PagSeguro (PAGS) Q4 2025 Earnings Call Transcript

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DATE

Wednesday, March 4, 2026 at 5 p.m. ET

Call participants

• Co-Chief Executive Officer — Ricardo Dutra
• Co-Chief Executive Officer — Carlos Malaj
• Chief Financial Officer — Gustavo Sechin

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Takeaways

• Full-Year Revenue -- BRL 13.0 billion, reflecting 16% growth, powered by a 51% increase in banking revenues and a 9% rise in payments revenues.
• Net Income -- Increased 4%, while higher financial expenses linked to the SELIC rate limited overall net profit growth.
• Earnings Per Share (EPS) -- BRL 7.99, up 21%, with buybacks and dividends resulting in a 15% total shareholder yield.
• Fourth-Quarter Total Payment Volume (TPV) -- Grew 10% sequentially, signaling an inflection and sequential improvement in volume trends.
• Expanded Credit Portfolio -- Approximately BRL 50.0 billion; core segments (loans, credit cards, working capital) up 33%, with NPLs 90 at about half the industry average.
• Total Deposits -- Surpassed BRL 40.0 billion, rising 13%, with a shift to 95% on-platform deposits, indicating higher digital engagement.
• Total Net Revenue (Ex-Interchange & Card Fees) -- BRL 3.5 billion, a 12% increase for the quarter, confirming banking and repricing efforts offset higher costs.
• Banking Gross Profit -- BRL 757.0 million in revenue, a 47% gain; gross profit up 54% year over year, with a 72% revenue margin.
• Non-GAAP Net Income -- BRL 678.0 million for the quarter, up 7.4%, driving annualized ROAE to 18.4% (an improvement of 100 basis points).
• Operating Expense -- Decreased 2% year over year, as lower personnel and marketing costs drove a 320-basis-point year-over-year improvement in operating leverage.
• Financial Costs -- Rose 39% versus prior year, but declined 1% sequentially due to diversification efforts in funding sources.
• Cash-In Metric -- Exceeded BRL 90.0 billion for the year, up 11%, with per-client figures rising 10% to BRL 5,300.
• Capital Expenditure (CapEx) -- Hit BRL 2.3 billion, at the high end of the BRL 2.2–2.3 billion range, with 2026 CapEx guided to BRL 1.8–2.0 billion.
• Share Buybacks -- Over 27.0 million shares repurchased during 2025; February saw 5.0 million shares canceled and BRL 617.0 million paid as cash dividends (BRL 1.4 billion to be paid in 2026 in tranches).
• Basel Index Ratio -- Temporarily fell below the 18%–22% target after capital reallocation driven by a regulatory tax framework, with the CFO clarifying, "this effect is purely accounting driven and does not impact our cash position nor our ability to support growth."
• 2026 Guidance -- Credit portfolio growth targeted at 25%–35%; gross profit expected to rise 6%–9%; non-GAAP diluted EPS growth guided to 9%–13%; CapEx to be BRL 1.8–2.0 billion.
• NPL Ratio -- QOQ increase of 30 basis points attributed to both regulatory changes ("we keep accruing interest revenues until ninety days") and greater unsecured exposure, but still "pretty much half of the industry."
• Mid-Teens Tax Rate -- Tax rate for 2026 expected around mid-teens as higher banking revenue increases structural tax levels.
• Customer Focus -- Strategic emphasis remains on SMB (small and medium businesses) as the primary volume and growth driver, with nano merchants addressed via specific initiatives like tap on phone.
• Long-Term Ambitions -- Management outlined a 2029 goal of BRL 20.0 billion in credit portfolio,>10% gross profit CAGR, and>60% EPS CAGR, with continued emphasis on a balanced mix and AI-enabled credit solutions.

Summary

PagSeguro Digital (NYSE:PAGS) reported sustained revenue expansion across both banking and payments segments, while strategic pricing actions and product diversification helped counteract higher financial costs from elevated SELIC rates. The company advanced its digital ecosystem with increased banking activity, registering sizable growth in deposits, customer transaction intensity, and credit engagement, particularly among SMBs. Management executed disciplined capital allocation—evidenced by significant share buybacks, a multi-tranche dividend payout, and proactive cost management—which led to enhanced operating leverage and improved returns on equity. Strategic 2026 guidance reinforces a focus on high-quality credit origination, continued efficiency gains, and measured investment, all grounded in conservative macro assumptions and a regulatory environment that temporarily affected the Basel ratio without reducing available cash or growth capacity.

