Q3 2022 PagSeguro Digital Ltd Earnings Call

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Good evening My name is Todd you and I will be your conference operator today welcome to bag a bank bag Cigarillos webcast results for the third quarter 2022.

At this time all lines have been placed on mute to prevent any background noise.

Should any participant need assistance during the call. Please press star zero to reach the operator.

This event is also being broadcast live via webcast and may be accessed through buying a bank bag cigarettes website at investors that <unk> singled out dot com.

Participants may view the slides in any order they wish.

Today's conference is being recorded and will be available. After the event is concluded.

I would now like to turn the call over to your host Eric Unabated investors relation and E. S. G. Director. Please go ahead.

Hi, everyone.

For joining our third quarter 2022 earnings call.

Today, we have with those he Caddo Dutra CEO of Uol group and board member of Biobank box Guru.

Alexandre Miami, CEO and Artra's shrunk CFO .

After the Speakers' remarks, there will be a question and answer session.

Before proceeding let me mention that any forward looking statements included in the presentation or mentioned on this conference call are based on currently available information and Tag Bank X equals current assumptions expectations and projections about future events.

<unk> bank bags, Agouta believes that the assumptions expectations and projections are reasonable in view of currently available information you're cautioned not to place undue reliance on these forward looking statements.

Actual results may differ materially from those included in packs bags <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 biobank bikes Google's. Most recent annual report on form.

20-F, and other filings with the Securities Exchange Commission, which are available on the bank bag Sigwald Investor Relations website.

Finally, I would like to remind you that during this 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 is not which is not prepared under any comprehensive set of accounting rules or principles is not intended to be considered separately from.

Or is this too for our financial information prepared and presented in accordance with Ifr S as issued by the E.

E S P.

For more details the foregoing non-GAAP measures and the reconciliation of these non-GAAP financial measures to the most directly comparable I FRS measures are presented in the last page of this webcast presentation and earnings release with that let me turn the call over to Ricardo Thank you.

Hi, everyone.

Good evening from so Paulo, and thank you Eric.

Going to slide three.

Would you like to begin our presentation with the main messages for Q3 2022.

We reported the highest EPS impacts history for third quarters, achieving one way out in 16 cents up 20% versus the same period of 2021.

Thanks cigarettes IPV reach it.

93 billion Reais growing 35% year over year, and one more quarter outpacing by far the industry growth.

Our successful repricing.

Led to Aneth <expletive> rate 24 bps higher than Q1 2022.

Baghdad banks deposits reach at 19, 4 billion Reais 107, 1% higher than the same period of 2021.

If I could bank net ads accounted for one 1 million new clients, leading to almost 26 million clients. We are affirming pack banks position as the second largest digital bank in Brazil in number of clients.

Capex to revenue ratio was 12.4% lower 230 bps, when compared to second quarter 2022 and trend in dollar moving forward.

Going to slide four.

Once again, our success with strategy on democratizing the acts as a financial services and payment solutions in Brazil resulted in record numbers in all main kpis this quarter.

Payments platform to PV was 93 billion Reais in our revenues reached $3 7 billion reais growing faster and to PV, and reaching almost 50% growth year over year.

Mostly to PV promotion grew 39%, reaching four point in 1000, Reais and our gross profit to reach at one 3 billion Reais.

Financial services.

Banks to PV outpace it according to PV for the first time totaling 105 billion Reais with 339 million Reais in revenues.

Gross profit was 76 billion Reais, increasing 35 million Reais in comparison to the last quarter due to a cautious approach in credit underwriting given the macro uncertainties.

In Q3, 2020% to 100% of credit underwriting was secured which helps the company to balance the asset quality at the same time exploring a safe injury pointing lower for our consumers.

Our deposits reached an impressive number of almost 20 billion reais, 171% growth year over year.

Overall at the center of the slides.

Total revenue and income were each at 4.04 billion Reais, 45% higher than Q3 2021 net income on a non-GAAP basis reach at 411 million Reais, while to get net income reach at 380 million Reais, 18% hired into St.

Period of 2021, and the highest net income of bags Easter for third quarters.

Now I'll pass the word to Alexandria to show some views about her business units. Thank you.

Hello, everyone and thank you Ricardo for the unusual remarks, moving to slide five we compare our performance relative to cards TPG market and I'm proud to say that we have been able to keep growing with profitability, which reinforce our successful repricing initiatives.

And unique value proposition for our clients.

The chart on the left we are the TPG market charging winner in this quarter when compared to Q4 'twenty one growing 92.

Basis points, considering the Brazilian cards Association criteria for TPG marketshare.

As we can see the second chart. Although every player has been increasing prices our repricing initiatives for the most successful.

By focusing on creating a strong relationship with our clients and having a unique value proposition, we were able to increase our net take rate much more than our peers over this year.

Finally in the charter on the right to compare profitability enough for an easy way to understand when we look at how much profit each company can extracting that to come over to PV. We can see that bags Creek, two five times more profitable than peers.

Moving to slide six I will start the segment highlights with bug scooters overview during the quarter bugs. They go to startle revenue and income grew 49% year over year, reaching $3 7 billion reais faster than at TPG. Thanks to the successful repricing process overdue.

That resulted in an increase of 24 basis points on bugs Agudio smectic rate since Q1 'twenty two.

<unk> grew 35% year over year totaling 93 billion reais, they've got people impacted by deflation during the quarter.

With each of our market share in payments reached almost 11% from 8% in Q3 'twenty.

On the next slide we have been for ties recurrent C and profitability versus merchant gross addition.

We have been more selective in our acquisition strategy during 2022 reducing subsidies and focusing on the best sales channels to improve new merchants acquisition quality.

As a result, we grew the new merchants average <unk> by 36% through online channel and we also when you increase it by 39% year over average PPV promotion on a year over year basis.

Our number of active merchants, excluding might reach at seven 2 million in September 2022.

This strategy results in a higher activation of <unk> device higher TPG per merchant and higher Upselling and cross selling opportunities for buyback.

So sequentially the positive results to be expected, our lower capex to revenue ratio lower P. O S depreciation per sales and higher LTV over CAC ratio for the new merchant cohorts, which will contribute to margins rebound and cash flow generation in the future.

Moving to slide eight I would like to what degree Chihuahua regarding our business diversification initiatives hubs breach at 31% of Bugs you go to two P V in the third quarter, maintaining the strong growth as our operation covers approximately 90% of the Brazilian GDP. These accelerated growth is explained by our U.

