PagSeguro Digital Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 20, 2025

There are 15 speakers on the call.

Operator

Good evening. My name is Aljir, and I will be your conference operator today. Welcome to PegasiGuru Digital's Earnings Call for the Fourth Quarter of twenty twenty four. This live presentation for today's webcast is available on Peg Seguro Digital's Investor Relations website at investors.pegbank.com. Please refer to the forward looking statement and reconciliation disclosure in this presentation and in the company's earnings release appendix.

Operator

Finally, be advised that all participants will be in listen only mode. After the presentation, to ask a live question, please use the reason button to join the queue. Once you are announced, our request to activate your microphone will appear on your screen. Please ask all your questions at once. Alternatively, you can also write your question directly into the Q and A icon located in the lower right part of your Zoom screen.

Operator

Today's conference is being recorded and will be available on the company's IR website after the event has been concluded. I would now like to turn the call over to Gustavo Sekin, Head of IR. Please go ahead, sir.

Speaker 1

Hi, everyone. I'm Gustav Sequin, Head of Investor Relations of PagBank. I would like to welcome and thank you for joining us for our fourth quarter twenty twenty four earnings call. Tonight, I am accompanied by Ricardo Dutra, our Principal Executive Officer Alejandro Mayeri, our COO and Artur Shunk, our CFO. With that, I would like to turn it over to Dutra, who will begin today's presentation.

Speaker 1

Please, Dutra?

Speaker 2

Hello, everyone, and thanks for joining our fourth quarter twenty twenty four earnings call. I begin with Slide four, where we present our key operational and financial highlights. PagBank had another year with all time high performance combining growth with profitability. We ended the year with 33,200,000 clients growing 2,100,000 year over year. The financial performance can be summarized as a robust growth in top line, meaning TPV and revenues and even more accelerated growth in bottom line, meaning net income and earnings per share.

Speaker 2

As you can see, in the highlighted area on the left side of the slide, our payment CPV reached a record of BRL518 billion, an impressive 32% growth year over year, which we will give more color in the next session of our presentation. Our net revenues increased 18% year over year, reaching BRL18.8 billion. Net income was an all time high BRL2.3 billion, a 28% growth compared to 2023 with a diluted EPS on a GAAP basis reaching BRL6.62, growing 30% versus previous year, which reinforces our commitment to continuously create shareholder value. On the right side of the slide, our credit portfolio and funding are experienced rapid year over year growth, further solidifying our financial strength and market position. And the solid operation and financial performance delivered boosted our return on average equity to 15.2%, a 198% basis points increase year over year despite our conservative capital structure.

Speaker 2

Our current quarter and year performance underscores our ability to create value and deliver robust results. We stand out as one of the very few companies in our segment that has consistently growing and achieving positive results every single quarter since our IPO. This remarkable track record has been maintained despite the changes in industry dynamics and economic cycles. Moving to Slide five, we take a quick look on how we are able to deliver steady long term growth despite a challenging macro environment. If you take a couple of steps back, you remember that in the beginning of twenty twenty four, market estimates projected a year end Celiq rate around 9% or below with a somewhat stable FX and inflation within the range determined by Brazilian Central Bank.

Speaker 2

We ended up having Celiq more than 300 basis points higher than the base case on top of changing other assumptions. Still, we were able to deliver our strongest results ever due to initiatives we have deployed throughout the year. Main initiatives we are focused on: first, increasing revenues as we have successfully explored new growth verticals and advanced on repricing our products on banking and acquiring segments second, improve shareholder value. And here, the highlight is the execution of more than 50% of our current buyback program of $200,000,000 launched in August 2024. And third, on the liability side, we'll focus on adjust our cost structure, aiming mainly at financial cost efficiency and operational leverage.

Speaker 2

2024 is a good and real example of our ability to adapt and perform. Despite micro uncertainties and external headwinds, we were able to outperform our guidance and balance growth and profitability. For 2025, the playbook remains the same as we intend to further explore those initiatives to navigate these next year challenges. Now, I'll hand it over to Alex for the quarter highlights on the business units. Thank you.

Speaker 3

Thank you, Ricardo. Hello, everyone. In this section, we'll break down the performance of our business units for the fourth quarter of twenty twenty four. But before we start delving deep into the quarterly results, it's important to outline our strategy and how we do what we do. On slide seven, you can see that our disciplined strategy execution is key to achieve the results we have been delivered.

