Good evening. My name is Audir, and I will be your conference operator for today. Welcome to PagSeguro Digital Earnings Call for the Second Quarter of 2024. The slide presentation for today's webcast is available on PagSeguro Digital's Investor Relations website at investors.pegbank.com.

Please be advised that all participants will be in listen-only mode. After the presentation, to ask a live question please use the “raise hand” button to join the queue. Once you are announced, a request to activate your microphone will appear on your screen. Please ask all your questions at once.

Alternatively, you can also write your question directly into the Q&A icon on the lower part of your screen. Today's conference is being recorded and will be available on the Company's IR website after the event is concluded. I would now like to turn the call over to your host, Eric Oliveira, Head of IR. Please go ahead, sir..

Hello, everyone. Thanks for joining our second quarter 2024 earnings call. 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 PagSeguro Digital's current assumptions, expectations and projections.

While PagSeguro Digital believes that those are reasonable in view of currently available information, you are cautioned not to place undue reliance on these forward-looking statements as actual results may differ materially from those included in PagSeguro Digital’s earnings presentation or discussed on this conference call.

For a variety of reasons, including those described in the forward-looking statements and risk factors section of PagSeguro Digital’s most recent Annual Report on Form 20-F and other filings with the Securities and Exchange Commission, which are available on PagSeguro Digital’s Investor Relations website at investors.pagbank.com.

Finally, I would like to remind you that during this conference call, the Company may discuss non-GAAP measures. We present non-GAAP measures when we believe that the additional information is useful and meaningful to investors.

The presentation of this 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 IFRS as issued by the EASB.

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

Hello, everyone, and thanks for joining our second quarter 2024 earnings call. Tonight, I have the Company of Alex, our CEO and Artur, our CFO. And I'm proud to announce the Company had a very strong quarter with all-time high in key financial metrics, such as revenues and net income.

Hence, you'll see many all-time highs at the beginning of the slide's titles throughout the presentation. On this first section, I'll share the main operational and financial highlights for the quarter. Starting with Slide 4.

Total revenue grew 19% year over year, reaching BRL4.6 billion, an outcome high quarter result with a strong TPV and revenue growth in all client segments. Our gross profit margin ended the quarter close to 40%, in line with the current guidance and 86 basis points increase in comparison to Q2 2023.

On a year-to-date basis, we ended the semester with a gross profit margin of 40.3%. We also reached the all-time high net income in GAAP and non-GAAP basis, which reached BRL542 million, a 31% year-over-year growth. In the last bullet, we can see our EPS reached BRL1.68, 32% higher than Q2 2023, also an ultimate high. Moving on to Slide 5.

We reached 31.6 million clients by the end of June, adding more than 2 million clients in the last 12 months with 17.7 million active clients. We also had an all-time deposits level reaching BRL34.2 billion, an impressive 87% increase year-over-year.

This increase shows the power of our value proposition, which has been contributing to improve client engagement and to lower our cost of funding, supporting our profitability metrics. Down in the slide, in the first bullet, we can see we also had AAA rating from Moody's. Now PagBank has AAA rating from both agencies, Moody's and S&P.

Also, worth to highlight, in the bottom right of the slide, our PagBank app evaluation of 4.9 stars in App Store and 4.8 in Google Play. Moving on to Slide 6. We share some highlights of the payments and banking units.

In payments, we have been able to maintain a strong growth and our TPV reached BRL124 billion 34% year-over-year growth, 3 times more than the card's industry growth, which was 11%. We had strong growth in MSMBs and LMEC merchants as a result of our strategy of attracting merchants with monetization potential on financial services.

On the banking side, in the mid column, we can see our cash reached BRL76.4 billion, a 52% growth year-over-year, aligned to our strategy to successfully stimulate principalities for our clients.

Our credit portfolio grew 11% year-over-year to BRL2.9 billion, the third consecutive quarter of expansion, driven mainly by our credit underwriting and security products. In the last two bullets, we can see our early prepayment of receivables from other acquirers will start now in Q3. And also, our NPL 90 reached 3.2% in Q2 2024.

Now I pass the word over to Alex for the commentaries on the business unit highlights for the quarter. Thank you..

Thank you, Ricardo. Hello, everyone. On this section, we will break down our business unit's performance through the second quarter of 2024. Starting with Payments on Slide 8, we show that, our merchant and acquiring business keeps growing faster than the industry, with strong growth registered in all segments.

TPV reached BRL124 billion in Q2 2024, growing 34% year-over-year with TPV per merchant growing 42% on a yearly basis and active merchants on a 30 days criteria, excluding nano merchants, grew 4% year-over-year.

These results are a consequence of our strategy to expand our payments’ business focused on a merchant profile with better engagement and profitability. Moving on to Slide 9. Let's look further into the MSMB segment, which gathers merchants with monthly TPV up to BRL1 million.

MSMB's TPV grew 28% year-over-year, reaching BRL83.6 billion in the second quarter of 2024. The strong merchants cross-adds positively contributed to this performance, combined with higher productivity and expansion in our hubs, resulting in our year-over-year TPV addition of BRL18.2 billion, which is 5x larger than the previous year.

We have been recordings strong DR sales across multiple channels and geographies which is an important significant of how consistent and robust our current growth and performance are. These are only possible due to the unique value proposition that our company has for MSMB clients in Brazil.

Through unrivaled instant settlement solution, we offer the cheapest working capital source, empowering businesses to thrive without financial strain.

In addition, we provide a fully-integrated platform combining a complete set of payment products, a broad suite of financial service, and a comprehensive portfolio of embedded software solutions from more than 350 partners. On the next Slide.

Here on Slide 10, we show how our TPV from LMEC segment has performed comprised by large merchants, e-commerce and cross border clients. In the second quarter of 2024, this segment posted 50% TPV growth in comparison to Q2 '23, reaching BRL40.8 billion in volume, accounting for approximately one-third of our total TPV.

We are increasing our share of wallet on larger merchant segment that gathers business with monthly TPV above BRL1 million, with a strong growth on cards not present transaction, expanding our market beyond POS. We have also seen a strong TPV growth on new growth verticals, in special our online segment, with ecommerce and cross border.

Our online payments platform ensures trust and reliability for online clients and an integrated solution under the brand PagSeguro International for the cross-border segment.

Moving on to the banking business on Slide 11, our strategy to provide a seamless experience combining payments, value added service and banking through multiple interfaces for merchants and consumers continues to drive engagement up.

This engagement increase resulted in over BRL76 billion realizing PagBank Cash-in, composed by all PIX P2P, wire transfers and deposits through boletos/invoice to PagBank accounts from other financial institutions. Our active banking client base reached 17.3 million customers, growing 5% year over year.

As a result, Cash-in per Active Client, an important indicator of our client engagement, grew 44% year-over-year reaching BRL4,400 per client.

