Unaudited Interim Condensed

Consolidated Financial Statements

StoneCo Ltd.

March 31, 2023

Index to Consolidated Financial Statements

Report on Review of Interim Condensed Consolidated Financial Information

To the Shareholders and Management of

StoneCo Ltd.

Introduction

We have reviewed the accompanying interim condensed consolidated financial statements of StoneCo Ltd. (the “Company”) as at March 31, 2023 which comprise the interim condensed consolidated statement of financial position as at March 31, 2023 and the related interim consolidated statements of profit or loss, of other comprehensive income, changes in equity and cash flows for the three months period then ended and explanatory notes.

Management is responsible for the preparation and presentation of this interim consolidated financial information in accordance with IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB). Our responsibility is to express a conclusion on this interim consolidated financial information based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB).

São Paulo, May 9, 2023.

ERNST & YOUNG

Auditores Independentes S/S Ltda.

StoneCo Ltd.

Unaudited interim condensed consolidated statement of financial position  

As of March 31, 2023 and December 31, 2022

(In thousands of Brazilian Reais)

StoneCo Ltd.

Unaudited interim consolidated statement of profit or loss 

For the three months ended March 31, 2023 and 2022

(In thousands of Brazilian Reais, unless otherwise stated)

StoneCo Ltd.

Unaudited interim consolidated statement of other comprehensive income 

For the three months ended March 31, 2023 and 2022

(In thousands of Brazilian Reais, unless otherwise stated)

StoneCo Ltd.

Unaudited interim consolidated statement of changes in equity  

For the three months ended March 31, 2023 and 2022

(In thousands of Brazilian Reais)

StoneCo Ltd.

Unaudited interim consolidated statement of cash flows 

For the three months ended March 31, 2023 and 2022

(In thousands of Brazilian Reais, unless otherwise stated)

StoneCo Ltd.

Notes to unaudited interim condensed consolidated financial statements 

March 31, 2023

(In thousands of Brazilian Reais, unless otherwise stated)

StoneCo Ltd. (the “Company”), is a Cayman Islands exempted company with limited liability, incorporated on March 11, 2014. The registered office of the Company is located at 4th Floor, Harbour Place 103 South Church Street.

On November 29, 2022, the Company announced that the Brazilian Central Bank (“BACEN”) has approved the technical requirement of change of control submitted by the Company amid a corporate restructuring involving the conversion of Eduardo Pontes interests in Company´s Class B super-voting shares from HR Holdings, LLC (which were held indirectly through holding companies) into Class A shares directly owned by his family vehicles ("Corporate Restructuring”).

As a result of the Corporate Restructuring, there were a decrease in the concentration of votes held by the Company’s founding shareholders and HR Holdings, LLC became the owner of 31.1% of the Company’s voting power, whose ultimate parent is an investment fund, the VCK Investment Fund Limited SAC A, owned by the co-founder of the Company, Andre Street.

The individual Company’s shares are publicly traded on Nasdaq (under the ticker STNE) and depositary receipts (BDRs) representing the Company´s shares are traded on the São Paulo exchange B3 (under the ticker STOC31).

The Company and its subsidiaries (collectively, the “Group”) provide financial services and software solutions to clients across in-store, mobile and online devices helping them to better manage their businesses, become more productive and sell more - both online and offline.

The interim condensed consolidated financial statements of the Group for the three months ended March 31, 2023 and 2022 were approved by the Audit Committee on May 09, 2023.

1.1. Seasonality of operations

The Group’s revenues are subject to seasonal fluctuations as a result of consumer spending patterns. Historically, revenues have been strongest during the last quarter of the year as a result of higher sales during the Brazilian holiday season. This is due to the increase in the number and amount of electronic payment transactions related to seasonal retail events. Adverse events that occur during these months could have a disproportionate effect on the results of operations for the entire fiscal year. As a result of seasonal fluctuations caused by these and other factors, results for an interim period may not be indicative of those expected for the full fiscal year.