Speaker 3

This strategy is built from our purpose, which is to facilitate the financial lives of businesses and individuals and align it with our strengths and DNA as reflected in our strategic goals. On the next slide, we'll bring a recap on how we build our company for the long term. We offer a fully integrated ecosystem combining payments and banking with a complete set of products and features that provides unique experience to our customers. We have been able to increase client transactionality and monetization by capturing larger share of wallet and customer principality. Moving on to the next slide, we reached 33,200,000 clients in 2024 adding 2,100,000 clients in the last twelve months.

Speaker 3

We ended the quarter serving 17,800,000 active clients, led by the strong growth in the banking business, especially among individuals, backed by a robust banking platform and product offering. We were also successful in retaining our active client space due to our solid value proposition. As seen in previous quarters, the overall reduction in active merchants comes mainly from the nano merchant production. It is crucial to note that SMB active merchant space increased 11% year over year. Now let's take a closer look at payments on Slide 10.

Speaker 3

Here we show that our merchant acquiring business keeps growing faster than the industry with solid growth registered in all segments. TPV reached BRL146 billion in Q4 twenty twenty four, growing 28% year over year with TPV per merchant growing 33% on a yearly basis. We experienced substantial growth in all segments attributable to our relentless focus on growth and profitability. Due to the current interest rate hike in cycle in Brazil, we have implemented a strategic repricing approach since early Q4 twenty twenty four in addition to our focus on merchants with higher cross selling potential. We believe that early start on executing repricing was key to partially mitigate the impacts from higher interest rate and also contributed to manage the impact on our product mix.

Speaker 3

PEAKS has also contributed to increased penetration and accretive gross profit. Looking further by segments, MSMB TPV grew 21% year over year reaching reaching R96 billion rise in the fourth quarter of twenty twenty four. This expansion of our core segment is mainly due to the increased productivity in our hubs. In the LMAX segment, comprising larger retail merchants, e commerce and cross border clients, we recorded a 45% QPV growth compared to Q4 twenty twenty three, reaching BRL50 billion in volume. This growth was exceptionally strong in cards not present transaction, allowing us to expand market presence beyond POS.

Speaker 3

In addition, PAGS International has been an important growth vertical focusing on profitable digital goods segments and payout opportunities through the PAGS Bank accounts. Moving on to the banking business on Slide 11. Our strategy to deliver a seamless experience by integrate payments, banking and value added service across multiple interfaces significantly enhanced our customer engagement. As a result, we reached BRL93 billion in PacBank cashing composed by PIX P2P, wire transfers, bolatos and invoice collection into the PEGBank accounts. Cash in per active client, an important indicator of our client engagement, grew 35 year over year reaching R5.4 thousand per client.

Speaker 3

The evolution of our engagement metrics is shown on the bottom left graph, which demonstrates the increasing usage of our app as seen by the success in fostering transactionality through bill payments and peaks and the penetration of our investments and insurance products across our customer base. On Slide 12, we show our strong deposits performance and cost of funding reduction. Total deposits were up 31% reaching BRL 36,100,000,000.0. This increase, of course, despite the ongoing initiatives to reduce cost of funding. In the current interest rate environment, minimizing funding costs becomes paramount to secure profitability.

Speaker 3

The AQI for total deposits decreased by 400 basis points compared to Q4 twenty twenty three as a result of our strategic efforts to lower average cost of funding such as adjusting the remuneration and duration of our deposits as well as diversifying our funding source. APY for checking accounts reflect those efforts reaching 47% of the CDI this quarter, which has helped to reduce our total cost of deposits to 90% of the CDI. Our deposits are primarily utilized to fund the prepayments to merchants and our low end book. As of December, our low end to total funding ratio, which measures our total funding against our expanded credit portfolio, stood at 113%. This represents a decrease compared to last year attributed to the significant operational TPV growth in our acquiring business.

Speaker 3

On Slide 13, we highlight that our credit portfolio has been growing steadily despite the current scenario. This quarter, our total credit portfolio reached BRL 3,400,000,000.0, a 36% year over year increase led by the origination of secured products, which represents 85 of our book loan. We have been able to expand our portfolio gradually in a sustainable way focusing on low risk products. These products promote financial inclusion, education and provide important finance linings to our clients. When we consider the financial operations related to the prepayment to merchants facilitated by our instant settlement feature on the acquiring side, our expanded credit portfolio exceeds R48 billion dollars a 46% increase over the past twelve months.

