PagSeguro Digital Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 25, 2023

There are 18 speakers on the call.

Operator

Good evening. My name is Nir Huguille, and I will be your conference operator today. Welcome to PagBank Webcast Results for the Q1 2023. At this time, all lines have been placed on mute to prevent any background noise. This event is also being broadcast live via webcast and may be accessed through PagBank website at investors.

Operator

Pegsiguro.com. Participants may view the slides in any order they wish. Today's conference is being recorded and will be available where the event is concluded. I would now like to turn the call over to your host, Ericio Olivida, Head of IR, ESG and Market Intelligence. Please go ahead.

Operator

Hello, everyone.

Speaker 1

Thanks for joining our Q1 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 currently available information and PagBank's current assumptions, expectations and projections about future events. While PagBank 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 PagBank's presentation or discussed on this conference call for a variety of reasons, including those described in the Forward Looking Statements and Risk Factors sections of PagBank's most recent Annual Report on Form 20 F and other filings with the Securities and Exchange Commission, which are available on PagBank's Investor Relations website. 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, It's not intended to be considered separately from or as a substitute for our financial information prepared and presented in accordance with IFRS as issued by the IASB. For more details, The foregoing non GAAP measures and the reconciliation of these non GAAP financial measures to the most directly comparable IFRS measures are presented in the last page of this webcast presentation and earnings release.

Speaker 1

With that, Let

Speaker 2

me turn the call over to Ricardo. Thank you. Good evening from Sao Paulo, everyone, and thanks for joining our Q1 2023 Results Webcast. Tonight, I have the company of Alexandre Magnani, our CEO Artur Shunk, our CFO and Eric Olivera, Head of Investor Relations and ESG. Before Alexandre and Arthur share the main highlights for the quarter, I would like to share some achievements during the 1st months of 2023 and the main drivers for profits and cash flow generation balanced with quality growth for the coming quarters.

Speaker 2

Going to Slide 3. On the left side, we are happy to announce the convergence of our brands, PagBank and PagSeguro, into 1 single brand, PagBank, the complete bank. We are excited about the next steps of our journey, having a unique two sided ecosystem combining payments and Financial Services in 1 single app, 1 single iBanking and 1 customer care. For us, PagBank brand represents our offering beyond payments. We're also happy to announce that PAGS has joined in FTSC Russell preview list, which can impact positively our average daily volumes, increase exposure to passive funds and further improve PAGS shares awareness.

Speaker 2

Another milestone was the brokerage license granted by CVM, the Brazilian Securities Exchange Commission, an important step that enable us to provide a complete set of investment projects through our proprietary and integrated platform. On the right side of the slide, we highlight our main drivers for 2023 financials. Our drivers for profitability during these years are solid, as a main source of funding and at a lower cost when compared to peers. In terms of drivers for cash flow generation, We are focusing on improving our cash earnings and looking for capital expenditure efficiencies with diligent go to market strategy and Software Development Optimization. Finally, in our drivers for quality growth, we will keep fostering PagBank, Secured Credit Portfolio Products and Growing Volumes in Key Segments.

Speaker 2

We also reaffirm our commitment to create a superior value proposition for our clients based on the transparent integration between our payments and financial services platform. Now I'll pass the word to Alexandre. Thank you.

Speaker 3

Thank you, Ricardo. Hello, everyone. After Dutra's initial remarks, I would like to present how the growth and Profits Cash Generation Drivers Behave During the Q1 of 2023. PagBank clients reached 28,700,000 accounting for more than BRL200 1,000,000,000 in transactions processed by us, driven by the strong customer engagement, which is a consequence of our superior product value proposition. Our EBITDA reached almost BRL800 1,000,000 and our net income close to BRL400 1,000,000 with Q1 2023 earnings per share of BRL1.13.

Speaker 3

Our discipline in capital allocation has been driving up cash earnings momentum. Our cash earnings accounted for BRL379 1,000,000 versus a cash burn of BRL70 1,000,000 in Q1 2022, reaching BRL10 1,000,000,000 in net cash balance, while our capital expenditure market had decreased of minus 40% year over year. In our Financial Services division, the main highlight was the breakeven point it reached with EBITDA close to BRL70 1,000,000 led by total banking volume growth and better spreads since deposits reached EUR 18,600,000,000 with and a yield of 94% of the Brazilian interbank rate. In payments division, our TPV grew 10% with our key segments, micro merchants and SMBs, growing 50% faster than the industry growth, accounting for 16% year over year with BRL1.2 billion in gross profit. Slide 5.

Speaker 3

We are happy to announce the unification of PagBank and PagSeguro Brands under PagBank only. Following our strategy to reinforce our one stop shop solution under the PegBank brand, we expect to have a broader reach among merchants and consumers to simplify our communication strategy and client understanding and increase client awareness about our service beyond payments. Moving to Slide 6, we present our client base and cash in evolution. Our number of PegBank clients almost doubled in comparison to 2021, moving up from $15,000,000 to $28,700,000 in 2 years. Active clients accounted for more than $16,000,000 where 62% of consumers and 50% of the merchants considers PagBank their primary account.

Speaker 3

Our growth in cash in reached BRL 45,000,000,000 versus Q1 2022, led by total payment volume from merchant acquiring and strong growth of PIX inflow transactions. As a result, Slide 7 reviews a deposit growth of 66% on a year over year basis with nominal growth of 7 of BRL4 1,000,000,000, reaching a total level of BRL18.6 billion on the 1st Q 'twenty three. Also, The respective annual percentage yields on deposits have decreased to 94% of the Brazilian interbank rate due to lower dependence on 30 part platforms distribution and improvement in cash flow generation. Account balance APY in 1stq2023 reached 73% of the CDI, an increase in comparison to the previous quarter, which was mainly related to higher number of days our clients kept their savings in PagBank, reflecting our successful engagement strategies in SMBs and Consumers with Higher Income. Talking about our credit portfolio.

Speaker 3

We kept our strategy of reducing credit underwriting for unsecured products, while leveraging secured products origination. In comparison to 1st Q 2022, we were able to reach BRL2.7 billion in outstanding credit portfolio where Secured Products increased its shares from 11% in 1stq 2022 to 44% in 1st Q 'twenty 3. The diversification of our credit portfolio has played a pivotal role in our overall business strategy. It has not only expanded our market reach, but has also had positive impact in our risk management practice. This strategic approach has resulted in a significant reduction in the provision for losses, effectively lowering our exposure to high risk clients.

