StoneCo Ltd. Q4 FY2025 Earnings Call

Good evening, everyone. Thank you for standing by. Welcome to StoneCo's Fourth Quarter and Fiscal Year 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. Joining the call today is StoneCo's former CEO, Pedro Zinner; the incoming CEO, Mateus Schwening; the CFO and IRO, Diego Salgado; and the Head of IR, Roberta Noronha. I would now like to turn the conference over to Pedro Zinner.

Thank you, operator, and good evening, everyone. This call marks the conclusion of my journey as CEO of Stone and the beginning of a new chapter as I transition leadership to Mateus. During my tenure, we chose to fight complexity directly, simplifying the business, sharpening our focus on payments, banking and credit and building a more resilient and scalable platform for long-term growth. In 2025, that meant selling our software assets, Linx to TOTVS for more than BRL 3 billion, not because it was a bad business, but because it set outside the intersection where our competitive advantages live. It also meant expanding our credit book prudently, launching products like TapStone and Payment Links with the T+0 settlement, unifying our technology stack and deploying AI where it reduces costs and improves quality. Adjusted EPS grew 34% year-over-year. Return on equity expanded 26% in the fourth quarter of '25, and we closed the year with a robust net cash position. I'm deeply proud of the team and what we have built together. I would also like to sincerely thank our investors for their continued trust, partnership and support throughout this journey. From a new future role as Non-Executive Chairman of the Board, I remain fully committed to supporting Stone's continued evolution and long-term vision, thinking like an owner, protecting what we have built and contributing to what comes next. I have complete confidence in Mateus' leadership. He has been one of the architects of Stone's transformation, helping restore discipline, simplify the business and focus the organization on what truly matters. He brings clarity of direction, analytical rigor and the right sense of urgency to accelerate execution and continue elevating what matters most, delivering value to our clients and building intrinsic value per share. With that, I'll hand it over to Mateus, your new CEO, who will walk you through our fourth quarter and full year 2025 results.

