Hello, everyone, and thank you for waiting. Welcome to PagSeguro's Fourth Quarter 2018 and Full Year Results Conference Call. This event is being recorded and all participants will be in a listen-only during the Company's presentation. After PagSeguro's remarks, there will be a question-and-answer session. At that time, further instructions will be given. [Operator Instructions] This event is also being broadcast live via webcast and maybe accessed through PagSeguro's website at investors.pagseguro.com, where the presentation is also available. Participants may view the slides in any order they wish. The replay will be available shortly after the event is concluded. Those following the presentation via webcast may post their questions on PagSeguro's website. Before proceeding, let me mention that any forward-looking statements included in the presentation or mentioned on this conference call are based on currently available information and PagSeguro's current assumptions, expectations and projections about future events. While PagSeguro believes that their assumptions, expectations and projections are reasonable in view of currently available information, you are cautioned not to place undue reliance on these forward-looking statements. Actual results may differ materially from those included in PagSeguro's presentation or discussed on this conference call for a variety of reasons, including those described in this forward-looking statements in the Risk Factors section of PagSeguro's registration statement on Form F-1 and other filings with the Securities and Exchange Commission, which are available on PagSeguro's Investor Relations website. Finally, I would like to remind you that during this conference call, the Company may discuss some non-GAAP measures. For more details, the foregoing non-GAAP measures and the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures are presented in the last page of this webcast presentation. Now, I'll turn the conference over to Mr. Ricardo Dutra, CEO. Mr. Dutra, you may begin your presentation.

Hello, everyone, and welcome to our fourth quarter and full year 2018 results conference call. Today, I have here with me Eduardo Alcaro, our CFO; and Andre Cazotto, our Head of Investor Relations. Before we go through the operational and financial metrics, we start our presentation highlights in the great achievement of the year. It was an year of intense competition with our competitors relatively trying to copy our business model. When we did our IPO, potential investors were so surprised with our historic growth, but somewhere skeptical about our ability to deliver the numbers that we are committed. Having said that, I would like to remind you that 2018 IPO projections that we shared with the sell side research analysts in September 2017 before the IPO and the actual numbers delivered in 2018. Net income and net revenue was 17% higher than the projections shared with the sell side research analysts. TPV 19% higher than the projections shared with the sell side research analysts. Moving to the next slide, these are the main highlights of 2018. Our full year GAAP net income reached BRL910 million, up 90% year-over-year. And non-GAAP net income BRL1.068 billion, a 122% growth year-over-year. Our non-GAAP net revenue reached BRL4.2 billion, up 67% year-over-year. Our TPV region BRL76 billion, growing BRL38 billion or 98% year-over-year. The largest growth among listed payment companies in Brazil. We also ended 2018 with 4.1 million active merchants, adding 1.3 million new clients throughout the year. [Indiscernible] with a broad ecosystem and also our execution capability. Non-GAAP net margin of 25.4%, an increase of 6.4 percentage points comparing to previous year, showing our strong commitment to growing in a sustainable way and with own execution. Engagement is a key metric for the Company, giving that almost 80% of our merchants…

Thanks, Ricardo, and hello, everyone. Before I start on Slide number 7, I'd like to revisit the guidance shared in our previous conference call. Our Q4 GAAP net income and non-GAAP net income reached BRL303 million and BRL323 million, respectively. For the full year, our GAAP net income and non-GAAP net income reached BRL910 million and BRL1.61 billion, respectively. Delivering numbers above the top of the guidance shows our focus in stronger growth and EPS accretion. Now, before I go through the financial metrics, I would like to mention that in the fourth quarter of 2018, we had a total of BRL20.6 million of non-GAAP items, mainly related to our stock-based long-term incentive plan in line with the guidance that we provided you in our last conference call in November. For more details, the foregoing non-GAAP measures and the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures are presented in the last page of this webcast presentation. On the top left of Slide number 8, our non-GAAP total net revenue reached BRL1.267 billion in the fourth quarter at 53% year-over-year. Moving to the top right, we have our main revenue stream composed by transaction services or mainly MDR collected from merchants, our initial income from the prepayments and hardware sales. In the fourth quarter of 2018, transaction and services represented 58%, financial Income 34% and hardware sales only 8% over total net revenue that continues to trend down, especially because we intensified the promotional campaigns during the Q4, given the holiday seasonality and in related terms going forward should reach low fee revision. On the other hand, for the full year, you can note that our revenues from transaction activities and other services grew 7 percentage points compared to 2017. On the chart below, we…

