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Section 1: 6-K (FORM 6-K)

Form 6-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

For the month of May 2018

Commission File Number: 001-38353

 

 

PagSeguro Digital Ltd.

(Name of Registrant)

Av. Brigadeiro Faria Lima, 1384, 4º andar, parte A

São Paulo, SP, 01451-001, Brazil

+55 11 3038 8127

(Address of Principal Executive Office)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F  ☒

  Form 40-F  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Yes  ☐

   No  ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes  ☐

   No  ☒


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PagSeguro Reports First Quarter Results

Net Income reached R$148.5 million, up 144.9% compared to 1Q17. 1Q18

Non-GAAP Net Income reached R$223.9 million, up 255.5% compared to 1Q17.

São Paulo, May 29, 2018 PagSeguro Digital Ltd. (“PagSeguro” or “we”) announced today its first quarter results for the period ended March 31, 2018. Our consolidated financial statements are presented in Reais (R$) in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

First Quarter 2018 Financial & Operational Highlights:

 

    R$14.4 billion in total payment volume (TPV), up 138.7% compared with 1Q17;

 

    Active merchants in the last 12 months at close of period of 3.1 million, up 83.3% compared with 1Q17, with growth of 1.4 million net new merchants;

 

    R$855.0 million in Non-GAAP total net revenue*, up 89.2% compared with 1Q17; and R$928.0 million in total net revenue*, up 106.9% compared with 1Q17;

 

    R$223.9 million in Non-GAAP net income, up 255.5% compared with 1Q17; and R$148.5 million in net income, up 144.9% compared with 1Q17;

 

    Non-GAAP Net Margin of 26.2%, up 12.3 percentage points compared with 1Q17; and Net Margin of 16.0%, up 2.5 percentage points compared with 1Q17.

 

     At and for the three
months ended
March 31,
        

Main Operational and Financial Indicators (R$ millions, except per share amounts)

   2018      2017      Var.%  

TPV

     14,378.1        6,022.7        138.7%  

Active Merchants at close of period last 12 months

     3.1        1.7        83.3%  

Total Net Revenue*

     928.0        448.5        106.9%  

Net Income

     148.5        60.6        144.9%  
  

 

 

    

 

 

    

 

 

 

Net Margin (%)

     16.0%        13.5%        2.5 pp  
  

 

 

    

 

 

    

 

 

 

Basic earnings per common share (EPS)**

     0.4988        0.2311     

Diluted earnings per common share (EPS)

     0.4969        0.2311     

Non-GAAP Main Operational and Financial Indicators (R$ millions, except per share amounts)

   2018      2017      Var.%  

Non-GAAP Total Net Revenue*

     855.0        451.9        89.2%  

Non-GAAP Net Income

     223.9        63.0        255.5%  
  

 

 

    

 

 

    

 

 

 

Non-GAAP Net Margin (%)

     26.2%        13.9%        12.3 pp  
  

 

 

    

 

 

    

 

 

 

Non-GAAP Basic earnings per common share (EPS)**

     0.7525        0.2402     

Non-GAAP Diluted earnings per common share (EPS)

     0.7497        0.2402     

 

For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, see the last page of this earnings release.

* Total revenue and income.
** Weighted average number of common shares of 262 million during 1Q17 and 297 million during 1Q18.

 

1Q18 Earnings Release    1


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Financial Discussion:

I—Statement of Income

Non-GAAP disclosure

This press release includes certain non-GAAP measures. We present non-GAAP measures when we believe that the additional information is useful and meaningful to investors. These non-GAAP measures are provided to enhance investors’ overall understanding of our current financial performance and its prospects for the future. Specifically, we believe the non-GAAP measures provide useful information to both management and investors by excluding certain expenses, gains and losses, as the case may be, that may not be indicative of our core operating results and business outlook.

These measures may be different from non-GAAP financial measures used by other companies. The presentation of this non-GAAP financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered separately from, or as a substitute for, our financial information prepared and presented in accordance with IFRS as issued by the IASB. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with IFRS. These measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures.

Our Non-GAAP results consist of our GAAP results as adjusted to exclude the following items:

Stock-based compensation expenses and related employer payroll taxes: This consists of expenses for equity awards under our long-term incentive plan (LTIP). We exclude stock-based compensation expenses from our non-GAAP measures primarily because they are non-cash expenses. The related employer payroll taxes depend on our stock price and the timing and size of exercises and vesting of equity awards, over which management has limited to no control, and as such management does not believe it correlates to the operation of our business. The largest portion of this expense amount was recognized upon closing of our initial public offering (“IPO”) with the issuance of 1.8 million shares under LTIP awards that vested on the IPO date.

Foreign exchange gain on IPO primary share proceeds: This consists of financial income related to the impact of exchange rate variations on the conversion from U.S. dollars into Brazilian reais of the proceeds from our sale of new shares in the IPO. We exclude this foreign exchange variation from our non-GAAP measures primarily because it is an unusual gain.

Tax related to remittance of IPO primary share proceeds (IOF tax): This relates to the impact of Brazilian IOF tax (currency remittance tax) payable when we remitted the proceeds from our sale of new shares in the IPO from the Cayman Islands to Brazil. We exclude this IOF tax on the remittance of IPO primary share proceeds from our non-GAAP measures primarily because it is an unusual expense.

 

1Q18 Earnings Release    2


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Present value of note receivables: This relates to the effect of the recognition of note receivables in installments at present value. Prior to the IPO, one of the sources of cash was the early payment of note receivables with issuing banks at pre-agreed interest rates. After the IPO, we stopped the early payment of note receivables with issuing banks and started to use the IPO proceeds to fund the early payment of receivables feature for merchants. Since note receivables are no longer discounted with issuing banks, the amount of the present value adjustment will increase accordingly as a deduction of financial income. The amount of note receivables in installments at present value depends on the SELIC (Sistema Especial de Liquidação e de Custódia) rate, the Brazilian Central Bank’s overnight rate, over which management has no control. As such, management does not believe it correlates to the operation of our business.