Speaker 3

Furthermore, we would also like to report a substantial improvement in our credit portfolio performance. The nonperforming low end NPL above 90 days for our outstanding credit portfolio has significantly decreased to 17.9% compared to the high level of 22.4% in 1stq 'twenty 2. This reduction reflects our diligent efforts in managing credit risk assessment and enhancing asset quality. The successful diversification of our credit portfolio allow us to maintain cautious yet proactive approach, balance prudent risk management with potential for long term growth. By reducing our exposure to high risk clients, We have enhanced the overall stability of our credit operations while optimizing our risk return profile.

Speaker 3

These achievements underscore our commitment to prudent lending practice, rigorous risk management, long term stability and Profitability of our Credit Operations. As we navigate uncertainties, we remain focused on maintaining a robust Risk Management Framework Driving Sustainable Growth in the Future. Before I turn over to Arthur, I would like to give you more color on the growth of our payment business on Slide 9. As shown before, Our TPV has grown 10% compared to 1st Q 2022. Our revenue growth can be attributed to a combination of factors.

Speaker 3

Diving into the specifics, our MSMB have experienced 16% growth during the quarter. When we exclude Nano Merchants, which are merchants with less than BRL1,000 monthly TPV, This growth was 17% comparing to 1st Q 2022. When we compare total active merchants based, We had a reduction of 10% comparing Q1 'twenty three versus Q1 'twenty two. When we exclude Nano Merchants, we noticed a 3% growth on the active base. These figures are direct result of our focused efforts to address MSMB needs, prioritizing the merchants with higher average TPV within the segment, which demonstrates the effectiveness of our strategy to allocate our efforts into growing on SMB and Overall TPV.

Speaker 3

Therefore, we remain confident in our decision to prioritize categories with higher profitability potential. Now I will pass the word to Arthur to present our financial results.

Speaker 4

Thanks, Alexandre. Hello, everyone, and thank you for joining us tonight. As we usually do, I want to share the financial highlights for the quarter. Once again, PAGS presented another set of records for a first in the company's history. TPV, gross profit, net income and cash earnings market all time high figures.

Speaker 4

Adjusted EBITDA grew 18% year over year despite revenues growth of 9% versus Q1 'twenty two, revealing our earnings power and cash generation that is a result of our strategy of better balanced growth and profitability. From Q1 'twenty three onwards, we will change the managerial methodology to allocate float between payments and PagBank. Now on call it financial services verticals. 100% of the float will be booked in financial Services vertical, similar to other financial institutions. There is no change in the revenue for payments vertical, but an increase in financial expenses.

Speaker 4

Since the share of such expenses offset by the float, usually booking payments vertical will no longer occur. Consequently, gross profit and adjusted EBITDA will decrease. On the other hand, revenue for Financial Services vertical will increase since the float will lead to a higher interest income. Consequently, gross profit and adjusted EBITDA will increase. Important to say that there is no change in Pag's consolidated basis.

Speaker 4

And for comparison reasons, we provide in the appendix in the 4 quarters of 2022 using the same metric applied to Q1 'twenty three to equalize our historical results by vertical. Financial Services vertical achieved a positive adjusted EBITDA of BRL69 1,000,000 this quarter. Even considering the old managerial float allocation, the result closed Q1 'twenty three in the positive side. As a result of better performance of the credit portfolio with secured products that demand lower level of delinquency provisions. Net income non GAAP achieved R392 $1,000,000 and net income GAAP increased 6% year over year, totaling BRL370 1,000,000.

Speaker 4

This represents an earnings per share of BRL1.13 in the quarter, 0 point 0 8 dollars or 8 percent better than Q1 'twenty two. In March April, we repurchased 2,500,000 shares under our buyback program. Our strategy and focus continue to better balance growth and profitability, targeting to improve shareholders' return. On Slide 11, revenues for payments vertical grew 10% year over year due to the positive result from the massive merchant repricing done in 2022. As a result, gross profit reached BRL1.2 billion, an increase of 2% when compared to the same period of last year, with financial expenses offsetting uptrend given the higher average interest rate versus the Q1 'twenty two.

Speaker 4

In the next slide, Financial Services Verticals' total revenues reached BRL331 1,000,000 in Q1 'twenty three, 1% lower than Q1 'twenty two due to the shift to secured products underwriting, which have lower APRs and longer duration in comparison to unsecured products. On the other hand, gross profit reached R179 $1,000,000 an increase of 2 74% year over year, mainly due to the secured products portfolio that naturally leads to lower provisions for losses. Based on that, we are creating a safe and solid path to restore a better mix of credit underwriting composed by secured and unsecured products in the coming quarters, enforcing our 1 stop shop value proposition and further increase PagBank Principality. Moving to Slide 13, financial expenses closed at BRL813 1,000,000 versus R621 million dollars in Q1 'twenty two. This increase is mainly explained by the higher average interest rate in the period in comparison to Q1 'twenty two.

Speaker 4

This was partially offset by the higher share of deposits and return on earnings in the period that lowered funding spreads and led to lower financial expenses in comparison to last quarter. Total losses decreased 50% year over year. This great performance comes from lower expected credit losses of Credit Portfolio, driven by healthier coverage ratio and credit underwriting, mostly for secured products. At the same time, chargeback as a percentage of TPV decreased versus Q4 'twenty two and Q1 'twenty two. Important to highlight that total losses in Q4 'twenty two reduced around 30% over Q3 'twenty two and this quarter reduced more 34% over Q4 'twenty two.

Speaker 4

Operating expenses reached R587 $1,000,000 in Q1 'twenty three, up 5% year over year. This amount represents 15.7 percent of Pag's Revenues versus 16.4% in the same period of last year and stable when compared to last quarter. The improved efficiency has come from personnel and marketing expenses leverage. This quarter, we had a one time expense related to the headcount resizing around BRL12 1,000,000. Excluding this, operating expenses in nominal terms were flattish versus Q1 'twenty two.

Speaker 4

Jumping to Slide 14, We present a summary about how PagSeg's results evolved during this quarter. Revenue growth, Lower losses and operating expenses discipline more than offset the increase in financial expenses and D and A plus POS write offs. In the next slide, cash earnings continue to gain momentum, reaching a positive amount of BRL379 1,000,000 versus a negative amount of BRL70 1,000,000 in Q1 'twenty two. Cash earnings represented around 10% of revenues, reflecting the company's focus on maximizing LTV to CAK ratio by balancing POS subsidies, client engagement and monetization and the dilutive process to leverage profits and cash generation. CapEx to revenue ratio reached 10.9% this quarter versus 19.9% in Q1 'twenty two.

