StoneCo Ltd.

Good evening, everyone. Thank you for standing by. Welcome to Stone Co.' 's first quarter 2026 earnings conference call. By now, everyone should have access to our earnings release. The company also posted a presentation to go along with this 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 20F, filed with the Securities and Exchange Commission, which is available at www.sec.gov. Before we begin, I would like to highlight that the company is restricting the number of questions to one per analyst. Joining the call today is StoneCo's CEO, Matheus Scherer, the CFO and IRO, Diego Salgado, and the head of IR, Roberta Noronha. I would now like to turn the conference over to Matheus. Please proceed.

Thank you, operator, and good evening, everyone. Let me begin with a broader view of our first quarter. The quarter was broadly consistent with the software first half dynamics we had anticipated. Three dynamics shaped the quarter. First, a macro environment that continues to weigh on smaller merchants. Second, typical first quarter seasonality. And third, a credit portfolio that continues to grow profitably even though NPLs came in above our expectations. All of this while we worked to bring churn to healthier levels and re-accelerate TPD growth. Against that backdrop, we grew revenue, held adjusted gross profit broadly stable, and continued to return significant capital to shareholders. More importantly, this quarter marks the beginning of a transition phase between the extraordinary capital distribution linked to the links divestiture and the operational momentum we expect to build through the second half. The work underway gives us confidence in the trajectory ahead, and we remain fully focused on execution. Now, I want to spend a few minutes on what matters most heading into the rest of 2026. our capital allocation discipline, our operating priorities, and our commitment to shareholder value. Let's turn to slide 3, where we show our capital distribution to shareholders across the last couple of years, with emphasis on what we have delivered so far in 2026. Year to date, we have distributed 3.6 billion reais, representing a 27% distribution yield. This includes the extraordinary dividend which proceeds from the Gingstai vestiture, and approximately 0.6 billion reais in ordinary share buybacks. In addition, we still have at least another 1.4 billion reais to be repurchased throughout this year. As we have consistently said, whenever value-accretive opportunities are not immediately available yield year-to-date is a direct reflection of that commitment. Moving on, slide 4 outlines our key priorities for the rest of 2026. On payments, our priority is to re-accelerate profitable TPV growth. To do that, we're focused on improving retention, managing churn more actively, and simplifying the way we bring our broader set of solutions to clients. As we deepened our understanding of the drivers behind the elevated churn observed towards the end of 2025, one important point became clear. The churn pressure is not broad-based. Our legacy customer base continues to perform in line with historical churn levels, reinforcing the strength of our core value proposition. Instead, the pressure has been more concentrated among clients onboarded during 2025, a period in which the company began offering a broader set of products. As we expanded our offering into additional products, such as instant settlements, investments, and credit cards, our bundles and pricing architecture became more complex than they should have been. That created friction for some clients, and we are addressing it directly. We are now conducting a full review of our offerings, simplifying bundles, and moving towards a cleaner and more transparent pricing structure. The objective is not to chase volume at any cost. The objective is profitable TPV growth, supported by better retention and deeper relationship with clients who use more of our ecosystem. It is still too early to call a definitive trend, but the initial data is encouraging. CPV growth is improving in April, we are watching leading volume indicators closely, and they suggest that the actions we are taking are moving us in the right direction. On credit, we are also being proactive and disciplined. Towards the end of last year, we saw our models beginning to perform below our expectations, with first payment default rates increasing in newer cohorts. We responded quickly by adjusting pricing to preserve cohort profitability and by tightening our risk selection. Since then, we have implemented a set of model and policy changes. and the early results are promising as first payment default rates are converging back to historical levels. Looking ahead, our priority is not simply to grow credit, but to grow it with the right risk-adjusted returns. We will continue refining our underwriting models, pricing risk appropriately, and diversifying the portfolio across products such as credit cards, overdraft, and secured working capital offerings. We have recently begun disbursing secured credit products, and we believe these offerings can help us expand access to credit, deepen our relationship with merchants, and reduce the risk intensity of portfolio growth. We're also committed to improving efficiency throughout the year. First quarter results were affected by higher provisions and certain one-off expenses, including servants' costs in addition to the quarter's typical seasonal softness. As these factors normalize, we expect operating leverage to resume, supporting continued improvements in our cost structure through discipline prioritization and AI-driven efficiencies as we progress through 2026 and beyond. Finally, we're also focused on expanding the share of our clients using our full suite of solutions through our unified app, which we're progressively upgrading to address our merchants' needs across every financial workflow. Linked to that, we're making continuous investments in positioning our brands to reflect our evolution into a full-service financial partner. Turning to slide five, Our adjusted gross profit was 1.5 billion reais in the quarter, and adjusted basic EPS was 2.19 reais per share. Although interest rates may continue higher for longer, our full year 2026 guidance remains unchanged. We are on a trajectory that we believe is consistent with delivering within that range. With performance weighted towards the second half, as credit revenues continue to compound and the commercial initiatives we are executing begin to normalize retention rates. Finally, beyond the quarterly numbers, I want to flag that what drives us every day is straightforward. Building a financial platform that Brazilian entrepreneurs can rely on for their core financial needs. We're moving fast towards that goal, executing against it with focus and discipline. With that said, I will pass it over to Diego, who will go over our financial and operating results for the quarter.