Thank you, Pedro, and good evening, everyone. Before getting into the results, I want to thank Pedro for his leadership and commitment to Stone over the past years. It has been a privilege to work alongside him, and I'm honored to step into this role as we continue building Stone as the financial partner for entrepreneurs across Brazil. Now turning to Slide 3. We highlight our full year performance relative to the guidance we provided at the beginning of the year. Despite a challenging macroeconomic environment, we delivered solid results while remaining fully committed to our capital allocation framework and to returning excess capital to shareholders. Our adjusted gross profit reached BRL 6.319 billion, an increase of 13.5% year-over-year. Importantly, when factoring the BRL 1.8 billion in share repurchases executed in the second half of the year, which had an estimated BRL 60 million impact on gross profit, our adjusted gross profit would have reached BRL 6.379 billion, slightly above our guidance of BRL 6.375 billion. Adjusted basic EPS came in at BRL 9.71 per share, representing a 34% year-over-year growth and exceeding the BRL 9.60 per share guidance, reflecting disciplined operational execution and a consistent focus on capital efficiency. On capital allocation, one year ago, we identified a position of BRL 3 billion in excess capital. True to our commitment, we distributed the full BRL 3 billion over the course of the year, representing a 15% yield. We remain disciplined in our capital allocation strategy, and we'll continue returning capital to shareholders whenever we do not identify immediate value-accretive opportunities. Moving to Slide 4. We will now examine our consolidated profitability and return on equity. Our fourth quarter adjusted net income increased 10% year-over-year, driven by 12% growth in continuing operations. These results demonstrate the resilience of our model in a macro environment that continues to weigh more meaningfully on smaller merchants alongside a competitive and dynamic market. Adjusted basic EPS was BRL 2.87, up 27% year-over-year, benefiting from both net income growth and the impact of share repurchases. On returns, our consolidated ROE continued to expand, increasing by 6 percentage points year-over-year to 26%, reflecting ongoing improvements in profitability and capital efficiency. Moving to Slide 5. We highlight the top-line performance of our continuing operations. Total revenue and income increased 13% year-over-year to BRL 3.7 billion, reflecting mid-single-digit TPV growth, combined with disciplined pricing. Credit continues to scale and is becoming a more meaningful contributor to revenue, further strengthening our position as the financial partner of choice for MSMB clients. In the fourth quarter, adjusted gross profit from continuing operations grew 9% year-over-year to BRL 1.7 billion. Revenue growth was the primary driver, partially offset by higher credit provisions as we continue to scale our loan portfolio. We see this as a natural step in expanding our credit business and further diversifying our revenue streams to build a more resilient earnings profile. We will discuss portfolio performance and credit dynamics in more detail later in the presentation. Turning to Slide 6, we present our key operating metrics, starting with MSMB payments. Our client base increased 15% year-over-year, reaching 4.7 million clients at year-end. Out of those, 41% are classified as heavy users, up from 38% in the previous quarter. This trend reinforces our strategy of deepening client engagement beyond payments as we seek to build a more comprehensive and long-lasting financial relationship with our clients. MSMB TPV growth decelerated to 5.3% year-over-year, driven by three factors. First, the macro environment continues to weigh on smaller clients. Second, digital native merchants are performing better than brick-and-mortar businesses, a segment where we have greater exposure. And third, our operational performance in the fourth quarter fell short of our internal expectations with slightly higher churn and softer gross client additions than planned. We're not standing still. We are implementing a series of commercial initiatives and gross additions have already shown a clear improvement. Our focus is now shifting towards churn management by deepening client relationships and ramping up bundled offerings to increase share of wallet and improve retention over time. Turning to Slide 7, we highlight the performance of our banking operations. Our banking active client base increased 21% year-over-year, reaching 3.7 million clients, reflecting continued progress in bundling payments and banking into a more integrated value proposition. Client deposits grew 27% year-over-year and 23% quarter-over-quarter, totaling BRL 11.1 billion at year-end. Notably, deposits expanded significantly faster than MSMB TPV with penetration over MSMB TPV increasing from 6.8% in the fourth quarter of '24 and 7.1% last quarter to 8.2% in the fourth quarter of '25. This outperformance reinforces that we are on the right track with our banking strategy, deepening engagement and capturing a larger share of our clients' financial flows within our ecosystem. Of the BRL 11.1 billion in deposits, 86% were time deposits in the quarter compared to 84% in the previous quarter. This shift reflects higher adoption of our investment products and increases in the portion of deposits eligible for our cash sweep strategy, contributing to lower funding costs and supporting profitability. Turning to Slide 8. We review the evolution of our credit operations. Our portfolio reached BRL 2.8 billion in the quarter, growing 23% sequentially. Of this total, BRL 2.5 billion relates to merchant solutions, primarily our MSMB working capital offering, which also expanded 23% quarter-over-quarter. The remaining BRL 300 million corresponds to our credit card portfolio, which grew 30% sequentially from a smaller base. Credit continues to gain relevance in our results. In the fourth quarter of '25, credit revenues reached BRL 238 million, up 33% sequentially, while provisions totaled BRL 110 million, increasing 27%. As provisions are recognized upfront and revenues are accrued over time, continued portfolio growth should translate into a stronger earnings contribution going forward. Since relaunching our credit operations, we have prioritized disciplined scaling and tight portfolio oversight. Within MSMB working capital, we operate two distinct models: a fully digital approach for smaller merchants, resulting in granular and diversified exposures, and a more analytical desk-based approach for large SMBs with higher average ticket sizes and a more concentrated position. In terms of asset quality, we remain aligned with our risk appetite. NPL 15 to 90 days increased to 4.43%, primarily reflecting payment delays from a limited number of higher ticket clients within the specialized desk. NPLs above 90 days stood at 5.21% compared to 5.03% in the prior quarter, consistent with normal portfolio seasoning. Our coverage ratio remained stable at 264%, and the cost of risk was approximately 17% in the quarter. We have also continued refining our pricing framework, balancing client sensitivity with risk-adjusted returns. This has allowed us to improve spreads while maintaining disciplined and sustainable growth. As a result, our average monthly credit yield calculated as credit revenue over the average portfolio reached 3.1% compared to 2.9% in the third quarter of '25, despite mix effects from the specialized desk and noninterest-bearing credit card balances. To wrap up and before I hand over to Diego, I want to thank the team for their resilience and dedication in delivering a solid performance despite a challenging year. I'm truly honored to lead the company into its next chapter, continuing to execute our strategy with energy and passion as we strive to be the leading financial services provider for entrepreneurs in Brazil. With that, I'll hand it over to Diego, our new CFO, who will take you through our financial performance in more detail, along with updates on capital allocation and guidance.