• Co-CEO Carlos Malaj stated, "In many areas of our banking business, our market share remains below 1%," revealing substantial future expansion potential as the ecosystem cross-sells and deepens client relationships.
• Sequential TPV rebound was supported by logistics and product enhancements initiated mid-2025, with management citing ongoing momentum entering 2026 across all core customer cohorts.
• Operating expense and CapEx guidance for 2026 reflects targeted reductions by deploying reverse logistics and tap on phone initiatives to optimize point-of-sale terminal usage, with no adverse customer impact anticipated.
• CFO Gustavo Sechin clarified that EPS guidance uses non-GAAP net income and does not assume share count reductions from ongoing buybacks, signaling a transparent baseline for reported earnings growth.
• Full-year tax rate is structurally set to rise as banking revenue expands, with Sechin indicating "for this year, we should post a tax around mid-teens for the full year."
• The company acknowledged that 2026 credit and profit growth is intentionally paced to allow for cohort building and sustainable risk practices, with steeper acceleration possible if the macroeconomic climate and underwriting performance improve.
• Management reaffirmed that while macro factors such as SELIC rates could affect near-term results, the 2029 targets are predicated on stacking credit cohorts rather than linear growth, supporting an ongoing shift toward high-quality, recurring revenue streams.

Industry glossary

• SELIC: The short-term reference interest rate set by Brazil's central bank, directly affecting financial institutions' funding costs and credit pricing.
• TPV (Total Payment Volume): Aggregate value of all payment transactions processed on the platform during a specified period.
• PIX: Instant payments platform managed by the Central Bank of Brazil, enabling immediate fund transfers, widely adopted as a digital cash-in and transaction tool.
• NPLs 90 (Non-Performing Loans 90 days): Credit portfolio balances overdue by 90 days or more, a key risk indicator monitored by lenders.
• Basel Index Ratio: Regulatory capital adequacy measure reflecting a bank's capital strength relative to risk-weighted assets, mandated by international Basel standards.
• CET1 (Common Equity Tier 1): A core measure of a financial institution's equity capital as defined by regulatory standards, forming the basis for financial stability assessment.

Full Conference Call Transcript

Ricardo Dutra: Hello, everyone. Thank you for joining our full year and fourth quarter 2025 earnings call. In Q4, we continued to expand our credit and banking businesses along with the reacceleration of acquiring volumes. As a result, we are pleased to report a robust performance demonstrating our resilience sustained by disciplined execution and value creation focused on our long-term ambition. Going to slide four, we can see the key operational and financial highlights for the full year 2025. Compared to last year, our revenues reached BRL 13,000,000,000, 16% growth, driven by an impressive 51% growth in banking revenues and 9% in payments revenues. Net income was up 4% year over year.

Later in the presentation, we will see the main impact on net income was due to the increase in financial expenses linked with the basic interest rate of Brazil, SELIC, which grew from an average of around 10.8% per year in 2024 to almost 14.5% per year in 2025. Going to the value creation for shareholders section, our earnings per share reached BRL 7.99, growing 21% year over year. Buybacks and total dividends distributed in 2025 reached billion, leading to a 15% total shareholder yield. On slide five, we can see the highlights of the fourth quarter. Our TPV grew 10% quarter over quarter, marking an inflection point with sequential improvement in volumes.

Our expanded credit portfolio reached BRL 50 billion. It is important to highlight the portion of the credit portfolio composed by loans, credit cards, and working capital grew 33% year over year, with NPLs 90 approximately half of the industry average. These trends reinforce the underlying strength of our ecosystem and our ongoing commitment to expanding access to financial services in a responsible and sustainable way. On the funding efficiency initiative, our deposits reached billion, growing 13% year over year. Moving on to financial highlights, our total net revenue, excluding interchange and card scheme fees, increased 12% year over year, reaching BRL 3,500,000,000.

Our non-GAAP net income was BRL 678,000,000, 7.4% higher year over year, leading to annualized return on average equity of 18.4%, improving 100 basis points year over year. On slide six, I am pleased to announce we successfully delivered our 2025 guidance despite strong headwinds such as macro volatility and sharp increase in Brazilian interest rates in 2025. Gross profits grew 6.9% for the year, within our expected range of 5% to 7%. GAAP diluted EPS increased 18% in 2025, above the guided range of 13% to 15% using the same share count as of December 2024. When you consider the benefit of buyback execution reducing shares outstanding, EPS increased more than 20% year over year.

Capital expenditures reached BRL 2,300,000,000 in 2025, landing at the upper end of our BRL 2,200,000,000 to BRL 2,300,000,000 range. Overall, the full delivery of 2025 guidance makes us confident about 2026 perspectives and reinforces our strong track record as shown in the following slide. I would like to briefly focus on our consistent track record in creating shareholder value. Since our IPO in 2018, GAAP diluted EPS has grown at a compounded annual rate of nearly 16% despite global disruptions in macro during this time frame. Throughout this journey, we have advanced in key strategic milestones which broaden our addressable market, strengthened profitability, and built a solid foundation for sustainable earnings growth.

These efforts have increased the visibility and recurrence of our results, enhancing predictability and reinforcing the resilience of our business model in generating long-term value. Now I will pass the word to Carlos Malaj. Thank you, Ricardo. Good evening. In this section, we will take a look at the operational and commercial performance of our units in this past quarter. Let me start on slide nine where we highlight our main growth opportunities. As we have highlighted in recent quarters, as we tap into the new verticals, there is substantial room for expansion across our platform.

