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StoneCo Ltd. (NASDAQ:STNE)
Q1 2019 Earnings Call
May 13, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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 its 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 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. 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.

Rafael Martins -- Investor Relations Executive Officer

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 1st, we are announcing today our full financial results for that period.

We are also announcing today that our board has approved the 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?

Thiago Piau -- Chief Executive Officer

Thank you, Rafael. Good evening, everyone. Thanks for joining us for our first quarter earnings call. In the first quarter of 2019, we continued to deliver strong results and make great progress in our strategic roadmap. We are very proud of the way we've started this year and pleased at our financial results came in even stronger than we expected when announced our preliminary numbers on April 1st. 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 two 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 introduction of new solutions that go way beyond payment.

So, let me discuss some highlights in our payment business in our estimation. 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 10 times. 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 S&B merchants to incorporate more and more digital commerce. We keep creating new solutions to help our clients sell more effectively and live a better experience online.

For example, we just started offering a customized prepayment model which helps marketplaces attract new sellers. And they 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 can 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 two important software applications to our suite of solutions: Collact, a customer engagement and CIM 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 omnichannel 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 with simpler needs. We now have over 32,000 clients that use at least one 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 two 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. These help us to keep the best MPS 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 its early beginnings, the software strategy is our next growth horizon. As illustrated on slide five, 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 July 6, we showed some examples. First, an apparel store in the countryside of Mato Grosso do Sul, where the client used to work with the same acquire for many years until an external audit showed that he was paying over 500 reais 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 integrated solution for payments and reconciliation with full transparency. Another interesting case is a steakhouse in the countryside of Sao Paulo. By starting 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 30,000 reais, corresponding to 18 months of incorrectly routed deposits. In addition, this client realized they were using automatic prepayments through another payment provider, paying higher rates than they originally thought. As shown in slide six, Equals Raio-X helped merchants become more productive by providing them with a proper tool to reconcile multiple payment points 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 40 million reais 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 materialize this belief. Another software service we provide is Collact.

A bakery client in Sao Paulo created a loyalty program with Collact and saw the traffic of members of the program was over 30% higher than non-members. 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 Sao 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 address multiple paying points that our clients have from managing their back house 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 C&M and reconciliation as well as be complete ERP and POS solutions for specific verticals and market niches. Besides software, in the first quarter, we launched our credit pilot which has three important components: First, a transparent pricing that is simple and easy to understand; second, it is a non-bureaucratic process of taking credit; and finally, clients pay back their loans for 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 allow us to focus on two main avenues of growth regarding the banking services: 1) 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 capabilities that 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 of 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 things in our culture are the fundamental belief 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 frontline of the business. We just got back from our annual sales convention where, together with Recruta Stone, our semi-annual recruitment event, are our most important culture event 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 hire 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, focused 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 ask us about that. We have seen many so-called zero rates 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 resonates 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 if static change to our operation are necessary. We currently have metrics like sales productivity, cancelation, 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, even through a higher share of wallet or through higher sickness.

As an example, during the first quarter '19, clients using at least one of our software solutions combined with payments presented significantly lower general levels when compared to clients using no software. We strongly believe that a 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 paying points and helping them sell more, manage better their business, and grow. This year, we expect some more additional solutions to start ramping up faster, like Equals Raio-X, Collact, and our Stone banking accounts. These 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 their 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 disrupters like Stone to have a strong purpose in which the whole company really believes. Whenever you have great people working together toward 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 weight 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.

Rafael Martins -- Investor Relations Executive Officer

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 536 million reais in the first quarter of 2019 compared to 288 million reais 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, a 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 85.4 million reais 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 costs 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 in 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 one working day. This reduction was mainly parallel with increased productivity and reduced costs after the cost for a 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 64.8 million reais. 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. Sell and expenses grew by 66.5% year-over-year, reaching 62.7 million reais 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 66.6 million reais, 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 phoning lines contracted by the company, and use of a higher amount of on-cash to fund prepayment operations. As a result, our adjusted net income was 186.3 million reais the first quarter of 2019 with a margin of 34.8%, compared to 26.5 million reais in 2018 and a margin of 9.2%. The main factors that contributed to the growth in adjusted net income were increased in total revenue and income primarily due to higher KPV intake rate by focusing on growing the company's base of S&D 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 on-cash to fund the prepayment operation. Overall, we have seen strong operating leverage. Our costs 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 carriage investments related to hubs that have not yet fully contributed with their revenue potential. And finally, the company generated 108.8 million reais of adjusted free cash flow in the first quarter of 2019 compared to 21.2 million reais 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'll open the call up to questions.

Questions and Answers:

Operator

Thank you. And at this time, we're going to open it up for questions and answers. If you would like to ask a question, please press * then 1 on your touchtone phone. Please unmute your phone and record your name clearly when prompted. One moment please for the first question.

