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Section 1: 6-K (6-K)

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 August 2019

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 Second Quarter Results

2Q19 Net Income of R$322.8 million, up 41.8% compared to 2Q18.

2Q19 Non-GAAP Net Income of R$342.9 million.

São Paulo, August 15, 2019 PagSeguro Digital Ltd. (“PagSeguro” or “we”) announced today its second quarter results for the period ended June 30, 2019. Our consolidated financial statements are presented in Reais (R$) and prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

Second Quarter 2019 Financial & Operational Highlights:

 

   

9.4 million unique active accounts3;

 

   

1.4 million active PagBank users4;

 

   

R$26.8 billion in total payment volume (“TPV”), up 58.8% compared with 2Q18;

 

   

Active merchants of 4.7 million, growth of 1.2 million active merchants in the last twelve months;

 

   

R$322.8 million in Net Income, up 41.8% compared with 2Q18;

 

   

R$342.9 million in non-GAAP Net Income, up 41.6% compared with 2Q18;

 

   

Net Revenue from Transaction Activities and Other Services and Financial Income of R$1,296.1 million up 52.9% compared to 2Q18;

 

   

Non-GAAP Net Margin of 24.7%, no changes compared with 2Q18 despite marketing investments in the PagBank initiative.

 

     At and for the Three
Months Ended
June 30,
   

 

 

Main Operational and Financial Indicators (R$ millions, except otherwise indicated)

   2019     2018     Var.%  

TPV

     26,750.6       16,851.2       58.8

Active Merchants (last 12 months)—(millions)

     4.7       3.5       34.8
  

 

 

   

 

 

   

 

 

 

Total Net Revenue1

     1,389.7       1,001.8       38.7

Net Income

     322.8       227.6       41.8
  

 

 

   

 

 

   

 

 

 

Net Margin (%)

     23.2     22.7     0.5 pp  
  

 

 

   

 

 

   

 

 

 

Basic earnings per common share (EPS)2—(R$)

     1.0071       0.7417    

Diluted earnings per common share (EPS)—(R$)

     0.9805       0.7386    
  

 

 

   

 

 

   

 

Non-GAAP Main Financial Indicators (R$ millions, except otherwise indicated)

   2019     2018     Var.%  

Non-GAAP Total Net Revenue1

     1,389.7       974.5       42.6

Non-GAAP Net Income

     342.9       242.1       41.6
  

 

 

   

 

 

   

 

 

 

Non-GAAP Net Margin (%)

     24.7     24.8     0.0 pp  
  

 

 

   

 

 

   

 

 

 

Non-GAAP Basic earnings per common share (EPS)2—(R$)

     1.0698       0.7906    

Non-GAAP Diluted earnings per common share (EPS)—(R$)

     1.0416       0.7872    
  

 

 

   

 

 

   

 

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.

1

Total revenue and income.

2

Weighted average number of common shares of 306.3 million at June 30, 2018 and 320.1 million at June 30, 2019.

3

Unique active accounts are active merchants, online buyers using PAGS digital wallet and active PagBank consumers with at least one transaction in the last twelve months.

4

Active PagBank users are active merchants using one additional digital account feature / service beyond acquiring and PagBank consumers with at least one transaction in the last twelve months.

 

2Q19 Earnings Release

 

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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 and they depend on our stock price and the exchange rate from U.S. dollars into Brazilian reais at the time of the vesting of the equity awards. The related employer payroll taxes depend on our stock price and the exchange rate from U.S. dollars into Brazilian reais at the time of the exercises and the vesting date of the equity awards, over which management has limited to no control, and as such management does not believe these expenses correlate to the operation of our business.

Foreign exchange gain on follow-on proceeds: This consists of financial income related to the impact of exchange rate variation on the conversion from U.S. dollars into Brazilian reais of the proceeds from our sale of new shares in our June 2018 follow-on offering. We exclude this foreign exchange variation from our non-GAAP measures primarily because it is an unusual gain.

Tax related to remittance of follow-on 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 our June 2018 follow-on offering from the Cayman Islands to Brazil. We exclude this IOF tax on the remittance of follow-on share proceeds from our non-GAAP measures primarily because it is an unusual expense.

Income tax and social contribution on non-GAAP adjustments: This represents the income tax effect related to the non-GAAP adjustments mentioned above, except the Foreign exchange gain on follow-on 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.”

 

2Q19 Earnings Release

 

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Total revenue and income

Our Total revenue and income amounted to R$1,389.7 million in the three months ended June 30, 2019, an increase of 38.7% from R$1,001.8 million in the three months ended June 30, 2018, or an increase of 42.6% after non-GAAP adjustments in the three months ended June 30, 2018.

