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  Title	PagSeguro Digital : Q4 2024 Speech Transcript
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  Published Date	Feb. 21, 2025, 2:40 p.m.
  Summary	February 21, 2025 at 08:38 am EST PagSeguro Digital Ltd. (NYSE: PAGS) Q4 2024 Transcript February 20, 2025 Earnings Call Transcript | Q4 2024 Results Operator: Good evening! My name is Audir, a
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  Content	February 21, 2025 at 08:38 am EST PagSeguro Digital Ltd. (NYSE: PAGS) Q4 2024 Transcript February 20, 2025 Earnings Call Transcript | Q4 2024 Results Operator: Good evening! My name is Audir, and I will be your conference operator today. Welcome to PagSeguro Digital earnings call for the fourth quarter 2024. The slide presentation for today's webcast is available on PagSeguro Digital's Investor Relations website at investors.pagbank.com Please refer to the forward-looking statement and reconciliation disclosure in this presentation and in the Company's earnings release appendix. 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 are 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&A icon on the lower part of your screen. 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 Sechin, Head of IR, please go ahead. Gustavo Sechin: Hi everyone. I'm Gustavo Sechin, Head of Investor Relations of PagBank. I would like to welcome and thank you for joining us for our fourth quarter 2024 earnings call. Tonight, I am accompanied by Ricardo Dutra, our Principal Executive Officer, Alexandre Magnani, our CEO and Artur Schunck, our CFO. With that, I would like to turn it over to Dutra, who will begin today's presentation. Please, Dutra. Slide 04: Ricardo Dutra: Hello everyone and thanks for joining our fourth quarter 2024 earnings call. I begin with slide 4, where we present our key operational and financial highlights. PagBank had another year with all-time high performance, combining growth with profitability. We ended the year with 33.2 million clients, growing 2,1 million year-over-year. The financial performance can be summarized as a robust growth in top line, meaning TPV and Revenues, and even more accelerated growth in bottom-line, meaning net income and earnings per share. As we can see in the highlighted area on the left side of the slide, our Payments TPV, reached a record of 518 billion reais, an impressive 32% growth year-over-year, which we will give more color in the next section of our presentation. Our Net Revenues increased +18% year-over-year, reaching 18.8 billion reais. Net Income was an all-time high 2.3 billion reais, a 28% growth compared to 2023 with a diluted EPS on a GAAP basis reaching R$ 6.62 growing 30% vs previous year, which reinforces our commitment to continuously create shareholder value. On the right side of the slide, our credit portfolio and funding are experiencing rapid year-over-year growth, further solidifying our financial strength and market position, and the solid operational and financial performances delivered boosted our ROAE to 15.2%, a 198 basis points increase year over year, despite our conservative capital structure. Our current quarter and year performance underscores our ability to create value and deliver robust results. We stand out as one of the very few companies in our segment that has consistently growing and achieving positive results every single quarter since our IPO. This remarkable track record has been maintained despite the changes in industry dynamics and economic cycles. Slide 05: Moving to slide 5, we take a quick look on how we are able to deliver steady long-term growth despite a challenging macro environment. If we take a couple of steps back, we will remember that in the beginning of 2024 market estimates projected a year- end SELIC rate around 9% or below with a somewhat stable FX and inflation within the range determined by the Brazilian Central Bank. We ended-up having SELIC more than 300 basis points higher than the base case, on top of changes in other assumptions. Still, we were able to deliver our strongest results ever, due to the initiatives we have deployed throughout the year. Main initiatives were focused on first, increasing revenues, as we have successfully explored new growth verticals and advanced on repricing our products on banking and acquiring segments; second, improve shareholder value, and here the highlight is the execution of more than 50% of our current buyback program of USD 200M launched in August/2024; and third, on the liability side, our focus on adjusting our cost structure, aimed mainly at financial cost efficiency and operating leverage. 2024 is a good and real example of our ability to adapt and perform. Despite macro uncertainties and external headwinds, we were able to outperform our guidance and balance growth and profitability. For 2025 the playbook remains the same as we intend to further explore those initiatives to navigate this next year challenges. Now, I'll hand it over to Alex for the quarterly highlights on the business units. Thank you! Alexandre Magnani: Thank you, Ricardo! Hello, everyone. Slide 06: In this section, we'll break down the performance of our business units for the fourth quarter of 2024. But before we start our delving deep into the quarterly results, it is important to outline our strategy and how we do what we do. Slide 07: On slide 7, you can see that our disciplined strategy execution is key to achieve the results we have been delivered. This strategy is built from our purpose, which is to facilitate the financial lives of businesses and individuals and aligned with our strengths and DNA as reflected in our strategic goals. Slide 08: On the next slide, we bring a recap on how we build our company for the long term. We offer a fully integrated ecosystem combining Payments and Banking with a complete set products and features that provides unique experience to our customers. We have been able to increase client transnationality and monetization by capturing larger share of wallet and customer principality. Slide 09: Moving on to the next slide, we reached 33.2 million clients in 2024, adding 2.1 million clients in the last 12 months. We ended the quarter serving 17.8 million Active Clients, led by