Income tax on non-GAAP adjustments: This represents the income tax effect related to the non-GAAP adjustments mentioned above, except the Foreign exchange gain on IPO primary share proceeds.

For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures, see “Reconciliation of Revenue and Income to Non-GAAP Revenue and Income,” “Reconciliation of Expenses to Non-GAAP Expenses,” “Reconciliation of Income Tax and Social Contribution to Non-GAAP Income Tax and Social Contribution,” “Reconciliation of Net Income to Non-GAAP Net Income,” “Reconciliation of Basic and diluted EPS to Non-GAAP Basic and diluted EPS,” and “Reconciliation of GAAP Measures to Non-GAAP Measures.”

Total revenue and income

Our Total revenue and income, which includes revenue from transaction activities and other services, revenue from sales, financial income and other financial income amounted to R$928.0 million in 1Q18, an increase of 106.9% from R$448.5 million in 1Q17.

Our Non-GAAP Total revenue and income, which includes revenue from transaction activities and other services, revenue from sales, financial income and other financial income amounted to R$855.0 million in 1Q18, an increase of 89.2% from R$451.9 million in 1Q17.

 

     At and for the
three months
ended
March 31,
 

Reconciliation of Revenue and Income to Non-GAAP Revenue and Income:

   2017      2018  

Revenue and Income

     448.5        928.0  
  

 

 

    

 

 

 

Foreign exchange gain on IPO primary share proceeds [1]

     —          (89.8

Present value of note receivables [2]

     3.4        16.8  

Total non-GAAP revenue and income adjustments

     3.4        (73.0
  

 

 

    

 

 

 

Non-GAAP Revenue and Income

     451.9        855.0  
  

 

 

    

 

 

 

 

[1] Foreign exchange gain on IPO primary share proceeds: financial income in the amount of R$89.8 million related to the impact of exchange rates variation on the conversion from U.S. dollars into Brazilian reais of the proceeds from our sale of new shares in the IPO. We exclude this foreign exchange variation from our non-GAAP measures primarily because it is unusual income.
[2] Present value of note receivables: This relates to the effect of the recognition of note receivables in installments at present value in the amount of R$16.8 million in 1Q18 and R$3.4 million in 1Q17. Prior to the IPO, one of the sources of cash was the early payment of note receivables with issuing banks at pre-agreed interest rates. After the IPO, we stopped the early payment of note receivables with issuing banks and started to use the IPO proceeds to fund the early payment of receivables feature for merchants. Since note receivables are no longer discounted with issuing banks, the amount of the present value adjustment will increase accordingly as a deduction of financial income. The amount of note receivables in installments at present value depends on the SELIC rate, the Brazilian Central Bank’s overnight rate, over which management has no control. As such, management does not believe it correlates to the operation of our business.

 

 

1Q18 Earnings Release    3


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Net revenue from transaction activities and other services

Our Gross revenue from transaction activities and other services in 1Q18 amounted to R$514.1 million, an increase of R$296.8 million, or 136.6%, from R$217.3 million in 1Q17. This increase was principally due to a continued increase in our active merchant base and TPV. Our Gross revenue from transaction activities and other services during 1Q18 increased by a lesser percentage than our TPV, which increased to R$14.4 billion from R$6.0 billion in 1Q17. This difference in the growth rate was due to the mix of debit and credit card payments processed.

Our Deductions from gross revenue from transaction activities and other services, which consist principally of sales taxes, amounted to R$71.2 million in 1Q18, or 13.8% of our Gross revenue from transaction activities and other services for the quarter. In 1Q17, Deductions from gross revenue from transaction activities and other services totaled R$26.8 million, or 12.3% of our Gross revenue from transaction activities and other services for the quarter. The increase in these Deductions as a percentage of our Gross revenues from transaction activities and other services is due to the repeal of the law that charges service tax (Imposto sobre serviço, or ISS) based on the municipality where the POS device is used. Since the repeal of this law is being contested, we are currently judicially depositing the full tax rate regarding sales made within the São Paulo municipality and recognizing a provision for the difference charged by other municipalities.

As a result, our Net revenue from transaction activities and other services in 1Q18 amounted to R$442.8 million, an increase of R$252.4 million, or 132.6%, from R$190.4 million in 1Q17.

Net revenue from sales

Our Gross revenue from sales in 1Q18 amounted to R$129.7 million, a decrease of R$36.5 million, or 22.0%, from R$166.2 million in 1Q17. This decrease was due to a different hardware sales mix in 1Q18 when compared to 1Q17, with the launch of the Minizinha at the end of 1Q17. In terms of number of terminals sold, we observed an increase in 1Q18 compared to 1Q17.

Our Deductions from gross revenue from sales in 1Q18 amounted to R$35.7 million, or 27.5% of our Gross revenues from sales for the period. In 1Q17, these Deductions totaled R$47.8 million, or 28.8% of Gross revenues from sales for the period. This small decrease in these Deductions as a percentage of our Gross revenues from sales is due to a change in the mix of Brazilian states in which we sold POS devices, since ICMS is levied by each state at a different rate.

As a result, our Net revenue from sales in 1Q18 amounted to R$94.0 million, a decrease of R$24.4 million, or 20.6%, from R$118.4 million in 1Q17.

