StoneCo Ltd

Overview

As of December 31, 2024 we served around 4.2 million active payments clients in Brazil including digital and brick-and-mortar merchants of all sizes and types, although our focus is primarily on targeting the approximately 14.1 million micro, small and medium-sized businesses, or MSMBs, in Brazil. We believe these merchants have been historically underserved and overcharged by traditional banks and legacy providers that use older technology, less effective distribution networks through bank branches, and outsourced customer service and logistics support vendors. In addition to our reach in payments, we have achieved more than 3 million banking active clients as of December 31, 2024. Since we resumed our credit product in 2023, we have already achieved a credit portfolio of more than R$1.2 billion as of December 31, 2024. In software, in 2023, we have selected four key strategic verticals to focus on integrations with financial services, namely gas stations, food, retail and drugstores.

The following is a summary of our key operational and financial highlights:

•We generated R$13,257.5 million of total revenue and income in the year ended December 31, 2024, compared with R$12,055.0 million of total revenue and income in the year ended December 31, 2023, representing annual growth of 10.0% and compared with R$9,588.9 million of total revenue and income in 2022, representing annual growth of 25.7%.

•We had a net loss of R$1,507.1 million and adjusted net income of R$2,200.0 million in the year ended December 31, 2024, compared with net income of R$1,600.4 million and adjusted net income of R$1,557.5 million in the year ended December 31, 2023 and compared with net loss of R$526.4 million and adjusted net income of R$410.5 million in the year ended December 31, 2022. See “Item 3. Key Information—Selected Financial Data” for a reconciliation of adjusted net income (loss) to our profit (loss) for the year.

•We processed TPV of R$516.2 billion, compared with R$438.3 billion in 2023, representing an annual growth of 17.8%, compared with R$380.6 billion in 2022, representing an annual growth of 15.2%.

•We served approximately 4.2 million Payments Active Clients as of December 31, 2024, compared with 3.5 million Payments Active Clients as of December 31, 2023, representing an annual growth of 18.5%, and compared with 2.6 million Payments Active Clients as of December 31, 2022, representing an annual growth of 36.3%.

•Software revenue reached R$1,526.7 million for the year ended December 31, 2024, compared with R$1,492.2 million for the year ended December 31, 2023, representing an increase of 4.7% and compared with R$1,419.8 million for the year ended December 31, 2022, representing an increase of 5.1%

Significant Factors Affecting our Results of Operations

Our Business

Our ability to attract and retain merchants, leading to higher volumes within our ecosystem

At the core of our strategy is a customer-centric culture that drives every decision we make. We believe that building strong, long-term relationships with our clients is fundamental to our success. A key pillar of this approach is the attraction and retention of clients, which not only strengthens our business but also reinforces our market presence and brand reputation.

As mentioned in “Item 4. Information on the Company—B. Business Overview—Business Model—3. Tech-enabled distribution”, to effectively expand our active client base, we leverage a multi-channel distribution strategy, allowing us to serve different customer segments with the right approach. By dynamically selecting the most effective channel for each customer profile, we aim to balance growth and profitability, helping to ensure that our expansion is both strategic and sustainable.

As a result of this expansion, we drive higher transaction volumes across our payments solutions — a key driver for revenue growth, given that a substantial part of our revenues come from fees earned as a percentage of our clients’ TPV.

In addition to acquiring new clients, our TPV is also driven by volume growth within our existing clients. As our Payments Active Clients grow their transaction volume, our TPV also grows. Our Active Clients are positioned in high-potential market segments. Despite the already high penetration of card and Pix volumes within PCE, we believe there is still a relevant opportunity for us to address among MSMBs, as we believe Brazil TAM can significantly expand beyond PCE considering intermediate consumption. We also target the e-commerce market, which we expect to grow faster than the overall payments market in Brazil.

As a result of our strategy, our TPV grew from R$275.4 billion for the year ended December 31, 2021, to R$516.2 billion for the year ended December 31, 2024, with a CAGR of 23.3%. At the same time, our number of active payments clients expanded from approximately 1.8 million Payments Active Clients as of December 31, 2021 to approximately 4.2 million Payments Active Clients as of December 31, 2024, with a CAGR of 33.2%, as shown in the graphs below:

Our ability to launch new products and drive higher client engagement

Acquiring new customers is crucial, but we believe that fostering loyalty through the best customer service and continuous innovation ensures sustainable growth. By deeply understanding our clients’ needs, we can provide tailored solutions that enhance their experience and create lasting value.

As a result, especially since 2021, our strategy has revolved around bundling financial solutions to maximize value for our clients while driving engagement and revenue growth. Banking and acquiring bundles are our primary entry point, allowing our clients to seamlessly integrate financial services into their daily operations, while also establishing a strong foundation for deeper product adoption. For example, our banking account provides merchants with a series of money-in and money-out functionalities, including wire transfers, Boletos, Pix, receiving funds from their sales, saving money, among others, as well as having a credit and debit card.

Evidence from our success in this strategy is the steady growth of heavy users - clients who use three or more of our financial solutions – which reached 37% of our client base by December 31, 2024, a 15-percentage point increase from the previous year. Heavy users are particularly valuable, as their deeper engagement with our ecosystem translates into higher revenue generation and stronger client retention.

To further enhance engagement, we are continuously expanding our ecosystem with new product launches, ensuring that clients find increasing value on our platform. A recent example of this strategy is our investments feature, launched in the third quarter of 2024. By continuously innovating and expanding our offerings, we strengthen client relationships, unlock new monetization opportunities, and solidify our position as the one-stop financial partner for MSMBs.

Rapid growth of our credit business and associated credit loss provisioning

The expansion of our revamped credit product is a key pillar of our strategy to enhance our value proposition for MSMBs, complementing our existing banking and acquiring bundles. By seamlessly integrating credit with our broader suite of financial services, we empower businesses with the liquidity they need to grow while increasing client engagement within our platform.

