Tuesday, 19 March 2024
by BD Banks
Image source: The Motley Fool.
StoneCo (NASDAQ: STNE)
Q4 2023 Earnings Call
Mar 18, 2024, 5:00 p.m. ET
Operator
Good evening, ladies and gentlemen. Thank you for standing by. Welcome to the StoneCo fourth quarter 2023 earnings conference call. By now, everyone should have access to our earnings release.
The company also posted a presentation to go along with its call. All material can be found online at investors.stone.co. Throughout this conference call, the company will be presenting non-IFRS financial information, including adjusted net income and adjusted net cash. These are important financial measures for the company but are not financial measures as defined by IFRS.
Reconciliations of the company’s non-IFRS financial information to the IFRS financial information appears in today’s press release. Finally, before we begin our formal remarks, I would like to remind you that today’s discussion may include forward-looking statements. These forward-looking statements are not guarantees of future performances and, therefore, should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the company’s expectations.
In addition, many of the risks regarding the business are disclosed in the company’s Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov. I would now like to turn the conference over to your host, Roberta Noronha, head of investor relations at StoneCo. Please proceed.
Roberta Noronha — Head of Investor Relations
Thank you, operator, and good evening, everyone. Joining me today on the call is our CEO, Pedro Zinner; our CFO and investor relations officer, Mateus Scherer; and our chief strategy and marketing officer, Lia Matos. Today, we will present our fourth quarter 2023 results and provide an updated outlook for our business. I will now pass it over to Pedro so he can share some highlights of our performance.
Pedro?
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Pedro Zinner — Chief Executive Officer
Thank you, Roberta, and good evening, everyone. As I have outlined in our annual shareholders letter, after a year into my role as CEO, I have taken a deeper look at our company, better spotting our strengths and areas of improvement. This journey has been revealed as it has provided valuable lessons and enhanced my perspective on the opportunities we face. Reflecting on the successful year we had, it is impressive how well our company performed.
I am not only referring to our strong financial performance, but also acknowledging the strategic milestones that have strengthened our position in the market and paved the way for future growth, as we detailed in our investor day. In response to the initial insights and assessment in my role as CEO, in 2023, we have initiated several strategic adjustments to better position our business for the future. We have reorganized ourselves to deliver our solutions more effectively across different client segments, from micro to medium businesses, tailoring our go-to-market approach to meet their unique needs. Our new organizational structure aligns with each client segment, while it also strengthens key capabilities around engineering, product, marketing, and innovation, enhancing our ability to address client needs in a unique way.
We have sharpened our strategic focus around three strategic priorities, which we outlined in our investor day. These three priorities, to win an MSMBs, to drive engagement with our clients, and to scale through platforms, help us to set key focus areas for the coming years. The first one: defining where our focus will be in terms of the software and financial services integration effort. By focusing our execution around four priority verticals of retail, gas stations, food, and drug stores, we are increasing our competitive edge and opening a significant growth avenue for the future.
Lia will present some initial encouraging results we achieved in the fourth quarter. The second one: to leverage the power of the combination of payments, banking, and software. There is a huge opportunity in our installed base to increase engagement with our solutions. As an example, today, only a fraction of our client base can be considered heavy users of our solutions, and there is a substantial potential to improve our unit economics as we continue to engage the base.
The results we saw in our financial services segment in the fourth quarter reflect the success of this strategy around payments and banking. And the third one: the creation of the Stone platform. Our rapid growth initially focused on development speed, sometimes at the expense of consistency and reusability. This resulted in the existence of multiple data platforms.
But over the last year and a half, we’ve made a significant change. We’ve brought our technology teams together, streamlined how we work, and started to build a solid foundation that we all share: the Stone platform. As we move forward, especially with new tech like artificial intelligence, we are setting ourselves up to generate new synergies and use our insights even more effectively to serve our clients. Our last strategic adjustment focuses on implementation of cost management and spending controls.
Recognizing the potential to unlock substantial operating leverage, we have embarked on initiatives aimed at enhancing profitability even further. For sustainable cost optimization, we are setting the stage for more efficient and profitable operations. By implementing a shared service center and a zero base budgeting, we’re enhancing our financial discipline across the organization. While the opportunity is huge, we will seize it through a targeted approach, ensuring we do not dissipate our efforts.
Before handing it over to Lia, I’d like to briefly talk about our 2023 results. Last year was a milestone for us, marking a complete rebound from the challenges faced in 2021. We closed the year with exceptional results, particularly in the fourth quarter when we accomplished significant progress in our key strategic initiatives. We posted remarkable growth, achieving a notable increase in MSMB TPV, both annually, with MSMB TPV increasing 21% to 350 billion reais, and in the fourth quarter with an acceleration from the previous period.
Our banking services also recorded impressive growth, with deposits reaching 6.1 billion reais by the end of December, a significant increase from 2022. This growth not only reflects higher engagement, but also a better conversion of TPV into deposits. Monetization improved substantially throughout the year, with MSMB take rates achieving 2.43%, up 22 basis points year over year. In the fourth quarter, we saw a slight decline of 6 basis points compared to the previous quarter.
But that was already expected and purely a result of seasonality. More importantly, we continue to advance in our credit solution, reaching a working capital portfolio of 309 million reais by the end of the year, with very encouraging results regarding the health of the portfolio and NPLs strictly under control. Additionally, our integration efforts in the four prioritized verticals have just started to be fruitful, with participation in TPV from this software clients surpassing 20 billion reais in the year. The push to scale through platforms yielded substantial operational leverage, boosting our EBT 2 billion reais, an increase of 3.3 times over the previous year.
This leap forward improved our EBT margin by more than 10 percentage points, and our adjusted net profit surged to 1.6 billion reais, up 3.8 times from the previous year. Our profitability also translated into cash generation, and we ended the year with an adjusted net cash position of 5.1 billion reais, even after significant investments in our credit portfolio and share buybacks. On a separate note, the software segment faced challenges in 2023, particularly in nonstrategic verticals where growth was lower. However, our efficiency initiatives already started showing results, with EBITDA margins in 2023 improving by 1.9 percentage points to 16.4%.