Financial income

Our Financial income, which represents the volume of the discount fees we withhold from TPV in the early payment of receivables feature that we offer merchants, amounted to R$274.8 million in 1Q18, an increase of R$136.0 million, or 98.0% from R$138.8 million in 1Q17. The growth in this activity compared to 1Q17 was driven by growth in our TPV.

Our non-GAAP Financial income, which excludes the present value of note receivables, amounted to R$291.6 million in 1Q18, an increase of R$149.4 million, or 105.1%, from R$142.2 million in 1Q17. The growth in this activity compared to 1Q17 was driven by our TPV growth.

Other financial income

Other financial income amounted to R$116.4 million in 1Q18, an increase of R$115.6 million from R$0.8 million in 1Q17. This increase was due to the unusual impact of changes in exchange rates on the conversion from U.S. dollars into Brazilian reais of the proceeds from our sale of new shares in the IPO, which impact amounted to R$89.8 million in 1Q18.

Our non-GAAP Other financial income, which excludes this exchange variation, amounted to R$26.6 million in 1Q18, an increase of R$25.8 million from R$0.8 million in 1Q17. This increase was principally driven by financial income of R$25.4 million on short-term investments.

 

 

1Q18 Earnings Release    4


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Expenses

Total expenses amounted to R$765.0 million in 1Q18, an increase of R$398.7 million, or 108.8%, from R$366.3 million in 1Q17. As a percentage of our Total revenue and income, our total expenses in 1Q18 increased by 0.7 percentage points, to 82.4% in 1Q18 from 81.7% in 1Q17.

Non-GAAP disclosure

Non-GAAP Total expenses amounted to R$541.3 million in 1Q18, an increase of R$175.0 million, or 47.8%, from R$366.3 million in 1Q17. As a percentage of our non-GAAP Total revenue and income, our non-GAAP total expenses in 1Q18 decreased 17.8 percentage points, to 63.3% in 1Q18 from 81.1% in 1Q17 as we continue to leverage our costs and expenses.

 

     At and for the
three months
ended March 31,
 

Reconciliation of Expenses to Non-GAAP Expenses:

   2017     2018  

Expenses

     (366.3     (765.0
  

 

 

   

 

 

 

Non-cash share-based long-term incentive plan (LTIP) [1]

     —         130.3  

Payroll taxes on share-based long-term incentive plan (LTIP) [2]

     —         80.3  

Tax related to remittance of IPO primary share proceeds (IOF tax) [3]

     —         13.1  

Total non-GAAP expenses adjustments

     —         223.7  
  

 

 

   

 

 

 

Non-GAAP Expenses

     (366.3     (541.3
  

 

 

   

 

 

 

 

[1] and [2] Stock-based compensation expenses and related employer payroll taxes in the total amount of R$210.6 million. This amount consists of expenses for equity awards under our long-term incentive plan (LTIP). We exclude stock-based compensation expenses from our non-GAAP measures primarily because they are non-cash expenses. The related employer payroll taxes depend on our stock price and the timing and size of exercises and vesting of equity awards, over which management has limited to no control, and as such management does not believe it correlates to the operation of our business. The largest portion of this expense amount was recognized upon closing our IPO with the issuance of 1.8 million shares under LTIP awards that vested on or before the IPO date.
[3] Tax related to remittance of IPO primary share proceeds (IOF tax): R$13.1 million related to Brazilian IOF tax (currency remittance tax) payable when we remitted the proceeds from our sale of new shares in the IPO from the Cayman Islands to Brazil. We exclude this IOF tax on the remittance of IPO primary share proceeds from our non-GAAP measures primarily because it is an unusual expense.

Cost of sales and services

Cost of sales and services amounted to R$444.8 million in 1Q18, an increase of R$201.9 million, or 83.1%, from R$242.9 million in 1Q17. As a percentage of the total of our Net revenue from transaction activities and other services and our Net revenue from sales, our Cost of sales and services posted an increase of 4.2 percentage points, to 82.8% in 1Q18 from 78.6% in 1Q17.

Within our Cost of sales and services line item, our Cost of services, expressed as a percentage of our Net revenue from transaction activities and other services, increased to 74.2% in 1Q18 from 65.7% in 1Q17, principally due to R$38.2 million in share based long-term incentive plan (LTIP) expenses. Our Cost of sales, expressed as a percentage of our Net revenue from sales, increased to 123.4% in 1Q18 from 99.5% in 1Q17, due to the change in our device product mix, with the launch of the Minizinha at the end of 1Q17.

Our non-GAAP Cost of sales and services, which excludes the LTIP impact, posted a decrease of 2.9 percentage points to 75.7% in 1Q18, from 78.6% in 1Q17, as a percentage of the total of our Net revenue from transaction activities and other services and our Net revenue from sales as we continue to leverage our expenses with higher TPV in 1Q18 than in 1Q17.

Selling expenses

Our Selling expenses amounted to R$83.6 million in 1Q18, an increase of R$12.5 million, or 17.6%, from R$71.1 million in 1Q17. As a percentage of our Total revenue and income, our Selling expenses decreased by 6.9 percentage points, to 9.0% in 1Q18 from 15.9% in 1Q17. This reduction in our Selling expenses as a percentage of our Total revenue and income reflected the increase in leverage of our selling expenses base as our TPV has increased.

 

 

1Q18 Earnings Release    5


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Administrative expenses

Our Administrative expenses amounted to R$219.0 million in 1Q18, an increase of R$186.5 million, or 573.5%, from R$32.5 million in 1Q17. This increase in 1Q18 was mainly due to the share based long-term incentive plan (LTIP) expense related to our IPO, which amounted to R$172.4 million. As a percentage of our Total revenue and income, our Administrative expenses increased by 16.3 percentage points, to 23.6% in 1Q18 from 7.3% in 1Q17.

