Hello, everyone, and thank you for waiting. Welcome to PagSeguro's First Quarter 2019 Results Conference Call. This event is being recorded. [Operator Instructions] This event is also being broadcast live via webcast and may be accessed through PagSeguro's website at investors.pagseguro.com where the presentation is also available.

Participants may view the slides in any order they wish. The replay will be available shortly after the event is concluded. Those following the presentation via webcast may post their questions on PagSeguro's website.

Before proceeding, let me mention that any forward-looking statements included in the presentation or mentioned in this conference call are based on currently available information and PagSeguro's current assumptions, expectations and projections about future events.

While PagSeguro believes that their assumptions, expectations and projections are reasonable in view of currently available information, you are cautioned not to place undue reliance on these forward-looking statements. Actual results may differ materially from those included in PagSeguro's 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 PagSeguro's registration statement on Form F-1 and other filings with the Securities and Exchange Commission, which are available on PagSeguro's Investor Relations website.

Finally, I would like to remind you that during this conference call, the company may discuss some non-GAAP measures. For more details, the foregoing non-GAAP measures and the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures are presented in the last page of this webcast presentation.

Now I will turn the conference over to Mr. Ricardo Dutra, CEO. Mr. Dutra, you may begin your presentation..

millions of Brazilians underserved by incumbent banks, most of them with smartphones and 3G connections eager to be included into the financial system. We will focus on them. As a reference in 2017, according to IBGE government source, Classes C, D and E, which are the low-income classes in Brazil, spent BRL 1.7 trillion, being 60% of that in cash.

Banking is shifting towards a technology-oriented business, and PAGS is a digital-born and a tech DNA company. PAGS continues to be uniquely positioned. Our top-notch ecosystem now has scale, know-how and processes in place to serve the long-tail market, including banking services.

Stealing market share in the banking business from incumbents will not be our focus. Like PAGS payment business where 80% of new merchants did not accept cards before joining us, our focus will be on the underserved population. We will go for the blue ocean again. We are now entering a market that is 14 times bigger than the Company's current market.

It is an immense opportunity, and we are uniquely well positioned to reach this market. Now let's shift to our presentation. We start our presentation highlight in the great achievements of the quarter. Our adjusted net revenue reached BRL 1.14 billion, up 59% year-over-year.

Our non-GAAP net income reached BRL 325 million, up [50%] year-over-year and 1% quarter-over-quarter. Additional revenues from services like digital account, lending, prepaid cards and reconciliation growing 125% year-over-year. Engagement is a key metric for the company given that almost 80% of our merchants never accepted cards before joining us.

We continue to observe a higher adoption of our ecosystem being translated in more transactions. We ended Q1 with more than 25% of our active merchants using services of our digital accounts such as bill payment, P2P transfers, cards, mobile top-up, among others.

We launched four additional products including instant payments, payroll portability, cash and credit cards that will help PAGS to expand its addressable market and start targeting consumer vertical. Our average spending per merchant in Q1 2019 reached BRL 5,700, up 70% year-over-year.

We believe the adoption of additional functionality through the digital accounts will be translated in higher stickiness and more transactions. Our goal is to be the merchants' final money destination. Our TPV reached BRL 24.4 billion, growing BRL 11 billion or 70% year-over-year.

And we also ended Q1 2019 with 4.4 million active merchants, adding 1.3 million new clients year-over-year. These figures reinforce we are on the right path with a broad ecosystem and also our execution capability.

Our 2015 and 2016 annual cohorts exceeded in average 115% TPV retention rate year-over-year after achieving a normalized run rate, showing that our merchant base is growing at a very solid pace and with potential to improve given the continued adoption curve and future cross-selling opportunities.

We also ended the quarter with the best-rated app, 4.8 stars, on Google and Apple stores according to more than 300,000 reviews, reinforcing our commitment in delivering top client user experience.

Talking about our brand recognition, PAGS has a stronger brand in Brazilian payment industry with 7.7 times more services than the second player according to Google Trends financials category.

Being the first mover in mobile-first with no replicable line distribution through UOL that holds 84% of the Brazilian – brings a natural advantage to PagSeguro.

