Risk Factors

Company

The Company’s revenue depends substantially on subscriptions and contracts for its technology products and services, which may decrease due to increased competition, market conditions, reduced demand for these services or products, or other factors such as unavailability of our infrastructure or applications.

The Company’s revenue depends substantially on subscriptions and contracts for its technology products and services in the Be Online/SaaS and Commerce segments, which include Hosting, E-mail and Cloud Computing services, dedicated servers, e-commerce platforms, means of payment solutions and other complementary services. If revenue from these subscriptions and contracts decreases, either due to increased competition, adverse market conditions, reduced demand for these services or products, or other factors such as the unavailability of our infrastructure or applications, the Company’s cash flow and liquidity may be adversely affected, with a negative impact on its business, operating results, financial condition and the value of its securities.

The Company operates in competitive markets in which increased competition may adversely affect the Company’s market share and pricing strategy.

The Company faces competition in all the markets in which it operates, as they have low entry barriers. Competitors are usually domestic companies, but there is also competition from certain foreign or multinational companies with a global presence, which have: (i) cutting-edge technological resources; (ii) access to foreign capital markets at lower net costs; and (iii) better financing conditions than those found in Brazil. If the Company is not able to remain competitive due to low entry barriers or if the Company fails to respond adequately to the strategies of its competitors, its market share may decline in one or more of the markets in which it operates, which would consequently reduce revenue and create pressure on the prices of its products and services, adversely affecting its business, operating results, financial condition and the value of its securities.

The Company relies on research tools and social media to attract a significant portion of its clients; it may face changes that reduce the effectiveness of these client sources or that create other problems that are not under the Company’s control.

The Company has research tools and social media to attract a significant portion of its clients, including search engines and advertisements on social media to publicize its products and services. The companies responsible for these search engines or social media periodically change their algorithms in an attempt to optimize their search results and advertising, increasing their prices and revenue and making the Company pay more to use these resources. If these search engines or social media change their algorithms or advertising policies, increase their prices or face problems related to technology, hacker attacks or other difficulties, the Company’s websites, products or services may appear less prominently or not appear at all in search results or social media views, significantly reducing visits to the Company’s websites and their advertisements, thus limiting the Company’s ability to attract new clients, which in turn adversely affects its business, operating results, financial condition and the value of its securities.

The Company uses a subscription-based pricing model that is subject to market pressure, price wars and other factors.

The Company uses a pricing model that subjects it to several challenges, including the payment of monthly, quarterly, annual and triennial subscriptions that allow the use of products or services available on the Company’s platform for a previously defined period. Another challenge of the pricing model refers to decreases in the prices charged by the Company for some of its products or services, as a direct result of market pressure, price wars and the entry of new competitors, among other factors, including technological changes. The Company cannot guarantee that its current or potential clients or the market in general will continue to accept this pricing model in the future or that the market prices of some of its products or services will not be reduced, even unexpectedly. Any change, whether planned, sudden, or unexpected, in the pricing models accepted by the market or in the way the Company prices its products or services may adversely affect its business, operating results, financial condition and the value of its securities.

The Company may not be able to attract new clients, retain current clients, or expand sales to its existing clients.

The Company’s growth strategy depends on its ability to attract new clients and retain its current clients, encouraging them to acquire the Company’s other products and services. To achieve these goals, the Company needs to convince both current and potential clients of the benefits and value of its products and services. Any failure to develop sales strategies, efficiently expand marketing and sales resources or provide after-sales support services may impair the Company’s ability to increase its client base, maintain its current clients satisfied and/or increase market acceptance of its products and services with a view to boosting the Company’s sales, and these situations may adversely affect its business, operating results, financial condition and the value of its securities.

In the event that the Company is unable to offer high-quality support, its image, reputation and business may be adversely affected.

The Company’s clients rely on a support team to help them implement, use and solve technical and operational problems related to the Company’s products and services. Providing high-quality support services is essential as the Company expands its business and seeks new clients. As the Company expands its operations, it will need to invest in the existing support structure, which can significantly increase its operating costs and expenses. In addition, should the Company fail to help its clients solve their technical and operational problems or provide efficient, high-quality support in a manner consistent with the demand arising from its growth, this may damage the Company’s image and reputation, making it more difficult to attract new clients and renew and expand the Company’s relationship with existing clients, adversely affecting its business, operating results, financial condition and the value of its securities.

The Company incurs higher costs as a result of the IPO within the scope of the application for registration as a publicly held company with the CVM and the start of trading of the Company’s shares on B3.

As a publicly held company, the Company will incur legal, structural, accounting and other expenses, as well as expenses to improve its corporate governance, which the Company would not incur as a privately held company, including with regard to compliance with the listing requirements of Novo Mercado, the B3 listing segment with the highest levels of corporate governance. Some members of the Company’s management do not have significant experience in the management of publicly held companies, and management should devote substantial time to adjusting the Company to the changes resulting from the IPO and compliance with regulatory and corporate governance requirements, which will significantly increase its costs and make some activities and initiatives more time consuming and costly. The Company cannot predict or estimate the additional costs that will be incurred as a result of going public or complying with these regulatory and corporate governance requirements.

In addition, as a publicly held company, the Company is required to implement adequate and effective internal controls over its financial reports, operations, risks and corporate governance, among others. The increase in costs as a publicly held company or any failure to maintain appropriate internal control, as mentioned above, may adversely affect the Company’s business, operating results, financial condition and the value of its securities.

The Company may be adversely affected by the rate of growth in the use of technology in business and by the type and level of its clients’ technology expenses.

The Company’s operations depend, in part, on continued growth in the use of technology in the business of its current and potential clients. In challenging economic environments, clients may reduce or postpone their spending on new technologies in order to focus on other priorities, or they may decide to use their own internal resources instead of acquiring services or products from third parties, such as the Company. Many companies have already invested substantial resources in their businesses and may be reluctant to adopt new approaches or technologies that change their existing business processes and infrastructure. In the event of a slowdown in the expansion of the use of technology in the business of the Company’s clients or a decrease in their technology expenses, or if the Company is unable to convince its current or potential clients to adopt new technology solutions offered by the Company, its business, operating results, financial condition and the value of its securities may be adversely affected.

The Company depends on its ability to develop new products and services internally, through partners or through acquisitions, and on its ability to adapt to rapid technological changes.

The Company’s activities depend fundamentally on technology and systems. The technology sector is extremely dynamic and good future performance depends, in part, on the Company’s ability to predict and adapt rapidly to such technological changes. If the Company’s products, services and technologies become outdated compared with its competitors, this may reduce the revenue generated by its products and services and create the need for investment in new technologies in order to meet client demands. The Company cannot guarantee that it will continue to develop or have access to new technologies capable of retaining current clients or attracting new clients, as well as being successful in incorporating these technologies into its products and services. Additionally, there may not be demand for the Company’s new products and services or the Company may not be able to timely develop solutions at economically viable prices, which may adversely affect its business, operating results, financial condition and the value of its securities.

The Company may not have an adequate return in the form of significant revenue on current and future expenses and investments in research and development of products and services.

The development of new technology products and services may not come to fruition and, even if it comes to fruition, if demand for such products and services is not generated or is generated at a slower pace than expected, the Company may not be able to recover expenses and investments incurred in research and development of products or services, which may adversely affect its business, operating results, financial condition and the value of its securities.

The Company may face difficulties or be unable to successfully implement its growth strategy to integrate the assets and operations of the acquired companies into its operations.