Our non-GAAP Administrative expenses, which excludes the LTIP impact, decreased by 1.7 percentage points to 5.5% as a percentage of our non-GAAP Total revenue and income in 1Q18 compared with compared with 7.2% in 1Q17.

Financial expenses

Our Financial expenses amounted to R$16.5 million in 1Q18, a decrease of R$2.7 million, or 14.0%, from expenses of R$19.2 million in 1Q17. Expressed as a percentage of our Financial income, our Financial expenses represented 6.0% in 1Q18 and 13.8% in 1Q17.

The interest we paid on early payment of receivables that we obtained from issuing banks decreased R$13.4 million in 1Q18, when compared with 1Q17, due to our use of a portion of the proceeds from our IPO in late January 2018 to fund the early payment of receivables feature that we offer merchants, as well as our repayment of R$2.7 million in borrowings during 1Q17. These effects were partially offset by a R$13.1 million increase related to the impact of the IOF tax on the remittance of our sale of new shares in the IPO from the Cayman Islands to Brazil.

Our non-GAAP Financial expenses, which excludes the IOF tax, amounted to R$3.4 million in 1Q18, a decrease of R$15.8 million, or 82.4%, compared to 1Q17. This decrease was driven by our use of a portion of the IPO proceeds to fund our early payment of installment receivables feature for merchants as well as the repayment of debt in 1Q17, as mentioned above.

Other expenses, net

Our Other expenses, net, recorded R$1.1 million in 1Q18 and R$0.6 million in 1Q17. These net amounts principally reflect expenses related to civil litigation proceedings during both periods.

Profit before income taxes

Our Profit before income taxes amounted to R$163.0 million in 1Q18, an increase of R$80.8 million, or 98.4%, from R$82.2 million in 1Q17.

Our non-GAAP Profit before income taxes amounted to R$313.7 million in 1Q18, an increase of R$228.2 million, or 266.6%, from R$85.5 million in 1Q17. This increase was due to significant growth in our Total revenue and income, driven by growth in active merchants and TPV.

Income tax and social contribution

Income tax and social contribution amounted to expenses of R$14.5 million in 1Q18, a decrease of R$7.1 million from expenses of R$21.6 million in 1Q17. This total item consists of Current income tax and social contribution and Deferred income tax and social contribution, which relates to the tax benefit under the Lei do Bem, which applies to investments made in innovation and technology by PagSeguro Brazil. In addition, our Brazilian operating subsidiary had a tax benefit under the Companies Law of 1960 of the Cayman Islands (the “Companies Law”) on the exchange variation from U.S. dollars to reais which generates income but has no tax impact on PagSeguro Digital.

Our Current income tax and social contribution expense in 1Q18 amounted to R$20.9 million, an increase of R$1.8 million from R$19.1 million in 1Q17. This increase is mainly due to growth in in our Profit before income taxes partially offset by the tax benefits under the Lei do Bem and The Companies Law.

Our Deferred income tax and social contribution in 1Q18 amounted to a tax benefit of R$6.4 million, an increase of R$8.9 million compared with an expense of R$2.5 million in 1Q17.

 

 

1Q18 Earnings Release    6


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The amount of Deferred income tax and social contribution recorded in 1Q18 reflected the tax benefit on our significant new capital investments in software and technology during the period, less the depreciation and amortization expenses that we recorded against those assets during the period. This tax benefit was partially offset by the amounts we recorded during the period for provisions for employee corporate results-sharing, share based long-term incentive plan (LTIP) expenses and tax contingencies.

The amount of Deferred income tax and social contribution recorded in 1Q17 reflected the tax benefit on our capital investments in software and technology during the period, less the depreciation and amortization expenses that we recorded against those assets during the period. This tax benefit was partially offset by the amounts we recorded during the period for provisions for employee corporate results-sharing.

Our Non-GAAP Current income tax and social contribution expense in 1Q18 amounted to R$75.2 million, an increase of R$74.2 million from R$1.0 million in 1Q17. This increase is mainly due to growth in in our Profit before income taxes, partly offset by the tax benefits of R$ 6.8 million under the Lei do Bem.

 

     At and for the
three months
ended
March 31,
 

Reconciliation of Income Tax and Social Contribution to Non-GAAP Income Tax and Social Contribution:

   2017     2018  

Income tax and social contribution

     (21.6     (14.5
  

 

 

   

 

 

 

Total non-GAAP income tax and social contribution adjustments [1]

     (1.0     (75.2
  

 

 

   

 

 

 

Non-GAAP Income tax and social contribution

     (22.6     (89.8
  

 

 

   

 

 

 

 

[1] Income tax on non-GAAP adjustments: the amount of R$75.2 million relates to income tax on non-GAAP adjustments.

Net income for the period

Net income for the period in 1Q18 amounted to R$148.5 million, an increase of R$87.9 million, or 144.9%, from R$60.6 million in 1Q17. As a percentage of our Total revenue and income, our Net income for the year increased by 2.5 percentage points, to 16.0% in 1Q18 compared with 13.5% in 1Q17. This increase was driven by growth in active merchants and TPV, resulting in greater leverage of our operating expenses.

 

 

1Q18 Earnings Release    7


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Non-GAAP Net income in 1Q18 amounted to R$223.9 million, an increase of R$160.9 million, or 255.4%, from R$63.0 million in 1Q17. This increase was driven by growth in active merchants and TPV, resulting in greater leverage of our operating expenses.

