Good evening. My name is Caio and I will be your conference operator today. At this time, I would like to welcome everyone to PagBank PagSeguro's Earnings Conference Call for the Second Quarter of 2021. This event is being recorded, and all participants will be in listen-only mode during the company's presentation. After the speakers' remarks, there will be a question-and-answer session. At that time, further instructions will be given. This event is also being broadcast live via webcast and may be accessed through PagBank 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 pose their questions on PagBank PagSeguro’s website. 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 PagBank PagSeguro's current assumptions, expectations, and projections about future events. While PagBank 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 PagBank PagSeguro's presentation or discussed on this conference call, for a variety of reasons, including those described in the forward-looking statements and risk factor sections of PagBank PagSeguro's Registration Statement on Form 20-F and other filings with the Securities and Exchange Commission, which are available on PagBank 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 Ricardo Dutra, Chief Executive Officer. Please, Mr. Dutra, you may begin your presentation.

Good evening from São Paulo everyone and thanks for joining our second quarter results conference call. Tonight, I have here with me Artur Schunck, our Chief Financial Officer; and Eric Oliveira, our Head of Investor Relations. First, we hope you and your families are well and safe. Before we proceed, let me share a quick update about the current situation related to the pandemic and its impacts in Brazil. Last quarter, we shared our improving confidence that it seemed the worst was over. The vaccination continues to take place: currently, approximately 70% of the population took at least one shot and around 30% took two shots already. The contamination and death ratios have been decreasing, which has been encouraging authorities to ease the social distance measures in several regions of the country. The ongoing secular shift from cash to electronic and digital transactions continues, reinforcing that consumer behaviors are changing, despite the reopening, and we have seen millions of people being included into the financial system. We also see, across the world, several companies embracing the digital banking strategy to explore this unique opportunity. For example, in this quarter, we were honored to see PayPal and Square announcing their initiatives to expand into financial services, which is the move we have done in May 2019 with the launch of PagBank. In addition, as the regulators in Brazil continue to foster competition, players with tech DNA, strong execution, and robust balance sheets have the chance to explore new verticals, cross-selling strategies, and close the existing loop between merchants and consumers while optimizing gross profit generation per user. Having consistently invested during the last years in our two-sided ecosystem has been paying off. In June 2021, the number of PagBank clients surpassed 11 million, and the engagement continues to increase, as the number of logins in our app per workday reached 10 million, or 1 login per user per workday. Another example is our credit expertise. After more than three years, the combination of sophisticated data analytics, an incredible team, the banking license, and a unique active merchant base gave us the diligence to decelerate underwriting amid the pandemic, to warm up the engines for the reopening. We are delighted to announce that our credit portfolio surpassed the mark of R$1 billion with increasing origination for the coming months and controlled NPL ratios. In payments, the scenario also looks brighter. Our acquiring TPV continues to grow strongly, giving us the confidence to review upward our payments volumes guidance for 2021. Comparing with Q2 2020, PagSeguro was the company in the Brazilian market with the highest acquiring TPV growth among the TOP5 Brazilian acquirers, 89% year-over-year, and probably, the highest total net revenue growth, 75% year-over-year. Our strong brand, superior logistics infrastructure, and complete bank offered to our merchants, among other strengths, allowed us to keep growing in the long tail and to roll out our HUBs faster than expected. Our HUBs results have been impressive, reinforcing our thesis that it is easier to go up in the pyramid than to go down, and that even SMBs are underserved in the country. With this new TPV mix, as we commented last quarter, our take rates are stable, and we expect this take rate level for the rest of the year. Finally, we continue to pursue the optimum capital allocation and the best balance between growth and profitability. We reduced the CapEx per Sales ratio from 25% in Q2 2020 to 17% in Q2 2021, a positive surprise leading to a guidance review for CapEx in 2021, driven by lower POS acquisitions, since we took the right decision in the last year to prepare the inventories levels, which reinforced our massive scale and purchasing power, improving the unit economics of our cohorts. Investments in technology have been helping us to maintain our strategy to grow organically, and we are happy to highlight four new products. First, cell phone insurance, our fourth insurance product distributed by PAGS. We also launched an exclusive investment fund, PagBank All Seasons, which gives the option to our clients to diversify their investments. We will also launch a Brazilian treasury bonds trade platform. Our PagInvest vertical already counts with 5 CDs options and 50 investment funds with several asset allocation strategies, such as equities, corporate bonds, FX, gold, and even cryptocurrencies. Finally, we are launching an overdraft loans product, initially offered only to our best cohorts, which will expand the credit options for our clients. All the positive impacts we have been producing in our society will be shared in the next months in our first Sustainability Report, where all the stakeholders will have the opportunity to follow closer our initiatives to serve better our clients, measured by the highest standards available in the market. Also, we plan to have our first Investor Day in November, a brand-new initiative to discuss the strategic plan for the company for the coming years, where Luiz Frias, our Founder and Chairman, and part of the PAGS’ Senior Management team will share their thoughts about the trends, the future of finance, and how we are preparing the company to keep consolidating its leadership in financial services and payments. I am very encouraged by the recovery trajectory and pleased with the momentum in both businesses, PagSeguro and PagBank. Finally, none of this would have happened without the confidence of our shareholders, the commitment of our suppliers, and the best and most committed team working hard every day to promote our mission; being part of the financial lifecycle of every Brazilian citizen, promoting massive financial inclusion in our country. Thank you very much, PagBank, PagSeguro team. That said, Artur and I will present some slides and we will have a Q&A session at the end. On Slide 3, we highlight the achievements of the second quarter. Record total revenue of R$2.4 billion, up 75%, with acquiring revenue reaching R$2.2 billion and PagBank revenue of R$182 million. All-time high consolidated TPV of R$102 billion, up 154%, with acquiring TPV growing 89%, with HUBs TPV and Online TPV maintaining the strong growth trends observed in the past quarters, and PagBank TPV growing 341%, both