The Company’s growth strategy includes the acquisition of assets or companies that offer technology products and services. The Company cannot guarantee that it will continue to successfully implement its growth strategy through the acquisition of assets or companies, or that the current acquisition strategy will bring positive results to the Company in the future. The Company’s rapid growth should not be seen as an indicator of future growth and, if the Company continues to grow rapidly through acquisitions, it may not be able to manage its growth effectively. The risks that the Company may face in connection with these acquisitions and the integration of assets or acquired companies include, among others, the following factors: (i) ongoing operations may be interrupted and management’s attention may be diverted to transition, acquisition or integration activities; (ii) the Company may experience difficulties in integrating the operations and activities of the acquired assets and companies in order to obtain the expected economies of scale and efficiency gains, in addition to other incompatibilities, including the integration of human resources and other administrative resources; (iii) the Company may lose members of management and employees who play an important role in conducting the acquired business; (iv) the Company and the acquired companies may experience deterioration in relationships with their clients, partners or suppliers of technology and outsourced products; (v) an acquisition, once made, may not be adequate to the Company’s business strategy in the way that it expected, may require additional unforeseen investments, or may not present the expected return on the investment made; (vi) the Company may have difficulties related to: (a) the management of acquired products and services; (b) entry in new markets in which the Company has no experience or has limited prior experience; (c) competitors who have stronger and more consolidated market positions in the products and services acquired by the Company; or (d) necessary regulatory authorizations for the acquired products and services and the acquired company itself; (vii) the Company may have difficulties in incorporating the acquired products and services into its existing product and service lines, as well as maintaining its standards, controls, procedures, support and policies in a uniform manner; (viii) as a result of the Company’s acquisitions, the Company may have several product and service lines offered, priced and supported in different ways, which may affect the quality of customer service and clients’ purchase decisions, as well as cause supply or delivery delays; (ix) the Company may have unforeseen expenses or costs higher than those expected due to the continuous support and development of acquired products and services, an increase in support services for new products and services, or related operations more complicated than expected; (x) there may be unforeseen contingencies and failures in due diligence when making such acquisitions; (xi) the Company may not be able to obtain quick approvals or may be subject to certain limitations, restrictions or other sanctions imposed on its business and acquired assets or companies  by antitrust authorities, unions, regulatory bodies or agencies, other government authorities or similar bodies that may adversely affect the Company’s business, integration plans and offering of acquired products and services; (xii) the use of cash to finance acquisitions may limit other potential expenses, including share repurchases and dividend payments; (xiii) the Company may be subject to legal, administrative and/or arbitration claims related to liabilities of the acquired assets or companies and be required to pay amounts for which it is not entitled to receive indemnification from these respective sellers or for which it is unable to receive, in full or partially, the indemnification agreed with these respective sellers; (xiv) the Company may be questioned by the tax authorities regarding the registration and amortization of goodwill for tax purposes, and there may be impairment of goodwill resulting from acquisitions and a potential accumulation of contingencies identified prior to the acquisition of assets and companies; and (xv) the Company may have difficulties in obtaining approval by creditors, partners or other third parties for certain terms and conditions set forth in the acquisitions. The Company may not be successful in dealing with these or other risks, including problems related to any future acquisition, and may be adversely affected by acquired assets or companies or assets or companies that may be acquired in the future. The materialization of any risk related to acquisitions may adversely affect the Company’s business, operating results, financial condition and the value of its securities.

The Company may lose key members of management or be unable to attract or retain qualified professionals.

The Company has highly qualified members of management, whose performance is strongly related to the success of its business, especially regarding the definition and implementation of the strategies and the development of the Company’s operations, products and services. If these key members of management leave the Company, it may face difficulties in executing its business strategies, growing sustainably, or developing new products and services, among other operational, marketing or corporate governance problems the Company may face. If members of senior management leave the Company, it may incur significant costs when hiring new people with the same qualifications, given the strong competition to attract highly skilled professionals in the technology sector, as well as in the payment of severance packages or indemnity contracts. Due to the above factors, the departure of key members of management or the inability to attract or retain qualified professionals may adversely affect the Company’s business, operating results, financial condition and the value of its securities.

The Company may be unable to attract new talent and/or train and retain qualified employees to support our operations.

There is strong and continuous competition for qualified professionals in the sales, operational, administrative and technical areas in the sector in which the Company operates, and the success of its business depends, in large part, on its ability to attract, hire, train and retain these qualified professionals. In addition, economic growth scenarios may influence the Company’s ability to retain employees, due to stronger direct or indirect competition for human resources, increasing the turnover rate. The Company may be unable to attract, train and retain personnel with the necessary qualifications to serve its clients, which may adversely affect the Company’s business, operating results, financial conditions and the value of its securities.

The Company is subject to failures or interruptions in its systems, communication networks, hardware, software, data centers and network infrastructure, as well as to security breaches, hacker attacks and other similar situations that are under or beyond the Company’s control.

The Company’s activities depend on the efficient and uninterrupted operation of its systems, communication networks, hardware, software, data centers and network infrastructure. The Company stores billing data, intellectual property, personally identifiable information and other types of confidential information about its clients, suppliers, employees, partners and its clients’ customers/consumers in its systems. The infrastructure that the Company uses to provide products and services may be subject to failures or interruptions due to several factors that are under or beyond the Company’s control, such as human error, fire, natural disasters, power outages, failures in telecommunications or damage or breaches of information technology systems. The complexity and relevance of technological processes expose the Company to possible failures in the performance of activities related to systemic development, approval and periodic maintenance, within the logical and physical scope.

The market in which the Company operates is subject to cybersecurity risks that may arise from, among others, cyber attacks that cause system degradation or unavailability of services and products, penetration of information technology systems and platforms by third parties and infiltration of malware (such as computer viruses), contamination (intentional or accidental) of the Company’s networks and systems by third parties, and unauthorized access to confidential or reserved client data by people inside or outside the Company. The Company may face attempts by anyone, including its employees, to breach data, hack into or access its systems to misappropriate confidential information, resulting in misuse.

Any of these occurrences, whether intentional or accidental, which are the responsibility of the Company or third parties, whether or not caused by security breaches, may cause interruptions, delays or suspension of the operation of the Company’s systems, communication networks, hardware, software, data centers and network infrastructure, as well as cause failures, interruptions or errors in the capture, processing and settlement of commercial transactions and, consequently, affect our reputation as a reliable provider of technology services. If the Company’s security measures are insufficient and/or inadequate, if the confidentiality of the information stored or collected by the Company is breached, or in case of interruptions or malfunctions of the services and products offered, the Company may incur significant expenses in order to solve these problems and may be subject to sanctions, questioning from regulatory agencies and/or damage to its reputation. Another aspect to be noted in information technology processes refers to the use of outsourced labor and the possibility of dependence on suppliers and service providers in case of excessive concentration, which can create a dependence on knowledge, resources and people and can also cause the abovementioned failures or interruptions.

In all of the above cases, but not limited to them, the Company is subject to the cancellation of contracts for its products and services, to the assignment of significant responsibilities before its clients or its clients’ customers/consumers and to suits for damages filed against the Company due to breach of contractual provisions, confidentiality or privacy law, for example, which may adversely affect the Company’s reputation, business, operating results, financial condition and the value of its securities.

 

A significant strike action can affect the Company’s operations.

The Company’s employees are represented by unions and are protected by collective agreements or similar employment contracts, which are subject to periodic renegotiation within the terms established by law. Strikes and other stoppages or interruptions of work at any of its facilities or labor movements related to any of its third-party suppliers may adversely affect the Company’s business, operating results, financial condition and the value of its securities.

The Company depends on its ability to integrate its products and services with a range of operating systems, hardware, software, network platforms, and hardware developed or maintained by third parties.

The Company’s products and services must be integrated into various operating systems, hardware, software and network platforms, and the Company needs to continually change and improve its products and services to keep pace with these third-party systems and their evolution. In addition, any deterioration in the Company’s relationship with any of the third-party platform providers that the Company uses or operates may adversely affect the integration and operation of some of the Company’s products and services. These third parties may also change the Company’s technology resources, restrict the Company’s access to its systems or adversely change the terms that govern the use of these systems. If the Company is unable to integrate its products and services with a variety of systems, software applications and hardware platforms developed or maintained by third parties, the Company’s products or services may become less marketable, less competitive, obsolete or even cease to be offered to its clients. Such changes may limit or impede the Company’s ability to use these third-party technologies in conjunction with the Company’s products and services, which would adversely affect the adoption of its platform, with a negative impact on the Company’s business, operating results, financial condition and the value of its securities.

The Company may be subject to unauthorized disclosure of data contained in its systems.

The Company’s security and control mechanisms may not be effective enough to prevent any unauthorized disclosure of data contained in its systems. Technological advances allow the development of sophisticated methods for capturing data to carry out illegal activities, such as fraud and misrepresentation. Thus, the Company’s information systems are exposed to breaches by third parties with the intention of illegally accessing data stored in the Company’s systems. The Company may also be subject to errors and failures that may expose and disclose data contained in its systems. In the event of a breach of the Company’s systems or an unauthorized disclosure of information on its clients or its clients’ customers/consumers, the Company may be exposed to legal claims arising from errors, failures, fraud or misrepresentation or from the disclosure or unauthorized use of data, being also subject to impacts on the Company’s reputation and image, as well as administrative sanctions, especially those related to the General Data Protection Law (Lei Geral de Proteção de Dados – “LGPD”), which may adversely affect the Company’s business, operating results, financial condition and the value of its securities.