<unk> value proposition that combines banking and payments experience through a single Wap and customer care operation provides faster pof's delivery instant settlement and a complete value added service offering as presented in the right side of the slide.

As we see a growth opportunity in the online payment segment, we have been improving our operation and completing our set of solutions for our clients.

We always focus on omnichannel sales integrating different payments in the physical and online channel also adding payment options beyond cards such as speaks.

I would also like to update you that our cross border operation.

Usually called Bar Cobra was rebranded during the third quarter and now he's also recognize it S bag Cebu.

This is an important step six bucks a go to brand awareness is very strong and as a result, it should reinforce our cross border payment business.

On slide nine I'll give you some updates about <unk> Bank Corporation.

Like bank reached $25 9 million clients being almost 16 million active clients reached around 58% our consumer clients.

Moving to the bottom of the chart.

Marie Bank choice keep increasing for both publix consumers and merchants, reaching around 60% for consumers and 50% for merchants.

If I could bank Kashi totaled $41 9 billion Reais in through Q22, an increase of more than 10 billion reais compared to Q2, 'twenty two and most of the kitchen was driven by peaks transactions.

I am happy to share that our market share of a big strings actions has been increasing and reached 95% during the quarter.

Deposits totaled $19 4 billion Reais, an increase of 171% versus the same period of 2021, and almost 4 billion rise increases versus Q2.

This increase is really important for our business since it helps us to be more competitive by lowering funding costs.

Moving to slide 10, I would like to do an update regarding our credit products.

Total credit portfolio reached $2 7 billion rise up 71% year over year, mainly driven by the increase of payroll loan and after Jeff's early prepayment, which are consumer focused products, representing a 31% of the portfolio.

Asset quality remains a priority for our company and since the last quarter, we decided to increase our exposure to secured products balancing our portfolio mix.

Doing so security projects reach at 35% of the credit portfolio up from 5% in Q3 21.

Also as Ricardo mentioned, we just launched our secured credit card Beckett.

<unk> bank balance account and have been vocal on advertising this product as it addresses consumer and merchant needs.

We expect to keep growing our portfolio gradually while making important investments to improve our models and the overall credit cycle pillars. These are top one priority and we have been seen npls trainee Darwin since July 22, and we expect to keep these don't trend for the coming quarters.

In addition, we are also making important progress in our collection processes to decrease delinquency rate.

On slide 11, we see helped by bank total revenue grew 31% year over year, ending the quarter at 339 million Reais stable versus Q2, mainly explained by our focus on unsecured loans.

Total payment volume reached 105 billion growing 79% year over year as Ricardo said higher than the acquiring G. P V for the first time reinforcing the increasing engagement of all of our customers on pack bank account, resulting on strong deposits growth in the us.

<unk> futures, such as bill payments and marketplace.

Having said that I pass the word to our to our CFO .

Thanks, Alan Sugar for the segments highlight Hello, everyone and thank you to joining US Tonight I will continue the presentation in the slide 12, with our Q3 22 consolidated results.

In the left side total revenue and income reached a record of 14 and Harris growing 45% year over year net take rates achieved a two point, 84% this quarter, increasing 90 basis points versus last quarter.

In the bottom right side of baseline important to say that these value excludes one time effect related to microphone adjustment in the amount of 53 million. He is on a GAAP basis net take rates totaled 290%.

Gross profit neutral rough effects grew 7% year over year impacted by some initial expenses growth and the highest charge backs mainly related to additional provisions for credit losses. The he pricing in acquiring AMT credits projects help it towards SaaS dosing things leading to higher Patti Bank gross profit.

In Q3 2002 in comparison to Q2 2002.

Disquiet and again, our operating expenses grew less than total revenue and income growth.

<unk> the cost with an approach of the company.

Regarding costs and expenses as part of our future and the diligent way. We work is a key component of our superior execution.

Adjusted EBITDA closer to 770 million the ice.

4% in comparison to the same quarter of last year.

Net income non-GAAP achieve its 411 million Harris and net income GAAP increases, 18% year over year, reaching the highest level for third quarters in our history.

380 million Harris.

This represents an earnings per share or one Hal and 16 since you've acquired 19 cents or 20% better than tier three 'twenty one as shown in the top chart of the right side.

Box continues to better balance growth and profitability focusing on improving shareholder return.

Moving to slide 13 in the first chart of the left side operating expenses reached 616 million Harris in Q2 of temperature.

11% year over year. These amounts represents 15% of <unk> revenues versus 20% in the same period of last year and stable compared to last quarter.

The improvement efficiency has come from personnel and marketing expenses leverage even with more investments to advertise private banks, new projects as well as the contribution of packaging and hubs revenue growth.

This amount excludes P O S write offs and onetime effects related to software disposals right off of our investment envelope of flex and payment agreement with our supplier related to a platform.

In the right chart financial expenses closes at 921 medium Harris versus 210 million here is in Q3 anyway.

Around 90% of this increase is explained by the hike of silica and the remaining portion of 10% was related to higher TPC volume prepayment of receivables two motions.

Medicare mix.

These effects were partially offset by pricing in acquiring <unk> inquiries on credit underwriting and lower cost of funding to deposits growth.

I'm buying into lower spreads negotiated with capital markets. We continue to focus on improving our funding process diversifying sources and extending terms to leverage our banking license and support the company growth.

Financial expenses was our biggest challenge during the past quarters. However, the Brazilian central Bank has been keeping interest rates stable for a while.

The last interest rate increase was in August and.

In September and November meetings kept the counter interest rates are stable.

In the next slide Capex to revenue ratio reached 12, 4% this quarter versus 16, 8% in 2000 to anywhere.

14, 7% in Q2 'twenty to this.

This decrease is driven by lower capex related to strategy of being more selective emotions acquisition to leverage for the bank.

The increase off of her impact banks rapid.

We expect to keep these ongoing don't trailing capex to revenue ratio over the coming quarters.

In the following chart adjusted EBITDA minus Capex reached a positive amount of 268 million. He is more than double of Q4 'twenty one.

And slightly better compared to last quarter.

It reflects this focus on maximize LTV to CAC ratio.

Cash burn by reducing U S subsidies and there'd be more available motions to into our ecosystem.