Besides offering prepayment solutions to our merchants, we can also provide working capital credit solutions to our clients needing further funding to expand their businesses. We leverage our client data to offer this solution in a proactive and cost-effective way, and we charge a specific risk adjusted rate to the client. Once onboarded, our clients can access credit through multiple channels in a simple and transparent way. Our credit offering enables our clients to pay back their loans effortlessly through the automatic retention of a percentage of their sales to pay for their monthly installment. Between July 2021 and February 2023, we temporarily stopped the credit issuance for new clients. We have since evolved our credit solution, focusing on building a fully automated process for credit underwriting, as we strive to make our decision models more sophisticated through the enrichment of data, strengthening our team and enhancing our risk policies, among other improvements. We relaunched our working capital credit solution in March 2023.

Throughout 2023 and early 2024, we took a very conservative approach towards provisions from this portfolio as our product and credit models develop and mature. Until the second quarter of 2024, our total provisions remained at 20% of the total portfolio, before gradually reducing towards our expected credit loss levels, reaching a provision rate of 12% in the fourth quarter of 2024. As our lending base grows and matures, we continuously refine our underwriting models, risk assessment processes, and collection strategies to maintain a balanced approach between growth and financial resilience. We have also expanded our portfolio to include credit cards and revolving loans, further diversifying our credit offerings. Refer to “Item 4. Information on the Company—B. Business Overview—Business Model—Our Solutions” for more details.

As of December 31, 2024 we reached a total credit portfolio of R$1,207.6 million, with overall provisions of R$144.5 million. NPLs 15-90 days for our consolidated credit portfolio were 2.47% and NPLs over 90 days were 3.61%, reflecting the natural outcome of the portfolio maturation process. As a result, our coverage ratio remains at healthy and high levels, standing at 331.2%.

Financing of our working capital solutions to our merchants

We provide working capital solutions to help merchants manage their cash flows more effectively. Through our prepayment solution, merchants can advance their future expected receivables from credit card installments paying a discount rate based on a percentage of the total volume prepaid. The discount rate depends on factors such as merchant size, the maturity of receivables to be prepaid, and local market dynamics. An overall increase in TPV generally increases financial income given an overall increase in the volume of prepayments. Higher levels of installment transactions usually lead to higher demand for our prepayment. On the other hand, a smaller share of credit transactions leads to a decrease in the ratio of financial income from prepayments relative to total revenue and income, since debit card transactions are only eligible for same-day prepayment.

Due to our working capital and credit solutions offering, optimizing funding costs is a key driver of our healthy margins. Through the date of this annual report, we have funded prepayments and credit to our Active Client base by (i) selling receivable rights owed to us by Card Issuers to banks we hold a commercial relationship with, or to special purpose investment funds, FIDCs that exclusively buy these receivables, (ii) using proceeds from general third-party borrowings, (iii) third-party deposits both from our clients and brokerage platforms, and (iv) using our own capital. For further information on our FIDCs, see “—Description of Principal Line Items—Financial Expenses, Net”. Our funding costs are primarily affected by our capital structure, interest rates, availability of third-party financing on attractive terms, and our ability to continue to attract investment into our FIDCs on appealing terms.

Economies of scale resulting from our Technology Platform

Our technology platform allows us to expand efficiently, by growing our volumes and increasing the number of clients while reducing marginal operational costs.

The technologically advanced and integrated nature of our platform also allows us to operate cost-effectively, reducing the need for operational personnel with a high level of automation. For example, we are able to onboard merchants as a result of a combination of different sources of data and run automatic risk checks within minutes. Also, our Green Angels team of operations and support personnel allows us to improve POS deployment costs as we further penetrate and grow our Active Client base within our Stone Hubs. For further information refer to “Item 4. Information on the Company—B. Business Overview—2. Comprehensive Merchant Platform”.

Interchange and assessment fees

Our revenue from processing services is mainly composed of the Net Merchant Discount Rate, or Net MDR, which is a commission withheld by us from the transaction value paid to the merchant. Our net revenue from MDR is defined as the total MDR charged to our merchants, net of interchange fees retained by Card Issuers, assessment fees charged by payment scheme settlors and sales taxes. Interchange fees are set by the payment schemes according to certain variables, including the type of card product (e.g. credit vs. debit), merchant segment, type of card (e.g., standard, gold, premium, business, others), transaction type (e.g. online vs. POS terminal), and the origin of the card (international vs. domestic). Assessment fees are charged per transaction by the payment scheme settlors, such as Visa and Mastercard, to cover the cost of providing access to their payment network.

We are unable to predict if or when payment schemes will increase or decrease their fees or the extent of such variations. Our standard contract with our clients allows us to re-adjust our rates and tariffs with prior notice to merchants to offset potential increases in interchange fees.

On March 22, 2018, the Central Bank enacted Circular No. 3,887, which issued a cap to interchange fees on debit transactions to 0.8% and maximum average interchange fee of 0.5% on total transaction volume. On September 26, 2022, the Central Bank enacted Resolution No. 246, which extended the regulation issued in 2018, in order to subject the interchange fees applicable to transactions based on both debit and pre-paid instruments, whether e-commerce or present transactions, to a cap. According to the Central Bank Resolution No. 246, effective on April 1, 2023, interchange on debit card transactions is subject to a 0.5% cap, and pre-paid cards, to a 0.7% cap.

Additionally, aiming to reduce asymmetries between debit and pre-paid instruments, the mentioned ruling stated that the payment scheme settlors must establish the same maximum liquidation deadline by Acquirers to the merchants on both schemes. Such change has also become effective on April 1, 2023.

For further information, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—If we cannot pass increases in fees from payment schemes, including assessment, interchange, transaction and other fees, or increases in fees due to macroeconomic factors such as interest rate increases along to our merchants, our operating margins will decline” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—Certain ongoing legislative and regulatory initiatives under discussion by the Brazilian Congress, the Central Bank and the broader payments industry may result in changes in the regulatory framework of the Brazilian payments and financial industries and may have an adverse effect on us”.

Investments in our operations

Whenever we decide to make stronger investments for growth in our operations, which may include investments in our distribution capabilities, marketing, technology, new financial services and software solutions, among others, we may see temporary impacts in our financial results. These investments can lead to lower margins, which may be accompanied by higher growth rates in our operation.

