PagSeguro Digital Ltd. Class A Common Shares

Good evening. My name is Caio and I'll be your conference operator today. At this time, I would like to welcome everyone to PagBank PagSeguro's earnings conference call for the second quarter of 2021. This event is being recorded and all participants will be in listen-only mode during the company's presentation. After the speaker's remarks, there will be a question and answer session. At that time, further instructions will be given. Should any participant need assistance during the call, please press star zero to reach the operator. This event is also being broadcast live via webcast and may be accessed through PagBank PagSeguro's website at investors.pagseguro.com, where the presentation is also available. Participants may view the slides in any order they wish. The replay will be available shortly after the event is concluded. Those following the presentation via webcast may post their questions on PagBank PagSeguro's website. Before proceeding, let me mention that any forward statements included in the presentation or mentioned on this conference call are based on currently available information and PagBank PagSeguro's current assumptions, expectations and projections about future events. While PagBank PagSeguro believes that their 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. Actual results may differ materially from those included in PagBank PagSeguro's presentation or discussed on this conference call for a variety of reasons, including those described in the forward-looking statements and risk factor sections of PagBank PagSeguro registration statement on Form E20-F and other filings with the Securities and Exchange Commission, which are available on PagBank PagSeguro's Investor Relations website. Finally, I would like to remind you that during the conference call the company may discuss some non-GAAP measures. For more details, the foregoing non-GAAP measures and the reconciliation of those non-GAAP financial measures to the most directly comparable GAAP measures are presented in the last page of this webcast presentation. Now, I will turn the conference over to Ricardo Dutra, Chief Executive Officer. Please, Mr. Dutra, you may begin your presentation.

