PagSeguro Digital Ltd. Q1 FY2024 Earnings Call

Welcome to PagSeguro Digital Earnings Call for the First Quarter of 2024. The slide presentation for today's webcast will be available on PagSeguro Digital's Investor Relations website at investors.pagbank.com. Today's conference is being recorded and will be available on the company's IR website after the event is concluded. I would now like to turn the call over to your host, Éric Oliveira, Head of IR. Please go ahead, sir.

Hello, everyone. Thanks for joining our first quarter 2024 earnings call. After the speakers' remarks, there will be a question-and-answer session. Before proceeding, let me mention that any forward-looking statements included in the presentation or mentioned on this conference call are based on currently available information and PagSeguro Digital's current assumptions, expectations, and projections about future events. While PagSeguro Digital believes that the 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 Digital's earnings presentation or discussed on this conference call for a variety of reasons, including those described in the forward-looking statements and Risk Factors sections of PagSeguro Digital's most recent annual report on Form 20-F and other filings with the Securities and Exchange Commission, which are available on PagSeguro Digital's Investor Relations website at investors.pagbank.com. Finally, I would like to remind you that during this conference call, the company may discuss some non-GAAP measures, including those disclosed in the presentation. We present non-GAAP measures when we believe that the additional information is useful and meaningful to investors. The presentation of this non-GAAP financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered separately from or as a substitute for, our financial information prepared and presented in accordance with IFRS as issued by the IASB. For more details, the foregoing non-GAAP measures and the reconciliation of these non-GAAP financial measures to the most directly comparable IFRS measures are presented in the last page of this earnings presentation and earnings release. With that, let me turn the call over to Ricardo. Thank you.

Hello, everyone, and thanks for joining our first quarter 2024 earnings call. Once again, I have the company of Alex, our CEO; and Artur, our CFO. On this first section, I'll share the main operational and financial highlights for the quarter. Starting with Slide 4. Total revenue grew 15% year-over-year, reaching BRL 4.3 billion, all-time high results for the first quarter with strong TPV and revenue growth in all client segments. Our gross profit margin was 40.6%. We also reached the all-time high net income in non-GAAP basis of BRL 522 million, a 32% year-over-year growth. Our EPS reached BRL 1.63, 36% higher than Q1 2023, also an all-time high. Moving on to Slide 5. We reached 31.4 million clients by the end of March, with 17.3 million active clients. We also had an all-time deposits level, reaching BRL 30.6 billion, an impressive 64% increase year-over-year. These strong results prove the power of our value proposition which has been contributing to increased client engagement and has a positive impact on lowering our cost of funding, which increases prepayment spreads and net interest margin for our credit portfolio and consequently, our profitability. It's worth mentioning that our one-stop shop solution has been acknowledged under the PagBank brand as we were recognized as the best bank in Brazil by different institutes such as Forbes and iDinheiro, among others. On Slide 6, we share some highlights of the payments and banking units. In the payments segment, we had strong growth, with TPV reaching BRL 112 billion, a 27% year-over-year growth reinforcing our strategy of continuing to grow in a profitable way. On the banking side, our cash-in reached BRL 66.1 billion, a 48% growth year-over-year, aligned to our strategy to stimulate our clients to use PagBank as their primary account. Our credit portfolio grew 8% quarter-over-quarter to BRL 2.7 billion, driven by the expansion of our credit underwriting unsecured products. Also in Q1, among all products we have launched or enhanced, I would like to highlight the launch of our business insurance for merchants in the PagBank partnership program, as well as our payment solutions embedded in the most relevant Software-as-a-Service providers. Finally, we also decided to gradually resume in the second half of 2024 the offering of working capital loans for merchants and overdraft account offerings for merchants and consumers. Now I pass the word over to Alex for his comments on the business unit highlights for the quarter. Thank you.

