PagSeguro Digital Ltd
NYSE:PAGS
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PagSeguro Digital Ltd
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Good evening. My name is [ Olgere ], and I'll be your conference operator today. Welcome to PagSeguro Digital Earnings Call for the Third Quarter of 2024. The slide presentation for today's webcast is available on PagSeguro Digital 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. [Operator Instructions]. Today's conference is being recorded and will be available on the company's IR website after the event is concluded. I would now like to turn the call over to Gustavo Sechin, Head of IR. Please go ahead, sir.
Hi, everyone. I'm Gustavo Sechin, Head of Investor Relations of PagBank. I would like to welcome and thank you for joining us for our third quarter 2024 earnings call.
Tonight, I have the company of Ricardo Dutra, our Principal Executive Officer, Alexandre Magnani, our CEO and Artur Schunck, our CFO. With that, I would like to turn it over to Dutra, who will begin the today’s presentation. Please, Dutra?
Hello everyone and thanks for joining our third quarter 2024 earnings call. I'll start on Slide #4, where we share our main operational and financial highlights. Our third quarter 2024 is one more chapter in our path to deliver sustainable growth combining TPV and banking revenues expansion and profitability. I am not going to run through each number on the slide but I will highlight some of them. We ended the quarter with 32 million clients in both segments, Payments and Banking, adding close to 2 million clients to our customers base in the last 12 months.
On Payments, we registered a record volume of BRL 136 billion of TPV, an impressive 37% growth year-over-year, which we will give more color in the next section of our presentation. Our credit portfolio and funding are also growing very fast year over year.
Moving to financial highlights, as a result of strong operational performance, total revenue grew 20% year-over-year, reaching BRL 4.8 billion, the highest quarterly performance in our history. We also reached our highest quarterly net income in GAAP and Non-GAAP basis, which reached BRL 572 million, a 30% year-over-year growth. The solid results delivered boost our ROAE close to 15%, a 182 bps increase, despite our conservative capital structure.
Once again, we demonstrate, with the current quarter performance, our ability to create value and deliver solid results. We are perhaps one of the very few companies in the segment, not to say the only one, that has managed to deliver positive results with positive net income every single quarter since IPO, despite industry dynamics and economic cycles.
Our track record reinforces our commitment to create shareholder value. In this quarter our diluted EPS on a GAAP basis reached BRL 1.66, growing 31% versus previous year.
Moving on to Slide 5. Let me start with a quick update on our strategy. We have a clear view for PagBank, which is win on MSMB segment and diversify revenues beyond payments, paving the way for a large profitable company. Our DNA is built on the back of a historic disruption and leadership on opening new growth avenues with high performance execution, financial discipline, 360-degree security and clients and human capital oriented culture, always with focus on our purpose, which is to facilitate the financial lives of businesses and individuals.
With that in mind, let me remind you our strategic goals. Win on MSMB as we improve our digital ecosystem product offering, expand payments beyond POS. We are just starting our journey to catch up our fair share on the online segment. Diversified banking revenue streams beyond merchants, Remember, we have more than 11 million pure banking-only clients. And finally, cross-sell credit products across the customer base.
On the right side of the slide, we can see our clients’ segmentation. We keep successfully executing our strategy to move up in the pyramid, growing not only in our core segments, but also accessing large and accretive clients.
Now, I’'ll hand it over to Alex for the quarterly highlights on the business units. Thank you.
Thank you, Ricardo. Hello, everyone.
In this section, we'll break down the performance of our business units for the third quarter of 2024.
On Slide 7, following the strategy update by Ricardo, we will show how we are building PagBank for the longterm. We have a fully integrated ecosystem combining Payments and Banking with a full set of products and features that provides unique experience to our customers. In order to keep improving our offering and prepare the company for future growth, our projects and initiatives are centered on: accelerate volume increase; foster customer transnationality; increase client monetization by gaining share of wallet and customer principality. We are always executing on these fronts with constant focus on Cyber security, preserving our solid balance sheet while investing in consistent ESG initiatives.
