PagSeguro Digital Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 13, 2025

Key Takeaways

  • 32 million clients (+600k yoy) and record Payments TPV of BRL129 billion (+16% yoy) drove net revenues up 13% to BRL4.3 billion, with non-GAAP net income of BRL554 million (+6%) and EPS of BRL1.72 (+14%).
  • Banking revenue grew 60% yoy to a record BRL1 billion, with banking gross profit margin rising to 70% and now representing 22% of total gross profit, while the credit portfolio expanded 34% to BRL3.7 billion (expanded portfolio BRL46 billion, +34%) and NPL(90) improved to 2.3%.
  • Capital allocation initiatives include repurchasing over 8 million shares (75% of 2024 program), cancelling 23.9 million treasury shares, and paying the first cash dividend of US$0.14/share, with future dividends targeted at approximately 10% of net income.
  • Disciplined cost management delivered 10 bp of operating leverage yoy, with transaction costs growing 5% (below TPV growth), financial costs partially offset by diversified funding, losses declining through fraud prevention, and operating expenses down 3% qoq.
  • An early repricing strategy in response to higher interest rates helped offset financial expense pressures; while it moderated large retail growth, MSMBs grew 11% and ecommerce/online TPV grew 30%, aligning with the focus on higher-value segments.
AI Generated. May Contain Errors.
Earnings Conference Call
PagSeguro Digital Q1 2025
00:00 / 00:00

There are 14 speakers on the call.

Operator

Good evening. My name is Ogu, and I'll be your conference operator today. Welcome to PagSeguro Digital Earnings Call for the First Quarter of twenty twenty five. The slide presentation for today's webcast is available on PagSeguro Digital's Investor Relations website at investors.peggibank.com. Please refer to the forward looking statements 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 raise hand button to join the queue. Once you're announced, a 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 on the lower part of your screen.

Operator

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

Speaker 1

Hello, everyone, and welcome to the PagBank's earnings conference call for the quarter ended 03/31/2025. I'm Gustafsakin, PagSbank's Investor Relations Director. Thank you for taking the time to join us today. We will begin by sharing the highlights of the quarter, followed by our live Q and A session. Tonight, I am joined by Ricardo Dutra, our Principal Executive Officer Adrizade Remaineni, our CEO and Artur Schunk, our CFO.

Speaker 1

Now, I would like to turn it over to Dutra. Please, Dutra.

Speaker 2

Hello, everyone, and thank you for joining our first quarter twenty twenty five earnings call. I will begin with Slide four, where we present our key operational and financial highlights. I am pleased to announce another strong quarter delivering growth with profitability despite this challenging macroeconomic environment. We ended the quarter with 32,000,000 clients, growing 600,000 clients year over year. Our financial performance this quarter was marked by a robust top line growth and a resilient bottom line, while earnings per share grew at an accelerated pace.

Speaker 2

Payments TPV reached a record first quarter of BRL129 billion, a 16% growth year over year. Our credit portfolio and funding are experiencing rapid year over year growth, further solidifying our financial strength and competitive position. Going to financial highlights, our net revenues increased 13% year over year, reaching billion. Our non GAAP net income was BRL554 million, a 6% growth year over year. Our diluted EPS on a GAAP basis reached BRL1.72, 14% growth year over year, which reinforces our commitment to continuously create shareholder value.

Speaker 2

In this context, following our existing buyback program with billion repurchased over the past twelve months, we are pleased to announce the launch of two key initiatives to further enhance shareholder value and drive more efficient capital allocation. We are canceling 23,900,000 stocks held in treasury and for the first time, we announced the payment of cash dividend of $0.14 per common share to be paid in June 6. Going forward, at the discretion of Paxi Group Board and company and market conditions, among other factors, we expect to pay dividends corresponding to approximately 10% of net income. In conclusion, this quarter's performance highlights our ability to consistently create value and deliver solid results. We remain one of the few companies in our segment to have posted positive results every single quarter since our IPO, a track record we have upheld despite evolving industry dynamics and economic cycles.

Speaker 2

On slide six, we illustrate the consistent growth in our earnings per share. Since our IPO in 2018, we have delivered a 15% CAGR for our reported GAAP basis EPS metric. This trajectory reflects our strong operational execution and our disciplined capital allocation strategy, including increasing buybacks over time, which showcases our confidence in the long term value of the company. Along the way, we have achieved several key milestones that have expanded our addressable market and increased profitability. The acquisition of our banking license enabled us to broaden our product offering and deepen customer engagement through our credit offerings and digital banking platform.

Speaker 2

More recently, our strategy has focused on winning the MSNBs, attracting and retaining these profitable customers, while continue to scale platform. The results of this shift are already visible in our improving monetization metrics and sustained EPS growth. Moving to slide seven, we highlight how we've been building the company with a long term vision. Our fully integrated ecosystem combining payments, banking and credit allows us to use one business to effectively leverage the other by offering a comprehensive suite of products and features to our clients. This approach has allowed us to deepen engagement, boost monetization, and capture a greater share of wallet by becoming a primary financial partner for our clients.

