Cielo S.A.

Hello, good morning, everyone. I'd like to thank you all for being here at our results conference.

Before moving to the Q&A session, I'd like to take the chance to highlight some of the numbers we achieved and show the progress we have made across different areas of the company. These achievements are in tune with the priority sets for 2023 and which were announced earlier this year.

They are a focus on profitability, progress in digital transformation and new solutions, and enhancement of customer experience. The first point here I would like to address is profitability.

We had our ninth consecutive quarter with growth in financial numbers when compared to previous periods. Our profit for the third quarter is the highest since 2018.

This result can be mainly driven by the ARV and Cateno revenues, which continue to set new levels in cash earnings quarter-on-quarter. That level of profit was achieved in a scenario where volumes are under pressure and the need for investments is fierce.

In fact, the reduction in normalized expenses is yet another highlight for the quarter. This is happening through or amidst a strong conventional investment in the strategy of strengthening our commercial team focused specifically in banks as previously announced.

The second point I'd like to mention is our digital transformation process in the development of new solutions. Last quarter, we announced the program PraCimaCielo that aims to accelerate the transformation we are implementing in the company.

In previous conversations, I shared a strong focus on transformation, process review, and the creation of capabilities so that the company can innovate faster and put it further increasingly at the center of our decisions. We are working on how the company operates.

PraCimaCielo has among its objectives to address those issues in a short period and we already see results. Today we have about 200 initiatives being implemented in the company.

We also have a much better dynamics in the development and launching of new businesses. I'd like to highlight two recent launches, Cielo Tap and the acquisition of receivables.

Our ARV via PIX until 7pm, the Cielo Tap that was launched a few weeks ago, is an important front because it allows us to advance the solutions without the physical terminal and opens up interesting avenues such as focusing again on micro-entrepreneur, a segment where the dynamics of competition for a company's subsidies has been shown to be irrational. With Tap, we can generate value and profitability to our clients.

The ARV via PIX until 7pm is another highlight. We were pioneers, our customers today, in advanced funds until 7pm [indiscernible] funds on the same day via the PIX payment means.

We have also advanced urban mobility, solutions geared towards public transportation, subway, busesand toll plazas. We are creating solutions with an amazing user experience with a very strong strategic rationale as it brings volumes to the industry that did not previously transit through the guard rail.

The third point I'd like to present is the enhancement of our customer experience. Our NPS has jumped 14 points in just one year.

We continue to see improvement across different logistics operators or indicators. We are also testifying to use this data with the high – best example being the early replacement of equipment before they generate noticeable maintenance problems.

We expect to continue reporting improvements across all indicators positioning Cielo's best-in-class in customer service is a company's obsession. Finally, a brief update.

We have recently completed the hiring of the first wave of the sales force mainly expansion focused on banks. We are still at the first step of the process, but the early results show that the strategy was successful.

We continue to monitor performance to define the start of the next phase. Once again, thank you so much for your attention.

I'd like to move on to the Q&A session now.

Good morning, Estanis, Filipe, the entire Cielo team. I have two questions.

First, it's about yields. I think you anticipated a mixed change.

We were expecting that drop, but that was bigger than expected, 4 bps, if I'm not mistaken. Can you give us some color on that?

Was that because of the mix or price transfers? What was the main reason behind it?

And what can we expect in the future? And then I'll ask my second question, if I may.

This is Filipe. Let me just explain the company's strategy.

Decreasing prices is not one of our strategies, number one. Number two, the speed remains the same in the marketplace.

Let me address Q2, two highlights, first the baseline. We've seen major changes, repricing in late March and then prepaid in April that affected the entire quarter.

Q2 reached our peak and then it have a natural distribution throughout the following months. That's the baseline.

The second issue, I think it's worth mentioning. There are three elements.

One, higher average size in retail, we're looking for more profitable customers in the long run, smaller yield, but somewhat bigger, but smaller churn and a longer RTV long term. There is a change in capturing new customers and a natural renewal rate.

And finally, we had a temporary shutdown of recurring pricing to correct distortions and to better manage yield. We had the temporary updates.

