PagSeguro Digital Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 16, 2023

There are 19 speakers on the call.

Operator

Good evening. My name is Carolyn, and I will be your conference operator for today. Welcome to PagSeguro Digital Earnings Call for the Q3 2023. At this time, all lines have been placed on mute to prevent any background noise. This This event is also being broadcast live via webcast and may be accessed through PagSeguro Digital's website at investors.

Operator

Pagbank.com. Participants may view the slides in any order they wish. Today's conference is being recorded and will be available after the event is concluded. I would now like to turn the call over to your host, Eric Oliveira, Head of IR. Please go ahead.

Speaker 1

Hello, everyone. Thanks for joining our Q3 2023 Earnings Call. After the speakers' remarks, there will be a question and answer session. Before proceeding, let me mention that Any forward looking statements included in the presentation or mentioned on this conference call are based on the currently available information and PagSeguro Digital's current assumptions, expectations and projections about future events. While PagSeguro Digital believes that the assumptions, expectations and projections are reasonable in view of currently available information, You are cautioned not to place undue reliance on these forward looking statements.

Speaker 1

Actual results may differ materially from those included in PagSeguro Digital's earnings presentation or discussed on this conference call for a variety of reasons, including those described in the forward looking statements and risk factors of PagSeguro Digital's most recent annual report on Form 20 F and other filings with the Securities and Exchange Commission, which are available on PagSeguro Digital's Investor Relations website at investors. Pagibank.com. Finally, I would like to remind you that during this conference call, The company may discuss some non GAAP measures, including those disclosed in the presentation. We present non GAAP measures when we believe that the additional information is useful and meaningful to investors. The presentation of this non GAAP Financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered separately from or as Sobe stood for, our financial information prepared and presented in accordance with IFRS as issued by the IASB.

Speaker 1

Call. For more details, the foregoing non GAAP measures and the reconciliation of these non GAAP financial measures Call. To the most directly comparable IFRS measures are presented in the last page of this webcast presentation and earnings release. With that, let me turn the call over to Ricardo. Thank you.

Speaker 2

[SPEAKER CARLOS GOMES DA SILVA:] Hello, everyone, and thanks for joining our Q3 2023 earnings call. Once again, I have the company of Alex, our CEO and Arthur, our CFO. Going to Slide 3, I'm happy to announce in Q3 2023, We have reached the largest net income, both GAAP and non GAAP in the history of the company. In the past years, We have successfully managed the impacts related to the high interest rates for a longer period, while reshaping our funded structure backed by deposits. [SPEAKER CARLOS GOMES DA SILVA:] More recently, we have been seeing better operating trends in our volumes, combined to Brazilian interest rate decrease, which should positively contribute to our funding strategy to keep delivering growth with profitability.

Speaker 2

Our non GAAP net income reached BRL440 million, growing 7% year over year. Despite our increasing footprint in merchants largely in their long tail, Accretive to gross profit besides lower take rates, our margins continue to improve, resulting in BRL894 million EBITDA, reaching the highest margin since Q3 2021. Total revenue was flattish year over year and grew 5% quarter over quarter, reaching BRL4 1,000,000,000. Disciplined CapEx deployment resulted in BRL10.6 BRL1 1,000,000,000 in net cash balance in the end of the quarter, 17% higher than previous year, driven by 36% growth in cash earnings versus Q3 2022. Going to the financial services session, [SPEAKER CARLOS GOMES DA SILVA:] We have continued our credit underwriting journey, constantly improving our risk management models.

Speaker 2

We have been exploring new addressable markets by offering collateralized products and despite the interchange cap impacting our revenues from Financial Services division, revenues posted a quarter over quarter growth and EBITDA was positive again reaching BRL2 1,000,000. PagBank Cashing was BRL56 1,000,000,000, driving up deposits to the all time high level, reaching BRL21.6 billion, reinforcing the closed loop advantage backed by a comprehensive set of payments beyond cards acceptance while lowering company's cost of funding. In payments, we keep growing in a profitable way And our TPV reached almost BRL100 1,000,000,000, a 11% year over year growth. Going to Slide 4, our focus on new technologies and product developments continued in 2023. In this slide, we share the main milestones of our company.

Speaker 2

In October, our company executed its first transaction using Drax, The Brazilian digital currency through the blockchain platform, embracing the digital assets revolution. This month, We just announced the facial authentication feature for clients aiming to use our payment link option, reinforcing our security proceeds while improving user and Confidence. On payments, we announced our tap on phone solution fully embedded in PagBank's app, Our proprietary ERP software with more than 1,000,000 users. We also launched our collection platform, a comprehensive set of payment solutions covering card acceptance, PIK's QR code and wallet issuance, Empowering merchants to accept all payment options. On financial services, in addition to products launched For consumers such as investment options, debit cards and so on, we also launched products focused on SMBs and larger merchants.

Speaker 2

This year, we have launched our payroll solution, allowing entrepreneurs to manage their employees' paychecks in a seamless way, and we also launched our PagBank business account that allows direct deposits from 3rd party acquirers into PagBank account. [SPEAKER CARLOS ALBERTO PEREZ DE SOLAY:] Now I pass the word over to Alex for the commentaries on the Q3 2023 operational highlights.

Speaker 3

Thank you, Ricardo. Hello, everyone. We show on Slide 5 that our merchant acquiring business remains solid And through the combination of our superior value proposition and the broad reach of our sales channel, we have been able to accelerate TPV growth faster than the industry, driven by our merchant segments. TPV reached almost BRL100 1,000,000,000 growing 11% year over segment. We continue to observe better TPV growth through the 1st weeks of the 4th quarter.

Speaker 3

MSMB TPV posted 15% growth versus Q3 2022, primarily driven by SMBs followed by Micro Merchants. As Ricardo mentioned earlier, we also noted a rebound in TPV growth from large accounts, which is composed by merchants with TPV above BRL500000 per month. Moving on to Slide 6, the Instantum prepayment product, which combines payment service and financial service through PagBank account, has promoted an increasing footprint in larger merchants, resulting in 22% year over year growth in TPV per merchant. Our strategy to focus on disciplined CapEx deployment did not interfere in our POS sales uptrend. In August, we presented a record POS sales level since January 2022 with the highest POS activation ratio since mid-twenty 21.

