Hello, everyone, and thank you for waiting. Welcome to PagSeguro Pac Bank's Q1 2021 results conference call. This event is being recorded and all participants will be in listen only mode during Should any participant need assistance during this call, please press star 0 to reach the operator. This event is also being broadcast live via webcast and may be accessed through PagSeguro, PagBank'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 PagSeguro Bank Bank'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 in PagSeguropac Bank's current assumptions, expectations, and projections about future events. While PagSeguro Pac Banks 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 PagSeguropec Bank's presentation Patients are discussed on this conference call for a variety of reasons, including those described in the forward looking statements and risk Factors sections of PagSeguro PagBank's registration statement on Form 10 F and other filings with the Securities and Exchange Commission, which are available on PagSeguro, PagBank's Investor Relations website. Finally, I would like to remind you that during this 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 I presented in the last page of this webcast presentation. Now, I'll turn the conference over to Mr. Ricardo Dutra, CEO.
Mr. Dutra, you may begin your presentation.
Good evening from Sao Paulo, everyone, and thanks for joining our Q1 results conference call. Tonight, I have here with me Artur Schunk, our Chief Financial Officer and Eric Olivera, our Head of Investor Relations. First of all, we hope you and your families are well and safe. Before we move on, Just a quick update about the outbreak of COVID-nineteen in Brazil. It seems the worst is over.
However, The economic recovery may take a while due to the speed of vaccination rollout in Brazil. Although we are enthusiastic about the availability of Effective vaccines, the rate at which vaccinations are taking place in Brazil is still low when compared to other countries like the U. S. Consequently, merchants and consumers have changed their behaviors to keep working in this scenario with more digitalization, less cash In the adoption of alternative payment methods. Meanwhile, our dedicated employees have been doing an extraordinary job to keep serving our clients with excellence.
Thank you very much PagSeguro PagBank team. Despite the pandemic, the resilience of our business model and our focused execution Allowed us to achieve great results and records in several KPIs in this quarter. I'm pleased to report that PagSeguro achieved a record consolidated TPV, Growing 102% year over year and kept adding 300,000 merchants and more than 1,000,000 PAG Bank users per quarter, While total revenues were above BRL2 1,000,000,000 in the quarter, in fact, we are the company with the highest growth in terms of volumes, Net adds and have been increasing our acquiring market share in the past quarters, reaching approximately 9% in Q1 'twenty one Versus 5.9% in Q1 'nineteen. Our last quarter's performance have reinforced our belief that both businesses, Acquiring and banking will deliver robust growth in years to come. Talking about banking, We continue to see unprecedented changes in the highly concentrated banking industry in Brazil.
Although we have experimented the entry of new players In the last few years, PagBank being a precursor of this movement. In December 2020, more than 70% of the Brazilian credit portfolio Was concentrated among the top 5 banks? We see that as a huge business opportunity and a reason to bring more competition to Economic segment that has been basically the same for decades. The opportunity to change people's lives, streams, the stamina that runs impacts professional events. We consider ourselves exceptionally well positioned to continue to disrupt banking in Brazil because of 3 main reasons.
First, our tech DNA. Approximately 6,500 engineers in UOL Group With the best in class professionals working for PAGS. 2nd, our unique expertise and knowledge on the Brazilian Internet. Since the early beginning back in 1996, which today the most visible aspect is the UOL audience, With a reach around 90% among Brazilian Internet eyeballs, right after Facebook with 93% And Google with 96% reach. And third, the fact that we are the 1st movers, Creating a new market unserved by the competition before us and finally, but not least, a strong culture and excellent execution.
I would resume as PAGS way of doing it. We operate in an evolving industry whose answers to some questions are not 100% clear. For that reason, we permanently promote self criticism. But having said that, we can affirm Our investment thesis relies on the following 6 pillars. 1st, payments is the best entering door for digital banking.
PAGS has the largest Brazilian merchant base that generates recurring revenues through a digital account that naturally provide cross selling opportunities for additional banking products. Payments industry has consistently grown 2 digits in the last 2 decades, driven by merchants accepting new electronic payments. New payments methods such as NFC, P2P among others continue to replace cash transactions. For example, in the Q1, NFC volumes increased in almost 8 times in comparison to the same period of last year. We consolidate our leadership in long tail market, And we see limited competition as incumbents have given up serving these clients.
Now we will prove our thesis that it's much easier to go up in the pyramid Then to go down in it with our hub strategy. Our hubs are extremely successful and we are gaining market share with profitable SMBs clients very rapidly. 2nd, online score. Online payments go on as score for us and our focus has delivered a growth of 140% in Q1 'twenty one. PAGS is enhancing omni channel solutions for merchants and increasing cross border transactions.
In 1st quarter, Cross border volumes increased 3 times compared to the same period of last year. 3rd, cards and lending are core. Because banking industry is highly concentrated, Brazilian banking population is still huge and the spreads are very high. This is an opportunity for us 17 times larger than payments in terms of revenue pool. PAGS has been working with cards and Lowe's in the last 3 years, Many folks on the micro merchants, creating a unique database and credit models to manage returns and risks, clearly a strong entry barrier for new players.
4th, new financial products are core. PAGS movement to go up in the pyramid to conquer market share in SMB's market Can and will be replicated with other financial services. 5th, technology, Customer experience and product development are core. Technology, innovative and client center culture combined with Awareness and engagement. In the Q1, PAGS reached 48,000,000 apps downloads And processed BRL81 1,000,000,000.
We believe that value relies on active and recurring clients. And we are happy to announce that we surpassed the market of 10,000,000 active clients in PagBank's 2nd anniversary. And 6th, Regulatory environment helps. Regulatory changes such as peaks, marketplace of receivables and OpenBank Create a positive environment for new players like us. With these initiatives and achievements, we are truly committed to keep promoting the financial inclusion in Brazil, Making investments that are accretive and will bring higher returns in the future.