Speaker 4

This decrease was mainly driven by the go to market optimization in POS being more selective in merchants acquisition to leverage PagBank and sustainable growth at the same time, setting a higher bar for investments optimization and Software and Engineering Teams. Depreciation and amortization, including POS write off, totaled BRL365 1,000,000, representing 9.7 percent of PagSeg's revenue, keeping the ongoing convergence of CapEx and D and A to unlock additional profitability in the coming years. On the Slide 16, Our net cash balance ended the 1st quarter at BRL10 1,000,000,000, increasing BRL1.7 billion year over year. At the same time, we have been improving our capital structure and diversifying funding sources to support volume growth with deposits now representing around 59% of our 3rd party funding source. Our equity position continued to increase with 54% being composed by return earnings, reinforcing our commitment to shareholders about capital allocation and returns.

Speaker 4

To conclude our presentation. I turn back to Alexandre for the final comments. Thank you.

Speaker 3

Before ending our presentation, we would like to delve into a key point regarding the prepaid cards interchange fee cap impact on our business. 1st and foremost, it's important to recognize that PAG's Ecosystems robust and adapt a platform that Form that leverages our complementary businesses, namely acquiring and card issuance. This combination creates a natural hedge for the company allowing us to mitigate risks and capitalize on opportunities in the market. By observing the impacts on the month of April and looking ahead to 2023. We anticipate that the net income will remain relatively stable since the impacts on net income due to prepaid cards new interchange regulation are relatively negligible.

Speaker 3

Before jumping to the Q and A session, I would like to emphasize our focus for 2023. Customer Engagement and Revenue Diversification develop an integrated, unique and superior value proposition under a single brand. Foster security in our operating levels to reduce losses and improve customer experience. Invest in our human resources to keep building a pleasant and highly productive work environment. Now we have ended our presentation, and we will open the Q and A session.

Speaker 3

Operator, please?

Speaker 5

Thank you. We will now begin the question and answer session. Our first question comes from John Cauffy,

Speaker 6

Barclays. Great. Thank you very much for taking my question. My question was really on TPV growth, particularly some of the numbers you said on Slide 9 of the deck. I see that your I know you reported 10% TPV growth, but if you were to exclude the large accounts and sub acquirers, you'd be at 16.

Speaker 6

So I guess I was wondering what is happening with the large accounts and sub acquirers given that 6 ppt magnitude between those growth rates? Are these just Certain accounts are moving off platform or speak to any kind of underlying factors that you're seeing in Brazil?

Speaker 2

Hi, John. Thank you for the question. Yeah, you're right. On Slide 9, if you exclude the NANDO merchants And the large accounts that super acquirers across the 16%, which is higher than the industry that was 10.7 What happened is that, of course, with the high interest rates in the economy, some sub acquirers are decreasing their volumes. That's part of that.

Speaker 2

But the majority of the movements here or the moving parts here is because we are looking for profitable accounts with positive net take rates. So we as we always say, we are not looking for market share as the main driver for the company. Market share is a consequence of what we're doing, looking for positive accounts with Positive net tick rates and eventually some large accounts and subacquirers may migrate to other players that are looking for market share. And that's fine. That's fine.

Speaker 2

We are fine with that decision. We are looking for profitability in a sustainable way. We are looking for clients that could also use PagBank so that we can cross sell, we can get data, we can eventually offer credit to them in the near future, but that's the explanation. Some of the clients moving to someone else and also some subacquirers have been decreasing in volumes because they are struggling with the high interest Rates. In a situation like that, it is important to have a scale as we have here in PAGS.

Speaker 6

Thank you. I just have one quick follow-up just related

Speaker 7

to that. When does the impact of

Speaker 6

the Nano merchants essentially go away? Like when do all the ones who are going to leave your platform leave such That all the numbers start moving the growth rates start moving in the same direction again.

Speaker 2

Well, we are not We are seeing the nano merchants. Some of the nano merchants, what happened is we see some mortality. As you may know, last year, we did not focus on nano merchants because we had Busidized the POS more than what we think is healthy and sustainable for the company. So that's why we are seeing The churn is stable, but the gross adds are lower because we took this conscious decision not to accelerate the Nano merchants anymore. But important to say that part of the nano merchants that are not using or acquiring, they keep working with us with PagBank.

Speaker 2

Maybe someone got a job, but they keep using PagBank as their bank. So, the main focus is really the micro merchants and the SMBs.

Speaker 8

All

Speaker 9

right. Thank you.

Speaker 4

Thank you.

Speaker 5

Our next question comes from Mario Pierry, Bank of America.

Speaker 8

Hey, guys. Congratulations on the results. Let me ask you two questions. First one, the market Starting to pricing lower rates in Brazil later this year. Can you remind us of your sensitivity of your earnings A lower rate environment.

Speaker 8

Also, how would that impact your strategy, especially on pricing? Would you clearly, You have a benefit on your financial expenses. I was just wondering if you would be willing to pass on that improvement to your clients, Especially because we're seeing some of these non listed companies becoming more aggressive in market share. So just wanted to hear your thoughts on how a low rate environment would impact your business? And the second question, I thought it was interesting that you In the name PagBank, the bank today represents about 10% of your revenues.

Speaker 8

So when we look over like a 5 year time, do you I think that the bank clearly is going to become a bigger part of your business, but like just wondering how do you see that evolving? Is the banking revenues going to be 30%, 40%, 50% of your revenues? How do you look at that? Thank you.

Speaker 2

Hi, Mario. Thank you for the questions. Regarding interest rates, you're right that some people are saying that interest rates could go down in Brazil this year. Of course, that's something that is very dynamic. No one knows what exactly is going to be the interest rates in the near future.

Speaker 2

And as you mentioned in your question, as we have many moving parts here, we have some part of our clients are long tail that once the interest rates go down, we can recover margins in the next business day because we charge these client's fixed rate regardless of the Selic. There are some other clients that we may eventually call us to negotiate because Probably, they can have some information about the interest rates, and they may call us to negotiate, but that's not going to happen immediately. So we will also take advantage of that. And we have some small part of our TPV that is already linked with Selic. So if Selic goes down, The MDRs and the prepayments that you have for these clients may go down with the Selic.

Speaker 2

So we have many moving parts here. In addition to that, we have competition as you So we'd rather not to give you the exactly number, but I would say that if the or when the interest rates go down, We will be the company that will benefit the most with that because of the long tail that we have, because of the service that we offer for our clients and the that they have in our base. But we'd rather not to give an exact number here because as you mentioned in our question, there are many moving parts here. That's the first part. The second one regarding PagBank.

