PagSeguro Digital Ltd. (PAGS) Earnings Call Transcript & Summary

Hello, everyone, and thank you for waiting. Welcome to PagSeguro PagBank's First Quarter 2021 Results Conference Call. This event is being recorded [Operator Instructions] After PagSeguro PagBank's remarks, there will be a question-and-answer session. [Operator Instructions] This event is also being broadcast live via webcast and may be accessed through PagSeguro PagBank's website at investors.pagseguro.com, where the presentation is also available. Participants may view these 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 PagSeguro PagBank's website. Before proceeding, let me mention that any forward statements included in the presentation or mentioned on this conference call are based on currently available information and PagSeguro PagBank's current assumptions, expectations and projections about future events. While PagSeguro PagBank believes that their assumptions, expectations and projections are reasonable in view of currently available information, you are cautioned not to place undue reliance on those forward-looking statements. Actual results may differ materially from those included in PagSeguro PagBank's presentation or discussed on this conference call for a variety of reasons, including those described in the forward-looking statements and risk factors sections of PagSeguro PagBank's registration statements on Form 20F and other filings with the Securities and Exchange Commission, which are available on PagSeguro PagBank'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 those non-GAAP financial measures to the most directly comparable GAAP measures are presented in the last page of this webcast presentation. Now I will turn the conference over to Mr. Ricardo Dutra, CEO. Mr. Dutra, you may begin your presentation.

