Good evening everyone and thank you for joining us today. Joining me on today's call are Thiago Piau, our CEO; Marcelo Baldin, CFO; and Lia Matos, Chief Strategy Officer.

On this call, we will present our operational and financial results for the third quarter and give updates regarding our strategic progress and solutions. I'll pass it over to Thiago to share with you our main highlights and strategic updates.

Thiago?

Thank you, Rafael and good evening everyone. Thanks for joining us today.

I will start by going through our main highlights as seen in slide three and we will follow with more detailed updates on our results in the third quarter. We have continued to deliver very strong results, while evolving fast in our strategic roadmap of helping our merchants manage their business better, having access to financial services in a more seamless and transparent way, and providing them with the best customer service of Brazil.

We have continued to grow fast both in the hubs and in digital and integrated partnerships with TPV addition in hubs accelerating quarter-over-quarter. We posted record net adds of almost 69,000 clients in the quarter, reaching a total active client base of 429,000 merchants while maintaining strong levels of profitability.

We delivered over 62% growth in revenue and 126% growth in adjusted net income, all of that with comparable take rate of 1.88% in the quarter and margin above 30%. These results show that we are on the right track in our strategy to be the partner of choice of our clients, providing them with the best value proposition.

We have been able to grow, while maintaining our differentiated service levels in sales, logistics, and customer service. In logistics, our Green Angels delivered a POS on average in less than one day with a 99% service level agreement.

In customer service, we have been able to answer our calls on average in less than five seconds with 95% of calls rated as excellent, and we solve our clients' issues in the first call in 82% of the cases. We keep our team 100% driven by obsession over clients and as our results demonstrate this mentality pays off.

We have also seen significant advancements in our solution beyond payments. We have already disbursed over BRL185 million in credit to over 13,000 clients, offering clients a fully transparent solution and without unnecessary bureaucracy.

In banking, we have reached a total of 29,000 open accounts, having recently launched a marketing campaign, introducing the prepaid card in addition to the digital accounts. The integration of our financial solutions, acquiring banking, and credit in a unified platform is already in pilot mode and is expected to be launched in the first quarter of next year.

Finally, our software solution client base has reached the mark of over 100,000 clients in the third quarter compared to approximately 70,000 in July, having added over 30,000 clients organically in just two months. Added to that, Recruta, our landmark recruiting program has reached almost 110,000 applications in 2019, making it one of the largest recruitment processes in Brazil.

Regarding our partnership with Grupo Globo, we have made great progress in many fronts in pre-operational aspects of the business. We have already defined a new brand to operate in the micro merchant space and expect to start operation in the first quarter of 2020.

We remain very excited to address this opportunity. Going on to slide four, we have just celebrated one-year anniversary of our IPO.

We are very proud of the accomplishment of our team who have helped our company not only grow but become better every day. We have scaled fast growing our client base by 83% surpassing BRL115 billion in TPV over the last 12 months.

Combined with growth, we have also improved our profitability reaching an adjusted net income of BRL738 million in the last 12 months with an adjusted net margin of over 30% compared to adjusted net income of BRL208 million and a margin of 16% in the last 12 months prior to our IPO. Finally, our take rate improved by 11 basis points to 1.87% in the last 12 months as we continued to grow our SMB client base.

As you can see in slide five, over the last year, we have had a continued focus on three areas. The first area is developing new solutions to our clients that go way beyond merchant acquiring.

We had no credit offering and now we have BRL185 million disbursed. We multiplied the number of software clients by more than 10 times and have reached almost 30,000 Stone banking accounts.

The second area of focus was the attraction of more and more talents to the company. Our Recruta program, which had 29,000 applications, one year ago had close to 110,000 applications in 2019.

Finally, we have focus on improving even more our customer service metrics even at a much larger scale. In this one-year anniversary of our IPO, we would like to say a big and warm thanks first to our clients that trust our team and inspire us every day to go further; second, to our wonderful team that fights every day to become better and better and really see our mission and culture as a way of living; and finally, to our long-term partners and investors that have supported us throughout the years and just like us are confident in the future that we are building.

Now that we have gone through the main highlights of our business, I will pass you over to Rafael to talk in more details about the evolution of our payment business.

Thanks Thiago. I will start by giving an update on our payments business, which you can follow on slide six.

We are very pleased to report acceleration in client addition with both strong TPV and solid take rate levels. In the second and third quarters, we have been investing more in the operation, so we can bring our solutions to more and more clients.

In the third quarter, we have accelerated our net adds reaching a record of 68,700 compared to 50,500 in the prior quarter. We have grown our active client base across all regions in Brazil and although SMB clients represent the vast majority of the growth, we have also been growing our base of clients in both digital and integrated partnerships.

It's important to highlight that this net addition acceleration came almost entirely from SMB clients as micro merchants using our Stone Mais product added only 4,600 clients in the quarter for a total base of 15,600 active micro merchant clients. When launched, we expect the partnership with Globo will enable us to build a solid business in the micro merchant space.