On slide 15, bogs net cash balance ended the third client at 19, and Harris, improving 400 meter and Harris quarter over quarter.

This was mainly driven by TPG growth higher share of credit card transactions and larger penetration of same day prepayments to merchants at the same time, we have been improving our capital structure and it is quite a bit with <unk>.

34% of financing position.

By third party capital.

On top of that bankruptcy is diversifying funding sources to support volume growth.

Lowering funding costs to consolidate our strong balance sheet.

To conclude our presentation I will turn it back to what I shared before the final remarks.

Thanks, Arthur I would like to review our guidance for Q3, 22 and establish a ballpark for the full year 2022 results.

Revenue in Q3, 22 was 4.04 billion reais higher than the guidance low end for 2022 we expect to reach between $15 36 to 15 point 46 billion Reais.

Net income non-GAAP was higher than the guidance high end totaling 411 billion reais.

2022 we expect to deliver a net income non-GAAP between one point 57 to 1.6 billion Reais.

Net income GAAP reached 380 million Reais for 2022 we expect to reach between one point 45 to $1 48 billion Reais the highest of our history, mainly to do with fishing sceptre, all marketing and personnel expense.

In a year with high pressure over financial expense due to the hike of Brazilian interest rate.

Before we move to Q&A I would like to share our priorities for the coming year. Our focus is to keep the consistent execution of our strategy balancing growth and profitability to deliver EPS growth why do we keep the development of the capabilities that we will enable our banking.

And acquire businesses to capture even more value in the future. The key components of this consistent execution are.

Very diligent cost and expense control tool average opex and capex to revenue ratio.

Relevant charge backs and loss reduction.

Consolidation of banks bank business by growing deposits cards, TPG secured credit portfolio and usage increase in the merchant space.

Grow faster than the market in payments in a profitable way.

Lastly to reinforce our one stop shop for value proposition by merging banking and acquiring.

Now we ended our presentation and we'll open for the Q&A session.

<unk> please.

Thank you well now be conducting a question and answer session.

I'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is it the question queue.

You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the sarkies one moment, please while I would pull for questions.

Our first question comes from Mario <unk> with Bank of America. Please go ahead.

Hi, everybody. Good evening congratulations on the results, let me ask you two questions.

One is how are you seeing the competitive environment in Brazil, and your ability to continue to reprice your products in.

And then second is related to your guidance. We noticed you did not provide guidance for TPG growth something that you would normally do and also when we look at the net income in the fourth quarter implied in your guidance, we're getting 385 to 450 million Reais.

Which would be down to flat versus the third quarter. So just wondering why would net income fall or remained flat in the fourth quarter. Thank you.

Hi, Mario this is Ricardo Thank you for the question good to hear you.

Regarding the competitive environment just sometime.

Sometimes we forget here too to point out the accomplishments they've been we've been reaching in bags grew.

Which is the summary of slide five that we showed in the presentation because I.

I mean with less than 40 days for the end of the year.

This year is going to be they're going to have the highest.

Net income for the company overall.

If you look at the first nine months of the year.

Compared to.

Listed companies, such as stone, Seattle, and guessing that we are at three to five times more profitable than our peers.

We have three two times more clients than the second player.

And even with that we've been able to increase prices and with no additional churn. So in combining the dead. We also word Mike Sheridan winner in the first two quarters close 90 bps.

And I'm, making this let's say, they're a bit long answer to you here just to show how solid and resilient our business model is and it's very difficult.

To duplicate it.

And having said that.

The competitive environment is not different than what's been seen the best quarters.

Yes, the competitive environment was even harder right after our IPO in 2018 2019, but nowadays.

We've been seeing that competition is not as tough as used to be in the best and we do have the ability to keep repricing if necessary.

We think that the repricing is an ongoing process.

It depends on the husband IBD dynamics for the macroeconomics.

Scenario next year, if necessary, we will keep increasing and raising our prices because we do believe we have a powerful combination that is acquiring post banking.

All developer position that they have that is very unique so if necessary we will keep repricing.

Also important to say that too.

To reach deep D'genetta income than it had in Q3.

If you look at the numbers they had an increase of more than 700 mineralized finish expenses versus last year and even with that we were able to reprice our base.

And if you do the math financial income minus financial expenses was even better than last year in absolute terms. So just to show that we are able to keep repricing if necessary we will do it.

Regarding the guidance you are right in the bottom of the guidance the implicit net income non-GAAP for Q4.

Is 385 and the top of the Guy is going to be for 15.

Or should we do with this range because we have many moving parts here, but just to give you an overview of what's going on in Brazil here.

We have some some moving parts that can help TPB such as D. Additional center that people. His seat received the 13th salary and also the holiday season with Black Friday, and Christmas season that people usually spend more money, but this year is kind of weird because we don't know how its going to be this do use the Japanese edition.

Salary.

The population is very variable with debit at this point after the pandemic.

We cede some oh central's constrained due to the lower credit offer in the market from from Bank issuers.

And we also have.

Right, we had right after the elections, we had this truck.

Truck drivers strike right. After the second round of the presidential elections for tour five days, depending on the region of Brazil. So they also create a little bit of mess.

Not to say that you just see the beginning of the word Cup and you don't know how it's going to be I was going to be the impact. We estimates you that could impact us between three to four beat and so it was going to be a one off situation with this world Cup in the fourth quarter.

Fourth quarter, we have more debit transactions than the lead the rest of the year usually inadequate in Q4 is lower than the rest of the year. Although this year to Q4 is going to be higher than last year Q4, usually there is a decrease between Q3 and Q4. So those are the moving parts and that's why we're giving this is <unk>.

Range between 285 and $4 15.

So that's why we were giving this.

Range.

Okay.

Follow up than.

The first one is on the take rate so.

Have we seen the full impact of all there'll be price and they have done is that already reflected on your numbers or did you do any any price hikes during the quarter. They are not yet reflected.

And then the second I understand right you have less visibility on PPV, but.

This is a key metric that you normally provide guidance strong. So like I was just wondering like you know like when you come up with your bottom line estimates.

What kind of growth that you're expecting on PPV.

I know theres going to be growth against the Q3, we are not disclosing exactly grow for 40 days in Q4, but theres going to be growth.

So when we have this as I said as estimate that World Cup impact not to say the other events that I mentioned before but yes, there will be growth in the PV.