in comparison to the same period of last year. Adjusted EBITDA of R$629 million, up 64%, with acquiring adjusted EBITDA reaching R$730 million and PagBank adjusted EBITDA reducing losses as a percentage of PagBank revenue, gaining traction to reach the break-even in the coming quarters. Non-GAAP net income of R$345 million, up 12% year over year. CapEx per sales went down from 25% in Q2 2020 to 17% in Q2 2021. In June, our PagBank active clients surpassed 11 million, driven by an outstanding 2.1 million net addition in the quarter, while active merchants continued the health net addition pace above 220,000, reaching 7.6 million active merchants. Next slide, we present PagSeguro’s highlights. While in Q2 2021 versus Q2 2020, the total cards industry in Brazil grew 52%, our acquiring TPV grew 89%, driven by the secular shift to electronic payments combined with our successful go-to-market strategy to serve not only long tail merchants but also sellers larger than long tails’ through our hubs. Our active merchants reached 7.6 million, although our metric for active merchants considers at least one transaction in the last 12 months and it may differ from other players. In the chart below, we can see our dominance in the number of merchants when compared with other players in the industry. In Q2, we had 226,000 merchants net adds. Although it is still a strong number, it wasn’t better because we saw a higher churn in April 2021 related to business mortality from April 2020, during the peak of the pandemic and lockdowns in Brazil. As for active merchants, we consider at least one transaction in the last 12 months; businesses that closed in April 2020 and did not generate any TPV since then only affects our churn rates in April 2021. It is important to say we did not observe higher churn in May and June, and we had healthy net adds in these two months. Moving to the right side of the slide, TPV trends observed in July and first days of August are also encouraging. Despite the hard comps due to the Corona voucher program distributed last year, volumes grew 55% year-over-year in July. Additionally, during the last week, the Saturday before Father’s Day in Brazil, we reached a new all-time high daily TPV. Bottom right, we see that in the first seven months of the year, acquiring TPV grew 70%. Moving to Slide 5, acquiring revenues grew 77% in comparison to the same period in the last year, or 35% on a two-year compound annual growth rate (CAGR). The growth was due to a better TPV mix toward credit card volumes and our successful strategy to serve larger merchants, which supported the acquiring net take rate of 2.24%, stable in comparison to the first quarter. Bottom right, our adjusted EBITDA reached R$730 million, almost a 60% growth in comparison to the second quarter of 2020. It is important to mention that in the last year, there was a tax provision reversal in the amount of R$84 million, which we excluded for a better comparison. Despite the higher investments to roll out our hubs and continuous improvements in our payments’ services to our merchants, we were able to gain market share, consolidate our position and increase EBITDA. Moving to the next slide. Taking the opportunity explored in the previous slide, I want to share the results of our hubs. Our hubs TPV grew 4 times year-over-year, outpacing the best estimates of our models, due to the economy reopening and disciplined execution to serve larger merchants, combined with a powerful competitive advantage which is PagBank. We are the only payments company in the market with a complete digital account and without any conflict of interests with controlling shareholders or partners, which allows us to look for the best combination to serve merchants and leverage the gross profits per client, exploring both money flows, the cash in and the cash out. We are targeting merchants, on average, 4 to 5 times larger than our average long tail seller. By the end of 2021, we are expecting to cover more than 80% of the Brazilian GDP with approximately 300 hubs throughout the country. Backed by a strong sales culture, which mingles young professionals with seasoned sales professionals from other sectors, we are creating a unique relationship model driven not only by client activation but also by client engagement. We are also observing a larger number of software subscribers, which was 801,000, already representing 11% of PAGS’ active merchants. Finally, PagBank continues to be the best strategy to engage merchants and increase cross-selling opportunities. In June, we reached 82% of heavy users, PAGS merchants that used payments and digital banking within the last 12 months, a growth of 54 percentage points in comparison to Q2 2019. Moving to Slide 7, we will give some information about our online and omnichannel volumes. Bottom left, Online TPV grew 104% year-over-year, driven by web checkouts, cross-border transactions, and links of payments. Omnichannel volumes, which consider volumes from merchants that accept not only POS transactions but also use online payment solutions, doubled their share in comparison to Q1 2020, the last quarter before the outbreak of COVID-19 in Brazil. We continue to take advantage of MoIP platform, increasing the barriers against competition, which could pressure yields, once its anti-fraud system guarantees the best approval rate in the market and its split payments solution is highly customizable for e-commerce, marketplaces, and other payment methods. On the bottom right, although it represents a small portion of our total TPV, BoaCompra, our subsidiary focused on providing cross-border transactions for merchants, is growing steadily. Moving to Slide 8, another surprising result. We had a record net addition of 2.1 million new PagBank clients, surpassing the mark of 11 million PagBank active users, with 45% of these clients composed of consumers. Combined with the increasing product per user ratio, which went from 2.6 products in Q2 2020 to 3 products in this quarter, accelerated the PagBank TPV, which grew 341% year-over-year. PagBank revenues continue to present healthy trends, reaching R$182 million, up 89% year-over-year, with improving trends in adjusted EBITDA losses, which had a negative margin of 80% in 2020 versus a negative margin of 55% in Q2 2021. Moving to Slide 9, we want to share additional information about the engagement metrics. The number of active cards indexed to 100 increased 4 times in comparison to Q2 2019, while card spending doubled in comparison to Q2 2020. PagBank App logins reached an incredible mark of 783 million, 3 times more than the same period of 2020, which is similar to saying that every PagBank client logged into our app on average 1 time every workday. The number of payroll portability skyrocketed, increasing 7 times, backed by our cash back incentive to clients with formal paychecks to make the portability to PagBank, being able to receive up to R$600 or $120 in the next 36 months. Finally, PagInvest Assets under custody almost reached R$5 billion, up 85% year-over-year, driven by our increasing number of registered clients with access to our CDs and investment funds offerings. In July, registered clients were 647,000 and we were offering almost 50 investment funds in our platform, which has been key to deepening our relationship with our clients as well to attract new ones. As I said in my initial remarks, we are happy to launch our Brazilian Treasury bonds trade platform in the next week. Now, I would like to turn the conference over to Artur, our CFO, who will talk about our credit portfolio and our financial results for the quarter. Artur, please go ahead.

