CSU Digital S.A. (CSUD3) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to CSU Digital's video conference to discuss results relative to Q3 2023. This video conference is being recorded, and a replay facility can be accessed at the company's website at ri.csu.com.br. The respective slide presentation is also available for download at the same URL. All the participants can not only watch the speakers, but also follow the slides during the presentation. After that, we'll start the Q&A session when further instructions will be provided. I'd like to remind you that the contents of the presentation will be done in Portuguese with simultaneous translation into English. For those who wish to follow the audio in English, it is possible to do so by pressing the interpretation button at the bottom right-hand corner of your Zoom screen. For those that don't speak Portuguese, and want to listen this presentation in English it is possible by pressing the interpretation button present on the bottom right corner of the platform and choosing the language property. You can also mute the regional audio for a better experience. Before moving on, I'd like to reinforce the fact that forward-looking statements are based on beliefs and assumptions on the part of CSU Digital's management and also on information currently available for the company. such forward-looking statements might involve risks and uncertainties as they relate to future events and depend on circumstances that may or may not materialize. Investors, analysts and journalists should have in mind that events related to the macroeconomic environment to the industry and other factors might lead results to be considerably different from those expressed in these forward-looking statements. Here with us today, we have Mr. Pedro Alvarenga, CFO and IRO; Mr. Fabiano Droguetti, CTO; and the IR team. So I'd like now to turn the floor over to Mr. Alvarenga, who will start the presentation. Please, Mr. Alvarenga, you may proceed.

Hello. Good morning, everyone. It is a pleasure to be here once again at our earnings call conference to talk about Q3 2023 numbers. Before we move into the numbers per se, operating and financial results, I'd like to make a brief recap of our market positioning. Taking into account that for the past 3 or 4 years, the company has gone through a large transformation process headed -- products added technologies. And it's only natural that at times, some sort of gap may have emerged in terms of opening one company does. So the idea here is to update all investors about all the transformation we've been through. So CSU is a company that offers technology for financial services. We can be considered the #1. the first Infratech in the market was founded back in 1992, quite linked to the credit card world today is a complete thorough platform to meet all in any financial services. Our technology allows other companies to offer their final consumers the financial solutions, which are the most innovative in the world. We operate in a model B2B2C, a very powerful model. When those companies which do not necessarily work with financial services. routinely, they have the option of offering a wide array of solutions at a very fast pace with no need to put together internal teams or hiring other providers or making massive investments on this front, which is a very complex front, as we all know. Basically, our clients, they -- as they operate through CSU, they preserve, they maintain their brand. So that adds value to the final consumer. and they can opt to -- for a complete solution. I'll mention each of the solutions, but they may opt for having solutions that integrate payments, marketplaces, among other solutions or when needed or when more appropriate to their respective reality, they may opt for a specific individual contracting given the fact that we are a modular. We are a company that always proposes to not only offer technological infrastructure to clients, but also helping them to operate or to navigate within this universe, which, as I said, a complex universe. It entails high levels of technology, which is constantly changing, several different working rules at the Central Bank level and other instances, it is a very changing universe when you think about governance -- data governance, data protection laws, information, safety and security. So that's where we really add value. The fact that we command each and any of those services. That's what ensure ours -- that's what ensures our good indicators. And lastly, why do our clients come to us, give us their business? Because, basically, because we generate new businesses for them. We create new avenues of revenues, not only allowing more revenue, but also create a good relationship dynamics, more loyalty and offer opportunities for cross-selling and upselling. So we've been in the market for 31 years, as I said, over 40 B2B clients, over 36 million units in accounts and cards that we manage within our platforms. We also -- we have traded over 1 billion transactions, which adds up to more than BRL 309 billion under management through our systems. As I mentioned, the company has gone through a large transformational process for the past 3 to 4 years, and it places us in a unique position in the market. We are the company that actually has the ability to perform across all phases. When you think about the financial service and financial operation, which the companies or clients wish to offer to their consumers. Just to recap, today, we are split in 2 business units. The first one on the left-hand side of the slide, CSU PaCE which accounts for our technological infrastructure for financial services. And on the other side, CSU DX, where we basically ensure to correct the proper working of all the operations when we think about the structures that are part of the routine for financial transactions. So we started back in 1992, in the first box on the left means of payment, cards, basically, then we added loyalty and incentives to make it possible for customers to engage more, become more loyal and so on. Then we started working with customer experience to offer service for those financial operations. So it's only natural that when you use cards, you need to constantly have a relationship linking the company to the final user and vice versa. So that's where we come in, complementing the offer using this full service concept from the start. But today, we're starting a new phase. As I said, in the second quarter of the year, we completed the development when we talk about our system for financial services. So today, we are a company that does not operate only with cards, but everything pix, cryptocurrency all means of payment. And we also expanded our offer of financial services using apps that may be developed by us, CSU, or they might be embedded in the solutions coming from our clients. That loyalty once again gains increasingly more relevance in our ecosystem. When we have purchase system payments being increasingly [ indiscernible ] financial services, retail and other industries where we have operations. For DX the main novelty is that the whole customer experience side has a new face, if you will, intensive use of technology, AI, self-service apps, RPAs, all of that combined is now part of our operation from now on. So this is a very technological operation. But I'd like to highlight today, 1 product that has just been launched in the third quarter, which is our process automation, what you call HAS for front office, middle office, back office to ensure full automation, including fraud prevention, onboarding to [ readership ] using AI extensively. And that closes our operational cycle. So today, the company has a very an -- important need for technology to offer financial services and we also need technology to manage our everyday operations. And of course, to gain scale, gain traction, gain volume in a very efficient manner. And that's exactly where we come in. closing that operating cycle to our clients. And this is a summary of what I just said and overall view of our operations, our service model. processing of payments, which may happen through a white label wallet developed by CSU or using a traditional market wallet from Apple, Google or Samsung transactions, which are not necessarily happening through conventional currencies. Today, we mentioned cryptocurrency, all of that is integrated through a unique, a single platform. Bank as a Service complements this offer loyalty and incentives to make sure clients always act within the ecosystem, not only operating outside the system. When we talk about the experience, the digital experience in financial services, we're also talking about what is not visible to clients. So when we think about the back office structures, we basically ensure the whole automation and we create a true digital experience as no other company in the market is able to offer. I'll now turn the floor over to Droguetti. I think today, as I mentioned, this is a very special day for the company. because of the launch of those system hubs. The whole financial part was completed in the second quarter. The DX part has been completed now in Q3 and now I'd like to hear from the person who headed that process at CSU. Droguetti over to you.