Good evening from São Paulo, everyone, and thanks for joining our first quarter results conference call. Tonight, I have here with me Artur Schunck, our Chief Financial Officer; and Éric Oliveira, our Head of Investor Relations. First of all, we hope you and your families are well and safe. Before we move on, just a quick update about the outbreak of COVID-19 in Brazil. It seems the worst is over. However, the economic recovery may take a while due to the speed of vaccination rollout in Brazil. Although we are enthusiastic about the availability of effective vaccines, the rate at which vaccinations are taking place in Brazil is still low when compared to other countries like the U.S. Consequently, merchants and consumers have changed their behaviors to keep working in this scenario with more digitalization, less cash and the adoption of alternative payment methods. Meanwhile, our dedicated employees have been doing an extraordinary job to keep serving our clients with excellence. Thank you very much, PagSeguro PagBank's team. Despite the pandemic, the resilience of our business model and our focused execution allowed us to achieve great results and records in several KPIs in this quarter. I'm pleased to report that PagSeguro achieved a record consolidated TPV, growing 102% year-over-year and kept adding 300,000 merchants to more than 1 million PagBank users per quarter, while total revenues were above BRL 2 billion in the quarter. In fact, we are the company with the highest growth in terms of volumes, net adds and have been increasing our acquiring market share in the past quarters, reaching approximately 9% in Q1 '21 versus 5.9% in Q1 '19. Our last quarter's performance, we have reinforced our belief that both businesses, acquiring and banking will deliver robust growth in years to come. Talking about banking. We continue to see unprecedented changes in the highly concentrated banking industry in Brazil. Although we have experimented the entry of new players in the last few years, PagBank being the precursor of this movement, in December 2020, more than 70% of the Brazilian credit portfolio was concentrated among the top 5 banks. We see that as a huge business opportunity and the reason to bring more competition to an economic segment that has been basically the same for decades. The opportunity to change people's lives through digital medium runs in PAGS professional veins. We consider ourselves exceptionally well positioned to continue to disrupt banking in Brazil because of 3 main reasons: first, our tech DNA. Approximately 6,500 engineers in our group with the best-in-class professionals working for PAGS. Second, our unique expertise in launching the Brazilian Internet. Since the early beginning back in 1996, which today, the most visible aspect is the UOL audience, with a reach around 90% or more Brazilian Internet eyeballs, right after Facebook with 92% and Google with 96% reach. And third, the fact that we are the first movers, creating a new market unserved by the competition before us and finally, but not least, a strong culture and excellent execution, I would assume as PAGS way of doing it. We operate in an evolving industry whose answers to some questions are not 100% clear. For that reason, we permanently promote self-criticism. But having said that, we can affirm our investment thesis relies on the following 6 pillars: first, payments is the best entering door for digital banking. PAGS has the largest Brazilian merchant base that generates recurring revenues through a digital account that naturally provide cross-selling opportunities for additional banking products. Payments industry has consistently grown 2 digits in the last 2 decades, driven by merchants accepting new electronic payments. New payment methods, such as NFC, P2P, among others, continue to replace cash transactions. For example, in the first quarter, NFC volumes increased in almost 8x in comparison to the same period of last year. We consolidate our leadership in long term market and we see limited competition as incumbents have given up serving these clients. Now we will prove our thesis that is much easier to go up in the pyramid than to go down in it with our Hub strategy. Our Hubs are extremely successful, and we are gaining market share with profitable SMB's clients very rapidly. Second, online is core. Online payments go on as core for us, and our focus has delivered a growth of 140% in Q1 '21. PAGS is enhancing omnichannel solutions for merchants and increasing cross border transactions. In first quarter, cross-border volumes increased 3x compared to the same period of last year. Third, cards and lending are core. Because banking industry is highly concentrated, Brazilian banking population is too huge, and the spreads are very high. This is an opportunity for us, 17x larger than payments in terms of revenue pool. PAGS has been worked with cards and loans in the last 3 years, mainly focused on the micro merchants, creating a unique database and credit models to manage returns and risks. Clearly, a strong entry barrier for new players. Fourth, new financial products are core. PAGS movement to go up in the pyramid to conquer market share in SMB's market can and will be replicated with other financial services. Fifth, technology, customer experience and product development are core. Technology, innovative and client-centric culture, combined with the lean structure, promoter disruption, awareness and engagement. In the first quarter, PAGS reached 48 million apps downloads and processed BRL 81 billion. We believe that value relies on active and recurrent clients. And we are happy to announce that we surpassed the mark of 10 million active clients in PagBank's second anniversary. And sixth, regulator environment helps. Regulatory change such as Pix marketplace of receivables and Open Bank create a positive environment for new players like us. With these initiatives and achievements, we are truly committed to keep promoting the financial inclusion in Brazil, making investments that are accretive and will bring higher returns in the future. Finally, the pandemic is not over in Brazil. This year will be another challenging one, but if you prepare to