Thank you, Mateus, and good evening, everyone. It's a pleasure to speak with you today for the first time as CFO. I'm honored to take this responsibility. You have my commitment to keep elevating our financial discipline and to hold a high bar on execution. Now I'll begin by reviewing our adjusted consolidated P&L for continuing operations for the fourth quarter, as shown on Slide 9. Our cost of services increased 23%, rising 200 bps as a percentage of revenues. This increase was driven by higher loan loss provisions during the quarter, mostly driven by the growth of our credit portfolio. Financial expenses increased 12%, a reduction of 30 basis points as a percentage of revenues. This was primarily driven by the use of low-cost demand deposits as funding source, which helped offset the impact of higher average CDI rate compared to the prior year period. Admin expenses also increased 12%, a small decrease as a percentage of revenues, reflecting ongoing efforts to gain leverage across our support functions. Selling expenses increased 16%, a 40 bps increase as a percentage of revenues. This reflects a more evenly distributed market spending in 2025 compared with 2024 when expenses were weighted towards the first half of the year due to a significant investment in a specific reality show. Other expenses decreased 27% year-over-year or 100 basis points as a percentage of revenues, a result of lower share-based compensation expenses in the quarter. Our effective tax rate was 10.3% in the quarter, down from 13.7% in the fourth quarter of 2024. The year-over-year decrease was driven primarily by higher benefits from Lei do Bem. Moving to Slide 10. Our adjusted net cash position closed the quarter at BRL 2.6 billion, down BRL 930 million sequentially. This reduction stems primarily from the BRL 1.3 billion in share repurchases during the fourth quarter. Excluding these buybacks, adjusted net cash would have increased by nearly BRL 350 million. Now let's review our capital allocation in more detail, distinguishing between recurring operational generation and the extraordinary proceeds from the Linx transaction. Starting with operational excess on Slide 11. As you may recall from last year's call, our framework is guided by three strict hurdles that define excess capital: maintaining a minimal core equity ratio for the consolidated entity, the maintenance of certain global ratings, and maintaining an adjusted net cash position above zero. This year, we have refined our core equity ratio hurdle. First, we have enhanced our methodology to better align it with the Brazilian Central Bank standards for the treatment of all the deferred tax assets that we have, regardless of which legal entity holds it. Consequently, we felt more comfortable to reduce the capital hurdle from 20% to 17%. These adjustments mostly offset each other. Our policy is very straightforward. Upon the approval of our annual budget and financial statements in the absence of additional immediate value-accretive opportunities, excess capital is returned to shareholders. Following our 2025 performance, we have generated excess capital of just over BRL 2 billion, which the Board approved for distribution via share repurchases during 2026. As a reminder, we already have an open repurchase program of the same amount announced on December 22, which will be used for distribution. Now turning to Slide 12. We detail the extraordinary distribution from the Linx sale. On February 27, we received the proceeds from the sale and closed the deal. This divestment releases slightly over BRL 3 billion in capital, which will be returned to shareholders in 2026. However, given the recent closing, we expect to approve this specific distribution during a Board meeting in April with a market announcement to follow. Finally, let's move to Slide 13, where we present our guidance for 2026 and 2027 for continuing operations. Starting with 2026, we expect adjusted gross profit to range between BRL 6.6 billion and BRL 7 billion. Adjusted basic EPS is expected to be between BRL 10.8 and BRL 11.4 per share. The guidance for both KPIs considers the capital distribution that we have already announced of BRL 2 billion to be fully returned through buybacks during 2026, but doesn't include the proceeds from Linx. Regarding 2027, we are no longer providing operational KPI guidance and keeping it consistent to 2026. Therefore, we expect adjusted gross profit to range between BRL 7.2 billion and BRL 8.3 billion. Adjusted basic EPS is projected between BRL 11.8 and BRL 13.4. In those numbers, we are not considering yet any additional capital distribution. We will adjust this in the beginning of 2027 when we disclose 2026 full year earnings. Also important to keep in mind that for the guidance, we assume an effective tax rate in the mid-teens range. To close, we started this journey with a simple belief that Brazilian merchants deserve a better financial partner, and that conviction hasn't changed. For 2026 and 2027, our priorities are clear: continued earnings expansion, a credit business that scales on our terms and capital returned to shareholders, including the extraordinary Linx distribution.

Now we will begin the Q&A session with Mateus Schwening, CEO; Diego Salgado, CFO; and Roberta Noronha, Head of Investor Relations. Our first question comes from Guilherme Grespan with JPMorgan.

Just one on the guidance itself, clarification plus a follow-up. Share count, if I understood correctly, I should work with 248 million by the end of '25, right, which is the end share count? Then if I assume that you're going to buy back BRL 2 billion in the year and you're going to meet your expectation, assuming current screen price, it means that I should work with roughly 225 million for 2026. Then I should work with a flat share count for '27. I just want to confirm that the rationale makes sense here. Because then my question is, if that's true, your earnings in 2027, it's growing 8% year-over-year, which is almost half of gross profit of 14%. Just wanted to confirm what is driving this delta between gross profit growth and earnings growth?