Thank you, Pedro. Good morning, everyone. It's a pleasure to be here to share that with you and be able to briefly explain how we have built this architecture. So first off, before I move to the architecture front, I'd like to talk about the assumptions that we assumed. Those assumptions are providing support to some of the products and supporting our international growth, which is something you're going to be touching upon in a moment. Clients no longer want long-term complex processes. The market is very dynamic. So we need it to evolve towards tech platforms that would support those new demands. So scalability and stability are 2 fundamental components of the system because the cards business is dynamic. Banking as a Service is also online, very dynamic, 24/7. So those 2 components were key to the whole system. As we're dealing with money and whenever we deal with money, we have a constant concern with security. So of course, security is a key factor, and we use all the tools, processes and security frameworks that are available in the market for our business. I highlight PCI, as you can see on the screen, which defines rules of conduct for security around means of payment. That's an important highlight 40 years that we have renewed our certifications under PCI and it's important also to think about our clients. The issuing body of the car or a retailer that wants to offer financial services, they also seek on time. So, platforms were designed and around providing autonomy for those partners. And lastly, for that market dynamic to be accommodated in our platform, we can use not only maintenance windows or implementation windows, but we want to have a continuous development. So at any moment, whenever there is a new demand and adjustment, a new product, clients may do it in a very expedited seamless manner. So those are the assumptions that have guided our work. Next, please. Speaking a bit about the platform now. This is just a broad view about the main deliverables. On the left-hand side, you can see the market. Financial Services as a whole payments, methods, crypto, Pix and the different channels, data, voice, APIs, data from files. And then on the right-hand side, a rich relationship with the market, the clients or businesses that hire us or the final clients. On the mid part of the slide, we can see the components that were put together to provide those services and support the portfolio mentioned by Pedro just now. We have a platform that orchestrates and commands data exchange from our platforms with the market. which we call the orchestrator, it controls it. It includes or embeds safety layer so that data is received by those who need to receive that data at the right speed, and then we have mainframe platforms to support all businesses. Mainframe, where it's needed, cloud where it adds value to provide support to the different platforms and different products that are listed on the screen. As I said, security is a fundamental component. So we have included a fraud prevention platform and financial risk mitigation platform, a very sophisticated system based on AI, which allows us to manage -- monitor and manage all transactions. And when there is a risk indicator popping up that is addressed via a specific process. and I'll be going into detail in a moment. And then we have a data provider in the bottom part of the slide. So all those platforms they deal with that information, clients, customers and all of that generates a very high volume of data. That data volume is -- that data lake already provides several deliverables. We have mentioned some, but I can automate events. I'll trigger a communication to the client. whenever they made a transaction, that's the simpler version of the system. When you use your cards or even more sophisticated events when I have an analytics of that base, to provide insight business ideas. An example I'd like to mention that we did not long ago, we realized that certain clients we had -- they had a non-authorization index and a good portion of that was coming from a lack of limits in their cards. So when analyzed at a deeper level. Most of those nonapprovals were coming from the fact that there was a lack of $10. So we could go deeper and allow for more transactions within the ecosystem. This is the type of situation that by using analytics, we can improve the relationship with that card holder, for example. And then, of course, monitoring business KPIs , our business is very sensitive to response time. So all transactions which are managed here are monitored so that we provide availability and a very short response time so that we can contemplate all the SLAs that we have with clients and partners. The Central Bank has defined for Pix, a series of important SLAs that needs to be met and so on. All that complexity does not need to be understood per se by our clients. So we have also developed a software platform, a switcher, CSU switcher so that clients can see only what they need in terms of data, interaction and so on, iteration and so on, reports and even transactional data. They do not need to understand all that complexity of several platforms being interconnected and so on for cloud mainframes, none of that. So the switcher was created to make clients' lives easier, simpler. So the final clients oftentimes uses an app for their customers. They have their CRM -- their own CRM and our platform is working behind to provide the necessary information so things work as seamless as possible. We don't want to offer several different complex alternative avenues to reach information. No, we want to make it simpler and that was made possible by the CSU switcher. So technology here is working in favor of simplicity and in favor of more businesses. We don't want to bother clients with complexity. I think we can move forward with next slide. Our automation solution, our hyperautomation solution, the HAS, we realized that we needed to automate more processes, we needed to make them more efficient, with better quality. and as we try to find that solution in the market, we realized there was an important the lack of something more complete, more thorough. So we developed a strategy to bring the best solutions across all components, be it input, execution output, flow visibility solutions, data visibility solutions. So the output was also addressed and we integrated all of that to generate a flexible solution that would not only work internally for us, but also that would work to help our clients automate their own processes. So realize the value that, that had inside -- internally, in-house. And looking at the market, right, Pedro, we realized it made no sense -- realized there was demand for that. We approach clients offering other products, other points of view and then when clients realized we had HAS, the HAS, they asked us to explain to them how the HAS system worked. So as we improved our quality processes, and we improved considerably, we ended up offering a new solution to support our clients. So all the way from the most basic solutions, information input, RPAs, to read legacy systems, to more complex modules with the decision engine where I have business rules,quite well defined then fired machine learning also embedded to optimize the process, all of that online process several processes are voice-based. So I have a voice input. We work with speech analytics to transform voice and data into text. So it's a complete system. I'm just mentioning some of the most relevant components. And as for the output, we need to manage that online, of course. We need to bring that forwards. And then dashboards are very important. All of that organized and controlled by an integrated workflow. This workflow allows us to monitor the process from end to end. Processes that will feed into other processes. so the whole control is done from that workflow platform. And we need to optimize the information flow with our virtual consultant. Our virtual consultant is based on AI. It reads all the interactions within the platform, it observes response times, the number of times that the interaction happens between the different or across the different areas, across the different internal solutions offered by HAS and it proposes improvements. So our consultant is always on duty to help clients optimize their processes and of course, address bottlenecks and improve the experience of the final customer, as we have seen happen. An example of processes that we can already do in addition to internal processes, onboarding of a digital account that's a process that entails a series of steps, fraud prevention, expense, challenges. All of those processes are already being addressed by HAS, but it's an open platform to the extent that it can add new demands. So the telecom market, for example, is already being approached by us, the educational market already offering some demand, so it's going to be an open platform. We are discussing some contracts in retail. So different industries, finding this solution very attractive.