Our TPV grew 50% year-over-year in the third quarter of 2019, a solid growth despite a tough comparable in the third quarter of 2018. In the hubs, TPV addition has accelerated quarter-over-quarter, and in digital and integrated partnerships, which are mainly large accounts, we had lower quarterly TPV addition when compared to the second quarter.

Compared with our main payment peers, as you can see in the second chart, we are the fastest growing company in terms of TPV growing across all Brazilian regions. Regarding take rates, our actual take rate was 1.91%, where we had a three-basis-point positive effect from client lifetime upward revision.

According to IFRS 15, we have to account for a subscription revenue over the expected life of merchants on a linear basis and assumptions for linearization must be reviewed annually. The upward revision of lifetime of merchants have then contributed positively to take rates this quarter.

This regarding this effect, our comparable take rate was 1.88%, up 3 bps compared to the prior quarter, mainly explained by a stronger mix of hubs compared to digital and integrated partners. Now, that we have been through the main dynamics of our payment business, I'll pass it over to Lia, so she can provide some details on our new solutions beyond payments.

Thanks Rafael. As Thiago mentioned, our credit strategy has evolved a lot since our last reported results.

The number of clients who use our credit offering has increased from 3,400 in July of 2019 to 13,400 in October, almost four times higher over three months. Regarding disbursements, we have reached over BRL185 million in October compared to a little over BRL50 million in July with average ticket since inception of about BRL14,000 and a mid-single-digits delinquency rate.

As you know, we had been giving credit to our third-party partnership in a profit-sharing model and intended to do a small pilot with our own capital. Since we haven't SCD license and more recently, a FIDC structure in place, we are now able to give credit on our own.

We have just begun a pilot, disbursing around BRL55 million of our own capital. And we have been continuously improving our proprietary credit scoring.

But just to be clear, as Thiago has said many times before in our previous earnings calls, we don't intend to maintain significant credit risk in our balance sheet. The step we are giving now is the implementation of mechanisms that enable us to factor out the risk we might take on our own.

After we have that step fully implemented, we intend to enter a phase of scaling the credit offering. Another important aspect about giving credit is that we are being able to be very diligent and responsible in the way that we deal with this new initiative.

We continue very optimistic about the credit offering, but we remain focused on maximizing returns with minimized risk. Our digital banking solution has also shown good traction.

As you can see in slide eight, the number of opened accounts has increased from approximately 10,000 in July 29,000 October with increasing engagement from clients. For example, the number of wire transfers per account has increased by 50% from the second quarter of 2019 to the third quarter of 2019, and the number of boletos paid by account has increased by 130% over the same period.

Both the Stone account and the prepaid card were launched nationally in the campaign released in the end of October. As we can see in slide nine, although currently our acquiring, banking and credit solutions are offered separate from each other, we are very focused on integrating them in one single financial platform, which will make it much easier for our clients to use each of our solutions.

As we already presented in the last quarter's presentation, our vision is to provide a single platform for merchants to solve all of their needs such as paying bills, making wire transfers, taking a credit line controlling their cash flow among other things. This platform will be supported by Stone's unique service levels and distribution.

We answer the phone on average in less than five seconds with a humanized customer support and have agents hours away from the merchant's door steps in case they need it. We expect to launch our fully integrated platform in the first quarter of 2020.

In slide 10, we move to our software strategy update. As you can see, we continue to increase our client base as we rollout our reconciliation and CRM/Loyalty solutions.

As a result, the number of subscribed clients rose from approximately 70,000 in July to over 100,000 by the end of the third quarter. As we increase the number of software clients, we have also achieved significant increase in client engagement, which is an important metric for us to confirm the value-add of the solutions we provide.

As an example, the number of accesses to our reconciliation platform per client has increased by 50% from the second quarter of 2019 to the third quarter of 2019 and the percentage of heavy users of our CRM/Loyalty solutions has doubled in the same period as seen in the charts on the right. The acceptance of our software solutions has been encouraging and we continue to work hard to strengthen our value proposition by providing more and better solutions to our clients.

With this, I will turn it over to Rafael to go through our financial results.

Thank you, Lia. As you can see on slide 12, we have reached a total of 429,000 active clients, with a record net addition of 68,700 in the quarter, of which only 4,600 are related to our Stone Mais product for micro merchants.

We also achieved 50% year-over-year growth in TPV, with accelerating addition of TPV in the hubs quarter-over-quarter. Total revenue and income for the third quarter of 2019 increased by 62% year-over-year to BRL671 million compared with BRL414 million in the third quarter of 2018.

On slide 13, you can see our complete P&L for the quarter. Cost of services were BRL112.5 million for the third quarter, 39% higher compared to the third quarter of 2018.

