PagSeguro Digital Ltd (NYSE:PAGS) reported its highest quarterly net income in company history, with earnings per share (EPS) surpassing analysts' expectations. Despite the strong financial performance, the company's stock fell in pre-market trading. The company achieved an actual EPS of 1.78 BRL, beating the forecast of 1.7 BRL, and reported revenues of 4.83 billion BRL, exceeding the expected 4.59 billion BRL. However, the stock saw a price decrease of 5.56% in pre-market trading, reflecting investor concerns despite the positive earnings report.
Key Takeaways
- PagSeguro's EPS of 1.78 BRL surpassed the forecast of 1.7 BRL.
- Total (EPA:TTEF) revenue increased by 20% year-over-year to 4.83 billion BRL.
- Pre-market stock price dropped by 5.56%, despite record net income.
- The company continues to expand its client base and product offerings.
- Brazilian electronic payments sector remains robust, with significant growth potential.
Company Performance
PagSeguro Digital demonstrated robust performance, highlighted by a 20% year-over-year increase in total revenue, reaching 4.8 billion BRL. The company reported its highest quarterly net income, 572 million BRL, marking a 30% increase from the previous year. This growth is supported by strong gains in both payments and banking revenues, with the latter experiencing a 52% year-over-year increase. PagSeguro's strategic focus on micro, small, and medium businesses (MSMB) and its expansion into online and cross-border payments have contributed to its competitive position as the second-largest digital bank in Brazil.
Financial Highlights
- Revenue: 4.83 billion BRL, up 20% year-over-year
- Earnings per share: 1.78 BRL, up 31% year-over-year
- Net income: 572 million BRL, up 30% year-over-year
- Gross profit margin: 39.3%
- Total Payment Volume (TPV): 136 billion BRL, up 37% year-over-year
Earnings vs. Forecast
PagSeguro Digital's actual EPS of 1.78 BRL exceeded the forecasted 1.7 BRL by approximately 4.7%. The revenue of 4.83 billion BRL also surpassed expectations by 5.2%. This performance reflects a continuation of the company's trend of beating market forecasts, driven by its strategic growth initiatives and strong market position.
Market Reaction
Despite the positive earnings report, PagSeguro's stock experienced a 5.56% decline in pre-market trading, moving from 8.09 BRL to 7.64 BRL. This reaction may be attributed to broader market trends or specific investor concerns about the company's future growth potential. The stock is currently trading near its 52-week low of 7.15 BRL, indicating cautious investor sentiment.
Company Outlook
Looking forward, PagSeguro remains confident in exceeding its 2024 guidance. The company anticipates continued growth in banking revenues and is exploring ways to reduce funding costs. It is also considering further diversification of its product offerings, which could enhance its market position and financial performance.
Executive Commentary
- "We are a technology company at the end of the day," said Ricardo Dutra, Principal Executive Officer, emphasizing the company's innovation-driven approach.
- "Mid term, the banking side is going to be more and more important," Dutra added, highlighting the strategic focus on expanding banking services.
Q&A
During the earnings call, analysts inquired about PagSeguro's interest rate sensitivity, which the company estimated to have a 300 million BRL impact per 100 basis points change. The company also addressed its minimal exposure to the gaming industry and its ongoing share buyback program. Analysts expressed interest in the company's sustainable growth strategies and client engagement efforts.
Risks and Challenges
- Interest rate fluctuations could impact profitability.
- Increased competition in the digital banking sector.
- Potential regulatory changes in the Brazilian financial market.
- Economic uncertainties affecting consumer spending.
- Challenges in maintaining high growth rates in a competitive landscape.
Full transcript - PagSeguro Digital Ltd (PAGS) Q3 2024:
Conference Operator, Conference Moderator: Good evening. My name is Alger, and I will be your conference operator today. Welcome to PagSeguro Digital Earnings Call for the Q3 of 2024. The slide presentation for today's webcast is available on PagSeguro Digital Investor Relations website at investors. Pegabank.com.
Please refer to the forward looking statements and reconciliation disclosure in this presentation and in the company's earnings release appendix. Finally, be advised that all participants will be in listen only mode. After the presentation, to ask a live question, please use the raise hand button to join the queue. Once you are announced, a request to activate your microphone will appear on your screen. Please ask our questions at once.
Today's conference is being recorded and will be available on the company's IR website after the event is concluded. I would now like to turn the call over to Gustavo Secchin, Head of IR. Please go ahead, sir.
Gustavo Secchin, Head of Investor Relations, PagSeguro Digital: Hi, everyone. I'm Gustavo Secchin, Head of Investor Relations of Parq Bank. I would like to welcome and thank you for joining us for our 3rd quarter 2024 earnings call. Tonight, I have the company of Ricardo Dutra, our Principal Executive Officer Alexandre Mariani, our CEO and Atur Shunk, our CFO. With that, I would like to turn it over to Dutra, who will begin today's presentation.
Please, Dutra?