Speaker 2

Moving to next slide, we show that on top of our robust performance, there remain significant room for market penetration and future growth. In some banking businesses, we have less than 1% market share, so that we strongly believe we are still scratching the surface in terms of the full potential our platform can reach. As we scale our banking operations, we open up new avenues for sustainable growth, including a deeper focus on cross selling banking products, strengthening our deposit franchises and increasingly expand and diversify our credit portfolio. Now, I'll pass to Alex, who'll deep dive into our operational performance for Q1 twenty twenty five. Thank you.

Speaker 1

Thank you, Ricardo. Hello, everyone. In this section, we'll walk through the performance of our business units for the first quarter of twenty twenty five. On slide 10, we announced that from this quarter on, we are adopting a new classification criteria for our client segments. Merchants with a total payment volume up to 3,000,000 per month are now classified as MSMBs compared to the previous threshold of up to 1,000,000 per month.

Speaker 1

Additionally, we now define merchants with TPV above 3,000,000 as well as online merchants, ecommerce, and cross border under the large retail and online segment, former called Elmac. This change was implemented to more accurately reflect the dynamics of our business in line with our strategy of winning on the M and C space. Moving to slide 11. In first quarter twenty five, we reached 32,000,000 clients, adding 600,000 clients in the last twelve months. We ended the quarter with 17,700,000 active clients with our client base expansion driven by a sustainable growth of 5% year over year in the banking only clients.

Speaker 1

As we have seen in previous quarters, we have been focusing on activating higher value clients, prioritizing monetization and profitability. On Slide 12, we show that our merchant acquiring business keeps growing in all segments. TPV reached BRL129 billion in Q1 twenty twenty five, growing 16% year over year with TPV per merchant growing 20% on a yearly base. In the fourth quarter of twenty twenty four, we initiated a strategic repricing process in response to the ongoing interest rate hike in Brazil. Now six months into this effort, we believe that acting early was crucial in partially offsetting the impact of higher rates while also helping to manage our product mix more effectively.

Speaker 1

In accordance with the new segmentation mentioned previously, the MSMB segment, which now includes merchants with a monthly TPV up to 3,000,000 reais, grew 11% year over year. For comparison purpose, if we have maintained the previous classification used through 04/2024, MSMB TPV would have grown 13% over the same period in 2024. This expansion of our core segment is mainly driven by increased productivity in our hubs. Meanwhile, the large retail and online segment, which includes merchants with monthly TPV about 3,000,000 reais, as well as ecommerce and cross border operations grew 30% year over year. Excluding the online business, our large retail segment grew approximately 8% year over year.

Speaker 1

Growth was particularly strong in cards not present transactions, enabling us to extend our market reach beyond traditional POS channels. Now on slide 13, we show that our strategy to deliver a seamless experience by integrating payments, banking, and value added service drove cash in levels to BRL 83,000,000,000 in the PagBank accounts. Cashing per active client, a key metric of our client engagement, grew 23% compared to the first quarter of twenty four, reaching 4,800.0 reais per client. The evolution of our engagement metrics is shown on the bottom left graph, which demonstrates the increasing usage of our app. Furthermore, we observed, the significant penetration increase of bill payments and peak service, investments and insurance products across our customer base.

Speaker 1

On slide 14, we show our strong deposits performance and cost of funding reduction. Total deposits were up 11%, reaching 33,900,000,000.0 reais. This growth is particular noteworthy given our ongoing efforts to reduce the cost of funding. It shows that we are successfully managing our customer deposits while improving the efficiency of our funding base. The ATYs for total deposits decreased by 700 basis points, reaching 90% of the CDI last year as a result of our strategic efforts to lower the average cost of funding, such as adjusting remuneration, the duration, as well as diversifying our funding sources.

Speaker 1

Our deposits are primarily utilized to fund prepayments to merchants and our loan book. As of December, our loan to total funding ratio, which measures our total funding against our expanded credit portfolio, stood at 114%. On slide 15, we highlight that we have been able to expand our credit portfolio gradually in a sustainable way. This quarter, our total credit portfolio reached BRL3.7 billion, a 34% year over year increase led by the origination of secured products, which represents 85% of our book loan. Since second half twenty four, we have gradually resumed credit underwriting for unsecured products, mainly focusing on working capital loan for merchants.

Speaker 1

This has been driven by the continued improvement in asset quality, risk assessment and collection processes. Consequently, there has been a 16% increase in working capital loans in the last quarter. When we consider the financial operations related to prepayment to merchants facilitated by our instant settlement feature on the acquiring side, our expanded credit portfolio exceeds BRL46 billion, a 34% increase over the past twelve months. Our NPL 90 on the bottom right of the slide demonstrates the improvements in our asset quality in the last twelve months, moving from 4.5% to 2.3% in the period, which is significantly below the market average. Now I turn over to Arthur for the financial highlights of the first quarter of twenty twenty five.