Droguetti, sorry to interrupt. Just to complement, I think that's a very important topic. It's important for our investors to understand this. It's very common for us to link digital operations to what we see, what we do directly. So oftentimes, you hire financial service or as you said, an education company or a telecom company, you're going to buy a plan, a cell phone plan. And oftentimes, when you do that through a digital channel through an app, your perception is that -- that transaction happens digitally, but in practice, it's not really like that, right? Companies still have several systems, multiple legacy systems what, of course, generates a high level of complexity when you try to execute any transaction, not only financial transactions. That's a key point when we look at this type of solution. When you think -- if you have never experienced the situation of calling call center to challenge an expense in your credit card statements and it will take you 20 minutes, 30 minutes to actually complete that call. And you have to repeat your ID number several times and you have to wait. It's a long period where the operator is typing numbers. And at the end of that period, you are not satisfied. You have not been in service and the operator tells you, well, I'll give you up to 72 hours or 5 working days to solve your problem. Why is that? Because that's when a very intense journey begins, off-line. Companies will start working offline on top of that specific issue, a specific demand coming from that user. That's where HAS, HAS comes in to facilitate that flow because it integrates multiple systems. And it brings about possibilities of working with several inputs using high technology, machine learning, AI to enrich that transaction so that transactions will be addressed in a much more agile way. and then the output will be in the form of an adequate management of that issue. That's a very important topic for CSU. It emerged as a complementary offering to all other financial services, especially when we first conceived bank as a service. we knew that when we think about credit, insurance and fraud analysis. If you navigate in the financial world, you know that this will add complexity to those hiring the services. So we were committed to change the game to really offer a digital operation for companies, not only from the door out but from the door in, so that our clients can achieve best possible results that they are satisfied that they have a positive perception that we can stand out among companies that offer financial services. This is a very important step -- and as Droguetti mentioned and mentioned well, for us, this was a complementary offering. for services. Today, it is becoming an entry point to our clients when they see and they realize the ability that this offers to combine all those components under 1 single platform. You can go to IBM and hire an AI tool but to learn how to operate it and to combine all those items under a single environment, a single ecosystem, which is truly integrated to other platforms. that's a steep journey. So again, CSUs once again pioneering that. You do not see other companies offering that type of design. So this is a very important, very promising avenue for CSU DX for the coming periods. I think we have a video footage to show, right? Just before the video that's something important that you mentioned, which is time. Every automation process will unfold and affect systems. And this would be addressed by 2 ways. I could develop a specific system to automate that process. I can take something done by a human, embed that into a software, develop and I'll have an automated result. That's 1 avenue. What we are proposing here is a much faster avenue ready-made to the extent that in 2 to 3 months, we'll be launching an automation innovation or solution without having to transform everything the client already has, without having to redesign their systems architecture. So this what -- this is digital transformation truly applied in a very straightforward way. And this brings or adds a new benefit to our clients. So long -- let's just see the video now, if you will, please. We are highlighting 1 of the that -- processes we have in production, the chargeback process. The chargeback is an expense you see in your bank statement. It did not recognize it. then you call your bank to compare it to challenge and say, "I did not make that expense. If it is not you it's because it's coming from fraud. So several steps unfold from then on. What we have on the left-hand side legacy systems, of course, is spread out, right? But we have the operator analyzing the chargeback issue, he is typing everything and manually typing data, manually typing numbers. On the left-hand side, he is tagging between screens. But on the right-hand side, you see the whole task, the same task automated, some manual input, but much more automated. So -- and we're talking about a real process here, right? That's why the screens are out of focus. So we cannot see specific data from specific real clients. So we -- it took us 3 minutes on the left-hand side on the non totally automated system. With HAS -- we do -- we can do 2.5 tasks, and the benefit is not only in efficiency, which is clear here in the video, the efficiency is crystal clear. But also in terms of quality, when I do not have to manually input, I mitigate the possibility of errors, of mistakes and at the same time we improve client experience, customer experience. This is real data. So response time dropped significantly. And the amount or the number of screens, without HAS 24 screens, operators need to go through 24 phases, 24 different screens, now we're only talking about 6 screens under a single front end. This is just a quick example of how impactful this can be the changes between those 24 screens, we are talking about 26 changes at the end of the day. In HAS, they are not commanding that, it is an automatic sequence. As the process evolves, the screen changes automatically. So just a couple of examples. which are very practical in nature. As we process that today, we're doing about 230,000 times a month. We do this 230,000 times every month. So the benefit is clear, is evident. That's what I had.