Ricardo Dutra, Principal Executive Officer, PagSeguro Digital: Hello, everyone, and thanks for joining our Q3 2024 earnings call. I'll start with Slide number 4, where we share our main operational and financial highlights. Our Q3 2024 is one more chapter in our path to deliver sustainable growth combining TPV and banking revenues expansion and profitability. I'm not going to run through each number on the slide, but I will highlight some of them. We ended the quarter with 32,000,000 clients in both segments, payments and banking, adding close to 2,000,000 clients to our customer base in the last 12 months.
On payments, we registered a record volume of BRL136,000,000,000 of TPV, an impressive 37% growth year over year, which will give more color on the next section of our presentation. Our credit portfolio and funding are also growing very fast year over year. Moving to financial highlights. As a result of a strong operational performance, total revenue grew 20% year over year reaching BRL4.8 billion, the highest quarter performance in our history. We also reached our highest quarterly net income in GAAP and non GAAP basis, which reached BRL572 1,000,000, a 30% year over year growth.
The solid results delivered boost or return on average equity close to 15%, a 182 bps increase despite our conservative capital structure. Once again, we demonstrate with the current quarter performance our ability to create value and deliver solid results. We are perhaps one of the very few companies in the segment, not to say the only one that has managed to deliver positive results with positive net income every single quarter since IPO despite industry dynamics and economic cycles. Our track record reinforces our commitment to create shareholder value. In this quarter, our diluted EPS on a GAAP basis reached R1.66 dollars growing 31% versus previous year.
Moving on to Slide 5, let me start with a quick update on our strategy. We have a clear view for PagBank, which is win on MSMB segment and diversify revenues beyond payments paving the way for a larger profitable company. Our DNA is built on the back of our history of disruption and leadership on opening new growth avenues with high performance execution, financial discipline, 2 0 6 degree security and clients and human capital oriented culture. Always with focus in our purpose, which is to facilitate the financial lives of businesses and individuals. With that in mind, let me remind you our strategic goals.
Win on MSMB as we improve our digital ecosystem product offering, expand payments beyond POS. We are just starting our journey to catch up our 1st share on the online segment. Diversify banking revenue streams beyond merchants. Remember, we have more than 11,000,000 peer banking only clients. And finally, cross sell credit products across the customer base.
Conference Operator, Conference Moderator: On the
Ricardo Dutra, Principal Executive Officer, PagSeguro Digital: right side of the slide, we can see our client segmentation. We keep successfully executing our strategy to move up in the pyramid, growing not only our core segments, but also assessing large and accretive clients. Now I'll hand it over to Alex for the quarterly highlights on the business units. Thank you.
Alexandre Mariani, CEO, PagSeguro Digital: Thank you, Ricardo. Hello, everyone. In this section, we will break down the performance of our business unit for the Q3 of 2024. On Slide 7, following the strategy update by Ricardo, we will show how we are building Pipe Bank for the long term. We have a fully integrated ecosystem combining payments and banking with a full set of products and features that provides unique experience to our customers.
In order to keep improving our offering and prepare the company for the future growth, our project initiatives are centered on accelerate volume increase, foster customer transactionality, increase client monetization by gaining share of wallet and customer Principality. We are always executing on these fronts with constant focus on cybersecurity preserving our solid balance sheet while investing consistent ESG initiatives. Moving on to the next slide, we reached 32,100,000 clients by the end of September, adding 2,000,000 clients in the last 12 months. We ended the quarter serving 17,700,000 active clients led by the growth in the banking business. As for the active merchants client base, we saw a decrease of 3% year over year due to our strategy to focus on profitable merchants with more cross selling opportunities.
Excluding nano merchants from our base, we presented a 2% growth year over year. Nano merchants represents only 1% of our total TPV. Now let's take a closer look at payments on Slide 9. Here we show that our merchant acquiring business keeps growing faster than
Ricardo Dutra, Principal Executive Officer, PagSeguro Digital: the industry with solid growth
Alexandre Mariani, CEO, PagSeguro Digital: registering in all segments. TPV reached with solid growth registering all segments. TPV reached BRL136 1,000,000,000 in Q3 'twenty four, growing 37% year over year with TPV per merchant growing 43% on a yearly basis. We had a strong growth in MSMB and our MAC as a result of our strategy of attracting profitable merchants in the payments landscape that also has monetization potential on financial service. This quarter for the first time, we are breaking down the percentage of our total TPV linked to PIX.
The expansion of PIX P2M increased total addressable market and has a positive impact on margins. Looking further into the MSMB segment, which gathers merchants with monthly TPV up to BRL1 1,000,000, TPV grew 26% year over year, reaching BRL88 1,000,000,000 in the Q3 of 2024. Our strong value proposition, higher productivity and expansion in our hubs gross adds were key factors to achieve this great performance, resulting in a year over year TPV addition of BRL 18,200,000,000. Regarding the LMAX segment comprised by large retail merchants, e commerce and cross border clients, we had a 62% TPV growth compared to Q3, 2023, reaching BRL48 1,000,000,000 in volume, which accounts for more than 1 third of our total TPV. This growth is led by new verticals in special, our online segment with e commerce and cross border, mainly under the PagSeguro International brand.
