Good morning. You're welcome to our results conference for the third quarter of 2022. I am Sérgio Sério, Head of IR, and here with me today we have our CEO, Gilsomar Maia, our CFO, Alexandre Apendino, and our VP of services and relationship. We will make our presentation based on the most important highlights and then proceed to the Q&A session. To ask questions live, please press the raise hand button in the lower Zoom bar. If you prefer to ask in writing, please use the Q&A button. Before proceeding, we would like to clarify that any statements that may be made during this video conference regarding TOTVS business prospects, projections, and operations and financial goals, constitute beliefs and assumptions of the company's executive board, as well as information currently available.
Future considerations are not a guarantee of performance, and they involve risk, uncertainties, and assumptions as they refer to future events and therefore depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions, and other operating factors may affect TOTVS's future performance and lead to results that differ materially from those expressed in such future considerations. I now turn over to Dennis, who will start the presentation from slide one.
Thank you, Sérgio, and good morning to those joining this video conference. I hope you're all doing well. I want to start by noting that we have exceeded BRL 1 billion of net revenue in the quarter, and almost BRL 1 billion of consolidated EBITDA in the last 12 months. Striking numbers for our history. This result reflects the rare balance between growth and profitability of the company's business model.
On the revenue side, growth of 26 year-over-year was once again driven by the combination of strong growth in the three dimensions. In profitability, in addition to closing the quarter with an increase of 100 basis points in the EBITDA margins, the cash profit reached BRL 169 billion in the quarter, growing 52% year-over-year, and net operating cash generation advanced 64% quarter-over-quarter, reaching BRL 303 million. The unique combination of a loyal and satisfied customer base, an engaged and happy team, an innovative strategy, and a winning culture are largely responsible for this performance. I therefore take this opportunity to thank each and every one of those who are part of this journey with us. Our history is marked by innovation and pioneering spirit.
Our way of thinking directly reflects TOTVS' way, being the same while being different at all times. From the TOTVS franchise system, going through the first technology IPO, to the first acquisitions, we have never stopped leading and taking advantage of the fact that our global and intergalactic headquarters are located in Brazil, giving our touch of innovation. In recent years, we developed another series of innovations. The 3D ecosystem is a unique strategy, as well as the value proposition to help SMB improve its results through technology, and thus become trusted advisors to our customers. TOTVS is the first management software company in the world to develop this strategy. We are very proud of this pioneering spirit, and we will remain the same while being different at all times. Moving on now to the main highlights of the quarter.
In revenues on slide five, the year-over-year growth of 28% in recurring revenue from management, driven again by SaaS revenue, which grew 38%. The acceleration of year-over-year growth in net revenue from business performance to 33%, also highlighting the 34% growth in recurring revenue. The TechFin funding net revenue of 51% year-over-year and 40% quarter-over-quarter. As shown in the graph to the right of the slide, the behavior of the business performance and TechFin dimensions, combined to the management SaaS, represented 44% of total revenue in the third quarter, and approximately 60% of revenue growth year-over-year. As shown in slide six, this revenue result was once again followed by advances in profitability, with highlights for the 33% increase in EBITDA when compared to the third quarter of 2021.
This performance was driven by the 115% increase in TechFin EBITDA, the 43% increase in the business performance contribution margin, and the 29% increase in consolidated EBITDA of management and business performance. It is also worth highlighting, number one, the conversion of adjusted EBITDA into operating cash generation, reaching 164% in the period. As noted in the graph to the right of the slide, the advance in cash profit, which ended the quarter with a margin of 16.1%, 303 basis points higher than when compared to the same period last year. I will now turn over to Apendino to comment on our results of the management dimension on slide eight.
Thank you, Dennis. Good morning to everyone watching us this morning.
In the management dimension, net revenue grew 24% year-over-year. The highlight here is the 28% growth in recurring revenue, again driven by SaaS revenue, which broke the BRL 300 million mark, 38% year-over-year. This advance in SaaS was mainly due to the growth of 34% of new signatures and 47% of cloud. When we annualize SaaS revenue, we have already reached close to BRL 1.2 billion. In other words, if SaaS Zista or SaaS Management were a company, it would be the second-largest software company in Brazil. Only behind TOTVS itself and growing 38%. As you can see on the right side, volume, the volume component went from 7% in the previous quarter to 75% of the gross ARR addition in the last twelve months.
