Good evening. My name is Caio and I will be your conference operator today. At this time, I would like to welcome everyone to PagBank PagSeguro's Earnings Conference Call for the Second Quarter of 2021. This event is being recorded and all participants will be in listen-only mode during the company's presentation. After the speakers remarks there will be a question-and-answer session. At that time, further instructions will be given. [Operator Instructions] This event is also being broadcast live via webcast and may be accessed through PagBank PagSeguro'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 pose their questions on PagBank PagSeguro’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 and PagBank PagSeguro's current assumptions, expectations, and projections about future events. While PagBank PagSeguro 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 PagBank PagSeguro’s presentation or discussed on this conference call, for a variety of reasons, including those described in the forward-looking statements and risk factor sections of PagBank PagSeguro’s Registration Statement on Form 20-F and other filings with the Securities and Exchange Commission, which are available on PagBank PagSeguro’s investor relations website. Finally, I would like to remind you that during third conference call the company may discuss some non-GAAP measures. For more details, the foregoing non-GAAP measures, and the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures are presented in the last page of this webcast presentation. Now, I will turn the conference over to Ricardo Dutra, Chief Executive Officer. Please, Mr. Dutra, you may begin your presentation.

Good evening from São Paulo everyone and thanks for joining our second quarter results conference call. Tonight, I have here with me Artur Schunck, our Chief Financial Officer; and Eric Oliveira, our Head of Investor Relations. First, we hope you and your families are well and safe. Before we proceed, let me share a quick update about the current situation related to the pandemic and its impacts in Brazil. Last quarter, we shared our improving confidence that it seemed the worst was over. The vaccination continues to take place: currently, approximately 70% of the population took at least one shot and around 30% took two shots already. The contamination and death's ratios have been decreasing, which has been encouraging authorities to ease the social distance measures in several regions of the country. The ongoing secular shift from cash to electronic and digital transactions continues, reinforcing that the consumer behaviors are changing, despite the reopening, and we have seen millions of people being included into the financial system. We also see, across the world, several companies embracing the digital banking strategy to explore this unique opportunity. For example, in this quarter, we were honored to see Paypal and Square announcing their initiatives to expand into financial services, which is the move we have done in May 2019 with the launch of PagBank. In addition, as the regulators in Brazil continue to foster competition, players with tech-DNA, strong execution and robust balance sheet have the chance to explore new verticals, cross-selling strategies and close the existing loop between merchants and consumers while optimizing the gross profit generation per user. Having consistently invested during the last years in our two-sided ecosystem has been paying off. In June 2021, the number of PagBank clients surpassed 11 million, and the engagement continues to increase, as…

Thanks Ricardo, and good evening everyone. I also hope all of you and your family are well and in a good health. Following our presentation in the Slide 10, the performance of our credit portfolio is improving every day based on efficient credit models, our experienced team, and several learning's from the last three years of operation. June ended with a total credit portfolio surpassing R$1 billion, being 56% of working capital loans, 41% of credit cards and 2% of other credit products. I would like to reinforce that credit underwriting in Brazil is not a 100-metres sprint race. It is a marathon where learning's from the experience, patience and preparation make all the difference. We have been preparing the company since day one and now we already achieved more than three years of credit underwriting to micro-merchants. The portfolio is 100% booked in our balance sheet, which provided us the awareness and diligence to decelerate in the past and to speed up now. Additionally, we see the registry of receivables as an opportunity for tech companies, which provides financial services, even though market should not assume the registry as a parachute for poor credit underwriting. On the right side, our cash position remained very strong with a positive balance of R$8.2 billion, reinforced by the issuance of PagBank CDs to fund the credit disbursements. Loans to deposits ratio was 62% guaranteeing stamina to grow our credit portfolio in a healthy and sustainable way. Moving to Slide 11, we present our quarterly financial results. In the top left, our consolidated net take rate reached 2.43%, 2 basis points higher in comparison to first quarter 2021 and 13 basis points versus fourth quarter 2020 driven by better TPV mix with more credit, lower debit transactions and helped by a larger PagBank…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Mariana Taddeo with UBS. Please, Mariana, go ahead.

Hi, good evening, everyone. Thanks for the opportunity of asking a question. My question is related to net adds in the client's base. In this quarter, it decelerates. Is there any impact of business mortality from COVID-19 one year ago in the second quarter of last year? And could you also talk a bit on the competitive scenario, any our expectation for net adds going forward? Do you thinking that PagSeguro be able to accelerate the pace of net adds again? Thank you.