Moving on to the next slide, we reached 32.1 million clients by the end of September, adding 2 million clients in the last 12 months. We ended the quarter serving 17.7 million Active Clients, led by the growth in the Banking business. As for the Active Merchants client base, we saw a decrease of 3% YoY due to our strategy to focus on profitable merchants with more cross-selling opportunities. Excluding Nano merchants from our base, we presented a 2% growth year over year. Nanomerchants represents only 1% of our total TPV.
Now let's take a closer look at Payments on Slide 09. Here we show that our merchant acquiring business keeps growing faster than the industry, with solid growth registered in all segments. TPV reached BRL 136 billion in Q3 24, growing 37% year-over-year, with TPV per merchant growing 43% on a yearly basis.
We had strong growth in MSMB and LMEC as a result of our strategy of attracting profitable merchants in the payments landscape that also have monetization potential on financial services. This quarter, for the first time, we are breaking down the percentage of our total TPV linked to PIX. The expansion of PIX P2M increased total addressable market and has a positive impact on margins.
Looking further into the MSMB segment, which gathers merchants with monthly TPV up to BRL 1 million, TPV grew 26% year-over-year, reaching BRL 88 billion in the third quarter of 2024. Our strong value proposition, higher productivity and expansion in our HUBs gross adds, were key factors to achieve this great performance, resulting in a year-over-year TPV addition of BRL 18.2 billion.
Regarding the LMEC segment, comprised by large retail Merchants, e-Commerce, and cross-border clients, we had a 62% TPV growth compared to Q3 '23, reaching BRL 48 billion in volume, which accounts for more than one third of our total TPV.
This growth is led by new verticals, in special our online segment, with e-Commerce and cross-border, mainly under the PagSeguro International brand. We are also increasing our share of wallet on larger merchants, segment that gathered businesses with monthly TPV above BRL 1 million with a strong growth on cards-not-present transactions, expanding our market beyond POS.
Moving on to the Banking business, on Slide 10, we show that our strategy to provide a seamless experience, combining payments, value-added services, and banking through multiple interfaces is definitely driving-up customers engagement. As a result, we reached BRL 83.9 billion in PagBank Cash-in, composed by PIX P2P, wire transfers and boletos/invoice collections into PagBank accounts.
Cash-in per Active Client, an important indicator of our client engagement, grew 43% year-over-year, reaching BRL 4,900 per client.
The evolution of our engagement metrics is shown on the bottom-right graph, which demonstrates the increasing usage of our app's success in fostering transactionality through PIX and bill payment, and the penetration of our Investments and Insurances across our customer base. As of September, more than 5 million clients had investments in our platform.
Here on slide 11, we can see that our credit portfolio keeps growing at a steady pace since resuming growth on Q3, 2023. This quarter, total Portfolio reached BRL 3.2 billion, a 30% increase year-over-year. This growth comes on the back of an increasing share of secured products, which currently represents 85% of our book loan, promoting financial inclusion, education, and important financing lines to our clients.
This quarter we have gradually and cautiously resumed unsecured lending. Although it should not have significant impact on total portfolio in the next few quarters, we believe unsecured lending is an important growth engine for the Company in the medium/long term.
When we consider the financial operations related to prepayment to merchants, because of our instant settlement feature on the acquiring side, the expanded credit portfolio reaches more than BRL 44 billion representing 50% increase in the last 12 months. Our NPL90, on the bottom right of the slide, demonstrates the improvements on our asset quality in the last 12 months, moving from 10.7% to 2.5% in the period.
In the next slide, we show how robust our deposits franchise is to reduce funding costs. Total deposits were up 59% compared to the third quarter of 2023, reaching BRL 34.2 billion. Annual Percentage Yield for Checking Accounts and Total Deposits trended down, supporting the Company's balance between growth and profitability by lowering the average cost of funding. In this sense, as we grow our deposits franchise, we have started to explore alternatives to further reduce the current cost of funding, considering the current interest rate scenario.