Guilherme Grespan, thanks for the question. Mateus here. So I'll first clarify a few things on the capital distributions because there are indeed a lot of moving pieces. And then I'll hand it over to Diego to clarify the 2026 question. So just to clarify, when we look at the guidance for '26 and '27, the guidance does not include any impact from a potential distribution of Linx, neither on the P&L nor on the share count. So just to make it clear, if Linx were to be distributed via dividends, there would be no impact on our EPS guidance. But if we were to distribute that value through share repurchase instead, there would be potential upside to EPS due to the reduction in share count. Now regarding the ordinary capital distributions, which I think were your question. For 2026, we have decided to execute distributions through buyback, as Diego has said. And this impact is already embedded in the EPS guidance, which means that the guidance assumes that shares are repurchased throughout the year at an estimated average price. For '27, since we have not yet defined the mechanism for capital distribution, the guidance was constructed under the assumption that capital is retained and reinvested in the business. So depending on the eventual allocation decision, particularly if we opt for buybacks, there could be incremental upside to EPS relative to the current guidance. So that's the general overview. I'll hand it over to Diego to address the 2026 part.

So Guilherme, let me walk you through a bit of the growth numbers for 2026. So basically, we're guiding to a growth on gross profit between 4% and 11%. That has to do with a softer growth of TPV of mid-single digits throughout the year, being compensated in terms of margin expansions and impact on P&L by both banking and credit. But naturally, that comes with the cost from the credit business, which is charged upfront, as you know. Then on EPS, what you're looking at a growth between 17% and 24%, which, as Mateus mentioned, has to do with the fact that we are considering only the BRL 2 billion buybacks. If we were to use the Linx distribution to buybacks, that number would have grown significantly on one hand. If not, then EPS doesn't grow between 17% and 24% as we mentioned, but total shareholders' return would be massively impacted.

That's clear. But just the second point of the question, like if we assume, all else equal, no further distributions, earnings would be growing much less than gross profit, right, in '27 specifically? Just want to get your view on why this happens, if there is any headwind that I'm missing here?

Guilherme Grespan, I don't think it's massively below. So like Diego said, gross profit would grow between 4% and 11% on the guidance. When you do the assumptions that close to the current market prices for the buybacks throughout the year, what you get is that adjusted net income would grow between 3% and 9%. So it's slightly below. And the reason for that embedded in the guidance is because we continue to invest in selling expenses, which are partly offset by G&A expenses in general, but it's not a massive gap. I think it's a very small gap.

Yes. Naturally, when building a 2027 guidance, we tend to look for a little bit more of a leeway, especially on the bottom of the range, Guilherme.

I understand that one of the priorities for Stone today is to accelerate the banking and credit initiatives. However, although Stone has been advancing on this front, many of the merchants still see the company more as a payment provider as a POS machine than necessarily as a bank. In this regard, I want to understand how do you plan to change this perception among your merchants? And would the possibility of obtaining a banking license and being able to have a bank in your name will help on this direction?

Thanks for the question. Mateus here. So on the license front, I don't think having the license is actually a big constraint on our plans. We already have a full product roadmap, and we are evolving on the banking and credit features with the license that we have in place. That said, I think you hit the nail on the question, which is when we look back at 2025, I think we had a massive improvement in terms of how many products we have and what we launched. I think there is still a huge effort in terms of how we bundle those products and also, like you mentioned, in how the clients perceive our offering. And when we look into 2026, part of the selling expenses and the marketing investments that we're doing throughout the year is on how we reposition the company to be perceived for the clients as not only a POS provider, but much more than that. And I think we have a plan in place to address that point.

So two quick things on my side. So first on the guidance, if you could just explore which Selic rate did you use for that? And the second one on credit. If you could dig a little bit deeper on your operating numbers for the fourth quarter. We saw an increase in write-offs for both working capital and also credit cards, same on NPLs while maintaining an elevated cost of risk. So what you're seeing there and what are your expectations going forward? If you could give a little bit of color since you no longer have the guidance for operating metrics.