Thank you, Eduardo. On Slide 12, we highlight our roadmap of products delivered through 2018. It was an intense and hardworking year and I'd like to say that we have now the most complete ecosystem for own payment market we're just starting. Being an independent company allow us to think exclusively on our clients financial needs by delivering growth and profitability simultaneously and operating unique ecosystem through our digital account. We expect to deliver in 2018 some critical new enhancements to take our ecosystem to the next level. Before you ask, we cannot disclose the data at this point due to competition, that is systematically trying to copy us. However, we will provide you more color in the coming quarter calls. On slide 13, we introduced TILIX. On January, PAGS acquired 100% of TILIX and that helps managing bill payments. From utility to flex bills, TILIX offers a simple and user-friendly interface to manage bill payments and will be fully integrated now in digital account act in the following month. On the next slide, we have marked our portfolio of functionalities already available to our motion. PagSeguro has been building a unique and world-class payment ecosystem focused to deliver efficiencies online and physical payment experience. Recently, we launched our lending product PAGS Capital. We just started and we are still testing our model with a very small pool of clients, eligible according to some companies such as accounting history, TPV, payment frequency and so on. On average, PAGS charge rates almost 3 times lower than traditional bank. We are extremely distressed and for now this product is marginal to our financial results and we expect it to increase the stickiness and loyalty of our clients. In November, we also complemented our cash-in and cash-out process through the digital account, allowing…

[Operator Instructions] Our first question comes from Craig Maurer, Autonomous. You may proceed.

I wanted to understand the impact of the cut [indiscernible] numbers and product setup in quarter?

This is Ricardo. Thank you for the question. We are passing the decrease in price, in cost, so to say, for the new motion. But for most of that we already having the base, we are charging the same prices that we had before tracking position. So the full price is 2.29% for the old customers and 1.99 for new customers. So, again, that's sort of question for new customers we are having this promotion for the first 12 months of this customers with PagSeguro.

Our next question comes from Bryan Keane, Deutsche Bank. You may proceed.

Wanted to ask, there was lots of promotions in the fourth quarter, so just curious on what happened to activation rates due to some of the discounting? And then, secondly, what do you guys picking now for net new merchant adds going forward in 2019?

We didn't see a decrease in activation when compared with Q2 and Q3. We know that part of the devices that people bought, they do activate in January, because probably they choose in January or because they decided not to do in December. But as we did not decrease the price, so we have very low price where people just buy and leave it without using the device. We didn't see the decrease in activation rates.

Okay. And then, any thoughts on going forward on that new merchant adds, what you guys are planning to do per quarter?

Yes. Well, we -- according to our business plan, we plan to end 2019 with 5.1 million active merchants. So it's going to be a growth of 1 million this year. If we have any change, we would let you know in the following calls, but so far we are sticking with this plan and we do expect -- we do really believe the 5.1 million active merchants by the end of 2019.

And, Bryan, as a matter of fact, this 5.1 million active merchants is the exactly same number that we shared with you when we did the IPO for 2019.

Okay. And just my last question on net take rate, it sounds like it was mostly mix and not anything you guys are doing at price, but just could you maybe help us understand that to make sure that's correct?

Yes. Most of the compression is related to product mix. If you look at the chart that we presented, chart number five, we can see that from the 25 basis points decrease, 21 basis points came from the financial income, so most of the impact comes from this mix change. If you look at our website, you can see that we didn't change the price at all. Also worth to say that we did not change the financial income rate that we charge, the prepayment rate, 2.99%, it was really -- the big impact was the -- the change in the mix. Our revenue is also worth to say that our net take rate is still very high when compared to other players in the market. We're sure that we are in a very -- in totally different type of motion. We are talking about 3%, while others are talking about lower than 2% or even lower than 1%, so we still highlight that we are in a very different market. We are focusing on the long-tail and going back to the question, we changed mainly due to change in the mix.

Next question from Rafael Frade, Bradesco.

Hi, good morning. Probably my question is still related to the mix, but not in the big split, I understand that the interchange on that went out this quarter. I would expect to see a strong reduction in transaction costs, just to understand why all [Technical Difficulty] with same year that was impacted in transactional costs in the quarter? And the second thing would be related to the guidance for 2019. So your winter rate guidance, but given the strong results that you have given so far, it seems that the gadgets imply big acceleration over the year. I just -- if you could share some thoughts about what you are seeing in the guidance in terms of maybe, a little more pressure in price or cost, so anything that could help us on the guidance for 2019? Thank you.