This increase in volume's relevance is directly linked to the reduction in inflation rates and the maintenance of the lowest annual churn level we have ever reached. Important to remember that if inflation continues to fall, it is only natural that we can have a nominal reduction in the net addition of ARR. Consequently, the increase in relevance of the volume versus price component. Now, in slide nine, we bring the three main components that have contributed to this increase in sales volume. The potential software market, as already mentioned in other opportunities, is a market that is still far from maturity. Furthermore, we continue to expand our portfolio to increasingly enlarge the take rate and strengthen our cross-sell.
The acquisition of Feedz is an example of the expansion of our portfolio solutions aimed at human capital, consolidating TOTVS as a platform capable of meeting the needs of our customers digitally in an integrated way. The same can be said about Zista, which has an enormous cross-sell potential at the base with its cash and treasury management solution. Another example is the leverage of our Pix solution within multiple payment solutions in various segments. Today, thousands of companies use the TOTVS instant payment solution that has already processed almost half a billion BRL in volume, TPV, in the last quarter. 10 times more than the third quarter of 2021. In the distribution platform, we have a presence in the most economically relevant cities. Recurrence-oriented business incentives based on what we call recurring revenue and expansion of new systems in all units.
Distribution channels see the potential of new dimension offerings such as Digital Commerce and RD Station. The strengthening of the distribution platforms begins a transformation into a single player in SMB due to the broad and differentiated portfolio. This is a way without return. The last component is linked to the reduction of the total cost bonus. Of these and other factors have added ARR volume more than doubled actually year after year. Moving on to slide 10, the management contribution margin reached the level of BRL 476 million in the third quarter, driven by the consistent growth of recurring revenue, as I mentioned earlier. The slight increase in the contribution margin on the revenue from management is linked especially to investments in cloud and impacts of collective agreements on the operations of Belo Horizonte, Rio de Janeiro, and Recife.
I now turn over to Maia, who will comment on the results of the Business Performance and TechFin dimensions from slide 11. Business Performance.
Thank you, Apendino. Good morning, everyone. In the Business Performance dimension, we've had new advances in revenue and gross margin. The net revenue in the dimension went from a year-over-year growth of 30%-
In the second quarter to 33% in the third quarter. Quarter-over-quarter, revenue grew 10% compared to 8.2% in the second quarter. This was due to recurring revenue, which grew 34% year-over-year, representing 98% of the revenue of the dimension. This growth is essentially related to advances in sales volume, which have been observed at the RD Station over the last few quarters. The ARR of Business Performance exceeded BRL 330 million in the quarter, an increase of 31% over the third quarter of 2021, and 8.2% over the second quarter this year. With the net addition of BRL 19 million organic and another BRL 6 million inorganic related to the acquisition of Tallos, as seen in the middle of the slide.
The lower net addition of organic ARR compared to the second quarter mainly reflects the performance of the new signatures, which brings more volatility. We continued advancing in entry level and cross-selling of CRM in RD's customer base. It's worth mentioning that with Tallos conversational commerce solution, a cross-selling path in CX, customer experience, is also open, which is one of the three sub-segments of the dimension along with digital marketing and digital sales. Another element worth mentioning is the evolution of the annualized GMV of the digital commerce offer, which has already reached the level of BRL 400 million, representing an increase of 103% over the same period of this last year.
Even though it is a dimension focused on growth, we will continue to seek a healthy balance between growth and profitability, which can be seen on slide 12 in the contribution margin, which reached 50.8%, representing 3.6 percentage points above the third quarter of 2021, and only 2.6 percentage points below the management dimension. Demonstrating the scalability of this business even if the size of the Brazilian market is still at an early stage of maturity. This profitability performance is the result of revenue growth and cost management efficiency, especially in the optimization of the cloud structure, as already mentioned in the previous quarters. Moving on to the third dimension, TechFin, on slide 13.