Speaker 3

Our NPL 90 on the bottom right of the slide demonstrates the improvements on our set quality in the last twelve months moving from 3.2% to 2.3% in the period, which is significantly below the market average. Now, I turn to over to Arthur for the financial highlights of the fourth quarter of twenty twenty four. Arthur, please.

Speaker 4

Thanks, Alexandre. Hello, everyone. Thank you so much for taking the time to join us today. From now on, I will present our consolidated financial results for the fourth quarter of twenty twenty four. Moving on to Slide 15, Q4 20 20 four total revenue and income achieved BRL5.1 billion, representing a growth of 18% year over year, driven by our strong performance in both segments as shown by Alexandre.

Speaker 4

Consolidated gross profit margin reached 38% of total revenue, influenced by shifts in our client and product mix, as well as higher interest rates during the quarter. Looking at the graphs on the right side, payments revenue reached BRL 4,600,000,000.0, a 14% year over year growth on the back of the strong TPV expansion in the period, resulting in an increased market share. Banking revenue set a record of BRL513 million and grew 58% year over year, mostly driven by interest income from the expansion of our credit portfolio flowed from cash position combined with service fees linked to our strategy of strengthening clients engagement with higher profitability. Gross profit from our Banking segment reached 69% of revenue, increasing for the fourth consecutive quarter. Moving on to the next slide.

Speaker 4

Here we can see on a sequential basis how the evolution of gross profit is driven by an accretive expansion on the Payments segment. The increasing penetration in new growth avenues such as large retail merchants, online and products like PIX affects client and product mix. The change in client and product mix was partially mitigated by the repricing strategy that we started to deploy in the beginning of Q4, which helped ease the impact on the increasing financial costs due to higher interest rates. On the right side of this slide, I would like to focus mainly on the results we are achieving in our banking business and its increasing contribution to our total gross profit. Banking is becoming more and more important to the company with an impressive 80% gross profit growth compared to Q4 twenty twenty three.

Speaker 4

As a percentage of total gross profit, banking segment grew from 11% in the previous year to 18% in Q4 twenty twenty four, alongside increasing margins, now 69% versus 61% a year earlier. These figures are important as they demonstrate our resilience, ability to diversify revenue streams and exploration of complementary products and services. In the Slide 17, we take a closer look to our costs and expenses. Our financial discipline, which is always an important tool to balance growth and profitability, was paramount to achieve the current results. This quarter, we can see again operating leverage in comparison to previous quarter.

Speaker 4

On the cost side, transaction costs increased 19% from Q4 twenty twenty three as a result of stronger TPV performance during the period. Financial costs increased by 30% also linked to the growth in TPV between periods that demanded larger volumes of prepayment. On top of that, the cost was impacted by the hike of the Brazilian basic interest rate, partially mitigated by funding initiatives to diversify sources and reduce interest pay. Decrease in total losses was driven by improved fraud prevention process. Operating expenses on quarterly basis reduced to 16.1% of total revenue and income with an increasing operating leverage of 74 basis points.

Speaker 4

This reflects our disciplined approach to cost management and the resulting efficiencies. On a sequential basis, we had lower investment on marketing and stable personnel expenses. Finally, it is important to emphasize that tax efficiencies initiatives are integral to our business strategy and we continue to execute our plan for tax optimization. Moving on to slide 18. As demonstrated throughout the presentation, the fourth quarter marked a significant chapter in our growth trajectory, characterized by resilient operational and financial performance.

Speaker 4

We achieved a net income of BRL631 million on a non GAAP basis, growing 21% versus Q4 twenty twenty three and culminating in a 28% increase for the full year 2024. Earnings per share on a diluted GAAP basis reached $1.91 this last quarter, marking 25 year over year increase. On an annual basis, earnings per share reached $6.62 representing a 30% growth compared to the previous year. On the right side of the slide, I am pleased to present the improvement of 200 basis points in our annual return on average equity, which increased to 15.2% from 13.2% as reported in Q4 twenty twenty three. Despite a conservative capital structure, the company has been successful in delivering consistent results.

Speaker 4

On an annualized quarterly basis, our ROE reached 16.5%. Regarding our share buyback program, we maintained consistent execution throughout Q4 twenty twenty four. By year end, we repurchased BRL $784,000,000 on common shares. As a result, we have now executed 50% of the current buyback program, which was launched in August. We remain committed to this strategy as a means of creating shareholder value.