Thank you, Ricardo. Hello, everyone. In this section we will break down our business unit's performance through the first quarter of 2024. Starting with payments on Slide 8. We showed that our merchant acquiring business keeps growing through the combination of our superior value proposition and the broad bridge of our sales channel, positively impacted by our sales force expansion that has started in the last year. We have been able to accelerate TPV growth faster than the industry, driven by our main merchant segments. TPV reached BRL 112 billion in Q1 '24, growing 27% year-over-year with TPV per merchant growing 37% on a yearly basis. Continuing our strategy to expand our payments business focused on merchants with better engagement and profitability, we observed 5% growth year-over-year of our active merchants based on a three-day criteria when excluding Nano-merchants. Moving on to Slide 9. Let's look further into the MSMB segment, which comprises micro merchants with monthly TPV up to BRL 15,000 and small and medium merchant businesses with monthly TPV from BRL 15,000 up to BRL 1 million. MSMB's TPV grew 24% year-over-year, reaching BRL 77.6 billion in the first quarter of 2024. Strong merchant gross adds positively contributed to this performance, combined with higher productivity in our hubs and geographic expansion. We present an unparalleled value proposition to MSMBs in Brazil. Our comprehensive approach embraces a broad reach of sales channels, ensuring maximum exposure and accessibility for merchants. With instant settlement, we offer the cheapest working capital source empowering businesses to thrive without financial strain. Fast POS delivery and replacement ensures uninterrupted service while our seamless integration of payments and banking simplifies transactions, enhancing efficiency and engagement. Additionally, we are proud to report that PagVendas, our ERP software, has surpassed 1 million users, showing our commitment to innovation and customer satisfaction. On Slide 10, we show how our TPV from the LMEC segment has performed, comprised of large merchants, e-commerce, and cross-border clients. In the first quarter of 2024, this segment posted a 35% TPV growth compared to Q1 '23, reaching BRL 34.2 billion in transactions. We are increasing our share of wallet in the large merchant segment, which includes businesses with monthly TPV above BRL 1 million driven by the development of an integrated omnichannel payments platform embedded with management software solutions for more than 350 software partners from the new PagBank partnership program. Our online segment posted strong TPV growth with e-commerce boosted by our strategy to unlock PIX scale code and tap on phone for e-commerce platforms. Leveraging facial authentication helped to enhance security measures in online transactions, ensuring trust and reliability. Furthermore, our cross-border unit under the brand PagSeguro International is connecting foreign merchants with Latin American buyers, fostering a seamless experience and an enriched global commerce ecosystem. Moving on to the banking business. Our strategy to provide a seamless experience combining payments, value-added services, and banking through multiple interfaces for merchants and consumers continued to drive engagement up. This engagement increase resulted in over BRL 66 billion in PagBank cash-in, composed of fixed P2P, wire transfers, deposits through Boleto, and invoices into PagBank accounts from other financial institutions. Finally, cash-in per active client, an important indicator of our client engagement, grew 44% year-over-year, reaching BRL 3,900 per client. Our active bank client base reached 16.9 million clients, a 4% year-over-year growth. We also presented in this slide the breakdown of active customers growth by product which demonstrates the increasing penetration of our financial products and services and how powerful the value proposition of our banking platform is. The number of clients using investment and credit products stands out, growing 85% and 235%, respectively, compared to Q1 '23. On Slide 12, we shared that deposits were up 64% compared to the first quarter of 2024, reaching a record of almost BRL 31 billion, boosted by our AAA rating attributed by S&P Global which enhanced our CDs distribution among retail and institutional investors on and off platform. Checking account balance, the cheapest funding source and a key performance indicator to measure client engagement grew 37% year-over-year. Annual percentage yield for checking accounts and total deposits remained compelling, creating a unique engine connecting pricing power without harming profitability by lowering the average cost of funding for the company. We remain excited about the Brazilian payments opportunity and have a privileged position of holding a solid balance sheet and low cost of funding like big banks while demonstrating speed and superior product user experience like FinTechs. Moving on to the next slide. Slide 13 shows that our credit portfolio resumed growth since Q3 2023 and this quarter, it reached BRL 2.7 billion, with an increasing share of secured products now representing more than 70% of our loan book, promoting financial inclusion, education, and important financing lines for our clients through this product. We successfully passed through the pandemic, the rising of Brazilian interest rates, and one of the worst credit cycles in the country with no negative impacts on our financial results and without compromising our long-term growth strategy. During this period, we took the opportunity to completely review our credit cycle fundamentals, enhancing our onboarding process, fraud prevention, risk assessment, underwriting, and collection policies and procedures. The results were fully captured by the relevant improvement in our asset quality, lowering our NPL90 from 18% to 4.5% in 12 months. Now we see an opportunity to gradually resume the credit underwriting of other credit lines in the second half of 2024, such as working capital loans and overdraft account limits. Now I turn over to Artur for the financial highlights of the first quarter of 2024. Arthur, please.