APY for checking accounts reached 47% of the CDI in the quarter, helping to reduce our total cost of deposits to 92% of CDI. As I mentioned, the primary use of our deposits, is to fund prepayment to merchants as well as our loan book. As of September, our Loan to Total Funding ratio, which considers our Total Funding in relation to our Expanded Credit Portfolio, was at 116%, a reduction in comparison to last year due to the strong operational TPV increase on the acquiring business.
Now, I turn over to Artur for the financial highlights of the third quarter of 2024. Artur, please.
Thanks, Alexandre. Hello, everyone. Thank you so much for taking the time to join us today. Now on, I will present our consolidated financial results for the third quarter of 2024.
Moving on to Slide 14. Q3 '24, total revenue and income growth accelerated to 20% on a yearly basis, positively impacted by higher volumes from acquiring and the acceleration of our banking segment. Consolidated gross profit margin reached 39.3% over the total revenue, in line with our guidance on a year-to-date basis. as we have been successful in balancing growth and profitability on all segments, driven by the execution of our strategy focused on clients with higher engagement.
Looking at the graphs on the right side, payments revenue reached BRL 4.3 billion, a 17% year-over-year growth, with a gross profit margin of 36%. Banking revenue grew 52% year-over-year, mostly driven by interest income from credit, float from cash position combined to service fees linked to client engagement with a higher profitability. Gross profit from our banking segment reached 68% over revenue, increasing for the fourth consecutive quarter even underwriting mostly secured credit products.
Moving on to the next slide, we can see how Gross Profit is driven by an accretive expansion on the Payments segment, and how the increasing penetration in new growth avenues like Large Retail Merchants, on-line and products like PIX, affects client, product and pricing mix, all of them with a positive result. Additionally, the contribution from Banking as mentioned on the previous slide is being more and more important to the company. On a yearly basis Gross Profit grew 24% and Banking segment represented 18% versus 11% in the previous year.
Financial Expenses optimization and better losses management allowed us to sustain our margins. On a quarterly basis Gross Profit grew 4% with Banking increasing its participation by 400 bps showing how fundamental is to diversify revenue streams to different and complementary products and services.
In the slide 16, we take a closer look to our costs and expenses. Our financial discipline, which is always an important tool to balance growth and profitability was paramount to achieve the current results, this quarter we can already see operating leverage in comparison to previous quarter. In the cost side, Transaction Costs decreased 20 bps as a percentage of TPV, benefiting from the TPV mix driven by a higher share of PIX. Financial Costs was positively impacted by optimizations from our funding structure, larger volumes of Checking Accounts and CDs lower yields.
Those items were important to mitigate the impact of 3 additional working days this quarter and a 25 bps of Brazilian interest rate hike. Total Losses reduced by 30% on a yearly basis due to better risk management approach.
Operating Expenses decreased to 16.8% of total revenue and income with a leverage of 20 bps . The year-over-year increase was mainly driven by marketing initiatives to increase awareness of banking products and personnel expenses reflecting the strengthening of sales force. This expansion was aimed at supporting the Company's current growth cycle, with a positive impact on total revenue and income.
Moving forward, a more stable trajectory should be expected, creating opportunity for additional operating leverage. The year-over-year increase in depreciation and amortization and POS write-off in nominal terms is aligned to the current capital expenditure cycle. It is important to highlight that tax efficiency initiatives are part of the business, and we are always seeking for tax optimization.
Moving on to slide 17, I am proud to announce the highest quarterly earnings per share in our history, growing 31% year-over-year. As we showed throughout the presentation, the third quarter was a good chapter in our growth trajectory with solid operational and financial performance. As a result, we have delivered an all-time high quarterly net income, which reached BRL 572 million on a non-GAAP basis, growing 30% versus Q3 '23.