Speaker 2

At the end of the day, what we are, we are a technology company offering financial services and payments. That's what we are. That's we are have been building all these years. And we think PagBank represents more What we already have today, regardless of the revenues that you mentioned is 10%, but regardless of the revenues of 10%, PagBank represents what we have today in terms of products, in terms of stickiness and even in number of clients. We have more clients in PagBank than in PagSeguro.

Speaker 2

And that's the future of the company. That's for sure. We are going to offer more and more financial services, and we think that's the right time to do that. In addition to that, we also that We are also, we are sure that we may optimize our market investments by having only one brand. When you are a multi brand company, it's always kind of You have some of these inefficiencies when you advertise and you may generate some confusion even in some part of our clients.

Speaker 2

So we'd rather Take the decision at this point, move to PagBank, invest in this brand. And of course, in the future, we're going to have more and more revenues coming from the financial services and related to that. Okay.

Speaker 8

Now very clear. Let me just follow-up then. If you can be a little bit more specific on competition in the SMB segment, I think that's where we're seeing The bulk of competition today and I'm hearing a few players that think that they should be increasing their sales force. Are you and you've done an amazing job of your expenses. Is this something also that you could consider like

Speaker 2

Mario, we Two parts here, and thank you for the follow-up. First, when you have these headcount resizing, we kind of Not affected our sales force. Of course, if you have some sales force that is not performing, but that's different. So when you have this headcount resize, we try to preserve our sales force because we think it's one of the strengths that we have in the company. We are executing very well the results by itself.

Speaker 2

And regardless the growth of this team, we are always evaluating. There is no fixed Decision here that we will not increase. Once you see there is opportunities for growth with these genetic rates, we will invest. But I would say that just to give a quick number here, our productivity per salespeople doubled in last year Because we are being more assertive in the way that you make the routes, we are more assertive when the way that we send The salespeople to salesperson to the right merchant with the right pricing, they are As time passes by, they get more trained. They have a better sales pitch.

Speaker 2

So but going back to your question, we are evaluating that very carefully. We are not, Let's say, concern about competition increased the sales force. We keep doing our job, look at what we're doing, our productivity. And if you think there is some to increase our sales force. So that's for sure.

Speaker 8

Okay, guys. Thank you very much.

Speaker 5

Thank you. Our next question comes from Craig Murther, Feet Partners. Please proceed.

Speaker 10

Yes, good afternoon. Thanks for taking the question. Just one question on The take rate in the acquiring business. Could you give us some thoughts on how that should trend over the coming quarters considering that it sounds like there will be a slowing of Attrition in the Nano Merchant Business and you also made a statement that you're shifting the focus in large merchants from share gains to profitability in terms of large merchants that you'll be taking on the platform. Plus, You also talked about some attrition in sub acquirers, sub acquirer volume.

Speaker 10

So the take rate, It would just be great to get some thoughts on the directionality.

Speaker 2

Hi, Craig. Well, going straight to the answer, We expect the take rates from the operating business to be stable in the following quarters. Of course, remember that in Q4, we have a seasonality with more debit card And we expect to be stable because we also have some moving parts here. At the same time that you are increasing our SMB efforts and also micro merchant efforts. And as we said, we lost part of our nano merchants, but it's only 2% of TPV.

Speaker 2

On the other hand, when you have this superpowers and large accounts moving out, it also helps our net take rate because they have a lower Net take rate as you may know. So with all these moving parts and all the execution that we've been doing, we expect the net take rate in the following quarters to be Stable.

Speaker 5

Our next question comes from Brian Kien, Deutsche Bank.

Speaker 6

Hi, guys. Just wanted to figure out if we could get the percentage of TPV that comes from large accounts and also sub acquirers.

Speaker 2

Hi, Brian. Thank you for the question. But to be honest, unfortunately, we don't give this disclosure because of Competitive reasons. But I would say you that the MSMB is the largest portion for TPV already, But you don't give the disclosure, the breakdown between the other parts of CTPV, I'm sorry.

Speaker 6

Okay, okay. And then just on the bigger picture question, I mean, most of your investors and analysts on the call are mostly coming from the tech side of things. When you say you want to get more growing into financial services, how much credit risk are you guys willing to take and look like a traditional financial bank because that's a totally different investor base and a totally different kind of company.

Speaker 2

Yes, you're right. That's eventually a different dynamic. So as I answered the question from Mario, We are a tech company that offer financial services and also payments. But of course, it's unavoidable that we at some point, we're going to Take some credit risk. At this point, we don't have this appetite.

Speaker 2

We stopped giving Credit without collateral in the Q1 2022. Since then, 100% of the new or the underwriting is 100% secured. As you can see in our deck of slides today, 44% of our credit portfolio is 100% secured, and we don't think that's going to change in the following quarters. But at some time in the future, We will start to give you some credit without collateral. Of course, we're starting with the clients that we already have in the base.

Speaker 2

But right now, the macroeconomic scenario doesn't Help us to have this appetite. We can see even the big banks in Brazil having some struggling to charge some of their clients seeing higher NPLs, not to say about the macroeconomic environment in the world. So here we are Accelerating in the 100% secured, we found a way to grow PagBank in a sustainable way with a path to profitability through the secured products. And we don't think that's going to change in the future. That's the big picture of the company.

Speaker 2

In terms of the investor base and the The point that you brought, I don't think that should change that much because at the end of the day, we are a tech company. We have a diversified product offering here. So we will not be a company that is going to rely in credit in the near future. So that's what we expect.

Speaker 5

Our next question comes from Pedro Leduc, Itau BBA.

Speaker 11

Thank you guys so much. A little bit on the Losses and operating expenses lines that are a little more on your control. First on losses, very good delivery here on reducing chargebacks. I would want to understand if you think this is just a path that started, got to do with the cleanup of the base, if there's more to go. Also on the credit losses on the portfolio, As you've been adjusting and if this is maybe a new run rate here in terms of cost of risk is €40,000,000 And then later, I'll jump on to the OpEx side.

Speaker 11

But first on the losses, chargebacks and credit, please.

Speaker 4

[SPEAKER CARLOS GOMES DA SILVA:] Hi, Pedro. It's Arthur speaking. So related to total losses, it's The reductions

Speaker 1

that we are having right now, it's 50% in comparison to Q1, 'twenty two,

Speaker 4

30% in comparison to Q4, that was 30% better than Q3 in 'twenty two. And totally as a result of the shift of our credit portfolio from unsecured projects to secured products.

