Pagbank - Earnings Call - Q3 2025

Transcript

Operator (participant)

Good evening. My name is Oger, and I'll be your conference operator today. Welcome to PagSeguro Digital's earnings call for the third quarter of 2025. This live presentation for today's webcast is available on PagSeguro Digital's Investor Relations website at investors.pagbank.com. Please refer to the forward-looking statements and reconciliation disclosure in this presentation and in the company's earnings release appendix. All participants will be in listen-only mode. To ask a live question after the presentation, please use the Raise Hand button to join the queue. Once you're announced, a request to activate your microphone will appear on your screen. Please ask all your questions at once. Today's conference is being recorded and will be available at the company's IR website after the event is concluded. Now, I'll turn the call over to Gustavo Sechin, IR Director. Please go ahead, sir.

Gustavo Sechin (Investor Relations Director)

Hello everyone, and welcome to the PagBank earnings conference call for the third quarter 2025. I am Gustavo Sechin, PagBank's Investor Relations Director. Thank you for taking the time to join us today. Tonight, I am joined by Ricardo Dutra, our Principal Executive Officer; Alexandre Mauad, our CEO; Carlos Mauad, our COO; and Artur Schunck, our CFO. We will begin by sharing the highlights for the quarter, followed by our live Q&A session. Now, I would like to turn it over to Dutra. Please, Dutra.

Ricardo Dutra (Principal Executive Officer)

Hello everyone, and thank you for joining our third quarter 2025 earnings call. I will begin with slide 4, which summarizes our key operational and financial highlights. This quarter, we continue to execute our strategy with discipline, navigating a more challenging macroeconomic environment while maintaining our focus on long-term value creation. We ended the quarter with 33.7 million clients, growing 1.6 million clients year-over-year. In Q3 2025, we continue to demonstrate resilience and protect profitability, navigating a challenging macroeconomic environment while facing tougher year-over-year comparisons from Q3 2024. On our acquiring business, total payment volume remained stable sequentially and reached BRL 130 billion. This performance reflects our ability to sustain momentum even amid broader market pressures. Our credit portfolio and funding base continue to expand at a double-digit pace compared to the same period last year, with NPLs that are half of the industry.

During the quarter, we once more accelerated our unsecured lending portfolio, with a particular focus on working capital loans. Meanwhile, we advanced our funding efficiency initiatives, further reducing deposits' API. These efforts reinforce the strength of our ecosystem and our commitment to democratize access to financial services in a responsible and sustainable way. Moving on to financial highlights, our total net revenue, excluding interchange and card scheme fees, increased 14% year-over-year, reaching BRL 3.4 billion. Our non-GAAP net income was BRL 571 million, flat year-over-year, while diluted EPS on a GAAP basis reached BRL 1.88, 14% higher year-over-year, supported by consistent cost discipline and capital efficiency. On capital efficiency, we have returned BRL 2 billion to shareholders through dividends and share repurchase.

We repurchased BRL 3.3 million shares year to date and distributed more than BRL 600 million in dividends, following our May 2025 announcement, reinforcing our balanced approach to capital allocation. In conclusion, our performance this quarter reflects the strength, profitability, and resilience of our business model. We have delivered positive earnings every single quarter since IPO, a track record we are committed to uphold through discipline execution, operational efficiency, and a clear strategy focus. Moving on to slide five, despite a more cautious economic backdrop, our track record continues to reflect the resilience and consistency of our business model in generating long-term value. Once again, we showcase the evolution of our GAAP-diluted EPS since going public in 2018. Over the past years, EPS has grown approximately 2.3x, translating into a compound annual growth rate of 15%, even in a scenario where we navigate global disruptions and ongoing macroeconomic volatility.

Throughout this journey, we have reached key strategic milestones that expanded our addressable market and reinforced profitability. These efforts have laid a solid foundation for sustained EPS growth, driven by operational leverage and disciplined execution. Our performance reflects a clear focus on building strong earnings visibility with a high share of recurring revenues, which enhances profitability and supports long-term value creation. It also stems from a thoughtful capital allocation strategy, balancing share repurchase and dividend distributions, with a total yield of approximately 15.5%. Combined with our robust capital position, we remain well-equipped to pursue value-accretive opportunities with flexibility and confidence. As we move to slide seven, we highlight how our long-term vision continues to shape the way we build and evolve the company. Our fully integrated ecosystem, which integrates payments and banking, creates powerful synergies that allow each side of the business to leverage the other.