Antonio, this is Diego. So basically, we're assuming Selic at low 12% by the end of 2026 and high 11% for 2027. That's what's behind the guidance number. On the credit side, basically, what you have is the result of a portfolio that keeps growing into different publics and different products, but also getting more mature, especially on the core product for the digital credit offerings that we have. So let me try to walk you through a bit of some of those moving parts. As we expand the public to which we are offering credit, naturally, we tend to extend credit to a little bit more riskier clients. We charge proportionately to that higher risk but that comes with a cost on the risk side, which is what you see in terms of cost of risk on the balance sheet and naturally provisions upfront. Also, as we deploy other short-term capital offerings to those clients, you also have a similar effect. On the other hand, as the core business gets a little bit more mature, we keep on learning with the products. You're going to see additional write-offs. You're going to see growing NPLs just as the natural process of our credit portfolio.

Yes. If I may add, Diego, two points in the NPLs as well that you mentioned. I think when you look at the trends in NPLs, we have two factors in place. So the NPLs 15 to 90 days were impacted by a few cases on the specialized desk, which tends to add some volatility to that number in the short run. And the NPLs above 90 days are basically just the process of maturation of the portfolio. So as the growth rate for the portfolio is declining on a percentage basis, it's natural that the NPLs over 90 days will increase over time, and that's something that we already had anticipated in the past. The only point that I would emphasize that Diego mentioned is, again, even though we look closely to the cost of risk metrics and the NPL metrics, it's important to analyze that metric alongside the rates that we're charging. And when you look at the movements of the portfolio over the past quarters, you have a pretty consistent trend of increasing the average yield of the portfolio at the same time where the cost of risk remains in the mid-teens. So that in the long run should increase the contribution of credit to the company, and it's something important to keep in mind.

Can you elaborate on the volume growth? You mentioned expecting single-digit TPV growth and indicated a focus on profitability. What volumes are you sacrificing to achieve this growth? What factors are driving this expected growth? Is competition influencing this, considering incumbents like Cielo are increasing their operations, which may heighten competition? Additionally, there are emerging players like Pagar.me becoming more active at the lower end of the market. How do you perceive the impact of competition on your volume growth expectations?

Yes. Thanks for the question. So around first, the competitive environment, I think overall, the message has not changed. So when we look at the players, the market in general has remained rational from a pricing standpoint. We're not observing behavior that suggests competitors using growth at any cost or engaging in structurally unsustainable pricing. What we did see throughout the second half of last year was some players expanding their offerings and strengthening their sales footprint, but this is a natural movement in the industry. It tends to come in waves. Now in terms of the TPV growth itself, when we look back at our performance, there are clearly three trends playing at the same time. The first one is that since the third quarter of last year, we've been operating in a more challenging macro environment, which has put pressure on TPV growth. The second one, which we mentioned in the call is that within the market itself, we saw digital merchants performing better than brick-and-mortar recently. And this mix shift creates a temporary headwind for our TPV given our focus on brick-and-mortar and SMBs. And the third one is that in the fourth quarter, we experienced higher-than-expected churn and softer new client acquisition, which weighted on TPV growth as we head into this year. These factors, they are more internal than external. It's less about competition and more about execution. And to that end, on the commercial side, we've already made meaningful progress in addressing the onboarding dynamics. And when we look at the new sales productivity recently, it has improved significantly. And now what we're doing is basically turning our attention to deepening engagement with our existing base, both in terms of share of wallet and in terms of retention, where we see clear room to improve and have specific initiatives underway. So when we put that all together, for the first quarter of the year, this factor should result in the TPV growth roughly flattish year-over-year. And then as we move through the year, we expect a stronger second half as our bundle and the cross-sell initiatives gain traction. And that's what's composed into the guidance of mid-single-digit TPV growth for the year.

If I may ask, do you anticipate any reasons to believe that brick-and-mortar sales will increase moving forward? It might improve slightly with the overall economy, but probably not by much. Can you find a way to engage profitably in online sales? Are there any options you see to enhance volume growth as the macro conditions improve?

That's a good question, Neha. So on the second part of the question on how we can participate, the digital volumes tend to be more concentrated on the marketplace where the economics are smaller than the overall economics for MSMBs. That said, we did launch the new Payment Links product late last year. And it's fairly common for MSMBs in Brazil to sell through WhatsApp, and then they can use our payments links, which improved a lot. So that's one of the initiatives behind the plan. The second question, sorry, if you could repeat? I think a lot is related to execution. So like we said when we talked about the TPV on the second half of last year, the trends that we're seeing now are still weighted by a relatively rough macroeconomic environment, plus a number of initiatives from the operational side that could improve. So I think what we are embedded in this mid-single-digit growth for the year is us solving the operational needs. But I think if the macro improves, it can be a tailwind for TPV growth in the future as well. The only other thing that I would say is that even though there is a space to reaccelerate TPV growth medium term, I think it's also important to keep in mind that the biggest jackpot or the biggest prize is also in terms of how we engage in banking and credit within the ecosystem. So on one hand, we have this drag from digital transactions and from the macro. On the other hand, I think when you look at the execution of banking and credit, we're trending well, but the opportunity is very, very big. So that's where the focus is.