Speaker 4

Moving on to slide 19, let's have a quick overview on last year's guidance. Despite macroeconomic conditions and uncertainties, we were able to outperform the top of the range of expected results for 2024, Estrone. I would like to highlight our net income expansion of 28% on a non GAAP basis, reaching an all time high of BRL2.3 billion. Moving on to the next slide, I bring our guidance for 2025. This year, in addition to gross profit and CapEx references, we are providing earnings per share guidance instead of net income as this metric better captures the company's commitment to creating shareholder value.

Speaker 4

We expect to grow gross profit between 711% and deliver earnings per share growth in the range of 11% to 15% as a result of our operational performance and the initiatives being implemented to mitigate macro uncertainties, especially the increase in interest rates. Capital expenditure is expected to be between R2.2 billion dollars to R2.4 billion dollars Now let me give the word back to Adeshandri for the closing remarks.

Speaker 3

Thank you, Arthur. Before we finish, let's turn to the next slide for our closing remarks. Overall, the results have reflected successful execution of our strategy, which focus on strengthening our presence in our core segments while diversifying our revenue streams beyond payments. The year of 2024 present challenging macroeconomic conditions that tested our resilience and adaptability. Despite these hurdles, we were successfully navigated the complexities of the market ensuring sustainable and consistent results.

Speaker 3

Our ability to thrive in such an environment underscores the robustness of our strategic approach and our commitment to delivering value to our stakeholders. Once again, we have demonstrated the increased relevance of banking within our overall business. This segment has achieved a remarkable year over year revenue growth of 34%, finally its increasing relevance. Even more impressive is the nearly 50% growth in gross profit, highlighting the segment's strong performance and profitability. I should also emphasize our successful strategy in lowering our funding costs during this period to reduce financial costs, a feat made possible by our robust deposits franchise.

Speaker 3

Finally, as I mentioned earlier, this performance demonstrate our commitment to create shareholder value, one of our top priorities, as we delivered a robust and sustainable EPS growth of 30% with a return on average equity close to 15.2% combined with a conservative but solid capital structure. Now let me give the word back to the operator and we'll start the Q and A session. Thank

Operator

and analysts. If you wish to ask a question, please press the raising button. If your question has already been answered, you can leave the queue by clicking on the same button. There's also the possibility to ask questions throughout the Q and A icon at the bottom of your screen. You may select the icon and type your questions with your name and company.

Operator

Written questions that are not addressed during the earnings call will be returned by the Investor Relations team. Wait while we pull for questions. Our first question comes from Arnaud Shirazi from Citi. Please Mr. Shirazi, your microphone is open.

Speaker 5

Hi all, thank you for the opportunity of making questions. My question is related to your credit portfolio. We saw an increase on a yearly basis. But I would like to know if there's more appetite from your side to increase non collateralized loans from now on. Are you expect to keep the portfolio growing in payroll loans?

Speaker 5

And also, my second question is related to the transactions activities revenue, which I believe it decreased 8% year over year, while your TPV increased 20% or 8% for the same period, which suggests a lower take rate on overall. This should be seen as impact from PIX or from the mix change? Thank you.

Speaker 2

I will start with the credit portfolio question. We as you said, we've been growing our portfolio in a very decent pace, 36% year over year with NPLs going down. So it's a very healthy credit portfolio growing and helping us in our bottom line in the banking business unit. So but looking forward, our strategy here is to continue growing in secured loans faster than the market. And for the clean products or no known secured products as you asked, We've been originating some volumes quarter after quarter.

Speaker 2

It is growing quarter after quarter. It's too small. But you understand that's the appropriate pace for the products that we are offering, which are working capital and overdraft for the market conditions that we have at this point. So the idea is to keep growing the collateralized products faster than market and keep growing the non collateralized in the pace that you think is appropriate for the current market scenario. Regarding your question about TPV and revenues, we to be honest with you, we don't look at the net take rate or the take rate the way you ask.

Speaker 2

We are looking for the gross profit because the company has been changing so much in the past years or in the past quarters just to give them just remember everyone, today the gross profit of the company, 18% of the gross profit is coming from the banking unit. So to look at the net take rate is a way that we think it's going to give us the wrong message here or we will not manage the company in a proper way. So we look at the company in a more gross profit basis, so that's why we are giving the guidance in gross profit. But regarding the question, we see some change in client mix and we've seen some peaks gaining a little bit of share. But the idea is to look at the gross profit.

