StoneCo (STNE) Q4 2024 Earnings Call Transcript

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Looking ahead to 2025, we are confident in our ability to continue outpacing market growth and expanding our share of the MSMB payments market. Retail deposits closed 2024 at BRL 8.7 billion, exceeding our BRL 7 billion guidance. This success reflects the strong performance of our bundled payments and banking offerings and increasing client engagement with our banking solutions. While this is a significant milestone, we view it as the initial phase of our strategy to establish Stone accounts as the primary financial hub for our clients.

As we enhance our value proposition, with a comprehensive product ecosystem, extending beyond payments, we project retail deposit growth to outpace TPV growth. In 2025, we’ll focus on key initiatives, including our investment products and workflow tools to further accelerate deposit growth. Our second priority, enhancing client engagement yielded strong results beyond core monetization metrics like TPV and deposits. We achieved an MSMB take rate of 2.55% in 2024, exceeding our 2.49% guidance.

This success reflects not only disciplined pricing payments, but also the growing contribution from our banking and credit solutions. Our credit portfolio reached BRL 1.2 billion in 2024, significantly exceeding our BRL 800 million target while maintaining controlled risk and healthy profitability. Our nonperforming loans over 90 days remained at a controlled 3.61%. These results highlight the success of our 2023 credit relaunch and represent a key step in our strategic evolution toward becoming our clients’ primary financial provider.

Our third priority, scalable platform growth focused on continuously evolving value to clients’ profitability. This is reflected in our net income of BRL 2.2 billion, exceeding our BRL 1.9 billion guidance despite macroeconomic headwinds and over BRL 100 million in negative impacts from accounting methodology changes for membership fees. The strong performance resulted from successful monetization, ongoing efficiency improvements and the initial benefits of cost control initiatives as evidenced by adjusted administrative expenses of BRL 994 million compared to our BRL 1.125 billion guidance. I am extremely pleased with our strong performance in 2024 and the progress we made executing our strategy.

We remain focused on empowering our clients by simplifying their financial lives and providing the solutions they need. Now I’ll hand it over to Lia to discuss our fourth quarter 2024 results and provide further strategic updates. Lia?

Lia Matos — Chief Marketing Officer and Chief Strategy Officer

Thank you, Pedro, and good evening, everyone. Taking a closer look into our fourth quarter 2024 results. We’re pleased with our performance in the quarter. We were able to deliver solid results despite a less favorable macroeconomic environment toward the end of the year when yield curves trended upwards.

In spite of this scenario, we decided not to increase prices for our clients in the quarter, given the important holiday season. As you can see on Slide 4, we posted strong bottom-line results. Our adjusted EBIT grew 22% compared with the fourth quarter of ’23 while adjusted net income grew 18% over the same period. Adjusted net margin was 18.4% in the quarter, one percentage point higher year over year.

As a result of the execution of share buybacks throughout 2024, our adjusted basic EPS growth exceeded net income growth, increasing 26% compared to the fourth quarter of ’23. These results, as seen on Slide 5, stem primarily from an 11% year-over-year increase in total revenues for the quarter, which resulted from active client base growth and higher monetization of clients among different client segments. In addition to that, we saw significant gains in efficiency while we continue to invest for future growth. As you can see on the right side of the slide, we are now introducing gross profit as a key measure of our performance.

Gross profit is measured as our revenues deducted by cost of services and financial expenses. We believe this metric better represents the nature of our operation and our ability to monetize clients through multiple levers such as payments, banking and credit. On the cost side, it considers the cost to fund our operation, as well as the direct cost to serve our client base. Our gross profit in the quarter reached BRL 1.7 billion, growing 13% year over year.

This growth ahead of revenue growth reflects a lower level of provision for loan losses, as well as a lower cost to fund our business. Note that on a quarter-over-quarter basis, we started to be impacted by the higher yield curve. While we had a hit in our financial expenses from higher rates in the fourth quarter, we understand the end of the year as a critical moment for our clients. And thus, we took the decision to not increase prices in the fourth quarter and wait for the beginning of the year instead.

On Slide 6, we dig deeper in our financial services segment performance, starting with our payments business for MSMBs. Our MSMB payments active client base increased 19% year over year to 4.1 million clients. This represents an acceleration in our addition of clients to 157,000 from 108,000 in the previous quarter. Net adds performance in the quarter resulted from end-of-year campaigns, including Black Friday, while churn levels remained under control.

While we welcome this acceleration and believe it reflects the strength of our value proposition, as well as excellence in distribution, we note that our focus continues to be to guarantee healthy unit economics in every cohort through a dynamic pricing strategy, effective bundling and increased client engagement. I think it is important to remind everyone that net adds dynamics can vary quarter over quarter, slightly above or below the average over several quarters. Speaking of engagement, we saw yet again an increase in our heavy user metric this quarter from 34% in the previous quarter to 37% in the fourth quarter. We believe this is a result of both the effectiveness of our payments and banking bundle offers and on the launching of new solutions that are accretive over time.

MSMB TPV increased 21% year over year in the quarter, showing an acceleration compared to previous quarter growth of 20%, driven by card TPV growth of 13% while PIX continued to grow at much higher rates as adoption continues to accelerate and visibly cannibalize debit volumes, as well as cash. PIX continues to open new avenues of product development, such as recently implemented NFC capture, while monetization remains accretive to our ecosystem. In spite of the solid volume growth, we also saw encouraging trends in our take rates, which increased 11 basis points year over year with a soft reduction sequentially due to typical fourth quarter seasonality. As I mentioned, going forward, we will focus more on total gross profit as a better metric to reflect our monetization strategy achieved through multiple monetization drivers and trade-offs.

We believe that take rates are more limited in showing the whole picture, given that we may decide on different balances between solutions, given a specific macro environment. Also, as we intend to use our deposits in a more relevant way to fund our operation, which is accretive to us, this would impact take rate while it would be neutral to gross profits. We will, however, continue to disclose this metric in earnings materials and we will adapt it to include PIX volumes in TPV when calculating take rates. Moving on to Slide 7.