The fourth quarter recorded a dip due to one-off restructuring costs, but these moves are poised to generate savings in 2024. In summary, 2023 was a year of significant achievements and strategic advancement for us. And our fourth quarter, results are positioning us in a good place to deliver all 2024 and to 2027 outlook. Now, I would like to pass it over to Lia to discuss our fourth quarter 2023 performance and strategic updates.
Lia?
Lia Matos — Chief Operating Officer and Chief Strategy Officer
Thank you, Pedro, and good evening, everyone. We had important evolutions over the last year in our strategic priorities, while we continue to balance growth with profitability, which you can see on Slide 5. Compared with the fourth quarter of ’22, our consolidated revenues grew by 20%, which, combined with lower financial expenses, led to an increase of almost 2.3 times in adjusted EBT. These factors, combined with a lower effective tax rate, resulted in adjusted net income increasing by almost threefold year over year with an adjusted net margin of 17.4%, up about 10 percentage points in the period.
Taking a closer look at our financial services segment performance on Slide 6 to 11, I will start on slide six with the performance of our payments business for MSMBs. Payments active client base increased 37% year over year, reaching almost 3.5 million active clients. Sequentially, this represented a net addition of 192,000 clients, lower compared to the previous quarter’s, mainly as a result of our strategic shift toward larger clients in the hubs and the fact that we have caught up to growth levels in the micro segments. This growth in client base also resulted in healthy and profitable cohorts in all client tiers, as you will see in the pages that follow and in line with our strategic priorities to win in the MSMB segment and to drive engagement with our solutions.
Besides optimizing our commercial strategy for growth and market share gains, we’re also putting a lot of focus on improving bundled offerings of payments and banking to new client cohorts, both in TON and Stone, as well as driving further engagement with our solutions for more mature cohorts of clients. As I will show on Slide 7, this approach has resulted in profitable TPV growth, with market share gains in the MSMB segment versus the overall market. MSMB TPV increased 20% year over year, growing more than twice the industry levels. Considering PIX P2M volumes, which were almost 8 billion reais in the quarter, MSMB TPV increased 25% year over year, an extra 5 percentage points of growth when considering PIX P2M in our overall TPV.
We achieved this strong growth performance while also increasing take rates by 22 basis points year over year to 2.43%. Take rates were lower versus the third quarter as a natural result of seasonality in the fourth quarter, which always presents higher debit volumes. We’re continuously evolving our pricing and bundle strategy to achieve higher levels of engaged clients, helping them more with their jobs to be done. We believe these strong numbers are the result of our competitive advantages around our distribution capabilities, our superior service, and, more and more, the ability to offer more complete solutions to our clients.
Now, a quick update on our key accounts performance on Slide 8. Key accounts TPV decreased 17.6% year over year to 15 billion reais as we have continued to deprioritize and off-board low-margin clients. Year over year, key account stake rates increased 11 basis points as a result of the adjustments in our commercial policies and a mixed shift within the segments. Now, let’s discuss our banking performance on Slide 9.
Banking active client base increased threefold year over year to 2.1 million active clients. This evolution was a result of the launch of Super Conta Ton in the beginning of 2023 and the continued activation of banking first-time clients through our bundle offers. The decrease in growth levels compared to the previous quarters is mainly due to the end of the migration of TON clients to our full banking solution. This growth in client base was associated with a 52% year-over-year growth in deposits, which reached 6.1 billion reais in the quarter.
This new level of deposits, derived both from a positive impact in the cash-in level and engagement due to the effectiveness of our payments in banking bundles, and, second, from a seasonal and calendar effect at the end of the quarter. As a result, ARPAC increased 11.4% quarter over quarter to 28.4 reais per month. Despite lower seasonality, this positive trend in client deposits is also seen throughout the first quarter of 2024. On Slide 10, we’ll talk about our credit performance.
As you know, we’ve relaunched our working capital solution to SMBs in 2023 and have seen very positive initial results. In the fourth quarter of 2023, we disbursed more than 230 million reais to around 7,000 clients, reaching a portfolio of 309 million reais, an increase of 2.7 times quarter over quarter. Loan loss provision expenses totaled 39 million reais in the period, an increase of 2.1 times sequentially, as we constitute provisions of 20% of our portfolio. Although we are taking a conservative approach, the performance of our vintages is above our expectations, with NPLs between 15 and 90 days of 1.96% and NPLs over 90 days of 0.29%.
As we have highlighted before, this is a recently launched portfolio, so the ratio of past due loans should increase as our portfolio matures. This year, we will continue with disbursements without changing our diligence toward risk evaluation and close monitoring of market conditions. Beyond our working capital solutions for SMBs, the principal driver of our portfolio growth, this year will mark also the launch of more credit solutions to our clients, such as credit cards and overdraft. To summarize, the fourth quarter was again marked by above-industry TPV growth and higher take rates, resulting in financial services revenue growth of 24% year over year in the fourth quarter, reaching 2.9 billion reais.
In turn, adjusted EBT reached 604 million reais with an adjusted EBT margin of 21%, an increase of more than 10 percentage points year over year. Moving to Slide 12. Let’s talk about our software performance and strategic evolutions. Quarter over quarter, MSMB TPV overlap between financial services and software clients increased 19.3%, almost twice the growth we had in our MSMB TPV in the same period.
Among the four strategic verticals, this performance was mainly driven by gas stations. This relative performance illustrates our continued efforts and first signs of success of our strategy to provide an end-to-end solution that combines management software, payments, and banking to our SMB clients. Going forward, we have listed three main priorities in order to drive growth and engagement in the four priority verticals. First, we’re focusing on setting up our go-to-market strategy in order to scale our distribution for combined software and financial services offerings.
Second, we’re enhancing the product value proposition to seize the opportunity in the four key strategic verticals, with gas stations and retail being the main focus for 2024. And third, we’re integrating the post-sales process to guarantee we maintain the superior levels of service our clients expect from us. There still is a huge opportunity for us to target within our software installed client base and to drive engagements with our bundled solutions, and this will be a key focus for the next years. Moving to Slide 13, software segment revenues decreased 3.5% year over year to 363 million reais as a result of lower revenues from the enterprise business, which was down 16% in the period.
