Quarterly Information. Linx S.A. September 30, 2017 with Report on Interim Financial Information

Transcription

1 Quarterly Information Linx S.A. with Report on Interim Financial Information

2 Dear Shareholders, The management of Linx S.A. ( Linx, Company ) hereby submits for your consideration the Interim Financial Statements for the periods ended September 30, 2016 ( 3 rd quarter of 2016, 3Q16 ) and ( 3 rd quarter of 2017, 3Q17 ). Linx, which has been on the market for more than 30 years, is a leader in retail technologies using cloud, big data, intelligence, among other innovations, to create a broad portfolio of transactional and performance solutions, which include point of sale (POS) management software and enterprise resource planning (ERP), payments, TEF, e-commerce, CRM, mobility, retail intelligence, among many other activities. Operational and Financial Performance In 3Q17, recurring revenue reached R$135.7 million, a 13.4% increase over 3Q16 and 2.6% over 2Q17, representing 82% of gross operating revenue. This growth demonstrates the resilience of the business model based on recurring revenues, cross-sell, lock-in with the customer base and diversification of verticals, geographies and portfolio, especially considering the strong decline in the General Price Index Market (IGPM) this year. This quarter has already seen signs of improvement in the performance of our customers in general. Even though this still does not mean a resumption in the pace of opening stores, the business environment is more positive. Cross-sell continued as the main driver of organic growth. In this sense, the various new initiatives that Linx has developed, creating new markets and new customer profiles, may contribute to sustain this growth over the coming quarters. Revenue from services reached R$30.1 million in the quarter, 40.2% higher than in 3Q16. Comparatively with 2Q17, service revenue grew 32.9%. These accelerations arose mainly from Synthesis, which, focusing on large accounts, has a percentage of nonrecurring revenue higher than the average revenue of Linx. It is important to note that we have been consolidating Synthesis' profit or loss since August. Either way, we reinforce that it is Linx s strategy to continue simplifying and accelerating the implementation, customization and training processes in its customers, thus reducing the need for services and making the solutions more accessible. Migration to the cloud continues to be a key factor in this move. Currently, nearly 45% of recurring revenue comes from fully cloud-based offers. In 2013, this percentage was 30%. The combination of recurring revenues and services is reflected in gross operating revenue (GOR). In 3Q17, GOR amounted to R$165.8 million, an increase of 17.4% over 3Q16. Net operating revenue (NOR) reached R$144.6 million in 3Q17, an increase of 17.2% compared to R$123.4 million in 3Q16.

3 (R$ mil) 3T17 3T16 Δ% 2T17 Δ% 9M17 9M16 Δ% Net revenues ,2% ,8% ,8% Cost of sold services (42.335) (36.713) 15,3% (40.889) 3,5% ( ) ( ) 15,4% Gross profit ,1% ,2% ,2% Operating expenses (81.841) (69.858) 17,2% (82.539) -0,8% ( ) ( ) 17,2% General and administrative expenses (46.289) (37.521) 23,4% (49.520) -6,5% ( ) ( ) 27,5% Selling expenses (18.264) (16.244) 12,4% (16.899) 8,1% (51.730) (45.914) 12,7% Research and development (16.855) (14.795) 13,9% (14.571) 15,7% (47.406) (44.396) 6,8% Other operating expenses, net (433) (1.298) -66,6% (1.549) -72,0% (6) (3.959) -99,8% EBIT ,8% ,6% ,2% Depreciation and amortization ,4% ,0% ,0% EBITDA ,5% ,8% ,6% EBITDA margin 25,0% 25,0% 0 bps 24,3% 70 bps 25,1% 25,8% -70 bps (R$ mil) 3Q17 3Q16 Δ% 2Q17 Δ% 9M17 9M16 Δ% EBITDA ,5% ,8% ,6% Partial Earn-outs reversion - - n.a. - n.a. (2.109) (1.125) 87,5% Expenses with the move of SP and Recife branches n.a ,1% n.a. Adjusted EBITDA ,6% ,2% ,2% Adjusted EBITDA margin 25,2% 25,0% 20 bps 25,2% 0 bps 25,1% 25,6% -50 bps EBITDA reached R$36.2 million in 3Q17, an increase of 17.5% compared to R$30.8 million in 3Q16. Compared to 2Q17, EBITDA was 9.8% higher. EBITDA margin in 3Q17 was 25.0%, stable compared to the EBITDA margin in 3Q16 and 70 bps higher than in 2Q17. In this quarter, we still had a small nonrecurring expense with the move to new offices in São Paulo, in the amount of R$0.3 million. As a result, adjusted EBITDA reached R$36.5 million in 3Q17, 18.6% higher than in 3Q16 and 7.2% higher than in 2Q17. Adjusted EBITDA margin was 25.2%, 20 bps higher than in 3Q16, explained mainly by the increase in the operational efficiency in Sales and R&D. In comparison with 2Q17, the adjusted EBITDA margin remained stable. Net income was R$19.7 million in 3Q17, an increase of 9.3% compared to R$18.0 million in 3Q16. Statement of the Executive Board In compliance with the provisions set forth in the Brazilian Securities and Exchange Commission (CVM) instructions, Linx s Executive Board declares that it has discussed, reviewed and agreed with the conclusions expressed in the independent auditor s report and the annual financial statements for the year ended, authorizing their disclosure. Relationship with Independent Auditors The financial statements of the Company and its subsidiaries are audited by Ernst & Young Auditores Independentes.

