StoneCo Ltd (STNE) 2019 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the StoneCo First Quarter 2019 Earnings Conference Call. By now everyone should have access to the earnings release. The company also posted a presentation to go along with this call. All material can be found at www.stone.co on the Investor Relations section.

Throughout this conference call, the company will be presenting non-IFRS financial information including adjusted net income and adjusted free cash flow. These are important financial measures for the company but are not financial measures as defined by IFRS. Reconciliation of the company's non-IFRS financial information to the IFRS financial information to appear in today's press release.

Finally, before we begin formal remarks, I would like to remind everyone that today's discussion might include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore you 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. Please refer to the forward-looking statements disclosure in the company's earnings press release.

In addition, many of the risks regarding the business are disclosed on the company's Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov.

And now I would now like to turn the conference over to your host, Rafael Martins, Investor Relations Executive Officer at Stone. Please proceed with your presentation.

Good evening, everyone, and thank you for joining us today. Today, I have here with me Thiago Piau, our CEO; Marcelo Baldin, VP of Finance; and Lia Matos, Chief Strategy Officer. After having announced some preliminary metrics for the first quarter of 2019 by April 1, we are announcing today our full financial results for that period. We are also announcing today that our Board has approved a share repurchase program of up to $200 million.

Before I comment on the first quarter 2019 results, I would like to turn the call over to Thiago. Thiago?

Thank you, Rafael. Good evening, everyone. Thanks for joining us for our first quarter earnings call. In the first quarter of 2019, we continue to deliver strong results and made great progress in our strategic road map. We are very proud of the way we started this year and pleased that our financial results came in even stronger than we expected when announcing our preliminary numbers on April 1.

In the first quarter of 2019, our revenue and client base increased year-over-year by 86% and 93%, respectively, and we achieved a record adjusted net margin of nearly 35%. The business continues to perform very well across the board, and we are taking market share.

We would also like to highlight our performance on 2 main fronts: first, the evolution of our core payment business and expansion through the hubs; and second, the important progress we have made in our goal of empowering our clients with the introduction of new solutions that go way beyond payments. So let me discuss some highlights in our payment business and our expansion.

We are very pleased with the continued evolution of performance of our Hub Strategy. We have seen a continued ramp-up in Stone Hubs, both in older and newer vintages, with a lifetime value to cost of acquisition ratio of approximately 10x. Given the strong economics, we have decided to further invest in our Stone Hub development in the second quarter. We expect this to bring returns in the second half of the year.

Also, we continue to grow our presence in digital, offering a complete suite of solution to e-commerce companies, marketplaces, payment services providers and independent software vendors. We believe that our end-to-end technology platform combined with our software offerings put us in a strong position to enable our brick-and-mortar SMB merchants to incorporate more and more digital commerce.

We keep creating new solutions to help our clients sell more effectively and with a better experience online. For example, we just started offering a customized prepayment model, which helps marketplaces attract new sellers and have a more assertive prepayment price strategy.

We currently serve 108 integrated partners. To continue to strengthen our leadership with these companies, we recently launched the Stone partner program where entrepreneurs can access our platform and integrate through our APIs quickly on their own. With this program, we intend to incorporate new partners as well as strengthen our relationships with developers and software providers.

Now let's talk about important progress we have made in new solutions that go beyond payments. We added in the quarter 3 important software applications to our suite of solutions: Collact, a customer engagement and CRM solution designed to help merchants sell more by increasing customer recurring traffic and to help them better understand their customers' preferences; VHSYS, a self-service and omni-channel point of sale and ERP platform focused on supporting different types of retail and service businesses; and Tablet Cloud, a white-label point of sale and ERP system focused on SMBs' simpler needs.

We now have over 32,000 clients that use at least 1 type of software service that we offer. This number includes 18,000 clients from VHSYS and Tablet Cloud and over 14,000 clients that use either Equals Raio-X, Collact, Linked Gourmet or our online and offline gateway software. As a reminder, the majority of those clients are not included in the nearly 310,000 active clients that we have disclosed in our release as those only refer to clients processing payments with us.