We also acquired a minority stake with path to control with NetPOS, an ERP software provider that will enhance our value proposition to merchants by combining payments and software integration known as SmartPOS. NetPOS already has 30,000 active clients.

Finally, PagSeguro has proven that operating and winning in the long tail requires an aligned mobile approach that is totally different from the traditional acquired business model and new competitors that were attracted to the market after our IPO.

We operate in a brand-new market that we created, and we still have a long way to go, constantly putting into practice our vision to disrupt and democratize financial services through technology and innovation. Now I would like to pass the word to our CFO, Eduardo Alcaro..

Thanks, Ricardo, and hello, everyone. Now before I discuss the net income slide, I would like to mention that in the first quarter of 2019, we had a total of BRL 15.7 million of non-GAAP items related to our stock-based long-term incentive plan.

For more details, the foregoing non-GAAP measures and the reconciliation of these non-GAAP measures are presented in the last page of this webcast presentation.

On the top left of the Slide 4, our adjusted net revenue, the sum of net revenues from transactions and financial income from installments, reached BRL 1.143 billion in the first quarter, up 59% year-over-year and 1% up quarter-on-quarter, even considering worse seasonality in Q1 than Q4, given the holiday season and Black Friday in Q4.

We believe that these two operational revenue and income lines best represent our core business, which grows at healthy and high double-digit rates. Important to highlight that we continue to promote discounts on hardware, promoting the increase of our base of active merchants.

On the other hand, despite any mix effect, our MDR prices are public, remain stable and have the benefit from additional services of our digital accounts such as lending, prepaid cards, bill payments and reconciliation that, like Ricardo said earlier, grew 125% year-over-year. Moving to the top right.

We have our main revenue streams composed by transaction services or mainly now MDR collected from merchants, financial income from the installment prepayment and hardware sales.

In the first quarter of 2019, transaction and services represented 59%; financial income, 36% and hardware sales, only 6% over total net revenues, that continued to trend down as we expected.

On the chart below, we present our non-GAAP total costs and expenses that decreased 0.6 percentage points year-over-year and in the fourth quarter at 3.2% over total TPV. Related to non-GAAP administrative expense, our total TPV reached 0.3%, flat when compared to one year ago. On the next slide, we show our non-GAAP net income growth.

In the first quarter, we reached BRL 325 million, an increase of BRL 112 million and up 53% year-over-year. The non-GAAP net margin reached 26%, an increase of 0.6 percentage points year-over-year. The non-GAAP net income also increased 2% quarter-on-quarter and margin increased 0.5 percentage points. Now moving to Slide 6.

We have our number of active merchants. Just to explain the criteria we use internally, active merchants are those who made at least one single transaction in the last 12 months. We ended the first quarter with 4.4 million active merchants, adding more 1.3 million new merchants in one year, representing an increase of 43% year-over-year.

Quarter-over-quarter, we added 283,000 new merchants. In the next chart, we have the evolution of our average spending per merchant that reached BRL 5,700 in Q1, a growth of 17% year-over-year.

This strong and continued growth is explained by the higher adoption curve of our solution in our merchant base, which is an expected trend, higher engagement in our ecosystem being converted in more transactions and TPV. Just reminding what we said in the initial remarks, most of our merchants did not accept cards before joining PagSeguro.

This is a blue ocean and a new market created by PagSeguro as we are not stealing clients from competition. On the chart below, we see our TPV.

Our total payment volume reached BRL 24.4 billion in the first quarter, an increase of almost BRL 11 billion and up 70% year-over-year and almost flat quarter-on-quarter due to seasonality when compared to Q4, which is the strongest quarter from the payment business in Brazil given the holiday season and the Black Friday.

This growth is a result of a greater penetration of our ecosystem in the long tail combined with a trend of cash to plastic conversion that is still at the beginning of our merchant base with lots of room to grow in Brazil and with the upside of cross-selling additional products and services to these clients.

The net take rate, which is the blended take rate net from transaction costs such as interchange, processing and card scheme fees, reached 3.12% in Q1 2019 or 12 basis points up when compared to previous quarter.

This is exactly what we expected and shared with you during the 2018 Q4 call, a higher net take rate compared to Q4 2018 but slightly down compared to Q3 2018. This is explained by two reasons.