And answering your question in repricing, we did made some repricing in Q4 as well we did some increasingly price in Q4 as well so what do you see some decrease in that take rate.

But when we make this mess net take rate minus financial expenses.

The decrease between Q3, and Q4 is lower than domestic rates before finish expenses, because we increased the prices. So that's we've seen so far we havent stool I mean 40 days at the end of the year.

Of course, we have some visibility, but this is a Brazilian that you are you know that World Cup in soccer in Brazil.

Kind of people pay attention to that so that's why you have this.

Surgeons and about to PV, but theres going to be growth. We just are not disclose exactly growth at this point Michael.

Okay fair enough. Thank you very much thank you.

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

Hi, guys for the third quarter I think he got it acquiring T. P V. The 91 to 92 billion and it fell a little bit below that we have.

Been used to you guys kind of beating numbers.

So anything to call out in the quarter in particular that had you fall a little bit below expectations and acquiring T. P V.

Brian Yes, I would say you that there are two main main variables here that impacted the Q3.

TPP one is deflation.

Suppliers related as it might be but we had deflation in Brazil in Q3, two in Q2 most of our St.

In Q3 and also we see some.

<unk>.

Bank issuers decreases indicated offer for the consumers we have seen that the.

The scenario for consumers with debt.

Then apart so banks are decreasing the credit offers so that's why we see this let's say.

Little bit below than what we thought before in our in our Q3, but.

Just like to highlight that and you'll know that TPP is one of the metrics that you have.

But of course, we are working on to keep growing the company in terms of revenues and also grow in terms of net income so although always stay a little bit below in GPP because of the reasons that I mentioned to you we are.

We are beating the other two metrics that is that are very important in our view related to P&L, which are revenues and net income GAAP and non-GAAP .

I think this village center Brian .

It's important also to mention that.

During Q3.

The Brazilian cards industry.

It has shrunk from second Q and we normally are.

As we grow.

Our total TPG comparing to second Q.

Why you are being able to stream grew 20% we grew 35%.

On a year over year basis.

Got it and then when we look at the fourth quarter I know, we talked about net income and in some of the same factors are going to obviously imply but the total revenue and income growth I think we got it at 23% to 26% for the fourth quarter, which is quite a bit below the run rate you guys have been doing this fiscal year.

It sounds like World Cup, and maybe some economic factors to consider there anything else to think about and how much of that is one time. So when we get into first quarter next year can we see a reacceleration of that total revenue and income growth.

Brian in absolute terms, we estimate that word club could impact us between two you're up to 4 billion Reais. So that's one one off.

And just to reinforce that I mean look at the percentage the growth as a percentage.

Q4 last year was a is a hard comp for us because at least in Brazil last quarter 2021 wasn't really the economy was reopened in Brazil. So if we spend a lot in Q4 of last year. So when you look as a percentage.

You could look at that we are not growing that much but he had a heart called from Q4 last year.

But as a one off I would say that the World Cup mainly is the is the main I would say headwinds in this quarter.

And then how about when we jump off into next year, obviously, we won't have the World Cup headwind, but but is there is a possibility we can reaccelerate in the first quarter on a total revenue and income basis.

Right. It is possible, but we cannot be let's say disconnected that we are growing much more than the industry. So look in the past six years, we are growing 60, 80% more than the industry. So this quarter industry grew at 20%. We grew 35, so 77% more than the industry.

So what I'm trying to say here is we cannot be disconnected from what's going on in the industry as a whole so if theres going to be growth in the industry. In Q1, we are accelerating well.

We accelerated even more if we have this credit consumption constraints and dangerous it doesn't grow that much we will grow more than they just were not as much as we'd like to so that's that's the macro overview, we'll do the.

The best answer to give it to you is we plan and we do believe that we are able to keep the growing more than the industry as we've been doing the past six years, but of course, we cannot be disconnected from the industry as a whole.

Okay.

Got it market share gains are obviously important so that's that's the best you can do alright, thanks guys.

Thank you Brian .

Next question comes from Domingos, <unk> with Banca <unk> Arthur J J P. Morgan. Please go ahead.

Alright.

My question Twofold question here, as well or less on I guess non controllable items like no industry TPG and more.

On the pricing, which you have more control. So when we look at the MTR revenues ballpark you grew low 1% similar.

Similar to TPG Q on Q, which is perfect right I mean, no major price contracts or anything when.

When we look at the net financial results, However, and we do at all the lines of as you guys know.

Shrank by 8%.

<unk>, we look at your deposit base. It grew massively right, especially the banking side like <unk> been in deposits. The cost of your funding I think went down two percentage points from like 119 to 117.

So I guess my question to you here is is that true for that it seems obviously the positive impact that part of it maybe 20 to 30 million, but out of a hunter I mean, I know you're shrinking Q on Q1 financial result.

There were some squeezing in pricing.

So on that front why pay so much for deposits.

Growing so much the deposit base and in fact, the negative net financial result quest.

Question within that as well.

Why did they shrink why not.

<unk> more one of your peers. There was the latest one to pass through at 50% increase in net financial results Q on Q.

What can we expect from this like we want to see pricing Christmas I guess and this is not consistent with the two PV growth.

On the opposite direction.

The glass half full.

During the second one is on Opex Opex was very good basically don't even Q on Q1, and 1%, especially cost of services.

Can we expect this sort of cost discipline going forward basically growing below PPD.

Thanks.

Hi, Domingos I will start with the answer. Thank you for the question get to you I will start with the question in regard to repricing in your question about that he said being the interest paying deposits and then auto can get into details of the numbers with you but.

<unk>.

We are not discarding to keep making re pricing in Q4.

We made at the beginning of Q4, a little bit.

But if necessary we can do more but we are happy with D.

Growth in <unk>.

And the net income that is being presented so far so.

Answer a question could we increase pricing and it's more yes, we would do it we don't know.

We are growing more than the industry, we are profitable.

Profitable than our peers so.

Some extent, we think that we are in good levels and you need to keep growing and.

Taking advantage of the acquiring as a means for people to use by bank more and more so that's also important for us to use discount this powerful combination between begging bank regarding deposits.

Yes, we did grew a lot.

But when you make the mix between what is paying the balance accounts and why do you pay for.

<unk> for the Cds.

On average we are having a clause there is a few basis points below CPI in our deposits.

Still high that is ink, but it should go down because as time passes by deposits will be more and more important and it was going to take share from Cds. So.