The constant evolution of engagement is shown in the bottom right graph, which demonstrates the increasing penetration of our investments and credit products, expanding at a much faster pace than our active client base.

On Slide 12, we shared that deposits were up 87% compared to the second quarter of 2024, reaching a record of BRL34.2 million boosted by our AAA rating attributed by S&P Global, which enhanced our CDS distribution among retail and institutional investors on and off platform.

Just last month, we received a AAA rating by Moody's as an additional sign of the financial strength of our banking platform. Checking accounts balance, the cheapest funding source, and a key performance indicator to measure client engagement, grew 39% year-over-year reaching BRL11.5 billion.

Annual percentage yield for checking accounts and total deposits remaining compelling, creating a unique engine connecting pricing power without harming profitability by lowering the average cost of funding for the Company. In this sense, as we grow deposits franchise, we are also exploring alternatives to further reduce the current cost of funding.

Moving on to the next slide. Slide 13 shows that our credit portfolio grows at a steady pace since resuming growth on Q3 ‘23.

This quarter, it reached BRL2.9 billion with increasing share of secured products which currently represent 80% of our book loan promote the financial inclusion education and important financing lines to our clients through these products.

Our NPL 90 on the bottom right of the slide demonstrates the improvement on our set quality in the last 12 months, moving from 14.4% to 3.2%. Now I turn over to Artur for the financial highlights of the second quarter of 2024. Artur, please..

Thanks, Alexandre. Hello, everyone, and thank you for joining us in the call. In this last session of our presentation, I will share our consolidated financial results for the second quarter of 2024.

Here on Slide 15, I am proud to announce once again an all-time high quarterly net income, which reached BRL542 million on a non-GAAP basis, growing 31% versus Q2 '23 with non-GAAP earnings per share reaching BRL1.68.

Net income on GAAP basis reached BRL504 million in the second quarter, growing above 30% year-over-year with earnings per share on a diluted basis marking BRL1.56, a 32% increase on yearly comparison. This result was especially driven by a strong operational and financial performance, as shown in the coming slides. Moving on to Slide 16.

Q2 '24 total revenue and income growth accelerated to 19% on a yearly basis, positively impacted by higher volumes from acquiring and the acceleration of our banking platform.

Consolidated gross profit margin keeps in line with current guidance, reaching 40.3% over the total revenue on a year-to-date basis, as we have been successful in balancing growth on all segments and profitability, driven by the execution of our strategy, focused on clients with better unit economics and higher engagement.

Looking at our business segments in the graph on the right side, Payments Revenue reached BRL4.1 billion, a 17% year-over-year growth, with a gross profit margin marking 38%.

Banking revenue grew 41% year-over-year, mostly driven by interest income from credit flowed from cash position, combined to service fees linked to client engagement with a higher profitability. Gross profit from our Banking segment remains at 60% or higher for the third consecutive quarter.

It is important to mention that the gross profit margin in Banking is higher than Payments even based on our strategy of underwriting mostly secured credit products that naturally presents low yields combined to high yields paid on deposits to attract and engage new clients in the short-term.

In the next slide, we share how our discipline in capital allocation has been an important tool to balance growth and profitability, leading to higher value creation with an Earnings before Tax growth of almost 20% this quarter versus the same quarter of last year.

Here, let me focus on our cost breakdown and operating expenses and what to expect moving forward. I would like to start by highlighting the increasing efficiency coming from our main costs, including transaction and financial costs.

Transaction costs decreased more than 11 basis points as a percentage of TPV, benefiting from the TPV mix driven by a higher share of PIX. On a similar trend, financial costs also showed a positive performance of 16 basis points as a percentage of TPV, mainly due to our powerful deposits franchise. We expect to keep this trend in the next quarters.

Operating expenses remained at 26% of our total revenue and income, same level of last quarter. The year-over-year increase was mainly driven by marketing expenses to acquire new payment clients and distribute financial services and personal expenses, reflecting the strengthening of our sales force concluded at the end of Q1 '24.

The expansion was aimed at supporting the Company's current growth cycle, with a positive impact on our TPV. The increase eases on the quarterly basis as most of those initiatives are already concluded or should register a more stable trajectory, thus creating opportunity for operating leverage in the next coming quarters.

The year-over-year increase in D&A and POS write-off in nominal terms is aligned to the current capital expenditure cycle and is steady in comparison to the previous quarter. It is important to highlight that tax efficiency initiatives are part of our strategic plan and are running well above expectations, reducing income tax charges.

This quarter, we have successfully advanced in optimizing our tax structure abroad and the use of Lei do Bem benefits.

Considering the volume growth level also above expectations and efficiencies identified as mentioned before, during the second quarter, we decided to further improve our client experience and actively address clients' needs by strengthening our initiatives in customer care, product development and service levels agreements, which increased operating expenses.

However, we are confident that these investments will return in higher client engagement, strong cross selling, lower churn and a larger profit to be captured in the coming years as the cohorts mature, without impacting 2024 net income guidance. Moving on to Slide 18, we show how solid is the capture structure for this PAGS’ momentum.

Equity position expanded to BRL14.3 billion with the return on earnings representing 62% of the total, which demonstrates the success of our strategy of best balancing growth and profitability.

Cash and financial investments ended the second quarter of 2024 with BRL6.2 billion within the 40% to 50% range of our equity balance, which is what we consider a good reference for a recurring level.

Here we highlight, as mentioned in the previous call, that in the last week of March, we anticipated fundraising from April that increased cash position in Q1 '24, which led to the higher cash position on the previous quarter.

On the final slide, we are increasing our guidance for the year, enforcing our sentiment that we have started the year at a very good pace. The current performance is a positive surprise in terms of growth rate, especially in larger segments and its new growth avenues such as cross border.

We are also happy with the results coming from our banking platform. The success of our strategy to reach those larger merchants to foster our deposits franchise is key to balancing a higher country interest rate than expected. As a result, we take the opportunity to increase our guidance as shown.

We now expect total payment volume to achieve between BRL480 billion to BRL505 billion with a healthy profitability. The guidance on gross profit margin remains unchanged, above 40% over total revenue and income as we are currently delivering 40.3% in the first half.

Net income on a non-GAAP basis should be between BRL2.1 billion to BRL2.2 billion considering a more efficient level of effective tax rate than 2023 as we have been currently achieving. CapEx remains unchanged. Higher investments deployed this quarter are in line with business expansion, while we raised the coverage ratio to support future growth.

Nonetheless, the current guidance remains between BRL2 billion to BRL2.2 billion. D&A plus POS write offs amount should end the year between BRL1.7 billion to BRL1.8 billion benefited by an ongoing improvement in POS management. Now, let me give the word back to the operator and we will start the Q&A session..

Thank you for the presentation. We'll now begin the Q&A session for investors and analysts. [Operator Instructions] Our first question comes from Kaio Prato from UBS. Please, Mr. Prato, your microphone is open..

