StoneCo(STNE) - 2024 Q4 - Annual Report

Presentation of Financial and Other Information Financial Statements and Reporting Standards The company prepares IFRS-compliant financial statements with the Brazilian real (R$) as its functional currency, providing convenience U.S. dollar translations - Financial statements are prepared in accordance with IFRS Accounting Standards, and the functional currency is the Brazilian real (R$)[15] - For convenience, some amounts have been translated to U.S. dollars at a rate of R$6.1923 to US$1.00 as of December 31, 2024, but these are not representations of actual value or convertibility[17] Selected Financial Data The company reported a R$1.51 billion net loss in 2024 due to a goodwill impairment, though TPV grew 17.8% and adjusted net income rose to R$2.20 billion Consolidated Statement of Profit or Loss Data (in R$ millions) | Indicator | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Total revenue and income | 13,257.5 | 12,055.0 | 9,588.9 | | Profit (loss) before income taxes | (1,017.6) | 1,970.8 | (387.3) | | Net income (loss) attributable to controlling shareholders | (1,515.2) | 1,592.1 | (519.4) | | Basic earnings (loss) per share (R$) | (5.02) | 5.09 | (1.67) | | Diluted earnings (loss) per share (R$) | (5.02) | 4.74 | (1.67) | Key Operational and Non-IFRS Data | Indicator | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Adjusted net income (in R$ millions) | 2,200.0 | 1,557.5 | 410.5 | | TPV (in R$ billions) | 516.2 | 438.3 | 380.6 | | Active payment clients (in thousands) | 4,172.7 | 3,522.1 | 2,584.0 | Reconciliation of Net Income to Adjusted Net Income (in R$ millions) | Reconciliation Item | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net income (loss) for the year | (1,507.1) | 1,600.4 | (526.4) | | Amortization of fair value adjustment | 122.8 | 92.4 | 138.6 | | Software business goodwill impairment loss | 3,558.0 | — | — | | Mark-to-market related to the investment in Banco Inter | — | (30.6) | 853.1 | | Other income/expenses | 67.9 | (78.6) | (17.8) | | Tax effect on adjustments | (41.6) | (26.1) | (36.9) | | Adjusted net income | 2,200.0 | 1,557.5 | 410.5 | Consolidated Statement of Financial Position Data (in R$ millions) | Indicator | As of Dec 31, 2024 | As of Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | 54,813.5 | 48,693.6 | | Total Current Assets | 45,965.1 | 37,152.6 | | Total Non-current Assets | 8,848.4 | 11,541.0 | | Total Liabilities | 42,986.2 | 34,017.6 | | Total Current Liabilities | 33,533.8 | 28,831.1 | | Total Non-current Liabilities | 9,452.4 | 5,186.5 | | Total Equity | 11,827.3 | 14,676.0 | - The Brazilian real depreciated by 21.8% against the U.S. dollar in 2024, with the exchange rate reaching R$6.1923 per US$1.00 at year-end[25] Corporate Events The company engaged in M&A, significant capital returns through share repurchases, debt management, and key organizational changes to streamline governance - The company's reportable segments are (i) financial services, (ii) software, and (iii) Non-allocated[29] - Key corporate events include acquiring 100% of Trinks in May 2024, divesting from Neomode in December 2024, and divesting from PinPag in February 2024[30][33][34] - The company executed several share repurchase programs: a R$300 million program in September 2023, a R$1 billion program in November 2023, and a new R$2 billion program in November 2024[39][40][41] - In July 2024, the company repurchased 58.9% of its outstanding 2028 notes via a tender offer[42] - Significant board changes occurred in 2024, including the departure of André Street and the appointment of Mauricio Luchetti as the new Chairperson[48] PART I ITEM 3. KEY INFORMATION The company faces significant risks from competition, regulation, technology, and Brazil's economic instability, alongside challenges from acquisitions and its dual-class share structure Risk Factors - The company faces substantial and increasingly intense competition from traditional merchant acquirers, financial institutions, and new entrants[95][96] - The business is subject to extensive and evolving government regulation in Brazil, including data protection laws (LGPD) and Central Bank oversight[114][115][118] - The rise of alternative payment methods like Pix, developed by the Central Bank, could reduce the use of traditional card payments, with Pix's share growing to 46% of total transactions in Q3 2024[104][105] - Operational risks include cybersecurity attacks, system failures, and reliance on third-party providers for data centers and transaction processing[146][151][164] - The business is exposed to Brazil's economic and political risks, including inflation, interest rate fluctuations, and political instability[213][216][222] - The balance sheet includes significant intangible assets (R$5.5 billion as of Dec 31, 2024), and an impairment, such as the R$3.6 billion goodwill impairment in 2024, can negatively affect financial results[212] - As a Cayman Islands exempted company, shareholder rights differ from those in U.S. jurisdictions, potentially making it more difficult for shareholders