In many areas of our banking business, our market share remains below 1% which reinforces our conviction that we are only at the beginning of what we can build, whether through deeper cross-sell or a stronger and more efficient deposit franchise or a broader, more diversified credit portfolio, all managed with discipline and a long-term view. On the next slide, we will highlight our customer-centric approach demonstrated by increasing transactionality and engagement of our ecosystem. The evolution of our cash-in metric, which represents inflow not related to acquiring, remains one of the most important indicators of our client activity on our platform.

In 2025, cash-in reached more than BRL 90,000,000,000, an increase of 11% compared to the same period of last year. On a per client basis, the figure rose to BRL 5,300, up 10% year over year. As a reminder, cash-in is mainly by PIX transactions received, showing how PIX has become an important and profitable component of our business. We are also seeing an increase in our platform usage as measured through the amount of bill payments, PIX transactions, and the penetration of investment and insurance products, signaling deeper relationships and improved monetization as clients increasingly rely on us for a wider portion of their financial needs.

These trends underscore the strength of our ecosystem and the growing intensity of customer engagement across our base. On slide 11, let us speak about our credit performance. We can see credit as a strategic driver of engagement across both our banking and payment business, enabling deeper transactional activity and unlocking meaningful cross-sell opportunities. In the fourth quarter, our total credit portfolio reached BRL 4,600,000,000, a 33% year over year increase. Since 2024, we have been gradually accelerating underwriting for unsecured products with a particular focus on working capital. This progress reflects ongoing improvements in our risk assessment and collections capabilities, increasingly supported by AI.

While origination typically slows in the fourth quarter due to the seasonal pattern, working capital originations were still 26% higher than in Q3, showing healthy and consistent traction. When we include financial operations linked to merchant prepayment, supported by our instant settlement feature, our expanded credit portfolio now approaches BRL 50 billion, up 3% over the last twelve months despite lower volumes. Turning to asset quality, as shown on the bottom right of the slide, our NPL 90 ratio remains well below market average due to our disciplined approach to risk and product mix. The small increase we observe is a natural consequence of the greater mix of unsecured products in the portfolio.

On the next slide, we present the continuous strength of our deposit base and the progress we are making in improving our funding efficiency. During the quarter, total deposits reached more than BRL 40 billion, growing 13% year over year, a resilient performance despite the macro environment. Deposits are the core of our funding structure. In this quarter, we saw a meaningful shift towards on-platform deposits which reached 95% of the total, reinforcing strong client engagement and the growing relevance of our digital channels. Importantly, this was the seventh consecutive quarter of reduction in our funding cost as a percentage of the CDI.

This trend highlights the effectiveness of our strategy to broaden and diversify our funding mix with cost efficiency and it contributes to the resilience of our liability structure and supports the expansion of our credit portfolio. Finally, as shown on the right-hand side of the slide, our loan-to-funding ratio improved from 113% last year to 111% this quarter, as we continue to grow credit with caution and prioritize a well-balanced structure. With that, I will hand it over to Gustavo who will walk you through the financial highlights of 2025.

Gustavo Sechin: Thanks, Carlos. Hello, everyone, and thank you for joining us today. Let us focus now on our consolidated financial results. In this first slide, as a consequence of the increasing transactionality and engagement, total revenue and income net of interchange and card scheme fees reached BRL 3,500,000,000 in the fourth quarter, up 12% year over year. This performance captures the expansion of the banking business and also the repricing measures we began implementing in payments in 2024, which have been essential to offset higher financial cost and to reinforce the sustainability of our revenue base. It is very important to highlight that revenue growth has once again outpaced TPV, showing that our repricing strategy effectively supported profitability.

Disciplined execution drove resilient results in 2025, positioning us to sustain solid performance into 2026, despite market uncertainty. Banking revenue reached BRL 757,000,000, growing 47% year over year, driven by the expansion of our credit portfolio, higher engagement, and stronger monetization supported by deposit growth and increased fee generation, particularly from card usage and account-related services. As a result, banking gross profit grew 54% year over year, with a 72% margin of revenues. The combination of stronger banking results and our repricing efforts helped partially offset the impact of higher interest rates throughout the year.

Consolidated gross profit reached BRL 2,100,000,000 for the quarter, an increase of 80.7% year over year when we exclude the negative effect of billion of buyback and dividend distributions. Turning to the next slide, fourth quarter delivered operating leverage reflecting continued efficiency gains across the platform. Our disciplined approach to managing expenses and delivering operating leverage remains a key pillar of our strategy, and it played an important role in helping us navigate the impacts of higher financial costs in this period, allowing us to balance sustainable growth with continued profitability.