Speaker 2

Artu, would you like to complement?

Speaker 6

Or Yes. It's Artu speaking, Arno. And it's important to mention to you that we have reclassification from revenues. As we are talking about net revenue here, we had reclassifications of taxes between transaction activities and financial income. Transaction activities reduced 8% year over year, as you mentioned.

Speaker 6

However, financial income increased 51%. So you should take a look on the total revenue for the company that grew 18% year over year.

Speaker 3

Our

Operator

next question comes from Beatriz Abreu from Goldman Sachs.

Speaker 7

I have two on my side. The first one is on your guidance. So you've got it for very strong EPS growth this year. I was just wondering if part of that is also because of the buyback program or should we expect net income to grow at a similar amount or how much should we expect net income to grow this year? And my second question is related to TPV growth.

Speaker 7

What kind of growth are you expecting for this year? And I understand that you are not looking specifically at take rates and maximizing more for gross profit, but should we expect the transaction yield to continue falling because of mix changes or how should we think about that? Thank you.

Speaker 2

Hi, Patrice. Good evening. Regarding the guidance, we when you calculated the EPS for 2025 to give the guidance, we're considering the same amount of shares that we had in 12/31/2024. So we are not considering buybacks here regarding the EPS guidance here. TPV, as we've been seeing in the past years and in the past quarters, we've been growing faster than the industry.

Speaker 2

If you consider our TPV only in cards, we are growing more than the industry, sometimes 50% faster than industry. And if you consider the peaks to our code, we are growing even more. So we don't think that trend will change. We think this trend will continue in 2025. And regarding the yields, we are not giving the guidance about this, but you can imagine that there is some mix change that's true.

Speaker 2

And the yield could be a little bit lower, but that's not something that we are looking for, to be honest. I mean, the idea here is to look at the gross profit basis. That's the the company has been changing so much that sometimes you look at the yield for the acquiring, but the client is leaving the money in the franchise deposits with a very lower yield. So it helps in our funding costs. As you could see, we grew 31%, our deposits franchise year over year and the cost of funding decreasing from 94% CDI to 90%, four hundred bps.

Speaker 2

So that's why we are what we're trying

Operator

to say here is that we look at

Speaker 2

the clients in a more complete way. There are some benefits that we cannot capture by looking only in the yield. So that's why we are guiding for the gross profit.

Speaker 7

Got it. No, that's very clear. Just a quick follow-up. Just on PPV growth, do you have any estimates for industry growth this year?

Speaker 2

Yes, AbEx, the Association for Cards in Brazil, they guided they will grow the expectation for 2025 is to grow between 911% in cards.

Operator

Our next question comes from Antonio Hoecchi from Bank of America.

Speaker 8

Hey, guys. Good evening. Thank you for your time and congrats on the results. So I have two questions on my side. So first, if you could break down a little bit more the expansion of TPV.

Speaker 8

So we have particularly the LMAX segment with very robust growth. So if you could please give some color in terms of e commerce, cross border and also large accounts, this would be great. And also I have a second one on repricing. You mentioned during your speech that you started repricing in the last quarter, and I believe this is a key part of the guidance for 2024. So if 2025, sorry.

Speaker 8

So if you could please provide some preliminary feedback on how is this going, how successful are you on repricing and how has churn behaved? This would be great.

Speaker 2

Thank you for the question, Huberti. I will start with the last one. Regarding the repricing, repricing here is a very dynamic process, and we always try to increase the pricing in a less sensitive way for our clients. We do consider many variables depending on the sector that our client is working, the type of client we are talking about, if they are a small client or a little bit larger, if they have more installments or they don't have. So there are many clusters that we have here, and then we try to make the repricing in a way that is less sensitive for our clients.

Speaker 2

We've been doing repricing. We did some repricing already in 2025, and we'll keep doing throughout the year if we think that's necessary. As you follow the economy in Brazil, it is expected for the next meeting of Central Bank that people estimates the interest rate will increase 100 bps. So it might be necessary for us to reprice some of our clients and we'll keep doing throughout the year. So we've been doing that in 2024.

Speaker 2

We already did some reprice in 2025 and if necessary, we'll keep repricing. So it's a very dynamic process. We don't reprice all the clients at the same time. We're doing different waves, different clusters. And if necessary, we'll keep doing this repricing.