The Company may be damaged if it is unable to protect and enforce its copyright, intellectual property and industrial property rights or if its partners or suppliers use the copyright, intellectual property, and industrial property rights of third parties without authorization.

Regarding the protection of the Company’s intellectual property and the reputation of its brands (branding), the Company registers, whenever permitted by applicable law, its copyright, intellectual property and industrial property rights as trademarks, patents and software. The Company cannot guarantee that these measures will be sufficient to prevent the appropriation of its copyright, intellectual property and industrial property rights, causing the inappropriate use of its products or services or requiring the Company to adopt legal or administrative proceedings to protect them. The Company also cannot ensure that its partners and suppliers always use copyright, intellectual property and industrial property rights retained by them or third parties who duly authorize said use when working with the Company, offering the Company’s products and services or providing products or services to the Company.

The inappropriate use of the Company’s products or services, the measures taken to protect its copyright, intellectual property and industrial property rights or the use of third-party intellectual property by the Company’s partners or suppliers without authorization may result in significant costs and divert the resources and attention of the Company’s management and operational, administrative or technological teams so that the necessary protections, corrections or changes are made to enable their appropriate use, which may adversely affect the Company’s business, operating results, financial condition and the value of its securities.

The irregular use of third-party copyright, intellectual property and industrial property rights may prevent the Company from using the technology necessary to develop or supply its products or services or subject the Company to intellectual property disputes.

The Company is subject to the risk of lawsuits based on claims of breach of third-party copyright, intellectual property and industrial property rights, partly due to the recent increase in the number of patents and copyrights registered by technology companies. The Company’s competitors, as well as any other companies or individuals, may, currently or in the future, hold copyright, intellectual property and industrial property rights related to technologies, products or services similar to those offered by the Company or which the Company plans to offer. The Company cannot guarantee that it is aware of all the copyright, intellectual property and industrial property rights held by its competitors or third parties, nor that it will be successful in legal proceedings in which it has to defend its copyright, intellectual property and industrial property rights related to the technologies, products and services offered by the Company.

If a court or arbitration order determines that the Company uses in its products or services any technology that is irregular because it infringes any copyright, intellectual property and industrial property rights of third parties that are not willing to grant a license on terms acceptable to the Company, the Company may be prevented by this court or arbitration order from using such technology, affecting its products or services, and the Company will probably be required to pay significant amounts for indemnification, royalties or license for the use of said third-party copyright, intellectual property and industrial property rights. In such cases, the Company may be compelled to revise or discontinue, in whole or in part, the products or services that have infringed such rights. A court or arbitration order or any change or suspension of the offering of products or services in breach of third-party copyright, intellectual property and industrial property rights may adversely affect the Company’s reputation, business, operating results, financial condition and the value of its securities.

The Company is subject to possible unfavorable decisions in judicial, administrative or arbitration proceedings.

The Company, its subsidiaries, its affiliates, its management, or its controlling shareholders are or may become defendants in administrative, judicial and arbitration proceedings or investigations involving, but not limited to, civil, tax, labor, environmental and criminal matters, in addition to sanctioning/punitive administrative proceedings within the scope of regulatory bodies such as the CVM, the Financial Intelligence Unit (Unidade de Inteligência Financeira – UIF) and the Central Bank of Brazil (“Central Bank”), among others. The Company cannot guarantee that the results of these proceedings will be favorable to the Company, its subsidiaries, its affiliates, its management, and its controlling shareholders, or that the Company will maintain sufficient provisions to fully or partially cover all liabilities that may arise from these proceedings. Any new court, arbitration or administrative proceedings may demand the attention of the Company’s management and require additional costs for its defense. Decisions contrary to the interests of the Company, as well as to the interests of its management and/or controlling shareholders, that affect the Company’s reputation or prevent the business from being conducted as initially planned, or that eventually reach substantial amounts and do not have adequate provisioning may adversely affect the Company’s reputation, business, operating results, financial condition and the value of its securities. In addition, the Company is also subject to the impact of judicial, administrative or arbitration decisions in proceedings to which the Company, its subsidiaries, its affiliates, its management, or controlling shareholders are not a party, but which concern the activities of the Company or the regulations to which the Company is subject, in particular any changes to the regulations applicable to means of payment or internet application providers. For information on the Company’s legal, arbitration or administrative proceedings, please refer to items 4.3 to 4.7 of the Company’s Reference Form.

There are risks for which the Company does not have insurance coverage, and its insurance policies may not be adequate to cover certain damages, either partially or in full.

The Company may not have insurance or the Company’s insurance policies may not be sufficient to cover, partially or in full, extraordinary damages or damages arising from the normal course of its activities. Damages not covered by insurance or not adequately covered by insurance taken out by the Company may result in additional losses for the Company. In the future, the Company may not be able to obtain insurance policies under the same terms or under the same financial conditions as those in the current policies. Also, insurance companies may significantly increase the value of premiums and/or reduce insurance coverage amounts. Thus, the occurrence of any uninsured event, including under the terms of the policies, or the occurrence of a claim that exceeds the insured value may generate significant losses. Insurance companies may significantly reduce or question the Company’s insurance coverage or increase their premiums in the event of new claims, when liability will also increase considerably.

Additionally, the Company does not take out insurance to cover losses arising from the interruption of its activities, not even to guarantee any indemnities that the Company may be obliged to pay to clients and/or third parties due to errors and failures in its operations and non-compliance with the Company’s liability obligations. If any of the above events materializes, they may adversely affect the Company’s business, operating results, financial condition and the value of its securities.

The Company faces risks related to registrations, authorizations, licenses and permits to perform its activities in the properties it uses.

The Company depends on several registrations with federal, state and municipal public administration bodies, as well as on licenses, Fire Department Inspection Certificates (Auto de Vistoria do Corpo de Bombeiros – AVCBs) and operating permits. Operating permits in several locations have an expiration date and must be renewed from time to time, with or without the payment of renewal fees. Due to the difficulties and slowness of some administrative bodies, the Company may not be able to obtain all necessary licenses, permits and authorizations or not obtain their renewals in a timely manner. The Company may be also subject to regulation and control by other public authorities, in addition to those that the Company currently believes to be the only competent authorities, and it cannot guarantee that these authorities have different understandings of the need to obtain other licenses, permits and authorizations. Failure to obtain or renew such licenses may result in the impossibility of operating in the properties that the Company uses and, as the case may be, in the cordoning off and closing of irregular properties and the application of fines. The Company may be adversely affected in the event of impossibility of operating its business due to the failure to obtain or renew the registrations, permits and licenses required for the properties it uses, with an impact on its operating results, financial condition and the value of its securities.

The Company may need to carry out an additional capital increase in the future in order to implement its business strategy, which may result in dilution of its shareholders’ interest, in the form of shares or securities convertible into or exchangeable for shares, in the Company’s capital stock.

The Company may need additional funds in the future to implement its business strategy and may choose to obtain them through the public or private distribution of shares or debt securities or other securities convertible into or exchangeable for shares. In the event of unavailability or restrictions on access to public or private financing or debt, or if so decided by the Company’s shareholders, these additional funds may be obtained through a capital increase without preemptive right for its current shareholders, which may dilute their interests in the Company’s capital stock, which, in turn, may adversely affect the Company’s securities.

An active and liquid trading market for the Company’s shares may not come about, limiting its shareholders’ ability to sell their shares at the desired price and time.

The Brazilian market is substantially smaller, less liquid and potentially more volatile than the stock markets in the United States and other developed countries. Investments in securities traded on the Brazilian market are subject to certain risks, such as changes in the local and global regulatory, fiscal, social, economic and political environments. These market characteristics may affect the price and liquidity of the Company’s shares and significantly limit the ability of the holders of the Company’s shares to sell them at the desired price and on the desired dates. The market value of the Company’s shares may also vary significantly for several reasons, including the Risk Factors presented in the Company’s Reference Form.

The Company’s shareholders may not receive any dividends.