Timing differential between future revenues generated and investments

We expect to incur initial operational investments in periods prior to the realization of any future revenues associated with this upfront investment. For example, in the process of opening a new Stone Hub, we incur the expense of hiring a team of Stone Agents and Green Angels to set up the operation. As sales productivity from this Stone Hub ramps up and marginal operational costs are reduced, we realize greater contribution margins from our Stone Hubs.

In addition, as our credit product is recognized according to IFRS 9, credit provisions are made upfront as soon as the loan is disbursed, while revenues are recognized on an accrual basis according to the term of the loan. As a consequence, periods of accelerated customer acquisition typically lead to higher upfront provisions, which pressure gross profit and gross margin in those periods, even though the associated revenue will be earned over time.

Complement Solutions Offerings through Acquisition and Investment Activity

We have an established track record of investing, acquiring and integrating complementary technology solutions and businesses. Since January 1, 2016, we have made several acquisitions and minority investments, primarily in businesses or technologies that strengthen our solutions offerings. Our acquisition of Linx, the most relevant software deal we conducted, was concluded on July 1, 2021 and enabled us to become a leading retail management software company in Brazil.

The financial impact of acquisitions may affect the comparability of our results from period to period. In addition to the revenues and expenses associated with such acquisitions only being included in our financial results for any period upon the closing of the acquisition, we will incur transaction and other expenses associated with acquisitions, including amortization of intangibles relating to those acquisitions, which can negatively impact our profit (loss). Amortization of intangibles related to acquisitions can vary substantially from company to company and from period to period depending upon the applicable financing and accounting methods, the fair value and average expected life of the acquired intangible assets, the capital structure and the method by which the intangible assets were acquired.

In connection with the acquisitions we made over our history, we recorded amortization expense for the years ended December 31, 2024, 2023 and 2022 of R$122.8 million, R$92.4 million and R$138.6 million, respectively, related to the fair value adjustment on intangible assets, primarily software, property and equipment, customer relationship, trademarks and patents and exclusivity rights, in accordance with the acquisition method.

In addition, any goodwill impairment related to acquired assets may also affect the comparability of results between periods. For instance, in the year ended December 31, 2024 we recorded a goodwill impairment on the Linx asset of R$3.6bn, which affected our accounting net income for the year. No impairments charges were recognized in the years ended December 31, 2023 and 2022.

Macroeconomic environment

The vast majority of our operations are located in Brazil. As a result, our revenues and profitability are subject to political and economic developments and the effect that these factors have on the availability of credit, disposable income, employment rates and average wages in Brazil. Our results of operations are affected by levels of consumer spending, interest rates and the expansion or retraction of consumer credit in Brazil, each of which impacts the number and overall value of payment transactions. For more information, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Brazil—Economic uncertainty and political instability in Brazil may harm us and the price of our Class A common shares” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Brazil—Developments and the perception of risks in other countries, including other emerging markets, the United States and Europe, may harm the Brazilian economy and the price of securities issued by companies operating in Brazil, including the price of our Class A common shares”.

Brazil is the largest economy in Latin America, as measured by gross domestic product, or GDP. The following table shows data for real GDP, inflation and interest rates in Brazil and the U.S. dollar/real exchange rate at the dates and for the periods indicated.

Interest rate

Interest rates have an effect on our ability to generate revenue and directly affect our cost of funds. Higher interest rates can reduce private consumption, negatively impacting our TPV, while also increase our funding costs, as most of our third-party funding is linked to the Brazilian’s interest base rate. Usually, when there is an increase in interest rates, and thus, in funding costs, there is a time lag before we are able to pass on price increases to clients, which temporarily pressures our margins. On the other hand, when interest rates go down, we immediately benefit from higher spreads, improving our margins. In 2022, with the strong hike in interest rates which started in the second half of 2021, we have significantly evolved our pricing policy and internal processes to be able to reprice clients when needed in a faster and seamless way. We will continue to optimize our pricing strategy, guaranteeing we are within the return hurdles established for each client.

Inflation

Inflation has an effect on our obligations towards certain suppliers, such as office leasing and telecommunications providers, whose costs are indexed to inflation rates. However, most of our revenues are naturally hedged against inflation, since if our merchants raise their prices due to inflation, this will positively impact our TPV and, consequently, our revenues. In the financial services segment, our TPV tends to fluctuate according to inflation. When merchants adjust their prices for inflation, the purchasing power of consumers may be reduced, which may adversely affect our revenue if it results in a reduction in the number and volume of transactions. In the software segment, the subscription fee is periodically updated by an inflation index.

Currency fluctuations

The results of our operations are primarily denominated in reais (R$). However, our results may be subject to currency fluctuations as we hold cash, debts, accounts payable and receivables denominated in foreign currency (primarily U.S. dollars). For example, we process transactions originated from our Active Client base in Brazil with credit cards issued by foreign banks that are settled in a foreign currency. In addition, we purchase items that have their prices partially indexed to U.S. dollars, such as POS devices, other equipment and our data centers. To partially offset our exchange rate risk, we may use derivative contracts. For the year ended December 31, 2024, 2023 and 2022, we had a net foreign currency gain (loss) of R$(19.8) million, R$(13.6) million and R$19.0 million, respectively.

Impact of pandemics, widespread health epidemic or other outbreaks

The Brazilian economic outlook may worsen as a result of pandemics, such as novel variants of the COVID-19 pandemic, widespread health epidemics or other outbreaks. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Operations—An occurrence of a natural disaster, widespread health epidemic or other outbreaks could have a material adverse effect on our business, financial condition and results of operations” for information on the impact of the pandemics, widespread health epidemics or other outbreaks on our business.