Speaker 2

About the LMEK, would you like to give some color about the LMEK growth? I will start here and then Alejandra can just complement. Yes, LMEK grew 45% compared to Q4 'twenty three, faster than other segments. We've been seeing in 2025 same trend for January, But the other segments are growing, I would say, the gap between LMEK and other segments are smaller than what we've seen in Slide 10. So we do expect the LMEK to grow a little bit faster than the other segments.

Speaker 2

But remember that in LMAX, we do have e commerce, which is a very profitable payments business when you think because you have online and online you have more risk and then you can charge more. But going straight to your question now, Mac, is growing faster than MSMB, yes.

Speaker 9

Just to complement. Yes. It's part of our strategy and now the investment we have done the last years to boost our online payments platform in cross border payments and also online domestic payments.

Speaker 2

And pretty quick, just to complement again. We what we're trying to say here, we drive the company to improve our profitability. That's the end goal. TPV per se, of course, it is important, but it's not in our strategic goals. TPV growth is kind of the consequence we are doing.

Speaker 2

We're going to serve the clients, we're going to offer the clients our payments with digital banking, we're going to offer a high UCD and then TPV is going to be a consequence. We are not looking for TPV, we are not looking for market share in acquiring. We are very rational in pricing. We are driving the company to profitability.

Speaker 8

Yes. On the I thank you for the answer on the TPV growth. That was the question actually. I just wanted some color on how is this segment within Nelmec performing. So what has been the driver here?

Speaker 8

Is it e commerce? Is it cross border? Is it large accounts? So that's a follow-up on the first one on the LMEK one. And if I may follow-up on the other question on repricing as well.

Speaker 8

Have you seen peers repricing as well? So other independent and also acquirers controlled by banks? That's pretty much it. Thank you.

Speaker 9

Okay. Regarding 2L Mac, the segment consisted about e commerce, domestic e commerce cross border, which is also e commerce and integrated business partner that we have partners for software automation and so on that integrate their solutions into our smart devices. In terms of growth, the cross border has been growing faster than the other segments.

Speaker 2

And repricing, Antonio, we're seeing some other players doing repricing as well. So as I used to say here, the cost of funding or the basic interest rate of the economy is the raw material for everyone because at the end of the day, everyone has this cost. And if the cost goes up, so everyone should reprice or should rethink their economics. So we do see some players increasing prices as well.

Operator

Our next question comes from Ricardo Bogpigio from BTG Pactual.

Speaker 10

I also have Joe here on my side. So first of all, we see that you currently have a BIS rate of nearly 28%, which is very high. So if you could please talk about a little bit on a capital allocation standpoint, where we should expect this excess capital to be invested over the years? And what's a feasible capitalization ratio we should expect as a target that you have? And also related to that, when would it be like the right moment for us to seek an acceleration on the credit card working capital portfolios, which would improve our ROE and also which use this excess capital?

Speaker 10

And my second question now related also to the data matter of repricing. I wanted to understand how much of the boost in gross profit would come primarily from the repricing of prepayments and how much would be related to lower cost of funding on deposits, right? So if you could talk about how important for this gross profit guidance that you have considers the lower cost of funding on deposits will also be very, very nice.

Speaker 2

Ricardo, I will start with the last one. We honestly don't even have here the information about these two different parts of the P and L and just think about the repricing and the reducing cost of funding. But we are not giving this type of disclosure at this time. Of course, the P and L of a company like ours with the size that we have and the scale that we have, it is very dynamic. There are many puts and takes.

Speaker 2

And yes, of course, we will try to have the lower cost of funding possible that we may have throughout the year. And we'll do the repricing, I mean, the smartest way that we can do in a way that we don't lose clients and that we don't have churn. So it's going to be a mix of these movements. And of course, the repricing could impact MDRs, could impact prepayment. The cost of funding may be impacted by the lower yields that we may offer in our CDs and so on.

Speaker 2

So I mean, it's very dynamic, and I don't even have this type of information to give to you at this point. And Artur, you'll talk about the capital allocation.

Speaker 6

Ricardo, when we talk about capital allocation, we are always assessing the capital structure that we have, managing to find the best balance for the company, not only in the current moment that we have today, but also in our long term considering future opportunities. As you also mentioned, credit could be a good opportunity to grow in the future. Every time we're looking ahead in terms of a long, long term view for the company and generate shareholders value. You also mentioned that we achieved 28% of Basel index, moving from 33%. So I think we did a very good job in 2024 reducing the Basel index that we have, growing the top line 18%, earnings per share 30% and on top of that, in our record of buybacks.