4 The Company s policy of engaging services not related to external auditing seeks to assess the existence of conflict of interests, thus, the following aspects are considered: the auditor should not (i) audit their own work; (ii) perform management duties on their client and (iii) promote the interests of their client. São Paulo, November 6, The Executive Board

5 Quarterly information March 31, 2017 Contents Independent auditor s review report on interim financial information... 1 Quarterly information Statements of financial position... 3 Statements of profit or loss... 5 Statements of comprehensive income... 6 Statements of changes in equity... 7 Statements of cash flows... 8 Statements of value added Notes to quarterly information... 11

6 São Paulo Corporate Towers Av. Presidente Juscelino Kubitschek, Vila Nova Conceição São Paulo SP - Brasil Tel: ey.com.br A free translation from Portuguese into English of Independent Auditor s Review Report on Quarterly Information prepared in Brazilian currency in accordance with accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS), issued by International Accounting Standards Board - IASB Independent auditor s review report on interim financial information The Shareholders, Board of Directors and Officers Linx S.A. São Paulo - SP We have reviewed the accompanying individual and consolidated interim financial information, contained in the Quarterly Information Form (ITR) of Linx S.A. ( Company ) for the nine-month period ended, comprising the statement of financial position as at, and the related statements of profit or loss and of comprehensive income for the three- and ninemonth periods then ended and the statements of changes in equity and of cash flows for the ninemonth period then ended, including the explanatory notes. Company s Management is responsible for preparation of the individual and consolidated interim financial information in accordance with Accounting Pronouncement CPC 21 (R1) Interim Financial Reporting, issued by the Brazilian Financial Accounting Standards Board (CPC), and IAS 34 Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as for the fair presentation of this information in conformity with the rules issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the preparation of Quarterly Information (ITR). Our responsibility is to express a conclusion on this interim financial information based on our review. Scope of review We conducted our review in accordance with Brazilian and international standards on review engagements (NBC TR 2410 and ISRE Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. The scope of a review is significantly narrower than an audit conducted in accordance with Brazilian and International Standards on Auditing and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might have be identified in an audit. Therefore, we do not express an audit opinion. Conclusion on the individual and consolidated interim financial information Based on our review, nothing has come to our attention that causes us to believe that the accompanying individual and consolidated interim financial information included in the quarterly information referred to above is not prepared, in all material respects, in accordance with CPC 21 (R1) and IAS 34 applicable to the preparation of Quarterly Information (ITR), and presented consistently with the rules issued by the Brazilian Securities and Exchange Commission (CVM). 1 Uma empresa-membro da Ernst & Young Global Limited

7 Other matters Interim statements of value added We have also reviewed the individual and consolidated interim statement of value added (SVA) for the nine-month period ended, prepared under the Company responsibility, and whose presentation in the interim financial information is required by rules issued by the Brazilian Securities and Exchange Commission (CVM), and as supplementary information by the IFRS, which do not require SVA presentation. These statements have been subject to the same review procedures previously described and, based on our review, nothing has come to our attention that causes us to believe that they were not prepared, in all material respects, consistently with the overall accompanying individual and consolidated interim financial information. Prior-year audit and review of figures corresponding to the same prior-year period Figures corresponding to the three- and nine-month periods ended September 30, 2016, presented for comparison purposes, were previously reviewed by other auditors, who issued an unmodified report dated November 3, Figures corresponding to the year ended December 31, 2016, presented for comparison purposes, were previously audited by other auditors, who issued an unmodified report dated February 13, São Paulo, November 6, ERNST & YOUNG Auditores Independentes S.S. CRC-2SP034519/O-6 Emerson Pompeu Bassetti Accountant CRC-1SP251558/O-0 2

8 Statements of financial position and December 31, 2016 Company Note 09/30/ /31/ /30/ /31/2016 Assets Current assets Cash and cash equivalents Short-term investments Trade accounts receivable Inventories Taxes recoverable Related-party loans Other receivables Noncurrent assets Short-term investments Trade accounts receivable Related-party loans Other receivables Deferred tax assets Investments Property and equipment Intangible assets

9 Company Note 09/30/ /31/ /30/ /31/2016 Liabilities and equity Current liabilities Trade accounts payable Loans and financing Labor obligations Taxes and contributions payable Income and social contribution taxes Accounts payable for acquisition of subsidiaries Deferred revenue Prepaid dividends Related-party payables Other accounts payable Noncurrent liabilities Loans and financing Accounts payable for acquisition of subsidiaries Deferred tax liabilities Other accounts payable Provision for contingencies Equity 18 Capital Capital reserves Income reserves Additional dividend proposed See accompanying notes. 4

