Q1 2022 PagSeguro Digital Ltd Earnings Call
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<unk> is the big news, except for party bank customers because with picks you can send and receive unlimited and free wire transfer.
Patti Bank clients already use to do you can send and receive money within 10 seconds.
Patti Bank clients already use to do and you can pay your bills and believe those at any time and to date the week something Piggy bank clients already use to do to do all of this what's the pack ebay and download the Super App now CDB has always met complicated slow bureaucratic put here.
That patent bank CDB means the C stands for credit card with no service fees and up to 100000 of Craig's credit limit.
We need to yield double than savings accounts, that's right at yield twice as much and Theres also debate for complete a free of charges.
Good evening My name is Priscilla and I'll be your conference operator today welcome Chip bag Bank bags <unk> webcast results for the first quarter 2022.
At this time all lines have been placed on mute to.
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This event is also being broadcast live via webcast and may be accessed through Paragon bank bags and go to <unk> website at investors not faxing or that call right.
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I would now like to turn the call over to your host Ed account Aveda Investor Relations and ESG Director. Please go ahead.
Hi, everyone. Thanks for joining our first quarter 2022 earnings call.
Today, we have with us <unk> to do.
Emulation in articles shields, and Arturo shrunk our CFO .
Because your remarks.
There will be a question and answer session.
Before proceeding let me mention that any forward statements included in the presentation or mentioned on this conference call are based on currently available information and bag bank bag signals during your assumptions expectations and projections about future events.
<unk> Bank back Cebu believes that the assumptions expectations and projections are reasonable in view of QM fully available information you are cautioned not to place undue reliance on.
All of these forward looking statements.
Actual results may differ materially from those included in <unk> presentation or discussed on this conference call for a variety of reasons, including those described in the forward looking statements and risk factors sections of <unk>. Most recent annual report on.
Form 20-F, and order filings shoots and exchange Commission, which are available Bang Bang <unk> <unk> Investor Relations website.
Finally, I would like to remind you that during the conference call. The company May discuss some non-GAAP measures, including those disclosed in the presentation.
We present non-GAAP measures when we believe that the additional information useful and meaningful to investors.
The presentation of these non-GAAP financial information, which is not prepared under any comprehensive set of accounting rules or principles is not intended to be considered separately from or as a substitute for our financial information prepared and presented in accordance with IRS as issued by the.
I E S b.
For more details the foregoing non-GAAP measures and the reconciliation of these non-GAAP financial measures to the most directly comparable <unk> measures.
Are presented in the last page of this webcast presentation.
In our earnings release.
With that let me turn the call over to Ricardo.
Thank you.
Thank you Eric.
Hello, everyone.
And thank you for joining Oracle.
I am pleased to announce we reached another set of record numbers this quarter.
Almost all of them higher than the top of the Q1 guidance and market consensus.
Also.
As Youll see our Q2 guidance and next slides you have been seeing strong momentum in Q2 as well.
Our performance reinforces our core strategy of delivering the best balance between growth and profitability.
And your life sharing payments, while we create one of the most relevant digital banks in Latin America.
Our management is extremely dedicated committed.
And the lines to take decisions oriented to the business' success not only short term, but also in long term as you see huge opportunities to be explored in Brazil.
Going to slide four.
We can see the Q1 main messages.
During the first quarter of the year or payments platform also known as legacy group had its first wave of repricing, which led to an increase in merchant acquiring take rate of plus 35 bps in comparison to Q4 2021.
Our successful strategy to also serve small and medium businesses continues to outperform expectations with hubs GPU, reaching 25% of the policyholder volumes.
The unbeatable combination of migration from cash to plastic in Brazil, the best in class execution hubs in the lion share in long tail led us to have the largest scars to PV market share. During Q1, 2022, increasing 70 bps versus Q4 2021.
These results reinforce our ability to increase prices and at the same time keep churn levels under control.
In our financial services.
I also know my Spagat bank, our net adds market $1 7 million.
Almost 19000, new clients per day in Q1 2022.
Leaving 24 million clients of which $14 3 million were active.
Hey, Good Bank has also been diversify its revenue streams, mostly driven by interest income and we also plan to launch new secured loan products to be deployed in the second half of 2022.
Going to slide five.
Atlanta tour emission to keep disruption and democratizing financial services and payments, primarily in Brazil, while creating value to investors and stakeholders in a sustainable and diligent way.
This quarter, we reached $3 4 billion Reais in total revenues and income the highest level ever in the company and net income of 371 million Reais.
I would like to highlight the most relevant kpis for the quarter.
Beginning from the left side or payments spread from highlights.
We reached 80 billion Reais in total payment volume PPV.
$3 1 billion Reais in total revenue.
More than 10000 reais per quota in PPV promotion.
In 769 million Reais in adjusted EBITDA.
On the right side or financial services highlights.
We reaches 72 billion Reais Inky, PV 305 million Reais in total revenue and income.
$2 1 billion rising credit portfolio, and 86 million rise in gross profit.
On the next two slides, we can see some payments spread from achievements.
So beginning with slide six.
We're happy to announce that legacy was at TPP market share gain winner this quarter.
Growing 70 bps in Q1 2022 versus Q.
Q4 2021.
Why are the most relevant players laggard.
Look back to 2016.
Went up from 1% to 11%.
Which reinforces our thesis that is much easier and profitable to move up market create.
Creating a competitive advantage and scale, which can be easily adapts to larger motions.
Next slide.
We presented important kpis about our payment businesses.
Creating a unique scale that could buy superior logistics infrastructure and leverage our marketing advertisements through uol or.
Our customer acquisition costs adjusted by inflation decreased 5% in 2021 in comparison to 2020.
With a rational pricing strategy, combining two strong migration from cash to plastic in the country.
Our paybacks continues to be very short between four and six quarters.
With 2021 cohort presented the best performance in terms of return on investment in comparison to the previous cohorts.
In 2022, we expect that higher take rates due to repricing focus on TPG promotion increase lower P. O S device subsidies and the efficiencies and market expenses continue to support the compelling returns we have been retaining so far.
The beauty of these businesses that we do not rely only in number of motions to keep growing very rapidly.
Differentially than business that relies completely subscriptions with flat fees, we have several market growth opportunities in payments such as.
Growing approximately 80% more than the industry on average for example in Q1 2022, the industry grew 36% year over year, while our flexible grew 60% year over year.
Third specie in Brazil, which is 50% in 2021. According to estimates the country can reach more than 70% by 2025 increasingly share of wallet promotion.
E Commerce penetration as a percentage of total retail sales is still below the global average in with a complete online payments offerings. We believe we can I'll stick advantage on it.
And we have been consistently gaining TPP market share, adding new motions in volumes to the system.