Cost of services as a percentage of total revenue and income was 16.8% and efficiency gain of 2.7 percentage points over the prior year period, mainly as a function of lower provisions and losses, efficiency gains in human resources and brand fees. Compared to the previous quarter, cost of services as a percentage of total revenue and income reduced from 17.2% to 16.8%, mainly explained by lower provisions and losses and brand fees.

Moving on, administrative expenses were BRL71 million in the third quarter of 2019, up 15% year-over-year. Administrative expenses as a percentage of total revenue and income was 10.6% in the quarter, 4.4 percentage points lower than the previous year as the company gains operating leverage from its personnel and facilities expenses.

Compared to the second quarter of 2019, administrative expenses as a percentage of total revenue and income decreased by 2.6 percentage points, explained mainly by lower third-party services expenses as well as lower travel expenses as in the second quarter of 2019, the company hosted its annual sales convention. Selling expenses grew 103% year-over-year, reaching BRL102 million in the third quarter of 2019.

This increase was primarily due to higher personnel and marketing expenses compared with the second quarter of 2019. Selling expenses increased by 0.3 percentage points as we continue to hire new salespeople and invest in our operations.

Financial expenses were BRL101 million, 21% higher than the third quarter of 2018. Financial expenses as a percentage of financial income fell from 39.3% in the third quarter of 2018 to 30.2% in the third quarter of 2019.

This decrease resulted from lower cost of funds due to lower base rates, cheaper funding lines and the use of more own cash to fund the prepayment operations, combined with higher financial income. When we compare to the previous quarter, financial expenses as a percentage of revenue increased from 13.4% to 15.1%, mainly due to higher mix of third-party capital to fund the growth in prepayment business.

We have many attractive funding alternatives that we contracted throughout the year that we have been using to fund this business. As you can see on slide 14, our third quarter adjusted net income was BRL202 million with a margin of 30.1% compared with BRL89 million and a margin of 21.6% in the third quarter of 2018.

The main factors that contributed to the growth in adjusted net income year-over-year were an increase in total revenue and income, operating leverage and cost of services and administrative expenses and reduced cost of funds as we gained access to cheaper funding and increased the use of own cash to fund the prepayment operations. Compared with the second quarter of 2019, our adjusted net margin was three percentage points lower, explained by a lower than usual tax rate in the second quarter combined with stronger mix of funding towards third-party capital to fund prepayment in the third quarter of 2019.

Finally, on slide 15, we go through our adjusted free cash flow. We have generated BRL41 million of adjusted free cash flow in the third quarter of 2019.

This cash flow generation was lower than in previous quarters due to higher CapEx, which is mainly related to advanced payment of BRL102 million to suppliers of POS that enabled the company to benefit from more favorable commercial terms. With that said operator, please open the call up to questions.

Hi. Congrats everyone on the numbers.

Two questions, if I may. The first one is on the TPV for the quarter.

Can you help us understand to what extent the addition of a record number of clients still needs to be reflected in TPV; sort of what level of backlog do you think you're building up on TPV? How did -- the clients were added during the quarter?

Do you have a disproportionate amount of clients added at the end of the quarter, so we should expect them to start contributing more towards the fourth quarter of the year and beyond? And the second question is on subscription and -- rentals and subscription, sorry, which did pretty well, and it was up, according to my numbers, up 16% on a per active merchant basis.

To what extent this is a success in monetizing some of the non -- some of the software and other products that you provide or is it just much better POS business given the growth in merchants? Thank you.

Hi Jorge. Thank you for your questions.

It's great questions. So, let me start with some comments about TPV, and then we’ll move to this subscription revenue line.

So, first, regarding TPV, you were right. There is some effect of the sharp increase in net adds that resulted in some clients not transacting the full quarter, and there's some effect of the growth in the countryside of Brazil, too.

And we expect a ramp-up of that TPV over the fourth quarter. So, you're right.

And overall comments regarding TPV is that we are growing TPV very fast on a quarter-over-quarter basis. So, you will see that the quarter -- the growth from the first quarter to the second quarter was a little bit bigger than the growth from the second quarter to the third quarter.

And to see TPV, we have to split this in two different dynamics. One is digital channels, integrated partnerships, and we'll talk a little bit about this and the hubs.

So, when you see digital and integrated partnership channels, so we are growing fast every quarter, but in this third quarter, we saw some pressure in the very big accounts in terms of pricing pressure of incumbents. So, that's why the growth in the third quarter in the big accounts are a little bit small -- smaller than the growth in the first quarter to the second quarter.

So, there's some volatility in the big account operations. We made some adjustments in the way that we handle key accounts.

So, we already have part of that growth volume back now in the fourth quarter. When you talk about the hubs, then we are accelerating growth every quarter.

So, we are accelerating growth in the hubs, again mainly because of how powerful our business model is in the SMB and how powerful this hub strategy is. So, we're very happy with the growth in the hubs.