Okay. Thank you for the question. I'll talk about the debt interchange that you asked and Eduardo is going to answer about the guidance. As I said before, part of the adventures that we're having with lower debt interchange, we are talking to the new merchants as a promotion, but for our clients that we already had in the base before we are changing the full price. When we look at the chart in the Slide number 5, we still had more installment transaction, we would see a higher take rate in the financial income portion, but also in the net revenue from transactions, because the end value is higher there. So when we had more transactions in debt, what happens is, if in the absolute numbers we see a decrease in the net transactions from net investment services, so let me go back to that [Indiscernible] internal rates. We are factoring part of this debt interchange to new merchants and not for the older ones. And part of the change in Q4 was because of the financial income and change in the -- we are not changing price, we are not taking MDRs down, not even the MDR for the transaction or for the financial income.

Frade, about the guidance, like we said during the presentation, the Company is committed with the top of the range of the guidance and the management annual bonus is linked to the top of the range of the guidance. The top of the guidance means the 40% net income growth for 2019 and is 13% above our projections that we shared with sell-side research analysts during the IPO. We believe that this is remarkable after all the noise and players in the market that were constantly trying to copy us, And just to confirm it, Frade, as you can see in our numbers, we think [Indiscernible] self-bidding on the terminals and we are hoping that the new products and solutions. So at the end of the day, our primary focus is EPS accretion and we want to keep winning, our merchant thinking about their lifetime value and launching new products and functionalities. We expect higher engagement and adoption of our transaction benefiting from the migration from cash to plastic and it is a real opportunity for us to cross-sell additional financial services, such as lending, QR code payments and you can name it, all the products that we launched throughout the year.

Next question comes from Felipe Salomao, Citibank. You may proceed.

I also have a question on the net accrued coming from financial income. So you mentioned that the transaction rates was driven by seasonal reduction on the number of installment reductions and that price has been renewed and changed now as you can easily check on the website, but my question is why do you think that -- at this change on transaction mix during 4Q18 -- what are the qualitative reasons for the average customer bill pay, largely with -- I don't know -- credit card and online transactions and not with debit cards. And if you think that we should see a migration to, let's say, to the historical average in the next quarter and should we see -- I mean the installments in becoming more relevant as a percentage of the total mix in the first Q 2019? That's my first question.

In Brazil, it's very usual that in Q4 people use more debit then credit, because of the seasonality and also because of the consumer behavior and usually people will feel very petite salary in December, so they have money to use debit cards instead of credit card. So it's very seasonal movement that we've seen in the industry in Q4, so more that debit transactions when compared to Q3 and Q2 and Q1. Typically, looking forward, in January, we are seeing better take rate, higher than the 2%. It is not the same as the Q3, because we're still having debit card transactions, but it is between the Q3 and Q4. So that is not a trend that is going down, most of them, so that's all we see so far.

The second question I have is actually regarding the banking lock and there has been a debate about what's going to happen at the banking lock and Central Bank published a piece of regulation, I mean they are not regulating that kind of contract, but the industry has been discussing about it, the Central Bank has decided to postpone the implantation of the new banking act regulations. So could you please share with us, I guess, any of the date and what are your views on what should we be the final outcome of this regulatory change profile probably for the industry?

Hey, Felipe. It's Andre speaking. How are you? For PAGS, the dates are neutral impact, first because many of our merchants do all, let's say, all underserviced by the traditional financial institution [Technical Difficulty] kind of merchants that have, let's say, a loan higher than the traditional bank and once that bank remember that 100% of -- our merchants, they own our digital account for a 100% of its transaction are safe, directed through the PAGS digital account. So if this merchants have another banking accounts, you can transfer from our digital accounts directly to traditional bank. So given that we have these vertical close loop, let's say, that these discussions around the banking lockup would be neutral for the Company. Okay.

And just to complement, it's important to [indiscernible] the business model only allows merchants to settle the installment theme, due plus 1 due plus 40 and due plus 30. So the prepayment already automatic and we do not offer the option to decrease installments. And also, thinking about the long-tail versions, Felipe, they are not sophisticated and less price sensitive in the prepayment. So their priority is relatively different factor as possible. So remember that for the merchant billing, BRL50 per day or BRL20,000 per year is not even execution for them from a cost standpoint to [indiscernible] real receivables.

Next question comes from Josh Beck with KeyBanc. You may proceed.

Thank you for the question. I wanted to ask about, I think you said net add number of 1 million for 2019, which would imply about 250,000 per quarter. It's certainly a little bit less than what we've seen in 2018. Is that explained by the fact that your series of merchants is larger and instantly harder to produce net adds? Or are there other factors at work here?