Speaker 1

[SPEAKER CARLOS GOMES DA SILVA:] And we expect that we continue to having good results in terms of losses. That, as Dutta mentioned, is the right path that we

Speaker 11

Okay. And on the chargeback side of the losses?

Speaker 4

I'm sorry. Inside the total losses, we have the chargebacks that also So we did a great job here, in my opinion, in terms of fraud prevention. And all the systems, teams and process that we developed during 2022 to help our acquiring business to perform in a good way to control chargebacks. And important to say, Pedro, this is Eric, that our unique value proposition that offers to merchants. Instant settlement does not necessarily increase chargebacks, and

Speaker 1

this is something that we have been improving our systems, improving our KYC processes in order to further increase chargebacks as a percentage of TPV.

Speaker 11

Thank you, Eric. If I may on the second question and for the operating expenses, first, if you could help us On the personnel side, there's a 11% increase year over year. You mentioned there's a one off impact related to the downsizing. Can you just help us understand how this 11% would look like without this one off impact? And then the second there on the marketing advertising run rate for the remainder of the year.

Speaker 11

Do you think this lower level here is something that is more reasonable for this environment? Thank you.

Speaker 4

Okay. In personal expenses, you are right. We have this headcount resizing

Speaker 1

in the beginning of this year

Speaker 4

in January. And the severance cost was around BRL11 1,000,000 BRL12

Speaker 1

1,000,000. That was a nonrecurring item for the Q1. And also in terms of marketing expenses, we are expecting to spend a little bit more than Q1 in Q2 because of this, I say, rebranding of PagBank PagSeguro to PagBank.

Speaker 4

But we will continue to apply our disciplined cost control, not only for OpEx, but CapEx. And The best as you can do right now is control costs as much as possible to keep our company healthy.

Speaker 11

Thank you so much for the answers.

Speaker 4

Thank you.

Speaker 5

Our next question comes from Neha Agarwala, HSBC.

Speaker 12

My first question is on choosing the brand, ParqBank. I believe Parqsa Guro created a very strong brand name In the acquiring business, especially in the long tail, I'm sure you've done studies to understand what will be the impact of moving from PagSeguro brand to ParqBank brand. How seamless do you think will it be for your customers? So if you could comment on that. And my next question is, I understand you do not break down your TPV by how much is large accounts, how much is SMB.

Speaker 12

But [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Could you give us some sense of what is the take rates in the Large Account and Sub Acquire segment? Because from what we understand, looking at your peers, The take rates are much lower for that part of the business, which probably is about 30%, 40% of the business by now. If you could give some sense about where The take rates are what kind of proportions do you see and where is it headed? Do you plan to increase your share in the Large accounts in the sub acquirers or are you planning to reduce your share there? Some color on how the TPV mix should evolve.

Speaker 12

That would be very helpful. Thank you so much.

Speaker 2

Hi, Nija. Regarding the brand, you're right, we have a strong brand with PagSeguro, but we also have a strong brand with PagBank. I know we started PagSeguro before PagBank and that was the beginning of the company offering POSs, but We launched PagBank in 2019. So we are completing now 4 years. And it also has a very Strong brand already in Brazil.

Speaker 2

Many of our merchants use both of the brands. They sell through the POS and they make the transactions and they use the app. And the app they use there is PagBank already since the beginning. So and of course, we will not make the migration from one day to the other. That's something that we will start to use more and more PagBank, but the POS as they have there is to use PagSeguro.

Speaker 2

So we're making this transition. There is this Communication Project so that we can communicate our base that PagSeguro is now PagBank and so on. So we don't see there's going to be friction there because mainly because many of our clients already use Yes, PagBank when they want to cash out or use our cards and so on. Regarding the second question.

Speaker 3

And Nia, this is Alex Shenry. Just to give you more color on that question regarding to the brand. Today, 60% of our active customer base use only PagBank has relationship only with Financial Service. And out of the 40% remaining, which is the merchant base that primarily uses the acquiring service. 90% of them uses PagBank 2.

Speaker 3

So these customers, they use on a daily basis our PagBank app. And since 2019, all our POS terminals are PAG Bank branded only And all of our cards issued since then are also PagBank branded only.

Speaker 2

Yes. So the second question about take rates In the moving parts, Nijan, you're right, we don't give this disclosure about the percent of CPV coming from large accounts and super acquirers. But I'd say that if you look at the market, the other players that are more focusing on large accounts and subacquirers, Our net rate is similar to them. So it's not that different, similar to what other players in the market that operate in this type of clients have. As you can see or as you know, it's much lower than what we have in SMBs and also in micro merchants.

Speaker 2

We will look for accounts that have positive net take rates that have some returns that we think is feasible for the capital of the company. And again, we are not concerned about the market share of total TPV. We will focus on the key segments that we last year, which is Micro Merchants and SMBs. And with all the moving parts and even some large accounts that we will get because, of course, We may lose some large accounts, but some of the clients come to us because they want to work with us and even subacquire. So with all these moving parts, That's why I answered in the previous question that we expect net equity to be stable throughout the year, except Q4 because of the seasonality of debit card transaction.

Speaker 12

We have not talked much about exposure to large accounts or sub acquirers in the previous quarters. This Something that we are talking about in this particular quarter. So what led to this kind of pivot to having exposure to large accounts? Because you started from the bottom of the The pyramid you moved up to SMB, but we never really talked about gaining exposure to the large accounts. So Has this been something that you've been planning for the past couple of quarters?

Speaker 12

Or do you see opportunities coming your way, which [SPEAKER CARLOS GOMES DA SILVA:] Makes sense economically, and that's why in the last 1 or 2 quarters, you're gaining more share in large accounts. How has that come through?

Speaker 2

We may not say that I'd say the exposure, but we always said that you have large accounts. Remember, we started e commerce back there and e commerce at the beginning, we had also large accounts. We bought the other company, Akari, in 2020, and then we brought some large accounts in e commerce. So we always had some large accounts and even super acquirers. We also Had some super queries.

Speaker 2

We're not saying that we will not focus on this type of clients anymore. We are just saying that we will not compete with price with players that are looking for market share. We'll keep working with this type of clients once they have the returns that we think is feasible and sustainable for the company. So just to be clear here, we always had this type of clients. We worked with them.

Speaker 2

Some of them come to us because they wanted to work with them with us. So, the acquirers came to work with us because they like our POS, so this type of clients that we always had in the base. And it was not the main focus of the company, and it won't be the main focus of the company. I guess what you're saying here in this slide, when you say the growth of TPV of 16% is that we did not Make too much effort to keep accounts with net take rates that are not sustainable or not in the level that the company expect to have.

