Creditas financial results Q4-2024

São Paulo, 27th February 2025

Business Context

2024 was a year of consolidation for Creditas. The Company grew its origination by 27% YoY, while successfully maintaining operating profit close around breakeven. In Q4-24, we once again achieved record revenue of R$530.7 million and sustained an operating profit of R$236.8 million, remaining at top-tier projected steady-state gross profit margins of 44.6%. On the debt market front, Creditas successfully issued and listed its second corporate bond, extending the maturity of part of its first issuance and enhancing liquidity for the Company. The reduction in yield for the second issuance - from 13.0% to 10.5% - along with the extended maturity from 3 to 3-5 years, reflects the confidence of international investors in the Company’s continued business development and further strengthens Creditas’ position as a leading provider of online financial solutions.

The key achievements of the year include: (i) 6% annual portfolio growth, returning to a portfolio size of R$6.0 billion, (ii) a continuous increase in gross profit margin driven by portfolio repricing and consistent credit underwriting practices, resulting in an annual gross profit of nearly R$900 million (+45% YoY) and 44% gross profit margin (+39% YoY), and (iii) maintaining operating profit around breakeven throughout the year, despite the resumption of growth, at -R$70mn for 2024. We remain focused on building a company with a solid foundation that generates profits to reinvest in future growth, enabling the reacceleration of origination supported by the company’s own means.

Our vision for building a company that provides consumers with easy, affordable, and fully digital solutions to access liquidity and protect their most important assets is stronger than ever. The market potential is massive and the geographies where we operate are significantly underpenetrated in high-quality credit, insurance, and investment products. This provides Creditas with unlimited growth potential in a journey that is just beginning.

Collateralized lending is our core product due to its significant impact on the lives of our customers and the strong economics underlying our business model. But beyond collateralized lending, we have been building a solutions ecosystem and have a long-term strategic commitment to build a complete platform around the customer assets:

• Collateralized lending: auto, real estate, and payroll-backed loans

• Insurance: auto, real estate, and payroll-related insurance

• Consumer solutions: supporting the customer through the asset journey including car services, mortgage marketplace, benefits card and salary advance

• Investments: investment funds (FIDCs), mortgage-backed securities (CRIs), real estate investment funds (FIIs) and our publicly listed European Bonds

Having established a solid foundation with a strong recurrence of clients, consistent revenues, and high margins, we are now focusing on growing our core business while simultaneously building out our ecosystem. We have made significant progress in improving our user experience and automation in one of our core products: Auto Equity. Our customers have now a fully automated digital process to get liquidity from their cars in a remote transaction, doing virtual inspection using their mobile phones. The result has been increased conversion efficiency and productivity. We are replicating some of the learnings in the product for the rest of our ecosystem which will allow us to grow our user base with higher margins and more customer engagement.

While we prioritize investments in user experience of our core products, we are also paying attention to improving our ecosystem around these products. As an example, car insurance is a product that we have built to scale, becoming the largest digital car insurance broker in Brazil. We see tremendous potential in connecting the car insurance onboarding process with our lending underwriting. This will require significant effort to create a seamless customer experience, and we are committed to continued investments to address this very clear customer need.

These strategic investments in our ecosystem, combined with a solid economic foundation, position us to sustain both growth and profitability as we continue to scale the business. With gross profit margins now at 44.6%, within the 40-45% steady-state range we projected two years ago, we are positioning the company for an annual growth target of 25%+ in the coming years, while maintaining portfolio profitability. In the next phase, we will continue prioritizing investments in technology, particularly user experience, as a means to drive efficient growth and deliver a best-in-class onboarding process for our customers. Q4-24 marks the consolidation of our growth reacceleration, driven by originations of R$802.3 million, which contributed to a 3.4% sequential quarterly expansion in our portfolio, now reaching R$6.0 billion. Quarterly revenues reached a record R$530.7 million, and gross profit remained steady at R$236.8 million, demonstrating resilience despite rising treasury rates. This performance highlights our continued momentum and underscores the strength of our governance policies in portfolio repricing and improved funding structures.

The focus of the 2022-23 plan was on boosting gross profit and reducing costs to eliminate reliance on external capital for business growth. In 2024, we achieved a year of growth while maintaining strong unit economics and striking a healthy balance between portfolio profit generation and reinvestment in expansion. Now having all core products delivering positive results, we are ready to continue investing in new geographies such as Mexico, new products in all our three verticals and making significant improvements in user experience that will payback during the next cycle. Our target market continues growing with hundreds of billions of dollars at 100%+ rates. We believe that asset-backed lending can not only refinance this debt into cheaper options but also expand total lending by increasing maturity to boost the average debt per capita in Latin America.

Core products

Auto Equity

We have continued investing in a simplified digital onboarding process that is delivering great results both from a customer experience and an economics perspective. Despite significant increases in new loan origination prices, with loan interest rates doubling from the low 2021 levels, conversion rates and productivity per employee are now at historical maximums. In Q4-24 the BU again delivered origination at the second highest level ever, while keep investing in customer acquisition to boost growth for the next quarters. Operating profit margin on revenues remained in the 20% range. We are extremely proud of the achievements in Auto Equity as our flagship product that combines high gross profit margin, low capital consumption and very high return on invested capital.