Good evening from São Paulo, everyone, and thanks for joining our second quarter results conference call. Tonight, I have here with me Artur Schunk, our Chief Financial Officer, and Eric Oliveira, our Head of Investor Relations. First, we hope you and your families are well and safe. Before we proceed, let me share a quick update about the current situation related to the pandemic and its impacts in Brazil. Last quarter, We shared our improving confidence that it seemed the worst was over. The vaccination continues to take place. Currently, approximately 70% of the population took at least one shot, and around 30% took two shots already. The contamination death ratios have been decreasing, which has been encouraging authorities to ease the social distance measures in several regions of the country. The ongoing secular shift from cash to electronic and digital transactions continues. reinforcing that the consumer behaviors are changing despite the reopening. And we have seen millions of people being included into the financial system. We also see across the world several companies embracing the digital banking strategy to explore this unique opportunity. For example, in this quarter, we were honored to see PayPal and Square announcing their initiatives to expanding into financial services. which is the move we have done in May 2019 with the launch of PagBank. In addition, as the regulators in Brazil continue to foster competition, players with tech DNA, strong execution and robust balance sheet have the chance to explore new verticals, cross-selling strategies and close the existing loop between merchants and consumers while optimizing the gross profit generation per user. Having consistently invested during the last years in our two-sided ecosystem has been paying off. In June 2021, the number of PagBank clients surpassed 11 million, and the engagement continues to increase as the number of logins only in our app per workday reached 10 million, or one login per user per workday. Another example is the credit expertise. After more than three years, The combination of sophisticated data analytics, an incredible team, the banking license, and the unique active merchant base gave us the diligence to decelerate the underwriting amid the pandemic, to warm up the giants for their reopening. We are delighted to announce that our credit portfolio surpassed the mark of R$1 billion, with an increasing origination for the coming months and control NPL ratios. In payments, the scenario also looks brighter. Our acquiring TPV continues to grow strongly, giving us the confidence to review upward our payment volumes guidance for 2021. Compared with Q2 2020, Pegaseguro was the company in the Brazilian market with the highest acquiring TPV growth among the top five Brazilian acquirers, 89% year over year, and probably the highest total net revenue growth, 75% year over year. Our strong brand superior logistics infrastructure and complete banked offer to our merchants, among other strengths, allowed us to keep growing the long tail and to roll out our hubs faster than expected. Our RUBS results have been impressive, reinforcing our thesis that it's easier to go up in the pyramid than to go down, and that even SMBs are underserved in the country. With this new TPV mix, as we commented last quarter, Our take rates are stable and we expect the stake rate level for the rest of the year. Finally, we continue to pursue for the optimum capital allocation and the best balance between growth and profitability. We reduced the capital per sale ratio from 25% in Q2 2020 to 70% in Q2 2021. A positive surprise leading to a guidance review for CAPEX in 2021, driven by lower POS acquisitions, since we took the right decision last year to prepare the inventory levels, which reinforced our massive scale and purchasing power, improving the unit economic of our cohorts. Investments in technology have been helping us to maintain our strategy to grow organically, and we are happy to highlight four new products. First, Cell Phone Insurance, our fourth insurance product distributed by PEGS. We also launched an exclusive investment fund, PEGS Bank All Seasons, which gives the options to our clients to diversify their investments. We will also launch Brazilian Treasury Bonds trading platform. Our PEG Invest Vertical already counts with 5 CDs and 50 investment funds with several asset allocation strategies such as equities, corporate bonds, FX, gold, even cryptocurrencies. Finally, we are launching an overdraft loans product initially offered only to our best cohorts which will expand the credit options for our clients. All the positive impacts we have been producing in our society will be shared in the next months in our first sustainability report, where all the stakeholders will have the opportunity to follow closer our initiatives to serve better our clients, measured by the highest standards available in the market. Also, we plan to have our first investor day in November, a brand new initiative to discuss the strategic plans for the company for the coming years. where Luis Frias, our founder and chairman, and part of the Pag Senior Management Team will share their thoughts about the trends, the future of finance, and how we are preparing the company to keep consolidating its leadership in financial services and payments. I am very encouraged by the recovery trajectory and pleased with the momentum in both businesses, PagSeguro and PagBank. Finally, Nothing of this would have happened without the confidence of our shareholders, the commitment of our suppliers, and the best and most committed team working hard every day to promote our mission, being part of the financial lifecycle of every Brazilian citizen, promoting a massive financial inclusion in our country. Thank you very much, PagBank and PagSeguro team. That said, Arthur and I will present some slides, and we will have Q&A session at the end. On slide 3, we highlight the achievements of the second quarter. Record total revenue of R$ 2.4 billion, up 75%, with acquired revenue reaching R$ 2.2 billion, and packed bank revenue of R$ 182 million. All-time high consolidated DPV of R$ 102 billion, up 154%, with acquired DPV growing 89%, with Hubs TPV and Online TPV maintaining the strong growth trends observed in the past quarters, and PagBank TPV growing 341%, both in comparison to the same period of last year. Adjusted EBITDA of 629 million, up 64%, with acquired adjusted EBITDA reaching 730,000,000 and Peggy Bank Adjusa Debida reducing losses as a percentage of Peggy Bank revenue, gaining traction to reach the break-even in the coming quarters. Non-GAAP net income of R$ 345,000,000 up 12% year-over-year. CapEx per sales went down from 25% in Q2 2020 to 17% in Q2 2021. In June, our PagBank active clients surpassed 11 million, driven by an outstanding 2.1 million net addition quarter, while active merchants continued to the healthy net addition pace above 220,000, reaching 7.6 million active merchants. Next slide, we present PagSeguro's highlights. While in Q2 2021 versus Q2 2020, Total Cards Industry in Brazil grew 52% Our Acquiring TP View grew 89% Driven by the secular shift to electronic payments, combined with our successful go-to-market strategy to serve not only long-tail merchants, but also sellers larger than long-tails to our hubs. Our active merchants reached 7.6 million. Although our metric for active merchants is considered at least one transaction in the last 12 months and it may differ from other players, in the chart below we can see our dominance in number of merchants when compared with other players in the industry. In Q2, we had 226,000 merchants net ads. Although it is a strong number, it wasn't better because we saw a higher churn in April 2021 related to the business mortality from April 2020 during the peak of pandemic and lockdowns in Brazil. As for active merchants, we consider at least one transaction in the last 12 months. Businesses that closed in April 2020 and did not generate any TPV since then only affects our churn rates in April 2021. Important to say, We did not observe higher churn in May and June, and we had healthy net ads in these two months. Moving to the right side of the slide, TPV trends observed in July and first day of August are also encouraging. Despite the hard comps due to the corona voucher program distributed last year, volumes grew 55% year over year in July. Additionally, During the last week, the Saturday before Father's Day in Brazil, we reached a new all-time high daily TPV. Bottom right, we see that in the first seven months of the year, acquiring TPV grew 70%. Moving to slide five, acquiring revenues grew 77% in comparison to the same period last year, or 35% on a two-year CAGR basis. The growth was due to a better TPV mix towards credit cards volumes and our successful strategies to serve larger merchants, which supported the acquiring net take rate of 2.24%, stable in comparison to the first quarter. Bottom right, our adjusted EBITDA reached R$730 million, almost a 60% growth in comparison to the second quarter of 2020. Important to mention that last year there was a tax provision reversal in the amount of R$ 84 million, which we excluded for a better comparison. Despite the high investment to roll out our hubs and continuous improvements in our payment services to our merchants, we were able to gain market share, consolidate our position, and increase EBITDA. Moving to the next slide. Taking the opportunity to explore in the previous slide, I want to share the results of our hubs. Hub's TPV grew four times year-over-year, outpacing the best estimate of our models due to economy reopening and a disciplined execution to serve large merchants, combined with a powerful competitive advantage, which is PagBank. We are the only payments company in the market with a complete digital account and without any conflict of interest with controlling shareholders or partners. which allow us to look for the best combination to serve merchants and leverage the gross profits per clients, exploring both money flows, the cash-in and the cash-out. We are targeting merchants on average four to five times larger than our average long-tail seller. And by the end of 2021, we are expecting to cover more than 80% of the Brazilian GDP with approximately 300 hubs throughout the country. Packed by a strong sales culture, which mingles young professionals with seasonal sales professionals for other sectors, we are creating a unique relationship model, driven not only by clients' activation, but also by clients' engagement. We are also observing a larger number of software subscribers, which was 801,000, already represent 11% of Pag's active merchants. Finally, PagBank continued to be the best strategy to engage merchants and increase cross-selling opportunities. In June, we reached 82% of live users. Pags merchants that use payments and digital banking within the last 12 months. A growth of 54 percentage points in comparison to Q2 2019. Moving to July 7, we'll give some infos about our online and omnichannel volumes. Bottom left, online TPV grew 104% year-over-year, driven by web checkouts, cross-border transactions, and link of payments. Omnichannel volumes, which considers volumes from merchants that accept not only POS transactions, but also use online payment solutions, doubled their share in comparison to Q1 2020, last quarter before the outbreak of COVID-19 in Brazil. We continue to take advantage of Moiv platform increasing the barriers against competition and potential pressures on yields once its anti-fraud system guarantees the best approval rate in the market, and split payment solutions is highly customizable for e-commerce, marketplaces, and other payment methods. On the bottom right, although it represents a small portion of our total DPV, BOA Compra, our subsidiary focus on providing cross-border transactions for merchants, is growing steadily. Moving to slide 8, another grateful surprise. We had a record net addition of 2.1 million new PagBank clients, surpassing the mark of 11 million PagBank active users, being 45% of these clients composed by consumers. Combining with the increase in product per user ratio, which went from 2.6 products in Q2 2020 to 3 products in this quarter, accelerated PagBank TPV, which grew 341% year-over-year. PagBank revenues continue to present healthy trends, reaching R$ 182 million, up 89% year-over-year, with the better trends in adjusted EBITDA losses, which had a negative margin of 80% in Q2 2020 versus negative margin of 55% in Q2 2021. Moving to slide 9, we need to share some additional information about the engagement metrics. The number of active cards indexed to 100 increased four times in comparison to Q2 2019, while card spends doubled in comparison to Q2 2020. PagBank app logins reached an incredible mark of 783 million, three times more than the same period of 2020, which is similar to say that every PagBank client logged in our app on average one time every workday. The number of payroll portability skyrocketed, increased seven times, backed by our cashback incentive to clients with formal paychecks to make the portability to PagBank, being able to receive up to R$600 or $120 in the next 36 months. Finally, PagInvest assets under custody almost reached R$5 billion, up 85% year-over-year, driven by our increasing number of registered clients with access to CDs and investment funds offers. In July, Registered clients were 647,000 and we are offering almost 50 investment funds on our platform, which has been key to deepen our relationship with our clients as well to attract new ones. As I said in my initial remarks, we are happy to launch our Brazilian treasury trades platform in the next week. Now, I would like to turn the conference over to Arthur, our CFO, who will talk about our credit portfolio and our financial results for the quarter. Arthur, please go ahead.

