Q3 2019 Earnings Call
Hello, everyone and thank you for waiting welcome to actually go to third quarter shortfalls that 92 results conference call. These events is being a record and then all participants will be in leasing only mode. During the company's presentation. After bags to go to his remarks, there will be a question and this recession.
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Back cigarettes, courageous assumptions expectations and projections about future re fad.
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This conference call. The company May discuss some non-GAAP measures for marketing goes there for the only know GAAP measures and the reconciliation off these non-GAAP financial measures. So the most of the directly comparable GAAP measures are presented in the last page off. These the webcast presentation now I'll turn it back offerings overture mystery.
I had to do CEO Mr. do you may begin your presentation.
Hello, everyone.
Welcome to our third quarter results Conference call Tonight.
I have here with me Eduardo Carl our Chief Financial Officer, and under cause auto or head of Investor Relations.
Before we get started.
We do like to reiterate that you continue to focus on the loan to market taken advantage of being the first mover, having a complete do you still bank ecosystem.
The most recognizable brands and the you are well aligned distribution, which you know review, our unique and unrepeatable strange to operate in long tail market.
Therefore.
We have delivered this quarter same consistent performance, we have been deliberate see solar IPO.
Healthy net adds world and stable degree with EPS accretion.
In addition, we're now seeing higher adoption off from new banking products and services generating more engagement as we continue to invest in new initiatives through markets campaigns product development and people.
No we start or presentational highlight the achievements all the quarter.
Starting with our results non-GAAP net income to reach 390 million real nice.
34% year over year.
With a net margin at 27%.
Our adjusted net revenue reached 1.4 billion realize.
Up 42% year over year.
And our net take rate ended at 3.17%.
Moving to our operating figures, our TPV, reaching 29.4 billion we ice.
45% year over year <unk>.
It wasn't a corridor with 5 million active motions.
Adding 1.2 million when compared to the third quarter, 2018, and adding 300 into 5000 quarter over quarter.
These figures we force not only that we are in the right back where they brought equals Houston, but also our execution capability.
No.
Moving to Baggy Bank. We ended September with 1.9 meet impact bank active users, which means the use of at least one additional product or feature the old apart and services in the last 12 months.
In addition, we are seeing strong adoption of like bank features such as mobile top up an increase of 89% quarter over quarter in 72% growth quarter reporting do payments.
Thank you bank also posted in the quarter to 52%, increasing TPV from prepaid cards year over year.
Sure we hired optional for our clients in order to issuances transition.
Finally.
Well I can see Google has proven that operating in a winning the long tail he quite as an online and mobile approach that is totally different from the traditional core and business model and new competitors that were attracted to the market after our IPO.
We operating and brand new market that we created and we still have a long way to go.
Cost of the putting to Brexit revision to disrupt and democratize financial services through technology and innovation.
Moving to the next is light we show our mission.
Today, almost always economic activity has been impacted by Internet.
One of the last thing just as to resist what's banking, but now banking is changing.
The Internet's finally transforming banking.
To be competitive in his new bank naira.
Companies must have a tech DNA.
Understand local needs and deal with local governments in local regulators.
But most important.
Probably the unbeatable advantage they must be first mover.
They must have the first mover escape advantage.
Bag is the most well position a player once bags is local bags. The stake in fact is the first mover.
On slide five.
Bags is leading to do you still transformation and Democratising financial services.
Brazil already has a solid infrastructure with BG networking.
Covering 98% of the Brazilian population.
Nine, 7% or Red County, with Fourg coverage.
Smartphone penetration to call to reaching 71% older Muslim population.
When it comes to global Internet Fieger's, Brazil is one of the most relevant conference.
Being to fit the largest called in number of Internet users fourth time spend an internet and second done spend just also meter.
And it comes to our relevant and unique position to capture did you should transformation. It is worth to remind that youre well has 88% internet audience Coleridge Nicholson with 108 million unique monthly users as of August 2019.
Additionally, bags continues to have the largest brand reputation to market, having six times more Google searches then the second largest player.
Moving to next is light.
We believe bags is well positioned and we see realistic we'll see some that combines payments landing banking and softer approach to serve or active unique users and new customers will you according to future.
By upside in new products like credit banking in software and expanded our approach to consumers, we own which probably or markets.
Well see during the new initiatives already available for emotions and consumers, we estimate the revenue buoys, almost 14 times larger than payments market.
According to I BG in Brazilian Central Bank, there are six states median and bank and people in Brazil.
Additionally, 28 meeting of the low income population do not have a bank account and 57% of ablation our interest in adopting do you still banks.
Do you 40% of the paychex are beating catch.
65% of the new payments are also meeting gosh.
And finally, 51% of the new Bank accounts are open just to receive payroll checks.
On slide seven.
We showed the leadership of FICA bank as additional bank in Brazil. According to Google report.
We ended the quarter with 62% of the total shares over do you still banks more than doubling our share when he started or campaigns back in may 2019, showing the importance of Walmarts me airports in the strong brand reputation already concluded in the market.