We are also increasing our share of wallet on larger merchant segments that gather business with monthly TPV above BRL1 1,000,000 with a strong growth on cards on a present transactions, expanding our market beyond POS. Move on to the banking business on Slide 10. We show that our strategy to provide seamless experience combining payments, value added service and banking through multiple interface is definitely driving up customer engagement. As a result, we reached BRL83.9 billion in PagBank Cash in composed by PIX P2P wire transfers and Boleto invoice collections into PagBank accounts. Cash in per active client, an important indicator of our client engagement, grew 43% year over year reaching BRL4,900 per client.
The evolution of our engagement metric is shown on the bottom right graph, which demonstrates the increasing usage of our app, the success in fostering transactionality through VIX and View Payment and the penetration of our investments and insurance across our customer base. As of September, more than 5,000,000 clients had investments in our platform. Here on Slide 11, we can see that our credit portfolio keeps growing at a steady pace since resuming growth on Q3 2023. This quarter, the total portfolio reached BRL3.2 billion, 30% increase year over year. This growth comes on the back of an increasing share of secured products, which currently represents 85% of our book loan, promoting financial inclusion, education and important finance lines to our clients.
This quarter we have gradually and cautiously resumed unsecured lending. Although it should not have significant impact on total portfolio in the next few quarters, we believe unsecured lending is an important growth engine for the company in the medium long term. When we consider the financial operations related to prepayment to merchants because of our instant settlement feature on the acquiring side, the expanded credit portfolio reaches more than BRL44 1,000,000,000 representing 50% increase in the last 12 months. Our NPL90 on the bottom right of the slide demonstrates the improvement on our asset quality in the last 12 months moving from 10.7% to 2.5% in the period. In the next slide, we show how robust our deposits franchise is to reduce funding costs.
The total deposits were up 59% compared to the Q3 of 2023 reaching BRL34.2 billion. Annual percentage yield for checking accounts and total deposits trended down, supporting the company's balance between growth and profitability by lowering the average cost of funding. In this sense, as we grow our deposits franchise, we have started to explore alternatives to further reduce the current cost of funding considering the current interest rate scenario. APY for checking accounts reached 47% of the CDI in the quarter, helping to reduce our total cost of deposits to 92% of the CDI. As I mentioned, the primary use of our deposits is to fund prepayment to merchants as well as our book loan.
As of September, our loan to total funding ratio, which considers total funding in relation to our expanded credit portfolio, was at 116%, a reduction in comparison to last year due to the strong operational TPV increase on the acquiring business. Now I turn over to Arthur for the financial highlights of the Q3 of 2024. Arthur, please.
Arthur Shunk, CFO, PagSeguro Digital: Thanks, Alexandre. Hello, everyone. Thank you so much for taking the time to join us today. Now on, I will present our consolidated financial results for the Q3 of 2024. Moving on to Slide 14.
Q3 'twenty four total revenue and income growth accelerated to 20% on a yearly basis, positively impacted by higher volumes from acquiring and the acceleration of our Banking segment. Consolidated gross profit margin reached 39.3 percent over the total revenue, in line with our guidance on a year to date basis as we have been successful in balancing growth and profitability on all segments, driven by the execution of our strategy focused on clients with higher engagement. Looking at the graphs on the right side, payments revenue reached BRL4.3 billion, a 17% year over year growth, with a gross profit margin of 36%. Banking revenue grew 52% year over year, mostly driven by interest income from credit flowed from cash position combined to service fees linked to client engagement with a higher profitability. Gross profit from our Banking segment reached 68% over revenue, increasing for the 4th consecutive quarter, even underwriting mostly secured credit products.
Moving on to the next slide, we can see how gross profit is driven by an accretive expansion on the Payments segment and how the increasing penetration in new growth avenues like large retail merchants, online and products like PIX affects client, products and pricing mix, all of them with a positive result. Additionally, the contribution from banking, as mentioned on the previous slide, is being more and more important to the company. On a yearly basis, gross profit grew 24% and Banking segment represented 18% versus 11% in the previous year. Financial expenses optimization and better losses management allowed us to sustain our margins. On a quarterly basis, gross profit grew 4% with banking increasing its participation by 400 basis points, showing how fundamental we used to diversify revenue streams to different and complementary products and services.
In the Slide 16, we take a closer look to our costs and expenses. Our financial discipline, which is always an important tool to balance growth and profitability, was paramount to achieve the current results. This quarter, we can already see operating leverage in comparison to previous quarter. In the cost side, transaction costs decreased 20 basis points as a percentage of TPV, benefiting from the TPV mix driven by a higher share of peaks. Financial cost was positively impacted by optimizations from our funding structure, larger volumes of checking accounts and CDs, lower yields.
Those items were important to mitigate the impact of 3 additional working days this quarter and a 25 basis points of Brazilian interest rate hike. Total losses reduced by 30% on a yearly basis due to better risk management approach. Operating expenses decreased to 16.8% of total revenue income with a leverage of 20 basis points. The year over year increase was mainly driven by marketing initiatives to increase awareness of banking products and personal expenses reflecting the strengthening of sales force. This expansion was aimed at supporting the company's current growth cycle with a positive impact on total revenue and income.
