PagSeguro Digital : 1Q20 Webcast Transcript

1Q20 RESULTS

WEBCAST TRANSCRIPT

RICARDO DUTRA | CHIEF EXECUTIVE OFFICER

Hello everyone, and thanks for joining our first quarter results conference call. Tonight, I have here with me Eduardo Alcaro, our Chief Financial Officer, and André Cazotto, our Head of Investor Relations. First, I hope you and your families are well and safe. I also would like to say thank you to all PagSeguro PagBank team who have maintained their focus in supporting our business, our customers and partners, as well each other during the past weeks, while almost 100% of us have been working from home. Thank you very much PagSeguro PagBank team!

I will start with an overview of our results, then I will pass the word to Eduardo Alcaro, our CFO, and in the end, we will give our perspective about COVID-19 and some preliminary data about Q2.

SLIDE 3:Going to slide 3, we compare PAGS performance with our listed peers. PAGS is in a strong momentum and is the most resilient payments company in Brasil. Despite the health crisis and higher subsidies offered to our clients through this period, PAGS was able to combine growth with profitability.

Comparing Q1 20 with Q4 19, our revenues grew 1%, despite the stronger seasonality in Q4, while our peers revenues decreased 8% and 5%.

And year over year, our net income grew 13% while our peers net income decreased 13% and

65%.

These results reinforce the strength of our broad ecosystem, the resilience of our business model and the caliber of our professionals and their execution capability.

SLIDE 4:On slide 04, we highlight the great achievements of the quarter, even with COVID-19 impact in Brazil and in our businesses. As we have seen in the past years, we are proud to announce one more quarter with solid results. We delivered organic growth in top line, both revenues and TPV, with less than 3% of our TPV coming from sub acquirers. We also delivered users growth (both merchants and consumers) and net income growth.

On the left side of the slide, Our Total Revenue and Income reached close to 1.6 billion reais, growing 27% year over year and 1% quarter over quarter, despite a stronger seasonality in Q4,

Our TPV reached 31.7 billion reais, up 30% year over year.

We reached 5.5 million Active Merchants, up 24% year over year.

Moving to PagBank, our non-Acquiring TPV through digital account and wallet reached 8.7 billion reais, growing 190% year over year.

Our active users, by the end of the quarter were 3.7 million, meaning we added 1.0 million new users only in this quarter.

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Now, moving to our financials on the right side, our Take Rate ended the quarter at 3.31%, up 19 basis points year over year, which is the result of adding healthy TPV in our ecosystem. Our Operational Revenue and Income reached 1.5 billion reais, growing 33% up year over year and our non-GAAP Net Income ended at 367 million reais, up 13% year over year.

Now, I will pass the word to Eduardo Alcaro, our CFO, who by the way, with his previous Walmart experience has been doing an amazing job in cost controlling and cash preservation as we navigate through this unique time together.

Thank you, Eduardo please.

EDUARDO ALCARO | CHIEF FINANCIAL OFFICER

Thanks Ricardo, and hello everyone!

SLIDE 5:On the next slide, we show our Total Net Revenue and Income that reached almost

1.6 billion reais, up 27% year over year, this means an acceleration of our Total Net Revenue and Income growth of 260bps, which grew 24% from fourth quarter 2018 to fourth quarter 2019, proving that we are in the right track as far as investments in PagBank.

On the top right, we show the Total Net Revenue and Income growth compared to Q4, up almost 1%. Let me just pause for a second here, this is a remarkable achievement, despite the COVID-19 pandemic and the strong seasonality in Q4, PAGS was able to grow Total Revenue and Income quarter over quarter. Moving to the chart below, our Operational Revenue and Income, that reached 1.5 billion reais, growing 33% year over year.

Talking about Net Income, PAGS delivered growth year over year. Our non-GAAP Net Income in the first quarter reached 367 million reais, an increase of 42 million reais and up 13% year over year, despite the COVID 19 pandemic and investments in PagBank.

SLIDE 6:On the next slide, we present our operating figures.

Our TPV reached 31.7 billion growing 7.2 billion reais or 30% when compared to first quarter last year.

As we show in the next graph, our TPV grew high thirties in January, February and low forties in the first half of March, better than our expectations for the year shared with you during our fourth quarter 2019 earnings call, but decelerating sharply in the second half of March. This occurred given social distancing measures implemented in several Brazilian cities resulting in partial shutdowns because of the pandemic. We estimate an approximate miss of 2 billion reais in TPV for the quarter due

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to the COVID-19 outbreak which means a miss of approximately 40 million reais in the bottom line for the full quarter.

On the chart below, our Net Take Rate, which is the blended Take Rate Net from Transactions Costs such as Interchange, Processing and Cards Scheme Fees, reached 3.31%, nineteen basis points year on year and 34 bps quarter over quarter. This increase is explained by a better mix of credit versus debit, higher contribution of PagBank revenues and the resilience of MDRs in the long tail. About transaction costs, we had a positive impact in scheme fee rebates of 9 bps in Q1.

Active Merchants reached almost 5.5 million, growing 1.1 million year over year and 227 thousand, sequentially. Also, important to say that the pandemic impacted from 25 to 30 thousand net adds in the second half of March.

SLIDE 7:On the next slide, we highlight our strong balance sheet and cash generation despite the pandemic.

On the top left chart, we present our solid balance sheet, ending the quarter with 8.1 billion reais in cash plus our net position between accounts receivable from issuers less payables to merchants.

Moving to the top right, we ended the quarter with 3.5 billion reais in cash, growing more than 1 billion reais when compared to one year ago. This is explained by higher cash generation, higher PagSeguro clients deposits as well as higher receivables discounting in volume and duration, resulting in R$22 million reais of additional interest expenses when compared to the fourth quarter of 2019. From a cash management perspective, preserving capital and liquidity are the top priorities for now.

On the chart below, we present our non-GAAP Total Costs and Expenses that increased 0.2 percentage points year over year, ending the fourth quarter at 3.4% over total TPV and down 0.7 percentage points when compared to the previous quarter. Related to non-GAAP Administrative Expenses, over total TPV, reached 0.2%, down 0.1 percentage points when compared to one year ago and stable quarter over quarter.

Important to highlight that approximately 70% of our Total Cost and Expenses are variable. Meaning that the company has the flexibility to do the necessary expense adjustments to deliver healthy margins and solid bottom line growth. Since April, we are revisiting our expenses structure which should allow the company to maintain the same level of net income margins in Q2 2020 observed in Q1 2020.