Acquisitions

Linx Acquisition

In August 2020, we signed a definitive agreement for STNE Par, a company controlled by us that holds our software investments business in Brazil, to combine its business with Linx (“Linx Acquisition”). Pursuant to the terms and subject to the conditions set forth in the Association Agreement and its amendments, each Linx S.A. share issued and outstanding immediately prior to the consummation of the transaction was automatically contributed to us in exchange for one newly issued redeemable STNE Par Class A Preferred Share and one newly issued redeemable STNE Par Class B Preferred Share. Immediately thereafter, each STNE Par Class A Preferred Share was redeemed for a cash payment and each STNE Par Class B Preferred Share was redeemed for 0.0126730 BDR Level 1 (“StoneCo BDR”), admitted to trading on B3, provided that each one StoneCo BDR corresponded to one StoneCo Class A Share. The Linx Acquisition was concluded on July 1, 2021.

Transaction with Banco Inter

In May 2021, we signed a definitive investment agreement with Banco Inter, a fast-growing digital bank in Brazil, whereby we would invest up to R$2.5 billion, becoming a minority investor of Banco Inter. The Banco Inter investment was implemented in June 2021, whereby we acquired shares corresponding to 4.99% of Banco Inter’s capital stock. As part of the Banco Inter investment, we acquired the right of first refusal in the case of change of control of Banco Inter for a period of six years and according to certain price thresholds; and the right to join the board of directors of Banco Inter with one seat out of nine.

In May 2022, we agreed to sell 21.5% of our stake in Banco Inter through a cash-out option offered in Banco Inter’s corporate restructuring for a total of approximately R$181 million. In February 2023 we sold our remaining stake in Banco Inter for the total price of R$218 million. After the sale, we no longer have the right of first refusal in the case of change of control and a seat on the board.

Transaction with Reclame Aqui

On February 17, 2022 we acquired 50% of equity interest in Reclame Aqui Holdings Limited (“Reclame Aqui”) for R$230.1 million. Reclame Aqui is an unlisted company based in Cayman Islands, with operations in Brazil, whose main activity is related to a public electronic platform for resolution of conflicts between customers and companies.

We have joined the board of directors of Reclame Aqui with two seats out of four, and have the right to appoint the Chief Financial Officer. We also have a call option to acquire the remaining equity interest on Reclame Aqui to hold 100% of such entity, which can be exercised between January 1, 2027 and July 30, 2027.

The agreement with selling shareholders provides contingent consideration linked to net revenue performance related to 2023 and 2025 fiscal years. The amount of contingent consideration is limited to R$145.5 million.

Description of Principal Line Items

The following is a summary of the principal line items comprising our statement of profit or loss.

Our total revenue and income consists of the sum of our net revenue from transaction activities and other services, net revenue from subscription services and equipment rental, financial income and other financial income.

Net revenue from transaction activities and other services

Our net revenue from transaction activities and other services consists of commissions and fees charged for end-to-end processing services we provide, which include the capture, routing, transmission, authorization, processing, and settlement of transactions, carried out using credit, debit and prepaid cards, meal vouchers, payment slips (Boletos), Pix QR Code and other APMs.

Our net revenue from transaction activities and other services consists mainly of:

•Net MDR on cards and Pix QR Code transactions, which is a commission withheld by us that is discounted from transactions values paid to the merchant, and/or other per-transaction commissions for providing gateway services.

•Transactional services related to our banking operation, including interchange fees from credit and debit cards issued by us and wire transfer fees.

•Software revenues which are non-recurring by nature, such as setup fees.

•Revenues from our registry of receivables (TAG).

•Revenues related to membership fees. Until December 31, 2023 revenue from membership fees was recognized at agreement inception. From January 1, 2024 onwards, we began to recognize revenues from membership fees deferred through the expected lifetime of the client. The new criteria has been adopted and been applied prospectively. For further details refer to note 17 toour Consolidated Financial Statements.

We recognize revenue from transaction activities when the purchase transaction is captured. We recognize revenue from other services when the service is rendered. For more information on our revenue recognition policies, see note 17.1 of our audited annual consolidated Financial Statements. License fees paid to payment schemes are included in the cost of services as discussed below. Our Net MDR revenue is recognized net of interchange fees retained by Card Issuers, assessment fees charged by payment schemes and deductions. Such deductions consist primarily of the applicable Brazilian sales taxes and social security contributions: service tax (ISS); contributions to the Brazilian government’s Social Integration Program (PIS); and contributions to the Brazilian government’s social security program (COFINS). We are required to collect each of the above-mentioned taxes and contributions on our transaction activities and other services.

Net revenue from subscription services and equipment rental

We earn monthly recurring revenue from subscription services and equipment rental, which include rentals of electronic capture equipment, monthly fees charged for the use of our software solutions and other solutions or services, such as reconciliation solutions, business automation, helpdesk services, software hosting services, support teams and connectivity services, among other services. Revenue generated by electronic capture equipment rental varies according to the value of the equipment, the quantity of equipment rented to a particular merchant and the location of the merchant. Each subscription service fee is charged as a fixed monthly fee and is either billed and deducted from the merchant’s transaction receivables or is billed to the client monthly. We recognize revenue from subscription services as the services are rendered and from equipment rental on a straight-line basis over the lease term. We also recognize revenues on commissions from our insurance solution within our digital banking offering. The amounts deducted from our revenue from subscription services and equipment rentals consist primarily of the applicable Brazilian sales taxes and social security contributions, including ISS, PIS and COFINS. We are required to collect each of the above-mentioned taxes and contributions on our subscription services and equipment rentals when applicable.

Financial income

Financial income is generated mainly by (i) fees charged for the prepayment of our clients’ receivables from credit card transactions, (ii) yield on liquid securities on which we invest cash from client deposits of our digital banking, and (iii) our credit operations.

Some merchants allow Cardholders to elect to pay for purchases in multiple installments. We allow our merchants to elect early payment of single or multiple installment receivables, less a prepayment fee.

The prepayment fee included in financial income is charged, in addition to our payment processing transaction fees, as described above under “—Net revenue from transaction activities and other services.” The prepayment fee is recognized as financial income once the merchant elects for the receivable to be prepaid. If the merchant elects prepayment of a receivable on a weekend or bank holiday, the prepayment fee will be recognized in financial income on a daily basis. The expenses we incur in funding the prepayment of receivables and credit operations are included in financial expenses as discussed below. For more information regarding our working capital solutions, see “Item 4. Information on the Company—B. Business Overview—Our Solutions.”