We currently have 2 main avenues to grow software: the continued rollout of existing solutions and the addition of new solutions through M&A. In either case, it is very important to keep the offer very simple for clients to understand and not to disrupt their operations, providing a single and integrated client experience. This helps us to keep the best NPS levels. It is also important to have a seamless sales process in order to keep high productivity levels of our salespeople.

Under our [inorganic] software strategy, the pipeline of opportunities has improved significantly as more entrepreneurs want to be part of the ecosystem we are building. However, these investments are always done with a lot of diligence from a cultural, technological and financial standpoint. So when we bring these new solutions to our portfolio, they usually have a lot of synergies with the company. We not only bring the new solutions to our existing client base but also cross-sell payments to the new software clients.

Despite being still in its early beginnings, the software strategy is our next growth horizon. As illustrated on Slide 5, many Brazilian merchants still use archaic management tools, and we are very pleased to see how we are helping our clients with their business in different ways on a daily basis.

On Slide 6, we show some examples. First, an apparel store in the countryside of Mato Grosso do Sul where the client used to work with the same acquirer for many years, and few and external audit showed that he was paying over BRL 500 more than what he agreed upon his provider every month. That's when the merchant decided to hire Stone and now uses Equals Raio-X and our payment solution, saving time and money by having an integrated solution for payments and reconciliation with full transparency.

Another interesting case is a steakhouse in the countryside of São Paulo. By signing Equals Raio-X, the client found out that a food voucher was depositing his money in the wrong bank account. Fixing this mistake, the client recovered BRL 30,000 corresponding to 18 months of incorrectly routed deposits. In addition, this client realized they were using automatic prepayments from another payment provider paying higher rates than they originally thought.

As shown in Slide 6, Equals Raio-X helps merchants become more productive by providing them with a proper tool to reconcile multiple payment methods and understand better their cash flows, saving them time from collecting and reconciling paper receipts as traditionally done in Brazil.

In addition to saving time, Equals reconciliation software has identified over BRL 40 million in incorrect fees being charged to our clients in 2018. Since the early days, Stone has always advocated for transparency in rates to make it simpler for clients to manage their business in an efficient way. Offering Equals reconciliation software is one of the ways we materialized this belief.

Another software service we provide is Collact. A bakery client in São Paulo created a loyalty program with Collact and saw that traffic of members of the program was over 30% higher than nonmembers. Overall traffic at the bakery increased nearly 8%. Besides that, Collact enabled the merchant to have more data about its customers, allowing them to create targeted marketing campaigns and track revenue generated by them.

The last example is a restaurant in the countryside of São Paulo state. The restaurant changed its former ERP and POS software for the combined solution of Linked Gourmet, Equals Raio-X and Stone payments. Now he has access to an integrated and more flexible platform to manage back- and front-house deliveries as well as manage individual productivity metrics of employees. Besides that, the client can rely on unlimited free training on the platform and a 24/7 customer support.

With software, we aim at becoming a platform that addresses multiple pain points that our clients have from managing their back office and financial processes to attracting more customers and make them more loyal. We will seek to develop this ecosystem by investing in the best-quality software with great teams of entrepreneurs that dream big like ourselves.

Such solutions may cover specific functionalities and business needs such as CRM and reconciliation as well as the complete ERP and POS solutions for specific verticals and market niches. Besides software, in the first quarter, we launched our credit pilots, which has 3 important components: first, a transparent pricing that is simple and easy to understand; second, it is a nonbureaucratic process of taking credit; and finally, clients pay back their loans with a percentage of their sales, a model which is aligned with their business. We believe this solution will support our clients when they need funding to grow. Initial feedback, usage and economics have been very encouraging.

