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

Good evening. My name is Kyle, and I'll be your conference operator today. At this time, I would like to welcome everyone to PagBank PagSeguro's earnings conference call for the second quarter of 2021. This event is being recorded. [Operator Instructions] After the speakers' 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 PagBank PagSeguro's website at investors.pagseguro.com, where the presentation is also available. Participants may view the slides in any order they wish. The replay will be available shortly after the event is concluded. Those following the presentation via webcast may post their questions on PagBank PagSeguro's website. Before proceeding, let me mention that any forward statements included in the presentation are mentioned on this conference call are based on currently available information in PagBank PagSeguro's current assumptions, expectations and projections about future events. While PagBank PagSeguro believes that their assumptions, expectations and projections are reasonable in view of currently available information, you are cautioned not to place undue reliance on these forward-looking statements. Actual results may differ materially from those included in PagBank PagSeguro's presentation or discussed on this conference call for a variety of reasons, including those described in the forward-looking statements and Risk Factors sections of PagBank PagSeguro registration statement on Form 20F and other filings with the Securities and Exchange Commission, which are available on PagBank PagSeguro's Investor Relations website. Finally, I would like to remind you that during the 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 Ricardo Dutra, Chief Executive Officer. Please, Mr. Dutra, you may begin your presentation.

Good evening from Sao Paulo, everyone, and thanks for joining our second quarter results conference call. Tonight, I have here with me Artur Schunck, our Chief Financial Officer; and Eric Oliveira, our Head of Investor Relations. First, we hope you and your families are well and safe. Before we proceed, let me share a quick update about the current situation related to the pandemic and its impacts in Brazil. Last quarter, we shared our improving confidence that it seems the worse was over. Vaccination continues to take place. Currently, approximately 70% of the population took at least 1 shot and around 30% took 2 shots already. The contamination and death ratios have been decreasing, which has been encouraging authorities to ease the social distance measures in several regions of the country. The ongoing secular shift from cash to electronic and digital transactions continues, reinforcing that the consumer behaviors are changing despite the reopening, and we have seen millions of people being included into the financial system. We also see across the world, several companies embracing the digital banking strategy to explore this unique opportunity. For example, in this quarter, we were honored to see PayPal and Square announcing their initiatives to expanding into financial services, which is the move we have done in May 2019 with the launch of PagBank. In addition, as the regulators in Brazil continue to foster competition, players with tech DNA, strong execution and robust balance sheet have the chance to explore new verticals, cross-selling strategies and close the existing loop between merchants and consumers while optimizing the gross profit generation per user. Having consistently invested during the last years in our 2-sided ecosystem has been paying off. In June 2021, the number of PagBank clients surpassed 11 million, and the engagement continues to increase, as the number of logins only in our app per workday reached 10 million, or 1 login per user per workday. Another example is the credit expertise. After more than 3 years, the combination of sophisticated data analytics, an incredible team, the banking license, and a unique active merchant base gave us the diligence to decelerate the underwriting amid the pandemic, to warm up the engines for the reopening. We are delighted to announce that our credit portfolio surpassed the mark of BRL 1 billion with an increasing origination for the coming months and controlled NPL ratios. In payments, the scenario also looks brighter. Our acquiring TPV continues to grow strongly, giving us the confidence to review upward our payments volumes guidance for 2021. Comparing with Q2 2020, PagSeguro was the company in the Brazilian market with the highest acquiring TPV growth among the top 5 Brazilian acquirers, 89% year over year, and probably, the highest total net revenue growth, 75% year over year. Our strong brand, superior logistics infrastructure and complete pack is offered to our merchants, among other strengths, allowed us to keep growing in the long tail and to roll out our Hubs faster than expected. Our [ reg ] results have been impressive reinforcing our thesis that it's easier to go up in the pyramid than to go down, and that even SMBs are underserved in the country. With this new TPV mix, as we commented last quarter, our take rates are stable, and we expect this take rate level for the rest of the year. Finally, we continue to pursue for the optimum capital allocation and the best balance between growth and profitability. We reduced the CapEx per sales ratio from 25% in Q2 2020 to 17% in Q2 2021, a positive surprise leading to a guidance review for CapEx in 2021, driven by lower POS acquisitions, since we took the right decision in the last year to prepare the inventory levels, which reinforced our massive scale and purchasing power, improving the unit economic of our cohorts. Investments in technology have been helping us to maintain our strategy to grow organically, and we are happy to highlight 4 new products. First, cell phone insurance. Our fourth insurance product distributed by PAGS. We also launched an exclusive investment fund, PagBank All Seasons, which gives the options to our clients to diversify their investments. We will also launch Brazilian treasury bonds trade platform. Our PagInvest vertical already comes with 5 CDs and 50 investment funds with several asset allocation strategies, such as equities, corporate bonds, FX, gold, even cryptocurrencies. Finally, we are launching an overdraft loans product, initially offered only to our best cohorts, which will expand the credit options for our clients. All the positive impacts we have been producing in our society will be shared in the next months in our first sustainability report, where all the stakeholders will have the opportunity to follow closer our initiatives to serve better our clients, measured by the highest standards available in the market. Also, we plan to have our first Investor Day in November, a brand-new initiative to discuss the strategic plans for the company for the coming years, where Luiz Frias, our Founder and Chairman, and part of the PAGS' senior management team will share their thoughts about the trends, the future of finance, and how we are preparing the company to keep consolidating its leadership in financial services and payments. I'm very encouraged by the recovery trajectory and pleased with the momentum in both businesses, PagSeguro and PagBank. Finally, nothing of this would have happened without the confidence of our shareholders, the commitment of our suppliers, and the best and most committed team working hard every day to promote our mission: being part of the financial lifecycle of every Brazilian citizen, promoting a massive financial inclusion in our country. Thank you very much PagBank PagSeguro team. 