And there is one very important information that when you see TPV churn in the hub in this third quarter 2019, we are actually better than in the third quarter of last year. So, our TPV churn at this point is better than what we had last year.

So, this is very positive in terms of showing the strength of the hub strategy. And regarding the subscription line that it's your second question.

So, our strategy here is to protect the subscription revenue, changing the mentality from the rental to the service levels that we offer, the value proposition of service that we offer towards -- to our clients with the combination with the softwares. So, I think that this combination of service and softwares protect this line, and as you can see, results are pretty good.

So, Rafael, do you want to add?

Yes. Jorge, just to add to Thiago's comments on the TPV.

If you looked at TPV per merchant, if you see the net adds in the quarter divided by the total active base, you'll see that the new clients, they are more representative now than they were in the previous quarter. That means that you have more clients, they're not transacting the full quarter, right?

So, this obviously has an effect because this usually -- they have half of the TPV, right, because they are not contributing in the full quarter. So, just to add to that point.

And another topic on TPV that is important to highlight that the average TPV in the hubs is closer to BRL20,000 a month compared to the average for the company of BRL25,000. So, as you grow more in the hubs, you have this effect of mix too.

All right. Thank you very much for the detailed explanation and congrats again.

Thank you, Jorge.

Hi, good evening. Thank you for the call.

Also a couple of questions. I guess on the take rate, just to understand, because it did go up a little bit.

Was that a function of the mix improving? As you mentioned, you had less growth with the integrated partners in the digital accounts.

So, is that what would help the take rates a little bit? I guess, also thinking about that, given the competitive environment, if you were maybe more aggressive and had a lower take rate, would that have helped your volume growth at all?

So, I just wanted to understand the dynamics between competition and your pricing and also the mix of merchants you have? And then the second question, in terms of expenses, right?

We did see some operating leverage, right? You continued to grow selling expenses quite a bit, but administrative expenses kind of held up.

So, is that what we should continue to expect where you continue to grow the hubs a lot? Does that mean margins remain kind of stable from where we are now?

Just how do we think about expenses and margins going forward? Thank you.

Thank you, Tito. Rafael here.

So, regarding your first question on take rate, you're right. So, the main reason for the slight increase in take rate was the mix, so more hubs than the big accounts and the digital and integrated partners.

When you look only at the hubs, we are seeing stable take rates. So, that slight increase was mainly due to that, right?

Regarding your second question of margins, this quarter in the selling expenses, we did some experiments in terms of marketing and this contributed a little to that line as well. We are not providing specific guidance regarding margins, but we think that the current margin levels that we have, they are sort of balanced with the growth that we intend, so you shouldn't see big moves in terms of margins going forward in the short-term.

Can I just add two comments? So, Tito, two comments here about take rates and a combination of take rates and TPV.

So, keep in mind that we had the highest TPV growth in the industry here among players. And we are the only player with increasing take rates in this competitive environment.

So, that's something very important that proves how strong our business model is. We are very proud of that.

So, we are seeing no changes in terms of take rate strength so far. We have stable take rates in the hubs.

And there is a mix that helps a little bit this trend that you are seeing here. And unfortunately, pricing is a very, very strategic part of our business.

So we do not give much information about this. But the numbers show that we are learning how to handle price offenses of the incumbents with different products and how we can see our clients with our lifetime value perspective, so we can be a little bit more flexible when we have more lifetime of our clients.

We are less flexible when we understand that the lifetime is not so big. So, we learned how to use different products and how to see lifetime value of the clients.

And that's why we have highest TPV growth in the industry, and we are the only player increasing take rates. So, very proud of the business model and the way that the team is executing this.

Great. Thanks.

That's very helpful. Just a couple of quick follow-ups.

So, just understanding the take just maybe kind of conceptually, but if you were to be a bit more aggressive in pricing, do you think your growth would be faster? And I understand that's probably not your strategy, but I just want to understand like how much pricing is potentially playing a role in the deceleration we've seen in volumes?

And then on the second question on margins. Given all the investments probably not in the next few quarters, but longer term, is there room for some margin expansion as you realize the benefits of these investments, just maybe thinking of it longer term on the margin there?

Yes. So, to your first question, so we keep our mind here on 100% focused in value proposition and be obsessed over clients.

So, at this moment, we think that the combination of growth in terms of net adds, the pricing point that we are using, the margins that we have, we believe that we are in an optimal point here. So, there's no change to do.

We want to keep profitability, keep in mind that we are in this industry over the long run. And the value proposition that we offer our clients is what we are charged in terms of take rates.

So, we are happy with the level of pricing that we have in this moment. And yes, in the future, we expect that we can have more operating leverage, the credit products, it's a very profitable one.

So, keep in mind that we are investing in many fronts for a business at this stage. So, we are investing in our banking products and the banking operations on the software, on the credit products and credit scoring and all that operation.