First is higher share of debit in our payment mix in Q4 due to seasonality as in the Q4, debit is stronger in Brazil with the 13th salary payment; and second, compared to Q3 2018, a trend of higher penetration in debit transactions.

Important to highlight that this take rate is the result of all payment methods and may change according to payment mix. As we discussed in previous quarters, we are not facing any type of MDR pricing pressure in the long tail market where our merchants are little sensitive to MDR prices.

With our prices being public and transparent, you can easily check online and verify that we are not taking MDR prices down. The reason behind this slightly decrease in the net take rate compared to 2018 is due to a higher mix of debit versus credit, which is not a concern for us.

Now I would like to hand over to Ricardo that will talk about engagement metrics and new products..

consumer and merchants. We believe that the addressable market of banking and credit is 14x larger than the merchant acquiring business, and PAGS is well positioned to reach this market. On Slide 13, we show our instant payment feature for debit and credit card transactions, regular and installment for all merchants.

PagSeguro announced in April the launch of its new instant payment feature.

This feature is available for transactions beginning on May 1 and allow all PagSeguro's merchants and individuals to receive payments from their regular credit card credit installments and debit card transaction at about the same time of the sale, even during weekends and holidays, at the same cost of the one-day settlement.

Although the change for D+1 to instant payment seems to be minor, for small entrepreneur that do not have access to working capital, can make a big difference. On the next slide, Slide 14, we introduced NetPOS.

PagSeguro acquired a minority stake with path to control at this company that provides ERP software to retail and food service segment, built for front and back office with sales and management tools like inventory control, detailed reports, cash manage and invoicement.

It will be fully integrated with PAGS' mPOS, POS and SmartPOS devices as well in our PAGS Sales App. NetPOS has more than 30,000 clients. On Slide 15, we show our software solutions. Through M&A transactions, we now have TILIX, an automated application that innovates the customer experience in paying bills.

From utility to text deals, TILIX offers a simple and user-friendly interface to manage bill payments and will be fully integrated in our digital account app in the following months.

We also have R2TECH, a company acquired in 2017, that offers a streamlined process of credit card transactions reconciliation and finally, NetPOS that I have just described in the previous slide. PAGS will continue to monitor possible M&A activities that can speed up the building of a more complete ecosystem.

Now I'll give more details about our banking features. On the next slide, we give more details about digital account app onboarding. Now anyone, merchants and consumers, can sign up for a digital account directly through the app for free and in less than three minutes and manage all the products and services.

Additionally, tonight, we will start our massive national advertising campaign to promote PagBank, a digital account and banking services targeting consumers. The campaign will be running on UOL, broadcast TV, pay-TV, online, radio, newspapers magazines and out of home.

On the next slide, we show our payroll portability feature, which allows anyone to receive their salary on PagSeguro digital account without any cost. With this new and efficient cash-in method, our customers can pay bills, make purchase, mobile top up, transfers, P2P, withdraw cash and reload prepaid cards.

This new product will help our access to consumers willing to have PAGS as their banking services provider. On Slide 18, we present our cash card. Launched in March, PagSeguro and Visa are promoting financial inclusion and offering the account card to all our merchants and now consumers.

The cash card is linked directly with the balance of the digital account, bringing more convenience and better experience to our merchants and consumers. The cash card is also NFC-enabled. On the next slide, we introduce our new credit card product.

Launched in early May and still in pilot mode, initially it will be targeted to our merchant base with no annual or membership fees. Our Visa credit card is accepted in all merchants all over Brazil and abroad and can be stored in PAGS' digital account to enable contactless and QR code transactions.

Finally, on Slide 20, we believe PAGS is well positioned and with a robust ecosystem that combines payment, lending, banking and software products to serve our more than 4.4 million active merchants and to reach consumers market.

By upselling new products like credit, banking and software and expanding our approach to consumers, we will multiply our addressable market. Considering the new initiatives already available for merchants and consumers, we estimate the revenue pool almost 14x times bigger than merchant acquiring services.