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 second quarter. Record total revenue of BRL 2.4 billion, up 75% with acquiring revenue reaching BRL 2.2 billion and PagBank revenue of BRL 182 million. All-time high consolidated TPV of BRL 102 billion, up 154%, with acquiring TPV growing 89%, with Hubs TPV and Online TPV maintaining the strong growth trends observed in the past quarters, and PagBank TPV growing 341%, both in comparison to same period of last year. Adjusted EBITDA of BRL 629 million, up 64%, with acquiring adjusted EBITDA reaching BRL 730 million and PagBank adjusted EBITDA reducing losses as a percentage of PagBank Revenue gaining traction to reach the break-even in the coming quarters. Non-GAAP net income of BRL 345 million, up 12% year-over-year. CapEx per sales went down from 25% in Q2 2020 to 17% in Q2 2021. In June, our PagBank active clients surpassed 11 million, driven by an outstanding 2.1 million net addition in the quarter, while active merchants continue to be healthy net addition pace above 220,000 reaching 7.6 million active merchants. Next slide, we present PagSeguro's highlights. While in Q2 2021 versus Q2 2020, the total cards industry in Brazil grew 52%, our acquiring TPV grew 89%, driven by the secular shift to electronic payments combined with our successful go-to-market strategy to serve, not only long tail merchants but also sellers larger than long tails through our Hubs. Our active merchants reached 7.6 million. Although our metric for active merchants considers at least one transaction in the last 12 months and it may differ from other players, in chart below, we can see our dominance in number of merchants when compared with other players in the industry. In Q2, we had 226,000 merchants net adds. Although it is a strong number, it wasn't better because we saw a higher churn in April 2021 related to the business mortality from April 2020, during the peak of pandemic and lockdowns in Brazil. As for active merchants, we consider at least one transaction in the last 12 months. Businesses that closed in April 2020 and did not generate any TPV since then only affects our churn rates in April 2021. Important to say, we did not observe higher churn in May and June, and we had healthy net adds in these 2 months. Moving to the right side of the slide. TPV trends observed in July and first day of August are also encouraging. Despite the hard comps due to the coronavoucher program distributed last year, volumes grew 55% year-over-year in July. Additionally, during the last week, the Saturday before Father's Day in Brazil, we reached a new all-time high daily TPV. Bottom right, we see that in the first 7 months of the year, acquiring TPV grew 70%. Moving to Slide 5, acquiring revenues grew 77% in comparison to the same period in the last year, or 35% on a 2-year CAGR basis. The growth was due to a better TPV mix towards credit cards volumes and our successful strategy to serve larger merchants, which supported the acquiring net take rate of 2.24%, stable in comparison to the first quarter. Bottom right, our adjusted EBITDA reached BRL 730 million, almost a 60% growth in comparison to second quarter of 2020. Important to mention that in the last year, there was a tax provision reversal in the amount of BRL 84 million, which we excluded for a better comparison. Despite the higher investment to roll out our Hubs and continuous improvements in our payments' services to our merchants, we were able to gain market share, consolidate our position and increase EBITDA. Moving to next slide. Taking the opportunity explored in the previous slide, I want to share the results of our Hubs. Hubs TPV grew 4x year-over-year, outpacing best estimates of our models, due to the economy reopening and a disciplined execution to serve larger merchants, combined with a powerful competitive advantage which is PagBank. We are the only payments company in the market with a complete digital account and without any conflict of interests with controlling shareholders or partners, which allow us to look for the best combination to serve merchants and leverage the gross profits per clients, exploring both money flows, the cash in and the cash out. We are targeting merchants, on average, 4 to 5x larger than our average long tail seller. And by the end of 2021, we are expecting to cover more than 80% of the Brazilian GDP with approximately 300 Hubs throughout the country. Backed by a strong sales culture, which mingles young professionals with seasonal sales professionals from other sectors, we are creating a unique relationship model driven not only by client's activation, but also by client's engagement. We are also observing a larger number of software subscribers, which was 801,000, already representing 11% of PAGS' active merchants. Finally, PagBank continue to be the best strategy to engage merchants and increase cross-selling opportunities. In June, we reached 82% of heavy users, PAGS' merchants that used payments and digital banking within the last 12 months, a growth of 54 percentage points in comparison to Q2 2019. Moving to Slide 7, we give some infos about our online and omnichannel volumes. Bottom left. Online TPV grew 104% year-over-year, driven by web checkouts, cross-border transactions, and link of payments. Omnichannel volumes, which considers volumes from merchants that accept not only POS transactions, but also use online payment solutions, doubled their share in comparison to Q1 2020, the last quarter before the outbreak of COVID-19 in Brazil. We continue to take advantage of MoIP platform, increasing the barriers against competition and potential pressures on yields once its anti-fraud system guarantees the best approval rate in the market. And split payments solution is highly customizable for e-commerce, marketplaces, and other payments methods. On the bottom right, although it represents a small portion of our total TPV, BoaCompra, our subsidiary focused on providing cross-border transactions for merchants is growing steadily. Moving to Slide 8, another grateful surprise. We had a record net addition of 2.1 million new PagBank clients, surpassing the mark of 11 million PagBank active users, being 45% of these clients composed by consumers. Combined with the increasing in product per user ratio, which went from 2.6 products in Q2 2020 to 3 products in this quarter, accelerated PagBank TPV, which grew 341% year-over-year. PagBank revenues continue to present healthy trends, reaching BRL 182 million, up 89% year-over-year, with the better trends in adjusted EBITDA losses, which had a negative margin of 80% in Q2 2020 versus negative margin of 55% in Q2 2021. Moving to Slide 9, we want to share some additional information about the engagement metrics. The number of active cards indexed to a 100, increased 4x in comparison to Q2 '19, while cards spends doubled in comparison to Q2 2020. PagBank app logins reached an incredible mark of 783 million, 3x more than the same period of 2020, which is similar to say that every PagBank client logged in our app on average 1 time every workday. The number of payroll portability skyrocketed, increasing 7x, backed by our cashback incentive to clients with formal paychecks to make the portability to PagBank being able to receive up to BRL 600, or $120, in the next 36 months. Finally, PagInvest assets under custody almost reached BRL 5 billion, up 85% year-over-year, driven by our increasing number of registered clients with access to CDs and investment funds offers. In July, registered clients were 647,000, and we were offering almost 50 investment funds in our platform, which has been key to deepen our relationship with our clients as well to attract the new ones. As I said in my initial remarks, we are happy to launch our Brazilian treasury trade platform in the next week. Now, I would like to turn the conference over to Artur, our CFO, who will talk about our credit portfolio and our financial results for the quarter. Artur, please go ahead.