Finally, the pandemic is not over in Brazil. This year will be another challenging one. But if you're prepared to face it and ready to explore the economic rebound in the coming years. That said, Artur and I will present some slides and we'll have a Q and A session at the end. On Slide 3, We highlight the achievements of the Q1.
We break down in 3 sections. 1st, operating and financial results 2nd, PagSeguro or acquiring business and 3rd, PagBank or banking business. Starting with the operation and financial highlights. Consolidated TPV of BRL81 1,000,000,000, up 102% year over year. Total revenue income of BRL2.1 billion, up 30% year over year with consolidated net debt rate of 2.41 percent.
Adjusted EBITDA of BRL573 1,000,000, Up 12% year over year despite PagBank and Hub's investments. Non GAAP net income of BRL327 1,000,000, Down 11% year over year. Excluding onetime events during the quarter, adjusted EBITDA of BRL617 million, Up 20% year over year and non GAAP net income of BRL 271,000,000 up 1% year over year. Moving to PagSeguro. Acquiring TPV of BRL50 1,000,000,000 in Q1, up 58% year over year Despite new lockdowns in the end of March 2021, online TPV grew 140% year over year, while Hubs TPV grew 410 percent year over year, diversifying our exposure to new segments.
Active merchants of 7,300,000 With net addition of 201,000 new merchants or 1,800,000 more merchants in comparison to the same period of 2020. Total acquired revenues of BRL1.9 billion with adjusted EBITDA of BRL725 1,000,000, margin of 38%. During this quarter, we launched Pegafone, the 1st worldwide one stop shop POS, which combines acquiring, banking and software. We also launched Modernia Profit, the smallest POS with integrated printer and auditec app, Our reconciliation software. Moving to PagBank.
PagBank TPV of BRL31 1,000,000,000, up 261% year over year, boosted by wire transfers and bill payments. PagBank kept downloads of 48,000,000 almost $7,000,000 in the quarter. PagBank active clients of $9,100,000 up 144 percent With net addition of $1,300,000 in the quarter, Pac Bank consumer clients of $3,500,000 5 times larger than Q1 2020. In Q1 2021, consumers represented 38% of PagBank active clients. Credit portfolio of BRL773 1,000,000, Deposits of BRL5 1,000,000,000 and PagBank CDs surpassing BRL1.4 billion in March 2021.
During this quarter, we also announced the cash back offering for payroll portability and launched new third party investment funds and personal accident insurance. Moving to Slide 4. 2 years ago, we launched PagBank aiming to explore and capture the existing opportunity in Brazil. At that time, we had a few products in our portfolio providing the base digital account features only to our merchants. In Slide 5, we can see all the achievements throughout the last 2 years becoming completely consistent now, serving both merchants and consumers As we were able to combine acquiring, banking, partnerships, software, marketplace, insurance, investment, loans and cards.
Moving to Slide 6, we show how powerful is our ecosystem and how it is boosting our growth trends. First, I'll talk about client acquisition and awareness. We reached 7,300,000 active merchants, up 33% year over year and 9,100,000 Pac Bank clients in the Q1 Of 2021, it represents a growth of 146% year over year. Moving down, we can see We reached 48,000,000 downloads in PagBank as of March 2021. Talking about engagement, We observed the acceleration of volumes growth.
Consolidated TPV increased 102% year over year, while net consolidated TPV grew 215% when compared with Q1 2020. Our market share in the Brazilian payments industry reached 9%, More than 3 percentage points in comparison to the Q1 of 2019. Our products per user ratio increased from 2.5 to 2.7, Which also indicates higher engagement of our clients. Last, but not less important, in 3rd quarter, tax monetization. Revenue and EBITDA growth shows we were able to monetize our businesses and to balance growth with profitability.
Total revenues increased 30% year over year And our adjusted EBITDA increased 12%. Moving to Slide 7, we'll start presenting our operating figures for the acquiring business. Our TPV growth remains strong with a 58% increase over year boosted by TPV promotion growth, Which grew 18% when compared with Q1 2020, a net merchant adds that reached 300,000 between January March this year, Ended the quarter with 7,300,000 active merchants. The strong growth despite new lockdowns in Brazil Was driven mainly by a fast cash conversion into electronic payments and success in our new verticals and client segments such as online and hubs. Volumes growth for April May were very strong, respectively, 108% A 91% increase year over year despite the new lockdowns we had in Brazil in 2021.
Moving to Slide 8. Total acquiring revenues were BRL1.9 billion, up 29% year over year, accelerating the growth in comparison to 2020. Acquiring adjusted EBITDA up 28% year over year with EBITDA margin of 38%. TPV mix improved in comparison to the 4th quarter, which drove up acquiring net take rate and payments profitability. Excluding PagBank revenues and transaction costs, acquire intake rate increased 17 basis points in comparison to the previous quarter, reaching 2 point 23%.
Moving to Slide 9. Here we present some new acquired initiatives we have been exploring. First, our online TPV, which has been growing much faster than previous year. In Q1 2021, Our online volumes grew 140% versus 13% in 2020. The acquisition of MoIP, The digitalization process boosted by pandemic and our several initiatives to incentivize online payments and omnichannel solutions were the main drivers.
Also, we're happy to announce car not present transactions during this quarter increased 116% year over year. Moving to our SMB Hub strategy, our 2021 volume trends indicate we will be in the top of the range of our current guidance, Which was 11% of acquired TPV. Our forecast is to have 250 to 300 hubs Up running in several cities and regions until the end of 2021, reaching 83% of Brazilian GDP coverage. Finally, software subscribers reached 621,008.5 percent of PAGS Active Merchants. We plan to provide additional disclosure of our hub strategy in the coming quarters.