 

Reconciliation of Total Revenue and Income to non-GAAP Total Revenue and Income
(R$ millions):

   At and for the three
months ended
June 30, 2019
   At and for the three
months ended
June 30, 2018
  Var.%

Total Revenue and Income

       1,389.7        1,001.8       38.7 %
    

 

 

      

 

 

     

 

 

 

(-) Foreign exchange gain on follow-on proceeds[1]

              (27.3 )       100.0 %
    

 

 

      

 

 

     

 

 

 

Non-GAAP Total Revenue and Income

       1,389.7        974.5       42.6 %
    

 

 

      

 

 

     

 

 

 

 

[1]

Foreign exchange gain on follow-on proceeds: financial income of R$27.3 million related to the impact of exchange rate variation on the conversion from U.S. dollars into Brazilian reais of the proceeds from our sale of new shares in our June 2018 follow-on offering. We exclude this foreign exchange variation from our non-GAAP measures primarily because it is an unusual income.

Net revenue from transaction activities and other services

Our Gross revenue from transaction activities and other services in the three months ended June 30, 2019 amounted to R$914.1 million, an increase of R$314.2 million, or 52.4%, from R$599.9 million in the three months ended June 30, 2018. This increase was principally due to a continued increase in our active merchant base, average spending per merchant and TPV.

Our Gross revenue from transaction activities and other services during the three months ended June 30, 2019 increased by a lesser percentage than our TPV, which increased to R$26.8 billion from R$16.9 billion in the three months ended June 30, 2018. This difference in the growth rate was driven by the mix of debit and credit card payments processed containing a higher percentage of debit card payments and within the credit card payments processed, a lower percentage of credit card transactions made in installments in the three months ended June 30, 2019 compared to the three months ended June 30, 2018.

Our Deductions from gross revenue from transaction activities and other services, which consist principally of taxes, amounted to R$115.2 million in the three months ended June 30, 2019, or 12.6% of our Gross revenue from transaction activities and other services for the quarter. In the three months ended June 30, 2018, Deductions from gross revenue from transaction activities and other services totaled R$84.7 million, or 14.1% of our Gross revenue from transaction activities and other services for the quarter. The R$30.5 million, or 36.0%, increase in these Deductions is directly related to the increase in the gross revenue.

As a result, our Net revenue from transaction activities and other services in the three months ended June 30, 2019 amounted to R$798.9 million, an increase of R$283.7 million, or 55.1%, from R$515.2 million in the three months ended June 30, 2018.

Net revenue from sales

Our Gross revenue from sales in the three months ended June 30, 2019 amounted to R$92.1 million, a decrease of R$36.0 million, or 28.1%, from R$128.1 million in the three months ended June 30, 2018. This decrease was principally due to a different POS devices sales mix and hardware price reductions in the three months ended June 30, 2019 when compared to the three months ended June 30, 2018.

 

2Q19 Earnings Release

 

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Our Deductions from gross revenue from sales in the three months ended June 30, 2019 amounted to R$28.7 million, or 31.1% of our Gross revenues from sales for the period. In the three months ended June 30, 2018, these Deductions totaled R$38.7 million, or 30.2% of Gross revenues from sales for the period. The small increase 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 the three months ended June 30, 2019 amounted to R$63.4 million, a decrease of R$25.9 million, or 29.0%, from R$89.4 million in the three months ended June 30, 2018.

Financial income

Our Financial income, which represents the discount fees we withhold from credit card transactions in installments for the early payment of accounts receivable, amounted to R$497.2 million in the three months ended June 30, 2019, an increase of R$164.6 million, or 49.5% from R$332.6 million in the three months ended June 30, 2018. The growth in this activity compared to the three months ended June 30, 2018 was driven by growth in our TPV for credit card transactions in installments.

Other financial income

Our Other financial income amounted to R$30.2 million in the three months ended June 30, 2019, a decrease of R$34.3 million from R$64.5 million in the three months ended June 30, 2018. This decrease was due to the unusual impact of exchange rates in the conversion from U.S. dollars into Brazilian reais of the proceeds from our sale of new shares in our June 2018 follow-on offering, which impact amounted to R$27.3 million in the three months ended June 30, 2018.

Expenses

Our total expenses amounted to R$928.6 million in the three months ended June 30, 2019, an increase of R$239.5 million, or 34.8%, from R$689.1 million in the three months ended June 30, 2018.

As a percentage of our Total revenue and income, our total expenses in the three months ended June 30, 2019 decreased by 2.0 percentage points, to 66.8% in the three months ended June 30, 2019 from 68.8% in the three months ended June 30, 2018.

Our non-GAAP total expenses amounted to R$898.2 million in the three months ended June 30, 2019, an increase of R$272.1 million, or 43.5%, from R$626.1 million in the three months ended June 30, 2018.