By delivering a diverse and complementary range of products, we have deepened client engagement, enhanced monetization, and expanded our share of wallet. This approach positions us not just as a service provider, but also as the primary financial partner for our clients, supporting their needs across every stage of their journey. Moving to the next slide, as we have emphasized in the recent quarters, there is still meaningful room to grow across our platform. In several areas of our banking business, our market share remains below 1%, which reinforces our conviction that we are only scratching the surface of what we are capable of building. As we continue to scale our banking operations, we are opening a new path for growth, whether through deeper cross-sell, a stronger and more efficient deposit base, or a broader and more diversified credit portfolio, all handled with discipline.

With that, I'll hand it over to Alex, who will walk through the operational highlights for the quarter. Thank you.

Alexandre Magnani (CEO)

Thank you, Ricardo. Hello everyone. In this section, we walk through the performance of our business units for the third quarter of 2025. On slide 10, we highlight the continued evolution of our client base in Q3 2025. We ended the quarter with BRL 33.7 million clients, adding BRL 1.6 million over the past 12 months. Our active client base reached BRL 17.8 million, supported by a 2% year-over-year increase in banking-only clients. On slide 11, we showcase the evolution of our cash-in, which continues to be one of the most meaningful indicators of transactionality on our platform. In the third quarter of 2025, cash-in totaled BRL 95 billion, representing a 14% increase compared to the same period last year. On a per-client basis, the figure advanced to BRL 5,500, making a 12% annual increase. These results reflect the strength of our ecosystem and the growing intensity of client engagement across our base.

In addition, we are eyewitnessing broader uptake of bill payments, fixed transactions, investment, and insurance solutions, signaling stronger relationships and monetization as customers increasingly entrust with us a wider share of their financial needs. On slide 12, we present the continued strength of our deposit base, coupled with meaningful progress in reducing our funding cost. During the quarter, total deposits increased to BRL 39.4 billion, representing an increase of 15% year-over-year. This expansion is particularly significant given our strategy to lower funding costs. This quarter, we have reached a sixth quarter of consecutive reduction of our cost of funding as a percentage of the CDI, demonstrating our ability to attract and retain client deposits while simultaneously enhancing the efficiency and resiliency of our liability structure. When we include other funding sources, total funded reached BRL 43.7 billion in the quarter, an increase of 14% year-over-year.

This performance underscores not only the growth in deposits but also our ongoing commitment to diversifying the funding mix, supporting a more balanced and resilient capital structure. It is also important to emphasize that deposits remain a cornerstone of our funding strategy, primarily allocated to finance merchant prepayment and our loan portfolio. As of September, our loan-to-funding ratio, which compares our expanded portfolio to total funding, stood at 113%, reflecting prudent balance sheet management and disciplined capital allocation. On slide 13, let me turn to our credit performance. We see credit as a strategic lever to drive our greater transactional activity across both our banking and payment segments. In doing so, we unlock cross-sell opportunities and capture the full potential of our ecosystem. In the third quarter, our total credit portfolio reached BRL 4.2 billion, a 30% year-over-year increase.

Since the second half of 2024, we have been gradually accelerating credit underwriting for unsecured products, particularly focused on working capital loans. This has been supported by continuous enhancement in our risk assessment and collection processes leveraged by artificial intelligence. This quarter, we originated more than 2.5x the volume of working capital loans compared to the second quarter of 2025. If we include financial operations linked to merchant prepayments, facilitated by our instant settlement feature on the acquiring side, our expanded credit portfolio now exceeds BRL 49 billion, up 12% in the last 12 months. Now, turning to asset quality, as shown at the bottom right of the slide, our NPL 90 ratio remains below the market average, underscoring the strength of our risk management practice.

With that, I will now hand it over to Artur, who will walk through the financial highlights of the third quarter of 2025.

