PicS N.V. ($PICS)

Good afternoon, everyone, and welcome to the PickPay Earnings Conference Call for the Fourth Quarter and Full Year 2025. I am Andre Cazotto, PickPay's Strategy, M&A and Investor Relations Officer. Today, I'm joined by Eduardo Simoes, our CEO; Rodrigo Couto, our CFO; Danilo Cafaro, Vice President of Consumer Banking; and Pedro Lipe, our Strategy Director. We will begin with a short presentation highlighting our quarterly and annual results, followed by a live Q&A with our management team. Please note that this presentation may contain forward-looking statements and non-GAAP measures. Please refer to the disclaimer on screen and in our earnings materials available on our Investor Relations website for additional information. This call is being recorded, and a replay will be available on our website shortly after the call. Before we begin, I would like to take a moment to thank all the analysts and investors who supported and followed PicPay throughout our IPO journey. It was a long and intense process, and we truly appreciate the engagement, the questions and the trust many of you placed in our story. Today's call marks an important milestone for us as we begin our journey as a public company, and we look forward to continue this dialogue with the investor community in the years ahead. Thank you for being with us. Finally, before I hand the call over to our CEO, Eduardo Simoes, I would like to briefly highlight the strength of our execution. As you can see on the next slide, we delivered results above the top end of the guidance we presented in our IPO prospectus across all key metrics, both for the fourth quarter and for the full year of 2025. In particular, looking at our adjusted profitability metrics, which mainly exclude stock-based compensation expenses and the recognition of deferred tax assets, we delivered adjusted pretax earnings of BRL 241 million, 12.1% above the top end of the guidance for the quarter and BRL 592 million, 11.5% above the top end of the guidance for the full year. At the same time, adjusted net income reached BRL 188 million, 31.5% above the top end of the guidance for the quarter and BRL 502 million, 14.1% above the top end of the guidance for the full year. These results clearly reinforce our strong execution and our ability to deliver results above expectations. With that, I will now turn the call over to Eduardo.