I have two on my side, please. First, on the credit business, just to double check if you are discontinuing your guidance on portfolio for 2027 or not? And if so, what has changed? And second, if I may follow up on your expenses and overall operating leverage. If you can walk us through your investment plans towards 2026 and 2027, what kind of investments are we talking about? What should we expect in terms of leverage, not only for '26 but also '27? Not sure on why we shouldn't see some leverage for '27, especially in a momentum where when we are discussing a lot about potential efficiency gains to come from AI and other tech development. So it would be interesting to hear from you, especially, as probably in this guidance, we are not considering any relevant pickup in TPV for 2027.

Let's begin with your inquiry about operational guidance for credit. We opted to discontinue the operational guidance metrics because it was appropriate at the time we introduced the 2027 guidance in 2023. Back then, we had a minimal credit portfolio and a smaller deposit balance, and we aimed to bridge the gap between 2023 and 2027. Looking at our current numbers, we find ourselves ahead of the plan regarding the credit portfolio but behind in terms of total payment volume. We are confident that the guidance we provided will help us achieve our plans, albeit with a different mix. This is why we no longer see the value in continuing specific guidance on operational KPIs. Regarding expenses, you can expect selling and marketing expenses to continue growing in 2026 as a percentage of total revenues, largely due to our new positioning and growth initiatives. The dedicated credit desk is new to the company and is contributing to our portfolio and top line, impacting 2026. For 2027, the guidance reflects a similar trend, but as the market progresses and AI evolves, the mix could potentially change. We are undertaking several new initiatives focused on gaining efficiency, which will be more of a long-term practice rather than large one-off actions, affecting both 2026 and beyond. These elements have not yet been included in the guidance because they are still fresh and we are in the learning phase.

Yes. Diego, if I may complement on one point. I think Kaio mentioned AI in the question. And it's really true that over the past six months, we've seen a meaningful acceleration in practical application of AI, not only in the company, but I think in the world as a whole. When I think long term, we do believe that AI agents will meaningfully improve productivity of several processes, including processes that historically in the company required large operational structures. But I think it's too soon to estimate those impacts. So when you look at the guidance for 2027, we're not including huge benefits from AI, even though we're doing all the effort to capture them over time.

Going back to the 2027 guidance, if we calculate a net income number with roughly 225 million shares, it's estimated to be between BRL 2.7 billion and BRL 3 billion. Initially, when this guidance was issued, the net income was projected to be above BRL 4.3 billion. I understand Linx, although it didn't contribute much to earnings, is involved in this context. The question is, what has changed significantly today besides the slower TPV, which is evident? There was an expectation that the take rate for payments would decrease, possibly offset by growth in credit. You've mentioned that credit growth is still achievable, and it has shown strong progress over the last year. What do you think accounts for the biggest difference between your initial guidance and the current situation that has led to such a lower estimate? Also, Mateus, congratulations on your new role as CEO. What would you identify as your top priority as you transition into this position?

So let me try to help you reconcile the numbers. So there are three big movements affecting the 2027 guidance. The first two effects are Linx divestments and the repurchases executed in 2025 and expected for 2026. These two movements combined have an effect of a little bit over BRL 2 billion in gross profit and BRL 1.3 billion in nominal net income. So these two effects would adjust our guidance from BRL 15 per share to BRL 13 per share. Therefore, at the top of the range of our new guidance, we are within the previous plan and guidance. On the lower range of the guidance, what you have is the inclusion of a number that reflects the short-term headwinds that we are currently facing. The execution on the newer verticals, particularly in credit and banking, continue to evolve positively, as we've mentioned, but TPV performance has been softer than we initially anticipated. So that's a bit of the dynamic that you see. So the revision is primarily driven by the portfolio changes and the capital allocation decisions, along with a more conservative view on near-term TPV trends rather than a deterioration in the core strategic initiatives.