We show our banking performance. We continue to see strong growth in our banking active client base, which increased 46% year over year to 3.1 million banking clients, outgrowing the increase in our payments client base. The combination of success in our bundled offers and continued engagement with our banking features led to a 42% increase in retail deposits, or a strong 28% sequential increase, boosted by seasonality, reaching BRL 8.7 billion by year-end. As expected, deposits have been growing well above TPV reaching 6.8% of MSMB TPV in the quarter compared with 6% in the third quarter of ’24 and 5.8% in the fourth quarter of ’23.

Within retail deposits, we have seen a 3.6-fold increase in time deposits, which reached BRL 430 million, mostly related to our saving solution. Although still small, this solution has been a key driver of engagement, enabling our clients to save money for specific purposes and therefore, better organize their finances. An important aspect to note is that from the remaining BRL 8.3 billion in deposits, we expect to convert a significant portion of it to time deposits by issuing certificate of deposits. This will allow us to utilize such amounts toward funding of our operation.

As we pursue this strategy over the coming quarters, we expect to see a shift in our retail deposit mix from deposits from retail clients to on-platform time deposits. This shift will contribute to a better and more efficient capital structure and will significantly reduce the cost to fund our operations, reducing financial expenses. At the same time, we will no longer earn CDI on top of those deposits, which means we will experience a significant reduction in our floating revenues throughout the year as well. The effect will be an accretive outcome to our bottom line as we implement this strategy over time.

On Slide 8, I’m going to give some highlights of our credit performance. The fourth quarter showed a trend of continuity versus previous quarters with positive results, both in growth and in quality. Our credit portfolio reached BRL 1.2 billion, increasing 31% in the quarter. This portfolio is comprised of BRL 1.1 billion of merchant solutions composed in its majority of working capital solutions to SMBs and BRL 114 million of credit card offerings to our clients, mainly to micro clients.

Despite a more challenging macroeconomic scenario, we still see credit as an important avenue of growth. Given the significant opportunity to support our clients through multiple credit offerings where we still have limited presence, nevertheless, we remain aware of macro trends that may lead to an impact in future disbursements and performance. Credit quality remains healthy with NPLs 50 to 90 days of 2.47% and NPLs over 90 days of 3.61% with increases being expected as a natural consequence of portfolio maturation. Regarding provisions, as we have been communicating over the past quarters, we have been gradually reducing the amount of working capital provisions we hold compared with its respective portfolio balance.

When we relaunched the solution, we decided to overprovision until we could have a clear view of multiple vintages performance and slowly convert those provisions to the actual expected loss levels. The ratio of accumulated loan loss provision expenses over the working capital portfolio reached 12% in the quarter compared with 14% in the third quarter and 20% a year ago. Given the current macroeconomic scenario and a conservative approach from our side, we believe this is an appropriate level to stabilize in at the moment. As such, we will now transition away from tracking this ratio to follow more widely used credit metrics.

Our coverage ratio currently stands at 331%, which is still at a high level for comparable credit players in the market. To summarize, on Slide 9, as a result of the performance highlights, I just described, our financial services segment grew revenues at 11% year over year to BRL 3.2 billion, with an adjusted ebit growth of 16%, reaching BRL 700 million and a 90-basis point margin increase to 21.9% in the quarter. The solid results of the year within the Financial services segment, driven by the successful execution of our strategic priorities around Win, Engage, and Scale led us to reach an ROE of 27% in 2024, 5 percentage points higher than in 2023. Finally, on Slide 10, I will go through our software segment performance.

As you can see, our execution on cross-selling financial services to software clients has been yielding positive results. We have increased our CTPV overlap 20% year over year compared with a 13% growth of overall MSB card TPV for the same period. Sequentially, we grew CTPV overlap two times higher than our MSMB Card TPV growth which gives us confidence to keep seeking the strategic avenue ahead. On a stand-alone basis, software revenue grew 15% year over year in the quarter, mainly driven by a good performance in one of our portfolio companies, Hecla and the nonrecurring revenue of BRL 8 million.

Software adjusted EBITDA posted a strong 54% growth year over year, reaching an all-time high margin since the acquisition of Linx of 21.6%. This margin improvement was largely led by the combination of a strong revenue performance with our continued focus on gaining efficiencies in the operation. As Pedro mentioned, we’re pleased with the 2024 results and remained committed and excited to bring more value to our clients throughout 2025 and to continue our journey toward reaching our long-term targets and creating value to our shareholders. Now I want to pass it over to Mateus to give important updates on our software segment and discuss in more detail our overall financial performance.

Mateus?

Mateus Scherer — Chief Financial Officer

Thank you, Lia, and good evening, everyone. Before we dive into financials on Slide 11, I’d like to briefly update you on our software division. During our Investor Day in November 2023, we outlined our software strategy focus on cross-selling financial services to four priority verticals and managing our other software assets for efficiency and cash generation. As previously discussed, while executing the cross-sell strategy, we achieved greater success leveraging our financial services distribution channels rather than relying on our software specific sales force.

This insight led us to conclude that owning the software assets isn’t essential for executing our cross-selling strategy, although the strategy itself remains relevant. As a result of this shift in how we execute, a larger share of the economics from the cross-sell is now being recognized within our financial services segment rather than the software cash-generating units. Additionally, recent stand-alone organic growth trends in the software business prompt us to lower our growth expectations for the segment. These factors, along with a more challenging macroeconomic environment, led us to recognize a goodwill impairment charge of BRL 3.6 billion for the softer cash-generating units.

This impairment is a noncash accounting adjustment and has been excluded from our adjusted financial results. Regarding our ongoing assessment of strategic alternatives for the software assets, we have received and reviewed several proposals from interested parties. However, as of now, none have met our assessment of the intrinsic value of the assets. Thus, we will continue maximizing the value of the assets and executing our cross-selling strategy as we have done to date.