So attracting underserved motion store solutions.
Finally, having created the lion's share and number of promotions with multiple times more emotional than the second player.
Allow us to be rational and to keep focus in our strategy to prioritize high quality promotions in order gross adds while cross selling and up selling our products and services.
Our execution has been very successful, which is also reflected in our lion's share in the profit pool of the industry.
On the next two slides I'll show you why we believe payments is one of the ways to build a profitable digital bank and how developer position with great promotions and consumers.
On slide eight on the left side, we can see three shots compare emotions that do not use bucket bank with those that use it.
Peg bank value proposition for long tail motion disclosure.
Marshals that you expect bank have four times more revenues higher NPS and much lower shorten when compare to those that do not use Bugaboo, Inc.
We also aim to increase bad bank penetration Smbs and it has been launched new features to serve these clients.
For instance, in this quarter, we launched corporate accounts.
Erected deposits from other acquirers and debit cards.
Our confidence is consolidated when they look at the market growth opportunities for banking in Brazil.
Who can do opportunities or cost to serve clients continues to be 10 times lower than the incumbent banks in a country, where top five banks concentrated 91% of the total credit portfolio.
As I mentioned before we also see opportunities to cross sell and up sell financial services to our SMB clients.
Theres no other acquired that service MBS with a complete digital account that included transactional cards investments et cetera.
Also.
Xu has a young population that is very active online, which creates a perfect landscape for additional bank like bicycle.
On slide nine we can see more numbers to reinforce or successful bank execution.
In less than three years, we were able to create the second largest digital bank in Brazil, with almost 24 million clients, adding almost 9 million new clients only in the last several months.
In addition.
When you go deeper in our numbers in two years, we reach at $7 6 million active clients being composed by consumers, which is incredible since our credit offering is it still limited for consumers and Peg bank is much more a transaction account at this time.
Our confidence increase when he ran our internal research with our clients to know how engaged they are.
Looking at the short end right side, we see that for new cohorts more and more consumers are using peg a bank as their primary bank.
Before I turn it over to Alexandra.
I'd like to reinforce we are very encouraged by the momentum in both businesses legacy Guru and <unk> Bank in.
In other opportunities ahead.
We keep working to grow our businesses and to create value in a sustainable way for investors and other stakeholders.
Our controlling shareholder is convinced that back as you continue to consolidate payments and financial services in Brazil.
And Ah holds approximately 40% of the shares since 2019.
Thank you very much for those who have been supporting us throughout the journey.
Or shareholders suppliers partners, all the stakeholders and also or bags team. Thank you very much but it shouldn't be please go ahead.
Thank you Ricardo Hello, everyone moving to slide 11, I will start the segment highlights with bugs gurus overview during the quarter.
The group's total revenue and income grew 63% year over year rich.
Point, 1 billion, Reais, and reflecting the TPP growth of 60% year over year totaling 8 billion Reais.
I would also like to remember that these growth happens even after a quarter of strong volumes due to the <unk>.
Holiday seasonality.
As a result bugs they go towards the tip you view market share winner as Victor mentioned, reaching almost 11% of Brazilian acquiring industry market share.
In the next slide we show Paxar Gurus net take rate evolution since October 2021 when we started repricing process following the interbank rate hikes.
We were able to increase our net take rate by 34 basis points since October maintaining stable levels of churn on our client base.
These stable churn, even with higher pricing policy shows the importance of our superior value proposition, which consists in a complete bank offering <unk> bank.
Instant settlement offering with same day prepayment and our best in class SLE with a robust logistic distribution.
We ended the first repricing cycle in April and will follow closely.
<unk> behavior in order to determine if others repricing rounds will be needed.
I would also like to highlight the successful execution on our hubs operation that was even better than our best estimates.
Hubs reached at 25% of bug Securitas TPG in Q1, 'twenty true showing the results of our assertive sales strategy for the SMB segment.
Slide 13.
I want to share some of debates about bank bank operation.
Total revenue grew 95% year over year, ending the quarter at 305 billion Reais approximately 90% of total revenue and income of packs.
Total payment volume reached 72 billion up 129% year over year with engagement PPV, gaining traction driven by cashing Bill payments card spending among others.
Upper right, we show our net interest income, which grew 164% totaling 142 million rise in Q1, 'twenty, two and gross profit, including revenue from surface mining provision for losses grew 83% year over year accounting for 86 million Bryce.
Yes.
Baghdad Bank kinetic ray to reach at one point, 54%, an increase of 61 basis points, reflecting the increase of monetize both PPV and higher float revenues due to the increase of deposits and the higher Brazilian interest rate.
Moving to slide 14, I would like to recap our milestones and credit underwriting.
Since 2019, we have launched several products such as credit cards, working capital Lawrence supply chain finance payroll loans and overdrafts credit line within packaged bank accounts.
Given the challenging scenario that Brazil has been facing now we have focused our development into collateralize it products such as credit cards back by Cds and F. GTS early prepayment.
The first quarter, our credit portfolio, surpassing 2 billion Bryce with working capital and credit cards, representing around 90%.
And other initiatives, such as payroll lower incentive F GTS or to prepayment reach at 10%.
We are very focused on the consolidation of our credit offerings. Since we know that these are fundamental piece to become the customer primary bank of choice.
We have been executing to using a very consistent way, making sure that our underwriting credit policies collection process and delinquencies provisions are under control and well price it guarantee that any major change in asset quality in the near term will be adequately provision.
We are highly confident that bags will consolidate the credit business in Brazil through pack bank by cross selling and Upselling strategist for existing clients.
Moving to slide 15, I want to share some facts regarding fixed impacts on our operations.
As we can see on the left chart mix has been promoting the Piggy bank question growth in 250% year over year totaling 24 billion Reais in first Q 'twenty chew bags.
<unk> bank accounted for almost 10% of big stores actions market share on this quarter.
<unk> has been key to boost the opening of new accounts since we offer an easy and simple on boarding process for the population to have access to these instant transfer network.
Another positive effect of peaks is the increase in the average balance of new accounts. Consequently, this is leveraging a cheaper funding source for prepayment operation and promoting the growth of the sizable cash out throughout card spending bill payments and top ups.
Yes.
Furthermore, this is really important to collect additional client behavior data to improve customer knowledge and assertiveness of new offerings and products.
Finally, before I turn it over to art I would like to review our guidance for Q1, 'twenty, two and establish a ballpark for the Q2 'twenty two.
Total revenue in the first Q 'twenty, two was 342 billion reais higher than consensus for the second quarter 'twenty. Two we expect a ballpark between three five and $3 6 billion.
Bugs are good with TPG grew 60% year over year, you first Q 'twenty to reaching the top range of the guidance.