Additionally, already was made at 4.82 stars night, Wes and 4.6 stars an Android being the most review in best rated that among do you still banks in payment peers also a consequence of our best in class product development and user experience oriented strategy.
Moving to slide eight.
We provide some additional information about our lending brought the bags at them.
We continue to skewed it brought into our best merchants.
Eligible according to their account history.
He used to be getting after the operations in May 2018.
We reach it 60000 lending contracts.
Q3, 2019, we had six times more contracts than what he had in Q1 2019.
Ending with a total credit portfolio net of losses of 496 million rice.
Lowering our average tickets from 5.1 thousand rising Q2, 2019 to 3.3 thousand rising Q3 2019.
Which shows are focused on the long to market.
So far we're careful with credits. However, initial results are encouraging as it had low levels of delinquency.
Credit is also an important tool to create high engagement with our motion base in may generate additional revenues for the company into future now I'd like to turn the conference over the art.
Thanks, Heiko the one hello, everyone on the next slide before I start as I anticipate it ended Q2 2019 earnings call I'd like to mention that ended third quarter of 2019, we had a total of 27.6 million red eyes off non-GAAP items related to.
Our.
Talk based long term incentive plan given the vast teeing up their fourth grant of the new shows stock basic plan and consequently, the market to market adjustment of this fourth grants for more details. They reconciliation of these non-GAAP financial measures is presented in the last page up these webcast presentation.
Okay.
All the top last on slide number nine our adjusted net revenue they send off net revenues from transactions and financial income from installments, excluding 16.9 million recognize related to membership fees.
Previously booked as sales revenues and now I counted as transaction activities revenues reached.
One beat and then 400 million resizing deep water up 42% year over year, and 8% quarter over quarter.
Moving to the top right, we break it down while where revenue growth.
With transaction activities and other services, reaching.
862 million resize and growing 44% year over year in our financial income revenue, reaching 538 million resize and up 39% year over year.
On the shock below we present, our non-GAAP total costs and expenses that decreased 0.3 percentage points year over year, ending the second quarter at 3.1% overthrow TPV.
Related to non gap administrative expenses over total TPV reached <unk>, 0.3% flat when compared to one year ago.
On the next is like we show our non-GAAP net income growth ended third quarter. We reached 390 million recognize an increase of 100 minimum recognized an up.
34% year over year, then non-GAAP net margin reached 27% up <unk> 0.8 percentage points, despite higher investments on back of bank.
On slide number 11, we have map.
The current functionalities of our unique ecosystem broken down by payments softer and banking features.
You can see that there are four new features we launched after our first quarter earnings call and I'll give you more did they have the ball then in the next is lights.
On the superior block there are features reagents immersions eastern payment in sales app in the softer column are the new one.
Below you can see our robust banking ecosystem.
Granted in cash cards favorite portability and savings accounts are the new launch and features we believe it. These banking features will enable us to attract engage and monetize both merchants and consumers helping is to improve our clients loyalty and stickiness on slide 12.
We have the evolution of our averages spanning promotion that reached 6000, realizing Q3, a growth of 9% year over year.
Here is important to recalled that inami no averages spanning for immersion continues to grow and even accelerated sequentially, reaching 179, Ray iceberg Hawaiians versus 151 rate ice Berke alliant into second quarter and as times goes by we start to see.
Phase harder comps.
So you already reached more than five meet inactive merchants in more than 100 billion resizing TPV the last 12 months.
Which makes us comfortable to keep growing TPV with as accretion.
Your next chart, we have over a number of active merchants.
We ended the third quarter, reaching 5 million active immersions, adding 1.2 million new merchants in one year, representing an increase in up more than 30% year over year.
Quarter over quarter, we added 305000, new merchants.
In Q4, we continue to see a similar base up in that adds growth.
Which makes us believe that we should be a hand off all were 1 million net adds expectation that we provided in the beginning of the year.
On the shots below we see our TPV.
Our total payment volume reached 29.4 billion realizing that third quarter.
An increase of 9 billion real nice up 45% year over year end growing 10% quarter over quarter.
This growth is the result of a higher penetration of our ecosystem in the long tail combined with a trade off cash to blasting conversion with lots of room to grow in Brazil, and having the upside of cross selling additional products and services to our clients with our bank bank initiatives.
The next take rate.
Which is the blended take rate from transaction costs, such as either change processing in cards. Kimi sees reached 3.7 team, which has been stable when compared to previous quarters.
On slide 13, we present more color about our new Pos membership fee model in Brazil, So call it Commodore to.
That we started in September and it is already becoming a standard model among Brazilian beaming companies.
There is no change for our immersion some pricing, but moving to the new membership model, we improve our customer service by reducing some berea proceeds in the process such as issue invoices and registration process is helping us to de lever a better and faster.
Experience like reducing up to 20% that customer service time, and allowing the company to de lever a faster Pos activation for our new clients.
We are constantly looking for changes to improve our customer service and experience.
Additionally, these mando brings a different accounting treatment in our BNL from now on Pos sales, we'd be booked as membership fee and do it can be recognize it as transaction service revenue instead of revenue from sales.