Thanks, Cazotto, and good evening, everyone. Let me start with our operational highlights. On accounts, we ended the quarter with 67 million total accounts, up 11% year-over-year. Quarterly active clients reached 42.7 million, also up from 39 million in the prior year. On volume, consolidated total payment volume reached BRL 157.5 billion in the quarter, up 28% and BRL 550 billion for the full year, a 31% increase. Wallet and banking total payment volume followed the same trajectory, reaching BRL 141.6 billion in Q4, up 27% and BRL 497 billion for the year, up 30% Total cash in, meaning the total amount of money our customers brought into our platform accelerated to BRL 139.4 billion in the quarter, up 27% and BRL 483.4 billion for the year, up 29%. In Q4, our customers cashed in almost BRL 47 billion per month, reflecting deepening engagement and growing principality across our client base. Another 2 metrics this quarter. Deposits grew 44%, reaching BRL 28.7 billion, a strong signal of increasing client trust and balanced retention. And active insurance policies nearly doubled, growing 76% to 9 million insurance policies, demonstrating the traction of our cross-selling engine across the board, strong and accelerating operational performance. Turning to credit products, the key engines of our monetization strategy. PickPay card TPV reached BRL 17.6 billion in Q4, up 42% year-over-year. For the full year, card TPV hit BRL 58.7 billion, a 50% increase as we continue to expand card penetration and drive higher engagement per cardholder. Personal loans origination more than doubled in Q4 when compared to the previous year, reaching BRL 4.4 billion, up 116% and totaled BRL 11.4 billion for the full year, a 67% increase. We are scaling origination while maintaining portfolio quality, and we see significant runway ahead as we deepen credit penetration across our 42 million active client base. On the credit portfolio side, total outstanding balances reached BRL 24.1 billion, up 128% from the BRL 10.6 billion a year ago. This growth was driven by disciplined expansion across both secured and unsecured products, supported by continued improvements in our underwriting capabilities. Now let's look at the financial outcomes of this operational momentum. Net revenues reached BRL 3 billion in Q4, up 69% year-over-year and BRL 10.3 billion for the full year, an 85% increase. This is the clearest evidence of the operating leverage embedded in our platform. ARPAC, average revenue per active client rose to BRL 71 in Q4, up 52% and BRL 62.9 for the full year, up 66%. Importantly, this is happening while our cost to serve per active client grew only 11%, both on a quarterly and annual basis, reaching BRL 20.4 and BRL 19.1, respectively. The widening gap between ARPAC and cost to serve is a defining feature of our unit economics and a structural advantage we expect to sustain. Gross profit came in at BRL 3.6 billion for the year, up 28% and earnings before taxes reached BRL 241 million in Q4, nearly 4x the prior year and BRL 592 million for the full year, up 71%. Adjusted net income grew 136% in Q4 and nearly doubled for the full year, up 99%, underscoring the profit inflection underway at PicPay. This slide puts it all together, the trajectory of scale, profitability and diversification. Total quarterly revenues have tripled over the past 2 years from BRL 937 million in Q4 '23 to over BRL 3 billion in Q4 '25. But what's equally important is how we are growing. Look at the revenue mix. In Q4 '23, 97% of our revenues came from fees, commissions and float. Two years later, the composition has fundamentally shifted. Float fees and commissions now represent 48% of revenues, while secured credit has grown to 19% and unsecured credit to 33%. This is a far more balanced and resilient revenue base, and it reflects the maturation of PicPay as a full-service financial platform. On the bottom line, net income grew from BRL 25 million in Q4 '23 to BRL 188 million in Q4 '25. Our quarterly annualized return on equity expanded from 8.5% to 24.4% over the same period, a nearly threefold increase and a clear indicator that we are generating attractive returns on the capital that we deploy. To summarize, PicPay is scaling rapidly, diversifying its revenue streams and converting that growth into meaningful profitability. Now let me shift to product velocity, the innovation engine behind these results. We had an exceptionally productive quarter across every vertical. Starting with our move into the affluent consumer segment. In December, we soft launched Epic, PicPay's premium product package purpose-built for high-income clients. This is a strategic long-term bet to address the needs of the affluent segment in our customer base, around 2 million customers that earn more than BRL 15,000 a month. The value proposition is compelling. Domestically, Epic offers 1.3% cash back on all transactions. For international spend, customers get 4% cash back. Besides that, for the first time ever, Brazilians will be able to split international purchases into 3 interest-free installments. We also offer 10 gigabytes of free roaming data, a differentiated bundle that directly addresses pain points for frequent travelers. Beyond that, Epic customers get access to higher-yield investment products and a suite of embedded premium services, creating a holistic affluent experience that deepens engagement and drives principality. Complementing Epic, we also launched our Global account, extending PickPay's platform beyond Brazilian reals for the first time. The Global account offers a multicurrency balance in U.S. dollars and euros paired with a global debit card that can be used anywhere in the world. The economics for our clients are best-in-class, a 4% annual yield on balances and 0 FX spread on convergence. Together, Epic and the Global account represent PicPay's full stack affluent strategy, and we believe they open a significant new revenue pool. We're just beginning, and we know this is a multiyear project. But with time and continuous innovation, we believe we can make a difference. Moving to small and medium businesses where we made significant progress on 2 fronts. For the long tail, microentrepreneurs and individual sellers, we deepened the integration between our consumer banking and our business platform. The improvements include a simplified onboarding flow that helped us reach 60,000 new business accounts per month in Q4. We also launched payment links, enabling any seller to generate a payment link and collect instantly, no website or point-of-sale terminal required. And we introduced one-click integration, which allows any individual to transition from a personal account to a business account in a single tap, removing the friction that typically prevents informal sellers from formalizing. For larger SMBs, we soft launched 3 important capabilities: Tap on Phone, which turns any NFC-enabled smartphone into a payment terminal, eliminating hardware costs entirely; working capital loans, giving merchants access to credit based on their PicPay transaction history and supply chain finance, which allows businesses to anticipate receivables and improve their cash cycle. Now audiences and ecosystem, where we made several high-impact launches that expand PicPay surface area and drive engagement. First, we completely redesigned PicPay Shop, our integrated marketplace. It now features a full end-to-end experience with over 300 retailers and seamless integrated checkout. The customer discovers, shops and pays without ever leaving Pick Pay. This is a powerful engagement and monetization layer built on top of our existing user base. Second, we launched food delivery in partnership with Rappi, one of the leading delivery platforms in Latin America. PickPay users can now order food directly within our app, adding a high-frequency use case that drives daily opens and reinforces the Abbott loop. Third, we introduced a travel hub in partnership with CVC, Brazil's largest tour operator. Users can browse and book flights, hotels and travel packages, again, entirely within PicPay with integrated payment and installment options. And fourth, we expanded our iGaming hub beyond our existing offerings to include scratch cards, refaffles and lottery products. This is a high engagement, high-margin vertical that complements our entertainment ecosystem. The common thread across all of these is clear. Every new vertical increases time spent in the app, deepens engagement and creates new monetization services, all without acquiring a single new user. Finally, our open platform strategy, a core differentiator for PicPay. Our thesis is simple. Customers shouldn't have to choose between PicPay and their other financial institutions. Instead, we bring everything together in one place and in doing so, we become the hub of their financial life. We pioneered this approach with our account aggregator, which allows clients to view and manage balances from multiple banks directly inside PicPay. This quarter, we expanded the strategy into 2 new verticals. First, the cards aggregator. Customers can now register and track credit cards from any issuer within PicPay, giving them a complete view of their card spend, statements and limits regardless of the issuing bank. Second, the investment aggregator, which consolidates investment portfolios from multiple brokers and banks into a single investment hub inside our app. The strategic logic is powerful. Every aggregator deepens engagement, generates proprietary data on customer behavior and creates natural cross-selling opportunities. When we see a customer's full financial picture, we can serve them better, and that translates directly into better underwriting, higher ARPAC and principality. Now I'll hand it over to Danilo Caffaro, our Vice President of Consumer Banking.