Artur Schunck (CFO)

Thanks, Alexandre. Hello everyone, and thank you for joining us today. I'm following the presentation with our consolidated financial results for the third quarter of 2025. Turning to slide 15, total revenue and income, net of interchange and card scheme fees, totaled BRL 3.4 billion in Q3 2025, a 14% increase year-over-year. This performance reflects the repricing strategy we began rolling out for acquiring products in the fourth quarter of 2024. These initiatives have been crucial to offsetting higher financial costs and to securing a more sustainable revenue base in a more challenging growth environment. Our revenue growth once again outpaced TPV, showing that our repricing strategy is working to boost profitability. As we wrap up the year, we are staying alert to economic conditions that could bring challenges.

Still, the progress we have made puts us in a strong position to maintain solid growth and profits into 2026, as we stay focused on executing our disciplined strategy. Looking at the charts on the right side, payments revenue, net of interchange fees, totaled BRL 2.7 billion, supported by the successful execution of our repricing strategy. Banking revenue reached BRL 744 million in the quarter, a strong growth of 50% year-over-year. This performance was driven by the expansion of our credit portfolio, stronger engagement, and higher monetization. It was also benefited by the growth in deposits volumes and increases in fee generation, particularly from card usage and account-related services. Moving on to the next slide, here we present a comparison of our gross profit over the last 12 months.

Our strong banking performance, combined with the repricing strategy we implemented, helped partially offset the negative impact of higher interest rates, which rose by more than 400 basis points during the period. Gross profit totaled BRL 1.9 billion and increased 2% year-over-year. Buyback and dividend distribution negatively impacted by BRL 64 million. Excluding this effect, gross profit would have increased 5% year-over-year. On the right side of the slide, I'd like to highlight the robust performance of our banking business, which has become an increasingly important pillar of our overall results. Banking gross profit grew 59% year-over-year and now represents more than 28% of our total gross profit. In addition, our banking gross profit margin reached 72% in the quarter, up from 68% in the same period last year.

These results highlight the strength of our platform, the diversification of our revenue streams, and our ability to efficiently scale complementary products and services. On slide 17, we dive into our cost and expenses structure this quarter. Our disciplined approach to managing expenses continues to be a cornerstone of our strategy. It played an important role in helping us navigate the pressures of rising financial costs, allowing us to balance sustainable growth and profitability. On the cost side, financial costs increased 45%, primarily due to higher interest rates and the impact of recent capital structure adjustments, as noted earlier. These effects were partially offset by our funding strategy, which focused on diversifying sources and reducing interest expenses. Concurrently, total losses fell 26%, reflecting improvements in our QIC and onboarding processes, resulting in fewer chargebacks, partially mitigated by the natural increase of ECLs given the acceleration of our credit operation.

Operating expenses decreased 3% year-over-year, reflecting our continued focus on efficiency cost management. This reduction was driven mainly by lower personnel expenses, along with more disciplined market investments. As a percentage of total revenue and income, we achieved 400 basis points of operating leverage compared to the same period of last year. Moving on to slide 18, we achieved a non-GAAP net income of BRL 571 million, reflecting a 1% sequential growth and stable year-over-year. Shareholder value creation, measured by diluted GAAP earnings per share, reached BRL 1.88 in the last quarter, reflecting an increase of 14% year-over-year. On the right side of the slide, I am pleased to present the improvement of 30 basis points in our annual return on average equity, which increased to 15.1% from 14.8% as reported in Q3 2024.

Even with a conservative capital structure, we have consistently delivered solid returns to our shareholders. Now, moving on to slide 19, let's turn to the initiatives we have been executing to drive shareholders' value and reinforce our capital structure. Throughout 2025, we maintained consistent momentum in our buyback program, repurchasing over 18.5 million shares. In the third quarter, we advanced into our third repurchase program, which authorizes the company to buy back up to an additional $200 million in outstanding shares, demonstrating our commitment to returning capital to shareholders and enhancing long-term value. In addition to the $670 million in cash dividends already paid in 2025, we announced in September a $1.4 billion dividend distribution for 2026 to be paid in four installments, further reinforcing our commitment to enhance shareholder value.