Speaker 5

Our next question comes from Sumak Dara, New Street Research.

Speaker 13

Hi, there. Yes, thanks very much. A couple of questions, please. Just first of all, on PagBank merchant base versus the acquiring merchant base. The 2 are kind of moving in sync or alternatively put that the PagBank Merchants as a percent of acquiring merchants is pretty stable at around 90%.

Speaker 13

I guess, given you're losing Nano merchants, you're willing to lose Nano merchants. I would have thought your kind of percent of acquiring merchants, Which at PagBank would be going up and up, but it seems to be stable. So just curious as you kind of move up the pyramid, why That sort of percent isn't increasing. That's the first question, please. And then secondly, why don't I hold it there?

Speaker 1

Sumit, this is Eric. Just to recap here, You're asking about the merchants engaged in PagBank that we basically had a slightly decrease in this number, am I right?

Speaker 13

Yes, exactly. Exactly. So as you lose your acquiring for merchants. That's typically the kind of low kind of TPB and all merchants who I would have thought would not be necessarily PagBank customers.

Speaker 1

[SPEAKER CANDIDO BOTELHO BRACHER:] Perfect. Thank you. Thank you. So just to answer your question, I think it's important to highlight that For the long tail client base that we have, which is composed by nano merchants and micro merchants, I would say to you that probably 100% of them are engaged in PagBank. So necessarily, as we run off and deprioritized nano merchants which are barely profitable.

Speaker 1

We necessarily tend to lose these clients at first glance In PagBank, but if you take a look closer to the PagBank clients of merchants, this decrease is lower than the decrease in the active merchants because we have several nano merchants that, for example, got back to the formal economy and it still works with us, but they receive a monthly paycheck and use PAG Bank as their primary bank. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] So this doesn't concern us. In fact, we have an opportunity to further cross sell other products for them. And as we keep moving up market, Our concern here is not anymore growing very rapidly our number of clients because we already have 13% of the Brazilian population have a relationship with us. Our focus is increase the cross sell of financial services, increase deposits per clients and necessarily increase profitability per client.

Speaker 1

This is our goal.

Speaker 13

Okay. That's clear. Thank you. And maybe a quick follow-up, if that's okay. Just on, again, sort of Financial Services profitability.

Speaker 13

Either on the old or the new EBITDA basis, if we could pro form a that EBITDA for the interchange cap, Is it fair to say that Financial Services is now EBITDA positive and there's No reason to think it won't stay that way going forward. Thank you.

Speaker 1

Thanks for the question, Sumit. This is Eric again. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Naturally, as the interchange cap came in force since April 1 this year, as we disclosed previously in our material facts, we In Financial Services vertical, Necessarily revenues should decrease, but the gross profit and EBITDA evolution should decrease not in the same magnitude. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] So investors should expect a lower revenue in 2023 versus 2022 in the financial services vertical but to be completely offset by the savings in the merchant acquiring division.

Speaker 13

And is it possible to say in absolute BRL terms what the sort of run rate is on a quarterly basis for that impact. I take your point it's neutral at the group, but just in terms of modeling out the splits between the two parts of the business.

Speaker 1

I think at this time, we are not giving any kind of ballpark of these impacts. We can evaluate here. But I think the main message It's a negligible impact for Bottomline. So any potential revenue and gross profit reduction in Financial Services vertical that analysts can assume should be completely offset by the savings in the merchant acquiring vertical.

Speaker 13

Okay. Thank you. Thank you.

Speaker 5

Our next question comes from Josh Siegler, Cantor Fitzgerald.

Speaker 9

Yes. Hi, guys. Good evening. Thanks for taking my question. I think to start with, can you discuss how competition has trended specifically in the payment space?

Speaker 9

Are you still seeing rational pricing from some of your peers?

Speaker 2

Hi, Josh. Thank you for the question. Yes, We are seeing rational pricing from the peers that we compete with, mainly in the micro merchants SMBs. We cannot say about the guys are looking for larger clients because we see some changes in market share in Q1 between The big acquirers, but in the markets that we are competing that we are focused, which is micro merchants, SMBs, we are seeing very rational prices, Everyone looking for profitability as you could see in the quarterly call results from us and from other players. So yes, that's the rational Pricing at this point.

Speaker 2

And we don't think it's going to change because interest rates are high in Brazil. So everyone is looking for Stability, of course, not only in Brazil, but around the world and not only in payments industry, but also in all the industry. So everyone looking for profitability. So we don't think this rationale will change in the near future.

Speaker 9

Okay, great. Appreciate that. And You guys have been repurchasing some shares recently. I'm curious how you're thinking about your capital allocation strategy moving forward. Thanks.

Speaker 4

Yes, it's Arthur speaking again. So the capital allocation strategy that we have today is Based on the results that we have, we are reinvesting

Speaker 1

in the business, all the results that we have right now, or even using the good results that we are achieving to repay the expensive

Speaker 4

Debt that we have or also reducing the CDs that we are issuing to funding the operation.

Speaker 1

At this point, with 14% around 14% interest rate in the country, not make sense Distribute Dividends.

Speaker 4

And it's something that we can rethink going forward, depending on the interest rate level. And the strategy that we are using to repurchase shares is Based on the price of share, if it's a good opportunity for the company or not, the shares that we have in treasury is used to distribute for the long term incentive plan for employees. And

Speaker 1

at this point, We are using the buyback program that we launched in 2018. We achieved around 50% of this buyback program. And for now, we are thinking that we need to

Speaker 4

use the money to fund the operation.

Speaker 9

Great. Thank you very much. Thank you, Josh.

Speaker 5

Our next question comes from Caio Prato, UBS.

Speaker 14

Hi, Tim. Thanks for the opportunity to ask questions. I have 2 on my side, please. First on the deposits of PagBank. We saw a quarter over quarter drop.

Speaker 14

It decreased by 10% quarter over quarter. I understand that the TPV went down, but the drop in the process was actually higher. So just wondering if you can provide us some details behind that, please. And moreover, what do you expect in terms of deposit growth going forward. And my second question is related to CapEx.

Speaker 14

Just wondering if you could help us understand the moving parts on CapEx this quarter, both related to PP and E and intangibles. And what can we expect going forward in terms of growth for these two lines and on a consolidated basis as well. Thank you very much.

