Q4 2020 PagSeguro Digital Ltd Earnings Call
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Hello everyone, and thank you for waiting. Welcome to Fox group at Banks fourth quarter 2020 results conference call. This event is be recorded and all participants. Will you be at least a normal mode during the company's presentation after foxy group our banks remarks. There will be a question-and-answer session at that time further instructions will be given month should any participant need assistance during the call, please press zero to reach the operator.
Vis event is also being broadcast live webcast and may be accessed through Fox group at bank's website at investors representation is also available participants May view these lights and in order they wish the replay will be available shortly after the event is concluded those following representation by webcast me pose their questions on foxy group at bank's website.
Before proceeding let me mention that any Ford statements included in the presentation or mentioned on this conference call are based on currently available information and facts group Banks currently assumptions expectations and projections about future events while box group at bank believes that there are assumptions expectations and projections are reasonable in view of currently available information. You are cautioned not to place undue Reliance on those for the statements.
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Results May differ materially from those included in pakse group at Banks 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 boxy group Advance registration statement on form 20-f and other filings with the Securities and Exchange Commission, which are available in proxy group at Banks investor relations website.
Finally, I would like to remind you that during this conference call the company may discuss some non-gaap measures for more details the foregoing non-gaap measures and the reconciliation of these non-gaap Financial measures to the most directly comparable gaap measures are presented in the last page of this webcast presentation now a returned conference over to Mister Car Butera CEO, mr. You may begin your presentation.
Good evening. Our everyone and thanks for joining or fourth quarter results conference call tonight. I have here with me Eduardo Karo our chief business officer or Chief Financial Officer and and Ricardo our head of investor relations. First of all, we hope you and your families are off. Let's see.
We have been leaving from president time since the outbreak of COVID-19 in Brazil that is started in second half of March 2020 merchants and consumers have changed their behavior of two-faced diesel. No scenario where people stay in their homes for a while and almost every industry was forced to accelerate digitalization and the adoption of alternative payment method.
Meanwhile, or dedicated employees have been doing an extraordinary job to keep serving our clients both motions and consumers with accents which led us to reach records and several kpis.
Thank you very much. Privacy group identity.
Before presenting our achievements and pleased to report that possible completed the strongest financial performance quarter in our history achieving record TV in both took a cigarette by the bank record net revenues that surpass it to being realized in a single quarter in a record non-gaap that income reaching 430 million reacts.
These results reinforce our execution capability in our confidence to remain focused on democratizing financial services and promoting massive Financial inclusion Brazil am showing that everyone has access to the best and most complete financially consistent in the country there for the continued to be the most profitable and leading company in terms of attracting engaging meetings of clients. Looking forward or opportunities over the next year's have never been great.
There will be more like 4.
Chasing more digital banking strongly migration from cash to digital transactions in the unique possibility to cross-sell a very profitable combination of payments Plus banking for millions of customers.
However to fully capture the growth of those opportunities ahead. We need to keep investing new initiatives such as a bank.
Important to mention we are in a very comfortable condition in terms of funding and cash position in which you more and more prepared to accelerate important products that will support us to diversify or wage increasing the number of products per user and consequently our Revenue per client.
However, as it and then we can send it to remains you must be cautious and pay attention to the increasing opportunities and risks.
We are enthusiastic about vaccines. However, the speed of vaccination at scale RC will know in Brazil and you know that this will be key to accelerate the economy recovery.
Additionally, the Brazilian government is discussing a potential second round of coronavirus you start in March 2021, which would increase the volumes wage in order to create do to avoid mix with more depth transactions.
Landscape the marketplace of receivables which can be an opportunity for us was postponed One More Time by the Brazilian Central Bank in the new expected launch day is June 7th.
Don't open banking also another opportunity for us. The first of the four phases began in by regulation will be joining only the third phase and we are following this initiative very closely regarding pics as we predicted. It is replacing wire transfers in various shipping 42m.
As it has been discussing We Believe fixes a relevant add-on and will Foster the cash conversion into electronic transactions, which helped us to add a new clients on both Banking and payments.
For companies like fantasy grill that it hasn't acknowledged product in heaven trip in Europe culture. There is a lot of opportunities out there and we are prepared to capture them.
That said our Tuesday night. We present some lights and we have Q&A session at the end.
3D highlight the achievements of the fourth-quarter and full-year figures
talking about bags records TV of 55 in realizing Q4 up 61%
full year two-thousand 2462 didn't realize up 41% year-over-year while the whole car industry in Brazil grew only 11% off important to highlight that less than 5% of all problems come from super quiet.
Online TV group 147% and 2408 in 2020 online TP increase at 85% off all time high level of 765,000 ending 2020 with 7 million active part.
Excluding my net Merchants adds up to a hundred and $3,000 for a 2020 record of 1.8 million do merchants at much higher than 2018 Editions.
total revenue of 2.1 billion to 4:30 % of a in 2020 total revenue income of 6.8 billion reais e 2019.
Kinetic rate of 2.3% or 2.44% excluding coronavirus resumes full year 2020 metric rate of 2.59 volt highly impacted by pandemic and temporarily CP him Exchange.
I just beat it off 726 million reacts up 24% year of a
In 2020 adjusted the Vita of 2.3 billion reais up 8% year of a record non-gaap net income of $430 a month Regional n margin of 21% or 30% net margin excludes interchange and cards can fees waived.
2020 non-gaap net income of 1.4 billion reais originated in March of twenty 1% or 31% and March X will interchange and customer Lounge.
I just didn't that Mars excluding pandemic. In fact Bank investment defect of 30% in two thousand twenty two point six percentage points higher when compared to the same thing as last year.
We also have start with service in beasts through hubs, you know give more info about in the next slide.
Want me to Peggy Bank record of Twenty Eight Billion Rising for two hundred fifty-six percent of April in 2028 Mega Bank fee of $71 is 245% of 8.
All-time high partly app downloads with more than eight point six million dollars.