Now I would like to turn the conference over to Ricardo who will talk about engagement metrics and new products.

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RICARDO DUTRA | CHIEF EXECUTIVE OFFICER

SLIDE 8:Thanks Eduardo!

On slide 8, we present our highlights in terms of online distribution, Google searches and our App rating.

Starting with Google searches for digital banks, PagBank continues to lead and gaining share over its peers, with 72% of the total shares over digital banks a consequence of our marketing strategy and product roll out. On average 53% of our clients use at least 3 products of our ecosystem and PagBank app is opened 11 times a week.

Our PagBank app was rated at 4.8 stars in iOS and 4.5 stars in Android, being the most reviewed and best rated app among digital banks and payment peers, also a consequence of our best in class product development and user experience-oriented strategy.

Finally, with UOL, that in the quarter broke new audience records in Brazil, reaching 1.8 billion accesses, ending with 113 million unique monthly users, and reaching 94% of the Brazilian internet audience, just behind Google and Facebook.

SLIDE 9:On slide 9, we show some of the most relevant engagement trends in our ecosystem. We believe engagement is relevant metrics to follow at this stage, once it will help the company to increase the switching cost of our clients, their stickiness and loyalty, which will enable future monetization and revenue diversification.

On the top of the chart, we reached 8.7 billion reais in non-Acquiring TPV through our digital account, including prepaid card top-ups, cash cards spending, credit cards, mobile top-ups, wire transfers to third parties, cash-in through bank slip, bill payments, tax collections, P2P, QR Code, and other Super App transactions, growing 190% year over year

In the chart below, we see the number of bill payment transactions that increased 25% quarter

over quarter. Our payroll portability feature is also ramping up, growing almost37% sequentially. Moving to alternative payment methods, our QR code transactions grew more than 30% quarter over quarter and link of payments, increased by 53% year over year, both boosted by COVID- 19.

Finally, on PAGS Capital.

We continue to offer the product only to our best merchants, eligible according to their account history, TPV behavior and payment frequency. Since the beginning of the operations in October 2018, we have done 150 thousand lending contracts. We ended the quarter with a Total Credit Portfolio of 338 million reais. Additionally, we ended the quarter with 156 million reais in our Credit Card Portfolio. Our credit card strategy is also targeted to our best merchants.

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So far, we continue to be careful with credit disbursements, however the preliminary results are encouraging, as we still face controlled levels of NPLs.

To keep our operations under control, helping our merchants particularly during the COVID-19 crisis and following the Central Bank's instructions, we are offering a 90 days grace period on a case- by-case basis.

Finally, it is important to highlight that during the first and second quarters of 2020, default rates are not showing significant deteriorations. On top of that, to manage our credit risk exposure in the middle of a global pandemic, we have significantly reduced credit disbursement for now.

Credit is an important tool to create higher engagement with our merchant base and will continue to generate additional revenues for the company in the future.

SLIDE 10:On slide 10, we highlight our roadmap of products already delivered in the past two years. Being tech and independent, allow us to think exclusively on our clients' financial needs, and consequently, combine growth with profitability. Since May 2018, we have delivered almost 40 new products, including hardware, software, banking, and services in our Super App. In May, we launched our Services, Offers and Discounts Map feature, where our clients can find, in app, through geolocation, closest ATMs and also merchants in different categories such as restaurants, pharmacies, gas stations and general services to have discounts or cash back when they purchase through QR code or our cards. Additionally, we also launched two new CD´s, paying 115% and 120% over CDI. PagBank CDs with remunerations 30% above the traditional savings account is part of our strategy to expand our investment products offer as well to acquire new PagBank clients.

Despite the current health crisis, we decided to keep investing in product development, and keep committed with our roadmap agenda. We should continue to deploy new products and services on payments, banking, and software fronts. Our ecosystem and its development are key to our core strategy.

SLIDE 11:On the next slide, we present some of the new products or initiatives launched in the quarter. First, we officially started our partnership with Shell, one of the largest gas stations in Brazil. Additionally, we announced a partnership with the most relevant drugstores chains and retail pharmacies, offering incentives, discounts and cash backs with purchases done with PagBank cash card. This partnership will also reinforce PagBank card usage.

Given the health crisis, we also decided to accelerate some new initiatives such as:

PagPerto, our new virtual shopping, to support merchants and individual entrepreneurs to sell online. Offering digital product catalog and shopping vouchers (ie: pay now and get later) and finding buyers through geolocation in their own neighborhood for online shopping.

On the social side, we announced a partnership with the State of Minas Gerais, and PagBank became the exclusive digital bank to distribute the social aid paid by the government, for more than 380

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thousand public school students. Additionally, PagBank is also supporting the most vulnerable families, by offering products and a 20 reais cash back for the users that are transferring the Corona Voucher (600 reais aid paid by the government) to PagBank account. Citizens could withdraw the money or select a bank to have their vouchers deposited; and PagBank was the 8thbank in the ranking, in terms of deposits received.

SLIDE 12:On slide 12, we present PagBank Health, officially launched in late April.

PagBank Health works in a monthly subscription model, with prices between R$ 9,90 and 14.90 per month , and offers a diversified number of medical and dental appointments (including remote appointments during this COVID crisis), exams, and pharmacies discounts in the whole country at low cost, everything in app. We work in a third-party partnership model, with different healthcare companies.

SLIDE 13:On the next slide, we introduce Pagpro pequeno. A website launched during the COVID-19 pandemic with PagSeguro solutions to help our clients to keep selling, remotely, even with their doors are closed. Some of the solutions are: (i) link of payments, a non-card present transaction, that can be shared via social media, email or SMS; (ii) PedeFácil, a delivery app, Pedefacil is a complete omni-channel that combine payments + software + on line menu and online ordering. Pedefacil can be used for anyone who wants to publish a menu to sell products, food and services online (iii) We also offer Envio Fácil, a partnership that we set with the Post Office, with promotional prices to our clients, less bureaucracy and faster shipments and (iv) QR code, we are offering 0% fees to our merchants and 10% cash back for our buyers.

Additionally, we are offering from now onward, unlimited wire transfers at no cost to all our Pagbank clients, merchants, and consumers.

SLIDE 14:Now, I would like to share the management perspectives due to the outbreak of COVID-19, including our initiatives with our clients, employees, community, and investors.

