São Paulo, 29th August 2024

Business Context

In 2024 we started a new phase in our history, a phase marked by sustainable and profitable growth. Among the main achievements of Q2-24 we (i) expanded Gross Profit by 45% compared to Q2-23 to a record R$209.4mn while (ii) reducing Costs below Gross Profit expenses by 15% to R$224.4mn. Since the end of 2023 we have been running the company with positive cash flow and we are now able to self-fund the company’s growth. We continue building on a company foundation that generates profits to reinvest in future growth, allowing the reacceleration of origination while continue benefiting from the repricing of our portfolio and the tight monitoring of its strong credit quality, maintaining profitability and sustainable margins.

Our vision of building a company that provides consumers with easy, affordable, and fully digital solutions to access liquidity and protect their most important assets is more relevant 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 getting started.

Collateralized lending is our core product due to its significant impact on customer life and the strong economics provided to our business model. But beyond collateralized lending, we have been building a complete 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) and real estate investment funds (FIIs)

After building a solid foundation for our business with strong recurrence and high margins, we are now turning our attention to continue building 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 continuing our investments to address this very clear customer need.

These investments in our ecosystem together with a solid economics foundation allow us to position the company to start a new phase of growth and profitability. With gross profit margins now at 42.4% in Q2-24 (withing the 40-45% steady-state range that we anticipated 2 years ago) we are moving the company to a target annual growth rate of 25%+ in the following years, while remaining profitable. In this new phase we will prioritize our technology investments in user experience as a mechanism to grow efficiently and deliver a best-in-class onboarding process for our customers. Q2-24 already shows the transition to this new phase with the first portfolio growth since Q1-23 to R$5.7bn (+1% sequential growth) built on originations of R$694.6mn (+16.5% sequential growth). At R$493.5mn in revenues, Q2-24 is our second highest revenue quarter ever (R$497.3mn in Q2-23) while reaching record gross profit of R$209.4mn (R$144.8mn in that same quarter of 2023).

The focus of the 2022-23 plan was on increasing gross profit and reducing costs to avoid dependency on external capital to continue growing the business. Now having all core products delivering positive profit, we are ready to continue investing in new geographies such as Mexico, new products in all our three verticals and 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 lending as a whole by increasing maturity to boost the average lending 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 customer experience and economics perspective. Despite significant repricing our new loan origination, with prices doubling from the low 2021 levels, conversion rates and productivity per employee are now at historical maximums. In Q2-24 the BU achieved another record lowest CAC for the quarter and continued to deliver positive operating profit at 20%+ margin on revenues. We delivered 23% sequential growth in origination in the quarter as we turn on growth acceleration. 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 keeping relatively low average ticket. We intend to continue growing both our direct-to-consumer and affiliates network during 2024 while returning to more steady-state underwriting policies as credit cost in the product continues at record lows.

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. Similarly to Auto Equity, the price repositioning performed in 2022-23 has allowed us to build a very strong foundation to resume portfolio growth, which has already started to be seen in Q1-24 (origination volumes 37% higher in 1S24 than in 2S23), and to continue expanding gross profit generation, that achieved 31% margin on revenues in the quarter. 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 product to finance a car purchase and not only obtaining liquidity through a pre-owned vehicle. During 2024 we will continue 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 consumer quote and manage a car insurance online, (ii) gaining scale in more recent products of our portfolio, including life, health, salary-protection and real estate insurance and (iii) combining the car insurance onboarding with our auto equity product to deliver a full solution to car owners. We will continue investing in these fronts during 2024 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 massive sustainable and profitable growth opportunities ahead.

Financial results

Quarterly results for the period Q2-2023 through Q2-2024

Operating performance

In Q2-2024 we delivered strong volume growth with origination volumes reaching R$694.6mn in the quarter, up 16.5% sequentially and 35.3% year on year, ending the quarter with portfolio under management of R$5,660mn. Growth came in all business units and with the best economics that we have seen so far as we are combining (i) lower acquisition cost, including production and distribution of our products, (ii) progressively higher up-front fees and (iii) better pricing and margin structure.

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 only be recognized in the future.

Due to our growth reacceleration, in Q2-2024 we have also recognized expenses that will translate into further origination growth in Q3-2024, which we expect to be yet another record quarter and accelerate our portfolio growth to reach new highs. On the other hand, our improved economics with significantly reduced payback period, have allowed us to grow with no cash consumption. We expect to continue compounding portfolio growth by reinvesting the profits of our existing portfolio, creating a virtuous cycle to expand a self-sustainable business.

We continue to be very restrictive in our Auto Finance product while mostly keeping our standard policies in Car 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 we have been discussing, 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 second strongest quarter in top-line revenues at R$493.5mn and set the foundation for an even stronger Q3-2024. Q2-2024 revenues have been impacted by the decay of the older low-price portfolio that is being replaced by newer higher-price cohorts, increased portfolio and higher up-front fees related to stronger origination volumes.

After seeing our Gross Profit margins bottoming in Q2-2022 due to aggressive pricing, impact of the sharp increase in SELIC and the impact of IFRS provisioning 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 42.4% gross profit margin-to-revenues. In Q2-2024 we posted yet another record Gross Profit level of R$209.4mn as the front-loading of IFRS provisioning is compensated by stronger economics and growing portfolio amount.

We expect credit quality to remain strong during the rest of 2024, with interest rates 300bp below peak levels and unemployment remaining under control after dropping from 12-15% in 2016-2021 to below 7% today.

Below Gross Profit we recognize 3 types of costs:

(i) Customer Acquisition Costs (CAC, including marketing, sales, personnel and other third-party costs) that, despite generating gross profit over many years due to the long-term nature of the loans we originate, we recognize upfront;

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

(iii) other financial income and expenses, as well as income taxes.

As we continue building our portfolio, the impact of both CAC and overhead comes down on a relative basis as we get 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 Customer Acquisition Costs dropping due to higher conversion efficiency and productivity per employee.

In Q2-24 we reached the lowest CAC-to-Origination and the lowest G&A-to-Revenue levels as we progressively gain efficiency and scale. Despite these improvements, Costs below Gross Profit have increased from R$205mn in Q1-24 to R$224mn in Q2-24 as we are now rapidly deploying our growth strategy (higher costs on an absolute basis despite lower costs relative to new loan origination). This trend will continue during the rest of the year as we plan to prioritize our growth investments while maintaining the company cash flow positive.

Combining Gross Profit and Costs Below Gross Profit provides a guideline on the plan that we are executing. We expect to maintain both numbers in the 40-50% level when compared to revenues to keep the company around 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 of our products;

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 doing 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 that the trends observed in the last 2 quarters will continue during the rest of the year with increasing top-line and gross profit numbers while keeping the company cash flow neutral.

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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 of 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, are 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.

Net Income – Adjusted Net income 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) taxes, and (vi) other income and expenses. We currently don’t capitalize any of our technology investments, which include third party providers, third party platforms and the salaries of our product technology team.