10 Statements of profit or loss Nine-month periods ended and 2016 Note Company Company Quarter Quarter YTD YTD Quarter Quarter YTD YTD 07/01/2017 to 07/01/2016 to 01/01/2017 to 01/01/2016 to 07/01/2017 to 07/01/2016 to 01/01/2017 to 01/01/2016 to 09/30/ /30/ /30/ /30/ /30/ /30/ /30/ /30/2016 Operating revenue, net Cost of services rendered (42.335) (36.713) ( ) ( ) Gross profit Operating income (expenses) General and administrative expenses 21 (307) (93) (1.146) (183) (46.288) (37.521) ( ) ( ) R&D 13/21' - (8) (3) (26) (16.855) (14.795) (47.406) (44.396) Selling expenses (18.265) (16.244) (51.730) (45.914) Equity pickup Other operating income Other operating expenses (664) (1.298) (3.457) (3.959) Income before finance income (costs), net, and taxes Finance income Finance costs 22 (225) (438) (768) (1.454) (5.927) (5.487) (17.249) (19.251) Finance income (costs), net Income before taxes Current income and social contribution taxes (122) (421) (3.321) (3.976) (8.411) Deferred income and social contribution 17 taxes (61) - (2.910) 861 (11.024) (1.598) Net income for the period Earnings per share Basic earnings per share (in reais) 0,1186 0,1205 0,4088 0,3514 Number of shares Earnings per share Diluted earnings per share (in reais) 0,1156 0,1198 0,3987 0,3490 Number of shares See accompanying notes. 5

11 Statements of comprehensive income Nine-month periods ended and 2016 Company Company Quarter Quarter YTD YTD Quarter Quarter YTD YTD 07/01/2017 to 09/30/ /01/2016 to 09/30/ /01/2017 to 09/30/ /01/2016 to 09/30/ /01/2017 to 09/30/ /01/2016 to 09/30/ /01/2017 to 09/30/ /01/2016 to 09/30/2016 Net income for the year Total comprehensive income See accompanying notes. 6

12 Statements of changes in equity and December 31, 2016 Note Capital Goodwill on capital subscription Stock option plan Treasury shares Share issue costs Total Legal reserve Retained profits Total Retained earnings Additional dividend proposed Total Balances at December 31, (24.692) Capital increase Share issue costs (10.217) (10.217) (10.217) Stock option plan Dividend payment (8.000) (8.000) Net income for the year Balances at September 30, (34.909) Capital increase Share issue costs (2.100) (2.100) (2.100) Dividend payment (17.125) - (17.125) Stock option plan Net income for the period Allocations Additional dividend proposed (18.875) Retained profits (32.501) - - Balances at December 31, (37.009) Capital increase Share issue costs (413) (413) (413) Repurchase of shares (33.887) - (33.887) (33.887) Prepaid dividends (18.875) (18.875) Interest on equity (10.000) (10.000) - - (10.000) Stock option plan Net income for the period Balances at (33.887) (37.422) See accompanying notes. 7

13 Statements of cash flows and December 31, 2016 Company Note 09/30/ /30/ /30/ /30/2016 Cash flows from operating activities Net income for the period Adjustments to reconcile profit or loss to cash and cash equivalents generated by operating activities Depreciation and amortization 12/ Equity pickup 11 (57.992) (50.267) - - Proceeds from disposal of property and equipment - and intangible assets 12/ Addition to and (reversal of) allowance for doubtful - accounts 9 - (1.532) Addition to and (reversal of) present value - adjustment Stock option plan Finance charges Deferred taxes Current taxes Provisions for contingencies Earnout (3.540) - (Income) from short-term investments 22 (1.484) (736) (47.455) (24.406) (59.414) (50.881) Changes in operating assets and liabilities: Trade accounts receivable - - (13.107) (11.687) Inventories Taxes recoverable (1.218) (860) Other receivables and judicial deposits (14.201) (13.462) Trade accounts payable (14) 109 (2.949) 332 Labor obligations Taxes and contributions payable (144) (647) (778) Deferred revenue (2.412) Other accounts payable (5.379) (2.286) Income and social contribution taxes paid (6.815) (5.377) Dividends payable Cash flow provided by (used in) operating activities (659) Cash flows from investing activities Acquisition of property and equipment - - (23.964) (10.538) Acquisition of intangible assets - - (29.498) (25.897) Acquisition of company, net of cash and cash - equivalents acquired - (37.498) - Capital increase in subsidiaries (1.500) Acquisition of company less net cash Interest on Equity (IOE) received Prepayment of dividends received (Contribution) of short-term investments 8 (40.745) ( ) ( ) ( ) Redemption of interest and short-term investments Cash flow provided by (used in) investing activities ( ) ( ) 8

14 Statements of cash flows (Continued) and December 31, 2016 Company Note 09/30/ /30/ /30/ /30/2016 Cash flows from financing activities Loan and financing inflows Payment of loans and financing 14 (8.393) - (24.257) (9.564) Finance charges paid 14 (504) - (7.576) (7.543) Payments for acquisition of subsidiaries (15.259) (20.201) Interest on equity paid (10.000) (20) (10.000) (20) Capital reserve (treasury shares) (33.887) - (33.887) - Future capital contribution Prepaid dividends - (16.000) - (16.000) Capital contribution by shareholders Goodwill on share subscription Share issue costs (414) (15.481) (414) (15.481) Dividends paid 18.4 (20.000) (8.000) (20.000) (8.000) Cash flow provided by (used in) financing activities (67.974) ( ) Increase (decrease) in cash and cash equivalents (16) (65) (9.747) Statement of increase (decrease) in cash and cash equivalents At beginning of period At end of period Increase (decrease) in cash and cash equivalents (16) (65) (9.747) See accompanying notes. 9