Thanks Ricardo, and good evening everyone. I also hope all of you and your family are well and in good health. Following our presentation in Slide 10, the performance of our credit portfolio is improving every day based on efficient credit models, our experienced team, and several learnings from the last three years of operation. June ended with a total credit portfolio surpassing R$1 billion, being 56% of working capital loans, 41% of credit cards, and 2% of other credit products. I would like to reinforce that credit underwriting in Brazil is not a 100-meter sprint race. It is a marathon where learnings from experience, patience, and preparation make all the difference. We have been preparing the company since day one, and now we have achieved more than three years of credit underwriting to micro-merchants. The portfolio is 100% booked in our balance sheet, which provided us the awareness and diligence to decelerate in the past and to speed up now. Additionally, we see the registry of receivables as an opportunity for tech companies, which provide financial services, even though the market should not assume the registry as a parachute for poor credit underwriting. On the right side, our cash position remained very strong with a positive balance of R$8.2 billion, reinforced by the issuance of PagBank CDs to fund the credit disbursements. Loans to deposits ratio was 62% guaranteeing stamina to grow our credit portfolio in a healthy and sustainable way. Moving to Slide 11, we present our quarterly financial results. In the top left, our consolidated net take rate reached 2.43%, 2 basis points higher in comparison to the first quarter of 2021 and 13 basis points versus the fourth quarter of 2020, driven by better TPV mix with more credit, lower debit transactions, and helped by a larger PagBank revenue. In the top right graphic, we share our non-GAAP total costs and expenses, which totaled R$1.9 billion in the second quarter of 2021, up 87% year-over-year. Cost of sales and services represented 67% of total costs and expenses, increasing 63% year-over-year at the same level of TPV growth, driven by higher interchange and card scheme fees, higher depreciation and amortization related to our solid active merchant additions during the past quarters, and expenses to implement new products and services. Selling expenses represented 26% of total costs and expenses and increased 155% year-over-year due to the headcount expansion for HUBs and PagBank teams and higher marketing expenses for new campaigns. Financial services jumped from a share of 2% in the second quarter of 2020 to 7% in the second quarter of 2021, mainly due to a TPV mix improvement, requiring additional working capital volumes to prepay our merchants. On top of that, the increase of the Brazilian basic interest rate and the exchange rate devaluation for international transactions for BoaCompra also pushed expenses up versus last year. In the bottom left chart, the adjusted EBITDA went from R$384 million in the second quarter of 2020, excluding the benefit of R$84 million related to a tax provision reversal last year, to an adjusted EBITDA of R$629 million this year, with a growth of 64% versus the same period of 2020. Finally, in the bottom right, we share our capital allocation. During the second quarter of this year, we invested almost R$407 million, being 50% in POS acquisitions and almost another 50% in R&D to develop new products, features, and services. As a percentage of revenues, CapEx decreased 8 percentage points, reaching 17% versus 25% in the second quarter of 2020. Moving to Slide 12, the last one of this conference call. As Ricardo said in his initial remarks, the positive trends of the first semester led us to review our acquiring TPV growth guidance from above 40% to above 45% in 2021. We also project a reduction of capital expenditures in R$200 million, setting a new level of R$1.8 billion for this year, optimizing cash flow generation. Now we end our presentation, and we can start the Q&A session. Thank you.

Thank you. We will now begin the question-and-answer session. Our first question comes from Mariana Taddeo with UBS. Please, Mariana, go ahead.

Hi, good evening, everyone. Thanks for the opportunity to ask a question. My question is related to net adds in the client base. In this quarter, it decelerates. Is there any impact of business mortality from COVID-19 one year ago in the second quarter of last year? And could you also talk a bit on the competitive scenario, any expectations for net adds going forward? Do you think that PagSeguro will be able to accelerate the pace of net adds again? Thank you.