In this quarter and for the next two once we shouldn't have an impact in their revenue from sales line due to I see a mass npis has been COFINA taxes on the transfer of the evening toward from that phone, which is a bag sick were fully subsidiary that buys and sells Pos devices to Patrick will.
The impact of I see a mass DIFM COFINA taxes in September 2019 was 26.7 medium rare case.
Our cost of goods.
So should also be reduced as we are now capitalizing our device is impacting depreciation over the next few years.
The result of this change was a net income positive effect of 20 million recognize in our Q3 2019.
Despite his operational changed that brought a recurring positive impact in our Q3 results. It is also very important to remember that we indeed defiance short term investments in R&D personnel and sales and marketing. So you gave a new initiative.
Is it spanning an additional 110 million Ray ice pretax in the last six months year over year.
Align it with our long term strategy to offer a unique financial ecosystem for both merchants and consumers in Brazil.
Now I'd like to turn over to he Gago, who will talk about about engagement metrics and new products.
Thanks into our two.
On slide 14, we present, our next step of evolution and value generation.
Since the official launch of Phygen bank in the second quarter when things to find our investments in parts of the settlement people in marketing campaigns to promote this new initiative to our motion base and consumers.
We observed the huge engagement sees the very beginning anywhere in the way to view their network effect as time passes by.
Currently on average 39% of for our clients use at least three products for our ecosystem.
Or buying a bank at is opened 10 times a week by our active clients, which means high engagement of our clients.
On slide 15, we show some of the most relevant engagement trends in our ecosystem.
We believe engagement is one of the most relevant metrics to follow once you do have the competence increases switching costs and we will enable future monetization heavy new diversification.
On the doubled the chart, we'd have the number of cards issued especially pre paid in cash cards that increase in nine 2% year over year.
Or prepaid cards, TPV that increase of 53% year over year when compared to the same period 2018.
According to card monitor bags is the largest prepaid card issuing Brazil.
In short below we see the number of new payments transactions rose.
72% quarter over quarter.
Or mobile top up feature is also ramping up.
Growing almost 9% sequentially.
Moving to new payment methods or NFC transactions grew more than 100% quarter over quarter in or PGP transactions increased 45% quarter over quarter.
On slide 16, we highlight or road metal products already delivering busier.
Being independent company, our lowest distinct excuse me on our appliance financial needs by delivering growth and profitability simultaneously in offers a unique ecosystem through or do you still account.
With cash and credit cars and payroll portability, we expect diversify our addressable market and you start gaining penetration with the consumer vertical besides all the hard engagement on the motion segment.
Worth to see we will be very cautious in the credit offer as you know it is important to understand credit behavior. So that he can manage delinquency accordingly.
In the past two months, we added or saving accounts in Super application in for payments, we launched our low cost is March terminal version called modern Ninex.
On slide 17.
We present, our new banking products, such as savings accounts that it's more nimble bonanza. The most popular saving accounts brothers in Brazil in our initial Super hub strategy as a new services like Uber sports fight in Google play directing that you are just starting our super happy initiatives, and we should continue to expand or product since.
On slide 18.
We show, our new devices, starting with modern Ninex a low cost.
Basins Mart terminal with ads and softer installed to help motions to manage and grow their businesses.
It also comes it's Big Bank Newstar cult international cash card for free.
Additionally, we also have mean IZEA shipped to an integrated version of our entry level device with a promotional process of 12 installments of 8.9, we ice or 106.83 ice.
This device is NFC enabled incomes are the usual Sim card a larger screen combined with the thinner harder into offer a better experience for self employment segment.
Moving to the next slide we present, our software solutions.
Through M&A transactions, we know offer a wide range of software solutions to our clients.
We ended Q3 2019 with 123000 clients using our software products up 45% quarter over quarter.
Bags, we will continue to wanted or possibly M&A activities that can speed up the beauty of being more complete ecosystem now I'd like to turn the conference over into our two again.
On slide 20. Finally, this is the last slide where we have our 2019 guidance.
Even accelerating investments in new initiatives, we continue to reiterate our commitment to reach close or add that top of our non-GAAP net income guidance now we finish our presentation and we will star the Q in a session.
Thank you ladies and gentlemen, we will now begin to question answer session. If you have a question. Please press star wine.
At any time, you would like to remove yourself from the question in queue Press Star too.
Our first question comes from Greg Mirror I'll try to them as you May proceed.
Yeah, Hi, I'm, thanks for taking the questions.
So first.
If you could give any.
Any type of.
To the trends you're seeing through mid November in terms of fourth quarter.
In terms of both.
If that new merchant ads are running on pace with where they've been secondly, more broadly as we look forward.
To help us understand the monetization of the grossing usage of Peggy bank offerings, how we should think about that I know you've given us through 30%.
Revenue in three to five years, but there's a lot of time before three years show, how we should think about that revenue ramp and try to translate it back to the engagement stature providing thanks.
Hi, Craig Thank you very much for the question.
Regarding net adds as into our dimension. We are following the same by.