I would like to reinforce PAGS has a highly variable cost structure, mainly interchange and card schemes fees, combined with a scalable platform, so that we are able to manage costs and expenses accordingly to sustain net income margin levels observed in 1Q20 during 2Q20.

We entered this crisis leading the financial inclusion and the electronic payment adoption, with 5.5 million active merchants and 3.7 million PagBank users.

Our employees are our first and main priority. In a few days, we were able to set home office for almost 100% of our team and we continue to hire people for positions in our product development and software engineering departments. Important to mention there were no impacts in our systems and operations as we transitioned our team to a work-from-home status.

To our investor community, we recognize it would appreciate as much information on our performance as possible, and to that end, we will disclose some second quarter preliminary numbers in the next slide.

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However, due to obvious reasons such as poor visibility and high uncertainty levels around the duration of lockdown measures and the near-term economic effects of COVID-19, we have decided to withdraw our FY2020 soft guidance for absolute TPV growth, take rate and net margin shared in previous conference call,

For our clients, as we saw in the previous slides, we launched many services, such as Pagpropequenoand helped government in distributing financial aid to population.

Community matter for us: PagSeguro donated thousands of masks to public hospitals, donated more than 200 thousand food basketsand promoted online concerts with donations of cash, food, and health items to UNICEF Brasil. All the initiatives to our clients and community will reach 30 million reais.

SLIDE 15:Finally, on the slide 15, we can see some Q2 preliminary data. We saw a stronger impact in the second half of March, with a sharp decline in sales for two consecutive weeks, due to initial shutdowns in the Brazilian retail.

However, since April, we started to see recovery in sales, posting a small decline of only 3% year over year, when compared to almost 37% decline in retail sales in Brazil in the same period. Also, important to say that we are observing growth in a year over year basis since the second half of April. Adjusting by calendar effect, meanings fewer working days due to national holiday in 2020, our TPV in April would have been up 2% year over year. In May we are seeing until last week, a growth of 11% year over year, or 18% up, adjusted by calendar effect, once in May we also observed one less working day, due to a national holiday in the beginning of the month. This trend shows the resilience of our diversified merchant base, constituted by micro, small and medium merchants and by individual entrepreneurs, that were less impacted by the crisis.

In the chart below, we can see Healthy TPV trends. TPV has been improving week after week, and in the first half of May we reached 86% of the TPV of the first half of March, which is pre-covid19. Right now, some states in Brazil are reducing the social isolation, and retail volumes are gradually improving.

It is important to mention that our lack of concentration in segments or geography, 100% coverage of the Brazilian cities and a little over 1/3 of the TPV coming from the large capitals, and all our efforts to rapidly adapt and deploy omnichannel products are key to our TPV recovery.

On the right side of the slide, as of May 23, Active Merchants reached 5.7 million, backed by a healthy trend of 167 thousand net adds in in April and May. Meanwhile, PagBank reached 4.6 million active users, maintaining the accelerated pace of net additions of 826 thousand in the same period.

In summary, we are prepared to increase our leadership in the long tail market, which is still huge, due to the large number of micro merchants and informal employees and will grow due to acceleration of the shift from cash to plastic. Important to mention some of our peers decided to reduce their investments in long tail segment.

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Having said that, we reinforce our plan to have 30% of our total revenues coming from PagBank (meaning services beyond acquiring) in up to 5 years, with acquiring still growing at a healthy pace. Although we are pragmatic in understanding and managing short-term impacts of COVID 19, we are confident about the strong fundamentals of our business, the strength of our brand and the ecosystem we have built so far, and we will keep investing in our long-term strategy, in people, products and growth. We believe PAGS will leave this crisis uniquely positioned to lead the digital transformation of financial services in Brazil.

Having said that, we finish our presentation and we will start the Q&A session.

Q&A SESSION

CRAIG MEURER (Autonomous):Hi and thanks for all the good detail tonight. Two questions for you. First our own, what attracted the attention of the competition from where we can see it looks like competition has pulled back significantly through the early part of the pandemic and is that creating an opportunity for you? Second, should we expect financial expenses to normalize in 2Q following the need or perceived need for short-term liquidity in late March? Thanks.

RICARDO DUTRA (CEO):Hi Craig! Thank you very much for the question. Regarding competition we have seen some competitors reducing terminal subsidies, reducing marketing investments and at some point, even reducing headcount. Some of them are increasing the price of the terminals, decreasing advertisement, taking out some promotions. So, we see that some of the plyers that try to come to long tail they are kind of bringing this sentiment of the market and trying to focus on the large accounts and SMEs. So, you are right, we have seen less competition from some of the players. We always said that to operate in the long tail it requires large upfront investment in platform, the branding, user experience and payback will come later.

So we started with that in 2006, we have a very broad ecosystem, we are complete and so that is why we are able to scale our platform and bring as you could see 80+ thousand new merchants per month and being profit at the same time. So, going back to your question you are right; some of the competitors decided not to invest in long tail as they used to do in the past. Regarding if I mentioned expenses Eduardo will take that.

EDUARDO ALCARO (CFO):Hi Craig! Obviously, we expect financial expenses in 2Q to be lower than 1Q, obviously because in 1Q we had to deal with this liquidity reserve; but going straight to your question we should expect lower interest expenses, financial expenses in 2Q compared to 1Q.

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CRAIG MEURER (Autonomous):If I can just ask one follow-up could you discuss your e- commerce business? Because I know you do have a significant or meaningful e-commerce business, and could you discuss where that is focused and all that has been performing?

RICARDO DUTRA (CEO):So, we are observing faster adoption of e-commerce for some of our clients, mainly post-COVID. Online transactions have been growing 50% percent YoY in May and that is in number of transactions, not in TPV because the average ticket sometimes is lower; but we are taking advantage so to say because of the COVID and all the interest from the clients or the merchants to sell online to leverage our online, our e-commerce platform. So, it has been growing at a healthy pace, faster than the POS of course and we see opportunities in the future to even take market share from the POS to the e-commerce.

ANDRÉ CAZOTTO (Head of Investor Relations):Just onefollow-uphere, Craig - Andre speaking - we are just like we said in the presentation we decided to accelerate some new initiatives like PagPerto that is our virtual shopping, PedeFacil that is like an open channel for food delivery application. So, some new initiatives that should help the company to capture more from transactions through online transactions going forward.