And the first questioner today will be Felipe Salomao with Citibank. Please go ahead.

Felipe Salomao -- Citibank -- Analyst

Hi. Goodnight, Rafael, Lia, Thiago. Thanks for the question. I have one question on the credit product and also on the new banking lock rules. Are the new banking lock rules 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 system's of the incumbent bank and incumbent merchant acquires which has been mistreating 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 two-three years from now, only if possible. These are my questions. And thank you for the opportunity.

Rafael Martins -- Investor Relations Executive Officer

Hi, Felipe. Rafael here. Thank you very much for the questions. I will answer your second question. The first question was -- the sound was not very good. If you could repeat the beginning of the question, please. But I will talk regarding your credit question. I think we are 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 equations.

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, in paper, it's helping with their sales which is something unique in Brazil. So, if you're ready to talk about it, professionally, we see the address to market as we have mentioned before from very big and effective. And it's a big paying point of our clients. So, we aim to address it. And if you would please just repeat your first question that we couldn't hear well the beginning of the question, please.

Felipe Salomao -- Citibank -- Analyst

Yeah. Sure, Rafael. Hope you can hear me better now. I asked about the banking lock, if the new banking lock system is already properly working and if the start 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 with significantly reduced risk, or if we are not at this point yet, and, if so, 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.

Thiago Piau -- Chief Executive Officer

Okay. Thank you, Felipe. This is Thiago speaking. So, we are already connected to a clearinghouse called SEC that make 100% compliant with the new rule of the Central Bank. Of course, the professional speaking, the final word is [inaudible] because some banks still do not exchange information. But we see the center of API [inaudible] are 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 it fully through a third-party bank. The bank gives information about the lack of receivable consideration. And we expect that once the industry gets to maturity of those solution, it will be better to use this new lack of receivables arrangement in our side. I 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're a little bit more -- the new rules, it creates more ability for us to compete with fair prices when you compare prices of credit in prepayment and 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 here with the APIs that they have with us. So, we can start finding banking providers and taking into consideration all information relative to these banking lock agreement. We can now perfect more work on our saver as the industry yet mature.

Felipe Salomao -- Citibank -- Analyst

Okay, Thiago. Thanks for the answers.

Operator

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

Mario Pierry -- Bank of America Merrill Lynch -- Analyst

Hi, everybody. Let me ask you a couple of questions as well, please. First one. As you mentioned, 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 gonna 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 turn rates? If you can give us some color on that. The second question is related to this hub expansion that you said that you're gonna 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 gonna be expanding other regions or in other geographies in Brazil? Or are you gonna be primarily in the southeast of Brazil? Thank you.

Thiago Piau -- Chief Executive Officer

Hi, Mario. Great question. Thank you very much. This is Thiago speaking. So, I will try to separate the answer in three main thoughts which is the competition, think rates, and then talking about those further investments on the hubs. So, our perspective on the current movement that they are doing with market income paying with so-called zero prepayment rates, that in reality is just a different way to try to do merchant. The market recognizes as what we call set NBRs in which the prepayment rate can be NBR. And then try to lower the overall price in an attempt to blow the client base, exactly like all the incumbent have done in the last 18 months. At this point, we are not seeing signals in our operation that this company actually affects our strategy and our ability to roll. So, we are monitoring, as we said, like APIs very closely. But we decided not to change our pricing policy or our business strategy.

We really believe that the writing is superior value proposition to our customers, or the best customer service really pays off and really sheathes everything in the streets, being present and accounted 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 these world-class products and the [inaudible] relationship. We are really helping them to manage their store better, to learn 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 impact in our ability to roll in our everyday KPIs in our operation. Regarding pay rates, I think that big rates can go likely up or down in the short term because of client needs, best end credit need for seasonality. But we are not seeing any type of impact to the pay rates at this point neither in the first quarter or the second quarter by the days that we are in-house.

By the numbers that we have in the second quarter, expect pay rates to be stable. In the medium to long term, we expect the rates to go up as new solutions ramp up. Talking a little bit about investments on the hubs, we keep various home economics in the hubs. And at this point, we have managed the capability that allow us to allocate more capital toward the hub strategy in order to move faster. So, actually, you could expect it's more investment in the sales and marketing and similar in relationship to expense that we produce better net adds and better cheap [inaudible] for this year. Remember that the hubs paybacks very tough. As we have disclosed in the past, every time we invest in the hubs, we reported to see that with [inaudible] effects that results future growth in very short-lived terms. The payback of the hub is considerably less than one year. So, even the results that we have seen, our management capability with a scientific will inhibit on more capital to grow faster.

And it will produce returns there. So, we expect margins for the year to be in line with what we have. But we want to go more into net adds and PPV. And we know that we have the ability to do so.