Net Income, on GAAP basis, reached BRL 531 million in the third quarter, growing above 30% year-over-year, with earnings per share on a diluted GAAP basis marking BRL 1.66, a 31% increase on yearly comparison. Equity position expanded to 14.4 billion with a Return On Average Equity of 14.8%, despite the conservative capital structure, with a Basel Index of 31%, in line with our strategy of balancing growth and profitability.
A quick buyback update. As mentioned in the beginning of the presentation we have concluded last August our first program, fully executing $250 million, and have launched a second program of $ million which we have been executing opportunistically. 2024 already is the record of buyback executed in our history. It is important to remember that since 2018 we have bought back more than BRL 1.1 billion, a clear indicator of our commitment to shareholder value creation.
Moving on to slide 18. Just a quick follow-up on our current guidance. Despite macroeconomic conditions and uncertainties, we are on track to deliver or surpass the top of the range of expected results for 2024 as shown on the slide.
Now, let me give the word back to Alexandre for the closing remarks.
Thank you, Artur. Before we finish, let's move on to the next slide for closing remarks. Overall, the results we posted reflects the successful execution of our strategy, which aims to strengthen our presence in our core segments as well as diversifying our revenues beyond payments. Once again, we achieved and all-time high net income, proving our ability to deliver consistent results despite macro and market environment. The banking operation is an important contributor to that result, growing at a faster pace than the overall business at 54% year-over-year, making it more relevant for our business performance and revenue diversification.
I also highlight our ability to promote financial cost efficiency by reducing our cost of funding in the period, which was leveraged by our strong deposit franchise.
Finally, as I mentioned earlier, this performance demonstrates our commitment to create shareholder value, one of our top priorities as we deliver a robust and sustainable EPS growth of 31% with a return on average equity close to 15%, combined with a solid and conservative capital structure.
Now let me give back the word to the operator, and we'll start the Q&A session.
[Operator Instructions]. Our first question comes from [indiscernible] from Goldman Sachs.
I have two questions on my side. The first one is on TPV. So strong TPV increase even we can see the non-PIX TPV increased 5% sequentially, and thanks for the additional disclosure there. I would like to know if there's any comments on the MSMB trends and especially any color that you can give on non-PIX MSMB, what the increase was without considering PIX?
If you have any comments there, that would be great.
And then the second question is on prepayment revenues. Also strong increase on that line. If you could give more color on the performance and how do you see that line performing going forward? Do you think those levels are sustainable going forward, that would be great.
I'll start with the first one. Talking about TPV, cards TPV in MSMB. I would say that part of this result is the result of the investments we've been doing in our HUBs. We are working for a while in these HUBs and giving our people more tools in such a way that we can increase productivity and trying to make a better offer for the SMBs. As we always say, we try to combine our acquiring, our payment solution with the account for those who are interested in having a very good account, a decent account for the business with no tariffs and high CDs, multiple cards.
So it is part of the result of the strategy we've been thinking and executing in the past years, which is to win on SMBs with the right tools, right value proposition for this type of client and of course, train the sales people in such a way that we can increase productivity and have a better performance out there.
So I lay that's the main reason. There is no one-off, nothing like that. And we are seeing the same band in Q4 when you look at TPV for SMBs and TPV overall of the company. For the second question, I will pass the word to Artur.
Thank you for your question. Regarding to prepayment revenue, we have a change last quarter that we move part of the revenue transaction to prepayment revenue and nothing is wrong. It's only a moving from one line to another one. On top of that, the prepayment business is aligned to our TPV growth, especially because we have large volume of our clients receiving instantly the transactions that they pass in our POSs and checkouts.
Sorry, complementing the answer. The trend will continue in the coming quarters.
Our next question comes from [ Antonio Buichi ] from Bank of America.
I have two questions on my side. So first, on credit. I'd like to know if your lending appetite has changed from last quarter to this one. And we have well, we have been discussing higher than expected SELIC for the next year and the threats of this pressuring small and medium merchants, what is one of your focus. So if you could elaborate on your change or potential change of appetite here?