Speaker 6

At this moment, when we see that the valuation of the company is pretty low, we prefer to use buybacks instead of dividends or other type of capital allocation after the allocation in our organic growth related to the CapEx for technology and purchase of POSs. We believe that a strong balance sheet is essential for navigating a challenging moment as we are seeing right now in the company when Selig is going up, inflation is going up, so we have more volatility in the market. And it's important to mention that we don't have excess of cash, we have excess of capital, 28% of Basel Winix show it for us. And if I need to buy back more or dividends, etcetera, I need to go to the bank or go to the market, fund the company and then return this capital to shareholders. In a moment of uncertainties, we prefer to manage our cash flow in more cautious way as we did in other moments like the pandemic and when the silica moved up in other times.

Speaker 6

And that's the most important to us, manage the cash flow for the company and guarantee that we have a good performance in the long term.

Speaker 10

That's very clear. And just another question that I have. You mentioned that last year, you invested a lot to improve your growth capabilities, your teams, your products, right? So I wanted to understand what should we expect for OpEx this year after those investments were made? Thank you.

Speaker 6

Well, very good question. Thanks for the opportunity to explain that it's true. We start to invest in sales force, our platform, more marketing investments since Q4 'twenty three. We accelerated that in Q2 and Q in Q1 and Q2 twenty twenty four. And on that moment, we said that now we should expect operating leverage.

Speaker 6

We did that in Q3, we did that in Q4, and we are expecting to continue to having leverage on our OpEx in 2025 because we understood that all the investments that we need to support the growth of the company is done.

Speaker 10

We're very clear. Thank you very much.

Speaker 9

Very clear.

Speaker 10

Thank you very much. Thank you.

Operator

Our next question comes from William Banyard from NITAOBVA. Please Mr. Baughnard, your microphone is open.

Speaker 11

So thank you for the opportunity. My question is also regarding on cost of funding and how this could impact your guidance. So if you could go through to the levers you're thinking about this year in which you could manage to decrease even further this 90% of CDI. So what is your expectations, your goals for this year? How can this help also improve your gross profit?

Speaker 2

We are not giving this disclosure, this information about the cost of funding that we expect to have in 2025. But with our guidance in Slide 20, you can see that we expect a silica by year end as of 15%. And that's the scenario we are running our business plan for 2025, and that's what we consider as the sales for year end. And from there, we manage the cost of funding. Regarding the levers, although I will not disclose you the numbers, I can give you the information about the levers.

Speaker 2

We can lower the yields that we offer in our CDs. We can take some actions here in such a way that we can decrease the cost of funding as a percentage of CDI. Of course, there is a limit for that, but there are some levers that we can manage here in order to decrease. So last year, we made some changes in the yields and part of this change helped us to go from 94% CDI to 90% CDI. And at the same time, the deposits from Chiles grew 31%.

Speaker 2

So it was very successful movement. Our deposits from Chiles keep growing very, very strong and the cost of funding going down. So we that's part of our job here every day to look for efficiencies, to look for better conditions for the company by lower cost, lower cost of funding. But I mean, the information I can give you right now is the it is in the guidance that by year end, we expect Selig to be 15%.

Speaker 6

And on top of that, we diversified a lot of our funding sources in 2024 that today help us in better negotiations with the market, trying to mitigate additional impacts or even control the cost that we have.

Operator

Our next question comes from Renato Maloney from Autonomous Research.

Speaker 12

So first, it's on credit. So a lot of peers have been talking about the opportunity on private payroll. So given the focus on collateralized loans that you guys have, I wonder if you're seeing this as an opportunity for the year and what will be the strategy here? And second, it's just a quick follow-up on the repricing strategy and I wonder if you can share the percentage of your clients that you have already reprised so if you should still expect some tailwind from that?

Speaker 2

Renato, thank you for the question. Regarding the private payroll, the specifications or the regulation is not public yet. What are you seeing so far about this new private payroll in Brazil, it's all ideas that have been discussing with the department. So once we have more clear how it's going to be the how it's going to work in this private payroll, we can give more color. But definitely, we think it's going to be an opportunity because it's a credit with collateral.