We are investing even further in the hubs and we have very healthy margins. So, this balance between the value proposition that we are offering, the growth in terms of net adds and TPV, the take rates, we think that we have a good balance between those metrics and we want to keep this kind of mentality of thinking about value proposition and being obsessed over our clients.

Okay, great. Thank you very much.

Thank you.

Thank you very much. My first question regarding prepayments, you continue to see the contribution from prepayments going up.

My question is how much room there is to continue penetrating clients with prepayments? And the second question regarding the mix between SME and micro merchants.

How should we expect the mix in like two, three years from now? The SME is expected to continue the most relevant portion of the company or the micro merchant segment could gain a good share in the mix of TPV?

Thank you very much.

Hi Daniel, Thiago speaking. Thank you very much for your questions.

It's a great question. Very difficult to talk at this point about mix between micro merchant and the SMB.

So we are 100% focused on the SMB operations, our core operation. The JV that we are starting with Globo that will be operational in the beginning of first quarter is a venture.

So, we don't have much to say on that. So, we made advancements in terms of preoperational details such as definition of the brand, products, technology, the people organization that we will use as well as we are defining the media plan with Globo, but it is still too soon to say about how relevant that will be when you compare to the overall business.

We keep a 100% focused on the SMB. That's our main core.

So, we expect to keep the SMB as the core of the business and our main operation. So, that's -- the second question is regarding how much prepayment can go further, right?

So, keep in mind that with this mix that we have more and more clients for the SMBs, the clients of the SMBs that prepay a lot. So, I think that when you think about duration and the pricing that we have in this product, we are in the good point.

But as we put more SMB clients through the hub operation, you have this level of increase that you are seeing. We expect to keep this trend in terms of the prepayment line.

And as we roll out the credit then we can be much more profitable. Because if you compare the pricing point from credits and prepayments, on credit, we can charge almost double the price that we charge in the prepayment operation and we still price below the big banks.

So, there's a good opportunity here to have better margins in the credit product, offering better price to our clients. So, that's a win-win when you compare our product against the big banks and incumbents.

So, I think there's room to improve profitability in the way that we help merchants to get to fund their operation for the credit products.

Great. Thank you very much.

Thank you, Daniel.

Yes, hi. Thanks.

Great merchant number. I wanted to ask a question.

So on the -- just trying to forecast ahead TPV growth. As we think about the TPV per merchant of new merchants that have come on recently versus existing.

Did I understand you correctly that you expect the run rate versus the average of the company to be about 20% lower on the new merchants versus the current average? Second, I just wanted to understand the interplay of the take rate a little more.

Am I correct in hearing you that you're saying there's pricing pressure at the larger merchants plus the integrated players, but you're able to hold the line at the SMBs? So, therefore, mix is what's keeping you stable on the take rate.

And then lastly, could you talk about, over time, how we should think about the marketing and selling expenses as you pursue the micro merchant segment where a cost of customer acquisition is extremely high? Thanks.

Hi Craig, Rafael here. Thank you very much for the question.

Regarding your first question of the TPV per merchant. What Thiago said is that in the hubs, the TPV per merchant is closer to BRL20,000.

If you see the average of the whole company today is around BRL25,000. So, as you add more merchants in the hubs, you tend to have that effect decreasing the TPV per merchant.

But overall, the incremental TPV per merchant is not necessarily BRL20,000. If you see the -- in the hubs themselves, the incremental clients are slightly smaller because you are going to the countryside.

So, usually, you have slightly smaller clients than the base in the hubs, but very small.

But we are growing faster, and that's why you have this acceleration of growth in the hubs, and that's a very positive effect.

Yes. And to your second question regarding the take rate and the dynamics between the big accounts and the hubs.

That's right. So, you have more pricing pressure in the big accounts in the digital and integrated partners.

In the hubs, you have flattish take rates. But overall, as the mix of hubs increase, you have the positive effect of the three bps, a comparable increase in the take rate.

So, this was the dynamics that you see this quarter. Regarding your third question of marketing and selling expenses for the micro merchant.

Usually -- you are completely right. So, the dynamics of cost of acquisition is totally different.

It's a different go-to-market strategy. It's still too early for us to mention about that.

We do intend to have very competitive cost of acquisition. And that's one of the reasons why we are bringing the knowhow of Globo to that venture, so we can be efficient there.

And overall, we are try -- we'll try in the future to disclose as much as possible to the market. So, you can see the differences between the dynamics in the two businesses.

But we do intend to have very strong dynamics there if you compare it to debt market, right?

Okay. Thank you.

Thank you very much.

Hi thank you for the opportunity our make a question. My question is on the credit business.

You mentioned that NPL is mid-single-digit and in a question before, you mentioned that rates are almost double of the prepared rate. I want to understand a little bit better, what is the duration of the role and the percentage of the monthly TPV of that merchant?