On the cost side, financial costs increased 39% year over year, driven mainly by the higher interest rate environment and the effects of recent capital structure adjustments, as highlighted earlier. On the other hand, sequentially, financial costs reduced 1% due to the progress we have made in diversifying our funding structure and reducing our funding cost. At the same time, total losses declined 8%, reflecting improvements in our know your customer and onboarding processes, which led to fewer chargebacks. This benefit was partially offset by the natural increase in expected credit loss as we continued to accelerate our credit operation. Operating expense decreased 2% year over year, clearly showing our commitment to efficient cost management.

This reduction reflects lower personnel expenses and more disciplined marketing investments. As a result, operating leverage improved significantly by 320 basis points compared to the same period last year. Moving on to the next slide, we reported non-GAAP net income of BRL 678,000,000 in the quarter, representing 7% year over year growth and an increase of 16% on our diluted EPS. On the right side of the slide, you can see our return on average equity improving by 100 basis points year over year, reaching 18.4% compared to 17.3% in 2024.

Even with a conservative capital structure, we have consistently managed to deliver solid returns, and it becomes clear the positive impact in this metric as we progress in improving our capital structure, as shown in the next slide. Now moving on to the next slide, let us focus on the initiatives that drive shareholder value and improve our capital structure. In order to achieve our Basel index target level of 18% to 22% in the next coming years, we have used not only dividends but also buybacks as an additional tool to enhance shareholder value, as it can be adjusted to market conditions and liquidity.

In our point of view, dividends offer stability and predictability, while buybacks provide tactical flexibility, and it is important to use both tools to improve our capital structure. Throughout 2025, we maintained consistent momentum in our buyback program, repurchasing over 27,000,000 shares. In February, 5,000,000 common shares held in treasury were canceled. Furthermore, we paid BRL 617,000,000 in cash dividends during 2025, and in 2026 last month, roughly million out of the BRL 1,400,000,000 dividend announced for the year were already paid. The remaining balance will be distributed in three tranches over the course of this year. This schedule reinforces the consistency of our capital return framework and our focus on predictable value creation.

Let me address our CET1 and the impact from the new regulatory tax framework. Due to the tax framework approved last year, a new 10% withholding tax on intra-group dividends is effective in Brazil. Dividends declared by December 2025 will remain exempt from this tax provided they are effectively paid by 2028. This transition rule gave companies the ability to internalize capital flows ahead of the new framework and we are managing this process in a disciplined manner. As a result, in the fourth quarter of 2024, 20 of our regulatory capital at the entity level.

While the consolidated capital base remained stable, our Basel index ratio decreased temporarily this quarter, placing our Basel index below our intended target of 18% to 22%. It is important to highlight that this effect is purely accounting driven and does not impact our cash position nor our ability to support growth. The reallocation of excess capital is consistent with our long-term capital efficiency strategy. As we look ahead, the actions we took in 2025 position us well for the next phase of disciplined and sustainable growth, and this strengthens our ability to navigate 2026 with confidence.

Bearing that in mind, let us move to the next slide where we outline our 2026 guidance and walk through the operational priorities, credit initiatives, and efficiency opportunities that support our trajectory and reinforce the foundations for long-term value creation. Starting this year, we are evolving the way we communicate with the market by aligning our annual guidance with our long-term ambition for 2029. This shift reflects the confidence we have in the structural levers of our business and the visibility we have built into our key growth drivers.

In this context, our full-year guidance will focus on four pillars: the expansion of our credit portfolio, the acceleration of gross profit, the continued progress toward delivering non-GAAP diluted EPS, and also capital expenditure, all in line with our long-term path. We expect our 2026 credit portfolio growth to be in the range of 25% to 35%, supported by the expansion of underwriting in our core credit products, including working capital. Gross profit growth outlook is expected to be in the range of 6% to 9%, reflecting an increased contribution of our banking segment in a still pressured financial cost scenario.

Diluted non-GAAP EPS is expected to be in the range of 9% to 13%, consistent with our long-term profitability roadmap and the operational efficiency we are driving across the company. Finally, capital expenditure is expected to be in the range of BRL 1,800,000,000 to BRL 2,000,000,000, reflecting our focus on efficiency and disciplined approach. With that, I will invite Carlos for the closing remarks.

Carlos Malaj: Thank you, Gustavo. Before we conclude, let us move to the next slide for a few final remarks. First, we can see credit growth accelerate supported by disciplined underwriting and healthy asset quality. The continued momentum in our unsecured working capital solutions, driven primarily by our own active client base, reinforces both the relevance of our products and the quality of the risk management approach. Secondly, acquiring volumes have been recovering steadily since mid-third quarter, marking a clear inflection point. This recovery is now consolidating into a strong foundation for positive trends as we move into 2026, reflecting healthier client activity and the effectiveness of our commercial initiatives.

And finally, improved funding efficiency and consistent cost control have played an important role in protecting margins. These efforts allowed us to sustain net income growth even in a still challenging interest rate environment. Together, these elements demonstrate our ability to execute with discipline, manage macroeconomic pressure, and continue advancing our long-term goals. As a reminder, our 2029 strategic targets include billion in credit portfolio, with a balanced mix of secured and unsecured products, emphasizing working capital loans and AI-enabled solutions such as private payroll and fixed finance; above 10% gross profit CAGR driven by stronger banking contribution, cross-sell opportunities and efficiency gains; and above 60% EPS CAGR as we continue converting growth and operational improvements into consistent shareholder returns.