Moving forward, a more stable trajectory should be expected, creating opportunity for additional operating leverage. The year over year increase in depreciation and amortization and POS write off in nominal terms is aligned to the current capital expenditure cycle. It is important to highlight that tax efficiency initiatives are part of the business and we are always seeking for tax optimization. Moving on to Slide 17. I'm proud to announce the highest quarterly earnings per share in our history, growing 31% year over year.
As we show throughout the presentation, the 3rd quarter was a good chapter in our growth trajectory with solid operational and financial performance. As a result, we have delivered an all time high quarterly net income, which reached BRL572 1,000,000 on a non GAAP basis, growing 30% versus Q3 'twenty three. Net income on a GAAP basis reached BRL 531 1,000,000 in the 3rd quarter, growing above 30% year over year, with earnings per share on a diluted cap basis marking BRL 1.66, a 31% increase on a yearly comparison. Equity position expanded to BRL 14,400,000,000 with an return on average equity of 14.8 percent despite a conservative capital structure with a Basel index of 31%, in line with our strategy of balancing growth and profitability. A quick buyback update.
As mentioned in the beginning of the presentation, we have concluded last August our first program, fully executing $250,000,000 and have launched a second program of $200,000,000 which we have been executing opportunistically. 2024 already is the record of buyback executing in our history. It is important to remember that since 2018, we have bought back more than BRL1.1 billion, a clear indicator of our commitment to shareholder value creation. Moving on to Slide 18. Just a quick follow-up on our current guidance.
Despite macroeconomic conditions and uncertainties, we are on track to deliver or surpass the top of the range of expected results for 2024 as shown on this slide. Now let me give the word back to Alexandre for the closing remarks.
Alexandre Mariani, CEO, PagSeguro Digital: Thank you, Arthur. Before we finish, let's move on to the next slide for closing remarks. Overall, the results we posted reflect the successful execution of our strategy, which aims to strengthen our presence in our core segments as well as diversifying our revenues beyond payments. Once again, we achieved an all time high net income, proving our ability to deliver consistent results despite macro and market environments. The banking operation is an important contributor to that result growing at a faster pace than the overall business at 54% year over year, making it more relevant for our business performance and revenues efficiencies by reducing our cost of funding in the period which was leveraged by our strong deposit franchise.
Finally, as I mentioned earlier, this performance demonstrates our commitment to create shareholder value. 1 of our top priorities as we deliver a robust and sustainable EPS growth of 31% with a return on average equity close to 15% combined with a solid and conservative capital structure. Now let me give back the word to the operator and we'll start the Q and A session. Thank you.
Conference Operator, Conference Moderator: Thank you for the presentation. We will now begin the Q and A session for investors and analysts. There is also the possibility to ask your question throughout the Q and A icon located at the bottom of your screen. You may select the icon and then type your question with your name and company on it. Written questions that are not addressed during the earnings call will be returned by the Investor Relations team.
Wait while we pull for questions. Our first question comes from Beatrice Abreu from Goldman Sachs. Please, Mrs. Abreu, your microphone is open.
Beatrice Abreu, Analyst, Goldman Sachs: Hi, everyone. Good evening. Thanks for the call and congrats on the results. I have two questions on my side. The first one is on TPV.
All right, so strong TPV increase even we can see that non PIX TPV increased 5% sequentially and thanks for the additional disclosure there. Would like to know if there is any comments on the MSMB trends and especially any color that you can give on non PIKS MSMB, what the increase was without considering PIKS? If you have any comments there, that would be great. And then the second question is on prepayment revenues, also strong increase on that line. If you could give more color on the performance and how do you see that line performing going forward?
Do you think those levels are sustainable going forward? That would be great. Thank you.
Ricardo Dutra, Principal Executive Officer, PagSeguro Digital: Hi, Beatrice. Thank you for the question. I'll start with the first one. Talking about TPV, cards TPV in MSMB, I would say that part of this result is the result of the investments we've been doing in our hubs. We are working for a while in these hubs and giving our people more tools in such a way that we can increase productivity and trying to make better offer for the SMBs.
As we always say, we try to combine our acquiring or a payment solution with the account for those who are interested in having a very good account, a decent account for the business with no tariffs and high UCDs, multiple cards. So it's part of the result of the strategy we've been thinking and executing in the past years, which is to win on SMBs with the right tools, right value proposition for this type of client and, of course, paying the salespeople in such a way that we can increase productivity and have a better performance out there. So I would say that's the main reason. There is no one off, nothing like that. And we are seeing the same trend in Q4 when you look at TPV for SMBs and TPV overall of the company.
For the second question, I'll pass the word to Arthur.
Arthur Shunk, CFO, PagSeguro Digital: Beatriz, it's good to talk to you. Thank you for your question. Regarding to prepayment revenue, we have a change last quarter that we moved part of the revenues transaction yes, revenue transaction to prepayment revenue. And nothing is wrong. It's only a movement from one line to another one.