The interim condensed consolidated financial statements for the three months ended March 31, 2023 have been prepared in accordance with IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (“IASB”).

The interim condensed consolidated financial statements are presented in Brazilian Reais (“R$”), and all values are rounded to the nearest thousand (R$ 000), except when otherwise indicated.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group’s annual consolidated financial statements as of December 31, 2022.

The accounting policies adopted in this interim reporting period are consistent with those of the previous financial year.

The preparation of the financial statements of the Company and its subsidiaries requires management to make judgments and estimates and to adopt assumptions that affect the amounts presented referring to revenues, expenses, assets and liabilities at the financial statement date. Actual results may differ from these estimates.

The judgements, estimates and assumptions are frequently revised, and any effects are recognized in the revision period and in any future affected periods. The objective of these revisions is mitigating the risk of material differences between the estimated and actual results in the future.

StoneCo Ltd.

Notes to unaudited interim condensed consolidated financial statements 

March 31, 2023

(In thousands of Brazilian Reais, unless otherwise stated)

In preparing these interim condensed consolidated financial statements, the significant judgements and estimates made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that are set the consolidated financial statements for the year ended December 31, 2022, with no changes except for updates described in note 11.1.

In accordance with IFRS 10 - Consolidated Financial Statements, subsidiaries are all entities in which StoneCo Ltd. holds control.

The following table shows the main consolidated entities, which correspond to our most relevant operating vehicles.

During the three months ended March 31, 2023 there were no changes in the interest held by the Company on its subsidiaries.

The Group holds call options to acquire additional interests in some of its subsidiaries (see details in Notes 5.6) and issued put options to non-controlling investors (see details in Note 5.9 (i)).

The Group holds call options to acquire additional interests in some of its associates (see details in Notes 5.6).

StoneCo Ltd.

Notes to unaudited interim condensed consolidated financial statements 

March 31, 2023

(In thousands of Brazilian Reais, unless otherwise stated)

Comprised of Banco Inter S.A. (“Banco Inter”)´s shares, acquired on June, 2021. During first quarter of 2023, the Group sold its remaining stake in Banco Inter, representing 16.8 million shares. The shares were sold at a price of R$12.96, equivalent to R$218 million. The change in fair value of equity securities at FVPL for the three months ended March 31, 2023 was a gain of R$ 30,574 (for the three months ended March 31, 2022 was a loss of R$ 322,996), which was recognized in the statement of profit or loss.

On March 31, 2023, comprised mainly of ordinary shares in entities that are not traded in an active market.

The change in fair value of equity securities at FVOCI for the three months ended March 31, 2023 was R$ (393) (none for the three months ended March 31, 2022), which was recognized in other comprehensive income.

Short-term investments are denominated in Brazilian reais and U.S. dollars.

StoneCo Ltd.

Notes to unaudited interim condensed consolidated financial statements 

March 31, 2023

(In thousands of Brazilian Reais, unless otherwise stated)

Accounts receivable are amounts due from card issuers and acquirers regarding the transactions of clients with card holders, performed in the ordinary course of business.

Part of the cash needs by the Group to advance payments to acquiring customers are met by the definitive sale of receivables to third parties. When such sale of receivables is carried out to entities in which we have subordinated shares or quotas, the receivables sold remain in our balance sheet, as these entities are consolidated in our financial statements. As of March 31, 2023 a total of R$ 874,630 are consolidated through FIDC AR III, of which the Group has subordinated shares (R$1,116,264 as of December 31, 2022). When the sale of receivables is carried out to entities in which we do not maintain participation or continuous involvement, the amounts transferred are derecognized from the accounts receivable from card issuers. As of March 31, 2023 the sale of receivables that were derecognized from accounts receivables from card issuers in our balance sheet represent the main form of funding used by the Group to fund our prepayment business.

Accounts receivable held by FIDCs guarantee the obligations to FIDC quota holders.