15 Statements of value added Nine-month periods ended and 2016 Company 09/30/ /30/ /30/ /30/2016 Revenues Sale of services and goods Other income Allowance for doubtful accounts (1.827) Bought-in inputs Cost of sales - - ( ) (25.172) Materials, electric energy, outsourced services and other operating expenses (302) (119) (20.389) (50.405) Loss and recovery of assets - - (4.956) (2.130) (302) (119) ( ) (77.707) Gross value added (302) (119) Depreciation and amortization - - (52.103) (41.037) Net value added generated by the Company (302) (119) Value added received in transfer Equity pickup Finance income Total value added payable Payment of value added Personnel Direct compensation Benefits Unemployment Compensation Fund (FGTS) Taxes, charges and contributions Federal State Local Debt remuneration Interest Rent Equity remuneration Dividend and interest on equity Retained profits See accompanying notes. 10

16 Notes to quarterly information 1. Operations Founded in 1985 and headquartered at Avenida Das Nações Unidas, 7221, 7º Andar, São Paulo city, São Paulo State, Linx S.A. ( Company or Linx ) provides ERP (Enterprise Resource Planning) and POS (Point of Sale or Point of Service) management software solutions, and provides connectivity solutions, TEF (Electronic Funds Transfer), e-commerce and CRM (Customer Relationship Management) to the retail industry in Brazil. The Company offers innovative and scalable technology, with focus upon and long-term specialization in the retail sector, its vertical model of operation, which combines its own teams in the commercial, implementation, consulting and support areas and through our differentiated business model. Linx went public on February 08, 2013 and is engaged in holding interest in other commercial or civil entities, in Brazil or abroad, as a partner, shareholder or member, representing other entities of any nature in Brazil or abroad, and managing own and third parties assets. Company s shares are listed in the Novo Mercado segment on São Paulo Stock Exchange (BM&F Bovespa), and are traded under ticker LINX3. The following are direct subsidiaries of the Company: Linx Sistemas e Consultoria Ltda. ( Linx Sistemas ): operates in the development of management software in the retail segment, rendering of technical support, advisory and training services. Linx Telecomunicações Ltda. ( Linx Telecomunicações ): operates in the rendering of telecommunications services in general, which is understood as voice, data, image and sound transmission by any means, including network and circuit services, telephony, through any systems, including the Internet. The following are indirect subsidiaries of the Company: Chaordic Corporation. ( Chaordic ): operates in the provision of online services, focusing on "search and recommendation" tools for e-commerce. Synthesis Information Technology S.R.L. ( Synthesis ): Synthesys is engaged in developing and selling POS software, solutions for electronic means of payment (TEF) and promotion engine for large retail chains in major Latin American markets. This individual and consolidated quarterly information includes information on Linx S.A., its subsidiaries, and boutique fund below: 11

17 1. Operations (Continued) Percentage of interest held 09/30/ /31/2016 Subsidiaries Linx Sistemas e Consultoria Ltda % 99.99% Linx Telecomunicações Ltda % 99.99% (*) Indirect subsidiaries Chaordic Corporation % 100,00% Synthesis Holding LLC % 0% Synthesis Information Technology S.R.L % 0% Boutique fund Retail Renda Fixa Cred Privado FI % % 2. Acquisition of subsidiaries Considerations transferred and amounts recognized in connection with assets acquired and liabilities assumed on the date all acquisitions prior to were conducted by the Company: Acquisition Date Equity interest acquired Transaction amount Restated transaction amount Amount paid through 09/30/17 Amount payable at 09/30/17 Allocation intangible assets Allocation goodwill Prior Years 12/31/ Neemu 09/03/15 100% Chaordic 09/03/15 100% Intercamp 11/07/16 100% Synthesis 08/18/17 100% (*) Goodwill allocation amount does not include the net present value of companies acquired, and therefore cannot be reconciled to Note

18 3. Corporate restructuring At a Board of Directors' meeting held on April 28, 2017, there was the approval of the merger of the net assets of Linx Gerenciamento de Redes Ltda. into Company's subsidiary Linx Sistema e Consultoria Ltda. The table below shows the net assets of Linx Redes Ltda. at book value at April 30, 2017: Assets Liabilities and equity Current assets Current liabilities Cash and cash equivalents 334 Trade accounts payable 248 Short-term investments 39,526 Loans and financing 441 Trade accounts receivable 12,201 Labor obligations 1,532 Taxes recoverable 443 Taxes and contributions payable 338 Related-party loans 39 Income and social contribution taxes 732 Other receivables 4,184 Other accounts payable ,727 3,628 Noncurrent assets Trade accounts receivable 206 Other receivables Noncurrent liabilities Investments - Equity Capital 2,010 Property and equipment 7,413 Capital reserves - Income reserves 59,052 Intangible assets 336 Additional dividend proposed 7,963 61,062 64,690 64,690 The net assets of subsidiary Linx Gerenciamento de Redes Ltda. were evaluated by experts who issued an appraisal report on company's equity at April 30, The merger of Linx Gerenciamento de Redes Ltda. did not result in capital increase or changes in Company's equity interests. 4. Business combination 4.1. Acquisition of the Synthesis Group On July 11, 2017, there was the execution of the Purchase and Sale Agreement between Linx Sistemas e Consultoria LTDA, a wholly-owned subsidiary of the Company (acquirer), and the representatives of Synthesis Holding LLC and Synthesis Information Technology S.R.L ("Synthesis Group" or acquirees), which is engaged in developing and selling POS software, solutions for electronic means of payment (TEF) and promotion engine for large retail chains in major Latin American markets. 13