Speaker 3

Consequently, we reached 6,700,000 active merchants. At first glance, the net merchants loss has been raising concerns about our ability to grow our business and revenues. However, when we consider active merchants With at least one transaction in the past 30 days, excluding Nano Merchants, the positive trend is revealed supported by our TPV growth rebound in all segments and the improving cash earnings generation. PagBank clients grew 16% year over year, surpassing 30,000,000 clients, places among the most relevant Brazilian financial institutions, adding more than 4,000,000 new clients in the past 12 months, as shown on Slide 7. Our active client base reached 16,700,000 clients, leading to BRL56 1,000,000,000 in PagBank Cashing composed by PIX and P2P wire transfers inflows into PagBank accounts from other financial institutions.

Speaker 3

Combined, TPV and PegBank Cashing led deposits up 11% compared to the Q3 of 2022 and 18% quarter over quarter, reaching a record of BRL 21,600,000,000. This deposit level was boosted by our AAA rating attributed by S and P Global, which enhanced our CD distribution among institutional and retail investors on and off platform. Check-in accounts balance, the cheapest funding source and a key performance indicator to measure client engagement, grew 43% year over year, driving down our annual percentage yields to 93% of the CDI. Slide 9 shows that our credit portfolio reached BRL2.5 billion due to our ongoing runoff of the working capital loan portfolio combined to the tax planning write off of non performing loans started in the last quarter. Payroll loan and FGTS already accounts for half of the portfolio, expanding our offerings to consumers primarily through a seamless experience and a cheaper cost structure.

Speaker 3

Our go to marketing strategy for secured loans is based on competitive APRs and a digital end to end onboarding, risk assessment, underwriting and collection. This also includes our offering of credit cards backed by investments and savings. The total credit portfolio share composed by secured products reached 60%, Resulting in the ongoing downtrend in NPL 90 plus to 10.7%. Now I turn over to Arthur for the financial highlights of the Q3 of 2020 3. Arthur, please?

Speaker 4

Thanks, Alexandre. Hello, everyone, and thank you for joining us in the call. This quarter, I am proud to announce all time high net income, GAAP and Non GAAP. Total revenue and income grew 5% due to TPV growth and gross profit grew 3% on quarterly basis, also positively impacted by lower losses and higher level of deposits that reduced financial expenses. Our commitment to efficiency led another decrease in operating expenses, driven 5% EBITDA growth quarter over quarter With similar improvement in EBITDA from payments vertical, YU EBITDA from financial services got back to the positive territory.

Speaker 4

Despite the effects related to the cap on interchange of prepaid cards, lowering our revenues since 2nd quarter. Net income on a non GAAP basis reached BRL440 million, growing 6% quarter over quarter and 7% year over year. Earnings per share reached BRL1.27, BRL0.09 better than last quarter and 10% higher than Q3 2022. Cash earnings amounted to BRL365 1,000,000, 40% higher than the Q2 of 2023 and 36% versus the same quarter of last year. On Slide 11.

Speaker 4

Revenues from payments unit grew 5% quarter over quarter, while gross profit grew 4% in the same period. TPV growth and transaction cost savings due to interchange cap impacted positively The current performance versus Q3 2022. Comparing quarter over quarter, The increase was due to lower take rate partially led by client mix change towards large merchants with lower take rates, but incremental gross profit contribution. Adjusted EBITDA on the payments division reached BRL892 million, On the next slide, Financial Services verticals total revenues reached BRL260 1,000,000 in Q3 of 2023, 8% higher than the 2nd quarter. On the other hand, gross profit decreased to BRL101 1,000,000, Down 9% on a quarterly basis, mainly led by an increase in provisions for losses due to a credit model update Based on IFRS 9, besides the higher provision levels, Adjusted EBITDA grew BRL64 1,000,000 from Q3 of 2022, back into the positive territory.

Speaker 4

Moving to Slide 13. Financial expenses closed at BRL820 1,000,000 versus BRL921 1,000,000 in the Q3 of 2022. This decrease is mainly explained by our lower average cost of funding driven by higher level of deposits. In a quarterly basis, financial expenses increased due to more 2 working days in Q3 2023 versus last quarter. Total losses decreased 39% year over year, accounting BRL165 1,000,000, driven by lower provisions for expected credit losses, healthier coverage ratio and credit underwriting mostly on secured products.

Speaker 4

On the other hand, the increased quarter over quarter is mainly due to higher provisions led by modeling review for working capital and payroll allowance. Operating expenses reached BRL583 1,000,000, down 5% year over year and 1% quarter over quarter. This amount represents 14.5% of total revenue and income lower than the level of Q3 2022. Despite of lower revenue levels derived from the regulatory change And even with 5% of inflation in the last 12 months, our headcount resizing and marketing and Infrastructure Optimization Led TO De Leverage. In the Slide 14, Our cash earnings continue to gain momentum, driven by discipline in total costs and expenses, revenue growth, Stable CapEx and higher margins, reaching a positive amount of BRL365 1,000,000, up 36% versus same period of 2022.

Speaker 4

CapEx marked BRL529 1,000,000, up 5% year over year due to inflation and the upbeat trends in merchants cross adds that requires additional POS inventory levels, but lower quarter over quarter driven by better merchants cohorts and POS activation. Our discipline in capital allocation and efficiencies in IT Investments remain, which we expect to result in a similar or lower capital expenditures disbursement vessels last year. Depreciation and amortization, including POS write off, totaled BRL393 1,000,000, representing close to 10% of total revenue and income. Keeping the pace coverage to CapEx levels in the coming quarters to unlock additional profitability in the future. We expect this stabilization to happen in the second half of twenty twenty four in line with CapEx.

Speaker 4

On the final slide, our net cash balance ended the 3rd quarter at BRL10.6 billion. In the past 12 months, Our cash generation amounted to BRL3.7 billion, which we invested BRL1.8 billion in POS purchase and Technology Developments and BRL330 1,000,000 in buyback shares. In October, Treasury holds more than 4% of total shares issued. The company bought back BRL1 1,000,000,000 since 2021. That represents 81% of the total program approved in 2018.

Speaker 4

Our equity position continued to increase with 58% being composed by returning earnings, reinforcing our commitment to shareholders on capital allocation and returns. Now we have ended the presentation, and we will start the Q and A session. Operator, please.

Speaker 5

Thank you. Ladies and gentlemen, we'll now begin the question and answer Conference. The first question comes from Mario Pierry with Bank of America. Please go ahead.