The EBITDA, the revenue net of funding grew 51% year-on-year, and this was mainly because of the increase in the contribution margin, but also the revenue, a consequence of the reduction in the remuneration of the senior quota of FIDC as of August. Credit production reached a historic quarterly record of BRL 2.9 billion, driven by the greater seasonal participation of agribusiness, which contributed to the increase of 0.5 days in the average term of credit. Over the last 12 months, the production of credit reached BRL 10.7 billion, as shown in the chart to the right of the slide.
In addition to the resolution of the chains served by the supplier, part of this growth has occurred through cross-selling of the product, Mais Negócios, More Businesses, with TOTVS customers representing 59% of Mais Negócios prospects affiliates and 57% of the affiliates implemented in the quarter. Showing the cross-selling potential of this solution in TOTVS management's client base, as shown in the charts. In the bottom middle of the slide, the increase in production has not been fully reflected in the increase in the credit portfolio, as the seasonal production of agribusiness is concentrated in the months of August and September, and will probably have more impact on the credit portfolio in the fourth quarter.
Now when we look at the bottom left chart of the slide, we observe that the default rate above 90 days showed a lower increase than the market average in the same rate. We see that the aging of the delinquencies was higher in quarter one, which was duly addressed by the suppliers team in adjustment credit rating criteria. To conclude the TechFin comments on slide 13, we move on to the contribution margin, which ended the quarter at 67%, showing an improvement at 3.9 percentage points.
Over the past quarter and 15.5 percentage points over quarter one. This new quarter-on-quarter increase was mainly due to 40% increase in net revenue from funding and the consequent dilution of operating costs allowed by this business model. I will now turn the presentation to Dennis so that he can comment on our ESG actions, starting on slide 16.
Thank you, Gilsomar Maia. When we speak of social issues, the Instituto de Oportunidade Social or IOS, founded in 1998 by TOTVS, was ranked among the world 200 top SGOs prepared by The Dot Good, a Swiss media organization which evaluates the social organizations with the best practices in innovation, impact, and governance. As for governance, TOTVS won for the second consecutive year the ANEFAC Transparency Trophy, an award given to the companies that present the best financial disclosures.
I would like to take this opportunity to thank the whole team involved in these achievements. Moving on to slide 17 for our final message. These were our main achievements. Management, we continue with the continuous growth of recurring revenue driven by the powerful combination of new signings of SaaS, cloud and low churn business performance. We continue to advance with a focus on growth without losing a good balance with profitability. In TechFin, we have a positive seasonality in credit production associated with the low growth of the Selic rate in the period. It's also important to inform that our joint venture with Itaú has been approved by the Brazilian agency CADE without any restrictions, and has also been approved by the Brazilian Central Bank. TOTVS is a unique company. We have a robust balance sheet, cash generation, market leadership, and a DNA of innovation and pioneering spirit.
Our way of thinking, to be the same, always being different, is not just a sentence. It's represent a culture that governs our actions and our ecosystem. It's what drives us and motivates us to continue evolving. As proof of this recognition we have received for the third consecutive year, the award of the Brazilian software company that does the most in open innovation with startups by the ranking 100 Open Startups. This is a recognition of the work done by iDexo, TOTVS, in the open innovation front to increase connection between startups and our ecosystem. At TOTVS, we remain optimistic and confident in Brazil and Brazilians. We believe more than ever in the Brazil that makes things happen. We are now open for the Q&A session, which will be conducted by Sérgio Sério.
Okay, I explained in the beginning, those of you that wish to ask a question, please click on the Raise Hand button here on Zoom, or you can use the Q&A button for written questions, and we will answer as many questions as we can here on the call, or we will answer them in the future through our investor relations team. Leonardo, the floor is open for your first question.
Leonardo speaking. Thank you very much. I really enjoyed this new video conference format. I have two questions. One is the core business of management. You showed another quarter of consistent growth, with a decrease in ARR, which was expected due to the inflation. I want to see the matter of volume increase for the following quarters. Is there a segment that can grow these sales? That is my first question.
