Mateus Scherer: So talking about CapEx first, few things to highlight here. So, usually, there are differences between the cash outflow and the activation of PP&E. As for example, we can purchase PP&E and pay it later as a result of negotiations with suppliers or maybe pay down purchases of PP&E related to previous periods. We give a lot of data about the dynamics in the financial statements, the footnote 18.5. So, when we look at this quarter, we added 232 million of PP&E and intangibles, but the actual cash outflow was a 176 million. As part of the additions that we did this quarter will be effectively paid in a future period. So that’s part of the explanation. But in any case, when you take a longer term perspective, [Technical Difficulty] comes off CapEx management.
So just to give you a little bit more color on that, when you look at CapEx as a percentage of revenues, for example, it has been trending downwards from 7.9% in the 9 months of 2022 to 5.7% in the 9 months of 2023. and I think that has a lot to do with the efficiencies that we have been seeking in our logistics operation. Again, not to spoiler too much, but it’s another topic that we’re going to give additional details in Investor Day next week. Maybe, Lia?
Lia Matos: Yes. On Neha, on net adds, and then I’ll talk a little bit about software. I believe your question was around cross selling bundles. In net adds, so what we can say is the following. Year-to-date, we have consistently invested in selling both in our hubs and distribution channels that are focused on SMBs, but also performance marketing to drive growth in micro clients. While our investments in selling expenses in the hubs, they have a more stable evolution, performance marketing capital allocation can be more volatile quarter-over-quarter. But the message here is those investments have been yielding great returns, and they have enabled us to continue to invest and to continue to grow. But we also want to highlight that net additions in itself is not a target per se.
We do allocate towards growth in TPV and gaining share across the MSMB segment as a whole, and most importantly, with discipline on pricing execution and healthy levels of return, so that this TPV growth can also drive profitable growth. So, I think that’s the message regarding — on net adds trends. When we talk about software, and we will give more color on this, but let me qualify a little bit. When you look at the TPV pool, so as a proxy of the financial opportunity that exists within software client base, around 60-40 is between MSMB versus enterprise or key accounts. So, there is a significant opportunity in terms of not only payments, but also banking and eventually credits on some verticals that we have prioritized our execution towards.
Today our penetration of financial services within these verticals is still small. We’re at the beginning of that journey. But we’re seeing, extremely positive results in terms of number one, our ability to offer better value proposition by combining software and financial services. I think the big example here is gas stations where we have started very recently a big effort across the company, across all of our channels around offering, embedded software and payments and banking solutions to gas station clients, which is a relevant vertical within Linx, but there are other verticals that we will deploy this execution as well. And when we look at clients that are actually using those solutions, not only is that a lever of growth, because we bring in more TPV and more deposits from banking, but it’s also a strong monetization lever, because when we look at the unit economics of these clients, it is significantly better than the unit economics of clients that use only financial services.
So, the message is, we are excited. We’re at the beginning of the journey. We really feel that now we have the right organizational elements in place to continue to advance on this, but it’s it is very early days. We will give more color in this both on where we are and what our sort of our long-term perspectives on this, next Wednesday.
Operator: Our next question is from Carlos Gomez-Lopez from HSBC. Your microphone is open.
Lia Matos: Maybe we can move on to the next. And if Carlos wants to go back to the line, he can.
Operator: Okay. Our next question is from Sheriq Sumar from Evercore ISI.
Sheriq Sumar: I just wanted to ask about the about the financial expense in this. How should we think about for the fourth quarter? I mean, depending on — like, given the fact that Brazil’s inflation rate has come down, how should we think about the mix of using cash versus third-party deposits? And also some of the other levers within the overall expenses to drive margins higher. I mean, I know you talked about lowering some headcount within the software business. But what are the other measures that we could think about in brief for the fourth quarter and in 2024 that you would take?
Pedro Zinner: So maybe starting talking about financial expense. I think we’ve mentioned this in the past, but, we think over the medium term, our financial expense should be driven by three factors, basically. First one being the interest rates in the country, second one being the overall cash generation, and the third one being TPV growth. I think when we look at the evolution this quarter, the slight decrease that we had in financial expenses was basically a function of these three factors. So, in the third quarter, we saw CDI rates in Brazil reducing from 13.65% to 13.27% on average. Secondly, we basically decided to reinvest our cash generation towards funding the operation. And third, I think these two factors were slightly offset by the quarterly TPV growth.
When we look forward, I think the perspective is to have some reduction in terms of the CDI rate. So, we’re going to have that tailing going forward. And the business, I think, like we mentioned, the earlier question continues to generate a lot of cash, so this should also contribute to the overall trends. I think the second question regarding overall costs and expenses, leverage for the Company. Something that we mentioned in the call, it’s the general trends in terms of administrative expenses. I think it’s something that we also highlighted a few quarters ago, but if you look at a long-term trend for this line, after the first quarter ’22, we started implementing a lot of measures in the Company in terms of zero-based budgeting, implementation of shared services center, and also advancing the software integration.
And I think this has led this line to decline in a nominal basis since the beginning of the year, declining from R$296 million first quarter last year to around R$240 million this quarter. And we still see room to improve this line as a percentage revenue going forward. I think the idea is to keep these expenses at control while we scale the business. But another very important trend when we look at cost to serve, I think we gain more than two percentage points in terms of margins in a yearly basis when we look at that line. And when we deep dive in this line, we’re really seeing gains across all the main lines of the business, be it logistics, customer service, or losses, for example. I think the only different trends that we are starting to see and that it’s important to highlight is that as we expand our credit book, we’re booking the provision for losses upfront due to IFRS 9.