Thanks, Ricardo, and good evening, everyone. I also hope all of you and your family are well and in a good health. Following our presentation in the Slide 10, the performance of our credit portfolio is improving every day based on efficient credit models, our experienced team, and several learnings from the last 3 years of operation. June ended with a total credit portfolio surpassing BRL 1 billion, being 56% of growth in capital loans, 41% of credit cards and 2% of other credit products. I would like to reinforce that credit underwriting in Brazil is not a 100-metres sprint race. It is a marathon where learnings from the experience, patience and preparation make all the difference. We have been preparing the company since day 1 and now we already achieved more than 3 years of credit underwriting to micro-merchants. The portfolio is 100% booked in our balance sheet, which provided us the awareness and diligence to decelerate in the past and to speed up now. Additionally, we see the registry of receivables as an opportunity for tech companies which provides financial services, even though market should not assume the registry as a parachute for poor credit underwriting. On the right side, our cash position remained very strong with a positive balance of BRL 8.2 billion, reinforced by the issuance of PagBank CDs to fund the credit disbursements. Loans to deposits ratio was 62% guaranteeing stamina to grow our credit portfolio in a healthy and sustainable way. Moving to Slide 11, we present our quarterly financial results. In the top left, our consolidated net take rate reached 2.43%, 2 basis points higher in comparison to first quarter 2021 and 13 basis points versus fourth quarter '20 driven by better TPV mix with more credit, lower debit transactions and helped by a larger PagBank revenue. In the top right graphic, we share our non-GAAP total costs and expenses reached totaled BRL 1.9 billion in the second quarter of 2021, up 87% year-over-year. Cost of sales and services represented 67% of total costs and expenses, increasing 63% year-over-year at the same level of TPV growth, driven by higher interchange and card scheme fees, higher depreciation and amortization related to our solid active merchants' additions during the past quarters and expenses to implement new products and services. Selling Expenses represented 26% of total costs and expenses and increased 155% year-over-year due to the headcount expansion for Hubs and PagBank teams and higher marketing expenses for new campaigns. Financial services jumped from a share of 2% in second quarter of '20 to 7% in the second quarter of 2021, mainly due to a TPV mix improvement, requiring additional working capital volumes to prepay our merchants. On top of that, the increase of the Brazilian basic interest rate and the exchange rate devaluation for international transactions for BoaCompra also pushed expenses up versus last year. In the bottom left chart, the adjusted EBITDA went from BRL 384 million in the second quarter of 2020, excluding the benefit of BRL 84 million related to a tax provision reversal last year to an adjusted EBITDA of BRL 629 million this year with a growth of 64% versus the same period of 2020. Finally, in the bottom right, we share our capital allocation. During the second quarter of this year, we invested almost BRL 407 million, being 50% in POS acquisitions and on almost another 50% in R&D to develop new products, features, and services. As a percentage of revenues, CapEx decreased 8 percentage points, reaching 17% versus 25% in the second quarter of 2020. Moving to the Slide 12, the last one of this conference call. As Dutra said in his initial remarks, the positive trends of the first semester led us to review our acquiring TPV growth guidance from above 40% to above 45% in 2021. We also project a reduction of capital expenditures in BRL 200 million, setting a new level of BRL 1.8 billion for this year, optimizing the cash flow generation. Now we end our presentation, and we can start the Q&A session. Thank you. Operator, please.