Now let’s turn to Slide 12 and explore the quarter-over-quarter evolution of our cost and expenses on an adjusted basis. Cost of services increased 10% year over year and 2% sequentially, leading to 130 basis points sequential reduction as a percentage of revenues. This improvement was primarily driven by operational efficiencies and customer support and logistics and lower provisions and losses, thanks to the reversal of a provision that did not materialize. These benefits were partially offset by higher loan loss provisions related to the growth of our credit products.

Administrative expenses decreased 2% year over year and increased 6% quarter over quarter, resulting in a sequential reduction of 10 basis points as a percentage of revenues. This reduction reflects operational leverage achieved in the period. Selling expenses rose by 21% year over year and 9% sequentially, increasing 30 basis points as a percentage of revenues. The rise was primarily due to increased investments in our specialist sales team, partially offset by reduced marketing expenses.

We continue to assess growth opportunities and remain committed to investing where it’s value accretive. Financial expenses increased 10% year over year and 14% sequentially, or 160 basis points as a percentage of revenue. The sequential increase was primarily driven by the higher yield curve in the quarter. We expect to ramp up the usage of our deposits as funding for our operations throughout the year, which will enable us to further diversify our liability management while continuing to reduce our average funding spreads.

Our other expenses line decreased by 24% year over year but remained relatively stable sequentially. As our revenues grew, other expenses as a percentage of revenue declined by 20 basis points. Our effective tax rate was 14.5% in the quarter, down notably from 20% in Q3. This reduction was driven primarily by gains from entities abroad, including the full effect from the partial repurchase of our bonds and the transfer of the remaining portion to a local entity, which allowed us to benefit from the tax shields on associated interest expenses.

Additionally, we benefited from tax incentives under Lei do Bem, which typically peak in the fourth quarter. Turning now to Slide 13. Our adjusted net cash position was BRL 4.7 billion at quarter end, representing a sequential decrease of BRL 0.2 billion. This decline primarily reflects our ongoing share repurchase activity.

We have an active BRL 2 billion buyback program under which BRL 608 million or 10.9 million shares were repurchased in the fourth quarter of 2024. For the full year, our adjusted net cash decreased by just BRL 0.3 billion despite BRL 1.6 billion in total share repurchase during 2024 covering both our current and previous buyback programs. Excluding share repurchase activity and the capital we allocated in our credit product, we would have generated BRL 1.9 billion in adjusted net cash for the year. Before I finalize, I would like to discuss two additional topics.

The first, on Slide 14, concerns our approach to capital allocation. Throughout the past year, we conducted a comprehensive review of our capital structure, resulting in the creation of a proprietary model to assess our excess capital position based on three key pillars. The first pillar focuses on our capitalization ratio. Considering our business trajectory and rapid growth, we’ve decided to maintain a minimum common capital ratio at StoneCo equal to 20% of our risk-weighted assets, though this level could be reassessed over time.

The second pillar addresses our credit ratings. Given the nature of our operations, maintaining credit rating metrics aligned with our banking peers is essential. Therefore, we have set specific KPIs to monitor regularly, ensuring we maintain at least our current global ratings, which are constrained by the sovereign rating. The third pillar revolves around our adjusted net cash position.

We have historically emphasized net cash as a critical indicator of our business capitalization and have accordingly chosen to maintain a positive net cash balance. Based on these pillars, we estimate that as of December 31st, we had an excess capital of over BRL 3 billion. We expect to return this capital to shareholders over time when value-accretive growth opportunities are not immediately available. Notably, this amount is already net of the BRL 1.6 billion distributed in 2024 through our share buyback programs and does not account for any potential capital release from strategic discussions regarding our software division.

Finally, turning to Slide 15. I’d like to discuss our guidance. At our Investor Day in November 2023, we provided detailed short and long-term guidance metrics, which helped investors clearly understand our strategic direction and enable transparent tracking of our progress. In 2024, we delivered strong results across these metrics, reinforcing our confidence in achieving our 2027 targets.

Now given the ongoing evolution and increased maturity of our business, we’ve made certain adjustments to better align our metrics with recent industry dynamics and our increased focus on capital structure, while maintaining our strategic priorities. For 2025, we have simplified our guidance to two key financial indicators that best reflect our business performance. The first indicator, adjusted gross profit captures the consolidated execution of our strategy across our various products and services. The second adjusted basic EPS incorporates both our capacity to grow efficiently and benefits from the optimization of our capital structure.

The simplified guidance approach enhances our flexibility while maintaining disciplined tracking of our core value drivers. As for our long-term outlook, our 2027 guidance maintains our original projections for retail deposits and credit portfolio. However, we’ve adjusted our MSMB CTPV metric to MSMB TPV to include PIX volumes, reflecting industry developments and the importance of PIX following its widespread adoption in the market. Additionally, we have replaced our MSMB take rate guidance with gross profits.

Gross profit, as previously explained, accounts for revenues, minus cost of services and financial expenses, capturing the true economics of our business. It also accounts for lower floating revenue, resulting from increased use of deposits as funding, which despite lowering the take rate remains accretive to our bottom line due to reduced funding costs. Lastly, we replaced our adjusted administrative expenses and adjusted net income guidance with adjusted basic EPS as EPS effectively captures our overall bottom line performance while allowing greater flexibility in capital allocation decisions. For 2025, on Slide 16, we expect adjusted gross profit above BRL 7.05 billion and adjusted basic EPS above BRL 8.6 per share, reflecting year-over-year growth of 14% and 18%, respectively.

This EPS calculation assumes a share count of 279.5 million shares taking into account the repurchase of 33.5 million shares since our Investor Day. Moving to Slide 17. Our updated guidance for 2027 projects MSMB TPV surpassing BRL 670 billion, implying our 2024 to 2027 CAGR above 14%. Adjusted gross profit is expected to exceed BRL 10.2 billion, translating to a CAGR of over 18%.

Adjusted basic EPS is expected to exceed BRL 15 per share, representing a CAGR of over 27%. Notably, despite aggressive share repurchase, our implicit adjusted net profit guidance remains at BRL 4.3 billion, indicating an upgrade in our original implicit guidance for EPS. To wrap up, I would like to pass it over to Pedro for some final remarks.