Now moving to Slide 10, we will share some PacBank figures. Starting with the strong growth of TagBank TPV, once again a triple digit growth, totaling BRL 31,000,000,000 Accelerating the growth in comparison to 2020. On top right, we have our PagBank active client figures, which was 9,100,000 being 38% composed by consumers. Net ads were 1,300,000 with consumers representing 58% of 1st quarter net additions. These figures show a strength to serve both merchants and consumers with our 2 sided ecosystem.
Bottom left, We share our product per user ratio. In Q1 2021, our products per user reached 2.7, 0.2% higher than the same period of 2020, reinforcing clients' stickiness to our ecosystem. PagBank revenues reached BRL149 million, up 48% year over year and accelerating in April 2021 To above 80% when compared to April 2020, although April 2020 was the worst pandemic month in Brazil impacted by lockdowns, Which drove down withdrawals and card spending. Additionally, for those clients with higher engagement, such as merchants Active in PagBank and consumers with payroll portability, we offer some free ATM withdrawals per month, exchanging Short term revenues for higher engagement and future monetization. In Q1 2021, PagBank adjusted EBITDA Was a loss of BRL78 1,000,000 driven by headcount increase, marketing expenses And transaction costs.
Also, in Q1, we had a one time event related to digital account losses not related to loan provisions or credit risk management Amounting BRL 73,000,000, the massive data lake in Brazil, which happened in January 2021, did not affect any of our systems, data Our infrastructure. However, it provides information to fraudster activities in online transactions and bill payments. As we identify these transactions, we immediately block them. Again, this is one time event. Moving to Slide 11, We present some additional data about PagBank and PagInvest.
The number of active cards increased 3 times in comparison to the Q1 of 2019. In May, we launched a new home marketing campaign in partnership with Visa to foster card payments. In this campaign, PagBank clients will receive cash prize and one of them will get a house. Day to day banking, the number of PagBank app logins was R549 1,000,000 in the Q1 of the year, while bill payments transactions has been gaining a lot of traction. This is a very good sign since usually Clients elect their main banks to centralize bill payments.
Finally, PAG Invest assets under custody reached BRL4.2 billion, up 127% year over year with PegBank CDs almost doubling the size quarter over quarter. Worth to say All this AUC is based in Pegbencities and a few investment funds. We plan to have equities and treasury bonds in the following weeks, Which we expect to help increase assets under our custody. Recently, we allowed our investments platforms to receive orders 20 hours a day, 7 days a week. And we also launched new third party investment funds managed by well known investment firms in Brazil, such as Western Asset, Alaska, Hexadex, Beni Peppa, Journey and AZ Quest.
Now I'd like to turn the conference over to Arthur, our CFO, We'll talk about our credit portfolio in our financial results for the quarter. Arthur, please go ahead.
Thanks, Ricardo, and good evening, everyone. In the Slide 12, we show our credit portfolio where the performance is improving every day based on credit models result. We ended the month of March with a total credit portfolio of BRL773 1,000,000 Being 53% of working capital loans, 42% credit cards and 3% of other credit products. As we have been tracking very close the NPLs by cohorts for working capital loans and for credit cards, Trends are getting better since August 2020, showing very healthy numbers. Our confidence has been increasing and encouraging us to reach The highest level of credit disbursements in May.
We expect to increase credit originations going forward, Mainly in the second half of this year. Our cash position in HEMA is very strong with a positive balance of BRL 8,100,000,000 Enforced by the issuance of PagBank CDs to fund the credit disbursements, loans to deposit ratio Was 53% guaranteeing stamina to grow our credit portfolio in a healthy and sustainable way. Moving to Slide 13, we present our quarterly financial results. In the top left Of our consolidated net peak rate reached 2.41%, representing an increase of 11 basis points In comparison to Q4 2020 6 basis points versus Q3 2020 driven by better TPV mix With more credit and lower debit transactions and a longer duration for credit cards receivables in installments, In the top right graphic, we share our non GAAP total costs and expenses, which totaled BRL 1,600,000,000 In the Q1 of 2021, up 51% year over year. Cost of sales and services represented 70% Of total costs and expenses remained at the same level of Q1 2020 and increased 49% year over year.
The main drivers were higher interchange and card scheme fees following the TPV growth, Higher depreciation and amortization related to our solid active merchants additions during the past quarters And expenses to new products and services developed to PagBank. Selling expenses represented 23% of total costs and expenses An increase of 94% year over year due to headcount expansion for our hubs and the one time digital account losses of BRL 73,000,000 previously explained by Dutra. If we exclude the digital account losses, this line increased 56% Versus the same period of last year. In the bottom left chart, our adjusted EBITDA was BRL573 1,000,000, Excluding the negative effect of R73 $1,000,000 related to one time digital account losses Not related to loan provisions or credit risk management and the positive effect of BRL 29,000,000 Related to tax provision reversal, the recurrent adjusted EBITDA was R618 million dollars With a margin of 30%. Finally, in the bottom right, we share our capital allocation strategy.
During the Q1 of the year, We invested almost R393 $1,000,000 being 62% in POS Acquisitions And 38% in other initiatives, mainly related to product and software developments. As a percentage of revenues, CapEx decreased 4 percentage points, reaching 19% versus 23% in the Q1 of 2020. Thank you all for joining us tonight. Now I pass the word back to Dutra to conclude the presentation.
Thank you, Arthur. Moving to Slide 14, we present Pegafone. During the last quarters, we were working very hard to launch the First device in the world, which combines acquiring, banking and smartphone. Everything in one single device Created a real one stop shopping solution for our merchants, reinforcing our leadership in long tail market and continue to be a company driven by innovation. Finally, in Slide 15, our last slide, we present Modernia Profit.
This is the smallest POS with integrated print in the market. Initiatives like this help us to offer a better customer experience and to allocate capital more efficiently, consequently improving our relative EBITDA per cap ratios. With that, we end our presentation and we can start the Q and A session. Thank you. Operator, please.
Thank you. We will now begin the question and answer session. Our First question comes from George Courie with Morgan Stanley. Please Mr. Courie, go ahead.