Adding 100000 net adds for per month, that's why do we had no tober, we don't see deceleration in November . So we are looking for or close to the same 300000 per quarter that it was seen in best quarters regarding TPV.
We also see.
Strong growth.
In terms of absolute numbers in Nelson and as a percentage, but it's also worth to see that we are comparing.
This quarter, we thought also a strong quarter in 2018. So we are operating in a much larger scale. So sometimes the percentage is not as high as used to be but the volumes are are you pretty high.
There was off thank you bank.
Youre right, we said about this 30% between three to five years, we are the very beginning he is also.
Revenues from bank of bank, our marginal are very small at this point, we see some revenues coming from cards.
But we still have a lot of.
Opportunities to monetize in terms of wire transfers that people are getting to use do payments people are using more also mobile top up so everything's gaining some traction people use it to to the account how to use them.
How to make it work so but at this point just you very small resins are very small once it becomes something more importantly, we will give more color and more information about this.
This vertical I don't know toward or because of the ones who had something.
Okay.
[noise].
Thank you.
Thank you.
Next question comes from Brian can Deutsche Bank.
Yes, hi, guys wanted to ask on that did TPV.
Last quarter grew about 59% year over year in this quarter grew 45%.
You know the additional that merchant add seems to be.
Still growing at a solid pace. So is there anything to read into the types of merchants that are staying in the in the portfolio that maybe there are yielding lower volumes are lower growth.
Where is your something in the economy that happened that created a little bigger dropped and I think most anticipated when you guys gave out your preliminary results.
Hi, Brian Thank you for the question.
We don't see.
Any change in terms of macroeconomics, our trains that may affect or a business is the environment in Brazil keeps the same so we don't see any any big banks coming that is changing the dynamics of the business at this point.
You're right the deeper centers of the growth of TPV is going now, but we are working a much larger scale at this point the percentage is gonna be a smaller we've been adding some slightly smaller motions in our in our ecosystem, which is.
Not bad for US it is aligning with our are focusing in the long tail market. We are comfortable adding this type of motions because we offer the most complete ecosystem and we can cross sell additional services to this type of margin as they are the type of merchants that are not sensitive to prices. They don't have access to financial services.
And also important to say I know it was a a question that we had a few weeks ago about the TPV promotion. The average TPV promotion did not grow double digits. So just to put everyone same page that people there in the call, we're not talking about decreasing TPV or decreasing the.
She is spending promotion it grew 9%.
And by the way, we don't think disease are relevant metric because.
I didn't know today it could be easy for us to increase the average of TPG promotion, if we add a large motion that we can lose money our heavy smaller margin. So we don't want to work artificially increased the TPV promotion, we are working with emotions than the know how much work that our profit.
Double and we know how to serve them so.
Wrapping up here, we are seeing.
From growth.
Ended Q4, but the percentage is not going to be the same that used to be in the past, 759% or things like that because we are working a larger base remember that Q3 Q2, we grew 10% compared with Q1 Q3, we grew the same 10% so for US. It's we don't see the synergies.
On that because we're working in a larger base and growing December centers quarter over quarter.
Got it that's helpful and then my second question.
You know given the amount of investment for a pack bank and new services I think that make sense, but what can we expect going forward as we look out into into next year. I mean should we expect additional amount of investments as well to keep a net income margin slightly grow.
Going or flat just trying to think about it. So we can get ready for 2020. Thanks.
Hi, Ryan we don't expect to decelerate investment, we see a great opportunity ahead of us in terms of banking in Brazil as he gave more more information during the call 68 million people in Brazil without the bank account people that already.
In the Bank account just received for you all in all this stuff. So we see a lot of opportunity a big opportunity ahead of us. So we will not decelerate in 2020, why do you have in our business plan is not to hurt the margins.
Too much in 2000 plan, we are working the numbers, but we.
I think that we could have an operational leverage if we didn't have big banks. It doesn't plenty, but do we use the operational leverage to investing back bank invest more marketing products and people and and to keep the growth of the company for the future.
And so think about that be more flat potentially given the amount of investments for Pat you back and other services in 2020.
Yeah, I guess, that's a good assumption.
Okay, great. Thanks, guys. Thank you.
Next question comes from Maria Perry Bank of America.
Hello, everybody congratulations to on the results are two questions. The first one is related to your churn rates can you just give us some color of a your churn churn rates.
I'm not looking for actual figures, but like just the trends.
And second question is related also to buy you bank, if you're getting the right you talk about like how do your volumes are growing six times I think.
And what do you were doing can you give us a little bit more or like.
Color on the average ticket size interest rates and the npls that you've seen so far.
Hi, Mark Thank you for the question.
We don't see changes in our churn or there may be some months that you have a slightly higher churn. So I'm wondering what is like lower churn when compared to last year. So we don't see big changes its but I'd say you that is stable what at this time.
Regarding bags capital that is a question about the number of contract.
The average ticket that we have that we had in Q2 was 5.1 thousand resides.