Hi, Mariana. This is Ricardo. Good to hear. Thank you for the question. Let's talk first about the net adds in Q2. We saw an increase in business mortality from merchants in April 2020. So as our active merchants' metrics consider at least one transaction in the last 12 months, the businesses that were closed or shut down in April 2020 generated churn in April 2021. If you remember well, in Brazil, April 2020 was the worst month in terms of the pandemic and lockdowns. So that's why we had an impact in churn related to business mortality from one year ago. But it's also worth saying that these merchants did not transact since May 2020. So it’s the metric for the churn that impacted us, but regarding TPV, we didn't have this TPV since May 2020. So that's why we saw this 226,000, which is a very decent number, but it could have been better without this mortality from last year. Regarding the competitive scenario, what do you see here? As we've been talking in the past quarters, some of the acquirers from the incumbents from the banks decided not to play in the long tail market anymore. Some of them were local claiming they would not play. Some of them just increased the price by five times. They use this as a way not to work in this market. We continue to see some competition from the same players that we had one year ago. Everyone knows that MercadoPago is our natural competitor. We keep adding thousands of merchants every month. We saw some of our competitors increasing prices this week, some of them increasing the pre-payment rates, and some of them made different prices for different card schemes, mainly local card schemes such as Elo and Hipercard. We observed more rational pricing, not crazy movements. The scenario is similar to what we had in past quarters or even better. We didn't provide guidance for net adds this year, but I keep saying to some of you that we expect to have 1 million net adds this year. We had more than 530,000 in the first semester. So it keeps being feasible to have this 1 million or even more. Let's see the following months, and then we can provide more color, but the best information is to keep thinking about 1 million net adds in 2021.

That's good.

Our next question comes from Craig Moore with Autonomous Research. Please, Craig, go ahead.

Yes. Hi, thanks. The take rate in the quarter held up better than my expectation. Can you talk about – you just addressed pricing in general, but can you talk about how we should think about trend as the SMB hubs continue to grow? And that will have a dilutive effect on take rate I would imagine? Secondly, could you talk about the progress in lending products specific to PagBank and how that will drive take rate there? And just a last modeling question, how should we think about financial expense going forward? Thanks.

Hi, Craig. This is Ricardo, also good to hear, and thank you for the question. I'm going to start and Artur can help me here. Regarding take rates, we have these different moving parts, or so to say, the tailwinds and the headwinds. So the tailwind would be if we had the consumption coming back. In Brazil, we are experiencing higher inflation, and the pandemic is still here. We are not 100% back in the office. People are not traveling. The consumption is not happening because of COVID-19 and because of inflation, which is preventing some consumption. So that would be the tailwind. What's showing in this quarter is that we already saw a slightly better performance in long tail, for instance, because the mix is getting better. And in the headwind, which I would describe as not really a headwind, but I mean in terms of take rate it is, is because of the better performance we are having in hubs than we expected. So we are exceeding our expectations that our merchants from hubs they have usually 4 to 5 times larger TPV than long tail. Of course they have a lower take rate. So if we look at the percentage, it's going to be lower, but in absolute terms, it should be better because they have a TPV that's five times larger than the long tail. So that's why we talked in the call before here that we expect to be flat or a little bit higher than that looking forward; so there are a few basis points here and there. Let's see how the recovery goes here, and then we can provide more information for you, but those are the moving parts. In terms of consumption, it could be back. And on the other hand, we are increasing and growing faster in our hub operations to serve SMBs. Regarding the lending products, we've been working on these models for – let's say three years. We learned a lot. We were supposed to have an increase in disbursement last year, but due to COVID-19, we decided to stop any credit provision, the same movement that we saw other banks doing in Brazil. Now we are beginning to give some credit again this year. The NPLs are under control. We project that some of our merchants will have better TPV recovery. This will help our take rate. It is also worth mentioning that I guess, Artur can provide more numbers here, but it's worth saying that we use IFRS 9. So when you give some credit, we need to make the provision wide at the beginning, so to some extent we are, let's say, making the provision at the beginning, and then the result is going to happen in the future. So that's why if we increase credit, it could be even not to help much in the short term because of this IFRS 9 that we are following here. About financial expenses, I guess our Artur can also help us. Thank you.

Okay. Craig, thank you for your question. Good to talk to you again. So regarding our financial expenses, the two big impacts in this quarter were related to the TPV growth that is higher than our expectations, and also impacting our larger working capital needs related to the advances of receivables to our clients. Additionally, the increase in the Brazilian basic interest rate is increasing the cost of PagBank's CDs, and also the advances of receivables with bank insurers. Going forward, we expect that the basic interest rate will achieve 7% at the end of this year, which will obviously increase our expenses. What I can tell you is that Q3 will be higher than Q2, and Q4 will be higher than Q3, but we are closely following what the market is doing because we can adjust the prices for SMB and larger clients that are users of the prices paid concerning this basic interest rate. Also for the small merchants, as Dutra said, we see some players in the market increasing prices. We don't have this plan for now, but we are closely monitoring this movement in the market and will take action if necessary.

Okay. Thank you very much, guys. Appreciate it.

Our next question comes from Mario Pierry with Bank of America. Please, Mario, go ahead.

Good afternoon, everybody. Congratulations on your results. Let me ask you two questions as well. The first one is on your credit portfolio. As you just talked about, last year you’ve been cautious; now you’re accelerating lending at a time when we’re hearing from some of your peers that they’re having problems with their credit products because of issues related to the chambers of receivables. So what makes you comfortable to start accelerating your credit growth now, and why aren’t you having the same problems as some of your peers? And then the second question is related to your appetite for inorganic growth. About a month ago, there were some news or rumors that you were interested in making an acquisition for BV. So if you could tell us a little bit about what happened, what is the strategy, and how you look at inorganic opportunities? Thank you.