We also made important advancements in our Stone account banking services pilot, opening thousands of accounts and offering features, such as wire transfers, payment of boletos, payment of taxes, among others. It is important to highlight that regarding our banking platform, we are closely following the international standards and guidelines to build the first open-banking API directly connected to the main backbone of the Brazilian Central Bank. This means we are providing partners with access to an infrastructure that until recently was restricted to banks. This allows us to focus on 2 main avenues of growth regarding the banking services: one, to become the digital banking solution for SMBs targeting all of their needs; and second, to be the platform of choice for players who wish to embed fast payments and cash management capabilities in their consumer-facing solutions, such as wallets.

Much like payments, we've developed our banking platform from scratch based on the most up-to-date standards and with the capability that will enable us to be a relevant participant in the market. Once again, we are following the valuable lesson of how proprietary technology allows for innovation and quick responses to adapt to the changes, which will continue to happen in Brazil.

Now I wanted to talk a little about the most important asset we have here at Stone: our people. We are very proud to have been able to create a team of nearly 4,000 passionate and entrepreneurial-minded people with a purpose to serve merchants better. Two of the most important themes in our culture are the fundamental beliefs that our clients drive everything that we do and an ownership mentality that permeates the entire company. We have absolutely no doubt that this makes total difference when serving our clients in the front line of the business.

We just got back from our annual sales convention, which, together with Recruta Stone, our semiannual recruitment event, are our most important culture events of the year, bringing together thousands of talented Stone employees from across the country. Recruta Stone is part of the commitment with hiring motivated and talented people with high potential, training leaders in our culture and hiring practice and improving the Stone brand as an employer, which are all crucial for our success. We had nearly 39,000 applicants for this edition of Recruta Stone.

Our sales convention is a big event for culture alignment and, most importantly, focus on client centricity. We have made available a short video of our annual sales event in our investor website so that you all could get a sense of what makes this company so special.

Before I turn the call over to Rafael, I would also like to share some thoughts on the competitive environment as many investors asked us about that. We have seen many so-called zero rate and aggressive pricing campaigns in the payment industry in Brazil since we started our operation. Aggressive initiatives to recover lost share from legacy providers is nothing new. Despite these efforts in the past, we have seen limited impact to our business, which has continued to produce growth, market share gains and improvement in margins. In the first quarter of 2019, we estimate to have gained approximately 0.5% market share compared to the fourth quarter of 2018.

As I have explained before, we believe our value proposition has enabled us to gain market share without the need to lure new customers with no transparent pricing or to force clients to accept products they don't want. Instead, we are building an ecosystem of solutions in the software, payment, banking and credit space that not only resonate with clients' daily needs but are integrated both in terms of technology and customer service.

We are not changing our business or pricing strategy, but we continue to monitor real-time KPIs that can indicate to us static changes to our operation are necessary. We currently have metrics like sales productivity, cancellation, renegotiation requests on track with our internal projections that were put in place at the beginning of the year. We look to keep growing and improving our business every day.

We believe that focusing on the value proposition to clients pays off as it increases their lifetime value with us either through a higher share of wallet or through higher stickiness. As an example, during the first quarter '19, clients using at least one of our software solutions combined with payments presented significantly lower churn levels when compared to clients using no software.

We strongly believe that the combination of assets we have developed: distribution, technology and service put us in a unique position to become the partner of choice of SMBs. As I mentioned before, our whole company is focused on addressing their main pain points and helping them sell more, manage better their business and grow.

This year, we expect some of our additional solutions to start ramping up faster like Equals Raio-X, Collact and our Stone banking accounts. This should present faster rollouts due to their horizontal nature and their stage within our distribution platform.

Finally, I wanted to express my gratitude to the entire Stone team for all the hard work. The quality of our team is impressive. They always put our clients' needs in first place and have a deep ownership mentality that makes us very proud, and they always keep raising the bar in terms of execution. I also would like to thank our long-term shareholders that have supported our strategy during this noisy and short-term volatile market.

We have learned during our journey how important it is for disruptors like Stone to have a strong purpose in which the whole company really believes. Whenever you have great people working together towards a big goal, I believe it is much more about why rather than what. Our mission-driven purpose and disciplined focus of improving the lives of our clients has contributed greatly to our success and has enabled Stone to generate value among different stakeholders in a balanced way over the last few years: our clients, employees, our long-term shareholders and the overall society.