These targets reflect our confidence in the scalability of our platform and the strength of our execution.

Operator: Thank you all for the presentation. We will now open for questions. As a reminder, we will only take one question per analyst to ensure the best use of our time. Our first question comes from Mario Pierry with Bank of America. You can open your microphone.

Mario Pierry: Hi, guys. Good evening. Thank you for taking my question. I wanted to focus on your gross profit guidance of 6% to 9%. Trying to understand, because this looks conservative to us, because as you mentioned, your TPV growth accelerated quarter over quarter to 10%. However, you are guiding for 6% to 9%. And then when we think about your financial expenses, 2026, they should be coming down as rates come down. So I am trying to understand. Are you expecting a slowdown in revenue growth, or what kind of SELIC rates do you have embedded in your forecasts? And maybe that is the reason why gross profit is growing single digits.

And again, this number is below your medium-term outlook of at least 10% growth. I am trying to understand then what gives you confidence that this growth can accelerate going forward. I understand you are introducing more banking products and you are accelerating the credit product, but I just wanted to understand a little bit better the single-digit growth in gross profits. Thank you.

Gustavo Sechin: Hi, Mario. Thank you. It is Gustavo here. Thank you for your question. You are right that we are posting for this year lower gross profit when compared to our long-term ambition, but you have to remember that when we released our long-term ambition, and also given the macro uncertainty that we are facing and still facing, we should assume that the performance in 2026 should be a little bit below the long-term ambition. And also, it is important to consider as we ramp up the credit business, it also consumes higher provisions, and it also reduces the gross profit and also reduces the EPS in the first year of our long-term ambition trend.

But we are totally confident that we are on track to deliver the long-term ambition, in line with the EPS CAGR and also the gross profit CAGR. When we talk about the SELIC rate, that is very important when we talk about the financial cost. When we look at what we expect for 2026, despite that we will face cuts in the interest rate along the year, the average SELIC probably is going to be quite close to the 2025 SELIC rate, and at the same time, we also assume that and included that in our 2026 guidance.

Mario Pierry: Okay. And, Gustavo, let me follow up then. When we look at your EPS, growing faster than gross profits, then you are implying, I think, efficiency gains here. If you can just explore a little bit where these efficiency gains are coming from. And just to be sure, the EPS of 9% to 13% does not imply a reduction in the share count. Correct?

Gustavo Sechin: Yes, you are right. We are not assuming the same share base for the EPS guidance. And also, we are considering continuing to generate operating leverage through the operation. Understand that we have different initiatives that we are working on. Some of them we put in place, and all of those initiatives will deliver continuous operating leverage.

Mario Pierry: Okay. Thank you.

Operator: Our next question comes from Guillermo Grispa with JPMorgan. You can open your microphone.

Guillermo Grispa: Hi. Good evening, everyone. Thank you for opening for questions. Just one clarification before I jump into my question. The EPS guidance, should I read it as same share count, meaning EPS is the same as earnings growth? Or should I dilute it with the buyback of the year? This is just a clarification. And then my question is actually on the TPV recovery. It was a nice quarter. I just want to get your views and an update on what is the diagnosis you have on why you were missing clients, and potentially having churn and what you solved so far. And looking ahead, if you still have any bottleneck that you feel that you need to fix.

Basically, this whole diagnosis with what is happening, what you already did, and what is still to be done in early 2026. Thank you so much.

Gustavo Sechin: Thank you for your question. Just to make it clear, we are not considering the buyback in our EPS. So if we continue, and we intend to continue, working on our buyback program, it will be dilutive for the EPS.

Carlos Malaj: And thank you for your question here. This is Carlos. Regarding the TPV recovery, we did have some operational enhancements in the second half of last year. We deployed our new logistics operations by August. We are reviewing everything related to the set of terminals that we have with our customers. The banking platform is gaining quality and a new set of products. So everything that we are doing here under the operational perspective is helping us to keep up with the customer database and to recover TPV.

Remember that on the last call that we had with you, we mentioned that the low part of the curve in terms of TPV was in August, and we keep seeing the recovery month after month. At the beginning of this year, we keep seeing the same movement that we saw throughout the second half of the year.

Ricardo Dutra: And just to complement here, remember, of course, TPV is one of the metrics that we follow here, but TPV per se is not the main metric. Look at the revenues that we have been growing year over year. We reached 16% revenue growth. If you consider the financial services companies in Brazil, including fintechs and banks, it is one of the largest growths in the year. So what we are trying to do here is to optimize the growth of TPV combined with revenues and combined with gross profit.

Guillermo Grispa: That is clear. That is clear. Thank you. Indeed, the gross profit had a rebound, went from 2% year over year to 7%, 8%. Thank you so much.