Trying been clients of 7.9 Peter with another edition of 1.2 million for four year 29 editions of 5.1 m.
Jacob in consumer clients of 2.77 Times Higher in comparison to the same period of 2018 reaching 35% of black Bank active clients.
I can make revenues of 210 million realized the Border 146 percentage of a year represented 10% of total revenues in
two year tag Bank revenues of $540 a hundred 18% year-over-year credit portfolio of 612 million with wage kept on losing resignations back to pre approval letters. Also, we are launching public payroll.
this case of deposits reach 706 in December 2020
Launching of third-party funds offered by private investors Marketplace and home insurance.
We also acquired a minority stake of body to flex a Brazilian company specializing buy now pay later service at this point available only for online transactions moving to like 4 a.m. Thank you for 2020 total payment volume rigid $55 billion reais a growth of 21% or 61% when compared to the same period last year
The main drivers of the problem is growth where the acceleration in cash conversion electronic payments combined with a larger and resilient total addressable Market on tail High exposure of my channels such as the Commerce cross-border Cardinal present transactions among others.
Our online forums grew 147% of a year as you can see in the bottom left of this light.
Stop, right, we showed that debit volumes grew significantly in comparison to the fourth quarter of 2019, but kept a similar mix in comparison to the Q3 2012, which is good news. Remember debit has been mechanism for government financial aid distribution. And in the fourth quarter Brazilian workers always receive an additional five historical e increase that mixing you for every
We continue to believe that higher participation in the mix is a temporary effect of COVID-19 that was generated because of the financial aid from the government.
Additional credit limit is restrictions imposed by banks for their clients changes in consumption behavior and so on.
Important to mention that according to the Brazil internet Association 75% of our users pursue purchasing credit card installments there for long distance measured start to relax credit volume should increase in get back to the similar best levels, finally bottom-right active motions Richard seven million orders adding one point eight million new set or zero. And close to 800,000 new ones only for 2020 in November. We finish position of noise which cooperate with the Autumn high-net emotions that she used excluding my net Merchants ads where three hundred and three thousand is solid quarter life.
Turning to page five. We present or Revenue figures in Q4 2020 total revenue income group 33% of a year reaching two point 1 billion realized order accelerating the pace of growth quarter-over-quarter another record achieved in Discord.
Be comparable to our appeals reports or net total revenue income excluding interchange and cartoons fees, which is 1.4 billion realize up 31% year-over-year as in can see in the top right of the line.
Bored and left we present our operating reference transaction activities and other services revenues of 1.4 billion reais, 43% of all, I'm showing very strong recovery.
Financial income of 0.6 billion growing 8% of the year The Reason by consumer behavior during the pandemic leading to less credit card transactions investments in or transaction weeks important to remember that our prepayment model is automatic to our clients. Meaning that every pregnant stomach transaction is automatically prepaid instantly would be plus fourteen or D plus 30 days.
Bought a white or ninth grade, which is the Blended tickrate natural transaction costs such as interchange processing encouraging these Richard 2.3% excluding the coronavirus impact or an attic rate reaches 2.4%
Moving to like 6 we highlight the main operating and financial kpis for private bank.
First shots like banks tpv. No was no acquiring TV which 28 didn't realize 256 of a year or two hundred forty-four percent excluded one. Volumes related to Coronavirus.
In top, right? We show the graph of fact Banks TV as a percentage of private security PV acquiring TV, which treated 51% off due to high engagement for emotions into Peggy Bank products and services.
Bottom-left we moved to park been clients. We ended the year reaching almost eight million active users adding Five Point 1 million new clients 2020.
Consumers Richard 2.7 liter already represents close to 35% of our bank bank active clients base.
I can be driving is off 210 million in the quarter.
Up 146% of your radio Year back Bank Revenue surpass. It didn't realize 100 18% of area off 98 triple digit growth despite our decision to be more cautious on new credit originations between March and September 2020 resuming in Q4 2012.
The percentage of total revenue Eco buggy Bank revenues are presented 8% in full-year, 2020 and 10% in Q4 2012.
On the right side we highlight or new initiatives investments in insurance.
Taking best assets under cuz they reach 4.7 didn't realize a combination of clients violence deposits and Investments.
Yesterday we launch crypto front and incentivize Adventures from distribution adding more options in our third-party investment fund distribution strategy officially launched the generator 1221.
We expect to rollout to the coming months or own Holbrook platform and distribution of Brazilian treasury bonds.
In terms of insurance products. We are actually two more products home insurance and personal accident Insurance expanding our portfolio, which already counted to pack Bank Health since 2020.
Finally or credit portfolio transaction accounts products increase their share. In fact Bank revenues in 2020 in comparison to the same period of last year.
Women confident that card issuance in credit offerings will be the main drivers of fact Bank revenues reinforcing our commitment to reach 30% of total revenue and income being generated by our bank initiatives in 2024.
No.
We moved to the financial performance lights, you know, turn the call over to our tour or CFO. Who by the way has been doing an amazing job as you navigate through this unique time together. Thank you very much. To please go ahead.
Thanks for calling and good evening everyone. This is an honor to be with you today for the first time as CFO certainly the foundations built by Eduardo during the last five years were extremely relevant for now and for the coming years and I am looking forward to lead from here on hoping to continue the outstanding work done until now. I'm moving to his light 7, we are presenting our costs and expenses and net income performance.
Our non-gaap total costs and expenses under the quarter totaling 1.5 billion highs up 48% year-over-year and breaking by category sales and service is closed group 54% due to the TV growth of 61% versus less square of 2019 interchange cost plus 7% year-over-year impacted by The Mix Change towards more debit vs. Credit in the. The group of the 78% in personal expenses are related to a more Tech developers and professionals to support the expansion of Barclays Bank bag invest and herbs initiatives. Our depreciation and amortization has also increased 158% You're very driven by an unprecedented mention Edition during the whole twenty training boosting POS Acquisitions depreciation and higher damages of product development dead.
Marketing are located in.