With that, I will turn it over to Rafael to provide more details on the performance.

Thank you, Thiago. As Thiago mentioned, we continue to gain market share, grow fast and improve margins at the same time. During the first quarter, we grew our number of active clients by 93% compared to the same period last year, reaching nearly 310,000 active clients. This quarter, our net addition of clients surpassed 40,000 clients for the first time.

Total revenue and income increased by 86% to BRL 536 million in the first quarter of 2019 compared to BRL 288 million in the first quarter of 2018. This was mainly driven by a year-over-year increase of 87% in net revenue from Transaction Activities and Other Services, an 85% increase in net revenue from Subscription Services and Equipment Rental and a 68% increase year-over-year in financial income.

Cost of services was BRL 85.4 million for the first quarter of 2019, an increase of 20.5% compared to the first quarter of 2018. Cost of services as a percentage of total revenue and income was 15.9% in the first quarter of 2019, an efficiency gain of 8.7 percentage points from 24.6% in the first quarter of 2018. This efficiency gain was seen in most categories especially transaction and deployment costs, personnel costs and provisions and losses as the company dilutes the fixed cost related to its proprietary technology platform and gains operating leverage in customer service and logistics.

Let me give you an example of how we are gaining efficiency and logistics, delivering a better service at a lower cost. The average time of delivery, installation and support by the Green Angels improved by 20% year-over-year, being less than 1 working day. This reduction was made in parallel with increased productivity and reduced cost as the cost per Green Angel visit reduced by 31% year-over-year.

Moving on to administrative expenses. In the first quarter of 2019, it increased by 10% year-over-year to BRL 64.8 million. The increase in administrative expenses is primarily attributed to growth in third-party services and facilities expenses to support the company's growth. Administrative expenses as a percentage of total revenue and income was 12.1% in the first quarter of 2019 compared to 20.5% in the first quarter of 2018, an efficiency gain of 8.4 percentage points in the period.

Selling expenses grew by 66.5% year-over-year, reaching BRL 62.7 million in the first quarter of 2019. This was primarily due to additional headcount in our sales team in line with our strategy to grow in the hubs. Financial expenses were BRL 66.6 million, 2.8% lower than the first quarter of 2018. Financial expenses as a percentage of financial income reduced from 45.8% in the first quarter of 2018 to 26.5% in the first quarter of 2019. This reduction is explained by lower cost of funds due to lower base rates, cheaper funding lines contracted by the company and use of a higher amount of own cash to fund prepayment operations.

As a result, our adjusted net income was BRL 186.3 million in the first quarter of 2019 with a margin of 34.8% compared to BRL 26.5 million in 2018 and a margin of 9.2%. The main factors that contributed to the growth in adjusted net income were an increase in total revenue and income primarily due to higher TPV and take rate by focusing on growing the company's base of SMB margins; operating leverage in most lines, especially cost of services and administrative expenses; and reduced cost of funds as the company switched to cheaper funding and increased the use of own cash to fund the prepayment operation.

Overall, we have seen strong operating leverage. Our cost and expenses have decreased from 58.1% of total revenue in the first quarter of 2018 to 39.7% in the first quarter of 2019. Important to highlight that our P&L carries investments related to hubs that have not yet fully contributed with their revenue potential.

And finally, the company generated BRL 108.8 million of adjusted free cash flow in the first quarter of 2019 compared to BRL 21.2 million in the first quarter of 2018. The main reason for that increase was an improvement in our adjusted net income year-over-year, which was partially offset by higher outflows from income tax paid and other accounts payable.

With that said, operator, we will open the call up to questions.

(Operator Instructions) And the first questioner today will be Felipe Salomao with Citibank.

I have one question on the credit product and also on the new banking workflows. Are the new banking workflows working properly in a way that Stone has been able to offer credit facilities to its customers with no restrictions? Or the system or the industry is not at this point yet and are you still noticing some friction points between Stone's and the systems of income and banks and income and the merchant acquirers, which has been restricting Stone's appetite to lend money? That's the first question.