BRYAN KEANE (Deutsche Bank):Hi guys! Two questions, I guess. First on the PagBank user growth, it continues to be solid and impressive. Could you just talk a little bit about these new users? Any change in underbanked or are they coming from other competitors both in the physical branches or even the digital competitors and kind of what engagement you are seeing out of these new users to start?

And then secondly the take rate was also impressive in the quarter. Can you quantify the impact that PagBank might have had there and what take rate might look like as we go into 2Q? Thanks.

RICARDO DUTRA (CEO):Hi Bryan! Good to hear you and thank you for the question. Regarding PagBank as we could see in the presentation, we grew 1 million new users only this quarter. Most of this growth is still coming from merchants; but the part that is coming from consumers is accelerating month after month. So, we already have hundreds of thousands of consumers using PagBank and it is growing fast. Part of that we could see in 1Q, I mean we are having more interest from people because of the need of digitalization. Because of COVID people just or they do not want to go to the streets, or they cannot go. So that is why they decide to use digital accounts.

Second one, we are being used for some governments such as the Minas Gerais to distribute benefits for the population. So we are talking about 200,000 that started in April and they are not in the number of March yet but they started in April and also let us say the brand of PagBank that is being more known for the people in Brazil. Also, we have been launching some new products, some CDs and we see some users coming to us because of these new products. So, summarizing the answer to your question is we have seen more interest from consumers in the past months and it is growing fast, faster than the merchants. Regarding take rate I guess Eduardo can also take that.

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EDUARDO ALCARO (CFO):Hi Bryan. The take rate is a combination of things: first we have lower transaction costs, we also expected a higher net take rate because of the seasonality. Remember that in 4Q usually we have a higher mix of debit because of the holiday season and the 13th salary compared to 1Q and obviously we do have a higher engagement of our users in our banking strategy, which is already showing some monetization in our take rates.

JORGE KURI (Morgan Stanley):Hi everyone and congrats on the numbers. Two questions if I may. Can you maybe talk through what is driving that resilience in your micro merchants? I think it is impressive that you are at 86% of pre-COVID levels in terms of TPV. Can you just help us understand that? Is it geographical presence, is it industry vertical, is it the ability of micro merchants to pay or to do different things? Is it that they simply did not lock down? Any color that you can provide on that would be helpful.

And then the second question is could you, you continue to talk about 30% of your revenues not coming from acquiring, so I am assuming it is the bank really, where are we in that path? Clearly with PagBank now at almost 5,000,000 clients I am assuming it is already bringing in some percentage to the top line at least. Could you tell us where are we in the pathway to getting there? Are revenues already having a meaningful portion of PagBank, say 5%, 10%? Any quantification around that would be very useful thank you.

RICARDO DUTRA (CEO):Hi Jorge this is Ricardo, good to hear you. So, I will take the question about the resilience of our total payment volume. I agree with you, it is impressive that we already have 86% of our TPV in the first half of May compared with the first half of March. Part of that I would say that first we do not have exposure to industries that were very, very affected by COVID-19 such as airlines, rental cars, and things like that. So, as we do not have this exposure we did not suffer that much just like other players in the market.

We have clients in every city in Brazil, it is more than 5500 cities in Brazil, we have clients in every city in Brazil. It is very spread-out geographically. Our TPV comes a little bit more than one third from capitals and the other two thirds is from the small cities in the countryside. We do not have dependency on specific industry; the largest industry that we have is bars and restaurants close to 15%, so it is very spread-out, we do not have any concentration in terms of… nor in terms of users.

Also, worth to say that all this TPV is organic. Only 3% of our TPV is coming from sub acquirers, so we are not surfing on the TPV from other companies that are serving long tail clients and things like that. So, it is all organic, all directly connected to us. What happened due to COVID is that we saw some changes as weeks passed by. So in the first weeks we saw a lot of TPV coming from supermarkets and also from pharmacies; gas stations went down a lot and then we saw some changes, gas stations coming back, restaurants also coming back; hair salons and beauty salons are still suffering a little bit but as we do not have too much concentration we could see that we could let us say have TPV coming back in 86%.

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The other advantage is that as we have many, many millions of micro-entrepreneurs, and self- employed people these people need to work. So, if they cannot sell coconut at the beach they will work as a plumber, they will paint houses, they will do something because they do need to work. So, at some point they are transaction and they need to survive. So that is part of the answer why our TPV has been resilient in this period.

ANDRÉ CAZOTTO (Head of Investor Relations):important to say that we also saw fast turn adjustment or fast turn adoption of those micro-entrepreneurs on 'Pag pro pequeno'that is this program that we launched pretty much offering alternative payment methods for those clients like link of payments, like QR code, like delivery services. So we observed that usually these guys they adjust faster to this new reality, they adopt faster some of those initiatives. We could observe that the link of payments in our presentation grew more than 50% YoY, QR code more than 30%, so also reinforcing the good work we did internally to also offer new channels for our clients even working remotely under this environment.

EDUARDO ALCARO (CFO):Jorge this is Eduardo speaking, nice to hear your voice. So in terms of the additional revenues in this quarter what we can say is that we grew almost 3x when we compare YoY. So when we compare 1Q 19 to 1Q 20 those additional revenues they grew 3x YoY and we expect this trend to continue in 2020, I think despite the potential impacts of COVID, which really has been an upside to the larger adoption of electronic payments by Brazilians.

PagBank is really helping our clients during these tough times, Jorge. We are offering for example three instant wire transfers; 10% cash back through QR codes; cash backs for people who choose PagBank as their bank to receive for example the corona vouchers or even the incentives in the State of Minas Gerais. So, we are confident that we can reach the 30% of our total revenues and income in five years.

MARIO PIERRY (Bank of America):Hi everybody and congratulations on the results. Let me ask you also two questions, the first one is related to PagBank. When we see here that you added 1 million clients and you brought your base up to 3.7 this is a significant growth in your client base of PagBank in one quarter. If you can be a little bit more specific then about your acquisition costs, your client acquisition costs at PagBank. Do you think also that this growth at PagBank has benefited from this disruption that we have had in people then are moving more into digital banks?

Also, when you mentioned in the prior question that your revenues are up from non-acquiring business that your revenues are up 3x YoY can you be a little bit more specific about what product is driving this growth? Is it related to your credit book? What is really driving this big increase in revenues YoY? Thank you.