Our BESIR index consistently declined from Q3 2024 to Q3 2025, reflecting an improvement of approximately 2 percentage points in capital allocation. Moving on to the next slide. While our performance has remained consistent throughout the year, we recognize that the outlook for the rest of 2025 is more challenging, driven by slowing economic activity and sustained high interest rates. Accordingly, we are revising our guidance to align with current market conditions, while staying focused on sustainable growth, capital efficiency, and long-term value creation. We are adjusting our gross profit growth guidance from a range of 7%-11% to a revised range of 5%-7%, reflecting the impact of elevated financial costs in a high interest rate environment. For reference, our gross profit for the first nine months of 2025 grew 6.3% year-over-year.

Our nine-month diluted EPS, calculated using the same share count as of December 2024 and excluding the impact of share repurchases and long-term incentive plan grants in 2025, grew 15.7% year-over-year, reflecting the resilience of our business model and the disciplined execution of our strategy. For this metric, we are narrowing our full-year guidance from 11%-15% growth year-over-year to 13%-15% growth year-over-year. Finally, CapEx levels remain aligned with expectations for this stage of the year. With that, I will invite Alexandre for the closing remarks.

Alexandre Magnani (CEO)

Thank you, Artur. Before we conclude, let's move to the next slide for a few final thoughts. Throughout 2025, we've continued to deliver consistent results even as the macroeconomic environment remains one of the key challenges. In this context, our margin discipline and operating leverage have been critical in sustaining profitability and protecting returns. A key highlight this quarter was the expansion of our banking business, which now accounts for over 27% of total gross profit, growing 56% year-over-year. This performance was driven by consistent credit acceleration and strong client engagement, reinforcing the strategic relevance of this segment within our ecosystem. Looking ahead, our focus remains on mitigating financial cost pressures while preparing the company to capture growth opportunities in 2026 and beyond.

We remain committed to our long-term ambition to become the primary financial interface for individuals, macro, small, and medium-sized businesses, supported by strong growth potential and a proven track record of creating shareholder value. To that end, as a reminder, our 2029 strategic targets include BRL 25 billion in credit portfolio, supported by a balanced mix of secured and unsecured products, with emphasis on working capital loans and AI-powered solutions like private payroll and PIX financing. Above 10% gross profit CAGR, driven by stronger banking contribution, cross-sell opportunities, and efficiency gains. Above 16% EPS CAGR, as we continue converting growth and operational improvements into consistent shareholder returns. These targets reflect our confidence in the scalability of our platform and the strength of our execution. Thank you once again for joining us today. I will now hand it over to Ricardo Dutra for a special announcement.

Before I move to Q&A, I'd like to share some leadership updates. Effective January 1, 2026, as part of our planned succession process started last year, Carlos Mauad, our current Chief Operations Officer, will become our new Chief Executive Officer. Gustavo Sechin, our Investor Relations Officer, will become our new Chief Financial Officer. Alexandre Mauad, our current CEO, and Artur Schunck, our current CFO, will keep supporting Carlos and Gustavo in their transition to the new roles. The company expresses gratitude to Alex and Artur for their extraordinary contributions as executive officers. The company will send notice of a general meeting of shareholders in order to vote to approve the appointment of both Alex and Artur to the company's board of directors.

Looking ahead, I'm confident that Carlos, who joined PagBank one year ago, will build on this solid foundation and lead the company into its next chapter of growth. He brings more than two decades of extensive experience in the banking sector and credit market in Brazil, which will be fundamental as we continue to expand our digital bank and financial ecosystem, aligning it with our long-term strategy. Gustavo, who also joined PagBank last year and has more than 25 years of experience in the financial sector, brings an extensive background to continue strengthening our financial organization and execution. Finally, I'd like to thank all our teams, the people who work hard every day to make PagBank what it is today.

With a strong team, a culture of excellence, and a clear strategic vision, we are well positioned to capture the opportunities ahead and achieve our full potential in the coming years.