Now the average ticket is 3.3 thousand we eyes. So it's a very small ticket again, we're looking for long tail. We are focused on this type of motions does guided that do not that have access to financial services and that's the type of most of the we'd like to work in the know how to work with then and ER and that's all.
I've been doing the best years, the the interest rate it varies depends on the account. He said they have with US we don't do anything lower than our prepayment interest rate, which is 2.99%.
But some of the merchants, we have different rates, depending on the due east that you think the motion could.
Posed to us.
And then on the Npls I know you know, it's a recent portfolio, but have you seen.
What kind of Npls are you seeing on the portfolio.
We are working here to have the best.
The best Npls in a market ended in the reason why is because we also want to have the the lowest interest rate in the market. Our idea is to help our our customers to increase their business with us and we don't believe being high end.
These rates. So I mean this this is a this is a complimentary products to help or our customers to to grow their business their business where with us.
We are still not disclosing specific metrics on on Npls because it is still something that is under construction or it's a our portfolio is this your really small if you compared to our total receivables and we ended with like a 190 media realize if you compare that to our.
Total receivables I mean is roughly I mean around 2% of our total total receivables. So I mean, it's it's a product that is encouraging.
Is getting a great acceptance.
We are lowering lowering our.
Our average ticket.
By.
Continuing to focus on the long tail market and all that we can tell you right. Now is that we are very very pleased with with the results that we are we are happy we're having so far.
I think that's all the way we can say at this stage.
Okay. Thank you.
Next question comes from Josh Aback Keybanc.
Thank you for taking my question I wanted to ask about Paki Bank and you had mentioned in one of the charts that it basically was 63% of Google searches in September so that was the biggest of all of the.
Challenger banks, if you will so I'm just wondering do you think that it is really moved into a position where it's been viewed as a true consumer product and consumers are really what are going to drive the growth versus your historical focus on merchants.
Okay.
Hi, Josh Thank you for the question.
We at this point to our serving both motions and consumers. It is clear for us that the motions that we already have any bayes DRD D. Let's say the low hanging fruit those are the type of motions and type of baggy bank clients that we are having adopting Peggy bank.
As a financial serves option.
More rapidly arm and more quickly than the consumers, but we already have thousands of consumers using our products. We've been collecting feedback since may we've made improvements into products and yeah, you're right. We are going to consumers pretty fast. So that's why our beauty is brand.
Oh, we are having adoption of consumers at this point, but to be sincere with you right now we have much more motions and consumers into base because the motions everybody working with those into consumers are at this point no. We are services trying see why do we offer how it works and so one but we.
We believe in the future, we're gonna have millions of consumers using Buckley bank as well.
Okay and I also wanted to ask about the software subscribers that seems to have moved up nicely sequentially is this a big investment area for you in 2020.
I'm imagining that is going to take you up market to slightly larger.
Actions, just trying to understand strategically how important that opportunities for you.
Well the investment in this area is not that big we acquired this four companies what do we do is to maintain the softwares and make some upgrades in some improvements in softer because it needs to evolves as time passes by but it's not a huge investment in this vertical.
Just to keep it working and make it better as time passes by collecting feedbacks promotions and so one regarding your question. If you are who is we're moving up in the pyramid.
If you look at this for softer is only one of then is for large immersions, which is the conciliation are to attack the others. We do other three Sultan solutions to have then our for small merchants and she likes to do payments is focused more much more in consumer so.
By investing in the softer initiatives doesn't mean, Delaware going up in the Permian, That's that's not the case.
Okay. Thank you. Thank you.
Next question comes from Tito Labarta Goldman Sachs.
Hi, Thank you for the call. So couple of questions I guess following up just on the on the growth Yeah, I understand you expected to decelerate from a growth rate you're putting in the past, but in terms of going forward. I mean is like the 45% growth decelerate further from there or should we think about like 10% growth per quarter that you mentioned.
Is that sort of a reasonable could maybe fourth quarter, even be a bit higher just because the seasonally stronger than a 10%. So just wanted to stand in terms of.
How much did decelerate potentially.
And then second question in terms of.
Competitive environment, you know the take rate I mean, it fell a little bit them still relatively stable, but just said anything you're seeing in terms of competition, increasing are coming and that could potentially add some more pressures to the take rate going forward. Thanks.
No.
Hi, Peter this is olkaria speaking.
I'm all the TPV just to reinforce what he got to just sad when we talk about absolute TBV figures, we operate today in a much larger scale.
Our TPV has over past 105 billion Ray eyes in the last 12 months.
The additional absolutely PV figure in Q in Q3, 19 compared to Q Tonight. He has increased 222 million realize so our growth quarter over quarter remained stable in a 10%. So there is no absolute TPV deceleration above Q4.
Of course, we should expect.
The higher a number that is higher than 10% because we have the holiday season.
In Q4, so I think that's that's that it into the first point.
Regarding competition in the competitive environment.
We didn't see any change in this best quarters.
As you can see in our numbers, we've been adding the same 100000 per per month October it had the same figure so.
Same competition that used to having the best is that's why we're seeing at this point no big changes no news.
By the way for look some of the incumbent.