And the company is refurbishing its pricing model, so that we can gain efficiency in price margins in the long run. We're back on track in the recurring, repricing in starting Q4.

In late September, we actually resumed that strategy. That has helped us in managing yields in the long run.

In sum, there's some baseline, there's some temporary effects in Q3 more specifically and we believe we can manage yields, so that we can maximize profitability in the long run.

Perfect, that was very clear. My second question is about TPV.

You've shown some stability in the quarter and you're back in the growth cycle, right? But that growth is relatively small, especially when you concentrate in retail just like you did and a new commercial team.

But I want to understand the drivers behind that TPV growth. And what we can expect in the short-term in the near future and the new capture waves, if I may?

Well, the first element that we have to take into account, the first wave of capturing, we're thinking about a more – with a more seasonable or seasoned approach according to what we have planned before, that capture were spread out throughout some months. We've just concluded the first wave.

It's too soon to have a more holistic analysis. The impact is not full.

We wanted to grow our commercial side in early 2023, late 2022. It may take four to six months, so that we can reach an optimal productivity stage.

Having said that, we are at a turning point. We're growing back in retail.

When we look at results in the quarter month after month, the trend is still positive. So we look at the quarter and the monthly trends, which are positive as I said.

So we can expect a more continued growth, so that we can keep our share.

Perfect. Thank you, Estanis and Filipe.

Thank you, Estanis and Daniel. My question is about COGS.

It was 7% down quarter-on-quarter. What have you been doing?

What can explain that COGS decrease? Is it going to keep on going down and may offset more SG&A expenses?

That improvement called our attention. So what are the drivers behind it?

And then I'll have a second question.

This is Filipe, Yuri. Starting from the end of your question, we believe it is sustainable.

That's the result of what we have been investing. The company has been investing in technology and digitizing its operations, so that we can reduce long-term expenses.

We've seen some of these benefits in the quarter already in our P&L. Let me give you some examples.

Data usage, so that we can predict machines from breaking down. This is logistics cost in the end.

So we have several other alternatives to improve our operations. So that will be reflected in our P&L.

We're not 100% complete. We're not done in that effort, quite the opposite.

We're still investing heavily in that direction.

Wonderful. And my second question is about ARV.

It's been growing steadily quarter-on-quarter despite smaller volumes. The volumes were very good in the past and the product penetration was down, but revenue decreased by 17%.

Was that because of the spread? Was it temporary?

What's your take on that indicator for the near future?

Got it. Yes, there is an important issue, which is the seasonal aspect.

That impacted the way we see it. As far as production goes, we had an increase in – a spread increase with that temporal component, but spreads were better in the quarter.

That's true. That will of course result in more improvement.

So results have been solid. So we are having ARV through PIX.

So we can do that until 7pm. Our competitors go in early afternoon.

So there may be some competitive advantages. So the way we see it that is sustainable, but that's the result of the hard work of the team.

Do you believe that this penetration level should grow, should remain flat? That would be smaller than the average, right?

Where should it be, the way you see it?

We're working towards increasing it. There are two components.

We have been very successful in ARV. We have been working hard to increase both of them to compare apples to apples.

I think we should compare comparable segments. Still, we are somewhat below.

That's an upside the way we see it. That's why we have been investing time and technology, so that we can reach our maximum potential.

Thank you.

Good morning folks. I have actually two questions.

Number one is about the industry. There may be some regulatory changes in the cards industry.

So they have been talking about limiting payment installments that may affect the company. What to take on these possible regulatory changes and what would the impacts be?

Thank you. It's a relevant topic to us indeed.

This will impact Cielo uniquely because we have a issuer as Cateno and the remaining of the – of the rest of the operation. So that would impact our net profits.

The good news in recent months was having Central Bank as an agent that is trying to understand the chain as a whole to understand the relevant impacts trying to strike a balance as far as the economic rationale behind it goes. So we are adding more value by providing concrete data before they make a decision.

We are trying to maximize our credit flows as much as we can. So that credit cards remain an important tool in the world of payments and consumers are not affected.