Thanks, Alexandre. Hello, everyone, and thank you for joining us in this call. In this last section of our presentation, I will share the consolidated financial results for the first quarter of 2024. Here on Slide 15, I'm proud to announce an all-time high quarterly non-GAAP net income, which reached BRL 522 million, growing 32% versus Q1 '23, with non-GAAP earnings per share at BRL 1.63. Net income on a GAAP basis achieved BRL 483 million in the first quarter of 2024, growing above 30% year-over-year with earnings per share on a diluted basis, marking BRL 1.50, BRL 0.37 better than the same period last year. This result was driven by strong operational and financial performance, as shown in the coming slides. Moving on to Slide 16, Q1 '24 total revenue and income growth accelerated to 15% on a yearly basis, positively impacted by higher volumes from acquiring. Consolidated gross profit margin keeps trending upward, reaching 40.6% over the total revenue as we have been successful in balancing growth and profitability driven by the execution of our strategy, focusing on clients with better unit economics and higher engagement. Looking at our business segments in the graph on the right side, payments revenue reached BRL 3.9 billion, an 18% year-over-year growth with gross profit margin marking 39%. Banking revenue grew BRL 40 million quarter-over-quarter, mostly driven by interest income from credit, float and cash position combined with service fees linked to higher client engagement. Gross profit for our banking segment reached 60% in the quarter. It is important to highlight that the gross profit margin in banking is higher than payments even based on our strategy of underwriting secure credit products that naturally present low yields combined to hold yields paid on deposits to attract and engage new clients. In the next slide, we share how our discipline in capital allocation has been an important tool to balance growth and profitability, leading to high value creation with earnings before tax growth of 35% this quarter versus the same quarter of last year. I would like to highlight three specific lines to comment on. Even with a TPV growth of 27% year-over-year, financial costs grew 1.7% in the same year-over-year comparison, resulting in a leverage of approximately 250 basis points over total revenue and income. In nominal terms, Q1 '24's cost was BRL 40 million lower than Q4 '23; this performance was positively impacted by our successful deposit franchise that reduced our average cost of funding. Total losses fell more than 18% year-over-year, mainly due to relevant developments on QIC and onboarding processes, decreasing fraud and charge-back amounts. On top of that, the better quality of the credit portfolio reduces the level of loan loss provision in the quarter. Operating expenses remained stable compared to Q4 '23 and grew 21% year-over-year, driven by higher personnel expenses due to the strengthening of our sales force and additional marketing investments to acquire new payment clients and distribute financial services. Our capital allocation strategy is designed to create efficiencies and support the company, especially in growth cycles. Moving on to Slide 18, we show how solid our capital structure is for the PAGS momentum. Equity position expanded to BRL 13.8 billion with retained earnings representing 61% of the total, demonstrating the success of our strategy of balancing growth and profitability. Cash and financial investments ended the first quarter of 2024 with BRL 8.8 billion, double that of Q1 '23. In the last week of March, we anticipated fundraising from April, which increased cash position in Q1 '24. Going forward, the cash and financial investment position is expected to run between 40% to 50% of equity balance. On the final slide, we would like to reinforce our guidance for 2024 while acknowledging that we started the year at a very good pace. We expect total payment volume to achieve between BRL 441 billion to BRL 457 billion with a healthier gross profit margin above 40% over total revenue and income. The guidance on gross profit margin was updated to above 40% as we are no longer excluding other financial income from the calculation. We consider this view more appropriate and a fair reading of our net financial results. Net income in non-GAAP basis should be between BRL 2.5 billion to BRL 2.150 billion, considering a similar level to 2023's effective tax rate. Following up, CapEx should be between BRL 2 billion to BRL 2.2 billion, and MD&A plus POS write-offs amount should be between BRL 1.9 billion to BRL 2 billion. Now let me give the word back to the operator, and we will start the Q&A session.