Speaker 6

Hey, guys. Good afternoon. Congratulations on the quarter. Let me ask you two questions, please. First one is on the take rate, right?

Speaker 6

We saw that it declined quarter over quarter from 4.06 percent to 3.97 percent. You talked about a change in client mix To the large accounts, it seems like it. But I was wondering if that's All of the impact was just from changing mix, how are you seeing the pricing environment? How are you seeing the competitive environment? And how do you think your take rate behaves going forward?

Speaker 6

And then the second question is related to like You talk about having BRL10.6 billion in cash, how you have this buyback program open since 2021 that You executed 80% of the program so far. But I was wondering like how do you see Future Distribution of Excess Capital, either in buyback or dividends. Thank you.

Speaker 1

Hi, Madhu. This is Eric. Thanks for the question. When we think about the take rates trajectory, we always have to remind that the breakdown of take rates are based on the merchants mix, like you said, duration mix and also promotional prices that we also make for a certain period of time. If you remind, we started doing the promotional prices for Our online sales channel in the beginning of the year and necessarily as we continue to see uptrend Beat an uptrend in gross ads.

Speaker 1

Naturally, most of these gross ads comes from micro merchants, which have access to the promotional prices for the 1st month's transaction with us. So promotional prices for a certain period of time, Merchant Mix and also Duration Mix. We understand that the take rate trajectory in the short term should be slightly down, especially in Q4 for seasonality reasons since that card tends to increase the penetration in comparison to overall TPV. But moving forward, as our footprint in larger merchants stabilize, Take rates combined to the financial services revenues should also stabilize over 2024. So I think it's reasonable to expect Take rates in a consolidated view to stabilize in 2024, but naturally always considered merchants mix, Duration Mix and Promotional Prices that we do.

Speaker 1

Let me pass the word to Arthur.

Speaker 7

Hey, Mario. It's Arthur speaking. Thank you for your question. Good to talk to you. Regarding to buyback program and the BRL10.6 billion of Net cash balance that we have, the DKK10.6 billion, it's important to mention that it's a comparison of assets and liabilities, operational assets and operational liabilities.

Speaker 7

[SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] At this point, we do not have the intention to distribute dividends. We have been buying back shares every quarter. We are expecting to continue doing that due to the current attractive valuation of the company. The buyback program launched in 2018, we executed 81%. There is BRL200 1,000,000 available at this point.

Speaker 7

[SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] And there is a new buyback program under discussion in the company. And as soon as possible [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] And as soon as we decide to launch this new one, we will inform the market. And so this is the Things that we are thinking about the share buyback.

Speaker 6

Great. Thank you. Let me follow-up then on What Eric talked about the promotions that you started promotions right for online at the beginning of the year. So is it fair to assume that these promotions have been going on since the beginning of the year or have you stopped the promotions?

Speaker 1

Yes, since the beginning of the year, but when we look at the cohorts evolution in the timeline, we see the decisions that we took 3, 6 months ago, posting benefits, especially in the gross adds 6 months later. So the decisions that we took in the beginning of the year are reflecting in better gross adds trends and necessarily this share of promotional prices for a certain period of time, much more now than the first half twenty twenty three.

Speaker 6

Okay. And how are you seeing the competitors behaving, Eric?

Speaker 2

Hi, Mario. This is Ricardo. We don't see competitors being rational. Of course, there are some competitors that are trying to get some market share for a while, but once they realize that it's hard to make money, they give up, they step back. So we don't see anyone being irrational.

Speaker 2

If you look at what happened in Q3, Looking at the trends more recently, we were the company that grew more quarter over quarter than all the market. We grew like 8% quarter over quarter, and the market grew 4%. So I mean, we've been executing well. As Eric said, we [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] We also have these promotions that we are getting some results at this point. But going back to your question, we don't see anyone being irrational.

Speaker 2

And we think we have a Good pricing point as of now to keep growing. And as you could see in our results, we had the highest net income in both GAAP and no GAAP. So I mean, we think we are in the right level in terms of price and growing.

Speaker 6

Thank you very much.

Speaker 1

Thank you.

Speaker 5

The next question comes from Zazia Kuri with Morgan Stanley. Please go ahead.

Speaker 8

Hi, everyone, and congrats on the numbers. I wanted to ask you about your credit portfolio. I'm looking at Slide 8 of your presentation. We continue to see the total loan book coming down quarter on quarter. I'm wondering where is your risk appetite?

Speaker 8

At what point do you think this can start inflecting? Some of the Smaller, more fintech driven lenders like Banco Pan and Banco Inter and NuBank Are showing significantly more growth. What do you need either internally or externally to start to see the portfolio of credit really taking off and making best use of your capital and your deposits. Thank you.

Speaker 7

Jorge, it's Arthur speaking. Our credit portfolio is growing when you consider where we have focus on, Payroll loan, FGTS and credit card backed by CDs. So the portfolio is growing. But at this quarter, we also had some write offs for the working capital loans. It's our running off operation.

Speaker 7

Regarding to when we come back to offer credit, at this point, we consider focus on credit on secure way. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] We still see difficulties in the market when we compare to other players. And the banks Reducing the limits for credit cards, we are waiting the conditions in the market improves to back to offer maybe in a different way credit. But at this point and in the coming quarters, we will focus 100 in the secured portfolio and the secured originations and focus on payroll loan, FTTS and credit card backed by and investment that we receive from the clients. We continue working in the models and all the, I will say infrastructure to offer credit.

Speaker 7

At the right moment, we will be back in the future to talk in a different way about credit.

Speaker 8

Got it. Thank you very much.

Speaker 9

Thank you.

Speaker 5

The next question comes from Gabriel Cousin with Citi. Please go ahead.

Speaker 10

Good evening.

Speaker 11

Maybe I do a follow-up on Jorge's question about the credit portfolio. Can you talk about your appetite specifically To the SMB segment, I understand, of course, in your first attempt, there was a mix of Micros and SMBs. And now you continue to See the growth in SMBs outpacing Micros. Is that something that we should continue seeing that We will see PAGS more active in this SMB space. And my second question is about CapEx.

Speaker 11

We see it stubbornly high despite you reducing your exposure to micro merchants focusing more on SMBs. So I'd like to hear your thoughts on that. Thank

Speaker 2

you. Hi, Gabriel. This is Ricardo. Regarding the SMBs, as Arthur said to Jorge, we are looking at this point, we are focused on secured products, Securities Credit Products, which means that GTS payroll loan and credit card backed by CDs. It doesn't matter if you are a consumer or if you are an SMB with us.