Just 1 final point. The 24 screens you mentioned they are, of course, being seen by a robot, which is working behind curtains, if you will, right, in the background. It's still happening, but nobody needs to see that. The system does it by itself. This is an example of a process in which you still have some demand. to have manual interaction, but there are processes that are done fully automatically. So this is a very relevant change in terms of product and the implementation phase, Pedro, was done as fast as possible and with very low effort. Of course, there are optimizations to take place going forward. And this, of course, is a journey. We start offering a benefit very fast. And from then on, of course, you have potential optimization, fine-tuning the tool, we offer insights as we use it more and more and help us turn the process even more intelligent. That's it.

Going back to this presentation, this slide is a good summary of where the company is heading for in the next month. All this architecture, all this technology opens up important growth avenues for the company either on the PaCE side, payment means and also on DX, AI for the business processes and not limited to the middle office front, but we're also talking about front office as well, totally adhering to those technologies. So that's where we started. We started automating our own house, and now this has become a product which very promising potential and all this journey was not limited to the Brazilian market when we designed this ecosystem, when we were planning for the next years of the company, we were already thinking about going global, and we are now taking the first step. We have opened an office in the U.S. recently. We now have our product team. We brought in commercial executives on board, so we are step-by-step expanding and we'll update you on that as we move forward. This is just a seed we have sowed that we hope to gradually see this evolve and complement our operations not only in Brazil, but in other geographies as well. On the next slide, an important aspect for CSU. We have quarter-on-quarter being presenting quite important advances across all operating metrics. As a consequence, also in the company's financial metrics, especially when we talk about profitability. We are a company that when we talk about our main business, which is CSU PaCE, right there on the screen, our company has been expanding considerably its operations across all operating metrics, as I said. So in terms of units, cards that we manage every day. We are a company that grows very fast, double-digit growth and have been doing so for more than 4 years now. The same happens when you talk about process, transactions in this very short period from 2019 through 2023, we more than doubled our transaction model, our number and over 22% of growth year-on-year when you talk about the monetary value, which is behind all those transactions, [indiscernible]. What I think is also important to mention is that CSU PaCE is a business unit, which is growing recurrently, double digits. We're talking about something close to 20% and sometimes even above 20%, depending on the metric you are measuring. When we look from the same standpoint, if you look at revenue, it is an operation that has been expanding revenues at a strong pace. Today, we're going through a moment when there is high demand for financial services. We have new users in the system and an increasingly higher penetration of new products which are supported by different channels, virtual cards, digital cards, Pix. Bringing on new players for the industry and also new users. So our revenues reflect that. We are growing considerably. We have an increase of something close to 60% in revenues year-to-date. In this last year, when you compare 9 months 2023 with 2022, we're talking about an increase of over 7%, which is quite interesting for the period. In this quarter, growth was slightly lower, 2%, but it's important to point out the following. This was a year that for this business unit, we had a very important agenda. This was a year to renew our contract. for a longer period. We're talking about 3 to 5 years of duration of more than 4 years. On average, when we talk about the main contracts that we have in place today or partnerships rather. So this is a very important indicator for the market. It's always important to remember that the company is a Platform as a Service model. A client hires us to manage this high volume of accounts, cards and transactions. It's like a rent or a lease, which brings a lot of resilience and recurrence to our numbers and our revenues. So when we say that over 90% of our revenues has been renewed for the coming years, that's very reassuring for all of us. We know that we can go on investing in this new expansion cycle, which is starting with the new solutions knowing that we have already a solid base, renewal equals confidence, right? Also important to mention is that when we think in terms of profitability, digitalization that our units went through CSU PaCE and CSU DX, we all went through digitalization. We're always going to be dealing with trade-off, price on the one hand. So when you look at the number going 20% and then revenue growing 10%, 12%, that has to do with price. A digital product is usually cheaper than an analogic product. At the same time, profitability gains are very important. And that's why you see this steep scale-up of the company's profitability. We had an expansion of over 8% when you talk about year-to-date for 2023, showing that the company is capturing growth and also growing its top line with a very important effect of leveraging its results. improving, of course, as a consequence of returns. So it's a company working around 51%, 52%, 53% of gross margin for that business unit, CSU PaCE. When you talk about the CSU DX, the main focus here has been to expand or grow numbers. When you talk about digitalization, the transition between a plastic card to a digital card, it does impact price. But when we think about DX, that effect is even more important before we would rent service positions. We were renting capacity at the end of the day end today. Clients are using an API, which, of course, is much more efficient for the clients, much cheaper. And of course, leads to dynamics, which are similar to those we see in CSU PaCE. You are sacrificing price, but you have much higher profitability. Just as it happened with CSU PaCE, we had a very important operating evolution. The number of transactions is increasingly higher, 3.7 million interactions only in this last quarter, out of which 70% or over 70% are happening through purely digital channels. RPA AI, self-service channels and others. So as I said, it is an operation which is now going in a phase of transformation, digital transformation, to be sure. So no major evolutions in terms of revenues, revenues moving from breakeven to slightly negative. The exception was this last quarter where we see a resumption economic pickup, interest rates and so on. So when we compare with the previous quarter, this unit is growing at about 4% in revenue. A slight recovery. But still, it is an operation that will continue to go through this transformation. 