Sales in Services increase it by 40% year-over-year with higher Investments to promote digital wallet by giving products such as big cities and Marketplace and clients engagement you for 27 expenses reduction of 12% are explain it mainly by chargebacks decreasing 26% year-over-year as a percentage of the TV off reaching 14 basis points in the choir, even with higher exposure to online sales showing an operational Improvement and our credit portfolio more than double compared to Q4 2019. We've had their delinquency rates performance in the new cohorts.
The corruption the middle of this light present our results for the choir. The first is the adjusted ebitda that Richard 726 million Heights up 24% year-over-year for the quad in the graph below our queue for training non-gaap. Net income was 430 million height four percent higher in comparison to the same period of 2019, depending make a Sex net. Margin for the quadracci be 21% improving 250 basis points versus Q3 training.
Movies is like eight. We updated our manager analysis on Fox Business managers presented less qualified by our head of investor relations as we discuss with the partial shutdowns in Brazil. If you grow was negatively impacted mainly during the second and third quarters. Additionally there was a temporary change in consumer Behavior off meaning last beverage and we see spending more oriented essential Goods. The consequence was a change if he makes with faster growth on debit card transactions month including the coronavirus and lower growth on credit installments extremely cold related to Market credit availability with lower appetite of banks in the past months off do this temporary changes drove to lower take rates and margins.
Just to meet the pandemic impact was 420. We don't have eyes decreasing our margins in six point two percentage points in 2020 this negative impact of expect it to be transitory. And should he cover over time not only for possible but for the whole payments industry
movie tupaki Bank Investments, we started our initial investment in May 2019. Despite the pandemic. We kept investing in the most important verticals like Bangkok essential for our business growth strategy, which box are Market 17 times larger than acquire in twenty-twenty. The impact was 187 million high-wage a spare key Bank Investments or 2.7 percentage points negative impact in that margins. We expect by keeping to be a creative in 2022 becoming a bottom line kind of initiative for our company for the coming years while we cross their products and diversify revenues.
Comparison to 2019 our net margin would be two point six percentage points higher reaching 30% or close to 40% s our peer support a total wreck excluding interchange encouraged scheme fees.
Our Focus right now is growth entering in a market 17 times larger than payments as we discussed it in. The last quarter's profitability is part of our DNA and we will continue to solid bottom-line results. However package Bank Investments and new initiatives are the most efficient Capital allocation strategy for now.
Movies like 9 we want to share a few comments about our investment in the short term in twenty-twenty our Capital expenditures, which should be done here is representing 30% of our total revenue and seventy 2% of these investment was related to p o s acquisition The Reason by a record of one point eight million admiration additions wage in our platform last year and a much higher demand for additional POS is from our active Merchants given a faster adoption of new sales channels such as takeout and delivery regarding to intangible assets. The increase is related to our growth in software platform Investments product development and it teams
In the next slide we show our main Trends in the credit portfolio where the performance is improving every day. We ended 2020. We have a total credit for four of 612. Thursday is working Capital Loans or designations are back to Play Pandemic levels since November 2020 and nowadays with all the data collected more than improvements and Thursday the team we could increase our reservation by approximately sometimes we do have a strong demand from versions. However, we have decided to wait until we have no visibility about vaccines hold out and economic recovery before being more aggressive in credit offers.
Working Capital Loans represented 54% of the credit portfolio reaching 311 million highs and in average ticket of $4,000 vs. Although. Our hours are low and under control. We saw a significant decrease in the current EPS when we compared to prep endemic cohorts as we show in the first graph in the right side off.
Credit cards represented 42% of our total credit but 40 we already issued more than half million credit cards cuz on our best Merchants. We also started off and credit cards for consumers with collateral meaning clients that invested in package Bank cities or choosing package Bank to receive their salaries, as you can see in the chart below track the new cohorts for credit cards and PLS continue to be incorrect.
No.
That's nobody. We assume a credit risk without receiving the proper return related to the risk. Assuming we continue our focus on improving our credit models teams and projects that are allowing us to show the current performance and driven the company to improve earnings per share accretion in the future. Finally other initiatives such as payroll Lawrence represents just 4% of the credit portfolio. We launched public payroll. Oh and in some cities and we are ready to escape go up this product during twenty Twenty-One now before or the word back to his car do I would like to comment about our cash position and funding strategy in the separate tiny tiny our cash position considering cash and cash equivalents financial investments account receivables from issuers and credit portfolio Richard almost $19 billion highs our credit portfolio represents only 3% of the current month.
Excluding party Bank clients balance my Key Bank Certificate of Deposits and account variables to our Merchants. We ended the year with a solid net positive cash and the working capital position of 8 billion highs right graph Compares our packaging cities balance to our credit portfolio built a hundred percent of our operations are funded by Third parties. Our operation generates cash to support our business growth and we also have 16 billion Harrison AAA accounts receivable to be securitized. If you need it. We are always evaluating other potential Alternatives of funding that box is the only Brazilian acquired with a full banking licence there to help us to reduce costs currently. It is below CDI the Brazilian interbank rate now, I pass the word back to Ricardo.
Thanks.
What was just like twelve I went to calling about our teams to move up marketing payments in natural in additional business vertical that will be complimentary to our current strategy in the past years small businesses have been proactively reaching practice eager to serve them.
We Know by fact that you competed long-term Market tags unique strengths such as brand first-mover Advantage online or Beach and banking ecosystem created a natural barrier
Have you said that is easier to move up in the pyramid than to move down in after several discussions. We decided to test and roll out a few Subs in 2028 working on omni-channel model combined physical crisis with our online self-service. No help.
That's the real hope to know geographic regions of Brazil evaluating. The Motions profile their needs playbacks in returns of the existing Investments.
Since all right Bill, we became more mature company with an even stronger brand than two years ago. And now we are prepared to increase our penetration assemblies and tag team has most complete digital banking offer a more requires that service and bees motions.