And the second question is if you could share with us perhaps some big picture numbers about the potential revenues that the new credit product could bring to the company on a yearly basis, let's say, 2, 3 years from now, only if possible. These are my questions.

Felipe, Rafael here, thank you very much for the questions. I will answer your second question. The first question, we -- the sound was not very good, if you could you repeat the beginning of the question, please. But I will talk regarding your credits question. I think we're still in the early beginnings of the credit pilot. What we are seeing so far are great economics, and we see it working very well in our pilot. So the latest number that we mentioned is over 150 clients in the pilot.

When we look at the economics, we see very attractive rates even considering the different risk/reward equation, I mean better than what we have in prepayment, for example. So now we are working on getting the solution very seamless to the client in a way that is simple, transparent and in which they can pay, for example, with their sales, which is something sort of unique in Brazil.

So it's too early to talk about the full potential we see. The addressable market, as we have mentioned before, is very big and effective. And it's a big pain point of our clients, so we aim to address it. And if you could please just repeat your first question, we couldn't hear well the beginning of the question, please.

Yes. Sure. I hope you can hear me better now. I asked about banking lock, if the new banking lock system is already properly working and if Stone has already been able to connect its systems with the rest of the industry in a way that you have been able to offer the new credit facilities using the new regulation, which significantly reduce the risk, or if we are not at this point at yet and if Stone and the industry still needs to work on a solution to make the new banking lock rule work properly. This was my first question, hope you could hear it now.

Perfect. Thank you, Felipe. This is Thiago speaking. So we are already connected to a clearing house called CERC that make it 100% compliant with the new rule of the Central Bank. Of course, operationally speaking, the final goal of this ruling was not achieved yet because some players still do not exchange information, but we see the Central Bank therefore on this front as very positive for the market and for Stone.

Operationally speaking, nothing has changed in our business so far. In our operation of providing credit to our clients, at this point, we are doing this through a third party bank that takes this information about the lock of receivable into consideration, and we expect that once the industry get to full maturity of those solutions, it will be very good to use this new lock of receivables arrangement in our side. We think that will be very positive to us mainly because we originate the receivables on the clients. We are very close to them. So we seek to be the first one to provide the solutions to them.

So we believe that with the new rules, it creates more ability for us to compete with fair prices. When you compare, prices of credit and prepayment in credit are much higher, so the way that we set our operation is we can fulfill working capital needs with prepayments, but whenever the clients need credit to grow more, we can provide that CEO the KPIs that they have with us through these third-party banking providers and take into consideration all the information relative to this banking lock agreement, which we now suspect will work on our favor as the company -- as the industry get mature.

And our next questioner today will be Mario Pierry with Bank of America Merrill Lynch.

Let me ask you a couple of questions as well, please. First one, as you mentioned, right, your peers have been announcing several new initiatives where they seem to be reducing their prices especially of prepayment rates. So I wanted to hear from you, you mentioned you're not going to follow them. I'd like to hear from you then what does this mean? Does it mean that your prices today are in line with your peers, they're below your peers? Is this having any impact on your churn rates? If you can give us some color on that.

Second question is related to this hub expansion that you said that you're going to accelerate your expansion. If you can give us some more color like number of hubs that you plan on having by the end of the year. What does it mean for additional costs? And where do you plan on opening these new hubs? Are you going to be expanding in other regions or in other geographies in Brazil? Or are you going to be primarily in the southeast of Brazil?

Mario, great question, thank you very much. This is Thiago speaking. So I will try to separate the answer in 3 main thoughts, which is this competition take rate and then talking about this further investments on the hubs. So our perspective on in terms of movements is that they are doing much more in marketing campaign with our so-called zero prepayment rates. But in reality, it's just a different way to charge the merchant. The market recognized this as what we call set MDRs in which they embed the prepayment rate in the MDR and then try to lower the overall price in an attempt to grow the client base, exactly like all the incumbents have done in the last 18 months.