And also, if you could explore a little bit more on your strategy on LMEC. You mentioned large retail accounts and also online. So if you could dive a bit deeper here on which -- what is the attractiveness of this client? And what kind of clients are you targeting here? What kind of services you are exploring? This would be great.
Antonio, thank you for the question. Well, talking about credit, our appetite for credit changed a little bit. We've been piloting some nonsecured products in the last quarter. It's nothing material. But of course, we are testing the models, testing the processes, the collection and so on. But I would say that at this point, we have the opportunity to keep growing in the secured portfolio, as you can see in our performance in Q3 again. So we grew our portfolio from BRL 2.9 billion to BRL 3.2 billion, and this growth came from the secured part of the portfolio.
We still see the opportunity to keep growing in this secured part of the portfolio. And we are piloting and testing some products for our base. I would say that despite of the macro environment, we see there is an opportunity in our base for clients that are low risk that we may access at some point. We just don't think that's the right time to do so, and we need to be secure that is the right time to offer this kind of nonsecured products, but it's part of the road map, and we're going to do it at some point in the near future.
Talking about LMEC, the type of client that we have, we are having online clients that are coming to us to work with banks. As we mentioned in some calls before, we worked with 2 different solutions for a while, the PAG solution and the Wildcard/ [indiscernible] solution that we bought in 2020. And now we have one platform, a complete platform with many features that the online clients are looking for.
So we're having these new clients in the online segment. And the large merchants that -- remember that for us, the large merchants is above BRL 1 million in cards per month. So I'm not talking about BRL 50 million per month. I'm talking about BRL 1 million per month above that. So -- but for these clients, we are looking for accretive clients. We are not looking for market share. We are looking for clients that are profitable. And for some of the clients, for instance, we make the price that is feasible for us and some of them uses a backup, for instance. So we have 20%, 25% of the volumes, 15% of the volumes.
They test our services they like, they can scale and use more and more. But again, the type of clients we are getting, they are profitable. We are not buying market share. We don't have the interest to keep buying market share or to buy market share and to grow market share in terms of volumes. We are looking for clients that are profitable and accretive to the bottom line.
That's super clear. And one more, if I may. On your administrative expenses, you mentioned higher provisions for personnel expenses compared to last year. So just trying to get what is embedded here? You are talking about this back office or anything specific related to personnel?
It's Artur speaking. Regarding to these provisions, we are talking about the bonus for the year as we are performing above the guidance that we provided. So we have additional provisions in general, the company is not located in a specific department or a specific position in the company. It's in the total.
Our next question comes from [ Ernan Churezzi ] from Citi.
My question is related to the sensitivity to interest rates. Could you please remind us or if there's any update on what is the impact on 100 basis increase in the SELIC rate?
Regarding to the sensitivity, each 100 basis points of change up or down in the SELIC rate, and based on the current scenario that we have today in our funding cost represents around BRL 300 million in the cost of financial expenses.
But that's going to be around BRL 300 million before taxes. And it is worth to say that, of course, we we're going to work here to mitigate the increase of financial expenses as we have been doing in this past year. So there are some levers that we may use here. Of course, the first one is to increase price, but we can also look forward to diversify the source of funding, we can change the yields that we pay in RCDs and so on. So we are, of course, evaluating the interest rates of Brazil very close. And we're going to take the actions in order to mitigate the increase and to offset even if it is partially, but we're going to work to mitigate part of the increased interest rate.
If I may, a follow-up on that. This Impact you just mentioned it's for a 12-month horizon, that's correct? .
That's correct. 12 months, 100 basis points, BRL 300 million in 12 months.
Our next question comes from Bryan Keane from Deutsche Bank.
It is Nate Svensson on for Brian today. So going through the slides, I think the increasing engagement metrics you shared on Slide 10 that are leading to really strong growth in cash in and cash in per client really stand out to us. I know you've been making a lot of investments to drive engagement, but I'm hoping you could elaborate further on what specifically you think is standing out and resonating with clients. So maybe some areas that have maybe exceeded your expectations and what you think the most important levers to drive further engagement going forward are?