RICARDO DUTRA (CEO):Hi Mario! Thank you for the question and good to hear you. Regarding PagBank we of course we follow the CAC evolution almost daily, not to say intraday sometimes; but what we see here? We have very healthy CAC for PagBank; but we are still also building

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this brand, at least we used to do that until March more often. So it is hard for us to say what is the level of CAC that we will use in the future because right now we need to build this brand, same thing that we did for PagSeguro until 2014, 15. So, the CAC for PagBank is very low I would say because we leverage the brand using PagSeguro ecosystem, using UOL and of course we have the challenge to monetize as much as possible the sub acquirers. Most of the merchants, of PagBank clients as I said are merchants, but consumers are growing fast.

Part of that is also because of COVID-19 and people are being more digitalized, they need to. We made some changes in past months that also helped PagBank, one of them that people asked is free unlimited wire transfers. So, for everyone that uses PagBank they have free, unlimited wire transfers; we added two new CDs paying 115% and 120% of Brazilian CDI.

We have seen a lot of traction in the rollout of products that it is having. We launched virtual cards for people, they can use virtual cards while the plastics are going through the post office. So, once you open your account you can have a virtual card right after that and use it. So, there are many things happening in terms of products as well that help us in PagBank acquisition. Most revenues at this point are related to interchange. As we said before interchange is a good business in Brazil, so most of the revenues are coming from interchange at this point; the transaction is low; and the credit portion also is low at this point.

MARIO PIERRY (Bank of America):Thank you for that. Let me ask then a follow-up, it is related to the mortality of your clients. Can you give us some color on mortality that you see in both PagBank and PagSeguro?

RICARDO DUTRA (CEO):Yes. PagBank is very low; it is growing fast because as we do not charge anything, they keep using the account even to receive wire transfers and things like that. So PagBank mortality is very low. In terms of PagSeguro what we saw is we saw, let us say it is early to talk about churn rates after these two months of health crisis; but we saw a slight increase in absolute numbers, people that stopped making transactions. Of course, we survey this type of merchants and the answer is they just stopped because their businesses are closed, or they decided not to do this anymore and will come back after the health crisis. So, it is a temporary let us say churn, it is a temporary churn.

So we do not see mortality in our merchant base accelerating or many businesses going down because the majority of them they are self-entrepreneurs as I said before and they need to work, they need to make money even to survive. So, for the merchants that we survey they said they are not transaction because businesses are closed, but they will be back as soon as possible. We saw the worst number in April; but in May we have seen some recovery as you could see in TPV. So, one process is the merchants that we have in the base, you just cannot take TPV. TPV is already 86% what we had in the first half of March, so users are coming back as well. So, I do not see that churn is going to be an issue; it is just temporary, it stopped for a while.

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ANDRÉ CAZOTTO (HEAD OF IR):Mario just to add here we do believe that probably the addressable market could increase especially after the crisis. We are seeing the same example that we had in the past crisis back in 2015: mainly new individual professionals that are increasing the unemployment rates probably will cause a larger number of informal jobs, informal entrepreneurs and probably we are going to be able to capture this additional addressable market that is expected to be created in the coming months.

EDUARDO ROSMAN (BTG Pactual):Hi everyone. Two questions here, first on TPV. I just want to understand if you have seen in the last two months clients who were only using the machines as part-time job or increasing the usage right now? So my question here is trying to understand here if maybe people lost their jobs and their income right now and so they need to use a lot more as a full- time job when compared to before, so this is the first question, if you are seeing something like that, a lot more usage on machines.

And the second question is on PagBank right? We can see here that the bank has been a very clear beneficiary of the corona voucher and as far as I understand - and please correct me if I am wrong

• one of the challenges that you have is to educate clients on how to use the functionalities of the bank, which probably is much tougher than to understand a POS machine for merchant acquiring right? So, do you think that this crisis will force in a way the low income part of the population, the long tail to learn how to use an app and to learn how to use a digital bank and this could be very good news for you? So, these are the two questions thanks.

RICARDO DUTRA (CEO):hi Rosman good to hear, thank you for the question. So, regarding TPV we did not see this trend coming up that people that lost their jobs they are using the device as their first income. I guess it is expected to happen in the future if unemployment goes up as we expect to happen in Brazil; but at this point we cannot see this coming up. Of course, there must be people doing that in our base; but probably it is not something that came up in such a way that we could pay attention to that. We have thousands, millions of people using our devices and so probably this is still very small.

Regarding PagBank we were the beneficiaries of the vouchers as you said. For those who are not aware of what is going on in Brazil, the Government is giving 600 BRL for close to 50 million, 60 million people in Brazil that are going to receive 600 BRL for three months and people can receive through the government bank or people can select a bank to have the money deposited in another bank

• and PagSeguro has the number eight in terms of deposits. We just launched PagBank one year ago last May, so one year we are number eight in terms of corona vouchers that are deposited. We are very proud to that and not only because of the business of course, but also to help the community and help the society to spread out this financial aid.

But people that use our app it is very simple; you can just sign up in 3 min. and then after that it is very intuitive. People are used to have these mobile phones and use other apps so I do not think

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this is an issue - but you are right, there are some people today that may have some difficulty using technology or using mobile phones and they are being forced to do so. So it will generate a new addressable market for us, people that were more resistant to adopt a digital bank and now they have been for us to adopt it. They are trying this digital bank to see that it is useful, that it works, that it is simple. So, we are trying to do our app in a very intuitive way, large fonts for people to see very clear what is going on, what is happening in the screen. So, I agree with you, it is going to be an opportunity for us.

MARIANA TADDEO (UBS):Hi! Good evening everyone. I have two questions related to PAGS capital. During the presentation you mentioned that you reduced your credit origination. What level is it today compared to the level before COVID-19 outbreak? And what can we expect in terms of credit portfolio at the end of the year? Also how is NPL trending in the current scenario and have you done incremental provisions to face this more challenging scenario? Thank you.

RICARDO DUTRA (CEO):Hi Mariana. I will talk about the growth of the portfolio and then Alcaro can comment about NPLs. Thank you for the question and good to hear you as well. We closed 4Q with 286 million BRL in total portfolio and now in 1Q we closed in 338, so we grew 52 million BRL. If you look at the pace in previous quarters it was close to 90 million BRL, so in 1Q TY we went down to 52, in 2Q it will be less than that.