Hi. Good evening, everyone, and Congrats on the numbers. I have two questions, please. The first one is on your TPB guidance of 40%. I think that Chart on Page 7 is quite telling.
I think you're running at significantly above that. And hopefully, we've passed the worst of this year. Is it possible that the number is just Significantly above that, it wouldn't be surprising given the current trends that you end up at 55% to 60% growth. And What stops you from updating that guidance or where do things could potentially go wrong and we do end up in 40 And which would be a big deceleration from the 1st 5 months of this year. And my second question is on NPLs, and I'm not sure if this is related to the digital losses.
I'm not sure that I understood properly what that is. But anyway, my question is on NPLs going to your Slide number 12, Where you have the pre pandemic cohorts and the post August 2020 cohorts. Can you maybe Explain how loan losses are trending over the last few months, Particularly given the difficulties of the Q1? And just if you can explain what those digital losses are and if indeed those are part of the NPLs?
Thank you.
Hi, Jorge, good to hear you. Thank you for the question and thank you for the compliments as well. This is Ricardo. I will start with TPV and then begin answer your question number 2 and then Arthur can But talking about TPV, you're right, we are running above the 40% guidance. We are confident with this guidance.
And the reason that we do not update is because We are still in the middle of the pandemic in Brazil. I mean we have some uncertainty looking forward. We have tougher comps In the second half twenty twenty because the government had BRL300 billion in corona vouchers last year in second half. So we have tougher comps And we need to wait and see how it's going to be the economic recovery in Brazil. So that's why we don't update at this point.
As time passes by, we will be more than happy to update that. So that's why we are confident with this 40% at this time. Talking about the digital losses, just to be clear here, there is no relation with credit, no relation with loans. That happened because we were, I would say, more aggressive than what we should in terms of authorizing some bill payments transactions. And then what you had is people coming here paying bills, some of them with credit cards and then we had chargebacks afterwards.
So we had this we are saying here Q1, but actually was in February March. We already adjusted that. We didn't have any impact in April May. So it is really a one off. It is really a thing that happened in February March and that's it.
There is nothing that is going to happen in Q2 regarding to that. And again, there is no relationship with NPLs or things like that. Just to be clear here, I want to reinforce that We didn't have any problems with our infrastructure, with our data or data leak. What we had was a massive data leak in Brazil In January 2021, it was in the news and probably we're aggressive in authorizing some Bill payments transactions to credit card. So that's it.
We already adjusted that and it's not happening in Q2. And talking about the NPLs in Slide 12, I'll ask Arthur to help us here. And again Jorge, thank you very much for
the question. Hey, Jorge. It's Atul speaking. And thank you so much for your question. It's a pleasure to talk to you.
I think the idea of These graphs show you that when we start to offer credits again in August 2020, our NPLs are much better than we have before Because we learned a lot during the pandemic period and so you know that in March 2020 we stopped our originations And we learned a lot, adjusted our models, hired new people, more experienced to that. And so now We are having better results than we had before. And the idea is just give you more color about it because we don't know we don't give the number. So it's important to you to understand that we have a better performance right now than before. And that's it.
And so We are very happy with the numbers and encouraging us to accelerate the originations going forward.
All right. Thanks, Ricardo and Arthur for that. Thanks again.
Thank you.
Our next question comes from Maria Nattadeo with UBS. Please, Ms. Tadeo, go ahead.
Hi. Hello, everyone. Thanks for the opportunity of asking a question. It's regarding the SME segment. You mentioned that should represent 7% to 11% of your total TPV this year.
But could you share how much it represents today? Also, if you could give us some color, where are the merchants in the segment coming from? From the incumbents, from Stone or any other player, I don't know if you could share that. And also, in the presentation, you mentioned the penetration of the software within the SME clients. I want to understand if you Sure.
Within the SME clients, I want to understand if you are offering the banking credit products to them and how is this penetration? Thank you.
Hi, Mariana. This is Ricardo. Thank you for the question. So we are not disclosing the exactly number of hubs TPV in the total TPV at this point, Mariana. As we said at the presentation, we plan to give more color as time passes by.
Just we don't want to give this information at this point for strategic and competitive reasons. Regarding the players that we are getting in this segment, it varies, but usually it follows the market share in SMBs. So the majority of them we are getting from incumbents and then we have someone some others coming from new players, but It follows a little bit the market share of the settlement. We are the, let's say, the newcomer here. We are the company that is, let's say, competing with the other ones, being the aggressive here.
So that's why we are getting All these new merchants and TPV grew 4 10% year over year. Regarding the software, the 8.5%, We actually use the information we had from software to put in our models, in our credit models because we have more information from The ones who use software versus the other that don't use it. I don't have here in the top of my mind how is the penetration of credit For these clients to be sincere, but it's one variable of the models, not the main one, but it help us to improve our models. I don't know if I answered your question.
Yes. On this second part of the question in terms of banking and credit, just want to And if you're offering, if they have the credit product or, I don't know, credit cards or something like this?
Oh, yes, yes. We are offering credit for SMBs as well. We are growing our credit portfolio BRL160 million in this quarter. The almost 100% of this BRL160 We focus on the merchants. Very small part of that is focused on consumers for small pilots here and there, but the majority of that is for the merchants.
And yes, we are offering credit for SMBs as well.
Thank you.
Our next question comes from Brian Keane with Deutsche Bank. Please, Mr. Keane, go ahead.
Hi guys. Congratulations on the results, especially given the tough economic environment. Two questions. I guess, be interested in some more color on the increase in the TPV per merchant, I think it was up 18% year over year versus 3% Looking at last year's increase and so just trying to understand how much of that is stimulus versus What's driving what's been the driving factor there? And then my second question on the margins.
Obviously, you guys are making a lot of investments And the margins were impacted by those investments. Just was hoping you guys could give us some color on what the net Margin might look like going forward for the rest of the year and how much to expect for the investments in the hubs and PagBank, etcetera? Thanks.