Speaker 2

We do think that a digital experience may will make the difference here. We have a lot of experience in CX and the way that we offer our app in such a way that clients can get a loan or can get some access to the money in a very frictionless process. So we do think it's going to be an opportunity, but we don't have all the details at this point. Of course, the government has been giving some information to the market, but we don't have the final conditions. But we do think it's going to be an opportunity.

Speaker 2

And repricing we'll make repricing for the majority of our clients. Some of the clients that if they have the price that they have in the website, we are not increasing their prices. But the rest of the clients is being repricing at some point. So we don't give you disclosure about declines. I don't know if someone here can have more information, but I would say that majority of our clients have been repricing in the last year or year and a half.

Speaker 12

That's good. Perfect. And just a quick follow-up here on the payroll. You just sounded a bit skeptical that this will be rolled out in the short term. I wonder if I'm hearing that right?

Speaker 2

The government has been discussing, I mean, again, it's not official, but one of the goals was to launch in the first semester twenty twenty five. We saw some information about the May 1. Some of the news that we've read this week could be earlier than that. So what I'm trying to say here, we don't have the final regulation, the way it's going to work, the process and so on. But definitely, we see as an opportunity because it's a credit with collateral where digital experience may have a difference.

Speaker 2

So it's very similar to what we've been doing in other collateralizer products that we have in the portfolio already. So but once we have more information, we'll be able to give more color to the market.

Operator

Our next question comes from Maria Gajes, Drone Software.

Speaker 13

As a follow-up on capital It's a follow-up on capital structure. You have already mentioned that you executed half of the buyback program. And I just wanted to confirm if the intention is to cancel those current treasury shares. And also a follow-up, even though you mentioned the preference for holding capital at the current uncertain environment within the company, if you were to conclude the current buyback program, if there is an intention in the company to launch maybe a new buyback program, especially at a certain market condition and maybe continue to execute buyback in a timely manner? Thank you.

Speaker 6

It's Sato speaking. Thank you, Maria, for the question. Regarding to cancellation of shares, we are discussing internally. In the end of the day, there is no, I would say, economic benefit on doing that because all the earnings per share, dividends or other ways to measure the economically for shareholders is based on outstanding shares. So the shares in our treasury are not used to do those calculations.

Speaker 6

But we are talking about it, but there is no definition yet. As soon as we have any information related to that, we communicate properly. And in terms of the second question related to the program, we executed 50% of the program until now. We expect to continue doing that in a more opportunistic way going forward. And definitely, I think the company is prepared to launch a new one when we conclude this program that is currently available.

Operator

Our next question comes from Caio Santillio from UBS. Please Mr. Santillio, your mic is open.

Speaker 14

Hi, everyone. This is Camila Zafeido from UBS. Thank you for taking my question. Talking I would like to touch upon the bat business in Brazil. So could you please share how is the environment right now since January with the new regulation in place?

Speaker 14

And what are the implications that we might see in terms of volumes and MDRs and revenues going forward? Thank you.

Speaker 2

Camila, thank you for the question. Just before I answer your question about that, just to make a clarification here. Our share in card not present transactions is much, much lower than our market share. So we see room to grow in card not present transaction, meaning e commerce and others. That is a small part of this card not presence transaction that they have in our base.

Speaker 2

And we don't see any material change since the January because we always work it with the companies that were although they were not regulated, they were serious company, they were companies that were have some reputation and so on. So the companies that we've been working since 2024, they got the license to keep working in Brazil. So we don't see any material change. And again, this is a part of the card not present transaction that is a small part of our total TPV. So it's not if we had an impact, it would be very marginal.

Speaker 2

So the idea here is it's stick with the guidance, and in the guidance, we already have all these variables considered there. But again, it's marginal and it's very small business.

Speaker 14

Okay. Thank you.

Speaker 9

Through the regulation, as we have other strong players that will be regulated in the market, it's also an opportunity for us to keep growing this business segment.

Speaker 14

Thank you.

Speaker 2

Thank you, Camilo.

Operator

Thank you very much. That's all the questions we have for today. I will now pass the line back to Alex Miani, PagSeguro Digital's CEO, for his closing remarks. Go ahead, sir.

Speaker 9

Thank you, everyone, for participating

Speaker 2

in our call. We look forward

Speaker 9

to see you in the next quarterly call. Thank you.

Operator

This does concludes PagSeguro Digital's conference call. We thank you for your participation and wish you a very good evening.

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Earnings Conference Call
PagSeguro Digital Q4 2024
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