Thank you, Matheus, and good evening, everyone. Let me start on slide six, where we present our main financial metrics for the quarter. Total revenue and income reached 3.6 billion reais, up 6% year-over-year. This growth was primarily driven by the continued expansion of our credit revenues and healthy profitability in payments. These tailwinds more than offset the expected headwind from lower floating revenues from deposits, which we started using as funding source in early 2025 and reduced our revenue recognition with the benefits showing up as lower financial expenses. Adjusted gross profit came in at 1.5 billion reais. broadly stable year-over-year as revenue growth was offset mostly by higher provision for credit losses and increased operating costs. Gross profit margin contracted from 44.4% in the first quarter of 2025 to 41.6% this quarter, primarily reflecting the step-up in credit provisions, which we will further explore in this presentation. Adjusted net income increased 3% year-over-year and reached 549 million reais in the quarter, but adjusted basic EPS grew over four times faster, increasing 15% year-over-year, reaching 2.19 cents per share. The EPS outperformance relative to net income was driven by the continued and consistent share buybacks execution, reflecting our ongoing commitment to returning excess capital to our shareholders. On slide seven, I want to briefly explain a reporting change that we're introducing this quarter. As we advance in our strategy to become the primary financial partner for Brazilian merchants, we are consolidating our active client base definition into a single unified metric. Merchants that have generated revenue during the past 30 days across any of our payments, banking, or credit solutions. While payments are still usually our first contact point with merchants, we have a growing number of clients with whom our relationship starts with other business fronts and then evolves into a broader relationship. As a result, we are discontinuing the separate disclosure of the micro, small, and medium-sized payments active client base and banking active client base that we previously reported. Going forward, you will see one unified number. Under this new definition, our total active client base was 4.7 median clients in the first quarter of 2026, up 13% year-over-year and 5% down sequentially. The sequential decline is largely a result of conscious actions to focus our efforts on a more engaged and revenue-generating client set. We're also introducing average revenue per active client as a new key metric to track how effectively we are monetizing our client relationships. Our PAC was 247 reais per month per client in the first quarter of 2026, down 3% sequentially and 11% year-over-year. The sequential decline largely reflects first quarter seasonality, while year-over-year decrease reflects client mix effects. Now, let's turn to slide 8. On TPV, starting this quarter, we're simplifying our disclosure to focus on total TPV only. TPV was $137 billion in the period, growing 3% year-over-year, with big-scale cold volumes continuing to outperform car TPV. This growth reflects the impacts of a more challenging microeconomic environment for smaller merchants. The relative outperformance of digital sales, where we have less exposure. And finally, the elevated churn levels identified last quarter and that are still affecting our performance while being slowly addressed. On the other hand, retail deposits reached 10.1 billion reais at the quarter end. growing 22% year-over-year and declining 9% sequentially, reflecting typical first quarter seasonality. A better read of the underlying trend is the average daily retail deposits, which grew 70% sequentially and 26% year-over-year, reinforcing the ongoing development of our banking franchise when normalized for end-of-quarter timing effects. On slide nine, we present our credit portfolio evolution alongside its revenue and new trajectory. Our total credit portfolio reached 3.2 billion reais, growing 14% sequentially. Merchant solutions, composed mostly by our working capital offerings, reached 2.9 billion reais, growing 13% quarter over quarter. while our credit card portfolio reached 400 million reais, growing 23% sequentially. Credit revenues kept their strong growth trajectory both on a nominal and yield basis, reaching 297 million reais in the quarter, up 25% sequentially, and the portfolio yield reaching 3.3%. up from 3.1% in the fourth quarter and 2.6% one year ago. The growth in revenues reflects the expansion of the portfolio, but also the better risk-adjusted products and mix. Now on slide 10, we focus on credit quality and provision expenses. During the first quarter, our models for micro, small, and medium-sized merchants on the automated desk lost efficiency, and we saw newer cohorts performing worse than historical average, leading to higher-than-expected delinquencies, a