Speaker 1

Arthur, please.

Speaker 3

Thanks, Alessandro. Hello, everyone, and thank you for joining us today. I am pleased to present our consolidated financial results for the first quarter of twenty twenty five. Turning to Slide 17, we delivered total revenue and income of billion dollars representing a 13% year over year increase. This growth was driven by sustained strength across both our Payments and Banking segments, as previously highlighted by Alessandri.

Speaker 3

Our consolidated gross profit margin reached 39% of total revenue, reflecting the ongoing repricing process that partially offset the impact of higher interest rates throughout the quarter. Looking at the chart on the right side, payments revenue totaled R4.3 billion dollars by TPV expansion and the evolution of our clients and product mix. Banking revenue reached a record of million dollars growing 60% year over year, driven primarily by higher interest income from our expanding credit portfolio and increased float from our cash position. Additionally, revenue from servicing fees grew, supporting our strategy to deepen client engagement, improve principality and drive greater profitability. Finally, the gross profit margin of our banking segment reached 70%, marking its fifth consecutive quarter of growth.

Speaker 3

Moving on to the next slide. Here, we present a comparison of our gross profit from Q4 twenty twenty four to Q1 twenty twenty five. The most significant impact comes from our repricing strategy, which helped offset the negative effects of quarterly seasonality and an average interest rate hike of 31 basis points compared to the last quarter of twenty twenty four. It is important to note that we initiated repricing at the beginning of Q4 'twenty four. In the right side of the slide, I want to highlight the strong performance of our banking business, which has become an increasingly strategic pillar in our overall results.

Speaker 3

Banking gross profit grew 85% year over year, with its share of total gross profit rising from 13% to 22% in the last quarter. This growth was accompanied by a margin expansion from 60% to 70% of the same period. These results reinforce our resilience, the diversification of our revenue base and our ability to scale complementary products and services efficiently. Moving on to the next slide, we take a closer look at our costs and expenses, providing deeper insights into the evolution and impact on our financial performance. Our continued financial discipline, a key lever in balancing growth and profitability, was instrumental in delivering this quarter's results.

Speaker 3

We achieved an additional 10 basis points of operating leverage compared to the same period of last year. On the cost side, transaction costs rose 5% from Q1 twenty twenty four, growing at a slower pace than TPV due to the shift in products usage by our clients. Financial costs increased 42%, driven by higher interest rates and TPV growth, which required larger prepayment volumes. These effects were partially offset by fund initiatives aimed at diversifying sources and reducing interest expenses. Meanwhile, total losses declined, reflecting the evolution of our fraud prevention processes.

Speaker 3

Operating expenses decreased by 3% quarter over quarter with marketing costs remaining in line with Q4 twenty twenty four and reductions in personnel and other administrative expenses. This reflects our disciplined approach to cost management and the efficiency achievement. Finally, tax efficiency remains a fundamental pillar of our business strategy. We continue to advance tax optimization initiatives aimed at enhancing profitability and driving long term value creation for our shareholders. Moving on to Slide 20, as demonstrated throughout the presentation, this quarter was characterized by resilient operational and financial performance.

Speaker 3

We achieved a non GAAP net income of million, reflecting a 6% growth compared to Q1 twenty twenty four. Shareholder value creation, measured by diluted GAAP earnings per share, reached $1.72 in the last quarter, reflecting a 14% year over year increase. On the right side of the slide, I'm pleased to present the improvement of 140 basis points in our annual return on average equity, which increased to 15% from 13.6% as reported in Q1 twenty twenty four. Despite maintaining a conservative capital structure, the company continues to deliver consistent returns. On the next slide, we will take a deeper look at our capital allocation strategy.

Speaker 3

So on Slide 21, I would like to share the initiatives we are executing to create value for shareholders and strengthen our capital structure. We maintained consistent execution of our buyback program throughout 2025, repurchasing over 8,000,000 shares. To date, we have executed more than 75% of the current program, approved in August 2024. In addition to that, I would like to highlight two main initiatives that we are announcing this quarter, aligned to our commitment with sustainable shareholder value. First, we are immediately canceling approximately 24,000,000 treasury shares, reflecting our confidence in the long term value and performance of our business.

Speaker 3

Finally, as Dutra mentioned earlier, we have announced the first cash dividend in the company's history, dollars $0.01 4 per common share, to be paid on June 6. Going forward, we expect, at the discretion of PAG's Board of Directors, to pay dividends correspondingly to approximately 10% of net income, subject among other factors to market and company performance and financial conditions. This demonstrates the company's ability to balance growth and profitability and our commitment to strengthening the capital structure and creating value for shareholders. Our Basel Index consistently declined from December 2023 to Q1 twenty twenty five, reflecting an improvement of approximately five percentage points in capital structure. Moving on to the next slide, let us take a quick look at this year's guidance.