Well, I am a little more comfortable than I have been. So we are trying to look at scenarios that bring in more complexity because it all depends on the general credit offering.

So when you look at direct impacts on Cielo, the total credit will impact it directly depending on the decision. So we are considering different scenarios, so that we can make the best possible decision.

Would you share the TPV percentage that you captured today? Are these more than 12 installments?

This is Daniel. Hi, Mario.

Well, thank you for your question, Mario. We don't announce that, but it is a small percentage.

That is as much as I can say.

Let me ask you this second question then. The sales force results, you have hired 300 people.

I am looking at slide 15 of your presentation. All the amount you increased that by 53% in the quarter.

When you look at the total number of customers, we have a 50% loyalty rate. What does that mean?

Is that higher death rate, why is it the number of clients are coming down?

Hi, Mario. Thank you for your question.

When you look at that growth, we show the volume from that channel on the month that shows that the channel is ramping up production, gaining productivity in recent months, but of course the metric cannot be looked at on its own. We are cleaning up.

You have smaller customers leaving and that remains the same. Well that performance in the channel shows what studies we have done before.

We are gaining traction on the quarter and we expect that to result in more favorable numbers. And we talk about the customer base renewal just like Filipe had said before that those things are connected.

Well let me just add to that answer if I may. Well it is clear based on our strategy.

The base is coming down, but volumes are going up in the same period. So there is that component.

Customers that are more robust, they carry more volumes. So that explains.

Thank you. Got it.

Good morning everyone. Thank you for taking my questions.

One about financial expenses vis-à-vis the revenues, deadlines vis-à-vis volumes. We see those numbers going up across the quarter.

I would like to add some more color on the financial expenses side which went up 8% quarter-on-quarter even though the gross number went down. If you could explain that a little bit more the dynamics underlying that and what can you expect as we move forward?

Thank you.

Hi, Pedro. This is Filipe.

The main impact was in working days. We had a higher number of working days in the quarter.

And that has a direct impact on financial expenses. So those 7.5 over 5% have to do with working days and then an average balance was slightly higher.

That basically explains your question.

Okay. If I can ask a second question about the penetration of other products that are paid in installments.

There was a drop quarter-on-quarter. Does that have to do with the mix of clients which may be changing or maybe a change in inventory levels of one-off item?

Can we expect more stability in – stability going forward or if there are other leverages reactivated and see those numbers grow in 2024? Thank you.

Hi, Pedro. That variation, this oscillation was slightly low ranked or quite low actually.

That came from new clients joining our retail front. Clients with a slightly different profile, higher scale but lower penetration sometimes and also important to mention there are one-off variations advances to some clients, which happen throughout the quarter.

That's also a variable. So that could explain the down trend.

But if you look across the board, we see a very healthy growth in profitability throughout time. And we still see leverages will be activated going forward to optimize both products.

Thank you, Filipe. Thank you.

Good afternoon.

Good morning everyone. Estanis, Filipe, two questions from my side.

The first one about costs. You mentioned that to Yuri, I have a more efficient COGS level.

My question is going forward, when you look forward to 2024, what can we expect in terms of OpEx? So looking at the cost of the expenses, how do you expect to see those effects being neutralized?

That's the first question, please.

Hi, Daniel. This is Filipe.

We cannot announce the guidance around expenses, right, but I can give you some color. We have been working to be more efficient both in terms of expenses and in terms – of expenses even though we have increased our commercial front, our commercial personnel, we still saw numbers going up.

And that has to do with the numbers I've just mentioned. When we look ahead, forward, our ambition is to offset as much as possible the investments which have been made as we increase efficiency in all operations.

Of course, I cannot give you guidance because we may need to have extra investments, but that's just to give you some color around the issue.

Okay, that's good enough. The second question about – funding about the ARV.

You showed an interesting chart around CDI. When you look at the level of expenses, they may appear high.

It's also an opportunity to bring that number down, right. How can you expect to bring those numbers down?

Have you thought about reducing duration of the debts or something like that?

I think a first point I'd like to emphasize is that when we look at the debt that we have from the last debentures we issued in September 2022 had CDI plus 1.2%, the cheapest level in the country. So our assessment is that the funding costs are relatively low.