My second question is the business performance segment. You had a strong acceleration in RD. I would like to understand if this growth is more from a stand-alone perspective or if there's a synergy with revenue.
Thank you, Leonardo, for your question, and thank you for the compliment on this format. We are really enjoying it as well. We think it's more interactive. I am going to start answering your question, and the others may jump in at any moment. As for the ARR, as we've mentioned before, it is still the case that the evolution is well distributed. Every quarter you have a segment that is a bit higher than the rest, but with few exceptions, all our segments are progressing well.
Maybe in the beginning of last year, throughout 2021, we had some that were a bit slower because of the pandemic, especially micro and small businesses. Even these segments have showed a very good growth rate this year. In terms of segment, I would say that there's no perspective for a certain segment to be the main driver. We think that's positive because it allows for better distribution and sustainability of this acceleration. I think it's worth mentioning two other things. The first is to reinforce the issue of inflation. Inflation is going down. In this first quarter, we've had, I think, two months of disinflation, so it's natural and healthy for the inflation rate to go down, and so our expansion rate and nominal ARR will decrease as well and volume will increase.
The other comment that I would like to make is about the visibility that we like to give. Regarding the closing of the third quarter, we had the Brazilian elections happening at the change of the quarter, which is very important for the closing of deals. We know that many clients wait until the last week or even the last day to close deals, and so we had this first election happening precisely at the turn of the quarter. Certainly had an impact. We believe that larger deals may have been pushed forward. That's an important message for us to say that although we had a very good ARR in this third quarter, especially with regard to volume.
This last month, which is usually the strongest month in the quarter, we had the impact of the elections, and it was not as great as we imagined. It was not a brilliant month, although it was a good month. We still will have to see what is the impact of the fact that the elections fell on the last day of the third quarter. As for your second question regarding RD's acceleration, I would say that the increase with this cross-sell effort and the client base is so small. RD has a very relevant ARR base. I would say that there's not a significant contribution of this cross-sell yet. That's actually good.
It shows that even in the standalone aspect, RD is still performing in a very positive and healthy manner, and we have this opportunity throughout the next months and years to build an additional path to growth through these cross-sell with our management bases. Okay, thank you. That's very clear.
Next question, Marcelo Santos, JP Morgan.
Good morning. Thank you for the opportunity for these questions. I would like to speak about franchise consolidation. There was a strong movement in this sense. How much have you captured of the gains? How much is the system operating in what is considered an ideal efficiency? And there's a slide that you speak of total cost of ownership. You said that 90% of implementations were virtual. Can you give an idea how much a client spends to implement TOTVS?
Not the financial value, but how this compares to 10 or five years ago. Now they're spending 80% or 70% of what they were spending given these improvements. Okay. Thank you for your question. As for the consolidation of the franchises, that's a continuous process. We've had major advance in this consolidation process last year, and there was opportunity for us to explore that expansion, and we are still reaping the gains. This is a more sophisticated channel, more robust financially, so we are certainly reaping the benefits. As we've mentioned, we are opening offices in smaller cities where there's a lot of economic potential and less competition, so it's still an ongoing process. We have regions that are gaining a lot from this consolidation, so it's an ongoing process.
We still have some consolidations to do, small ones. But all of this sophistication and this model still have gains that will appear in the future, now that we're going to these operations that weren't as sophisticated. Maia, do you have anything to add? Dennis? Let me just add a question. When you speak of opening offices, are those your own offices?
No. These are offices to be opened by the franchises. In smaller cities with about 200,000, 150,000 residents, Brazil is very huge country. Sometimes it takes about 1,500 kilometers to reach an economically active city. Our franchisees have the economic capacity to open these offices. They use the TOTVS name. They are exclusive. They represent TOTVS in that region. In Brazil, personal relationship is very important. That's why it's key to have these franchise offices in these smaller cities and these other geographies. Yes, of course. This allows us to scale this expansion to smaller cities. It's not just one structure, but several different structures that are spread throughout the whole country. It's important for us not to have the direct risk of this investment.