Hi, Mario. It's Artur speaking. Thank you for your two questions. I will take the first one related to the credit portfolio. As Dutra said, last year we stopped our operations related to the pandemic and the crisis worldwide. This year, what encouraged us to disburse more than last year was related to the NPL cohorts that are improving over time. Now, we have three years of experience and more sophisticated credit models that do not consider the chamber of receivables in our collections. I would say that our models need to work without the chamber of receivables. Obviously, we know that the chamber could help us in all the credit products, but we are not considering it at this point.

And Mario, regarding the rumors that you mentioned, I can confirm that there is no intent to acquire a big bank or BV bank, and there are no agreements related to this. We do talk to many players in the market. It's my duty to understand what's going on in our fintech environment. We talk to many players, but this rumor was only that, a rumor. Our focus for inorganic growth is to look for targets that can speed up our initiatives here, our ecosystem. So just to give you some examples, we bought YAMÍ and MOIP in online payments, Biva and BoletoFlex for a faster deployment of credit, R2TECH and NETPOS and ZYGO for software features to our ecosystem. That's what we usually look for. I’d say that every week there are sub-acquirers approaching us to try and sell volumes. We don't buy volumes since it’s a niche, and we know they need to consolidate. So we had this opportunity to buy volumes but don’t have that in mind because the price is not competitive. The main idea is to speed up our ecosystem and ensure cultural alignment, as you know, out of every ten M&As, at least eight of them don’t go well because of the integration process. So we need to be careful about what we acquire to ensure that it will benefit our clients.

Very clear guys. Thank you.

Our next question comes from Jorge Kuri with Morgan Stanley. Please, Jorge, go ahead.

Hi, good afternoon, everyone, and congrats on the numbers. Great results. I have two questions, please. The first one is on your CapEx guidance that is lower. I know it's not a big change, but it is lower. So I'm wondering what we should read into it? Could we maybe start to say that expense growth is going to slow down as well, given that you already have built enough of the infrastructure for the new businesses? Or is this just related to POSs? And then my second question, sorry to go back to this, but I wanted to understand a little bit better the answer to the chambers of receivables. What does it mean that your underwriting models don't consider that? I mean, don’t you need to make sure that credit card receivables are not being used as a guarantee elsewhere for you to leverage them? I'm just trying to understand exactly what Artur's comment was. Thank you.

Hi, Jorge. This is Ricardo. Thank you for the question. I will start with the chambers of receivables and Artur can come back and talk about the CapEx. Well, I guess what Artur was trying to say is that our models, when you look to them, we consider the behavior we have with our clients with us, the way they behave with us and the transaction history that you have from them. How much they sell, if they are growing or not, what is the mix and so on. Today, as the chambers of receivables are not 100% operational, it's not even possible for us to go there and check if the merchant is making transactions in another acquiring or if they have some other players that are serving them. So that's why Artur said that we are looking for the behavior we have in our own database. The chamber of receivables is going to be an additional way to collect in the future, but we don’t count only on it to collect the money from lending or from the working capital that we offer our clients? I just want to mention this overview about the chamber of receivables, it's a complex project; the central bank and the entire industry are working hard to make it work. Although it’s not fully operational, we've seen lots of progress in the past weeks. We believe it’s going to be very beneficial for credit. Today we have a 9% market share in the acquiring business, so there's 91% that is making transactions through other players that can use our services if the chamber of receivables works 100%. So I guess what Artur was trying to say is that today we don’t need to consider the chambers of receivables for collections due to its lack of full operation.

Okay. Thank you, Jorge, for your question related to CapEx, and good to talk to you again. We believe that we will support the growth of the company for the future. There are two main points within CapEx. One is POS and the other is R&D; both are considered to support the company's growth. We changed guidance to R$1.8 billion because now we have a better view of the year compared to what we projected at the beginning. We have a lower conversion rate right now than what we projected related to the mix of clients, so it has changed a little bit versus what we predicted before. We are always looking for greater efficiency in our investments. We can say that R$1.8 billion is a fair figure for this year. As the last point is about expenses; we don't anticipate any relevant changes for now. If we have any fluctuations in terms of expenses, depreciation, or amortization, we will communicate those to the market.

Great, Artur, and congrats again to everyone. Thank you.

Our next question comes from Bryan Keane with Deutsche Bank. Please, Bryan, go ahead.

Hi, guys. Solid results here. Two questions, if I may. Just on the hub strategy, it sounds like it’s coming in better than anticipated. So wondering about the volume trends. I think last quarter you indicated maybe the top end of the range of 6% to 11%. Given the growth in the hub strategy, does that still hold or are we now maybe even going to push above that range for 2021 volumes? And then secondly, the net income margin was 14.6%, I think, in the quarter. I know you're making a lot of investments in the business. I'm just trying to figure out going forward, should we be at or a little bit below that margin level, or do you have any guidance on that? Thanks so much.