Used to be higher two quarters ago, now is a little bit lower a few basis points below CDI.

So that's why we are still growing these days.

The average cost for deposits of course is not at the level of other big finishes due to institutional hedge in Brazil.

But we are decreasing quarter after quarter.

Two basis points here and there, but regarding the numbers I guess art, who can give you more.

More data and also important to say I guess I can rule set about that but in Q3, we have five more working days and compared to Q2 and that creates an impact in finished expenses and Archer Daniels explained yeah I think.

Thanks for the question.

I think just two things here. The first one is exactly what Google is sadly.

Five days.

Working days more in Q3 and Q2.

And this impact our cost because it's based on on working days okay.

And that the PV, obviously as a whole most not exactly by working days and so this is the difference and greatest gap when you analyze the growth of TPG integral for furniture expenses.

Trading.

Probably a big interest here, but doesn't the prepayment revenues also taking into consideration working days.

Because that's down right. So it's not like you increased prices.

We are another shrink like it results in nominal terms shrank here in Q.

Not on the price that we have here is based on the transactions that we have for the months not as arty four working days because our prices are up.

Pre rate instead of a rate linked to CDI. This is okay.

And also why do we think about the cost the cost is based on the CDI and the CDI it moves up or down depending on their working days.

For each months R&D required in the case of Q2 versus Q3.

Regarding to expenses as you mentioned.

We have a very good approach on expenses as part of our future control costs investments in everything that we need to do it's more under our control.

This attention on expenses.

As you know we are moving up.

We have deflation from July to September we have inflation in October .

But we are foundational loyalty India's movements related to inflation because effect of our cost.

And also we are.

Are we pretty close to the movements of interest rates and the counter because it was the the biggest expense or cost that we have in our P&L.

And we're clear.

Real quick here did you mention about one of the other companies that increase.

The financial income if I got it right.

Question, if you make this math between financial income minus finish expenses.

Youre going to see that year over year. They grew 34 million Reais of new grew almost 50 million reais. So maybe we didn't grow at the same pace that they had but if you look at these net financial expenses minor financial income we had an.

An increase as well so.

No.

Certainly, but I think the Delta last Q on Q is especially important given civic is moving up right. We went from a scenario of Salt Lake expected decreasing 150 to 150 basis points certain days couple of weeks back so take increasing so I think it's important to understand what are management's had is as far as doing more.

This increases if we don't have those rate cuts, especially if we have great increases right I think it's something that should be vocal about.

So we're going back to your question, we are able to reprice if necessary.

Alright. Thank you guys. Okay. Thank you.

Okay.

Next question comes from <unk> Agarwal with HSBC. Please go ahead.

Hi, congratulations on another and thank you for taking my question on the funding cost how much are you paying on average fun the customer deposits that you have gathering and should we expect a similar increase in customer deposits next quarter, a strong increase that should lead to higher financial expenses.

And my second question is on your funding structure could you. Please elaborate.

How are you finding the prepayment business what percent is coming from factoring of receivables with the large banks how much is coming from your deposit base.

So on and so forth and my last question is on taxes. The tax rate was quite low this quarter and you mentioned.

Two specific benefits, which led to a lower tax rate what should we expect going forward in the coming quarters. Thank you so much.

As Arthur speaking thank you for your three questions. So I think regarding funding costs to be very straight to the point. The cost that we have are related to deposits as few basis points lower than the CDI.

Hey.

The second the second part related to funding structure that we have.

First of all we use the equity position that we have it's like a template of ice. The second point is factoring or sorry, the second point that we use as deposits the balance accounts from our clients.

The third point is factoring to the bank issuers and the third one is issuing Cds in the market.

We have.

11% of effective tax rate this quarter compared to 17% last quarter.

It's related to.

Incentives to R&D investments that we do.

Since the beginning of the company we have these incentives from the government.

And the second point is related to revenue that we have abroad.

And so those two benefits happened to us in these effective tax rate.

Going forward, you can expect something from 10% to 15% for Q4.

And something below 20%.

In the coming years.

This is Eric just two.

Since here this positive impact on lower tax rate is offset by higher <unk>.

<unk> collections in the top line, Okay, So financial income should be higher.

Excluding taxes, but six.

The Brazilian Central Bank changed the regulation and Theres a full disclosure in our earnings release about that we are collecting more taxes in the top line.

Primarily with financial income.

So by the end of the day. This is a net events because the positive effect of lower tax rates offsets the higher tax collection collection in the top line on the financial.

Let's see if I can just quickly follow up.

Regarding the funding cost would you should we expect you to continue gathering deposits at a similar pace or do you think about maybe lowering the remuneration a bit.

And.

And your funding cost to deposits in the coming quarter.

We don't see that decelerating at least at this point, we are keeping growing in our deposits I don't have any top of my mind, if there's going to be the same 170%.

Astonished number that you had in Q3, but we don't see that decelerating, we still keep going getting new clients and getting new deposits entities.

Okay.

Okay.

Thank you so much.

Thank you Neil.

Next question comes from Tito <unk> with Goldman Sachs. Please go ahead.

Hi, good evening, Thanks for the call and taking my question a couple of questions also.

I guess first just to think about your ability to grow earnings for next year, you know when we look at your margins.

Continuing to come down on your guidance it looks like margins can begin to stabilize perhaps next quarter.

When you think about the margin should that be just mainly a function of interest rates when interest rates start to come down your margins can go up I don't know if there's any color you can give on how your margins.

The difference in Washington between your SMB clients versus micro merchants, if that's going to have any impact.

As well and.

Then my second question going back on your market share I know you've been you gave a lot of market share this year, but when we look at the quarterly evolution most of that market share gain came at the beginning of the year and then the last couple of quarters, you've gained more like 10 bps per quarter or so just to think about.

Is that mainly a function of your re pricing and that has slowed your market share gains how should we think about your ability to continue to gain share going forward. Thank you.

Hi, Tito.

So regarding the <unk>.

Margins, we to be honest here, we are not looking for margin expansion. We are looking for EPS accretion EPS growth because.

We are three to five times more profitable than our peers. So when you reach this kind of position.

It's kind of we have a very decent.

Yes, if you look last year, our EPS was around 90 cents of Reais per quarter and this year is one real intense Samsung <unk> 15 cents. This year. So we are growing EPS. That's what we're looking for keep growing the company to keep growing the P. S.