Let me open this session with the opportunities ahead in credit, which we believe is the single largest lever for value creation at PicPay. On the left side of this slide, you can see the share of wallet funnel. Brazil has a vast addressable market of individuals with credit lines. Of those, a meaningful portion are already customers. But today, our credit share of wallet stands at just around 6%. That means 94% of our own customers' credit wallet is held elsewhere. The upside is enormous, both from deepening penetration with existing clients and from onboarding new to credit customers. On the right side, you see how our market share has evolved across key products and the momentum is unmistakable. Private payroll loans, our newest credit vertical went from 0 market share in Q4 '24 to 3.7% in just 1 year. This is a product with strong structural advantage, low risk, payroll deduction and a growing addressable base. Personal loans nearly doubled their market share from 0.9% to 1.78%. Credit card portfolio share grew from 0.67% to 0.98%, almost 1%. And the card's total purchase volume moved from 1% to 1.3%. We are gaining share across every credit product, and we are still in the very early stages. With 42 million active clients, best-in-class data and a platform that enables contextual embedded credit offers at the point of need, we see a long runway of profitable growth ahead. Moving to the next slide. We can see how our market share gain reflected on the evolution of our consumer credit portfolio. We delivered another quarter of solid growth, reaching BRL 22.5 billion, up BRL 4.3 billion or 24% quarter-over-quarter. This reinforced PicPay's ability to originate and scale digital credit. It's important to highlight where this growth is coming from, basically, secure products and clients with longer relationships. In other words, lower risk loans and mature credit clients, representing 85% of the total growth. I also want to address the mix shift that is happening in the portfolio composition. FGTS origination declined due to regulatory constraints on FGTS prepayment rules. At the same time, we made a strategic decision to invest in private payroll as a replacement growth engine. This mix shift is positive from a NIM perspective. As you can see in the bottom, private payroll has a higher NIM. So risk-adjusted return on the portfolio is improving. However, there is an effect on provision levels. FGTS carries almost no credit losses. So as private payroll replace FGTS in the mix, you should expect higher provision formation, even though the overall economics are better. The bottom line, the portfolio is growing, it is healthier and the shift towards private payroll is a better business, but it comes with a different provision profile than FGTS. In the next slide, we will cover personal loans and origination quality. And the key message here is that it remains stable and in some areas, slightly better. On the left, total personal loans originations reached BRL 4.4 billion in Q4, more than doubling from a year ago and 88% coming from secured lending. That's important. The 2 lines below are those owing to focus. The green line is the monthly spread and the black one is the early delinquency rates. They are both trending down together. This is exactly how our risk-based pricing model works. As we improve credit quality, delinquency came down and pricing follows accordingly. That's actually a feature of our model, not a concern. On the right, we isolate unsecured origination. Even here, the same pattern holds. Delinquency dropped to 72% of base, while spread is at 92%, meaning the spread to loss ratio is actually trending better. So across the board, total and unsecured origination quality is holding steady and getting slightly better each quarter. The credit engine is performing as expected. On the next slide, we have the same analysis but for the credit card portfolio. On the left, we show the total unsecured card portfolio. It more than doubled since Q2 '24. Our progressive limit cards now represents 25% of the portfolio coming from 7%, these are entry-level cards for customers who are still building their credit history with us, part of our cost of acquisition strategy, and they carry higher delinquencies by nature, but also higher spreads. Now when you look at the spread and first roll rate lanes and first roll rate is actually delinquency rate for credit cards, they are both up 22%. The increase in the first roll rate is driven by a larger share of progressive limits in the mix. On the right, we isolate only the standard card portfolio, the core product, where the mix has not changed. The portfolio grew almost 2x. Spread is at 105%, up to 100 basis points on the beginning of the period, slightly up, but the first roll rate is stable for the last quarters. The key takeaway is the total portfolio shows rising roll rates because of the growing progressive limit segment, which is by design. But the standard book on its own is solid and still performing very well. Now moving to the next slide. Let's dive into the private payroll portfolio. This product is central to our growth strategy. We are comparing Q2 2025 cohorts, the early days of the product with Q4 2025. The progress is clear across every metric. Origination is up 40% quarter-over-quarter. We are originating over BRL 600 million per month. Interest rates remained stable at 4.3% per month, showing consistent in our pricing. Average term is now 2x higher than initial cohorts. First payment defaults went from low double digits down to high single digits. Unemployment rate at 90 days, which tracks whether borrowers remain employed after 90 days of their contract, improved by 30%. One final point worth highlighting, the collateral behind these loans, FGTS balances and severance pay is not priced in our models today. There is a potential upside we have not yet captured and we're still waiting for the rules on the market. We are confident in the fundamentals of the private payroll loan. The operational issues are behind us. The vintage curves are tracking well, and we remain committed to scaling this product as one of our main growth engine. And now I will hand it over to Rodrigo Couto, our CFO, to walk through the quarter's financial results.