70% today is digital, we still have some 30% to cover. At the same time, profitability is completely changed. The gains are significant under that unit. So when we look from the same lenses of historical evolution. This unit's gross profit, this is a unit that even with a revenue pressure, this unit has managed to preserve nominal amounts from the point of view of gross margins or gross profits and margins have become increasingly more relevant for our total results. So margins of 15.6% this quarter. And lastly, about this unit. With the launch of HAS, H-A-S, as I just mentioned extensively. This unit now gains a totally new growth driver which tends to change that speed, that pace of expansion of the business unit with one caveat. HAS margins are even higher than what we have already achieved when we talk about front office. So this is a unit which will go through a major shift in terms of operating and financial advancement. As I mentioned, it's also important for investors to look at our financial evolution as a whole in consolidated numbers, so digital revenue is playing an important role. For PaCE, they are growing twice as much as we see the average of the unit. When we talk about DX, this is even more relevant. Whenever you navigate in a universe of digital transactions, we have a challenge in terms of price, and we are quite close of bringing that down to 0. the impact. So this unit has been growing consistently year-on-year. We closed the year close to BRL 395 million in revenue. and year-to-date, 9 months and when I talk about the third quarter, we're talking about BRL 132 million. Those revenues suffered early on in the year in DX because of macro effects, because of all that transition, the digitalization last year, we had a little over 60% of operations to scale digital and 40% Analogic. Today, we are above 70%, and that's why you see that effect translating in the top line. But when we look at the second half of the year, that trend is clearly clear in terms of going back to expand 2% higher than this -- than the second quarter of this year. For CSU PaCE it is the main catalyst of the company's expansion, CSU PaCE is a unit that has repeatedly expanded its metrics, operational and financial and thus has become increasingly more relevant for our final results, revenues, profits and so on. Now speaking a bit about our indicators -- profitability indicators that our company has repeatedly expanded its profitability indicators. So when we talk about gross profit, that number is reaching BRL 155 million in 9 months year-to-date, an expansion of 5% when compared to last year. So you're talking about a margin which is getting close to 39%, 40%, look at the margins that we have reached in the third quarter, 40.5% on the right-hand side of the slide. So this digitalization process, this automation process, the systems integration, portfolio integration. all of that combined allows us to have this expressive growth in results. And when we move to the other lines the effect is even stronger. We are a company that provides services and we have a structure which is quite fixed. So whenever I grow our gross profit, the operating leverage effect is multiplied when you talk about EBITDA and net profit. So that's an indicator that has been growing 16% a year for the past few years, closing at BRL 133 million in year-to-date 9 months with a margin of 33.7% -- 33.7%, 34%. When we look specifically at the quarter, we have reached our historical record for that indicator. We're talking about BRL 46.5 million, 10% higher than last year. and a margin of 35%, also a historical level for the company. In terms of net profit, as I said, the effect of the operating leverage is materializing even stronger. The indicator grew at a weighted average number of 39% a year. In the 9 months of 2023, we're talking about a growth of about 25%. And when we look specifically at the quarter, that indicator has expanded even further. We are talking about an expansion of 28.4%, reaching to BRL 23.7 million, a record indicator for the company. closing to a net margin of 18%. CSU is a company that has no mismatch between the results and cash. What we perform is what we advance in terms of cash generation and cash evolution. So if our EBITDA grew twofold, the same happens in terms of cash evolution. And that's an indicator that is increasingly more thriving within our main lines, main financial metrics. And year-to-date 2023, we have generated BRL 119 million in operating free cash. Just to give you a reference, when we compare to the full year of 2022, we're talking about 9 months here, against 12 months of last year. In these 9 months, we have already generated 91% of cash in terms of what we did last year, just to show you how this indicator is moving forward at a fast pace given the company's capacity to generate value. So a long period of investment to expand our portfolio, strengthen our infrastructure and be present at the forefront of innovation within our industry. So on the next slide, I will go into detail about our investments. We're growing investments year-on-year, especially across those fronts, it is a company that has been paying increasingly more dividends to its shareholders. So we are able to maintain that combination of generating more results, which allows us to generate more investments and pay out more dividends. That's the company has been settling it's debt our financial leverage today is negative. We are positive -- we are cash positive, as you can see on the right-hand side. We are accumulating cash quarter-on-quarter. Now going into more details for the investments. We have been growing our investments for year-to-date, we expanded focused on technology, of course. In the third quarter, 97% of our investments were allocated on intangible assets to develop new system hubs. And when we talk about dividend payout have reached 50% of payout in 2022. We have been maintaining this routine of paying out 50%, we did it in 2023. So this year, we have already stated BRL 19.5 million in dividend payout, it's a major difference, which is important to pay attention this until 2022, we declared on a quarterly basis, but we only paid in the next -- the following year. This year, we changed this practice so we are now declaring and paying on a quarterly basis. Also something that catches our attention and that's important to tell, a bit of the company's historical evolution, how we have drawn the new business plan, the new growth avenues. At the same time, we have been repositioning our brand along with the capital markets to tell a different narrative. That's why this meeting today is so important. so that everybody has a clear understanding of how the company has been evolving. So I'd like to call your attention that from the capital markets standpoint, we need to be quite present, quite close to investors. and be very clear about these dynamics of our business. When we analyze the profitability of our business vis-a-vis the multiples with which the company has been traded, we see a strong asymmetry the companies, by far, our we have the best return indicators in the industry. And here, we made a point of shedding some light to different industries, not only in Brazil but also abroad. So we're talking about an ROE close to 22% and ROIC of 21%. Important indicators for multiple industries and with a dividend yield way above the market average. So 3x, 4x above what the market performs. But when we look at the share performance, we are still at the other end of the spectrum. So we are working to bring more visibility, more evidence of how the company is increasingly more robust, more solid and with accumulated growth. Here just to close. We have 6 topics which I think are the main topics. The results that you can see today is coming from a large digitalization process, which brings about synergy for the portfolio. But from here on, we will start a new cycle in terms of expansion of the company. Massive contracts renewal. That's a key point of the agenda because it assures us tranquility to move forward, but we already have new solutions now every day from the soft launch payments in the second quarter, the recent launch of the HAS tool in the third quarter and it's also important to say that, as I mentioned before, the company's capital structure is quite strong, which allows us to continue to invest and to position ahead of the market and maybe consolidate the industry, be it organically or not organically. The company. represents an asset that brings a lot of return to its shareholders. The total return of shares this year has reached something close to 100% and when I talk about dividend payout, you're talking about over BRL 19 million paid out. And lastly, if you want to follow the company's shares closer, please do so, try to understand how we have evolved operationally and financially. Do the math, if you will, in terms of pricing the company. That's what I had today. I'd like to turn the floor back over to the operator for the Q&A.