Hi, Brian. Thank you for the question and thank you for the compliment. Talking about the average TPV per merchant, There are some drivers here. If we look in Brazil, we are seeing the penetration of cards in PC is increasing. It used to be I guess 40% and now it's close to 44%.
So we see more adoption of electronic payments And we are also increasing our participation of online and hubs in our total TPV. So As we go up a little bit in the pyramid, the average TPV promotion will grow as well. So I guess those are the 2 main drivers here, People using more cards, less cash. And also we are having more TPV coming from online and for hubs.
Thanks. Brian Zarzaur speaking. Thank you so much for your question. [SPEAKER UNIDENTIFIED COMPANY
REPRESENTATIVE:] It's a pleasure to talk
to you again. And so regarding to margins, as you said, we invested a lot during the last months. And also in this quarter we invested a lot in PagBank to hire more headcount and product development To develop products like PAG Invest, Insurance Credit and also we are investing hubs with Salesforce, Facilities, Rentals And also marketing to promoting our new products and services. And also right now, we are In terms of nominal, we are slightly better in the bottom line in 2021, even though our focus is to reach the best balance between Growth and profitability, looking for a bigger company in the future, gaining scale to leverage expense. And so we are much more focused right now in the growth of the company to leverage expenses in the future and improve margin as well in 2022, 2023 In the more mid to long term.
Got it. And any guidance on where we should set our models in terms of The net income margin going forward for this year, just given those investments you talked about?
Yes, Brian. We gave the guidance for TPV, for CapEx. What we can say here that In absolute terms, our net income this year will be better than last year. We don't have the exact number here. But as Arthur said, we are looking for, let's say, more growth this year than profitability.
But in absolute terms, we're going to see a better Net income this year versus 2020, even with this challenge that we are seeing in Q1 with lockdowns and so on and more debit transactions and so on. So that's, I'd say better guidance I can give you at this point.
Got it. Great. Thanks so much.
Thank you.
Our next question comes from Craig Maurer. He is on Autonomous Research. Please, Mr. Maurer, go ahead.
Yes. Hi, thanks again for taking the time. Appreciate it. I was wondering just some housekeeping items. You provided TPV growth for the acquiring channel through April May, could you provide what the total Consolidated TPV growth was for April May.
2nd, I wanted to return to the non credit Digital account losses. Just some additional clarification, I mean, it sounds like you were authorizing bill pay on credit cards, But that something went awry and you wound up with a lot of charge backs. Were these fraudulent bill payments? Were these I'm trying to understand what went wrong in that. I know it's one time, but what went wrong in that authorization process That might be a learning experience for you.
And lastly, in the SMB Hub Business, Are you seeing a strong degree of software uptake and to what degree Are you seeing perhaps an omnichannel opportunity in the SMB software in the SMB business? And can you bring Moip to address some of that? Thanks.
Hi Craig, this is Ricardo. Thank you for the question. We must discuss here internally how it's going to be if you want to if you can give the TPV for PagBank. We didn't give in this call. We just need to see what is the best way to give this disclosure.
Of course, it's growing a lot. We just closed in May. But I mean, we can discuss, we can make it public before next call. I don't have the answer to you at this point. Talking about the digital account losses that you asked, we were aggressive in authorizing some transactions.
The models for bill payments, let's say, authorizing more transactions than it should. So it's not credit related, it's not NPLs related to loans or things like that. It's just that people came here to pay bills To credit cards, that's the majority of the charge backs. And we authorized some of the transactions that after we reviewed, we should not have authorized. I mean, We were aggressive in doing that.
So that's what happened. There is no data leak. There is nothing like that. Just people came here, Decided to pay a bill and then we had this charge back. That's as simple as that.
Regarding SMB and Hub, Yes, they are using our softwares although we know that our software at some point they are very complete but some type of merchants They require something more sophisticated, but at the end of the day what we are looking here we are bringing the merchants that are 4 to 5 times larger than long tail. So they are still small. They are not very sophisticated. Part of them could be omnichannel, but we know that part of them will not be omnichannel because of their business. Just let's say the guy from the restaurant sometimes He's going to find a new platform to make delivery and PagBank will not provide that for him, although we have a small platform.
Just to give an example here. The guy that has auto parts probably will not sell, will not let's say fix cars and reach these customers through online. So We see some opportunity for omnichannel for those who we think that is feasible, we can offer solutions, link of payments and things like that. But I would say the majority of them still today, they are not only channel, they are more physical stores, because we are going, let's say, In the bottom of the pyramid of SMBs, so they are not well sophisticated for softwares and part of them are not ready for omnichannel and that's fine. At the end of the day what I want is to bring them for acquiring and make them to use PagBank, get the data at some point, Increase the relationship, strengthen the relationship with them, we could offer credit and credit cards and so on.
So that's the Our idea is much more to have the financial services embedded with our solution than other solutions at this point.
Thanks. And are you seeing any change in behavior around PIX, any P2M transactions? Or is it still mainly a P2P channel?
Well, Craig, we don't see peaks hurting our acquiring business or People using PIX to make payments. What you see is PIX replacing wire transfers. So let's say if you had a bill that you used to pay to wire transfer, so people did not use cards. Now they are using peaks because peak is free and This is continuous and so on. But we don't see peaks, let's say, cannibalizing our acquired business as you could see in our growth 58% year over year.
So We that's the thesis that we have, the hypothesis that we have from the beginning since when we started talking about peaks in the beginning of last year. Peaks is much more to replace wire transfers, at some point to replace cash and help digitalization of Some people in Brazil. And then we can take advantage by offering PagBank and you could see that we are growing more than 1,000,000 PagBank clients per quarter. Thank you. Thank you.
Our next Question comes from Mario Pierry with Bank of America. Please, Mr. Pierry, go ahead.