[Operator Instructions] Our first question comes from Mariana Taddeo with UBS.

My question is related to net adds in the acquiring space. In this quarter, it decelerates. Is there any impacts of business more targeted from COVID-19 1 year ago in the second quarter last year? And could you also talk a bit on the competitive scenario and your expectation for net adds going forward? Do you think that PAGS would be able to accelerate the pace of net adds again?

Mariana, this is Ricardo. Good to hear. Thank you for the question. Let's talk first about the net add in Q2. We saw a increase in business mortality from merchants in April 2020, so as our active merchants metrics consider at least one transaction in the last 12 months. So the business that were closed or shut down in April 2020, they generate churn in April 2021. If you remember well, in Brazil, April 2020 was the worst month in terms of the pandemic and lockdowns. So that's why we had a impact in churn related to business mortality from 1 year ago. But it's also worth to say that these merchants, they were not transacting since May 2020. So we didn't see -- we didn't have any TPV from them since then. So it's the metric for the churn. They impacted, but TPV, we didn't have this TPV since May 2020. So that's why we saw this 226,000, which is a very different number, but it could be better if we didn't have this more targets from last year. Regarding the competitive scenario, what you see here, as we've been talking in the past quarters, some of the acquirers from the incumbents from the banks, they decided not to play in the long tail market anymore. Some of them, they were vocal saying they will not play. Some of them just increased the price by 5x or things like that. This is a way not to work in this market. And I mean, you don't say no, but it just increase the prices. It's a way for not to play anymore. We keep seeing some competition from the same players that we had a year ago. Everybody -- everyone knows about the natural competitor is Mercado Pago. We keep adding thousands of merchants every month. We saw some of our competitors increasing prices this week. Some of that increase in the prepayment rates. Some of them made a different price for different card schemes, mainly in the local card schemes, such as Elo and Hipercard. So we saw more rationality in pricing, not crazy movements. And the scenario is similar to what we had in the past quarters or even better. We didn't give this year a guidance for net adds, but we keep talking to some of you that we expect to have 1 million net adds in the year. We had more than 500 -- 530 in the first semester. So I keep saying it's feasible to have this 1 million or even more. So let's see the following months, and then we can give you more color. But I mean the best information could be keep thinking about 1 million net adds in this 2021.