the strong growth in the Banking business, especially among individuals, backed by a robust banking platform and product offering. We were also successful in retaining our active clients base due to our solid value proposition. As seen in previous quarters, the overall reduction in Active Merchants comes mainly from the nano merchants reduction. It is crucial to note that SMB Active Merchants base increased 11% YoY. Slide 10: Now let's take a closer look at Payments on Slide 10. Here we show that our merchant acquiring business keeps growing faster than the industry, with solid growth registered in all segments. TPV reached 146 billion reais in Q4-24, growing +28% year-over-year, with TPV per merchant growing +33% on a yearly basis. We experienced substantial growth in all segments, attributable to our relentless focus on growth and profitability. Due to the current interest rate hiking cycle in Brazil, we have implemented a strategic repricing approach since early 4Q24 in addition to our focus on merchants with higher cross-selling potential. We believe the early start on executing the repricing was key to partially mitigate the impacts from higher interest rate and also contributed to manage the impact on our product mix. PIX has also contributed to increased penetration and accretive gross profit. Looking further by segments, MSMB TPV grew year-over-year, reaching 96 billion reais in the fourth quarter of 2024. This expansion of our core segment in mainly due to the increased productivity in our HUBs. In the LMEC segment, comprising Large Retail Merchants, e-Commerce, and Cross-border clients, we recorded a TPV growth compared to Q4-23, reaching 50 billion reais in volume. This growth was exceptionally strong in cards-not- present transactions, allowing us to expand our market presence beyond POS. In addition, PAGS International has been an important growth vertical, focusing on profitable digital goods segments and payout opportunities through PagBank accounts. Slide 11: Moving on to the Banking business, on slide 11, our strategy to deliver a seamless experience by integrating payments, banking and value-added services across multiple interfaces significantly enhanced our customer engagement. As a result, we reached 93 billion reais in PagBank Cash-in, composed by PIX P2P, wire transfers and boletos/invoice collections into PagBank accounts. Cash-in per Active Client, an important indicator of our client engagement, grew year-over-year, reaching 5.4 thousand reais per client. The evolution of our engagement metrics is shown on the bottom-left graph, which demonstrates the increasing usage of our app, as seen by the success in fostering transactionality through bill payment and pix, and the penetration of our Investments and Insurances products across our customer base. Slide 12: On slide 12, we show our strong deposits performance and cost of funding reduction. Total deposits were up , reaching 36.1 billion reais. This increase occurs despite the ongoing initiatives to reduce cost of funding. In the current interest rate environment, minimizing funding costs becomes paramount to secure profitability. The APY for Total Deposits decreased by 400 basis points compared to Q4-23, as a result of our strategic efforts to lower the average cost of funding such as adjusting the remuneration and duration of our deposits, as well as diversifying our funding sources. APY for checking accounts reflects those efforts, reaching of the CDI this quarter, which has helped reduce our total cost of deposits to of CDI. 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 . This represents a decrease compared to last year, attributed to the significant operational TPV growth in our acquiring business. Slide 13: On slide 13, we highlight that our credit portfolio has been growing steadily despite the current scenario. This quarter, our total Credit Portfolio reached 3.4 billion reais, a year-over-year increase, led by the origination of secured products, which represents of our book loan. We have been able to expand our portfolio gradually and in a sustainable way, focusing on low-risk products. These products promote financial inclusion, education, and provide important financing lines to our clients. When we consider the financial operations related to prepayment to feature on the acquiring side, our expanded credit portfolio exceeds 48 billion merchants, facilitated by our instant settlement reais, a increase over the past 12 months. Our NPL90, on the bottom right of the slide, demonstrates the improvements on our asset quality in the last 12 months, moving from 3.2% to in the period, which is significantly below the market average. Now, I turn over to Artur for the financial highlights of the fourth quarter of 2024. Artur, please. Artur Schunck: Thanks, Alexandre! Hello everyone. Thank you so much for taking the time to join us today. From now on, I will present our consolidated financial results for the fourth quarter of 2024. Slide 15: Moving on to slide 15, Q4-24 Total Revenue and Income achieved 5.1 billion reais, representing a growth of year-over-year, driven by our strong performance in both segments, as shown by Alexandre. Consolidated Gross Profit Margin reached of Total Revenue, influenced by shifts in our client and product mix, as well as higher interest rates during the quarter. Looking at the graphs on the right side, Payments' Revenue reached 4.6 billion reais, a year-over-year growth, on the back of the strong TPV expansion in the period, resulting in an increased market share. Banking revenue set a record of 513 million reais and grew year-over-year, mostly driven by interest income from the expansion of our credit portfolio, float from cash position, combined with service fees linked to our strategy of strengthening client engagement with higher profitability. Gross profit from our Banking segment reached of revenue, increasing for the fourth consecutive quarter. Moving on to the next slide. Slide 16: Here, we can see on a sequential basis how the evolution of Gross Profit is driven by an accretive expansion on the Payments segment. The increasing penetration in new growth avenues, such as Large Retail Merchants, on-line and products like PIX, affects client and product mix. The