Financial income also includes the results from our credit solution which is recognized under the effective interest method.

Other financial income

Our other financial income consists principally of interest income and fair value gains (losses) of cash and cash equivalents and short-term investments.

Our cost of services include transaction costs, depreciation and amortization (“D&A”), personnel expenses related to technology, logistics, customer service, risk, operations and others, costs to deploy merchant equipment, payment scheme license fees, provisions for credit losses and provisions for acquiring and banking losses, and other costs. For further information on these costs, see note 18 to our Consolidated Financial Statements.

•Transaction costs consist of amounts related to processing, data center and cloud costs, operating software, telecommunications costs related to leased terminals and wire transfer costs and other transactional costs related to our banking operations.

•Depreciation and amortization expenses are allocated to cost of services, administrative and selling expenses. Depreciation and amortization included in our cost of services consists mainly of (i) depreciation of equipment leased to merchants, (ii) the amortization of software that we develop internally for use in our operations, (iii) depreciation of data center used in our processing operations and (iv) amortization of right-of-use assets due to the adoption of IFRS 16.

•Personnel expenses include wages, benefits (such as meal and transportation vouchers and medical insurance), variable compensation, overtime, courses and training, social contribution and payroll taxes, including contributions to the Brazilian Social Security Institute (INSS) and the Brazilian Unemployment Compensation Fund (FGTS). Personnel expenses are divided between cost of services, administrative expenses and selling expenses. Personnel expenses included in cost of services relate to customer relations personnel, certain personnel in our technology and risks team, logistics personnel, and other personnel that support our transaction processing and other services.

•Costs to deploy merchant equipment consist of third-party supplier logistics services and internal and external costs related to delivery and refurbishment of leased equipment to merchants and other supply chain costs.

•Payment scheme license fees under cost of services are fees paid to Visa, Mastercard and other card schemes to enable communications between network participants, access to specific reports, expenses related to projects involving the development of new functions, operational fixed fees, fees related to Chargeback restatements and royalties.

•Provisions for credit losses refer to provisions booked for potential defaults from our credit products, mainly working capital loans, revolving credit and credit cards. Provisions for credit losses are booked according to IFRS 9 rules.

•Provisions for our acquiring and banking businesses include provisions related to potential Chargebacks, default by issuers and risks associated with fraud. Chargebacks may occur due to a variety of factors, such as a claim by the Cardholder or cases of fraud. If we are unable to collect Chargeback or refund from the merchant’s account, or if the merchant refuses to or is unable to reimburse us for a Chargeback or refund due to closure, bankruptcy, or other circumstances, and, we bear the loss for the amounts paid to the Cardholder.

•The portion of our other expenses that form part of our cost of services includes items such as costs from our registry of receivables (TAG) and losses from Chargebacks, which consist of transactions credited back or refunded to the Cardholder in the event a billing dispute between a Cardholder and merchant is not resolved in favor of the merchant.

Administrative expenses represent the amounts that we spend on back-office activities, quality control, indirect relations with our clients and overhead. These amounts consist of certain personnel expenses, third party services expenses, depreciation and amortization and other expenses.

•The portion of our personnel expenses that form part of our administrative expenses relate to our finance, legal, human resources, administrative, courses, events expenses and other administrative personnel, including new software companies’ team.

•The portion of our third-party services expenses include (i) fees paid for professional services, including legal, tax and accounting services, (ii) consultancy fees and (iii) expenses associated with investor relations, register and transfer agent fees, incremental insurance costs, and accounting and legal services.

•The portion of our depreciation and amortization expenses that forms part of our administrative expenses relates to (i) the depreciation of the equipment, furniture, tools and technology used in our head office, back-office, and other operations, (ii) the amortization of acquired intangibles, (iii) the amortization of software developed internally to support our head office and back-office needs and (iv) depreciation of right-of-use of leased assets.

•The portion of our other expenses that form part of our administrative expenses includes items such as facilities, rent, travel, lodging, insurance, reimbursement of staff expenses and office supplies.

Selling expenses represent the amounts we spend with commercial teams, marketing, publicity, commissions for third-party commercial partners, depreciation expenses and other expenses.

•The portion of our personnel expenses that form part of selling expenses relates to our commercial team which has direct interactions with potential and existing clients. The main portion of this team are individuals who act in a direct sales model.

•The portion of our commissions for third-party commercial sales partners that form part of our selling expenses relates to amounts paid for sales partners or franchisees that act directly with potential clients in some determined areas. These sales partners are generally evaluated and paid in accordance with the delivery of certain indicators.

•The portion of marketing and advertising expenses included in our selling expenses relates to the production and distribution of our marketing and advertising campaigns on traditional offline media, traditional online advertising, the positioning of our products in internet search platforms and expenses incurred in relation to trade marketing at events.

•The portion of our depreciation expenses included in selling expenses relates to the right-of-use of leased assets.

•The portion of our other expenses that form part of our selling expenses includes items such as facilities from our hubs, software expenses arising from tools used by our commercial teams and travel expenses.

Our financial expenses, net include (i) discounts charged to us for the sale of our receivables from Card Issuers either to commercial banks or capital market structures, (ii) interest expense on our other borrowings, (iii) the net amount of foreign currency gains and losses on cash balances denominated in foreign currencies, (iv) the gain or loss on derivative financial instruments not recognized in other comprehensive income, (v) interest expense on client deposits, and (vi) bank services fees.

To date, we have funded our working capital solutions primarily by (i) selling receivables owed to us by Card Issuers to banks, (ii) selling receivables owed to us by Card Issuers to FIDCs and special purpose vehicles (“SPVs”), (iii) raising debt, either through capital markets or banking facilities, (iv) with our own capital, (v) through the issuance of debentures and financial bills, and (vi) institutional and retail deposits through our finance company, originated from both own and third-party distribution channels. For further information regarding our financial liabilities, see note 6.8 to our Consolidated Financial Statements and “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Note on the impact of different funding sources for working capital solutions to our clients on our cash flow statement ”.