Sequentially, software revenues decreased 6.4% due to lower yield on cash, as well as lower revenues from enterprise business. As a result of this weaker top line, combined with one-time restructuring costs in the amount of 11.5 million reais, adjusted EBITDA decreased to 59 million reais in the quarter, with an adjusted EBITDA margin of 16.2% compared with 20.5% in the third quarter of 2023. Excluding these restructuring costs, adjusted EBITDA margin would have been 19.3% in the fourth quarter. And as we continue to focus on diligent cost savings and process improvements in our software segments, we expect margins to improve in 2024.
As Pedro mentioned, the fourth quarter marks the closing of an important year of strategic advancements for our business. The combined evolution of our strategic priorities around win, engage, and scale through platforms led to the strong results we have seen in the fourth quarter. Reinforcing what Pedro already said, I believe we’re well positioned for a strong 2024 and 2027 outlook. Now, I want to pass it over to Mateus for him to discuss in more detail our key financial metrics.
Mateus?
Mateus Scherer — Chief Financial Officer and Investor Relations Officer
Thank you, Lia, and good evening, everyone. I would like to begin on Slide 14, where we discussed the quarter-on-quarter evolution of our costs and expenses on an adjusted basis. Cost of services reached 803 million, increasing 15% year on year and 3.8% quarter on quarter. Cost of services was sequentially flattish as a percentage of revenues, despite provisions for expected credit losses in the amount of 39 million reais in the fourth quarter, as we grew our credit book and higher investments in technology.
Excluding provisions for expected credit losses, cost of services would have decreased 50 basis points sequentially as a percentage of revenues, showing continued operational leverage. Administrative expenses decreased 6.5% year on year, leading to a 250 basis points reduction as a percentage of revenue when compared to the fourth quarter 2022. Sequentially, administrative expenses increased 14%, up 70 basis points as a percentage of revenues, due to higher third-party service expenses combined with personnel expenses, which are seasonally higher in the fourth quarter. As we have shared in our investor day, achieving efficiency in G&A will continue to be a priority going forward.
We remain committed to our guidance of less than 1.125 million of administrative expenses for 2024, which implies a growth of less than 7% for the year. Selling expenses increased 2.6% quarter on quarter and remained flat as a percentage of revenues despite higher provisions for variable compensation in the period. Financial expenses decreased 10% quarter on quarter, down 430 basis points as a percentage of revenues. This evolution was a result of lower interest rates with average CDI decreasing in the quarter, lower number of working days, a seasonal decline in the average duration of funding lines, and a lower average cash balance in the period.
Other expenses increased 47.6% sequentially and 120 basis points as a percentage of revenues because of higher contingencies and tax provisions related to share-based compensation as a result of the share price appreciation in the fourth quarter. Lastly, adjusted effective tax rate reached 11.7% in the fourth quarter. The lower effective tax rate in the period was a result of higher utilization of tax benefits from Lei do Bem, as well as gains from subsidiaries abroad subject to different statutory tax rates. For 2024, we continue to expect effective tax rates between 20% to 25%.
Turning to Slide 15, our adjusted net cash position reached 5.1 billion reais, reflecting an increase of 1.6 billion reais year on year and 196 million reais for the quarter. The growth in adjusted net cash is especially notable as it came after the deployment of 293 million reais on share buybacks within the quarter, while also continuing to deploy capital toward the expansion of our credit portfolio. Now, I would like to turn it back to Pedro.
Pedro Zinner — Chief Executive Officer
Thank you, Mateus. To wrap it up, today we also announced a pivotal transition in our leadership. Andre Street, our esteemed founder and chairman, has also chosen to conclude his tenure on the board, stepping aside from reelection at the forthcoming annual general meeting scheduled for April 2024. Similarly, vice chairman, Conrado Engel; and board member, Patricia Verderesi, will not seek reelection, honoring their two-year commitment.
Andre will remain connected to the company as a reference shareholder, bolstered by special protections and holders’ agreement and articles of association, including the privilege to nominate the chairman of the board. This transition marks the culmination of a deliberate multiyear effort led by Andre to professionalize management and enhance governance standards, a mission that was crystallized by our strong 2023 results and the robust, strategically aligned team now at the helm. The candidates recommended for the upcoming AGM will be Mauricio Luchetti as chairman, and Gilberto Caldart as vice chairman. Additionally, a new member will be indicated, Jose Alexandre Scheinkman.
We have shared more details about the succession in a separate 6-K file. We are committed to keeping alive the entrepreneurial spirit created by our founders. Our goal is to maintain high standards of governance as our company grows and continue to be a leader in entrepreneurship and client centricity. With a committed shareholder like Andre, a great team, and a strong business, we are all set to continue to advance our mission forward.
Before moving to Q&A, I would like to reinforce our guidance given for 2024. For our growth metrics, we expect MSMB TPV to reach more than 412 billion, an increase of more than 18% compared with 2023, while we expect client deposits of more than 7 billion reais, increasing more than 14% year over year. For monetization, we expect our credit portfolio to surpass 800 million reais, increasing 2.6 times year over year, with MSMB take rates higher than 2.49%, implying an increase of more than 4 basis points. Lastly, in efficiency, we expect adjusted net income to be higher than 1.9 billion reais, representing more than 22% year-over-year growth, with administrative expenses of less than 1.125 billion reais decreasing 7% compared with 2023.
As we close 2023 and kick off 2024, I am more enthusiastic than ever about our business. There is growth ahead of us, and we are closer to demonstrating the power of combining. With that said, operator, can you please open the call up to questions?
Operator
[Operator instructions] Our first question comes from Mauricio [Inaudible] with Evercore. Mauricio, you can open your microphone.