Pedro Zinner — Chief Executive Officer

Thank you, Mateus. Finally, on Slide 18, I’d like to acknowledge our consistent track record of delivering strong results over recent years. Over the past two years, we have repeatedly exceeded market consensus and delivered on our commitments, reflecting disciplined execution and strategic clarity. Moving forward, our goal remains clear: maximizing long-term intrinsic business value growth measured on a per share basis rather than merely emphasizing overall company size or scale.

As we conclude 2024 and enter 2025, we recognize potential macroeconomic challenges, but remain firmly committed to delivering sustainable long-term value creation. Our strategy remains focused on disciplined execution, prudent capital allocation and enhancing intrinsic business value per share. We deeply appreciate the trust, support and partnership from our shareholders as we navigate this journey together. The road ahead is filled with the opportunity, and we are more determined than ever to drive sustainable growth and lasting success.

With that said, we are now ready to open the call to questions.

Questions & Answers:

Operator

OK, at this time we are going to open it up for questions and answers. [Operator instructions] I would like to highlight that questions will be answered up to 7:15 p.m. BRT. Analysts that are still on the waiting line will have their questions addressed by the IR team.

Also keep in mind that two questions are allowed per analyst. Please remember that your company’s name should be visible for your question to be taken. [Operator instructions] Please hold while we pull for questions. Our first question comes from Eduardo Rosman with BTG.

Eduardo Rosman — BTG Pactual — Analyst

Hi, everyone. Congrats on the numbers. Two questions here. The first one on your banking solution.

If you could share with us, why do you think you are outperforming, right, performing really well, and where do you see room for improvement? And the second question is on the capital structure, right? What’s your view on dividends, right, given the very big excess capital and the ongoing share buyback program, why not distribute dividends as well? Thanks.

Lia Matos — Chief Marketing Officer and Chief Strategy Officer

Hi, Lia here. Thank you for the question. I’m going to take the first one and then pass it over to Pedro. So, I think overall message on banking is the following.

As we said in the Investor Day, we continue to see deposits grow ahead of TPV, right? And the message behind this is that deposit growth ahead of TPV because clients further engage with our banking solution, and this is mainly driven by two factors. Number one is our success in bundling payments in banking, which is something that we’ve done over the last years, and we’re getting increasingly better at. And also, as we evolve on the banking road map and develop more solutions, our clients further engage with the platform. So, the way they want to understand this is pretty much we’ve captured most of the value associated with cash-in because we take most of the cash-in of the client through TPV that becomes deposit in the banking account, but also as we develop more and more solutions deposits stay for longer, and we see a trend — a positive trend regarding deposits.

Naturally, in the fourth quarter, there was a seasonal impact in deposits because of the holiday season, right, that’s natural to expect. Some of that seasonality has sort of been reversed in the first quarter, but the overall trend has not. So, the overall trend continues to be that deposits grow ahead of TPV. And also, that’s implied by our long-term guidance, right? We continue to expect deposits to grow ahead of TPV as we further develop the banking solution.

The development is really around resolving incrementally, workflow needs of our clients, right? So, we launched a simplified payroll solution. We’re evolving a lot on that payroll solution this year. We launched different investment products for our clients to save with different purposes. And I think the road map has a lot to come still, and we expect this trend to continue.

So, pass it over to Pedro for the next question.

Pedro Zinner — Chief Executive Officer

Thank you, Lia. Thank you, Rosman, for the question. I think the first point that I think we have to recognize is that we evolved a lot in terms of providing transparency in terms of how we allocate capital within the company, right? You might recall that, that was part of our commitment in our last call to provide you some visibility in terms of our framework. And I think in some ways, I think we evolved a lot.

But just as a reference, I think over the past 12 months, we have already returned more than BRL 2 billion in terms of share buybacks, right? So, this really demonstrates both, I think, our commitment in terms of returning capital to shareholders. And actually, our ability to execute this distribution efficiently when we deem appropriate. However, having said that, I think at this time, we are not committing to a specific target in terms of how we’re going to allocate capital in terms of distribution. I think it’s going to be through dividends or buybacks, we do expect to provide you some more visibility over the next quarters or so.

Mateus Scherer — Chief Financial Officer

Yes. And if I may add, Pedro. Mateus here, Rosman. I think the main message is that we see this as a journey.

So, step one was basically defining the amount of excess capital that we have. I think we have a clear framework for that. Step two is defining how much, how fast and which instrument we’re going to use to give this capital back to shareholders. But something to bear in mind is that we still have an active buyback program for which we have executed until the end of February, around BRL 1.1 billion.

So, we remain with BRL 900 million available to be bought back under that program. So, we still have some room under that program before we need to make a second decision in terms of the instruments that we’re going to use. So, it’s under discussion.

Pedro Zinner — Chief Executive Officer

And it’s an evolution process.

Eduardo Rosman — BTG Pactual — Analyst

Oh, great, super clear. Thanks a lot, and congrats again.

Operator

Thanks, Rosman. Our next question comes from Mario Pierry with Bank of America.

Mario Pierry — Bank of America Merrill Lynch — Analyst

Hey, guys, thanks for taking my question and congratulations on the quarter. Let me ask you two questions as well. You guys made comments that you did not increase prices in the fourth quarter, but that you started repricing in the first quarter. Can you give us a little bit more color how you’re seeing this price increases going through, what level of price increases are we talking about? Is it for your entire client base and the impact so far in the quarter, right? Like we’re almost at the end of the first quarter.

So, I’m just trying to get a sense of the size of these price increases. And if you plan on keeping increasing prices throughout the year. And then my second question is related to your guidance, I was just surprised that you’re guiding on basic EPS rather than fully diluted EPS. I do think that most investors look on a fully diluted basis.

So, just wanted to understand from your view why guide basic rather than fully diluted. And if you can give us, just remind us of the difference in the share count between basic and fully diluted. Thank you.

Pedro Zinner — Chief Executive Officer

Hi, Mario, Pedro here. Thank you for the question. I’ll try to address the first one, and Mateus, feel free to jump in at any point in time. So, I think since the significant upward shift that we’ve seen in the yield curve, by the end of the fourth quarter of 2024, we have proactively, actually, executed a substantial repricing initiative.