And if you could give us more color on the origination of this credit and the conversion ratio to understand that you have a preapproved credit line for the merchant? And what is the conservation rate right now, how many of those merchants get the credit you offer?

Thank you.

Hi Mariana, Lia here. So, just a few numbers regarding our credit offering.

So duration varies between six and nine months and the average size of the credit offering is BRL14,000. The main channel strategy that we use here is our clients can actually order credit through the portal.

So, we implement this preapproval process, and it's a pretty unbureaucratized process for our clients to order credit. It's all done through our digital channels.

And just to make sure that we give information about how we think about the rollout of this product. So, at this point, we built our proprietary credit engine, so we are testing our proprietary credit engine, and we are very responsible about NPLs.

So, we have this mid-single-digits NPLs. And for the level of credit that we are offering, the digital channels as our portal and our app are the better channels at this point.

And once we see that we have the full operation of factoring out these receivables of the credit operation, we can get more scale in the credit product, then we will roll out to the hubs. And we think that in that point, we will get much more scale in terms of this credit product.

So, stage one was to use a third-party partner to bear entirely the risk, so we are only focusing on origination. And we saw that portal, app and hubs work very well then we started to put a little bit of our own capital and started to use our own credit engine.

We received the license of the SCD. Now, we are starting to see how the operation works with our engine, our SCD license, our credit notes.

Next phase is to factor out these receivables from our balance sheet because we don't intend to bear the risk of the product. And once we finish this step, then we will roll out the credit product throughout the hubs, but we are doing this on a very diligent way.

We are taking a lot of attention to NPLs. And we think that this product will be something very important for us in the medium term.

Thank you.

Thank you, Mariana

Thank you, Mariana

Hi. Thanks for taking my question.

It's really good to see the net merchant adds number in the quarter. Can you continue to increase net merchant adds at the same pace you did this quarter?

And secondly, could you call out how many hubs you now have? And how we should think about the white space left to add hubs from here?

Hi Rayna, Thiago here. So, yes, we have the ability to keep growing this -- our pace of net adds, a combination of investing more in the hubs and keep operational efficiency in terms of churn control.

So, we expect to continue to grow net adds on 2020. And as we said, we expect long-term growth in terms of our hub strategy here, and we are proving this on our results every quarter.

So, could you please just repeat the second question, please?

I think it was in terms of a number of hubs. So, we continue to open hubs in the same pace that we have mentioned before.

We have over 300 hubs so far and we cover more than 2,000 cities in Brazil. We don't see this pace slowing down and we still see a lot of opportunity to continue to grow in terms of both further penetrating the hubs that we are already in and opening new hubs on a regular basis.

We keep opening hubs on a weekly basis. So, as Lia said, last number, we said that we have a little bit over 300 hubs.

I expect to help to end 2019 with something around 400 hubs in our operations, and this pace of opening hubs will continue throughout 2020.

Yes. Let me just add to a point, we see our ability to increase net adds very strong.

Just a seasonality factor, usually in fourth quarter, it's not usually as high as it could be because of -- merchants are focused on holiday season, and they are not exchanging a much. So, -- but we'll still continue to be very strong.

Very helpful. Thank you.

Thank you.

Hi. Congrats on the results and thank you for squeezing me in.

Nice acceleration in number of SMB versus last quarter. You already touched on this, but I want to see if I could ask you one in a slightly different way, which is can you tell us a little bit about who those new SMB customers are?

Maybe just give us a feel for which geographies or which industry verticals you're seeing the most momentum this quarter? And do you also get the feeling that these cohorts might be stickier than past cohorts because of your ABC strategy?

Is there anything that gives you confidence that merchant churn could potentially be reduced over time? Or any details you can provide on the new merchants would be great.

Thanks.

Yes. Just to answer your question, we haven't seen significant changes in the profile of the clients we add in the hubs.

There is, of course, a slight, like Rafael mentioned at the beginning, a slightly lower average TPV when we go to further in the countryside of Brazil. But essentially, the profile of the merchants that we are bringing on to our ecosystem remains the same.

We continue to work very hard on strengthening the value proposition to our clients, both in terms of service and also in terms of solutions. And of course, we do expect that to continue to strengthen the lifetime value of our clients with us.

So, I think that pretty much covers your questions.

And Jeff, just -- Thiago here, just one more comment. So, what is important, I think to see here is that even though we are a much bigger company now one year after the IPO, you will see that first-call resolution is going up, the number of calls rated as excellent for the customer support is going up.

So, we are keeping our NPS as we grow. So, we have this effect of our clients talking about our services, our products and this helps a lot of our brands.

So, we have brand recognition of being the best service here in Brazil. And we start to have more stickiness.

That's why you can see that the TPV churn is a little bit lower, and we are better this year against last year. So, there is an effect of the growth of the business and how the value proposition is being recognized by the merchants.