Thanks Ricardo and good evening everyone. I also hope all of you and your family are well and in a good health. Following our presentation in the slide 10, the performance of our credit portfolio is improving every day based on efficient credit models, our experienced team and several learnings from the last three years of operation. June ended with a total credit portfolio surpassing R$ 1 billion. being 56% of working capital loans, 41% of credit cards and 2% of other credit products. I would like to reinforce that credit underwriting in Brazil is not a 100-meter sprint race. It is a marathon where learnings from the experience, patience and preparation make all the difference. We have been preparing the company since day one, and now we already achieved more than three years of credit underwriting to micro-merchants. The portfolio is 100% booked in our balance sheet, which provided us the awareness and diligence to decelerate in the past and to speed up now. Additionally, we see the registry of receivables as an opportunity for tech companies which provide financial services Even though markets should not assume the registry as a parachute for poor credit underwriting. On the right side, our cash position remained very strong with a positive balance of R$ 8.2 billion, reinforced by the issuance of PagBank CDs to fund the credit disbursements, loans to deposit ratio, was 62% guaranteeing stamina to grow our credit portfolio in a healthy and sustainable way. Moving to slide 11, we present our quarterly financial results. In the top left, our consolidated net take rate reached 2.43%, two basis points higher in comparison to first quarter 2021, and 13 basis points versus fourth quarter 20. Driven by better TPV mix with more credit, lower debit transactions, and helped by a larger bug bank revenue. In the top right graphic, we share our non-GAAP total costs and expenses, which totaled R$1.9 billion in the second quarter of 2021, up 87% year over year. Cost of sales and services represented 67% of total costs and expenses, increasing 63% year over year at the same level of TPV growth, driven by higher interchange and card scheme fees, higher depreciation and amortization related to our solid active merchants additions during the past quarters, and expenses to implement new products and services. Selling expenses represented 26% of total costs and expenses, and increased 155% year-over-year due to the headcount expansion for hubs and bank teams and higher marketing expenses for new campaigns. Financial services jumped from a share of 2% in the second quarter of 2020 to 7% in the second quarter of 2021, mainly due to a TPV mix improvement requiring additional working capital volumes to prepay our merchants. On top of that, the increase of the Brazilian basic interest rate and the exchange rate devaluation for international transactions for Boa Compra also pushed the expenses up versus last year. In the bottom left chart, the adjusted EBITDA went from 384 million reais in the second quarter of 2020 excluding the benefit of 84 million reais related to a tax provision reversal last year to an adjusted EBITDA of 629 million reais this year with a growth of 64% versus the same period of 2020. Finally, in the bottom right, we share our capital allocation. During the second quarter of this year, we invested almost 407 million reais being 50% in POS acquisitions and almost another 50% in R&D to develop new products, features, and services. As a percentage of revenues, CAPEX decreased 8 percentage points, reaching 17% versus 25% in the second quarter of 2020. Moving to slide 12, the last one of this conference call. As Dutra said in his initial remarks, the positive trends of the first semester led us to review our acquiring TPV growth guidance from above 40% to above 45% in 2021. We also project a reduction of capital expenditures in R$ 200 million, setting a new level of R$ 1.8 billion for this year, optimizing the cash flow generation. Now we end our presentation and we can start the Q&A session. Thank you. Operator, please.

Thank you. We'll now begin the question and answer session.

To make a question, please press star 1. To remove yourself from the queue, press star 2. Our first question comes from Mariana Tadeo with UBS. Please, Mariana, go ahead.

Hi, good evening, everyone. Thanks for the opportunity of asking a question. My question is related to net ads in the acquiring space. In this quarter, it decelerates. Is there any impacts of business mortality from COVID-19 one year ago, the second quarter last year? And could also talk a bit on the competitive scenario and your expectation for net ads going forward Do you think that Pax would be able to accelerate the pace of net ads again? Thank you.

Hi, Mariana. This is Ricardo. Good to hear. Thank you for the question. Let's talk first about the net ads in Q2. We saw an increase in business mortality from merchants in April 2020. So as our active merchants metrics Class A Common Shares Impact Insurance related to business mortality from one year ago. But it's also worth to say that these merchants, they were not transaction since May 2020. So we didn't see, we didn't have any TPV from them. Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares Some of the acquirers from the incumbents, from the banks, they decided not to play in the long tail market anymore. Some of them, they were vocal saying they will not play. Some of them just increased the price by five times or things like that. It is a way not to work in this market and I mean, you don't say no, but you just increase the prices. It's a way for not to play anymore. We keep seeing some competition from the same players that we had one year ago. Everybody, everyone knows about the natural competitor is Mercado Pago. We keep adding thousands of merchants every month. We saw some of our competitors increasing prices this week. Some of them increased the prepayment rates. Some of them made a different price for different card schemes, mainly the local card schemes such as ELO and HyperCard. So we saw more rationality in pricing, not crazy movements. The scenario is similar to what we had in the past quarters or even better. We didn't give this year a guidance for net ads, but we keep talking to some of you that we expect to have one million net ads in the year. We had more than 530 in the first semester, so we keep saying it's feasible to have this 1 million or even more. So let's see the following months and then we can give you more color. But I mean, the best information could be keep thinking about 1 million net ads in this 2021.

That's good. Thank you.

Thank you.

Our next question comes from Craig Maurer with Autonomous Research. Please, Craig, go ahead.

Yeah, hi, thanks. The take rate in the quarter held up better than my expectation. Can you talk about – you just addressed pricing in general, but can you talk about how we should think about that trend as the SMB hubs continue to grow? And, you know, that will have a dilutive effect on take rate, I would imagine. Secondly, if you could talk about the progress in lending products specific to PagBank and how that will drive take rate there. And just a last modeling question, how we should think about financial expense going forward. Thanks.

Hi Craig, this is Ricardo. Also good to hear and thank you for the question. I'm going to start and then Arthur can help me here. Regarding take rates, we have this different moving parts or so to say the The tailwinds and the headwinds. So the tailwind would be if we had the consumption coming back. You know, in Brazil, we are having higher inflation. Pandemic is still here. We are not 100% back. In the office, people are not traveling. So, I mean, the consumption is not happening because of COVID and because of also the inflation that is kind of preventing some consumption. So that would be the tailwind. Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares It's not really a headwind, but I mean, in terms of take rate is, it's because we are having better performance in hubs than we expected. So we are exceeding our expectations. You know that our merchants from hubs, they have usually four to five times larger TPV than Longtail. And of course, they had a lower take rate. So if you look at the percentage, it's going to be lower, but in absolute terms should be better because they have a TPV that's five times Class A Common Shares Class A Common Shares Class A Common Shares Hubs Operations to serve SMBs. Regarding the landing products, we've been working in these models for, let's say, three years. We learned a lot. We were supposed to have an increase in disbursement last year, but because of COVID-19, we just decided to stop, not to give any credit, the same movement that we saw other banks doing in Brazil. And then we are giving some credit again in this year. The NPLs are under control. We see some of our merchants having better TPV recovery. So it will help our take rate. It could help our take rate, the lending. It is also worth to say that, I guess Arthur can give more numbers here, but I'm going to finish and then Arthur can complement and talk about financial expenses. It's worth to say that we use here IFRS 9. So when you give some credit, we need to make the provision right at the beginning. So to some extent, we are, let's say, making the provision at the beginning and then the results are going to happen in the future. So that's why if we increase the credit, it could be even, let's say, not to help that much in short term because of this IFRS 9 that we follow here. And about financial expenses, I guess Artur can also help us. Thank you.