Well, thank you for the question. You're right. In Slide 10, we disclosed some of the metrics, engagement metrics that we have, and they are growing very fast, to be honest, more than what we expected, but -- and that's great. As we have this complete digital bank, we have many, many features, but there are some of them that people use more and more. Of course, the most common is to cash in and cash out and cash out, people can send wire transfer PIX or using our cards. And that's the part of -- or pay bills.
So that's part of the -- one of the services, the most common used services here are the cash in, cash out plus cards. But we also are seeing very good engagement and very good stickiness in terms of investments. We've been working with investments for a while, offering high-yield CDs in such a way that we can have these clients that come to us and very fast, they already send the documentation and then they make an investment, which is great for the stickiness as well.
And in Slide 10, we also gave some color about the insurance. That's another product that is linked with some of our products. The most common are -- the most common is the insurance for PIX and insurance for cards. So if you lose your card and if someone use our cards, you can have the reimbursement up to some value, some amount.
So those are the -- I mean, I would say it's a digital banking, it's an online digital banking. And when you have 32 million clients, people use a lot of services. But I would say the most common are those that I just mentioned to you. And we keep working to increase the engagement. People are using our app more and more, as you can see in the first chart from 31x per month to 35x per month. And that's the -- I mean, we'll keep working on the engagement, and then we can cross-sell products, we can cross-sell credit products and at the end of the day, we are trying to get these clients to use as their main bank and to get the principality of the client.
That's great color. I really appreciate that. For the follow-up, I want to step back a bit and maybe ask a higher-level question about the long-term trajectory of the company. You continue to print really strong results, and you're clearly gaining share in the market, but there's been so much change in evolution in the business, moving more towards banking and obviously, the overall macro environment in Brazil over the past few years. So I think there's a lot of investors that still have questions on what the right long-term growth and profitability outlook for the company is.
So maybe in light of that, can you talk about how you view the financial profile of the company over the next several years and whether or not you've given any thought to potentially providing some sort of midterm guide to help level set expectations for both analysts and investors?
Well, thank you. The market has been changing a lot in the past years. Remember, we founded this company in 2006 as an online solution. We launched the first device around 2012. We didn't have a bank. Now we have this second largest digital bank in the country in terms of users. And we are, of course, following what's going on in the market and pivoting the company to take advantage of what we see in the market. We are a technology company at the end of the day. So that's why I have the speed and have the flexibility to work with the company in such a way that we can serve the clients' needs. We've been seeing many changes in the last years. And the last one, I would say, was the PIX that was launched in November 2020. And since then, we've been growing a lot in PIX and monetizing PIX transactions and PIX is a very good tool for digital banks for cash in and cash out as well, and we get the data that we may use this data to give credit for the clients.
So -- but I'd say in midterm, I don't have a number here to give it to you. But as we said throughout the slides, we plan and we will do it that we will grow the revenues beyond payments. We know that some payments have been growing. There is still room to grow in terms of payments in Brazil because PIX is still cannibalizing cash, Cards are cannibalizing cash. Cards penetration are faster than the growth of the economy of the country. If you see the country is growing around 3% and cards overall are growing more than 10%. So there is still higher penetration in the economy in terms of electronic payments.
So payments will keep growing, and we'll take advantage of that. But in a parallel avenue, we're going to take advantage of this growth of the revenues in the banking side of the company. So midterm, the banking side is going to be more and more important. That's what we have in mind that we're going to working to execute, keep growing payments, but try to grow fast in the banking side.
Our next question comes from Carlos Lopez from HSBC.
I wonder if you could give us a bit more of an update on your buyback program. What do you expect after you complete the current ones this an ongoing feature? Would you expect to do another one next year? And second, could you tell us if you have any exposure to the gaming or gambling industry, which has been in the press in Brazil lately?
Carlos, thank you for the question. I will start with the last one. Part of our transactions are done online in the online segment. Part of the online transactions are related to PAGS International and part of that related to gaming. We do have some clients that offer gaming for the consumers. They are all regulated companies.