Great. And then related to that, I wanted to ask about your ABC strategy because you guys have talked about it as a key for your company's growth.

So, it'd be nice to get a sense for how you feel about the progress you're making with banking and credit? And I wouldn't ask you for 2020 guidance related to that, but is there any way you can sort of give us an update in terms of how much your banking and credit offerings could potentially contribute to your total revenue next year or over time?

Thanks.

Sure. So, regarding credit, I think we've -- I think Thiago covered it pretty well.

It's important to highlight that so far, we have been offering credit banking and acquiring as separate offers, right? And as we have announced in the last quarter, we are working hard to integrate these offerings into a single financial platform.

Regarding banking, we launched our banking solution nationally at the end of October. And we have seen a lot of traction since then in terms of daily openings of new accounts.

We will launch -- we expect to launch the integrated platform. It's already in pilot mode, and we expect to launch it in the first quarter of 2020.

What we believe is that by enabling our clients to use one single integrated platform, we will make their interactions with our solutions much less cumbersome. And most importantly, not only simplify their life, but also have one single digital channel in which we can offer all of those solutions.

So, we are really excited with the progress that we're making. And we have gotten very positive feedback so far regarding this integrated financial platform, and we continue to be encouraged with the opportunity.

Great. Thanks very much.

Thank you.

Great. Thank you for taking my call.

My question was following some of the other callers' questions is on the merchant adds. So, Q3 merchant adds really did seem exceptionally strong, especially quarter-over-quarter.

I was wondering, is there anything you could call out that was special about Q3 that really led to the growth? Because I think even if you back out the 4.6 of the micro merchants, you still had acceleration.

So, I'm just wondering what factors I should consider? And I know you spoke also a little bit about the seasonality of Q4 in this number, but would this be -- I guess, would you consider this like this roughly 69,000 net merchant adds to be a bit of an outlier for the year?

Or would you expect that maybe next quarter, you would see something that would be in the same range?

Hi John, Thiago here. Thank you very much for your question.

It's a great question. So, let's talk about net adds, not only about fourth quarter because as Rafael said, to talk about net adds in fourth quarter is something that's not very easy because you have holidays here, Christmas in Brazil.

So, it changed a little bit the dynamic. So, it's -- we are not seeing any type of decrease of net adds, but it's difficult to say how much we can grow our net adds in the fourth quarter, but we expect to keep the strength of growing net adds throughout first, second, third and fourth quarter of next year.

So, we expect to grow our net adds every quarter over 2020. And it's mainly because of focus towards the SMB and hub operations, operational efficiency.

We are very driven by productivity of our team in churn control. So, you will still see addition of net adds and growth of net adds throughout 2020.

So as we said, we see this opportunity as a long-term one. So, 2020, I think that we will keep the pace of net adds growth.

Yes. If I just -- Rafael here, just to add to Thiago's point.

So, -- then it's not an outlier in that number, right? So, we do see our ability to increase that number over time.

And then in the second quarter, when we reported our results and some of the investors asked us about the margin and so on. So, this is also a reflection of our investments.

So, as we invest, we do -- we are very diligent in having the return of the investments we make and that's one of the effects you're seeing now.

And as we said before, we are seeing two metrics here in terms of investing in the hub, which is cost of acquisition and lifetime value. So, we are not seeing change in terms of the ratio between lifetime value and cost of acquisition.

That's why we invest even further in the hubs and we will keep this growth in net adds.

Great. Thank you.

Thank you.

Thank you.

Thank you.

Thank you for taking the question and congratulations on the strong results. First, just to follow up on the previous question.

You said that you should be able to maintain this take -- this net adds rate for the next year. So, 65,000, 70,000 per quarter of net adds seem reasonable to you in 2020, just wanted to clarify that.

And the second question is on credit. I believe in your speech, you mentioned that about BRL55 million of the total book -- loan book was undertaken on your own balance sheet.

Is that right? And how do you see that evolving?

I mean, what percentage of the total loans given out to clients would roughly be on own balance sheet versus with partner banks? Any color on that for 2020 would be very helpful.

Thank you so much.

Thank you, Neha, Lia here. So, just to confirm, on your first question, yes, you are right.

We expect -- we don't think that this number of net adds is an outlier, and we expect to continue to increase net adds on a quarterly basis, like Thiago just mentioned. Regarding credit, we have disbursed about BRL55 million of our own capital.

And today, we do have this risk in our balance sheet, but we do not intend to scale our credit business by taking risk in our balance sheet. Like Thiago already, we're working hard on creating the mechanisms to be able to factor out the risks from our balance sheet.

And that's how we intend to scale the credit offering. We're also very focused right now on improving the credit product itself.

I cannot really overemphasize how much the current incumbent offerings are bureaucratized to our clients and how positive the feedback is that we're getting in terms of the transparency that we give in terms of our clients being able to reconcile how much they're paying in terms of fees and so on. So, we're really focused on continuing to improve the product, to continue to improve our credit scoring engine, and we will grow by creating this mechanism to factor out the risk from our balance sheet.