Okay. Craig, thank you for your question. Good talk to you again. And so, regarding to our financial expenses, the two big impacts in this quarter was related to the TPV growth that is higher than our expectation and also impacting a larger working capital needs related to the advances of receivables to our clients and also the increasing of Brazilian basic interest rate that is increasing the cost of PagBank CDs and also the advances of receivables with bank issuers. Going forward, we expect that the basic interest rate to achieve 7% in the end of this year. Obviously, we will increase our expenses. What I can tell you is that Q3 will be higher than Q2 and Q4 will be higher than Q3. But we are following very close what the market is doing related to that because we can adjust the prices for SMB and larger clients that is used to have the prices paid to this relation to this basic interest rate. and also for Long Tail. As Dutra said, some players in the market increased the prices. We don't have this plan for now, but we are very close to this movement in the market and we'll take an action if it's necessary.

Thank you very much, guys. Appreciate it. Thank you, Craig. Take care. You too.

Our next question comes from Mário Pierre with Bank of America. Please, Mário, go ahead.

Good afternoon, everybody. Congratulations on your results. Let me ask you two questions as well. The first one is on your credit portfolio. As you just talked about, last year you were being cautious, now you're accelerating lending. At a time that we're hearing from some of your peers that they're having problems with the credit product because of problems at the chambers of receivables. So what makes you comfortable to start accelerating your credit growth now Why aren't you having the same problems as some of your peers? And then the second question is related for your – it's about your appetite for inorganic growth. About a month ago, there were some news or some rumors that you were interested in making an acquisition for BV. So if you could tell us a little bit about what happened, what is the strategy, how do you look at inorganic opportunities? Thank you.

Hey Mayur, it's Arthur speaking. Thank you for your two questions. I will take the first one related to credit portfolio. And after this, Dutra will continue with the inorganic question. As Dutra said, we last year, and you mentioned too, last year we stopped our operations related to the pandemic and the crisis that we have in the world. and this year what encouraged us to disburse more than last year was related to the NPL cohorts that are improving every time and now we have three years of experience a more sophisticated credit models and that those those models does not taking care of the chamber of receivables okay we are not considering the Chamber of Receivables helping us to collect. So, I would say that our models need to work without the Chamber of Receivables. Obviously, we know that the Chamber could help us, could help us in all the credit products, but we are not considering at this point.

Mario, and regarding the rumors that you mentioned, We made this communication in the same day and I hear confirmed that there is no intent to acquire a big bank or BV Bank to name here. There are no related assignments agreement to do so. And we reinforce that during the call here. We do talk to many players in the market. We need to be aware what's going on in the market. It's my duty to be here to understand what's going on in our FinTech environment. Of course, we cannot follow everything, but the big deals or the hot deals, they came to us through advisor or people just getting in contact with us to talk about opportunities and we need to talk, understand what's being sold, what's the price and so on. So we did talk to many players, but it was a rumor, nothing more than that. Our mind for inorganic is to look for targets that can speed up our initiatives here, our ecosystem. So just to give some examples, we bought EME and MoIP in the online payments. We bought Biva and Boletoflex for a faster deployment for credit. We bought R2Tech and NetPoS and Zego for software features to ecosystem and things like that. So that's why we usually look for. I would say to you that every week, There is a sub-acquiring coming to us trying to sell volumes. We don't buy volumes. We know that it's a niche. At some point, the sub-acquirers need to be, let's say, consolidated or they will consolidate with someone else or with another sub-acquirer. So we had this opportunity to buy volumes and we don't have that in mind because at some point the price is not competitive. And so the main idea here is to speed up our ecosystem and to have the same culture because you know better than me Out of 10 M&As, at least eight of them don't go well because of the day after. So we need to be very careful what we are acquiring and if the culture is going to be fit and it's going to be easy to integrate and have a better service for our clients. So that's what we have in mind here to have, let's say, companies to speed up our ecosystem.

Very clear, guys. Thank you.

Thank you, Mario. Our next question comes from George Cudi with Morgan Stanley. Please, George, go ahead.

Hi, good afternoon, everyone, and congrats on the numbers. Great results. I have two questions, please. The first one is on your APEX guidance that is a tad lower. I know it's not a lot, but it is lower. And so I'm wondering if What should we read into it? Could we maybe start to think that expense growth is going to slow down as well, given that you already have built enough of the infrastructure for the new businesses? Or is this just related to POSs? And then my second question, sorry to go back to this, but I wanted to understand a little bit better the answer to the receivables chamber. What does it mean that your underwriting models don't consider that? I mean, don't you need to make sure that credit card receivables are not being used as a guarantee elsewhere for you to leverage them? I'm just trying to understand exactly what the comment from Artur was. Thank you.

Hi, Jorge. This is Ricardo. Good to hear you. Thank you for the question. I will start with the Chamber of Receivers, and Artur can come back and talk about the CAPEX. I guess what Artur was trying to say is that our models, when you look to our models, we consider the behavior we have with our clients with us, the way they behave with us and the transaction history that we have from them, How much they sell, if they are growing or not, what is the mix and so on. And today, as the Chamber of Receivers is not 100% working, it's not even possible for us to go there and look if this merchant is making transactions in another aquarium or if they have some other players that are serving them. So that's why when Arthur said, it's just like, we are looking for the behavior that you have in our database. There was no chamber of receivables until June and we keep collecting this client so that's why the chamber of receivables is going to be an additional way to collect But we don't count only on Chamber of Receivables to, let's say, to collect the money from the lending or for the working capital laws that we offer for our clients. I would just take advantage of our question just to give an overview about the Chamber of Receivables. It's a complex project. You know that central bank and all the industry is working hard to make it work. Although it's not 100%, we've seen lots of progress in the past weeks. It's going to work. Let's say in the next weeks because there is some integration that is happening between the registers and so on. We do believe that it's going to be very good for credit. We see an opportunity there because today we have 9% market share in the aquarium business. So there's 90%, 91% that is making transactions through other players that you can go there and even offer credit through a very effective way to collect if the Chamber of Receivers is working 100%. So, I guess what Arthur was trying to say that today we don't go there to see if the merchant is using another player and we don't consider that to collect the money, as today we are not using the Chamber of Service because it's not working 100%. So, I don't know if it's not clear, just let me know.

No, that's clear. Thank you. Thanks, Ricardo.

Okay. Thank you, Jorge, for your question related to CAPEX and good to talk to you again. And what we consider for CAPEX is that we will support the growth of the company for the future. And there is two big points inside the CAPEX. One is POS and the other is R&D. So both we consider to support the growth of the company. And we changed the guidance to 1.8 billion reais because now we have a better view of the year. Comparing to what we projected in the beginning of this year, we have a lower accuracy rate right now versus also what we projected. Related to mix of clients, so change it a little bit versus what we projected too. And we are always looking forward to be more efficient in the investments that we do in the company. So now we can say that 1.8 billion reais is more fair for this year. And also as the last point is related to the expenses that we don't have any relevant change for now. If we have any movement in terms of expenses, depreciation or amortization, so we will communicate to the market.