Operator: Our next question comes from Arnaud Shirazi with Citi. You can open your microphone.

Arnaud Shirazi: Hi, all. Good evening. Thanks for the opportunity. I have two brief questions. The first one is relating to the NPL increase compared to third quarter. We saw 30 basis points deterioration. What is behind that? My second one is related to the CapEx guidance for 2026. It is expected to be below 25, in 400 meters. What is behind that? Thanks.

Gustavo Sechin: Arnaud, just a second.

Arnaud Shirazi: I could stop.

Gustavo Sechin: Our CapEx guidance for this year includes a reduction or savings around BRL 4 million when compared to last year, basically because we are implementing initiatives, as I said in the first question of Mario, not related only to the OpEx, but also related to the CapEx that we intend to deploy through the year, and it will reduce both the demand for POS and also the demand for technology investments that we have in plan.

Ricardo Dutra: Arnaud, can you repeat the first part of the question? Because it cut a little bit of connection here. First part of the question, please.

Arnaud Shirazi: No problem at all. We saw a 30 basis points deterioration in NPLs in this fourth quarter. What is behind that?

Carlos Malaj: Here, it is Carlos. I am just going to make sure if I understood it right. You are asking about the NPL 90 bps that we saw quarter over quarter, right? Yes. I am getting to that. We have, I would say, two main effects here. First, it is the new regulation here where we keep accruing interest revenues until ninety days. That makes the balances go up. So that is an artificial movement due to the regulatory milestone. Plus, there is the unsecured products that we are deploying that help push the NPL 90 a little bit up.

Remember that we have pretty much half of the industry in terms of NPL, which leaves us a lot of room to keep pushing up our credit outstanding.

Arnaud Shirazi: Great. Thank you. If I may, just a follow-up on CapEx. You mentioned that you reduced demand for POS. What is driving that? Is it going to be tap on phone or anything else? Why would it reduce the demand? Thank you.

Carlos Malaj: Here, there are many factors that we are working on under the product perspective and under the logistics perspective that help us optimize the terminal CapEx. We are developing a reverse logistics to make sure that every time we have to replace a terminal, we get the terminal that carries a kind of problem to remanufacture that and to reinclude that in our logistics network. On top of it, we have the tap on phone that helps, especially on the terminals that are simpler, to create these CapEx savings over time. When you see a number which is below what we had in 2025, there is no customer impact.

In fact, we are going to keep pushing forward the customer database throughout 2026.

Arnaud Shirazi: Nice talk to you. Thank you. Talk to you.

Operator: Our next question comes from Kaio Prato with UBS. You can open your microphone.

Kaio Prato: Hello, everyone. Good evening. First, before my question, if I can just clarify if the EPS, the non-GAAP growth that you mentioned, is basically today considered as the same as the net income. And also, you basically sent us the guidance on the non-GAAP. I would just like to understand if you are assuming the same level of share-based compensation for 2026 or if we can see any acceleration. Then I can follow up with my question, please.

Gustavo Sechin: Hi, Kaio. Gustavo again. Yes, we are considering for the EPS the net income non-GAAP as the base for calculation for the EPS. And also, as I said, we are going to consider the number of shares that we will find in each period that we are going to calculate. That is very important to consider, because in both cases, as we have been balancing buybacks and dividends, we understand that it is better to track the EPS trend. It eliminates the long-term investment long-term plan that we have here in the company, so we reduce that variable for the calculation of the EPS.

When I said the share-based compensation, just to make it clear, when we use the net income non-GAAP, it eliminates for the EPS calculation the share-based remuneration.

Kaio Prato: Yes, but just wondering if there is any potential acceleration on the share-based to understand what would be the gap.

Gustavo Sechin: No. We could assume the same levels. We do not have any to accelerate that.

Kaio Prato: Okay. Great. And in terms of my main question, on your engagement metrics, I think all of them were quite good this quarter, so encouraging trends across the board. And my question is, especially in the banking, if you can break down this metric between pure individuals and actually pure merchants. I am just wondering about each of them. In your strategy, I would like to understand how relevant individuals can be going forward. Any metric that you can share in terms of engagement on pure individuals would be good. And if you can link that to the expectation on the breakdown of your portfolio by 2026.

You already sent the guidance in terms of growth, but it would be interesting to see how the breakdown could be in terms of working capital for merchants and also individuals. Thank you.

Carlos Malaj: We are not guiding exactly those numbers like individuals and entrepreneurs here, but I can assure you that both are growing; both are gaining engagement. Remembering that for the kind of customer that we have, especially on the payment side, the individual and the SMB have pretty much the same set of products or the same set of needs. When we take a look at the product evolution here, we have initiatives on both sides: on payments, on credit products for small enterprises, and for individuals also, as the private payroll loan that has already started to pilot inside the company.

So, sorry that I could not answer completely your question, but it is something that is growing on both sides.

Kaio Prato: Okay. Thank you very much.