 

2Q19 Earnings Release

 

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Reconciliation of Expenses to non-GAAP Expenses (R$ millions):

   At and for the three
months ended
June 30, 2019
  At and for the three
months ended
June 30, 2018
  Var.%

Expenses

       (928.6 )       (689.1 )       34.8 %
    

 

 

     

 

 

     

 

 

 

(-) Share-based long-term incentive plan (LTIP) [1]

       30.4       62.3       51.2 %

(-) Tax related to remittance of follow-on proceeds (IOF tax) [2]

             0.7       100.0 %
    

 

 

     

 

 

     

 

 

 

Total non-GAAP expenses adjustments

       30.4       63.0       51.7 %
    

 

 

     

 

 

     

 

 

 

Non-GAAP Expenses

       (898.2 )       (626.1 )       43.5 %
    

 

 

     

 

 

     

 

 

 

 

[1]

Share-based long-term incentive plan (LTIP): 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 and they depend on our stock price and the exchange rate from U.S. dollars into Brazilian reais at the time of the vesting of the equity awards. The related employer payroll taxes depend on our stock price and the exchange rate from U.S. dollars into Brazilian reais at the time of the exercises and the vesting date of the equity awards, over which management has limited to no control, and as such management does not believe these expenses correlate to the operation of our business. In the three months ended June 30, 2019, the amount of R$30.4 million is mainly composed of the recurrent quarterly provision. In the three months ended June 30, 2018 the amount of R$30.7 million is mainly related to new shares issued to preexisting LTIP beneficiaries and to new employees participating in our LTIP. The amount of R$31.6 million is related to the recurrent quarterly provision.

[2]

Tax related to remittance of follow-on proceeds (IOF tax): R$0.7 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 our June 2018 follow-on offering from the Cayman Islands to Brazil. We exclude this IOF tax on the remittance of follow-on proceeds from our non-GAAP measures primarily because it is an unusual expense.

Cost of sales and services

Our Cost of sales and services amounted to R$684.4 million in the three months ended June 30, 2019, an increase of R$201.6 million, or 41.8%, from R$482.8 million in the three months ended June 30, 2018. As a percentage of the total of our Net revenue from transaction activities and other services and our Net revenue from sales and our Cost of sales and services posted a decrease of 0.4 percentage points, to 79.4% in the three months ended June 30, 2019 from 79.8% in the three months ended June 30, 2018.

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, decreased to 61.6% in the three months ended June 30, 2019 from 65.9% in the three months ended June 30, 2018, due to the mix of debit and credit card payments processed containing a higher percentage of debit card payments and lower debit interchange fee expenses than credit interchange fee expenses. Our Cost of sales, expressed as a percentage of our Net revenue from sales, increased to 364.1% in the three months ended June 30, 2019 from 160.3% in the three months ended June 30, 2018 due to hardware price reductions.

In the three months ended June 30, 2019, our non-GAAP Cost of sales and services amounted to R$682.0 million (reflecting the exclusion of the LTIP adjustment of R$2.4 million in the three months ended June 30, 2019), an increase of R$210.5 million, or 44.7%, from R$471.5 million in the three months ended June 30, 2018 (reflecting the exclusion of the LTIP adjustment of R$11.3 million in the three months ended June 30, 2018). For a reconciliation of our non-GAAP Cost of sales and services to our Cost of sales and services, see the last page of this earnings release.

Selling expenses

Our Selling expenses amounted to R$131.7 million in the three months ended June 30, 2019, an increase of R$37.3 million, or 39.5%, from R$94.4 million in the three months ended June 30, 2018. As a percentage of our Total revenue and income, our Selling expenses increased by 0.1 percentage points, to 9.5% in the three months ended June 30, 2019 from 9.4% in the three months ended June 30, 2018, as we continue to leverage our selling expenses.

 

2Q19 Earnings Release

 

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Administrative expenses

Our Administrative expenses amounted to R$109.9 million in the three months ended June 30, 2019, an increase of R$0.7 million, or 0.6%, from R$109.2 million in the three months ended June 30, 2018. As a percentage of our Total revenue and income, our Administrative expenses decreased by 3.0 percentage points, to 7.9% in the three months ended June 30, 2019 from 10.9% in the three months ended June 30, 2018.

For the three months ended June 30, 2019 our non-GAAP Administrative expenses amounted to R$81.9 million, an increase of R$23.7 million, or 40.6%, from R$58.2 in the three months ended June 30, 2018, which figures exclude the LTIP adjustment of R$28.0 million in the three months ended June 30, 2019 and R$51.0 in the three months ended June 30, 2018. Our non-GAAP Administrative expenses represented 5.9% of the total of our non-GAAP Net revenue and income in both the three months ended June 30, 2019 and the three months ended June 30, 2018. For a reconciliation of our non-GAAP Administrative expenses to our Administrative expenses, see the last page of this earnings release.

Financial expenses

Our Financial expenses amounted to R$2.2 million in the three months ended June 30, 2019, a decrease of R$0.6 million, or 21.4%, from expenses of R$2.8 million in the three months ended June 30, 2018. Expressed as a percentage of our Financial income, our Financial expenses represented 0.4% in the three months ended June 30, 2019 and 0.8% in the three months ended June 30, 2018. This decrease was mainly driven by the impact of R$0.7 million related to the impact of the IOF tax on the remittance of our sale of shares in our follow-on proceeds from the Cayman Islands to Brazil in the three months ended June 30, 2018.