Operator (participant)

Thank you for the presentation. We'll now begin the Q&A session for investors and analysts. If you wish to ask a question, please press the Raise Hand button. If your question has already been answered, you can leave the queue by clicking on the same button. There's also the possibility to ask questions throughout the Q&A icon at the bottom of your screen. You may select the icon and type your questions with your name and company. Written questions that are not answered during the earnings call will be returned by the Investor Relations team. Wait while we pull for questions. Our first question comes from Daniel Vaz from Safra. Please, Mr. Vaz, your microphone's open.

Daniel Vaz (Lead Analyst)

Hi, everyone. First of all, congrats on the appointments of Carlos Mauad and Gustavo Sechin to COO and CFO, and also recognize the work so far of Mauad and Artur during this transition. In the middle of the quarter, you announced a strategic update, right? You put together a bunch of KPIs and guidances for 2029. You have mentioned on your credit portfolio that 2026 could be more of a transition year before a stronger credit origination cycle, right? Especially in working capital. Looking at your numbers in the third quarter, unsecured lending is already showing meaningful sequential acceleration in the concessions, right? In the origination. Probably the portfolio could close this year at BRL 1 billion. It feels like there is room to grow well above 2x next year, particularly considering your expansion right now.

The question is, given this momentum, how should we think about what is your target for 2026? Is it still a transition year, or does the run rate suggest like a steeper curve in your appetite for working capital loans? Thank you.

Carlos Mauad (COO)

Hello, Vaz. This is Carlos Mauad. Thank you for your question. Just to give you an overview on how we are thinking about our credit products here, we could say that we have three different work streams on where we are working in a different set of products. We have the secured products that we already have processes and systems in place. We have channels implemented. We have credit policies already developed and tested. In these, we have the mission here to keep accelerating, but it is the same thing that we are doing today and we have been doing in the past few years. We have this second work stream that I'm calling here a scale-up work stream, where we are talking about products that we already have the platforms in place, but we're still finding the right credit balance to finding different levels of credit production.

Those products are working capital that you saw the production increasing on the third quarter of this year. The overdraft, it is a quite important product to us, especially due to the reason which it is a very high-yield product. And credit cards, that's still a challenge to us here. Again, we already see the working capital producing something around BRL 70 million in terms of credit production on a monthly base. We already have credit clusters in test that can push this production up to BRL 100 million. This is what we have on a very short time frame. You can see a little bit where we are in terms of credit production on working capital.

There is a third work stream which is going to show up in 2026, which is the two main products that are being developed as we speak here, which is the PIX financing and the payroll personal loans that are going to have a perfect fit for us here due to the change that we saw on the FGTS changes or regulatory milestone that we saw a few weeks ago. That is a little bit how we are. Yes, we are accelerating, but as you know, taking credit risk, it is a matter of testing different levels, different credit clusters, different ways to collect, to test actual the collections products here so we can push up, observing the right performance in terms of net credit margin. Hopefully, I answered your question.

Daniel Vaz (Lead Analyst)

Yeah, that's super clear. If I may follow up on your scale-up portfolio that you mentioned about the working capital loans, is it too soon for you to share a bit of the KPIs here on the new origination you could put up of BRL 70 million per month? Is it exciting you for going above this number, or BRL 70 million could be like a, sorry, BRL 70 million could be like a good estimate for us to work?

Carlos Mauad (COO)

No, no, we're going to push this production. We are just at the very beginning of this journey here. We are being very careful to test all kinds of clusters and customer profiles embedded in our database. Probably you're going to see higher numbers in the following quarters as we evolve on the credit strategy.

Daniel Vaz (Lead Analyst)

Perfect. Thanks a lot for the answers.

Operator (participant)

Our next question comes from Ricardo Buchpiguel from UBS, from BTG Pactual.

Ricardo Buchpiguel (Equity Research Analyst)

Hi, everyone. Thank you for the opportunity of making questions. In the quarter, we saw that acquiring TPV was kind of a flat quarter over quarter and fell around 5% year-over-year. Could you comment on the challenges faced in growing volumes during the quarter and what initiatives are being taken to enable an eventual reacceleration in volume growth? Also, eventually, if we can already see some signs of reacceleration in Q4, adjusting for the seasonal effects? Thank you.