face it, and ready to explore the economic rebound in the coming years. That said, Artur and I will present some slides, and we'll have a Q&A session at the end. On Slide 3, we highlight the achievements of the first quarter. We break down in 3 sections: first, operating and financial results; second, PagSeguro, our FRM business; and third, PagBank, our banking business. Start with the operation and financial highlights. Consolidated TPV of BRL 81 billion, up 102% year-over-year. Total revenue and income of BRL 2.1 billion, up 30% year-over-year with consolidated net take rate of 2.41%. Adjusted EBITDA of BRL 573 million, up 12% year-over-year despite PagBank and Hub's investments. Non-GAAP net income of BRL 327 million, down 11% year-over-year. Excluding onetime events during the quarter, adjusted EBITDA of BRL 617 million, up 20% year-over-year, and non-GAAP net income of BRL 271 million, up 1% year-over-year. Moving to PagSeguro. Acquiring TPV of BRL 50 billion in Q1, up 58% year-over-year despite new lockdowns in the end of March 2021. Online TPV grew 140% year-over-year while Hubs TPV grew 410% year-over-year, diversifying our exposure to new segments. Active Merchants of 7.3 million, with a net addition of 301,000 new merchants or 1.8 million more merchants in comparison to the same period of 2020. Total acquiring revenues of BRL 1.9 billion, with adjusted EBITDA of BRL 725 million, margin of 38%. During this quarter, we launched PagPhone, the first worldwide one-stop shop POS, which combines acquiring, banking and software. We also launched Moderninha ProFit, a small POS with integrated printer and Auditek app, our reconciliation software. Moving to PagBank. PagBank TPV of BRL 31 billion, up 261% year-over-year, boosted by wire transfers and bill payments. PagBank app downloads of 48 million, with almost 7 million downloads in the quarter. PagBank active clients of 9.1 million, up 144%, with a net addition of 1.3 million in the quarter. PagBank consumer clients of 3.5 million, 5x larger than first quarter 2020. In first quarter 2021, consumers represented 38% of PagBank active clients. Credit portfolio of BRL 773 million, deposits of BRL 5 billion and PagBank CDs surpassing BRL 1.4 billion in March 2021. During this quarter, we also announcing the cash back offering for Payroll Portability, and launched new third-party investment funds and personal accident insurance. Moving to Slide 4. 2 years ago, we launched PagBank, aiming to explore and capture the existing opportunity in Brazil. At that time, we had a few products in our portfolio, providing the base digital account features only to our merchants. In Slide 5, we can see all the achievements throughout the last 2 years, becoming a complete ecosystem now serving both merchants and consumers as we were able to combine acquiring, banking, partnerships, software, marketplace, insurance, investment, loans and cards. Moving to Slide 6. We show how powerful is our ecosystem and how it is boosting our growth trends. First, I'll talk about client acquisition and awareness. We reached 7.3 million active merchants, up 33% year-over-year and 9.1 million PagBank clients in the first quarter of 2021. It represents a growth of 146% year-over-year. Moving down, we can see we reached 48 million downloads in PagBank as of March 2021. Talking about engagement, we observed the acceleration of volumes growth, consolidated TPV increased 102% year-over-year, while net consolidated TPV grew 215% when compared with Q1 2020. Our market share in the Brazilian payments industry reached 9%, more than 3 percentage points in comparison to the first quarter of 2019. Our products per user ratio increased from 2.5 to 2.7, which also indicates higher engagement of our clients. Last but not less important in third quarter, PAGS monetization. Revenue and EBITDA growth shows we were able to monetize our businesses and to balance growth with profitability. Total revenues increased 30% year-over-year, and our adjusted EBITDA increased 12%. Moving to Slide 7, we'll start presenting our operating figures for the acquiring business. Our TPV growth remains strong, with a 58% increase over a year, boosted by TPV promotion growth, which grew 18% when compared with first quarter 2020. A net merchant adds that reached 300,000 between January and March this year, ended the quarter with 7.3 million active merchants. The strong growth despite new lockdowns in Brazil, was driven mainly by a fast cash conversion into electronic payments and success in our new verticals and client segments, such as online and Hubs. Volumes growth for April and May were very strong, respectively, 108%, and 91% increase year-over-year despite the new lockdowns we had in Brazil in 2021. Moving to Slide 8. Total acquiring revenues were BRL 1.9 billion, up 29% year-over-year, accelerating the growth in comparison to 2020. Acquiring adjusted EBITDA up 28% year-over-year, with EBITDA margin of 38%. TPV mix improved in comparison to the fourth quarter, which drove up acquiring net take rate and payments profitability. Excluding PagBank revenues and transaction costs, acquiring intake rate increased 17 basis points in comparison to previous quarter, reaching 2.23%. Moving to Slide 9. Here represents some new acquired initiatives we have been exploring. First, our Online TPV, which has been growing much faster than previous year. In first quarter 2021, our online volumes grew 140% versus 13% in 2020. The acquisition of MoIP, a digitalization process boosted by pandemic and our several initiatives to incentivize online payments and omnichannel solutions were the main drivers. Also, we are happy to announce card-not-present transactions during this quarter increased 116% year-over-year. Moving to our SMB Hub strategy. Our 2021 volume trends indicate we will be in the top of the range of our current guidance, which was 11% of acquired TPV. Our forecast is to have a 250 to 300 Hubs up and running in several cities and regions until the end of 2021, reaching 83% percent of Brazilian GDP coverage. Finally, software subscribers reached 621,000, 8.5% of PAGS' active merchants. We plan to provide additional disclosure of our Hub strategy in the coming quarters. Now