Release Date: August 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total revenue grew 19% year-over-year, reaching BRL 4.6 billion, an all-time high.
- Net income reached an all-time high of BRL 542 million, a 31% year-over-year growth.
- PagSeguro Digital Ltd (PAGS, Financial) achieved a AAA rating from both Moody's and S&P.
- The company added more than 2 million clients in the last 12 months, reaching 31.6 million clients.
- Deposits reached an all-time high of BRL 34.2 billion, an 87% increase year-over-year.
Negative Points
- Operating expenses remained high at 26% of total revenue, driven by marketing and personnel expenses.
- Interest rates in Brazil are higher than expected, impacting financial expenses.
- The take rate for larger merchants (LMEC) is lower, affecting overall profitability.
- The company is facing competitive pressures, requiring significant investments in marketing and sales.
- The credit portfolio growth is still in early stages, with a loan-to-deposit ratio of only 8%.
Q & A Highlights
Q: I would like to explore a little bit more the guidance change that you made for this quarter. We saw a big adjustment in the TPV expectations acquired. It was an increase of around 10% versus your previous guidance. Then we had a reduction of around BRL 200 million in D&A and write-offs. However, your net income guidance increased only by 2% versus the midpoint that we had previously. Can you provide more details around that?
A: This is Ricardo. You're right. When we updated the guidance, we increased TPV and decreased D&A. However, there are many moving parts in our P&L. For example, we initially assumed that the base interest rate in Brazil would be around 9% by year-end, but it is currently 10.5% with no visibility of a decrease. This impacts our financial expenses, which we manage by increasing deposits and finding different funding sources. Despite these variables, we have the discipline to control costs, aiming for sustainable growth and balancing profitability with future growth.
Q: A little bit on the SG&A side. You mentioned a rollout of higher commercial investments. How are you looking at this reinvestment, and is it perhaps one of the reasons for the modest net income revision?
A: This is Ricardo. We invested more in marketing and personnel in the first half of the year. We don't expect an increase in these investments in the second half. We also invested in customer experience, product development, and new product launches. We expect SG&A to be stable moving forward. Despite higher interest rates, we revised our net income guidance upwards due to lower D&A and effective cost control.
Q: On the credit portfolio, especially for SME merchant clients, are you feeling comfortable originating more working capital loans?
A: We expect to grow our working capital and overdraft products faster in the coming quarters. Initial tests have been very successful, and we have high expectations for these products. However, it's still early, and we don't have specific guidance yet.
Q: Your volume growth in the LMEC segment is impressive. How does the profitability of this segment compare to the MSMB segment?
A: LMEC has lower margins compared to MSMB, but it is still accretive to the bottom line. We grew 50% in LMEC and 28% in MSMB, both significantly higher than the market's 11% growth. The LMEC segment includes e-Commerce and Cross-Border, which are growing rapidly and contributing positively to our overall profitability.
Q: Can you clarify if the pressure on the take rate is due to mix, and how do you see the competitive dynamics in the LMEC and MSMB segments?
A: The growth in larger merchants will likely outpace MSMB. Our definition of larger merchants starts at BRL 1 million in monthly TPV, which is different from the incumbents. We are not competing on price but focusing on our value proposition, which includes Banking solutions. The take rate pressure is primarily due to the mix, and we expect this trend to continue.
Q: What is the implied average SELIC rate in your guidance, and has it changed?
A: We are considering an interest rate of 10.5%, higher than our original business plan. We have various scenarios to manage the company and deliver our guidance, even if interest rates change.
Q: On the MSMB segment, how has the take rate evolved over the last year?
A: We don't disclose the exact take rate, but it has decreased slightly over the past year. However, the margins remain healthy, and the competition has been rational. We continue to grow in this segment with a 28% year-over-year increase.
Q: Your selling expenses are up significantly. What gives you confidence that this will allow you to accelerate revenue without continuing to invest at this pace?
A: This is Ricardo. Our investments have resulted in all-time high metrics across the board. We are confident in our value proposition, which combines acquiring and banking solutions. Our cohorts show strong engagement and usage of our products, justifying the investments. We believe our unique combination of features and ecosystem sets us apart from competitors.
Q: Can you provide more details on your payroll loan business and its growth potential?
A: We focus on retirees and FGTS products, not private employees. The total addressable market is around BRL 600 billion, and our portfolio is currently a small percentage of that. We aim to digitalize the process further and grow this segment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