Our first question comes from Mario Pierry from Bank of America.

Congratulations on the results. Let me ask you two questions. One, when we look at your growth, your TPV growth, we're seeing the large corporate segment growing faster than the MSMB. Could you explore a little bit the profitability of both segments taking into consideration also the ability to grow deposits? How do you see the profitability of both segments from a holistic approach? And then the second question is related to your comments that you are ready to accelerate some lending in the second half of the year, specifically working capital for merchants and overdraft for merchants and consumers. Could you give us visibility on how big you think this portfolio can be? Why are you feeling confident that you want to accelerate lending now, even as the Brazilian economy is not doing great?

Mario, this is Ricardo. Thank you for the question. I'll start with your first question about the TPV in these two different segments. You're right when you say that large merchants are growing faster than the MSMB, with large merchants growing 35% and MSMB growing 24%. The blended growth is 27%. It is important to highlight that we grew 27% while the market grew close to 11%. So we continue gaining share and being more profitable while increasing engagement. The performance is strong as we can see in Q1. When you refer to large merchants in our criteria, here they are not the same as large merchants that are referred to by other players. Sometimes when people talk about large merchants, they think of big companies like Walmart in Brazil, who have very low margins, which is not the case here. Of course, they have lower profitability compared with MSMB. However, the advantage of large merchants is that they bring deposits. So when you look at the merchant in a more complete or holistic way, we may have lower margins in acquiring but a higher deposit base. That's going to help our cost of funding to be lower, which was 94% of CDI in Q1. So if you look only at acquiring, large merchants are less profitable than MSMB. But in a holistic view, they still offer advantages that we should consider in these two different segments. Regarding your second question, it’s kind of related to the first one. As you mentioned, the economy is doing okay, and our decision to go for these non-secured products is based on the fact that we have good clients here, irrespective of the economy's performance. This does not mean that if the economy is doing poorly, our clients will face delinquencies. We have stable large clients who are seeking credit. Over the last two years, we have been enhancing our processes and back-office operations, and we believe it's time to resume the offering of these two products. The working capital for MSMBs is anticipated to have a turnaround of around 15 months, with interest rates varying depending on the client, and of course, higher than what we charge for prepayment since the prepayment does not involve any risk. In overdrafts, we will offer limits for merchants and consumers, which will be small and under 30 days due to the product dynamics, with interest rates as allowed by regulation of up to 8% per month.

That's very clear. Let me follow up quickly, Ricardo. In terms of the size that you think this portfolio can get to until the end of the year. When you talk about the market share you're gaining, do you see this as a temporary or a structural change? Especially since Cielo is going through some changes operationally, do you think you have the ability to continue gaining share?

Mario, regarding the size of the portfolio, it's too early for us to give any guidance at this point because we are at the very early stages. We're going to start, follow the performance, and then as we have a credit portfolio with non-secured products a bit larger than what we have today, we can provide more context. But it's still too early to give guidance about the portfolio size. We will resume in the second half of 2024. As for gaining share in TPV and our growth, the investments we've been making over the last few years are coming to fruition. The integrated offer is truly paying off. We noted very strong momentum in Q1, which we expect to continue into Q2. For instance, during the first week of May, on Mother’s Day in Brazil, we recorded the highest TPV in the company’s history. We are expecting similar growth in the second quarter. I don't envisage any significant changes in our short-term momentum regarding TPV.