<unk> margins is not our main focus for the corporate at this time and I don't think it will be in the short term because.

For US is two main drivers are very important to keep growing the company and keep growing EPS regarding market share you're right. We grew like 10 bps in the past quarter or a little bit more than that but we.

We have been consistent gaining market share.

I don't think that we're going to see a change in the trajectory that could be a quarter that we could gain more share appointed Eric on a game like 10 bps as you mentioned, but I guess the trajectory that we've been having so far is a very consistent trajectory of gaining share.

After quarter and to be honest and to be honest market share as a consequence, there was a window here. We also we don't see that we need to grow market share at any price. We don't go too deep clients decreasing prices to gain market share and to hurt our profitability. So did your market share as a consequence of all have been doing at this point getting you.

<unk> profitable clients and growing EPS.

Thanks, that's helpful and sorry, just to follow up on the margins, Yes, I mean I understand the.

The target is to grow EPS at but I think that would just help us understand how much you EPS can grow so.

What potential margin expansion come mostly from lower interest rates also just trying to think how the mix impacts the margins just to think how much earnings can grow.

Sort of kind of longer term from here.

Hi, This is Eric.

I think companies profitability, we think here does not rely only in lower interest rates moving forward we have some.

So your wins here that will be expected to unlock moving forward already 2023. The first one is revenues growth on pack and bank and revenues grow remember as the duration of the new credits projects that we have been underwriting our fourth times longer income.

Garrison to the working capital loss naturally the NII.

23 onwards tends to be stronger as we underwrite more but with a longer duration products.

And the market share gains in payments naturally should lead revenues grew in combination with <unk>, so with revenues grow because the first the.

The second one is when you look the operating expenses as a percentage of revenues. These decreased from 20% last year in Q2 in Q3 to 15% in Q2 and Q3 2022, so necessarily we are getting a permit.

Average and investors should expect this level or even the lower level of operation expenses as a percentage of revenue so diesel to be the second tier and in that we have here.

Third it is important to mention that there are no cash effects, mainly related to depreciation amortization that impacts profitability.

But there is no impact in cash flow generation.

For example, when we looked at Q3 cash flow operating cash flow mines.

Investing cash flows capital expenditures, we had more than half billion reais in cash flow generation.

But depreciation amortization should be higher in 2023 on the back of reduced capital expenditures Debbie hubs.

Having said that these are the main tier wins, the receipt and naturally we are working to see EPS growing in 2023 in comparison to 2022.

Yeah, that's great that's great color, Eric Thanks for that.

Just one quick follow up on that with the SMB segment should that be a headwind or tailwind just I mean as the hubs become maybe more profitable can that also be a tailwind just to think about how the mix impacts it as well.

We expect it to be a tailwind in this day of when this capture by revenue growth and operating expenses as a percentage of revenues great.

Great Alright, Thank you Eric.

Thank you Tito.

The next question comes from Jeff Cantwell with Wells Fargo. Please go ahead.

Hey, Thank you very much.

Just wondering too.

Follow up on a little bit on that last round.

Good questions.

I was hoping we could focus on slide seven of the presentation.

If we look at the active merchant base.

The past three quarters, it's gone.

Seven 7 million seven 5 million and then seven 3 million so.

I guess the question is is that clearly you know this is in the context of what Youre discussing which is you're focusing on the quality of merchants.

Which is completely.

Understandable so.

Was just hoping you could help us out and think through where that merchant base potentially might go over time I mean in other words, just ask like a very intentionally you know kind of like barbell type of crashes it won't decline perpetually.

Meaning at some point.

The thinking would be that that.

<unk> merchant base would level out so and then you're going to start to increase again. So was hoping you might be able to provide us any type of color.

We're ready to help us calibrate some expectations for 2023 and beyond thank you very much.

Hi, Jeff.

I'll try to answer your questions with the data that you have so far and we've been seeing this in the company in the first quarter than what we planned for for the near future but.

We said a few quarters ago that those the conscious decision not to focus a little marshals at this point because with the services that we offer for the POS and so on you is very hard to get profits from this kind of motion. So we took disclosures decision too.

That motion is a little bit higher than none no motions to get the year, one the long tail motions.

And it is working because the TPP per cohort in this slide seven is growing 36%.

In the fourth more after the motions game to come to us So that's why.

Why we took the decision not to keep investing in the number of motions and <unk>.

Focus more on the quality is as I said.

Also important to say when you look at the 90 days, although we don't give disclosure debate is growing online today's base.

Not.

Decreasing.

And when you look at the motions that will be losing I'd say five to 7.3 is a very very.

It's more amount of PPV that you have as you can see industry grew 20% we grew 35% even losing some some clients. So it's really cool.

Launches decision that it took to grow our base or not to grow base to focus on bringing gross adds or new edge with higher TPG per months and then we may be losing some.

Small amount of emotions.

I don't have here the answer to say to you when it's going to be growing again.

I would say that as in <unk>.

We measure this active emotions in a 12 months basis.

I guess part of the churn is already happening so maybe in 2010 it reinforced caused us since we can give them more color above.

About that so or when it's gonna be chaired decreasing.

Because the gross adds we are having decent number of gross adds with decent GPP promotion, but the number that is the dynamic that is affecting these numbers because we are having choice for smaller and emotions that he had in the base already but again various multi PV from these motions.

Okay. Okay, great I appreciate all the color and then just moving further down.

The slide deck to your net take rate.

When we look at that it's up 48 bips.

Last year it looks like about.

About 15 basis points over the past quarter. So I was hoping could you walk us through there's so many puts and takes to that number these days.

We're just trying to get a little more color. We're all trying to think about 2023.

Obviously be arm. So so how should we think about that.

That take rate given what you're.

Clearly expanding impact Bang other value added services, such a big big piece of the puzzle. These days and clearly we're also looking at financial income and so forth. So I was hoping you can kind of walk us through any type of high level thoughts on the trajectory of that that take rate from here. Thanks very much.

Hi, Jeff you're right, we have been we've been increasing our net take rate because of the repricing of course part of that to June to offset the increase in financial expenses.

The way we look here.

Looking at the short term and reloading the uncertainties that we have at this point, but in short term is going to be flattish or a little bit low.

And not because we are decreasing prices are because we are going to do.