Our non-GAAP Financial expenses, which exclude the IOF tax amount of R$0.7 million, amounted to R$2.1 million in the three months ended June 30, 2018. For a reconciliation of our non-GAAP Financial expenses to our Financial expenses, see the last page of this earnings release.

Other (expenses) income, net

Our Other (expenses) income, net recorded an expense of R$0.5 million in the three months ended June 30, 2019 and an income of R$0.1 million in the three months ended June 30, 2018. In the three months ended June 30, 2019, this net amount mainly related to civil and labor litigation proceedings expenses.

Profit before income taxes

Our Profit before income taxes amounted to R$461.1 million in the three months ended June 30, 2019, an increase of R$148.4 million, or 47.4%, from R$312.7 million in the three months ended June 30, 2018.

Our non-GAAP Profit before income taxes amounted to R$491.5 million in the three months ended June 30, 2019, an increase of R$143.1 million, or 41.1% from R$348.4 million in the three months ended June 30, 2018. For a reconciliation of our non-GAAP Profit before income taxes to our Profit before income taxes, see the last page of this earnings release.

Income tax and social contribution

Income tax and social contribution amounted to an expense of R$138.4 million in the three months ended June 30, 2019, an increase of R$53.2 million from R$85.1 million in the three months ended June 30, 2018. This item consists of current income tax and social contribution and deferred income tax and social contribution.

 

2Q19 Earnings Release

 

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Our effective tax rate increased by 2.8 percentage points to 30.0% in the three months ended June 30, 2019 from 27.2% in the three months ended June 30, 2018. In the three months ended June 30, 2018 we had a benefit of the exchange variation from U.S. dollars to reais which is not taxable under the Companies Law of 1960 of the Cayman Islands. In the three months ended June 30, 2019, the difference between the effective income tax and social contribution rate and the rate computed by applying the Brazilian federal statutory rate was mainly related to the Technological Innovation Law (Lei do Bem), which reduces income tax charges based on investments made in innovation and technology, such as those made by PagSeguro Brazil, our Brazilian operating subsidiary.

Our non-GAAP income tax and social contribution expense for the three months ended June 30, 2019 amounted to R$10.3 million, a decrease of R$10.9 million, or 51.1%, compared to R$21.2 in the three months ended June 30, 2018.

Our non-GAAP effective tax rate decreased by 0.2 percentage points to 30.3% in the three months ended June 30, 2019, from 30.5% in the three months ended June 30, 2018.

 

Reconciliation of Income Tax and Social Contribution to Non-GAAP Income Tax and Social
Contribution (R$ millions):

   At and for the three
months ended
June 30, 2019
    At and for the three
months ended
June 30, 2018
    Var.%  

Income tax and social contribution

     (138.4     (85.1     62.5
  

 

 

   

 

 

   

 

 

 

(-) Income tax and social contribution on Non-GAAP adjustments [1]

     (10.3     (21.2     51.1
  

 

 

   

 

 

   

 

 

 

Non-GAAP Income tax and social contribution

     (148.7     (106.3     39.9
  

 

 

   

 

 

   

 

 

 

 

[1]

Income tax and social contribution on non-GAAP adjustments: the amount of R$10.3 million consists of income tax at the rate of 34% calculated on the non-GAAP adjustments. The amount of R$21.2 million consists of income tax at the rate of 34% calculated on the non-GAAP adjustments, other than the foreign exchange gain on follow-on proceeds of R$27.3 million, which is not taxable, and the tax benefits related to other non-GAAP adjustments.

Net income for the period

Our Net income for the period in the three months ended June 30, 2019 amounted to R$322.8 million, an increase of R$95.2 million, or 41.8% from R$227.6 million in the three months ended June 30, 2018.

As a percentage of our Total revenue and income, our Net income for the period increased by 0.5 percentage points, to 23.2% in the three months ended June 30, 2019 compared with 22.7% in the three months ended June 30, 2018.

 

2Q19 Earnings Release

 

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Our non-GAAP Net income for the three months ended June 30, 2019 amounted to R$342.9 million, an increase of R$100.7 million, or 41.6%, from R$242.1 in the three months ended June 30, 2018, reflecting the sum of the non-GAAP adjustments described below.

