do expect, you know, less of an impact, right, in those marketing expenses as we, you know, have concluded Big Brother Brazil and, you know, We still have to, you know, plan ahead how that's going to go, but we do expect this leverage to continue. I think in general, because selling expenses is something that has received a lot of attention over the past quarters and we feel it's somewhat misunderstood, maybe it's worth highlighting a couple overlooked aspects on selling expense dynamics. First, I think it's important to highlight that our investments in sales, particularly in expanding our sales force is really focused on acquiring new clients and generating incremental TPV, right? That sounds kind of obvious, but it's important to remember that each new cohort brings in new TPV. That compounds over time. Naturally, as the install base grows, the rate of TPV growth slows, but the absolute value generated, so the absolute incremental TPV, continues to increase as our sales force matures and scales. That's a mathematical reality. In other words, lower TPV growth does not mean that sales investments isn't working. We're actually building a larger base that monetizes over time and which incrementally dilutes those selling expenses. Second, let's remember that we don't invest in selling solely to grow TPV. We invest in selling to grow revenues and ultimately profitability. So to the point on your initial question and what Mateus just mentioned, TPV starts a monetization cycle, which extends beyond payments to banking and credit. This dynamics is also why selling expenses as a percentage of revenue is expected to trend downwards in the long term. And we're starting to see this effect this quarter. So it's important to highlight that we remain disciplined in growing our sales force. And we do believe there's room for efficiency gains in a few dimensions, such as marketing, as I just mentioned, and eventually efficiency gains in some specific channels. But the message that we want to stick with is that we're not optimizing for TPV growth alone. We're optimizing for profitable growth and long-term value creation.

Thanks again for the good answer, Ashley.

Thank you, Danielle.

Our next question comes from Neha Agarwala with HSBC.

Hi, congratulations on the results. Just quickly on the lending side of the business, we saw good growth this quarter. What should we expect for the remainder of the year, given that you're a bit more cautious on the macro side? Should we expect strong growth? Which lines would you be focusing more on? And then if you could also talk about the cost of risk, you increase it to around 20% level this quarter. Should we expect that going forward as the run rate for the credit business? Thank you so much.

Anyhow, thanks for the questions. So I'll probably start with cost of risk and then we can talk about growth as well. So in regards to cost of risk, I think we've mentioned this in the presentation as well. There were basically three drivers when we look at the quarter. The first two drivers will continue, which are the growth of the disbursements and also more and more the growth of other products, especially the credit cards. But if we only account for these elements, the cost of risk would actually be around 13.5%. The remainder has to do with a cautious approach towards the macro environment. And, of course, that tends to be one time. So when we look ahead, I think we should look closer to the 13.5% or maybe mid-teens. But we're not expecting the 20% levels. And then the second question around the growth of the portfolio is, I think this is a message that we like to always emphasize. The growth of the credit book is not linear at all in our trajectory because we continuously do a lot of tests, test and learning with our approach. And whenever we feel confident about those tests, then we tend to scale disbursements in a non-linear fashion. So, indeed, when we look at the second queue, the disbursements grew about 41% in the working capital loans. But if we were to look at the first queue, 25, the disbursements were actually flattish versus the first quarter of 24. So, I wouldn't read too much in the growth of these burst bands that we had in the second part here. This is not a view of the macroenvironment or nothing of the sort. What we think about growth is that the penetration of working capital loans in the base is still low, so there is a lot of space to grow, but we're basically following the trajectory that we originally planned, nothing new in that regard.

Thank you so much, Matthias. Can you also talk a bit about the features, how things are going, what is the response you're getting from the merchants? How has the payback been on the loads that you've given out so far? Any color on how the progress has been so far would be very helpful.

Yeah, Leah here. So on your question regarding the overall credit strategy evolution, I think we continue to focus, like we said last quarter, on maybe I would separate in two big dimensions. So when we talk about working capital solutions, which is the majority of the portfolio, as much as we continue to invest in digital distribution, We're sort of learning and scaling our ability to scale on the larger clients through specialist distribution. I think that's a focus for us. On the shorter duration types of products, it's relatively less mature, right? We're still learning and growing more cautiously, I would say. I think one thing that the team is very focused on is on the credit building itself. So how do we enable clients that don't necessarily have an initial offering to build sort of this credit limit over time? And hopefully, longer term, what we expect this to enable us to achieve is some sort of credit offer to the majority of the clients in the base, naturally within our risk appetite. But this credit building process will enable us to expand the ways in which we scale. So I think the message is really consistent, nothing very different. And, yeah, we're happy with the evolution.

Thank you so much, Leah, for that.

Thank you, Miha. Our next question comes from Marcelo Mizari with Bradesco BBI.

Hello, everyone. Thank you for the opportunity. Congratulations for the results. Regarding about the credit again, so I understand the strategy and the message, but really the amount of money that was disbursed in this quarter was the highest since you guys started this strategy. So I just want you to understand more. So even this view that to be more conservative in terms of provision and cost of risk, Why the volumes were so higher than the last quarters? So that's any different product or any different type of clients that you guys are starting to develop and to give credit. So just please give me some idea here to understand the strategy looking forward.