At this point, we have not seen signals in our operations that these campaigns actually affect our strategy and our ability to grow. So we are managing, as we said, [like] KPIs very closely, but we decided not to change our pricing policy or business strategy. We really believe that providing a superior value proposition to our customers with the best customer service really pays off, and we have seen this every day in the streets, being present at the counter of our merchants.

We really believe in our ability to show our clients that it's worth it to pay a little bit more to have access to this world-class products and the best customer relationship. We are really helping them to manage their store better, to run their business better. So that's why we decided to keep our value proposition and keep our strategy regarding price. And we are not seeing any kind of impacts in our ability to grow in our everyday KPIs, in our operation.

Regarding take rates, I think that take rates can go slightly up or down in the short term because of client mix, debt and credit mix or seasonality. But we are not seeing any type of impact in the take rates at this point neither in the first quarter or the second quarter by the data that we already have. By the number that we have in the second quarter, expect take rates to be stable. In the medium to long term, we expect take rates to go up as new solutions ramp up.

Talking a little bit about the investment on the hubs. We see very strong economics in the hubs. And at this point, we have management capability that allows us to allocate more capital towards the Hub Strategy in order to grow faster. So actually, what we expect is more investment in the sales and marketing and some of the administrative expense that will produce better net adds and better TPV for this year. Remember that the hubs payback is very tough. As we have disclosed in the past, every time we invest in the hubs, it's important to see that we [trade loans] for tax that results in future growth and very strong returns. The payback of the hub is considerably less than 1 year.

So given the results that we have seen, our management capability, we decided to deploy a little bit more capital to grow faster and it will produce returns very fast. So we expect margins through the year to be in line with what we have, but we're going to grow more in terms of net adds and TPV, and we know we have the ability to do so.

Okay. Just so if I can follow up then. If you could give us then a perspective of how many hubs you have. So it seems to me then you are investing in the existing hubs primarily rather than opening new hubs?

Mario, Rafael here, so that's right. So the latest number we disclosed is 245 hubs by January this year. We are opening more than 2 hubs per week, so we should see that number accelerate significantly. We are investing both in existing hubs and currently examining new regions. So I think when we look at this, we should see the impact and the effect in our net additions and TPV.

But yes, Mario, we're going to invest both on the hubs that we have because we can create more density as we learn it, we have more clients in some regions than we have expected in the past, so we decided to invest a little bit more. But we remain focused on keeping this machine of opening hubs on a very efficient way, working [to get there]. So we will open more hubs to cover more cities.

Okay. And just remind me you're not yet -- like in terms of your geographic distribution within Brazil, are you already operating northeast of Brazil? Or are there any plans of expanding outside of the Southeast in the short term?

Yes. We do have operations in the Northeast and the Southeast, so we have operations in both. At this point, we are covering 1/3 of the Brazilian cities. Lia, what is the number of the cities that we are covering at this point?

Slightly [over] 1,500.

Something around 1,500, right? So we are covering something around 1,500 cities in Brazil, but we still have a lot of opportunity to create more density on these cities. And we seek to open hubs next to the hubs that we have already opened before mainly because of word-of-mouth that creates a positive marketing effect. That's why we do not invest a lot on marketing when we're setting up a hub. So we will continue to grow our ability to cover more cities and penetrate more cities [than we are]. Do you want to add, Lia?

Yes. Just to complement, we are in all regions of Brazil. We have hubs in all regions.

And our next questioner today will be Eduardo Rosman with BTG Pactual.

Two questions here, the first one is on the profitability, right? The company has been showing impressive bottom line profitability, like LTV to CAC ratio is very high at 10x. So my question is do you think you could deliver -- you could be delivering stronger growth in number of clients and TPV if you were investing more or reducing prices? I'm asking that because the big success you have is definitely calling the attention of certain competitors. So if you have this kind of a discussion internally about, I'd say, delivering more growth to eventually benefit from that more in the medium to long term.