When they talk about a long tail. They just core PR prices, which is good. So they are more rational somewhat pricing then they they know that we are the best player in terms of serving on day. One day just coffee watts. We are doing in terms of devices and also in terms of MDR. So.
We see a few players doing some irrational prices, but when they discovered by lowering the price of the device is too much. The activation goes down the long deal is not sensitive to prices they.
Start having the rational prices again so.
Summarizing we don't see big changes in competitive environment, so far.
Alright, thank you.
Thank you.
Next question comes from Danielle fairly clean de Suisse.
Hi, Good evening, everyone. My first question is to understand how should we see the credit initiative, if it's too few up in a pilot stage.
And if that's the kids what is the company waiting to scale up these are more fast and the second question regarding the room when the duration of the account.
If a 100% of the account.
Red Remunerated ended third quarter, and if you have any estimate about the impact of that in that income. Thank you.
Hi, there now in terms of bags cap, though the lending business you see where the very beginning we're growing gradually we know that this it's a different business than the acquiring the risk is different the way we should work tells a different.
<unk>.
People don't think too much when they decide to take credit, but the collection is sometimes maybe a challenge. So that's why we're very careful about this credit and how we are going to.
Make it bigger we are going gradually step by step taking care of the risk and ER. We once it becomes a very important visas line, we'll give more information about it.
Regarding the savings account the just remember that we remedy rate the account only for the balance that is stays with us for 30 days.
And we know the long tail people.
They had the cashing in cash out very often into account because they need to work they need to use the balance to byproducts to resell and then they received the money and cash out again to to work and so on so we have discrimination only for the balance that it stays with us for 30 days and so far the.
Yeah amount is is this more as well, it's not a big amount that could hurt our our PNM ordinary income or things like that.
Okay. Thank you very much thank you.
Next question from Domingos, Falavina JP Morgan.
Hi, Thank you awful.
You know last actually I have two questions. The first one is basically on accounting moving parts.
Reading the press release and Youre.
Transcripts remarks, it seems you had to effect when you moved all your pure west from the subsidiary, which impacted your press release 27 million in revenue was 30% in taxes would be bought 20 million positive impact on earnings.
And the second the whole change between say to lease, which you claim that negatively 20 million threatening.
My question is should I read this.
How should I think basically is this like net net everything else. If you haven't changed Pos parking basically I'm not change at least two.
Stable to lease or anything like that how much would that or anything like that would be close to zero impact.
Or should I read that a 20 million in NAFTA magazine for constant doing everything ready and then or move to the second question.
Okay, I'll Domingos, Iraq, our let let me let me reconcile this for you.
So first you have.
Braskem, approximately 17 million resize of subscription revenues because remember.
We started when they come a battle.
Beginning on September 1st So we have just one month of membership fee.
So we have 17 million recognize all manner of membership fees.
If you did that the 34% E comm backs you got.
Roughly to 11 medium rare eyes off a positive effects. So that's that's in fact number one.
The second the fact that makes up to the 20 million Ray ice positive.
He is the Q3 negative margin if you'll look at previous quarters, or we had an average 88 need embraer size of negative margin on Pos subsidies, we had 74 this quarter.
And what it what is the they had we named ER and the them.
The tailwind here are the headwind is really the taxes on that France around the event or is that we had.
And that they are weighing our the market to market provisions that we had to make an hour aiming to ours such as the market values. So if you compare the 80 88 negatives. So this 74 negative it that reported this quarter is roughly 14 million resize the negative margin.
And after taxes nine so if you add the the the.
The tailwind that we had in the negative margin.
Was there had the tailwind that are we had a them membership line those two things combined it's a total of 20 million resize that we should have.
The same amount in in Q4 as well so that does that impact of 20 million Red eyes was just in September . So if you. If you consider for example, Q4, it's around between 50 and 60 million Red eyes of impact positive impact in Q4.
Just one thing when you think negative margin I mean that depends on your commercial decision right I guess my questions more to the accounting not like well, we decided to lower the prices. If you have not changed the accounting for the lease rent what would it be adding that back in the middle income water 20 million rise.
Positive.
Yes, David framing.
He is helping is helping if you know in 20 million realized this quarter.
If you'll have not done anything night or relocated the lease nor change the really can relocated the Pos from the for the year right right right right right. Okay. Perfect. The second question is what is your legal understanding at Florida Chew option, you should have up their minimum threshold for merchant.
And he can he not hypothetically connects to another acquired provider hypothetically Getnet, where anybody and if you lease this equipment to the merchant can or cannot is there a change in understanding of four has the ability of these merchant to use experimental for other providers.
Well I mean, those first of all it's also worth to say that.
What some people say portability in our in our view is more like a.
Piracy or things like that doesn't work for 100% off the transactions. So we see if someone's.
Decide to use one device form a company they bought using another at from another company you will not work for 100% of the transactions Ah. That's the first thing to say so that's like people don't stick with this type of or let's say still due to the solutions.