Sheriq Sumar — Evercore ISI — Analyst
Hi. This is Sheriq Sumar from Evercore ISI. I had a question on the software business coming to Slide 13. Just wanted to get a sense as to how should we think about the potential benefits of the four key verticals heading into 2024, given that it just grew like half a percentage point in the fourth quarter? And when can we expect the impact of the enterprise to decline so that we can see a growth in the software business from here? Thank you.
Lia Matos — Chief Operating Officer and Chief Strategy Officer
Hi, Sheriq. Lia here. Thank you for the question. So, I’m going to keep talking a little bit about what we highlighted on Page 14, which is regards to how we are advancing on our initiatives to cross-sell financial services into our software client base.
So, this page talks about the evolution of this strategic priority. And as we shared in the investor day, last year, we selected those four key verticals because they represent the majority of the opportunity in financial services revenues with our installed client base. So, we believe that in order to capture this opportunity, it’s going to be essential for us to offer our clients better solutions that combine software and financial services, and that we can do this in a way that we can leverage the capabilities of our vast distribution footprint and sustain our service differentiation, which really is a cornerstone of our value proposition. So, in that regards, the main metric for success in this initiative is the TPV overlap between financial services and software.
And this metric reached 5.8 billion reais in the quarter, which represents a sequential growth of 19%. So, we compare this growth with the growth of our MSMB TPV overall, and we can see that this growth is significantly higher than the sequential growth of MSMB TPV. And as long as we can continue to grow the financial services TPV overlap in our software client base, above the growth of the overall client base, this means we’re capturing additional value from this combination. So, I think this is the essence of what we talk about in this page.
Maybe Mateus can give a bit more highlight on the revenue trends.
Mateus Scherer — Chief Financial Officer and Investor Relations Officer
Yeah, for sure. So, I think you also touched upon the software revenues on a stand-alone basis, which we show on Page 13. And here, I think, especially on enterprise, we had some negative effects on the quarter related from IAS 29. So, hyperinflation, especially in Argentina.
That was a direct top-line enterprise. But I think, like Lia said, the priority here is really not under the revenues for software stand-alone. I think the focus is really on improving that cross-sell metric for TPV. So, again, yes, I think there can be some upside for enterprise software revenues in the future because there was this one-off related to hyperinflation, but the focus is really not there.
Sheriq Sumar — Evercore ISI — Analyst
Got it, thank you. I just have one follow-up question. On the financial expenses, can you help us understand as to how should we think about the first quarter and even for 2024 as well, given the prospect of lower interest rates and the use of cash versus, you know, going for third-party funding? And also, I know this might be a pretty small impact, but implications of the leap year or for like an extra day in the month of February, would that have any impact on the financial expenses? Thank you.
Mateus Scherer — Chief Financial Officer and Investor Relations Officer
Sure, I will start with the first part and then I will ask you to repeat the second part. You’ve cut here a little bit. But just to start, on financial expenses, I think the trends for 2024 are pretty much similar to what we saw in the quarter, which is that financial expenses should be driven by the changes in interest rates. So, as we have interest rates reducing, this should be a positive impact for financial expenses.
Cash generation, which I think is a similar trend as the business evolves its cash generation and we use part of this cash to funds repayments and credits, this has a positive impact on financial expenses. And, of course, this will be offset from TPV growth. But again, I think these are the same trends that we saw in the quarter itself, and it should remain consistent throughout the year. Can you please repeat the second part of the question, Sheriq?
Sheriq Sumar — Evercore ISI — Analyst
Yeah, sure. So, in your comments, you have said that there were lower number of working days in the fourth quarter. But in the first quarter, you’re going to see an extra working day because you have an additional day in the month of February. So, I know the impact is going to be pretty small, but just wanted to get a sense as to, you know, how should we think about.
Mateus Scherer — Chief Financial Officer and Investor Relations Officer
Yeah, I think this was the smallest of the effects that we mentioned. So, again, when we talk about one extra or lower extra day in the quarter, it’s about 3% impact maximum on the delta, right? So, it’s not material at all, I think.
Sheriq Sumar — Evercore ISI — Analyst
Thank you so much. That’s all from me.
Lia Matos — Chief Operating Officer and Chief Strategy Officer
Thank you, Sheriq.
Operator
Our next question, from Eduardo Rosman with BTG. You can activate your microphone.
Eduardo Rosman — BTG Pactual — Analyst
Hi, everyone. I have two questions here. The first one is on your credit business, right? You are booking your results now on an accrual basis and also booking upfront provisions, right, which I think makes total sense? But you’re still using a cost of risk of 20% while you believe actual losses will be under 10%, right? So, just trying to understand here how much time you need, you know, to be able to use a lower cost of risk or eventually how much time we need here to be able to see a convergence of the cost of risk to your actual kind of losses. That would be the first question.
And the second one, just trying to understand, because the stock is down 10% in the aftermarket. And my sense here is that the numbers were strong, right? So, trying to understand here what could be behind, you know, the sell-off and many investors and clients here asking about, you know, Street departure. So, just want to — Andre, right? So, just wanted to — if you could help us understand, you know, how — what was really his role in the last, you know, 12 to 24 months. You know, he remains, you know, naturally an important kind of a partner of the company.
But if you can remind us, like his economic stake is not that large anymore. So, if you can help us understand a little bit more about the changes in the board, you know, maybe that could explain a little bit the sell-off, which, to me, doesn’t make a lot of sense given the results. Thanks.
Mateus Scherer — Chief Financial Officer and Investor Relations Officer
Hey, Rosman. Mateus here. I will start with the credit piece and then hand it over to Pedro to talk about the governance changes. Regarding credit, you’re totally right.
So, we’re booking credits on an accrual basis, and we’re using the expected credit losses of 20% until we have more confidence on the models itself. The migration for a risk-based approach will occur throughout this year, so it probably will be gradual. So, we’re going to start to converge the provisioning models toward our risk models. And then, maybe I think it’s also worthwhile to provide an update on how we’re seeing NPLs as well, which touches upon your comments about the 10% versus the 20% expected loss levels.