This risk is taken by the franchisors. Once again, this makes it easier for us when expanding. This is something that other companies can't do most of the time. Can I move on to the second question, Marcelo? The second question is something that Sérgio poked me about yesterday. He wanted me to include numbers in the report. We have evolved a lot in this direction in terms of implementation cost reduction. We keep the low TCO, which is important and fast, which are easy to onboard and to exchange. The suite of solutions that add value combined to a faster implementation, that's something that we've been developing over the years. This advance we obtained in the remote implementation was magic to us. It was really wonderful.
We have a solution A and then a solution B, and the excellence center gains productivity year over year. We have products and services. As I commented, this is a long-term journey, and we've been improving. It will be cheaper, more accessible, and we can take more innovation, more recurring revenue, and not only the implementation revenue. In the past, we had this division. In our operations as opposed to the operations of other technology companies, sales and services walk side by side. This provides synergism and makes a lot of difference. Well, Marcelo, anyway, I'm going to give you an idea of numbers. We're saying that if we can standardize the way we look at things, which is very difficult because we have different segments, client size and so on and so forth.
If we could standardize it more, I would say that in the past year, we had a reduction of about 50% in terms of the implementation cost, combining all of the elements that Apendino mentioned. Be it by means of a simpler product or a more simplified product or a more standardized implementation technology, which is more product-based and also remote implementation. With that, the cost of transportation is significantly lower. Always keeping in mind that Brazil is a huge country. All of these elements combined, they lead to a decrease of about 50% for our average client in terms of implementation.
Well, that's perfect and very clear. Thank you very much.
Okay, let's move to the next question. We now have a question from Leonardo Olmos in UBS. I have opened your audio.
Well, good morning, everyone. I have two questions. The first one is about Management and the other one about TechFin. The first question, we've seen that ARR was very strong even though we had a deflation in two months. But the conversion of ARR into recurring revenue was a little bit worse than what we expected. I know that this does not change much in the medium term, this conversion of revenue. Will it go back to the previous pace, or shall we project something different? This is question number one. The second question is about TechFin. In the third quarter, as Dennis mentioned, there was a seasonal impact, but it was a lot stronger than what we expected. Taking into account that, what we're having from Itaú in the next quarters, what should we expect?
The growth has been very strong with TOTVS and standalone, but are we going to have another increase in terms of margins? Also, could you update us on the approval of the JV? Can you start and I will wrap up? Well, regarding the conversion of ARR into recurring revenue, I don't see any significant changes for the half of the year looking ahead. I would not look at the third quarter as a proxy for the other quarters. In general, we always look at a 12-month period because it helps us normalize certain behaviors, and it also allows us to remove these ups and downs which happen. In the second quarter, it may capture one side more than the other side. In terms of credit production, the credit production was very strong indeed. We had already commented about this.
The evolution of the first to the second quarter is not usually very strong. For the third quarter, it was very strong in terms of production. In terms of Itaú, it provides us a guarantee of availability. It also brings in expertise. It's a bank with a large tradition and experience. It also provides us with commercial capacity. Our commercial capacity has been confirmed in terms of management and software. We still have a lot to develop and improve, and having Itaú as a partner will undoubtedly add a lot to us in terms of how we can have a more effective business approach.
The only thing I'd add here, Maia, is that an essential aspect of Itaú is the fact that we're going to have the largest financial cluster in Latin America, which will allow us, as a tech supplier, to transform the business, potentially at least. Of course, we're going to work in that direction. It's not a promise, but we will make our efforts that this aspect will be larger even than the supplier. The supplier itself will have the advantage of accessible funding, inexpensive, which is available and practically unlimited, which in itself is already very valuable. We will have the support of expertise of people. Much more important than the benefit that we're going to have will be the potential benefit that the TechFin ecosystem will have.
This benefit and this potential, as I've mentioned, is something that we are very careful about because we do not want to generate undue expectations at inappropriate times. If there is something that can be radically changed with the arrival of Itaú, it's TechFin ecosystem.