moving to Slide 10. We will share some PagBank figures. Starting with the strong growth of PagBank TPV, once again, a triple digit growth, totaling BRL 31 billion, accelerating the growth in comparison to 2020. On the top right, we have our PagBank active client figures, which was 9.1 million, being 38% composed by consumers. Net adds were 1.3 million, with consumers representing 58% of first quarter net additions. These figures show a strength to serve both merchants and consumers with our 2-sided ecosystem. Bottom left, we share our product per user ratio. In first quarter 2021, our products per user reached 2.7, 0.2 higher than the same period of 2020, reinforcing client stickiness to our ecosystem. PagBank revenues reached BRL 149 million, up 48% year-over-year and accelerating in April 2021 to above 80% when compared to April 2020. Although April 2020 was the worst pandemic month in Brazil impacted by lockdowns, which drove down withdraws and card spending. Additionally, for those clients with higher engagement, such as merchants active in PagBank and consumers with Payroll Portability, we offer some free ATM withdrawals per month, exchanging short-term revenues for higher engagement and future monetization. In first quarter 2021, PagBank adjusted EBITDA was a loss of BRL 78 million, driven by headcount increase, marketing expenses and transaction costs. Also, in first quarter, we had a onetime event related to digital account losses, not related to loan provisions or credit risk management, amounting BRL 73 million. The massive data leak in Brazil, which happened in January 2021, did not affect any of our systems, data or infrastructure. However, it provided information to fraudster activities in online transactions and bill payments. As we identified these transactions, we immediately blocked them. Again, this is a onetime event. Moving to Slide 11. We present some additional data about PagBank and PagInvest. The number of active cards increased 3x in comparison to the first quarter of 2019. In May, we launched a new home marketing campaign in partnership with Visa to foster card payments. In this campaign, PagBank clients will receive cash price, and one of them will get a house. Day-to-day banking, the number of PagBank app logins was 549 million in the first quarter of the year, while Bill Payments transactions has been gaining a lot of traction. This is a very good sign, since usually clients elect their main banks to centralize bill payments. Finally, PagInvest assets under custody reached BRL 4.2 billion, up 127% year-over-year, with PagBank CDs, almost doubling the size quarter-over-quarter. Worth to say, all this AUC is based in PagBank CDs and a few investment funds. We plan to have equities and treasury bonds in the following weeks, which we expect to help increase assets under our custody. Recently, we allowed our investment platforms to receive orders 20 hours a day, 7 days a week, and we also launched a new third-party investment funds managed by well-known investment firms in Brazil, such as Western Asset, Alaska, Hashdex, BNP Paribas, Journey and AZ Quest. 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. In the Slide 12, we show our credit portfolio where the performance is improving every day based on credit models result. We ended the month of March with a total credit portfolio of BRL 773 million, being 53% of working capital loans, 42% credit cards and 3% of other credit products. As we have been tracking very close, the NPLs by cohorts for working capital loans and for credit cards trends are getting better since August 2020, showing very healthy numbers. Our confidence has been increasing and encouraging us to reach the highest level of credit disbursements in May. We expect to increase credit originations going forward, mainly in the second half of this year. Our cash position remains very strong with a positive balance of BRL 8.1 billion enforced by the issuance of PagBank CDs to fund the credit disbursements. Loans to the deposit ratio was 53% guaranteeing stamina to grow our credit portfolio in a healthy and sustainable way. Moving to Slide 13, we present our quarterly financial results. On the top left, our consolidated net take rate reached 2.41%, representing an increase of 11 basis points in comparison to Q4 '20 and 6 basis points versus Q3 '20, driven by better TPV mix with more credit and lower debit transactions and a longer duration for credit cards receivables and installments. In the top right graphic, we share our non-GAAP total costs and expenses, which totaled BRL 1.6 billion in the first quarter of 2021, up 51% year-over-year. Cost of sales and services represented 70% of total costs and expenses remained at the same level of Q1 '20 and increased 49% year-over-year. The main drivers were higher interchange and card scheme fees following the TPV growth, higher depreciation and amortization related to our solid active merchants additions during the past quarters and expenses to new products and services developed to PagBank. Selling expenses represented 23% of total costs and expenses and increased 94% year-over-year due to headcount expansion for our Hubs and the onetime digital account losses of BRL 73 million previously explained by Ricardo. If we exclude the digital account losses, this line increased 56% versus the same period of last year. In the bottom left chart, our adjusted EBITDA was BRL 573 million, excluding the negative effect of BRL 73 million related to onetime digital account losses not related to loan provisions or credit risk management and the positive effect of BRL 29 million related to tax provision reversal. The recurrent adjusted EBITDA was BRL 618 million, with a margin of 30%. Finally, in the bottom right, we share our capital allocation strategy. During the first quarter of the year, we invested almost BRL 393 million, being 62% in POS acquisitions and 38% in other initiatives, mainly related to product and software developments. As a percentage of our revenues, CapEx decreased 4 percentage points reaching 19% versus 23% in the first quarter of 2020. Thank you all for joining us tonight. Now I pass the word back to Dutra to conclude the presentation.