Hi, Mariana. This is Ricardo. Good to hear. Thank you for the question. Let's talk first about the net adds in Q2. We saw an increase in business mortality from merchants in April 2020. So as our active merchants' metrics considered at least one transaction in the last 12 months. So the business that were closed or shutdown in April, 2020 they generate churn in April 2021. If you remember, well in Brazil, April 2020 was the worst month in terms of the pandemic and lockdowns. So that's why we had impact in churn related to business mortality from one year ago. But it's also worth to say that these merchants, they were not transaction since May 2020. So we didn't see – we didn't have any TPV from them since then. So it's the metric for the churn they impacted, but TPV, we didn't have this TPV since May, 2020. So that's why we saw this 226,000, which is a very decent number. But it could be better if you didn't have this mortality from last year. Regarding the competitive scenario, what do you see here? As we've been talking in the past quarters, some of the acquirers from the incumbents from the banks, they decided not to play in the long tail market anymore. Some of them, they were local saying they will not play. Some of them just increase the price by five times or things like that. It is a way not to work in this market. And I mean, you don't say no, but it just increase the prices. It's a way for, for not to play anymore. We keep seeing some competition from the same players that we had one year ago. Everybody – everyone knows about the natural competitor is MercadoPago. We keep adding thousands of merchants every month. We saw some of our competitors increasing prices this week, some of them increasing the pre-payment rates, some of them made a different price for different card schemes, mainly the local card schemes, such as Elo and Hipercard card. So we saw more rationality in pricing, not crazy movements. The scenario is similar to what we had in the past quarters or even better. We didn't give this year a guidance for net adds, but they keep talking to some of you that we, we expect to have 1 million that adds in the year. We had more than 500 – 530 in the first semester. So it keeps saying it's feasible to have this 1 million or even more. So let's see the following months and then we can give a more color, but I mean, the best information could be, keep thinking about 1 million net adds in this 2021.

That's good.

Thank you.

Our next question comes from Craig Moore with Autonomous Research. Please, Craig, go ahead.

Yes. Hi, thanks. The take rate in the quarter held up better than my expectation. Can you talk about you just addressed pricing in general, but can you talk about how we should think about trend as the SMB hubs continue to grow? And that will have a dilutive effect on take rate I would imagine? Secondly, if you could talk about the progress in lending products specific to PAG Bank and how that will drive take rate there? And just a last modeling question, how we should think about financial expense going forward? Thanks.

Hi, Craig. This is Ricardo, also good to hear and thank you for the question. I'm going to start and Artur you can help me here. Regarding take rates, we have these different moving parts or so to say the tailwinds and the headwinds. So the tailwind would be if we had the consumption coming back, in Brazil, we're having a higher inflation, pandemic is a still here. We are not 100% back in the office. People are not traveling. So, I mean, the consumption is not happening because of COVID-19 and because of – also the inflation that is kind of preventing some consumption. So that would be the tailwind. What is showing in this quarter, we already saw a slightly better [indiscernible] rate in long tail for instance, because the mix is getting better. And in the headwind, which I would say it's not really headwind, but I mean in terms of take rate it is, it's because we are having better performance in hubs than we expected. So we are exceeding our expectations that our merchants from hubs, they have usually four to five times larger TPV than long tail. And of course they had a lower take rate. So if look at the percentage, it's going to be lower, but in absolute terms should be better because they have a TPV that's five times larger than the long tail. So that's why we talked in the call before here that we expect to be flat or a little bit higher than that looking forward, so a few basis points here and there. Let's see how it's going to be the recovery here. And then we can give more, more information for you, but that's the moving parts. Those are the moving parts that you have consumption…

Okay. Craig, thank you for your question, good talk to you again. And so, regarding to our financial expenses, the two big impacts in this quarter was related to the TPV growth that is higher than our expectation, and also impacting a larger working capital needs related to the advances of receivables to our clients. And also the increasing of Brazilian basic interest rate that is increasing the cost of PagBank CDs, and also the advances of receivables with bank insurers. Going forward we expect that the basic interest rate to achieve 7% in the end of this year obviously will increase our expenses. What I can tell you is that Q3 will be higher than Q2 and Q4 will be higher than Q3, but we are following very close what the market is doing related to that because we can address the prices for SMB and larger clients that is a user to have the prices paid to this – relation to this basic interest rate. And also for SM – for long term, as Dutra said, some players in the market increasing the prices. We don't have this plan for now, but we are very close to this movement in the market and we'll take an action if necessary.

Okay. Thank you very much, guys. Appreciate it.

Thank you, Craig. Take care.

You too.

Our next question comes from Mario Pierry with Bank of America. Please, Mario, go ahead.

Good afternoon, everybody. Congratulations on your results. Let me ask you two questions as well. The first one is on your credit portfolio, right. As you just talked about, right, last year you've been cautious, now you're accelerating lending at a time that we're hearing from some of your peers that they're having problems, right, with the credit product because the problems are the chambers of receivables. So what makes you comfortable to start accelerating your credit growth now and why aren't you having the same problems as some of your peers? And then the second question is related for your – it's about your appetite for inorganic growth. About a month ago, there were some news or some rumors that you were interested in making an acquisition for BV. So if you could tell us a little bit about what happened, what is the strategy, how do you look at inorganic opportunities? Thank you.

Hi, Mario. It's Artur speaking. Thank you for quest – for your two questions. I will take the first one related to credit portfolio. And after this, Dutra will continue with the inorganic question. As Dutra said, we – last year – and you mentioned too, last year we stopped our operations related to the pandemic and the crisis that we have in the world. And this year what encouraged us to disburse more than last year was related to the NPR cohorts that are improving every time. And now, we have three years of experience, a more sophisticated credit models and those models does not taking care of the chamber of receivables, okay. We are not considering the chamber of receivables helping us to collect. So I would say that our models need to work without the chamber of receivables. Obviously, we know that the chamber could help us – could help us in all the credit products, but we are not considering at this point, okay.