Great. Thank you, Artur, and congrats again to everyone. Thank you. Thank you, Jorge.

Our next question comes from Brian Keane with Deutsche Bank. Please, Brian, go ahead.

Hi, guys. Solid results here. Two questions, if I may. Just on the hub strategy, it sounds like it's coming in better than anticipated, so wondering about the volume trends. I think last quarter you indicated maybe the top end of the range of 6% to 11%, you know, given the growth in the hub strategy. Does that still hold? Are we now maybe even going to push above that range for 2021 volumes? And then secondly, the net income margin was 14.6, I think, in the quarter. and I know you're making a lot of investments in the business and I'm just trying to figure out going forward should we be at or a little bit below that margin level or just any guidance on that. Thanks so much.

Hi, Brian. This is Ricardo. Thank you for the question. Good to hear you. Regarding hubs, you're right. We are exceeding our expectations in terms of volumes, in terms of the performance, even the Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares It seems going to be higher than the 11%, the top of the range, which is good news. I mean, we were, let's say, conservative when we thought about the volumes from hubs and we're going to get more. I mean, we saw that even the SMBs in Brazil are underserved. The majority of our SMBs, not to say 100%, they already have another player. So it's different than long tail that we are bringing new merchants to the system. In the SMBs, we need to go there to talk and to get clients from competitors. We use a lot the strategy to talk about PagBank, the digital bank that is 100% free and they can use for daily tasks, financial daily activities, such as paying suppliers and so on. So we are being successful there. And going back to your question, it will be probably higher than 11%.

Hey Brian, it's Arthur speaking. Good to talk to you and thank you for your question. Regarding to net income margin, as we have been sharing in the last calls, we are not obsessed by margin right now. Our focus is continuing to deliver healthy and positive nominal results. That means positive nominal results for adjusted EBITDA and net income. So our intention is to create a larger company for the future. and 2022, 2023 increase our margins. Regarding to the next quarters, I can say that we expect a slightly improvement versus Q2. Q3 probably will be better than Q2, Q4 better than Q3. And for the full year, we are expecting something above 15% and also excluding interchange and fees from the schemes, so our net income margin should be above 23% or something, above 23%.

Just to be clear here, Brian, Arthur is saying that the net income margin As we are reporting, it's going to be higher than 15% this year. It's going to be better in Q3 and Q4. And when he talks about 23%, when you use the same methodologies of other players, that they discount interchange and card scheme fees from net revenues. So that's going to be close to 24% if we exclude interchange and card scheme fees from the revenues.

Thanks again. Congrats. Thank you, Ryan.

Thank you. Our next question comes from Marco Calvi with Itaú BBA. Please, Marco, go ahead.

Hi. Good evening. Two questions here. The first one on the acquiring net rate rate of 2.24 that you guys disclosed during this quarter. We saw a growth quarter over quarter or a flatish quarter over quarter and a growth over the fourth quarter. Can you guys share with us the trends of these acquiring net take rates, given that you guys are moving towards a larger client, and even so, at least comparing to the last two quarters, the net take rate on the acquiring business either stayed flat-ish or increased. And my second question is on your software business. You guys mentioned that you guys ended the quarter with roughly 100,000 clients and an affiliation close to 11% of the active merchants. I was just wondering what sort of software are you referring to and if you can share the average ticket specifically on the software product. Thank you guys.

Hi, Marco. This is Ricardo. Thank you for the question. Good to hear. Regarding the attic rate in the aquarium business, as you could see in Q4, we have 2.06, then 2.23 in Q1, 2.24 in Q2. And looking forward, we see at least two big moving parts here, or the headwinds or tailwinds. So in the tailwind, we We see the better consumption or increasing consumption in the country. You know, we are having higher inflation. Unemployment is still here. Pandemic is still here. We're not 100% back to our normal lives. And so that's the tailwind. The people start consumption more, getting some business trips or even the trips with the family and so on. So that's the tailwind. In the headwind, in terms of take rate is because we are having better performance in the hubs. So we are changing the mix of ROTPV. You know, the HubDux clients, they have TPV four to five times larger than the long tail. So when you bring this larger merchant, the SMB, they impact net take rate. In absolute terms, it's a good business because, I mean, the volume is much higher than the long tail, even with a lower net take rate. But if you look specifically net take rate, we have this headwind. So that's why we prefer to say there's going to be flat-ish. Class A Common Shares Class A Common Shares Class A Common Shares We consider here usually the point of sale that people can go there, use for managing their businesses at the end of the day, take some reports such as how many coffees did I sell, how much did I sell through cards, through debit cards, credit cards, in cash. So usually a small, let's say, software that helps people to manage their business better. We also consider here R2Tech, our conciliation business that some of the clients use to make this match between the sales. and the money that goes to their bank account. So at the end of the day, they can see how much they sold and if the money is coming to their bank account. So those are the two main software. We also have some other software that is smaller merchants using to use Minizinha and to make this point of sales to work. The example that I gave about the reports. Usually, we don't charge for our software. They are very simple. They don't require implementation. They don't require someone to go there to install anything. We don't sell licenses. You just need to download the app and next, next, next few clicks, you can use the software. So, usually, we don't charge for the software. We see that as a way to give a better service for the client, increase their loyalty, and keep them working with our acquiring solution for a longer time.

Great, thank you. Thank you, Marco.

Our next question comes from Eduardo Rosman with BPG. Please, Eduardo, go ahead.

Hi, everyone. Congrats on the numbers. Two questions here. First one, we just saw Sebrae publishing a survey saying that more than 50% of small merchants in Brazil, they're still not accepting cards. So I just want to get your feedback on the ground. What can we expect, like an idea for maybe next year? If you think adding 300,000 merchants per quarter is still doable, if you think you can grow more than 30% TPV in the acquiring segment still for another couple of years, so it would be interesting Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares So that's it. Thanks a lot.

Hi, Rosman. Thank you for the question. Good to hear you. Regarding the Sebrae survey, you're right. They said many businesses in Brazil or the small businesses don't accept cards yet. And I would say there are no other companies in our industry more prepared to, let's say, to take advantage of that or to serve this way of with all the history that you have, the expertise that you have to serve long tails, distribution channels, to leverage DOL audience. and all the ecosystem that we have been building all these years, all these quarters. So that's why we keep adding 1 million net ads per year. That's why I expect to keep adding the following quarters. There's still many opportunities out there. And I would say that we are the company more prepared to serve those that are out of the financial system because, I mean, we've been doing that since... in 2006 in the online world and since 2012 with the POS. But you're right, it's a great information. Just reinforce what we've been saying for many quarters that there's still many businesses in Brazil don't accept cards. Some of these merchants, they start to accept debit and then after a while they start to accept credit. So we see as an opportunity and the survey from Sebrae just reinforce Review. Regarding PagBank, I'll just introduce it and Arthur can help me here. But you're right, the margin in absolute terms increased, but as a percentage of the revenues, we decreased it from 80% to 55%. So the business is growing. We need to dilute fixed costs, but we keep investing in the business. So that's why, to some extent, the absolute terms, the absolute numbers Artur, can you just complement here?