For the Q2, we expect something around 84 to 85 billion.
Net income non-GAAP will be higher than Q1 around 370 to 382 million.
Having said that I pass the word to Archer our CFO . Thank you.
Thanks, <unk> and Hello, everyone.
I will continue the presentation with our Q1 turning to financial results in the top left of the slide 18, our consolidated net take rate reached 260%, representing an increase of 21 basis points year over year, even with changes in the client weeks due to hubs operation.
<unk>.
The increase reflects the company's ongoing pricing process for all segments, whose second round was fully implemented in April .
The table on the right side, we present, our P&L for the first quarter of 2022.
Our total revenue and income reached a record of $2 4 billion here is growing 66% year over year.
Excluding transaction costs related mainly due to a change in card scheme fees financial expenses related to cost of funding to prepayments receivables.
In exchange expenses and other financial income related to financial investments our gross profit grew.
28% year over year.
Adjusted EBITDA closer to that 665 million Harris up 16% in comparison to Q1 'twenty were met.
Net income non-GAAP achievement, a record of 371 million hearings for all first quarters in our history net income GAAP increase of 29%, reaching 350 million here is versus the same period last year despite of the hike who Brazilian Mr. Right.
Backing to the left side in the graphic below as a result of our TPG market share gains revenue growth and expenses leverage we delivered an earnings per share of one Hal and five.
In the first quarter of 2022.
It is 23 cents or 29% better than the same period of last year.
Shareholders' return.
Moving to slide 19 in the top left side operational expenses and other costs, excluding charge backs, reaching 516, you don't hear ice and Q1 tend to.
These amounts represent 60% of bogs total revenue and income versus 20% in the same period last sheet. They.
The improvement of 400 basis points reflects operating leverage.
Mainly from personnel and marketing expenses.
On top of that hubs and packet base revenue growth help it to dilute our offerings.
In the bottom left financial expenses reached 621 million here is fastest 44 Needham Hey is through Q1, so anyway.
50% of this increase is explained by the high cost silly from two 1% per year.
121 to.
4%.
In this quarter.
The other 50% was related to higher TPG volume prepayment of receivables two motions and credit card mix.
These effects were partially offset by ongoing pricing Macquarie.
<unk> <unk> inquiries on credit underwriting and lower cost of funding for deposits CRO.
The next slide Capex per sales reached 20% this quarter versus 70% in San Antonio. This increase reflects an additional P. O S per chase to recover the inventories coverage ratio and so for example potential new macro semiconductors due to lockdowns in some geographies.
For 2022 we are focused on with those P. O S subsidies keep healthier LTV to CAC and maintain our best in class F series on policy brokerage.
In the graphic below.
Depreciation and amortization are under control and totaled 244 million here is in Q1, 'twenty two representing seven 1% of box total revenue and income.
And a slight improvement versus full year of 2021.
And the next and final slide shows our cash position, which ended the first quarter at $8 3 billion. He is improved.
Improving 400 meter has year over year.
This was driven by TPG growth higher share of credit cards with larger penetration of same day prepayments emotions.
At the same time, we have been improving our capital structure.
Ending this quarter with 68% of our financing position funded by third party capital.
Our full banking license is due to diversified funding sources and extending average terms.
On top of that the company is focusing on increased deposits for merchants and consumers to keep lower financial costs.
Our packinghouse platform is also an important tool to distribute Patti Bank Cds.
Our clients.
Or bringing new clients to banks.
Now we ended our representation.
And we will open to the Q&A session operator please.
Thank you the floor is now open for questions. If you have a question. Please press star one on your touch Gonzalo if at any point. Your question is answered you may remove yourself from the kill by platform by two.
No.
And our.
Our first question comes from Mario <unk> with Bank of America.
Hi, everybody good afternoon, congratulations on the results let.
Let me ask you two questions can you talk about the evolution of your take rates you showed the monthly figures up too.
To the end of the quarter, but I was wondering if.
If you will continue to reprice in the second quarter. So if you can talk a little bit about the evolution of your take rate and then the second question is related to it if I take your netting the midpoint of your net income guidance for the second quarter.
You're basically going to be at about 750 million Reais for the first half's, which then annual aligns us to $1 5 billion be EIS, which is in line of the net income that you posted in 2021.
Is that how we should think about before we are or do you think there's room here for for growth in the second half of the year to be better than the first half. Thank you.
Hi, Mario this is Ricardo thank you very much for investing the time to talk to us and thank you for the questions. The first one about take rate.
Yeah.
Indeed, we had some some increase in price in April so.
Whether we're falling here in Q2 about take rates, we see take rates going up.
Important to say that even if you if you get to take rate and also the scaled the financial expenses.
We also see these massive increasing so.
The price increases you've been doing.
<unk> is showing some positive results and as we said during the presentation. There is no impact in churn. So we expect Q2 to have a better take rate and compared to Q1.
About the net income guidance Youre right. If you get the midpoint of Q2 is going to be around southern and 50 M by decentralizing edge when it would be one 5 billion I just want to reinforce that.
That's the best information that we have so far.
But we are here working always to beat the top of the guidance. That's what we will try to do so.
That's the first point and the second one is.
We expect also the TPP to keep growing in the following quarters. So.
I don't want to give you here a hard guidance, but with higher volumes. We also expect to have better.
Net income looking forward, but we cannot guarantee that at this point, but of course, we again were working here to beat the guidance in to keep this net income being better in the following quarters.
That's clear just a follow up then on the take rate.
We have a better understanding of like what percentage of your clients have already been repriced.
And if you're repricing, both the M D R's and N b and the prepayment product.
Mario we are repricing the D.
D M D R's and also the prepayment.
Usually we repriced steamed yards more in for credit.
Because that's where we have the impact with the Chicago funding right because the debit transaction is settling in the next business day, ending in credit cards, and 30 business days so.
But we are increasing both in yards and prepayments.
We don't give the detail about the percentage of the clients are or the percent of CP V that we are increasing.
First because of.
His strategic reasons and second because it's a very let's say.
Live situation here that will keep following different client with different industries, if our retail for fast food and depending on what's going on we keep increasing adjusting and even for some clients we did some.
Price does fluctuate a little bit with we sell it. So we are kind of protected for large clients that will not have an impact and we don't need to keep going back to them to increase prices very often so.
Unfortunately, we cannot give the detail about the number of flights a day busy but.
We are increasing the price for both in the Rs and prepayments.
Yeah.
Okay now that's great. Thank you very much guys. Thank.
Thank you very much Mario.
Our next question comes from Brian Cole Deutsche Bank.
Hi, guys. Congrats on the results as well from me.
I guess two questions.