Being the first mover, having a robust and low-cost ecosystem with 4.4 million active digital accounts, mobile-first, strong brand, focus on user experience, the best rated financial services app on Google and Apple stores and unreplicable online distribution through UOL, brings a natural advantage and leadership in the long-tail market.

Now we finish our presentation. We will start the Q&A session. Operator, please..

[Operator Instructions] Our first question comes from Craig Maurer, Autonomous Research..

Yes, hi, thanks for taking the questions. Two questions for me. First, on the new credit card launch, are you taking the credit risk on that credit card for consumers? And secondly, unrelated question, thinking about the market that you guys are addressing and acquiring, when we look at Cielo's performance with Stelo, it was extremely disappointing.

They restated their prior numbers. The current quarter numbers were unimpressive.

So are you just finding that the competition is just not finding traction in the market regardless of what they do with hardware promotions or – so on and so forth?.

Craig, this is Ricardo. Thank you for the question. First, regarding credit card, as I said in the speech, we are in pilot mode and we will offer credit card only for merchants that we already have some relationship, we know their behavior, we have the TPV and so on. So....

It's a little hard to hear you..

I'm sorry, Craig. Is it better or....

It's just a little muffled but it might be my phone. So....

Can you hear me?.

Yes..

Okay. So Craig, thank you for the question. Regarding credit card, as I said in the speech, we will offer credit cards only for merchants at this time. We're very cautious. And why only for merchants? Because we already have some relationship with them. We now their TPV history. We know their behavior.

So we did a pilot this credit card offer for merchants and very cautious not to take the credit risk. Regarding Stelo, as we said in the previous calls, the beauty of our business is not only to decrease the price of the devices. It's the whole ecosystem. It's the way we distribute online, leveraging UOL audience, offer prepaid cards and so on.

So some companies say that yes, decreasing the price is the way to get the long-tail market. But we are going to prove that it is much more than that. And that's why we're keeping that in our ecosystem because that's what needs to be maintained..

Okay thank you..

Thank you..

Next question from Mario Pierry, Bank of America..

Thank you for taking my questions. I have two questions, and congratulations on your results. First one is the outlook for your take rate. As you showed, right, your take rate right now is depending very much on your mix. And you mentioned that your MDRs for the long-tail segment has been unchanged.

But I was wondering, what has been your strategy to get into the SMB market? Are you having also to reduce prices there like we're seeing some of the incumbents doing? So if you could discuss a little bit then the outlook for the take rate outside of the micro-merchant segment.

Second question is related also to – you provided your addressable revenue market, credit, BRL 282 billion. Here, it's not clear how you plan on approaching this.

Are you going to be opening up your platform for third parties? Are you going to be taking the credit risk? Are you going to be doing the lending? How do you plan on funding this segment? Thank you..

Mario, this is Eduardo Alcaro speaking. Let me take the first question. About the take rates, when we see the recovery in Q1 compared to Q4, most of the recovery is related to product mix as we anticipated in the last call.

In Q4, due to seasonality with the 13th salary and consumer behavior, you know that there is an increase in that card transaction volume and less transaction in installment in relative terms. So take rate is not a concern for us. And we expect a slightly decrease in 2019 compared to 2018 as a result of more debit transactions.

But when you look, the outlook for take rate from what we are seeing now comparing Q2 compared to Q1, we see take rate is stable..

This is Ricardo. Mario, thank you for the questions. Regarding the credit business that we have, first we're not planning at this point to open the platform for third parties to offer a lane or something like that.

Remember that in the past, we referenced how big is this market because our main focus after payment is going to be to reach the end of banking leadership. So this is the reference how big is this market. We will pilot with some consumers to see how we're going to perform. But very cautious, very limited. We only had some experience [indiscernible].

So we already know how to do it, but we will pilot with the consumers..

Just one additional commentary here, Mario. Eduardo speaking.

At the end of the day, our main focus remains engagement in our ecosystem, okay? I think that by, let's say, cross-selling additional financial products for sure, just like Ricardo mentioned, we're going to be able to create more stickiness in our ecosystem and for sure capture more TPV, more transactions.

That's the main focus, okay?.

Just last one on the lending products. We are actually cherry-picking our clients for these products. So clients that are on account history with – we are fine-tuning the products. We are getting the right model to make the difference. And before we accelerate what we are doing here, we are learning, learning, learning.