Now I'll walk you through our financial performance. As you can see on the graph on the left, our revenues grew 69% year-over-year, while operating expenses grew only 15% over the same period. As a result, our efficiency ratio fell below 50% for the first time in the fourth quarter, which is an improvement of 10 percentage points relative to the fourth quarter of '24. Our ROE for the fourth quarter of '25 was 24.4%. Our ability to grow revenues over 4x as fast as expenses demonstrates the power of our operating leverage resulting from the efficiency and scalability of our digital platform. Overall, our results reflect a consistent theme of accelerated revenue growth far outstripping expense growth, resulting in rapidly improving efficiency and increasing ROEs. On the next slide, we present the expansion of our financial margins. Our net interest income, margin from credit products and margin from credit products after losses all grew around 70% year-over-year and expanded between 9% and 18% in the fourth quarter, demonstrating the health of our core financial services business as we expand our balance sheet. On the next slide, looking at the credit portfolio, we reached approximately BRL 24 billion in total credit, growing 128% year-over-year and 29% in the last quarter alone. The acceleration of our growth was made possible in large part by the new private payroll loan product, which has opened up a new frontier in the Brazilian credit market and in which we are well positioned, as Danilo explained. As a result, we were able to accelerate the growth of our portfolio, focusing on this new secured product to the point that nearly 70% of our portfolio growth in the fourth quarter was concentrated in secured products despite the decrease in the origination of FGTS advances due to government-imposed limitations. In other words, we have been able to rapidly expand our portfolio while improving overall credit quality. On the next slide, we present the evolution of the Stage 2 and Stage 3 formation of our portfolio. We believe those metrics are more representative than traditional NPLs because they are comprehensively defined in the accounting rules and incorporate multiple risk-based criteria, while NPLs focus solely on days past due as a measure of quality. On the left-hand side, we see that the Stage 2 formation of our portfolio has been falling steadily, which has been the result of declining Stage 2 formation in both our secured and unsecured portfolios as well as of the shift in mix towards the secured portfolio. Falling Stage 2 formation means that a smaller part of our portfolio has been deteriorating in terms of 30-day delinquency and/or in terms of increases in the probability of default. Lower Stage 2 formation obviously points in the direction of lower Stage 3 formation in the future. On the right-hand side, we see that Stage 3 formation has been increasing from a low base towards a level of around 4%, which you have come to expect going forward. The increase you see in the fourth quarter to 7.1% is due to a onetime effect of a change in methodology. As part of our annual review of our ECL measurement methodology, we incorporated significantly more data, which allowed us to upgrade our models and our methodology in general. In that context, we made improvements to our Stage 3 classification criteria to make it more robust and less reliant on days past due as the main criteria. That improvement resulted in a onetime reclassification of approximately BRL 590 million of credits from Stage 2 to Stage 3 with an impact on expected credit loss provisions of BRL 88 million. After this improvement in our criteria for Stage 3 classification and corresponding reallocation of credits to Stage 3, we have already seen Stage 3 formation reverting to normal levels during the first quarter of '26, and we expect Stage 3 formation for the first quarter of '26 to be between 3.7% and 4% with no expected significant increases going forward. On the next slide, we present the classification of our portfolio by stages and the coverage of each stage. As you can see, the change in Stage 3 classification criteria resulted in a changing mix between Stages 2 and 3 with the proportion of Stage 1 remaining stable. The reclassification of credits from Stage 2 to Stage 3 resulted in reductions in the coverage of both stages, which is to be expected as the credits that migrated from Stage 2 to 3 had higher coverage than the average of Stage 2 and lower coverage than the average of Stage 3. Overall, Stage 2 plus 3 coverage reached 62%, which is a strong level when compared to that of our main peers. To finalize this section of the presentation, we show our portfolio level loss absorption ratio, which has been running within our risk return management parameters, slightly above 50%. While we run our credit business considering the 50% threshold, the overall portfolio loss absorption is a little higher because of our small limit strategy, where we accept higher loss absorption up to 100% as the cost of acquiring good credit customers. On the right-hand side, we see that quarterly cost of credit has been trending slightly down. Based on our projections of credit provision expenses and portfolio growth, we expect the cost of credit to remain nearly flat in the first quarter of '26 and to be around 3.5% to 4% for the remainder of 2026. Moving on to deposits on the next slide. You see that our deposit base grew 44% year-over-year, while the cost of deposit funding remained largely flat around 94% of CDI. To finance the rapid growth of our credit portfolio, we have been deploying a strategy of diversifying the sources of funding, which we did in the fourth quarter through the issuance of BRL 500 million in subordinated debt following the issuance of BRL 200 million in senior unsecured debt in the third quarter of '25. We have been actively seeking additional sources of funding either through securitization or bond issuances, and we will continue to do so in the coming months. Finally, we present on the next slide the evolution of our capital ratios, which are projected to be around 14% common equity Tier 1 and 16% total capital at the end of the first quarter of '26. Our target capital ratios going forward will be between 11% and 11.5% CET1 and between 14% and 14.5% total capital ratio. Our capital ratios are projected to trend down towards those levels as our balance sheet continues to grow quickly until at some point during 2027, we expect to reach the point where our capital generation will be sufficient to support our growth. I will now hand you back over to Andre Cazotto to finalize the presentation.