I'd like to add and reinforce something important in terms of suppliers. We have shared it with the market. When you evaluate the seasonal behavior, you're analyzing the historical behavior. In the release, we share it with you. If you look at the curve for this year, you can see that it mirrors 2019 and 2018. In 2020, we had COVID, and then 2021 we had a recovery. We are resuming our historical behavior. Well, I think that this is the last part of Leo's question. We had the approval of CADE on November 1. The process is now under the evaluation of the central bank. The process is moving as expected. It's very difficult for us to have a prognosis. If it is the other way around, we will continue pursuing all of the approval expansions. This is as expected.
Well, anyway, the approval by CADE without any restrictions gives us some freedom. Even though we haven't closed the deal yet, it already allows us to plan and discuss, which is quite significant. I wanted to share this message with you that since the approval by CADE, we have intensified and accelerated this activity. We are really working hard to prepare the company and all of the structures for this moment when we are ready to close and move on.
Okay, that was very clear, and I'd like to compliment the disclosure, so congratulations on your work. Next question, Fred, Bank of America. The floor is yours. Good morning, everyone. I have two questions. One is actually a follow-up from Marcelo's questions. I'd like to understand the minimum revenue of clients in management, and also how this has evolved over the past two, three years. We always wonder how it's growing, how management is growing so much to understand. Now regarding to distribution, if you can speak a little bit of the difficulty of placing a new product. I think it's easier for them to sell RD, which they've been selling for many years. When they look at the cross-selling opportunities, where do you believe are the main opportunities? Is it with the CRM? Is it in TechFin?
This view of those that are on the floor dealing with this day to day.
Well, I think Gino is someone that does CrossFit, so he's really fit to answer all your questions. I had to make this joke here with Gino. Going to your question regarding the average revenue. First, I'd like to thank you, Fred, for this question. I would say that the minimum revenue, when we speak of RD, I would say it's about BRL 1,500 per month. Below that we can't sell. It just doesn't add up, and the salesperson doesn't have the proper incentive to sell that to the client. I would say that it's about BRL 1,500 is the minimum. When we compared that in today's currency would be around BRL 3,000-3,500 about three years ago.
As for the reduction of the implementation costs that I mentioned in Marcelo's question, it also applies here when we speak of the RD product to clients. This is game-changing for us because
It opens a whole avenue of smaller clients that would have to wait for a longer period of time to become TOTVS clients. It's certainly a different magnitude than what we were used to. With regard to distribution, of course, software is easier to distribute. That's what we do. That's part of our routine, distributing software. Of course, when we have solutions to certain areas such as marketing, there's a learning curve and opening so that the clients can see TOTVS as someone that operates in that area as well. The key here for TOTVS is to insert itself in the distribution channel. We use our events to leverage this. We have continued with our events, in-person events, as soon as the pandemic allowed them to come back. We have a lot of in-person events in smaller cities.
When we have an event and we're able to take a business person or an executive to that event, we present our whole portfolio. We have this evangelization process of clients. Of course, software is simpler, but we have now our new supplier affiliates, and the results show that most of them are in the distribution channel. Because we are learning how to show the TechFin solutions. But these solutions that could help us sell are there. We have events, we have a local presence, we have executives talking to clients frequently. But the results in certain solutions show that we've had surprising results. I kind of like to remember that the whole e-commerce portfolio, for example, has actually this shorter term perspective at TechFin. We see that the e-commerce solutions fits well with distribution, and this has been proven. Yes, all the e-commerce sales are done through the traditional distribution. Okay.
Thank you. That was a very clear answer.
Next question, Thiago Kapulskis from Itaú. Tiago, the floor is yours.
Hello, everyone. I hope you can hear me well. Thank you for this opportunity. I would like to congratulate you on your results, and I actually have two questions. I know this is something that you've already talked about a lot, but I would like to go back to the ARR. I wanna understand, there's been certain effects in the quarter, maybe due to the elections, that may slide the results to Q4. Q4 has its own issues, such as the World Cup. But I would say that the environment is still healthy and we can believe in continuity. It's not about numbers.
I want to understand of what you see as the trend, and also of this new sales of these smaller clients. These are the ones that would feel any macro difficulties. If there are any messages for 2023, what are you feeling right now? I know it's still a bit far ahead, but we leave this call looking already towards 2023, so it would be nice to have that message. The second question is specifically regarding TechFin. We've seen the strong production, the three past quarters, it had been more in sequence. How much is due to the seasonality of agribusiness? And how much continuity of quarter-on-quarter growth can we expect, given the initial difficulties at the beginning of the month? I would really like to have your answers on these two matters.