Trade accounts receivables are amounts due from clients mainly related to subscription services and equipment rental.

As required by the BACEN regulation, the financial assets arising from banking solutions must be deposited in accounts custody by the BACEN or invested in Brazilian National Treasury Bonds, in order to guarantee the deposits from banking customers.

In March 31, 2023, the balances in transit were R$ 230,196 (December 31, 2022 - R$ 243,782).

StoneCo Ltd.

Notes to unaudited interim condensed consolidated financial statements 

March 31, 2023

(In thousands of Brazilian Reais, unless otherwise stated)

In the ordinary course of the business, the Company funds its prepayment business through a mix of own cash, debt and receivables sales.

In August 2020, the first series of FIDC AR III senior quotas was issued, with an amount of up to R$ 2,500,000, and maturity in August 2023. They were issued for 36 months, with a grace period of 15 months to repay the principal amount. During the grace period, the payment of interest is made every three months. After this period, the amortization of the principal and the payment of interest is every three months. The benchmark return rate is CDI + 1.5% per year.

Payments of R$ 312,500 refer to the amortization of the principal and R$ 35,186 refer to the payment of interest of the first series of FIDC AR III.

In March 2021, the Group negotiated an amendment of the contract to postpone the payment date of the principal to March 2022 and the benchmark return rate became 100% of the CDI + 1.50% per year.

In February 2022, the Group negotiated an amendment of the contract to postpone the payment date of the principal to March 2023 and the benchmark return rate became 100% of the CDI + 1.80% per year.

The Group has lease contracts for various items of offices, vehicles and software in its operations. The Group’s obligations under its leases are secured by the lessor’s title to the leased assets. Generally, the Group is restricted from assigning and subleasing the leased assets.

Bonds were issued in 2021, raising USD 500 million in 7-year notes with a final yield of 3.95%. The total issuance was R$ 2,510,350 (R$ 2,477,408 net of the offering transaction costs, which will be amortized over the course of the debt). The Group has a hedge to this loan, see note 5.6.1.

The Group issued CCBs (bilateral unsecured term loans), with multiple counterparties and maturities from short term (less than 12 months). The principal and the interests of this type of loan are mainly paid at maturity. The proceeds of these loans were used mainly for the advance payments to acquiring customers.

StoneCo Ltd.

Notes to unaudited interim condensed consolidated financial statements 

March 31, 2023

(In thousands of Brazilian Reais, unless otherwise stated)

During 2021, the Company entered into hedge operations to protect its inaugural dollar bonds (Note 5.5.2.4), subject to foreign exchange exposure using cross-currency interest rate swap contracts. The transactions have been designated for hedge accounting and classified as cash flow hedge of the variability of the designated cash flows of the dollar denominated bonds due to changes in the exchange rate. The details of the cross-currency swaps and the position of asset, liability and equity as of March 31, 2023, are presented as follows.

The Group is party to non-deliverable forward (“NDF”) contracts with different counterparties approved by the Board of Directors following the Counterparty Policy to hedge its foreign currency risk. As of March 31, 2023, the contracted exchange rate is between 5.10 and 5.26 Brazilian Reais per each 1.00 U.S. Dollar, covering an amount of US$ 14,181. The maturity of the operations is up to April 2023. In the three months ended March 31, 2023, the amount related to these derivatives recognized in Statement of profit or loss was a revenue of R$ 14,840 (revenue of R$ 45,945 in the three months ended March 31, 2022).

StoneCo Ltd.

Notes to unaudited interim condensed consolidated financial statements 

March 31, 2023

(In thousands of Brazilian Reais, unless otherwise stated)

The Group mitigates the interest rate risk generated by the gap between its prepayments of receivables (fixed rate) and its funding activities (either fixed or floating) with mixed maturities. This hedge is executed over-the-counter ("OTC") with multiple financial institutions following its Counterparty Policy. The contracted annual rate is between 9.1% and 14.3%. The notional of the operations is R$ 5,541,019 and its maturity is up to July 2024. In the three months ended March 31, 2023, the amount related to these derivatives recognized in Statement of profit or loss was an expense of R$ 2,480 (expense of R$ 3,489 in the three months ended March 31, 2022).