If we sell always Phillies in the contract we had the right or we ask the most of that they cannot use the device with other companies. So it doesn't matter. If you are leasing or selling the device the contracts say that they cannot use its audio conference some of them. They may try they see that doesn't work in.
They will come back to us, but going back to a question it doesn't change.
Okay Super clear and just out of drastic like the recognition of the feel of the terminal under leases upfront, but the cost that you bought that terminal deferred over time. The reason why you have this positive impact on that front that that's the reason that's the reason you got it.
All right, but if I knew deferred acquisition cost over 12 months I'm assuming.
Over three to five years.
It will that it will depend on the all the average life of each device.
Under the mean alright, thank you very.
Domingos, just reinforce here that regardless of the accounting impacts that could be positive negative or whatever the main driver for us to change. The model is to have a better experience for our emotions because of the bureaucracy in Brazil in L.D. The paper work that needs to do when they buy the device versus when they need so that's what drives us to.
What drove us to make this a change or we're going to have a much better experience faster activation will improve our us delays. So it's going to be at the end of the day or better services for the motions, that's what's what matters for us.
No for prepare and just wondering if you had as an additional benefit the higher entry barrier, but super clear. Thank you.
Next question comes from Jeff Cantwell gain high.
Hi, Thanks very much.
Most of my questions have already been asked but I did have a question, which relates to your earlier commentary your software strategy.
I guess, what I heard what you frame software as a smaller piece of the overall property strategy, but I do want to ask if you can draw down first a little bit interest expense.
Why why pursue that strategy.
For example, or are you seeing higher revenue per merger.
From their software customers and if so can you quantify that for us.
Maybe it's a specific vertical strategy, where you're starting to take market share or or gain market share I was just yes, we see the increase you up in your subscriber said were soft I, just wonder how you're putting that type of break up.
And so I'd like to know more about it.
Let's go again in the future.
Thanks.
Hi, Jeff. Thank you for depressed as to be clear for everyone. In the call that we're not thought that we do not invest in softer.
Our debt as more piece of our investment we are talking about these four softwares that we presented in the in the did that comes as lies in his line.
Number 19 of course, we do invest a lot in softer than in platform and already happened.
A lot of initiatives that you have in banks, who are so just just to be too for everyone that we were talking about only these four softness that we we described in slide 19.
Our emotions as we are folks on long tail.
Sometimes they don't have the.
I would not say the capability, but they don't have D.
[noise]. Its mission was you had sophistication here to have a softer solution to use they just want to make the transaction that's all but some of the merchants. They do a use additional software is when we we offer like is more CRM. Then you can have the number the name of for our clients the mobile phone.
The date of birth and things like that so.
The idea here is not to make a lot of money from softer as as at this point most of the softer led to offer our for free for our emotions clients. So there is increased stickiness give than a better services make them more loyal to our solutions an inquisitive switching.
Cost or some of the merchants, yes, they do pay but some of the most of the just use as part of our offering in the acquiring services and in the payment solutions that we have.
Great if I could just ask what I'll take rate, we heard earlier commentary.
Merchandise extra it but what would you say Oh, you know currently would be.
The two or three factors that we're trying to take rate.
From where it currently is for down sort of how should we think about.
Trajectory.
Going forward from there thanks.
[noise], so talking about not not take rate. We if you look at our take rate compared to last year. There is a slightly declining the take rate as a result of mix because we are not taking prices now our prices are public Andy.
Remain untouched.
In the last in the last 12, 18 or 24 months.
Going to Q4 off of the as we had last year you may remember our Q4, we have a higher percentage of babich.
Because people received their 13 salary and they go out in Spain that sort of sort of that but so we should expect in Q4 a decline in them.
And then that take rates.
As a result of off our mix not because we are taking taking prices now.
Overall, if you look this year is a slightly decline compared to last year as a result of mix and in Q4, you should follow basically the this at the same trends.
Great. Thanks very much.
[noise] next question comes from Carina Marching Citibank.
Hi, everyone. Thanks for taking my question. So first thing that I wanted to ask is as you shift kids membership model how should we look at the cost of goods sold because as you are actually going to be used to determine how the not sell them.
They're gonna stay on your balance sheet show so caused some good so it should actually be lower I'm sure. We should expect that to go through capex.
We could actually increase operational leverage so first eyes that Democrats with him that.
That's correct.
We recognize the their membership model as revenues in the in the transaction in the transaction line.
And the cost of goods sold a instead, the flossing sort of the BNL I mean will flow through the BNL, both sort of depreciation.
Of the of the assets. If you look at all were fixed assets you could see a immaterial increase in Q3, because now we are booking the new hardware the devices.
Yes, as fixed assets instead of cost of goods sold.
Okay, good and.
As you guys. Your commentary earlier in the call that you're gonna see send flat like flat margins of 2020, because the operational leverage actual and I like is that benefits here to further in fast and marketing like I said on the expansion of our pack bank.
So that actually increases kings and accounting actually increases your operational leverage.
So should we expect even further.
Increases in marketing because if your margins are gonna stay flat you actually have a benefit from having Cogs go through capex or not a the PML.
[noise] actually it is already already happening.