Our next question comes from Tito Labarta from Goldman Sachs.

Congrats on the results. A couple of questions as well. Just on your net income guidance for the year, annualizing this quarter, you would already be at the high end of that guidance. We could read this two ways. When you expect earnings to remain flat for the rest of the year? Or do you think there could be some upside risk to that guidance, assuming earnings will continue to improve from here? And then the second question is just on the expense side. Expenses were somewhat flat on the quarter, but if you look at other expenses that fell quite a bit while personnel and selling expenses were up around 8%-9%. Can you provide some color on the dynamics going forward regarding these different expense line items and their growth rates?

Tito, thank you for the question. I'll take the first one, then the second one I'll pass to Artur. Regarding guidance, you're correct; we're at the top of the guidance in Q1 based on the full year guidance. All KPIs are exceeding guidance, but it's only the first quarter. We only had 25% of the year so far. It's too early for us to make changes in the guidance at this point. However, we are confident about reaching the top of the guidance due to no indications of problems on the horizon. As I said, it's still too early to change guidance. Now I will pass it over to Artur.

Tito, good to talk to you. Regarding our operating expenses, we are managing all costs and expenses in a disciplined manner. In this quarter, they were 16.4% of our revenue, a level we expect to maintain going forward. This level is consistent with what we saw in Q1 '23 and Q4 '23. Our management is closely controlling expenses here, keeping personnel expenses, marketing, and other administrative costs in check.

Our next question comes from John Coffey from Barclays.

The first one, I don't think you gave your TPV growth for the first three weeks of April. I believe that's been a tradition you've had for past few quarters. Is that something you can disclose?

John, we are not disclosing any information about Q2 at this point, but it's been strong. It’s been similar to Q1 levels. Moreover, in the first week of May for Mother's Day, we achieved a historical TPV record for the whole company. So overall, good momentum and similar growth levels in TPV at this point.

And I just had one related follow-up. When we think about the growth in Q1, which was high and especially compared to the 21% I think you gave for January, which I believe reflected the first three weeks of January. What was happening here? Did you see a ramp-up in that last week of January plus February and March? Can you provide more context on that?

John, several factors contribute to the level of growth we're seeing. One reason is that our value proposition is maturing. Clients are increasingly understanding the powerful combination of payments and banking. They recognize that when they use our POS to sell, the money flows instantly to their digital account, where it earns high yields. They also find our card easy to use for tracking transaction history and reconciliation. I would say the overall value proposition is maturing, and our sales productivity has been growing consistently in the past quarters. The increased productivity and marketing efforts combined have driven this growth.

Our next question comes from Bryan Keane from Deutsche Bank.

Congrats on the results. Regarding the first quarter results, I know they exceeded consensus expectations. Were they also higher than your own internal forecasts, and can you point to factors that drove this upside surprise?

Bryan, thank you for the question. Yes, the results were indeed better than what we anticipated internally. We were surprised by the strong TPV growth, as the industry did not expect to see an 11% growth rate in the first quarter. Our financial management, despite discussions regarding interest rates affecting the outlook for expenses, remained competent. Our credit portfolio also exhibited significant growth after several quarters of stagnation, with an increase of 8% from BRL 2.5 billion to BRL 2.7 billion. Overall, we’ve witnessed strong dynamics in both growth and profitability, with some positive surprises along the way.

Got it. And to follow up on the net income margins, should we expect seasonality as we move through the fiscal year, especially between Q2 and Q4? Is there any cadence we should be aware of, or should margins remain steady throughout the year?