19 4. Business combination (Continued) 4.1. Acquisition of the Synthesis Group (Continued) On August 18, 2017, the transaction was completed and control transferred to the acquirer with payment and transfer of all units of interest acquired in which the price agreed for the purchase of all shares was U$ 25,800,000 (twenty-five million and eight hundred thousand dollars), or approximately R$ 81,667,320 (eighty-one million, six hundred and sixty-seven thousand, three hundred and twenty reais) to be paid as follows: The amount of U$ 13,055,000 (thirteen million and fifty-five thousand dollars), equivalent to R$ 41,324,297 (forty-one million, three hundred and twenty-four thousand, two hundred and ninety-seven reais) to the original shareholders, distributed according to the number of shares held by them, which were paid in cash on August 21, 2017; The amount of U$ 3,245,000 (three million, two hundred and forty-five thousand dollars), equivalent to R$ 10,271,723 (ten million, two hundred and seventy-one thousand, seven hundred and twenty-three reais) to the original shareholders, to be distributed within 60 months under the purchase and sale agreement; The amount of U$ 2,000,000 (two million dollars) equivalent to R$ 6,330,800 (six million, three hundred and thirty thousand and eight hundred reais) if the Synthesis Group reaches certain goals in year 1 under the purchase and sale agreement; The amount of U$ 3,000,000 (three million dollars) equivalent to R$ 9,496,200 (nine million, four hundred and ninety-six thousand and two hundred reais) if the Synthesis Group reaches certain goals in year 2 under the purchase and sale agreement; The amount of U$ 4,000,000 (four million dollars) equivalent to R$ 12,661,600 (twelve million, six hundred and sixty-one thousand and six hundred reais) if the Synthesis Group reaches certain goals in year 3 under the purchase and sale agreement; The amount of up to U$ 500, (five hundred thousand dollars) equivalent to R$ 1,582,700 (one million, five hundred and eighty-two thousand and seven hundred reais) to be paid to the original shareholders through the fulfillment of established project goals under the purchase and sale agreement. Upon completion of the acquisition on August 18, 2017, the Company became the indirect controlling shareholder of the Synthesis group, obtaining 100% of the voting capital. 14

20 4. Business combination (Continued) 4.2. Identifiable assets acquired and goodwill According to IFRS 3 (R)/CPC 15 (R1) Business Combinations, business acquisitions are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated based on the sum of the fair values of transferred assets, liabilities assumed on the acquisition date from the former controlling shareholders of the acquiree and equity interests issued in exchange for control of the acquiree. The fair value of identifiable assets acquired in the business combinations were measured and recognized on the date of completion of the transaction: Fair value (preliminary): Synthesis Current assets 10,742 Cash and cash equivalents 3,827 Accounts receivable 5,104 Other current assets 1,811 Noncurrent assets 25,841 Software (*) 8,230 Customer portfolio (*) 16,335 Other noncurrent assets 1,276 Current liabilities 7,731 Trade accounts payable 1,574 Tax liabilities 1,446 Other liabilities payable 4,711 Fair value of assets acquired 36,583 Fair value of liabilities assumed 7,731 Total net identifiable assets 28,852 Acquisition price 81,667 Goodwill on transaction (52,815) (*) Surplus value of identifiable assets Assets acquired and liabilities assumed The fair value of trade accounts receivable is R$ 5,104. There was no impairment loss on trade accounts receivable, and it is expected that the contractual value can be received in full. 15

21 4. Business combination (Continued) 4.3. Assets acquired and liabilities assumed (Continued) The goodwill paid of R$ 52,815 includes future economic benefits arising from synergies from the acquisition. There is no expectation that goodwill will generate future tax benefits. Since the acquisition date, the Synthesis group has contributed to the Company with net revenues of R$ 6,541 and income before tax of R$ 2,851. On the date of completion of the preparation of this consolidated quarterly information, the Company is in the process of reviewing and adjusting the determination of the fair value of identifiable assets acquired and liabilities assumed from the Synthesis Group. It is estimated that this analysis will be completed shortly, once management has all relevant information on the facts, not exceeding the maximum period of 12 months from the acquisition date. 5. Basis of preparation 5.1. Statement of compliance The individual and consolidated quarterly information was prepared in accordance with Brazilian Financial Accounting Standards Board (CPC) technical pronouncement CPC 21 (R1) - Interim Financial Reporting, and with International Accounting Standard (IAS) 34 - Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), and is presented in line with the rules issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the preparation of Quarterly Information (ITR). Presentation of the Statement of Value Added (SVA) is required by the Brazilian Corporation Law and by accounting practices adopted in Brazil applicable to publicly-held companies. Such statement is not required for IFRS purposes. As a result, under the IFRS, said statement is presented as supplementary information, without prejudice to the overall interim financial information. Issue of this individual and consolidated interim financial information was authorized by management on November 6, Some items in the tables included in the notes to the financial statements were reclassified to allow comparability between the information for the years ended and 2016, when applicable. 16