trend that seems to have affected the entire banking industry but is more pronounced in our portfolio given the concentration that we have on the segment. Our NPLs 15 to 90 days increased at almost 60 basis points, driven mostly from the worst performance in the automated desk. The dedicated desk, while no longer the main driver of sequential movement, continued to contribute to an elevated baseline. NPLs over 90 days reached 7%, up from 5.2% in the prior quarter, but mostly as a carryover effect of select cases within the dedicated desk progressing into higher delinquency bands, along with the expected seasoning trajectory of our portfolio. In response, we maintained a conservative provisioning approach with our coverage ratio standing at 229%. We have provisioned 166 million reais in the first quarter for credit losses, driving our cost of risk to 21.9%. Moving forward, we expect that the combination of tighter underwriting policies on the dedicated desk and the deployment of new models to the automated desk push down cost of risk to lower level at a slow but steady pace. The early signs that we have arising from first payment defaults indicate the path. Looking at the March cohort, we see a clear improvement compared to January and February, returning to levels closer to our baseline. While this represents one data point, we see it as a positive early sign. On slide 11, our cost of services increased 420 basis points as a percentage of revenues year over year, driven primarily by higher provision for credit losses, as I just described. Excluding provisions, cost of services increased in more than 60 basis points, reflecting severance costs related to the workforce reduction we executed at the end of the first quarter and higher DNA as several technology projects were completed and moved into production. Financial expenses improved 150 basis points as percentage of revenues year over year, reflecting the benefit of client deposits as a lower cost of funding source, which more than offset the impact of higher average CDI rate. As we keep developing our deposit franchise, deposits will increase its importance as a funding source. As a result, we have been able to reduce our total cost of funding from 100% of CDI in early 2025 to approximately 87% more recently, a meaningful improvement that flows directly into our financial expenses. Admin expenses decrease at 30 basis points, reflecting continued operating leverage in our support function. Selling expenses decreased 50 basis points, driven by lower marketing and institutional channel spending as a percentage of revenues. Other expenses decreased 50 basis points, primarily due to lower share-based compensation, which was partially offset by certain intangible write-offs. Effective tax rate was 14.3% in the quarter, a reduction of 4.5 percentage points on a year-over-year basis. This reduction is mostly a reflection of the aggregated benefits from deferred tax assets. Moving to slide 12, we present our managerial capital position and return on equity. We're introducing this metric to provide greater transparency about our capital position on a quarterly basis. As a reminder, our capital ratio metric is based on the Brazilian Central Bank methodology for authorized entities, but we apply it to all Stone Cold legal entities. Our capital ratio stood at 44% at the end of the first quarter, elevated by Lynx divestiture concluded in February. Excluding Lynx proceeds, which were returned to shareholders on May 4th, our capital ratio would have been approximately 29%, still comfortably above our 17% internal hurdle. It is also worth noting that we still expect to buy back 1.4 billion reais worth of shares until the end of the year, as announced in our last earnings call. Finally, our adjusted return on equity was 19% in the first quarter, up 40 basis points year over year, but down sequentially from 25% in the fourth quarter of 2025. The sequential decline reflects the recognition of 1.2 billion UIs in deferred tax assets related to the links to the real amortization, which expanded our GAAP equity base and compressed the ratio by approximately 100 basis points. Additionally, it is important to remember that the extraordinary dividend links payment will reduce our equity base, distorting on the second quarter, and will have a positive impact in our ROE going forward. Therefore, to wrap it up and going back to Matteo's initial comments, we had a first quarter in which TPV was soft, but in line with what we expected. And although it will be a longer journey, we believe we have the tools to further engage and retain our clients. In addition, we had a challenging backdrop on credit, but this is part of our learning journey as we build the business for the long term, and we remain highly confident that both credit and banking will be the main growth levers to our business in the coming years. With that, let's open it up for questions.