So, this quarter, we started to report NPLs. As you can see, 90 days NPLs are still really low at 0.24 and NPLs from 15 to 90 days are still at 2%. Of course, this metric is affected by the speed of growth of the portfolio, and that’s why the numbers are so low. But even when we look at the cohort data, our over 30 [Inaudible] remains roughly at the same level that we disclosed in investor day in the — between 2% and 4% area.
So, I think you’re right in that point that, overall, when we look at the numbers, that continues to put us on the right track to land at an expected loss below the 10% level. But again, it’s still really soon, and we’re taking the cautious approach here so the migration will be gradual over time. Then maybe, Pedro, if you want to comment about the governance?
Pedro Zinner — Chief Executive Officer
Yes. Hi, Rosman. I think what I’m trying to do — I think it’s hard to talk about rational or irrational reactions on the investor side. I think I’ll try to be a little bit pragmatic in terms of changes we had at the board in how we see this as we move ahead.
So I think Andre’s transition is a kind of a natural step in the company’s journey. And I think over the past two years or so, the company has been professionalizing its board of directors, bringing a mix of technical expertise, industry, and company knowledge, right? I think I was even part of this changing process a couple of years ago. Two years ago, I joined the board in April. I think 2022 was a year of a turnaround, and I think 2023, we presented very solid results.
I think we have a strong management team and a clear strategy as we move ahead. And I think Andre played a key role in terms of changing the governance and setting the directions as we move ahead, and I think he felt it was the right time to make the transition. I think important point here to highlight is that despite him stepping back from his formal role, he remained as a reference shareholder of the company. I think addressing the question made — you made, he holds, as off today, roughly 7% of the economic — in terms of economic value for the company and a voting power of roughly 37%, right? I think another point which is worth highlighting is safeguards regarding the company shareholders agreement and articles of association that is held by Andre.
The first one is that as long as he holds at least 15% of the voting rights, he can indicate a board member. The other safeguard, which is building on that, is that while he holds more than 25% of the voting rights, he decides who is the chairman among the board members. So I think in a nutshell, Andre is still very committed to the company as a reference shareholder. And I think he played an important role in terms of changing the governance and setting directions as we move ahead.
Eduardo Rosman — BTG Pactual — Analyst
No, thanks a lot, Pedro, for the tough question, and thanks a lot, Mateus, as well.
Mateus Scherer — Chief Financial Officer and Investor Relations Officer
Thank you, Rosman.
Pedro Zinner — Chief Executive Officer
Thank you.
Operator
Our next question, from Mario Pierry with Bank of America. You can activate your microphone.
Mario Pierry — Bank of America Merrill Lynch — Analyst
Hi, guys. Thanks for taking my question. Let me ask you two questions as well. The first one is you recently acquired a Financeira license that should help your funding costs going forward.
Have we seen any benefits of that so far? Also, if we look at your deposit base, right, strong growth, can you explain to us better, you know, what drove this growth? Is it because all of your clients now have a banking account with you? Or what percentage of your clients already have a banking account and maybe that’s why you’ve seen the benefits? And can you just remind us if you continue not to remunerate these deposits? And then, the second question is related to your tax rate, right? We saw an effective tax rate of only 11%. Can you remind us what is the effective tax rate that you’re forecasting on your guidance for the year? So, when you talk about net income, adjusted net income of more than 1.9 billion reais, are you assuming that tax rate should stay around the current levels, or should we see a more normalized tax rate, which I think had been running closer to 20%? Thank you.
Mateus Scherer — Chief Financial Officer and Investor Relations Officer
Hey, Mario. Thank you for the questions. I will start with the tax rate piece and then hand it over to Lia to talk about banking. So, in terms of the tax rates, I think the main driver for the lower tax rates in the quarter was that we were able to maximize the usage of tax benefits associated with research and development, the Lei do Bem.
And just to give some perspective here, even though our company as a whole has been profitable for many years, some of our entities where we had significant R&D expenses were not. So, we have been working really hard to make sure that we improve profitability, not only at the consolidated level but also in those main legal entities. As a result of these efforts, we were able to revert accounting losses at some of our subsidiaries in the fourth quarter and increase the usage of legal banking, which was really concentrated in the fourth quarter of ’23. As we move ahead, the level of legal bank usage across the year will not materially change, but the benefits should be more spread out throughout the year.
So, when we look ahead in terms of tax rates, we continue to expect a tax rate between 20% to 25%, which is what we guided during the investor day. And that’s what is embedded in the guidance that we provided.
Lia Matos — Chief Operating Officer and Chief Strategy Officer
Yeah, so, Mario, just to give you some color on your questions regarding banking, right? So, in terms of the strong results in deposits that we saw, these results were mainly a consequence of two main factors. First is that we continue to put significant efforts around bundling payments and banking. So, we talked a lot about this in the investor day, right? So, payments TPV becomes a relevant cash-in to clients that use banking as domicile, and that was an important driver in increasing deposits, but also our ability to continue to engage more and more clients with our banking solutions. Of course, the fourth quarter does have seasonality in deposits.
So, there is a seasonality effect there. But we continue to see the same very positive trends throughout the first quarter of 2024. So, with regards to your question about the Financeira license, we gave a lot of color on this in the investor day, right, the roadmap that we have ahead of us in terms of banking this year. So, investment products are a part of our roadmap, and we gave some color on that.
And there’s not much to say beyond what we already said. We are testing this product to our clients. Our focus is really that we develop a roadmap that can prioritize the main jobs to be done for our clients. So, investment is a part of that roadmap, and we will be giving more color on this throughout 2024.
Mario Pierry — Bank of America Merrill Lynch — Analyst
Thanks, Lia. Just let me ask you then on the banking domicile, what percentage of your clients today have a banking account?
Lia Matos — Chief Operating Officer and Chief Strategy Officer
Today, Mario, between — around 50% of our clients have a banking domicile. Of course, there’s been a significant shift toward 2023 when we migrated all of our TON clients to the full banking solution. But we continue to drive payments and banking bundles to new sales, as well as upsell banking to current clients in the base.
Mario Pierry — Bank of America Merrill Lynch — Analyst
OK, and then, you just confirmed that you are not remunerating these deposits and you do not plan on remunerating them, correct?