We'll now start the Q&A session for investors and analysts. [Operator Instructions] Our first question comes from Mr. Bernardo Guttmann from XP.

I'll try to read the question here on my end. I think we lost the connection with the operator. if you could read the question, please.

The question is if we could talk about how the HAS operation is evolving. If we have contracts signed for HAS and how do we expect this product to evolve? And what kind of margins can we expect coming from this new product, HAS, the HAS, solution.

As for the HAS solution and its evolution, I'd say this operation was born inside CSU. We have used that rationale inside in our everyday operations, both for PaCE and DX and that brought about important profitability. So that gives you an idea of how powerful that product is we have put that to market very recently. We have seen a very good level of receptivity, the market is welcoming this product. Many of the pains those clients are suffering can be addressed by HAS. So this will affect the routine to manage, for example, insurance claims, telecom bills and other processes with which you have been interacting. So the receptivity has been very positive. We have open negotiations with current clients and prospects as well, clients which are not part of our portfolio today, but which are interested in this new solution. So we're quite confident that HAS will bring about important possibilities for the company to grow. I'd say it tends to grow fast. That's what I believe. I'm talking about a transition from an existing operation, a back office universe. So it's not starting from scratch. So what we're doing is bringing that volume into the platform. So that provides important revenue triggers. And from the profitability point of view, we believe we can simply double the numbers in the front office components.