If you see all or our margins are the nice thing about our businesses. The operational is operational leverage I mean, we have we closed the last 12 months with more than 105 billion billion Rice and we do have operational leverage and we are a range.
Seen these operational leverage in in new initiatives basically that's what's happening because if you. If you look to our net income margin is pretty much flat when when compared to two to two last year.
We'll be very easy for US for example, two cats marketing expenses by half and have me a great.
As a great net income, but we are building this company for for the future for we are investing this in this company for four for the long term. So it wouldn't make any sense for example to slow down a marketing investments or is low down investment in.
In people war in sales.
ER in exchange of short term results. So we're looking here for the long term you would look into the growth of this company by the way me Nobody has.
Actually it at least in the long tail market the ecosystem that we offer a BLA as the online distribution the brand of our the brand recognition and all the benefits of being the first mover and our our idea here is to build this company for the future is not.
We are not concerned about a short term results.
Thank you just one last thing on that the positive impact in that income that you have from from this change in accounting that wasn't accounted for and the guidance for the you're right. That's a like a plus.
Well it is it is accounted to actually mean, because this brings the.
You know with me in Brazil.
The process of issuing the process of issuing voices is very bureaucratic a when you need to.
Replace a terminal I mean, it's cumbersome the process that we need to go through so we really wanted to two to head to head at same time to do implemented. It is this change before September me as big as because to me. It requires some system changes I mean it requires sometime.
So to make that happen.
But there is there is a small benefit in E September but on the other hand, we invested I mean, there last six months 110 million realized more.
A new in new initiatives for example, so it was seen in India guidance and as well as I mean, we had more investments.
In the new in the new initiatives, we are accelerating the fact bank. The bank initiative. So at the end of the day, I mean, pluses and minuses as I said before.
The beauty of this company is is the operational leverage and we're reinvesting these operational leverage in new initiatives here.
Great that's super Super clear many thanks.
Next question comes from Rayna Kumar of Evercore.
Hi, Thanks for taking my question can you provide your initial thoughts into 2020 net adds and TPV growth. You mentioned 300000 net adds in fourth quarter would you expect that to continue into.
2020.
Okay.
Hi, <unk> right now, we're not giving to start of information at this point, we've been discussing a lot about guidance in about 2020 and plans for the future, but we I don't even have the official number even if we decided to give some number for you right now.
So we don't have this isn't that adds and TPV for 2020 basis points. Just remember this year, we had a guidance of 1 million that adds are going to surpass that we already had 1 million in June the end of October . So we used to have two months ahead in November which is a strong month with black Friday and holiday season.
In Brazil, and December so, but going back to a question. We don't have this this type of features at this point.
Understood.
You spoke about adding smaller merchants in three Q, you expect that move down market to continue and if so what do you anticipate the increase in net ads and growth in pack bank to offset any lower volume per merchant that we might see.
Just to to make it clear for as one we added it's slightly smaller merchants and we're not.
Adding smaller and smaller smaller immersed when compared to the base. So we slightly smaller when we see the wager worked with us in the first months when compared with the cohort of the deep. The legacy that you have there is likely is smaller than what he had a we're not changing all were always strategy in terms of marketing we are not using you for.
In channels, we are just bringing these type of motions for us.
Which at the end of the day, it's good news for us because those are the promotions that they're not price sensitive they are not inserted in the financial system in Brazil, They quite a lot of financial service. They don't have access to the sometimes they don't even have an access to a bank account so.
That's type of merchant than we life's work, we know how it's worth and we may have to make profits for from them. So.
We didn't change much in his life is more of that only hadn't debates.
Got it so how much of that average spending per merchant deceleration from here Q3, Q was from just going to smaller merchants versus other factors.
[noise] Arena I think the information that we that we provided these what we will provide so and then of the day. Those those are the metrics that we that we have Joe's release in our in our Q3 numbers.
Okay, I guess I'm asking about the driver down to that metric I'm just sat deceleration. If we can get a better understanding of why there was that sharp deceleration I think that would be.
Well, let me let me, let me repeat that again.
First of all talking about TPV figures I mean, you know we operate in much larger scale. We grew TPV from Q2, compared to Q1, and 10% and Q3 compared to Q2 in 10%.
So we really we don't see Erie.
Here are a deceleration and again as regardless said, a we do not consider TPV per merchant I as a relevant metric because it's very easy to to fabricate and to get a bunch of high volume merchants and posed a very nice TPV per.
For for immersion so again.
We are not see any any deceleration or the TPV growth.
In the last two quarters all quarter over quarter was 10% on each quarter, So and that's I mean, how we we were we are seeing TPV here in the company we continue.
To delever healthy or take rates I will take rates have been stable and we continue to de lever a stable net income margins.
Thank you.
This concludes today's question and answer session outer lag between vice invite to Mr. He got to do threat to proceed with the his closing statements. Please go ahead Sir.
Hi, everyone. Thank you very much for time afford to questions. We see you next conference call. Thank you very much.
That does conclude that bags figure to audio conference for today. Thank you very much for your participation.