Bryan, we expect margins to be similar or potentially slightly higher in Q4 due to seasonality and a higher mix of debit margins. In Q4, the utilization of debit cards typically increases, which could affect our debit TPV share in the mix. However, looking forward into Q2 and Q3, we do not foresee any significant margin changes compared to what we had in Q1.

Great. Congrats again on the solid results.

Our next question comes from Neha Agarwala from HSBC.

Congratulations on the solid results. I have two questions. First, on the SMB segment specifically, could you share more about how the SMB segment has been growing? Have you been opening any new hubs in the last few quarters or increasing the sales force to penetrate the SMB segment?

Neha, we are not providing a breakdown of the SMBs. We are providing full information about these two segments. As for the micro segment, it's challenging because the size varies. We have decided to group the information. However, I would say that the SMB segment is growing slightly faster than the micro segment due to higher TPV. Our sales force in the hubs is focused on SMBs, with a slight increase implemented in Q1. There is a plan to continue growing similar to what we have already achieved. We observe opportunities in this area, and we believe the growth is accretive to our results.

And my second question is on PIX. The TPV growth is very strong, and I believe you do not include PIX volumes in your acquiring TPV. Could you give us a sense of what percentage of total acquiring TPV would roughly be the PIX volumes?

Regarding PIX, it has indeed facilitated our growth. Even excluding PIX, we believe our growth rates would still be strong and robust under 20%. Most of our growth is attributed to cards and credit transactions. Hence, the growth remains quite stable across these various segments.

Our next question comes from Kaio Prato from UBS.

First, regarding your financial income. This quarter, it was flat versus last quarter despite solid historical numbers. If you look at financial yields, excluding financial expenses, it was better than expected. Could you share the drivers behind that and whether you are seeing an uptick in prepayment penetration? Also, I have a second question.

Kaio, thank you for the question. Regarding financial income and expenses, you're correct that despite seasonality being a factor in Q4, we managed to grow financial income and control financial expenses effectively through our treasury department. With deposits increasing 64% year-over-year, the lower cost of funding also positively impacts our performance. This improvement is part of the business's regular dynamic.

Kaio, it's Artur speaking. To clarify what Ricardo mentioned, when considering our financial result, it’s best to look at financial income plus other financial income less financial expenses. That gives you a more accurate perspective on our performance.

Very clear. My follow-up question is on costs. We've seen that cost is growing at a slower pace than our TPV, both year-over-year and quarter-on-quarter. Can you provide insights into the drivers of these efficiency gains and what can be expected going forward?

Yes, you're right. This quarter, we grew total revenue by 15% while total costs and expenses increased by just 12%. We've leveraged our costs effectively compared to our revenues. The main drivers for this performance include strong management of financial costs through banking insurances, more deposits, and reduced total losses, all contributing to our strong performance. In terms of other expenses, we saw a reduction, which reflects our successful cost management strategies. While personnel and marketing costs are expected to rise as we strengthen our sales force, we aim to achieve overall efficiency.

Our next question comes from Sheriq Sumar from Evercore ISI.

On competitive dynamics, are you seeing any threat from international players like Pfizer from Clover? Are there any other new players in the market? What's PagSeguro's response?

Sheriq, thank you for the question. To address the first part regarding international players, we do not see any international player entering the market and gaining share or growing faster than us. A significant reason for this is our integrated solution; to succeed in Brazil, one has to combine banking and payments. Simply coming in as a pure acquirer won't yield market share from the major players who operate on very thin margins.

And my follow-up question is on the active merchant side. Is there more runoff expected on the Nano merchant side? Can you break down the composition of large merchants, micro, and SMB within the BRL 6.5 million?

To be honest, we don’t disclose that information, as there’s no standardized definition of large, medium, or micro merchants within the industry. While we have a stable number of active merchants in the nano segment, they contribute only 1.5% of our TPV. Our focus will remain on micro and SMBs where we generate more significant margins and see more growth potential.

Our next question comes from Daniel Vaz from Safra.

Congrats on the results. I saw that your personnel expenses increased significantly attributed to an increase in your sales force. Can you elaborate on how many salespeople you hired and whether you expect to hire more throughout the year?

