PagSeguro Digital : Reports Third Quarter Results

PagSeguro Reports Third Quarter Results

Total Revenue and Income of R$1,781.5 million, up 21.8% compared to 3Q19.

3Q20 Non-GAAP Net Income of R$330.4 million.

São Paulo, November 18, 2020 - PagSeguro Digital Ltd. ("PagSeguro" or "we") announced today its third quarter results for the period ended September 30, 2020. 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").

Third Quarter 2020 Financial & Operational Highlights:

• R$44.8 billion in total payment volume ("TPV"), up 52.5% compared to 3Q19;
• 6.3 million active merchants, growth of 474 thousand in 3Q20 and 1.3 million in the last twelve months;
• 6.7 million active PagBank users2, growth of 1.8 million in 3Q20 and 4.8 million in the last twelve months;
• R$263.4 million in Net Income, down 23.1% compared to 3Q19;
• R$330.4 million in non-GAAP Net Income, down 15.3% compared to 3Q19;
• Total Revenue and Income of R$1,781.5 million, up 21.8% compared to 3Q19; and
• Operational Revenue and Income3 of R$1,719.3 million, up 22.8% compared to 3Q19.

At and for the Three Months

Ended September 30,

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

TPV

Active Merchants (last 12 months) - (millions)

Total Net Revenue

Net Income

Net Margin (%)

Basic earnings per common share (EPS) 1 - (R$)

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

2020
44,813.4
6.3
1,781.5
263.4
14.8%
0.8001
0.7988

2019
29,383.7
5.0
1,463.0
342.6
23.4%
1.0685
1.0352

Var,%

52.5%

26.0%

21.8%

(23.1)%

(8.6)%

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

Non-GAAP Total Net Revenue

Non-GAAP Net Income

Non-GAAP Net Margin (%)

2020	2019	Var.%
1,781.5	1,463.0	21.8%
330.4	390.2	(15.3)%
18.5%	26.7%	(8.2)%

Non-GAAP Basic earnings per common share (EPS)1 - (R$)	1.0035	1.2171
Non-GAAP Diluted earnings per common share (EPS) - (R$)		1.0019		1.1791

For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, see page [16] of this earnings release.

1. Weighted average number of common shares of 320.3 million at September 30, 2019 and 329.0 million at September 30, 2020.
2. Active PagBank users are active merchants using one additional PagBank digital account feature / service beyond acquiring and PagBank consumers with at least one transaction in the last twelve months.
3. Operational Revenue and Income = Revenue from Transaction Activities and Other Services + Financial Income - membership fee income.

3Q20 Earnings Release

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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-basedcompensation 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 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 these expenses correlate to the operation of our business.

Income tax and social contribution on non-GAAPadjustment: This represents the income tax effect related to the non-GAAP adjustment mentioned above.

For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures, see the tables elsewhere in this press release under the following headings: "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 amounted to R$1,781.5 million in the three months ended September 30, 2020, an increase of 21.8% from R$1,463.0 million in the three months ended September 30, 2019. This increase was primarily due to increase in our TPV.

3Q20 Earnings Release

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Revenue from transaction activities and other services

Our Revenue from transaction activities and other services in the three months ended September 30, 2020 amounted to R$1,212.0 million, an increase of R$332.6 million, or 37.8%, from R$879.4 million in the three months ended September 30, 2019, as a result of the factors described below.

Our Gross revenue from transaction activities and other services in the three months ended September 30, 2020 amounted to R$1,359.7 million, an increase of R$351.4 million, or 34.9%, from R$1,008.3 million in the three months ended September 30, 2019.

This increase in Gross revenue from transaction activities and other services was principally due to a continued increase in our active merchant base and TPV. In addition, in the three months ended September 30, 2020, we recognized R$41.2 million in membership fees, compared to R$18.6 million in the three months ended September 30, 2019.