And Mario, and regarding the rumors that you mentioned, I – we made this communication in the same day and I here confirmed that there is no intent to acquire a big bank or BV bank to name here. There are no related Simon’s agreement to do so and we reinforced that during the call here. We do talk to many players in the market. We need to be aware of what's going on in the market. It's my duty to be here to understand what's going on in our fintech environment. Of course, we cannot follow everything, but the big deals or the hot deals, they came to us through advisor or people just getting contract with us to talk about opportunities, and we need to talk, understand what's being sold, what's the price and so on. So we did talk to many players and – but it was a rumor, nothing more than that. Our mind for inorganic growth is to look for targets that can speed up our initiatives here, our ecosystem. So just to give you some examples, we bought YAMÍ and MOIP in the online payments, we bought Biva and BoletoFlex for a faster deployment for credit, we bought R2TECH and NETPOS and ZYGO for software features to ecosystem and things like that. So that's why we usually will look for. I would say to you that every week there is a subacquirer coming to us trying to sell volumes. We don't buy volumes. We know that it's a niche at some point, the subacquirers need to be, let's say consolidated, or they will consolidate with someone else or with another subacquirers. So we had this opportunity to buy volumes and we don't have that in mind because at some point the price is not competitive. And so the main idea here is to speed up our ecosystem to have same culture, because the – you know better than me, the out of 10 M&As at least eight of them don't go well because of the day after. So we need to be very careful what we are acquiring. And if the culture does going to be fit and it's going to be easy to integrate and we have a better service for our clients. So that's what we have in mind here to have, let's say, companies to speed up our ecosystem.

Very clear guys. Thank you.

Thank you, Mario.

Our next question comes from Jorge Kuri with Morgan Stanley. Please, Jorge, go ahead.

Hi, good afternoon everyone and congrats on the numbers. Great results. I have two questions, please. The first one is on your CapEx guidance that is that lower. I know it's not a lot, but it is lower. And so I'm wondering if we – what should we read into it? Could we maybe start to saying that expense growth is going to slow down as well given that you're – already have built enough of the infrastructure for the new businesses? Or they just related to POSs? And then my second question, sorry to go back to this, but I wanted to understand a little bit better the answers to the receivables chamber. What does it mean that your underwriting models don't consider that? I mean, don't you need to make sure that credit card receivables are not being used as a guarantee elsewhere for you to leverage them. I'm just trying to understand exactly what the comment from Artur was. Thank you.

Hi, Jorge. This is Ricardo. Good to hear you. Thank you for the question. I will start with the chamber of receivables and Artur can come back and talk about the CapEx. We – well, I guess, what Artur was trying to say is that our models, when you look to our models, we consider the behavior we have with our clients with us, the way they behave with us and the transaction history that you have from them, how much they sell, if they're growing or not, what is the mix and so on. And today, as the chamber of receivables is not 100% working. It's not even possible for us to go there and look if this merchant is making transactions in another acquiring, or if they have some other players that are serving them. So that's why when Artur said it's just like we are looking for the behavior that you have in our database, there was no chamber of receivables until June, and we keep collecting this client. So that's why the chamber of receivers is going to be an additional way to collect, but we don't count only on chamber of receivables to – let's say to collect the money from the lending or from the working capital, what was that we offer for our clients? I would just take advantage of our question just to give an overview about the chamber of receivables. It's a complex project, you know, that central bank and all the industry is working hard to make it work. Although it's not a 100%, we've seen lots of progress in the past weeks. It's going to work, let's say, in the next weeks because there is some integration that is happening between the registered and so on. We do believe that it's going to be very good for credit. We see an opportunity there because today we have 9% market share in the acquiring business. So there's 90%, 91% that is making transactions through other players that you can go there and even offer credit through a very effective way to collect if the chamber of receivables is working 100%. So I guess what Artur was trying to say that today we don't go there to see if the merchant is using another player and we don't consider that to collect the money as today. We are not using the chamber of receivable because it's not working 100%. So I don't know, if it's not clear just let me know.

No, no, that's clear. Thank you. Thanks for your color.

Okay. Thank you, Jorge, for your question related to CapEx and good to talk to you again. So – and what we consider for a CapEx is that we will support the growth of the company for the future. And there is two big points inside the CapEx. One is POS and the other is R&D, so both we consider to support the growth of the company. We changed the guidance to R$1.8 billion because now we have a better view of the year comparing to what we projected in the beginning of this year. We have a lower conversation rate right now versus also what we projected at – related to mix of clients, so change it a little bit versus what we projected to. And we are always looking for to be more efficient in the investments that we do in the company. So now, we can say that R$1.8 billion is more fair for this year. And also as the last point is related to the expenses that we don't have any relevant change for now. If we have any movement in terms of expenses, depreciation or amortization, so we will communicate to the market.

Great, Artur, and congrats again for everyone. Thank you.

Thank you, Jorge.

Our next question comes from Bryan Keane with Deutsche Bank. Please Bryan go ahead.

Hi, guys. Solid results here. Two questions, if I may. Just on the hub strategy, it sounds like it's coming in better than anticipated. So wondering about the volume trends, I think last quarter you indicated maybe the top end of the range of 6% to 11% given the growth in the hub strategy, is that still hold or we now maybe even going to push above that range for 2021 volumes? And then secondly, the net income margin was 14.6, I think, in the quarter. And I know you're making a lot of investments in the business. And I'm just trying to figure out going forward, should we be at or a little bit below that margin level or just any guidance on that? Thanks so much.