Great. If I can follow-up that.

How is the repayment of the loan undertaking? Is it as a percentage of receivables or percentages added to the MBR, how is the loan repaid by the merchant?

Thank you so much.

Yes. So, the modality that we offer now, it's a discount on the receivables.

It's a percentage discount on the receivables.

So, we have a daily percentages discount of the volume of the clients that we keep in order for them to pay back this loan, and that's why the average term is six to -- the average duration is six to nine months. And that's very simple because the merchants know exactly how much they are being charged every day.

So, it really connects with the way that they manage their business. And it's very transparent for them to see the entire operation through their portal.

So, I think that, that's what the client really likes in this product. They understand exactly what it's doing and every day they can follow up in the app and in the dashboard works pretty well.

Yes.

Yes. Thank you so much.

Very clear.

Thank you, Neha.

Thank you, Neha.

Good evening. Thanks for taking my question.

I wanted to ask a little bit more about the integrated platform and the plan to roll it out in the first quarter of next year. I want to see what expectations were around that, both in terms of revenue and spending?

So, is this something that you see as an incremental driver of revenue? Or is it really more about reducing churn and getting existing customers to be more sticky on the platform?

And then on the cost side, you mentioned particularly ramping up sales as you have been. It might just mean more sales, more marketing in the first quarter or the first half of next year, or you temporary bump up in that spending?

Thanks.

Hi Julie, Thiago here. Thank you very much for your question.

So, I will start here with the first question regarding the ABC platform. So, the strategy in the ABC platform is really that today if merchants want to have all the financial services they have to get in touch with many times, the banks and the incumbent payment players, so combining all the financial solutions in one single platform gives us the ability to solve all their needs, taking the phone call in less than five seconds, solving all the problems in the first phone call.

So, the level of service that we can offer integrated to all the financial solutions that they need is something really powerful, and we will be the only one that can offer the integrated customer service to our clients through all the financial solutions that they need from issuing boletos, paying deals, doing wire transfer, all the payment methods that they want to understand, the reconciliation of all the payment methods, the payment methods that we provide, payment methods that other players provide, they will be able to reconcile all in the ABC because the higher fees will be inside the ABC platform. So, it's really about taking the customer service to a completely different level, offering all the financial solutions.

And as you see, we will have more revenue from transaction activities because we will have the wire transfer and the boleto issuance, and we expect to have more revenue from the funding of the merchant with the credit product. So, I think that we will be able to give a complete product in terms of financial solutions to our clients, fully integrated with the customer service, fully integrated where we can be at the doorstep of our clients whenever they need.

So, we really believe that, that will be a very powerful value proposition to our clients, very difficult to replicate. You know that the incumbents in Brazil, they have some conflict of interest with the parent bank that has the control over that company.

So, the way that we think about technology integration, customer service is unique and the way that we have the relationship through the hub is pretty unique too. So, we're excited with this new product.

Okay. And anything to add on the expense side?

You mean regarding the launch of the platform?

Yes, yes.

No, we don't expect--

No, we don't expect any new expense in terms of that. We will use exactly the same strategy that we have.

Keep in mind that this quarter, the third quarter, there's important notice to be made. In this third quarter, we invested double the amount in marketing than we had in the second quarter and that was a trial.

So, we were experimenting investment in marketing to see how much we can drive in terms of productivity of our team. So, we made this investment in a nationwide, so popular here in Brazil, very famous.

It was very interesting to learn how marketing works with the hubs. So, we are focused here on keeping this level of margins, and we'll always experiment new investments to grow even further.

And what I'm happy to see is that we have this 30% margin even though we invest heavily in the new operations. So, I think that -- as we said, the balance between growth, value proposition and how much we charge margins are in the very healthy level, and we intend to keep this.

Okay. Thank you so much.

Thank you.

Thank you, Julie.

Hi, Thiago, Lia, Rafael. Thanks for the opportunity for asking questions.

I had one quick question about the partial banking [technical difficulty]

Can we just wait a little like one minute or two minutes to see if Salomao will be back?

So, let's just wait for one or two minutes to see if Felipe will be back. Then, if not, we will do the final remarks.

Everyone. So, as Felipe is not back, I think I will do the final remarks here.

We were just waiting because giving information with transparency and all the information that our shareholder base wants to see and the analysts, something very important for us. That's why we decided to wait, but now we'll do the final remarks.

I would first like to say a big thanks for our team for the efforts. I'm very impressed with the energy of the team and how people really lead our mission, see our mission and the passion over our clients as a way of living.

We are very happy with the growth that we have. We see this business as an opportunity for long-term growth.

We are very happy with everything that has been done. Thank you very much for your support and see you next quarter.

Bye, bye.