As we approach the end of the call, we would like to provide some additional color on our outlook for the year ahead. On the next slide, starting with our first quarter '26 guidance, we're increasing transparency and provide investors with greater visibility into our near-term performance. It's important to highlight that all figures refer to the PicPay stand-alone business. We are sharing more detailed quarterly outlook across our key financial metrics, reinforcing the consistency of our execution and the strength of our operating model. Even considering the typical weaker seasonality compared to the fourth quarter, we expect to deliver solid results with continued credit portfolio and revenue growth, strong margins and disciplined risk management. We would also highlight our profitability outlook with GAAP net income expected to be around BRL 140 million and adjusted net income of around BRL 155 million, primarily adjusted for stock-based compensation. On the next slide, looking ahead to 2026, our priorities are clearly focused on driving sustainable and profitable growth. We expect to deliver strong revenue growth while expanding margins as we continue to capture the benefits from past investments in growth and business diversification. A key lever will be increasing the penetration of credit products within our base, supported by continued cross-sell and a stronger primary relationship with our customers. At the same time, we continue to scale our SMB operations with a full banking approach while advancing our beyond banking strategy to drive deeper customer engagement and additional cross-sell opportunities across our ecosystem. Finally, we remain fully focused on Brazil, where we see a significant opportunity to further consolidate PicPay as one of the leading digital banks in the country. With that, we conclude our conference call and would like to hand it over to the operator to begin our Q&A session. Thank you.

[Operator Instructions]. Our first question comes from Gustavo Schroden with Citi.

First of all, congrats on the IPO and now congrats on the strong results of super strong growth. So I have 2 questions, if I may. The first one is regarding the asset quality and the credit growth. So analyzing all your information and explanations about what happened in the quarter related to Stage 2 and 3. So this -- I mean, improvement in the risk models and apparently, the increase in Stage 3 was one-off. So we should expect Stage 3 normalizing in the first quarter. So you are guiding us that cost of risk in the first quarter '26 should be virtually in line and is 3.7%, virtually in line with the third quarter. So my question here is that we should assume that the company is guiding us that it is sustainable this strong pace of growth with asset quality under control for the 2026 at least. So we should forecast cost of risk between 3.5%, 3.7% for the year in this strong pace of growth. I'm asking this because this is one of the main questions we have received, right? So I'm trying to understand how comfortable you are with this strong pace of growth versus asset quality evolution. And my second question is regarding the card transactions and operations made through third-party cards, right? So if you could share with us how it is evolving because I remember that the recent -- the last data you showed, we could see less contribution from this type of transactions. I mean, lower contributions from third-party cards. We couldn't find the information about the fourth quarter '25. So that would be great to hear from you. What is the current level of these transactions versus transactions made with PIX cards? And then what should we expect going forward? -- congrats again.

Thanks for your question, Gustavo. This is Rodrigo. It's exactly as you mentioned. So we're expecting to continue to grow our credit portfolio with quality improving at the margin because of the concentration of growth in secured products. Within secured products, there is a shift in risk return profile because we'll have less FGTS, which is virtually no risk and lower return and more private payroll loan, which are both higher risk and higher return and better economics overall. So we expect to continue to grow at a fast pace, perhaps not every quarter as fast as the fourth quarter of 2025. And for the cost of risk and for all of our portfolio metrics to be in the ranges that we mentioned in the presentation. So all our projections point in that direction. Having said that, we'll adjust as conditions change, and we will continue to sort of keep a close watch on credit quality.

So in terms of your second question, Gustavo, it's Cazotto here. Let's say that revenues coming from third-party credit cards are representing roughly low teens over total net revenues. So the PicPay credit cards becoming by far much more relevant in wallet transactions for PicS transactions, for instance, representing more than 50% of the transactions that are backed by, let's say, credit cards in our platform. So naturally, we are, let's say, switching gears from third-party credit cards to more and more our own credit capabilities. So naturally, we're expecting to see, let's say, the revenues coming from third-party credit cards losing momentum over time. About 2 years ago, around 14% of total transactions were actually funded by PicPay card. As you can see now, more than 50% already at that stage. So PicPay card is becoming quite rapidly the #1 source of funding for PicS finance transactions.

Our next question comes from Dan Dolev with Mizuho.

Great results. Great quarter out of the gate, very, very strong. I just had one quick question about AI. Can you maybe talk about your AI efforts and how it helps PicPay grow the top line and also make the company more efficient. Congrats again.

Thanks, Eduardo here. I think that first to understand our AI strategy, I need to take you back to '23. ChatGPT was launched in November '22. And by March '23, we already had a client-facing model running ChatGPT. So we've been working on that for quite a while now. Maybe the first large product that came out of that relationship was basically migrating all the first level customer service into ChatGPT about 2 years ago. Just to give you a sense of how much that was good. We ended up avoiding hiring almost 3,000 customer services reps in the past 2 years. So I'd say that this is just one example of things that we've been doing. Maybe Danilo can give you a bit more color on things that we've been also doing on the revenue side besides the efficiency of adopting AI.

Sure. On the revenue side, last year, we made more than BRL 50 billion recommendations for our customers that was all AI driven and help us on our cross-selling index and increase the penetration of credit products as well. Just to give an example, more than 10 million users already use our Pay assistant that can do these transactions through WhatsApp. And every day, we add more and more features. And the goal here is actually to have 100% of the products and service that can be done without the app and actually where the customer is. So we're also still doing -- we're finalizing the test on our own foundation model for credit as well. And that's something that we're pretty excited because that's a lot.