The issue is around duration as you mentioned. Why is there a mismatch in duration today?

Today we have long term funding and that goes back to our 2020 strategy, something we have been doing for three years. And this was put together at a moment where we were sure about liquidity levels.

So we have built that position that we have today, a very solid, robust position. And the idea was to provide funding possibilities, but now the scenario has changed.

We have some debt maturing in the coming quarters and this will also have a better match between short term and long term as we can raise short term funds in a more efficient way. That's the understanding.

You are correct. There is an opportunity and the company will work on it in the coming quarters to capture that opportunity.

Thank you.

Good morning everyone. I have a quick question about the initiatives around the PIX payment means about some advanced payments.

Can you see other opportunities in terms of improving monetization through those solutions? And if you expect some regulatory risk around those payments means any risks on that front?

Thank you.

Tiago, thank you for your question. So the broader view is that all payment means need to be safe and simple.

Those are core benefits and that's why PIX is such a success. What we tell our clients, retail clients, and that we see clearly is that they are seeking to increase safety even further.

Security, a good example is the dynamic QR code. So a retailer that has several offices, several outlets, they are able to make sure that payments are really happening and money is going towards the company's account and not any other account.

Another important component that we see is that the reconciliation. I'm talking about the reconciliation around all payment means combined.

It's also very important for retailers, right, in all scales of retailers, small and big. And as this happens, increasingly more frequently, the omni-channel, social media, bank channels, E-commerce, and they're going back to physical, so it's a very omni-channel approach.

So the whole thing became very complex for retailers as a whole. So we are also trying to address that with this solution.

As to other risk possibilities that you mentioned to your question, one of the main elements of the PIX payment means about the market is the ability to innovate. So today, we are doing ARV via PIX until 7pm as it was mentioned during the presentation.

This innovation is nice because it provides liberty. We're looking at the client.

The client sees values in that, value in that. We do not charge PIX.

We charge for the other services we offer to increase security, to increase reconciliation capacity that's important. We cannot charge for the PIX, right.

And that's where customers see value being added to our basket of services.

Okay, thank you. Thank you.

Good morning. A question about the dynamics around volumes, TPV.

Okay, sound is very, very low, difficult to understand. If we can expect the changing mix to continue to impact that dynamics or that could change in the coming quarters.

And also, in terms of volumes, we see rumors saying that second half of the year would be better. Last year, we had a weaker second half.

So what are your perspectives in terms of volume for this period of the year? Thank you.

Hi. Your sound was really, really bad.

I could hardly hear what you said. So what we captured, from what we can understand, in your very poor audio is you're asking about volumes, right, basically.

That's all we could get. If it's not the case, just get back to us, but that's what we understand from a very poor sound quality.

So this is a continuous movement as we see it. so throughout the quarter we see we are bringing in more customers as planned and also larger clients, lower churn, but customers that also carry a lower take rate.

That, of course, has been reflected on the numbers of the quarters. For the coming quarters, our assessment is quite positive because we're going to be comparing with this quarter, which is somewhat a quarter that really felt the burden of the whole transformation.

And that has to do with your second question about the volume. We see an inflection point in volume now.

As Filipe mentioned just now, in detriment to the customer base, we saw a growing volume throughout the quarter. So we are in a very different position when compared to the position we were before.

If we look within the months that make up the quarter, the same thing happens on a month-by-month basis, right. So that gives us an idea of what's coming ahead in the coming months and quarters.

Thank you.

Well, when we look at the results for the quarter, there are some innovation elements. Cielo acquired the Top of Mind award yesterday.

That shows the strength of the brand. When we look at the growth in the first nine months when compared to 2022, the growth was 40%, when you look at 2021 it's 2.6 times, seven times when compared to 2020 numbers coupled with 14% growth in NPS year-over-year, a record adoption rate with Cateno.

We are in the top 30 companies to be the great place to work. So, we are growing very healthily, focused in the long-term with a good track record.

So, we are only excited to keep on going in the same direction. Thank you.