At the beginning of the first quarter of ’25, I think Lia highlighted part of this in our statements in the call that we didn’t start in the last quarter of last year. I think over the recent months, we have effectively completed repricing across our eligible Stone client base. And we are now actually, actively, progressing with our Stone clients. And I think we aim to finalize these adjustments over the upcoming months.

I think what we might say is our repricing strategy has proven effective, and we are seeing record low churn on our repricing waves. And another point to highlight is, I think we are pleased to see the broader industry aligning around profitability rather than prioritizing volume growth alone. So, this is in line with what we’ve been saying over the past quarters in terms of — the rationale in terms of the competitive landscape and what we’ve been advocating for over the past year or so.

Mateus Scherer — Chief Financial Officer

And Mario, if I may add, in terms of the extent of the repricing, in terms of the size of the adjustments, we basically calibrated the adjustments looking at the yield curve projections for the mid of the year, which were approximately 15%. And in terms of how many clients we repriced would basically only excluded those clients who engage with multiple solutions, and that remains profitable despite the higher funding costs driven by the rising interest rates. So, it was an extensive repricing wave. And in terms of whether we’re going to reassess and do more waves throughout the year, I think by June, we will reassess the market conditions and then determine if additional repricing actions are needed or not.

So, this is the first question regarding pricing. The second question, I think, was around the decision to guide basic EPS instead of diluted. So, first of all, I think it’s a great question. It’s something that we debated internally extensively.

I think the decision that was made to guide basic EPS this year had two key reasons in mind. The first reason is that when you look at the accounting rules governing the diluted share count, they can introduce a lot of volatility in the calculation. Just to give a few examples, depending on the share price levels, the performance share units from the turnaround plan may or may not be included in the diluted share count in a binary way or a second example, given that we had an IFRS accounting loss in the quarter as a result of the impairment, the diluted is equal to the basic share count in the quarter. And we thought that this year, this created some complexity.

Second reason is that, as you all know, we do not adjust share-based compensation expenses at all. Everything flows through the P&L. So, if we were to use the diluted share count in the denominator as well, we feel that this would result in some degree of double accounting. So, given these factors, we believe that basic EPS this year is the better metric.

That was basically the decision.

Mario Pierry — Bank of America Merrill Lynch — Analyst

OK. Let me ask then two follow-ups on this program that you said that you have, right, that the turnaround plan and the share counts could either be zero or a number based on share price performance. Can you remind us of the size of how many shares are we talking about? And then on the repricing, when should we see the full benefits of this repricing that you did at the beginning of the quarter. Is this going to be already fully evident in second quarter results? Or is this more in the third quarter? And how do your prices compare to your peers today? Are you just catching up to the level of your peers? Or are you pricing above your peers? Thank you.

Mateus Scherer — Chief Financial Officer

Yes, for sure. So, in terms of the size of the program, we have a lot of detail in the footnote, 20.4. If you look at the PSU instruments by the end of the year, we had 5.9 million shares outstanding in that program. But again, you have the full details in that footnote there.

And in terms of the full effect of the repricing waves in the P&L, most of the — largely the full effect will be felt in the second quarter. There are still some waves done through the quarter, but they are smaller in size.

Mario Pierry — Bank of America Merrill Lynch — Analyst

And how do you compare to your peers now?

Mateus Scherer — Chief Financial Officer

Sorry, I forgot that one. I think the message, and I think Pedro touched upon this, the whole industry is repricing and passing through the increase in interest rates. So, we feel that with the movements that we did in terms of pricing, basically, everyone now has very similar prices across the industry. So, it’s basically a dynamic of catching up to the increase in interest rates and not an increase in spreads per se.

OK, thank you very much.

Operator

Our next question comes from Tito Labarta with Goldman Sachs.

Tito Labarta — Analyst

Hi, good evening. Thank you for the call and taking my question. I also have two questions. I guess one just following up on the guidance on the EPS with the guidance that you gave, it’s based on the share buybacks that you’ve done.

But as you mentioned, Mateus, you still have about another 900 million that you could do. So, does that mean that there can be — and I mean I know the guidance is above 8.6, but if you do buybacks, that would imply the EPS will be higher. And just to make sure I understood because you bought back around 6% of the shares roughly. So, that would imply net income growing around 11% and then the rest is sort of coming from the share buybacks if my math is correct? And then my second question on the sale of the software business, right? I understand you haven’t received, I guess, an offer that you think meets your intrinsic value.

I guess, one, are there still potential offers out there? Is there a chance that you can still sell it? Or do you think this is off the table at this point, just so I want to understand if that’s still a possibility of being sold or not. Thank you.

Mateus Scherer — Chief Financial Officer

Thanks for the question. Tito, I’ll take the first one and then pass it over to Pedro for the second one. So, in terms of the EPS guidance, I think you are spot on. So, when you look at the implicit guidance for net income in 2025, it’s BRL 2.5 billion.

So, this reflects an adjusted net income growth of approximately 9%, while the EPS guidance exceeds 18%, right? The difference here is primarily driven by the share buybacks executed since 2023. And apart from this basically reflects the operational expectations and does not factor in any additional share buybacks, whether from existing or new programs. That said, as we move forward, again, if market conditions are favorable, we will continue repurchasing shares under the current program, which could represent an additional upside to the guidance. So, I think you are right in your point.

Pedro Zinner — Chief Executive Officer

Well, regarding the asset — the software assets. I think, first of all, I just wanted to highlight, and I think I tried to make this crystal clear in some ways in the letter to the shareholders. So, we’ve been following a disciplined approach in terms of our decisions regarding our software assets, right? So, despite changes in interest rates and despite receiving many offers over the past quarter or so, we didn’t receive any offer that actually met or established intrinsic value for the specific asset. So, what we will continue and then what we will do is really we’re going to stick in part to the strategy we defined back in our Investor Day.