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

Congratulations on the IPO. Congratulations on the results. I also have 2 questions. First one is about your guidance for the first quarter. If you can go through the seasonality in the numbers because when we look at the guidance, right, we're talking about revenues growing 5% quarter-on-quarter. We're talking about gross profit growing 8% and your adjusted net income actually declined 17% quarter-on-quarter. So clearly, there's some seasonality here, but can you walk us through the seasonality, especially because you have the proceeds of the IPO, right? And that should help your revenue generation, just the float on that. So I think it's important for us to go through the seasonality. Look, the first quarter guidance that you gave is better than what we have in our models, but we just want to make sure that we understand the seasonality. And then my second question is about the profitability of the private payroll product. Like you said, you're gaining a lot of market share. This is a key driver of loans and revenue for you. The product appears to be very, very profitable. However, we're seeing more and more players entering into this market. Can you talk a little bit about potential competition pressuring your spreads? Also, we heard some noise out of Brazil saying that the government could implement interest rate caps on this product. So I would like to hear your views on that.

Mario, Simoes here. Good talking to you. Well, first of all, on seasonality, you're quite right. First quarter for us is generally the weakest quarter traditionally. This quarter, as our guidance shows, it still shows some, let's say, diminishing numbers if you compare to the fourth quarter. But at the same time, it's almost about the strongest first quarter we've ever had. So yes, it is supposed to be the weakest in the year. At the same time, as you said it yourself, it's above numbers you were expecting. And yes, it's been a strong first quarter for us. Do you want to add?

Just to complement here, historically, in Q4, let's say, credit card TPV is much stronger naturally because of the end of the year seasonality. So in both for offline transactions and at the same time, in our own ecosystem inside our digital wallet, but also important to highlight that Q1 is coming very strong, even better than our expectations. We continue to originate more than BRL 3 billion in loans in the quarter. So our expectation is to accelerate the performance of our results throughout the next quarters in the business.

So for the private payroll, so 2 questions, right? First, around competition. Yes, we're seeing more and more players coming into the market as it matures. That's expected. We expect that. And also, there is some room to grow even with competition because as we mentioned, now the operational issues are behind us, and we're getting more and more content in order to actually improve the -- our offerings in terms of -- we just showed you, right, we just doubled the average term of our offering, and that's pretty much even more important than actually competing on pricing on interest rates, have the right conditions for the user. Just to give some numbers, 80% our origin is actually done through our own channels and only 20% we are actually doing on the market platform. So we're pretty confident that there's going to be more competition, but we're not -- we don't think that's going to affect our trajectory of growth. Also in terms of noise about caps. So first of all, we understand that a completely different product from GTS, for instance, or even the public payroll, there's different risks. And we understand that it's better to have the market free in terms of pricing the risk and serve the market better than, of course, capping and actually having a lower, I would say, lower penetration of the market for this kind of product. But our prices are like in the low single digits as we show you. So again, that's not something that we have to worry about.

I think that there is a potential positive trend ahead of us as well. As Danilo showed in the presentation, we're still underwriting as if the 2 additional warrants were not in place. So when they actually get implemented by the government, there is a positive effect because we would probably be able to underwrite to a larger base of clients if you compare to our underwriting model now. So that's also a positive trend that should add to the current, let's say, addressable market.

Okay. That's clear. Let me ask one third question here, just really quick. When we look at your adjusted net income guidance versus your reported net income guidance, the difference is only BRL 10 million roughly. I think we were working on a bigger number than that. Can you -- can you -- and just to confirm, you're just assuming here stock-based compensations that you are removing from the reported number?

That's correct. And the net effect of that net income is about $15 million for the first quarter, which is just the amount of the expense net of income taxes.

Our next question comes from Craig Maurer with FT Partners.

Congrats on completing the IPO. I wanted to ask about the launch of Epic. First, how does this product line up against, say, the affluent product from Nubank? And secondly, when we think about affluent customers in general, what's your overlap with that general demographic in Brazil? And therefore, what's the opportunity to cross-sell and rapidly grow the business?

Craig, good talking to you. Well, first of all, I think that we actually launched Epic to address the needs of around 2 million of our clients that actually make more than BRL 15,000, which is a common threshold for -- used by all banks to categorize the affluent segment. So within our own user base, we have 2 million of clients that could be categorized as affluent. In terms of what we're offering, and let's say that if you look at the affluent segment, you could say that it varies from BRL 15,000 to a much larger monthly income. Our target, and that's where we are targeting our value proposition is actually at someone that makes between BRL 15,000 and BRL 30,000 to BRL 35,000 a month, which is the larger portion of that segment. which we feel that it's also the, let's say, the customers who were less well served by most of the banks, which are in the, let's say, in the pyramid of the affluent segment, they're in the base. So we target that, and we are offering things that actually address the needs of that base of the pyramid of the affluent segment. If I can give you one thing that is an innovation, which targets specifically that, let's say, base of the pyramid is what we launched, which is the ability to actually make international transactions in 3 installments with no interest, which is not really relevant if you are really the higher end of the pyramid, but if you're in the beginning of that affluent segment, it's quite relevant and nobody had offered that before for Brazilians. So we believe that this is a multiyear strategy, important for us. But obviously, it takes time to basically get those customers in and bringing more principality. So we believe that we have a suite of products now that -- let's say, that we're more weaponized to go after those clients. And in terms of overlapping I mean at the end of the day, if you look at -- this is not only true for the affluent segment. On average, Brazilians have around 5 bank accounts, which means that, yes, we overlap with everyone that has a large base of clients. Now 2 million clients on the affluent market puts us definitely among those who have more of those clients on the base, which means that we also overlap with most of the other guys who have larger bases of affluent customers.