It's too bad. We serve them both payments and Banking and in terms of volumes the tpv addressable Mark are accounted for 700 building ramps cost discipline combine it with our execution capabilities in our ability to efficiently scale up or payment platform led us to conclude that SMB segment is a profitable Market.
We know that current acquires can be smart as a percentage are not as high as long tails. However, as a positive contribution margin would be a creative to our iPass in fourth quarters, which is an athletic feedback. Consider only inquiry and as time passes by in Louis k or a bank is strategy for those clients. We believe if we asked the question could be anticipate nice and warm people in two thousand people any bombs from hubs meaning that adds POS TV, we're not relevant and we were the only required to deliver a POS activation for S&B for 2021. We expect you accelerate investments in export this Market reaching around 250 to 300 or home by December and the volumes achievements 6% to 11% of total package.
It means that our Focus will remain to Market and help to complement or client in product offering.
On the next slide, we provide some initial thoughts and initiatives around PSG X is committed to put and we force DSG guidelines our business strategy and represent some important achievement so far.
On the environment. We are working to Foster new print last Payment Solutions such as an FC QR code the link of payments nowadays more than 6% of our active POS base does not ring and we also have the goal to implement more efficient and rational processes of water and energy use and we are preparing our gas station inventory.
On the social side inclusion is part of our DNA initial sensor from Dish.
Basically was created back in 2006 with the purpose of democratizing. Do you stop payments on the internet? And then we move it to in-store business in 2012.
You have included millions of Brazilians in the financial system and offered them the option to accept cards in a simple easy non bureaucratic and frictionless process today would have more emotions than our competitors and pursue you have close to eight million pack Bank active users do today almost 80% of our new clients did not accept cars before joining us off a large percentage of our TVs comes from Individual entrepreneurs from the younger individuals starting their professional life to senior clients above fifty years old I am
What's the highlights?
Cebu is also one of the few companies in Brazil with three women in the board of directors, which represent 43% of the board members finally on the government or a company continues to improve today for 3% of our board members are independent which helps us to create industry and other committees such as credit risk and liquidity and damage protection.
Begs also has a relevant in a structured data security department.
Our security strategy follows the most relevant pillars of our business is to keep a safe and protected environment to our clients or company also has a data security master plan, which is Thursday.
Master plan established 28 to be actives you need to governments follow controls indicators of the ISO 27001.
The guidelines are busy more than fifteen policies Define it and approved by our Executives and directors and having confidentiality integrity and availability as fundamental basis.
We were working in our sustainability report. That should be released during 2021.
Moving towards light before the committee session. Let me share some Trends in January in order 2021 guidance out to
Volume was in January and February 2021 are growing up 50% in line with your controls. Then we have been observing last month, excluding coronavirus turns back off to remember January February 2020. We are not affected by COVID-19. Therefore even compared with a higher base from 2020. We are accelerating and not 50% for 2021. We expect acquiring TV to grow above 40% still back it by healthy and Merchants ads.
Which will require a similar level of capital expenditures experience last year, which is around two billion or low twenties as a percentage of our total revenue.
2022 we expect our Capital expenditures as a percentage of our total revenues to go back to 2019 SS meaning low to mid teenage given the higher vestments we expect depreciation and amortisation to be around $800 million to 1 billion reais this year.
Important to highlight that our Tepee guidance does not consider potential websites coming from the second round of coronavirus expect it to be distributed from March to June 2021.
also for 2021
don't know if that's the bank hubs and new initiatives to keep expanding faster or digital banking plus payment ecosystem to millions of clients bought a boost in or acquire a new TV and accelerating or Revenue growth through diversification.
We are.
Track to have like big revenues reaching 30% of the total revenues of the company by 2024.
Payment Banking and Financial Services Industries have become very dynamic in the past years in our company has been moving forward in taking advantage. We are adding thousands of users preferred inexperienced very efficient paybacks and is strongly advised Investments both require and thank you.
Or plan to keep investing to Growing to build one of the most relevant Financial District assistant for both consumers and workers including on tail and smbs.
Unique platform combination composed by payments Plus banking services will allow us to keep exploring these opportunities ahead.
Finally in terms of profitability. We believe that tag Bank can be a creative by 2022 as we expect investment the accelerating over time with the banking business getting wage and posting a stronger monetization.
Additionally banking margins could be similar or even higher than a party margin leading us to a strongly operating leverage after the spirit of reinvestment with that. We need representation and you can start a 20-second. Thank you for a tour, please.
Ladies and gentlemen, we will now begin the Q&A session. If you have a question, please press * 1.
Our first question comes from Jeff Cantwell with securities.
Hey, thanks guys for taking my questions. I'm congrats on the results and there's always a very detailed in your preferred. Thanks for that as well. I just wanted to Circle back in the comments and ask a couple of questions for us on your Merchant base. Do you have a good record? 765,000 Merchants this quarter and that was well ahead of where we were so can you really tell us more about what's happening right now? Can you talk a little more about driving that increase, you know, for example, are you seeing Merchant demands strengthened due to this One Stop Shop talk to him. Because it may be less competition in the long tail. I just would love to hear more about what you're seeing help us understand how the mercy base is expanding this quickly. And then as a related question, I guess I'm wondering since it sounds like you have we have momentum here and you know now there's this new types of jobs without seventies which looks like it could potentially be leaving all the TPB. I was hoping maybe you can give us some thoughts about what you're thinking for total net nurturing as in 20 21 any any color on the Outlook there would be great.
Thanks.
Hi Jeff, this is Ricardo and thank you for the question with you regarding the Motions. We had this more than 700,000 in Q4. But in this figure we we have month. We have more Merchants that we integrated more after November. So if you exclude more we are talking about three hundred thousand a little bit more for Thursday.
So what are we saw in January the beginning of the year? We are having the same Pace that you had in the past. We had this, uh close to 300,000 reporter. That's why we've seen so far looking to this year. We don't have the exactly number for the hubs for the number of clients of the hubs that you can imagine, uh is much lower than the long tail with clients. So the the our models we already Incorporated what we expected for that and the result is these TV growing more than 40% in 2021.