22 5. Basis of preparation (Continued) 5.1. Statement of compliance (Continued) All material information relevant to the interim financial information, and only it, is evidenced and corresponds to that used by management in managing the Company Basis of measurement The individual and consolidated interim financial information was prepared based on historical cost (except when a different criterion was required), and adjusted to reflect measurement of assets and liabilities at fair value, or mark-to-market, when such assessments are required by the accounting standard Functional and reporting currency The individual and consolidated interim financial information is presented in Real, which is the functional currency of the Company and its subsidiaries (except for Synthesis whose functional currency is the US Dollar). All financial information presented in real was rounded to the nearest thousand, unless otherwise stated Use of estimates and judgment The preparation of individual and consolidated interim financial information in accordance with the CPC requires management to make judgments, estimates and adopt assumptions that affect the application of accounting policies and reported asset, liability, revenue and expense amounts. Actual results may differ from these estimates. Estimates and assumptions are reviewed on an ongoing basis. Reviews of accounting estimates are recognized in the period when estimates are reviewed and in any future periods affected thereby. Significant assumptions concerning sources of uncertainty in future estimates and other significant sources of estimation uncertainty at period end, involving a significant risk of causing a material adjustment to the carrying amount of assets and liabilities, are included in the following notes: Note 9 - Allowance for doubtful accounts; Note 17 - Use of tax credits. 17

23 6. Summary of significant accounting practices Accounting practices have been applied consistently to all periods presented in this individual and consolidated interim financial information. The accounting practices have been applied consistently by Company subsidiaries. This interim financial information was prepared in accordance with accounting practices in line with those adopted in the preparation of the financial statements for the year ended December 31, 2016 (Note 5 - Summary of significant accounting practices ) and shall be analyzed together with said financial statements, in addition to new pronouncements, interpretations and amendments which became effective as from January 1, 2017, as follows: IAS 7 - Statement of Cash Flows, amendments: these amendments are part of a disclosure initiative by IASB and require that the entity provide disclosures that allow financial statements users to evaluate changes in liabilities resulting from financing activities, including both changes resulting from cash flows and non-cash changes. Upon first-time adoption of this amendment, entities are not required to provide prior-period comparative information. Application of these amendments had no material impacts on the disclosure of Company's cash flows. IAS 12 - Income Taxes, amendments: these amendments clarify that an entity should consider whether the tax legislation restricts the sources of taxable profits against which it may make deductions on the reversal of this temporarily non-deductible difference. In addition, these amendments provide guidance on how an entity should determine future taxable profits, and explain the circumstances under which taxable profit may include recovery of some assets for amounts that exceed their carrying amounts. If an entity adopts these amendments for a prior period, it must disclose this fact. Application of these amendments had no material impacts on the Company's financial position. At the date this interim financial information was prepared, the following standards and amendments had been published; however, application thereof was not mandatory. The Company did not early adopt any pronouncement or interpretation issued whose application was not mandatory. IFRS 9 Financial Instruments: IFRS 9 replaces the guidance contained in IAS 39 (CPC 38) Financial Instruments: Recognition and Measurement. IFRS 9 includes new models for the classification and measurement of financial instruments and the measurement of expected credit losses from contractual and financial assets, as well as new hedge accounting requirements. This standard is effective for annual periods beginning on January 1, 2018, and the Company is evaluating the content and possible impacts of adopting this pronouncement. Until the date of disclosure of this interim financial information, the Company had not completed the identification of standard effects, making it impossible for us to disclose any possible effects that may arise from the application of the pronouncement. 18

24 6. Summary of significant accounting practices (Continued) IFRS 15 - Revenue from Contracts with Customers: IFRS 15 introduces a comprehensive structure to determine if and when revenue is recognized and how it is measured, which is defined in five steps to be applied to revenue arising from contracts with customers. IFRS 15 replaces the current standards for the recognition of revenue, including CPC 30 (IAS 18) Revenue, CPC 17 (IAS 11) Construction Contracts and CPC 30 Interpretation A (IFRIC 13) Customer Loyalty Programs. This standard is effective for annual periods beginning on January 1, 2018, and the Company is evaluating the content and possible impacts of adopting this pronouncement. Until the date of disclosure of this interim financial information, the Company had not completed the identification of standard effects, making it impossible for us to disclose any possible effects that may arise from the application of the pronouncement. IFRS 16 Leases: IFRS 16 was issued in January 2016 and replaces IAS 17 Leases, unifying the accounting treatment of operating and finance leases to the model similar to finance lease with impact on PE and financial liabilities. This standard is effective for annual periods beginning on January 1, 2019, and the Company is evaluating the content and possible impacts of adopting this pronouncement. Until the date of disclosure of this interim financial information, the Company had not completed the identification of standard effects, making it impossible for us to disclose any possible effects that may arise from the application of the pronouncement. In management's opinion, there are no other standards and interpretations issued and not yet adopted that may have significant impact on the net income or equity disclosed by the Company. 7. Cash and cash equivalents Company 09/30/ /31/ /30/ /31/2016 Cash and banks ,148 2,499 Short-term investments ,800 4, ,948 7,227 Highly-liquid short-term investments are readily convertible in a known amount of cash, and are subject to an insignificant risk of change in value. 19