change in client and product mix was partially mitigated by the repricing strategy that we started to deploy in the beginning of Q4, which helped ease the impacts of the increasing financial cost due to higher interest rates. On the right side of this slide, I would like to focus mainly on the results we are achieving in our banking business and its increasing contribution to our total Gross Profit. Banking is becoming more and more important to the Company, with an impressive 80% gross profit growth compared to 4Q23. As a percentage of Total Gross Profit, Banking segment grew from 11% in the previous year to 18% in Q4 2024, alongside increasing margins (now 69% versus 61% a year earlier). These figures are important as they demonstrate our resilience, ability to diversify revenue streams, and exploration of complementary products and services. Slide 17: In the slide 17, we take a closer look to our costs and expenses. Our financial discipline, which is always an important tool to balance growth and profitability, was paramount to achieve the current results. This quarter we can see again operating leverage in comparison to previous quarter. On the cost side, Transaction Costs increased 19% from Q4-23, as a result of stronger TPV performance during the period. Financial Costs increased by 30%, also linked to the growth in TPV between periods that demanded larger volumes of prepayment. On top of that the cost was impacted by the hike of the Brazilian Basic Interest Rate, partially mitigated by funding initiatives to diversify sources and reduce interest paid. Decrease in Total Losses was driven by improved fraud prevention process. Operating Expenses on a quarterly basis reduced to 16.1% of Total Revenue and Income with an increasing operating leverage of 74bps. This reflects our disciplined approach to cost management and the resulting efficiencies. On a sequential basis, we had lower investment on marketing and stable personnel expenses. Finally, it is important to emphasize that tax efficiency initiatives are integral to our business strategy, and we continue to execute our plan for tax optimization. Slide 18: Moving on to slide 18. As demonstrated throughout the presentation, the fourth quarter marked a significant chapter in our growth trajectory, characterized by resilient operational and financial performance. We achieved a net income of 631 million reais, on a non-GAAP basis, growing vs. Q4-23 and culminating in a 28% increase for the full year 2024. Earnings per share on a diluted GAAP basis reached R$1.91 this last quarter, marking a year-over-year increase. On an annual basis, EPS reached R$ 6.62, representing a 30% growth compared to the previous year. On the right side of the slide, I am pleased to present the improvement of 200 basis points in our annual Return on Average Equity, which increased to 15.2% from 13.2% as reported in Q4 2023. Despite a conservative capital structure, the Company has been successful in delivering consistent returns. On an annualized quarterly basis, our ROAE reached Regarding our share buyback program, we maintained consistent execution throughout Q4 2024. By year-end, we repurchased 784 million reais on common shares. As a result, we have now executed 50% of the current buyback program, which was launched in August. We remain committed to this strategy as a means of creating shareholder value. Moving on to slide 19. Slide 19: Let's have a quick overview on last year's guidance. Despite macroeconomic conditions and uncertainties, we were able to outperform the top of the range of expected results for 2024, as shown. I would like to highlight our Net Income expansion of 28%, on a Non-GAAP basis, reaching an all-time high of 2.3 billion reais. Slide 20: Moving on to the next slide, I bring our Guidance for 2025. This year, in addition to Gross Profit and Capex references, we are providing EPS Guidance instead of Net Income, as this metric better captures the company's commitment to creating shareholder value. We expect to grow Gross Profit between 7% and 11% and deliver EPS growth in the range of 11% to 15%, as a result of our operational performance and the initiatives being implemented to mitigate macro uncertainties, especially the increase in interest rates. Capital Expenditure is expected to be between 2.2 billion reais and 2.4 billion reais. Now, let me give the word back to Alexandre for the closing remarks. Slide 22: Alexandre Magnani: Thank you, Artur. Before we finish, let's turn to the next slide for our closing remarks Overall, the results have reflected the successful execution of our strategy, which focuses on strengthening our presence in our core segment while diversifying our revenue streams beyond payments. The year of 2024 presented challenging macroeconomic conditions that tested our resilience and adaptability. Despite these hurdles, we have successfully navigated the complexities of the market, ensuring sustainable and consistent results. Our ability to thrive in such an environment underscores the robustness of our strategic approach and our commitment to delivering value to our stakeholders. Once again, we have demonstrated the increased relevance of Banking within our overall business. This segment has achieved remarkable year-over-year revenue growth of 34%, signaling its increasing relevance. Even more impressive is the nearly 50% growth in gross profit, highlighting the segment's strong performance and profitability. I should also emphasize our successful strategy in lowering our funding costs during this period to reduce financial costs, a feat made possible by our robust deposits franchise. Finally, as mentioned earlier, this performance demonstrates our commitment to create shareholder value, one of our top priorities, as we delivered a robust and sustainable EPS growth of 30% with a Return on Average Equity close to 15.2% combined with a conservative but solid capital structure. Now, let me give the word back to the operator and we will start the Q&A session. Thank you! Attachments Original document Permalink Disclaimer PagSeguro Digital Ltd. published this content on February 21, 2025 , and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on February 21, 2025 at
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