Okay, great. And and that was like my my follow-up question. I was hoping you could talk a little bit about the guidance you're requiring TB guidance is for growth or 40% plus 2 share and that looks pretty strongly especially, you know, when we consider how much TP increase in 2020 so so can you walk us through that guideline just helps understand where that incremental TV will come from is it, you know rebounded your existing Merchant basis it new on life. You know, the move you're planning to make up Market. Is it Merchants you're out of here in the fourth quarter any additional color that can help us unpack the thought process behind your TV guidance would be great. Thanks God. Hi, Jeff. Well just going backwards the hubs TV as you as you sign the presentation we expect to be between 6 to 11% off of course is going to help but the main driver is the base that is growing the long tail that we are adding. Uh, hope C. This point are not relevant and you could see that you grew already more than 50% wage.
January and February, so it's part of the Dynamics the base the net Edge that we we are putting here. Uh, you are writing the previous question you asking about the the competition Longdale that is not the same that used to be in the past and you're right some of the the players that try to come too long tail decided not to to compete with us anymore or to compete in Longdale anymore. So we are strengthening our position long tail and also taking advantage of that to go to go up a little bit in the programming to serve this this times of the hubs. But going back to a question is going to be between 6 to 11 % The majority of the growth is going to come from the base that you have as you could see already in January and February growing more than 50% just took a show, they were here check Center of speaking. We should expect online volumes to continue to be extremely strong. We just completed the acquisition of white. So now we have wage
Operation of and running we continue to see a very strong demand for a small and medium businesses to going online for the first time and we're prepared to serve them. So we're also expecting a good contribution all lie in our total violence.
Okay, great. Thanks for all the color and can go through on the results.
Thank you.
Our next question comes from George curry with Morgan Stanley.
Hi, good afternoon, everyone and congrats on the numbers. Could you please expand more on the table strategies? What type of what type of size of smbs are you trying to go after is this sort of like an overlap of birth stone operates Merchants. Process 350 to 400 thousand a year and cards or is it smaller Merchants Bank The Hub strategy based on boots on the ground is this, you know intensive people strategy how many people you're going to hire to run the Hub app, and if you can tell us what the the pilot Hobbs that you've been operating in 2020. What type of results are you getting in terms of birth?
Williams and take rates just overall. I guess this is it's a big announcement, and so more details around exactly what type of business is dead and how you're going to run. It would be great. That was my first question. Thanks.
Hi Jorge, this is Ricardo. Thank you for the questioning and good to hear you. So I'll try to address the points of view come up here. So well, the first one is the the size of the merchants what we've seen so far. We are not as big as the competition at this point, but we could say you this between 5 to 7 times larger than what you have in a long time is an average D volumes and sacred I would say you that is very similar to add competition operates. We see the similar take rates. As I said in the presentation. They are Ugg smaller than wrong tails. However, it is additional to our business plan and as they have a TV that is 527 times larger. It is a choice to to our business in three to four four to five quarters as I said before. So the results that you got in the pilot are exactly those similar takeaways from competition wage.
Gpp five to seven times larger and paybacks between four to five quarters. That's what we're seeing these calculation about payback consider only acquire if we cross sell some banking products, we could anticipate that swirly to to give some guidance on that. And the way we're going to work is going to be very similar to what condition does but we are going to try to make a hybrid model or only channel that we also try to take advantage of our size of Our Own Line, you know all the know how to to serve on a client's any subs we will have some people in the streets that the way that we imagine it is important to have local presence. Uh, but we'll try to make the way we get the clients and then we served enough towards going to be a combination and I would say that's type of thing. I'd say is our secret sauce and an important to say we are today probably the only one month.
So we need to Hubs that delivered the device in device same day. So that's something that we try to
Put on the streets and it is working very well. So, um, that's what I have its point.
And a follow-up things regarding Florida was very useful and a follow-up is this Merchants already operating with existing acquires or are you taking market share or from any of the competition or these are still small enough smbs that you're finding many of them who don't have terminals or accepted cards before or this is, you know outright. I need to take my life away from the existing players.
Well, we just before answering the question we decided to go after this Market because we've been inquiring from we've been receiving fire from this type of SMB serve them. So of course we cannot make it general statement here, but usually it's due today smbs are badly servant. Uh, some of them have acquired some of them in bulk banking been in both. So the idea here to put the hubs to open run is because we got some requirements from these smbs inquires from them and then we try to to go after them the majority of them to say, I mean, very close to a hundred percent. They already have another payments provider and answer a question as we we are taking market share from us in this in this strategy game.
Thank you and thank you for calling and my second question is on on the net steak rate. There seems to have been stabilization on the transaction page part of the take rate. Does you point it out with debit debit makes me now more normal. The compression seems to have been mostly on the financial income wage is is this related to something temporary something cyclical or this is just related to more competition and a lower Benchmark rates and just difficult to continue charging the same level of prices or or or or what explain that 10 basis-point contraction in the bath take rid of the financial income.
The it is let's say it is hard for us to say when it's going to have the the recovery because we used to have a lot of uncertainty here. But it looks like what happened in Q4 is that we saw kind of exposition as civilization as you said in terms of meats or of TPP of debit and and credit the point is that there are some other variables to to the compose the state great. One of them for instance is duration. We are not changing the prices. We are not decreasing the prices but as I said people will receive an additional salary so they they may keep buying two installments, but with lower duration that also impacted the financial um income Imports check to see if we look to you for $19 versus 219. We deplete the twenty basis points inadequate from 3:17 to 2 .97 and this year we wage
Is it five basis points from Q?
Sweet to Q4 when you look at what happened in January, uh-uh. It's interesting because we are growing 50% tip t v as in the disclosure, but Page Avenue growth is similar to try to head in Q4 close to 30% And if you if it was working 60% So the revenue you would so far in January. It's it's it's healthy. So let's see it's too early to celebrate a lots of lots of our Center to here. We don't know how it's going to be the vaccination. How's going to be the deployment of vaccination for the population? Some people can see dead. So the news government is talking about second round of coronavirus restarting in March. So, I mean there is zero lots of words, but disability is good news and and go straight to our package. We are not decreasing prices. That's not that's not the reason for for this decrease in financial income.