Is the idea that you guys will continue to raise price in order to cover the costs of the rise in the Selic rate.
So you know if selic rates stop rising and just let's say stay flat it might take I don't know another 12 to 18 months to catch up to the full amount, but at some point I guess the plan is still the catch up.
And pass through the entire <unk>.
Higher rate I, just want to make sure the higher.
Interest rates will get passed through the Selic rate and then secondly on merchant account it sounds like more of the strategic focus now is to to expand and grow within the higher.
PPV per merchant.
And create a higher revenue per merchant than it is maybe to land a micro merchants that might not be as profitable. Just obviously you guys had a slide on that just want to make sure I understand that strategy. Thanks.
Hi, Bryan. Thank you for the question, it's Riccardo here again.
Regarding the prices just.
Just remember that the base interest rate of.
In Brazil went from 2% to.
$12 75 at this point and there's going to be.
Another meeting.
Of Central Bank.
In June 14 or 15.
So we are following the.
For all of the increase.
In base interest rates and if necessary, we can increase our price, but I would say you're dead.
The largest part of the price increase we already did because that's the high impact from 2% to almost 13%.
If necessary, we'll increase the price, but it will be more.
Customizable according to some to some clients and some adjustments that we need to do but I don't think that is going to be a massive price increase looking forward. That's one thing, but it is important to say that.
Brazil, we started increasing prices much earlier than the other countries and.
You know we had hyperinflation in the Eighty's in Brazil, where inflation 90 so.
Central Bank acted very quickly here to increase price to increase based on interest rates.
And we expect that at some point.
As interest rates could go down maybe next year or 18 months from now as a nation. So when that happens we will not.
Decrease oil prices proactively so same situation than it took a while to increase the prices and silly rises. We will also take advantage we will not decrease the prices immediately if you sell it goes down so.
What today is a headwind it could be a tailwind.
Two quarters for now, but going back to a question. We we the majority of the price increase is already done.
Uh huh.
And regarding net ads.
Youre right. We are looking for clients, we are not looking for big clients, but we're kind of.
Not focus too much on the nano motions the smaller ones. We we of course, we follow what happened with the previous cohorts. The payback that he had and we evaluated here and conclude that the best decision right now is to increase prices and decrease some of it is.
Improve the LTV virtual Cogs ratio.
And look for clients that use not only biopsy, Google, but also bank bank. So that's why we are focusing a little bit higher merchants and I will take advantage of our request and just to complement that different than other companies that.
The number is the number of subscribers is is key to model revenues in so one when you have flat fees.
It is very different here, because we have many growth drivers declines.
The clients that work with us usually D day.
They grow their TPG, we can cross sell products. So the idea is to also bring these clients and the increased revenue promotion that you have today. So that's already we had in mind. That's what you were looking for.
Ryan This is Eric just to add my two cents here related to the spreads.
When we think about spreads remember that as we move up market larger merchants they have slightly lower spreads in comparison to micro merchants and this is okay for us because it is EPS accretive so not necessarily spreads will be fully recovered, even though EPS will continue to grow okay.
Y due to the client mix change towards larger merchants that have much higher GP per merchant in comparison to long tail. So this summary here is consolidated long tail, increasing share of wallet and also moving up market with clients with larger volumes.
And is likely lower take rates, but still very profitable for us.
Got it thanks for taking the questions.
Thank you Brian .
Our next question comes from Pedro Leduc.
<unk> BBA.
But do you have any everybody. Thank you so much for taking the question.
I have two please.
First if I think about your your net margin evolution for the coming quarters of course, you're working on the topline on the repricing opex up seems to be getting diluted I'd like to get your views on that as well for the coming quarters, but also on the funding cost side, especially.
The lights of the strong deposit figure.
Can we expect.
From the funding side as a help for a total net margins in the coming quarter or is it something that you can do not offset a little bit.
So the pressure is still lingering so that'll be the first thank you.
Hi, Pedro with regard again, I'll start and artwork and can complement if he wants to know.
Just before I answer you about the margins and just real quick math here.
Financial expenses in Q1, 2021 was 44 million Reais.
And in Q1 2022 was 621, so it's the difference around $580 million.
In financial expenses.
Of course that happened because of the increasing base interest rates is one allies that this 600 million Reais times four.
You were talking about $2 4 billion Reais.
As an increase in finished expense a big headwind.
And even with that we are growing.
Our net income in absolute terms, which for US is a huge huge achievement because you can imagine $2 4 billion before taxes is a big headwind and we are still delivering a net income higher than last year, a 29% if you're looking to get measures. So with all the scenarios that we have.
Looking forward.
We will focus to remain and to increase our EPS, we always look for growth and profitability. So.
We have this volatility not only in Brazil, but around the world and presidential exits in Brazil, and so on so this is here we are trying to move some operational leverage as we had in personnel and marketing for instance.
But we're not looking for.
Margin as a percent of revenues in the following quarters because of the volatility that you may have and so on and we have this headwind in financial expenses, but I don't know if auto would like to complement.
And regarding funding costs we.
Of course, we are following that very close.
And we also have the advantage by having the bank.
With $11 2 billion Reais.
In deposits that we it helps us to decrease the average cost that it having funding and it's growing very fast.
Mainly because of the deposit that having the balance of garden also the Cds that we will be launching since I'm.
Last year and just to add my two cents here Pedro This is Eric when we combine the full banking license in all the products that we have been rolling out remember that.
The deposits that we are capturing here is a winning go to market strategy should keep attracting new clients with high APR wise.
At the same time, though we fostered cheaper balancing accounts to help to diversify the cost of funding and the heap than we have been seen in our profits in the short term related to the interest rates hikes will not be as high as it was right now because in the next interests rates.
Hike cycle, we do expect it to have a larger deposit base, which will be a natural hedge for the company to deliver much higher profits in the future since we have the full banking license and <unk>.
That's that's very clear, especially in <unk>.
That's what I was getting to another deposit was unimpressive figure of reps and now I'll go back in line for a second question. Thank you.
Thank you.
Our next question comes from Jeff Cantwell Wells Fargo.
Hey, great. Thanks for taking my question I wanted to follow up on the the Pie bank commentary that you're right.
Highlighting earlier and more specifically on slide nine of your presentation. I was hoping you could talk a bit more about the active client base and the growth that you're seeing inactive clients right now one of the things. We're trying to unpack is just sort of the marginal profitability of the of the consumers that you're bringing on board I was hoping.
Give us a little bit of a sense of what youre seeing.
In some of your more recent arens and how you think about profitability going forward. Thanks.
Thanks, a lot.
Hi, Jess.
Yeah, and slide 19, you see that we grew very fast in consumers.
And in July it on the right side, we see there.