Speaker 2

Those are the projects that we're going to focus and we're going to keep accelerating in the following quarters. At some point, of course, if you want to be a bank, you got to have Unsecured Products, but we just don't think that's the right time to do so. When you look at the market, we see even the incumbent banks Struggling with some NPLs and delinquency rates. It seems that it's getting better, the scenario. But at this point, we don't think it's worth to take the risk.

Speaker 2

We are going in a healthy way in this secured products, and we will keep investing on that. So if your question was related to unsecured products to SMBs, We do not expect to do that in short term. If something changes, we'd like to know. But we don't expect to have this type of products in the short term. We'll keep working on and Security Products.

Speaker 2

Yes, and I'll pass the word to Arthur about CapEx.

Speaker 7

Hey, Jose, it's Ardu speaking. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Thanks for the question, and good to talk to you, too. Regarding to CapEx, we remain disciplined on these investments that we are doing. It's important to mention that the CapEx is not only related POS, but also related to technology developments. And we see many opportunities to develop new features and also improve the features that we have today to getting better The offer to our clients is most as possible.

Speaker 7

We are expecting to have our CapEx this year slightly lower than 2022. That means the level of CapEx today is reasonable for us and is a good level to maintain the company running and attract new clients, increasing the Gross Merchants for the company. In 2024, we probably will have the similar CapEx of 2023. Conference Call. And it's important to mention that in the second half of twenty twenty four onwards, our CapEx level stands The expenses related to D and A and write off increased a lot and put pressure on our bottom line.

Speaker 7

And we are seeing that in the second half, we have a better way to see the bottom line for the company.

Speaker 11

Perfect. Thank you.

Speaker 7

Thank you.

Speaker 5

The next question comes from John Coffey with Barclays. Please go ahead.

Speaker 12

Great. Thank you very much for taking my question. Alex, I had one question for you on some of your prepared remarks. I think you said that you continue to see better TPV growth through the 1st weeks of Q4. Should I interpret that as meaning that you're seeing growth around 11%, more than 11%, so just be interested in your thoughts on that?

Speaker 12

And then for my second question, it was really on the financing expenses that you have. And I'm just, I think, Going over to Slide 13 in your deck, where I think one of the drivers for having the lower financing expenses year over year have been your deposits. Should we take this just to mean that you're becoming more and more insulated from the impacts of the sleek rate that perhaps as the sleek declines, It makes less of a difference on your financing expenses because you're almost funding most of the book or a lot of the book from your deposits. So those are my 2. Thanks.

Speaker 3

Okay. John, the solid start will answer the first part of your question. Actually, we are growing higher than 11% in the 1st weeks of the 4th quarter. We see a very good trend in terms of growth moving forward. This is a result of this new growth cycle.

Speaker 3

We're just starting the beginning of the 2nd semester This year, 1st semester, we did a lot of optimization and adjustments in our operation. And we suffered in terms of TTV growth. And now we are regaining this growth momentum and we are Doing better in the Q4 than we did in the Q3.

Speaker 2

And John, this is Ricardo. We'll start the answer of the second question regarding the dependence or the linkage with Selic. You're right. When you look at the Slide 13, we are more and more using deposits for Funding and for all the operations that we have, meaning prepayment and also the credit that we offer for our clients. We At the end of the day, if Selinc goes down, it's good news because we're going to have lower cost.

Speaker 2

And even if you have deposits, they are linked with Selinc. If we look at the Slide 8, we see that our deposits we are paying the blended 93% of Selic. So if Selic goes down, We're going to take advantage. So as deposits grow more and more, we don't need to rely on third parties for the funding. And we have a lower cost as a percent of selling considering the deposit.

Speaker 2

So answering in a different way, if selling goes down, we're going to take advantage because [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] At the end of the day, the cost that we have for partnership space are linked to Selic and deposits have a lower cost and 3rd parties operations that we might have in the market.

Speaker 7

Complementing the answer, When we talk about deposits, especially when we see deposits on our platform, it's most cheaper than the deposits Precipitate from the out of our platform in 3rd party platforms. So we have Funding structure that considers deposits on capital that is based on return on earnings, that there is no impact in the P and L in the cost of the P and L, and we mix with other funding structures that also help us to run the business. Going forward, we are expecting to have or to continue to have this good performance in financial expenses because we are most efficient Every time. And so this was the first time when we compare year over year that we are reducing nominal terms. So it's good for the company.

Speaker 7

Obviously, part of that is related to Selic down I would say downtrend because we are expecting to have more one cut in December, but also because we are more efficient in the funding structure that we developed for the company.

Speaker 12

Conference.

Speaker 5

The next question comes from Yuri Fernandes with JPMorgan. Please go ahead.

Speaker 9

Hey, everybody. I have a question here on P2M. I would like to know if you can share anything with us, how relevant is this becoming? Some competitors are starting to disclose that information. So just checking if you can help us to understand a little bit this fixed.

Speaker 9

And then I will ask a second question. Thank you.

Speaker 2

Hi, Ruud. This is Ricardo. Thank you for question. Well, first of all, it is important to say that in our take rates, we consider peak square code revenues and we also consider peak volumes in the denominator. We know some other players in the market, they may differ, but we use the PIX revenues QR code And we also use the PIKS TPV denominator.

Speaker 2

We don't disclose exactly number or the volumes of PIKS that you have, but they are similar to what you see in the market other players. Yes, so as a percentage of TPV is very similar to what you see in other players in the market.

Speaker 9

That's super clear. That helps a lot. And on deposits, you already discussed in the previous question, but it was very good, right? 20% quarter over quarter. This is not a seasonal quarter, right?

Speaker 9

It seems we're doing something differently. What is the drivers for this growth? Why was deposits stable for, I don't know, 3 quarters and now we are seeing deposits Accelerating. What are you doing to bring these deposits on the PagBank? Thank you.

Speaker 7

It's Arthur speaking. Related to deposits, It's not silver bullet that we are doing. It's many things differently. The management is 100% focused on that because we know that it's important to us, increase the number of deposits. We are working to provide better service to the clients.

Speaker 7

The triple way rating that we received from S&P Global is also helping us to bring this money to the company in a cheapest way. TPV volume growing helped us because part of this deposit come from merchants. So it's several things that we are doing. And also, I can tell you that we increased the level of the features that we are offering to the clients much better than in the past. So many things that we are doing, it's not only one thing that brings this result to us.