And it helps us because it is accretive, but it's not something that is important for the bottom line in such a way that if there's any change in this type of sector, the P&L of PAGS is going to change. So it helps, but it's marginal and it's no material, but we do have some clients in gaming because clients came to us. But again, they are all regulated serious companies, and it's part of the TPV from PAGS International, which is part of the -- our online TPV. So it's a very small size of our payment volumes.
Well, in terms of our buyback program, we concluded in August, the first program that we launched, that was about $250 million and in the same month, in August, we launched the second one, $200 million, which is partially executed. Actually we executed around 20% of this new program in the months in the sequence after August. We are always trying to do in the most efficient way under the market conditions.
And we also have other capital allocation opportunities, but there is no rush here to execute this buyback. We are executing in the most efficient way based on the market conditions.
Can you remind us when the program expires? Second program?
No, it's not expired. We -- the new program we launched in August, $200 million, we executed 20%, and there is no expiration date.
So this one has no expiration date. Okay. And if I can go back to the previous one about the exposure to the gaming industry. Can you give us a sense -- I mean, you say it's immaterial, but are we talking about 1% of TPV, 5% of TPV? What order of magnitude can you tell us?
Carlos, I would say to you, TPV is not important. Let's talk about bottom line. Bottom line is low, low, low, low, low, low single digit. So it's not material.
Low single digits meaning 1% to 3%, that type of thing?
We don't give the guidance, Carlos, but it's very small. It's virtually the bottom of the number that you said, but it's very, very small. It's something that helps in the bottom line, of course. But again, it's no material, and we take advantage of that because we will try to take deposits of the consumers. I mean we try to cross-sell some other products. But today, it's no material to the bottom line.
Our next question comes from Renato Meloni from Autonomous Research.
So first, I wanted just to talk a bit about the initiatives you're mentioning to reduce your cost of deposits. I think it was very successful on the cost, but then we saw a decline here on checking accounts, a sequential decline. So I'm trying to understand the dynamics that you're seeing here. Are you going to be able to regrow balances here with the same level what we're seeing?
And if you allow me for just a second question, that's more of a follow-up on interest rates. Last quarter, when you revised the guidance, you mentioned that your assumption was for SELIC at the end of the year was 10.5% and then previously, you're saying that you can pull the levers and compensate for this. So I just wanted to make sure that you're still seeing a similar scenario despite of the increase in rates.
First one, I guess you are talking about Slide 12, the check in accounts that went from BRL 11.5 to BRL 10.5 billion. What happened is that in the second quarter, the last day of the second quarter was a Sunday. So when you look at the end of the quarter, we have this TPV from Friday, Saturday and Sunday. And in Q3, the last day was on Monday. So usually, people come on Monday, they cash out, they withdraw the money. So that's why it's just because of seasonality. It's not any issue or nothing like that.
If we evaluate the daily average of each order, the daily average of deposits is growing. So it's just because one quarter ended on a Sunday in Q2 and Q3 ended on a Monday. But on average, we keep growing deposits. So that's the explanation for the checking accounts.
The other question about the interest rates, as you can see in our guidance slide, we are confident we're going to deliver the guidance we gave by the end of the year -- by the beginning of the year, if you look at TPV net income, we expect to be still a little bit higher than what the guidance that we gave. So another way to answer your question, we are going to offset the increase in the interest rates that we're going to have in Brazil in 2024 and deliver the net income that we guided at the beginning of the year.
Our next question comes from Kaio Da Prato from UBS.
I have two on my side, please. The first one is on prepayment. You disclosed your expanded portfolio with BRL 41 billion volumes in prepayment from merchants. Just checking if this is indeed the amount that you prepaid for the merchant during the quarter, or if it is the outstanding balance in the end of the period. And additionally, it's growing by 52% year-on-year, much higher than our TPV growth, which is already high at 36%.
So just trying to understand what explains this difference if it means indeed much more penetration? And if so, what are the drivers behind that?