 

Reconciliation of Net Income to Non-GAAP Net Income (R$ millions):

   At and for the three
months ended
June 30, 2019
  At and for the three
months ended
June 30, 2018
  Var.%

Net Income

       322.8       227.6       41.8 %
    

 

 

     

 

 

     

 

 

 

Foreign exchange gain on follow-on proceeds [1]

       —         (27.3 )       100.0 %

Share-based long-term incentive plan (LTIP) [2]

       30.4       62.3       51.2 %

Tax related to remittance of follow-on proceeds (IOF tax) [3]

       —         0.7       100.0 %

Income tax on non-GAAP adjustments [4]

       (10.3 )       (21.2 )       61.7 %
    

 

 

     

 

 

     

 

 

 

Total non-GAAP net income adjustments

       20.1       14.5       53.4 %
    

 

 

     

 

 

     

 

 

 

Non-GAAP Net Income

       342.9       242.1       41.6 %
    

 

 

     

 

 

     

 

 

 

 

[1]

Foreign exchange gain on follow-on proceeds: financial income of R$27.3 million related to the impact of exchange rate variation on the conversion from U.S. dollars into Brazilian reais of the proceeds from our sale of new shares in our June 2018 follow-on offering. We exclude this foreign exchange variation from our non-GAAP measures primarily because it is an unusual gain.

[2]

Share-based long-term incentive plan (LTIP): 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 and they depend on our stock price and the exchange rate from U.S. dollars into Brazilian reais at the time of the vesting of the equity awards. The related employer payroll taxes depend on our stock price and the exchange rate from U.S. dollars into Brazilian reais at the time of the exercises and the vesting date of the equity awards, over which management has limited to no control, and as such management does not believe these expenses correlate to the operation of our business. In the three months ended June 30, 2019, the amount of R$30.4 million is mainly composed of the recurrent quarterly provision. In the three months ended June 30, 2018 the total amount of R$30.7 million is mainly related to new shares issued to preexisting LTIP beneficiaries and to new employees participating in our LTIP. The amount of R$31.6 million is related to the recurrent quarterly provision.

[3]

Tax related to remittance of follow-on proceeds (IOF tax): R$0.7 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 our June 2018 follow-on offering from the Cayman Islands to Brazil. We exclude this IOF tax on the remittance of follow-on proceeds from our non-GAAP measures primarily because it is an unusual expense.

[4]

Income tax and social contribution on Non-GAAP adjustments: the amount of R$10.3 million consists of income tax at the rate of 34% calculated on the non-GAAP adjustments. The amount of R$21.2 million consists of income tax at the rate of 34% calculated on the non-GAAP adjustments, other than the foreign exchange gain on follow-on proceeds of R$27.3 million, which is not taxable, and the tax benefits related to other non-GAAP adjustments.

II—Cash Flow

Our cash and cash equivalents at the beginning of the six months ended June 30, 2019 amounted to R$2,763.0 million.

Our Profit before income taxes in the six months ended June 30, 2019 was R$910.5 million.

The adjustments for revenue, income and expenses recorded in our statement of income in the six months ended June 30, 2019 but which did not affect our cash flows totaled the positive amount of R$188.9 million, mainly due to R$27.8 million of Share-based long-term incentive plan (LTIP) expenses, R$74.5 million in Chargebacks, R$48.1 million of Depreciation and amortization recorded in our statement of income and R$30.8 million of other financial cost (net), mainly due to R$28.3 million related to interest income received from financial investments. LTIP expenses relate to equity awards under our LTIP. Chargebacks relate to amounts that we initially recorded as revenues but for which we did not receive the related cash payment due primarily to fraud.

 

2Q19 Earnings Release

 

8


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The adjustments for changes in our operating assets and liabilities in the six months ended June 30, 2019 amounted to a negative cash flow of R$1,633.8 million:

 

 

Our Accounts receivable item, which is presented net of transaction costs and financial expenses we incur when we elect to receive early payment of the accounts receivable owed to us by card issuers, consists of the difference between the opening and closing balances of the Accounts receivable item of Current Assets and Non-current assets on our balance sheet (R$9,871.5 million at June 30, 2019 compared to R$8,104.7 million at year-end 2018) excluding interest income received in cash and chargebacks, which are presented separately in the statement of cash flows. Accounts receivable represented a negative cash flow of R$1,979.9 million in the six months ended June 30, 2019.

 

 

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$4,581.5 million at June 30, 2019 compared to R$4,324.2 million at year-end 2018). Payables to third parties represented positive cash flow of R$257.3 million in the six months ended June 30, 2019.

 

 

Our Receivables from (payables to) related parties item consists of 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$34.9 million at June 30, 2019 compared to R$30.8 million at year-end 2018). Receivables from (payables to) related parties represented positive cash flow of R$4.1 million in the six months ended June 30, 2019.

 

 

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$3.1 million in the six months ended June 30, 2019.

 

 

Our Salaries and social charges item represent 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 positive cash flow of R$35.0 million in the six months ended June 30, 2019.

 

 

Our Trade payables item consists of the difference between the opening and closing balances of the trade payables (R$239.5 million at June 30, 2019 compared to R$165.2 million at year-end 2018). Trade payables represented positive cash flow of R$73.7 million in the six months ended June 30, 2019.

 

 

Our Taxes and contributions item represents sales taxes (ISS, ICMS, PIS and COFINS). This item represented positive cash flow of R$6.1 million in the six months ended June 30, 2019.