It is complement. We have 2 contracts being discussed right now. very advanced in terms of defining provisions and so on. So for the short term, we'll have the first operations happening outside of CSU around HAS.

Okay. I'm going to read the next question.

Next question, the operator will read it for us.

Our next question comes from Mr. Andre. As you mentioned throughout the presentation, the platform is ready to go global. Can you tell us more about this agenda when can we see the first revenues coming from that operation? I'd like you to update us about also the M&A agenda. given the very favorable capital structure that you have. Can that boost new growth lines in the company, M&As?

Okay. Speaking about going global. As I said, it's very first steps yet. We started planning this back in the day. So from the operating point of view, this is very recent. we opened a new office up abroad in the U.S. We're putting together a team. So it's only first steps. We're doing that now. So when we thought about going global, we thought about the scenario where clients, were already looking to go global. And for that, they'd like to count on a single provider. So that's what triggered us about this opportunity. With time we have seen that many of the Brazilian companies that are in the U.S., for example, which is where we have our new office, those companies are now starting to face execution problems that they've already had in Brazil. if you monitor what's happening in the American economy, the U.S. is a country where we have high interest rates, high inflation. So several problems that we have in Brazil. So the solutions that are offered to the U.S. are not as sophisticated as the ones we have in the Brazilian market. So for us, it has become an even better opportunity to service not only Brazilian companies going global but also those who are already there and are suffering with those issues, those problems, with which we are used to, CSU has all the capabilities to service that. So we start to see many opportunities in those segments. But as I said, this is only first steps. As for M&A, I'd say that a company such as CSU that generates a lot of cash and transaction volume, it will naturally play the role of a consolidated company. It's -- the market is quite difficult for some companies. Companies that have cash difficulties or companies finding difficulties in raising capital, and this will generate possibilities for us. And we are keeping a close eye on those opportunities. It's important to check the time to market, of course, but M&A is always a topic I like to say it's not binary, right? Not yes or no. It's difficult to say and to say when. But what I can tell you for sure is that we are keeping a close eye on potential opportunities.

Our next question comes from Carlos [indiscernible].

My question is about contract renewals, where does that stand? What about the 10% remaining? Do those renovations come along with an extension of term and price reduction, what's the impact on revenue? And the second question at the CSU DX you highlighted that the automated mechanisms and self-service mechanisms have already exceeded 70% of the total number. What automation level is feasible to attain? And what would be the impact on costs and margins? I'll answer the first one, and you'll answer the second one, okay, Droguetti?

Speaking of contract renewals, we have prioritized renewal with clients which are more important to our revenue streams. And we have concluded that phase very successfully, I'd say, 90% of the renewal revenue, that's an important level for us, not only because of the number, but because of the importance of those clients. The share they represent in our total revenue. So very successful, as I said, of course, we'll continue to evolve with those negotiations to renew contracts. But those remaining 10%, you mentioned, those are contracts which already had a longer term to mature. So the company has a average duration of 4.5 years, which is quite reassuring for us. When you talk from the point of view of prices, I think prices were not the only factor for these negotiations. There were other factors, some clients asked for discounts of the clients. did not ask for discounts, but asked us to service a higher volume for the same price, other clients did not ask for discounts at their revenue record. But as they believe they will continue to expand their volume. They asked us to create new revenue brackets. So it's a bit of everything actually. So, as we brought to the negotiation table. Talks, conversations in a very constructive manner, ahead of time before maturation date and we offer new services, new products. I'd say that successful negotiations were the results. So we grew our revenue under this unit, more than 7% and this year, even providing some discounts. But the gap is not difficult to measure. If you think that at the end of the day, we are growing something close to 20%. operationally speaking, part of that comes from digitalization and the other portion comes from discounts. In any event, it is a unit that has expanded significantly year-to-date when we talk about top line and even more significantly when we talk about operating indicators.

As for automation, Carlos. If we look at the -- looking at the long term, we won't have human beings interacting with clients. We can expect that to happen except for very, very specific durations, we should not have human beings doing that. So when you look at this percentage that number we get is something close to 95% [ I'd say ]. But when you look at 2024, we shouldn't go that far. [ 70 some ], not that much because much of what has been done is close to the limit in terms of technology limitations. Of course, with the advent of generative AI, chat GPT and so on all of that buzz, that brings about novelties. And of course, we are already studying potential uses of that in our operations. But I do not believe that in the short run, this will be ready to be consumed, ready to be used and affect our operations. It will take some time for us to see that happen. More technology to go way beyond 70%. We still lack some technology to do that.

Next comes from Marco [ iniscernible ] with MSX.

Congratulations on your numbers. Congratulations for the positive outlook, the company is offering. I see an important growth avenue going forward. I'd like to understand a bit more of the dynamics of those 2 business units. We saw a change in the share of contribution to revenues. DX moving from 39% to 36% while PaCE continues to grow. So the question is, will DX resume growth and grow faster now with this new contribution from the new solution HAS?. And where do you expect those numbers that share to go to? And what kind of pace do you expect that to happen? Comparing them, DX and PaCE in terms of growth.