Hi, everyone. Good evening. Thanks, for the question. I would like to explore a little bit more the guidance change, that you made, for this quarter. We saw a big adjustments in the TPV expectations upwards. It was an increase of around 10% versus your previous guidance. Then we had a reduction of around BRL200 million in D&A and write offs.

However, your net income guidance increased only by 2% versus the midpoint that we had previously. So, it seems a little bit conservative, especially after the net income of the first half of the year and even lower than expect effective tax rate. So just wondering, if you can provide more details around that.

What lines of your P&L are you expect to be worse than previously expected in order to offset this better TPV, D&A, and also tax rate, please? Thank you..

Hi, Kaio. Thank you for the question. This is Riccardo. You're right, when you're you already did the guidance, the increase in TPV and also the decrease in D&A. But remember, there are many moving parts in our P&L, and it is very dynamic.

Just to give an example of one of assumptions that we had at the beginning of the year that by the end of the year, interest rates would be around 9%, base interest rate of the economy in Brazil. And today, it's 10.5%, and there is no visibility that it's going to go down.

So, that's one of the variables that impacts our P&L and that we need to manage and, in such a way that you can decrease financial expenses by having more deposits, by having different source of funding, so on. So that's one of the examples that would be worse than what we expected.

But at the end of the day, the Company has the ability and the discipline to control costs. We've shown that in 2022, 2023.

So that's why we even with this moving part, some tailwinds, some headwinds, the best information that they have today is that our net income could be higher than the previous or the original guidance that they had at the beginning of the year.

And remember, we're always looking here for sustainable growth to build a company for the future to grow this new avenue, which is banking, grow our credit operation, and so on. The idea here, as we always said, is to balance growth and profitability. We could prioritize short-term profit.

However, we think that the best way is to increase profit and at the same time keep growing the Company. I mean, that's mainly the overview of the guidance that you have today..

Our next question comes from Pedro Leduc from Itau BBA. Please, Mr. Leduc, your microphone is open..

Thank you, guys. Congrats on the quarter. A little bit on the SG&A side. In the prepared remarks, you mentioned a rollout of higher commercial investments. Part of it is driving revenues now, part to come.

I would just like to understand a little bit how you're looking at this reinvestment faith, and is it perhaps one of the reasons also that an income revision was a bit more modest than the revenue or gross margins. Just for -- and also in the call, you mentioned, efficiencies in the second half.

Just again trying to get a little more color around this line. Thank you..

Hi, Pedro. This is Riccardo. Well, in terms of SG&A, we invested in in the second quarter, and not to say in the first semester, as you could see in our P&L. We invested more in marketing. We invested more in personnel.

We don't think that it's going to be an increase in the level of investments or expenses that you had in these two lines of our P&L in the second half. So, we expect that to be kind of stable. So, the size of the sales personnel that they have today, it seems to be stable and at the same size for the second half.

That's one of the, let's say, the expectation that they have. We invested also in our customer experience or call center and everything that relates to customer relationship, and we also invest in product development. We've been launching new products. Just to name a few here, we invested in, we launched the multiple cards, now in Q3.

We are also the multi acquiring and other features for the SMB. So that's why when you look at the expenses, the operating expenses, we see this increase. But specifically in SG&A market, it seems to be we expect to be stable and that's looking forward. That's why we reviewed the guidance.

BRL50 million is more in the midpoint for the net income even with this all moving parts with the interest rates that it seems to be higher than what we expected. D&A lower than what we expected.

So, there are many moving parts, but I would say the big one is D&A should be lower as we see in the guidance, and, financial expenses should be higher because of the basic interest rate of the economy. And we should offset that with more deposits and cost controlling and other lines that you at the end of the day, we have conditions to control..

Okay. That's clear on SG&A. Thank you. And if I may, for the second question, that's unrelated, but, also important on the credit portfolio, especially on the SME sides merchant clients the working capital loans were more modest. Of course, you're banking more for the sky.

How are you feeling on the on the comfort of going, originating more in working capitals? Thank you..

Well, Pedro, we do expect that to grow. We are still to be honest in baby steps. We launched it now, by the end in Q2 to be honest we launched the working capital and also the overdraft. These two products are extremely small in terms of credit portfolio, but it is growing.

We do have expectation that we will be able to grow these two products a little bit faster in the following quarters in such a way that we can see the results in the in the financial services P&L.

The small tests that we have so far, have been very successful, very, very successful the way that the SMBs ask for the working capital, the way they are paying. So today, I don't have a guidance to give to you because it's still very small in baby steps, as I mentioned before.

But we do have expectation these two products will grow faster in the following quarters..

Our next question comes from Mario Pierry from Bank of America. Please, Mr. Pierry, your microphone is open..

Hi, guys. Congratulations on the results. I wanted to ask a little bit about your volume growth on the LMEC segment, growing 50%. I wanted to understand a little bit better the take rates and the profitability of this product versus volume growth at the MSMB segment.

Because, what I'm trying to get to is given the increase in the guidance that you're giving for volumes, how come that's not translating to a higher net income? You already explained that you are facing higher financial expenses.

But I was wondering if the growth is the higher guidance is because of stronger growth at the LMEC, and that's a lower profitability product. Thank you..

Mario, thank you for the question. You're right. We grew 50% TPV in in LMEC and, 28% in SMB. They do have a lower margin in larger merchants, e-commerce, and cross border. At the end of the day, in absolute terms, in absolute figures, it makes sense because it is accretive, not as accretive as it is in the MSMBs.

But in terms of volumes, they bring more volumes and it is accretive in the bottom line. But if you look at what we have in terms of results in both segments, LMEC, we grew 50%, and SMBs, we grew 28%. All of these figures, they are much, much higher than what is in the market. Remember, the market grew 11%.

The cards industry in Brazil grew 11%, and we grew 28% in MSMB and 50% in LMEC. So, yes, it is growing faster. But if you look at the core or the beginning of the Company, the origin of the Company, MSMBs and longtail, so one is still growing 28%, which is very healthy.

But as we have the opportunity to grow more in that way, we see we keep growing there and getting these clients. But going back to your question, yes, they do have lower margins. It's growing faster, but they are creative by the end of the day, and both segments are growing much, much faster than the whole industry in Brazil..

Right. That's clear.

What explains the acceleration in growth in the LMEC, because you were growing close to 30%, and now you jumped to 50? Does it have to do, like, gaming on the increase? Do we keep hearing about sports betting and things like that in Brazil? Is that one of the drivers and why did the growth accelerate so much?.

Mario, there are many reasons here. One of the results I'd say, we finally integrated all the platforms. Remember, we acquired Moip by 2020, and then we had all this work to bring Moip inside the Company and then integrate the platform. Now, we have the unique platform and only one platform to serve the online clients. That's one of the reasons.