They're using bank bank as a primary bank more and more.
So are we.
We also think that we have been cautious in terms of giving credit for consumers.
And even with that.
Yeah.
More than 50% of our clients use us as their main bank, which is very good for us when we decide to.
To launch new products ought to give some credit for displays but.
Going straight to a question here, what do you do with emotions to monetize of course, we have the transactional that we we have with this client when they pay a bill and the top up a mobile phone a prepaid mobile phone is the one that have this revenue streams, but they also have another two advantages here are two product lines I would say well the first one is a dip.
Posits that help us in the funding which is important of course, we will have this.
Days of clients growing in deposits and biotech outgrowing helpers in the funding costs and you can imagine that in the cards with 13%.
Base interest rates per year, so that helps and we have been launching new products.
We will give credit for the consumer with collaterals. So we already have some Cds that we offer for these consumers when they deposit of CBOE can give them a credit card and then we can receive revenues for an interchange in salon and with a very very limited credit risk. So that's why we have you might have.
These points and are we still have been cautious about giving credit. Although we had a an increase in deposits in Q1 compared to Q4 around 200 million Reais from one nine to $2 1 billion.
It was mostly collateralized products based on deposits that companies make for employees in the government. So if the consumer doesn't payers. We can we are kind of backwards from the government to receive this money. So that's why we also launch it and that's the majority of the growth that we had in Q1.
Hmm.
Okay.
Okay. Thank you very much that's great color I will jump back into queue I appreciate it.
Thank you Jeff.
Our next question comes from Andrew let the F. L E D a.
Thank you guys for taking the follow up I would like to switch subjects quickly for credit and what's it's small and I. Appreciate you guys have been prudent on it.
Portfolio is growing steadily no doubt 2.1 billion.
Can you discuss a bit how we should expect that evolving in the coming quarters, especially between the secured lines, which seem to be growing faster.
And then other than growth.
Question now related to credit risk no, how you're seeing that on the ground.
How what's the ex provision expense figure for this quarter and how should we think about that one evolving in the coming quarters.
It seems like this adjusted some standards et cetera, maybe it has peaked or stabilized. Thank you.
Hi, Pedro.
<unk>.
What I've seen so far as star from backwards and then again outgrow can help me here.
What I've seen so far in the market in the Brazilian market and we have been hearing from.
The banks that know how to give credit in the market.
That there was a little bit of deterioration of Npls.
And of course.
The cause of that is the micro scenario, we'd be seeing here with the inflation unemployment and so on.
No.
And here with this was no different we had a little bit deterioration npls nothing to be concern.
But we also expected that we've been seeing the cohorts.
And that's what it's Wayne.
Went on with us and artwork can give more color but.
Looking forward I would say you that we do not expect to grow our credit portfolio too much. If you grow at school girl, just a little bit, but there will be a transition from.
Quarter, Elisa products no collateralize it projects to collateralize. It project. So we are already doing that and we did that in Q1 with this F. GTS product that you know very well in Brazil, what I'm talking about so we have this government guarantee so that's a very important and secure.
And safe collateral so wasn't probably wasn't you have what it was in the future as more and more quality realizing products taking share for all of their products with more credit risk of course, our goal here is to have a balanced portfolio with product suite.
Higher.
Risk, but of course with higher returns and a huge part of the portfolio with collaterals that we can also and navigate through different times and dependent on what's going on in the macroeconomic scenario, but at this point is the majority of our credit portfolio is just too without collateral the working capital Ford emotions.
We are what do you see who is going to Cds me, great migration from non collateral to collateralize it products and Pedro just to complement.
We are seeing difficulties in the economy and difficulties in the market all the incumbents at that the portfolio deteriorate, a little bit and happen here I've been here too.
But remember that our net income non-GAAP for this quarter was 371 million Harris imagine.
If the clock the asset quality.
Should be better.
We could have a better resorts to and this is the reason that we are.
Observing the markets trying to understand when we will be at the right moment to accelerate again and at this moment, we are as Luca said.
We are working to provide credit for merchants and consumers that could provide collateral to us.
That's perfect.
Very full and just regarding the provision expense line.
This quarter as I mentioned net income could have been even higher now cannot see has that provision expense line, maybe plateauing or you think that it will continue going up as the portfolio also grows.
Yeah, I can say that it's a we can't say that there could be.
Stable.
Dan.
And the most important thing to US is that we are using the most.
Most are.
Adverse AD accounting process to the credit portfolio and we are not expecting huge impact in the future because our provisions are based on <unk> nine.
Our expected losses, taking a look at the next 12 months and so we are provisioning and so there is no problem for the future, but Pedro this is Eric more important to ask about provisions in your computer right to make this question is the APR that recharge okay.
In.
In light of this challenging environment.
We also increased the apr's potentially or expecting to see a deterioration of asset quality to keep these spreads. Okay. So this is the main message here. The APR is increased to cover the higher provision for losses.
And remember that the Ifr S nine.
Makes the company to make the upfront provision for losses.
And capturing higher margins as time passes by.
And as we book as an interest income okay.
<unk>.
Super useful guys. Thank you so much thank.
Thank you Pedro.
Our next question comes from Wuhan, and Blah Blah Blah H as before.
Hi, Timna.
Ladies and gentlemen, and thank you for all the comments.
I just have one quick question.
You mentioned that the earnings in the coming quarters should continue to improve.
We price it mostly done.
I believe it was.
Funding costs continue to go up because I.
As you do more of the game and on the volumes grow.
So that's it.
One question on the funding cost in the coming quarters as well so what would be the main drivers for the expansion in Arlington the coming quarters.
Also the monetization.
<unk> bank has been a bit weak.
And I understand that's mostly because they're not being very aggressive on Covid then of course I can make sense.
How do you think that contribution will look like by next year.
Ballpark bank.
Thank you so much.
Thank you and you have for the question for investing the time to talk to us.
Regarding the repricing.
It's a non going process I guess, what I mentioned before that was a clear is because I would say the majority of the price increase was already done because the interest rates grew from two to almost 13%.
And if there's going to be an increase we expect that will not be that huge looking forward is going to be a big we do not expect a big increase in the following two meetings and in Central Bank.
About interest rates so.
That's why I said that it could be adjustment there will be adjustments that's for sure.
But the majority was already done.
And we think that we are in a good level of spread.
Reds when you compare the financial income that you are charging and the financial costs that were being head. So I know way to say that the prepayments we've increased volumes or increased because the company is doing very well in acquiring growing 60% year over year.
But of course do revenues the financial income revenues grow at the same pace or even faster than that so.
The spreads between the financial income and financial expenses, we think that we are in good levels of course always there's always some some room to improve a little bit, but we will keep falling I just don't want to say you that we will increase the price for everyone.