Speaker 3

Q1 results are well aligned to the company's outlook for the year, confirming that we have started on the right path to delivering our expected performance. Diluted earnings per share based on the same share count as of December 2020 excluding the effects of the new shares repurchased in 2025 and the new shares to be distributed under the 2025 long term incentive plan, grew 15% year over year, demonstrating the resilience of our performance and the disciplined execution of our strategy. We expect this metric to continue improving throughout the year as we balance growth and profitability while exploring initiatives to strengthen our capital structure. Regarding CapEx, current investment levels align with expectations for this point in the year. Now, I will turn it back to Alessandro for the closing remarks.

Speaker 1

Thank you, Arthur. Before we finish, let's turn to the next slide for closing remarks. Overall, this quarter results captured the disciplined execution of our strategy, focused on diversifying our revenue sources and preserve profitability in a challenging macro environment. I would like to highlight once again the increasing contribution from our banking business, which now represents 22 of our total gross profit and how the company through resilient performance starts the year on track to deliver the expected guidance. In the coming quarters, we'll focus on mitigating macroeconomic uncertainty, executing our repricing strategy, and maintaining financial discipline.

Speaker 1

In addition to that, we should keep working on ways to improve our capital structure, executing the initiatives that were recently announced. Finally, I should also emphasize that our long term focus is to become the primary interface for our clients' financial lives, exploring the significant opportunities to drive future growth highlighted in this presentation. Now let me give the word back to the operator, and we'll start the Q and A session. Thank you.

Operator

Thank you for the presentation. We will now begin the Q and A session for investors and analysts. 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 a bottom of your screen. You may select the icon

Speaker 4

Our first question comes from Arnaud Shirazi from Citi. Mr. Shirazi, your microphone is open.

Speaker 5

Hi, guys. Thank you for the opportunity of making question. My question is related to TPV. We saw the growth was slightly above 16% year over year this quarter, decelerating for 28% from the 4Q. What explains this?

Speaker 5

Thank you.

Speaker 6

Hi, Arnold. This is Ricardo Dutra speaking. Thank you for the question. Just I'll I'll take advantage of your question. Just to remember that we are we are not a payment only company anymore.

Speaker 6

Right? So 82% of our gross profit comes from the banking operations. We already have more than BRL 3,000,000,000 in credit portfolio, control NPLs, close to 18,000,000 active clients. Two thirds of the clients are from the bank. So just remember that company is is much more diversified as of today than used to be in the past, and it is diversifying quarter after quarter.

Speaker 6

But going back to your question about TPV, you're right. We grew 16%. It's decelerated a little bit from Q4. Important to say we had a kind of, I'm not saying easy comp, but the the volumes in q one twenty four were a little bit higher than what it had in the past. So it's it's a diff difficult comp compared to q one twenty four.

Speaker 6

And remember, we've been saying that our focus is in the winning the MSNBs and, online. So if you look at slide 12, you're gonna see that in large retails, we grew 8%. In ecommerce and cross broad border, we grew more than 30%. And MSNB, we grew 11%. So it is aligned with the strategy that we've been saying to the market in the last, I would say, two years.

Speaker 6

We are our plan is to win on MSNBs and win e commerce. And part of the explanation is because we had this repricing. As interest rates in Brazil goes up, the tool to mitigate this increase in financial expenses is to make the repricing. And the larger retail are more sensitive to this type of movement, which is fine, which is fine because our focus in the is in the MSNB. So we are always trying to balance growth with profitability.

Speaker 6

So we delivered a very decent growth in Q1, very decent profitability. But, in large retails, we had this kind of deceleration, which is fine because these clients, they have lower margins usually. But part of explanation is because it's natural that we've made the repricing then. We we had a decrease in in growth in the larger, clients. But remember, we had if you look at the financial expenses, we had a 42% year over year growth.

Speaker 6

So we had to make this the price to keep the profitability of the company. Some of the clients are more sensitive, and they have, I would say, moving part of the volumes to someone another company. But that's the explanation.

Speaker 5

Okay. Got it. Super clear. And if I may, I have another question here. It's regarding, the announcement of 10% dividend distribution, on future net income for the for the following years.

Speaker 5

Why only 10% and not more since the company has a lot of capital on their on the balance sheet?

Speaker 6

Oh, the the the dividends that we are announcing, it's, initiative that we are combining with the share buybacks. So we are we'll keep working in both initiatives. As you could see, we've been much more aggressive in buybacks in the past quarters. We bought more than 1,100,000,000.0 reais in in shares in the last twelve months. So the idea is to combine dividends with buybacks.

Speaker 6

We keep doing the the the share buybacks, and we we plan to to keep doing so. And, the 10% is just to have a a sense of what do you have in mind at this point. It doesn't mean that it could not change, but remember, this is a combined initiative with buybacks.

Speaker 5

Got it. Super clear.