And our next question comes from Craig Maurer with Autonomous Research.

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

Craig, this is Ricardo. Also good to hear, and thank you for the question. I'm going to start and then Artur can help me here. Regarding take rates, we have this different moving parts, so to say, the tailwinds and the headwinds. So the tailwinds would be if we had the consumption coming back. In Brazil, we are having high inflation, pandemic is still here. We are not 100% back in the office, people are not traveling. So I mean, the consumption is not happening because of COVID and because of also the inflation that is kind of presenting some consumption. So that would be the tailwind. What is showing in this quarter, we already saw a slightly better net equating long tail, for instance, because the mix is getting better. And in the headwind, which I would say, it's not really a headwind, but I mean, in terms of take rate, it's because we are having better performance in Hubs than we expected. So we are exceeding our expectations. You know that our merchants from Hubs, they have usually 4 to 5x larger TPV than long tail. And of course, they had a lower take rate. So if you look at the percentage, it's going to be lower, but in absolute terms, should be better because they have a TPV that's 5x larger than the long tail. So that's why we talked in the call before here that we expect to be flat or a little bit higher than that looking forward. So for these points here and there. Let's see how it's going to be the recovery here, and then we can give more information for you. But that's the moving parts. Those are the moving parts that you have consumption that could be back. And on the other hand, we are increasing and growing faster in our Hubs operations to serve SMBs. Regarding the lending product suite, we've been working in these models for, let's say, 3 years. We learned a lot. We were supposed to have a increase in disbursement last year. But because of COVID-19, we just decided to stop, not to give any credit, the same movement that we saw other banks doing in Brazil. And then we are giving some credit again in this year. The NPLs are under control. We see some of our merchants having better TPV recovery. So it will help our take rates. It could help our take rate the lending. It is also worth to say that, I guess, Artur can give more numbers here, but I'm going to finish and Artur can complement and talk about financial expenses. It's worth to say that we use here IFRS 9. So when you give some credit, we need to make the provision right at the beginning. So to some extent, we are, let's say, making the provision at the beginning and then the result is going to happen in the future. So that's why if we increase the credit, it could be even, let's say, not to help that much in short-term because of this IFRS 9 that we follow here. And about financial expenses, I guess, Artur can also help us. Thank you.

Okay. Craig, thank you for your question. Good talk to you again. And so regarding to our financial expenses, the big -- the 2 big impacts in this quarter was related to the TPV growth that is higher than our expectation and also impacting a larger working capital needs related to the advances of receivables to our clients, and also the increasing of Brazilian basic interest rate that is increasing the cost of PagBank CDs, and also the advances of receivables with bank insurers. Going forward, we expect that the basic interest rate achieved 7% in the end of this year. Obviously, we will increase our expenses. What I can tell you is that Q3 will be higher than Q2 and Q4 will be higher than Q3. But we are following very close what the market is doing related to that because we can adjust the prices for SMB and larger clients that is used to have the prices paid to this -- in relation to this basic interest rate. And also for long tail, as Dutra said, some players in the market increased the prices. We don't have this plan for now, but we are very close to this movement in the market, and we'll take an action if necessary.

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

Let me ask you 2 questions as well. The first one is on your credit portfolio. As you just talked about, right, last year, you're being cautious. Now you're accelerating lending at a time that even some of your peers that they're having problems, right, with the credit product because of problems at the chambers of receivables. So what makes you comfortable to start accelerating your credit growth now? And why aren't you having the same problems as some of your peers? And then the second question is related to your -- it's about your appetite for inorganic growth. About a month ago, there were some news or some rumors that you were interested in making an acquisition for BV. So if you could tell us a little bit about what happened, what is the strategy? How do you look at inorganic opportunities?

Mario, this is Artur speaking. Thank you for your 2 questions. I will take the first one related to credit portfolio. And after this, Dutra will continue with the inorganic question. As Dutra said, we -- last year, as you mentioned too, last year, we stopped our operations related to the pandemic and the crisis that we have in the world. And this year, what encourages us to disburse more than last year was related to the NPL cohorts that are improving every time. And now we have 3 years of experience, a more sophisticated credit models. And that -- those models does not take in care of the chamber of receivables, okay? We are not considering the chamber of receivables helping us to collect. So I would say that our models need to work without the chamber of receivables. Obviously, we know that the chamber could help us who -- could help us in all the credit products, but we are not considering at this point, okay?