On top of that, the prepayment business is aligned to our TPV growth, especially because we have large volume of our clients receiving instantly the transactions that they pass in our POSs and checkouts. I'm sorry, complementing the answer, the trend will continue in the coming quarters.
Conference Operator, Conference Moderator: Our next question comes from Antonio Roeci from Bank of America.
Antonio Roeci, Analyst, Bank of America: Congrats on the results and thank you for the Q and A. I have two questions on my side. So first, on credit, I'd like to know if your lending appetite has changed from last quarter to this one. And we have been discussing higher than expected Selig for the next year and the threats of this pressuring small and medium merchants. So what's your one of your focus?
So if you could elaborate on your change or potential change of appetite here? And also if you could explore a little bit more your strategy on Elmec. You mentioned large retail accounts and also online. So if you could dive a bit deeper here on which what is the attractiveness of this client? What kind of clients are you targeting here?
What kind of services you are exploring? This would be great.
Ricardo Dutra, Principal Executive Officer, PagSeguro Digital: Antonio, thank you for the question. Well, talking about credit, our appetite for credit changed a little bit. We've been piloting some non secured products in the last quarter. It's nothing material, but of course, we are testing the models, testing the processes, the collection and so on. But I would say that at this point, we have opportunity to keep growing in the secured portfolio, as you can see in our performance in Q3 again.
So we grew our portfolio from €2,900,000,000 to €3,200,000,000 And this growth came from the secured part of the portfolio. We still see the opportunity to keep growing in this secured part of the portfolio. And we are piloting and testing some products for our base. I would say that despite of the macro environment we see, there is an opportunity in our base for clients that are low risk that we may access at some point. We just don't think that's the right time to do so, and we need to be secure that is the right time to offer this kind of non secured products.
But it's part of the road map, and we're going to do it at some point in the near future. Talking about Elmec, the type of client that we have, we are having online clients that are coming to us to work with bags. As we mentioned in some calls before, we worked with 2 different solutions for a while, the PAG solution and the WirecardMOIP solution that we bought in 2020 and 2020. And now we have one platform, complete platform with many features that the online clients are looking for. So we're having these new clients in the online segment.
And the large merchants that remember that for us, the large merchants above BRL 1,000,000 in cards per month. So I'm not talking about BRL50 1,000,000 per month. I'm talking about BRL1 1,000,000 per month above that. So but for these clients, we are looking for accretive clients. We are not looking for market share.
We are looking for clients that are profitable. And for some of the clients, for instance, we make the price that is feasible for us and some of them use as a backup, for instance. So we have 20%, 25% of the volumes, 15% of the volumes. They test our services they like, they can scale and use more and more. But again, this type of clients we are getting, they are profitable.
We are not buying market share. We don't have the interest to keep buying market share or to buy market share and to grow market share in terms of volumes. We are looking for clients that are profitable and accretive to the bottom line.
Antonio Roeci, Analyst, Bank of America: That's super clear. And one more, if I may. On your administrative expenses, you mentioned higher provisions for personnel expenses compared to last year. So just trying to get what's in embedded here. You were talking about, well, this is back office or anything specific related to personnel?
Arthur Shunk, CFO, PagSeguro Digital: It's Arturo speaking. Regarding to these provisions, we are talking about the bonus for the year as we are performing above the guidance that we provided. So we have additional provisions. In general, the company is not located in a specific department or in a specific position in the company. It's in the total.
Conference Operator, Conference Moderator: Our next question comes from Hernan Chirizzi from Citi. Mr. Chirizzi, your microphone is open.
Hernan Chirizzi, Analyst, Citi: Hi, all. Thanks for the opportunity of making questions. My question is related to the sensitivity to interest rates. Could you please remind us or if there's any update, which is the impact on 100 basis increase in the silica rate?
Conference Operator, Conference Moderator: Thanks. [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] Regarding
Arthur Shunk, CFO, PagSeguro Digital: to the sensitivity, each 100 basis points of change, up or down in the Selica rate. And based on the current scenario that we have today in our funding cost, represents around BRL300 million in the cost of financial expenses.
Ricardo Dutra, Principal Executive Officer, PagSeguro Digital: That's going to be around BRL300 million before taxes. And it is worth to say that, of course, we're going to work here to mitigate the increase of financial expenses as we have been doing in this past year. So there are some levers that we may use here. Of course, the first one is to increase price, But you can also look forward to diversify the source of funding. We can change the yields that we pay in our CDs and so on.
So we are, of course, evaluating the interest rates of Brazil very close. And we're going to take the actions in order to mitigate the increase and to offset even if it is partially, but we're going to work to mitigate part of the increase in this rate.
Hernan Chirizzi, Analyst, Citi: Thank you. If I may, a follow-up on that. This impact you just mentioned, it's for 12 months horizon. That's correct?
Arthur Shunk, CFO, PagSeguro Digital: That's correct. 12 months, 100 basis points, BRL 300,000,000 in 12 months.