In accordance with its Bylaws, the Company must, as a rule, pay shareholders at least 25% of adjusted net income in the form of dividends. The Company may not have net income to pay dividends, and this adjusted net income may be allocated elsewhere, as permitted by Brazilian Corporation Law, and may not be available for payment of dividends. In addition, the Company may choose not to pay dividends to its shareholders in any given fiscal year, should the Company’s Board of Directors decide that there is not sufficient adjusted net income (or retained earnings or profit reserves) to distribute dividends, or that dividend distribution would be incompatible with the Company’s financial condition at the time.

The Company is subject to certain financial obligations (covenants) and debt limitations under the terms of its financing agreements.

The financial contracts and other instruments representing the Company’s debt have or may have in the future specific obligations such as (i) maintenance of certain financial covenants; (ii) observing restrictions on the Company’s ability to incur additional financing; and (iii) restriction on dividend payments, among other obligations, and any default due to failure to comply with these obligations may adversely affect the Company’s ability to conduct its business.

In addition, any failure to comply with these financial covenants that is not remedied or waived by the respective creditors may result in a declaration of early maturity of the respective contracts, as well as may result in the early maturity of other financial instruments (cross-default). In the event of early maturity of these obligations or upon final maturity without the respective guaranteed obligations having been duly paid off, creditors may foreclose any guarantees provided under these contracts. In the case of a breach of covenant, cross-default or foreclosure on the guarantees of such contracts, the Company’s business, operating results, financial condition and the value of its securities may be adversely affected.

Direct Or Indirect Controlling Shareholder Or Control Group

Interests of the control group shareholders can conflict with the interests of the other shareholders and investors.

Control group shareholders are bound by the shareholders’ agreements registered at the Company’s headquarters. On the date hereof, the following three shareholders’ agreements are in force: (i) one dated September 16, 2010 and entered into between the founding and controlling shareholders, Michel Gora, Andrea Gora, Cláudio Gora, Gilberto Mautner and Ricardo Gora (“Founding Shareholders”), and Silver Lake, which was amended on December 4, 2019 (“Amendment to the Original Shareholders’ Agreement”) and is effective and in full force, and will be terminated if the Offering is held (“Original Shareholders’ Agreement”); (ii) one entered into between the Founding Shareholders and Willians Cristiano Marques (“Shareholder Agreement – Willians”); and (iii) one signed only by the Founding Shareholders on December 4, 2019, which will remain suspended until the termination of the Original Shareholders’ Agreement with the issue of this Offering, when it will replace the Original Shareholders’ Agreement and come into full force and effect (“Family Shareholders’ Agreement” and, together with the Original Shareholders’ Agreement, Amendment to the Original Shareholders’ Agreement, and Shareholders’ Agreement – Willians, “Shareholders’ Agreements”). In any of the Shareholders’ Agreements, Founding Shareholders have the power to control the management and policies, elect and remove the majority of the members of the Board of Directors, as well as determine the outcome of any resolutions subject to approval from the shareholders or Board of Directors, including regarding transactions with related parties, acquisitions, corporate reorganization, sale of assets, establishment of partnerships, arrangement of financing and decision on the payment and term of any future dividends, among other matters, which may conflict with other shareholders’ interests. Silver Lake has the right to veto some matters under the Original Shareholders’ Agreement only. In addition, the control group may avoid or delay specific transactions and business strategies that other shareholders consider to be favorable.

The situations above can cause an adverse effect on the Company’s business, operating results, financial condition and the value of its securities.

There may be potential conflicts of interest involving related-party transactions.  There are or may be revenues, costs and expenses arising from third-party transactions. Related-party contracts are subject to the Related-party Transaction Policy, pursuant to item 5.4 of this Reference Form. However, they could still generate situations of potential conflict of interest between the parties, possibly causing an adverse effect on the Company’s businesses, operating results, financial condition and the value of its securities. In addition, if the company enters into related-party transactions that are not carried out on an arm’s length basis and benefit the related parties involved, the interests of minority shareholders could be harmed.

Subsidiaries and Affiliates

The Company has interests in other companies and depends on their financial results to compose its own results and assets.

The Company has direct and indirect interests in several companies and the result of these interests is included in its results and equity. The results of these companies may be affected by a worsening of their sector and market conditions, with an impact on the Company’s consolidated results. It cannot be guaranteed that any dividends or other distributions will be received from these companies or that they will report appropriate and sustainable results. All risk factors presented in this Reference Form also apply to the Company’s subsidiaries and affiliates.

Yapay may not obtain authorization to operate as a payment institution from the Central Bank of Brazil.

Yapay, a subsidiary of the Company, recorded transaction volume of R$809,218,323.82 in the 12 months ended January 1, 2020. As Yapay recorded payment transactions in excess of R$500,000,000.00 in the 12-month period (“Regulatory Limit”), pursuant to Law 12,865/13 and other rules issued by the National Monetary Council and the Central Bank, Yapay requested authorization from the Central Bank to operate as a payment institution on January 13, 2020. Under the terms of the applicable regulations, authorization to operate as a payment institution must be requested within ninety (90) days from the date on which the Regulatory Limit is reached. If the Central Bank understands that Yapay’s authorization request was made outside this period, penalties may be applied, including financial sanctions. In any case, it cannot be guaranteed that authorization for Yapay to operate as a payment institution will be granted by the Central Bank. If such authorization is not obtained, Yapay’s operations may be reduced below the Regulatory Limit of R$500,000,000.00 (considering the sum of the amounts corresponding to payment transactions carried out in the last 12 months) or terminated (thirty days after being notified of an unappealable decision by the Central Bank or a dismissal/refusal of the respective authorization request), without prejudice to the possible sanctions mentioned above. Any of these factors may have an adverse impact on the Company.

Yapay is subject to the risk of chargeback or default by credit card issuers.

In payment transactions carried out through the Yapay platform, we are exposed to the following risks: (a) cancellation of transactions carried out by credit card holders (clients/consumers of our clients) by the respective issuing banks due to: (i) fraud or bad faith (i.e., intentional act of omission or manipulation of transactions and tampering of documents and records); or (ii) failure to recognize the respective transactions (known as chargeback); and (b) default by credit card issuing banks, which are obliged to pay the amounts related to transactions carried out by their holders so that the payment of such amounts can be made to accredited merchants. Should any of the aforementioned events occur, Yapay may be responsible for settling said transactions, which may adversely affect its business and the Company’s operating results, financial condition and the value of its securities.

The services and products offered by the subsidiary Yapay are charged as a percentage of its clients’ billings and, in these cases, the results related to these services and products are subject to seasonal fluctuations.

Retail is subject to fluctuations due to consumption patterns at certain times of the year (a phenomenon known as seasonality). Consumption goes up and down in different periods, affecting the number and volume of digital transactions and electronic payments in e-commerce. Events that may negatively affect periods of higher consumption may have a disproportionate effect on Yapay’s results throughout the fiscal year, since its revenue is directly linked to its clients’ billings, which, consequently, may be affected by such events. In addition, fluctuations in Yapay’s results caused by seasonality may also hinder comparisons of Yapay’s results in different periods and prevent said figures from being accurate indicators of future performance.

Adverse economic conditions can hurt Yapay’s business.

The processing of credit card payment transactions and the factoring of receivables represent a significant part of the activities of the subsidiary Yapay. Adverse economic conditions, such as interest rates and inflation, may cause the subsidiary Yapay to increase the rates charged on credit card transactions and receivables factoring. We cannot guarantee that clients, in such cases, will continue to carry out such operations with Yapay, which may adversely affect its business and the Company’s operating results, financial condition and the value of its securities.

Increases in fees paid by Yapay to companies that provide payment services may affect Yapay’s results.

Yapay’s results may be adversely affected by increases in fees paid to companies providing payment services with which Yapay has entered into commercial contracts (including acquirers participating in the payment arrangement in which Yapay operates), as Yapay may be unable to pass these increases on to its clients or may lose clients to other service providers with more competitive prices if it passes on these increases on to its clients. If Yapay’s results are affected by an increase in these fees without pass-through, the Company’s operating results, financial condition and the value of its securities may be adversely affected.

The regulation of the Brazilian Payment System may have an adverse effect on Yapay’s business.

Given the relevance of the Brazilian Payment System, the Central Bank and the CMN have issued several regulations governing the use of electronic means of payment, increasing sector competitiveness, strengthening market governance and encouraging the offer and differentiation of products marketed to consumers. There can be no assurance that the competent authorities will not implement additional measures that make it necessary for Yapay to contribute funds or that, in some way, hinder or make the operations of the subsidiary Yapay more difficult or more costly, which may adversely affect its business and the Company’s operating results, financial condition and the value of its securities.