Speaker 7

Thank you.

Speaker 4

Our next question comes from Beatrice Abreu from Goldman Sachs. Hello, Ms. Abreu, your microphone is open.

Speaker 8

Hi, everyone. Good evening and thanks for the call and taking my question. My question is on deposits. Right? So we saw some contraction there in the quarter.

Speaker 8

The is the decrease on so the decrease on checking accounts, you know, somewhat understandable given the higher cost of opportunity due to the higher rate environment. Right? But CDs also fell in the quarter. So just wanted to understand a bit what drove there in deposits and if the 90% of CDI is a floor of what you can pay on deposits without seeing any significant outflows. Thank you.

Speaker 3

Hey, Beatriz. It's Arthur speaking. Thank you for your question. So when we take a look on the deposits, we are managing all the actually, we are managing all the funding lines. Sometimes we have more deposits.

Speaker 3

Sometimes we have other deposits growing or even interbank deposits. When we compare quarter over quarter, we have part of the explanation is related to seasonality. When we put more focus on analyzing deeply checking accounts and CDs, sometimes we have amount moving from checking accounts to CDs. In terms of CDs, we are putting together, in house distribution, third party distribution. And the most important point to me is put attention on the the average total cost that is stable in terms of comparison to other and past quarters.

Speaker 3

Actually, we are doing a great job on working to reduce the cost of funding for the company. And the second point is the 85% of the distribution of CDs in house versus 74 of the distribution, in q q one twenty four. So we are doing a great job on reducing costs. And, also, we are distributing more deposits to our clients that will engage them more and allow us to cross sell more products for them.

Speaker 8

Great. And do you do you think you can, lower even more the API paid on on total deposits, or is 90% sort of a floor that you're seeing?

Speaker 3

Well, we are we are working to do that. So there are initiatives that we are thinking about to reduce the cost, but also we need to balance the the total amount that we have versus the the cost that we are or or or the percentage that we are paying for our clients. So we can reduce, but losing amount is not good for the company because we need to move to, expensive other lines that are more expensive than deposits. So we are working hard to focus and distribute those projects to our clients to engage them in the ecosystem, and and also working to reduce the cost for the company too.

Speaker 8

Super clear. Thank you so much.

Speaker 3

Thank you.

Speaker 6

Our

Speaker 4

next question comes from William Brayard from Itau BBA. Please Mr. Brayard, your microphone is open.

Speaker 9

Thank you. Thank you. Good night, everyone. My question goes on the gross margin. Looking at the Slide 18 you provided, it seems like repricing is more than offsetting funding cost growth.

Speaker 9

So my question goes, if it is fair to believe that from now on, as the average interest rate will grow slower than it grew sequentially in the first quarter, So is it fair to believe that from now on, margin should improve sequentially? Or there could be any effects on lower repricing efforts from now on or even TPV mix changes that could impact eventual margin gains from the second quarter onwards?

Speaker 3

William, it's Atlin speaking again. Thank you for your question. So when we we have this comparison, this bridge on slide 18, as you mentioned, we are including repricing and mix of products together in the same bucket. The majority of the the the positive result comes from the repricing that we had, but not a 100%. I could say that we didn't compensate a 100% of the increase from the the Selic rate.

Speaker 3

And on top of that, during the first quarter, we have two, increases from the central bank on the on the basic interest rate for the country. And the fully impact on the cost will be in the second quarter and also in the third quarter because we had an increase, last week. So what we can say is we are working hard to reprice our clients to reduce the cost of funding for the company. On top of that, taking care on the costs, transactional costs, total losses, and even compensated through expenses to continue to growing our results going forward. So I see that we can have more impact on gross profit in Q2 and Q3.

Speaker 3

But, in the end of the day, we have the guidance, that shows a growth from 11% to 11% versus last year. And we are confident that this guidance will be achieved until the end of the year.

Speaker 9

Thank you, Arthur. But just checking, so how would you compare the magnitude of repricing effect in your gross margins maybe in the second quarter? How would you compare the expectations with what happened in the in the first quarter?

Speaker 3

Well, we use it to say that we are repricing in each round. We are repricing, 60% to 70% of the clients that will, will be a little bit less in terms of amount. So we are not sharing exactly the amount that we are doing. And as I as we communicated before, our strategy of the pricing is aligned to the central bank increase. So after the increase from the central bank, we have some days, to take all the repricing a 100% implemented.

Speaker 3

So it's difficult to set exactly the magnitude of of the impact going forward. But we are doing all the efforts that we can do to reprice our clients, without to lose volumes, without to lose clients, and also keeping the margins up as much as possible.

Speaker 9

Okay. Very clear. Thank you.

Speaker 4

Our next question comes from Antonio Huetchi from Bank of America. Please, Mr. Huetchi, your microphone is open.