Conference Operator, Conference Moderator: Our next question comes from Brian Keane from Deutsche Bank (ETR:DBKGn).
Nate Svensson, Analyst, Deutsche Bank: This is Nate Svensson on for Brian today. So going to the slides, I think the increasing engagement metrics you shared on Slide 10 that are leading to really strong growth in cash in and cash in per client really stand out to us. I know you've been making a lot of investments to drive engagement, but I'm hoping you could elaborate further on what specifically you think is standing out and resonating with clients. So maybe some areas that have maybe exceeded your expectations and what you think the most important levers to drive further engagement going forward are?
Ricardo Dutra, Principal Executive Officer, PagSeguro Digital: Well, thank you for the question. You're right. In Slide 10, we disclosed some of the metrics, engaging metrics that we have, and they are growing very fast, to be honest, more than what we expected. But and that's great. As we have this complete digital bank, we have many, many features.
But there are some of them that people use more and more. Of course, the most common is to cash in and cash out. And cash out, people can send wire transfer peaks or use on our cards. And that's the part of our pay bills. So that's part of the one of the service, the most common usage service here are the cash in, cash out plus cards.
But we also are seeing very good engagement and very good stickiness in terms of investments. We've been working with investments for a while, offering high UCDs in such a way that we can have these clients that come to us and very fast they already send the documentation and then they make an investment, which is great for the stickiness as well. And in Slide 10, we also gave some color about the insurance. That's another product that is linked with some of our products. The most common is the insurance for PIKs and insurance for cards.
So if you lose your card and if someone use your cards, you can have reimbursement up to some value, to some amount. So those are the I mean, I would say it's a digital banking, it's an online digital banking. When you have 32,000,000 clients, people use a lot of service words. Say, the most common are those that I just mentioned to you. And we'll keep working to increase engagement.
People are using our app more and more, as you can see in the first chart, from 31 times per month to 35 times per month. And that's the I mean, we're keeping working with engagement, and then we can cross sell products. We can cross sell credit products. And at the end of the day, we are trying to get these clients to use as their main bank and to get the principalities of the clients.
Nate Svensson, Analyst, Deutsche Bank: That's great color. I really appreciate that. For the follow-up, I want to step back a bit and maybe ask a higher level question about the long term trajectory of the company. You continue to print really strong results and you're clearly gaining share in the market, but there's been so much change in evolution in the business, moving more towards banking and obviously the overall macro environment in Brazil over the past few years. So I think there's a lot of investors that still have questions on what the right long term growth and profitability outlook for the company is.
So maybe in light of that, can you talk about how you view the financial profile of the company over the next several years? And whether or not you've given any thought to potentially providing some sort of mid term guide to help level set expectations for both analysts and investors? Thanks.
Ricardo Dutra, Principal Executive Officer, PagSeguro Digital: Thank you. In fact, the market has been changing a lot in the past years. Remember, we founded this company in 2006 as an online solution. We launched the first device around 2012. We didn't have a bank.
Now we have this 2nd largest digital bank in the country in terms of users. And we are, of course, following what's going on in the market and pivoting the company to take advantage of what we see in the market. We are a technology company at the end of the day. So that's why I have the speed and I have the flexibility to work with the company in such a way that we can serve the clients' needs. We've been seeing many changes in last years.
And the last one, I would say, was the PIX that was launched in November 2020. And since then, we've been growing a lot in PIX and monetizing PIX transactions. And PIX is a very good tool for digital banks for cashing and cash out as well. And we get the data that we may use this data to give credit for the clients. So what I'd say in midterm, I don't have a number here to give it to you.
But as we said throughout the slides, we plan and we will do it that we will grow the revenues beyond payments. We know that some payments have been growing. There is still room to grow in terms of payments in Brazil because PIX is still cannibalizing cash. Cards are cannibalizing cash. Cards penetration are faster than the growth of the economy of the country.
If you see, the country is growing at around 3%, and cards overall are growing more than 10%. So there is still higher penetration in the economy in terms of electronic payments. So payments will keep growing and we'll take advantage of that. But in a parallel revenue, we're going to take advantage of this growth of the revenues in the banking side of the company. So mid term, the banking side is going to be more and more important.
That's what you have in mind. That's what we're going to work into execute, keep growing payments, but try to grow fast in the banking side.
Conference Operator, Conference Moderator: Our next question comes from Carlos Lopez from HSBC. Please Mr. Lopez, your microphone is open.
Carlos Lopez, Analyst, HSBC: Hello, good evening and thank you for taking my question. I wonder if you could give us a bit more of an update on your buyback program. What do you expect after you complete the current one? Is this an ongoing feature? Would you expect to do another one next year?
And second, would you tell us if you have any exposure to the gaming or gambling industry, which has been in the press in Brazil lately?
Ricardo Dutra, Principal Executive Officer, PagSeguro Digital: Carlos, thank you for the question. I will start with the last one. Part of our transactions are done online in the online segment. Part of the online transactions are related to PAGS International and part of that related to gaming. We do have some clients that offer gaming for the consumers.