Yapay may be unable to keep up with market trends and offer new payment methods, or to cater to new means of payment that may be adopted by credit card brands.

The Brazilian Payment System is in constant development. Thus, it is natural that new payment methods, associated with new technologies, are developed and implemented by companies that provide payment services in order to meet market demands for ease, speed and security. The subsidiary Yapay may be unable to follow such market trends, causing a decline in its client base. In addition, if Yapay is not able to adapt to new payment methods that may be adopted by credit card brands (such as Visa and MasterCard) or other market players with whom it has business relations, it will be unable to carry out payment transactions with such agents, which may adversely affect its business and the Company’s operating results, financial condition and the value of its securities.

The Company may not succeed in implementing strategies to increase the operations carried out by Yapay.

The Company’s future profitability will depend, in part, on its ability to successfully implement the strategy to increase the provision of payment services offered by the subsidiary Yapay. There is no guarantee that the payment methods market will continue to grow and remain viable, and the Company may not be able to successfully increase the provision of means of payment services offered by Yapay, which could adversely affect its business, its operating results, financial situation and value of the Company’s securities.

Shareholders

It is possible that the Company will no longer have a defined control group, which would leave it susceptible to alliances and conflicts between shareholders, slower approval of matters discussed in Shareholders’ Meetings and Board of Directors’ Meetings due to absence of quorum or to an impasse, and other events arising from the absence of a controlling shareholder or control group.

Currently, the Company’s control depends on the Family Shareholders’ Agreement and cannot guarantee the maintenance of the current control group or the introduction of a new controlling shareholder or control group to replace it in the future. In the absence of a defined control group, the Company might be vulnerable to hostile takeover attempts and conflicts arising therefrom. In addition, the absence of a control group may hinder or slow down specific decision-making processes in Shareholders’ Meetings and Board of Directors’ Meetings. Any sudden or unexpected changes in the Company’s management, corporate policy or strategic guidance, as well as takeover attempts or any dispute between shareholders, could negatively impact its business, operating results, financial condition and the value of its securities.

Its Clients

Reducing information technology expenses may limit the Company’s ability to grow and develop its business.

Revenue growth and potential profitability of the Company’s business depends on demand for our products and services. Unfavorable economic and financial conditions and changes in any other factors that affect consumer income, such as interest rates, inflation, credit availability, wage and employment levels, can decrease consumer purchasing power and, as a result, reduce demand for technology services from our clients, comprising companies of all sizes, entrepreneurs and self-employed professionals. In these cases, the Company’s clients may adopt measures that will change their habits, reducing their use of technological services.

Given that the Company is a service provider, a portion of its revenue depends on the number of new clients. In so far as unfavorable economic conditions make potential clients maintain or reduce the demand for services, our future revenue may be negatively impacted. Historically, economic crises resulted in a global reduction in information technology expenses, as well as pressure for longer billing cycles, as happened during the 2008 recession. If economic conditions deteriorate or do not improve significantly, its existing and potential clients may reduce the usage of technology solutions, which would compromise the Company’s ability to maintain or increase its businesses, negatively impacting its businesses, operating results, financial condition and the value of its securities.

The Company’s business depends on its clients’ continuous and free access to the internet.

The Company’s clients use the Internet mostly to use its services and products. Some providers can take measures that impact clients’ ability to use its products and services, such as: (i) limiting  data usage; (ii) charge fees on data consumption; (iii) degrading the quality of content transmitted by us; (iv) restricting or denying access to our products and services; and (v) trying to charge their clients more for using the Company’s services and products.

In addition, a series of factors may hinder the continuous increase in usage, the development and acceptance of this means by users, including security and authentication matters that may bring problems related to the transmission of confidential information via internet, as well as concerns about privacy and the  ability of websites to collect user information without prior notice or consent, which may reduce users’ inclination to interact in an online environment. The materialization of these factors or other that could affect the continuous and increasing acceptance of the Internet as a means for electronic commerce and communication can limit the Company’s growth and negatively impact our businesses, operating results, financial condition and the value of its securities.

The Company might not be able to fully pass the increases in incurring costs on to clients.

The Company’s costs are impacted by various factors, such as remuneration paid to employees, management, tax burden, real estate and equipment rental, input and equipment acquisition costs, and suppliers’ hardware and software, among others. Contracts entered into with clients are not necessarily adjusted for changes in incurred costs. If the Company is not able to pass the increase in costs on to clients, its revenue and margin will be impacted, with a possible negative impact on its business, operating results, financial condition and the value of its securities.

The Company is subject to credit risk related to its clients, as well as possible losses arising from relevant default therefrom.

The Company’s revenue significantly depends on its clients’ ability to pay for contracted products and services. If the Company does not reach an adequate process for assessing the credit risk of potential clients and if  the Company is unable to implement measures for limiting client default levels in payments related to contracts the Company entered into, its revenue could be negatively impacted. Clients can interrupt payment due to contract termination, financial difficulties, expiration of contracts without renewal, court-supervised or out-of-court reorganization, bankruptcy or even unjustified default by these clients, among others. Recurring default of on the part of a significant number of its clients can negatively affect the Company’s business, operating results, financial condition and the value of its securities.

Most of the contracts entered into with clients have provisions that allow them to unilaterally terminate the contracts.

Most of the product and service contracts entered into with the Company’s clients have provisions that set forth requirements for service and performance levels related to, among others, quality of and time demanded by services rendered. If the Company does not consistently meet contractual conditions and client requirements, or if the performance of its products and services  is lower than expected, clients may unilaterally terminate contracts, renew them under conditions that are unfavorable to the Company or not renew them, negatively affecting its businesses, operating results, financial condition and the value of its securities.

Regulation of the Sectors In Which The Company Operates

The Company is subject to penalties for non-compliance with the obligations set out in the Brazilian Civil Rights Framework for the Internet (Marco Civil da Internet – “Law 12,965/2014”) in the provision of custody and access to internet applications. The possible incidence of the penalties provided for in the aforementioned law may affect the Company’s economic performance and the fulfillment of eventual commercial agreements with third parties, in addition to generating other consequences whose measurement is difficult to assess given the absence of precedents. The regulation of the internet and e-commerce in Brazil is constantly changing and unfavorable changes may harm our business. Currently, under Brazilian law, there is no distinction between the laws relating to e-commerce and those for retail commerce in physical stores. Accordingly, the Company may be subject to general commercial laws and regulations, as well as laws and regulations specifically governing the internet and e-commerce.

With regard to the providers’ responsibility for the content made available by users, Law 12,965/2014 adopted the provider’s fault liability, with the illegal act being characterized only in case of refusal to comply with a court order determining the removal of the inappropriate/illegal content. However, the Company cannot guarantee that it will not be held liable for claims based on the content made available on websites hosted on our platform. The Company cannot measure the form and impact of any court decisions or any other governmental action that imposes liability on online service providers for the activities of its users and third parties.

In addition, the growing concern about the use of the internet for illegal conduct, such as the unauthorized dissemination of national security information, money laundering or support for terrorist activities, may in the future produce legislation or other government action that may require changes to the Company’s products or services, restrict or impose additional costs on the conduct of our business or prevent users from using its products or services. The Company does not monitor or review the adequacy of the domain names registered by its clients or the content of its clients’ websites, and the Company has no control over the activities in which its clients engage. In any of the above situations, if the Company is held liable, its brands, reputation, ability to expand its user base, business, operating results, financial condition and the value of its securities may be adversely affected.

The Company is subject to the risks associated with non-compliance with data protection laws, including the application of fines and other types of sanctions. 

The General Data Protection Law (Lei Geral de Proteção de Dados – “LGPD”) will come into force and take effect in August 2020, transforming the way in which protection of personal data is regulated and treated in Brazil. The LGPD establishes a new legal framework to be observed in the treatment of personal data and provides for, among others, the rights of the holders of personal data; the legal bases applicable to the protection of personal data; the requirements for obtaining consent; the obligations and requirements relating to data transfers, leakages and security incidents; and authorization for the creation of the National Data Protection Authority.

If the Company is not in compliance with the LGPD, it may be subject to sanctions, in an isolated or cumulative manner, comprising warnings, obligation to disclose incidents, temporary blocking and/or elimination of personal data, and a fine of up to 2% of the revenue generated by the Company, its group or its conglomerate in Brazil in the last fiscal year, excluding taxes, up to the global amount of R$50.0 million per infraction. In addition, the Company may be liable for pecuniary, pain and suffering, individual or collective damages caused by it, and it may be held jointly and severally liable for pecuniary, pain and suffering, individual or collective damages caused by our subsidiaries due to non-compliance with the obligations set forth in the LGPD.

