StoneCo (NASDAQ: STNE) reported Q2 EPS of (R$0.47), versus R$0.54 reported last year. Revenue for the quarter came in at R$613.4 million, versus R$667.4 million reported last year.

“Dear Shareholders,

Despite strong underlying growth in our core business and evolution of our strategic roadmap, we had some mixed results this quarter primarily driven by a challenging short-term scenario in our credit product, which was strongly affected by industry problems with the credit receivables registry system and the resulting actions we took to address them, which we discussed in our August 25, 2021 press release (New Dynamics of Registration of Receivables in Brazil).

Our core business is very strong. During the quarter we accelerated the growth of our SMB business, reaching over 1 million SMB clients and growing SMB TPV by 104% year over year. This accelerating growth was achieved with healthy unit economics, with TPV per client and revenue per client excluding credit both increasing quarter over quarter. Our TON product has moved from being an experiment and optionality to becoming a proven and high growth solution that added over 140,000 new clients in the quarter. Also, the engagement of our SMB clients within our digital banking platform showed a significant improvement in the quarter, with prepaid card TPV, banking money-in and money-out volumes, and total banking accounts balance all growing between 4 and 5.5 times. Overall, our consolidated Total Revenue and Income increased by 68% year over year when we exclude credit revenues.

Our credit business remains in the early stages and we made some mistakes in our execution, especially not foreseeing how the malfunctioning of the registry system could harm our business. So we decided to take a cautious approach and implemented some prudent actions, like temporarily stopping the disbursement of credit and increasing coverage for potential future losses, which impacted our reported results for the quarter. While conservative, we think this was the best course of action to try to deal with the issue head-on. We will wait for the system to be fixed, all parties to begin playing by the same rules and turnaround our execution before resuming our operations, which we think could take three to six months. We have learned a lot in the past two years of building our credit product and we remain very excited about the long-term opportunity and the material benefits to our clients.

Also, we closed the acquisition of Linx on July 1st, when we started managing the company. We remain very excited with the opportunity to integrate software, payments and financial solutions. We see Linx as a rare asset built over decades with very sticky client relationships and high switching costs. Linx has an unparalleled level of data from retailers that is very granular for each vertical, which we think we can use more aggressively to identify great cross-sell or up-sell opportunities. We see a number of avenues to create value with Linx and are focused on executing on the combination of the businesses.

We have continued to make sizeable investments in the growth of our business focused on areas such as technology, distribution and customer service operation. We believe that the incredible learnings from this quarter will take us to a new phase of our business. We are even more convinced of the opportunities ahead and we keep our devotion to making our clients happy and to the evolution of our team.”

For earnings history and earnings-related data on StoneCo (STNE) click here.