Speaker 10

Hey, good evening, team. Thank you for your time. I have two questions. I would like to continue on Arnon's questions. So first, on TPV, as for the deceleration, I'd like to check if you also had some impacts of the repricing strategy on MSNBs as I understood that you had some on large accounts, and also that you have tough comps here as first q twenty four was stronger than usual, but we do see volumes coming down from, growth coming down from 20 to 11% year on year.

Speaker 10

So I would just like to to deep deep dive here if you could, share if you have a impact from churn related to repricing or any other effects that you could share. That's on volumes. On your capital distribution, I was just curious if you could share a little bit more on why cash dividends and not more buybacks. I understand that you mentioned that this will be a strategy combining both, but why? If you if you could share a little bit more, it would be great.

Speaker 10

Thank you for your time.

Speaker 6

Hi, Antonio. Regarding the first one, the repricing and how it could have affected the MSNBs. When you look at the MSNBs, segment, it goes from 1 real to 3,000,000 reais per month. So there could be some impact in these clients. As we as we said before, in the large retail, they are more sensitive, and the impact on churns are more immediate.

Speaker 6

In the MSNBs, it could take a while. We keep following that to control the churn rates. The larger the merchant, higher the probability that he could have some churn. And when I say it's churn, it doesn't mean that he's gonna stop work with us, but he could move some of the the volumes to another company. So we keep, monitoring that.

Speaker 6

I would say nothing it's, let's say, it's it's popping up in our screens here saying that we have a a crisis or that the the churn is spiking up. But, yes, there could be some churn in the stuff of clients. And remember that also in the eleven percent, there could be some mortality of the clients throughout this year. So when you look at the MSNBs, it goes from one real to three million reals. You have, I would say, different profiles of clients.

Speaker 6

So but, yes, it's natural that when you increase price, you have some friction with the clients. And, the whole market is is increasing prices. Some companies have different strategies. They they make one increase, based on the future curve. As Arthur mentioned before, we we wait to see what's gonna be the interest rate, and then we decide to reprice.

Speaker 6

We do not reprice all the clients at the same time. We have different clusters for different MCCs, different geographies in Brazil. So, I mean, answer your questions. There could be some impact in the MSNBs and repricing. Yes.

Speaker 6

But it's not something that is popping up in our in our screens here saying that we have a problem. So but, yes, there could be. Regarding dividends, yeah, we could we could keep going with the the share buybacks and only buy back shares, but we decided to combine part of the the discussions that we had in in the past quarters. Dividends appeared as an option, and then we decide to make this 250,000,000 around this 250,000,000. And, again, it's gonna be combined.

Speaker 6

Both both initiatives are gonna be combined to deliver or to increase the shareholder value of the company. Or to some extent, you're gonna, increase our return on equity because they actually go down. So it's it's the the following initiatives we've been doing in the past year to increase our return on action, the increase in shareholder value.

Speaker 10

Okay. Okay. Thank you. If I may follow-up on the first one, you mentioned that on MSNBs, you could have some impact related to mortality. What do you mean by that is the usual mortality of the long tail pressured by by the high rate environment or or something rather than the usual impact?

Speaker 10

And also on the large accounts that you mentioned that you had some deceleration related to repricing, among those segments within those clients, could you share, which segments it was was, like, large merchants, online, and, what was the part here? That that's it for me. Thank you very much.

Speaker 6

Okay, Antonio. Just so I would just reinforce that we keep looking at many metrics here, but we think that gross profit reflects the best, metric for the company because it it includes many, many variables. It includes the the TPV times take rate, it goes to revenues, minus interchange costs, minus card scheme fees, minus losses, minus financial expenses that you know is very important for our business here. But going back to your question TPV, the large retail grew 8% year over year. So that's something that we we keep working with these clients, it's not the main focus.

Speaker 6

The main focus is the winning on MSNBs, and so it grew 8%. The ecommerce and cross border grew more than 30%, and the MSNBs grew 11. When you look at the MSNBs, part of the mortality, it is related to usually smaller merchants. Many merchants that we have, some of them you've been seeing the unemployment in Brazil. Some of the merchants, they could have employed.

Speaker 6

They have lower volumes. But, I would say to you that the mortality related to the mortality of the companies in Brazil overall, and with these interest rates, it tends to have more difficulties for some type of businesses. But it's a mix of everything. There's no silver bullet here. It's a mix of many, many variables.

Speaker 6

It's the mortality. It's the little bit of your pricing and and so on. So I don't have the specific number to give you here, but usually, large retailers are more sensitive to increases. So that's why it grew, 8% year over year, versus the 16% of the company on average.

Speaker 10

That's perfect. That's perfect. Thank you.

Speaker 7

Our

Speaker 4

next question comes from James Friedman from Susquehanna. Mr. Friedman, your microphone is open.

Speaker 7

Hi. Thank you for taking my question. It's Jamie Friedman. My questions are also about this, well, slide eighteen and nineteen. These are good slides.