Hi, Bryan. This is Ricardo. Thank you for the question. Good to hear you. Regarding hubs, you're right. We are exceeding our expectations in terms of volumes, in terms of the performance even the production of the people, the sales people in The Street. So, I mean, it's getting better than what we had in our assumptions. And it will be probably higher than 11%. That's something that will surpass this 11% is a combination of the execution we are having here, better efficiency in sales force and probably we'll be higher than that. We are in half of the year. It's hard to give you the number right now, but it’s going to be – it seems going to be higher than the 11%, top of the range, which is good news. I mean, we were, let's say conservative when we thought about the volumes from hubs and we're going to get more. It's – I mean, we saw that, even the SMBs in Brazil are under serving. The majority of our SMBs, not to say 100%, they already have another player. So it's different than longtail that we are bringing new merchants to the system. In the SMBs, we need to go there to talk and to get clients from competitors. We use a lot of the strategy to talk about PagBank, the digital bank, that is 100% free and they can use for daily tasks, financial, daily activities, such as paying suppliers and so on. So it's – we are being successful there. And going back to your question, it will be probably higher than the 11%.

Hey, Bryan, it’s Artur speaking. Good to talk to you and thank you for your question. Regarding to net income margin, as we have been sharing in the last calls, we are not obsessed by margin right now. Our focus is continuing to deliver healthy and positive nominal results. That means nominal – positive nominal results for adjusted EBITDA and net income. So our intention is really to create a larger company for the future, and 2022, 2023 increase our margins. Regarding to the next quarters, I can say that we expect a slight improvement versus Q2. Q3 probably will be better than Q2, Q4 better than Q3. And for the full year, we're expecting something above 15% and also excluding interchange fee – interchange and fees from the schemes. So our net income margin should be above 22% or something above 22%.

Just to be clear here, Bryan. Arthur is saying that the net income margin, as we are reporting is going to be higher than 15% this year. It's going to be better in Q3 and Q4. And when he talks about 22%, when you use the same methodologists of other players that a discount interchanging card fees from net revenues. So that's going to be close to 20%, 24% if we exclude interchanging card fees from the revenues.

Got it. Thanks, again, and congrats.

Thank you, Bryan.

Thank you.

Our next question comes from Marco Calvi with Itaú BBA. Please, Marco, go ahead.

Hi, good evening. Two questions here. On the first one, on the acquiring net take rate of R$2.24 you revised this during this quarter. We saw a growth, right, quarter-over-quarter or a flattish quarter-over-quarter and a growth over the four quarter. Can you guys share with us the trends of these acquiring net take rate given that you guys are moving towards a larger client and even so at least comparing to the last two quarters, the net take rate on the acquiring business either same, flattish or increases. And my second question is on your software business. You guys mentioned that you guys ended the quarter with mostly 100,000 clients and a penetration close to 11% of the active merchants. I was just wondering what sort of software are you referring to. And if you can share the average ticket specifically on the software product. Thank you guys.

Hi, Marco. This is Ricardo. Thank you for the question. Good to hear. Regarding net take rate in the acquiring business, as we could see in Q4, we have 2.06, then 2.23 in Q1, 2.24 in Q2. And looking forward, we see at least two big moving parts here; the headwinds or the tailwinds. So in the tailwind, we see the better consumption or increasing consumption in a country. Now we are having higher inflation, unemployment is still here, pandemic is still here. We are not 100% back to our normal lives. And so that's the tailwind. The people start consumption more, getting some business trips or even trips with the family and so on. So that's the tailwind. And the headwind, in terms of take rate is because we're having better performance in the hubs. So we are changing the mix of our TPV. The hub disclaims they have TPV 4 to 5 times larger than the longtail. So when you bring this larger merchant, the SMB, they impact net take rate in absolute terms is a good business because I mean, the volume is much higher than the longtail, even with a lower net take rate. But if we look specifically at net take rate, we have this headwind. So that's why we prefer to say there's going to be flattish looking forward, but there are these two moving parts. One is the consumption is going to help net take rate. The headwind is the performance of the hubs is going to, let's say, decrease the net take rate. Regarding the software business, we consider usually the point of sale that people can go there use for managing their businesses. At the end of the day, take some reports such as how many coffees did they sell, how…

Great. Thank you.

Thank you, Marco.

Our next question comes from Eduardo Rosman with BTG. Please, Eduardo, go ahead.

Hi, everyone. Congrats on the numbers. Two questions here. First one, we just saw SEBRAE publishing a service – sorry, a survey is saying that more than 50% of small merchants in Brazil they're still not accepting cards. So just want to get to your feedback on the ground. What can we expect like an idea for maybe next year? If you think, adding 300,000 merchants per quarter is still doable, if you think you can grow more than 30% TPV in the acquiring segment is still for another couple of years. So it would be interesting to see, just have a qualitative view about what to expect for the coming years on your segment. And the second one is on PagBank. You mentioned that you expect breakeven to come in the next few quarters. But EBITDA was still kind of 100% – R$100 million negative, right, this quarter. So can you elaborate? Do you have – should we expect that to know to breakeven second part of next year or 2023? So that's it, thanks a lot.