Hi, Josh. Thank you for the question. We have not seen deceleration. We cannot give you guide, there is more competition for them there. But by far we are the leader in this type of marketing long-tail portion, long-tail market. So, Yes, you have more players in the market and part of the net adds, for sure, we will capture, but we still are the leader talking about 200,000 or 250,000 per quarter, so good number and we'll compare with that as it's much higher than what we are predicting and reporting. So it's not because we're going up in the period and getting larger merchants, it is natural that we have more players into the marketing who are kind of dividing with new net adds with all the other players in the market.

So just allow me one additional commentary here, Josh. It's very important to mention that we are not giving clients strong [Technical Difficulty] filling clients from PAGS. Our churn rates remain pretty much stable, OK. I think that as we have more competition in terms of adding new merchants to the system and like we discussed that before, it is clear, big -- let's say, blue ocean in this market. According to public data, we should have in Brazil around Latin 12 new micro-merchants combined that with more than 20 million, 25 million individuals and for sure I think that there are market when we would take that. I think that we can have competition, but like Ricardo mentioned, in the end PAGS will continue to deepen in this market.

And, Josh, just a final comment here, when we did our IPO, we had a business plan of 5.1 million active merchants by the end of 2019 and we continue to be comfortable with this number by the end of 2019.

Okay. Thank you for the color there. Towards the back of your slide presentation, you walked through a number of different features, things like bill payments, mobile top-up, peer-to-peer payments, a number of others. I'm just wondering, can you give us an update on maybe how many of your merchants have updated -- sorry, have adopted one of these services? And what's the interest level if you can share your update there that would be great?

Yes, Josh. When you look at December figures, more than 20% of our merchants are using at least one of the features, some of them are using more than one, but it's a little bit more than 20%. It is increasing every month. Part of this feature may help us in terms of financials arriving reported to -- irrelevant for the business. We see that is the way to increase the loyalty, increase the stimulus and have a more complete requisition program there, because at the end of the day that's what makes us different than other players into the market we don’t have any constraint in launching products to compete with parent companies and things like that. So going back to your question, 20% usually in December and it is growing month-after-month.

Next question comes from Domingos Falavina with JPMorgan.

Thank you, Ricardo and Cazotto for picking the question. It's actually two questions. I wanted to follow up to Frade's question. From [Indiscernible] basically what's bringing the points that we change what's -- starting October and you mentioned that the revenues are going through this income statement is because we pass on the benefit to clients. But what -- my problems that reconciling that is, new book that interchange other cost, so we should see the operating expenses, specifically cost of services coming down and not one being netted out of the other one in revenue. So my first question is, why didn't you see this cost line coming down and am I understanding probably wrongly how your B2C book these account in your income statement. And if you could add to build the basic convention in debit costs pressured by marketing campaigns and et cetera. So which line exactly is booked in these -- within the -- leverage part of the margin expenses there.

When you look at the cost of transactions, we don't have only see the change interchange fees there. We have also purchasing costs and we have card scheme fees. So only bid -- with the interchange is the biggest part of the equation, but is not the only part of the equation. And about marketing expenses, they are both in the marketing expenses line, they are nothing to do with the cost of transactions, so cost of transactions is processing with either change and it is also card scheme fees.

So I guess my question is, I am collecting a understanding that at discount that going to client does not explain why the cost and service -- cost of service do not come down below interchange?

Well, as Ricardo said, we are passing part of the saving that we having to new customers by charging 1.99% per month and we are not changing that 2.29% that we for the existing client and you can see by our website, since our prices are public.

The second question is, [Indiscernible] from five month, I just wanted to hear your thoughts about competitive landscape, obviously on the street you have a very large footprint. I'm sure you do have some in large corporate and my question is more on the qualitative side. All we've seen -- do you see competition working through September to December and December -- especially now in February and how would you comment -- separate the comparative that's working in large motion in last year and focus area which is smaller merchants.

We have seen the competition similar to what we had last year with some players decreasing the price of devices. We are well positioned in terms of the features and also in terms of pricing. We are not leading prices down in terms of devices that we follow some prices into the point you think it's going to be accretive when we compare the cost of acquisition versus the lifetime value. Competition, I would say, similar to what we had last year, we see them growing and the opposite, some of the brands are not in custody and things like that. So we didn't see any big changes. We are sticking with the plan as we said 1 million in motion this year and feels what we had in 2018.

This concludes today's question-and-answer session. I would like to invite Mr. Ricardo Dutra to proceed with his closing statements. Please go ahead, sir.

Let us conclude the PagSeguro Result Conference Call for today. Thank you very much for participation. Have a good night, and thank you for using Chorus Call. Thank you very much, everyone.