Okay, Tiago, I'm going to start from the end of your first question. I would say that we have good expectations for 2023. Our business is about recurring business. We have a low churn. When you have a good previous year, when you have an addition in ARR in the previous year, for this 2022, we know that a lot of the path that we need to go down 2023 has already been paved. Unless we have very abrupt changes to one of these elements, what we see is that 2023 will be a good year. With that being said, when we speak of the ARR addition in the closing of the third quarter, and of course, now we have the fourth quarter, it's precisely what we mentioned and what we've also mentioned.
Usually, the last month of the quarter is the strongest production month. I don't know if this is worldwide, but I know this happens in Brazil and in TOTVS. We see people waiting to close deals in the last week, often the last day or the last business hour. There are certainly operational challenges related to this, but it's what happens traditionally.
This year, as we've mentioned, we've had elections on the last day of the month and the last day of the quarter. There were deals that we were expecting to close that didn't close. Yes, they split to the next quarter or maybe even further on. The deals may not fall through, and we can't be certain about that. As you mentioned, this fourth quarter is also a typical quarter.
We will have the World Cup, as you mentioned. We've also had the second runoff of the elections, which was also in the second to last day. Regardless of what we think of these elections, they were very polarized. Among our clients, several of them we can say that had a certain expectation, even an emotional expectation, and were waiting to see the results.
If you ask me, based on the information and visibility that I have today, if the election results will have an impact on our net additions of ARR volume, I would say no. It's not something that we can answer for sure at this moment. Yes, I just want to add to what you've mentioned. This is the historic behavior that we have
We have around 500 deals and transactions that are done on the last day of the month. We have an average of 2,000 transactions a month. We can say that one-fourth of them happen on the last day of the month. That's the concentration that we have. This volume has shown itself to be consistent. Even having the elections on the last day of September, the runoff elections now on the last day of October, these are the numbers that we see.
The number of deals have remained within an average deviation, but we've seen more impact of the elections on the larger accounts. They are more influenced by these macro effects. I do think that's something we need to monitor throughout the months to see how these larger accounts are going to behave based on these election impacts.
The second question was related to TechFin production . You want to know how much is seasonal and it's connected to agribusiness. That's what you would like to know, right? Yes. When we look at the last two quarters, they were flat, and now we've had a stronger third quarter. This matter of seasonality is quite important. Well, agribusiness has a concentration.
It impacts, we feel, in the third quarter, in the fourth quarter as well, although smaller. There certainly is a seasonality. There are certain chains that anticipate their orders, their purchase orders, because of certain promotions such as Black Friday, Children's Day in Brazil, and Christmas. We see anticipation of retail orders the third quarter. Some of this may slide into the fourth quarter, but I think that the fourth quarter will not be as strong when we look at this seasonality record. I have a projection that it is mostly transactional, but we'll have to observe what happens in the fourth quarter. It's a bit more atypical. It coincides with the beginning of the World Cup. Looking at the historic seasonality, it helps us. We had 2018, 2019, COVID.
It could help us separate what is seasonal or not. Anyway, just to wrap up, I'd like to remind here that we're going to have some advantage for next year if things remain as they are, which is the fact that Selic is no longer going up, and eventually it will go down. This brings in a positive element in terms of profitability. Also, credit production will have additional incentives. We know that, when nominal rates go up, this discourages companies to take credit. The other way around, of course, happens as well. We think that, for 2023 and in subsequent years, this effect of a nominally decreasing Selic will help with, in terms of credit production. Well, it's very clear. It does help. Thank you once again for all of the answers.
Well, I'm going to take one last question from Diego. Questions that are eventually not addressed in our chat here, you can contact us, and we'll try to answer them. Moving on to the last question. Thiago Ojea. Good morning. Thank you for taking my question. Actually, while answering to Fred's question, you touched an aspect that I'd like to explore a little bit better: the profile of new clients. When you think about new sales, what is the % of sales that are originated for new clients when compared to the sales % for the clients who were already at the base in the last 12 months? This would help us understand this opportunity you see in a greenfield versus cross-sell.