Thanks. Thanks for calling and congrats again to to everyone.
The next question comes from Reyna Comer with evercore.
Good evening. Thanks for taking my questions. So starting off with your margins in case some very good detail on really investing in your Hub strategy in 2021. How is Jose to play out for your net income? Margin in the first quarter and for a 20 21 as a whole and and then separately the March the potential March coronavirus second round of coronavirus vouchers. Is that included in your 40% plus ppv guidance for the year, or would that be incremental? Thank you.
Hi Raina, thank you for the question also starting from the end going backwards here the guidance that we gave that is above 40% If you growth expect it does not include coronavirus and starts in March that would be uh an adult or business plan and also Worth to say that uh on the one hand we have the choice you will go but on the other hand, we have the change in the mix. So we have this Tailwinds that is typical growth and the headwind that is the change in the mix and may affect a great. So just to be clear here the month you guys does not include uh, a problem second amount of coronavirus regarding the impact of herbs in our in our p&l what I can say to you at this point is that Hub app in 2021 will be slightly negative so they will impact net income in 2021 slightly negative. But as I gave the the payback for you during the presentation, yep.
Four to five quarters, uh, we expect to be positive by 2022 if we don't have let's say if you don't sell banking services to Denver less aggressive or a better than our assumptions that you have in our in our plane, but just what you have today will be slightly negative in 2021 and positive in 2022.
And would that be is that is that is that a net number you're speaking about or would operating leverage in in your own business? It's offset that potential decline in your life that you could see from The Hub strategy in 21.
Rena
important to to highlight here in to be clear the platform that you use for long tail and for smbs that we use Serve to Hubs. They are exactly the same. So am I just want to be clear here? We're not transforming the company and moving the company around to service and based platform is exactly the same what changed a little bit is some of the features that they may use in the found some of the features they may require in the environment and the way we come to them the distribution channel of course is different than the online that you use for long-tail. So the investment we are doing uh is in a process some of the processing sales person. So this is investment. We are not talking about large investments in platform to serve them. Of course also have some some questions here and there but the majority of devices are related to a sales people and some process that we need to have back office to serve them. But that's that's the that's why we are going to impact the the piano this year birth.
As we're going to see us people here. They're going to get the client. They will start make the transaction and you're going to have pay back between four to five quarters. That's why it's going to surpass mm. Anyone who's going to be slightly off this year, and then we'll be positive by 2022.
Very helpful. Thank you.
Our next question comes from Craig more with autonomous research. Yeah. Hi good evening. And thanks for taking the questions. I wanted to ask about the cross opportunity and SMB. We see that competitors that are disintermediated incumbents or showing extraordinary growth and credit with very positive are ways in the SMB segment. So we'll entering the SMB segment significantly accelerate your credit off the growth in your credit portfolio. Thanks.
Hi Craig, thank you for the question. Would you hear what do you have in our business plan at this point? The focus for the credit is in long tail? We started serving hubs are having good results in terms of acquire. I would say you is too early to say how it's going to be the credit offering for the snb's at this point in our base. We are for sure. We we know for sure that we can use intermediate incumbents. That's for sure. There's going to be some Dynamics in the industry the starting June with the receivables the Chamber of receivables so long. It is an add-on for our for a business plan. There is a lot of potential there, but I just don't want to make it here. Let's say the promise or generate the expectations that we are going to explore that aggressively because we are still evaluating but for sure isn't good opportunity in our business plan. We are considering serve long-tailed the way we've been doing these last years.
Offering credit for them charging through Square Capital through the mdrs and so on. So that's what you have at this point. There is a lot of fun.
Since that one here in Brazil with the COVID-19 is for one. So that's why we are trying to give you the best estimate or the best information that you have at this point. And we met update you as time passed away. Just one follow-up on what you said. Could you discuss how the receivables marketplace is going to work? If you know, I mean how how you'll be able to pursue receivables within the marketplace. Is it daily? Is it monthly is it is it batched? I mean, how is that process going to actually work considering the merchants in Brazil? I would imagine or generating, you know hundreds of thousands of requests for prepayment on a daily basis.
Yeah Craig, so just to try to explain here previously for everyone in terms of long-tail. We see that we don't see risk in our base for the simple reason that once they started to work with facts if they need to prepay their their uh sales and they need to receiving Deepak + 14 + 30. They are not price sensitive. They uh don't have the sophistication to have this type of discussions about chambers of receivables. So on what we see that off the type of the version that is looking for December receivers are large accounts and and largest and beasts. They have the sophistication. They have their let's say the financial manager that can try to bargain some basis points here and there but the the end of the day the Germans receive this is a centralized it Hub with information that everyone in the market that wants the merchant gave this receive was a game.
For a credit no one else can take it today. There is no centralized chamber. So that's why it's kind of inefficient. We see that a huge opportunity. If you look to our to our mom we are close to 8% So there is 92% of large clients making transactions out of college degree position that we we could go over them. We could go after them and after then, uh anticipation regardless of the acquiring the work today, so it is a huge opportunity and the expected launch date is going to be June 7th. So this is about visibility not necessarily about mechanics. This is showing you where to go but it's not facilitating you actually making that credit.
I guess I'll tell you it is both Craig visibility that you can see the receivables there and also you can offer then. Of course we can offer through your ecosystem. You do not offer the the the the the the landing through the Chamber of receivables. You should do by yourself in your ecosystem your F in your website and so on but uh you have visited in the mechanics notes say that it helped helps both because through the receivables the the collecting is more efficient. So that's why we you have the information you offered them the landing and then off the mechanisms to make the collection is sufficient, which is not today.
Okay, thank you. That's that's very helpful.
The next question comes from Mario Pierry Bank of America.