to protect their interests[249][251][253] - The dual-class share structure gives Class B shareholders (10 votes per share) significant voting power, which may limit the influence of Class A shareholders[270][273] ITEM 4. INFORMATION ON THE COMPANY StoneCo has evolved into a comprehensive financial and software solutions provider for Brazilian MSMBs, operating under a complex and evolving regulatory environment History and development of the company - StoneCo's mission is to serve Brazilian entrepreneurs with financial and software solutions, focusing on MSMBs[283] - The company's evolution is described in "Five Acts": serving SMBs with payments, expanding to the micro-segment, building a banking platform, acquiring Linx for software integration, and relaunching a credit product[286][293][294][296][299] Key Performance Highlights (2024 vs. 2023) | Metric | 2024 | 2023 | Growth | | :--- | :--- | :--- | :--- | | TPV (R$ billion) | 516.2 | 438.3 | 17.8% | | Active Payments Clients (million) | 4.2 | 3.5 | 18.5% | | Total Revenue and Income (R$ million) | 13,257.5 | 12,055.0 | 10.0% | | Net Income (Loss) (R$ million) | (1,507.1) | 1,600.4 | - | | Adjusted Net Income (R$ million) | 2,200.0 | 1,557.5 | 41.3% | Business Overview - The company operates in two main segments: Financial Services (payments, digital banking, credit) and Software (POS/ERP, CRM, e-commerce solutions)[308] - The business model is built on four core pillars: Unique Culture, Comprehensive Merchant Platform, Tech-Enabled Distribution, and Superior Client Service[321] - Distribution is a key competitive advantage, utilizing a mix of proximity channels (over 600 hubs), digital channels, and strategic partners[331][334][337] Total Addressable Market (TAM) for MSMBs in Brazil (as of Dec 31, 2023) | Business | Estimated TAM (Revenue in R$ billion) | | :--- | :--- | | Payments | ~34.0 | | Credit | ~40.0 | | Banking | ~16.0 | | Software | ~8.0 | - The company's market share in the Brazilian card industry was 10.9% in 2024 based on TPV, according to ABECS data[358] - Key regulatory frameworks impacting the business include rules for Payment Institutions, the Pix instant payment system, Open Finance initiatives, and the mandatory registration of card receivables[434][466][474][484] Organizational Structure - StoneCo Ltd is a Cayman Islands holding company that conducts its operations primarily through its Brazilian subsidiaries[517] Property, Plants and Equipment - The company's main operational hubs are leased properties located in São Paulo and Rio de Janeiro, Brazil[521] - As of December 31, 2024, the company leased data center facilities in Brazil and the United States[522] Operating and Financial Review and Prospects Revenue grew 10.0% in 2024, but a R$3.6 billion goodwill impairment led to a net loss, while adjusted net income grew 41.3% on strong financial services performance Operating Results Financial Performance Summary (2024 vs. 2023) | Metric | 2024 (R$ million) | 2023 (R$ million) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue and Income | 13,257.5 | 12,055.0 | 10.0% | | Net Revenue from Transaction Activities | 3,216.0 | 3,309.8 | (2.8)% | | Financial Income | 7,676.2 | 6,229.3 | 23.2% | | Net Income (Loss) for the Year | (1,507.1) | 1,600.4 | N/A | | Adjusted Net Income | 2,200.0 | 1,557.5 | 41.3% | - The net loss in 2024 was primarily caused by a R$3.6 billion goodwill impairment loss related to the Software business unit[612] - Financial income grew 23.2% in 2024, driven by higher prepaid volumes, increased credit revenues, and floating interest from banking solutions[605] - Selling expenses increased by 24.0% in 2024 due to higher investments in salespeople, marketing, and partner commissions to drive growth[609] - Financial expenses decreased by 7.6% in 2024, mainly due to a lower average CDI Rate, which reduced funding costs[610] Liquidity and Capital Resources Summary of Cash Flows (in R$ millions) | Cash Flow Activity | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | (3,621.4) | 1,647.7 | 1,683.7 | | Net cash (used in) provided by investing activities | 1,587.5 | (845.4) | (1,871.1) | | Net cash provided by (used in) financing activities | 5,040.6 | (148.8) | (2,810.1) | - The company's primary sources of liquidity are sales of receivables, bank borrowings, debt issuances, client deposits, and cash flows from operations[634] Outstanding Debt Instruments (as of Dec 31, 2024, in R$ millions) | Instrument Type | Current Portion | Non-current Portion | Total | | :--- | :--- | :--- | :--- | | Institutional deposits and marketable debt securities | 3,066.0 | 5,430.0 | 8,496.0 | | Other Debt Instruments | 1,903.8 | 2,496.1 | 4,400.0 | - Capital expenditures in 2024 totaled R$1.3 billion, primarily for purchasing POS devices and software development[655] - The company has a capital management framework based on a minimum managerial CET1 ratio of 20%, maintaining credit ratings, and holding a positive adjusted net cash position[661][663] Directors, Senior Management and Employees The company is led by an independent board and experienced executives, with