PagSeguro Digital Ltd. Class A Common Shares

Good evening, my name is Priscila and I'll be your conference operator today. Welcome to PagBank PagSeguro's webcast results for the first quarter 2022. At this time, all lines have been placed on mute to prevent any background noise. 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. Participants may view the slides in any order they wish. Today's conference is being recorded and will be available after the event is concluded. I would now like to turn the call over to your host. Eric Oliveira, Investor Relations and ESG Director. Please go ahead.

Hi, everyone. Thanks for joining our first quarter 2022 earnings call. Today, we have with us Ricardo Dutra and Alexandre Magnani, our co-CEOs, and Arthur Schunk, our CFO. Speakers' remarks, there will be a question and answer session. 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 the assumptions, expectations, and projections are reasonable in view of currently available information, your caution 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's most recent annual report on Form 20-F and other filings of 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, including those disclosed in the presentation. We present non-GAAP measures when we believe that the additional information is useful and meaningful to investors. The presentation of this non-GAAP financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered separately from, or as a substitute for, our financial information prepared and presented in accordance with IFRS, as issued by the IASB. For more details, the foregoing non-GAAP measures and the reconciliation of these non-GAAP financial measures to the most directly comparable IFRS measures are presented in the last page of this webcast presentation and our earnings release. With that, let me turn the call over to Ricardo. Thank you.