They are all regulated companies. And it helps us because it is accretive, but it's not something that is important for the bottom line in such a way that if there is any change in this type of sector, the P and L of PAGS is going to change. So it helps, but it's marginal and it's no material. But we do have some clients in gaming because clients came to us. But again, they are all regulated, serious companies.
And it's part of the TPV from PagSeg International, which is part of the our online TPV. So it's a very small size of our payment volumes.
Arthur Shunk, CFO, PagSeguro Digital: Well, in terms of our buyback program, we concluded in August the first program that we launched. That was about $215,000,000 In the same month, in August, we launched the second one, dollars 200,000,000 which is partially executed. Actually, we executed around 20% of this new program in the months in the sequence after August. We are always trying to do in the most efficient way under the market conditions. And we also have other capital allocation opportunities.
But there is no rush here to execute this buyback. We are executing in the most efficient way based on the market conditions.
Carlos Lopez, Analyst, HSBC: Can you remind us when the program expires, the 2nd program?
Conference Operator, Conference Moderator: Schedule
Arthur Shunk, CFO, PagSeguro Digital: No, it's not expired. We the new program we launched in August, dollars 200,000,000 we executed 20%, and there is no expiration date.
Carlos Lopez, Analyst, HSBC: So this one has no expiration date. Okay. And if I can go back to the previous one about the exposure to the gaming industry. Can you give us a sense, I mean, you say it's immaterial, but are we talking about 1% of TPV, 5% of TPV? What order of magnitude can you tell us?
[SPEAKER CARLOS
Ricardo Dutra, Principal Executive Officer, PagSeguro Digital: GOMES DA SILVA:] Carlos, I would say to you, TPV is not important. Let's talk about bottom line. Bottom line is low, low, low, low, low, low, low single digit. So it's no material.
Carlos Lopez, Analyst, HSBC: Low single digits, meaning 1% to 3%, that type of thing?
Ricardo Dutra, Principal Executive Officer, PagSeguro Digital: We don't give the guidance, Carlos, but it's very small. It's more to the bottom of the number that you said, but it's very, very small. It's something that helps in bottom line, of course. But again, it's no material. And we take advantage of that because we will try to take deposits of the consumers.
I mean, we try to cross sell some other products. But today, it's no material to the bottom line.
Conference Operator, Conference Moderator: Our next question comes from Renato Maloney from Autonomous Research.
Gustavo Secchin, Head of Investor Relations, PagSeguro Digital0: Hello, guys. Hey, congrats on the results and thanks here for the question. So first, I wanted just to talk a bit about the initiatives you're mentioning to reduce your cost of deposits. I think it was very successful on the cost, but then we saw a decline here on checking accounts, a sequential decline. So I'm trying to understand the dynamics that you're seeing here.
Are you going to be able to regrow balances here with the same level, overseeing? And if you allow me for just a second question that's more of a follow-up on interest rates. Last quarter when you revised the guidance, you mentioned that your assumption was for Silica at the end of the year was 10.5%. And then previously you were saying that you can like pull the levers and compensate for this. So I just wanted to make sure that you're still seeing a similar scenario despite of the increasing rates.
Thank you.
Ricardo Dutra, Principal Executive Officer, PagSeguro Digital: Genato, thank you for the questions. First one, I guess you're talking about Slide 12, checking accounts that went from BRL 11.5 billion to BRL 10.5 billion.
Gustavo Secchin, Head of Investor Relations, PagSeguro Digital1: Correct.
Ricardo Dutra, Principal Executive Officer, PagSeguro Digital: What happened is that in the second quarter, the last day of the second quarter was a Sunday. So when you look at the end of the quarter, we have this TPV from Friday, Saturday Sunday. And in Q3, the last day was a Monday. So usually, people come on Monday, they cash out, they withdraw the money. So that's why it's just because of seasonality.
It's not any issue or nothing like that. If we evaluate the daily average of each quarter, the daily average of deposits is growing. So it's just because 1 quarter ended on a Sunday in Q2 and Q3 ended on a Monday. But on average, we keep growing deposits. So that's the explanation for these checking accounts.
The other question about the interest rates, as you can see in our guidance slide, we are confident we're going to deliver the guidance we gave by the end of the year. But by the beginning of the year, if we look at TPV net income, we expect to be still a little bit higher than what the guidance that we gave. So another way to answer our questions, we are going to offset the increase in interest rate that we're going to have in Brazil in 2024 and deliver the net income that we guided at the beginning of the year. Thank you, Renato.
Conference Operator, Conference Moderator: Our next question comes from Caio da Prato from UBS. Please Mr. Da Prato, your microphone is open.
Gustavo Secchin, Head of Investor Relations, PagSeguro Digital1: Hello, everyone. Good evening. Thanks for the Q and A. I have 2 on my side, please. The first one is on prepayment.
You disclosed your expanded portfolio with BRL 41 billion volumes in prepayment for merchants. Just checking if this is indeed the amount that you prepaid for the merchants during the quarter or if it is the outstanding balance in the end of the period. And additionally, it's growing by 52% year on year, much higher than your TPV growth, which is already high at 36%. So just trying to understand what explain this difference if it means indeed much more penetration? And if so, what are the drivers behind that?