Thank you, Artur. Moving to Slide 14, we present PagPhone. During the last quarters, we were working very hard to launch the first device in the world, which combines acquiring, banking and smartphone. Everything in one single device created a real one-stop shop solution for our merchants, reinforcing our leadership in long tail market and continue to be a company driven by innovation. Finally, on Slide 15, our last slide, represent Moderninha ProFit. This is the smallest POS with integrated printer in the market. Initiatives like this help us to offer a better customer experience and to allocate capital more efficiently. Consequently improving our LTV per cap ratios. With that, we end our presentation, and you can start the Q&A session. Thank you. Operator, please?

[Operator Instructions] Our first question comes from Jorge Kuri with Morgan Stanley.

Congrats on the numbers. I have 2 questions, please. The first one is on your TPV guidance of 40%. I think that chart on Page 7 is quite telling. I think you're running at significantly above that. And hopefully, we've passed the worst of this year. Is it possible that the number is just significantly above that, it wouldn't be surprising given that current trends that you end up at 55% to 60% growth. And what stops you from updating that guidance? Or where do things could potentially go wrong and we do end up in 40%, which would be a big deceleration from the first 5 months of this year? And my second question is on NPLs, and I'm not sure if this is related to the digital losses. I'm not sure that I understood properly what that is. But anyway, my question is on NPLs going to your Slide #12, where you have the pre-pandemic cohorts and the past August 2020 cohorts. Can you maybe explain how loan losses are trending over the last few months, particularly given the difficulties of the first quarter? And just if you can explain what those digital losses are and if indeed, those are part of the NPLs.

Good to hear you. Thank you for the question, and thank you for the compliment as well. This is Ricardo. I will start with TPV and then begin answering your question #2 and then Artur can complement. But talking about TPV, you're right, we are running above the 40% guidance. We are confident with this guidance. And the reason that we do not update is because we are still in the mid of the pandemic in Brazil. I mean, we have some uncertainty looking forward. We have tougher comps in the second half 2020 because the government had BRL 300 billion in coronavouchers last year in second half. So we have tougher comps. And we need to wait and see how it's going to be the economic recovery in Brazil. So that's why we don't update at this point. As time passes by, we will be more than happy to update that. So that's why we are confident with this 40% at this time. Talking about the digital losses, just to be clear here, there is no relation with credit, no relation with loans. That happened because we were, I would say, more aggressive than what it should in terms of authorizing some bill payment transactions. And then what we had is people coming here, paying bills, some of them with credit cards, and then we had chargebacks afterwards. So we had this -- we are saying here in Q1, but actually was in February and March. We already adjusted that. We didn't have any impact in April and May. So it is really a one-off, it is really a thing that happened in February and March, and that's it. There is nothing that's going to happen in Q2 regarding to that. And again, there is no relationship with NPLs or things like that. Just to be clear here, I want to reinforce that we didn't have any problems with our infrastructure, with our data or data leak. What it had was a massive data leak in Brazil in January 2021. It was in the news. And probably, we're aggressive in authorizing some bill payments transactions to credit cards. So that's it. We already adjusted that and it not happening in Q2. And talking about the NPLs in Slide 12, I'll ask Artur to help us here. And again, Jorge, thank you very much for the question.