Speaker 5

The next question comes from Caio Prato with UBS. Please go ahead.

Speaker 9

Hello, everyone, and good evening. Thank you for your questions. Two last questions. I have 2 on my side, please. First, on your reported losses this quarter.

Speaker 9

So we saw that the expected credit losses increased During the quarter, and you mentioned that it was related to some change regarding the IFRS 9. So just would like to have More details here, what was the change, if this was an one off effect or no? And also, fuel losses, If you could better explain the drivers behind the sequential increase on chargebacks, which surpassed the level of TPV growth. So just I'd like to understand the drivers behind that and if this is related to the prepayment product With instant settlement or not, if you are offering these nowadays or no? And the second question is related to the expectations for 2024, if you can provide some details and if you expect to provide any type of guidance for the year, I don't know, in the coming quarter.

Speaker 9

That's it on my side. Thank you.

Speaker 7

Kariot Chatur speaking. Good to talk to you. Regarding to expected credit losses, this quarter, we had the impact of payroll loan and working capital A low and IFRS 9 review that increased the provisions. This is the explanation why increase The provisions at this point, in a yearly basis, we use it to review the models to ensure we have the right level of provisions to cover expected losses or future expected losses. But the most important point is the new credit originations are secured, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Which relies on a lower level of provisions going forward because we are increasing this This origination related to secure products that will represent lower provisions going forward.

Speaker 7

[SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Regarding to chargebacks, we include there operational losses. We include other things related to Issuing cards and chargebacks from online and POS chargebacks. If we compare the amount, okay, It's higher, but when we compare in terms of basis points, it's lower than the last year. That is most important to us because we are seeing that Our fraud prevention is increasing. Regarding 2024,

Speaker 2

we may be still a little bit earlier To give some color about 2024, but I would say you that as Alex said in the speech, We are seeing very good growth in terms of volumes, TPV growth in Q4. We also expect the Interest rate of the conference due to have another cut, maybe 25 or 50 bps at the beginning of December. So we are optimistic with Q4 to be a very good one. Usually, Q4, we have more volumes because of the holiday season with Black Friday increasing and so on. So we are very optimistic with Q4.

Speaker 2

And from that, we can think give more color about 2024. But I mean, we are confident it's going to be a good quarter As far as we have the previous numbers, we are in half of the quarter at this point. So we are optimistic about it.

Speaker 9

Okay. Thank you very much.

Speaker 7

Thank you, Cai.

Speaker 5

Next question comes from James Friedman with Susquehanna. Please go ahead.

Speaker 13

Hi. Thank you for taking my question. Thank you. So, Artur, just in response to the prior answer, because the IFRS issue came up with one of your competitors as well, Though it may have been for a different reason, but do you mind just elaborating on what you just said in the prior response about the impact of the working capital? And as you answer that, are there any other changes in IFRS that you're anticipating that we should also be aware of before they happen?

Speaker 7

Hey, Jeremy, it's Arthur. Thank you for the question. So the most relevant impact is related to the runoff operation of working capital. So we increased a little bit the provisions at this point. It's I would say that it's like a onetime impact in this quarter.

Speaker 7

We are not expecting any other change in the coming quarters.

Speaker 13

Okay, clear. And then just a kind of higher level question, but I realized for a while now you have to some extent emphasized SMB to De emphasize the less structured long tail. But I'm just wondering if You're anticipating any additional consequences of that, whether it's how you see like the take rates evolving longer term or the additional opportunities that, that will create. Just as you transition the company in that way for and I know it's a very Open ended and big picture question. But as you move the company in that direction, how do you anticipate the Financial Results Are Going TO Evolve.

Speaker 2

James, this is Ricardo. Just to be clear, We are not emphasizing the long tail. We're just saying that we're seeing a big opportunity in SMBs. As you can see [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] In

Speaker 9

one of our

Speaker 2

slides here, we are growing like SMBs 18% and long tail growing 9%. Important is Slide number 5. So we are growing even if you consider long tail, we are growing 9%, Which is the same growth of the industry. And remember, some of our long tail clients, they become SMBs as time passes by. They keep working with us.

Speaker 2

At some point, their businesses grow and then they become an SMB. So if you look at the composite of these two parts, Both F and B and Lotte, we are growing 15%, which is like 60% more than what the industry grew in Q3. So it Doesn't mean that you are deemphasizing, but we are seeing very good opportunity in SMBs as well, not only in acquiring, but also in the banking side. We have a very strong, very powerful value proposition for this type of clients that includes instant settlement, Banking, high subsidies, consolidation software. So that's why we see opportunities coming there.

Speaker 2

In terms of Coming from there, in terms of financial results, as we tried to explain before, Our take rates might go down as a percentage, but in absolute terms makes total sense because SMBs have Much more volume when compared to long tail, sometimes 10 times bigger. So as a percentage, the net take rate is lower. But As absolute term, it makes absolute dollars makes total sense. So that's why we keep growing. That's why in Q3, we had the highest net income of the company ever.

Speaker 2

And we don't think that's going to change. I mean, take rates might go down, as we said before, or maybe stabilize or slightly go down. But in absolute terms, we expect to keep growing. So that's the overall picture. We still see opportunities in long tail and we also see opportunities in consumers as well.

Speaker 2

We keep growing In Q3 this year, if you look at net adds, Impact Bank was the best quarter of the year. So I mean, we still see some avenues, opportunities to explore Going forward.

Speaker 14

Great. Thank you, Ricardo.

Speaker 3

Also, I would just like to complement That in this quarter, we had our record of POS sales since January 2022 and with the highest POS activation since mid-twenty 21.

Speaker 13

Thank you, both.

Speaker 7

Thank you.

Speaker 5

The next question comes from Neha

Speaker 2

So

Speaker 15

a few observations from your comments so far. It seems like on credit, You are not even testing or piloting the unsecured loan product at the moment because you're fully concentrated on the secured lending side. But First, is that right or it's something different and I do not understand correctly? Because when we talk to most of the other players in the market, While they had been restricting originations so far, even the larger banks are now talking about the potential acceleration in growth. So just want to understand that if you're not testing, if you're not open to lending in the unsecured market, then Your competitors will be ahead of you when the market conditions improve.