Thus, failure to protect personal data treated by the Company and its subsidiaries, as well as non-adherence to the applicable legislation, can result in high fines for the Company and its subsidiaries, media reports of any incidents, elimination of personal data from the Company’s base, and even the suspension of its activities, which may adversely affect its reputation, business, operating results, financial condition and the value of its securities.

Regulation of the internet in Brazil is still recent and relatively limited. 

Regulation of the internet in Brazil is still recent and relatively limited and, unlike in the United States and other developed countries, there are few court precedents related to the laws that regulate the use of the internet, and the existing court precedents have not been consistent. The legal uncertainty arising from the limited guidance provided by the laws in force allows different judges or courts to decide on very similar claims in different ways and to establish contradictory court precedents. This legal uncertainty may lead to decisions contrary to the interests of the Company, which may adversely affect its business. In addition, the Company is subject to changes in the regulation of the software and technology sector, so that, if new laws and regulations applicable to the software and technology sector are passed, it will need to adapt its products and services to the new standards, which will require additional investments and higher costs.

The Company is exposed to risks related to compliance with laws and regulations aimed at combating corruption and preventing money laundering, financing of terrorism, fraud and other inappropriate or illegal activities, or other adverse events that may have a negative impact on its reputation.

The Company is subject to risks related to money laundering events, terrorist financing, fraud and other inappropriate or illegal activities. The laws and regulations in force on these topics, especially Law 12,846/2013, establish mechanisms and guidelines for the control and mitigation of these risks, such as the establishment of policies on, and reporting and monitoring of suspicious transactions. In addition, the regulation also deals with fines, sanctions or legal obligations for institutions that do not comply with regulatory standards.

The Company cannot guarantee that its internal policies and procedures are sufficient to ensure compliance with the law or that its employees, management, partners, agents, members of the fiscal council (when installed), members of committees, service providers, or clients will not violate its internal policies and procedures, or applicable laws or regulations, becoming involved in events for which the Company may eventually be held liable.

The risk arising from the negative perception of the Company’s name due to involvement in any of the above situations by clients, counterparties, shareholders, investors, regulators and society in general can originate from several factors, including those related to non-compliance with legal obligations; inappropriate business practices related to clients, products and services; relationship with partners with questionable ethical posture; misconduct by its employees; information leakages; anticompetitive practices; and failures in the risk management process, among others. The Company’s reputation may also be indirectly impacted by illegal or unlawful acts committed by third parties, business partners or clients. Damage to the Company’s reputation, fines, sanctions or legal obligations may have adverse impacts on its business, operating results, financial condition and the value of its securities.

Failures in the Company’s systems, risk management and control policies and procedures may adversely affect its business.

The Company’s systems, policies and procedures to identify, monitor, manage and control risks may not be fully effective. Risk management methods may not be sufficient: (i) to manage and control the risks of which the Company is aware; (ii) to predict future exposures; and (iii) or against unknown risks, which may be significantly greater than those indicated by the historical measures the Company uses. Other risk management methods adopted by the Company that depend on the evaluation of information related to markets, clients, or other matters available to the public may not be completely accurate, complete, updated or properly evaluated. The information on which the Company relies or which the Company uses to feed or maintain historical and statistical models may be incomplete or inaccurate, which could have a material adverse effect on its business. As a result, the failure or ineffectiveness of the Company’s internal controls may have a significant adverse effect on its business. In addition, the Company’s compliance and internal control procedures may not be sufficient to prevent or detect all types of improper conduct, fraud, or violations of applicable laws by its employees, controlling shareholders, members of management and suppliers, among other people who have a relationship with the Company. In the event of any failure, insufficiency or inadequacy of procedures and controls, the Company’s business, operating results, financial condition and the value of its securities may be adversely affected.

Changes in the Brazilian telecommunications regulation and the forfeiture of the authorization to provide Multimedia Communication Services (“SCM”) and Fixed Switched Telephone Services (“STFC”) may adversely affect the growth of the Company’s services.

The Company’s activity of providing telecommunications services is regulated and supervised by ANATEL, the federal agency responsible for regulating the telecommunications sector in Brazil. Any changes in laws, regulations or government policies applicable to the telecommunications industry or changes in the interpretation of such laws or regulations may affect our telecommunications operations.

As the Company is authorized to provide SCM and STFC, it must comply with certain scope and quality obligations related to such services set forth in its authorization and the regulations issued by ANATEL, under penalty of declaration of forfeiture. If ANATEL imposes any fines, limitations or restrictions or in the event of declaration of forfeiture of the Company’s authorizations, the Company’s business, operating results, financial condition and the value of its securities may be adversely affected.

The Company currently benefits from tax incentives related to Law 11,196/05 (“Lei do Bem”), whose discontinuity may adversely affect its results.

The Company currently benefits from tax incentives related to research, development and technological innovation activities provided for in Lei do Bem, regulated by Decree 5,798/06. In order to obtain approval for the use of the tax benefits provided by Lei do Bem, the Company annually submits information to the Ministry of Science, Technology, Innovation and Communications on the expenditures made in the previous year related to such activities. However, the Company cannot guarantee that these benefits will be maintained in the future. In September 2015, the House of Representatives issued Provisional Measure 694/15, which provided for the suspension of the use of the tax benefit and the calculation of expenditures provided for in Lei do Bem in 2016. However, in March 2016, this Provisional Measure expired, losing its effectiveness after reaching the maximum term limit without voting by the Federal Senate. Thus, if these benefits are not granted or are terminated or reduced, the Company’s business, operating results, financial condition and the value of its securities may be adversely affected.

Social and environmental issues

Being a service provider, the Company understands that its activities do not pose relevant social and environmental risks. 

The Sectors In Which The Company Operates

Any increase in taxes or reduction in tax benefits for the Brazilian technology sector may adversely affect the Company’s results.  

Any increase in the tax burden in Brazil may have an adverse effect on the Company’s profitability. An increase in taxes, especially in the technology sector, usually results in higher prices for end customers, which may reduce the use of technology products and services, negatively affecting the Company’s revenue. Lower revenue may result in lower profit margins of services provided or products sold. The Company cannot guarantee that the federal, state or municipal government will not create new taxes or raise the current rates of taxes levied on the Company’s activities in their respective spheres of competence. If the taxes applicable to the Company’s operations, revenue, products or services increase, or any tax benefits used by the Company are revoked, and the Company is not able to change its cost structure to avoid passing on the tax increase or loss of tax benefits to clients, The Company’s business, operating results, financial condition and the value of its securities may be adversely affected.  

Successive changes in legislation and court precedents can generate divergences in interpretation of past facts. 

In recent years, São Paulo city legislation has undergone several changes regarding the levy of service tax (ISS) on the Company’s products and services. ISS began to be levied on hosting and other services (processing, storage or hosting of data, texts, images, videos, web pages, applications and information systems) in 2017, through Supplementary Law 157/2016, which amended Supplementary Law 116/03. Until the enactment of the aforementioned law, the Company had a final and unappealable court decision recognizing that part of these services were not subject to ISS. Similarly, with regard to contributions to social security financing (PIS/COFINS), following the enactment of Laws 10,637/2002 and 10,833/2003, certain services were allowed to continue to be taxed under the cumulative regime, while others had to be taxed under the non-cumulative regime. The discussion on PIS/COFINS is now consolidated by COSIT Consultation Solutions; however, the Company cannot rule out the risk of questioning of past facts by tax authorities. Finally, there is still controversy with the São Paulo Revenue Office regarding the levy of tax on operations related to the circulation of goods and the provision of interstate and intercity transportation and communication services (ICMS) on the licensing of virtual PABX software and webchat, as they are considered communication services, according to the São Paulo State Treasury. If there are successive changes in the legislation and court precedents on the above themes, which may generate divergences in interpretation of past facts, the Company may incur additional payments of taxes and duties, as well as fines and interest thereto.  

The expansion of the Company’s business depends on increased internet availability, quality and use in Brazil, as well as on e-commerce growth in the country. 