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$52.1 million in the six months ended June 30, 2019. Our statement of cash flows also adjusts for interest income received in cash, which represented a positive cash flow of R$138.7 million in the six months ended June 30, 2019.

As a result of the above, our Net Cash used in operating activities in the six months ended June 30, 2019 totaled R$447.8 million.

Our Cash flows used in investing activities in the six months ended June 30, 2019 totaled R$2,044.7 million. This amount consisted of R$148.5 million in purchases and development of intangible assets, which represent purchases of third-party software and salaries and other amounts that we paid to develop internally software and technology, which we capitalize as intangible assets, and R$1,790.1 million related to our conversion of cash and cash equivalents to investments in Brazil’s government treasury bonds (“LFTs”).

Our Cash flows used in financing activities in the six months ended June 30, 2019 totaled R$15.7 million, principally related to our acquisition of the remaining 49% of R2Tech Informática S.A. in February 2019.

After accounting for the total decrease in Cash and cash equivalents of R$2,508.3 million discussed above, our Cash and cash equivalents at June 30, 2019 amounted to R$254.8 million.

 

2Q19 Earnings Release

 

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Earnings webcast

PagSeguro (NYSE: PAGS) will host a conference call and earnings webcast on August 15, 2019 at 5:30 pm ET.

Event Details

Dial–in (Brazil): +55 11 3181-8565.

Dial–in (US and other countries): +1 (412) 717-9627 or +1 (844) 204-8942

Password: PagSeguro

Webcast: http://choruscall.com.br/pagseguro/2q19.htm

About PagSeguro:

PagSeguro is a disruptive provider of financial technology solutions focused primarily on micro-merchants, small companies and medium-sized companies in Brazil. PagSeguro’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 sells to merchants;

 

 

Free digital accounts;

 

 

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

 

 

Operating as an acquirer.

PagSeguro 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’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’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.

Contacts:

Investor Relations:

PagSeguro Digital Ltd.

+55 (11) 3914-9524

[email protected]

investors.pagseguro.com

 

2Q19 Earnings Release

 

10


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UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF INCOME

 

     Three
months
ended
June 30,2019
    Three
months
ended
June 30,2018
    %  
     (Amounts expressed in
R$ millions)
       

Net revenue from transaction activities and other services

     798.9       515.2       55.1

Net revenue from sales

     63.5       89.4       (29.0 )% 

Financial income

     497.2       332.6       49.5

Other financial income

     30.2       64.5       (53.2 )% 
  

 

 

   

 

 

   

 

 

 

Total revenue and income

     1,389.7       1,001.8       38.7
  

 

 

   

 

 

   

 

 

 

Cost of sales and services

     (684.4     (482.8     41.8

Selling expenses

     (131.7     (94.4     39.5

Administrative expenses

     (109.9     (109.2     0.6

Financial expenses

     (2.2     (2.8     (21.4 )% 

Other expenses, net

     (0.5     0.1       (601.0 )% 
  

 

 

   

 

 

   

 

 

 

PROFIT BEFORE INCOME TAXES

     461.1       312.7       47.4
  

 

 

   

 

 

   

 

 

 

Current income tax and social contribution

     (1.3     (99.3     (98.6 )% 

Deferred income tax and social contribution result

     (137.0     14.1       (1070.6 )% 
  

 

 

   

 

 

   

 

 

 

INCOME TAX AND SOCIAL CONTRIBUTION

     (138.3     (85.1     62.5
  

 

 

   

 

 

   

 

 

 
  

 

 

   

 

 

   

 

 

 

NET INCOME FOR THE PERIOD

     322.8       227.6       41.8
  

 

 

   

 

 

   

 

 

 

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

 

     Three months
ended
June 30,2019
     Three months
ended
June 30,2018
 
     (Amounts expressed in
R$ thousands, except share
quantities and amounts
per share)
 

Net income attributable to:

     

Owners of the Company

     322,400        227,168  

Non-controlling interests

     357        439  

Weighted average number of outstanding common shares

     320,114,060        306,278,562  

Weighted average number of common shares diluted

     328,803,051        307,583,600  

Basic earnings per common share—R$

     1.0071        0.7417  

Diluted earnings per common share—R$

     0.9805        0.7386  
  

 

 

    

 

 

 

Non-GAAP Net income

     342,468        242,130  

Weighted average number of outstanding common shares

     320,114,060        306,278,562  

Weighted average number of common shares diluted

     328,803,051        307,583,600  

Non-GAAP Basic earnings per common share—R$

     1.0698        0.7906  

Non-GAAP Diluted earnings per common share—R$

     1.0416        0.7872  
  

 

 

    

 

 

 

 

2Q19 Earnings Release

 

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UNAUDITED CONDENSED CONSOLIDATED INTERIM BALANCE SHEET

 

     As of
June 30,
2019
    As of
December 31,
2018
 
     (Amounts expressed in
R$ thousands)
 