Good afternoon, everybody. Congratulations on the Let me ask you two questions as well, primarily related to revenue generation. How should we think about the direction of your take rate on the acquiring business, taking consideration, right, the hub expansion? And also taking consideration that the economy is opening up, so we should see a better mix of credit versus debit. And also, when we think about the take rate on PagBank, I think it's fair to say that PagBank is growing much faster than we anticipated.
So I was wondering if you think that you can achieve Your target or your soft target of 30% of revenues coming from Pagit Bank 3 years from now, if maybe We could anticipate that. Thank you.
Hi, Mario. This is Ricardo. Thank you for the question. Regarding our foreign take rates, as you could see we grew 17 basis points in Q1 versus Q4 Even with more TPV coming from SMBs, which has a lower Net take rate because I mean they are a little bit larger merchants. So looking forward, what we expect from the acquiring take rates to be stable.
There's going to be some variation here and there, but to be stable because we're going to have more clients coming from hubs, would put Some pressure in the net take rate coming down. On the other hand, we have the tailwind that is the mix of payments, more credit. So What you can looking forward here this year, we expect to be stable or improve a little bit. But let's see how it's going to be. In Brazil, We have a lot of ups and downs and lockdowns suddenly.
Unfortunately, the rate of vaccination is not Going pretty fast as we see in other countries, some people talking about 3rd wave, some cities making lockdown, some others opening. So it's Still a lot of uncertainty, but to give, let's say, soft guidance here, let's consider it stable even with the pressure coming from the hubs, which in our opinion, it's It's a very good performance. The other question about the 30% PagBank, it's hard to say if we're going to be able to make it Earlier than that, Mario. We prefer to keep the 2024. Let's follow in the following quarters and then we can update What you saw in April is good level of revenues in April, much better than Q1.
Let's wait a little bit and then we can, let's say, update it. But it's feasible to have before that. I just don't want to affirm that at this point.
Yes. Hi, Mario. This is Eric. I just would like to reinforce here that We will reach 30% in one of the quarters in 2024. This is not an easy task, right?
Because we have been seeing payments grow Very fast and solid, right? And even our new verticals such as hubs and the online. So it's a hard task here, But we continue to be committed to this 30% in one of the quarters in 2024. Thank you.
Okay. Let me follow-up then here on PagBank. Even if we add back this Losses that you booked of BRL73 1,000,000, we're calculating revenues per clients of about BRL 24, is that about right? And when we look in the Q4, we have around BRL 27 And 1 year ago at around 27, any reason why revenues per client are coming down at PagBank?
Well, Mario, we should make the math here just to be if we have the same numbers that you have. But Usually the dynamics for PagBank amortization were the following. We bring the client, They stayed here for a while. They started using, engage with the solution and then we see monetization afterwards. So there is some lag between bringing the client and having the revenue.
So that's why at some point we see the number of clients coming to 9.1 but the revenue is not coming at the same pace because it And that's even more true if we think about consumers because the consumers don't have the Automatic cash out that you have from the acquiring clients. So even if the client loves our app and it's easy to use, Very good, Huwax. And so one, if he doesn't have any money there, he cannot do anything. So that's why We see some lag between bringing the clients and then the revenue. So that's the main explanation of that.
We also said in the presentation for some of the clients, We decided to give free ATM withdrawals which should bring revenues a little bit down. It's not material but of course it doesn't help. So those are let's say the main reasons here. But the main reason, the main driver is The lag between bringing the clients and the having the revenue from these clients.
Perfect. Very clear. And just a final follow-up then on PagBank here. I think in the past, you had talked about maybe breaking even at PagBank in second half of next year. Is that still your view?
Yes. That's our view. That's our view.
Thank you.
Our next question comes from Jeff Cantwell with Guggenheim. Please, Mr. Cantwell, go ahead.
Hi. Thanks for taking my question. Can you hear me? Yes. Great.
Great. I wanted to ask you one quick question on PodBank. You've grown your PodBank clients at $9,100,000 over course of 2 years, which is impressive. And underneath that, the active card base has increased by over 3 times, while you're also laying in new products and Clearly, they're seeing an uptake in more and more adoption. And I think that all suggests that your average revenue per user should continue to increase, Perhaps more material as things continue to normalize.
Do you agree with that idea? And the reason I ask is because We see other banks, some in Brazil, with fairly high average revenue per user numbers. And so I think it's still early days You guys. So I'm just curious if you agree with that view and if you can give us some updated thoughts on what your ARPU impact might go to over time. Any color or thoughts there would be appreciated.
Thanks very
much. Hi, Geoff. Thank you for the question. I was trying to, let's say, to explain that as well for Mario. But yes, in the medium to long term, we expect the revenues from PagBank users to go up.
That's one of the drivers for us to reach the 30% of the revenues of the company coming from PagBank by 2024. What we have here is that there is a, let's say, a longer time between opening the account and starting generating revenues. And this is even more true when you have the consumers because the consumers don't have the cash in. So they need to open the account and then wait to receive the card And then they're going to receive some money here, some wire transfer from other banks or pigs or the payroll or so on. But yes, you're right.
We are bringing these clients, that's the first let's say we have this framework to Bring the client, engage and then monetize. I would say we are between the first and second step today. We are still having lots of Accounts, millions of accounts every quarter, so bringing new clients. The engagement is increasing. Monetization is happening, but it doesn't happen at the same pace.
There is this lag between bringing the client and then start monetizing. But looking in the middle term, that's the idea. I said before we are running some pilots With consumers making some additional products to them, testing with them, we're going to have in a few weeks, we're going to have equities here so people could buy Here we're going to have treasury bonds. We just launched 2 options of insurance, personal insurance and home insurance. So the idea is to make this cross sell And increase the average revenue per user in PagBank.
That's the idea. That's the dynamics that we expect to happen.
Great. Appreciate that. And then a quick follow-up on Parqfon. I was hoping you could give us Some thoughts on why now? And just how that piece fits into the strategy and maybe just kind of consolidate our thinking on the Acquiring side, while you're building a one stop shop for micro merchants and how that might sort of be a driver for you guys maybe in terms of net Volumes etcetera.