And going to the second part of the question, Tito, around priorities. Let me start by saying the following. So I've been in the company for a while now, what is now, 11 years. And while a lot has evolved over that period, in terms of strategic direction, I think we've always had a pretty clear target, which is we built these very strong distribution channels. We serve our clients with passion, and we want to leverage that relationship to become the primary financial services platform for SMBs in Brazil. So I think in terms of vision, it remains unchanged. What we're doing now is really sharpening our execution to become more agile, and we're doing that by focusing on three priorities. The first one around payments. I think we've mentioned this a couple of times throughout the Q&A. But we're now at a stage where we've reached a leadership position in our core segments. And at this scale, the game evolves. So while onboarding new clients remains important, developing the capability to deepen the relationship with them through better engagement through cross-sell and retention is now as important, and that's priority number one. Second, when we think about banking and credit, we've built a solid foundation over the past three years. We're seeing encouraging results when you look at the portfolio and the deposit evolution, but we are very early relative to the opportunity ahead of us. So acceleration this execution on credit and banking while preserving the risk discipline that has defined the approach is priority number two. And the third one, I think Diego has touched on this topic as well. But when we look at what is happening in the world recently with the transformation underway in AI, we see substantial room to drive further productivity gains across the organization and to be more efficient in general. So efficiency is priority number three. So when we put that all together, again, I think it's much more about raising the bar on execution and trying to become a more agile organization than it is about shifting the direction of the company.

Okay, that's very helpful. To touch on the second point about AI, while it's not completely comparable, we've seen one of the payment peers in the U.S. significantly reduce their workforce. How do you view your own employee base? Is it at the right level, or is there potential for more productivity? Do you feel the need to grow? How do you see your position in light of potential efficiencies from AI and what you currently have?

That's a good question, Tito. So in terms of AI, over the past six months, we've seen meaningful acceleration in the application of AI across the company. We touched upon that in the earnings release as well. But when we think about our approach in the topic, it has been very deliberate. So we are really intentionally avoiding the temptation to launch dozens of disconnected pilots with no clear path to scale or without measurable economic impact. And instead, what we're doing is twofold. So first, we're focused on the core. Within the core, we have dedicated teams redesigning how we operate in key areas like customer service, the sales process, the hubs or even in risk. And I think we had a first successful example of this application within customer service, where we implemented AI agents to handle the first level interactions, and we had huge efficiencies there. The second front is really around AI enablement, which is making sure that everyone in the company has the modern AI tools available to use within their day-to-day. And when we democratize the access, we allow the teams to experiment and improve their workflows. And on the other hand, we centrally monitor the usage and then we establish the best practices to capture the efficiencies later. Now it's hard to talk about actual impacts or estimates at this time. I think the one thing that we're certain is that over time, we can massively improve productivity in the company by embedding AI. I think the how and how much is still too early to talk. But for sure, we're going to pursue those things over the medium term.

Our next question comes from Renato Meloni with Autonomous Research.

I would like to explore the guidance a bit more. And going back to your comments, Mateus, in the last call, you said that you still expected to see some expansion in the gross profit yield. And thinking back in light of lower rates, I was assuming that would be some price maintenance. At the same time, you're getting lower funding costs. But during the call today, I'm left with the impression that you're assuming the entire expansion is going to come from credit. So I'm curious what are your expectations here for the year given this scenario of low TPV growth and more churn, if you expect to pass through lower funding costs and monetize on the credit side? And then also within this, if you could just mention a little bit of the trajectory here of gross profit throughout 2026.

Yes, Renato, nothing really changed in terms of the pricing dynamics in payments. We still believe the price levels that we've been putting on the market are healthy. And as Mateus mentioned before, we don't see anything crazy being done or executed by competitors. That said, what we've always told is that once interest rates start coming down, we should benefit in the short term from tailwinds associated with the reduction on financial expenses and that in time, those reductions should be passed on not only to new sales but also to the client base. So that's what we currently have in our model, and we don't see that changing in the short term. When talking about the mix between TPV yield, TPV growth and gross profit margins, what I've been telling for quite some time now is really that gross profit margin should continue to expand based on the expansion of the other two main products, credit and banking, and that the ROE from payments on a stand-alone basis in the long term should continue to decline. Spreads should continue to decline in the long term, but are still super healthy.

Perfect. So then in terms of trajectory, assuming that we get the first cuts around the second half, you get one quarter of expansion there on the payment side? And how long does it take to pass through the benefit to clients?

Yes. Well, that's a tricky question, Renato. And naturally, that has to do with pace of sales, but also with churn levels. We monitor those two things on a daily basis. And based on the performance of those KPIs, we try to hold those spreads for as long as possible, but naturally tend to pass it through as competition enhances.

I'll return to the operating expenses. Sorry, can you hear me?

Now we can.