Hi, Rossman, thank you for the question. Good to you. Regarding the SEBRAE survey, you're right. They said many businesses in Brazil or the small businesses don't accept cards yet. And I would say you, there are no other companies in our industry more prepared to, let's say, take advantage of that, or to surf this wave with all the history that you have, the expertise that you have to serve longtails, distribution channels to leverage DOL audience, and all the ecosystem that we have been building all these years, all this quarter. So that's why we keep adding 1 million net adds per year. That's why I expect to keep adding in the following quarters. There's too many opportunities out there. And I would say that we are – the company more prepared to serve those that are out of the financial system, because I mean, we've been doing that since 2006 in the online world and since 2012 with the POS. But you're right, it is a great information. Just reinforce what we've been saying for many quarters that there's too many business in Brazil don't accept cards. Some of these merchants, they start accept debit. And then after a while they started accepting credit. So we see as an opportunity in the survey from SEBRAE to reinforce our view. Regarding PagBank, I’ll just introduce and Artur can help me here. But you're right, the margin in absolute terms increased, but as a percentage of the revenues, we decrease it from 80% to 55%. So the business is growing. We need to dilute fixed costs, but we keeping investing in the business. So that's why to some extent the absolute terms, the absolute numbers is – are growing here. But Artur, can you just compliment here?

Yes. I will say just more words related to PagBank. PagBank is a long-term project to us. We are succeeding because we are adding millions of clients every, every, every month they require. And we are monetizing those clients. It's true that for consumers, normally consumers take more time to start to monetize. It's true because the cash machine is not automatically. This is the biggest advantage that we have in terms of merchants using PagBank, because we have cash machine automatically. As Dutra said, we are at the moment to invest a lot in the ecosystem to have a more complete offer of products in terms of PagBank. And so we are investing people, marketing campaigns, R&D and everything that's necessary to have a big digital bank in the future.

Hey, Rosman. This is Eric. Thanks for the question. I just like to highlight here that we don't have two seals, one for payments, one for banking. We have one seal, CFO taking all the decisions here to maximize revenues per client. So there's no conflict of interest, and we are traveling here to increase revenues per user hence the profitability better for the coming years.

Great. Thanks a lot.

Thank you.

Our next question comes from James Friedman with Susquehanna. Please, James, go ahead.

Hi. Let me echo the congratulations. I'm glad to hear everyone's doing well. It's Jamie with Susquehanna. I just wanted to ask a couple of questions up front. So the TPV per merchant continue to expand, right? So your TPV grew double, merchant grew roughly. Is that the hubs or is that the COVID or something else? That's the first one. Historically, you’ve had some seasonality. Well, the industry seen seasonality in the Q3 and I wanted to ask about that. Do you expect any promotions in the Q3 at an industry level? Because sometimes we see that into Black Friday. That was the second one. And then the third one is what are you going to talk about at the Analyst Day?

Hi, James. Can you repeat just last one? I'm sorry. I couldn’t hear you.

What are you going to talk about at the Analyst Day?

Okay. Well, regarding – I'll start with the TPV per merchant. We saw this Q2, of course, is easy comp James just to be clear here, I guess, around the world, that was the worst quarter in terms of COVID-19 and lockdowns and impact of the economy around the world, and Brazil was not different. So the worst month for us last year was April 2020, but of course we had impacts from COVID all over. Second quarter was the worst one. When we compare, we are growing a lot. And part of this growth is coming from, I mean, from every business that we have here from different clients, the size, but the majority of the growth is coming from hubs. We gave some information here. The hubs TPV quarter-over-quarter grew 4 times and the company as a whole grew 89%. So the longtail also grew strongly, steadily, but not the same level that we saw in our hubs. So just going back to your question to be clear here, the TPV per merchant increase can be more explaining because of the hubs that help it because those are the guys that with more volumes and it grew 4 times year-over-year. Regarding Q3 seasonality, we don't think there’s going to be any, let's say, impact from the industry here. Well, no deep promotions we have in mind. So, one, I'll just take advantage here. We plan to have a new marketing campaign from PagBank in the following days. We see the opportunity here that PagBank is – we have this window of opportunity to grow PagBank. We grew 2.1 million new clients in Q2. We see the opportunity to keep growing strong in Q3 and we will start a new marketing campaign in the following days. Regarding the Analyst Day. The idea here is to have a meeting in November. We don't have sturdy details, we too have to decide how – the specific date, but there's going to be a meeting with Luis Frias, our Chairman and Founder of the company, and some of the PAGS’ senior management team to give a more overview about what we have in mind, what we see the future for our industry, what is going on in Brazil in terms of in the financial market, in the FinTech arena, I mean, be more close to the investors and of course share our ideas and our future plans to many of you. So that's the idea.

Great. Thank you.

Our next question comes from Tito Labarta with Goldman Sachs. Please, Tito, go ahead.

Hi, good evening. Thanks for the call, taking my question as well. A couple of questions also. I guess, to go back on your margin, and sorry to harp on this point, just want to make sure I understand, because if we look at your margin last year with 20%, I remember on the 4Q call you mentioned, if you take out COVID and PagBank, your margin would have been 30%. So now you're roughly half of that and your PagBank margin has improved. So is this mostly because of the growth in the hubs? Just wanted to understand the decline and kind of what's driving that particularly if PagBank is improving. And then I'll ask the second question.

Tito, it’s Artur speaking. Thanks for your question and good to talk to you. Regarding to margin, it's – all the things that you mentioned is right. And the impact of what we are seeing today is related to hubs because it's an operation that is not mature. And also the investments that we are doing for PagBank. And so when we have a more stable company in the future, a larger company, we will leverage those investments that we are doing right now. And the expectation that we have today is the margin grow again.

Okay, thanks.

Go ahead, Tito.