compensation tied to performance and a workforce of 16,793 employees Directors and Senior Management - The Board of Directors is responsible for overall strategy and supervising management; all current members are independent[668][670] Current Board of Directors | Name | Position | | :--- | :--- | | Mauricio Luis Luchetti | Director and Chairperson | | Gilberto Caldart | Director and Vice-Chairperson | | Antonio Silveira | Director | | Diego Fresco Gutierrez | Director | | José Alexandre Scheinkman | Director | | Luciana Ibiapina Lira Aguiar | Director | | Luis Henrique Cals de Beauclair Guimarães | Director | | Silvio José Morais | Director | - Pedro Zinner serves as the Chief Executive Officer, leading a management team with extensive experience in finance, technology, and operations[681][689] Compensation - Aggregate compensation for the Board of Directors and executive officers for the year ended December 31, 2024, was R$137.3 million[692] - The company maintains a Long-Term Incentive Plan (LTIP), with a new pool of 19.2 million shares approved for RSUs and PSUs in May 2022[700] - As of December 31, 2024, there were outstanding equity awards corresponding to 18,638,934 Class A common shares[703] - In 2024, the company modified 3.9 million PSU awards, introducing new performance conditions and extending vesting periods by an average of one year[701] Board Practices - The Board of Directors has four standing committees: Audit, People and Compensation, Finance, and Risk[704] - The Audit Committee consists of three independent directors, all of whom are considered "audit committee financial experts" under SEC rules[705] - As a foreign private issuer, the company follows Cayman Islands corporate governance practices in lieu of certain Nasdaq requirements[709][712] Employees Full-Time Employees by Year | Year | Number of Employees | | :--- | :--- | | 2024 | 16,793 | | 2023 | 17,091 | | 2022 | 16,685 | Employees by Function (as of Dec 31, 2024) | Function | Number of Employees | % of Total | | :--- | :--- | :--- | | Sales and Marketing | 5,860 | 34.9% | | Operations | 4,297 | 25.6% | | Technology and Product Development | 4,573 | 27.2% | | Administrative | 2,063 | 12.3% | | Total | 16,793 | 100% | Major Shareholders and Related Party Transactions Co-founder André Street controls 41.0% of voting power, with a shareholders' agreement granting certain rights, while all related party transactions require audit committee approval Major Shareholders Beneficial Ownership of Major Shareholders (as of March 31, 2025) | Shareholder | % of Total Voting Power | | :--- | :--- | | André Street | 40.99% | | Entities affiliated with BlackRock, Inc. | 7.53% | | Madrone Partners L.P. | 5.98% | - A Shareholders Agreement grants founder shareholders certain rights, including consent on major actions, though some rights were formally waived in April 2023[725] Related Party Transactions - The company has a related person transaction policy requiring any such transaction to be approved by the audit committee[737] - The company has entered into indemnification agreements with its directors and executive officers to the fullest extent permitted by law[738] - A Registration Rights Agreement provides founder shareholders and Madrone Partners L.P. with demand registration rights for public resale of their shares[733][734] Financial Information The company faces numerous legal proceedings with a R$237.4 million provision and does not currently anticipate paying cash dividends Consolidated Statements and Other Financial Information - The company is involved in numerous judicial and administrative proceedings related to civil, labor, and tax matters[741] Provisions for Legal Proceedings (as of Dec 31, 2024) | Claim Type | Provision Amount (R$ million) | | :--- | :--- | | Civil | 44.5 | | Labor | 71.5 | | Tax and Social Security | 121.5 | | Total | 237.4 | - A securities class action was filed against the company in 2021, alleging misrepresentations regarding its credit product, and is currently in the discovery phase[748][749] - The company does not anticipate paying cash dividends in the foreseeable future, intending to retain earnings to fund business development and expansion[751] Additional Information As a Cayman Islands company, its governance features a dual-class share structure and shareholder rights that differ from U.S. law Memorandum and Articles of Association - The company has a dual-class share structure: Class A common shares have one vote per share, while Class B common shares have ten votes per share[767][771] - Class B shares automatically convert to Class A shares upon most transfers, with all converting if their total voting power falls below 10%[775] - As a Cayman Islands exempted company, shareholders have no general right to inspect corporate records and accounts under Cayman law[249][251] - The Board of Directors is composed of 5 to 11 members, elected by an ordinary resolution of shareholders[783][786] Taxation - The company has obtained a 20-year undertaking from the Cayman Islands government, ensuring no taxes on profits, income, or gains will be