And I would not affirm that we will not increase price for for anyone so the.
The majority of the price increase or is it done so that's the.
The main message and looking forward for next year.
As I mentioned before the central Bank in Brazil.
Was very rapidly to to increase the prices here despite the spike in interest rates.
So we expect that inflation could be controlled in the following quarters and when that happens if the interest rate goes down.
We will not decrease the price for our clients. We tried to keep at the same level at least for a while and of course make that as a tailwind.
As much as we can so that's why it's hard to say you what's gonna be Myers is going to be better or not and how much is going to be because we have this macro situation here, but.
The whole company with the things that we have under our control we are doing like.
Leveraging the operation expenses personnel and marketing.
Increasing prices for some clients make more rational acquisition client and so on so that's the main message about G Macquarie.
Alright. Thanks.
I know you will say that the.
Revenues, maybe a little bit lower than what you expected but.
The fact that we are not giving credit because of the macro scenario.
Of course affect the revenue Peggy bank.
It could be higher yes, it could be but with a higher risk that we don't think it is time to do that right now but in our opinion. The fact that you already have 23 million people with open accounts and Vega being 14 million active clients.
For her as a very very very huge opportunities that would be when we decide to go to give credit to monetize even more.
We can speed up and probably I hope, we can catch up.
Part of the revenues that we are not capture at this point because of the macro scenario in the critical sessions. We are not doing right now should things near first one remember always remember spreads for larger merchants are as likely lower than micro merchants and we are not a company anymore that relies AUM.
Really in micro merchants, 625% of warehouses in Q1.
Came from hubs small and medium merchants secondly, revenues grew 6% to 6% year over year, while personal blows marketing and advertising expenses combined grew half of that I mean.
The investments that we do the new features such as baggage bank and hubs. They are already playing out delivering operating leverage to the bottom line. The big headwind is financial expenses and despite that we are working hard to deliver.
Higher net income in 2022 in comparison to 2021.
Okay.
Understood could you just talk with you about our competition, especially in the lung data.
The competition being more rational I believe all the players of 19th and the prices are.
It should be more rationality, but anything that has changed anybody being aggressive about it last night in the space.
I need a DSL accelerate.
What are we have been observing the market is that.
All the relevant players have been more rational.
Your pricing strategies.
In the long tail segment.
We have the lion shares in <unk>.
In terms of number of Marshalls.
And through our experience.
Having the largest.
Marshall network in Brazil.
For all these years.
We.
Learn how to manage broadly.
All of these low tier customers and we have.
A very good value proposition on this segment.
We have superior logistics, we believer our terminals in the same day with between one day or two days mostly.
We are also.
Have a value proposition between the banking business and acquiring business.
That no one has in the market.
We provide this service with a single App.
And with a single customer care contact for merchants.
So we believe.
That our value proposition and now the assets we have.
Have makers.
The strongest competitor in these arena and being more rational.
About.
Terminals subsidies.
And.
Promotional offerings.
It is making us to capture more value out of these clients.
We are raising.
A b average PPV of emotions.
And we are also.
Hum capturing Marcia.
Merchants that has a higher propensity to use financial service.
This is helping us to boost by the bank.
And just to complement anyhow.
The initiatives from other incumbent companies acquiring companies.
Such as.
Cielo and credit card pop from Haiti.
They kind of decided not to keep with this instead tubes anymore.
So it seems that there were more competitors in the past than what he had today in long tail. So that's the situation. If you look at one year, one year and a half ago. There are many many more players trying to come to long tail and just to give an idea. These two companies decided not to to serve long tail anymore.
Because of the reasons that are centered that said the logistics that he had bagged bankers of one so it seemed more rationality and less players serving mondeo at this point.
So I think that's very helpful. Thank you so much.
Thank you Neil.
Our next question comes from Kai your path to UBS.
Hello, everyone. Good evening. Thank you.
First question I have two here on my side. Please the first one is on <unk> bank revenues. So in the last quarter, you mentioned our guidance for Peg Bank revenues of 240 million Reais.
260 million Reais.
And did they did you disclose the results were really close to the end of the first quarter, but you delivered more than 300 million. This quarter why are the NII remained flat.
After over quarter. So just would like to have a sense on what happen. If this is indeed any box office and the retail lineup for fees. We saw the vehicle and also what can we expect in terms of revenue growth from Pac bank going forward.
If I may just to add my second question here is related to the tax rate. If you could first give more details about the impact on effective tax rate this quarter.
And what can we expect going forward and of course I'm trying to better understand what could we expect in terms of earnings before taxes. If we could see this expanding over the next few quarters.
Thanks, a lot.
Yeah.
Yeah.
Yeah.
HEICO is a ricardo I'll start backwards here, and then artwork and compliment and also talk to you about the.
The bank bank revenue guidance.
When you look at the tax rate this quarter. If you look at the specific line you see a lower effective tax rate right.
But the point is in other lines of our P&L, we had a negative revenue tax impact in the line of other financial income.
So we have a headwind in the other financial income.
And then we could offset that in our.
Tax rate for income income tax rate. So if we make the sum of the parts and the puts and takes there is no real benefit and the bottom line is just a trade off.
In tax collection between different lines. So for this reason Oh Oh.
We foresee that net income impact was negligible here.
The situation is this a tradeoff between these two different lines it's Walter.
And Kyle just to talking about the going forward related to effective tax rate the same as due to explain it.
We will continue so our effective tax rate will flows around 16 18, 20%, okay and.
And just to just to be to be a lineup here.
And related to bhagavan guidance hardware revenue.
Yeah.
Excuse me, ladies and gentlemen, please hold wireless speakers reconnect. Thank you.
Excuse me, ladies and gentlemen, please hold.
Hi, Neely.
Ladies and gentlemen, please Howard why they speakers reconnect. Thank you.
Ladies and gentlemen, please hold.
Excuse me, ladies and gentlemen, please how they speakers reconnect.
Sheng Thank you.
Please call the speakers were connection.
Ladies and gentlemen, please hold.
Thank you.
Appointment.
Got it.
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Okay.
Yes.
Okay.
Excuse me.
You May proceed.
Hi, everyone I'm, sorry, we had a technical issue here with Nicole So we'll just.
And so the question from chiropractic from UBS regarding guidance and also the net revenue of Stag Bank. So auto. Please go ahead.
And Kyle.
Yeah.
Okay.
What happened with the guidance in Q1, 'twenty two with the parameters for our private bank was that we had.
There were more a little bit the pessimist about the revenues bird.
We beat our estimations for granted four guards for managed services there that's it.
Thank you.
Okay. Thank you.
Thank you Kyle.