So, we’ll continue cross-selling financial services to our software clients and really focus in terms of maximizing value of the asset on a stand-alone basis. I think the big difference from the past is really that we have actually implemented all the synergies required to manage this asset appropriately, and we have set the right governance in place to really ensure that owning the asset is not a distraction to the core strategy of the company.

Tito Labarta — Analyst

OK, thanks for that, Pedro. So, sorry, just to follow up because I don’t know if my question was more, is there a possibility of this still being sold? Or do you think you sort of exhausted the offers and likelihood is that it’s not sold at this point?

Pedro Zinner — Chief Executive Officer

I think at this point, what we’ll do is really focus on the execution and maximizing value for the asset.

Tito Labarta — Analyst

OK, great. Makes sense. And maybe just to help us think about what that intrinsic value might be. Just a simplistic calculation here, you have paid about BRL 6.3 billion for Linx, if I remember correctly, and you wrote off around BRL 3.5 billion.

I don’t know if that was all 100% Linx, but that would leave maybe BRL 2.7 billion. Is that a ballpark number that kind of makes sense for what that intrinsic value could be.

Mateus Scherer — Chief Financial Officer

Mateus here. So, I don’t think we’re going to comment specifically on what we see as intrinsic value. But as a reference point, if you look at the impairments slide, you’re going to see that the equity for the Software segment after the impairment is around BRL 4 billion for the software segment as a whole. And of course, when you’re talking about any potential transaction, there are other considerations besides the intrinsic value of the asset per se, right, including the commercial agreements and so on and so forth.

But as a reference, I think that’s the best number that you have publicly available.

Tito Labarta — Analyst

OK, no, that’s helpful. Thanks. Thank you, Peter.

Operator

Our next question comes from Daniel Vaz with Safra.

Daniel Vaz — Safra — Analyst

Hi, everyone. Good evening and congrats on the results, a very clear presentation. First, I’d like to hear more about Lia’s comment on funding. I think, at some point, she mentioned there will be a meaningful change in float revenue, but that should be EPS accretive over time.

Could you share more details on this rollout and timing? And if the entire base will be migrated, what will be the details here. It would be very helpful to hear about it. And if there is any clear indication of what levels of spread over CDI or a percentage of CDI, you should accommodate as cost of funding. And the second question, following up on capital.

I think at some point, you will arrive on an optimal level of ROE. So, there will be enough organic capital to support future growth and possibly continue with future buybacks. And how far do you think you’re from this situation? And what’s the current scenario that you expect this to happen. Is 2027 guidance really NorthStar to it? Thank you.

Lia Matos — Chief Marketing Officer and Chief Strategy Officer

Hi, Daniel. Lia here. I’m going to take the first part of the question, then Mateus, please add and continue to the second question. So, regarding the rollout, we expect this rollout to happen incrementally throughout the year.

No more specific information regarding that, but it’s going to happen throughout this year. Like I already said and to address your question, we anticipate a positive impact. So, just talking directionally about it. This impact comes from a shift between financial lines, obviously.

So, specifically, while we will lose financial income from the flow on our deposits, this will be offset by a reduction in our funding costs, and there will be a positive impact as we benefit from lower taxes by having less float revenue, and then the spread between our funding costs and CDI as we switch these funding sources. So, directionally, this is the effect. This shift is going to be accretive to our P&L, and we expect to roll it out throughout the year.

Mateus Scherer — Chief Financial Officer

Just to give some more color here, Daniel. So, in terms of the rollout, what we’re doing right now is what we call our cash sweeping strategy, which is basically using the deposits that we already have in place as a funding source, which we didn’t do because we didn’t have the licenses. As we do that, we expect a significant increase in the time deposits line within our retail deposits line with virtually zero cost. And then over time, after we do this cash sweep, of course, we include other time deposits products, which are more closely related to investment products for the base.

And then as this scales, this will lead to a gradual increase in the average cost of the deposit base. But again, I think we’re going to start to give some figures on these numbers when they become relevant. For the moment being, I think it’s more around using the deposits that we already have in place with virtually zero cost. The second question, I think, was related to excess capital and how we see the funding of organic growth, if I got that right.

So, when I think about the framework that we put in place, we believe it already takes into account the capital that is needed to fund the growth of the 2027 plan. So, if you look at the hurdles that we implemented, for example, for the first pillar, which is the regulatory capital, we’re talking about a 20% hurdle, which is fairly high. And we feel that this already takes into account not only the current plan that we have in place, but also potential optionality in terms of growing credit and so on and so forth. So, the 3-billion figure, we feel it’s really an excess in terms of capital that we have.

And the discussion is more around how we’re going to return that capital back to shareholders in the most efficient way. I don’t know if I fully answered your question on that point, Daniel.

Daniel Vaz — Safra — Analyst

Yes. I think it did. And if I may follow up, maybe Pedro to ask his view about the company’s structure size. I mean, many of your competitors were expanding the sales force a year ago, which contributed to a worsening of efficiency across the industry.

But now a year later, we see some of them to reverse in that move, right? So, I mean any views on when do you expect the business to have better room to economies of scale? Because so far, I think in the past two years, it was like more sales force, more aggressiveness between competition and now we see some reversion of that trend. So, very helpful to hear about it, if you could, Pedro.

Pedro Zinner — Chief Executive Officer

Well, thank you for the question, Daniel. I think it’s — well, we’ve tried to highlight this over the past also calls, I think there is a maturity process in terms of productivity of our sales force as we move ahead. And I think one of the key competitive advantages we have is really on the distribution channels. I think we tried to highlight that also in the Investor Day, and it takes time to mature.

Having said that, I think more and more, we’re going to rely on our operation, our technology-driven operational distribution platform. And I think this will leverage and improve more improve efficiency as we move ahead over the next years. I don’t see this happening in the short term. I don’t believe we’re going to see big changes in terms of — then your question is more driven to sales expenses related to revenues in some ways.

I think there will be — they’re going to be flat in 2025, but we’re going to improve efficiency over time from a technology-driven platform. I don’t believe that the competitors are doing that. So, I think it’s a different strategy in some ways. But that’s the way we’re positioned to set ourselves up until 2027.