And regarding the rumors that you mentioned, we made this communication in the same day, and I hear confirm that there is no intent to acquire a big bank or BV bank to name here. There are no related signing agreements to do so. And we reinforced that during the call here. We do talk to many players in the market. We need to be aware of what's going on in the market. It's my duty to be here to understand what's going on in our Fintech environment. Of course, we cannot follow everything. But the big deals or the hot deals, they came to us through advice or people just getting comfortable with us to talk about opportunities, and you need to talk, understand what's being sold, what's the price and so on. So we did talk to many players, and -- but it was a rumor, nothing more than that. Our mind for inorganic growth is to look for targets that can speed up our initiatives here, our ecosystem. So just to give some examples, we bought EMV and MoIP in the online payments. We bought BIVA and BoletoFlex for a faster deployment for credit. We bought Action Tech and NetPOS and Zygo for software features to ecosystem and things like that. So that's what we usually look for. I would say you that every week, there is a [ super ] acquirer coming to us trying to sell volumes. And we don't buy volumes. We know that it's a niche at some point, the super acquirers need to be, let's say, consolidated or they will consolidate with someone else or with another super acquirer. So we had this opportunity to buy volumes, and we don't have that in mind because at some point, the price is not competitive. And so the main idea here is to speed up our ecosystem and to have the same culture because the -- you know better than me. The -- out of 10 M&A, at least 8 of them don't go well because of the day after. So we need to be very careful what we are acquiring. And if the culture that's going to be fit, and it's going to be easy to integrate and have a better service for our clients. So that's why we have in mind here to have, let's say, companies to speed up our ecosystem.

Our next question comes from Jorge Kuri with Morgan Stanley.

I have 2 questions, please. The first one is on your CapEx guidance that is a tap lower. I know it's not a lot, but it is lower. And so I'm wondering if -- what should we read into it? Could we maybe start to saying that expense growth is going to slow down as well, given that you're already have built enough of the infrastructure for the new businesses? Or is this just related to POS? And then my second question, sorry to go back to this. But I wanted to understand a little bit better that answer to the receivables chamber. What does it mean that your underwriting models don't consider that? I mean, don't you need to make sure that credit card receivables are not being used as a guarantee elsewhere for you to leverage then? I'm just trying to understand exactly what the comment from Artur was.

Jorge, this is Ricardo. With you here, thank you for the question. I will start with the chamber of receivables and Artur can come back and talk about the CapEx. We -- I guess what Artur was trying to say that our models, when you look to our models, we consider the behavior we have with our clients with us, the way they behave with us in the transaction history that you have from them, how much they sell, if they're growing or not, what is the mix and so on. And today, as the chamber of receivable is not 100% working, it's not even possible for us to go there and look if this merchant is making transactions in another acquirer or if they have some other players that are serving them. So that's why when Artur said it's just like we are looking for the behavior that we have in our database. There was no chamber of receivables until June, and we keep collecting this client. So that's why the chamber of receivable is going to be an additional way to collect but we don't count only on chamber of receivables to, let's say, to collect the money from the lending or for the working capital levels that we offer for our clients. I would just take advantage of your question just to give an overview about the chamber of receivables. It's a complex project. You know that Central Bank and all the industry is working hard to make it work. Although it's not 100%, we've seen lots of progress in the past weeks. It's going to work, let's say, in the next weeks because there is some integration that is happening between the registers and so on. We do believe that it's going to be very good for credit. We see an opportunity there because today, we have 9% market share in the acquiring business. So there's 90%, 91% that is making transactions to other players that we can go there and even offer credit through a very effective way to collect if the chamber of receivables is working 100%. So I guess what Artur was trying to say that today, we don't go there to see if the merchant is using another player, and we don't consider that to collect the money. As of today, we are not using the chamber of receivables because it's not working 100%. So I don't know. If it's not clear, just let me know.