Hi, Bryan. This is Ricardo. Thank you for the question. Good to hear from you. Regarding hubs, you're right. We are exceeding our expectations in terms of volumes, in terms of the performance of our salespeople in the field. So, I mean, it’s getting better than what we had in our assumptions. We will probably be higher than 11%. That's something we can surpass. We anticipated that because of the execution and efficiency of our sales force. The results from hubs are outperforming. So, it’s hard to give you a number right now, but we expect it will probably be higher than the 11%. That’s good news. We were conservative when we thought about the volumes from hubs; we have seen better results.

Hey, Bryan, it’s Artur speaking. Good to talk to you, and thank you for your question regarding net income margin. As we have been sharing in the last calls, we are not focused on margins right now. Our focus is on continuing to deliver positive nominal results. That means positive nominal results for adjusted EBITDA and net income. Our intention is really to create a larger company for the future; in 2022 and 2023, we will increase our margins. Regarding the next quarters, I can say that we expect a slight improvement versus Q2. Q3 is probably going to be better than Q2, and Q4 will be better than Q3. For the full year, we're expecting something above 15%, excluding interchange fees from the schemes. So our net income margin should be above 22% or something over 22%.

Just to be clear here, Bryan. Artur is stating that the net income margin, as we report, is going to be higher than 15% this year. It's going to get better in Q3 and Q4. When he mentions 22%, it refers to using the same methodology as other players, which excludes interchange card fees from net revenues. So that’s going to be close to 20% or 24% if we exclude interchange card fees from the revenues.

Our next question comes from Marco Calvi with Itaú BBA. Please, Marco, go ahead.

Hi, good evening. Two questions here. On the first one, on the acquiring net take rate of R$2.24, you revised this during this quarter. We saw a growth, quarter-over-quarter or a flattish quarter-over-quarter and a growth over the fourth quarter. Can you guys share with us the trends of this acquiring net take rate, given that you guys are moving towards larger clients? Even so, at least when comparing to the last two quarters, the net take rate in the acquiring business is either the same, flattish, or increasing. And my second question is on your software business. You mentioned that you ended the quarter with mostly 100,000 clients and a penetration close to 11% of the active merchants. What sort of software are you referring to? If you can share the average ticket specifically on the software product. Thank you, guys.

Hi, Marco. This is Ricardo. Thank you for the question. Good to hear. Regarding net take rate in the acquiring business, as we could see in Q4, we have 2.06, then 2.23 in Q1, and 2.24 in Q2. Looking forward, we see at least two major moving parts here: tailwinds and headwinds. The tailwind we see would be consumption returning, but we are experiencing higher inflation and the pandemic is still present. We are not 100% back in our normal lives, so that's a tailwind for consumption. In terms of take rate, we are also seeing better performance in hubs than we expected. As mentioned, hubs have TPV 4 to 5 times larger than long tails, which lower the overall take rate as a percentage but increases the absolute revenue due to the larger volumes. That's why we believe that in the future we expect to be flat or a little higher. Let's correlate this with the macro recovery and we can update you as it plays out. Regarding the software business, we consider primarily point of sale systems that help merchants track their sales, manage inventory, and gather business reports. In short, we provide small, easy-to-use software solutions. We also consider R2Tech in our reconciliation business to help clients match their sales with bank accounts. We don’t usually charge for the software, as they are basic tools for operational efficiencies; our focus remains on improving merchant relationships, which leads to sustained customer loyalty and retention. Hi, Marco. This is Ricardo. Thank you for the question. Good to hear. Regarding net take rate in the acquiring business, as we could see in Q4, we have 2.06, then 2.23 in Q1, and 2.24 in Q2. Looking forward, we see at least two major moving parts here: tailwinds and headwinds. The tailwind we see would be consumption returning, but we are experiencing higher inflation and the pandemic is still present. We are not 100% back in our normal lives, so that's a tailwind for consumption. In terms of take rate, we are also seeing better performance in hubs than we expected. As mentioned, hubs have TPV 4 to 5 times larger than long tails, which lower the overall take rate as a percentage but increases the absolute revenue due to the larger volumes. That's why we believe that in the future we expect to be flat or a little higher. Let's correlate this with the macro recovery and we can update you as it plays out. Regarding the software business, we consider primarily point of sale systems that help merchants track their sales, manage inventory, and gather business reports. In short, we provide small, easy-to-use software solutions. We also consider R2Tech in our reconciliation business to help clients match their sales with bank accounts. We don’t usually charge for the software, as they are basic tools for operational efficiencies; our focus remains on improving merchant relationships, which leads to sustained customer loyalty and retention.

Our next question comes from Eduardo Rosman with BTG. Please, Eduardo, go ahead.

Hi, everyone. Congrats on the numbers. Two questions here. First one, we just saw SEBRAE publishing a survey that more than 50% of small merchants in Brazil are still not accepting cards. So just want to get your feedback on the ground. What can we expect, like an idea for maybe next year? If you think adding 300,000 merchants per quarter is still doable, or do you think you can grow more than 30% TPV in the acquiring segment for a couple of years? It would be interesting to see and have a qualitative view of what to expect for the coming years in your segment. The second question is about PagBank. You mentioned that you expect breakeven to come in the next few quarters. But EBITDA was still about R$100 million negative this quarter, right? So can you elaborate? Should we expect that to reach breakeven in the second part of next year or 2023? So that's it, thanks a lot.