Lia Matos — Chief Operating Officer and Chief Strategy Officer
So, you are correct in the sense that the deposits, currently, we do not pass through any of the floats. But of course, as long as we decide to scale investment products, that may change, but too early to give any more specifics about that.
Mario Pierry — Bank of America Merrill Lynch — Analyst
OK, thank you very much.
Lia Matos — Chief Operating Officer and Chief Strategy Officer
Oh, and just to be clear, our guidance that we gave in the investor day for the level of deposits of 2024, that considers that we do not pass through any of the interests to clients.
Operator
Our next question, from Tiago Binsfeld with Goldman Sachs. You can activate your microphone.
Tiago Binsfeld — Goldman Sachs — Analyst
Hi, everyone. Thank you for taking my question. I have just one on expenses. When we look at your guidance growing below 7% in 2024, what do you think are the main challenges and opportunities here and especially thinking that third-party services and personnel picked up this quarter? Are there any new trends to read from these two lines? But more broadly, we would appreciate any color you can give on expenses into 2024.
Thank you.
Mateus Scherer — Chief Financial Officer and Investor Relations Officer
Hey, Tiago. Thank you for the question. Mateus here. So, I’ll first address the fourth quarter and then talk about 2024.
In regards to the fourth quarter, administrative expenses are seasonally higher in this quarter. And this is mostly a result of two drivers. The first one in general is variable compensation because we provision variable compensation according to the expected EBT of each quarter. Naturally, the fourth quarter has a higher result and drives more variable compensation.
But also, we have a concentration of more corporate events in the quarter, and that drives a lot of the third-party expenses. So I wouldn’t read too much into the trends for the quarter. I think that’s seasonally expected. Now, when it comes to the guidance, now we guided 1.125 million in 2024.
This implies a growth slightly below 7% when you compare to the numbers we closed 2023. And here, I think you have basically two drivers. On one end, we’ve been doing a lot of efforts to implement zero base budgeting and shared services center throughout the company. And when we talk about these two processes, I think the main driver behind them is really unifying processes throughout the company that either because we grew too fast or either because we have the software segment not integrated yet, we may have duplicate processes for some corporate functions.
On the other hand, we still need to invest more, especially in the financial services segments, as we’re bringing more capability to the company and improving the processes as a whole. So, I think the 7% figure in terms of growth is really the net effect of these two trends: on one hand, seeking efficiency and implementing these initiatives; and on the other hand, continuing to invest in what we feel we need to deliver our plans.
Tiago Binsfeld — Goldman Sachs — Analyst
Thank you, Mateus. It’s very clear.
Operator
Our next question, from Neha Agarwala with HSBC. You can activate your microphone.
Neha Agarwala — HSBC — Analyst
Hi, congratulations on the results, and thank you for taking my question. Just a quick one on volume growth for ’24. The guidance remains strong after a good year in 2023. How are you seeing the competition evolve, given that most of your competitors are focusing on the SMB segment? You mentioned that you maintain your benchmarks in the SMB segment, but are you seeing a bit more competition from the competitors, both in terms of price aggressiveness, as well as adding new sales force on the street? Is that putting pressure on the volumes? So, any comment on that would be very helpful.
Thank you so much.
Lia Matos — Chief Operating Officer and Chief Strategy Officer
Hi, Neha. Lia here. Thank you for your question. So, I’m going to start talking a little bit about TPV trends in the guidance and then give some color on the competition.
So, I think regarding TPV, nothing really new in terms of the dynamics that we’re seeing. ABECS released recently their outlook for market growth in 2024. And when you compare — you contrast that with our guidance for 2024 of 412 billion reais in MSMB TPV, this implies that we will continue to grow more or less twice the market rate of growth, which means, essentially, we will continue to gain share in the MSMB segment versus the overall market. So, we remain committed to this guidance.
In terms of competition, nothing really new regarding the competitive environment. Based on the fourth quarter results, we can see that we’re starting to experience benefits from reduction in interest rates with financial expenses as a percentage of revenue decreasing 4.3 percentage points. And this is consistent with what we have been saying over time that in the short term to medium term, the competitive environment is much more rational and stable, and players will benefit from decrease in interest rates. In terms of competitive dynamics, overall, this is pretty much what we see, a rational market, not anything much new to say about that.
Neha Agarwala — HSBC — Analyst
Super helpful. Thank you so much, Lia.
Lia Matos — Chief Operating Officer and Chief Strategy Officer
Thank you, Neha.
Operator
Next question, from Renato Meloni with Autonomous Research. You can activate your microphone.
Renato Meloni — Autonomous Research — Analyst
Hi, everyone. Thanks for the space here to ask a question. So, first on take rates, I wonder if you can give me some more granularity on the decline in 4Q, how much comes from seasonality and how much is coming from the shifting client mix, and then, the expectation of how that’s going to behave throughout 2024? And my second question is a follow-up on financial expenses. The sequential decline, I think it’s a little bit more than we expected given the declining rates.
So, I wonder if there is other factor here at play. And then, if you have some ratio that could help us estimate this for the year. Thank you.
Mateus Scherer — Chief Financial Officer and Investor Relations Officer
Hey, Renato. I will start with the take rate piece and then move to financial expenses. In regards to take rates, the vast majority of the decline was a result of mix, credit versus debit. We also noticed a slight client mix change, but this time around, it was the opposite effect.
We have Stone TPV gaining relevance over Ton’s TPV in the quarter, which was a different trend than the previous quarters. And this slightly offset the increased contribution from banking and credit, which is growing above the pace of payments overall. So in general, they created, I think, vast majority purely seasonality. That’s why we remain committed with the guidance that we provided, and it was pretty much in line with what we expected.
Now, in terms of financial expenses, you are right that this quarter, there is a second minor effect. This is related to the mix between sale of receivables versus total debt outstanding. But again, we’ve always mentioned in the past that from quarter to quarter, you can have small effects related to the mix of sale of receivables versus debt. But this is not material at all when we look at the numbers.