The other one, we try to bring large merchants and also integrate our banking solutions to them. Some of the bankers are using our CDs and so on, which is a kind of way to be different in the market, not to go there and compete with price. And also in that, we are having new clients in, but when you think about cross border and also online.

So, it's a mix of everything, but I would say that it's very balanced. There is no growth in one specific area that we are concentrating. It's a mix of online clients, cross border, larger merchants coming because of the bank. So, it's combination of these reasons, I would say to you..

Our next question comes from Tito Labarta from Goldman Sachs. Please, Mr. Labarta, your microphone is open..

Hi. Good evening. Thank you for the call and taking my question. Actually, a little bit of a follow-up to Mario's question on the TPV. I guess one first to clarify, is the pressure on the take rate simply a function of mix just to make sure, Magnani, you kind of mentioned that you're not really competing on price.

But just to think about the competitive dynamics a little bit in the two different segments. I think with the large merchants, there's one competitor is in the middle of being privatized.

So, I don't know if that's maybe contributing as well to your ability to grow with large merchants, and again, the first part of the question is all the take rate pressure just mix.

And should we expect this trend to continue where you can continue to grow faster with large merchants at least in the shorter term that could maybe put further pressure on the take rate going forward? Thank you..

Hi, Tito. Yes, the growth of our larger merchants is going to be larger than the MSMBs. And remember, just answer Mario that even MSMBs, if you look at the growth in MSMBs, 28%. It's much more than the card issuance industry in Brazil. It's a very healthy growth in MSMBs.

But in larger merchants, e-commerce and cross border, we are growing almost double of that, reaching 50%. And part of that we'll keep growing this dynamic. So today, 67% of our, TPV in Q2 was, MSMB TPV and 32% in LMEC. So, if you look forward, probably the share of MSMB should go down because the LMEC is growing faster.

But, again, it's accretive to the bottom line. There is no relation with the one company being privatized or some policies pricing policies in other companies, much more related to what they're doing out there in the street.

And, one thing that is very important also to mention is that larger merchants for us as we don't have a definition in the market, what is larger merchant? Remember, for us, larger merchants is a merchant with a TPV of cards larger than BRL1 million per month.

If you look in the competitors or in the incumbent the acquirers from the incumbent banks, probably this is going to be a medium clients to them. So, the definition for us is around after BRL1 million, we consider a larger merchant.

So, it's not that large if you look at the market, but still, we are growing very healthy in both segments, I would say..

Okay. No. Great. That's helpful. Thanks for clarifying. And following up a little bit, continued strong growth in deposits.

Are you seeing any color you can provide in in some of these deposits because you're growing with larger merchants and that's helping to drive that growth in deposits? And any color on the mix of the deposits between large merchants and MSMB?.

Tito, I would say to you that large merchants of course, help, but it's not the main driver for this growth. This growth is much more related to MSMBs and also consumers than to the larger merchants.

Because as you can -- as you expect, some larger merchants, they do have, corporate accounts in larger banks at this point, and some of them just use as an acquire in CDs, but not exactly in deposits. So, that's why I would say to you, the main driver for the deposits are MSMBs and consumers at this point..

Our next question comes from Neha Agarwala from HSBC. Agarwala, your microphone is open..

Hi. Thank you for taking my question. My first question is on your guidance. What is the implied average selling that you have incorporated in your guidance, both the old and the new one? Has that changed? Second question is, again, on the LMEC segment that that you have here, which is growing extremely strongly.

Is this comparable to the [IBEX] TPV that, we look at for the system? Because I believe the e-commerce and the cross-border volumes, which you're including, is probably not included in the IBEX system. So that kind of distorts, comparison on apples-to-apples.

And will it be possible for you to break it down for us to see what is comparable to that of the system to get a more, better sense of the market share? We go with that, and then I'll ask the third question..

Hi, Neha. Thank you for the question. I will start backwards. The TPV that we report here is not a 100% compared to IBEX. So that's why when I say the cards in Brazil is growing 11% and RTPV includes, peaks as well. But I'd say the participation of peaks in our TPV is a high single-digits today.

So even if you discount the peaks, participation our TPV, we are growing much, much more than the IBEX and much more than the competitors. Regarding the interest rate I'd pass through to Artur..

Neha, it's Arthur speaking. In terms of guidance, what we are considering in the interest rate for our account is something above our business plan, the original business plan that we had at the beginning of the year. And today is 10.5%, and we do not consider, any reduction going forward..

Niha, just to compliment here. We do have some scenarios because, of course, we don't know what's going to be the interest rate by the end of the year. So, we have some scenarios.

If you have some increase in interest rate, as some banks have been saying the past weeks, we also have some other scenarios to control other lines of P&L in order to deliver the guidance that we are showing to you in this presentation. Of course, we have some conservative interest rates, some aggressive.

And then depending on the scenario, we're going to manage the Company to deliver the guidance that you have here in this presentation..

Great. Perfect. That's very helpful. And lastly, on the MSMB segment, we see the overall take rate has been going down, which is mostly because of the strong growth in the LMEC segment.

But just talking about the core MSMB segment, what is the take rate for that particular segment, and how has that take rate evolved over the last year?.

Yes. We don't disclose this exactly take rate. Let's say to you, it decreased a little bit from one year to the other. Not a big decrease, but it decreased a little bit a few basis points. But let's say two is very healthy still today. Competition has been rational. We keep growing in a very healthy way in in this segment as you could see. It's 28% growth.

And, but I'd say take rate went down just a little bit, but it's still very healthy margins, very accretive to the bottom line, very good business to be honest..

Our next question comes from Jorge Kuri from Morgan Stanley. Please, Mr. Kuri, your microphone is open..

Hi, everyone. Thanks for the opportunity to ask questions. I wanted to go back to the marketing and selling expenses. For the first half of the year, according to your press release, your selling expenses are up 42% year on year. That's 2.5 times the revenue growth, 2 times the MSMB, TPV growth.

If I look at just the marketing expenses, they're up 70%, I believe.

And I guess the question is, what gives you comfort that this is going to allow you to accelerate revenue or keep the same pace of revenue without necessarily having to continue investing in marketing and selling at this space? And I ask that because we're seeing exactly the same thing from your peers.

The same thing happened at Stone, at Cielo, at Redneck, at Net. I mean, everyone is adding salespeople. Everyone is adding, sales capacity, marketing capacity. So, if everyone is adding, you're all at the same place. I mean, you're not better than the guy next door.

So, what gives you confidence that this is indeed an effort that surpasses your peers and will allow you to grow above average going forward? And then I'll ask my second question. Thank you..

Hi, Jorge. Thank you for the question. We start, and then Artur can complement more with the numbers. But I would say in a more qualitative way, so to say here. When you look what happened with the Company in this quarter, we've been investing. And, as I said at the beginning of the presentation, it’s an all-time high presentation.