Speaker 15

So what are your thoughts on that? And Did I understand correctly that lending to the SMB in the unsecured space is not your priority? Because I would assume that the SMBs are probably Less risky than the long tail when it comes to Oncion Lending product, so clarification there. And this goes To my next question, which is on the take rate side. The take rate has been coming down given the change in mix.

Speaker 15

And next year, you see more stability in terms of mix. So take rates should stabilize. But what about 25%, 26%, Do you see take rates continue to come down due to competition? Or do you think new products Like banking or credit would be able to offset any pressure on take rates on competition or lower rates. So

Speaker 2

This is Ricardo. I'll try to address your question. If it's not clear, let me know. But we are testing unsecured credit for small volumes for some clients. And for we have some credit pilots.

Speaker 2

We are doing small tests for different clusters of clients. So we do have processes in place as we have the models, we have the billing Process in place and so on. So we are testing that. But the point is, even when you look at the credit cycle, As I said before, it seems it's getting better. It doesn't mean it is already the time to jump in, but it seems getting better.

Speaker 2

Many, many big banks or the incumbent banks in Brazil, they had they struggled with NPLs in the previous quarters. Now in Q3, It's getting a little bit better for some of them, but it doesn't mean that it's time to jump in. We are ready To do that when you think it's the right time, when you think the risk return makes sense. But to be honest, we find a way with security products that We are happy with that and we accelerate that as much as we can. It doesn't mean that we cannot make unsecured products in the near future.

Speaker 2

Just saying that's not the focus, but we do we are testing, just to answer our first question. In terms of SMBs, We see that we have a strong value proposition that doesn't require us to offer credit for these Clients that we are getting our base. Of course, there could be some SMBs out there that they just want to have An acquiring company, if there is any loan or lending offer and so on. But we don't see that as a block for us to keep growing. As I said before in Slide 5, we are growing like 18%, double of the industry in SMBs year over year.

Speaker 2

There's Few lots of room to grow in SMBs. We see that there is bad service out there and you can get these clients With the value proposition animation, instant settlement, digital free banking and so on, but we don't think that we don't have the plan to keep offering loans for the SMBs at this point. Regarding take rates, we, as we said in 2024, is slightly downward stable. In 2025, 2026, it's hard to give you some visibility. But remember that as we grow our financial services business unit, We also are going to have a tailwind in our take rate because we're going to have more revenues with the same clients.

Speaker 2

So It's hard to say to you how it's going to be genetic rate 2025, 2026. But structurally saying, What we see at this point is TPV that we are seeing Q4 is growing. Interest rates seems to go down, not only in Brazil, but all over the world. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] So all the headwinds that we had like 2 years ago, we are seeing that they are Disappeared or getting better as we look in the future. So I mean, I cannot give you what's going to be 2025, 2026, but It seems like Q4 is going to be a good quarter.

Speaker 2

We expect to have a good 2024 as well.

Speaker 5

The next question comes from Josh Siegler with Cantor Fitzgerald. Please go ahead.

Speaker 9

Yes. Hi, good evening. Thanks for taking my question. Nice print today. First of all, I was wondering if you could comment on how you're thinking about the longer term capital allocation

Speaker 7

Well, Josh, it's Hector speaking. Thank you for the question. Regarding to long term capital allocation, what I can tell you is [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] We are 100% focused on continuing to delivering the results that we are delivering, growing quarter over quarter And using part of these results to reinvest in the company, To reduce the dependency on other financial institutions to fund part of the operation, we have very good margins on Advancing receivables to merchants, and we will continue doing that. On top of that, we have this buyback program that we expect to approve a new program in the coming months, and then we will inform to the market that We have a new program and the rules of this program. And at this point, we are not discussing dividends.

Speaker 7

[SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] So we just are focused on continuing delivering results, investing part of this money to buy back shares, investing part of this money in the operation.

Speaker 9

Great. That's helpful. And I just wanted to dive a little bit deeper into the 2024 potential stabilization Can you give us some more KPIs that would be integral to seeing that take rate really start to stabilize?

Speaker 16

[SPEAKER

Speaker 9

UNIDENTIFIED COMPANY REPRESENTATIVE:] Well, when we see, again, take rates,

Speaker 1

we are not stopped moving up market only to post higher take rates because by the end of the day, I We have been showing quarter after quarter that as the company keeps moving your strategy to Extend the services beyond long tail, this business looks accretive to EPS. What are the drivers for that? Primarily, better spreads given the deposits base by lowering our cost of funding structurally and also the financial services uptrend in terms of revenues that can contribute positively to the take rate evolution moving forward. Naturally, we expect in some point a much more stabilized TPV mix breaking down by merchant size than we have nowadays that necessarily should bring a more stable take rates moving forward. But again, we are not looking take rates.

Speaker 1

We are looking merchants growth and how they contribute to the bottom line. If we look only take rates, we are losing the focus here, which is necessarily

Speaker 5

The next question comes from Sumit Dara with New Street Research. Please go ahead.

Speaker 16

Hi, guys. Thanks very much. And yes, great, great numbers. Just on that point, It seems like the momentum in the business in Q3 and in early Q4 is really Strong. You talked about some initiatives in the first half of the year really coming through.

Speaker 16

I mean, just to dig into that in a bit more detail, you talked about some promotional pricing being part of that. Maybe just help us understand what else You've done and what else is happening to continue that TPB momentum would be Helpful. Thank you. And then I had a quick follow-up, please.

Speaker 2

Hi, Simon. Thank you for the question. Good to hear you. Ricardo, the promotions that we have, we always had promotions all the time, depending on The seasonality, if it's a holiday, if it's Black Friday, we always have promotional prices. But at the end of the day, The idea is to have a driver to get new clients that are looking for specific promotions, specific feature, specific, I don't know, pricing structure.

Speaker 2

But to be honest, these promotions doesn't move the needle because they are very small In terms of the TPV that we have today, so we have BRL100 1,000,000,000 in TPV in Q3. So imagine that we are Getting new clients, but they are a small portion of the total. So I don't think that, to be honest, these promotions will move the needle in terms of, I don't know, take rates going down dramatically and so on because it's like very small when compared to the whole volumes. What we do have is like when you go to mix of clients shifting towards SMBs because again, they have much more volume than long tail. Although they have a lower take rate, [SPEAKER DANIEL MARTINEZ VALLE:] It does make sense for us to go for these clients because they use not only the acquiring, but we are getting more penetration of digital banking in these clients.