We are in the middle of this situation with COVID-19 and so we are very careful about credit origination and so it is hard to give you an overview how it is going to be at the end of the year because it depends when the lockdown will be over and how is going to be the rebound of the economy. So right now it is hard for me to give you a forecast until the end of the year; but I can say you that we are very cautious and 2Q will be even smaller than what we had in 1Q. Regarding NPLs, I guess Eduardo can comment.

EDUARDO ALCARO (CFO):Mariana the NPL ratios have not shown yet relevant deterioration. We are offering grace periods for repayment on a case-by-case depending on the clients and as Ricardo said we are managing our exposure to merchant loans during this pandemic and we slowed down credit originations so far. But as you know credit is still a new business for us. Is very small as you can see in the presentation and before the health crisis we continued to rescale the products to our best versions sure picking the ones according to TPV, account history, payment frequency and so on and so forth. So that is where we are on NPL right now.

MARIANA TADDEO (UBS):Thank you that is clear and if I may ask another question related to your net adds, it remained strong in this 1Q and based on data provided to date it suggests an even higher level in 2Q. Do you know or could you share a bit on the profile of these new merchants? Are there individuals that did not accept cards before or retailers increasing their POS base for delivery for instance? Is this incremental margin coming with lower average spending than the ones who have in your base? Thanks.

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RICARDO DUTRA (CEO):Hi Mariana! Yes! For sure I can answer that. We, you are right, we had close to 170K in April and part of May, it seems it is going to be a strong quarter, better than 1Q. We do not see any difference in terms of profile of new merchants that are coming to us. There is this movement, some merchants coming to us and buying additional devices because of delivery but that is the minority of them. I guess the majority we have in our net adds today they are like what we had in the previous quarters, people coming to the system. According to our survey it is still close to the 80% that come to us could did not accept cards before joining us. So, anybody in terms of… in terms of TPV it is similar to what we had in the past but it is hard to conclude because we are in the middle of this COVID-19. So, it is a little bit slower today, but we think it is just because of the situation of the economy and not because of the profile of the merchants.

ANDRÉ CAZOTTO (Head of Investor Relations):Mariana just one additional commentary

here: we also are keeping the same subsidies for the clients, right? Just like Ricardo said at the beginning of the presentation. We are observing some of our peers our competitors reducing the level of marketing campaigns, some of those players are just starting in this market and so they rely more on marketing campaigns and advertising. Some of the other peers also decided to increase the price of the hardware and when it comes to price that is exactly where this kind of merchant is more sensitive and so it is a combination. I think that just like we said having our peers also reducing the level of subsidies or marketing will help PAGS to keep increasing its market share in the long tail market.

JAMES FRIEDMAN (Susquehanna):Hi! Thank you and congratulations on the numbers. I will just ask my two upfront: Eduardo, I realized with the 2Q margin, you are guiding net margin to be flat sequentially, I am just wondering are you comfortable? Do you think that it will be at those levels for the remainder of the year? And then you also mentioned that you are prepared to mark 70% of the costs are variable; so what would it take since the cost, the structure is so variable, what would it take to see a significant deterioration in the margin? Thank you.

EDUARDO ALCARO (CFO):Hi Jaime! Thank you for the question. As you can see our cost structure is 70% variable, meaning transaction costs, interchange, cards key fees, marketing, advertising, and chargebacks. We are also a company that is low-people intensive, just can work at our 20 apps to see how low-people intensive we are. As we can see right now, we have visibility on 2Q and that is why we are guiding in terms of maintaining the net income margin that we had in 1Q to the same levels to 2Q. It is important to say that we continue to hire engineers to invest in the platform and so at the end of the day we are doing a tough job here reviewing every single line of expenses during 2Q and of course, slowing down investments that do not make sense at this stage. But going forward looking at 3Q, 4Q we prefer to have more visibility of those quarters - but 2Q we can say that is going to be in the same level of 1Q.

TITO LABARTA (Goldman Sachs):Hi! Good evening and thank you for the call. A couple of questions also. Following up, going back on your take rate I understand that seasonality in the quarter could… a lot quarter of such increase; but if you look it was higher than every single quarter last year

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and with PagBank is this a sort of a new level for the take rate? And do you think it can increase higher overtime particularly with PagBank? I just want to get a sense if it is more like the long-term outlook for the take rate.

And then my second question on marketing expenses. You mentioned you spent around 67 million I think in marketing for PagBank. Did you reduce that a lot I guess in 2Q just given the lockdown and revenues? Would that have any impact on the future growth of PagBank like how… you did reduce; how sensitive could that be to future growth? If you could give some color on that it would be very helpful thank you.

EDUARDO ALCARO (CFO):Hi Tito! This is Eduardo speaking. The level of take rate that we have seen the this quarter is really a combination of three things: I think first we do have a better mix in 1Q compared to 4Q and that is number one; number two we had also lower transaction costs; and number three we did have more additional revenues compared to 1Q 19, as we said we grew those additional revenues 3x compared to last year. Of course, we do believe that going forward we will have those additional revenues in five years representing 30% of the total business and it should contribute more to the take rate going forward.

RICARDO DUTRA (CEO):Tito regarding marketing expenses - this is Ricardo thank you for your question - we decreased the investment in marketing in 2Q but we try to control the acquisition cost as much as possible to see if it makes sense or not. We also have been closing these partnerships that happened in the number of PagBank new users; but the investments in marketing in 2Q will decrease for sure. As Eduardo said we are working here almost on a daily basis to keep the margins in decent levels and have the same levels that we had in 1Q, so everything that is related to brand building, things like that we are trying to postpone if we think it makes sense.

So we are very much focused on the performance trying to take advantage of the situation that people are looking for looking more for digital banks and that is why even with the lower investment of marketing we already had 826,000 new PagBank users in these two months. But going back to your question we are decreasing the marketing expenses and looking by the performance only view and then trying to keep the CAC in low levels that make sense for us.

TITO LABARTA (Goldman Sachs):Ok! Thank you, Eduardo and Ricardo. Just to go back on the take rate. So once you get to 30% of additional revenues related to PagBank I guess it would be fair to assume that the take rate should eventually over time be higher because of the contribution from PagBank; is that a fair assumption?