I am trying to understand how your increased operating expenses are linked to your strategy of offering a more comprehensive bundle and competing better on rates, especially with competitors being more aggressive in gaining market share. Should I interpret your higher operating expenses as a defensive move aimed at maintaining market share, or is this an effort to drive growth through increased spending on sales as part of an offensive strategy? I want to clarify whether your focus is on defending your current position by creating a bundle or attacking by exploring new opportunities. I'm looking for insights on your main objectives for 2026 and 2027. You have mentioned before that market share comes as a result, but I'm curious if your approach is more defensive or offensive. It's good to have this discussion with you.

Thanks for the question, Daniel. I think we have two different dynamics when we look at the short term versus when we look ahead. So short term, when we look at the selling expenses for the fourth quarter, what happened was that we had higher turnover in the third quarter. And therefore, we have hired more in the fourth quarter to replace that turnover, and that's why selling expenses increased primarily. Now when we look ahead, I think the reason why we're not being vocal about seeking too much efficiency in the short run in selling expenses is because we still think we need to invest heavily in terms of repositioning the company, not only as a payment provider, but as a provider of financial services as a whole. That will require capital, of course. But on the other hand, I think those investments should yield continued growth on the credit and banking operations as we move ahead. So again, I think we have two different dynamics. Short term is about hiring salespeople. Longer term, I think it's about this repositioning of the company to offer more bundles. And maybe a follow-up. On these bundles, I guess in the past, we have tried to see the Payments segment as more linked to the U.S. or any developed market software model kind of trying to upsell products for a service kind of revenue. But I don't know, maybe correct me if I'm wrong, but the Brazilian pay point here is working capital, and I think credit is the way how you monetize and how you maybe increase loyalty through your client base. Are you looking again into the service model? Has it changed any way the clients require or any specific needs from them you see? That's a very good question. So I think we're rolling out a lot of features within our banking that we call workflow tools. So it's basically helping our clients manage their businesses on their day-to-day operations. But I don't think the goal here is really to monetize those tools through service fees, but rather to have more lifetime value because clients become more stickier. In terms of monetization, the reality is that when we look at the country and the market, most of the TAM is around holding deposits and underwriting credit. What I would only complement that you said, you talked about working capital loans. I think there are one specific part of the credit value proposition. There are plenty of other products within credit, which we have launched and that we are developing. They are still very small, but they can be a lot bigger than they currently are, like overdraft, like the credit card operation itself and so on and so forth. So again, we're not giving up in terms of developing those workflow tools, but in terms of monetization, it's around financial services.

Mateus, in your prepared remarks, you mentioned improving execution, particularly regarding the boarding and the inputs that would contribute to volume. Could you provide more details on some of those execution initiatives at proposed volume?

Yes, for sure, Jamie. So I think we have two different dynamics, one related to new onboardings and the other ones related to churn. In terms of new onboarding, it's basically a full review that we did of our offerings and the go-to-market approach of each distribution channel. I think those initiatives have already been implemented, and we're starting to see the results. In terms of churn, what I would say is that historically, our focus as a company was heavily skewed towards optimizing the sales engine with a lot less emphasis on deepening engagement and systematically nurturing our existing client base. As we have scaled and the competitive landscape has evolved as well. Excellence in terms of retention and client relationship has become pretty important. So what we're doing now, broadly speaking, is basically implementing a new company-wide initiative focused on delivering highly customized bundles at a much more granular level. So again, it's basically about segmentation and personalization of offerings, which has become a lot more important now.

So Jamie, the more mature product, which is the working capital solution, it's converging well towards expected losses, margins and so forth. That said, we've been seeing the possibility to increase margins on that product, and it's something that we are executing on a monthly basis. On the short-dated products, especially on credit cards, you probably noticed an uptick on the volumes in the fourth quarter. That said, it's probably one of the products in which we probably have a bigger opportunity in 2026 when compared to 2025. There is still a lot to learn in terms of the credit underwriting of that product and also in other short-term facilities to riskier clients, but it is a focus of the firm for 2026. And then on the longer-dated products, we haven't launched anything yet. It's also something that is within our expectations for 2026, and that should provide a bigger support for the dedicated desk. We currently have a medium-term product for the dedicated desk. As you know, the dedicated desk is focused on slightly larger clients, not necessarily credit card businesses. And that's a bit of the portfolio that is slightly more volatile because of the concentration on the portfolio. And as we scale the three products and launch these additional features for that client base, you should see the portfolio maturing slowly going forward.

There are no more questions at this time. This concludes the question-and-answer session. I would like to pass the word back to Mateus Schwening for final considerations.

Thank you all for your support, and we'll see you in the second quarter.

This concludes today's presentation. You may now disconnect.