And we do not have any rush to do it because we don't take the credit risk. So we really want to play it safe. And for example, it's one of the benchmarks for us. So for now, we are funding all transactions with our own balance sheet. Next question please..

Next question comes from Bryan Keane, Deutsche Bank..

Yes, hi guys. Two questions. First, just on the net new merchant adds. I know they're typically seasonally softest in 1Q and then seasonally strong in 2Q. The 1Q number was a little bit better. 283,000 was higher than we expected.

Just trying to figure out, should we still expect 2Q for new merchant adds to be seasonally strong? And then does the 1 million for the full year still hold? And then the second question on net income guidance that we provided on the last call, should we still expect you guys to be in that range? I think you guys felt comfortable more towards the high end of the range, towards 1.5 billion..

Bryan, this is Eduardo Alcaro speaking. So again, we will be able to reach 1 million net adds at the end of 2019 with 5.1 million active clients. And this is exactly the number that we shared with the sell-side analysts during the IPO for 2019.

As far as your second question about the guidance, I think in the Q2, we do not need to make any update on the guidance. What I can tell you is that management is committed with the top end of the guidance. Our annual bonus is tied to the top of the guidance, and that's our commitment.

The bottom of the guidance is really what we committed when we did the IPO. And we thought that was an important number to draw the line in a sense and say that's the minimum number that we are going to achieve.

And with the top of the guidance, we are talking about a number that is 40% higher than what we delivered in 2018 and 13% higher than the low end of the guidance, which is the number that we provided you when we did the IPO..

Okay, thanks so much..

Thank you..

Next question comes from Thiago Kapulskis, BTG Pactual..

Hello everyone. Thanks for the opportunity to make questions. I also have two questions. The first one related to your PagBank initiative, which looks a pretty interesting one. I mean we've seen yesterday, actually Itaú using Iti as well and a number of new players kind of moving this way of Itaú digital bank.

I just want to get a sense of how you guys see this platform. Are you targeting the 4.4 million clients that you have on the long tail? Can you move into, I would say, into the top of the pyramid with this? I mean, how are your plans related to this initiative? And my second question is related to cost, I mean, especially cost of sales.

I mean even though you had a better trend in the SG&A, the COGS actually came a little bit above what we were expecting. Just want to get a sense of your sales, if it's improving or not. And how do you see that on the margin? Thank you..

Thiago, this is Ricardo. Thank you for the question. Talking about PagBank, we – as I said, we have been building this ecosystem for a few years.

And what we realized is that by doing – by launching some new products or some additional products, we could also reach the consumer like in Brazil with the main focus on the underbanking, right, because we already have the payments, mobile top up, wire transfers, P2P and so on.

So with the launch of the payroll portability, and that's with the cash card that is likely linked to the digital account, we believe we can reach the consumer market and move people into the system. We don't plan to steal market share from traditional banks. We are here more for the blue ocean, bringing people into the system.

So the focus and the motion that we have nowadays have been approached in the past month within those who are using our digital account. If you look at the pyramid, we don't see that we should do that because this type of merchant require different services from banks that we don't have and I believe that we will have someday.

So what we are looking for is to bring new consumer to the system, especially the underbanked, people that just didn't have bank accounts, and that's going to be the main focus for the PagBank. Regarding your question about our play, launching some initiatives, I can tell you about ours.

We have this knowledge that we already have for P2P, QR code, NFC. And now we are going to the consumer.

We believe actually that by launching these new products where people can use P2P, can use QR code, can save credit cards in their wallets, they are all growth initiatives for us because more people need credit card in the different payments, debit card as an acquirer or as a company that is upgrading consumers.

So we will focus on the new consumers, those are people new to the system, just like we did six years ago with the POS devices.

Regarding the cost of service, I'll ask Eduardo to help with that – Eduardo?.

Well, it's more of the seasonality that we see in Q1 compared to Q4. Basically, I mean, we expected lower device sales. And in terms of discount, which has the same pricing that we were practicing in December in Q4, so there's no material differences there. And as I said before, I mean, you can go online and check our prices.