No, I was just going to say, but your PagBank margin is improving, right? So, I mean, I get you're still investing, but I mean, revenues growing faster. So just to understand the pressure on the margin wouldn't be coming from PagBank compared to last year, right? Is it more just in the hubs?

It's hubs and PagBank, as I said.

Remember, also, Tito – this is Eric, higher depreciation amortization, given that we had R$2 billion in capital expenditures last year, being R$1.5 billion of that related to POS’s acquisition this year. Remember, the previous guidance considered R$2 billion in capital expenditures for 2021. Artur just reviewed this information to R$1.8 billion. So higher depreciation amortization, also higher financial expense is giving the rising of interest rates. So this is why we saw these impacts. And remember – if you remember in Q1, we have the digital account losses too, that impacted for the full year numbers that we already sold to this, okay? So basically these are the reasons why we saw this impact in the short-term.

Okay. Perfect. Thank you. That's helpful. And then my second question, you mentioned earlier, Boa Compra is drawing cross-border transaction as well. Is that something that is significant for you? Do you see a lot of growth potential in that? Just kind of curious on that opportunity for you.

Well, Tito, to be sincere, it's a small part of our TPV. It is growing very fast, but this is a small part of our TPV. We already had this company, I mean, for a few years now. Some of the clients, the online clients, they ask us to serve them in other countries of Latin America. And then we use Boa Compra to serve them. So it's something that we are always looking for the opportunities here. We know there is some countries there are more developed in terms of cards industry than others. We keep looking to that, but it's hard to compete with the opportunity that you have in Brazil. We are number one in terms of clients here. We have PagBank, we have UOL. But we keep evaluating if there is some opportunity. There are some opportunities in other countries, but to be sincere, it's a small part of TPV. It helps. It is important to serve some clients. But at this point it's not something that that's a P&L transformation to be clear here.

Okay, great. That's helpful. Thank you very much, and congratulations on the result.

Thank you very much, Tito.

Our next question comes from Domingos Falavina with JPMorgan. Please, Domingos, go ahead.

Thank you. Hi, guys. Good evening, everyone, also thanks for taking the call. I just wanted to bounce off ideas and get your point of view as well on the debit side of the operation. Basically, the ABECS, the card association put out the industry-wide figures just not too long ago. And what we saw is, is basically debit accelerating. It's really hard to exclude the COVID year, obviously, but I mean, if we compare versus 2019 and see kind of an average or CAGR 2019 over 2021, or I should say 2021 over 2019. April, May and June actually accelerated even above credit card, I guess, 19%, 20% year-on-year, which given tax it came across as a surprise. When we look at the market share, we did see obviously, I think you guys mentioned the market that hurt you, the market share of credit used to be in 2019 and before 63%, it came down to 59%. And in this year it’s striking around 61% credit and the rest being debit and prepaid. So my question for you is what do you – what else can you share? Like, how are you seeing those debit volumes? How are you seeing PAGS? And you have any guests on what PAGS [indiscernible] and what you're seeing in your base? And congrats on the result as well.

Thank you, Domingos. Good review. This is Ricardo. Well, let's start with PAGS. We have the option for all our devices. So we have 7.6 million merchants, active merchants. On average, we have more than one device per merchet. So, I mean, we have easily more than 7.6 million POS in the streets, all of them accept PAGS, right? We see the penetration of PAGS in our acquiring business very, very small. We know there might be some merchants here and there try to use PAGS to avoid MDRs. But if you think that debit MDR is only R$1.99, is so small that at some point it's easily for the merchant even to accept debit if they need to pay R$1.99. They know it's safe. They know the money's going to come to PagBank account right after transaction. So we don't see PAGS penetrating our base. We don't see PAGS increasing the churn of the company. We do see PAGS replacing TED, a wire transfer for those who are not familiar with the names in Brazil because of – for obvious reasons it works 24 hours a day, seven days a week, it's automatic. So we see PAGS let's say replacing wire transfers. In terms of debit, I know the debit growth has been strong during all these years. And I would say that part of that is because also the people getting into the financial system. My – our guests here is that debit is kind of replacing the cash. There is a lot of the economy in Brazil is to based in cash, and people are getting, let's say digital accounts, getting new cards. We saw this accelerating in the pandemic, people that were could not go to the banks to withdraw money at ATM's, they couldn't not go to these branches because they were closed, so many millions of people open their accounts. So they are more, let's say larger base of debit cards throughout the country. So that's our guests here. And there's the secular shift here happened in Brazil from cash to cards that is still happening. You know what I mean? It's different than other economies that more developed people have discovered to have cards and to use cards. But again in Brazil, you have lots of the people is still using cash. So that's why we have this, this strong tailwind for the industry as a whole. If you consider the whole industry to gross 52% year-over-year, I know it's an easy call from COVID, but anyways 52% is strong number and we grew 89%. So I don't know if I answered your request here.

No. You did. Especially when you said you're not seeing big penetration. Just out curiosity when you see these total TPV on the acquired side, is that including or not including PAGS?

It includes, but it's very, very small – very small Domingos. If we exclude it is going to be probably the 79%.

I appreciate it, guys. Thank you.

Okay. Thank you.

Our next question comes from Neha Agarwala with HSBC. Please Neha, go ahead.