For sure, Misa. Mateus here. So, again, there wasn't any specific event driving the 620 million in disbursements this quarter. So, no new features or no new products. I think the message here is maybe to look at a longer window. So, the credit operation continues to grow, but it's not linear at all. If we were to look at the past quarters, not only the first few, but also last year, There are quarters in which this Brisbane tends to become flat because we're either testing new offerings or the results from a given hypothesis are not yet validated. but then that tends to follow a bigger growth in the subsequent quarters. I think that's pretty much what happens. And probably the best way to look at it is actually the disbursements from the first Q25 were lower. I don't think the second Q were bigger. That's probably the best way to think about it. And then the question on how that connects with the view of increasing provision amidst the weaker or the more uncertain macroenvironment, I think here it's more of a cautious decision. So when we look at the actual portfolio performance, we're not seeing material changes. You can see that the delinquency levels remain stable. NPL 15 to 90 days actually decreasing a little bit. NPL over 90 days flattish. But we did observe some softening in our client's same-star sales, which we mentioned affected the TPV growth. So in light of that signal, we decided to strengthen the provision to ensure that we are appropriately covered, even if the broader environment remains under pressure. And the second thing that I think is also worth highlighting here, what we've been doing since the beginning of the year is also to increase the prices of the new cohorts that we are disbursing. So if you were to look at the average rate for the portfolio towards the end of last year, it was closer to 3% per month. Now it's trending actually closer to 4% per month. So even despite the higher cost of risk, when we look at the actual profitability of the new cohorts, they're still tracking really well. And that's what gives us comfort to continue to scale and continue to improve the product as well. So those are the main thinking about here.

We're looking forward. Are there any guidance to give us to think about cost of risk? So it's more the level is 20% in the next quarters or lower than that?

No, I think the 20% we think is a one-off. So probably the best way to think about cost of risk moving forward is on the mid-teens, so closer to the 13.5% to 15% range, which, again, embeds the growth of the portfolio, but we shouldn't continue to add layers of protection for the macro environment as we move ahead.

Okay. Thank you, guys. Thank you.

Our next question comes from Renato Meloni with Autonomous Research.

Hi, everyone. Congrats on the results and thank you for taking the questions. So, I wanted to explore a bit the competitive environment in the second half of the year. I mean, you already mentioned that you don't expect to increase prices, but I'm wondering even if you continue to optimize your cost of funding, if you could offer more competitive prices as the economy slows down. And then if we can expand this even a bit further to 2026, when there are some rate cuts expected, what do you think is going to be your strategy there when rates start to come down? Thanks.

So I think... Hi, Anata Leah here. So on your question... Hello. So I think... Regarding the first part of your question... Sorry, the first part of your question was about... Can you repeat, Salah?

Yeah, the competitive environment in the... Oh, competitive, yeah. Yeah.

So, I think we don't expect any news on the competitive environment. We see a very rational competitive environment. And... To be really honest, we price very much based on the bundling and the offerings that we offer our clients and based on our return hurdles. That's been our philosophy since we implemented these repricing strategy way back in 2022. So we don't expect to change that, and we don't see changes. any changes in the competitive dynamics at all. I think long-term, if interest rates go down, that mindset won't change. Of course, what will happen is there will be a bigger gap potentially between repricings – versus the spreads of clients within the base. So there may be kind of competitive adjustments that will happen once that dynamics takes place, but that competitive adjustment will be a slower one, right, because The base is the base. Nobody is expected to change the repricings of the base downwards. So I think that there will be a readjustment, a re-equilibrium that may be reached, but that's going to be kind of a multi-year process in our view. So that's how we see the overall dynamics.

Perfect. That's good. So for the second half here, pretty much stable prices and gaining some share. Yep.

Yeah, so nothing different than what we already said in terms of TPV dynamics and repricing strategy.

Perfect. Thank you, and congrats again on the results.

Thank you, Renata.

Our next question comes from Eduardo Rosma with PTG.

Hi. Good evening, everyone. I have two questions here regarding competition as well. The first one is about PECS. I think Itaú recently, they launched an initiative focused on small businesses where, I think, among other things, they announced free PIX transactions, right, for our clients using the POS page, right? So how do you see that, you know, and if you see other players doing the same? And the second one would be about the deposits, right? You've been growing pretty well here, and I think this is relevant for us. for your profitability. How do you see competition evolving for deposits? Do you see any pressure for higher remuneration? Thanks a lot.

Hi, Osman. Lia here. So, regarding your first question around competitive dynamics and some players implementing no charges on picks, I think those offers, they really come and go. In our view, PIX is one monetization driver among many. Depending on what sort of is the overall offer to a specific profile of clients, we do sometimes offer PIX for free depending on what the overall economics of that client is. I think the message is that as we evolve our banking roadmap and our overall stone roadmap, really, right, the more features that we have to bundle, the more we can play with those levers. So I think this is really a dynamic process. And the better – the more features we have in terms of to respond to this dynamic process, the better. So – I think the message that we want to bring across when we talk about the overall roadmap is really it's about two things, right? Evolving and launching the new features that really addresses our clients' needs. And the more features we have, the more bundles we can create. This is sort of a virtual cycle that at the end of the day reflects in our ability to win clients and bring TPV within the ecosystem. But then more importantly, to really engage clients make sure that our clients engage with our ecosystem overall, and ultimately that will reflect in deposits growth. So I think deposits growth comes from multiple drivers. Every new feature that we launch is another reason for the client to operate within our ecosystem, and there is a pretty extensive roadmap ahead in terms of of how we address more needs of those clients to operate more within the Stone ecosystem.

Great. Thanks a lot, Lia.

Thank you, Osman, for the question.

Thank you. The Q&A session is now over. I would like to hand the floor back to Stone's co-team for their concluding remarks.

Thank you all for participating in the call and see you in the next quarter. Thank you.

Stone's call conference call is now closed. We thank you for your participation and wish you a nice day.