25 7. Cash and cash equivalents (Continued) These substantially refer to fixed-income funds bearing interest of % of the Interbank Deposit Certificate (CDI). Exposure of the Company and its subsidiaries to risk and a sensitivity analysis are disclosed in Note Short-term investments Type Name Investment date Maturity Company Average remuneration rate in relation to CDI (%) 09/30/ /31/ /30/ /31/2016 Fund Retail - Private Fixed- Income Credit 02/14/2013 Indefinite % 6,143 31, , ,185 LF Book-entry financial bill 10/13/ /15/ % ,615 19,036 6,143 31, , ,221 Investment fund breakdown is as follows: Current 6,143 31, , ,185 Noncurrent ,615 19,036 6,143 31, , ,221 Type Code Investment date Issue Maturity Number of units Index Investment amount 12/31/2016 Net amount Fixed income CDBLA 11/29/ /29/ /09/2017 4,715 CDI D 101% 4,715 4,771 Fixed income DEBLA 02/25/ /25/ /22/ ,188 CDI D 101.5% 7,588 8,503 Fixed income LF 12/11/2014 to 10/26/15 12/11/2014 to 10/26/15 12/11/2017 to 10/26/ CDI and CDI D 108% 98, ,276 Fixed income LFS 02/15/ /16/ /15/ CDI D 111% 8,453 13,734 Fixed income LFSFC 02/15/13 to 12/01/15 03/30/11 to 05/16/12 03/30/17 to 05/15/ CDI and CDI D112% 11,289 11,245 Fixed income LFT 03/27/15 to 09/30/16 07/01/00 to 01/11/ /01/18 to 09/01/ ,714 LFT 142, ,202 Fixed income PRE 12/30/ /30/ /15/ ,256 PRE A.A 160, ,155 Investment fund Other funds , , ,359 Fixed income LF - 10/13/ /15/ CDI 103.7% 19,120 19, ,281 Fund expenses (64) Balance in treasury 4 658,221 20

26 8. Short-term investments (Continued) Type Code Investment date Issue Maturity Number of units Index Investment amount 09/30/2017 Net amount Fixed income DEBLA 02/25/ /25/ /22/ ,188 CDI D 102.0% 7,588 9,202 Fixed income LF 12/11/2014 to 11/29/ /11/2014 to 11/29/ /11/2017 to 04/22/ CDI and CDI D % 73,800 83,195 Fixed income LFS 02/15/ /16/ /15/ CDI D 111% 8,453 14,907 Fixed income LFSFC 02/15/ /12/2012 to 05/16/ /11/2018 to 05/15/ CDI and CDI D112% 6,058 6,197 Fixed income LFT 03/27/2015 to 09/18/ /01/2000 to 01/11/ /01/2018 to 09/01/ ,005 LFT 80,631 91,244 Fixed income PRE 09/29/ /29/ /15/ ,643 PRE A.A 171, ,151 Investment fund Other funds - 744, , ,449 Fixed income LF - 10/13/ /15/ CDI 103.7% 20,615 20, ,960 Fund expenses (54) Balance in treasury - 552,906 Management uses these funds solely for specific payments, such as acquisitions of companies and payment of IOE. These funds are not used to meet operating cash flow needs. Exposure of the Company and its subsidiaries to risk and a sensitivity analysis are disclosed in Note Trade accounts receivable 09/30/ /31/2016 Trade bills receivable: Falling due 107,064 90,213 Overdue (a) 23,081 21, , ,934 (-) Allowance for doubtful accounts (1,083) (2,615) (-) Present value adjustments (677) (255) 128, ,064 Current 124, ,290 Noncurrent 3,618 1,774 (a) Breakdown of overdue receivables is as follows: 09/30/ /31/2016 From 1 to 30 days 9,106 7,405 From 31 to 60 days 2,869 4,360 From 61 to 90 days 2,727 2,389 From 91 to 180 days 4,618 3,612 Over 181 days 3,761 3,955 23,081 21,721 21

27 9. Trade accounts receivable (Continued) The Company and its subsidiaries set up an allowance for doubtful accounts for receivables overdue for more than 180 days, which basically represents historical losses, checks bounced and trade bills under discussion in court. We adopted the criterion to deduct amounts referring to unidentified deposits received for over 180 days (R$2,025 and R$1,340 at and December 31, 2016, respectively). Changes in this allowance, in consolidated, are as follows: 09/30/ /31/2016 Changes in ADA map Opening balance (2,615) (2,996) Addition to allowance (2,801) (3,637) Use/reversal 4,333 4,018 Closing balance (1,083) (2,615) 10. Related parties Statement of financial position balances Assets - Trade accounts receivable Company 09/30/ /31/2016 Current Noncurrent Current Noncurrent Linx Sistemas e Consultoria Ltda. 5,705-11,343 2,812 5,705-11,343 2,812 Liabilities Other accounts payable Company 09/30/ /31/2016 Current Noncurrent Current Noncurrent Linx Sistemas e Consultoria Ltda Related-party balances substantially refer to a loan restated by reference to the Long-term interest rate (TJLP), plus 1% to 1.5% p.a., in addition to transfer of expenses. Loan balance will be received from April 2014 to March