Thank you, Eric. Hello, everyone, and thank you for joining our call. I'm pleased to announce we've reached another set of record numbers this quarter. Almost all of them higher than the top of the Q1 guidance and marketing consensus. Also, as you see our Q2 guidance in the next slides, we have been seeing a strong momentum in Q2 as well. Our performance reinforces our core strategy of delivering the best balance between growth and profitability, strengthening our lion's share in payments, why we create one of the most relevant digital banks in Latin America. Our management is extremely dedicated, committed, and aligned to take decisions oriented to the business success, not only in short term, but also in long term, as we see huge opportunities to be explored in Brazil. Going to slide four, we can see the Q1 main messages. During the first quarter of the year, our payment platform, also known as PagSeguro, had its first wave of repricing, which led an increase in merchant acquire and take rate of plus 35 bps in comparison to Q4 2021. Our successful strategy to also serve small and medium businesses continues to outperform our expectations, with hubs TPV reaching 25% of the PagSeguro volumes. The unbeatable combination of the migration from cash to plastic in Brazil The best-in-class execution in hubs and the lion's share in long tail led us to have the largest scarce TPV market share during Q1 2022, increasing 70 bps versus Q4 2021. These results reinforce our ability to increase prices and, at the same time, keep churn levels under control. In our financial services, also known as PagBank, Our net ads marked 1.7 million, almost 19,000 new clients per day in Q1 2022, achieving 24 million clients, of which 14.3 million were active. TAG Bank has also been diversified its revenue streams, mostly driven by interest income, and we also plan to launch new secured loan products to be deployed in the second half of 2022. Going to slide 5, aligned to our mission to keep disrupting and democratizing financial services and payments, primarily in Brazil, while creating value to investors and stakeholders in a sustainable and diligent way, this quarter we reached R$ 3.4 billion in total revenues and income, the highest level ever in the company, and an income of R$ 371 million. I would like to highlight the most relevant KPIs for the quarter. Beginning from the left side, Our payments platform highlights. We reached 80 billion reais in total payment volume, TPV, 3.1 billion reais in total revenue and income, more than 10,000 reais per quarter in TPV per merchant, and 769 million reais in adjusted EBITDA. On the right side, our financial services highlights. We reached 72 billion reais in TPV, 305 million reais in total revenue and income, 2.1 billion reais in credit portfolio, and 86 million reais in gross profit. On the next two slides, we can see some payments platform achievements. So, beginning with slide 6, we are happy to announce that PagSeguro was a TPV market share gain winner this quarter, growing 70 bps in Q1 2022 versus Q4 2021, while the most relevant players lagged. If we look back to 2016, we went up from 1% to 11%, which reinforce our thesis that is much easier and profitable to move up market, creating the competitive advantage and scale, which can be easily adapted to larger merchants. Going to next slide, we present important KPIs about our payment businesses. Creating a unique scale, backed by a superior logistics infrastructure, and leveraging our marketing and advertisement through UOL, Our customer acquisition costs, adjusted by inflation, decreased 5% in 2021 in comparison to 2020. With a rational pricing strategy combined to the strong migration from cash to plastics in the country, our paybacks continue to be very short, between four and six quarter. With 2021 cohort presented the best performance in terms of return on investment in comparison to the previous cohorts. In 2022, we expect that higher take rates due to repricing, focus on TPV per merchant increase, lower POS divided subsidies, and the efficiencies in market expense continue to support the compelling returns we have been obtaining so far. The beauty of this business is that we do not rely only in number of merchants to keep growing very rapidly. Differently than business that relies completely on subscriptions with flat fees, We have several marked growth opportunities in payments, such as growing approximately 80% more than the industry on average. For example, in Q1 2022, the industry grew 36% year-over-year, while PagSeguro grew 60% year-over-year. Cards PCE in Brazil reached 50% in 2021. According to estimates, the country can reach more than 70% by 2025, increasing the share of wallet promotion. E-commerce penetration as a percentage of total retail sales is still below the global average, and with our complete online payments offerings, we believe you can now take advantage on it. We have been consistently gaining TPV market share, adding new merchants and volumes to the system, and also attracting underserved merchants to our solutions. Finally, having created a lion's share in number of merchants with multiple times more merchants than the second player, allow us to be rational and to keep focus in our strategy to prioritize high-quality merchants in our gross ads, while cross-selling and upselling our products and services. Our execution has been very successful, which is also reflected in our lion's share in the profit pool of the industry. On the next two slides, I'll show you why we believe payments is one of the ways to build a profitable digital bank and how the value proposition is created for merchants and consumers. On slide 8, the left side, we can see three charts comparing merchants that do not use PagBank with those that use. The PagBank value proposition for long-tail merchants is clear here. Merchants that use PagBank have four times more revenues, higher NPS, and much lower churn when compared to those that do not use PagBank. We also aim to increase PagBank penetration SMBs and have been launching new features to serve these clients. For instance, in this quarter, we launched corporate accounts, directly deposited from other acquirers, and debit cards. Our confidence is consolidated when we look at the market growth opportunities for banking in Brazil. Looking at the opportunities, our cost-to-serve clients continue to be 10 times lower than the incumbent banks, in a country where top five banks concentrated 91% of the total credit portfolio. As I mentioned before, we also see opportunities to cross-sell and up-sell financial services to our SMB clients. There is no other acquirer that serves SMBs with a complete digital account that includes transactional, cards, investments, etc. Also, Brazil has a young population that is very active online, which creates a perfect landscape for a digital bank like PagSeguro. On slide 9, we can see more numbers to reinforce our successful PagBank execution. In less than three years, we were able to create the second largest digital bank in Brazil, with almost 24 million clients, adding almost 9 million new clients only in the last 12 months. In addition, when you go deeper in our numbers, in two years, we reached 7.6 million active clients being composed by consumers, which is incredible, since our credit offering is still limited for consumers, and PagBank is much more a transaction account at this time. Our confidence increases when we run our internal research with our clients to know how engaged they are. Looking at the chart on the right side, we see that for new cohorts, more and more consumers are using PagBank as their primary bank. Before I turn over to Alexandre, I would like to reinforce we are very encouraged by the momentum in both businesses, PagSeguro and PagBank, and all the opportunities ahead. We keep working to grow our businesses and to create value in a sustainable way for investors and other stakeholders. Our controlling shareholder, is convinced that PEGS will continue to consolidate payments and financial services in Brazil and holds approximately 40% of the shares since 2019. Thank you very much for those who have been supporting us throughout the journey. Our shareholders, suppliers, partners, other stakeholders, and also our PEGS team. Thank you very much. Alexandre, please go ahead.