Our Gross revenue from transaction activities and other services during the three months ended September 30, 2020 increased by a lower percentage than the growth of our TPV, which increased to R$44.8 billion from R$29.4 billion in the three months ended September 30, 2019. This difference in the growth rate was driven by the mix of processed debit and credit card payments containing a higher percentage of debit card payments and, within the processed credit card payments, a lower percentage of credit card transactions made in installments in the three months ended September 30, 2020 compared to the three months ended September 30, 2019. These trends are explained by consumer behavior during the period, reflecting (i) a slowdown in consumption and transactional activities made in installments, in part resulting from the COVID-19 pandemic, which affected sectors of the economy involving significant purchases in installments, such as general merchandise retailers (e.g., apparel, white goods and electronics), and (ii) the prevalence of the "coronavoucher," representing financial assistance from the Brazilian government for economically vulnerable people, providing them with cash for debit card payments.

Our Deductions from gross revenue from transaction activities and other services, which consist principally of taxes, amounted to R$147.7 million in the three months ended September 30, 2020, or 10.9% of our Gross revenue from transaction activities and other services for the quarter. In the three months ended September 30, 2019, Deductions from gross revenue from transaction activities and other services totaled R$129.0 million, or 12.8% of our Gross revenue from transaction activities and other services for the quarter. The R$18.7 million, or 14.5%, increase in these Deductions is directly related to our higher TPV, and the decrease in the percentage that such Deductions represent in relation to our gross revenue is due to our new revenue initiatives that result in lower tax deductions. Additionally, in the three-month period ended September 30, 2020, R$3.9 million of these Deductions correspond to membership fee taxes, compared to R$1.7 million in the three-month period ended September 20, 2019.

Revenue from sales

Starting on September 1, 2019, instead of selling our POS devices to our clients, we began to charge a non-refundableset-up fee for the use of our POS devices. Therefore, in 3Q20 we did not have any amount classified as revenue from sales.

3Q20 Earnings Release

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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$544.8 million in the three months ended September 30, 2020, an increase of R$7.0 million, or 1.3%, from R$537.8 million in the three months ended September 30, 2019. The increase in Financial income was driven by higher TPV, on the one hand, and fewer credit card transactions in installments and higher debit card transactions, on the other hand, in the three months ended September 30, 2020.

Other financial income

Our Other financial income amounted to R$24.7 million in the three months ended September 30, 2020, a decrease of R$6.1 million, or 19.8%, from R$30.8 million in the three months ended September 30, 2019. This decrease was mainly related to the reduction of Brazilian basic interest rate (SELIC).

Expenses

Our total expenses amounted to R$1,429.3 million in the three months ended September 30, 2020, an increase of R$434.5 million, or 43.7%, from R$994.8 million in the three months ended September 30, 2019.

As a percentage of our Total revenue and income, our total expenses in the three months ended September 30, 2020 increased by 12.2 percentage points, to 80.2% in the three months ended September 30, 2020 from 68.0% in the three months ended September 30, 2019.

Our non-GAAP total expenses amounted to R$1,327.9 million in the three months ended September 30, 2020, an increase of R$405.3 million, or 43.9%, from R$922.6 million in the three months ended September 30, 2019.

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

Expenses

(-)Share-basedlong-term incentive plan (LTIP) [1]

Non-GAAP Expenses

At and for the three	At and for the three
months ended	months ended
September 30, 2020	September 30, 2019	Var.%
(1,429,3)	(994.8)	43.7%
101.4	72.2	40.4%
(1,327.9)	(922.6)	43.9%

1. Share-based long-termincentive 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 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 these expenses correlate to the operation of our business. In the three months ended September 30, 2020 and 2019, the amounts of R$101.4 million and R$72.2 million, respectively, were mainly related to new shares issued to preexisting LTIP beneficiaries as well as the recurrent quarterly provision and expenses related to shares vested in this period, including the update of our stock price and appreciation of the US$ dollar exchange rate.

3Q20 Earnings Release

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