Hi. Thank you for taking my question. This is Neha Agarwala with HSBC. Congratulations on the reserves. I wonder a little bit on the PagBank revenues. Last quarter was depressed due to the chargeback's from the digital account losses, but this quarter there was a small improvement not – not as strong as what we saw in the fourth quarter of 2020. So could you explain a bit more? What was the composition of the PagBank revenues? How do you see it accelerating in the coming quarters now that you are pumping up the growth of the credit book? Should we expect an accelerated growth in the PagBank revenues? So a bit more color on that. And my second question is on the charge backs. I mean, if you look at the chargeback numbers that you have in the cost it picked up a lot in the first quarter of 2020, 2021, which was due to the digital account losses. It has gone down in the second quarter, but it still seems elevated versus the last quarter. So if I understand, I think it's related to the credit books. So could you talk a bit more about that? Why the chargebacks are still a bit elevated versus important last year? Thank you so much.

Hi, Neha, thank you for the question. Good to hear. This is Ricardo. I'm going to talk about PagBank revenues and then Artur can give you more color about chargebacks, but you're right about the credit books here. So the PagBank revenues as you said it is growing. Remember we added 2.1 million clients in this quarter and the majority of these clients are consumers. What I mean by consumers, they don't have the automatic cashing just like we have with the merchants, because the merchants when they have a saving in the POS, the money goes straight to the digital account and they can make transactions there, they can use some services in digital account that we can monetize. Consumers take a while to put the money there. It takes a while to start generating revenue. So we've been saying that there is some lag between the declines comes to PagBank and start generate revenues. But it is increasing. The revenues that is true. We also made some promotions for some clients, just to give an example, we have some withdrawal fees. If people will try ATM to withdraw the money, we have some fees that we charge. For some of the clients we decided not to charge in exchange to have more engagement from them. We made some research, some of the clients that we use here; they also use another bank because of that. So we decided to take it out this charge. So that's why we at the end of the day for some clients we are exchanging short-term revenues for a higher engagement and a longer term relationship. So – but I mean, it's growing, it's fine with us. The lever that you have acquires growing fast as well. So, I mean, we are very happy what we had in this country, in this quarter with the PagBank revenues. But I'll pass the word to Artur to talk to you about chargebacks.

Hey, Neha, its Artur speaking. Thank you for your question. Good to talk to you. Related to chargeback, as we said last conference call is important to mention that we did not have the same issues of Q1 2021 for digital losses as we presented in the first part of this year. And also in the Q2, when we exclude digital loss – when we compare to Q1 excluding digital losses, the chargeback over grew 6 basis points; okay, due to more online transactions that naturally brings more chargebacks, and the growth of credit portfolio as Dutra said. Related to credit portfolio, since we use IFRS9, the highest accounting standard procedures for delinquency provisions, we booked 12 months of right off in the first month of the cohort that we'll present a new dynamic for our chargeback as a percentage of acquiring TPV going forward. And if we compare the credit portfolio that grew 42% quarter-over-acquired, our TPV grew at 12%. So this is the reason that increased the chargeback as a percentage of the TPV.

So its provisions at the end of the day, Neha, provisions following the IFRS9.

Understood. Thank you so much and congratulations once again.

Thank you very much, Neha.

Our next question comes from David Togut with Evercore ISI. Please, David, go ahead.

Good evening, and thanks for taking my question. This is Spencer Kennedy on for David Togut. So great to see the continued strong momentum in the PagBank ecosystem; I wanted to better understand the monetization differences between your consumer and merchant clients. You now have around 82% of your merchants as PagBank clients, which implies the future client additions will predominantly come from new merchants or sorry new consumers. Any stark differences between these two groups relating to credit and interchange revenue or product usage? Thanks a lot.

Hi, David, thank you for the question. What you see here is just in terms of dynamics is because when we're immersion and you use our POS, you already received the POS in your cash card. So once we start – we start making transactions, the money goes to your digital account and you can have the cards in our hands. We start using, you start buying stuff, you start withdrawing money – we start withdrawing money. So we start generate revenues because it's a – let's say a closed loop so to say, because the money goes from the POS to your digital account, to have the cards in our hands. So it's very easy for you to use and to generate revenues. When you are a consumer and you ask for a card, of course, we need to make some QIC checks here. Although we are probably the fastest company in terms of sending you the card in Brazil, but it takes a while for you to send the money and to start using. Usually let's say, if you work in Brazil you receive twice a month. So the money doesn't go straight in the day that you received the card. So you open your app, look at the balance is zero. There is nothing to do there, and we cannot generate in revenue. So we need to wait for you to put the money there and then start monetizing. So and usually the consumers, they have a lower average Cashing when compared with merchants, because the measures that the cashing is automatic. So what you see here is that's just a lack of time between you open the account to start generate revenues. Today, the main difference is that we don't offer credit products or products with…

Okay. Got it. And as my follow-up, I just wanted to better understand the 2.1 million client additions, and just, I guess, thinking through the sustainability of those additions because I guess historically, I guess you guys have talked about 1 million new client ads per quarter is kind of how we should think about that. So I guess is, are the factors that drove that this quarter are those sustainable?

David, it's hard to give you this information is going to be 2 million again. We'd rather say that we keep with our – let's say soft guidance between 1 million and 1.4 million per quarter. If we see the opportunity that is going to accelerate some niches, that we can make some partnerships who can fight thousands of clients; will you do it? But it was exceptional Q2 for us. We saw some marketing is working better than it used to be. We made some new campaigns that worked very well. Our product also getting more mature people understood that. So, I mean, we are – we would rather say there's going to be more than 1 million in Q3, and so let's see if we have more color on that, we can update you.