Lia Matos — Chief Marketing Officer and Chief Strategy Officer

Yes. And Daniel, if I can just complement what Pedro said, maybe separating in kind of three-time horizons, right, talking about the fourth quarter and then the year and then longer term. In the fourth quarter, we saw selling expenses increase sequentially as a percentage of revenues, primarily due to ongoing investments in our sales force, especially the specialist sales force, which is, number one, pretty critical in terms of going up the pyramid as we call it. So, we have seen significant growth in what we call larger SMB clients specialist sales force are critical also for the cross-selling initiatives to sell financial services to software client — installed client base.

And naturally, also, it is critical on the credit side as well because more and more, we are implementing direct distribution to scale on the credit side. So, that was more the rationale for how selling behaved in the fourth quarter. Throughout this year, we expect mild dilution in selling expenses relative to revenues. But as Pedro mentioned, there’s not going to be — we shouldn’t expect a big shift shorter term.

I think over the longer term, as Pedro highlighted, we will see greater dilution, Naturally, as the operation matures and those scale efficiencies materialize, as you mentioned. But also, we’re very optimistic. And I think in some sense, ahead of the game, in terms of how we think about technology applied to our operation, I think our operations technology platform has been a pillar of our — of the differentiation of our business model since day one. But we’re working very hard to stay ahead in making sure that, for example, we can better leverage GenAI, more data to be more and more effective on how we approach distribution.

So, that should all contribute to selling that greater dilution over time.

Daniel Vaz — Safra — Analyst

Thanks, again, guys, and congrats.

Operator

Our next question comes from Renato Meloni with Autonomous Research.

Renato Meloni — Autonomous Research — Analyst

Everyone, thanks for the call. Thanks for taking the questions here. Just first, just a quick follow-up on the deposit side. And I just wanted to know if long term, you have a ratio of where deposits can stabilize as a percent of TPV.

I think that will be helpful. And my question is on the credit side. So, first, how is your risk appetite this year, really given the potential credit cycle that we might enter in Brazil? And then secondly here, given all the initiatives that you have, how are you seeing — and changes that private payroll lending is facing in Brazil, how do you see this opportunity? And are you planning to explore it? Thank you.

Lia Matos — Chief Marketing Officer and Chief Strategy Officer

Renato, Lia here. So, let me just start with the question around deposits. I think that math is easy to work out when you take out our long term — when you consider our long-term guidance for deposits in TPV. The general trend is where I talked about at the beginning of the call, right? We continue to expect deposits to grow ahead of TPV growth.

That is implied in the long-term guidance when you consider deposit growth versus TPV growth. And as much as we talk about engagement and we talk about heavy user metrics and how we are evolving on the banking road map, ultimately, we see the ratio between deposits as TPV as the best way to see how we’re further engaging our clients with our banking solutions. So, that can be worked backwards from the long-term guidance on deposits and TPV. And then to talk about credit, I’ll pass it over to Pedro.

Pedro Zinner — Chief Executive Officer

Yes. I’ll kick off, and Mateus can complement me as we move ahead. So, I think at the end of last year, we have actually proactively adjusted our credit models to reflect the evolving. And I think, as you all know, more challenging macroeconomic environment.

So, this led to a moderate increase in provisioning levels, which have now stabilized at around 12% of our portfolio. So, additionally, we’re also continuously adjusting the pricing of new disbursement to better reflect this changing macroeconomic and market conditions. So, having said that, in terms of growth, I think we are closely monitoring our cohort performances and daily amortizations, a feature that is actually unique to our product. And I think we feel that there is room to grow the portfolio in 2025, given the low penetration of our credit products within our client base, and the scaling of new offerings, such as credit cards and our overdraft solution.

I don’t know if Mateus want to add any point.

Mateus Scherer — Chief Financial Officer

Just a quick compliment, I think the message here that we’re trying to convey is the following. So, I think we’re being — trying to be really cautious in terms of the macro environment. So, we have set up many controls and monitoring of the amortization and the health of the portfolio. But at the same time, we need to keep in mind that the base is still really small.

So, when you think about the penetration of the product in the base, we are in the early beginnings. We have just resumed the offering of the product couple of quarters ago. So, different than maybe other players, I think there is still room to grow while maintaining this cautious approach for the portfolio as a whole. So, that’s the message here.

And I think there’s a last one on payroll, maybe, Lia, wants to take that one?

Lia Matos — Chief Marketing Officer and Chief Strategy Officer

Yes. I think just quickly on the discussion around regulation around payroll loans. Naturally, we are monitoring it closely. I think for us, it is beginning stages, right, as we think about how we can deploy this as an opportunity.

Naturally, within our ecosystem as we launch our payroll solution to SMBs that becomes a natural extension. But it’s very early to say anything more specific than that.

Renato Meloni — Autonomous Research — Analyst

Thank you and then as the regulation evolves, do you plan to explore this further and even like try to get by customers from other competitors? Or the focus would still be within your base?

Lia Matos — Chief Marketing Officer and Chief Strategy Officer

I think it’s early to say, Renato, I think we’ll be giving more clarity on this as we evolve.

Renato Meloni — Autonomous Research — Analyst

OK, thank you very much.

Operator

Our next question comes from Yuri Fernandes with J.P. Morgan.

Yuri Fernandes — JPMorgan Chase and Company — Analyst

Hey, everyone, and congrats on the quarter. I have one on the capital position. I’m just trying to have like an easier framework to think on this. Usually, for banks, we look to loan growth, right, as RWA growth.

On your case, I guess, TPV may be the best proxy, right, when we go to RWA, and we break down this by credit and the market, we see payments. This is still the main component. And we do see your TPV ex PIX growing around, I don’t know, low teens, right? And when we go to your ROE really depends how we adjust it. But if you do some kind of tangible ROE for you, removing all the intangibles, we See Stone printing 30%, 35% tangible ROEs, right? So, it’s a pretty nice return.