And the second one, just a follow-up. We saw the numbers of your share buybacks, and you mentioned about no rush on concluding the program. But just would like to understand if you could see any different usage of your net cash balance going forward for 2025, which is above BRL12 1,000,000,000. I don't know if you are thinking about dividend distribution as well or any type of consolidation in the market could be expected as well. Thank you very much.
[SPEAKER CANDIDO
Conference Operator, Conference Moderator: BOTELHO BRACHER:]
Arthur Shunk, CFO, PagSeguro Digital: So Caio, the first question related to the prepayment amount that we put in the Slide 11. So it's the outstanding balance when we compare the accounts receivable for payments and the money that we need to pay to the merchants in their liabilities. So that's the balance that we have in our income statement. The volume increased 52%, higher than the TPV. But if you consider the nominal variation from last year to this year, you can see that it's pretty much the same.
The other point inside this number is the level of AR securitization in our assets that last year was a little bit higher than this year and then impacted this amount. In terms of our buyback program, we consider that we have opportunities to continue to invest in the company. We see that we have opportunities in the company related to banking, related to continue to grow in payments, and it's important to us to navigate in macroeconomic scenario as we have today, like the rate increasing, and we prefer to focus in our growth despite any volatility in the macro scenario. And when we say that we have opportunities, we are seeing that we have opportunities in developing the products that we have and grow our business in a sustainable way.
Gustavo Secchin, Head of Investor Relations, PagSeguro Digital1: Okay. So probably no change in our capital structure looking forward for 2025. Is that right, to assume?
Ricardo Dutra, Principal Executive Officer, PagSeguro Digital: Mario, let me answer in a different way. So we are always assessing the capital structure for the company, trying to find the best balance for the company. And of course, there are many variables here. We should consider the volatility that we have in Brazil. The just to give an example, everyone thought that the Selic would be around 9% or 9.5% by the end of this year, right?
So we're talking about close to 12%. So that type of volatility, I would say, that we have in Brazil, we got to have a strong balance sheet to navigate through this economic cycle. So but we are always assessing the capital structure of the company, looking the opportunities in such a way that we can make it more optimized. But you've got to be ready for this type of volatility and also to take advantage of opportunities that may appear in the market in terms of M and A's or things like that. But the message is, I cannot say to you that the capital structure is going to be the same in 2024, in 2025 because we're always, again, assessing the capital structure of the company.
If there is any change, if we're going to use the cash in a different way for buybacks or things like that, we're going to communicate the market properly. So but just to make it sure here, it doesn't mean that capital structure of the company is going to be the same in 2025.
Conference Operator, Conference Moderator: Our next question comes from William Bauhinard from Itau BBA.
Gustavo Secchin, Head of Investor Relations, PagSeguro Digital2: Can you hear me guys?
Conference Operator, Conference Moderator: Yes. Yes, we can.
Gustavo Secchin, Head of Investor Relations, PagSeguro Digital2: So thank you for your time. My question here is regarding your client shift mix and how it affects your main sources of revenues being like prepayments and transaction fees. So I understand that prepayment rates, they might shift, but trying to keep it constant and also keeping the allocation of part of this prepayment, right, as you shifted between lines, but trying to make it all comparable. So as you increase your average tickets, you grow more on Elmec segments and also as peaks are increasing penetration, are you becoming more transaction dependent or more prepayments revenue dependent, right? As you change it, as you shift it, how you consider that in your revenue lines?
I guess it's quite harder to understand this from where I'm sitting, but if you could elaborate on that, would be great.
Arthur Shunk, CFO, PagSeguro Digital: Here, we prefer to analyze in the total revenue, not splitting exactly in transaction and financial income. When we see the company growing 20% in a consistent way, we can say that independently, we are bringing clients that are more transactional for the company, but also we are growing the number of clients that is more related to prepayment. So we analyze the revenue together, so 20% in a yearly basis or even 6% in quarter over quarter in a consistent way is the most important point for us.
Gustavo Secchin, Head of Investor Relations, PagSeguro Digital2: Okay. And regarding prepayment pricing increases, do you have any news here when you plan to do it, if you plan to do it at all?
Arthur Shunk, CFO, PagSeguro Digital: Well, definitely, when we see the silica moving up quite fast, as we are seeing right now, We work a lot and try to reprice the clients as much as possible, obviously trying to avoid churn, but moving the direction to pass this additional cost to the clients.
Conference Operator, Conference Moderator: Thank you. That's all the questions that we have for today. I will pass the line back to PagSeguro Digital's team for their concluding remarks. Please go ahead.
Ricardo Dutra, Principal Executive Officer, PagSeguro Digital: Well, thank you, everyone, for investing the time to listen to our quarterly call and for the answer as well. So thank you very much. Talk to you in the next call. Thank you.
Conference Operator, Conference Moderator: This does conclude PagSeguro Digital's conference call. We thank you for your participation, and wish you a very good evening.
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