Thank you. for your question. I think we're going to be seeing different cycles because of the launches of new products. CSU PaCE, if you look at our historical series, our track record, it's like a Swiss clock. You have after signing contract, you have a defining period for projects and you have set up. And then the client sets up on their end, they have [indiscernible] early on. They take their time, they test the waters, see if the product is working well. They collect feedback from the final user. They go back to the bench, correct, fine tunes, so it's a long sales cycle. And of course, we have this close to linear behavior in terms of growth rate. So it grows constantly 20% a year. Because of that specific dynamic that I described -- when you talk about HAS, this new solution, as I mentioned before, we originally thought it would behave just like this. the rationale was we're going to launch Bank as a Service, Bank as a Service as a similar behavior to that of cards. And when I start having available financial products and the client starts to demand off-line facilities mid-office and so on. this will follow through in the footsteps of that base. What we see is a slightly different movement is -- a slightly different from that original assumption, which was surprising to us as well. When we introduce the products to our clients, they identified in HAS a chance to solve an existing problem, not a future issue. And then as it was an existing problem. it is already bringing volume now. So what might end up happening is that at every new contract with those clients, I may have a spike in growth in the short term because of HAS. And because of the different dynamics, I'd say that in the very short run, DX tends to have a slightly higher share in the company's revenues. It will have more share in the company's profitability than it has today because margins are much better for this product. But when we think about the long term, I think PaCE as it is a higher addressable market. We're talking about PaCE, we continue to be or to contribute with the highest share, both for revenues and for profits. So we'll see a fluctuation. I see we saw PaCE speeding up and in the short run, we'll see DX accelerating, but in the mid to the long run, PaCE -- CSU PaCE will resume its higher share way ahead of DX. That's what we imagine we have [ through ] our time. Of course, predicting the future is always complicated, as you know. But that's what all evidence points to right now and business models point to. Have I addressed your question, Mark?

Yes. Yes.

Our next question comes from [indiscernible], he says 2 years ago, the BaaS platform was launched it was called also Blue Sea. Since then, not much has been said about it. Can you comment on that? Are there specific clients for those services, the Blue Sea? How relevant is it for revenues. And what are your expectations in terms of value and CSU is providing anti-fraud services irrespective of other services or only in bundles.

Each one of those boxes that I showed in our market architecture those are services that can be offered independently. So clients may choose how to acquire them. They may buy 1 service or the bundle the package. And that's made possible because of that platform that orchestrates as I mentioned, orchestrate that interaction. I can have information just for fraud prevention or for card management or just for loyalty management and so on. So we can work around the portfolio isolatedly or combined in a bundle, depending on customers' demands and needs.

Just to complement Droguetti's comment. Two years ago, we announced the development of this platform. And I'd say that the slides made it even clearer how complex it was to put together that cycle to launch off-the-shelf solution and made and developed for the market, that would be very simple, actually, to do. Today, you have several off-the-shelf solutions. That was not our purpose, our idea. We wanted to create a new tool that would bring robustness to clients as they had with payments. And at the same time, it would assure them a lot of flexibility, which is a key point so that they could choose the best solution for their reality. So creating a solid, safe solution to them and also adhering to the new rules and at the same time, very flexible for clients. That was fundamental that was key, but more than that not only for clients but also for CSU, let's say living organism. So to make sure technology and make sure that the modules are integrated and efficient to replace one for the other, that was also an important assumption for us as we designed the solution. That's why it is a long investment cycle. So we're offering digital bank to your client, and that's a complex process. And that's why we work in this type of evolution journey. And also the financial concept comes in for CSU, it is a priority to manage cash efficiently. That's key for any company, If you look at the company's historical records, you'll see 2 or 3 years in [ 30 ] where the company had some kind of loss or something close to that. are decreasing results. So for us, that's also very important. We do not believe in growing at any cost. because then you sacrifice -- you burn cash and then when you face difficulties and the market is more difficult as we see right now, you won't have where to go for resources. We believe in a self-sustainable model. We could have made a CapEx in a single year, we could have, but this would sacrifice much of our earnings. So we are quite disciplined in that, and if it has to take 2 years, it will take 2 years. That's not a problem. That's the rationale. The other question was? Yes, that was it. That was it. Yes, that was it. Back to the operator.

The Q&A session is now over. I'd like to turn the floor back over to Mr. Alvarenga for his final remarks.

I'd like to thank you all for participating in our earnings call. Thank you for your question and your comments. It's a very nice conversation. It was a pleasure to be able to go deeper in some of the new things we are now presenting and delivering. And of course, a very special quarter for us because of all the records that we broke on the operational front, on the financial front, thank you all. Have a nice day, everyone. And of course, we remain available, our IR team for any other comment or question you may still have in the coming days. Thank you. Have a nice day, everyone.

Thank you all. Have a nice day.

CSU Digital's video conference is now over. Thank you for participating, and have a nice day, everyone. [Statements in English on this transcript were spoken by an interpreter present on the live call.]