Speaker 7

And I'll just ask my two upfront. So, Arthur, in terms of the the transaction costs this is slide 19. So the transaction cost actually declined as a percentage. They grew at 5% less than the, total volume. You said in your prepared remarks that was partly due to mix.

Speaker 7

I was wondering if you could elaborate on that. That's my first one. And then in terms of I know you get a lot on this on the repricing on slide 18. How durable do you think the repricing is? What are you expecting from, if anything, the competition on the repricing front?

Speaker 7

And what's embedded in your outlook on repricing for the remainder of the year? Thank you so much.

Speaker 6

Hi, Jamie. I will start with the last one, and then Arthur can can answer the first one. Interest rate of the economy in Brazil used to be 10% in the month of last four, and today is close to 15%, 14.75% to to be more specific here. So it's it's an increase that nobody, let's say, at the beginning of q one twenty four, nobody expected that. The expectation was that the rates should go down by the end of twenty four.

Speaker 6

As I could see, we have this grow in this rate interest rate, not only in Brazil, but in many countries of the world. So that's the the the raw material for part of our company and for competitors as well. So the the increase for the companies that are looking for profitability, and we understand that everyone in our sector today is focused on profitability, not in market share or other metric. It's it's it's a matter of time. So everyone will increase the prices because that's the raw material for everyone.

Speaker 6

We will keep work with our clients and make this price increase in a very smart way. I mean, with the lowest impact in in churn and lowest impact in in the growth of the company, try to balance these two variables, increase price, and keep growing. And I would say, looking forward, I would stick with the guidance. We are, reaching the guidance in this, first quarter twenty five. We expect to to reach the guidance for the whole year, the gross profit, earnings per share, and capital expenditure.

Speaker 6

So that's the, I would say, best answer I could give to you at this point. Regarding the first one, I'll I'll leave Arthur to to answer.

Speaker 3

I don't know if it's it it was clear, Jamie. But if you need more explanation, I can, and can help you.

Speaker 7

No. That was great. I was just the second question was about the the mix in transaction costs. So, you know, what is it? Is that, like what are you referring to there?

Speaker 7

Is that the picks mix, or is that the debit credit? Or if you can elaborate, that was 1.3%, only grew 5%. Slide 19.

Speaker 3

Yeah. Slide 19. Well, transaction cost that we have here is related to all the costs that we have for the transactions in terms of banking and payment, includes fee, schemes freeze, interchange fees from cards, and other other small items that also we include here that is related to, banking and payments. But the majority of this this transaction cost is related to interchange scheme fees.

Speaker 7

Perfect. Thank you so much. I'll drop back in the queue.

Speaker 6

Thank you.

Speaker 4

Our next question comes from Renato Meloni from Autonomous Research. Mr. Meloni, your microphone is open.

Speaker 11

Hi, everyone. Thanks here for taking the questions. So I just wanted to go back to your deposit and credit growth and how you've been balancing the two. If we are looking at the, loans to funding ratio that you put on your slides that has been roughly about one ten to 115%. So I wonder if you if you have a target there, you aim to stay here.

Speaker 11

And then, like, look going forward, right, do you see the the deposit base at the current cost as a limitation for credit growth? And then if you have to face the decision between growing credit more and sustaining lower cost of funding, which one would you do? You.

Speaker 6

Hi, Renato. Well, the first one, we we don't have a target for this loan to funding, chart that we see in slide 14. Just giving this relation to the market, but there is no specific target. And I would say you that we could have more deposits if we wanted to. As you could see in the same slide in the bottom left, we move it from 74% from third part, third of platforms to to our own platform.

Speaker 6

So today is 85% in q one twenty five, which is great news because we are just having the clients using our platform. We could have more enough platform if you wanted to. And I'd say to you that our our credit portfolio today of 3,700,000,000.0, if we decide to grow this credit portfolio, funding will not be a problem. And with the spreads in Brazil, the cost of funding that we we might need to have in an additional funding that you you might need to to access to to have growth in credit portfolio will not be a limitation, will not be a constraint because there'll be a few bps higher if we decide to to grow, aggressively. And, the spreads of the loans, support that with no constraint.

Speaker 6

So there will be no no decision between one or the other as as you asked it. So it's if we decide to keep growing the credit portfolio, frankly, we will not be a constraint, I would say to you.

Speaker 11

So and then the the marginal cost is, similar just regardless of how much you're accelerating?

Speaker 6

Yeah. Exactly. Because when you think that we have, 40,000,000,000 in total funding, our credit portfolio is 2,700,000,000.0. So even if you grow, I don't know, let's say, thirty percent one quarter, we're saying to grow 1,000,000,000. So it's 1,000,000,000 growth compared to 40,000,000,000 that they already have.

Speaker 6

So it will be a small it will be a small amount compared to the volume that we already have. So it's not a constraint.