Ricardo Dutra (Principal Executive Officer)

Ricardo, thank you for the question. Yes, all right. The TPV was flat sequentially. We do understand TPV is one of the metrics that we should follow here. As we've been said, in the past quarters, TPV per se is not the main important metric for us, but of course, it's part of the volumes that we need to manage here. I'm going to talk to you about the past Q3 and then looking forward. Looking at past Q3, we have, first, it is important to remember we have a very, very hard comp from Q3 2024, where we grew 36% versus previous year. That was the largest TPV percentage growth in a quarter, I guess, in the past couple of years. Q3 2024 was a very, very strong quarter. We have this hard comp.

We also understand the macro and the lower economic activity could have impacted our emotions as well, especially those with a lower income profile. Looking forward, when we look at what happened in the last months or the beginning of this year, we had some strategies to go to market that we evaluated and we adjusted a few months ago. I would say to you that looking on a year-over-year base, August was the bottom in terms of growth or decrease in August. September was better than August. October is better than September. It seems that we reached the bottom in August with the changes that we did a few months ago when you have these cohorts piling up. We expect to see, looking forward, better TPV results looking forward. That is the overall picture here.

Remember that we always look on the client as a whole, focus on increasing the gross profit and EPS. If you have a TPV that is accretive, we're going to go for it. That is pretty much the scenario about TPV.

Ricardo Buchpiguel (Equity Research Analyst)

That's very clear. Just a quick follow-up, if you could also comment about the competitive environment in the current segment, if you notice any changes during Q3 and the start of Q4 will also be very helpful. Thank you.

Ricardo Dutra (Principal Executive Officer)

Ricardo, we do not see changes in the competition in terms of irrationality. We see all players being rational. When you have an interest rate in the country that is 15% per year, everyone is very concerned about profitability, about the cost of funding. We do not see companies trying to get market share at any price. Everyone is trying to be rational and preserve profitability. By having this 15%, of course, we have everyone being more focused on the bottom line and less in the market share. Going back to your question here, no big changes in competition in Q3, not even in Q4.

Ricardo Buchpiguel (Equity Research Analyst)

Perfect. Thank you.

Operator (participant)

Next question comes from Beatriz Ueda from UBS. Please, Mrs. Ueda, your microphone's open.

Kaio Prato (Equity Analyst)

Hey, sorry, it's Kaio Prato here from UBS. I have two questions, please. First, a follow-up on working capital loans. Just wondering if you can share a little bit more about the profile of this client that you are accelerating today. What is the average size of this client? If you can share some numbers on the economics as well, interest rates and level of upfront provisions that should be required just to understand when these products should start to contribute positively to your gross profit. This is the first. The second, if you can talk a little bit more about the improvements that you are doing on your chargeback process. I think we had another solid quarter on that line. Just wondering if you are talking about sustainable levels of chargebacks as percentage of TPV now, or if we can see even further improvement going forward. Thank you.

Carlos Mauad (COO)

Thank you very much for your question. Just to give you a 10,000 ft high number here on the working capital, we are talking about some average tickets between BRL 20,000 and BRL 30,000. The average, not the average, the range of our interest rate here, it is between BRL 4 and BRL 7, depending on the risk level of this customer. That is not a specific size of customer that we are targeting. What we are trying here, it is to optimize and to have a deep credit offer to most of our customers here, trying to optimize the net credit margin of this specific product. Again, as long as we are testing a lot of different clusters here with different offers, trying to optimize conversion, optimize net credit margin, as I mentioned here.

Every month here, we pretty much put a few tests to make sure that we can create these environments where we can penetrate most of our customers here that are eligible to a credit offer. Second question, talking a little bit about risk management under the chargeback perspective, I can tell you that we have, let's say, a business-as-usual level on chargebacks here. There is no concern in front of us. We are being evolved in our, let's say, real-time risk engine here to make sure that we can filter the bad transactions. As Artur mentioned here on the first part of the presentation, we have a different level in terms of quality on our onboarding process that also helps out to filter the bad customers and the bad transactions out of our ecosystem.

Looking forward, I could say that this relative level of chargeback that you see on the third quarter, we will see this number across the next few quarters.

Kaio Prato (Equity Analyst)

Okay, thank you very much.