Cash and cash equivalents

     254,767       2,763,050  

Financial investments

     1,761,745       —    

Accounts receivable

     9,859,199       8,104,679  

Inventories

     78,494       88,551  

Taxes recoverable

     100,161       65,653  

Other receivables

     41,709       20,148  
  

 

 

   

 

 

 

Total current assets

     12,096,074       11,042,081  
  

 

 

   

 

 

 

Judicial deposits

     2,907       1,511  

Accounts receivable

     12,260        

Prepaid expenses

     5,001       968  

Investment

     1,500        

Property and equipment

     146,739       67,104  

Intangible assets

     425,941       305,614  
  

 

 

   

 

 

 

Total non-current assets

     594,348       375,197  
  

 

 

   

 

 

 

TOTAL ASSETS

     12,690,423       11,417,278  
  

 

 

   

 

 

 

Payables to third parties

     4,581,475       4,324,198  

Trade payables

     239,508       165,246  

Payables to related parties

     34,858       30,797  

Salaries and social charges

     108,984       73,936  

Taxes and contributions

     109,130       80,093  

Provision for contingencies

     8,264       7,004  

Other payables

     16,267       29,501  
  

 

 

   

 

 

 

Total current liabilities

     5,098,486       4,710,775  
  

 

 

   

 

 

 

Deferred income tax and social contribution

     358,625       132,125  

Other payables

     15,800      
  

 

 

   

 

 

 

Total non-current liabilities

     374,425       132,125  
  

 

 

   

 

 

 

Share capital

     26       26  

Capital reserve

     5,715,888       5,688,134  

Equity valuation adjustments

     (22,785     (7,325

Profit retention reserve

     1,540,979       909,267  

Treasury shares

     (39,532     (39,532
  

 

 

   

 

 

 
     7,194,576       6,550,570  

Non-controlling interests

     22,936       23,806  
  

 

 

   

 

 

 

Total equity

     7,217,512       6,574,376  
  

 

 

   

 

 

 

TOTAL LIABILITIES AND EQUITY

     12,690,423       11,417,278  
  

 

 

   

 

 

 

 

2Q19 Earnings Release

 

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UNAUDITED CONDENSED CONSOLIDATED INTERIM CASH FLOWS STATEMENT

 

     Six months
ended
June 30,2019
    Six months
ended
June 30,2018
 
     (Amounts expressed in R$
thousands)
 

CASH FLOWS FROM OPERATING ACTIVITIES

    

Profit before income taxes

     910,500       475,748  

Expenses (revenues) not affecting cash:

    

Depreciation and amortization

     48,135       38,548  

Chargebacks

     74,483       28,146  

Accrual of provision for contingencies

     848       1,135  

Share based long term incentive plan (LTIP)

     27,754       162,410  

Inventory provisions

     6,918       2,745  

Other financial cost, net

     30,783       (1,195

Changes in operating assets and liabilities

    

Accounts receivable

     (1,979,920     (2,838,067

Inventories

     3,139       4,508  

Taxes recoverable

     (13,999     265  

Other receivables

     (22,944     3,958  

Other payables

     3,791       2,404  

Payables to third parties

     257,277       4,218  

Trade payables

     73,668       64,091  

Receivables from (payables to) related parties

     4,061       119,130  

Salaries and social charges

     35,048       1,356  

Taxes and contributions

     6,073       22,291  

Provision for contingencies

           (795
  

 

 

   

 

 

 
     (534,385     (1,909,104
  

 

 

   

 

 

 

Income tax and social contribution paid

     (52,122     (110,844

Interest income received

     138,658       160,164  
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

     (447,849     (1,859,784
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Amount paid on acquisitions, net of cash acquired

     (15,753      

Purchases of property and equipment

     (90,348     (11,749

Purchases and development of intangible assets

     (148,528     (66,363

Acquisition of financial investments

     (1,790,118      

Redemption of financial investments

           211,116  
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

     (2,044,747     133,004  
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Proceeds from offering of shares

           4,744,900  

Transactional costs

           (186,349

Transaction with non-controlling interest

     (15,992     (5,390

Capital increase by non-controlling shareholders

     305       20,334  
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

     (15,687     4,573,495  
  

 

 

   

 

 

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     (2,508,283     2,846,715  
  

 

 

   

 

 

 

Cash and cash equivalents at the beginning of the year

     2,763,050       66,767  

Cash and cash equivalents at the end of the year

     254,767       2,913,482  

 

2Q19 Earnings Release

 

13


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RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

 

     Three Months Ended
June 30, 2019
    Three Months Ended
June 30, 2018
 
     (Amounts expressed in R$ millions, except
amounts per share)
 

Total revenue and income

     1,389.7       1,001.8  

Less: Foreign exchange gain on follow-on proceeds

           (27.3
  

 

 

   

 

 

 

Non-GAAP total revenue and income (1)

     1,389.7       974.5  
  

 

 

   

 

 

 

Total expenses

     (928.6     (689.1

Less: Share-based long-term incentive plan (LTIP)

