PagSeguro Digital Ltd. Q4 FY2023 earnings call

Management Statement and Operational Highlights

• 2023 was a record year for net income. The company diversified beyond payments, managed credit cycle risks, and reshaped funding structure backed by deposits.
• By end of 2023, had 31 million clients and processed almost BRL 1 trillion in financial transactions, a 30% YoY growth.
• In Payments, TPV was BRL 394 billion, Cash-in BRL 217 billion (59% YoY growth). Deposits reached BRL 28 billion. Secured products in credit portfolio rose to 66%.
• EPS was BRL 5.10, 12% higher than 2022. Non-GAAP net income was BRL 1.8 billion in 2023, with BRL 400 million spent on share buybacks (37% more than 2022).
• In Q4 '23, TPV reached BRL 114 billion, a 21% YoY growth. PagBank clients grew 12% YoY to over 31 million. Cash-in was BRL 66 billion, with Cash-in per active client at BRL 4,000, a 43% YoY growth.

Segment Performance

• Payments: TPV reached BRL 394 billion, growing profitably. Cash-in was BRL 217 billion, a 59% year-over-year growth. Together, they drove deposits to BRL 28 billion, an all-time high.
• Financial Services: PagBank clients grew 12% year-over-year to over 31 million. Cash-in was BRL 66 billion, with Cash-in per active client at BRL 4,000, a 43% growth year-over-year. Deposits reached BRL 28 billion, an all-time high.

Guidance

• Expect total payment volume to be between BRL 441 billion to BRL 457 billion in 2024, with a healthier gross profit margin above Q4 '23's 38.5% of total revenue and income.
• Non-GAAP net income is projected to be between BRL 2.05 billion to BRL 2.15 billion, considering similar effective tax rate to 2023.
• CapEx is expected to be between BRL 2 billion to BRL 2.2 billion, and D&A plus POS write-offs between BRL 1.9 billion to BRL 2 billion.

Risks

• Actual results may differ materially from forward-looking statements due to various factors, including those in the company's filings.
• Risks related to the credit cycle and competitive landscape changes.

Question and Answer

Q: Congrats on the results. Very strong guidance. Let me focus on this. So please, if you could share a little bit on operating expense assumptions and also take rate assumptions for further guidance.

A: Ricardo da Silva: Take rate should go down slightly due to client mix change towards larger clients with lower take rates. Artur Schunck: OpEx growth is according to growth strategy, with OpEx growing more than inflation in 2024 but enabling margin increase.

Q: On your potential credit growth or prepayment growth. We can see that you have lower losses, a very strong Cash-in, right, which suggests improvement in the principality. So clients using more PagBank as their main bank and a lot of deposits, right? So what are you waiting for in order to expand a little bit more on your asset base, because clearly, if that happens, your results can improve faster.

A: Unknown Executive: We have a diverse credit portfolio plan. We're building secured products and running tests on unsecured products, being cautious but planning to expand credit portfolio in 2024.

Q: Congrats on the numbers. I have two questions here. First, on your potential credit growth or prepayment growth. Second, about dividends, right? We can see naturally that you are buying back shares. So I think your EPS has been even better, right? So -- but you're still generating a lot of cash. You have a CapEx plan that is not going to go up anymore. You have -- you're generating more cash than you need. Why not paying dividends as well?

A: Unknown Executive: On credit growth, we're building deposits and a cyclical credit portfolio. On dividends, we're using cash for share buybacks and seeing growth opportunities in new ventures, so no immediate plans for dividends.

Q: I have two on my side, if I may, please. The first one, it is also related to credit, but more specifically to the credit card portfolio. I understand that the product is secured. And at the same point, we are seeing the level of deposits and investments in the PagBank continuing to increase, which is really good. So my question is, why are we not seeing, I would say, a sequential increase in the credit card portfolio since it is secured, and we are seeing an increase in terms of investment.

A: Unknown Executive: Credit card portfolio growth is impacted by shifts in mix from unsecured to secured credit card products. Payroll and FGTS products are growing faster, contributing to portfolio mix changes.

Q: My second question is around the effective tax rate. We saw that it actually reduced this quarter. Again, I think it's around 18%, down from 21% last quarter. So I just would like to understand the drivers here. And why is considered, I would say, implied in your guidance in terms of effect tax rate for 2024, please?

A: Artur Schunck: For 2024, we're considering the effective tax rate to remain similar to 2023, with efficient tax planning across legal entities in the group.

Q: I have two questions also. One is on the credit regarding the NPL. You mentioned and it improved again, now running around 7.5, so my question is, if you have any kind of outlook for this NPL? Like should we continue to see NPL improvements for you? And I have a follow-up on COGS. When I check your administrative expenses, here, it was pretty good down year-over-year. You mentioned some seasonal effects here. I would like to understand a little bit what is driving your improvement on administrative expenses because you're growing, revenues are growing, everything, you're investing more, and it called my attention that administrative expenses if you look at non-GAAP or GAAP is improving.

A: Unknown Executive: NPLs are expected to continue decreasing due to better credit concession, collection processes, and more secured products. On administrative expenses, seasonal efficiencies and reversals in long-term incentive plans contributed to the decrease in Q4 '23.