All the slides that they have started with all-time high. So, TPV grew 34%, revenue grew 19%, deposits 87%, cash in 52%. Banking net adds accelerated versus Q1. Banking revenues grew 41%. We had a TPV record in June 8 and now a new record in July 6. So, let's see. The Company is doing very well, and it's growing.

And part of the investments, of course is to bring this growth. We could have looked at the short-term profits and not invest in the growth.

But we do have the confidence that these investments will be paid back because I've seen in terms of cohorts, the way that clients come to us the way they engage with the app, the way they do the caching, and the way they start using our products gives us the confidence that we are bringing, very good cohorts for the Company.

And of course, there is a lag between the investments getting declines and then start generating the revenues. But when you look at the qualitative way that the clients are using our products and our old ecosystem. That's why we keep investing on that. And, I know that sometimes we do compare peers and so on.

But I'd like to reinforce that, probably are the only one with this very, very powerful combination of acquiring and banking at the same app. Not only the players, they have the D plus zero. They don't have the same logistics that they have. They don't have the same, complete accounts that you do have today and that we invest in also for MSMB.

So, I would say that, it's not the same animals. So that's why we are confident that, our value proposition is just stronger than competition. Maybe one competitor is better in a specific feature, the other one is better than another one.

But that competitor that has all the combinations and features that they have in our ecosystem, I don't see one to compete with us in a very powerful way for long tail MSMBs and the consumer as well, I would say. So, we're launching new products. Portfolio is growing. NPL is trending down.

So, when you look at the numbers and the qualitative cohorts, that gives us the confidence to keep investing. And, regarding the numbers, the specific percentage, I guess, Arthur can give us more color. Thank you..

Well, to complement what Dutra mentioned, I would like to reinforce that, the higher expenses and investments that we are seeing right now or in 2024. By the way, we achieved at the level that we expected for this year in the second quarter.

It's a little bit higher than the first quarter, but it's in the same level when you compare quarter-over-quarter. But those investments are part of our strategy for 2024, as we reduce it costs and expenses in 2022, part of our strategy for that moment.

In 2023, we also had a very good discipline on the cost and expenses, part of our strategy again in 2023.

Based on the big strategy that we have that is balanced growth and profitability, not reaction on competition and so on, but the balance of growth and profitability now is a moment of growth, and we achieved the level of investments that we see important to the growth, the growth that we are expecting going forward.

And as Dutra mentioned, we had a lot of all-time high numbers in this quarter, and we are expecting to have very good numbers going forward in terms of growth, engagement, and activation of clients..

Thanks for that. And let me ask a second question, if you don't mind. Different topic on payroll loans, which you basically doubled over the last year in terms of real portfolio.

Can you help us -- can you give us some color on what is your payroll loan business? Are these payroll loans for retirees, for government workers, FGTS loans, private workers? What is the ticket size? How many clients? What percentage of your clients have a payroll loan? And, if you can also help us, dimension just how big this business could be, either, you know x number of retirees in your base and only x percent have a payroll loan or government workers.

Any way you want to help us, try to get our arms around how big this could be given that indeed it's growing very rapidly. Thank you..

Hi, Jorge. At this point, we are not doing for private employees, but we do have some products in our ecosystem, which are FTTS products for retirees. The size of this the average ticket for this product is serious, what we have in the industry.

We keep growing and trying to digitalize all these products in such a way that we can kick it out the friction that some products have today that you've got to talk to someone and then send documentation and so on. The total addressable market for these products is around BRL600 billion. So, if you look at our portfolio, it's a percentage of the 3%.

It was like BRL2 billion out of a time of BRL600 billion. But, going back to your question, we are not doing private at this point. Doesn't mean that we not doing the future. But at this point, we are focusing more in retirees and FGTS and try to digitalize this process as much as we can.

And the size, it's similar to what we have in the industry, not different than what we have in the market..

And are these, like fully originated digital loans or are you using [pastina] or you're buying portfolios for some of the intermediaries? Is a 100% of the origination done at your point of -- at your client's mobile?.

Jorge, for some products, it's a 100% online. For other products, its part is [pastina] part is online. At this point, we haven't bought any credit portfolio from someone. So, we bought in the past, but at the very beginning. But if you look at the last one year and a half, we didn't buy any credit portfolio from other companies.

So, today's everything is originated through us. Some products are 100% digital. Some products we still use [pastina], but as time passes by, the participation of [pastina] is going down. So, the more and more we are having more digitalized, more through the app without friction or without intermediaries..

Our next question comes from John Coffey from Barclays. Please, Mr. Coffey, your microphone is open..

Great. Thank you very much for taking my questions. The two questions I had just referred to a couple of things that you had in your slide deck. So, the first was on, Slide number 6. I think your third bullet where you're talking about early payments and receivables from other acquirers.

Could you help me size this? I just wanted to get to see if it better I guess, trying to understand there's a different kind of economics here than, maybe some of your other prepayments and just really how big this opportunity is. And I can just ask my second question here, and that was on Slide 9 when you talk about geographic expansion.

Were you not fully expanded in Brazil or were there pockets in which you really didn't have a lot of penetration? So, I'd just be very interested in knowing more about where that geographic expansion was, if there's still a little bit more runway to expand more in that particular area or other areas in Brazil. Thanks..

Hi, John. Thank you for the question. Starting backwards again. So, in terms of geographic expansion, of course, digital we serve everyone in Brazil. But we do, we've seen some opportunity to have hyper local sales force to serve some clients in specific regions of Brazil.

So that's why we reached some -- we hired some new personnel and part of the operating expenses increases because of that, for specific regions, specific niche where we see some potential TPV. And, in our analysis the coverage was not good enough to get the clients and to give the right treatment for this type of merchant.

So that's why that's geographic expansion. It is within Brazil in specific regions of Brazil.

Regarding the Slide 6 that you mentioned about the early prepayments, today, we have in Brazil this chamber of receivable that is finally working properly, and we have some clients that we use PagSeguro and other acquirers, and they have the opportunity to early prepay for these clients, through our app.

If you look at the total addressable market, two-thirds of TPV in Brazil is done through credit, with installments or without installments, but two-thirds is done through credit. So, you can at the end of the day, you can anticipate everything of these two-thirds.

Part of them already anticipate because they received D plus zero or they have some specific contracts with some acquirers, but part of them, are not included in this, I would say, lockup. So, we know that for larger clients, it's a pricing war like you have in acquiring with the big, big clients.

The acquiring is based on price, and the acquiring for incumbents are working there. The incumbent banks are working with these clients. So, we are more in the SMBs and it's too early to say the economics of this project.

But at the end of the day, we're going to anticipate with a spread, based on the cost of funding that you have that is very competitive, when compared to competitors because we do have deposits. I mean, it's too early to stay.

I guess we can give you more color, I don't know, next two quarters from now, we could have more information about this product, but we will launch now in Q3..