Speaker 2

And as time passes by, we can cross sell more products to them. So Going back to your question, we do have promotions all the time depending on the type of clients, depending on some period that we have, limited Sometimes limit to volume, sometimes the promotion is only debit, other times in credit. So we always have promotions and we Sometimes we may have more than 1 promotion at the same time. It's very common. So it's not an issue and it's not something new.

Speaker 2

What is seeing that we are getting More clients, more SMBs, they are getting mature. Some of them may be using other Acquiring this, now they are using Nils more and more because they have these and the settlements and so on. So but as you said in your question, we are Having a good momentum in our view and growing more in the market quarter over quarter and a strong TPV growth in Q4 as well.

Speaker 16

Okay. That's clear. And a quick follow-up, if possible, please. Again, just referring back to Slide 5, where there's a bit of granularity on the different and Segments. Can you just maybe help us understand how much of the volume is SMB today?

Speaker 16

And can you remind us of What the cutoff is, what the definition of SMB versus long tail is? And then just finally, The chart on the right hand side showing the relative growth rates, not sort of precisely, but is that probably how you'd expect to see The kind of relative segments growth going forward, that relative difference between the 3. Thank you.

Speaker 2

Hi, Sumit. We do expect SMBs to grow more in TPV because again, they have more Absolute TPV than other clients that we have, the long tail, we are seeing a good momentum in these SMBs. And as I said before, some of their clients, they became SMBs. So that's why once they reach some level of TPV, They go to the SMB niche or cluster, so to say, here. So that's why SMBs may take advantage of clients that are growing within our base.

Speaker 2

But yes, we do expect SMBs to grow more than long tail. I don't know if it's going to be same difference that you have in this Slide number 5, but if you expect SMBs TPV to grow more than in long tail. Do I have a comment or no? Anything else, Samikat? I don't know if I answered full your question.

Speaker 16

I just wondered, did you have the cutoff, the TPV definitions between SMB and Long Tail and Enterprise would be helpful?

Speaker 2

Hi, Samu. We don't disclose exactly the level of each one, But you may expect that long tail with smaller clients and SMBs, you have a small business with a few employees and so on. So We don't have to exactly number here. We don't disclose that, but it's similar to what some other players in the market And usually the TPV from SMBs are 5 to 10 times larger than Motel.

Speaker 16

Okay. That's helpful. Thank you.

Speaker 2

Thank you.

Speaker 5

The next question comes from Pedro Ledoux with Itau BBA. Please go ahead.

Speaker 10

Good evening, everybody. Thank you for taking the question. Also, Congrats on the quarter and good disclosure. Question quickly on the selling expenses that have been quite controlled year to date, but they seem to have moved up in Q. I'm looking at almost 20% Q on Q jump.

Speaker 10

Wondering if it's related to that heavy activation of QSS that you mentioned more recently Or if you have to do with the greater SMB profile, again, essentially trying to brush here the pace of your total cost and expenses, but this line in particular, Everything else was quite controlled. This one caught our attention. Just wondering if there's any specifics here you want to share with us. Thank you.

Speaker 7

Well, Pedro, thank you for your question. It's Antonio speaking. It's A mix of things in this line, moving up, moving down. We have a little bit of sales force increase in the last months of the quarter. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] That is pushing a little bit this line up, but also we increased the level of chargebacks and provisions for credit.

Speaker 7

And so the most relevant impact is coming from total losses.

Speaker 1

Exactly, Pedro, because by the end of the day, even though chargebacks as a percentage of total Payment volume has decreased 1 basis point in comparison to Q3 2022. Naturally, it grows, right, with TPV. But also the higher level of expected credit losses given the credit model update accordingly to the IFRS 9 that made us to additionally increase our provisions in the short term. We had also an increase In sales force, reinforcing in some geographies, our operation has slightly increased. So necessarily, when we combine all of these deployments necessarily.

Speaker 1

We had this kind of trend in Q3.

Speaker 10

Super clear because indeed personnel expenses doesn't look like to have gone up that line specifically, but selling there,

Speaker 5

The next question comes from Alex Margraf with KeyBanc. Please go ahead.

Speaker 17

Hi, everyone. Thanks for taking my question. Just one for me. I was wondering if you all could comment on Call. A metric that you disclosed in the past, the clients using PagBank as a primary bank.

Speaker 17

I don't think you've Shared it for a couple of quarters. Just wanted to get your observations around that metric, both for consumers and merchants. Thanks.

Speaker 2

Hi, Alex. This is Ricardo. We you're right, we don't have the information here, but We used to have like 60% using that in the consumers and 50% in the merchants. That didn't change too much. It might grow a little bit a month and so on, but it's you can I don't have the numbers on top of my mind here, but you can consider that as The same level, 60% for merchants for consumers and 50% for merchants using PagBank as the primary bank?

Speaker 17

Okay. And is that true as well for the newer cohorts that have onboarded?

Speaker 2

Yes. It is true for the new cohorts. To be honest, for some of them, it's even higher, but you can consider that is similar to what we have.

Speaker 17

Sure. Thank you. Thank you.

Speaker 5

The next question comes from Shurig Somar with Evercore ISI. Please go ahead.

Speaker 18

Hey, thanks a lot for taking my question. It's nice to see the trajectory on the margins. Just wanted to get a sense as to how should we think about for next year in terms of the margin trajectory as to how focused is PAGS on driving margin expansion and also on the operating expense side also like we saw a nice decline as a percentage of top line to like 14.5%. I mean, I know you kind of also answered through that, but is there like a target on that as to what's the baseline for that, which we could see for 2024 and even for the Q4 as well. Thank you.

Speaker 2

Hi, Sharik. Thank you for the question. I'll let the word for Arthur in a few minutes for him to complement. But [SPEAKER

Speaker 9

CARLOS GOMES DA SILVA:] In terms of

Speaker 2

margins, it's also worth to say and to remember everyone that we are the most profitable company in this market. If you consider TPV, for every reals or every dollar that you have in volumes transaction in our POS devices or online solutions, we are the one with Translate that in profits in the bottom line more than any other player. So relatively to our competitors, we have the We are the most profitable company in this market. So margins is a consequence of what you're doing and what we're growing in terms of clients. And as we said, as we have this mix shifting from less from long tail, more to SMBs, We see that the net equity rate is lower, but in absolute terms, it's higher.