The question I have is, if it makes sense, if you are growing your RWA around 12%, 13% and you are printing those 35% tangible ROEs. And I think you also reported like the financial unit ROE on your release. Does it make sense to think like your excess capital generation is around like 60%, 65%, 70%? And if that’s the case, is this a good proxy for your payout or buyback kind of potential? Just trying to get to this number because the 20% core capital is useful. But our capital component has so many moving parts, right, on operational risk phase out.

So, for payment, we have so many moving parts on how we calculate our capital that I’m trying to think about the easier framework like just trying as like we do for banks, like what is the RWA growth versus your ROE potential. And when I try to do this exercise, I get to those numbers, and I just want to make — I’m sure I’m not missing anything. Thank you.

Mateus Scherer — Chief Financial Officer

Hey, Yuri, thanks for the question. Mateus here. So, I think it’s a great question and great rationale there. What I want to say is the following: we Have to divide here short versus longer term.

So, when you look short term, I think you’ve answered part of the question, which is we still have a lot of regulation changes in terms of how we calculate the RWAs, right? We have the phase-in, the new regulations and so forth. So, shorter term, I think this rule of thumb does not necessarily work. Longer term, I think you’re going to be pretty close to the final answer of the model. But the second point that is important to make is that maybe differently than more mature peers.

We need to keep in mind that there are other pillars in the framework. So, it’s not only around regulatory capital. We also have the ratings, the credit rating components and the adjusted net cash at the end of the day, I think it’s the easiest of the three pillars because we report the number, and the figure by the end of the year was BRL 4.7 billion. So, clearly, it was not the constraint.

Credit ratings, you have to go through a little bit more math to get to the number. But if you look at the credit rating agencies, we use Moody’s and S&P, they disclose the criteria for financial companies, so you can pretty easily map the metrics that they use for our current global ratings and then work the math out in terms of how much capital we have in excess for that pillar. I think putting all together nowadays, the more restrictive constraint is indeed the regulatory capital. But I just want to be mindful as well that as you project forward on a given year, maybe the credit rating can also play a role.

Yuri Fernandes — JPMorgan Chase and Company — Analyst

So, thank you very much. And if I may, just a quick second one. Just on the buybacks, what should we expect with the shares? Like are going to cancel those shares? Are you going to use those shares for the SBC? Like what is the outcome here for those treasury shares? Thank you.

Mateus Scherer — Chief Financial Officer

Yeah. So, we’re still finishing the valuation, but the most likely scenarios that most of the shares are going to be canceled, and we’re going to use some of them to issue share-based compensation. So, it’s both.

Yuri Fernandes — JPMorgan Chase and Company — Analyst

Oh, OK. No, thank you very much and congrats again.

Mateus Scherer — Chief Financial Officer

Thanks, Yuri.

Operator

Our next question comes from Jamie Friedman with Susquehanna.

Jamie Friedman — Analyst

Hi, good evening and congratulations on the strong finish to last year. I had two questions I’ll just ask them up front. Lia, with regard to the software growth of 15%, it was a reacceleration, but I thought in your prepared remarks, you may have alluded to it coming from a partner or — and then you have the financial attachment strategy. So, I was just trying to get the clarification on that.

And then if I could ask, so Pedro in the shareholder letter, I mean it’s a very thoughtful letter. But I wanted to ask, actually, about navigating the AI landscape. And just, I guess you have a lot of metrics in here about penetrating with AI and customer service interactions, etc. How do you think about the efficiencies that you’re delivering relative to this type of automation.

Thank you.

Lia Matos — Chief Marketing Officer and Chief Strategy Officer

Hi, Jamie. Lia here. So, I’m going to take your first question and then pass it over to Pedro. So, regarding software revenue growth, in the software segment specifically, we had a nonrecurring effect in the amount of BRL 8 million.

That’s not uncommon when we think about the dynamics of our enterprise software clients. And additionally, there was one specific company within the software portfolio, that had a good performance in the quarter. So, that kind of explains the specific revenue trend in the quarter. But if we think more broadly about it, so we’re not guiding on specific figures for our software segment.

But as a general trend, I think what we can expect is that organic growth should continue to be in line with recent trends. And we still have some opportunities to improve margins within the business. So, to think about margins more in line with what we saw in the fourth quarter that’s kind of a good way to think about trends in the software segment. So, I’ll pass it over to Pedro to address your second question.

Pedro Zinner — Chief Executive Officer

Well, thank you for the question. In some ways, you actually provided answers. I think what we’ve done so far are really quick wins in terms of how we use predictive models and GenAI into our operations. So, for me, it’s really peripherical wins that are quick wins that we can put in place to optimize results, right? I think the challenge we have, and that’s not only to ourselves but to the industry as a whole is how we use GenAI to actually disrupt our own model and improve our business model as we move ahead.

I tried to address part of this when we talked about sales distributions and the channels that we have established as of today. I think this is where the big change might come from. And whoever takes the first step, we’ll take the lead in terms of new industry dynamics and how we’re going to move ahead. So, that’s a long answer to say it’s really short-term efficiency gains.

And I think what we’re preparing is really for the infinite game as we move ahead. That’s where the big changes will come.

Jamie Friedman — Analyst

OK, thank you both.

Pedro Zinner — Chief Executive Officer

Thank you.

Operator

This concludes the question-and-answer session. I will now turn over to Pedro Zinner, CEO at StoneCo, for final considerations.

Pedro Zinner — Chief Executive Officer

Well, thank you all very much for participating in the call. I think the company presented strong results in 2024, and we are really looking forward for 2025 in the coming years. Thank you very much.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Pedro Zinner — Chief Executive Officer

Lia Matos — Chief Marketing Officer and Chief Strategy Officer

Mateus Scherer — Chief Financial Officer

Eduardo Rosman — BTG Pactual — Analyst

Mario Pierry — Bank of America Merrill Lynch — Analyst

Tito Labarta — Analyst

Daniel Vaz — Safra — Analyst

Renato Meloni — Autonomous Research — Analyst

Yuri Fernandes — JPMorgan Chase and Company — Analyst

Jamie Friedman — Analyst

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