 

     At and for the
three months
ended
March 31,
 

Reconciliation of Net Income to Non-GAAP Net Income:

   2017     2018  

Net Income

     60.6       148.5  
  

 

 

   

 

 

 

Non-cash share-based long-term incentive plan (LTIP) [1]

     —         130.3  

Payroll taxes on share-based long-term incentive plan (LTIP) [2]

     —         80.3  

Foreign exchange gain on IPO primary share proceeds [3]

     —         (89.8

Tax related to remittance of IPO primary share proceeds (IOF tax) [4]

     —         13.1  

Present value of note receivables [5]

     3.4       16.8  

Income tax on non-GAAP adjustments [6]

     (1.0     (75.2

Total non-GAAP net income adjustments

     2.4       75.5  

Non-GAAP Net Income

     63.0       223.9  

 

[1] and [2] Stock-based compensation expenses and related employer payroll taxes in the total amount of R$210.6 million. This consists of expenses for equity awards under our long-term incentive plan (LTIP). We exclude stock-based compensation expenses from our non-GAAP measures primarily because they are non-cash expenses. The related employer payroll taxes depend on our stock price and the timing and size of exercises and vesting of equity awards, over which management has limited to no control, and as such management does not believe it correlates to the operation of our business. The largest portion of this expense amount was recognized upon closing of our IPO with the issuance of R$1.8 million shares for the LTIP grants that were already vested at the IPO date.
[3] Foreign exchange gain on IPO primary proceeds: financial income in the amount of R$89.8 million related to the impact of exchange rates variation on the conversion from U.S. dollars into Brazilian reais of the proceeds from our sale of new shares in the IPO. We exclude this foreign exchange variation from our non-GAAP measures primarily because it is unusual income.
[4] Tax related to remittance of IPO primary share proceeds (IOF tax): R$13.1 million related to the impact of Brazilian IOF tax (currency remittance tax) payable when we remitted the proceeds from our sale of new shares in the IPO from the Cayman Islands to Brazil. We exclude this IOF tax on the remittance of IPO primary share proceeds from our non-GAAP measures primarily because it is an unusual expense.
[5] Present value of note receivables: This relates to the effect of the recognition of note receivables in installments at present value in the amount of R$16.8 million in 1Q18 and R$3.4 million in 1Q17. Prior to the IPO, one of the sources of cash was the early payment of note receivables with issuing banks at pre-agreed interest rates. After the IPO, we stopped the early payment of note receivables with issuing banks and started to use the IPO proceeds to fund the early payment of receivables feature for merchants. Since note receivables are no longer discounted with issuing banks, the amount of the present value adjustment will increase accordingly as a deduction of financial income. The amount of note receivables in installments at present value depends on the SELIC rate, the Brazilian Central Bank’s overnight rate, over which management has no control. As such, management does not believe it correlates to the operation of our business.
[6] Income tax on non-GAAP adjustments: the amount of R$75.2 million relates to income tax on non-GAAP adjustments.

II—Cash Flow

Our cash and cash equivalents at the beginning of 1Q18 amounted to R$66.8 million.

Our Profit before income taxes in 1Q18, as discussed above, was R$163.0 million.

Revenue, income and expenses recorded in our statement of income in 1Q18 that did not affect our cash flows totaled the positive amount of R$162.0 million, reflecting R$130.3 million in share-based long-term incentive plan (LTIP) expenses, R$14.4 million in Chargebacks and R$18.0 million in Depreciation and amortization.

Our operating assets and liabilities in 1Q18 amounted to negative cash flows of R$1,378.1 million:

 

  Our Note receivables item, which is presented net of transaction costs and financial expenses we incur when we elect to receive early payment of the note receivables owed to us by card issuers, consists of the difference between the opening and closing balances of the Note receivables item of Current Assets on our balance sheet (R$4,883.3 million at March 31, 2018 versus R$3,522.3 million at year-end 2017) excluding interest income received in cash and chargebacks, which are presented separately in the statement of cash flows. Note receivables represented a negative cash flow of R$1,449.2 million in 1Q18. From the R$1,449.2 million of negative cash flow, R$1,137.2 million was receivables discounted with issuing banks as of 12/31/17 and repaid during 1Q2018 with the IPO primary proceeds. The remaining R$312.0 million negative cash flow was due to the TPV growth in 1Q18.

 

1Q18 Earnings Release    8


LOGO

 

 

  Our Payables to third parties item, which is presented net of revenue from transaction activities and financial income we receive when merchants elect to receive early payments, consists of the difference between the opening and closing balances of the Payables to third parties item of Current Liabilities on our balance sheet (R$2,975.3 million at March 31, 2018 versus R$3,080.6 million at year-end 2017). Payables to third parties represented negative cash flow of R$105.3 million in 1Q18.

 

  Our Receivables from (payables to) related parties item consists of the difference between the opening and closing balances of the Receivables from related parties item (i.e., UOL) of Current Assets on our balance sheet (R$0.9 million at March 31, 2018 versus R$124.7 million at year-end 2017) offset by the difference between the opening and closing balances of the Payables to related parties item (i.e., UOL) of Current Liabilities on our balance sheet (R$45.0 million at March 31, 2018 versus R$39.1 million at year-end 2017), representing movements in our treasury cash position with UOL during the period. This item represented positive cash flow of R$129.6 million in 1Q18.

 

  Our Inventories item represents changes in the carrying value of the Inventories item of Current Assets on our balance sheet. This item represented positive cash flow of R$1.7 million in 1Q18.

 

  Our Salaries and social charges item represents amounts that were recorded on our statement of income, but which remained unpaid at the end of the period, principally because they related to the final month of the period. This item represented negative cash flow of R$8.1 million in 1Q18.

 

  Our Taxes and contributions item represents sales taxes (ISS, ICMS, PIS and COFINS). This item represented positive cash flow of R$19.4 million in 1Q18.