Yeah, I will say just more words related to PagBank. PagBank is a long-term project to us. We are succeeding because we are adding millions of clients every month, every quarter. and we are monetizing those clients. It's true that for consumers, normally consumers take more time to start to monetize. It's true because the caching is not automatically. This is the biggest advantage that we have in terms of merchants using PagBank because we have the caching automatically. As Dutra said, we are at the moment to invest a lot in the ecosystem to have a more complete offer of products in terms of PagBank. And so we are investing in people, marketing campaigns, R&D, and everything that is necessary to have a big digital bank in the future.

Hey, Rosman, this is Eric. Thanks for the question. I'd just like to highlight here that We don't have two COs, one for payments, one for banking. We have one CO, one CFO taking all the decisions here to maximize revenues per client. So there's no conflict of interest and we are traveling here to increase revenues per user and see the profitability better for the coming years.

Great, thanks a lot.

Thank you.

Thank you.

Our next question comes from James Friedman with Susquehanna. Please, James, go ahead.

Hi. Let me echo the congratulations. I'm glad to hear everyone's doing well. It's Jamie at Susquehanna. I just want to ask a couple of questions up front. So the TPV per merchant continued to expand, right? So your TPV grew double the merchant growth roughly. Is that the hubs or is that the COVID or something else? That's the first one. Historically, you've had some seasonality. Well, the industry's seen seasonality in the Q3. And I wanted to ask about that. Do you expect any promotions in the Q3 at an industry level? Because sometimes we see that into Black Friday. That was the second one. And then the third one is, what are you going to talk about on Analyst Day?

Hi, James. Can you repeat just the last one? I'm sorry. It's cut it here. Oh, what are you going to talk about at the end? Okay. Okay. Wow. Well, I'll start with the TPV promotion. We... We saw this Q2, of course, is an easy comp, James, just to be clear here, I guess, around the world. That was the worst quarter in terms of COVID and lockdowns and impact of the economy around the world. And Brazil was not different. So the worst month for us last year was April 2020. But of course, we had impact from COVID all over. Second quarter was the worst one. When we compare, we are growing a lot, and part of this growth is coming from every business that we have here, from different clients' sides. But the majority of the growth is coming from Hubs. We gave some information here. The Hubs TPV quarter-over-quarter grew four times, and the company as a whole grew 89%. The long tail also grew strongly, steadily, but not the same levels that you saw in the hub. So just going back to your question to be clear here, the TPV per merchant increase can be more explaining because of the hubs that help it, because those are the guys that with more volumes. And it grew four times year over year. Regarding Q3 seasonality, we don't think that's gonna be any, Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares We have this window of opportunity to grow PagBank. We grew 2.1 million new clients in Q2. We see the opportunity to keep growing strong in Q3 and we will start a new marketing campaign in the following days. Regarding the analyst day, the idea here is to have a meeting in November. We don't have studio details, we still have this to decide how this specific date, but there's going to be a meeting with Luis Frias, our chairman and the founder of the company, and some of the Pax senior management team to give a more overview about what we have in mind, what we see the future for our industry, what is going on in Brazil in terms of in the financial market, in the fintech arena, and be more close to the investors and, of course, share

Our next question comes from Tito Labarta with Goldman Sachs. Please, Tito, go ahead.

Hi, good evening. Thanks for the call and taking my question as well. A couple questions also. I guess to go back on your margin, and sorry to harp on this point, just want to make sure I understand, because if we look at your margin last year, you were 20%. I remember on the 4Q call, you mentioned if you take out COVID and PagBank, your margin would have been 30%. So now you're roughly half of that, and your PagBank margin has improved. So is this mostly because of the growth in the hubs? Just wanted to understand the decline. and kind of what's driving that, particularly if PagBank is improving. And then I'll ask the second question.

Tito is after speaking. Thanks for your question and good to talk to you. Regarding to margin, all the things that you mentioned is right. And the impact of what we are seeing today is related to hubs because it's an operation that is not mature. and also the investments that we are doing for PagBank. And so when we have a more stable company in the future, a larger company, we will leverage those investments that we are doing right now. And the expectation that we have today is the margin grow again.

Okay, thanks.

Go ahead, Tito.

No, I was just going to say, but Your PagBank margin is improving, right? So, I mean, I get you're still investing, but I mean, revenues growing faster. So, just to understand, the pressure on the margin wouldn't be coming from PagBank compared to last year, right? Is it more just the hubs?

It's hubs and PagBank. Remember also, Tito, this is Erick, higher depreciation amortization given that we had R$2 billion in capital expenditures last year, being R$1.5 billion of debt related to POS's acquisition. This year, remember, the previous guidance considered R$2 billion in capital expenditures for 2021. Arthur just reviewed this information to R$1.8 billion, so higher depreciation amortization. Also higher financial expenses given the rising of interest rates. So this is why we saw these impacts. And remember, if you remember in Q1, we had the digital account losses too that impacted for the full year numbers that we already sold to this. Okay, so basically, these are the reasons why we saw these impacts in the short term.

Okay, perfect. Thank you. That's helpful. And then my second question, you mentioned earlier boa compra and growing cross-border transactions as well. Is that something that is significant for you? Do you see a lot of growth potential in that? Just kind of curious on that opportunity for you.

Well, Tito, to be sincere, it's a small part of RTPV. It is growing very fast. but it's a small part of our TPV. We already had this company for a few years now. Some of the clients, the online clients, they ask us to serve them in other countries of Latin America, and then we use Boacomber to serve them. So it's something that we are always looking for the opportunities here. We know there are some countries that are more developed in terms of cards industry than others. We keep looking to that, but it's hard to compete with the opportunity that you have in Brazil. Number one in terms of clients here, we have PagBank, we have UOL, but we keep evaluating if there is some opportunity. There are some opportunities in other countries, but to be sincere, it's a small part of RTPV. It helps. It is important to serve some clients, but at this point, it's not something that's a transformation to be clear here.

Okay, great. That's helpful. Thank you very much and congratulations on the result. Thank you very much, Guido.

Our next question comes from Domingos Falavina with JP Morgan. Please, Domingos, go ahead.