Jorge, it's Artur speaking. And thank you so much for your question. It's a pleasure to talk to you. I think the idea of this graph is show you that when we start to offer credits again in August '20, our NPLs are much better than we have before. Because we learned a lot during the pandemic period. And so you know that in March '20, we stopped our originations. And we learned a lot, adjusted our models, hired new people, more experience to that. And so now we are having met better results than we had before. And the idea is just to give you more color about it, because we don't know -- we don't give the number. So it's important to you to understand that we have a better performance right now than before. And that's it. And so we are very happy with the numbers and encouraging us to accelerate the originations going forward.

Our next question comes from Mariana Taddeo with UBS.

So regarding the SMB segment, you mentioned that should represent 7% to 11% of your total TPV this year. But could you share how much it represents today? Also if you could give us some color, where are the merchants in this segment coming from, from the incumbents, from Eastern or any other player, I don't know, if you could share that. And also in the presentation, you mentioned the penetration of the software within the SMB clients. I want to understand if you are offering the banking credit products to them? And how is this penetration?

Mariana, this is Ricardo. Thank you for the question. So we are not disclosing the exactly number of Hubs TPV in the total TPV at this point, Mariana. We -- as we said at the presentation, we plan to give more color as time passes by. Just we don't want to give this information at this point for strategic and competitive reasons. Regarding the players that we are getting in this segment, it varies, but usually, it follows the market share in SMB's so the majority of them we are getting from incumbents. And then we have someone -- some others coming from new players. But it follows a little bit the market share of this segment. We are the, let's say, the newcomer here. We are the company that is, let's say, competing with the other ones being the aggressive here. So that's why we are getting all these new merchants and TPV grew 410% year-over-year. Regarding the software, the 8.5%. We actually use the information we had from software to put in our models, in our credit models because we have more information from the ones who use software versus the other that don't use it. I don't have here in the top of my mind, how is the penetration of credit for these clients to be sincere. But it's one variable of the model, not the main one, but it helps us to improve our models. I don't know if I answered your question.

Yes. On this second part of the question in terms of banking and credit. I just want to understand if you're offering, if they have the credit products or, I don't know, credit cards or something like this?

Yes. Yes, we are offering credit for SMBs as well. We are growing our credit portfolio, BRL 160 million in this quarter. The -- almost 100% of this BRL 160 million, we focused on the merchants. Very small part of that is focused on consumers, for a small pilots here and there. But the majority of that is for the merchants. And yes, we are offering credit for SMBs as well.

Our next question comes from Bryan Keane with Deutsche Bank.

Congratulations on the results, especially given the tough economic environment. 2 questions, I guess, be interested in some more color on the increase in the TPV per merchant, I think it was up 18% year-over-year versus 3% looking at last year's increase. And so just trying to understand how much of that is stimulus versus what's driving -- what's been the driving factor there? And then my second question on the margins. Obviously, you guys are making a lot of investments and the margins were impacted by those investments. Just was hoping you guys could give us some color on what the net income margin might look like going forward for the rest of the year and how much to expect for the investments in the Hubs and PagBank, et cetera?