Yes. So you're right that's exactly for the micro merchants or the long tail. We don't think that's a device for someone who has a lot of transactions every day because it's I I mean, POS is better for this type of volumes when you have a lot of transactions than when you have a few transactions per day. So it's focused on the micro merchants. You know everyone has a smartphone.
Some of the guys use it to have the smartphone and pair through Bluetooth with our MPOS With me, Ziyen. So the idea here is to have everything as one device. They already received the device with a PagBank account because they create this account when they buy the device. They create Let's say the login and password, so they have the app there, they can order a card and so on. So the idea is to have an additional Option for the long tail for the micro merchant.
The average ticket is much higher than other POS. So Although we are selling better than what we expected, we don't have the same volumes that we have for smaller POS and Minasinya ship and things like that because of the price. But I mean it's doing well. The idea as you said is to have for the long tail one stop shop and people can use it as a POS Acquiring digital account and as a smartphone. It is a very good smartphone by the way, good cameras and so on.
So that's the idea.
Okay, great. Appreciate all the color. Thanks again and congrats on the results.
Thank you, Jeff.
Our next question comes from Ojaina Kumar with Evercore. Please, Ms. Kumar, go ahead.
Good evening. Thanks for taking my question. Really good to see the strong PPB coming out of PagBank and of course you're acquiring. I'm just curious to understand if COVID-nineteen had any material impact on the prepaid card interchange revenue May you make impact with PagBank?
Hi, Reina. Thank you for the question. The reason that our revenues in PagBank were not even higher than what they were It's because we did have some impact that people not using prepaid cards because the cash in and even the Let's say the coronavirus from the government didn't happen in Q1 and also people using less cash. We also make Some revenues from people taking the money through ATMs, we charge some tariffs there. There was a decrease in that, people at home Not using cash.
So that's part of the explanation why the revenues from PagBank in Q1 Went even higher. So I mean, it's not a big issue. It's good volumes. We are still the number one in prepaid cards in the country By far, and we are sure that once the economy rebounds, we're going to have to rebound as well. And part of our investments, we didn't mention Before, but part of the investments that we've been doing since 2020 2021 is because we know the COVID, Although it's a little bit longer in Brazil when compared to other countries, COVID is something temporary and the economy will rebound.
And when the economy rebound, you just want to be ready To take advantage, that's what we did in 2020. That's what we did in 2021. That's why we were the company with the Highest growth in terms of TPV in our market, taking share from others, creating this new market and bringing These new customers so but going back to your question, yes, there was a little bit impact in the prepaid card because of a little, let's say, lower spending In the prepaid cards in Q1, but it's something temporary, it's not a big issue.
And then on your hub strategy, you gave us some
clues on your potential volume Contribution from hubs in 2021. Could you better help us better understand what the potential revenue and earnings contribution could be this year.
Well right now we we can give you more color about hubby strategy when you it is appropriate. We of course we are having this operation here trying to beat Other companies that are already there on the street. So we are here the challenges. So we just don't want to give too much information about our performance at this point. We gave the guidance about TPV.
Once we think it's feasible to give more color on that, we can give you. It's not because we I don't want it, it's just because of, let's say, Competitive reasons, we just don't want to give too much information about it and let's say, let's have this operation up and running and then we can When it is more mature, we can give more color even with more confidence about the numbers and our performance. But so far, we are doing very well. We are beating our estimates. That's why we
Understood. Thank you.
Thank you.
Our next question comes from Tito Labarto with Goldman Sachs. Please, Mr. Lamberta, go ahead.
Hi, good evening. Thanks for the call and taking my question also. Maybe just one quick follow-up on TagBank, in terms of the client additions at TagBank remains pretty healthy. Do you think and you kind of alluded to it, but about 1,000,000 clients Per quarter is sustainable for like for how long that's sustainable or maybe another way to get to the 30% Revenues, how many clients do you think you would need to have? I mean, at the pace of enrolling, you can easily be over 20,000,000 clients in a few years.
Is that a reasonable assumption? And maybe in terms of the products that they use, I mean, is sort of the main cash just like Is it prepaid cards or like which product do you think is generating the most interest among the Pac Van clients? Thank you.
Hi, Tito. Thank you for the question. Yes, we do think it's feasible to have 1,000,000 new clients per quarter. Hard to say when it's going to be over. I remember just to make a quick parenthesis here, but we've got this question about Acquiring in merchants in the past 3 years, how it could be sustainable if it could be sustainable for us to add 1,000,000 Our merchants per year are 250,000 per quarter and we are doing this since 2018 since we became public.
So every year We at some point, we think it's going to be a challenging one, but we always beat our estimates because we're still Playing a huge market. So in terms of merchants, we expect to have 30,000,000 people in Brazil That work by themselves or they may need a POS. So there is still according to our estimates here 1 third penetration at this point. In terms of Pega Bank, some estimates say that we have 25% to 30% of people without the bank account, even after COVID without this Maybe it's a little bit lower than that, but it's still huge. And that's why we are putting 1,000,000 more than 1,000,000 per quarter.
And we also said in the presentation here, we closed March with $9,100,000 and in May we already surpassed $10,000,000 So we already added 900,000 In Q2, in previous Q2 and we still have part of May and full June. So we think it's feasible to have this $1,000,000 for a while. To be sincere, I don't have in the top of my mind the number of clients in PagBank to give a number, but You can imagine, we already have more than $10,000,000 I don't think it's impossible to have this $20,000,000 that you mentioned. And about the why people come to us, I guess there are many reasons here. First because our brand, The strength of our brand, people know how we work, people know it's a let's say a company that you can have confidence, you can put your money here.
We have the distribution through UOL that covers more than 90% of eyeballs in Brazil right after Google and Facebook. We invest in marketing. We've been investing in the account. We do a lot of research, how people use it, when Where they are having some difficulties, try to make it better, easy to use. It's very simple.
