StoneCo Ltd (NASDAQ:STNE) Q3 2019 Earnings Conference Call - Final Transcript
Nov 21, 2019 • 05:00 pm ET
Rafael Martins Pereira
than the previous year, as the company gains operating leverage from its personnel and facilities expenses. Compared to the second quarter of 2019, administrative expenses as a percentage of total revenue and income decreased by 2.6 percentage points, explained mainly by lower third-party services expenses as well as lower travel expenses, as in the second quarter of 2019 the company hosted its annual sales convention.
Selling expenses grew 103% year-over-year, reaching BRL102 million in the third quarter of 2019. This increase was primarily due to higher personnel and marketing expenses. Compared with the second quarter of 2019, selling expenses increased by 0.3 percentage points, as we continue to hire new salespeople and invest in our operation.
Financial expenses were BRL101 million, 21% higher than the third quarter of 2018. Financial expenses as a percentage of financial income fell from 39.3% in the third quarter of 2018 to 30.2% in the third quarter of 2019. This decrease resulted from lower cost of funds, due to lower base rates, cheaper funding lines and the use of more own cash to fund the prepayment operation, combined with higher financial income. When we compare to the previous quarter, financial expenses as a percentage of revenue increased from 13.4% to 15.1%, mainly due to higher mix of third-party capital to fund the growth in prepayment business.
We have many attractive funding alternatives that we contracted throughout the year that we have been using to fund this business.
As we can see on Slide 14, our third quarter adjusted net income was BRL202 million, with a margin of 30.1% compared with BRL89 million and a margin of 21.6% in the third quarter of 2018. The main factors that contributed to the growth in adjusted net income year-over-year were an increase in total revenue and income, operating leverage in cost of services and administrative expenses and reduced cost of funds as we gained access to cheaper funding and increased the use of own cash to fund the prepayment operation.
Compared with the second quarter of 2019, our adjusted net margin was 3 percentage points lower explained by lower-than-usual tax rate in the second quarter, combined with stronger mix of funding towards third-party capital to fund prepayment in the third quarter of 2019.
Finally on Slide 15, we go through our adjusted free cash flow. We have generated BRL41 million of adjusted free cash flow in the third quarter of 2019. This cash flow generation was lower than in previous quarters due to higher capex which is mainly related to advanced payment of BRL102 million to suppliers POS that enabled the company to benefit from more favorable commercial terms.
With that said, operator, please open the call up to questions.