Thank you. Hi, guys. Good evening, everyone. Also, thanks for taking the call. I just wanted to bounce off ideas and get your point of view as well on the debit side of the operation. Basically, Diabex, the card association, put out the industry-wide figures just not too long ago. And what we saw is basically debit accelerating. It's really hard to exclude the COVID year, obviously. But I mean, if we compare versus 2019 and see kind of an average of CAGR 19 over 21, or I should say 21 over 19, you know, April, May, and June actually accelerated even above credit card green, you know, 19, 20% year-on-year, which given picks, you know, it came across as a surprise. When we look at the market share, we did see obviously, I think you guys mentioned that a lot, that it hurt you, the market share of credit used to be in 2019 and before 63%, it came down to 59%. And in this year, it's striking around 61% credit and the rest being debit and prepaid. So my question to you is, what else can you share? Like, how are you seeing those debit volumes? How are you seeing pigs and And, you know, do you have any guess on what's PIX substituting and what you're seeing in your base? And congrats on the result as well.

Thank you, Domingos. Good to hear you. This is Ricardo. Well, let's start with PIX. We have the option for all our devices. So, you know, we have 7.6 million merchants, active merchants. On average, we have more than one device per merchant. So, I mean, we have easily Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares We do see PICs replacing TAD wire transfers for those who are not familiar with the names in Brazil. For obvious reasons, it works 24 hours a day, seven days a week, it's automatic. We see PICs replacing wire transfers. In terms of debit, I know the debit growth has been strong during all these years, and I would say that part of that is because also the people getting into the financial system. Our guess here is that debit is kind of replacing the cash. You know, there is a lot of the economy in Brazil that is still based in cash, and people are getting, let's say, digital accounts, New cards. We saw this accelerating the pandemic. People that could not go to the banks to withdraw money in ATMs. They could not go to agency branches because they were closed. So many millions of people opened their accounts. So there are more, let's say, a larger base of debit cards throughout the country. So that's our guess here. And there is this secular shift here happening in Brazil from cash to cards that is Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares That's why we have this strong tailwind for the industry as a whole. If you consider the whole industry, it grew 52% year over year. I know it's an easy comp from COVID, but anyways, 52% is a strong number, and we grew 89%. So I don't know if I answered your question here.

No, you did, especially when you said you're not seeing big PICs penetration. Just out of curiosity, when you say this total TPV on the acquirer side, is that including or not including PICs?

It includes, but it's very, very small, Domingos. If we exclude, it's going to be probably the same, 89%. All right. I appreciate it, guys. Thank you. Okay. Thank you.

Our next question comes from Neha Garwala with HSBC. Please, Neha, go ahead.

Hi. Thank you for taking my question. This is Neha Garwala from HSBC. Congratulations on the results. I wanted to dig a bit on the park bank revenues. Last quarter was depressed due to the chargebacks from the digital account losses, but this quarter there was a small improvement, not as strong as what we saw in the fourth quarter of 2020. So could you explain a bit more what was the composition of the park bank revenues? How do you see it accelerating in the coming quarters now that you are Pumping Up the Growth of the Credit Book Should We Expect an Accelerated Growth in the Park Bank Revenues? So a bit more color on that. And my second question is on the chargebacks. I mean, if you look at the chargeback numbers that you have in the costs, it picked up a lot in the first quarter of 2021, which was due to the digital account losses. It has gone down in the second quarter, but still seems elevated versus the last quarter. So If I understand, I think it's related to the credit books. Could you talk a bit more about that, why the chargebacks are still a bit elevated versus in quarter last year? Thank you so much.

Hi, Neha. Thank you for the question. Good to hear you. This is Ricardo. I'm going to talk about PagBank revenues, and then Arthur can give you more color about chargebacks, but you're right about the credit books here. So the PagBank revenues, as you said, it is growing. Remember we added 2.1 million clients in this quarter and the majority of these clients are consumers. What I mean by consumers, they don't have the automatic cash-in just like we have with the merchants. Because the merchants when they have a sale in the POS, the money goes straight to the digital account. and they can make transactions there, they can use some services in the digital cloud that they can monetize. Consumers take a while to put the money there and takes a while to start generating revenue. So we've been saying that there's some lag between the client comes to PagBank and starts generating revenues, but it is increasing the revenues, that is true. We also made some promotions for some clients. Just to give an example, we have some withdrawal fees. If people go to ATM to withdraw the money, we have some fees that we charge. For some of the clients, we decided not to charge in exchange to have more engagement from them. We made some research. Some of the clients that we use here, they also use another bank because of that. So we decided to take it out, this charge. So that's why we At the end of the day, for some clients, we are exchanging short-term revenues for a higher engagement and a longer-term relationship. But, I mean, it's growing. It's fine with us, the level that we have. Aquarium is growing fast as well. So, I mean, we are very happy with what we had in this quarter with the PagBank revenues. But I'll pass the word to Arthur to talk to you about chargebacks.

It's Arthur speaking. Thank you for your question. Good to talk to you. Related to chargeback, as we said last conference call, it's important to mention that we did not have the same issues of Q1 2021 for digital losses as we presented in the first quarter of this year. And also in the Q2, when we exclude the digital loss, when we compare to Q1 excluding digital losses, the chargeback over acquiring TPV grew six basis points, okay, due to more online transactions that naturally brings more chargebacks and the growth of credit portfolio, as Dutra said. Related to credit portfolio, since we use IFRS 9, The highest accounting standard procedures for delinquency provisions. We booked 12 months of write-off in the first month of the cohort that will present a new dynamic for our chargeback as a percentage of acquiring TPV going forward. And if we compare the credit portfolio that grew 42% quarter over quarter Our TPV grew at 12%. So this is the reason that increased the chargeback as a percentage of the TPV.

So it's provisions at the end of the day, Niha, provisions following the IFRS 9 rule.

Understood. Thank you so much and congratulations once again.

Thank you very much, Niha.

Our next question comes from David Togut with Evercar ISI. Please, David, go ahead.

Good evening, and thanks for taking my question.

This is Spencer Kennedy on for David Togut.

So great to see the continued strong momentum in the PogBank ecosystem. I want to better understand the monetization differences between your consumer and merchant clients. You now have around 82% of your merchants as PogBank clients, which implies the future client additions will predominantly come from new consumers. Any stark differences between these two groups relating to credit and interchange revenue or product usage? Thanks a lot.

Hi, David. Thank you for the question. What you see here is just in terms of dynamics is because When you are a merchant and you use our POS, you already receive the POS in your cash card. So once we start making transactions, the money goes to your digital account and you can have the cards in our hands, we start using, you start buying stuff, you start withdrawing money, we start withdrawing money, so we start generating revenues because it's a, let's say, a closed loop, so to say, because the money goes from the POS to your digital account, you have the cards in our hands, so it's very easy for you to use and to generate revenues. When you are a consumer and you ask for a card, of course, you need to make some QIC checks here. Although we are probably the fastest company in terms of sending you the card in Brazil, but it takes a while for you to send the money and to start using. Usually, let's say, if you work in Brazil, you receive twice a month, so the money doesn't go away. Class A Common Shares Class A Common Shares Lack of time between opening the account to start generating revenues. Today, the main difference is that we don't offer credit products or products with credit risk for consumers. We only offer working capital loans and credit cards for merchants. The consumers that we offer credit cards, we only offer if they have a collateral, if they make the salary portability here, or if they invest in a CD. Because if you don't pay us, we have this as a collateral. You have your salary or your CD. Usually, that's also another difference between generated revenues between consumer and merchants. We will start to generate some credit products for consumers in the following weeks. We launched yesterday the overdraft loans, which is a Class A Common Shares Class A Common Shares in parallel. But you're right, it takes a little bit more to generate revenues from consumers.