Mario Pierry -- Bank of America Merrill Lynch -- Analyst

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

Rafael Martins -- Investor Relations Executive Officer

Hi, 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 two hubs per week. So, we should see that number accelerate significantly. We are investing in both [inaudible] hubs and currently into many regions. So, I think when we look at this, we should see the impact and the effect in our net additions and PPV.

Thiago Piau -- Chief Executive Officer

But yes, Mario. With that bowl of hubs that we have, because we can create more down-fitting as we learn it, we have more client information than we have expected in the past. So, we decided to invest a little bit more. But we remain focused on keeping the machine of opening hubs on a very [inaudible] working toward that. So, we will open more hubs to cover more cities.

Mario Pierry -- Bank of America Merrill Lynch -- Analyst

Okay. And just remind me. You know you have -- in terms of your geographic distribution within Brazil, are you already operating more things in Brazil? Or are there any plans of expanding outside of the southeast in the short term?

Thiago Piau -- Chief Executive Officer

Yeah. We do have operations in the northeast and the southeast. So, we have operations in both. At this point, we are covering one-third of the Brazilian cities. Lia, what is the number of cities that we are covering at this point?

Lia Matos -- Chief Strategy Officer

Slightly over 1,500.

Thiago Piau -- Chief Executive Officer

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 hub that we have already opened before mainly because of the amount that creates a multi-marketing effect. That's why we do not invest a lot on marketing when setting up a hub. So, we will continue to grow our ability to cover more cities and penetrate more deeply than we are. Do you want to add, Lia?

Lia Matos -- Chief Strategy Officer

No. Just to complement, we are in all regions of Brazil. We have hubs in all regions.

Mario Pierry -- Bank of America Merrill Lynch -- Analyst

Okay. Great. Thank you very much.

Operator

And our next questioner today would be Eduardo Rosman with BTG Pactual. Please go ahead.

Eduardo Rosman -- BTG Pactual -- Analyst

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

And the second question is on your strategy on eastern payment and the strategy outside Brazil. I think that today we saw [inaudible] launching a new platform with the aim of promoting eastern payments as a tool to populate the platform and attract customers. It was also reported I think in the press that Stone was sticking to the regulars in Chile. So, if you can give us an update about the strategies in these two businesses. Thank you very much.

Thiago Piau -- Chief Executive Officer

Thank you, Rosman. Thank you for the bright questions. So, I will try to qualify everything. And you help me if I forget something. So, first part is about the growth. Yes, we believe that we have the ability to grow faster in terms of net add and PPV. And we expect to show this throughout the quarters. The only thing that we are always having to remind here is that we have to grow its quality. So, there's a ripe space of growth that we have to keep. We definitely expect to have better net adds and better PPV admission on a quarter-over-quarter basis. That's why 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 than the cognition. And while we are growing, we are creating a culture in our team. So, we wanna maintain our quality. We wanna maintain our culture of having value proposition. So, that's why we try to not have our price to grow.

We will invest more in our channels. We can use the addition of software. We can subsidize the addition of software to show much more value proposition with the same big rate that we have. And over time, we can use the new software to bring more big rates. But we don't wanna reduce the price of the core product. We really believe that it's working for the client to now have access to all of the customer service and everything that we are offering for the client without 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 eastern payment. So, regarding some payments, we have seen many players start creating productive teams to change the way that consumers do transactional activities. And in here, I think that first, we have to separate the merchant business of the current business. Reach yourselves as a think tank, as a technology company that provides financial services to merchants.

So, that's our role is to allow our merchants to accept all payment assets by [inaudible] a very good list of the transaction, understanding optimizing cash flow, helping them to understand the fees they are paying, but everything for them. Instant payment solutions in our perspective may disrupt the current business both initially encourage teams. And we believe our merchant days offers as [inaudible] in this scenario. So, that's why we want to grow our client base as fast as we can. Talking about the linear reality, all this change that operates above trade many reais in volume are obligated to be open schemes as defined by the federal bank regulation which means any issuing payment institution must be able to issue that specific payment method and any merchant acquiring or merchant payment institution can allow its merchant to accept that specific payment method.

So, we see the way that the industry's structured in Brazil is a very pertinent one because it prevents ideas of pricing both to consumers and merchants. And we think that it's for just competition. Looking ahead, we will support the evolution of the market by providing this world-class, up-to-date infrastructure that we are building. We seek to build a platform for start-ups in 20 -- but all consumer think it's motionless for that short period. So, it's still very, very early to say exactly what those instant payments actually will mean. Operation is sticking to the margin. But we believe in our ability to allow them to accept all payment methods understanding cash flow, feel the rates.