Our prices are public, are transparent, and they are very easy to check and very easy for you to verify that we have the same level of pricing and discounting that we were doing in Q4..

Perfect. Thank you for the answers..

Thank you..

Next question from Felipe Salomao, Citibank..

Hi, good night, Dutra, Alcaro, Cazotto. Thanks for the opportunity to ask questions. I have two questions. First one, very straightforward, I would like to know if all the new products and services related to PagBank that you announced today were included in the guidance for 2019 net income or if they were not.

And my second question is related to instant payments. So yesterday, Itaú launched its instant payment product, Iti. And the Central Bank starts the income payment infrastructure to go live in the next six months, which should allow payment between wallets of different providers.

Do you believe that this new payment tool represent a threat for PagSeguro business model, especially because of the company's exposure to the [indiscernible] part of the population and given that take rates for instant payments are lower or do you believe the instant payment infrastructure should be seen more as an opportunity given that PagSeguro has roughly 4.5 million customers using this wallet? So these are my questions.

Thank you very much..

Thank you, Felipe. It's André speaking. About your first question, no. The BRL 1.5 billion that the company has committed to deliver in this year only consider payments, okay? Like we said earlier, we are starting to enter with additional financial products targeting consumers.

But we are still very focused on engagement and increasing our addressable market. The BRL 1.5 billion again is just considering the payment business that we have. And we're still not trying to, let's say, putting metrics about additional revenue lines that we have for new products.

We're much more, let's say, concentrated in creating more engagement in our consumers and merchants, okay..

Hi Felipe, this is Ricardo Dutra. Regarding your question about instant payments, while we see from the Central Bank and from the regulator in the past year we've got very faster competition, like they try to do – demand environment for companies to approach the market and be competitive.

So by saying, I'm trying to say that by having the infrastructure for instant payment, we see that as an opportunity because we are at about 4.4 million merchants. We have also millions of consumers. Still too early to comment about the economics of that because some of the transactions might have price increase, some of the transactions may not have.

So it's hard to say how it's going to work, how it's going to be the economic and so on. But we see it as an opportunity. The other thing that is related to this one payment we see as an opportunity. Everything that is different than cash is good news for us..

Okay, thank you very much..

Thank you, Felipe..

Next question from Josh Beck, KeyBanc..

Thank you for taking the question. The push into consumer banking seems very interesting to me. I'm just wondering how long until this could be a material contributor to revenue, say 5% of revenue.

Is this five years down the road, a couple of years down the road? Any way to help us think through that?.

Hi Josh, as it is right now, we are – what we have committed here is not with a revenue number but with engagement with our client base. So what do we want with this new product feature with our digital account is really to, first, reach the consumer market.

But first, we will – basically on the merchant side, some of our merchants were also individual entrepreneurs. But by launching this product, what we really want to accomplish here is to increase the switching cost of our ecosystem and create a higher engagement in our ecosystem and also attract the consumer side that we did not have before.

So that's the main focus. And we are not doing anything to commit to a specific right number right now. And for us, what it was this year is to create a new product line that brings EPS accretion. I think that's the most important thing. Even when we are talking about additional merchant, additional TPV, our main focus here is always EPS accretion..

That makes sense.

The other thing that I wanted to ask is as you do have a larger consumer offering, does this mean you need to spend more on sales and marketing to reach more true consumers? Or does it not really change your plans much regarding sales and marketing spend?.

Josh, André speaking. Let's say that for sure, we are investing more in marketing and sales in the coming quarters, doing to the campaign that we're promoting tonight, starting tonight.

That's in line to our expectation, in line with our budget, in line with our commitment to deliver the top of the guidance, okay?.

Okay. Thank you. Thank you both..

Thank you..

Next question comes from Otávio Tanganelli, Credit Suisse..

Hi, thanks for taking my question. I have only one question regarding the churn rate. We have seen the increasing subsidies on the sales of the POS terminals. So the gross margin is now lower than it was in the previous quarter.

So do you see an impact on churn regarding that? Do you see merchants, since they have lower risk buying the POS, do you see churn rate increasing because of that? Thank you..