Operator: Our next question comes from Thiago Paura with BTG. I believe he left the queue. We are going to go with Tito from Tito Labarta with Goldman Sachs.

Tito Labarta: Okay. Good evening. Thank you for taking my question. Just a follow-up, I guess, more on the capital return. As probably mentioned, you are assuming a similar share count. We know you have the dividend around 8% yield, and you completed 70% of the buyback. So if you complete the other 30%, there is maybe another 2% of shares. But should we assume any additional buyback, or how are you thinking about capital return beyond that? Is that it for 2026 and then we should start thinking about further buyback and dividends more in 2027? Or is there a potential for additional buybacks that collapse in 2026?

Gustavo Sechin: Hi, Tito. It is Gustavo here. I think that as you mentioned, we have been working on the buyback at the same time as we have been working on dividends, and we intend to use both tools and try to balance both tools because that is important. They give us some flexibility in terms of when we use buybacks, and also dividends bring some stability in terms of return. We have the third buyback program that was launched last May. It remains open. We have been executing since then. Approximately 80% of this buyback program has been executed, and we are probably going to deploy the rest of this program in the upcoming months.

At the same time, it is very important to remember that we have released BRL 1,400,000,000 in terms of dividends that are going to be paid along this year in three more tranches. Just remember, last February, we paid the first one of BRL 200,000,000.

Tito Labarta: Alright. Thank you.

Operator: Our next question comes from Daniel Vaz with Safra. You can open your microphone.

Daniel Vaz: Thank you. Good night, everyone. Thanks for the opportunity to make questions. I am looking at your credit portfolio guidance, nearly at the midpoint of 30% year over year. This implies, right, I think we have already covered that in your strategic update, that the 2027 to 2029 window would be essentially a regime-changing pace, right? So it would not be a continuation of the current trajectory. I wanted to understand further on your confidence and the macro assumptions you embed in that back-end acceleration. What terminal SELIC rate are you using? Maybe, how much of that growth is a function of the rate cycle rather than structurally achievable market share gains?

That would be my question, and maybe I will do a follow-up later. Thank you.

Carlos Malaj: Hello, this is Carlos. Thank you for your question. We are looking pretty much at the same level as Focus for the SELIC at between 12.5% and 13%. But, again, there are many other matters that explain a lower growth in the first year of our long-term guidance here. There are the product evolutions that we are deploying as we speak here with you. There are a lot of products that are going to our value proposition throughout the year. There are some learnings in the credit strategy to be deployed, and there is the macro environment also that is a little tougher.

We expect that in 2027 and 2028 it will be softer and have a better credit environment so we can evolve. It is a mix between the macro environment, the product evolution, and the credit strategy to make sure that we have the right base, the right credit performance to push the portfolio up to BRL 25 billion. And just to complement, remember that the credit portfolio is based on different cohorts, and then we start making these cohorts in 2025–2026, and they will stack up. So it is not a linear growth.

That is why when we gave the strategic update in September 2025, we said that 2026 would not grow on average the necessary pace to reach the BRL 25,000,000,000. So that is why we are giving this guidance, 25% to 35%. Of course, it could be higher than that, but remember that effect that we have with the cohorts that can stack up. Also, I would like to remember that today we are operating with NPLs that are half of the industry average, which gives us comfort and room to grow and to accelerate in a sustainable way, not one step forward, two steps back. We want to do it in a sustainable way.

Again, there is this mathematical or mechanical movement. The cohorts are going to stack up and then it is going to grow not in a linear way in 2027 and 2028.

Daniel Vaz: Thank you for the answer. Maybe a follow-up. Is the target basically contingent on a constructive macro scenario? I guess everything you said on your perspective of better models, stronger underwriting, product development, but still contingent on a constructive macro. If anything changes on the fiscal side, on the trajectory of the interest rates, we would probably be looking at revisions for this number. Am I correct?

Gustavo Sechin: Yes. I think you are right. It includes that market uncertainty. It is Gustavo here, just to clarify. In our guidance, it includes the kind of market uncertainty that we are facing, and there is room for acceleration. As we engage, as the macro brings more opportunity to grow, we are going to do that. So it is included.

Carlos Malaj: But just to complement, it is too far to plan when you think about two years ahead. Remember, we were in a scenario last week, and last Saturday, we had a new war in the world with the Middle East, with oil prices going up and down. There are many variables. What we are trying to send as a message here is that regardless of these macroeconomic movements, we are going to try to grow in a sustainable way. Of course, there are going to be cycles, credit cycles, but we are confident with the guidance for 2026, and we are confident with the long-term ambition that BRL 20,000,000,000 in 2029. Alright. Good. Thank you.

Operator: Our next question comes from Thiago Paura with BTG. You can open your microphone.