And the second question is on your strategy on instant payment and the strategy outside Brazil, right? I think that today, we saw Itaú launching a new platform with the aim of promoting instant payments, right, as a tool to populate the platform and attract customers. It was also reported, I think, in the press that Stone was speaking to the regulators in Chile so if you can give us an update about the strategies in these 2 business.

Thanks, Eduardo. Thank you for the great questions. So I will try to cover everything, and you help me, Lia, if I forget something. So first part was about the growth. Yes, we believe that we have the ability to grow faster in terms of net adds and TPV, and we expect to show this throughout the quarters. The only thing that we are always having in our mind here is that we have to grow with quality. So there's a right pace of growth that we have to keep. We definitely expect to have better net adds and better TPV admission on a quarter-over-quarter basis. That's why we said that we want to invest more in the hubs.

But we don't want to do this at this point by reducing price. We believe in our ability to show better value proposition. And while we are growing, we are creating a culture in our team. So we want to maintain our quality, we want to maintain our culture of selling value proposition. So that's why we decided not to lower price to grow, we will invest more in our channels. We can use the additional software. We can subsidize the additional software to show much more value proposition with kind of the same take rates that we have. And over time, we can use those additional software to bring more take rates. But we don't want to reduce the price of the core product. We really believe that it's working for the client to have access to all of the customer service and everything that we are offering for the price that we are charging at this point. But yes, we seek to grow faster.

Second part, I think it was about the instant payments and how we see players in instant payment. So regarding instant payments, we have seen many players that are creating closed schemes to like change the way that consumers do transaction activities. And in here, I think that, first, we have to separate the merchant business of the card business. We see ourselves as a fintech, as a technology company that provides financial solutions to merchants, so just our role is to allow our merchants to accept all payments assets by authorizing and bearing the risk of the transaction, understanding optimizing cash flow, helping them to understand the fee they are paying, do everything for them. Instant payment solutions, in our perspective, may disrupt the card business, both in issuance and cards schemes, and we believe our merchant base offers a strategic advantage to us in this scenario, so that's why we want to grow our client base as fast as we can.

Talking about the Brazilian reality. All of these schemes that operate above BRL 20 billion in volume are obligated to be open schemes as defined by the Central Bank regulation, which means any issuing payment institution will be able to issue that specific payment method. And any merchant acquiree or merchant payment institution can allow its merchant to accept that specific payment method. So we see the way that the industry is structured in Brazil as a very positive one because it presents the [views of] pricing, both to consumers and merchants, and we think that it forces competition.

Looking ahead, we will support the evolution of the market by providing this world-class open banking infrastructure that we are building. We seek to be the platform for startups and to enable all consumer-facing promotions and transactional activities. So it's still very, very early to say exactly what these instant payments actually would mean operationally speaking to the merchant, but we believe in our ability to allow them to accept all payment methods, understanding cash flow, feel the rates. So that is our goal in this industry.

I think the third question was about the international discussions. Yes, we talk sometimes to understand the regulation standpoint and the market standpoint here in Latin America. But at this point, we are mainly focused on Brazil. We think that the capital allocation metrics being focused on Brazil in the next 1 to 2 years is the best move that we can do here.

And our next questioner today will be Craig Maurer with Autonomous Research.

You spent a good amount of time talking about the software solutions that you are using to grow share and provide a greater value proposition. My question is whether or not you're seeing any urgency from the incumbents to invest in enhanced software solutions to match your offering and whether you see that as a risk.

Craig, thank you for this great question, this is Thiago speaking. So actually, we are not seeing the incumbents in terms of the payment competitors trying to do different type of offering with software. What we are seeing actually is some of the software players here in Brazil trying to create a bundled solutions with payments. But we believe in our ability to provide the best offering to the customer. So that's actually how we see the industry, in a very positive way.

So we see incumbents trying to push on price, but we are not seeing any efforts regarding products or better customer service or software solutions that can help merchants. On that front, I think that we keep being the main player pushing this strategy and put things out there through our hubs to our customers because we really believe that the combination of software and payments, when you really understand how the transactional activity of the merchant happens and you have the ability to provide 100% support for them in a very easy, simple way, very fast, creates all the difference. So we still are not seeing the incumbents making a move towards this direction at this point.