Just download the app and in up to 3 minutes you open account, You sent your picture and it's done. And it's a full free account. People just come to us because they know it's a free account. They can have interest in their balances. And although we make it free for the consumers or for the user, we are receiving money from the companies.
We are, let's say, Receiving the bills and so on. So those are the main reasons. People come to us because it's free, strength of the brand, distribution efficient distribution that you have And investing as well.
Great. Thank you very much.
Thank you.
Our next question comes from Motavio Tanganelli with Bradesco BBI. Please, Mr. Tanganelli, go ahead.
Pollo increased a little over BRL200 1,000,000 or almost BRL200 1,000,000 quarter on quarter. I wanted to understand if NPLs are behaving well and the economy is expected to improve in the coming quarters. Why not Accelerate loan originations are when should we see, I would say, more aggressiveness in terms [SPEAKER MARTIN PEREZ DE
SOLAY:] The loan book here. Thank you.
It's Atul speaking. Thank you so much for your questions. A pleasure to talk to you. So we are showing that we have a better NPLs for credit, but we are a conservative company. We have a lot of cautious about the uncertainty of the market.
As Dutra said, some people are saying that we could have a 3rd wave here Or other issues related to COVID. We don't know exactly when the economy will rebound. But we have All the conditions to accelerate, we are starting to doing that in Q2. And so You will see in the coming quarters better volumes. We will increase our portfolio in the right way.
So we are understanding the models, understanding the NPLs, understanding the performance and growing the portfolio. We understand that this is the best way to do that. And so we have the conditions to accelerate more, but we are Cautious related to the economy, related to the moment that we are living in the country. And so You will see in the future our portfolio growing.
And Otavio, this is Ricardo. Thank you for the question. Good talking to you As well. We were ready to accelerate last year, but of course when you have the model and you have COVID with A lot of up and downs and lockdowns. There is a lot of noise in the data.
So that's why we didn't accelerate before. Just want to have the right moments to do. We are not in a hurry to do that. We know it is important. We just want to do in a right away.
We see some other players in the market Doing some aggressive growing the portfolio and the NPLs will come. We know that and you know that so that the NPLs will come if you don't give the right credit for the right person and you don't have the collection process So we just want to be ready and be confident that we can accelerate a little bit. We are ready with the 700 Almost R800 $1,000,000 close to R1 $1,000,000,000 So we are growing, but step by step, not doing, let's say, crazy movements here and doing it step by step. So but we will accelerate at some point that we think it's feasible and we are confident to do so.
That's great, guys. Thank you. Thank you.
Our next question comes from Neha Agarwalah with HSBC. Ms. Agarwal, go ahead.
Hi. Thank you for taking my question and congratulations on the good results. Most of my questions are answered, but very quickly, and I know you can't give more information on the hubs. But it seems like the hubs are doing quite well And exceeding your expectations, what do you think are the strengths of PagSeguro, which is helping you to Again, clients either from incumbents or the other players, is it the service quality? Is it the brand image?
Or are you doing something different on the distribution? So what are you stressed in the in that particular segment? And my second question is on the monetization of the software opportunity. I mean, you already have a good take up, 8.5% of client base uses software. So are you already monetizing it?
Can you give us some names what percentage of revenue comes from software and what is the opportunity that you see here? Thank you so much.
Thank you Neha for the question. We let's talk first about the hubs. We always said that and we made this we mentioned that during the presentation that our thesis is that It's easier to go up in the pyramid than to go down when you think about the size of the merchants in terms of TPV. So We started with Long tail. As you know, we had all this platform that is very scalable, easy to use, self-service.
So we have all this, let's say, online DNA here that we can serve the small clients here. When you go up in the pyramid, it's just a matter of distribution. The platform is the same. The solution is the same. The easier the solution, the better for the merchant.
It doesn't matter Always the size of the merchant, but if it's easy to use every merchant will like it. It doesn't matter if you're a small one or a big one. So it's a matter of distribution here. And as I said before, we have a strong brand. We see a lot of unsatisfied merchants in the SMBs.
So at some point they don't have the right service and that's why we come there and we can bring these merchants to us. We have good devices here, we have a portfolio of 7 devices. The merchants also like our devices. So there are some components here that we can use, some instruments that we can use to bring these merchants. It's not a matter of price and try just beating the price at some point.
The merchant even want to pay you more if they have a good service. So that's the dynamics behind going to SMB, but we are proving here the thesis that it's much easier to go up in the pyramid than to go down 1st, in talking about software, the 8.5%, a very small part of that we monetize. We are not charging the majority of them. We are giving the software for free. We think today is not a lot of money.
Our merchant is not to pay for a software. So we try to we are making here for free. At some point, if we see an opportunity that you can charge, we will do it. But From all the softwares that we have, we have some premium features from the Deloitte software and also premium features from the Conciliation software. The other softwares that you have that the point of sale that you can use, let's say put some products coffee, croissant and all this stuff and then you just Can have a database of clients, database of products, we are giving this for free.
So today we are not charging the SBC series, very small part of that It could be an opportunity in the future, but I mean, we don't have that in the short term plan.
Very clear. Thank you so much for that and congratulations once again.
Thank you again, Neha. Thank you very much.
Please Mr. Dutra.
Hi everyone. Thank you very much for your time. As you could see the company is doing well, All the KPIs are growing, number of clients, TPV, we are seeing a lot of traction in PagBank. So It seems the worst is over in terms of the pandemic. We are not 100% okay in Brazil, still waiting for the vaccination, But it seems the worst is over what you had in Q2 and Q3 last year.
So the future is bright. And thank you very much again, see you in next quarter. Thank you very much.
The PagSeguro Pac Bank's First Quarter 2021 Results Conference call is now concluded. Thank you for your participation. Have a good night, and thank you for using Chorus Call. You may now disconnect.