Our next question comes from Yuri Fernandes from JPMorgan. Please, Mr. Fernandes, your microphone is open..

Thank you very much, guys, and congrats on the volumes and creating this closed loop here. I have a question on financial cost. When I go to Page 8 of their press release, we see securitization cost is down a lot, like 40% quarter-over-quarter.

And I understand this is likely because of your deposits growth, so maybe makes less sense for you to continue doing securitization. So just want to check if this makes sense, if the costs are similar, if you are paying somewhat the same for your time deposit. Because I know the average cost is BRL96 that maybe is lower than the securitization.

But not all your deposits are paying like BRL96, right? This is a blended. So probably on time deposits who are paying higher than that. So just checking if you continue to do more deposits unless your securitization. And then my second question is related to this one, is regarding your net cash.

If you continue to do more deposits, you have BRL12 billion of net cash, that you report on your presentation. You continue to generate cash. You are relying less on proprietary cash as deposits grow, I would assume.

What you do here? Like M&As, dividends, buybacks, like, what should you do with this excess cash you have been accumulating, given your funding as somewhat migrating towards deposits? Finally, just a very quick follow-up on the first question from Kaio. I understood your message on the guidance.

People already explored these, but given your D&A is moving is moving down, your right off of QS is moving down, is it fair to say that your cash earnings is going down, like, with all those moving parts, because you have a lower non-cash expenses, but very marginal guidance revision. Thank you..

Well, Yuri, it's Ricardo actually speaking. Let's start to talk about each one individually. And so financial cost when you talk about financial costs, it's real that we are building here a great deposit franchisee. Our time deposit presents today a very low cost to us 68% in average. The total deposits that we have to fund operation 96%.

That is awesome to see that we are funding the operation below the country cost in Brazil. Specifically, to the second quarter, and it's part of the decisions that we take. We reduced it a little bit AR securitization to bank issuers, but it was only for the Q2.

If you remember in the first call, we comment that we had a large AR securitization in the end of March. And then, we used this cash during April in the second quarter. But going forward, we expect to have our deposits growing more and more. All the management is focused on increase the volumes on deposits.

And also, we are balancing AR securitization and third-party distribution of products or financial ladder or CDs that we distribute in third party platforms.

It's important to mention that the financial cost in Q3 is also affected by four working days more than Q2, so everybody needs to prepare each model to understand that we have four days more in in the Q3. And we are working to balance all the funding sources that we have to mitigate any impact that we can have in this more numbered of base.

In terms of cash balance, it's true. We achieved a BRL12 billion. We are growing quarter over quarter. Every time we see the Company growing in the volumes, growing prepayments for merchants, and also, we measure this net cash balance as a very healthy for the Company because we are increasing, quarter over quarter.

This excessive cash as you mentioned, we are always assessing the capital structure based on this cash flow generation. At this moment, we are seeing our business growing faster than expected, and we decided to use on cash to support that growth.

Obviously, we can do using on cash or third party, but at this moment, we prefer to support the growth based on our own cash. That is cheaper, and it's better when you are negotiating with the banks and other financial institutions in a more positive scenario.

Furthermore, we see several initiatives to better invest our cash increased volumes that increased volumes that we are seeing right now, engage clients, improve customer care, and launch new products as we mentioned in the call and in the presentation. On top of that, financial industry, is huge and beyond payments.

And we are on the very early stage of exploring credit, banking, investments, insurance opportunities as we have been doing with our complete banking offer. And we are always balancing growth and deploy capital. It's part of our strategy to maximize shareholders' return, and we always doing that management in the in the capital structure.

And the third question related to write-off of POSs that is part of our P&L. So, we have some policies to read the usage of our POSs. And when the POS is not used anymore, we have this practice of write-off POSs. It's only impacting our economics, but not impacting our cash flow because we have these CapEx, in years before of this write-off..

Super clear. Thank you. If I may, just a follow-up on second point on the use of cash. Like, just a more openative take on yourself on if you believe, this issue should be consolidated at some point. Like, what do you think is going to happen in in this industry, right? Because there are so many economies of scale. Like, you have this ecosystem.

You have the deposits. You have the banks. So, I would like to hear your thoughts on how you see this industry. I don't know. What's going to happen with the payment industry in Brazil like 5 to 10 years from now? Thank you..

Hi, Yuri. It's hard to give a prediction what's going to happen with the industry 5 to 10 years from now because, industry is very dynamic. Remember, this has been changing a lot in the past years.

To be honest, we are very active looking for opportunities in the market in different business units of the Company, so payments, credit, and other products.

When you think that we have a good target that we could approach and with the right price and similar culture to us and so on, of course, we're going to we'll move forward, but, it's hard to predict if there's going to be consolidation or not. We keep very active in the market looking for accretive as M&A that could create shareholder return.

But at this point, there is, nothing to be announced and then nothing happening that should give you some information in this call..

Our next question comes from Bryan Keane from Deutsche Bank. Please, Mr. Keane, your microphone is open..

Hi, guys. Congrats on the quarterly results. Just wanted to follow up on the acquiring TPV. It continues to kind of beat and gain share versus the market. I know the comps start to get a little more difficult, especially as we get into the fourth quarter.

Thinking about SMB and the LMEC separately, how sustainable do you think some of the changes, you guys are making that you will be able to continue to outpace and take share from the market in those two segments?.

Hi, Bryan. This is Ricardo. We've seen what happened this year. We've been growing faster than the market. We see what happened in Q1 and Q2. Q3 is not that different. We keep growing in a very, healthy way.

And then, what we always say is, try not to compete this price, try to have a different value proposition with cross selling opportunities, and try to use banking as a differentiator for our clients. That's why we have been investing in PagBank since 2019.

But going back to your question, we do think it is sustainable to grow more than the market in following quarters. But, again, the industry is very dynamic but you have a strong, value proposition, the processes in place, and there is some inertia that we've been seeing in our sales force.

Productivity per employee is growing because they get more and more, trained and then and understand better the ecosystem. We've been launching new products such as CDs that serves not only MSMBs, but also LMEC. So, I mean, looking forward I don't see many changes in these dynamics.

It's hard to say what's going to be the level, but I don't see change in these dynamics that we keep gaining share..

Got it. Got it.

And then as a follow-up, just thinking about the pipeline for acquisitions or what you guys are thinking about that you might want to add to the portfolio? Are there things out there that you guys are looking at that could make sense for acquiring or building internally to build on the portfolio for cross selling opportunities?.

Hi, Brian. We look for and sometimes we can bring some clients and try to bring the P&L of the Company out there. And sometimes we are only looking for kind of the acquihire to bring some new talents and to bring the product that could complement our ecosystem. So those are the two rationales that we have here.

One is more related to the economics of the Company we are looking to acquire. The other one is more related to the knowledge and to the talents that this company could bring to us. If you look at the history of the Company, we have some acquisitions in the past years.