Thiago Paura: Hi. Hi, everyone. Thank you for the opportunity here. Good evening. I believe I have accidentally left the call. I left the queue in the previous call. But just a follow-up on the volumes, maybe a double click here on the dynamics that you are seeing given the change that you have been releasing recently in the TPV disclosure, just to get a sense from you regarding the mix behind incremental volumes growth. So basically, more recently, and what to expect going forward regarding the main drivers for TPV growth. Is it being more driven by nano merchants, more tip SMBs, larger accounts? Just to get a sense on this kind of client profile on the payment side. Thank you.

Carlos Malaj: Thank you for your question. Just answering straightforward, the focus of the company is still SMBs. So we are talking about small and medium enterprises. The nano merchant is part of our strategy on the tap on phone, on the organic inflow that we have here in terms of customers. We put our efforts, our capabilities, our marketing investment for SMBs, which is still the growth frontier of the company. So nothing different than that. We are going to keep pushing small and medium enterprises. Thiago, if I can add, I would just like to highlight we have a unique combination in terms of product and service, especially for SMBs. We have a very seamless logistics experience.

We have a full digital bank here with all sets of products and services, and it generates multiple revenue streams that we will deliver to our customers, and at the same time, we will continue to grow our operation. Right now, on top of that, we have been working on the credit avenue of growth. Those opportunities give us the confidence that we are going to be on track to deliver our results.

Thiago Paura: Great. Thank you. Thank you. And if I may, just a follow-up on the EPS guidance because several questions are coming from clients. Just to double check that, given the share count by the end of the year will be lower than now, mechanically, even if net income grows zero or it remains flat, that would imply something like just high single-digit EPS growth that is embedded in the guidance. That is the idea behind, just to double check that.

Gustavo Sechin: Mathematically speaking, yes, you are right. But you can assume that the net income will still grow.

Thiago Paura: Okay. Thank you. It will still be growing. Okay. Perfect. Thank you.

Operator: Our next question comes from Neha Agarwala with HSBC.

Neha Agarwala: Hi. Just a clarification on the volume growth that you mentioned. We saw good growth in fourth quarter, but how should we think about the sustainability of this growth? Some of your competitors might also be putting in more effort to retain clients. So how do you see the competition in 2026 and what efforts would be required for you to ensure that you retain the customers, especially given the fact that you have a lot of operational focus and you want to control the costs? If you could talk about that. And second one is just on the effective tax rate. We had a bit of volatility in fourth quarter, and you explained about the change in tax rate.

If you could elaborate a bit on that and tell us what kind of level we should expect going forward in 2026, 2027, roughly any range, that would be very helpful. Thank you.

Ricardo Dutra: Thank you for your question, Neha. In terms of TPV growth, if I understood the first part of your question correctly, we are not going to guide volumes throughout the year. But again, I will reinforce the same trend that we saw in the second half of last year we saw in the first quarter of this year. So we are very confident in our customer acquisition strategy. Also, we are quite confident in the way that we are engaging our customers to control churn over time. Of course, the competitive arena is quite hot, as you know, but we have a very powerful set of products here to keep growing or recovering TPV throughout the year.

And, Neha, just to complement, the competition is the same that we have been seeing in the last years. When you have an interest rate in the country at 15% per year, everyone needs to be rational. We do not see anyone trying to buy market share. Everyone is trying to look for profitability. I know you mentioned the cost control that we are doing, but all the cost control we are looking for and that we are reaching at this time does not affect the customer service, our go-to-market, and things like that. We are looking for efficiency.

We are using artificial intelligence in many fronts in such a way that we can have lower cost without any problem or any impact in service for our clients or the way that we go to market, just to be clear here. We are going to keep accelerating the way we have been doing in the past years and be more efficient in this go to market and all the back office and logistics and so on. Regarding the tax rate, Gustavo can.

Gustavo Sechin: Hi, Neha. Good to see you. Talking about the tax, I think that the main message is structurally tax rate should increase over time because of the increase of the banking revenue pool. But for this year, we should post a tax around mid-teens for the full year.

Ricardo Dutra: Neha, just to complement, I just want to reinforce here that we have a very powerful ecosystem. I know you already know, but it is worth mentioning that we have this digital bank account that we have been working on since 2019 or 2018. That makes the difference when you go to the market. We see some other players that believed in other synergies, and now they are talking about bank, but they are too much behind us, I would say. So we have this powerful combination of the digital account that serves SMBs, and all the power that we have in payments that was the origin of the company.

Just to be clear, we are using all the advantages that we have in this go to market. We grew, and it is worth mentioning, in Q4, 10% quarter over quarter while the market grew 5%. So we put double the market in Q4 compared to Q3. Thank you.

Neha Agarwala: That is very helpful. Thank you for that. Maybe, probably I missed previously. What is the SELIC assumption you have for 2026 as well as for the long-term guidance that you posted?

Gustavo Sechin: For this year, we are including 12.5% for the year end, which will give us an average SELIC quite similar to 2025. For the long-term guidance, we assume some reduction, but in spirit, they will be above 10% in 2027 and also in 2028.

Neha Agarwala: Super clear. Thank you so much.

Operator: This concludes today's presentation. You may now disconnect, and have a nice evening.

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