Okay. Great. Thanks very much.

Thank you.

Our next question comes from Jeff Cantwell, Guggenheim Securities. Please, Jeff, go ahead.

Hi. Can you hear me?

Yes.

Thanks, Congrats on results. Thanks for taking my question. Most of them have been asked I thought Slide 4 at the presentation how's that interesting chart in the upper left corner is? There's a clear progression there, which shows that you're clearly gaining market at acquiring. So you know, you know, your shares increased by 200, perhaps over the past year in terms of basis points over the past two years. Ricardo, can you talk a little more about, what's driven that? Can you think back and talk about where those share gains have come from, why they come about what you're seeing, either the market that’s different about PagSeguro. To crux my question, if you look back at the Scottish and in execution of the company. What's really driven those share games, in your opinion? Is it, the PagSeguro versus distribution is the product in south is going to the ecosystem. And where do you believe those share gains are coming from? Meaning, new businesses, competitive wins, any kind of details that will, you know, detailed, there'll be very useful Any kind of detail, there will be very useful, hear about what you've seen occur as you gain share, but these past two years. Thank you.

Hi James, thank you for the question. You're right. We grew from 7.2 to 9.2 in one-year. Part of the explanation here of course is because we started hubs and we keep growing in long tail. As I said before, when we go to a hub approach for an SMB, the majority of them not to say 100% already accept cards with another player. We see many, many SMBs unsatisfied or not satisfied with their current provider, with their current player. We don't, we try not to go there and just beat on price because that's not the smartest way to gain this client. We try to use PagBank as a differentiator item, and it is working, of course, we need to negotiate. That's why you have the hubs, because if we're not able to negotiate with just people could go come here and buy our POS to the website, and we know that SMBs have better take rates than those that we offer in the websites. So that's the main idea to talk to right person, to the owner of the business, and get the deal done. So we try, as I said, we try not to compete if price we use PagBank as a comparative advantage here and there is no comfort of interest. We are under the same umbrella, the same parent company with the same targets. So we are – everyone looking for the same directing here. I don’t have here on the top of my mind to say you from this 2 percentage points, how much was from new business that you got along with [indiscernible]. How much from the [indiscernible]. You can get this information later. And regarding our second question, I would say you hear, we are very hands-on company. We try not…

Okay. That's great color. I didn't separately. I want to ask you in PagBank, you're touching on this a bit, can you talk a little more about your efforts right now to get more PagBank cards into the hands of your users and get them active. We can see that, the 4 times increasing cards on Slide 9, [indiscernible] right over the past two years, you're now 4,000 and 5,000. So we think about that 11.2 million active user base, the obvious question for us is how many of them need cards? How many of them are potentially customers right, using PagBank cards? And so how much preferred expansion should we expect to see from that 405,000? Could you give us any there about execution and the strategy and how to continue to bring that number forward within your customer base? Thanks.

Yes. Jeff, well, when someone comes here to open an account, we don't know if, I mean, it's harder from the beginning. If they're going to be a, let's say a good client with lots of money coming to the digital account, or if they will not put lots of money here, if they're via heavy user or not? So we try to get some data from the market. We try to get to get some data from that have here inside the company to try to offer, let's say, to make the best offer for these clients. But at the end of the day, I would say you that the – the main – the most used feature in our account is the wire transfers; and second is the cards. Because those are the two declines have to move the money. So that's the, what there is more to, of course they pay bills and more what, but the wire transfers to send money from one account to another one, and also the cards make purchase in to withdraw money. Those are the two most used features. If the client asks for a card and they don't use it, we have a, let's say a communication process here to send promotions, to make some incentives for them to activate the card and to use the cards. So our goal here is to have 100% of our clients using the cards, those that receive the cards. So I mean, it's key for us. It's key to make the people to use PagBank as the main bank. We are not the main bank for the majority of the clients at this point. But I mean, it's a decent percentage of our clients say they use PagBank as their main bank, and it is getting better month-after-month. So we are developing new features. We are putting new features in the accounts so that people can use us as the main bank. But the goal here is to have more and more people using the cards and see this TPV phone cards increasing. It's this still today link it with the TPV from the acquiring, because the majority of the caching is coming from the acquiring. So if the client comes up, the – usually the TPV phone cards also goes up. When you have these occurring comes down, what we had in Q1, because of seasonality. We saw also the TPV phone cards with the same trend, because the majority of the caching is from the emotions. But going back to the question, the idea here is to have; I would say 100% for of clients using the card – the cash card. We will start offering credit cards for some consumers as a pilot, as I mentioned before. But we will start, so it's hard to say how it's going to be the performance. We can again, give more color in the following quarters, the following calls.

Got it. Got it. Appreciate all that color. Thanks and congrats on the results.

Thank you very much, Jeff. Take care.

That concludes our question-and-answer session for today. I would now like to turn the floor over to Mr. Ricardo Dutra for final remarks. Please. Mr. Dutra, go ahead.

Hi everyone. Thank you very much for the time. Thank you for the questions. Thank you for all the support through all of this quarters and hope to talk to you soon in person, and for some of them that we don't meet in person we can talk to you next conference call, next quarter. Thank you very much.

The PagBank PagSeguro conference call is now over. Thank you for your participation. Have a great night, and you may now disconnect.