Operator (participant)

Our next question comes from Tiago Binsfeld from Goldman Sachs. Please, Mr. Binsfeld, your microphone's open.

Tiago Binsfeld (Equity Research Analyst)

Hi, good evening, everyone. Thank you for taking our questions. Two questions from our side as well. First one on efficiency, if you can discuss your main initiatives to manage operating expenses into 2026, if there are any big projects in marketing personnel that could allow further gains in margins. Second question, more on the macro side of the business, if you have any views on the impact from the income tax exemption for individuals that earn up to BRL 5,000 in Brazil, your assessment of potential impacts to volumes and to credit. I think you have been alluding to a more challenging macro, but would like to hear if that could perhaps be a positive catalyst in the short term. Thank you.

Carlos Mauad (COO)

I'm going to jump up here to try to at least answer part of your questions. On the OpEx side here, we are being very diligent. As long as we have a macro that's a little tougher than everybody expected, we've been quite, as I mentioned here, diligent to manage OpEx. Of course, that hits the discipline to prioritize better everything that we are doing here to keep the platform evolving. That goes through marketing expenses also and through some evolution on our, especially on our customer service OpEx here, where we probably have the most successful AI implementation in the company at this point, which is delivering a better service as a whole with a lower OpEx deploy. Again, we are being very diligent on everything that we are doing here.

OpEx is going to keep offering us some room to reinvest on our customers. That's the first part of the question here.

Ricardo Dutra (Principal Executive Officer)

Regarding the second part about the taxes for people that have a salary that is lower than BRL 5,000 per month, as we've been saying in the media, that's going to help for the low-income people or for the people that receive this BRL 5,000 or less, to have more availability of cash to expand, to spend. Of course, that could be beneficial for us. We don't know how big it's going to be, but definitely it could be slightly positive because there's going to be more liquidity for the low-income people of the country.

Tiago Binsfeld (Equity Research Analyst)

That's clear. Thank you.

Operator (participant)

Our next question comes from Yuri Fernandes from JPMorgan. Please, Mr. Fernandes, your microphone's open.

Yuri Fernandes (Executive Director)

Thank you all. Good evening. Wishing the best luck for the previous or the current administration and the new management. I have a question regarding expenses here, notably personnel expenses. This was a line that was down this quarter, and it seems to be related to share-based compensation. I know usually there is volatility regarding share prices and all that, but the drop was pretty important here, right? It tends to be a BRL 30 million-BRL 40 million per quarter line, and I think it was like BRL 3 million this quarter. If you can provide a little bit of explanation, what drove lower share-based compensation, what is driving this better personnel expenses line here for you? That is my first one. A second one, just on the NPL, pretty stable, like BRL 10 million increase. I think it is totally fair. Your portfolio is growing a lot on security mix, right?

Just trying to understand what to expect for the NPLs on this growth outlook you have. Should we continue to see NPL going marginally up every quarter? Not really. Any color on what should we expect on asset quality given your mix? I think it would be appreciated. Thank you very much.

Ricardo Dutra (Principal Executive Officer)

Thank you, Yuri, for the questions. I will answer the first one related to the personal expenses. Part of the gains that we see in Q3 is related to a linear structure that we are working. As Mauad mentioned, we are so diligent to control expenses here, and personal expenses are so important to us. Part of the diligent process that we have, the layoffs that we applied in January and May also contributed to this performance right now. In terms of long-term incentive plan, it is related to the volatility of the share price, U.S. dollars, and those things impacted the number. Going forward, I am expecting to increase a little bit, not too much. The level will be, roughly speaking, the same of Q3.

Carlos Mauad (COO)

Jumping to the second part of your question, we're going to keep NPLs lower than the average of the market here. Of course, due to the high concentration in terms of mix that we have on secured loans today, we're going to see NPLs going up quarter over quarter, likely respecting the new mix that we are deploying here on our credit strategy.

Yuri Fernandes (Executive Director)

Super clear. Thank you very much.

Operator (participant)

Our next question comes from Arnon Shirazi from Citi. Please, Mr. Shirazi, your microphone's open.