The Group’s activities expose it to a variety of financial risks: credit risk, market risk (including foreign exchange risk, cash flow or fair value interest rate risk, and price risk), liquidity risk and fraud risk. The Group’s overall financial risk management program seeks to minimize potential adverse effects from its financial results. The Group uses derivative financial instruments to mitigate certain risk exposures. It is the Group’s policy not to engage in derivatives for speculative purposes.

Financial risk management is carried out by the global treasury department (“Global Treasury”) at the Group level, designed by the integrated risk management team, following policies approved by the Board of Directors. Global treasury identifies, evaluates, and hedges financial risks in close co-operation with the Group’s operating units. On the specific level of the subsidiaries, mostly the operations related to merchant acquiring operation in Brazil, the local treasury department (“Local Treasury”) executes and manages the financial instruments under the specific policies, respecting the Group’s strategy. The Board has approved policies and limits that should be followed by Global and Local Treasury in managing financial risks. Policies include policies for managing liquidity and counterparty risks and different levels of approval are required for entering into financial instruments depending on its nature and the type of risk associated.

The global and local hikes on rates and the continued turbulence in capital markets may adversely affect the ability to access capital to meet liquidity needs, execute the existing strategy, pursue further business expansion, and maintain revenue growth. The risks are being monitored closely, and the Group intends to follow health and safety guidelines as they evolve.

StoneCo Ltd.

Notes to unaudited interim condensed consolidated financial statements 

March 31, 2023

(In thousands of Brazilian Reais, unless otherwise stated)

The table below presents a comparison by class between book value and fair value of the financial instruments of the Group, other than those with carrying amounts that are reasonable approximations of fair values:

StoneCo Ltd.

Notes to unaudited interim condensed consolidated financial statements 

March 31, 2023

(In thousands of Brazilian Reais, unless otherwise stated)

The significant unobservable inputs used in the fair value measurement of Loans designated at FVPL categorized within Level III of the fair value hierarchy, are the expected loss rate and the discount rate used to evaluate the asset. To calculate expected loss rate, the Company considers a list of assumptions, the main being: an individual projection of client’s transactions, the probability of each contract to default and scenarios of recovery. These main inputs are periodically reviewed, or when there is an event that may affect the probabilities and curves applied to the portfolio.

In determining the discount rate, we consider that the rate should be a current rate commensurate with the nature of the loan portfolio and the valuation method used. When rates for actual recent transactions are available and appropriate to reflect the interest rate as of the measurement date, we consider those rates. When such rates are not available, we also obtain non-binding quotes. Based on all available information we make a judgment as to the rate to be used. In prior periods we used the interest rate that we paid to senior holders of FIDCs on recent transactions. Considering we did not raise funding through FIDCs since February 2021 and the changes observed in the benchmark interest rate in Brazil and in the credit markets we currently build an interest rate curve for unsecured loans granted to us based on recent loans obtained and in quotes from financial institutions.

The Group enters into derivative financial instruments with financial institutions with investment grade credit ratings. Derivative financial instruments are valued using valuation techniques, which employ the use of market observable inputs.

The Group has performed sensitivity analysis considering an increase of 10% and a decrease of 10% in projections of revenue and EBITDA. The result was an increase of contingent consideration in the total amount of R$ 51,695 considering increase in unobservable inputs and a decrease of contingent consideration in the total amount of R$ 52,024 considering decrease in unobservable inputs.

StoneCo Ltd.

Notes to unaudited interim condensed consolidated financial statements 

March 31, 2023

(In thousands of Brazilian Reais, unless otherwise stated)

As of March 31, 2023, there were no transfers between the fair value measurements of Level I and Level II and between the fair value measurements of Level II and Level III.