RICARDO DUTRA (CEO):Hi Tito! Yes. It is expected to go up. We are talking 30% five years or let us say 4.5 years from now. Many things will happen until then but of course we expect PagBank to help in our take rate and you can imagine if it is 30% of the revenue it is going to be relevant for the take rate as well. There are many assumptions in the business plan for this five-year plan so to say, things that we thought in the past we can see changed over time. We are adjusting the plan according

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to results that we had and performance that we are having and so at a certain point we thought that cards would be in one size and be… sometimes it is smaller than that or even higher than that; but it depends on the situation, the business performance. But answering your question straightforward yes, 30% is going to help the take rate in the future and right now it is not that big as Alcaro just said.

VICTOR SCHABBEL (Bradesco BBI):Good evening everyone thanks for taking the question. First congratulations on all the initiatives the company has been carrying on on the social side, I think it is worth highlighting that and second I would like to hear from you guys about the strategy going forward regarding instant payments, what you guys see as an opportunity coming from the new infrastructure that the central bank is developing, the PIX. Is it more of an opportunity for your PagBank? Is it a sort of a threat for PagSeguro acquiring business? So how do you see that evolving or are you guys not that excited or that concerned about that new functionality? Thanks.

RICARDO DUTRA (CEO):hi Victor thank you for your question. We just did a quick overview about what happens in Brazil in terms of transactions, let us say like what we are going to have in PIX. So currently Brazilian buyers do not pay anything to make a debit transaction and it is part of our culture to pay through debit cards. It is simple, it is a safe transaction and merchants, even if merchants have the advantage to accept PIX, who decides how it is going to be paid is the consumer, so it is the buyers. If they do not adopt PIX probably it will not be successful.

I guess it is going to take a little bit of time for the solution to take traction. If you look at the UK case for instance it took a while to get traction and when it got traction debit card transactions was growing 10%. So, the cannibalization we think is going to happen more in cash, checks and wire transfers. Just remember, one third of the Brazilian labor force is paid in cash today. So that is part of the transactions that we expect is going to be shifted from cash to plastic or to electronic transactions.

In addition to that we think that fast payments will help financial inclusion, mainly the unbanked and the underserved they will start to adopt electronic payments and so that is why we see growth in debit card transactions even in countries that adopted instant payment. So, we see more as an opportunity than a threat. It is going to depend on how the consumers will adopt it or not. Today in Brazil it is very easy to pay in a debit card transaction, people are used to do that and if you want to pay with PIX you need to get to your mobile phone, unlock, go to an app from your bank and unlock again, so let us see how it is going to happen - but we see it more as an opportunity. Everything that is going to turn cash into electronic and plastics transactions is good news for us.

FELIPE SALOMÃO (Citibank):Hi Dutra, Alcaro, and Andre! Thanks, and hope you are well. I have two questions, the first one is regarding the take rate. So, you reported 3.31% net take rate; but I think the number was thought to be affected by an adjustment of 88 million BRL in transactions costs. Could you please explain why the adjustment, and should we expect similar adjustments to take place in the upcoming quarters or is this a one-off?

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And my second question is related to the marketing budget for 2020. I remember that roughly you expected 807 million BRL in marketing for the full year; does this number still make sense now that everything has changed or should we expect a little bit less, a little bit more? I know you do not provide guidance; but any color on that would be great thank you.

EDUARDO ALCARO (CFO):Hi Felipe! This is Alcaro speaking. I will take the first question. So, the 88 million is an intercompany impact that we have PIS COFINS, ICMS net POS that a company that acquires the terminals and sells those terminals to PagSeguro. It is an intercompany transaction. The reason why we do that is because we do have tax incentives to do that. Unfortunately, you see only the intercompany taxes; but we do that because we do have tax incentives and we have lower taxes on the total cost of the terminals that we acquire.

RICARDO DUTRA (CEO):Felipe! This is Dutra! Thank you for the question, good to hear you. I hope you are well and safe. Talking about marketing we decreased the marketing expenses in 2Q as we said before in such a way that we do not hurt our business growth and also keep the margins in decent levels in terms of net income margin. So, we are working daily adjusting that according to the performance. So, it is a very controlled marketing disbursement in 2Q because we are in the middle of the pandemic situation here as you know.

Regarding 3Q and 4Q we kept in our budget the same marketing investment that we planned for the year, but of course we will adjust if it is necessary according to what happens in the next months. We have seen some governments easing the lockdown, even here and Sao Paulo the government is making this plan that some of the cities the activity will come back and so we need to follow that and see if it makes sense to increase marketing investments - but again always looking for the performance to get new merchants, to get new PagBank users, to increase TPV and try to be accretive as much as possible in our P&L.

So answering your question in 2Q it is almost defined; 3Q and 4Q we are keeping the same budget that we did for this year and we will adjust if necessary - and we can adjust to go up or to go down depending on what is going on, depending on the opportunities we are seeing. One thing is clear for us: we will always look for growth with profitability. We will not decelerate growth, but we will try to keep profitability as much as possible. As Alcaro said before in 2Q we had the same margins we had having in 1Q and we are confident that we can do that, very confident. After these almost 2 months of lockdown we saw the performance of our business, the performance of our PagBank users as you could see in the last slide and we are confident that business is doing well. For a company that has a tech DNA like us we are taking advantage of the situation. People are using more digital solutions so that is what we have looking forward.

JEFF CANTWELL (Guggenheim):Hi guys! Thanks for taking my question. On PagBank we saw the May update… you know how… active users for PagBank was very close to that number of users it still feels like its early days if we think about the size of the addressable market that PagBank

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has and therefore what I wanted to ask is why could not PagBank's market share double over the next year, two years potentially? It just seems like that is the pace that PagBank. We are seeing some good momentum in PagBank users right now. You should also be planning on stickiness to the platform and we kind of looked at slide 10 which shows the pace of product development, which again is very good. So, I would just like to hear your thoughts if we try to think a year, two years out could you maybe talk to us about your level of confidence for PagBank grow its user base from here? Thanks.

RICARDO DUTRA (CEO):hi Jeff thank you for your question, good to hear you. PagBank is in its own momentum. We have seen a lot of people coming to us. It is easy, it is simple, you can just open an account in less than 3 min. and then you can start using already. That is part of our advantage to make something that is simple, useful even for people who are not, do not use digital solutions every day right? It is very simple.

We have been increasing a lot the rollout of products for PagBank. We know that we launched this PagBank account in May 2019. It was a very basic account and then we started adding some features. Just remember, in September 2019 we started paying interest on the account; in January this year we started offering more and more cashbacks to QR code; in the past weeks we launched the radar of services and offers, so people can get benefits from using PagBank. People are sticking to that solution and so we are in a place we can see for PagBank users if you have some offers or discounts or cashbacks people are using that. We launched, we made this offer of free wire transfers, new CDs. So, we are kind of rolling out new products, of course we increase the stickiness and we increase revenues of these users.