Arnon Shirazi (Research Analyst)

Hi all. Thanks for the opportunity of making questions. I want to dive in the profits. I see it grew 15% year-over-year, which is something in line with last 12 months' semi-grade. Though I want to understand better the underlying trends, if there's inflows, what you have been seeing. Thank you.

Ricardo Dutra (Principal Executive Officer)

Sorry, Arnon, can you repeat the metric? We did not get it here, the 15%. What is the metric?

Arnon Shirazi (Research Analyst)

Deposits. Yeah, we see a 15% increase in deposits year-over-year, which is in line with the Selic rate, right? The average for the past 12 months, maybe around 12-14%. I want to understand better the inflows and outflows during this period, and expectation from all of seems to be growing mostly on sales. Thank you.

Ricardo Dutra (Principal Executive Officer)

Hi, Arnon. Yes, we grew this from BRL 34 billion-BRL 39.4 billion compared year-over-year. I do not think there is a relationship with the Selic rate. Of course, we try to make the ecosystem stronger and stronger. If you look at some of the slides, you see the cash-in of PIX that grew 14%, reaching more than BRL 95 billion. What we try to do here is to make the ecosystem more engaged for the client so that we have this more, I would say, complete relationship with them, not only the acquiring, but also in terms of deposits, in terms of the use of cards and so on. It is a very decent growth when you think that is BRL 34 billion to BRL 39 billion, 15% growth in terms of the deposits.

With our cost of funding going down, because that is important to highlight that even though they are growing 15% in terms of deposits with the cost of funding as a percentage of CDI going down. Thank you.

Arnon Shirazi (Research Analyst)

Thank you.

Operator (participant)

Our next question comes from Neha Agarwala from HSBC. Please, Mr. Agarwala, your microphone's open. Please, Mrs. Neha, your microphone's open. Mrs. Neha, you still unmute? Please rejoin the queue if you want to ask a question. Our next question comes from Pedro Leduc from Itaú BBA. Please, Mr. Leduc, your microphone's open.

Pedro Leduc (Equity Research Analyst)

Thanks. Good evening, everybody. Question, please, on the gross profit evolution. We talked about volumes here briefly, about slightly recovering at the margin. We know year-over-year, when I look at your gross profit margins, they're hurt by the higher Selic rates. At least for Q onwards, they should be more stable with R3Q. If I could maybe get a sense on how that TPV volume mix is recovering, what's driving it, also for us to have a sense here. If you could share with viewers on how gross profit margins are going to evolve over the next couple of quarters. Thank you.

Carlos Mauad (COO)

Leduck, thank you for your question here. Our recovery here in terms of TPV and how this is affecting the cost of funds of the company comes with the same mix that we see today. As you saw throughout the year, our TPV is more sensitive to the cost of funds or to the Selic rate due to the kind of customer that we have here in the dynamics of the business, as long as we pay most of our TPV upfront, and that makes the company more capital intensive. Of course, when we see the other side of the macro cycle, we also then trend to capture a better spread when we see the basic interest rates going down. Again, the TPV, the new TPV that we are bringing to push growth, and the company is coming pretty much with the same mix.

We do not expect to have a different ratio between TPV and the spreads that we see on our customers.

Ricardo Dutra (Principal Executive Officer)

Just to complement here, Leduc Pedro, of course, we follow TPV, but most importantly, we follow revenues. If we look at revenues year-over-year, we are going 14%. It is a very, very decent growth year-over-year because you know that there are low-quality TPV out there that we are not interested in. The idea, of course, is to grow in a sustainable way. I would say that one of the metrics that show we are doing successful work here is the growth of revenues, 14%, and also the growth of EPS that is related to the expenses control that we have been doing throughout this year. Thank you.

Everyone, thank you very much for your time. See you next call.I would like to take advantage here to say thank you to Alexandre Mauad and Artur Schunck for the excellent and extraordinary job as executive officers in this company. They are going to join us as board directors to keep supporting the company and wishing luck and to count on all the support for Carlos Mauad and Gustavo Sechin in their new roles. Thank you very much.

Operator (participant)

This does conclude PagSeguro Digital's conference call. We thank you for your participation and wish you a very good evening.