If I may add to Thiago's point, Rafael here, Craig, we don't see players out there offering the software payments, credit and banking offerings in an integrated way. So whenever you do have some software competition, it's sort of separate from the obvious solutions offered to merchants. So what we intend to do is offer an integrated solution, both in terms of technology and in customer service, so the clients can reach out to us in a very simple way if they have any issue or any questions regarding any of those solutions. So we don't see other players doing something like that and offering such integrated solutions.

If I could just ask one follow-up, Cielo discussed the addition of 1,500 new salespeople. And what I was curious about was are you seeing a concerted, organized effort from that group? Or has that not been highly recognizable yet in the market?

Good question. So at this point, we are not seeing this impacting operation actually. When you see results in the street every day. And we don't believe that when you talk about the distribution, what we have built in the hubs, we think that it's not about number of people. I think that it is about the culture that we have, the purpose of our business, the value proposition that we bring to the customer. It's the combined solution of the [niche], the Green Angel, the customer service agent, the platform that we have that allows our people to offer a solution and the service right away with the best quality possible. So I don't think that it's only about the number of people in the streets. I think that it's about the combined platform that we have put together. So yes, we saw that competitors are trying to put more people in the streets. But I think that the client -- they really like our product and our service, and that's what creates all the difference.

(Operator Instructions) The next questioner will be Otávio Tanganelli with Crédit Suisse.

Congratulations on the results. I have 2 questions if I may. The first one is regarding the operating leverage. How further did you think you can get from the operating leverage like growing TPV without growing the personnel expenses? Or in other words, how much TPV can you get with the same workforce that you have today? And the second one, I would like to understand a little better the rationale behind the BRL 200 million buyback program that you have just announced considering that the stock price is still above the price that the IPO came out and the announcement coming shortly after the follow-on in early April.

Otávio, thank you, it's Rafael here. So regarding your first question of operational leverage, I think we -- as we have said before, we do have a lot of P&L -- SG&A in our P&L that is front-loaded. So if you look at -- from charts that have provided just recently, you see that if you see the vintage of our hubs, we still have a lot of potential to add new clients with the same sort of SG&A structure. So with the current structure that we have, we have potential for additional TPV.

But as Thiago mentioned, we are not -- I mean we intend to grow more, right? So we expect to invest further in the growth of our hubs. And whenever we invest further, you put SG&A first. But the average age of our hubs nowadays is around 1 year. And if you see the clients ramp up of the vintage of hubs, you see that there's a lot of potential to bring new TPV with the current hubs we have, right? So that's -- for example, one of the reasons why you see such operational leverage in the first quarter because of the effect of hubs maturing and bringing new TPV with the same structure.

Regarding your second question of the buyback, I think that this is an additional lever that we like to have to generate value to shareholders. I think this is an optionality that management believes is very important for us to have given the stock price volatility. And that's -- there is no specific time frame to execute a buyback. But we believe this is a lever that we have to have that may generate a lot of value to shareholders as well. So that's why we announced the Board approval of that share repurchase.

And there looks to be no further questions at this time. This will conclude the question-and-answer session. Now I would now like to turn the conference back over to Mr. Rafael Martins for final considerations.

Thiago here speaking. Thank you very much for having the time to do this call with us and to further studied our company. We are very happy and very excited with the results in this first quarter, and we see a lot of opportunity in the quarters ahead of us. So thank you very much for all the support, all the long-term investors that have supported us. We see 2019 as a great year for the company. Thank you very much.

Rafael, do you want to say some words?

Yes. I'd like to thank you all. We are always available for questions. If analysts and investors have follow-up questions, please let us know. Thank you very much for participating.

Do you want to talk about the conference? No? Okay. Thank you, guys. Bye-bye.

And the conference has now concluded. Thank you all for attending today's presentation, and you may now disconnect your lines.