Our next question comes from Fedex <unk> Evercore ISI.
Hey, everyone. Thanks for taking my question.
My question is a two part question I admit on the churn.
So I understand that you started increasing the rates in January and then obviously it has continued.
Until April .
How much more runway do you think is there for the churn to go up is that is all the journey fully are reflected in the price increases or are in your estimates and the second thing is.
I understand that how the John walks, where you'd be won't see the actual churn intellectual months.
From now so.
Where do you think would be would be ending by the euro and in terms of the active merchants within your bags business and also your focus on high kind back lines was that increase there.
John <unk> your within the emergence so long story short my question is like how should we think about the active merchants for the full year.
I. Thank you for the question.
<unk>.
As we talk about this quarter and then we can can conduct multiple employers.
So what we had in this quarter are we still have some legacy clients from Mike.
Third we see this churn, but as you mentioned in your question. They they are not making any transaction with this in the past 12 months. So.
If we just exclude mortgage will have group have ruling are decent numbers of course is not the same to 50, Debbie we used to have every quarter, but it was a conscious decision here, we decided to increase price to get better emotions not to focus on none no motions. So the gross adds.
We're a little bit.
Lower than what we used to have in the past.
Of course, we're seeing churn for one year ago.
But for US what are following very close is D.
How active it is motion Sayonara base, how big is ETP deep immersion.
And how it has been our growth, which was 60% year over year and revenues growing 66% more than the peak volumes at TPB. So that's why we although we see this number of churn maybe number of net adds not the same level used to have in the past we are not losing G. P V. Because there is.
Mo as more merchants that we're losing share in terms of price increase.
We didn't see any spike or additional churn because of the price increase because all the market increasing prices. So there is no.
Okay.
Churn all if.
It doesn't sell with cards anymore, which is not a reality. So we increase prices all the market also increased prices. So we didn't see an increase in churn because of the price increase.
Looking forward.
I guess, the best estimate that I can give you that it is not likely that we will have to stick to 50 that used to have per quarter before.
But again, we are looking for Marshalls is better to PV.
And the impact of the churn that we're seeing is from 12 months from now it turns out he have the behavior that we're seeing the base right now we don't see deterioration because of pricing using Russell at Lochinvar.
So the.
Let's say with straightforward here gross adds are lower because we decided to.
We took this decision to get less motion there is more to be deep and the churn from the big base for mortality from non emotions that we had one year ago was impacting the total net adds but again, it's better to look at the total PV CPD promotion revenues promotion. This will want so it's hard to give an estimate how it's going to be 41 quarters.
So that's the best information that I have right now sorry.
Sure Yeah. Thank you so much.
Yeah.
Our next question comes from color pattern from Cantor Fitzgerald.
Yeah.
Hi, guys. This is keeler firm Cantor on for Josh today.
I was hoping you could share a little more color about the diversified revenue streams around pack bank. What services are our clients, specifically engaging with and is that going to be a trend that continues into the future. Thank you.
Thank you for the question.
When emission diversification, because we use it to have.
If you look back the majority of the revenues were having were related to.
Interchange of the card people just spending money with the card. So the interchange every time. They made approaches are they buy online or things like that or even the money in an ATM and then we've been seeing that engagement is increasing.
Of this 14 million clients. So the transaction is also helping the revenues and also the fact that we increased our credit portfolio.
The openness in in to increase the revenues. So as he mentioned indeed Q1 may messages lives we.
We are seeing this.
Revenues coming from interest getting more share in peg bank and probably we'll see that.
Increasingly falling quarters, because although we will not increase the credit portfolio too much where it seems that you have we expect to have the credit portfolio is stable and with more collateralize. It product. So that's what we see looking forward the other group.
Growth drivers that we have we.
We talk about Smbs destock out.
We launched it many projects during the quarter, but I would say I'll highlight three of them that are having these slides one is the debit card for Smbs. They were asking us for to have a debit card.
We also add.
Direct deposits from other acquirers to Piggy bank.
And also are launching a Cds.
With credit cards for Smbs, because it didn't have credit cards for four formalize. It companies. It was only for consumers at this point for let's say people not firm for companies. So those are the drivers that we expect to help us in the revenues looking forward because we see.
It's huge opportunity for Smbs as I mentioned in my.
Speech at the beginning we.
We are the only acquired that we service MBS.
With payments in these DUC count.
Look all the acquirers that are trying to service MBS.
Or they don't have any bank account they are subsidiaries of banks, but they don't have their omega count.
Or others are trying to do that they are behind us at least three years. So we are the only one with the payment solution induced accounts. So we expect also to <unk>.
Expand and penetrate marinaro smbs not only in terms of clients about us in terms of engagement and consequently, our readiness.
Great. That's really helpful. Thanks for taking our question.
Thank you.
Our next question comes from Kate all about that and Goldman Sachs.
Hi, Good evening. Thank you for taking my question.
I have a follow up I guess on the guidance a bit and on the margins that are implied right. I mean, you hit the midpoint of the guidance it.
It implies that the margins fall a little bit.
From this quarter I mean, you mentioned most of the repricing is done.
When do you when do you think that we can begin to see some operating leverage in the business and the margin begin to go up I mean is it do you need to wait for interest rates.
To come down is it you know AG.
AG bank in the hubs became profitable.
Just to get a better sense of when we can begin to see an inflection point there and then maybe a follow up to that I mean, you mentioned you would proactively reduce rates when rates come down.
But what if your competitors start to lower rates.
When when interest rates decline would you be forced to follow willing to follow and.
Or do you think you could then be able to maintain prices and in a low interest rate environment as well just to get a sense also on some of the potential operating leverage there if and when rates eventually maybe come down. Thank you.
Hi, Peter this is Ricardo well definitely we will have some we expect to have better margins when interest rate goes down because of this.
[noise] mismatch of timing between the decrease of course versus the.
The level of revenues that we have at this point, so increasing the spreads.
Because of our interest rate goes down that would keep the price at the same levels.
Regarding a question if competition decreased prices I don't think it's a.
Let's say a simple answer like we're going to follow where we will not follow we have $7 7 million merchants almost 8 million emotion. So he can imagine who have <unk>.
Every type of motion the know the Cds in Brazil more than 5500 cities.
Many of our clients users.
Not because of the prices we have the highest net take rate of the market.
But they use us because of the ecosystem because they have bagged bank because we are the first mover and so on so a part of our clients are not that price sensitive. So I don't think that there's going to be a move to other player because we did not decrease the price. So we don't need two to follow immediately if some company.
Competitor sides of the surprise and many of our competitors don't have a strong presence in long tail phrased. So we think that will take advantage of that of course, if we think about large clients that they are all they have all the financial manager I think that there could be some competition there, but again, we tried to make.