Bryan, thank you for the question, and thank you for the compliment. Talking about the average TPV per merchant, there are some drivers here. If we look in Brazil, we are seeing the penetration of cards in PC is increasing. It used it to be, I guess, 40%, and now it's close to 44%. So we see more adoption of electronic payments. And we are also increasing our participation of online and Hubs in our total TPV. So as we go up a little bit in the pyramid, the average TPV promotion will grow as well. So I guess, those are the 2 main drivers here. People using more cards, less cash. And also, we are having more TPV coming from online and for Hubs.

Bryan, Artur speaking. Thank you so much for your question. It's a pleasure to talk to you again. And so regarding to margins, as you said, we invested a lot during the last months. And also in this quarter, we invested a lot in PagBank to hire more headcount and product development to develop products like PagInvest, insurance, credit and also we are investing in Hubs with sales force, facilities, rentals and also marketing to promoting our new products and services. And also right now, we are -- in terms of nominal, we are slightly better in the bottom line in 2021 even though our focus is to reach the best balance between growth and profitability, looking for a bigger company in the future, gaining scale to leverage expenses. And so we are much more focused right now in the growth of the company to leverage expenses in the future and improve margin as well in 2022 or 2023 in the more mid, long term.

Got it. And any guidance on where we should set our models in terms of the net income margin going forward for this year, just given those investments you talked about?

Yes, Bryan, we gave the guidance for TPV for CapEx. What we can say here that in absolute terms, our net income this year will be better than last year. We don't have the exactly number here. But as Artur said, we are looking for, let's say, more growth this year than profitability. But in absolute terms, you're going to see a better net income this year versus 2020. Even with this challenge that we are seeing in the first quarter, with lockdowns and so on and more debit transaction and so on. So that's, I'd say, a better guidance I can give you at this point.

Our next question comes from Craig Maurer, Autonomous Research.

I was wondering just some housekeeping items. You provided TPV growth for the acquiring channel through April and May. Could you provide what the total consolidated TPV growth was for April and May? Second, I wanted to return to the noncredit digital account losses. Just some additional clarification. I mean it sounds like you're authorizing Bill Pay on credit cards, but that something went awry, and you wound up with a lot of chargebacks. Were these fraudulent bill payments? Were these -- I'm trying to understand what went wrong in that -- I know it's onetime, but what went wrong in that authorization process that might be a learning experience for you? And lastly, in the SMB Hub business, are you seeing a strong degree of software uptake and to what degree are you seeing perhaps an omnichannel opportunity in the SMB software in the SMB business? And can you bring MoIP to address some of that?

Craig, this is Ricardo. Thank you for the question. We must discuss here internally how it's going to be, if you want to -- if you can give the TPV for PagBank. We didn't give in this call. We just see what is the best way to give this disclosure, of course, is growing a lot. We just closed in May. But I mean, we can discuss if you can make it public before next call. I don't have the answer to you at this point. Talking about the digital account losses that you asked. We were aggressive in authorizing some transactions. The models for Bill Payments, let's say, authorizing more transactions than it should, so it's not credit related, it's not NPLs related to loans or things like that. It's just that people came here to pay bills through credit cards, that the majority of the chargebacks. And we authorized some of the transactions that after we reviewed, we should not have authorized. I mean we were aggressive in doing that. So that's what happened. There is no data leak. There is nothing like that. Just people came here, decided to pay a bill and then we had this charge-back. That's as simple as that. Regarding SMB and Hubs. Yes, they are using our software, although we know that our software at some point, they are very complete, but to some type of merchants, they require something more sophisticated. But at the end of the day, what we are looking here, we are bringing the merchants that are 4.0 to 5.0x larger than long tail. So they are still small. They are not very sophisticated. Part of them could be omnichannel, but we know that part of them will not be omnichannel, because of their business. Just, let's say, the guy from the restaurant, sometimes he's going to find a new platform to make delivery and PagBank will not provide that for him, although we have a small platform, just to give an example here. The guy that has auto parts, probably will not sell -- will not, let's say, fix cars and reach these customers through online. So we see some opportunity for omnichannels. For those who we think that is feasible, we can offer solutions, link of payments and things like that, but I would say the majority of them still today, they are not omnichannel. They are more physical stores, because we are going, let's say, in the bottom of the pyramid of SMBs. So they are not well sophisticated for softwares. And part of them are not ready for omnichannels. And that's fine. The -- at the end of the day, what I want is to bring them for acquiring and make them to use PagBank, get the data at some point, increase the relationship, stay in the relationship with them, we could -- we could offer credit and credit cards and so on. So that's the -- our idea is much more to have the financial services embedded with our solution, than other solutions at this point.