     30.4       62.3  

Less: Tax related to remittance of follow-on proceeds (IOF tax)

           0.7  
  

 

 

   

 

 

 

Non-GAAP total expenses (2)

     (898.2     (626.1
  

 

 

   

 

 

 

Profit before taxes

     461.1       312.7  

Plus: Total non-GAAP adjustments

     30.4       35.7  
  

 

 

   

 

 

 

Non-GAAP profit before taxes (3)

     491.5       348.4  
  

 

 

   

 

 

 

Income tax and social contribution

     (138.4     (85.1

Less: Income tax and social contribution on non-GAAP adjustments

     (10.3     (21.1
  

 

 

   

 

 

 

Non-GAAP deferred income tax (4)

     (148.7     (106.3
  

 

 

   

 

 

 

Net income

     322.8       227.6  

Plus: Total non-GAAP adjustments

     20.1       14.5  
  

 

 

   

 

 

 

Non-GAAP net income (5)

     342.9       242.1  
  

 

 

   

 

 

 

Basic earnings per common share—R$

     1.0071       0.7417  

Diluted earnings per common share—R$

     0.9805       0.7386  
  

 

 

   

 

 

 

Non-GAAP basic earnings per common share—R$ (6)

     1.0698       0.7906  

Non-GAAP diluted earnings per common share—R$ (6)

     1.0416       0.7872  
  

 

 

   

 

 

 

 

(1)

Non-GAAP total revenue and income excludes a foreign exchange gain on our follow-on proceeds in the amount of R$27.3 million in the three months ended June 30, 2018, which relates to the impact of exchange rate variation on the conversion from U.S. dollars into Brazilian reais of the proceeds from our sale of new shares follow-on offering. We exclude this foreign exchange variation from our non-GAAP measures primarily because it is unusual income. The foreign exchange gain on our follow-on proceeds is included within Other financial income. Other financial income in the amount of R$64.5 million is therefore adjusted by excluding the foreign exchange gain on our follow-on proceeds, resulting in non-GAAP Other financial income in the amount of R$37.2 million.

(2)

Non-GAAP total expenses excludes:

  (a)

Stock-based compensation expenses in the total amount of R$30.4 million (R$62.3 million in the three months ended June 30, 2018), consisting of expenses for equity awards under our LTIP. 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 and they depend on our stock price and the exchange rate from U.S. dollars into Brazilian reais at the time of the vesting of the equity awards. The related employer payroll taxes depend on our stock price and the exchange rate from U.S. dollars into Brazilian reais at the time of the exercises and the vesting date of the equity awards, over which management has limited to no control, and as such management does not believe these expenses correlate to the operation of our business. The total of stock-based compensation expenses is allocated between Cost of sales and services and Administrative expenses. Excluding the stock-based compensation expenses, Cost of sales and services in the amount of R$684.4 million (R$482.8 million in the three months ended June 30, 2018) is adjusted by R$2.4 million (R$11.3 million in the three months ended June 30, 2018) resulting in non-GAAP Cost of sales and services of R$682.0 million (R$471.5 million in the three months ended June 30, 2018); and Administrative Expenses in the amount of R$109.9 million (R$109.2 million in the three months ended June 30, 2018) is adjusted by R$28.0 million (R$51.0 million in the three months ended June 30, 2018) resulting in non-GAAP Administrative expenses of R$81.9 million (R$58.2 million in the three months ended June 30, 2018).

  (b)

Tax related to remittance of follow-on share proceeds (IOF tax) in the amount of R$0.7 million in the three months ended June 30, 2018, which represents the impact of Brazilian IOF tax (currency remittance tax) payable when we remitted the proceeds from our sale of new shares in our June 2018 follow-on offering from the Cayman Islands to Brazil. We exclude this IOF tax on the remittance of follow-on share proceeds from our non-GAAP measures primarily because it is an unusual expense. The IOF tax is fully allocated to Financial expenses. Financial expenses in the amount of R$2.8 million is therefore adjusted by excluding the IOF tax, resulting in non-GAAP Financial expenses in the amount of R$2.1 million.

(3)

Non-GAAP profit before taxes is equal to the sum of the adjustments described in footnotes (1) and (2) above.

(4)

Non-GAAP income tax and social contribution consists of income tax at the rate of 34% calculated on the non-GAAP adjustments described in footnotes (1) and (2) above, other than the foreign exchange gain on follow-on proceeds of R$27.3 million in the three months ended June 30, 2018, which is not taxable, and the tax benefits related to other non-GAAP adjustments.

(5)

Non-GAAP net income is equal to the sum of the adjustments described in footnotes (1), (2) and (4) above.

(6)

Non-GAAP basic earnings per common share and non-GAAP diluted earnings per common share reflect the adjustments to non-GAAP net income, which is allocated in full to Owners of the Company.

 

2Q19 Earnings Release

 

14


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: August 15, 2019

 

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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