Home Equity

Home Equity was the first product that we launched in 2016 through a structured fund (FIDC) and since then it has become a core part of our business model. Our focus on streamlining the user experience and constantly reinventing the customer journey to deliver a simplified digital solution allows us to operate with low acquisition cost in the retail segment, avoiding risk concentration and maintaining a relatively low average ticket. We intend to continue growing both our direct-to-consumer and affiliates networks and maintain underwriting policies as credit costs in the product continues at low record lows. Origination in Q4-24 reached another record level, demonstrating the strength of the product in the market.

Private Employee Benefits

Our payroll loan product, targeting employees of private companies, has benefited from significant improvements in customer onboarding and pricing algorithms. This is allowing us not only to increase penetration but also to increase utilization of our approved credit limits. Similar to Auto Equity, the price repositioning during 2022-23 has allowed us to build a very strong foundation to resume portfolio growth since Q1-24 and to continue expanding gross profit generation, keeping gross margin on revenues around 30% since then. We will continue developing the ecosystem of solutions around the employee including salary advance and our benefits card that are delivering very promising results, helping to increase penetration of our core payroll product.

Auto Finance

This is the only product that operates in a very mature industry with already high penetration and competitive margins. After launching our own car financing product in 2020 and attempting a first escalation in 2021, we slowed down our originations= during 2022 and 2023 to understand our potential sources of competitive advantage and how we can deliver value to the customer. We believe the product has a good fit within Creditas ecosystem of solutions as our customer base demands a car financing as well as obtaining liquidity through a pre-owned vehicle. In 2024 we continued in discovery mode with multiple initiatives running in parallel to identify the best angle to expand our market share.

Insurance

After the acquisition of Minuto Seguros in 2021, we have successfully integrated the company into the Creditas Group. We have managed to continue growing the business, consolidating Minuto as the leading independent car insurance broker, while bringing the company to profitability. There is a lot of work to be done to explore the potential of our insurance franchise in multiple fronts: (i) growing our share in the Brazilian market, helping more consumers quote and manage car insurance online, (ii) gaining scale in newer products of our portfolio, including life, health, salary-protection and residential insurance and (iii) combining car insurance onboarding with our Auto Equity product to deliver a full solution to car owners. We will continue investing in these fronts during 2025 and expect insurance to become more important in the Creditas ecosystem over time.

After passing through many testing and product improvement cycles, we are now ready to navigate a new chapter of scalable and profitable growth opportunities ahead.

Operating performance

In Q4-24 we successfully maintained origination volumes at R$802.3mn, despite the more challenging seasonality of the quarter, up by 45.1% year on year, ending the quarter with portfolio under management of R$5,994mn. Growth occurred mostly in Home Equity and Auto Equity business units, the more mature products, generating very strong economics as we combine (i) better pricing and margin structure and (ii) more efficient acquisition costs, including production and distribution of our products.

Growth acceleration has a negative accounting impact related to the up-front recognition of customer acquisition costs which impacts expenses below gross profit (including marketing, sales, personnel and third-party costs related to loan origination) and the frontloading of IFRS provisioning which impacts our gross profit even though this has nothing to do with our actual credit quality. These two impacts in gross profit and expenses below gross profit, common in all high-growth companies, are especially relevant for Creditas due to the long-term nature of our loans, as we frontload expenses for transactions with an average 7-year maturity, while the margins will be recognized in the future.

In Q4-24, alongside the typical costs associated with higher growth, we also increased customer acquisition efforts to boost further origination growth for 2025. On the other hand, our enhanced economics, including a significantly reduced payback period, continue to enable us to grow without consuming cash. Looking ahead, we plan to sustain portfolio growth by reinvesting the profits from our existing portfolio, creating a virtuous cycle that will expand our self-sustaining business.

We continue to be very restrictive in our Auto Finance product while mostly keeping our standard policies in Auto Equity, Home Equity and Private Payroll loans, where we are seeing low volatility at this point in the cycle. Given the low loan-to-value of these products, we believe our product category is ideal to maintain resilience in the current environment.

As discussed, the new pricing strategy initiated in 2022 is allowing us to significantly improve the economics of our products. Customer stickiness allows us to maintain higher financial margin with no impact on credit quality nor customer conversion due to the competitive advantage of our products compared to unsecured lending. With the growth reacceleration, we have been able to post our strongest quarter in top-line revenues at R$530.7mn, positively impacted by the gradual decay of the older, lower-priced portfolio, which is being replaced by newer, higher-priced cohorts. Additionally, the growth in our portfolio and higher up-front fees, driven by stronger origination volumes, have further contributed to this positive trend.

After seeing our Gross Profit margins bottoming in Q2-2022 due to aggressive pricing, the impact of the sharp increase in SELIC and the impact of IFRS provision frontloading related to our high growth strategy (accounting impact not related to credit quality), we have brought our Gross Profit margin levels back to steady-state, posting 44.6% gross profit margin-to-revenues. In Q4-24 we maintained our Gross Profit at R$236.8mn as the front-loading of IFRS provisioning and the rise in treasury rates keeps being compensated by stronger portfolio economics, higher upfront fees, and a more efficient mix of post- and pre-fixed funding structures.