We… are very aggressive and we think it is very realistic for us to think about the base twice as much we have today. We do not see churn, but of course we see some users that use less; but we do not see churn because they are free accounts. So, it is important, they stop using and they come back one month later because it is for free. They can receive an order transfer in this digital account, and they use it.

So looking forward it is very realistic for us to have the base at least twice as much what we have today and then monetize as time passes by, because we are adding new products not only in terms for the merchants, for the consumers but also for the merchants. So, it is very common for a merchant to start using QR code for PagBank users because they have 0% MDR and the consumers have 10% cashback. Of course, at this point we are not making money with these transactions; but remember, this is an intermediate transaction, there is no card key fees and no issuer bank in this case because we are the issuer bank. So, we are creating this ecosystem and it is taking a lot of traction here.

MARCO CALVI (Itaú BBA):Hi! Good evening. Can you share your view on the profitability of your online clients? How different is that, if so, from the rest of your active client base? And the second

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question if you may, can you confirm how much of your 1Q TPV came from the online clients? Thank you.

RICARDO DUTRA (CEO):Hi Marco! Thank you for the question. We are not disclosing the TPV that comes from online and offline even… here it is possible to do of course; but nowadays there are so many bundle transactions so to say. In theory what we had in the past is differentiation between online and off-line, it does not apply today. If you order food in your house and you pay with your credit card is this online or is this off-line? It depends because you are buying online, you are getting products off-line and you can order online and pay when you receive the hamburger. So as time passes by things are getting more and more complex; but of course, we could divide what is purely online, but we are not disclosing that.

In terms of profitability is pretty much the same because remember, in the long tail we have clients that are profitable for us because it is long tail, they do not care about the rates, they are much more focused on the ecosystem and all the advantages they can have, like I sell the device and I have PagBank for free, so they do not care too much about the take rates or the MDRs because at the end of the day remember, they sell 2000 BRL, they used to sell 2000 BRL/month with us. So, it is not 10 bps or 15 bps that move the needle here and make our merchants to change for another competitor or things like that. So, in the online the profitability is pretty much the same because also in online we have, we almost do not have debit transactions, it is almost 100% is credit and there is a lot of transactions in installments. So, it is profitable, and it is very similar in profitability between both.

NEHA AGARWALA (HSBC):Hi! Good to hear from all of you and thank you for the vision, congratulations on the results. My question is more on PAGS capital. Should we expect that in 2Q and 3Q you would not be making more provisions on the loans that you have already given out as… and could you give us any indication on the profitability of the loans that you are giving out right now on PAGS capital? Thank you so much.

EDUARDO ALCARO (CEO):Hi Neha. I think that first, the first question about NPLs it is hard to say how long the closures and the social distancing measures they will last. Of course if they will last longer we should expect higher NPLs in 3Q and 4Q for example; but there is so much uncertainty right now in terms of when big cities we will be re-opened and how the pandemic evolves in Brazil that it is hard to say. We are providing the visibility that we have right now where we are on a case-by-case, understanding the needs of each client and trying to help them as much as we can - and NPLs were not, did not materially affect our take rates in 2Q.

RICARDO DUTRA (CEO):and Neha, regarding the type of credit that we offer to our clients now we only offer for the merchants, so we are not offering credit for consumers or if we are offering for consumers it is just a small pilot, small test that we do; but we can say that 100% what you offer is only for merchants, first; second, we only offer for the best merchants. We have all the history of these merchants in terms of TPV, chargebacks and many other variables that we have here in our database

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and then we score these merchants and we offer only for the best merchants and usually the majority of them they pay just like spare capital in the US. We increase the MDRs and they pay back in each and every transaction. Although it is credit, we know, it is a low-risk credit so to say because… based on their transactions with all the history that they have.

Also, important to say that the information that we have from these merchants you cannot find anywhere in the market. You cannot buy the information from another bureau because these guys were out of radar, they were informal, they did not have the transactions in terms of electronics, they used to sell through cash. It is a kind of exclusive information that we have so that we can offer credit to them

• but it is only for the merchants, only for the best merchants.

JOSH BECK (KeyBanc):thank you so much for the color and all information, it is very helpful. I just wanted to ask about PagBank. You had mentioned that the engagement should be 11x/week and that is quite high, especially when you look at that monthly. So, I am just wondering if you look at your existing PagBank clients are there some of them that are effectively, completely replacing those traditional banking relationships and just using the PagBank app?

RICARDO DUTRA (CEO):hi Josh thank you for your question, good to hear you. You are right, people are using 11x/week. It is a lot because as we said before we are not only offering the basic bank products or solutions but we are also increasing that through some services like they can get some offers and cashbacks, so they can go through an app and see if they have any offers close to where they are to have cashback or pay less. Just to give an example we have a partnership with the largest pharmacies' chains, pharmacies, and drugstore chains in Brazil. If you are a PagBank user, you can go there and have 10% cashback. So, you can find this type of pharmacies in your app, so that is why people use a lot. You can fuel up gas in your car and then you also have 10 BRL back. So people use the app normally to make the basic transactions such as wire transfers or pay bills or top up mobile phone; but also we have this type of super app features that people use more, increase the stickiness and we are in the top of their minds.

Regarding the question if people are using PagBank and replacing their banks yes, we see that trend in our base. It is getting higher month after month. People come here, they try, they test, they see if it works, they get comfortable with the app and then part of them uses as their main bank. It is growing; it is of course not the majority of the clients at this point, but we see month after month that people are using PagBank as their main bank and we are also, as we said before, we are having new people coming to the system because of COVID-19 and by being a digital bank with a very free-choice process of sign up and usage we are getting people that are interested in digital banks during these tough times for everyone here in Brazil.

OPERATOR:Thank you. That concludes the question-and-answer session. Now I would like to turn the floor over to Mr. Ricardo Dutra for his closing statements.

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RICARDO DUTRA (CEO):Hi everyone! Thank you very much for your time, for your questions and for your support during this time. I hope to meet you, all of you in person very soon or as soon as possible and talk to you next quarter in the conference call. Thank you very much.

OPERATOR:That concludes PagSeguro's conference call. Thank you, have a nice night, stay well and safe.

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