Daniel, this is Alexandre. We generally do not disclose the specific number of salespeople. However, we have adjusted our sales force in specific geographic locations where we identified we were under-penetrated. Our increased TPV growth was driven by efforts to promote integration between our payment options and banking solutions to achieve a superior value proposition across segments.

Our next question comes from Soomit Datta from New Street Research.

Could you share what your embedded assumption for SELIC is for year-end, which also feeds into your net income guidance? Also, could you clarify the implications of the increase in cash and financial investments? Are you considering using this cash on hand to fund prepayments?

Soomit, this is Arthur speaking. Regarding SELIC, based on current levels, we do not anticipate significant reductions this year as per our established expectations. Our focus remains on managing deposits which are our primary funding source for costs. As for cash and financial investments, the BRL 8.8 billion figure represents the last quarter end in March and reflects the advance receivables to bank issuers we utilized in April. The goal is to maintain cash between 40%-50% of our equity as we also navigate liquidity risk.

Our next question comes from James Friedman from Susquehanna International Group.

What are your thoughts about the credit portfolio mix in terms of secured versus unsecured? How should we think about this evolution on the secured side going forward, especially with the new product rollouts?

James, as I mentioned previously, we will be resuming various products such as working capital and overdrafts in the second half of this year. However, we will take a gradual approach, and we do not anticipate dramatically changing the current mix in the near term. The significant portion of our BRL 2.7 billion portfolio is secured, and I do not see a shift in that dynamic for a while.

As for product rollouts, we are collaborating with over 300 Software-as-a-Service providers in our partnership program. This allows merchants to leverage existing software with our payment solutions. We sell many of our new offerings through the app as well as during onboarding, and we have sales throughout our hubs.

Our next question comes from Yuri Fernandes from JPMorgan.

Could you elaborate on your TPV volume guidance? It was pretty strong at BRL 112 billion, 27% year-over-year, while your guidance implies a deceleration. How do you view your TPV guidance for this year? Is there a chance for a positive revision? Also, regarding capital allocation, currently, you have over BRL 11 billion in net cash. What are your thoughts about dividends or M&A in relation to this cash?

Regarding TPV, there is certainly upside risk. However, we prefer not to change our guidance yet since we only have three months of data. We continue to see strength in April and May, but we believe it's prudent to hold off on any adjustments until we accumulate more visibility, especially coming into Q2, when we can reassess. Regarding capital allocation, our focus is primarily on organic growth opportunities. We are analyzing M&A, but we haven't identified any transformative opportunities thus far. We are utilizing our cash flow to reinvest in the business to support the ongoing growth cycle. At this time, we are not discussing any dividend program, but we do have $45 million remaining from our original share buyback program.

Our next question comes from Renato Meloni from Autonomous Research.

Congrats on the results. Regarding deposit growth, what do you expect for the rest of the year? With growth rates high, do you see it remaining steady or potentially decelerating? Additionally, on selling expenses, I noticed that these were increasing as a percentage of revenues. Will this trend continue due to your expected growth?

Regarding deposits, we believe that our integrated value proposition between payments and banking has been key in driving deposits and engagement within our customer base. We are focused on maintaining this growth in deposits, although we do not have specific guidance. As for selling expenses, it’s important to consider that our marketing strategies are essential for supporting growth and acquiring new clients, which will lead to an increase in these costs.

To clarify regarding selling expenses, I mentioned that we achieved 220 basis points of leverage compared to Q1 '23. Although some increase is likely due to personnel and the sales force, our focus will be on managing these expenses effectively while supporting business growth.

Thank you, everyone, for participating in our call. We firmly believe that our business model, which merges payments and banking, continues to yield strong results from our long-term investments. We look forward to our next earnings call. Bye.

This concludes the PagSeguro Digital First Quarter 2024 Earnings Conference Call. Thank you again, and have a great evening.