Credit quality remained strong throughout 2024, despite the rise in interest rates (12.25% in December-2024). Meanwhile, Brazilian unemployment reached a new historic low of 6.2% in Q4-24.

Below Gross Profit and above Operating Profit we recognize 3 types of costs:

1. Customer Acquisition Costs (CAC), which include marketing, sales, personnel and other third-party costs. Despite the fact that our loans generate gross profit over many years, we recognize CAC upfront;

2. overhead costs, mostly related to product technology, a cost that unlike some incumbents, we do not currently capitalize; and

3. other operating income and expenses, as well as sales taxes.

As we continue building our portfolio, the impact of both CAC and overhead comes down on a relative basis as we gain operational leverage thanks to scale. Operational leverage is becoming critical in this new phase as we continue growing our revenue base to absorb existing overhead that will grow at a significantly slower pace than our portfolio. In addition, improvements in user experience continue paying off as we see CAC in a dropping trend due to higher conversion efficiency and productivity per employee.

While we maintained a strong control of costs, the increase in Operating Costs and Expenses - from R$245mn in Q3-24 to R$288mn in Q4-24 - reflects our strategic investment in origination and portfolio growth, not just for Q4-24, but for the upcoming cycle as well. We continue to recognize all manufacturing and distribution costs upfront, with the corresponding margins from these loans to be reflected in our accounting over the coming years. This trend of increased investment to drive long-term growth will persist in the next cycle, alongside initiatives aimed at increasing operational efficiency and reducing costs relative to origination.

Combining Gross Profit and Operating Costs and Expenses provides us with a guideline on the plan that we are executing. We expect to maintain both numbers in the 40-50% range when compared to revenues to keep the company roughly at break-even while maximizing our future growth. We don’t plan to optimize on the short-term net income level for 3 reasons:

1. Net income under IFRS does not accurately reflect the economic value being generated by our loan book. Under IFRS, all Customer Acquisition Costs and a significant portion of future credit allowances are recognized upfront, while the recognition of our products' margins is deferred due to the average 7-year maturity;

2. We focus on long-term value creation which may not necessarily correlate well with short-term profit optimization as we believe that the investments we are currently making provide significant return over the life of our loans;

3. Due to the frontloading of IFRS provisions and other non-cash items such as non-cash long-term incentive plans, our cash flow differs from our net income levels, hence our investment and growth decisions may not be based exclusively on accounting metrics.

We expect to keep the company cash flow neutral in the following quarters, with increasing top-line and gross profit numbers.

Definitions

We present all our financials under IFRS (International Financial Reporting Standards). The key definitions of our financial and operating metrics are below:

Portfolio under management – Includes (i) Outstanding balance of all our lending products net of write-offs and (ii) outstanding premiums of our insurance business. Our credit portfolio is mostly securitized in ring-fenced vehicles and funded by both institutional and retail investors. Our insurance portfolio is underwritten by 14 insurance carriers.

New Origination – Includes (i) volume of new loans granted and (ii) net insurance premiums issued in the period. If new loans refinance outstanding loans at Creditas, new loan origination reflects only the net increase in the customer loan.

Revenues – Income received from our operating activities including (i) recurrent interest from the credit portfolio, (ii) recurrent servicing fees paid by the customers from the credit portfolio related to our collections activities, (iii) up-front fees charged to our customers at the time of origination, (iv) take rate on the insurance premiums issued, (v) other revenues from both lending and non-lending products. (Note: before Q2-2023 we were reporting revenues from cars sold which, giving the change in strategy, it is not included since Q2-2023.)

Gross Profit – Gross Profit calculation adds or deducts from our revenues (i) funding costs of our portfolio comprising interest paid to investors, and (ii) cost of credit including credit provisions and write-offs related to our credit portfolio which under IFRS are significantly frontloaded to account for future losses. An enhancement to the IFRS provisioning model resulted in a -R$24.8 million impact on the 2023 cost of credit, reflecting an acceleration of costs. This adjustment does not affect our credit assessment of the portfolio.

Operating Profit – Operating profit deducts from our Gross Profit (i) costs of servicing our portfolio, including headcount, (ii) funds’ operational costs (e.g., auditors, rating, administration fees, etc.), (iii) general and administrative expenses, including overhead, (iv) customer acquisition costs, (v) sales taxes, and (iv) other operating income and expenses. This metric represents a closer view of the company’s operational cash generation, though it is still influenced by IFRS accounting items, such as the frontloading of provisions, customer acquisition costs (CAC) recognized at the time of origination, and the non-capitalization of technology investments, including third-party services, platforms, and the salaries of our product and technology teams.

Adjusted Net Income – Adjusted Net Income adds (i) expenses related to long-term incentive plans, as well as (ii) financial income and expenses, (iii) extraordinary operating items, and (iv) income taxes to Operating Profit.