Hi, Otávio. We are seeing churn really, really stable. No material difference from what we have seen last year. And just to mention here that we don't steal clients from large incumbents in the market as we create a new market in Brazil with our features, with our ecosystem. We also do not lose clients to competition.

So our churn is really related to business mortality, and that has been pretty much stable from what we have seen last year.

Sure..

Just one additional commentary here, Otávio. This is André. Let's say that even promoting itself, we're still bringing the same type of merchant. We haven't seen any type of change in the profile of the merchant that is working with PAGS, okay? [indiscernible] cohort and same lifetime value.

So it's two verticals about promoting our discount and continue to bring a very good quality of merchants..

Very clear. Thank you..

Next question comes from Neha Agarwala, HSBC..

Hi. Thank you for taking my question and congratulations on the good results. I have two questions. First, you have a very detailed slide on the products that you have to offer for both merchants as well as individual customers.

How are you promoting your products for individual consumers to allure them to use your app? Will you be giving some kind of discounts for them to have a PagBank account? Or is this any other offer that you have in mind which you will be advertising? Secondly, it appears like you gradually want to move up market.

You are building yourself that profile as well. Would your strategy be somewhat different versus what you have currently for the micro-merchant segment? How do you view this going slightly up market from where you are? Thank you..

Neha, thanks for your question. André speaking again. We're still targeting, let's say, the same products. We are offering our free digital account strategy. Remember that the profile of the consumer that we're targeting remains the underbanked. In Brazil, we have probably 30% of the society without the bank accounts. That's our focus.

there probably is more than 60 million Brazilians in the country, okay? Offering the free digital account, use the basic functionalities like do payment, mobile top up, prepaid card, cash card that we just launched, just like Ricardo said, at least for now, let's say that lending and credit card that we're still piloting, we're going to target our own merchants where we have the transaction, where we have the track record, where we have, let's say, the TPV to be more profitable to offer it, okay? So the strategy is going to be more targeted now with our campaign.

Let's say that in the end of the day, many of our merchants are already consumers. Remember that. We have the dog walker, the personal trainer, the need for teacher. So it's a model of, let's say, targeting with the new campaigns with marketing and for sure improving the products and the services that we offer. The cash card is a good opportunity.

It's a new product that we're launching that could easily be adopted by the consumer and also very important cash method that is the portability of the salary. So I believe that with these two products, we are ready to start capturing more consumers to our base. But there is no additional cost. There is no different products.

Let's say that we have a product ready for merchants and consumers and remembering that many of the merchants that we operate today, they have this hybrid, let's say, mix where they are both merchants and consumers.

Hello?.

Next question..

Neha? Okay..

Next question comes from James Friedman, Susquehanna..

Hi. Thank you and congratulations on the strong results. It's Jamie from Susquehanna. I want to ask about prepayment and settlement-related fees. It's obviously been quite topical.

Are you seeing any change in behavior? And do you see the need to adjust yours? Or do you think you're just at a different end of the market?.

No, we are not seeing anything different from what we have seen before. If you look at the long-tail market, even those who are the incumbents, they were offering the D+1. And now with the advantage of offering the instant payment, that is a great functionality to our customer base without charging anything in addition to what we charged for the D+1.

We think it's pretty much – in our market, it has been pretty much the same. You can see it by our volume, by our net take rate, by the average spending per merchant..

Okay. And then if I could just follow up. We're halfway through almost the second quarter, tomorrow, we'll be halfway through the second quarter. Other payment companies had commented about the second quarter. Maybe not there but here. So Visa had observation. MasterCard had observation that they have seen it, including some about Brazil actually.

I was just wondering, do you have any call-outs yet on the second quarter, anything that we should be aware of or trends to date? That will be helpful in getting oriented as to where we are now. Thank you..

James, there is nothing different in our – on what's happening compared to what we have in our business line, meaning it's really we continue to see our plan for the year being achieved, so anything different from what we have seen in Q1..

Okay, great. Thank you, guys..

This concludes today's question-and-answer session. I would like to invite Mr. Ricardo Dutra to proceed with his closing remarks..

I'd like to say thank you all very much for your time, for investing your time on this call. I'll see you next quarter. Thank very much. Have a great night. Take care..

This concludes the PagSeguro's audio conference for today. Thank you very much..