Okay. Thank you for your question related to CapEx, and good to talk to you, [ Jorge ]. So and what we consider for our CapEx is that we'll support the growth of the company for the future. And there is 2 big points inside the CapEx. One is POS and the other is R&D. So both we consider to support the growth of the company. And we changed the guidance to BRL 1.8 billion because now we have a better view of the year comparing to what we projected in the beginning of this year. We have a lower currency rate right now versus also what we projected. Related to mix of clients, so change of the value a bit versus what we projected to. And we are always looking for to be more efficient in the investments that we do in the company. So now we can say that BRL 1.8 billion is more fair for this year. And also, as the last point is related to the expenses that we don't have any relevant change for now. If we have any movement in terms of expenses, depreciation or amortization, so we will communicate to the market.

Our next question comes from Bryan Keane with Deutsche Bank.

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

Bryan, this is Ricardo. Thank you for the question. Good to hear. Regarding Hubs, you're right. We are exceeding our expectations in terms of volumes, in terms of the performance, even the production of the people, the salespeople in the street. So I mean, it's getting better than what we had in our assumptions. And it would be probably higher than 11%. That's something that will surpass -- this 11% is a combination of the execution we are having here, better efficiency in sales force and probably will be higher than that. We are in half of the year. It's hard to give you the number right now, but it's going to be -- it seems going to be higher than the 11%, the top of the range, which is good news. I mean, we were, let's say, conservative when we thought about the volumes from pro-Hubs, and we're going to get more. It's -- I mean, we saw that even the SMBs in Brazil are underserved. The majority of our SMB is not to say 100%, they already have another player. So it's different than long tail that we are bringing new merchants to the system. In the SMBs, we need to go there to talk and to get clients from competitors. So we use a lot of the strategy to talk about PagBank, the digital bank. That is 100% free, and they can use for daily tests, financial daily activities such as paying suppliers and so on. So it's -- we are being successful there. And going back to your question, it will be probably higher than 11%.

Bryan, it's Artur speaking. Good to talk to you, and thank you for your question. Regarding to net income margin, as we have been sharing in the last calls, we are not obsessed by margin right now. Our focus is continue to deliver healthy and positive nominal results. That means nominal -- positive nominal results for adjusted EBITDA and net income. So our intention is to lead a larger company for the future. In 2022, 2023 increase our margins. Regarding to the next quarters, I can say that we expect a slight improvement versus Q2. Q3 probably will be better than Q2, Q4 better than Q3. And for the full year, we are expecting something above 15%. And also excluding interchange fee -- interchange and fees from the schemes, so our net income margin should be above 22% or something above 23%.

Just to be clear here, Bryan, Artur is saying that the net income margin as we are reporting is going to be higher than 15% this year. It's going to be better in Q3, Q4. And when we talked about 22%, when you use the same methodologists of other players that they discount interchanging cards consist from net revenues. So that's going to be close to 24% if we exclude interchange and cards [ fees ] from the revenues.

Our next question comes from Marco Calvi with Itau BBA.

Two questions here. The first one on the acquiring take -- net take rate of 2.24% revised disclosure during this quarter. We saw a growth, right, quarter-over-quarter or a flattish quarter-over-quarter and a growth over the fourth quarter. Can you guys share with us the trends of these acquiring net take rates, given that you guys are moving towards a large client? And even so at least comparing to the last 2 quarters, the net take rate on the acquiring business, either, say, flattish or increased? And my second question is on your software business. You guys mentioned that you guys ended the quarter with roughly 100,000 clients and penetration close to 11% of the active merchants. I was just wondering what sort of software are you referring to? And if you can share the average features specifically on the software product?

Marco, this is Ricardo. Thank you for the question. Good to hear. Regarding net take rate in the acquiring business, as you could see in Q4, we had 2.06%, then 2.23% in Q1, 2.24% in Q2. And looking forward, we see at least 2 big moving parts here or the headwinds or tailwinds. So in the tailwind, we see the better consumption or increasing consumption in the country. Now we are having higher inflation. Unemployment is still here. Pandemic is still here. We're not 100% back to our normal lives. And so that's the tailwind. The people start consumption more, getting some business trips or even the trips with the family and so on. So that's the tailwind. And the headwind in terms of take rate is because we are having better performance in the Hubs. So we are changing the mix of our TPV. The Hubs clients, they have TPV 4 to 5x larger than the long tail. So when you bring this larger merchant, the SMB, they impact net take rate. In absolute terms, it's a good business because, I mean, the volume is much higher than long tail, even with a lower net take rate. But if you look specifically net take rate, we have this headwind. So that's why we prefer to say it is going to be flattish looking forward, but there are these 2 moving parts. The one is the consumption is going to help the net take rate. The headwind is the performance of the Hubs is going to, let's say, decrease the net take rate. Regarding the software business, we consider usually the point-of-sale that people can go there, use for managing their businesses at the end of the day, take some reports, such as how many coffees did I sell, how much they sell-through cards to debit cards, credit cards in cash. So usually, a small, let's say, software that helps people to measure their business better. We also consider here R2TECH, our reconciliation business that some of the clients use to make mismatch between sales and the money that goes to their bank accounts. So at the end of the day, they can see how much they sold and if the money is coming to their bank account. So those are the 2 main software. We also had some other software that is smaller merchants using to use Minizinha to make this point-of-sales to work, the example that I gave about the report. Usually, we don't charge for software. They are very simple. They don't require implementation. They don't require someone to go there to install anything. We don't sell licenses. We just need to download the app and next, next, next few clicks, we can use the software. So usually, we don't charge for the software. We see that as a way to give a better service for the client, increase their loyalty and keep them working with our acquiring solutions for longer time.