Speaker 4

Thank you, Caio, for your question. Regarding for the first point related to deposits, It's true that reduced from Q4. The main impact comes from the seasonality. As you may know, in Brazil, There are a lot of bills to pay in the beginning of the year, and people use this money to pay those bills. One point that we are paying attention closely is to change the deposits that we are that the CDs that we are issuing with 3rd party platforms and try to originate internally in our own platform.

Speaker 4

So we are just trying to change the 3rd party to our platform internally in PagBank. The second point related to CapEx. We achieved this quarter BRL408 1,000,000. It's much lower than Q1 'twenty two. That impacted our cash earnings in a positive way.

Speaker 4

Last year, our cash earnings was BRL17 1,000,000 negative and this year close to BRL400 1,000,000 positive. In terms of CapEx going forward, We are expecting to have a lower CapEx per revenue in comparison to 2022 and more related to technology investments, about 60% of technology investments versus 40% in POS Acquisition. And we continue to Investing CapEx for POSs in the same strategy that we launched last year, focusing on client selection with a high engagement and compelling paybacks combined to eventually some promotions that we can offer to the clients.

Speaker 14

Hey, this is clear. Thank you very much. Just a quick follow-up on the Post's question. I just wonder if you have any type of target in terms of deposit growth for this year that you could share with us.

Speaker 4

What I can say about deposits related to this question is that all of our management is focused to increase deposits. Deposits, as you know, is the cheapest funding source that we have after return on earnings. And we have all of the management focus to increase those deposits.

Speaker 14

Okay. Thank you, Arthur.

Speaker 1

Thank you.

Speaker 5

Our next question comes from Eduardo Holzman, BTG

Speaker 15

Pactual. Hi, everyone. Good evening. I have a question here regarding all these noise related to the revolving Credit Card theme. I think the sector as a whole has been a little bit more under pressure recently.

Speaker 15

I think on concerns that Something might happen with the Parcelados with no interest, right? So which in theory, if that happens, that would be potentially bad for the prepayment business. So Can you share your thoughts on what's being discussed? If you're being part of the working group, what's your belief here? I I saw, I don't know, some comments to broadcast.

Speaker 15

So just want to make sure everybody is in the same page here. Thanks a lot.

Speaker 2

So, Eduardo, thank you for the question. We know there have been some discussions with the Brazil authorities about the and the possibility of implementing a cap on interest rates for revolving credit cards. As you may know, this discussion is not new and is being carefully evaluated by regulators. And of course, regulators talking to everyone. What we may say from the government or from the regulators in the past years, the Brazilian government both Brazilian government and regulators, they have been playing a very relevant role to promote competition and financial inclusion in Brazil.

Speaker 2

And of course, they listen to everyone. [SPEAKER CARLOS GOMES DA SILVA:] So just before going straight to your question, some of the players link this Cap in interest rates with changes in installments. As you may know as well, Interchange in Brazil is one of the highest in the world. Credit card business in Brazil is very profitable. But as I said, some of the players try to link this discussion with The change in installments, which in our view is very unlikely to have or to happen any change in installments because of many reasons.

Speaker 2

But the main two, I would say change in installments is not the way to decrease the high interest rates in revolving credit lines. By changing installments, revolving lines will not decrease. So that's not linked with one topic to the other. [SPEAKER CARLOS GOMES DA SILVA:] And the other one is that installments are very important for the economy in Brazil. They are 50% of the total volume of credit cards.

Speaker 2

The total volume that we have transaction in Brazil, 50% is made through installments. In 2022, that number was BRL 1,000,000,000,000, 10% of Brazilian GDP is largely accepted by merchants from many sizes. And of course, it gives the power of consumption for consumers, mainly low income people that don't have the money to buy without installments. It is also the cheapest working capital for merchant. So we think that any change in installments is very unlikely to happen because it doesn't solve the session and is very important for the economy.

Speaker 2

So that's our view at this point.

Speaker 15

Great. Super clear. Thanks a lot.

Speaker 14

Thank you.

Speaker 5

Our next question comes from Jeffrey Elliott, Autonomous. Please proceed.

Speaker 16

Hello. Thanks very much for taking the question. I know you've introduced some new offers on the website, Vistar Multi and MaxMice, which Look quite a bit more competitive in terms of pricing than what you were advertising previously. Who are you marketing those at and what are you doing to mitigate the risk of cannibalization of clients on the older Offers with higher pricing, trying to move on to the newer, cheaper ones. Thank you.

Speaker 2

Hi, Jeffrey. We thank you for the question. We always make promotions. Some of the promotions we do through online, targeting Some type of merchants, some of the promotions targeting some type of consumers. And we also make some tests in our website.

Speaker 2

Of course, we a large part of our demand comes from paid media and from media that we buy from for third parties. And part of the demand comes from the website. The promotions that we are making website, they require the merchant to have A minimum TPV of BRL 3,000 per month, so it's not for everyone. And we are always, of course, looking in terms of attrition with the clients that you have in the base. That's not an issue at this point.

Speaker 2

That's something very common for companies like us When you have millions of clients, right, it's very common when you have a telecom company and then eventually you see a promotion from a telecom company that you are a client and then you are having a better condition there for the new client than the older one. But that's Part of the dynamic of the business, we try to control that eventually in the call center in a more reactive way. But I don't think that's an issue at this point because we are requiring a minimum TPV and there are some other requirements as well. So it's part of the dynamic of the business Make promotions and turn off and try the cohort, see what's going on. If they're going to have a TPV that is much larger than the 3,000, if they're going to use PagBank.

Speaker 2

But it's part of the promotion. It's not something that we are changing the way that the company operates.

Speaker 16

Thank you. And then maybe just to clarify on some of the comments from earlier on, you talked about the prepaid interchange cap And then you talked about adjusted net income being similar to what you delivered in the Q1. Was that just a statement saying the interchange cap is not going to have a significant bottom line impact? Or was that more an all encompassing statement saying that it's a 2Q net income plus or minus is going to look similar to the Q1. Thank you.

Speaker 2

Hi, Jeffrey. Well, thank you for the question and because it's an opportunity to clarify that. What you're saying is that With the change in the cap and interchange for prepaid cards that started in April 1st Didn't change the net income of the company as a whole, because the benefit that we had in acquiring business by having a lower interchange is very similar in absolute terms than the losses that we had in the revenues from the PagBank as a card issuer. So it's we are just saying that the change in the capping interchange for prepaid cards is neutral for the company as a whole. We are not saying that the net income is going to be the same in Q2 versus Q1 or things like that.

Speaker 2

We're just saying that This capping interchange did not impact the expected net income of the company because the impact of these Moving parts, puts and takes, it's 0, it's neutral. So that's why we try to say that. And let me know if it's not that clear, It's not clear.