28 10. Related parties (Continued) Statement of financial position balances (Continued) At, the Company had an outstanding loan amounting to R$106,714 (R$130,767 at December 31, 2016) taken out from its shareholder (BNDES), as mentioned in Note 14. Related-party transactions are carried out in the ordinary course the Company s business, and under conditions agreed by the parties. At, no impairment provision was necessary (allowance for doubtful accounts) involving related-party transactions Key management personnel compensation Total key management personnel compensation (five and five management members in 2017 and 2016, respectively) for the quarters ended and 2016 was as follows: 09/30/ /30/2016 Short-term employee benefits Management fees payment 7,770 4,895 Share-based payments 1,321 1,617 9,091 6, Profit or loss For the period ended, there were some shared expenses amounting to R$ 9,022 (R$ 7,163 at September 30, 2016), and finance costs referring to interest on loans amounting to R$ 592 (R$ 1,377 at September 30, 2016). 11. Investments Investments in direct subsidiaries Company 09/30/ /31/2016 Linx Sistemas e Consultoria Ltda. 1,166,051 1,070,023 Linx Serviços de Gerenciamento de Redes Ltda. (*) - 49,135 Linx Telecomunicações Ltda. 6,662 4,562 1,172,713 1,123,720 (*) Linx Serviços de Gerenciamento de Redes Ltda. was merged into Linx Sistemas e Consultoria Ltda. at April 30,

29 11. Investments (Continued) Information on direct subsidiaries December 31, 2016 Linx Sistemas Linx Gerenciamento de Redes Linx Telecomunica- -ções Total Interest 99.99% 99.99% 99.99% Current assets 737,951 46,151 5, ,736 Noncurrent assets 656,398 8, ,609 Total assets 1,394,349 54,283 5,713 1,454,345 Current liabilities 111,354 5,148 1, ,653 Noncurrent liabilities 212, ,971 Total liabilities 324,325 5,148 1, ,624 Equity 1,070,024 49,135 4,562 1,123,721 Revenues 529,231 68,725 13, ,114 Expenses (498,538) (36,416) (12,077) (547,031) Profit or loss 30,693 32,309 1,081 64,083 Linx Sistemas Linx Gerenciamento de Redes (*) Linx Telecomunicações Total Interest 99.99% 99.99% Current assets 765,111-7, ,347 Noncurrent assets 758, ,198 Total assets 1,523,158-7,387 1,530,545 Current liabilities 165, ,730 Noncurrent liabilities 192, ,102 Total liabilities 357, ,832 Equity 1,166,051-6,662 1,172,713 Revenues 487,228 26,198 11, ,537 Expenses (441,764) (14,271) (10,510) (466,545) Profit or loss 45,464 11, ,992 (*) It comprises the consolidated profit or loss of Linx Gerenciamento de Redes for the period from 01/01/2017 to 04/30/

30 11. Investments (Continued) Changes in investments Linx Sistemas Linx Redes Linx Telecomunica- -ções Total Investment balance at December 31, ,097 16,826 3, ,404 Equity pickup 30,693 32,309 1,081 64,083 Capital increase 405, ,000 Stock option plan 3, ,233 Investment balance at December 31, ,070,023 49,135 4,562 1,123,720 Equity pickup 45,465 11, ,992 Capital increase - - 1,500 1,500 Stock option plan 1, ,501 Merger balance (Note 3) 61,062 (61,062) - - Payment of dividends (12,000) - - (12,000) Investment balance at September 30, ,166,051-6,662 1,172, Property and equipment Balance at 12/31/2015 Additions Depreciation Write-offs Transfers Balance at 09/30/2016 Computers and electronic devices 7,608 2,336 (2,109) (22) (9) 7,804 Vehicles 5, (1,322) (90) - 4,329 Furniture and fixtures 3, (453) (43) 1 4,114 Facilities, machinery and equipment 15,127 3,947 (1,573) (22) 8 17,487 Leasehold improvements 11,926 2,867 (1,256) (1) - 13,536 Buildings 3,061 - (89) - - 2,972 Other components 1, ,006 Total 47,691 10,537 (6,802) (178) - 51,248 25

31 12. Property and equipment (Continued) Balance at 12/31/2016 Additions Addition for acquisition Depreciation Write-offs Transfers Balance at 09/30/2017 Computers and electronic devices 8,251 1, (2,273) (22) 1,819 9,746 Vehicles 4, (1,185) (326) - 3,735 Furniture and fixtures 4, (551) (16) 3,518 8,311 Facilities, machinery and equipment 17,297 1, (2,075) (6) 3,205 20,618 Construction in progress - 18, (300) (17,820) - Leasehold improvements 13,128 1, (5,640) (135) 9,278 18,058 Buildings 2, (95) - - 2,846 Other components 1, ,006 Total 51,258 25, (11,819) (805) - 64,320 The annual depreciation rates are shown below: Computers and electronic devices 20% Vehicles 20% Furniture and fixtures 10% Facilities, machinery and equipment 10% Leasehold improvements 10% Buildings 4% Additions to accumulated depreciation, stated in changes for the period, were recorded under Operating, general and administrative expenses. 13. Intangible assets Balance at 12/31/2015 Additions Amortization Write-offs Transfers Balance at 09/30/2016 Software 13,869 5,136 (3,520) ,982 Software development 893 5, ,042 Software developed 27,084 14,923 (13,401) ,606 Software development - capitalized interest 1, (526) - - 1,533 Trademarks acquired 44,994 - (721) ,273 Technology - acquisitions 35, (8,712) - (970) 26,404 Customer portfolio - acquisitions 73,474 - (7,355) - (2,360) 63,759 Non-competition agreement - acquisitions Goodwill 373, , ,621 Other Total 571,561 25,897 (34,235) ,223 26