So, that's our role in the new industry. I think the third question was about the international excursions. Yes. We talk sometimes to understand the great relation spend point and the market spend point in America. But at this point, we are merely focused on Brazil. We think that the capital allocation metrics being focused on Brazil in the next one to two years is the best move that we can do here.

Eduardo Rosman -- BTG Pactual -- Analyst

Oh, thanks. Thanks, Thiago for the great answers.

Operator

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

Craig Maurer -- Autonomous Research -- Analyst

Yeah. Hi. Thanks for taking the question. 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.

Thiago Piau -- Chief Executive Officer

Hi, Craig. Thank you for this great question. This is Thiago speaking. So, actually, we are not seeing incumbents in terms of the payment competitors trying to do the same type of offering with software. What we will see actually is some of the software players here in Brazil try to create a bundle software payment. 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 benefits in service or software solutions that can help merchants.

On that front, I think that we keep the main player pushing through the strategy and put these out there through our hubs to our customers because we really believe that the combination of software and payments will really understand how the productivity of the merchant happens when you have the ability to provide 100% support for them in a very even simple way, very fast. Creates all the difference. So, we're still not seeing the incumbents making a move toward this direction at this point.

Rafael Martins -- Investor Relations Executive Officer

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 separate from the other solutions offered to merchants. So, what we're going to do is offer an integrated solution both in terms of technology and in customer service. So, the client can reach help 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 that search integrated solutions.

Craig Maurer -- Autonomous Research -- Analyst

Thanks. If I can just ask one follow-up, CLO had 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?

Thiago Piau -- Chief Executive Officer

Good question. So, at this point, we are not seeing this impacting our operation, actually, when we 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 ideas. The value proposition that we bring to the customer is the combined solution of the mission, the Green Angel, the customer service agent, the platform that we have built that allows our people to offer a solution in the service right away, the best quality possible. So, I don't think that it's only about number of people in the streets. I think it is about the combined platform that we have put together. So, yeah. 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.

Craig Maurer -- Autonomous Research -- Analyst

Okay. Thank you.

Operator

And once again, it is * then 1 if you would like to ask a question today. The next questioner will be Octavio Tangelali with Credit Suisse. Please go ahead.

Octavio Tangelali -- Credit Suisse -- Analyst

Hi. Hi, everyone. Congratulations on the result. I have two questions if I may. The first one is regarding the operating leverage. How further did you think you can get from the operating leverage growing PPV without growing the personnel expenses? Or in other words, how much PPV 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 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. Thank you.

Rafael Martins -- Investor Relations Executive Officer

Hi, Octavio. Thank you. It's Rafael here. So, regarding your first question of operational leverage, I think as we have said before, we do have a lot of SG&A and P&L that is frontloaded. So, if you look at some charts that we have provided just recently, you see that if you see the vintage of our hubs, you still have a lot of potential to add new clients with the same sort of [inaudible] structure. So, with the current structure that we have, we have a potential for additional PPV. But as Thiago mentioned, we are not -- we can't grow more, right? So, we expect to invest further in the growth of our hubs. And whenever we invest further, you put out first. But the average age of our hubs nowadays is around one year.

And the agency to client ramp-up of the vintage of hubs, you see that there's a lot of potential to bring new PPV with the current hubs we have. So, that's, for example, one of the reasons why you see such a probational leverage into the first quarter because of that effect of hubs maturing and bringing new PPV with the same structure. Regarding your second question of the buyback, I think that gives us an additional lever that we like to have to generate value to shareholder. I think there's an optionality that many believe is very important for us to have given the stock right volatility. There are no specific timeframe to actuate 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 the share repurchase.

Octavio Tangelali -- Credit Suisse -- Analyst

Very clear, Thiago and Rafael. Thanks again and congratulations on the results again.

Operator

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

Thiago Piau -- Chief Executive Officer

Hi, everyone. Thiago here speaking. Thank you very much for having the time to do this call with us and to further study our company. We're 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 supports, all the long-term investment that have supported us. We see 2019 as a great year for the company. Thank you very much. Rafael, do you wanna say some words?

Rafael Martins -- Investor Relations Executive Officer

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

Thiago Piau -- Chief Executive Officer

Do you want to end conference? Yeah? Okay. Thank you, guys. Bye-bye.

Operator

And the conference has now concluded. Thank you all for attending today's presentation. And you may now disconnect your lines.
Duration: 52 minutes

Call participants:

Rafael Martins -- Investor Relations Executive Officer

Thiago Piau -- Chief Executive Officer

Lia Matos -- Chief Strategy Officer

Felipe Salomao -- Citibank -- Analyst

Mario Pierry -- Bank of America Merrill Lynch -- Analyst

Eduardo Rosman -- BTG Pactual -- Analyst

Craig Maurer -- Autonomous Research -- Analyst

Octavio Tangelali -- Credit Suisse -- Analyst

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