Speaker 3

And, Renato, on on top of that, we and that is that's the reason we are providing total funding in that slide, not only the deposits that we have, because we have been working, in the last two years to diversify funding source lines, players, products. So we have a lot of space to grow credit portfolio as we want with a similar cost that we are presenting the Slide 14.

Operator

Perfect. Thank you.

Speaker 6

Thank you.

Speaker 4

Our next question comes from Maria Gages from Software. Hello, missus Gages. Your microphone is open.

Speaker 12

Hi, guys. Good evening. Thank you for taking our question. Most of them have been answered, but maybe two quick ones. First, a follow-up on the credit portfolio.

Speaker 12

So just wanted to get a a quick update on on your guys' appetite towards credit lines. We saw a slight uptick in the working capital loans. I know it's not representative, but just, wanted to get a quicker view on your guys if anything in in terms of appetite has changed. And, also, you provided the basal ratio, and just wondering if you guys are targeting an optimal level in terms of base ratio as well. Thank you.

Speaker 6

Maria, thank you for the question. The credit portfolio, you're right. We've been growing faster in the working capital in the last quarter. We plan to keep doing so. We see this, I would say, to increase this exposure to our best merchants in terms of credit profile.

Speaker 6

And there is no change in the guidance or what they had in mind. This is part of the plan. We expect to grow working capital faster than other lines for this year. We'll keep growing the other lines, but working capital will will grow faster. And the second question is about the,

Speaker 3

Basel Basel index. Yes. So I can help on that, on that one. We don't have exactly, a target of this, Basel index, but it's important to mention that since December 2023, we reduced it from 33% to 27%. And all the efforts that we have here is to optimize in a solid way, our capital structure.

Speaker 3

So we are taking, decisions to dividends, decisions to buy back, and also investing in the company through our CapEx. But we don't have exactly a target to pursue. And we know that, we can do, more and more as part as buy, but in a solid way for the company.

Speaker 12

Thank you.

Speaker 4

Next question comes from Eric Yitu from Bradesco BBI. Post Mr. Yitu, your microphone is open.

Speaker 13

Hi guys, good evening. Thanks for the call and taking my question. I have just a quick follow-up on your banking. I think throughout the presentation, you guys were very clear on saying how important the banking business is. And it's already representing 22% of the total gross profit compared to 13% in the first quarter.

Speaker 13

So I just want to understand if you guys have any target here or any idea of how much do you think it could represent maybe by the end of this year on your total gross profit expectation for the year And maybe 2026, how much you think this line can grow? And then a second follow-up here is on still on credit, but maybe if you guys could give more color on your expectations for growth for the unsecured credit line, the working capital? How do you see this growth under this scenario? Just some numbers on the previous question from Maria. Thank you.

Speaker 6

Hi, Eric. Thank you for the question. We we are not giving disclosure about the how important could be the gross profit of the banking in the following quarters. I would say to you that we you know, that once you create this credit portfolio, you start to generate operational leverage because the system is the same. It doesn't matter if you have 10,000,000 reais in in credit portfolio or 10,000,000,000 reais.

Speaker 6

Usually, the the the technological system, the back office is the same. So we do expect to have operational leverage. We've been growing the credit portfolio in a very sustainable way, I would say. NPLs are under control, and, the credit portfolio keeps growing. We've been growing, working capital faster than other lines, and we think that's gonna be what's gonna happen the following quarter as well.

Speaker 6

But we are not giving the specific number here. I just would say to you that we we expect that credit portfolio keeps growing, and then we have operational leverage because of the items that I I just, mentioned to you.

Speaker 3

In terms of, just to complement here in terms of, the unsecured growth in credit portfolio and the products that we are developing, we resume our overdraft account last year. Now it's a positive margin. It's performing well, and we are working to, scale that that part of our business. And regarding to working capital, we resumed operation this year. And now we are working to measure, track the results, and working hard to also scale that business.

Speaker 3

We invested a lot in the past years in terms of developing a better process, hiring a seasonal team, investing to develop, credit models, collection process, behavior model. So we we are going we had a we have been, investing a lot to develop this piece of our business because we know that it's very important to the future. That is the beautiful piece of our business. We have the payments very well developed. And now we also have in the other side, the banking to navigate in in macro scenarios that are not not, doing great in a positive way for our company.

Speaker 6

And just to complement, Eric, and take advantage of your question. In slide eight, we gave some numbers about our penetration. And you could see that we are, to be honest here, scratching the surface in terms of banking businesses and credit portfolio that it could reach in our platform. So, we are not giving the guidance, but we do expect to grow in this this banking businesses, faster. As you could see, our gross profit grew 86% year over year.

Speaker 6

So it's, I'd say, good possibilities here and and and, good opportunities in the banking.

Operator

Thank you. That's all the questions that we have for today. I will pass the line back to PagSeguro Digital's team for their concluding remarks. Please go ahead.

Speaker 6

Hi, everyone. Thank you very much for investing the time to listen to us and thank you very much for the questions. Thank you.

Operator

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

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