And are you seeing any change in behavior around PIX, any P2M transactions? Or is it still mainly a P2P channel?

Well, Craig, we don't see PIX hurting our acquiring business or people using PIX to make payments. What you see is PIX replacing wire transfers. So let's say, if you had a bill that you used it to pay through wire transfer. So people did not use cards. Now they are using PIX, because PIX is free and this is continuous and so on. But we don't see PIX let's say, cannibalizing our acquiring business, as you could see in our growth, 58% year-over-year. So we -- that's the thesis that you have, the hypothesis that you have from the beginning since when we started talking about PIX in the beginning of last year. PIX is much more to replace wire transfers. At some point, to replace cash and help digitalization of some people in Brazil. And then we can take advantage by offering PagPhone, and you could see that we are growing more than 1 million PagBank clients per quarter.

Our next question comes from Mario Pierry with Bank of America.

Congratulation on the results. Let me ask you 2 questions as well, primarily related to revenue generation. How should we think about the direction of your take rate on the acquiring business, taking in consideration, right, the expansion -- the Hub expansion. And also taking in consideration that the economy is opening up, so we should see a better mix of credit versus debit? And also, when we think about the take rate on PagBank. I think it's fair to say that PagBank is growing much faster than we anticipated. So I was wondering if you think that you can achieve your target or your soft target of 30% of revenues coming from PagBank 3 years from now, if maybe we could anticipate that.

Mario, this is Ricardo. Thank you for the question. Regarding acquiring take rates, as you could see, we grew 17 basis points in Q1 versus Q4, even with more TPV coming from SMBs, which have -- which has a lower net take rate, because, I mean they are a little bit larger merchants. So looking forward, what we expect from the acquiring take rates to be stable. There's going to be some violation here and there, but to be stable because we're going to have more clients coming from Hubs. Would put some pressure in the acquire -- in the net take rate coming down. On the other hand, we have the tailwind that is the mix of payments, more credit. So what I can -- looking forward here this year we expect to be stable or improve a little bit. But let's see how it's going to be. In Brazil, we have a lot of ups and downs and lockdowns suddenly. Unfortunately, the rate of vaccination is not going pretty fast as we see in other countries. Some people talking about third wave. Some cities making lockdowns, some others opening. So it's still a lot of uncertainty. But to give, let's say, soft guidance here, let's consider it stable even with the pressure coming from the Hubs, which, in our opinion, it's a very good performance. The other question about the 30% PagBank, it's hard to say if we're going to be able to make it earlier than that, Mario. We prefer to keep 2024. Let's follow the following quarters. And then we can update what you saw in April is a good level of revenues in April, much better than Q1. Let's wait a little bit, and then we can, let's say, update it. But it's feasible to have before that, I just don't want to affirm that at this point.

Yes. Mario, this is Eric. I'd just like to reinforce here that we will reach 30% in 1 of the quarters in 2024. This is not an easy task, right? Because we have been seeing payments growth, very fast and solid, right? And even our new verticals, such as Hubs and the Online. So it's a hard task here, but we continue to be committed to this 30% in 1 of the quarters in 2024.

Okay. Let me follow-up then here on PagBank. Even if we add back these losses that you booked of BRL 73 million, we're calculating revenues per client of about BRL 24. Is that about right? And when we look in the fourth quarter, we have around BRL 27. And 1 year ago, at around BRL 27 million any reason why revenues per client are coming down at PagBank?