I think when we composed the reduction in CDI, the lower amount of working days, and the lower average cash balance in the period, we got pretty close to where financial expenses should land. So, again, when we look at 2024, I think it’s safe to forecast based on these drivers alone and forget about these small variations due to the mix of funding lines that we use.
Renato Meloni — Autonomous Research — Analyst
That’s very clear. Thank you.
Operator
Next question, from John Coffey with Barclays. You can activate your microphone.
John Coffey — Barclays — Analyst
Great, thank you very much. So I just had two questions, which are sort of tied to some of the questions that Neha had had. So, given the [Inaudible] has been, you know, declining over time and you benefit from that, and you haven’t really seen any irrational behavior in the market just yet, I’m just wondering like at a very high level, is there a way to think about what has to happen in order for you to start becoming more aggressive on pricing? Is it generally like one key competitor makes a significant, you know, change to pricing, or you start to see this more broadly over the market? And I guess my second question is, as far as the TPV guidance for 2024, is there any kind of view you can give us on the cadence of that growth on a quarter-to-quarter basis? That’s it. Thank you.
Lia Matos — Chief Operating Officer and Chief Strategy Officer
Thank you, John. I’ll take the TPV question and then pass it over to Mateus. So, I think — no news in terms of the cadence of TPV. I think our TPV growth dynamics has been pretty consistent.
So, the important thing to look out for is the guidance for the year overall. So, I think not much to say beyond that. And, of course, the seasonalities that tend to be pretty consistent. Mateus, you want to —
Mateus Scherer — Chief Financial Officer and Investor Relations Officer
Yes, in regards to the sensitivity of changes in pricing for the changes in interest rates, I think, here, we have to talk about the dynamics of pricing within each segment. So, when we look at micro, we mostly address micro through our brand TON. And when we look at TON, the dynamics in terms of pricing is one of public prices. So, the price is on the website.
And if you look today, it’s very similar, the pricing for all the main players. Why is that important? With public pricing, whenever you make a move, it’s a very expensive move because your clients in the end of the day can call you and request the same public price. So, we don’t think there’s an incentive for any player to make a move in the short term. Of course, longer term, if rates really go down in a significant manner, a smaller player has the incentive to reduce prices, and then the others will most likely follow suit over time.
But we don’t see that happening in the short to medium term. And then, in the SMB, the dynamics in terms of pricing is the opposite, but the effect is quite the same, because on SMB, the pricing is done on an individual basis. So, very common in Brazil to have, let’s say, two drugstores, same neighborhood, same size, but with two very different pricing profiles. And what that means is that if any player wants to be aggressive in SMB, there’s no such thing as being aggressive for the whole base.
The behavior occurs in the new sales, and then it really takes a while for the whole base to recycle and to have the effects on the P&L. So, that’s why we don’t see any likelihood of having the negative impact regarding interest rates in terms of pricing. But longer term, I think the strategy that we unveiled at the investor day is really not about increasing the spread on payments, right? I think when you look at the guidance that we provided for take rates for 2027, all the increase can be attributed to the higher engagement of our banking solutions and also with the rollout of new products, especially credits. So, again, short to medium term, we think because of this pricing dynamics, it is likely that the benefits of falling interest rates will flow through the P&L.
Longer term, the focus is not there. The focus is really on improving the engagement with the new solutions.
John Coffey — Barclays — Analyst
Great, thank you.
Operator
Next question from Yuri Fernandes with JPMorgan. You can activate your microphone.
Lia Matos — Chief Operating Officer and Chief Strategy Officer
Yuri, I don’t know if you’re trying to state your question. We can’t hear you.
Operator
I believe he dropped out of the queue. Can we pass to the next question?
Lia Matos — Chief Operating Officer and Chief Strategy Officer
Sure, let’s move on.
Operator
Next question, from Kyle Washington with Greenwich Capital. You can activate your microphone. Sir, you can activate your microphone.
Lia Matos — Chief Operating Officer and Chief Strategy Officer
Let’s move to the next person on the queue.
Operator
Sure. Next question from Daniel with Unrivaled Investing. You can activate your microphone.
Unknown speaker
Hi there, can you hear me?
Lia Matos — Chief Operating Officer and Chief Strategy Officer
Yeah, we can hear you.
Unknown speaker
Oh, great. Thank you so much for taking my question. And I wanted to say thank you. You guys have done a wonderful job communicating the strategy and the presentation materials.
And I really appreciate the long-form letter from Pedro Zinner this quarter. And I hope to see more in the coming quarters. So, once again, my name is Daniel from Unrivaled Investing. My question — two questions really.
The first is regarding capital allocation. You know, it’s been a treat to hear the commentary on, you know, your value proposition, why you think you’re winning and that you think you’re going to continue growing faster than the underlying market. So that is very helpful. You know, the rational marketplace perspective.
Do you have any sort of thoughts on, though, the capital allocation? Because, you know, I still think that there’s this disconnect with, you know, what you’re saying, which is you have this very strong value proposition you expect to continue winning. And with Wall Street’s pricing where, you know, the stock is trading around a low-teens earnings multiple. And I’d love to see the buyback last year. So, that’s the first question.
I can ask the second one later. Thank you.
Mateus Scherer — Chief Financial Officer and Investor Relations Officer
Thanks for the question, Daniel. So, I think in regards to capital allocation, you’re pretty spot-on. So, when you look at the cash generation of the company, the company is consistently generating cash, fourth quarter, we generated cash despite doing 300 million buybacks and also deploying capital in credits. And that’s why in the end of the day, we approved and announced the new 1 billion reais buyback plan in investor day, right? I think the only question here is that we’re planning the execution of this buyback.
And we also have to be mindful because when you look at the guidance, especially for the credit book, the 5.5 billion is a sizable increase versus what we have now, but it’s really small when compared to the overall credit market in Brazil. So, the only thing we need to be mindful in terms of capital allocation, longer term, is that if we get it right in terms of the credit, there’s potentially a lot more to be done in terms of deploying credit there. And we want to have this optionality and maintain a really strong balance sheet. So, again, general terms, we’re aligned in doing the buyback plan.