Most of them related to the second vertical, I would say, more related to the products. We keep looking to that. What is the type of startup or companies that could bring new features and speed up our time to market? But there's nothing that you can give more information to this call at this point. I mean, we keep working on.

We have our own proprietary M&A team, but, there there's nothing to nothing new at this point to be honest..

Our next question comes from Gustavo Schroden from Bradesco BBI. Please, Mr. Schroden, your microphone is open..

Hi. Good afternoon, everybody, and thanks for taking my question. Sorry to insist in this LMEC Economics, but I think it is very, very important. My question here is if it would be correct to you to assume that these marginal TPV that, you are including in the LMEC is still or hasn't reached the breakeven.

I'm asking this because we have all this positive news on the TPV in the quarter, but the pretax earnings were stable. And you already explained it that, there was some pressure on the operating expenses side. You already mentioned that the take rate is below the average below the other the other products.

So, my question is would be correct to assume that, it is you are still ramping up in this segment and maybe the operating leverage will come in the coming quarters, or is it was just a one quarter with some, specific investments is, I mean, it's that would be, like, a non-recurring, let's say, let's put in these words, weaker, quarter for the LMEC.

Thank you..

Hi, Gustavo. The LMEC, they are profitable. They are positive. The Company doesn't have any policy here to buy market share or just to get TPV increase our market share and not to make margins from this specific TPV. Remember, our large merchants start with BRL1 million in cards.

So, it's not a sometimes we say large merchants, people think that we are talking about the Walmarts in Brazil. They're not. BRL1 million per month in the LMEC. They are positive. We're looking for clients that they have positive margins. In the LEMC, we also have ecommerce, and we also have cross border. It's not only larger merchants.

Indeed, the margins of these clients, they are smaller than, MSMBs as a percentage. But if you look at in absolute terms and absolute figures as they have higher volume, it is accretive to the bottom-line and it is a good business at the end of the day.

When you think -- when you grow 50% year over year in a profitable way, it's a very strong growth and healthy growth, I would say. Also, these merchants, they also bring deposits because, again, when I said that larger merchants could not bring deposits, I'm talking about the Walmarts in Brazil. They have their own banking solutions out there.

But when you think about the merchant that is BRL1 million in cards, we are very competitive for these clients. We have high -- and other options that we can use as an account to them.

So, when you think of the mix and the client and the whole portfolio, not only the acquiring, but also in the bank and the cost of funding and so on, they are positive, and they help us our deposits. And, yes, that's why we do think it's going to grow. It’s keep growing, and, it's a good business at the end of the day.

If you could grow more in both segments, of course, we'd grow, but to think we grew 28% in MSMBs. It's very strong growth as well. It's not that we are only focused on LMEC. Both segments are growing a very, strong way, I would say, and they are both profitable..

Thank you. And, if I may, the second question is related to your deposits and also your credit portfolio. As you mentioned, and indeed your deposits, it is growing very fast, but when we analyze the loan to deposit ratio, it's around 8%, so below 10%. You mentioned that, we should expect some acceleration in the lower portfolio in the coming quarters.

But what is the reasonable, target here in terms of a loan-to-deposit ratio? I'm asking this because it is very important to monetize and to improve the profitability of the whole business, right? So, what would be, a fair, loan to the post ratio that we could forecast?.

Thank you. Gustavo, we don't have a specific number to these guys to you or to give this to you because, remember we also use deposits for the prepayment. In a daily basis, we look at the best capital allocation also to support our prepayments, because sometimes we should go to refactoring with the banks and sometimes, we do use our own deposit.

So, we don't have a guidance to give to you about the due loan-to-deposit ratio. And, but, I mean, it's at the end of the day, it's very good news that deposits are growing this space, and, 87% year over year is a very strong growth. And it helps the Company as a whole.

We can use these deposits for the credit business or for the prepayments and the acquiring. So I mean, I don't give a -- I don't have here a specific loan duration to give to you at this point. And just to complement the first question that you asked about the earnings before taxes.

We took the conscious decision to invest in the growth of the Company because we knew that we could have a higher operating expenses and still grew the bottom line. So that's why we invested more in operating expenses in Q2 in order to keep the growth, keep supporting this growth.

And as I said before, in key metrics, we are growing much, much more than the market 34% TPV, 19% revenues and so on. So that's why we knew that we'd have this efficiency tax rate, and then we reinvested part of that in the growth of the Company..

Our next question comes from Daniel Vaz from Safra. Please, Mr. Vaz, your microphone is open..

Hi, everyone. Congrats on the results again, and thank you for the Q&A. I think most of the questions have been answered. I wanted to touch based on your credit. I know you're rolling out working capital loans and all of that. But when I look at look at your current credit portfolio, it's still disconnected, to your payment strategy.

So, you're moving up from long tail and individuals to SMBs and large merchants. So, trying to pick up your brains for the long term here, how this credit portfolio looks like in the future.

So, do you expect retail loans to be a smaller portion as you grow further in wholesale? So, I mean, any breakdown or any color you would pass to us it will be very helpful to try to forecast for the for next years, your wholesale and retail portfolio here. Thank you..

Hi, Daniel. Looking forward, we expect this credit portfolio to more balance because Tuesday is pretty much focused on the payroll and also credit cards. But it just started working capital again and, overdraft as well. Overdraft, we are offering not only for consumers but also to merchants.

So, looking forward, we do expect this to be more balanced with more credit portfolio based on consumers and also merchants, merchants from different sizes. Of course, it depends on how it will evolve in the following quarters the expectation of our offers, NPLs, and so on.

At the end of the day, we are looking for credit margins not only NPLs, of course, but it's going to depend. It will depend how it's going to evolve in the following quarters.

But to give a, let's say, big guidance here will be to have a more balanced credit portfolio with merchants and consumers and merchants from different size using different products. We just launched the working capital and overdraft in last month still baby steps.

But, following quarters, we probably we're going to have more color to give on that, but it's a huge opportunity at the end of the day. If you look at, we have, we're going to have this year if you look at the guidance around BRL500 billion in TPV, and credit portfolio is only BRL3 billion. So, it's a huge opportunity.

We just need to find the right offer and the way that it works with our merchants in order to increase the credit portfolio for the merchants as well..

Okay. Thank you. If I may, a quick follow-up on the LMEC.

When do you expect this to converge to similar growth rates to MSMB? I mean, are you still seeing opportunities for further penetration, way higher than the MSMBs that we're seeing right now?.

Daniel, this is Alexandre speaking. We still see room for growth and a fast growth on the LMEC segment, since, a big portion of this segment is related to e-commerce and cross border, which are card not present transactions. Our fair share in card not present transactions is much lower than our fair share on card present transactions.