Speaker 2

So in dollars in absolute dollars, it's higher. So We don't look to margins as the main driver for the company because at the end of the day, what we want to do is to have EPS accretion. And this quarter, we had 7% EPS accretion quarter over quarter and 10% EPS accretion year over year. [SPEAKER CANDIDO BOTELHO BRACHER:] So that's the main driver that we look for to generate value to our shareholders, EPS accretion. Margins is kind of the consequence, but to be honest, it's not the main focus.

Speaker 2

And you can see that the margins are very stable in the past quarters. Even this quarter, if not wrong, it grew like 10 bps. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] So that's the main view how we see margins, but Arthur can give you more color to you. Thank you.

Speaker 7

As Dutra is saying, we keep growing our business in payments, in financial services. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] All of the segments are contributing to the bottom line. We had the all time high net income GAAP and non GAAP this quarter that we are proud and announced that. We are not putting a lot of focus on margins, but in nominal growth, yes, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] We are focused on that. And it's true that going forward, lower interest rates and better performance in financial service can help us to increase margins.

Speaker 7

We are not providing any guidance for the future, but it's true that those two things and the focus on reducing expenses and continue to growing both business can help us to deliver that.

Speaker 5

The next question comes from Tito Labarto with Goldman Sachs. Please go ahead.

Speaker 14

Hi, good evening. Thank you for the call and for taking my question. Just a follow-up on the Slide 5. Thanks for that disclosure on the growth side, the different segments. I know you mentioned that SMB probably still grows faster, but should we expect Some type of conversions between SMB and long tail just in the sense of for the take rate to stabilize.

Speaker 14

They probably have to begin to stabilize, so there could be some deceleration in SMB and maybe some acceleration in long tail. And maybe, not a completely fair question, but one of your competitors gave some long term guidance on 13% CAGR and SMB TPV growth. Just you're growing 15%, but how do you think about the sustainability The micro and SMB TPV over time, you think you should be able to gain share growing above the market? Is like a mid teens type PPB growth sustainable over the coming years? Thank you.

Speaker 2

Hi, Tito. This is Ricardo. I will start backwards and then Eric or Arthur can talk about take rates. We always say that we try to go more than the industry in a profitable way, and we try to keep doing that in the following years. So we kind of decelerate a little bit our TPV in Q1 this year or a little bit in Q2.

Speaker 2

But in Q3, we saw this Rebound again. Q4, we have fair numbers in the 1st 45 days, and we We'll try to keep growing more than the industry in a profitable way in the niches that we decide to grow, which is MSMBs, Long tail and also SMBs. Of course, if we look at TPV, we have relatively more penetration in long tail than SMBs related to the market. So that's why SMBs, TPV has grown more when compared to long tail. We keep working on these two Different niche, so to say, but we have lower exposure to SMBs at this point, and that's why we are growing.

Speaker 2

And we don't see Good service out there that we need to grow there and decrease prices and so on. We can go there with our value proposition. We try not to compete with price. And looking forward, we the long term view here is to keep growing more than the industry, the niches that we decide to play. If there is a huge growth in large accounts and we don't grow in this type of client, that's fine.

Speaker 2

We will play in MSMBs. We cannot comment in some other companies' CAGRs, and we don't know what is the assumptions behind that. But our view is to keep growing more than the industry in these 2 niche MSMEs.

Speaker 1

And one of the things, Tito, that if the CAGR It's a reality. I think this is positive news, especially for new players like us, right? Because by the end of the day, When we look at the small and medium businesses, despite we see much more companies talking about this existing opportunity, We have the merchant acquiring and digital bank fully integrated. We have been growing almost 20% year over year. So there is still further room to keep growing on that.

Speaker 1

And necessarily, if it's feasible, that's good. It implies to say that The economic outlook and the industry trend should continue to improve as we saw in Q3 in comparison to Q2. This also implied that the card penetration should increase and necessarily our market share gains in all segments and overall market share. So I think it's a good message when we hear that the outlook for the next years is compelling because the opportunity will primarily will be for the new players like us. And secondly, we have the advantage Having the lower average cost of funding similar to bank acquirers And we have a value proposition similar or better than the new players.

Speaker 1

So we have this best Combinations. So this is why, again, we are not looking for take rates because when we look at the total addressable market, it's huge, right? We only have 10% to 11% market So we are aiming to explore this market share. And when we look at the take rates trajectory, again, it will depend on mix. Right now, we have seen better momentum on all the segments.

Speaker 1

If we grow faster in large accounts necessarily, There will be a take rate trajectory differently, right? If it's accretive to bottom line, that's amazing, right? So this is what we are looking for And this is what we are working for. So thank you so much.

Speaker 14

But just one follow-up kind of on the first point, but is it fair to say that for the take rate to stabilize, you do need a little bit of a conversion Between the SMB and the long tail on the growth, just given the different dynamics there?

Speaker 1

It depends on how the both segments work. It's early to say anything about conversion right now.

Speaker 14

Yes. No, my question is more for the take rate to stabilize, you would need to see the growth Be closer between the two segments, right? Because otherwise, if you keep growing faster in SMB, just by nature, the take rate will come down. So for the take rate stabilization that you pointed to, they would be growing a little bit more at a poster pace? That's just what I'm trying to understand.

Speaker 1

We are not concerned about take rates. We are concerned about profits growth necessarily

Speaker 6

As the convergence

Speaker 1

of SMBs, micro merchants and overall market share breaking down In large accounts, SMBs and long tail. Necessarily, if this is stabilized, pay rates stabilize. So It's we don't have right now any commentary on the convergence of take rates of SMBs in long tail. But what we can say is for the long tails, They necessarily keep growing their businesses. They can have better offerings if it makes sense, but we always evaluate and how to create a win win relationship on merchant acquiring take rates and financial services revenues and what are the gross profit of accretive transactions that we have here.

Speaker 14

Okay. Thanks. But I could follow-up with

Speaker 5

Thank you all very much. This concludes our Q and A section of the call. I'd like to turn the conference over back to Management for your closing remarks. Please go ahead.

Speaker 9

[SPEAKER RAMON ALVAREZ

Speaker 2

PEDROSA:] Hi, everyone. Thank you very much for participation in the call. Thank you for investing time. Talk to you next call. Thank you very much.

Speaker 5

Conference. This concludes today's conference. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
PagSeguro Digital Q3 2023
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