Hi, everybody. Congratulations on the results. I have two questions first on your TV growth guidance of more than 40% off. I just want to understand that this number, you know, 40% if we take 40% as the bottom of your guidance. It just seems to me too cautious. You know, your volumes are already growing over 50% you're near you have easy comps with the second quarter of last year. I am headed one point 1 million clients in the second half of 2020 alone and you're adding the SMB volumes. So just trying to understand them why you didn't say, you know,
TPP growth of more than 50% rather than 40 and then my second question is related to your capex, right you you giving guidance here capex or two billion reais, which is basically off your cat backs in 2020, even though you're doing this Hub expansion. So try to understand if the hubs costs they they show up as all packs pack is no capex associated with that and then when we think about your Hub strategy, I you, you know, targeting specific region of the country club or you going to go Nationwide right away. Thank you.
Hi Mario, thank you for the question good to hear as well. So we have three questions here. I'm going to answer the 1st and the 3rd and then our tool can handle off. So the go again going backwards. Uh, the plant here is to serve original of the country. Of course, we will not be able to to to to cover the bulb 5500 series that you have in Brazil, but we're retired those that you see more potential unless competition and where we can we judge that it's it's going to suck when I have the better performance. So but yeah the idea is to serve all regions of the country, uh regarding the guidance. Uh, you're right for the percentage the bottom. That's why we put in this life higher than 40%
It's some people may think that these conservative as you mentioned. But remember we're assuming the meat of the pandemic in Brazil. So lots of our certainty here just to give an example C. Some folks are going to have partial lockdowns. Uh, there are some CDs in the countryside of some college they have in full of tales. As I said before vaccination is happening. Maybe not in the speed that we expected. But so that is seasoned certain so we can update that as time passes by but lots of incentives at this point. We we see anything changing on um, lost down here and there so that's why we decided to give you the guidance that we we do believe is going to be the best information that I have at this time and you're right 40% is off the bottom in January good 50% and and February 50% as well. So, uh, let's see what we can update you as time passes by
And the question on the capex, are you with the second question? It's a pleasure to talk to you today. And first of all, Danny we have two billion heightened topics part of this topic is related to the USS that we purchase it to to support the growth of the company. We bought a record of 1.8 method issues in 2020. So, uh, we need to to to blocked by what us to support this month additional and also in our topics will include the Investments and as we are accelerating our product roadmaps wage, so we have a huge amount in in in our investments in our context for the related to Hubs. We don't consider carpet for herbs and it's not necessarily birth.
The pooches of us for perhaps. Okay, and in 2021, we consider the same amount of twenty-twenty have the guidance because we we think we we will continue to call the company and accelerate the method issues for 20 21 just one additional commentary here. Are you just like Ricardo setting the guidance for 20 22, we expect out of context as a percentage over total revenues to go back to regular levels that we adding to any nineteen for instance. So it's like a one-off that we had to support the growth that we observe it off and demand for terminals like Arthur explained it additional terminals for active clients because of takeouts and deliver. So that's part of the growth, right?
Okay now, thank you. Very clear. Thank you. Thank you.
The next question comes from Brian King with Dodge Bank.
Hi guys. I just wanted to follow up on the net margin question. I get the investment in the hubs and investment in pagi Bank. What I'm trying to figure out is, you know, what should we expect for that first quarter and net margin and then for the year what will net margins do because you got some puts and takes with hopefully the pandemic getting behind us, which will increase marja also the Investments. So just looking for some thoughts there.
Hi Rin, thank you for the question talking about what he saw so far as I answer to to Jorge before what is showing generous February. Although the TV is going 50% revenues are growing the same 30% that is that looks like you for this year. So we are seeing a better Revenue youth. We always say here that it's maybe it's too early to celebrate as I said before some ups and downs logged out here and they're pulling up our shows that might film start in March. But what it's January February a good Revenue you that this point so far talking about the overall margins for the year. I know it's it maybe it seems to be repetitive but
We will keep you.
Bank, of course, we have our plan how much we're going to invest but we we have today eight million active fact been client seven million active Merchants record number of downloads. According volume is going 50% only this first few months. So the idea is not to decelerate we need to to keep investing take advantage we said before the market looking for is that 317 times bigger than what you have only for the acquiring but the margins are dependent on the economy recovery if the economy doesn't recover and we have the same debit mix the models are going to keep the same level that it's in the past orders. If the credit is Tom is come back and people get back to their lives and start traveling and going to represent buying clothes going to shopping centers driving around. We're going to see a better take rate the for sure going to have GPS Corporation this year. We're going to suck.
Plan is to to grow and of course roll over profits. We just don't want to make let's say in forecast or any guidance on that because it's still had some some short illness or so. We are home and that we can have the guidance for the three items that he gave his last slide cpv capex investment. So, uh, as of now we are the focus is to bring the company and we decided not to give you that exactly guidance for the marginal income because of the energy that we have. But again, if things getting better, we we will give you money on that, uh, an important to say here that we plan that tag bank is going to be profitable by 2022. We are involved here. We are trading platform as you can see. We are launching Home Road. Treasury bonds. We just launched it or distribution of crypto funds so we are in the investment mode for some of the big dog.
Units of the company by the bank bag invest insurance as one would expect the 2022 starts to be uh, uh profitable. So, I mean, that's the best answer that I can give you at this point.
No, that's helpful. Those factors are helpful for us to understand the impact on margins. And then my second question is looking at a bank Revenue was great to see the acceleration the revenue growth. I think it was, you know, close to 146% gross something like that. But I noticed you know for twenty twenty in general the card Revenue wage get declined a little bit. So well that card Revenue should that pickup in growth as we go into twenty Twenty-One and and can we expect still that, you know triple digit growth rate in a revenue.