Okay, got it. And as my follow up, I just want to better understand the 2.1 million client additions. And just I guess, thinking through the sustainability of those additions, because I guess historically, I guess you guys have talked about 1 million new client ads per quarter is kind of How we should think about that. So, I guess, are the factors that drove that this quarter, are those sustainable?

David, it's hard to give you this information that it's going to be 2 million again. We'd rather say that we keep with our, let's say, soft guidance between 1 and 1.4 million per quarter. If we see the opportunity to accelerate some niches that we can make some partnerships, we can find Thousands of clients, we will do it. But it was exceptional Q2 for us. We saw some marketing channels working better than we used it to be. We made some new campaigns that worked very well. Our product also getting more mature. People understood that. So, I mean, we would rather say there's going to be more than 1 million in Q3. So, let's see. If we have more color on that, we can update you. Okay, great. Thanks very much. Thank you.

Our next question comes from Jeff Cantwell with Guggenheim Securities. Please, Jeff, go ahead. Hi, can you hear me?

Yes. Hey, congrats on the results. Thanks for taking my question. Most of them have been asked. I thought a slide forward, the presentation has that interesting chart in the upper left corner. There's A clear progression there, which shows that you're clearly gaining market share and acquiring. So, you know, your shares increased by 200 pips over the past year and turned to basis points over the past two years. Ricardo, can you talk a little more about what's driven that? Can you think back and talk about where those share gains have come from, why they come about, what you're seeing, you know, out of the market that's different about Poxigirl? The crux of my question, as you look back at the strategy and the execution of the company, what's really driven those share gains, in your opinion? Is it the products that are opposed to distribution? Is it the product itself, the strength of the ecosystem? And where do you believe those share gains are coming from, meaning new businesses, competitive wins? Any kind of detail there would be very useful to hear about what you've seen occur as you've gained share over the past two years.

Thank you.

Hi James, thank you for the question. You're right, we grew from 7.2 to 9.2 in one year. Part of the explanation here, of course, is because we started the hubs and we keep growing in Longtail. As I said before, when we go to a hub approach for an SMB, The majority of them, not to say 100%, already accept cards with another player. We see many, many SMBs unsatisfied or not satisfied with their current provider, with their current player. We try not to go there and just bid on price because that's not the Smartest way to gain this client. We try to use PagBank as a differentiator, and it is working. Of course, we need to negotiate. That's why we have the hubs, because if we were not able to negotiate, just people could come here and buy our POS through the website. And we know that SMBs have better take rates than those that we offer in the website. So that's the main idea, to talk to the right person, to the owner of the business, and get the deal done. Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares Everyone looking for the same direction here. I don't have here in the top of my mind to say you from these two percentage points how much was from new business that we got in Longtail and how much from the hubs. We can get this information later. And regarding our second question, I would say you here, we are very Hands-on company. We try not to have distractions and to make the best for our clients. I guess that's our DNA. That's what everyone here is committed to. We have a very committed team looking for the best for the clients. We don't do things just because we think it's cool or because we think that the market will like it. We will do things that really the clients will like it. We will deepen relationship with PagSeguro, PagBank and so on. We do believe that technology also is a tool that you need to use. That's what brought us since 2006 until today. The technology, the way that we have here to scale the solutions, the cost to serve going down as time passes by. So that's why we believe. So to make the best for the clients using technology and be a hands-on, taking very attention to details because at the end of the day, Okay, that's a great color.

And then separately, I want to ask you in PogBank, you're touching on this, you know, a bit. Can you talk a little more about your efforts right now to get more PogBank cards into the hands of your users and get them active? We can see that, you know, the four times increasing cards on slide nine, right, over the past two years, you're now at four and 5,000. And, you know, so when we think about that 11.2 million active user base, the obvious question for us is, How many of them need cards? How many of them are potentially customers using PagBank cards? How much further expansion should we expect to see from that $405,000? Could you give us any thoughts about execution and the strategy and how to continue to bring that number forward within your customer base? Thanks.

Yeah, James. Well, when someone comes here to open an account, we don't know if... I mean, it's hard from the beginning if they're going to be, let's say, a good client with lots of money coming to the digital account or if they will not put lots of money here, if they'll be a heavy user or not. So we try to get some data from the market. We try to get some data that we have here inside the company to try to offer... Let's say to make the best offer for this client. But at the end of the day, I would say you that the most used feature in our account is the wire transfers and second is the cards. Because those are the two tools the clients have to move the money. So that's what they use more. Of course, they pay bills and so on, but the wire transfers to send money from one account to another one and also the cards to make purchase and withdraw the money, those are the two most used features. If the client asks for a card and they don't use it, we have, let's say, a communication process here to send promotions, to make some incentives for them to activate the card and to use the card. So our goal here is to have 100% of our clients using the cards, those that receive the card. So, I mean, it's key for us. It's key to make the people to use PagBank as the main bank. We are not the main bank for the majority of the clients at this point. But, I mean, it's a Decent percentage of our clients say they use PagBank as their main bank, and it is getting better month after month. So we are developing new features, we are putting new features in the account so that people can use us as the main bank. But the goal here is to have more and more people using the cards, and see this TPV from cards increasing. It's still today linked with the TPV from the acquiring because the majority of the cashing is coming from the acquiring. So if the acquiring comes up, usually the TPV from cards also goes up. When you have these acquiring coming down, what we had in Q1 because of seasonality, we saw also the TPV from cards with the same trend because the majority of the cashing is from the merchants. Going back to your question, the idea here is to have, I would say, 100% of our clients using the card, the cash card. We will start offering credit cards for some consumers as a pilot, as I mentioned before. But we will start, so it's hard to say how it's going to be the performance. We can, again, give you more color in the following quarters, the following calls.

Got it, got it. Appreciate all that color. Thanks and congrats on the results.

Thank you very much, James. Take care.

That concludes our question and answer session for today. I would now like to turn the floor over to Mr. Ricardo Dutra for final remarks. Please, Mr. Dutra, go ahead.

Hi, everyone. Thank you very much for the time. Thank you for the questions. Thank you for all the support through all these quarters, and I hope to talk to you soon in person. And for some of them that we don't meet in person, we can talk in the next conference call next quarter. Thank you very much.

The PagBank PagSeguros conference call is now over. Thank you for your participation. Have a great night and you may now disconnect.