So, we still have room to grow in this segment. Even though the margins are smaller, they provide good margins for us and accreative profit on this segment. But, obviously, MSMB segment, is our core, and we keep investing the growth of this segment. That's why we are growing MSMB 28%, which is much higher than the market growth..

Our next question comes from Gabriel Gusan from Citi. Please, Mr. Gudan, your microphone is open..

Hi. Good evening. My question is about CapEx. It is running above, the higher end of your guidance at BRL2.4 billion annualized. And my question is more on the qualitative side.

Should the business continue to require the same over BRL2 billion per year in CapEx going forward now that you have, less micro merchants or you're investing less in that segment? You're going more into LMEC. Over time, should we expect, that line to be nominally reduced? Thank you..

It's Arthur speaking. Thank you for your question. Related to the investments that we are doing since or over the past four years, we achieved at the same level. In average, BRL2 billion per year. Part of these investments are not related to POS as we always mention.

The majority of the investments or more than 50% is related to technology, products, services, features that we launch, new products to our clients, and that the remain portion is related to POS. For this year or the first half of this year, we anticipated purchases of POSs increasing the coverage ratio.

It is totally aligned to our strategic plan for the year. That means in the coming quarters, we will reduce in nominal terms the investments that we are doing to achieve the CapEx that will remain stable, since the beginning of the year from BRL2 billion to BRL2.2 billion in this year.

Are you there?.

Yes. Perfect. Thank you..

Yes. Okay. Thank you..

Our next question comes from Renato Meloni from Autonomous Research. Please, Mr. Meloni, your microphone is open..

Hi, everyone. Thanks for taking my questions here. So, for my first question, I wanted to focus again on profitability. I'm looking here as gross profit as a percentage of TPV, which had been stable in line to your previous comments, but we saw 11 bps decline this quarter.

So, my question here is, was this also related to LMEC or if there's other elements here? And then looking to the second half, do you still expect some compression here given the growth in the segment? And if you allow me for a second question, I wanted to focus on your cost of funding for deposits and going back to your remarks during the call when you said you were exploring, some alternatives to reduce costs here.

So, if you could expand on those comments and maybe if there is a target of as a percentage of CDI, where you're trying to get there. Thank you..

I'll start with the first part, and then I'll move on to that. LMEC, may pressure a little bit down the percentage of, gross profit over TPV. And there is also the mix of product that we have seen in our segments, not only in LMEC but also in the MSMB segments, the growth of, some of the products such as PIX, PIX QR code, P2M..

And just to complement here, we I mean, we cannot overlook the genetic rate slash gross profit as the only drivers for the Company's profitability. There are many other costs and expenses in the P&L that we need to manage such as financial costs, which is the one of your questions.

So, I mean, at the end of the day, there are several drivers that could impact the kinetic rate gross profit and so on. But we are here reinforcing our guidance because we are confident that we can manage the Company.

We keep growing sustainable way looking for the future, not only for the specific quarter building a sustainable business, bringing new clients, thousands of clients hundreds of thousands of clients. And so that's why we keep growing pretty strong in the top line and still reinforcing the guidance.

So just not to keep focus on only one metric because at the end of the day, there are many moving parts and many movements and actions that we could take in the Company to keep the profitability of the Company as a whole..

And it's Artur speaking. I will talk about the target of funding cost that we have. There's no specific target that I can provide to you that a certain level that we would like to have in terms of cost versus CDI, but we are always looking for opportunities to reduce as much as possible the cost that we have.

Based on the strategy that we also have, sometimes we pay higher yields to some clients to attract them to the Company and then cross sell other products, and we have a rationale behind that. And what we are doing as much as possible too is diversify the funding sources that we have.

We would like not to depend on one bucket to take money from the market, but we identify many lines, many different third-party providers that we can use, and we are doing that as time goes by..

Our next question comes from William Tang from Susquehanna International Group. Please, Mr. Tang, your microphone is open..

Hi, guys. Good results here. I just had a quick question on Slide 8. I was looking at your merchant count, and it looks like your active merchants are falling, but I think that's largely due to the offboarding of nano merchants.

Is that right? And then if so, what's a good way to think about, your gross or net ads at the MSMB level? Can you help us there? Thank you..

Hi. Thank you for the question. You're right in your question and our conclusion. If you look at Slide 8, in the graph, in the bottom right, you're going to see that the excluding nano-merchants, we grew 4% year-over-year. Even if you look at the bottom left that you said that the mergers are going down, but it's slowing down.

This decrease is lower and lower. It used to be 100,000, 150,000 a year ago, and today is around 40,000. It's kind of stabilizing to say, the number of active merchants. The loss is more related to nonmerchants as you said in your question.

To be honest, of course, we look for active merchants, but the main focus here is to bring merchants with decent volumes of TPV in such a way that they could be profitable, very soon. I mean, the payback in terms of subsidize of the POS and so on, they can be profitable very soon. That's why we look at this slide.

We see the TPV per merchant grew 42% year-over-year because we're bringing merchants that deactivate more, they use more, and so on. But, yes, going back to your question, if you do not consider on the merchants, we grew, 4% in our base, and it's kind of stable. If you look at the numbers of merchants, the active is kind of stable..

Thank you. That's all the questions we have for today. I will now pass the line back to Arthur for his closing remarks. Please, Mr. Arthur, you may proceed..

Before we end the call. I would like to inform you of a recent change within our company's Investor Relations team. Eric Oliveira has accepted a new position in the Company. In this new role he will lead a team focused on banking growth initiatives, which is a key element of our strategy.

We would like to sincerely thank Eric for his dedication and invaluable contributions during his tenure in our IR team where, among many milestones, he enhanced our communication and engagement with our investor community. Eric, thank you very much for all the support and results we achieved together. And I wish you the best in the new challenge.

In light of this transition, I am pleased to announce that Gustavo Sechin is joining our team, on Aug 26th, as the new Head of Investor Relations, ESG, Market Intelligence and Economy. Gustavo brings his extensive experience in investor relations and finance positions. His last position was as CFO of Subsidiaries at Santander Brasil.

Before that, he was CFO and CRO at Getnet, and has led the proprietary M&A team in Brazil. He has got a long journey in the financial market, including equity research for Banco Votorantim and Investor Relations of ABN Amro Bank. Gustavo completed an MBA in finance from FGV and graduated in Accounting from the University of São Paulo.

I am confident that Gustavo will continue to uphold our commitment to transparency, effective communication, and a strong relationship with our valued investors and analysts. Eric and Gustavo will work together for a while to make a smooth transition. Please, do not hesitate to reach out to Eric, Gustavo, and I if you have any questions.

Gustavo, welcome to PAGS team and thank you for engaging in our purpose of making the financial life of individuals and businesses easier. Thank you all for participating in our second quarter 2024 earnings call and we look forward to meeting you in our next call..

This does conclude PagSeguro Digital’s conference call. We thank you for your participation, and wish you a very good evening..