StoneCo Ltd. (STNE) Earnings

Management highlights

### Strategic Brand Positioning - Launched new brand positioning as "Stone, the bank for entrepreneurs" to close the perception gap that many clients still only view Stone as a payments processor, not a full-service banking and credit provider - Integrated Pagar.me, the company's historical digital commerce arm, into the core Stone platform, unifying online and in-person merchant operations under one account and one brand, opening new growth in the faster-growing digital transaction market - Expanded AI tools across merchant operational services, including catalog image enhancement and sales content creation to help merchants grow ### Core Operational Initiatives - Rolled out retention initiatives to address prior churn challenges, focused on simplifying product bundles, aligning Salesforce incentives, and reducing operational friction - Retention improvements have delivered faster, more meaningful results for micro-merchants, with churn already falling; improvements for larger SMBs are progressing more gradually due to more complex product and client needs, requiring careful calibration before scaling - Maintained disciplined cost management: cost of services (excluding provisions) was flat year-over-year, administrative expenses fell year-over-year due to prior workforce reduction, with selling expenses rising only modestly on higher marketing investment - Continued significant capital return to shareholders, with R$ 4.3 billion returned in the first half of 2026 via dividends and buybacks ### Credit Portfolio Strategy - Expanded government-backed loan programs, which include government guarantees that reduce default risk, allow more competitive pricing for underserved clients, and maintain controlled risk-adjusted returns - Segregated working capital lending into two channels: an automated desk for small tickets up to ~R$ 40,000 at ~4% monthly average rate, and a dedicated desk for large tickets averaging ~R$ 700,000 at ~2.5% monthly average rate - Shifted originations mix toward lower-risk government-backed lines for new or less-established relationships, and capped maximum ticket sizes on the dedicated desk to reduce single-name exposure volatility

Guidance

- Full-year 2026 guidance for adjusted gross profit (R$ 6.6 billion to R$ 7.0 billion) and adjusted basic EPS (R$ 10.8 to R$ 11.4) is maintained, with management now focused on delivering to the lower end of these ranges amid a more challenging macro backdrop - Effective tax rate guidance remains unchanged, with year-to-date 15.4% aligned with prior guidance - Medium-term cost of risk guidance remains unchanged, with management expecting cost of risk to trend down to the mid to high teens, reaching the high teens by the end of 2026 - TPV growth is expected to accelerate further in the second half of 2026 as retention initiatives gain traction, and gross profit growth is expected to accelerate as credit portfolio growth compounds and risk profile improves

Segment performance

1. Payments: Total Payment Volume (TPV) grew 4% year-over-year, with PIX QR code volumes growing faster than card volumes. Active merchant client base reached 4.8 million. Transaction revenue declined 11% sequentially, driven by one-time network incentives that were received in Q1 2026 and did not repeat in Q2. Total company revenue for Q2 2026 was R$ 3.6 billion, with adjusted gross profit broadly stable year-over-year at R$ 1.6 billion. 2. Banking: Retail deposits reached R$ 10.8 billion, up 22% year-over-year. Net financial expenses remained flattish year-over-year as growing client deposit balances reduced funding costs to 85% of CDI. Capital ratio stood at 26% after an extraordinary dividend paid in Q2 2026. 3. Credit: Total credit portfolio reached R$ 3.8 billion, doubling year-over-year, driven primarily by working capital solutions. Government-backed loans now account for ~R$ 300 million of the portfolio, and credit cards reached R$ 400 million. Credit revenues grew 14% quarter-over-quarter. Provision expenses reached R$ 188 million, pushing cost of risk to 21.5% for the quarter. Coverage ratio fell to 204% due to portfolio mix shifts and mechanical seasoning effects. Automated small-ticket lending saw improving first-payment default trends, while large-ticket dedicated desk lending faced higher delinquency from macro-driven bankruptcies.

Risks & headwinds

- Brazilian interest rates have stayed higher for longer than expected at the start of 2026, creating a more challenging operating backdrop and pressure on financial income from lower cash balances - Higher interest rates have driven a record increase in bankruptcy filings across Brazil, leading to higher-than-expected delinquency specifically on large-ticket loans in the dedicated lending desk, including single exposures over R$ 10 million - Continued PIX volume growth, which has lower unit economics than card transactions, creates ongoing marginal pressure on overall payment take rates - The 200 million reais non-recurring provision for distressed issuer receivables may need to be increased if settlement via card networks is delayed or not fully recovered - Churn in the SMB segment remains elevated, and retention improvements are progressing more slowly than initially expected, creating ongoing pressure on TPV growth

Analyst Q&A

• Q: What is the context for the $200 million non-recurring loss provision on distressed issuers, and what is your outlook for government-backed loan growth? /

  A: The provision follows the central bank-ordered liquidation of a large financial group with an outstanding credit card issuer subsidiary, over 90 days has passed since Stone last received settlement from this issuer. Management believes card networks bear legal responsibility for settling authorized transactions, and historically Stone has recovered 100% of similar amounts from networks, so they are cautiously optimistic for full recovery. The provision was made for accounting prudence, and may be increased in future quarters if the dispute drags on. Government-backed loan growth does not change existing guidance; cost of risk is still expected to trend to mid-high teens by year end, with normal short-term mix fluctuation. (312 words)

• Q: With maintained full-year guidance, what allows you to hit the lower end of the gross profit range amid lower PIX unit economics and weaker cash income? /

  A: Gross profit was flat in the first half because provision costs from fast credit portfolio growth offset growing credit revenues. In the second half, TPV and credit growth will accelerate, retention initiatives will deliver benefits, and the improving credit portfolio risk profile will support gross profit expansion. Higher interest rates have created a R$ 300 million+ headwind for the full year, making the backdrop more challenging, so management is focused on delivering to the lower end of the maintained guidance range. (119 words)

• Q: What caused elevated delinquency in the large-ticket dedicated lending desk, and what changes are you making going forward? /

  A: Delinquency has been concentrated in the largest ticket exposures, driven by record macro-level bankruptcies from prolonged high interest rates, all cases are macro-related not fraud. To address this, management is shifting originations toward government-backed lines for clients without longstanding relationships, and capping maximum ticket sizes on the dedicated desk to reduce single-name volatility. The dedicated desk remains a core offering when serving its core client base, and issues have been isolated to oversized exposures. (110 words)

• Q: Why have retention improvements been slower for SMBs than micro-merchants, and when will we see results? /

  A: Micro-merchants have simple offerings and distribution, so fixes can be rolled out quickly. SMBs have heterogeneous needs, offerings, and channels, so no single fix exists, requiring segmented testing and careful calibration that takes more time. Churn trends are already improving for both segments, but progress will be gradual rather than an immediate shift, and TPV acceleration will follow this gradual improvement. (87 words)