Since our statement of cash flows begins with our Profit before income taxes, it also adjusts for cash amounts paid in respect of our income tax and social contribution, which totaled R$34.8 million during the period. Our statement of cash flows also adjusts for interest income received in cash, which represented a positive cash flow of R$73.8 million in 1Q18.

As a result, our Net Cash used in operating activities in 1Q18 totaled R$1,014.1 million. Excluding the repayment of note receivables discounted with issuing banks as of 12/31/17 in the amount of R$1,137.2 million in 1Q18, the non-GAAP Net Cash provided by operating activities would have been the positive amount of R$123.1 million in 1Q18.

Our Cash flows provided by investing activities in 1Q18 totaled R$180.4 million. This amount consisted of R$211.1 million in redemptions of financial investments, representing cash withdrew during the period. We also invested R$29.7 million in purchases and development of intangible assets, which represent purchases of third party software and the salaries and other amounts that we paid to develop internally our software and technology, which we capitalize as intangible assets.

Our Cash flows provided by financing activities in 1Q18 totaled R$3,312.3 million, consisting of R$3,444.9 million representing our capital reserve, less R$148.0 million representing transactional costs, both of which related to our IPO.

 

 

1Q18 Earnings Release    9


LOGO

 

Products launched in 1Q18

At the end of February, we launched a new functionality for Moderninha Pro and Wifi devices, enabling several merchants to share a single point-of-sale device (each terminal can serve up to six digital accounts, handling sales transactions for each account separately). The campaign launch was broadcast nationally, with a new commercial starring Alessandra Negrini, a recognized Brazilian actress.

 

LOGO

At the close of the first quarter in March, we launched the Minizinha Chip, a handy and affordable POS that comes with chip-recognition and wi-fi connection. This release was headlined by Wesley Safadão, a popular Brazilian singer.

 

LOGO

 

1Q18 Earnings Release    10


LOGO

 

Earnings webcast

PagSeguro (NYSE: PAGS) will host a conference call and earnings webcast on Wednesday, May 30, at 10:00 am ET. The conference dial-in in the US and International is 1-800-492-3904 or +1 646 828-8246. The dial-in for connections in Brazil is +55 11 3193-1001 or +55 11 2820-4001. The Conference ID is PagSeguro.

To listen to a live webcast, please visit PagSeguro´s IR website at investors.pagseguro.com. A replay will be available on the same website following the call.

About PagSeguro:

PagSeguro Digital is a disruptive provider of financial technology solutions focused primarily on micro-merchants, small companies and medium-sized companies in Brazil. PagSeguro Digital’s business model covers all of the following five pillars:

 

    Multiple digital payment solutions;

 

    In-person payments via point of sale (POS) devices that PagSeguro Digital sell to merchants;

 

    Free digital accounts;

 

    Issuer of prepaid cards to clients for spending or withdrawing account balances; and

 

    Operating as an acquirer.

PagSeguro Digital is an UOL Group Company that provides an easy, safe and hassle-free way of accepting payments, where its clients can transact and manage their cash, without the need to open a bank account. PagSeguro Digital’s end-to-end digital ecosystem enables its customers to accept a wide range of online and in-person payment methods, including credit cards, debit cards, meal voucher cards, boletos, bank transfers, bank debits and cash deposits.

PagSeguro Digital’s mission is to disrupt and democratize financial services in Brazil, a concentrated, underpenetrated and high interest rate market, by providing an end-to-end digital ecosystem that is safe, affordable, simple and mobile-first for both merchants and consumers. For more information visit http://investors.pagseguro.com

Contacts:

Investor Relations:

PagSeguro Digital Ltd.

André Cazotto, +55 (11) 3914-9403

ir@pagseguro.com

investors.pagseguro.com

 

1Q18 Earnings Release    11


LOGO

 

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF INCOME

 

     Three months
ended
March 31, 2018
    Three months
ended
March 31, 2017
    %  
     (In R$ thousands)        

Net revenue from transaction activities and other services

     442,848       190,425       132.6%  

Net revenue from sales

     93,986       118,438       -20.6%  

Financial income

     274,838       138,808       98.0%  

Other financial income

     116,360       836       13,818.7%  
  

 

 

   

 

 

   

 

 

 

Total revenue and income

     928,032       448,508       106.9%  

Cost of sales and services

     (444,762     (242,893     83.1%  

Selling expenses

     (83,614     (71,106     17.6%  

Administrative expenses

     (219,024     (32,520     573.5%  

Financial expenses

     (16,524     (19,218     -14.0%  

Other expenses, net

     (1,109     (594     86.7%  
  

 

 

   

 

 

   

 

 

 

PROFIT BEFORE INCOME TAXES

     163,000       82,177       98.4%  

Current income tax and social contribution

     (20,935     (19,085     9.7%  

Deferred income tax and social contribution

     6,391       (2,468     -359.0%  
  

 

 

   

 

 

   

 

 

 

INCOME TAX AND SOCIAL CONTRIBUTION

     (14,544     (21,553     -32.5%  
  

 

 

   

 

 

   

 

 

 

NET INCOME FOR THE PERIOD

     148,456       60,624       144.9%  
  

 

 

   

 

 

   

 

 

 

Reconciliation of Basic and diluted EPS to Non-GAAP Basic and diluted EPS

 

     Three months
ended
March 31, 2018
     Three months
ended
March 31, 2017
 
     (In R$ thousands, except per
share amounts)
 

Net income attributable to:

     

Owners of the Company

     148,378        60,625  

Non-controlling interests

     78        (1

Weighted average number of outstanding common shares

     297,454,853        262,288,607  

Weighted average number of common shares diluted

     298,584,130        262,288,607  

Basic earnings per common share—R$

     0.4988        0.2311  

Diluted earnings per common share—R$

     0.4969        0.2311  
  

 