Still about this topic, I don't know whether you can talk anything about this client, micro small versus the average historical client of TOTVS. Well, thank you, and it's already good afternoon. It's 12:05 P.M. I will start, and then I will turn over to Apendino, so he can complement my answer. The percentage that we use today, depending on the month and depending on the quarter, will be 25%-30% more or less. This is significantly higher than what we had some years ago. It's a concrete proof of the improvement of our competitiveness. There's another aspect that I've mentioned before, and that I think is very interesting.
TOTVS has its own size, and people are surprised that we can have this volume of clients, especially taking into account that the number of companies in the country does not grow 10%-20% per year. It grows in very low percentage rates. When you look at the turnover of companies in the economy, it is significantly higher than 1, 2, or 3%, which is the net growth of companies coming into the economy. We could compare it to TOTVS team. Our team will grow 2, 3% from one year to the other, but this 2, 3% is net. Our turnover is probably 18, 19% eventually. Therefore, there is a level of activity of new companies which is much higher than this net amount we see.
Because of our capillarity, this reduction of TCO, we have been able to capture a very relevant part of this turnover in the economy. Well, this is a frequent discussion. It's an ongoing discussion for us. As I commented before, during the call, the amount of new sellers and sellers that we hire to work with new customers or net new customers, these are dedicated salespeople, and that has really increased our distribution network. We have dedicated teams in the different geographies working with new clients. This is because of the potential of new clients that we're seeing, along with the reduction of TCO and the remote services that we can provide, and the innovation we can take to places where we were not able in the past.
All of this together gives us huge opportunities, and we do believe that we should keep on investing on this dedicated sales team. The profile is totally different from the profile of those who work with the client base. Sometimes it's a client who needs a human resource ability. We have expanded our portfolio. Consequently, we can start working with new areas. Perfect. That is very clear. I don't know whether you could quickly comment about the margin of these clients when compared to the historical clients. I don't know whether there's a significant difference or not. The margin is very similar. The smaller clients, because they need less implementation, and this is in fact a client that does not add a lot of margin.
We will have more opportunities, but of course, this is a client that generates a lot of external opportunity. We have the management system. We can open a journey over time to capture clients. The history of TOTVS was built upon these factors. Smaller clients who are somewhere between micro and small companies, they're based on a platform that will support their company for a longer period of time. We do have amplitude and depth in terms of coverage, portfolio, and that generates a lot of cross-sell opportunities. This is the optimal case for Coros in terms of clients. Would you like to add anything? Well, the client, in terms of profile, is a client who started working with their own IT team and clients whose accounting is done in-house.
We're getting close to these two thresholds when they are really prepared to be a client of TOTVS platforms. I think that the market consolidates sooner, increasingly sooner. It's a combination of different elements. Our TCO is increasingly smaller. The combination of these facts allow the number of companies to be higher once we go beyond this threshold. Well, when we talk about IT, it's important to mention that we have a different profile than we did in the past. More in terms of being able to communicate with the company. The team is closer to the business, more relaxed, more capable to support the operation. Works more as a provider of a complete solution, a complete end-to-end solution which is available for the client. I think that this aspect is also very interesting.
Even though we are in the early stages yet, we can already see a lot of value in this. Yes. We are now advisors of SMB. Well, excellent. I would love to continue exploring this topic a little bit more, but I will ask Sérgio to organize something like that for us to have this discussion. Okay. Well, I'm going to turn over to Dennis for his final considerations, reinforcing that the IR team is available to answer any eventual questions about the results of the third quarter. If you have any other questions as well, we'll be very happy to help and to interact with you. Dennis, I turn over to you for your final considerations. Well, Sérgio, Maia, Apendino, and the team who's here with us today, thank you very much.
I would also like to thank those who participated. Especially, I would like to thank our shareholders and all of the other stakeholders for their trust, their cooperation. I hope to be with you for the fourth quarter conference as well. Thank you very much.