All of our Institutional Deposits and Marketable Debt Securities and Other Debt Instruments, as of December 31, 2024, 2023 and 2022 were denominated in Brazilian reais, except for the issuance of our inaugural bonds in June 2021 and for FIDC ACR I, which was issued in reais, but its contribution was made by a special purpose vehicle denominated in US Dollars - swapped to reais.

Mark-to-market on equity securities designated at FVPL

Mark-to-market on equity securities designated at fair value through profit or loss (“FVPL”) relates to mark-to-market gains or losses from our investment in Banco Inter, which was accounted for at fair value through profit and loss. In the first quarter of 2023, we divested our stake in Banco Inter. As a result, from 2Q23 onwards, our profit & loss statement no longer includes mark-to-market gains or losses associated with this investment.

Software business goodwill impairment

Software business goodwill impairment refers to the result of the annual impairment test of the Company and its subsidiaries which led to an impairment of the software CGU in the fourth quarter of 2024. For more information, see note 11.4 to our Audited Consolidated Financial Statements.

Other operating expenses, net

Other operating expenses, net consist mainly of share-based payments, contingencies, write off and sale of POSs, divestment of assets, donations and miscellaneous income and/or expenses items. For further information around share-based payments, please refer to “Item 6. Directors, Senior Management and Employees—B. Compensation—Long-Term Incentive Plans (LTIP)” and note 20 to our Consolidated Financial Statements.

Gain (loss) on investment in associates

Gain (loss) on investment in associates consists mainly of results from operations from other entities that are not consolidated into our financial statements.

Income tax and social contributions

Current income tax and social contribution tax on net profits

We are domiciled in Cayman and there is no income tax in that jurisdiction. Despite that, some operations abroad can be subject to a withholding income tax at the main rate of 15%.

The combined rate applied to all entities in Brazil is 34%, comprising the Corporate Income Tax and the Social Contribution on Net Income on the taxable income of each Brazilian legal entity (not on a consolidated basis).

Our tax assets for the current year are calculated based on the expected recoverable amount, and tax liabilities for the current year are calculated based on the amount payable to the applicable tax authorities. The tax rates and tax laws used to calculate this amount are those enacted or substantially enacted at the reporting date. We periodically evaluate our tax positions with respect to interpreting tax regulations and, when appropriate, establish provisions. Due to the nature of income tax and social contributions in Brazil described above, where income tax and social contributions are payable on a legal entity basis as opposed to on a consolidated basis, tax losses for one subsidiary entity cannot be used to offset income tax owed by other subsidiary entities.

Deferred income tax and social contributions tax on net profits

The accounting records of deferred tax assets on income tax losses and/or social contribution loss carryforwards, as well as those arising from temporary differences, are based on technical feasibility studies which consider the expected generation of future taxable income, taking into account the history of profitability for each subsidiary individually. In accordance with the Brazilian tax legislation, and as a general rule, loss carryforwards can be used to offset up to 30% of taxable profits for the year and do not expire.

Our deferred tax income (expenses) are mainly generated by our net tax operating loss (gain) and by expenses with tax credits offset or to be offset. See note 9 to our audited annual Consolidated Financial Statements.

Tax Incentives

Similar to other Brazilian companies across multiple industries, we benefit from certain tax and other government-granted incentives associated with technological innovation under Law 11,196 (Lei do Bem), which enable us to reduce the Corporate Income Tax base. For the effective tax rate reconciliation, see note 9 to our Consolidated Financial Statements.

Results of Operations for the Years Ended December 31, 2024, 2023 and 2022

The following table sets forth our statement of profit or loss for the years ended December 31, 2024, 2023 and 2022.

TPV and Payments Active Clients

The following table sets forth our TPV and Active Clients for the years ended December 31, 2024, 2023 and 2022:

As discussed in “—Significant Factors Affecting our Results of Operations,” TPV is one of the main drivers of revenue for our business. Growth for the year ended December 31, 2024, both in TPV and Payments Active Clients, was driven mainly by strong addition of MSMB clients (micro, small and medium-sized businesses), in line with our strategy.

MD&A for the Year Ended December 31, 2024 compared to the Year Ended December 31, 2023

Total revenue and income was R$13,257.5 million for the year ended December 31, 2024, an increase of R$1,202.5 million or 10.0% from R$12,055.0 million for the year ended December 31, 2023. Total revenue and income growth in 2024 was driven by an 11.4% increase in financial services platform revenues, as a result of Active Client base growth and higher client monetization from clients, for both MSMBs and Key Accounts.

Net revenue from transaction activities and other services

Net revenue from transaction activities and other services was R$3,216.0 million for the year ended December 31, 2024 a decrease of R$93.7 million or (2.8%) from R$3,309.8 million for the year ended December 31, 2023. This decrease was attributable to lower membership fees revenues, following a change in our internal methodology. From January 1, 2024 onwards, we began to recognize revenues from membership fees deferred through the expected lifetime of the client (see note 17.1.1.1 to our audited annual Consolidated Financial Statements). Up to December 31, 2023, revenues were recognized fully at agreement inception. The new criteria has been adopted prospectively. As a result, revenues from membership fees contributed with R$124.8 million to our transaction activities and other services revenue in 2024, compared with R$315.9 million in 2023. This effect was partially offset by the growth of our transactional acquiring and banking revenues, with total TPV growing 17.8% year over year.

Net revenue from subscription services and equipment rental

Net revenue from subscription services and equipment rental was R$1,846.9 million for the year ended December 31, 2024, an increase of R$22.0 million or 1.2% from R$1,825.0 million for the year ended December 31, 2023. This increase was primarily attributable to higher equipment rental and software revenues, being partially offset by the divestment of Creditinfo (4Q23) and PinPag (1Q24), which were in the Non-allocated business segment.

Financial income

Financial income for the year ended December 31, 2024 was R$7,676.2 million, an increase of R$1,446.9 million or 23.2% from R$6,229.3 million for the year ended December 31, 2023, as a result of higher (i) prepaid volumes, (ii) credit revenues, which contributed with R$225.5 million to financial income in 2024, compared with R$40.4 million in 2023, and (iii) floating interest from our banking solutions.