 

    

 

 

 

Net income Non-GAAP

     223,923        62,991  

Weighted average number of outstanding common shares

     297,454,853        262,288,607  

Weighted average number of common shares diluted

     298,584,130        262,288,607  

Non-GAAP Basic earnings per common share—R$

     0.7525        0.2402  

Non-GAAP Diluted earnings per common share—R$

     0.7497        0.2402  
  

 

 

    

 

 

 

 

1Q18 Earnings Release    12


LOGO

 

UNAUDITED CONDENSED CONSOLIDATED INTERIM OF CASH FLOWS

 

     Three months
ended

March 31, 2018
    Three months
ended

March 31, 2017
 
     (In thousands – R$)  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Profit before income taxes

     163,000       82,177  

Expenses (revenues) not affecting cash:

    

Depreciation and amortization

     18,007       10,762  

Chargebacks

     14,438       17,434  

Accrual of provision for contingencies

     725       272  

Share based long term incentive plan (LTIP)

     130,303       —    

Provision of obsolescence loss

     (1,686     —    

Other financial cost, net

     274       3,446  

Changes in operating assets and liabilities

    

Note receivables

     (1,449,214     (229,126

Changes in receivables subject to early payment

     (1,137,210     150,113  

Changes in receivables not subject to early payment

     (312,004     (379,239

Inventories

     1,693       (13,365

Taxes recoverable

     (2,700     (15,942

Other receivables

     3,948       (351

Other payables

     7,193       3,015  

Payables to third parties

     (105,272     138,716  

Trade payables

     25,633       31,011  

Receivables from (payables to) related parties

     129,643       (47,440

Salaries and social charges

     (8,077     (3,710

Taxes and contributions

     19,350       23,982  

Provision for contingencies

     (331     (1
  

 

 

   

 

 

 
     (1,053,073     880  
  

 

 

   

 

 

 

Income tax and social contribution paid

     (34,806     (156

Interest income received

     73,804       56,111  

Interest paid

     —         (9,174
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

     (1,014,075     47,662  
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Purchases of property and equipment

     (976     (52

Purchases and development of intangible assets

     (29,695     (21,266

Redemption of financial investments

     211,116       113,742  
  

 

 

   

 

 

 

NET CASH PROVIDED BY INVESTING ACTIVITIES

     180,445       92,424  
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Payment of borrowings

     —         (199,480

Payment of derivative financial instruments

     —         (5,831

Proceeds from offering of shares

     3,444,875       —    

Transactional costs

     (147,972     —    

Transaction with non-controlling interest

     (4,650     —    

Capital increase by non-controlling shareholders

     20,000       —    
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

     3,312,253       (205,311
  

 

 

   

 

 

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     2,478,622       (65,225
  

 

 

   

 

 

 

Cash and cash equivalents at the beginning of the period

     66,767       79,969  

Cash and cash equivalents at the end of the period

     2,545,389       14,744  

 

1Q18 Earnings Release    13


LOGO

 

UNAUDITED CONDENSED CONSOLIDATED INTERIM BALANCE SHEET

 

     March 31,
2018
    December 31,
2017
 
     (In thousands – R$)  

Cash and cash equivalents

     2,545,389       66,767  

Financial investments

     —         210,103  

Note receivables

     4,883,321       3,522,349  

Receivables from related parties

     909       124,723  

Inventories

     61,602       61,609  

Taxes recoverable

     18,008       14,446  

Other receivables

     18,834       27,956  
  

 

 

   

 

 

 

Total current assets

     7,528,063       4,027,953  
  

 

 

   

 

 

 

Judicial deposits

     1,198       872  

Prepaid expenses

     506       160  

Deferred income tax and social contribution

     63,822       37,015  

Property and equipment

     11,065       10,889  

Intangible assets

     190,638       158,868  
  

 

 

   

 

 

 

Total non-current assets

     267,229       207,804  
  

 

 

   

 

 

 

TOTAL ASSETS

     7,795,292       4,235,757  
  

 

 

   

 

 

 

Payables to third parties

     2,975,297       3,080,569  

Trade payables

     119,155       92,444  

Payables to related parties

     44,973       39,101  

Salaries and social charges

     26,192       34,269  

Taxes and contributions

     57,862       52,064  

Provision for contingencies

     5,213       4,648  

Other payables

     23,028       15,872  
  

 

 

   

 

 

 

Total current liabilities

     3,251,720       3,318,967  
  

 

 

   

 

 

 

Deferred income tax and social contribution

     63,226       42,809  

Other payables

     3,624       3,590  
  

 

 

   

 

 

 

Total non-current liabilities

     66,850       46,399  
  

 

 

   

 

 

 

Share capital

     25       524,577  

Legal reserve

     —         30,216  

Capital reserve

     4,311,782       —    

Equity valuation adjustments

     (6,701     55  

Profit retention reserve

     148,378       312,047  
  

 

 

   

 

 

 
     4,453,484       866,895  
  

 

 

   

 

 

 

Non-controlling interests

     23,238       3,496  
  

 

 

   

 

 

 

Total equity

     4,476,722       870,391  
  

 

 

   

 

 

 

TOTAL LIABILITIES AND EQUITY

     7,795,292       4,235,757  
  

 

 

   

 

 

 

 

1Q18 Earnings Release    14


LOGO

 

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

 

Reconciliation of GAAP Net Revenues to Non-GAAP Revenues

     1Q17       
Non-GAAP
Adjustment
 
 
    
1Q17
Non-GAAP
 
 
     2Q17       
Non-GAAP
Adjustment
 
 
    