Rapid growth in internet availability, quality and use (particularly as a means of doing business or selling and purchasing products and services) is a relatively recent phenomenon in Brazil. Internet penetration in Brazil may never reach the levels seen in more developed countries for reasons that are beyond the Company’s control, including, but not limited to, the lack of necessary network infrastructure or delay in the development or implementation of innovative technologies, performance improvements and security measures, hindering improvements in internet reliability in Brazil. Internet infrastructure in Brazil may not be able to support continuous growth in the number of users, frequency of use or bandwidth requirements, especially if telecommunications services are not adequately available to support internet growth in Brazil, increasing response times when accessing the internet or the Company’s systems, products and services, reducing internet use and harming the Company’s business. In addition, even if internet penetration in Brazil increases, there is no guarantee that there will be an upturn in the use of products and services offered online, including those designed to boost e-commerce, due to several factors, such as consumers’ lack of trust in online security. 

To complement this scenario, general income levels in Brazil are significantly lower than in the United States and other more developed countries, while prices for internet access and devices, such as personal computers, tablets, cell phones and other portable devices are higher than in these countries, which may limit the Company’s growth, especially in Brazilian regions with low income levels.  

The Company may face restrictions and fines under the terms of the Brazilian Consumer Protection Code in the future. 

Brazil has a series of consumer protection laws and regulations, jointly referred to as the Consumer Protection Code, which include protection against false and misleading advertising, protection against coercive or unfair commercial practices and protection in the making and interpretation of contracts, usually in the form of civil liabilities and administrative penalties for violations. These penalties are often enforced by the consumer protection agency (PROCON), which oversees consumer issues according to the district. Companies operating throughout Brazil may be fined by PROCON, as well as the National Consumer Secretariat (SENACON). Companies can resolve complaints made by consumers to PROCON by paying compensation for violations directly to consumers and through a mechanism that allows them to adjust their conduct, called a consent decree (Termo de Ajustamento de Conduta – TAC). Brazilian public prosecutors can also initiate investigations of alleged violations of consumer rights, and TACs are also available as a sanction in these cases. Companies that violate TACs face possible automatic fines. The Brazilian Prosecution Office can also file public-interest civil actions against companies that violate consumer rights, seeking strict compliance with consumer protection laws and compensation for any damages to consumers. If the Company faces restrictions and fines under the terms of the Brazilian Consumer Protection Code, its reputation, business, operating results, financial condition and value of its securities may be adversely affected. 

Macroeconomic Risks

The development and perception of risk in other countries or regions may adversely affect the Brazilian economy, the Company’s business and the market price of Brazilian securities, including securities issued by the Company.

The market for securities issued by Brazilian companies is influenced, to varying degrees, by economic and market conditions in other countries or regions, including the United States, the European Union and emerging countries. The reaction of investors to events in these other countries or regions may have a material adverse effect on the market value of securities of Brazilian companies, especially those traded on stock exchanges. Crises in the United States, the European Union or emerging countries may reduce investor interest in securities of Brazilian companies, including securities issued by the Company.

Stock prices at B3, for example, have historically been affected by fluctuations in interest rates in effect in the United States, as well as by changes in the main U.S. stock indices. Events in other countries and their capital markets may negatively affect the market value of the Company’s shares and may also hinder or totally prevent access to the capital markets and funding for the Company’s operations in acceptable terms in the future.

There is no guarantee that the capital market will be open to Brazilian companies or that the financing costs in that market will be advantageous to the Company. Crises in other emerging countries may restrict investor interest in bonds and securities issued by Brazilian companies (including the Company), which may reduce the Company’s liquidity and market value, in addition to making it more difficult for the Company to access capital markets and funding for the Company’s operations, in acceptable or absolute terms, in the future.

The Brazilian government’s efforts to contain inflation may slow the Brazilian economy, which may adversely affect the Company.

Brazil has faced extremely high inflation in the past. Certain government actions to curb inflation, along with speculation about possible government measures, had a significant negative impact on the Brazilian economy, contributing to economic uncertainty and increased volatility in the Brazilian securities market.

The General Price Index – Market (Índice Geral de Preços – Mercado – IGP-M) inflation index stood at 7.54% in 2018, (0.52)% in 2017 and 7.17% in 2016. Measures taken by the Brazilian government to control inflation usually included maintaining a restrictive monetary policy with high interest rates, limiting the availability of credit and reducing economic growth. One of the consequences of this fight against inflation is the significant variation in the official interest rate in Brazil, which fell from 14.14% per year on December 31, 2015 to 13.63% per year on December 31, 2016, 6.89% per year on December 31, 2017, and 6.40% per year on December 31, 2018, as established by the Central Bank. As of the date of this Reference Form, the official interest rate in Brazil was 4.5% per year. The Monetary Policy Committee (COPOM) frequently adjusts official interest rates in situations of economic uncertainty to meet the economic goals set by the Brazilian government.

Any future measures taken by the Brazilian government, including lower interest rates, intervention in the foreign exchange market and the implementation of mechanisms to adjust or determine the value of the Brazilian real, may trigger inflation, adversely affecting the overall performance of the Brazilian economy. If Brazil experiences high inflation in the future, the Company may not be able to adjust the prices it charges clients to offset the effects of inflation on its cost structure, which could increase costs and reduce the Company’s net and operating margins.

In addition, if inflation rises, the Brazilian government may choose to significantly increase official interest rates. An increase in interest rates may affect not only the cost of new loans and financing for the Company, but also the cost of its current indebtedness, as well as its cash and cash equivalents, marketable securities, financial contracts and lease-purchase agreements, which are subject to variable interest rates. Accordingly, fluctuations in interest rates and inflation in Brazil may adversely affect the Company, since it has loans and financing indexed to the variation of the CDI interbank deposit rate and the TJLP official long-term interest rate. On the other hand, a significant drop in the CDI, TJLP, or inflation rates may adversely affect the Company’s income from financial investments.

Economic and political conditions in Brazil, as well as the perception of these conditions in the international market, may adversely affect the Company.

The Company’s financial situation and operating results may be affected by economic conditions in Brazil. Future reductions in its growth rates may affect the consumption of the Company’s products and services and, consequently, may adversely affect the Company.

The Brazilian government intervenes in the country’s economy and occasionally makes changes to policies and regulations. Brazilian economic policy can have an important impact on companies and the market prices and conditions of government bonds indirectly held by the Company (through investments in low-risk fixed income investment funds). The country’s political scenario may influence the performance of the Brazilian economy and political crises may affect the confidence of investors and the public in general, resulting in an economic slowdown and increased volatility of securities issued abroad by Brazilian companies.

Accordingly, the Company’s business, operating results, financial condition and the value of its securities may be adversely affected by changes in government policies or by federal, state or municipal regulations that involve or affect the following factors: (i) political elections; (ii) monetary policy; (iii) interest rates; (iv) inflation rates; (v) liquidity in the domestic capital, loan and credit markets; (vi) export and import control; (vii) exchange rates, exchange control and restrictions on remittances abroad; (viii) energy scarcity; (ix) economic and social instability; and (x) other eventualities not listed above.

Credit rating agencies may downgrade Brazil’s risk rating, which may negatively affect the Company’s market value.

Brazil lost its investment grade status assigned by Standard & Poor’s, Moody’s and Fitch Ratings, and its credit rating has been recently downgraded by Standard & Poor’s. Thus, changes in Brazilian government policies, as well as changes in Brazil’s risk rating assigned by credit rating agencies, which are beyond the Company’s control, may increase volatility in the Brazilian capital market and have a material adverse effect on the Company and the market price of its securities.

In September 2015, Standard & Poor’s reduced Brazil’s sovereign credit rating to a lower investment grade, from “BBB-“ to “BB+”, citing, among other reasons, general instability in the Brazilian market caused by federal government interference in the economy and budget difficulties. In February 2016, Standard & Poor’s downgraded Brazil’s credit rating again, from “BB+” to “BB”, and maintained its negative outlook on the rating, citing a decline in the credit situation from the September 2015 downgrade. In January 2018, Standard & Poor’s downgraded its rating to “BB-“, with a stable outlook, given the doubts regarding the year’s presidential election and pension reform efforts. In 2019, Standard & Poor’s reaffirmed the “BB-” rating, with a stable outlook.