Other financial income

Other financial income was R$518.3 million for the year ended December 31, 2024, a decrease of R$172.7 million or (25.0%) from R$691.0 million from the year ended December 31, 2023, mainly due to lower average CDI, decreasing from 13.21% in 2023 to 10.83% in 2024, combined with a lower average cash balance year over year.

Cost of services for the year ended December 31, 2024 was R$3,389.1 million, an increase of R$406.4 million, or 13.6%, from R$2,982.8 million for the year ended December 31, 2023. Cost of services as a percentage of total revenue and income was 25.6% for the year ended December 31, 2024, 0.8 percentage points higher than the 24.7% reported in the year ended December 31, 2023. The nominal increase in our cost of services was primarily driven by higher (i) D&A and logistics costs, as we continue to expand our Active Client base, (ii) higher provisions for loan losses, which totaled R$62.1 million in 2023 and R$89.8 million in 2024, and (iii) higher investments in technology and operating software.

Administrative expenses for the year ended December 31, 2024 were R$1,130.5 million, a decrease of R$58.4 million or (4.9%) from R$1,188.9 million for the year ended December 31, 2023. Administrative expenses as a percentage of total revenue and income were 8.5% for the year ended December 31, 2024, 1.3 percentage points lower than the 9.9% reported for the year ended December 31, 2023. The nominal decrease in our administrative expenses was primarily driven by (i) the divestment of Creditinfo (4Q23) and PinPag (1Q24), which were booked in the Non-allocated business segment, combined with lower (ii) facilities and (iii) third party services expenses. These effects were partially offset by higher expenses with our personnel. As a percentage of revenues, administrative expenses decreased due to efficiency gains in our business.

Selling expenses were R$2,105.5 million for the year ended December 31, 2024, an increase of R$407.2 million or 24.0% from R$1,698.3 million for the year ended December 31, 2023, primarily attributable to higher investments in (i) our salespeople, (ii) marketing and (iii) partner commissions.

Financial expenses, net were R$3,693.6 million for the year ended December 31, 2024, a decrease of R$305.9 million from R$3,999.5 million for year ended December 31, 2023. This decrease was mainly due to a lower average CDI Rate year over year, decreasing our cost of funding, combined with our decision to reinvest more of our cash generation towards the funding of our operation. CDI Rate in Brazil decreased from an average of 13.21% in 2023 to an average of 10.83% in 2024. This effect was partially offset by higher funding needs from our prepayment and credit operations.

Mark-to-market adjustments on equity securities designated at FVPL

In 1Q23, we divested from our stake in Banco Inter. As a result, from 2Q23 onwards, our profit & loss statement no longer includes mark-to-market gains or losses associated with this investment. Mark-to-market gains in our investment in Banco Inter were null in 2024, compared to R$30.6 million in the year ended December 31, 2023.

Software business goodwill impairment

As a result of the annual impairment test of the Company and its subsidiaries, management has recognized an impairment loss of R$ 3,558.0 million for the Software business unit. Despite our progress in cross-selling initiatives, the winner approach has been through the financial services channels, rather than the software ones as originally expected. As a result, a larger share of the economics has been allocated in the financial services cash generating-unit. In addition, recent trends in the organic software unit led to a revision in our long-term expectations for the segment. Both these factors, combined with a more challenging macroeconomic scenario, resulted in the impairment booked. For more information, see note 11.4 to our Consolidated Financial Statements.

Other income (expenses), net

Other operating expenses, net were R$398.7 million for the year ended December 31, 2024, an increase of R$157.5 million or 65.3% from R$241.2 million for the year ended December 31, 2023. This is mainly related to (i) the reversal of earn-out provisions in the year ended December, 2023 which did not occur again in 2024.

Profit (loss) before income taxes

As a result of the foregoing explanations, loss before income taxes was R$1,017.6 million for the year ended December 31, 2024, a variation of (R$2,988.4) million compared to a profit before income taxes of R$1,970.8 million for the year ended December 31, 2023. The nominal decrease in loss before income tax was a result of the impairment in the amount of R$3,558.0 million in our Software business unit. Excluding the impairment, profit before income taxes would have been R$2,540.4 million, up 28.9% in comparison with 2023, mostly as a result of consolidated revenue growth, combined with lower financial expenses in the period.

Income tax and social contribution

Income tax and social contribution was an expense of R$489.4 million for the year ended December 31, 2024, compared to R$370.4 million for the year ended December 31, 2023, mainly due to the growth of taxable income in 2024 compared to 2023.

For further information about our income taxes, see note 9 to our Consolidated Financial Statements.

Net income (loss) for the year

As a result of the foregoing effects, net loss was R$1,507.1 million for the year ended December 31, 2024 compared to a net income of R$1,600.4 million for the year ended December 31, 2023. The nominal decrease in net income was a result of the impairment in our Software business unit. Excluding the impairment, net income for the year ended December 31, 2024 would have been R$2,051.0 million, increasing from R$1,600.4 million for the year ended December 31, 2023 as a result of the same items mentioned for Profit/ Loss before income taxes. See “Presentation of Financial and Other Information—Selected financial data” for a reconciliation of adjusted net income (loss) to our profit (loss) for the period.

Adjusted net income

Adjusted net income was R$2,200.0 million for the year ended December 31, 2024, an increase of R$642.5 million from R$1,557.5 million for the year ended December 31, 2023. The higher adjusted net income is mainly explained by the improvement in total revenue and income net of adjusted financial expenses of 18.3% year over year, as a result of the growth of our operations, combined with efficiency gains in administrative expenses. These effects were partially offset by higher selling expenses and cost of services.

MD&A for the Year Ended December 31, 2023 compared to the Year Ended December 31, 2022

Total revenue and income was R$12,055.0 million for the year ended December 31, 2023, an increase of R$2,466.1 million or 25.7% from R$9,588.9 million for the year ended December 31, 2022. Total revenue and income growth in 2023 was driven by a 29.8% increase in financial services platform revenues, as a result of Active Client base growth and higher monetization from clients, mainly in our MSMB segment.