And the second one, just a follow-up. We saw the numbers of your share buybacks and you mentioned about no rush on concluding the program. But I just would like to understand if you could see any different usage of your net cash balance going forward for 2025, which is above BRL 12 billion. I don't know if I think about dividend distribution as well or any type of consolidation in the market could be expected as well.
So Kaio, the first question related to the prepayment amount that we put in the Slide 11. So it's the outstanding balance when we compare the accounts receivable for payments and the money that we need to pay to the merchants in the liabilities. So that's the balance that we have in our income statement.
The volume increased 52% higher than the TPV. But if you consider the nominal variation from last year to this year, you can see that it's pretty much the same. The other point inside this number is the level of AR securitization in our assets that last year was a little bit higher than this year and then impacted this amount.
In terms of our buyback program, we consider that we have opportunities to continue to invest in the company. We see that we have opportunities in the company related to banking, related to continue to grow in payments, and it's important to us to navigate in macroeconomic scenario as we have today, like the SELIC rate increasing, and we prefer to focus in our growth despite any volatility in the macro scenario. And when we say that we have opportunities, we are seeing that we have opportunities in developing the products that we have and grow our business in a sustainable way.
Okay. So probably no change in your capital structure looking forward for 2025. Is that right?
Let me answer in a different way. So we are always assessing the capital structure of the company, trying to find the best balance for the company. And of course, there are many variables here. We should consider the volatility that we have in Brazil. The -- just to give an example, everyone thought that the SELIC would be around 9% or 9.5% by the end of this year, right? So we're talking about close to 12%. So that type of volatility, I would say, that we have in Brazil, we got to have a strong balance sheet to navigate through this economic cycle.
So but we are always assessing the capital structure of the company, looking at the opportunities in such a way that we can make it more optimized. But you've got to be ready for this type of volatility and also to take advantage of opportunities that may appear in the market in terms of M&As or things like that. But the message is, I cannot say to you that the capital structure is going to be the same in 2024 -- in 2025 because we're always, again, assessing the capital structure of the company. If there is any change, if we're going to use the cash in a different way for buybacks or things like that, we're going to communicate the market properly. So -- but just to make it sure here, it doesn't mean that the capital structure of the company is going to be the same in 2025.
Our next question comes from William [indiscernible] from [indiscernible] BBA.
My question here is regarding your client shift mix and how it affects your main sources of revenues being like prepayments and transaction fees? So I understand that prepayment rates, they might shift, but trying to keep it constant and also keeping the allocation of part of the prepayments, right, as you shifted between lines, but trying to make it all comparable.
So as you increase your average tickets, you grow more on LMEC segments and also as PIX are increasing penetration, are you becoming more transaction dependent or more prepayment revenue dependent, right? As you change it, as you shift it, how you consider that in your revenue lines? I guess it's quite harder to understand this from where I'm sitting. But if you could elaborate on that would be great.
William, thank you for your question. Here, we prefer to analyze in the total revenue, not splitting exactly in transaction and financial income. When we see the company growing 20% in a consistent way, we can say that independently, we are bringing clients that are more transactional for the company, but also we are growing the number of clients that is more related to prepayment. So we analyze the revenue together. So 20% in a yearly basis or even 6% quarter-over-quarter in a consistent way is the most important point for us.
Okay. And regarding prepayment pricing increases, do you have any news here when you plan to do it, if you plan to do it at all?
Well, definitely, when we see the SELIC moving up by fast as we are seeing right now, we work a lot and trying to reprice the clients as much as possible, obviously trying to avoid churn, but moving in the direction to pass this additional cost to the clients. Thank you.
Thank you. That's all the questions that we have for today. I will pass the line back to PagSeguro Digital's team for their concluding remarks. Please go ahead.
Well, thank you, everyone, for investing your time to listen to our quarterly call and for the answer as well. So thank you very much. Talk to you on next call. Thank you.
This does conclude PagSeguro Digital's conference call. We thank you for your participation, and wish you a very good evening.