Brian just the participation in the mix for credit cards or four cars in the bank went down. You're right. When you look at the desire participation went down. But the the the main reason for that is the lockdowns and the feeding fact that we had uh in Brazil last year. So people stay at home with cards. They don't withdraw money. They don't don't use cards a lot. So that's why we the expansion spending go down. So that's why we see the decrease in revenues of cards as a participation of the means and part of that we upset with our credit, uh offer that as you could see we are not being aggressive here. We our credit portfolio close at 4 with six hundred million. So we are not talking about billions of the ice. Here. We we went
I mean we were
Oh, she was last year from from March until August of September and then we start giving some credits after that. So, I mean we see a lot of abstraction even being cautious. Uh, we wrote the company we've read the company revenues for Peggy bank and reaching more than five hundred million reais. So $540. So absolute figures are up in in all the lines credit cards in credit and the transaction.
And should we see it bounced back and especially in the cards portion and 21 or is that or is it just still dependent on the economy and the comeback and the recovery? It depends on the economy, right? Because these people stay at home didn't discard very often and the economy. The money doesn't go away. I mean you don't see the money the economy. So that's why so we are going to see increase that's for sure. We are adding a want to meet impact been clients each Florida. So it will grow it's just hard to say you how big your house is going to be that group.
Got it. Thanks so much congrats on the quarter.
Thank you.
The next question comes from John coffee with Sushi Hana.
Great. Thank you very much for taking my call. I had two questions in the first one is on your projections for the hubs now, I guess if I look at your life and grow it by the 40% and then use a high end of the range in which you thought that hubs could contribute about 11% of your TV if I compare that to the 700 billion, I think you had for the snb's but it seems like that would be maybe you would be expecting by the end of 2021 to have about a 4% market share in the snb's. I just wanted to see if my math was up there.
Well, let me see if I understood your math. We had 162 this year if we had 40% were talking about $227 for 2021 * 11% We're talking about twenty-five billion reacts. So 2500 seem like it's about 4% Is that sound right to you? Yes, it is right off. You're starting as you said the hoods in 2021. We're not relevant. We're just starting. So that's why we we have this projection between 6 to 11:00 and you got this 11% off on top of the let's say you guidance but you're right. All right. I just want to make sure I was thinking about right and the other question I had is what do you expect for a void in 2021. I just want to understand your thoughts there a little bit better.
Well, we are far more back in August last year, but we only could integrate them in November that you had all the authorizations from The Regulators and so on. So since then you've been working here to integrate more impacts Agro ecosystem in the structure. We will have lots of opportunities for cross-selling throughout this year as a month before we can offer more observe some Marketplace and large clients. We can go after these guys and offer them POS and solutions for fishing all the stores and we also have some clients here that we're looking for online Solutions some of our clients that are looking for online Solutions. Our online solution was not that good as my wife is so we all we never based uh-hum solution. We expect more apt to grow faster than the whole company because it is online because we're going to have this cross-selling opportunities.
And that's all you have in mind at this point. We just decided they're 400,000. We start work with me and we have all these teams.
That would be great. Thank you very much.
Thank you.
The next question comes from Victor Chevelle with the Disco BPI.
Thanks. Thanks for taking my question just to follow up on on the strategy opening up Hub. Smart hubs the year. How do you see this strategy impacting your page Spence's, uh going forward to do we see any additional pressure on these lines going forward or shouldn't we expect anything much different things.
Hi Victor, thank you for the question. As I said before this year hubs will be slightly negative. So that's going to pressure expenses. That's for sure because we need to Thursday. We need to make the sit up and hire people and then start selling there's some time to mature people to get productive and so on you have training, uh, but the long-term View and what we see so far with it is that you already have that you are ready. Uh, we have this payback between four to five quarters only talking about acquiring and without drinking services. So that's why we thinking 2012 is going to be slightly negative. Uh, it will be positive in 2022. If we do not anticipate some banking revenues and banking results. We we may have an idiot. It could be an upside for the the plan. So that's what you have so far.
Perfect. Thank you.
Thank you.
The next question comes from with Goldman Sachs.
Hi, good evening. Thanks for the call questioned following up. I guess on tag Bank, you know, you continue to add clients. They're at a strong Pace. Do you think that you know one to one point five million clients? Is that sustainable for how long you know, can you add you know, how big can you get in terms of the number of fact Bank clients and then thinking about the revenues in the quarter. It was about 10% of total revenues, you know for twenty Twenty-One, you know is a reasonable assumption maybe something like fifteen percent, you know, given, you know, the target of getting 30% in the next three to four years just to get a sense of of how quickly tag bank will continue to grow sort of in in 2021.
Thank you.
Hi, Jeff. Thank you. For the question just speak story here. When people asked us how would it be the net ads in 2019. We gave the guidance about 1 million years that we were closed 1.2 million last year. We didn't have the official guidance, but we gave the soft guidance about 250,000 proprietor 1 million in the year. And then we have one point. We just to see that we we we have some sense in size of the market. But sometimes you get surprised that it's bigger than what we thought or or performs is better than what we thought. So what we keep adding 1 million reporter for Peggy Bank. We didn't see a decrease in the demand in January. So we are having the same face if you look at the download, you're probably the number one in terms of downloads for for Bank apps. We had more than eight point six million in Q4. So we don't see this generation. It's hard to say when it's going to be dead.
But I just started this story about.
Motions and we are seeing the demand in the past two years. Remember in Brazil. We have 30% of the population that don't have bank account. We have these digitalization Trends not only Brazil but all over the world. So people get more digital banking. They know it's Works. They know it's safe. So we we don't see this generation demand in terms of revenues Tito wage here. I don't have any top of my mind. We are not giving this guidance. Uh, we had this 10% in Q4. It depends how it's going to be the cover of the cards how it's going to be the spendy and then we can get more and more information for you in the future. But at this point we are not giving these exactly number. I mean you can do the math and have some assumptions by yourself and that's what I can say you this point
Okay. No, that's helpful. Thank you.
Hello. Hello everyone. So here we conclude our Q&A session. Thanks for your time. See you next quarter. Thank you, bye-bye.
Like being fixed in this conference call. It's concluded. Thank you for your participation and have a good night.
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