Net revenue from transaction activities and other services. Net revenue from transaction activities and other services was R$3,309.8 million for the year ended December 31, 2023 an increase of R$692.4 million or 26.5% from R$2,617.4 million for the year ended December 31, 2022. This increase was primarily attributable to (i) the 11.2% higher TPV year over year and (ii) revenue streams from other solutions including banking and Pix. According to note 17.3 of our financial statements, membership fees contributed with R$315.9 million to our transaction activities and other services revenue in the period, compared with R$230.6 million in 2022.

Net revenue from subscription services and equipment rental. Net revenue from subscription services and equipment rental was R$1,825.0 million for the year ended December 31, 2023, an increase of R$64.0 million or 3.6% from R$1,760.9 million for the year ended December 31, 2022. This increase was primarily attributable to higher software revenues.

Financial income. Financial income for the year ended December 31, 2023 was R$6,229.3 million, an increase of R$1,591.3 million or 34.3% from R$4,638.0 million for the year ended December 31, 2022, primarily attributable to (i) higher prepaid volumes, and (ii) floating interest from our banking solutions.

Other financial income. Other financial income was R$691.0 million for the year ended December 31, 2023, an increase of R$118.4 million or 20.7% from R$572.6 million from the year ended December 31, 2022, mainly due to (i) higher average cash balance, and (ii) higher average base rate in Brazil in the period.

Cost of services for the year ended December 31, 2023 was R$2,982.8 million, an increase of R$313.0 million, or 11.7%, from R$2,669.8 million for the year ended December 31, 2022. Cost of services as a percentage of total revenue and income was 24.7% for the year ended December 31, 2023, 3.1 percentage points lower than the 27.8% reported in the year ended December 31, 2022. The nominal increase in our cost of services was primarily driven by (i) higher investments in technology and logistics, (ii) higher depreciation and amortization (D&A) costs, as we continue to expand our client base, and (iii) higher provisions from credit losses, which contributed R$62.1 million in 2023. As a percentage of revenues, cost of services decreased due to operating leverage in our business.

Administrative expenses for the year ended December 31, 2023 were R$1,188.9 million, an increase of R$67.5 million or 6.0% from R$1,121.4 million for the year ended December 31, 2022. Administrative expenses as a percentage of total revenue and income were 9.9% for the year ended December 31, 2023, 1.8 percentage points lower than the 11.7% reported for the year ended December 31, 2022. The nominal increase in our administrative expenses was primarily driven by (i) higher personnel expenses and (ii) higher amortization of fair value adjustments due to software acquisitions. These effects were partially compensated by (a) lower expenses related to third-party services and (b) lower travel expenses. As a percentage of revenues, administrative expenses decreased due to operating leverage in our business.

Selling expenses were R$1,698.3 million for the year ended December 31, 2023, an increase of R$187.0 million or 12.4% from R$1,511.2 million for the year ended December 31, 2022, primarily attributable to higher investments in our distribution channels, including increased expenses for partner commissions, partially offset by lower marketing expenses.

Financial expenses, net were R$3,999.5 million for the year ended December 31, 2023, an increase of R$484.7 million from R$3,514.7 million for year ended December 31, 2022. This increase was mainly due to the significant increase in the average CDI Rate year over year, which increases our cost of funding, in addition to a higher prepayment volume. CDI Rate in Brazil increased from an average of 12.45% in 2022 to an average of 13.21% in 2023.

Mark-to-market adjustments on equity securities designated at FVPL

Mark-to-market gains in our investment in Banco Inter totaled R$30.6 million in 2023. In 1Q23, we divested our stake in Banco Inter. As a result, from 2Q23 onwards, our profit & loss statement no longer includes mark-to-market gains or losses associated with this investment. This compares to a loss of R$853.1 million in the year ended December 31, 2022.

Other operating expenses, net

Other operating expenses, net were R$241.2 million for the year ended December 31, 2023, a decrease of R$61.3 million or 20.3% from R$302.5 million for the year ended December 31, 2022. This is mainly related to (i) the reversal of earn-out provisions, (ii) benefits from the divestment of assets and (iii) lower POS write off, partially offset by higher share-based compensation expenses due to an increase in the share price in the period.

Profit/ Loss before income taxes

Profit before income taxes was R$1,970.8 million for the year ended December 31, 2023, a variation of R$2,358.1 million compared to a loss before income taxes of R$387.3 million for the year ended December 31, 2022. This is mainly related to (i) the growth in our total revenue and income, and (ii) lower losses from mark-to-market in the investment in Banco Inter. These effects were partially offset by higher financial expenses.

Income tax and social contribution

Income tax and social contribution was an expense of R$370.4 million for the year ended December 31, 2023, compared to R$139.1 million for the year ended December 31, 2022. The main effect was the growth of taxable income in 2023 compared to 2022.

For further information about our income taxes, see note 9 to our Consolidated Financial Statements.

Net income (loss) for the year

Net income was R$1,600.4 million for the year ended December 31, 2023 compared to a net loss of R$526.4 million for the year ended December 31, 2022. The main factors that contributed to the improvement in net income are the same ones as for the improvement in profit/loss before income taxes above. See “Presentation of Financial and Other Information—Selected financial data” for a reconciliation of adjusted net income (loss) to our profit (loss) for the period.

Adjusted net income

Adjusted net income was R$1,557.5 million for the year ended December 31, 2023, an increase of R$1,147.0 million from R$410.5 million for the year ended December 31, 2022. The higher adjusted net income is mainly explained by the improvement in total revenue and income net of financial expenses of 32.7% year over year, due to the growth of our operations. This effect was partially offset by increases in costs and expenses as we grow our business. Note that from the first quarter of 2023 onwards we no longer adjust share-based compensation expenses in our adjusted results. Also, from the second quarter of 2022 and following the partial sale of our stake in Banco Inter, we no longer adjust the financial expenses related to our bond in our adjusted numbers. As such, for this annual report on Form 20-F, we have done both changes retrospectively, as well as for previous MD&As already reported.