2Q17
Non-GAAP
 
 
     3Q17       
Non-GAAP
Adjustment
 
 
    
3Q17
Non-GAAP
 
 
     4Q17       
Non-GAAP
Adjustment
 
 
    
4Q17
Non-GAAP
 
 
     2017       
Non-GAAP
Adjustment
 
 
    
2017
Non-GAAP
 
 
     1Q18       
Non-GAAP
Adjustment
 
 
    
1Q18
Non-GAAP
 
 

Net revenue from transaction activities and other services

     190.4           190.4        256.4           256.4        344.4           344.4        433.0           433.0        1,224.3           1,224.3        442.8           442.8  

Net revenue from sales

     118.4           118.4        125.6           125.6        117.4           117.4        110.4           110.4        471.9           471.9        94.0           94.0  

Financial income

     138.8        3.4        142.2        172.6        6.8        179.4        224.2        1.9        226.1        283.0        (14.8)        268.1        818.6        (2.8)        815.8        274.8        16.8        291.6  

Other financial income

     0.8           0.8        2.5           2.5        0.6           0.6        4.6           4.6        8.6           8.6        116.4        (89.8)        26.6  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue and income

     448.5        3.4        451.9        557.2        6.8        564.0        686.6        1.9        688.5        831.0        (14.8)        816.2        2,523.4        (2.8)        2,520.6        928.0        (73.0)        855.0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Reconciliation of GAAP Total Costs and Expenses to Non-GAAP Total Costs and Expenses

     1Q17       

Non-GAAP

Adjustment

 

 

    

1Q17

Non-GAAP

 

 

     2Q17       

Non-GAAP

Adjustment

 

 

    

2Q17

Non-GAAP

 

 

     3Q17       

Non-GAAP

Adjustment

 

 

    

3Q17

Non-GAAP

 

 

     4Q17       

Non-GAAP

Adjustment

 

 

    

4Q17

Non-GAAP

 

 

     2017       

Non-GAAP

Adjustment

 

 

    

2017

Non-GAAP

 

 

     1Q18       

Non-GAAP

Adjustment

 

 

    

1Q18

Non-GAAP

 

 

Cost of sales and services

     (242.9)           (242.9)        (327.0)           (327.0)        (348.5)           (348.5)        (406.0)           (406.0)        (1,324.4)           (1,324.4)        (444.8)        38.2        (406.5)  

Selling expenses

     (71.1)           (71.1)        (54.6)           (54.6)        (58.4)           (58.4)        (61.7)           (61.7)        (245.8)           (245.8)        (83.6)           (83.6)  

Administrative expenses

     (32.5)           (32.5)        (33.5)           (33.5)        (41.7)           (41.7)        (45.4)           (45.4)        (153.2)           (153.2)        (219.0)        172.4        (46.7)  

Financial expenses

     (19.2)           (19.2)        (23.5)           (23.5)        (21.0)           (21.0)        (40.8)           (40.8)        (104.5)           (104.5)        (16.5)        13.1        (3.4)  

Other (expenses) income, net

     (0.6)           (0.6)        (2.1)           (2.1)        (2.3)           (2.3)        (7.0)           (7.0)        (12.0)           (12.0)        (1.1)           (1.1)  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Cost and Expenses

     (366.3)           (366.3)        (440.8)           (440.8)        (472.0)           (472.0)        (560.8)           (560.8)        (1,839.9)           (1,839.9)        (765.0)        223.7        (541.4)  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Reconciliation of GAAP Net Income to Non-GAAP Net Income

     1Q17       

Non-GAAP

Adjustment

 

 

    

1Q17

Non-GAAP

 

 

     2Q17       

Non-GAAP

Adjustment

 

 

    

2Q17

Non-GAAP

 

 

     3Q17       

Non-GAAP

Adjustment

 

 

    

3Q17

Non-GAAP

 

 

     4Q17       

Non-GAAP

Adjustment

 

 

    

4Q17

Non-GAAP

 

 

     2017       

Non-GAAP

Adjustment

 

 

    

2017

Non-GAAP

 

 

     1Q18       

Non-GAAP

Adjustment

 

 

    

1Q18

Non-GAAP

 

 

Profit before Income Tax

     82.2        3.4        85.5        116.4        6.8        123.2        214.7        1.9        216.6        270.2        (14.8)        255.4        683.5        (2.8)        680.7        163.0        150.7        313.7  

Current income tax and social contribution

     (19.1)           (19.1)        (38.8)           (38.8)        (66.2)           (66.2)        (90.9)           (90.9)        (215.0)           (215.0)        (20.9)           (20.9)  

Deferred income tax and social contribution

     (2.5)        (1.0)        (3.5)        4.6        (2.0)        2.6        (1.1)        (1.0)        (2.1)        9.2        5.0        14.2        10.3        1.0        11.3        6.4        (75.2)        (68.8)  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income Tax and Social Contribution

     (21.6)        (1.0)        (22.6)        (34.2)        (2.0)        (36.2)        (67.3)        (1.0)        (68.3)        (81.7)        5.0        (76.7)        (204.7)        1.0        (203.7)        (14.5)        (75.2)        (89.8)  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net Income

     60.6        2.4        63.0        82.2        4.8        87.0        147.4        0.9        148.3        188.6        (9.8)        178.7        478.8        (1.8)        477.0        148.5        75.5        223.9  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

1Q18 Earnings Release    15


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:    May 29, 2018

 

PagSeguro Digital Ltd.

 

By:   /s/ Eduardo Alcaro
Name:   Eduardo Alcaro
Title:  

Chief Financial and Investor Relations Officer,

Chief Accounting Officer and Director

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