Decreased prices in the near future, but just because of our mix of clients because.

As we get a little bit larger clients than we have.

We used to have and the best with the SMB is growing in the mix genetic rates a little bit low but of course, they have five to six times more tip dividend low tail. So.

This is the moving parts here that may affect an ethic rate increasing mix for smbs and a little bit larger clients than long tail.

But going back to your question is straight to the point is going to be flattish or a little bit lower and of course, we will try to work to offset that through Opex Leverages, Eric nation and other.

The lines that you can control in the financial expenses are in order.

Other costs that we may control here and in the financial expense, Jeff. This is Eric let.

Let me remind you that as we replace factoring receivables against the card issuers, which impacts apparently our financial expenses to deposits growth.

Naturally we can manage better these trends moving forward. So necessarily this is what we expect not only relying on lower interest rates to get operating leverage in 2023, but also work much more in the spreads.

Balance in deposits and factoring receivables against the bank.

Yeah.

Okay. Thank you very much appreciate all the color and congrats on the results. Thank.

Thank you Jeff.

Next question comes from Josh <unk> with Cantor Fitzgerald. Please go ahead.

Yeah, Hi, Thanks for taking my question this evening.

I was wondering if you could provide a little more color on the market forces that play that allow you to have best in class a great game right like how are you able to achieve the highest re pricing in the industry. Thank you.

Yes.

Hi, John Thank you for the question so.

I would not say if there's one silver bullet adhere to to answer that but I'd say you that.

One advantage that we have that is very very powerful. It is the fact that you have.

A combination between acquiring in banking.

And that's something that clients really.

Use they give value they understand the value proposition and by the fact that they have these acquiring plus banking also allow us to make this automatically our instant settlement right. After the transaction so and when you have a CEO in a Sunday Sunday morning, you'll have access to this money two minute to minute industrial transaction it doesn't matter.

If it's a week and holiday and so on so it's a very powerful combination that deleverage.

The fact that they also have a.

Huge base of long tail clients also helps us because we.

We are able to lets say put some promotions that it had in the past and this clients. They are much more focused on getting the money as fast as possible then to the price itself.

So I would say this is the main reason why we are able to increase prices in any skew gaining share and be more profitable than the others. So not just say here, it's not a let's say moral likely if the DNA of the company as a tech DNA self service and so on but I would say that.

Value proposition that we have with banking plus a quarry and the eastern settlement not to say execution customer service will net one one stop shop also help us.

Combination of all of these things make us a different company and allow us to increase price in a very successful way.

Got it that's very helpful. And then for my follow up I was wondering if you are currently expecting traditional seasonality between debit and credit mix as we head into <unk>, especially considering the World Cup impact.

Yes, we do expect a little bit increasing debit.

For the fact that people receive an additional salary in Brazil, so they have liquidity.

We don't know hubs is going to be this year that you said at the beginning John because.

People after the pandemic they have a lot of debit. So we don't know if theyre going to use these additional aside to pay back their damage to pay down their debits or if they're going to use for consumption, but we do expect a little bit.

Kris and debit as a percentage of our volumes in Q4.

Okay. That's helpful. Thank you for answering my question.

Thanks very much.

Next question comes from Kyle <unk> with UBS. Please go ahead.

Yeah.

Hello, everyone Tonight, Thanks for the opportunity so I have a more casual here related to Capex and it reached its close to 250 million this quarter.

While you continue to show negative net ads I understand the moving parts on unemotional.

You mentioned during the call, but I was wondering if you can give us a little bit more color about your gross ads. All of this has evolved during this year and more specifically in the third quarter and Moreover, how should we think about capex moving forward and the second part of my question. If I may if you can talk a little bit more about your stick.

Just on the purchase of intangibles as well if we should expect the same pace of growth in 2023 or not and what should it be the drivers for that thank you very much.

Okay.

Regarding the Capex related to Pos we.

We if we exclude the none the motions we are growing our base. So when you look at these numbers.

The total number maybe decreasing 12 months, but if excluding then the emotions we are growing.

Double digits more than then.

High double digits year high teens, if we look at the excluding the nano motion. So that's why yours too.

We invested in Capex. That's the first thing the second one is usually the motions then you are getting.

And then on the head and the best today as they are Smbs.

Usually require tos with higher prices. So that's why volumes they are a little bit small, but in absolute terms in reais.

We don't see this impact the average price of these devices with printers and so on they are a little bit higher.

But it's fine because these are the clients who are looking for clients that he really use the buy the device. They use the devices printers, because they have some volume so.

Our 100% aligned with the strategy that we've had so that's the main explanation would see for the Capex in terms of Pls regarding the it investment and so one I cant give you ought to get us started to give them more more color on that thank you.

Yeah.

Thank you for your question regarding to the investments that we are doing is part of the control of expenses that we also are doing if you take a look on the trend.

Q1, Q2, Q3, we're pretty flat I would say in the investments that we are doing and we do not expect to grow too much next year as investments of our R&D.

But it's an important part of our business to develop new features new products to launch for packet vacant boxes.

Yeah.

Okay. Thank you so I understood that's probably regarding intangibles it should not grow grew at the same pace.

Please correct me, if I'm wrong and on the Capex side, if you could mention the expectations for next year, we should see growth, but not at the same pace as well is that right.

Exactly you are right, we see some growth basically in it but not the same rate that we saw in the past and farther Pos is.

We see more stable than growth I think it's more flat flat then.

What we see this year.

Okay. Thank you very much thank.

Thank you Kyle.

Next question comes from Geoffrey Elliott with Autonomous. Please go ahead.

Hello, Thanks, very much for taking the question.

Quick one on picks festival could you confirm what the pyxis included.

Within the acquiring TPP that you report and then.

How big is picks become.

In terms of the acquiring side of the business and any insights you can share on the profitability that you're generating there. Thank you.

Hi, Jeffrey.

Yes, because it is in these numbers of the acquiring we have.

Footnotes so every.

Volumes that you have in our ecosystem that generates revenues, regardless, if it's MTR prepayment or even if it is fixed fee.

We do include in our quantity PV, because that's we understand where we make some revenues and we should report so peaks use their peaks is very small because QR code that goes to our D. O S. Just two very small it is growing quarter after quarter, but it's very very small.

The profitability of district type of transaction is very very good for us because we we charged undimmed yard itself, a little bit lower than debit, but we don't have the cost that you have enough debit transactions such as interchange in card scheme fees.