Speaker 16

It was totally clear the second time. So thanks very much.

Speaker 2

Thank you. Thank you.

Speaker 5

Our next question comes from Juan Riccarde, Scotiabank.

Speaker 7

Hello. Thank you for the opportunity to ask questions. My question is related to the NPL ratio. I noticed declined from around 30% or more than 30% in the 4th quarter to 18% this quarter. So can you talk about what drove this improvement, whether there were some sales of loans or write offs?

Speaker 7

And also can you comment on how you see asset quality evolving? And how do you think that The credit portfolio can grow in the rest of 2023. Thank you.

Speaker 4

Okay, Juan. It's Arthur speaking again. Thank you for your question.

Speaker 1

It's important to clarify that the numbers that you have in the income statement is related to past due. So all the calculations there In terms of percentage of our portfolio, it's a past due when the installment is not paid. So you have this past due. This quarter, we Decided to give this information more clear in the Slide 8 in the webcast presentation. And NPLs for 90 days In Q1 'twenty two, achieved 22.4%.

Speaker 4

The worst moment was in Q2 'twenty two and next quarter, you see that. And now we have 17.9%. And since June, we have Our reduction in this NPL 90 days. And also, it's important to mention that our secured credit portfolio presented 1% of NPL. So our whole portfolio is moving down pretty fast and Quarter Over Quarter.

Speaker 4

And the main impact related to that is because our credit underwriting Now is 100% focused on Secured Products. And in the same page in the webcast, you can see that our Total portfolio now is split in 44% secured products, 56% unsecured products. And the strategy going forward is continue to underwriting

Speaker 1

unsecured products related to payroll loans

Speaker 4

and also credit card backed by CDs or balance account reserve.

Speaker 2

[SPEAKER UNIDENTIFIED COMPANY

Speaker 1

REPRESENTATIVE:] And Juan, it's important to mention that most of financial institutions, They write down their nonperforming loans after 3 60 days. And we did not write down yet [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] For exclusively tax planning reasons, okay, for the coming quarters, we do expect that we start to write down this NPLs over 3 60 days. And this is why there is a mismatch between the NPLs 90 days that we provide in our presentation in comparison to the financial statements that disclose the full nonperforming loans over 90 days considering the NPLs over 3 60 days. We are very comfortable about the provision levels. So necessarily a downtrend in NPLs is something natural moving forward.

Speaker 7

That's very helpful. Thank you for the comments.

Speaker 1

Thank you.

Speaker 5

Our next question comes from William Taina, Susquehanna.

Speaker 17

Hi, guys. Thanks for taking my question here. I wanted to ask about NPLs as well. So I noticed on Slide 8, it looks like your 90 day plus NPL ratio has been going down. Can you say a few words about the status of the Brazilian consumer credit quality?

Speaker 17

I imagine Some of that decrease that you see is perhaps due to the shift towards more secured lending, but any commentary on consumer credit quality would be helpful. Thank

Speaker 1

you. Hi, Leo. This is Eric. I think since we Make some changes in our management team in terms of risk management. We have been delivering [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Lots of improvements on the credit risk assessment processes and KYC.

Speaker 1

So necessarily, This implies to say that as we keep underwriting secured products in the short term and keep improving our risk assessment models, As the economy improves, there is a natural path to restore unsecured credit products in the future. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] They struggle for the credit industry in Brazil where the main question is related on when the asset quality will improve. And in our case, it's the opposite because since we took the decision in early 2022 to focus exclusively on secured products, Our NPLs picked in June 2022, and they have trending down since then. So the asset quality concerns that's around the Brazilian credit industry. It does not affect us because we already changed our credit underwriting focused on Secured Products in early 2022.

Speaker 17

Got it. No, that's super helpful. That's clear. And I guess one quick follow-up I'll have is, can you talk briefly about Carnival and how the timing of the holiday may impact

Speaker 1

Hi, this is Eric again. You're right. We had Last year, a very strong first half driven by the reopening of the economy and a number a higher number of workdays. This year, we have a lot of holidays in Brazil, which necessarily brings a TPV behavior Similar to weekends, especially Sundays that we have and the industry have lower TPVs in comparison to the workdays. So necessarily, the first half tends to affect the industry since the first half in 'twenty three [SPEAKER CARLOS GOMES DA SILVA:] Have more holidays in comparison to the first half of twenty twenty two.

Speaker 17

Got it. Okay. Thank you.

Speaker 4

Thank you.

Speaker 5

Our next question comes from Alex McGrath, KeyBanc Capital Markets.

Speaker 6

Yes. Hey, guys. Thanks for taking the question. I just wanted to maybe pile on the credit questions asking about Securities Credit Mix. I think last quarter you had mentioned the 60% mix target in the near term.

Speaker 6

So, just first question is whether or not that's Still in the plan for the year that 60% mix. And then secondarily just pairing that with What you just mentioned around an eventual restoration of unsecured credit and your earlier comments around general credit risk appetite. Just Wanting to understand what the right long term mix you think is between secured and unsecured. Is it above, below that 60% level?

Speaker 2

Hi, Alex. Well, the plan to keep growing secured products It's running. It's on the way. So we've been growing the participation of secured products in the total mix quarter after quarter, and we will keep growing the following quarters. If we don't reach 60% this year, it's going to be close to that or a little bit lower Because in short term, we will keep offering only secured products.

Speaker 2

So it's going to be close to that. We expect to be close to that by the end of the When you ask about the credit without collateral in the future, I would say we don't have the exact number here to give to you because there are many products. When you think about unsecured products, there are many products. There are overdrafts. There are credit cards.

Speaker 2

There are working capital for merchants. So there are many products here. I would say that we will keep looking at the risk and return to have a balanced portfolio so that we can navigate in times of expansion and times of contraction. So honestly, I don't have a target here to say to you it's going to be fifty-fifty or things like that. But it's going to be something that we're going to be viewed as time passes by, looking at the risk and return, looking at the demand for the products because, of course, we offer the products, You need to price the product.

Speaker 2

You may have demand or not. So I mean, I guess the best way to answer you is we'll keep building these unsecured products to control the risk and return quarter after quarter. But in short term, we'll keep doing keep offering security products. And this mix, this 44% will keep growing in the following quarters.

Speaker 14

Make sense. Thank you.

Speaker 17

Thank you.

Speaker 5

Thank you.

Powered by Quartr
Earnings Conference Call
PagSeguro Digital Q1 2023
00:00 / 00:00