In December 2015, Moody’s put Brazil’s Baa3 ratings under review for a downgrade, citing negative macroeconomic trends and a deterioration in the government’s fiscal conditions. Subsequently, in February 2016, Moody’s downgraded Brazil’s ratings to below investment grade, at “Ba2” with a negative outlook, citing the prospect of further deterioration in Brazil’s debt service in a negative or low growth environment, in addition to challenging political dynamics. In 2019, Moody’s maintained Brazil’s rating and changed the outlook to stable, in the hope that the federal government would join efforts to approve necessary reforms, in particular the pension reform. Fitch also downgraded Brazil’s credit rating to “BB+” with a negative outlook in December 2015, citing the country’s rapidly growing budget deficit and worse-than-expected recession, and downgraded it again, to “BB” with negative outlook, in May 2016. This credit rating agency maintained this rating in 2017 and downgraded it to “BB-” in February 2018. As a result, the trading prices of debt securities and shares of Brazilian issuers were negatively affected. Fitch’s last rating action for Brazil was on August 1, 2018, when it reaffirmed the rating at “BB-“.

The ongoing political and legal instability has affected the Brazilian economy and the Company’s business and operating results. It may adversely affect the trading price of securities issued by the Company.

Political instability in Brazil affects the confidence of investors and the public, adversely impacting the performance of the Brazilian economy and increasing the volatility of securities issued by Brazilian companies. The Brazilian market has also experienced greater volatility due to the uncertainties resulting from ongoing investigations conducted by the Federal Police and the Federal Prosecution Office, including the Car Wash Operation, as well as the legal instability caused by the Brazilian Federal Supreme Court.

Many members of the Brazilian government and the legislative branch, as well as senior officials of large state-owned and private companies, were found guilty of corruption, the most common being bribes for contracts awarded by governments to various infrastructure, oil and gas and civil construction companies, among others. The profits from these grants were allegedly used to finance campaigns of political parties, without being accounted for or publicly disclosed, but used to promote the personal enrichment of those who benefit from corruption schemes. As a result, several politicians (including former President Mr. Luis Inácio Lula da Silva, affiliated to a left-wing party), public authorities, civil servants, congressmen and management/employees of state-owned and private companies in Brazil have been convicted in first instance, others have already been convicted in second instance and some have been convicted by the Superior Court of Justice or the Supreme Federal Court and, as a consequence, have been arrested or are in jail, and many are still being investigated for unethical and illegal behavior. The results of these investigations are uncertain, but they have already had an adverse impact on the image and reputation of the companies involved and on the general market perception of Brazil. We cannot predict whether ongoing investigations will affect the Brazilian securities market or lead to increased economic and political volatility, nor whether there will be further investigations of politicians, public officials, civil servants, congressmen and management/employees of state-owned and private companies in Brazil in the future. Also, recent decisions of the Brazilian Federal Supreme Court changed the understanding about the arrest in second instance and freed thousands of prisoners, with negative repercussions on part of the public opinion, legal insecurity, and political, economic and institutional instability. Future decisions of the Federal Supreme Court that are not aligned with the progress of political and economic reforms proposed by the federal government and actions to fight corruption and reduce crimes and bureaucracy in the economy and business can further destabilize the current macroeconomic scenario, increasing the legal insecurity currently created by the Brazilian Federal Supreme Court.

In the executive branch, former President Ms. Dilma Rouseff (affiliated to a left-wing party) was impeached and removed from office in August 2016. In October 2018, Brazilians elected federal and state representatives, two-thirds of the total number of senators, governors and the President of Brazil, and the newly elected officials took office at the beginning of 2019. After the presidential election, right-wing congressman Jair Messias Bolsonaro became President of Brazil on January 1, 2019. As this is a new administration, composed of politicians of different origins and beliefs, we cannot be sure whether these political forces formed before the election that currently support President Bolsonaro will continue to be under his influence, or whether the Bolsonaro administration will be able to implement all the intended reforms. In the Brazilian Congress, shifts in the interests of parliamentarians may affect, delay or even reject the implementation of the reform proposals put forward in the 2018 presidential campaign run by Mr. Jair Messias Bolsonaro.

Among the expected reforms, we highlight, among others, the pension plan reform, which has already been implemented, and the public security, administrative and tax reforms, which are yet to be implemented. Any failure to implement the reforms could significantly reduce overall investment in the economy and job creation, with an impact on the Brazilian securities market. In addition, the President of Brazil has the power to introduce policies and issue governmental acts related to the conduct of the Brazilian economy, and if he acts in a way that negatively influence it, the operations and financial performance of companies (including the Company) may be adversely affected.

Any change in current political forces, an impasse created by Congress or an increase in the legal insecurity of Brazilian courts may cause political unrest, massive demonstrations or strikes that could adversely affect the operations of Brazilian companies (including the Company), as well as contribute to economic and social instability and increased volatility in the Brazilian securities market, adversely affecting the Company’s business, operating results, financial condition and the value of its securities.

The Federal Government has exerted and continues to exert significant influence over the Brazilian economy. This influence, as well as the Brazilian economic and political situation, may have a material adverse effect on the Company’s activities and on the market price of its securities.

The federal government frequently intervenes in the Brazilian economy and sometimes makes significant changes to its policies and rules. The measures taken by the federal government to control inflation and implement its macroeconomic policies often lead to an increase in interest rates, changes in fiscal policies, price control, exchange rate devaluation, capital control and limitation on imports, among other measures. The Company has no control over the measures and policies that the Federal Government may adopt in the future, nor can it foresee them. The Company’s business, economic and financial condition and operating results may be significantly affected by changes in policies or rules that involve or affect the following factors: (i) interest rates; (ii) exchange controls and restrictions on remittances abroad, such as those imposed in 1989 and early 1990; (iii) monetary policy; (iv) exchange rate fluctuations; (v) regulatory environment relevant to the Company’s activities; (vi) changes in labor rules; (vii) inflation; (viii) liquidity in the domestic financial and capital markets; (ix) expansion or contraction of the Brazilian economy; (x) tax policy and changes in tax legislation; (xi) housing policy; (xii) import and export control; (xiii) social and political instability; and (xiv) other political, diplomatic, social and economic events that may occur in Brazil or affect it.

Uncertainty regarding the implementation of changes by the federal government in order to maintain stability, as well as speculation about future acts that may affect these or other factors in the future, may contribute to increasing economic uncertainty in Brazil and the volatility of the Brazilian securities market and securities issued abroad by Brazilian companies. As a result, these uncertainties and other future events in the Brazilian economy may adversely affect the Company’s business, operating results, financial condition and the value of its securities.

Exchange rate instability may have a material adverse effect on the Brazilian economy and on the Company.

The Brazilian currency fluctuates against the U.S. dollar and other foreign currencies. In the past, the federal government adopted different exchange rate regimes, including sudden devaluations, periodic mini-devaluations (the frequency of adjustments varied from daily to monthly), exchange controls, dual exchange rate markets  and a floating exchange rate system. Since 1999, Brazil has adopted a floating exchange rate system, with interventions by the Central Bank in the purchase or sale of foreign currency. From time to time, there are significant fluctuations in the exchange rate between the Brazilian real and the U.S. dollar and other currencies. For example, the Brazilian real appreciated 11.8%, 8.7% and 17.2% against the U.S. dollar in 2005, 2006 and 2007, respectively. In 2008, due to the aggravation of the global economic crisis, the real depreciated 32.0% against the dollar, to R$2.34/US$1.00 on December 31, 2008. In 2017, the Brazilian currency depreciated 1.5% against the dollar, to R$3.31/US$1.00 on December 31, 2017. More recently, in 2018, the Brazilian currency depreciated 17.1% against the dollar, to R$3.87/US$1.00 on December 31, 2018. Finally, in the nine-month period ended September 30, 2019, the dollar appreciated 7.90% against the Brazilian currency, closing the period at R$4.16/US$1.00. On November 30, 2019, the exchange rate was R$4.22/US$1.00. The real may depreciate or appreciate substantially against the U.S. dollar in the future. Exchange rate instability may have a material adverse effect on the Company. The devaluation of the real against the dollar may create inflationary pressures in Brazil and cause increases in interest rates, which could negatively affect the growth of the Brazilian economy as a whole and result in a material adverse effect on the Company. The devaluation would also reduce the value of dividends distributed in U.S. dollars and the equivalent value of the trading price of the Company’s common shares in U.S. dollars.

Social and Environmental Issues

Being a service provider, the Company understands that its activities do not pose relevant social and environmental risks.

Foreign Countries Where The Company Operates

Not applicable, since the Company does not operate in foreign countries.