If I can follow up, just could you comment quickly on the degree of principality within those 2 million customers versus, say, the remainder of your customer base?

So as we do this, we didn't have, of course, the right bundle of products and service and the offering was pretty much not there. Of those 2 million customers, our principality is actually low. But what I can mention is that for the ones that are already migrated and actually an Epic user with the new product offering and value proposition, we have already above 50% of that is higher than our average base.

Craig, just to make a complement, but talking about the overall customer basis, we are increasing our principally numbers. As you can see, in Q4, our principally achieved 35% compared to 32% in the previous quarter. So again, I think that we are in the right path in terms of more and more, let's say, becoming the primary relationship of our customer base as we are, let's say, penetrating more financial services, especially credit products within our customer base.

Our next question comes from Ricardo [indiscernible] with BTG.

I have 2 here on my side. Over the beginning of the year, have you seen any changes in customer behavior following the income tax exemption that you have for low-income population, either in terms of higher spending or increasing the capacity to take more credit or even lower delinquency? And for my second question, can you please share more details on what drove the acceleration in the classification of renegotiated NPLs from Stage 2 to Stage 3 and also the update in the parameters of the expected loss models? And if you also could comment what was the net impact from both these changes in the total provisions of the quarter would also be helpful.

Okay. So I'll start with the second question. Our portfolio is still relatively young, which means that as the time passes, the amount of information we incorporate is quite substantial relative to what we had before. And as we had more information, we were able to detect a part of our portfolio that was in Stage 2 that had like characteristics that would be more appropriate to be classified in Stage 3. So we did the reclassification. The level of provisioning of those credits was already high, around 60%. It went up to 75%, and that had an impact of BRL 88 million in our provision expense. So it's basically the result of us learning more about the performance of our portfolio and making the necessary adjustments to our ECL models to make sure that we have the correct measurement at every point in time.

Ricardo, going back to your first question, I think it's too soon to actually give you any, let's say, color on the tax exemption being a positive force in terms of, let's say, more business or even higher collections, right? At the same time, we are positive about it. It should represent a good trend. There is a large portion of clients that will have a significant increase in disposable income. So in theory, it's quite a positive impact, but it's still too soon to actually reach any conclusions.

Very clear. And if I may do a follow-up on the second point. It's clear that you had like a negative impact in around BRL 90 million in provisions because of this reclassification. But when we look at the cost of risk, it's flat quarter-over-quarter, right? So in theory, you should have a positive impact contributing on that and it will be interesting to understand what was this positive impact as well.

Okay. So this change in our Stage 3 classification criteria came within the context of an overall review of our models, and there were some compensating effects. But when you look at our cost of credit for the fourth quarter, it went up by 10 basis points in a quarter where our portfolio grew 29%, right? So it was actually a quarter where we, let's say, made higher provisions. You can see that on our loss absorption ratio going up. So it's not like the whole impact was offset. No, we did make higher provisions in the fourth quarter. And I think you can see that the best way to see that is in the increase in the coverage of Stages 2 and 3 together.

Our next question comes from Darrin Peller with Wolfe Research.

Nice results and congrats again. I just want to start with ARPAC growth and to some degree, user growth also. But help us just remind us and walk through the magnitude of the drivers of the ARPAC growth over 50%. I know private -- there's a number of different factors, private payroll, et cetera, that are really contributing in credit, et cetera. But maybe just help us more specifically the building blocks of the top drivers that you're seeing succeed. And then more importantly, I mean, I know in our prior model, we had assumed around a 30 -- a little over 30% ARPAC growth for the year. So maybe just a frame of reference of what's occurring in this quarter and the trajectory throughout the year ahead of us as to why that shouldn't sustain at a higher rate than, call it, low 30s.

All right. So starting with the ARPAC, naturally, the biggest driver is, let's say, higher penetration of credit products on top of our digital wallet. We still have the wallet playing a very, let's say, relevant role in terms of, let's say, customer engagement and also revenue growth. But I think that over time, the wallet is becoming much more like a customer of acquisition, let's say, too, that is helping us to, let's say, learn more about the customer behavior and allow us to penetrate more financial services over time. So naturally, the biggest driver continues to come from secured credit products. As you could see in the quarter, we accelerated the origination of secured credit products, and that should be the pattern going forward with the private payroll loan becoming the biggest driver in our business. We also can highlight here insurance. As we presented in the -- earlier in the presentation, we achieved more than 9 million active policies -- so we believe that insurance could be another important driver to accelerate the ARPAC. But overall, Darrin, we are seeing -- we are gaining much more momentum on financial services in the platform, gaining more principality of our customer base. We mentioned before that our customers brought in December close to BRL 50 billion in cash in the month. It's a record for the company. Naturally, with more cash in, with more principality, we feel comfortable to increase the penetration of credit products. But like I said, I think that the biggest driver comes from secured credit products. And going forward, we believe that this trend should continue as well.