applied to its operations[911][913] - For U.S. federal income tax purposes, the company believes it was not a Passive Foreign Investment Company (PFIC) for the 2024 taxable year but notes an increasing risk for future years[267][926] - If the company were classified as a PFIC, U.S. Holders would face adverse tax consequences, including ordinary income tax rates and an interest charge[929] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market, liquidity, and credit risks, which it manages through VaR models, derivatives, and diverse funding sources - The company is exposed to credit risk from counterparties in financial contracts, including card issuers and customers in its credit portfolio[944] - Market risk is primarily driven by interest rate risk (CDI mismatches) and foreign currency risk (non-BRL assets/liabilities)[949][950][952] Value-at-Risk (VaR) Summary (in R$ thousands) | Risk Factor | VaR (1 day) | VaR (10 days) | VaR (60 days) | | :--- | :--- | :--- | :--- | | Interest rates | 811 | 2,564 | 6,280 | | Foreign currency exchange | 233 | 737 | 1,805 | - Liquidity risk is significant due to the company's prepayment and credit businesses and is managed by forecasting liquidity requirements and maintaining diverse funding sources[957] PART II Controls and Procedures Management and the independent auditor concluded that the company's disclosure controls and internal control over financial reporting were effective as of year-end 2024 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2024[973] - Management's assessment concluded that the company's internal control over financial reporting was effective, based on the COSO 2013 framework[974] - The independent registered public accounting firm, Ernst & Young, issued an unqualified audit report on the effectiveness of the company's internal controls over financial reporting as of December 31, 2024[976] Various Governance and Shareholder Matters The company maintains strong governance with designated financial experts, an active share repurchase program, and a formal cybersecurity risk management program Purchases of Equity Securities by the Issuer and Affiliated Purchasers - In November 2024, the Board of Directors approved a new share repurchase program authorizing the repurchase of up to R$2.0 billion of its outstanding Class A common shares[990] - This new program replaced a previous R$1.0 billion program, under which the company had repurchased 13.2 million shares for US$178.3 million[989][991] Share Repurchases in 2024 | Period | Total Shares Purchased | Average Price Paid (USD) | | :--- | :--- | :--- | | May 2024 | 2,319,645 | $14.35 | | June 2024 | 917,606 | $13.43 | | July 2024 | 9,670,688 | $13.38 | | September 2024 | 295,000 | $11.86 | | November 2024 | 1,182,291 | $10.55 | | December 2024 | 9,705,261 | $9.04 | | Total 2024 | 24,090,491 | $11.57 | Corporate Governance - As a foreign private issuer, the company is permitted to follow its home country (Cayman Islands) corporate governance practices instead of certain Nasdaq listing standards[996] - All current directors are considered independent under the Nasdaq test, although this is not a requirement under Cayman Islands law[998] Cybersecurity - The company has an established cybersecurity risk management program, with oversight from the Board's audit and risk committees[1005][1006] - The cybersecurity team is led by a Chief Information and Security Officer (CISO), and no material cybersecurity threats were identified in 2024[1007][1008] PART III Financial Statements The audited IFRS financial statements received an unqualified opinion, with the impairment of goodwill for the Software unit highlighted as a key audit matter Report of Independent Registered Public Accounting Firm - Ernst & Young issued an unqualified opinion, stating that the consolidated financial statements present fairly the financial position and results of StoneCo Ltd[1066] - The auditor also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2024[1067][1076] - A Critical Audit Matter was identified concerning the impairment of goodwill for the Software cash generating unit due to the subjective estimation required[1071][1072] Notes to Consolidated Financial Statements - An impairment loss of R$3.56 billion was recognized for the Software CGU as its estimated recoverable amount was lower than its net book value[1366][1367] - As of December 31, 2024, the company had provisions for contingencies totaling R$237.4 million for probable losses from litigation[1387] - The company has an active share repurchase program and held 28.2 million Class A common shares in treasury as of December 31, 2024[1404][1406] - In May 2024, the company acquired the remaining stake in Trinks, making it a wholly-owned subsidiary for a total consideration of R$59.0 million[1499][1501][1509] Segment Adjusted Net Income (in R$ millions) | Segment | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Financial services | 2,019.9 | 1,436.6 | 361.8 | | Software | 178.3 | 113.8 | 64.7 | | Non allocated | 1.7 | 7.0 | (16.0) | | Total Adjusted Net Income | 2,200.0 | 1,557.5 | 410.5 |