Hi, Rosman, thank you for the question. It’s good to hear from you. Regarding the SEBRAE survey, you're correct. They found many businesses in Brazil still don’t accept cards. There are no companies in our industry more prepared to take advantage of this. We have the history, the expertise to serve long tails, and a distribution channel to leverage our audience. That's why we keep adding 1 million net adds per year. I believe we can continue to add clients in the upcoming quarters. There are many opportunities out there. The company is thoroughly prepared to serve those who are not in the financial system, given our experience in the online world. You're right, it's a significant point that SEBRAE's survey reinforces. There are a lot of businesses in Brazil that don't accept cards. Some of these merchants start with debit, and then later start accepting credit. We see this as an opportunity in this survey. Regarding PagBank, I will just give a brief overview, and Artur can complement it. But you're right—the margin in absolute terms increased, but as a percentage of the revenue, it decreased from 80% to 55%. The business is growing; we need to dilute fixed costs while we continue to invest. That’s why absolute terms of the numbers are growing. But I will let Artur provide more detail here.

PagBank is a long-term project for us. We are succeeding because we are adding millions of clients every month that require our services. We are monetizing those clients. It's true that consumer clients typically take more time to start monetizing. This is the biggest advantage we have in terms of merchants using PagBank, as we have an automatic cash machine. As Dutra mentioned, we are at the stage of investing a lot in the ecosystem to have a more complete offering of products for PagBank. And we are investing in people, marketing campaigns, R&D, and everything necessary to build a significant digital bank in the future.

Hey, Rosman. This is Eric. Thanks for the question. I just like to highlight here that we don't have two seals, one for payments and one for banking. We operate under one seal, so the CFO is making all the decisions to maximize revenues per client. There’s no conflict of interest; we are all focused on the same goals.

Great. Thanks a lot.

Our next question comes from James Friedman with Susquehanna. Please, James, go ahead.

Hi. Let me echo the congratulations. I'm glad to hear everyone's doing well. It's Jamie with Susquehanna. I just wanted to ask a couple of questions up front. So the TPV per merchant continues to expand, right? Your TPV grew double, and merchant numbers grew roughly. Is that the hubs or COVID or something else? That’s the first one. Historically, you've had some seasonality. Well, the industry sees seasonality in Q3, and I wanted to ask about that. Do you expect any promotions in Q3 at the industry level? Because sometimes we see that into Black Friday. That was the second one. And then the third one is what are you going to talk about at the Analyst Day?

Okay. Regarding the TPV per merchant, you're right. We have experienced this Q2 growth; however, comparing the quarters, we acknowledge that it is easier to compare now since last year's second quarter was the worst in terms of COVID-19 impact for us as well as globally, especially in April. Second quarter was the worst quarter for us. When we compare, we are growing a lot. The majority of the growth is coming from our hubs. We provided some details earlier: the hubs TPV quarter-over-quarter grew four times, while the company as a whole grew 89%. Long tail sales were steady, but not at the same level as hubs. To clarify, the growth in TPV per merchant can be attributed to our hubs. Regarding Q3 seasonality, we don't anticipate any significant changes in trends. We don't foresee deep promotions at the industry level. Also, we plan to kick off a new marketing campaign concerning PagBank shortly. We have a solid opportunity to boost PagBank. We added 2.1 million clients in Q2 and aim to sustain that momentum through Q3. Regarding the Analyst Day, we have a meeting planned in November. We don't have sturdy details, but the meeting will include Luiz Frias, our Chairman and Founder, along with some of PAGS’ senior management team sharing an overview of what we envision for our industry, including observations on the financial market, the fintech landscape, hopes and goals for our company and continuing to nurture our investors. That’s the main idea.

Great. Thank you.

Our next question comes from Tito Labarta with Goldman Sachs. Please, Tito, go ahead.

Hi, good evening. Thanks for the call. I have a couple of questions; I apologize for focusing here on your margins. If we look at your margin last year, around 20%, I recall on the Q4 call you mentioned that had you excluded COVID and PagBank your margin would have been around 30%. Now your net income margin is roughly half of that. Though I recognize PagBank’s margin has improved, I’m trying to understand the source of the decline. Is the bulk of it coming from your hubs? I want to clarify this because I would imagine PagBank's margins are on the upswing. Your concerns about margin should predominantly focus on the hubs, correct? Could you provide some clarity on that point? Secondly, I want to better understand Boa Compra’s growth in cross-border transactions. Is this growth significant? What’s the growth potential you see in that area? Thank you.

Tito, it’s Artur speaking again. Thank you for your question, and good to talk to you. Regarding the margin, all the points you raised are correct. The impact we're seeing today is related to hubs, as they are an operation that is not mature yet, and we are also investing heavily in PagBank. So when we achieve a more stable company in the future, we'll leverage those investments we are currently making. Our expectation is that margins will recover over time.

Okay, thanks. I wanted to clarify that PagBank's margin is improving, correct? You’re still investing, but the revenues are outperforming. This means the pressure on margins doesn't stem from PagBank? Is that accurate?

Precisely. The current compression in margins comes from hubs combined with ongoing investments in PagBank. As we mentioned earlier, we are confident that as we solidify our market position and expand client acquisitions, which have been successful, margins will improve moving forward.

Regarding Boa Compra, it represents a small percentage of our total TPV at this moment; it is growing. However, to be honest, it's a small aspect of TPV. We serve some online clients who request our assistance in other Latin American countries. While we continue to evaluate new opportunities, we recognize Brazil's market presents significant potential for our operations. Although we see progress in cross-border transactions, it’s not transformational for our P&L at the moment.

Okay. Great. That's helpful. Thank you very much, and congratulations on the results.