So that's the dynamics and the economics of this transaction are more profitable than debits.

It is growing quarter after quarter, but very very very small jets the market share gains.

In the slide five.

Use all Opex, Craig do you mean.

Sydney, only debit credit and prepaid cards.

It's a good point.

These volumes regarding peaks and other payments that you have even all lines such as volatile as banks lips.

Not in this market.

Market share calculation that we did in <unk>.

That's great you read my mind on the <unk>.

Follow up question, thanks very much.

Thank you Jeff.

Next question comes from Sumit Datta with Dow Street Research. Please go ahead.

Hi, guys, Yeah, a couple of questions. Please if that's okay.

Firstly on the.

Hubs contribution, which is 31% of our T. P. P. I think up from about 28% and Lee.

Last quarter or so.

One of the time on that we're thinking about is with <unk>.

Looking forward with the take rate.

Is the mix of T. P V mixed between my card one.

SMB I was just wondering where do you think we are in terms of the hubs contribution are we close to two it leveling out or do we just think it will continue to.

To expand as a percentage of total like us as a result that will have a dilutive effect on take rates going forward be interested in your perspectives on that one.

And then a quick follow up please just on the credit product we've seen a nice lift in the loan book this quarter.

Increase coming through from secured lending just trying to get a sense as to the underlying heels on the credit book, obviously, it must be declining as the secured lending and becomes a becomes a higher component just sort of curious how that underlying credit revenue is evolving loan book has come.

Yield is coming down in the near term.

Your line of credit revenue expanding middle.

Sort of help that would be really appreciated. Thanks.

I assume it.

Starting with the hubs question.

We are not.

Opening new hubs as used in the best maybe there could be a new hubs here and there to serve.

Part of the CDI neighborhood, the seeded a high concentration of immersion. This one but the majority of it or the largest amount of investments in hubs is already done so as auction deciding in the presentation, we are covering with our hubs 90% of our GDP.

We are growing productivity of salespeople in the streets is very well I guess, we reached a very good point off of.

Productivity from all of our people for our sales people.

How big hubs can be.

Well I don't have the final answer, but if you look at the past quarters, it's been really like three 5% quarter. After quarter end the mix last quarter was 28 now started one.

I don't see that decelerate in the short term.

So its hubs will be.

How is it going to be the percentage of the hubs I guess, we need to wait a little bit, but we see that growing in Q4, and you see that going in Q1 and Q2 in the next year or so.

That's.

Youre right when you say that in terms of net take rate it could be a headwind but.

If we if we consider that they have five to six more volumes than long tail, we nominal margins. It makes total sense and with all the products that we'll be launching for smbs in or a piggy bank accounts suggest debit cards that you launched recently, we also see the opportunities that we can not only bring these smbs.

Our acquiring but also expand the penetration of the <unk> bank in the SMB space. So that's that's the dynamics for the hubs regarding this the landing.

What happens here is that in the security products.

We have the duration.

Much longer than what he had into working capital is to give a sense too is like three to four times longer than their working capital in terms of duration.

And they use it as kind of half of what he had in the working capital. So we can imagine that in the short term the revenues are not as big as they used to be for the working capital, but the way they start to stack different cohorts. This revenue will keep growing and we are bringing describes that will guarantee.

The revenue so to say four.

Our longer term when compared to the working capital. So that's the dynamics and that's why maybe we don't see the revenue impact been growing as fast as we expected before because we are changing the mix to have this asset quality.

A little bit more shifts to disagree landing and again they have four times more duration in half of the yields.

And its not secret for anyone that the payroll low in Brazil for a public employees is limited to two point 14 to one 4% per month, that's the top of the D U.

Any finish institution can charge phone from the clients in this product.

Okay. That's great. Thank you.

Thank you.

Next question comes from Pedro Leduc Keyless Ito BBA. Please go ahead.

Thank you guys. So much for taking the question first on cash flow like to pick your brain a little bit.

Cooling off on PPV.

We already saw a better cash flow dynamics this quarter as.

As we look into 2023.

If it's macro driven.

Reasonable to expect.

A more meaningful cash flow picture here and then if so you know what you believe is the best way to deploy it this quarter.

We slowly paying down some debt you bought back some shares.

So cash flow outlook and ways to deploy it. Thank you.

So far the cash generation, obviously, we are.

In a positive side right now and we expect to use these two to also help us to fund in the operation.

It's a good way to to use the money to help us in the growth of the company.

Honestly, we have.

Our repurchase of shares program we.

We use it almost 40% of this program until now.

And.

Now I don't have any answer to buy or not buy any shares, but there's a possibility in the future.

Price is pretty low now and understanding.

It's.

A good price range to or to buy more shares.

Having been in the Treasury and use this money to do that but.

But the most important thing is the generation that we have in our cash flow right now.

Important to us to support the growth of the company.

Got it and then the second related.

A related question on credit not sure if you comment that a bit on credit quality.

This quarter.

Vision expenses evolved if there were seeing a peaking already.

A cobranded a little better on credit quality.

Federal I'll start here, and then artwork and complement well 100% of the credit that we are.

<unk> had in Q3 was secured so.

Of course that helps.

In Npls, we should look at the Npls npls are trending down.

And we plan to give more disclosure on that once the credit portfolio growth.

In the following quarters. So that's what he sees in terms of disclosure that I can give it to Scott at this point, but I can give you more details about the numbers and provision this'll. One yes, we have everything that I mean, we understand that this is.

As necessary is provision is.

If you take a look into.

Income statement, we have so write off there that we're not as acute because of it.

It's not efficient in terms of tax.

When we think it's sufficient we will do the write offs.

But he guided to provisions we have everything provision it.

And based on the quality of our book right now and going forward.

We understood that the level of provisions that we are taking every quarter can be reduced going forward.

Thank you all and look forward to the tightest fair I appreciate it.

Thank you.

Thank you I would like to turn the floor over to Mr. <unk> for his final remarks. Please Mr. <unk> you May proceed.

Hi, everyone. Thank you for investing your time to listen to us and for the questions that he had had.

Happy holidays to all of you talked to you Wendy.

Coal at the beginning of next year with the full year 2020, Thank you very much.

This concludes Bos Bank bag cigarettes conference call. Thank you very much for your participation you may now disconnect and have a great rest of your day.

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