PAGS

Business Context and Reporting Period

This Form 6-K filing by PagSeguro Digital Ltd. (PagSeguro) is dated October 15, 2019. The report incorporates by reference the company's unaudited condensed consolidated interim financial statements for the six-month period ended June 30, 2019. PagSeguro is a Cayman Islands exempted company with its principal operating subsidiary, PagSeguro Brazil, incorporated in Brazil. The company operates a digital payments business and a digital banking ecosystem known as PagBank.

Key Financial Metrics (Six Months Ended June 30, 2019)

Note: US$ amounts are translated at an exchange rate of R$3.8322 to US$1.00 as of June 30, 2019.

Material Changes vs. Prior Period

• Revenue Growth: Total revenue and income increased 36.9% year-over-year (YoY) to R$2,641.1 million. Net revenue from transaction activities grew 57.8% to R$1,511.9 million, driven by an increase in active merchants (4.7 million vs. 3.5 million) and Total Payment Volume (TPV) of R$51.2 billion (up from R$31.3 billion).
• Profitability: Profit before income taxes surged 91.4% to R$910.5 million. Net income increased 68.2% to R$632.5 million. Net income margin improved to 23.9% from 19.5% in the prior period.
• Expense Management: Administrative expenses decreased 38.4% to R$202.2 million, primarily due to lower share-based compensation expenses compared to the IPO-related costs in 2018. However, Cost of sales and services increased 40.4% to R$1,302.2 million.
• Cash Position: Cash and cash equivalents decreased significantly from R$2,763.1 million at year-end 2018 to R$254.8 million at June 30, 2019. This reduction was primarily due to R$1,790.1 million invested in Brazilian government treasury bonds (LFTs) and R$148.5 million in intangible asset development.

Guidance, Outlook, and Recent Developments

The filing does not provide specific numerical financial guidance for the full year 2019. However, management commentary highlights strategic expansion and operational milestones:

• PagBank Launch: In May 2019, the company launched PagBank, a free digital account with banking services. As of June 2019, it had 1.4 million active users. In September 2019, a new feature was introduced to pay interest on balances held for at least 30 days.
• Acquisitions: The company acquired BancoSeguro (formerly BBN) in January 2019 to expand banking services. In March 2019, it acquired a minority stake in NetPOS (ERP software), and in August 2019, it acquired 100% of Yamí Serviços Tecnológicos Ltda. (e-commerce back-office platform).
• Related Party Transactions: The company entered into agreements with UOL Diveo (controlling shareholder) for cloud infrastructure and colocation services, and with Compasso Tecnologia for software development.
• Risks: Key risks identified include fraud (chargebacks), credit risk from card issuers, and liquidity risk. The company manages these through internal committees and hedging strategies, though it noted no material foreign exchange risk exposure as of June 30, 2019.

Investor Verification Checklist

• Cash Deployment: Verify the strategy behind the significant reduction in cash equivalents (from R$2.76B to R$255M) and the concentration of liquidity in financial investments (LFTs).
• PagBank Adoption: Monitor the growth rate of PagBank active users and the impact of the new interest-bearing feature on customer acquisition and retention costs.
• Revenue Mix: Assess the sustainability of the 52.7% growth in Financial Income, which is driven by interest on early payments and installment receivables, relative to core transaction revenue.
• Related Party Dependencies: Review the terms and pricing of the new cloud and colocation agreements with UOL Diveo to ensure arm's-length valuation.
• Non-GAAP Adjustments: Reconcile GAAP results to Non-GAAP figures, specifically noting the exclusion of share-based compensation (R$54.2M) and the impact of the Technological Innovation Law (Lei do Bem) on the effective tax rate.