Darrin, I think that going to the second part of your question, there is a mathematical effect also, which is we expect to actually have a higher number of active clients -- and then that's what is kind of diluting growth of ARPAC to around 30-something percent, which is what you mentioned. At the same time, if I look at same client growth, then there is a very, very good trend on that. So it's also a mathematical impact.

Very helpful, guys. Just very quickly, I mean, it looks like private payrolls loans are obviously executing well enough to fill that gap from FGTS. Just maybe just remind us again the strategy and confidence in continuing to gain market share here.

I think that 2 things happening at the same time, right? So new regulatory rules made it harder to originate on the FGTS prepayment. At the same time, we're more and more confident on the private payroll loans. And I think that, first of all, it was always one of our large bets because it basically unlocks a huge opportunity for us as this was probably the largest captive market still in the hands of the incumbent banks because prior to that product, in order for us to conquer a payroll, we'd have to bid on it and then the employer would actually get that -- those huge amounts of money. So there was a no game for us to play in that arena, and that's basically why incumbent banks had more than 95% of market share of that market. So with the new product, we can access the employee directly without going through the employer. And we were right out of the gate when the product was launched because we thought it was in our benefit to actually learn it quicker. So we were the second company to be actually certified to operate. So we went in early. We saw everything, let's say, I'd say, earlier than most of the other players. So we learned about it. And then as we actually became more and more confident and as the operational issues actually came to a level where we had comfort to actually start originating more and more. We did so. If you look at the 3 months of the quarter, we actually did on average more than BRL 500 million of origination per month. And the first quarter also indicating an even better trend. So we were first out of the gate. We learned very well. I think that one of our key strengths is our contextual digital distribution. If you compare what we are doing to most of the peers in the market, we have more origination coming from our own channel than more than almost everyone else. So 80% of our origination is actually driven by in-app contracts. So I think it's a mix of things, but we remain really bullish on it, and we feel that we can be definitely one of the protagonists of that new market.

Our next question comes from Dan Perlin with RBC Capital Markets.

And also, let me add my congratulations on getting the IPO done and good quarterly results. Just a couple of quick ones. In the shareholder letter, you talked about expected credit to be about 60% of total revenues. Obviously, you spent a lot of time here on the call talking about secured growing faster, but it also sounds like that's going to get to about 25% of revenue. So the first question is just is that your stated goal for your '26? Or is that more your ambitious goal over the next couple of years? And then I have a quick follow-up.

Dan, good to hear you. Yes, it's our, let's say, midterm expectations. We do believe that credit revenues should go up to 60%. And we believe that the biggest driver will come from secured credit products that should go from 19% up to 25%, let's say, 2 to 3 years from now.

Got it. Okay. That's great. The second question I have is the net interest income was up over 70%. So that was fantastic to see. And the margins still kind of holding in around 20%. I guess the question ultimately is, as you think about the mix shift of the business going forward, are there any puts and takes we need to be thinking about? Like is the 20% margin sustainable? Should that drift higher? Or is that kind of what you have to manage to in order to kind of continue to have that type of net interest income growth?

I'd say it's broadly sustainable. Of course, as we migrate towards secured products, we might get a little bit of compression just because those products have lower spreads. But we don't see in the horizon any major downward pressure on our margins. So I think that's the level we expect. It might even go up a little bit as interest rates go down.

We also have like, let's say, in terms of comparing to other peers in the market, we do have a higher interest earnings portfolio. Last quarter, it was close to 38% compared to maybe, I don't know, mid-20s from the market. So we have a higher presence of PicS finance transactions in our business model, which drives, let's say, higher net interest margins compared to the average of the market. So that's another complement that I can share in terms of the level of profitability that we have in our business model compared to other players.

Our next question comes from Neha Agarwala with HSBC.

Congratulations on the results. Just following up on one of the previous questions. You've shown phenomenal growth in the private payroll product. And as you detailed, that's been quite strong for you. But now all the large incumbent banks seem to be much more open in terms of growing in that product. Do you see the dynamics changing for you with all the other players being more active in terms of demand for the loans or pricing for the loans? Any expectation in that regard?

So actually, I would say that is the opportunity for us, the upside is much larger than any competition pressure. So we still are pretty positive around that, even though there's going to be more players on that product. But for us, the upside in terms of accessing the payroll deductions and being able to offer a good credit line for private employees is much higher.

Okay. And any concerns regarding asset quality? We know you're originating much more on the secured lending side. Is that more opportunistic? Or are you just being very cautious in terms of taking the credit risk with unsecured product for your customer base?

If you look at our policies, we actually drive it to be at least 40% of our portfolio being secured. So that's the overall policy. At the same time, we see great opportunity on the private payroll loans. So we are, let's say, forcefully directing our efforts into that. And it's, let's say, cannibalizing on what we could originate in unsecured personal loans. But because we feel that the opportunity is great. So that's mainly yes.

The question-and-answer section is over. We would like to hand the floor back to Mr. Eduardo Simoes for the company's final remarks.

So thank you all for letting us host us today. It's an important milestone for us. It's our first earnings call. Hopefully, you leave with the impression of a quite strong first earnings call, and we expect to keep that promise running for future calls. Thank you so much, and we'll be around in the next few days if you guys like to talk to us. Thank you.

PicPay's conference is now closed. We thank you for your participation, and wish you a nice day.