Our next question comes from Domingos Falavina with JPMorgan. Please, Domingos, go ahead.

Thank you. Hi, guys. Good evening, everyone, and thanks for taking the call. I wanted to get your views on the debit side of operations. ABECS, the card association, published industry-wide figures recently indicating that debit is accelerating. Even comparing to 2019 and analyzing average CAGR from 2019 to 2021, April, May, and June actually accelerated beyond credit cards, roughly 19% to 20% year-on-year—which came as a surprise. Observing market share, we noticed credit's reduction from 63% to 59% in 2019; now credit is back to around 61%, with the remainder being debit/prepaid. Could you share your insights on debit volumes? How does PAGS look in that light, and do you have guidance on what you foresee?

Thank you, Domingos. Good review. This is Ricardo. We do indeed see positive developments for PAGS. We have the capacity to accept 7.6 million active merchants, on average having over one device per merchant. Consequently, we have more than 7.6 million points of sale (POS) available. Currently, we observe low penetration of PAGS in the acquiring sector. Although there might be certain merchants using PAGS to avoid MDRs, it’s miniscule, considering that the MDR for debit is only R$1.99—an amount merchants recognize is safe and would rather pay to ensure immediate transaction completion. We do not see PAGS threatening our existing base. Rather, we consider that as more merchants shift to accepting debit cards, our associated TPV will grow in parallel. There’s a significant amount of cash remaining in Brazil, creating additional opportunity for us in the future. Overall, the secular trend from cash to cards continues, bolstered by increased card options, improving financial access, and heightened competition among digital banking solutions.

I appreciate it, guys. Thank you.

Our next question comes from Neha Agarwala with HSBC. Please, Neha, go ahead.

Hi, thank you for taking my question. This is Neha Agarwala with HSBC. Congratulations on the results. Could you provide more insights regarding PagBank revenues? Last quarter we saw depressed revenues due to chargebacks from the digital account losses. This quarter, there was a small improvement but still not as strong as what we saw in Q4 2020. Can you explain the composition of the PagBank revenues and how you see it accelerating in the coming quarters, especially as you ramp up your credit book? Should we expect accelerated growth in PagBank revenues? My second question concerns chargebacks. Looking at chargeback numbers, we saw a spike in Q1 2021 due to digital account losses which has since declined, though remains elevated compared to prior periods. If I understand correctly, this increase is linked to the credit book so could you provide further context on it? Thank you.

Hi, Neha, thank you for the question. Good to hear from you. For PagBank revenues: As mentioned, we are witnessing growth. We added 2.1 million clients in this quarter, the majority of whom were consumers. The issue lies with consumers who do not have automatic cashing as we do with merchants—when merchants receive a payment, the money goes straight into their digital account, allowing us to monetize immediately. For consumers, transfer delays often occur because they may only load funds periodically. This lag leads to delays in monetization for us. We are seeing growth in the overall client base, yet the speed at which consumers begin utilizing their accounts is slower than for merchants. Additionally, we implemented temporary promotions for select clients waiving certain transaction fees to drive engagement. This short-term loss of revenue helps to solidify longer-term customer relationships. But even with these promotions, we forecast PagBank will grow quite well overall.

Hi Neha, it’s Artur speaking. Regarding chargeback, as we stated during the last call, we didn’t face the same issues in Q1 2021 related to digital losses experienced. In Q2, while you see reduced digital losses, chargebacks slightly increased by 6 basis points, owing to a rise in online transactions which naturally incurs higher chargebacks and the current growth of the credit portfolio. Since we follow IFRS9 standards, we incur the weight of 12 months of write-offs on the first month of any cohort, which then leads to an adjustment in our chargeback percentages over the acquiring TPV in future estimations. If we compare the quarter-on-quarter ratio alongside the credit portfolio growing 42% against the 12% increase in our TPV, you’ll see how chargebacks as a percentage of total TPV are influenced.

Ultimately, it translates to provisions following the IFRS9 guidelines.

Our next question comes from David Togut with Evercore ISI. Please, David, go ahead.

Good evening, and thanks for taking my question. This is Spencer Kennedy on for David Togut. First, I'd like to commend you on the impressive momentum in PagBank. Could you provide insight into monetization differences between consumer and merchant clients? You've indicated you now have around 82% of your merchants as PagBank clients, implying future client additions will predominantly come from new consumers. Are there any significant differences in terms of credit and interchange revenue or product usage between the two groups?

Hi, Spencer. Thank you for your question. As mentioned, we have two distinct groups. Merchants who utilize POS systems receive their payments directly into their accounts and begin generating revenue immediately. Clients tend to have different usage patterns; hence our analysis shows that merchants typically create a more immediate revenue stream for us compared to consumer-based interactions. One challenge is that with consumers, we lack clarity at account opening regarding their future usage patterns. Our strategies include incentivizing card usage and improving account engagement, but we still see significant differences in speed of revenue creation.

Got it. Thank you very much, and congratulations on the results.

That concludes our question-and-answer session for today. I would now like to turn the floor over to Mr. Ricardo Dutra for final remarks. Please, Mr. Dutra, go ahead.

Hi everyone. Thank you very much for your time and your questions today. I appreciate your continued support and discussions throughout this quarter. I look forward to providing further information at our next conference call. Thank you very much.

The PagBank PagSeguro conference call is now over. Thank you for your participation. Have a great night, and you may now disconnect.