It’s just a matter of planning the execution. And longer term, we need to be mindful about the credit book.
Unknown speaker
Got it. Super helpful. And so, it sounds like the buyback may not be at full capacity if you’re thinking about the underlying credit book and the incredible growth you could have there in the coming years. So, that’s sort of the takeaway there.
But the second half of the question, this is a bit of a tougher question, which is, do you see a future where the software segment, which, you know, clearly hasn’t performed as well as the financial segment, which has done very well? Do you see a future where the software segment turns around and really starts to accelerate in the future, really starts to — you know, where you could say it has that type of value proposition where you’re growing significantly faster than the underlying industry, where you say, “Hey, the value proposition here is very strong, and that’s why we’re going to win.” Thank you.
Lia Matos — Chief Operating Officer and Chief Strategy Officer
Yeah, so I’m going to take this question. I think, Daniel, so in terms of the growth prospect for software, as Mateus said at the beginning, right, I think there’s a mix — a little bit of a mixed bag when we talk about the software business stand-alone. In the investor day, we communicated sort of the software business. It fragmented in three buckets: number one, the four key priority verticals; number two, the enterprise business; and number three, the other softer assets that we have not prioritized in terms of cross-seller financial services at this point.
I think in the first bucket, those four priority verticals, there’s a lot that we’re doing in terms of driving the integration of software and financial services. We really have set three key priorities there. And we believe that there’s a vast opportunity for us to continue to grow. Naturally, this growth will come from two drivers.
Number one, our ability to penetrate financial services to the current installed software base. But also, as we improve our go-to-market, improve our wholesale process, improve our value proposition around product, we expect to also continue to drive growth on software revenues stand-alone. The bucket that we have not prioritized in terms of the other verticals and other software assets, that also has a pretty healthy growth, and we see it continuing to grow at healthy levels going forward. I think the dynamics in the enterprise business is a little different because we already have a pretty large market share there.
So, I think we can expect less growth from the enterprise business going forward. So, it’s hard to talk about one single answer in terms of the software business. It’s really those three main buckets that I have just mentioned. Mateus, maybe you can talk a little bit about margin evolution?
Mateus Scherer — Chief Financial Officer and Investor Relations Officer
Yeah, for sure. So, I think we touched upon this in the investor day as well and also in the answer about administrative expenses. But when it comes to efficiency in the software as a stand-alone segment, there’s a lot to be done in terms of implementing a shared services center and also the zero base budgeting there. I think 2023 was the first year that we ran the ZBB, but it was mostly focused on the financial services segment.
We’re now rolling it out for the software segment as well. And that’s why we guided that when you look at the EBITDA margins for the software segments, we reached mid-teens in 2023, and we should be significantly above the 20% threshold for 2024. Most of that will most likely be driven by efficiency in opex and not from top line of the software stand-alone, like Lia said.
Unknown speaker
Great, thank you very much.
Lia Matos — Chief Operating Officer and Chief Strategy Officer
Thank you, Daniel.
Operator
Next question from Jorge Kuri with Morgan Stanley. You can activate your microphone.
Jorge Kuri — Morgan Stanley — Analyst
Hi, everyone. Thanks for taking my questions. Two questions. The first one is on your NPL ratio on Slide 10.
The way you measure it is the — what you consider to be nonperforming is the total amount of the loan outstanding or only the installment that was missed? And then, I’ll ask my second question. Thank you.
Mateus Scherer — Chief Financial Officer and Investor Relations Officer
Thank you for the question, Kuri. For the first one, in Slide 10, we measured the full amount of the loan. And then, on the Note 6.6.1, you have also the information regarding the amount of only the installment that was past due. So, we have both information, but in the slide is the full amount of the loan.
Jorge Kuri — Morgan Stanley — Analyst
Great. Thank you very much. And then, my second question is regarding on the news on Andre Street. Thanks for telling us the shares that he still owns on the company, which if I understood correctly is around 7% of the economic value.
My question is, with this announcement, is there any modification or existing lockup that he has on those shares? Is he able, if he wanted to, I’m not saying he will, theoretical, is he able to, you know, sell all of the shares at any point in time? Or is there any sort of like a local agreement? And then, also, is there now or will there be a with this move a noncompete agreement signed with Mr. Street?
Pedro Zinner — Chief Executive Officer
Hi, Jorge, Pedro speaking. I think regarding the first question, I don’t believe there are any changes at all, right? On the second point, I think a noncompete is actually being elaborated in which he will not engage in any business that competes with Stone’s primary activities in Brazil. So — and this non-compete should be ready before the AGM, which is expected to be held on April 23rd. So, you’re going to see more flavor of that in the documents for the AGM.
Jorge Kuri — Morgan Stanley — Analyst
Thank you. And that’s very clear. But just to clarify the first part, when you say there’s no changes, it means that he doesn’t have any lockup on his shares.
Pedro Zinner — Chief Executive Officer
That’s right.
Mateus Scherer — Chief Financial Officer and Investor Relations Officer
That’s right.
Jorge Kuri — Morgan Stanley — Analyst
OK, got it. Thank you very much.
Operator
There are no questions at this time. 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 very much, everyone, for participating in the call. And as I mentioned in the letter, I appreciate the value of our shareholders. Hope to see you again next quarter. Thank you very much.
Operator
This concludes today’s presentation. [Operator signoff]
Duration: 0 minutes
Roberta Noronha — Head of Investor Relations
Pedro Zinner — Chief Executive Officer
Lia Matos — Chief Operating Officer and Chief Strategy Officer
Mateus Scherer — Chief Financial Officer and Investor Relations Officer
Sheriq Sumar — Evercore ISI — Analyst
Eduardo Rosman — BTG Pactual — Analyst
Mario Pierry — Bank of America Merrill Lynch — Analyst
Tiago Binsfeld — Goldman Sachs — Analyst
Neha Agarwala — HSBC — Analyst
Renato Meloni — Autonomous Research — Analyst
John Coffey — Barclays — Analyst
Unknown speaker
Jorge Kuri — Morgan Stanley — Analyst
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