To differentiate bags should go to for all of US better services better logistics and so one should try to sustain a higher price when compared to competitions and if you look at the industry, we have the highest ROI.
The rustic rate and also net take rate regarding margins in short term debt you were looking at our guidance.
Depending on if Youre looking to board of the guide is the me then so one but it seems to be stable in Q2 of course, we still have some days to finish Q2, but it seems to be stable operational average, we do expect to happen because we already invested in hubs in the past two years.
With over 300 hubs and we are not let's say opening new hubs at the same pace that you used to have in the past only small hubs here and there. So all the base that is hubs that we've asked in the past they create the base of merchants PPV that we're having right now.
Of course, we can take some we can get some leverage there.
But again I, just don't want to promise here better margins, because we don't even know how it's going to be the next.
Interest rates increase we will have by June and then of course, we've had as interest rates increase we increased the price as much as we can and we have the ability to pass the price as we could see in Q1 to have for me.
We had a very successful price strategy here, we were able to increase the price increased take rates and churn levels under control.
And that's why our revenues grew more than our volumes, 6% to 6% versus 60 in Q2, we are seeing better take rates when compared to Q1. So.
As a matter of time for his operational levers to happen, but I just don't want to promise you when will happen but.
I guess the best answer here at this point just to say you will some of the headwinds that you have today could be tailwind as in the future. So.
Let's see when they will they'll become some tail winds and we can take advantage of that.
Okay.
Great. Thanks, that's helpful. Maybe just one follow up on that in terms of AG Bank and Bank. You had initially said near breakeven maybe end of this year. The glass Comscore you could maybe that gets delayed a quarter or something because of the sort of slower credit origination.
Is that still the case do you think the impact may break.
Turning to profit next year, and then anglophone similar question on the harvest would.
Would you say how long do the hubs take to become profitable is that this.
This year next year any color on the profitability of the hubs.
Okay.
Regarding Piggy Bank Tito we.
But it seems so far down here in Brazil is.
With all the changes that we saw in the market.
Even if the money with the.
The excess of capital that it had last year ended these in mind is not so he's anymore.
So opportunity to grow.
Okay.
Okay.
At some clients even for other smaller players that had funding from venture captors and so on so we are following D. D. D. The idea here or the rationale here to speed up our Mega Bank acquisition of clients, we're doing very well, we can see the numbers.
Monetization could not have been the same Gloucester the same pace that you expect to have but.
But we are already the second largest retail bank in Brazil. So.
But keeping in profitability will be a consequence.
To give it a specific date if you if it's not.
Can you hear me.
Yes.
Okay Tom.
If it's not in the Q4 this year that he said he is going to be in the following quarters, but.
Davinci Siri doesn't move the needle of the profitability of the company. We are building the second largest digital bank, forcing millions.
Increased engagement, increasing deposits, helping us with funding and so on so.
We are in the path of breakeven a I just cannot assure you is going to be this year as you said before but if you're not going to be very soon and so.
Honestly.
We have taken advantage of the scenario to grow bank a bank as fast as we can.
And the hubs I guess I'd, who can help me with the hubs.
Three of the hubs.
Okay.
This is under standard.
Regarding to their hubs.
Hubs of represent today, 25% of our TPB, we have around 300 hubs.
Brad all over the country covering around 80% of Brazilian GDP geography locations.
We.
Have a great compelling paybacks in our hubs operations between four to six quarters.
What is that through our superior logistics infrastructures.
Same day prepayment and bank bank offering.
We had been growing.
Much faster than the competition and our hubs strategy.
Exploring and gaining share on the SMB segment.
And we see.
Batch.
We are gaining.
That traction and market share.
At much faster than we or regionally what to think about.
Sure.
Okay. Thank you that's helpful.
Thank God.
Our next question comes from funding that that Mill is Street research.
Hi, there yeah. Thanks for taking the question just a quick one at this point please.
You've given.
Some data on the hubs contribution to T. P V.
Over the course of the last few quarters.
I'm trying to kind of plot that progress over time I E. How much is hubs contributing over time, it's a bit hard to get to the exact numbers.
I'm curious you know towards degrees is the long tail still growing three P b relative to hubs.
I mean for example for you said hubs creep UBS is up to 25% of total I think it was 20% of the Unbilled at the end of the year. So when I look at the PPV progress through Q1. It was flat does that mean long tailed TPB town in Hep C. P. B is up.
And when you're guiding for T. P V. In the next quarter are you assuming long tail it still growing or is it really coming from from the hubs at this point thanks very much.
Yes.
Hi, Thank you for the question well.
Long day to PV is growing.
We were the first mover, we have a very loyal base of.
Long day O N N small emotions that work with us so Mr. PV is growing in long tail, but of course when you look at the.
Keep EV metric hubs are growing faster because they are usually are five six times higher than that.
The size of a long tail. So that's why the.
Rapidly get a share of TPG is 25%.
Which is good because we are in a market growing 60% 366 in revenue. So one so looking at at TPB, We expect that hubs will take share because the hubs operation is doing very very well.
We thought it would be even harder and have already seen the market so hubs.
Are doing very well so they will keep taking share.
But long tail is growing but it's not growing at the same pace as hubs because of course, the maturity of TPP compared to hubs is not at the same level, we are growing hubs more fast or faster than than than long tail, but both of them are growing.
And as I as we mentioned before although hubs have a lower net take rate as a percentage in absolute terms is a very decent profit.
And it helps because they are five times larger than the long day. So.
It's hard to give you what is going to be the size of hubs looking forward would you expect to take share and is not bad news, because theyre growing faster than the long tail and as I said before we will cross sell or <unk> solutions for hubs as well so Eric.
Just my two cents here it doesn't matter the size of the merch and double your served if it's a long tail. It's in SMB. This might be a trickier misleading question and why is that because we are cherry picking always the best merchants and this is why we have the highest take rate for the market and we are the most profitable.
Wiring company building, a banking with 23 million clients.
And capturing more than 40% of the net profit for the sector. So youre not concerned that lump AOS and B, what do we know what we know is weird cherry picking the best merchants and for those of poor economics.
We are not focused on that we are focusing on cherry picking the best merchants with higher GB per merchant and helps take rates.
Okay got it thanks.
Yeah.
Thanks.
This concludes the question and answer session at this time I would like to turn back.
Turn the floor back to hit kind of the broad threat and Alessandra Many army for any closing remarks. Please go ahead.
Hi, everyone. Thank you very much for investing the time to talk to us. Thank you very much for those who have made some question was as well and hope it just shoot to see many of you in person in the following weeks. Thank you very much.
This concludes today's pack bank back a good conference call. Thank you for attending today's presentation.
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