Our next question comes from Eduardo Rosman with BTG.

Two questions here. First one, we just saw Sebrae publishing a service -- sorry, survey saying that they -- more than 50% of small merchants in Brazil, they're still not accepting cards. So I just want to get your feedback on the ground. What can we expect like kind of idea for maybe next year? If you think adding 300,000 merchants per quarter is still doable? You should think you can grow more than 30% TPV in the acquiring segment still for another couple of years. So it would be interesting to see. I just have a qualitative view about what to expect for the coming years on your segment. And the second one is on PagBank. You mentioned that you expect breakeven to come in the next few quarters, but EBITDA was still kind of BRL 100 million negative, right, this quarter. So can you elaborate? Do you have -- should we expect that to breakeven second part of next year, 2023? So that's it.

Rosman, thank you for the question. Good to hear. Regarding the Sebrae survey, you're right. They've said many business in Brazil, the small businesses don't accept cards yet. And I would say you -- there are no other companies in the -- in our industry more prepared to, let's say, to take advantage of that or to serve this wave with all the history that you have, the expertise that we have to serve long tails distribution channels to average the overall audience and all the ecosystem that we have been building all this year or this quarter. So that's why you keep adding 1 million net adds per year. That's what I expect to keep adding in the following quarters. There is still main opportunities out there. And I would say that we are the company more prepared to serve those that are out of the financial system because, I mean, we've been doing that since 2006 in the online world. And since 2012 with the POS. But you're right. It's a great information just reinforce what we've been saying for -- from any quarter that there is still many business in Brazil don't accept cards. Some of these merchants, they start accept debits. And then after a while they start to accept credit. So we see as this opportunity in the survey from Sebrae just reinforce our view. Regarding PagBank, I'll just introduce and then Artur can help me here. But you're right. We -- the margin in absolute terms increased, but as a percentage of the revenues, we decreased from 80% to 55%. So the business is growing. We need to dilute fixed costs, but we keep investing in the business. So that's why, to some extent, the absolute terms, the absolute numbers is -- are growing here. But Artur, can you just complement here?

Yes. I will say just more words related to PagBank. PagBank is a long-term project to us. We are succeeding because we are adding millions of clients every month are required. And we are monetizing those clients. It's true that for consumers, normally consumers take more time to start to monetize. It's true because the cashing is not automatically. This is the biggest advantage that we have in terms of merchants using PagBank because we have the cashing automatically. As Dutra said, we are at the moment to invest a lot in the ecosystem to have a more complete offer of products in terms of PagBank. And so we are investing people, marketing campaigns, R&D and everything that is necessary to have a big digital bank in the future.

Rosman, this is Eric. Thanks for the question. I'd just like to highlight here that we don't have 2 CEOs, one for payments, one for banking. We have 1 CEO, 1 CFO, taking all the decisions here to maximize revenues per client. So there's no conflict of interest, and we are travelling here to increase revenues per user and see the profitability better for the coming years.

Our next question comes from James Friedman with Susquehanna.

I'm glad to hear everyone is doing well. It's Jamie at Susquehanna. I just want to ask a couple of questions upfront. So the TPV per merchant continued to expand, right? So your TPV grew double merchant growth roughly. Is that the Hubs? Or is that the COVID or something else? That's the first one. Historically, you've had some seasonality, where the industry is seeing seasonality in the Q3. And I wanted to ask about that. Do you expect any promotions in the Q3 at an industry level because sometimes we see that in the Black Friday? That was the second one. And then the third one is, what are you going to talk about in the Analyst Day?