PagSeguro Digital Ltd. — FY 2022 Form 20-F
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone 2022 Q4 earnings filing; the supplied filing text does not provide a clear Q4-only set of financial results. Financial statements are audited and prepared under IFRS as issued by the IASB. Unless stated otherwise, amounts below are in Brazilian reais (R$).
Business context
PagSeguro provides payments, acquiring, POS devices and digital banking services, primarily to consumers, micro-merchants and SMEs in Brazil. Its revenue includes payment and service fees and financial income, largely from advancing merchants’ installment receivables. The company reported 27.7 million total customers and 16.2 million PagBank active users at year-end.
Financial and operating performance
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Total revenue and income | R$15,334.9m | R$10,448.7m | +46.8% |
| Transaction and other service revenue | R$8,906.4m | R$6,784.8m | +31.3% |
| Financial income | R$6,252.7m | R$3,514.4m | +77.9% |
| Profit before income taxes | R$1,759.3m | R$1,488.0m | +18.2% |
| Net income | R$1,504.8m | R$1,166.3m | +29.0% |
| Operating cash flow | R$3,549.0m | R$898.0m | Increased |
| Cash and cash equivalents, year-end | R$1,829.1m | R$1,794.4m | +1.9% |
| Total assets | R$45,329.3m | R$31,075.8m | +45.9% |
| Total liabilities | R$33,487.2m | R$20,573.6m | +62.8% |
- Net margin was approximately 9.8%, versus 11.2% in 2021; profit before tax was approximately 11.5% of revenue and income, versus 14.2%. The filing reports a 14.5% effective tax rate in 2022, down from 21.6%.
- TPV reached R$731.4bn, up 60.4%. PagSeguro TPV was R$353.8bn and PagBank TPV R$377.6bn. Active merchants declined 8.0% to 7.1m, while PagBank active users rose 23.9% to 16.2m.
- Cost of sales and services rose 29.3% to R$7,470.9m; selling expenses rose 27.7% to R$1,946.1m; administrative expenses fell 23.8% to R$668.7m. Total expenses increased 51.5% and rose to 88.5% of revenue and income from 85.8%.
- Financial expenses increased nearly fourfold to R$3,151.6m, driven by higher transaction volumes and working-capital costs for receivables advances, higher interest rates and increased customer deposits.
- Investing cash flow was negative R$2,184.5m, including R$1,096.1m of property and equipment purchases and R$1,040.3m of intangible asset purchases and development. Financing cash flow was negative R$1,329.7m, including borrowing repayments and R$291.4m of share repurchases.
- Year-end borrowings were nil, versus R$1,005.8m in 2021. However, the balance sheet included R$11,995.3m of deposits liabilities (current and non-current), up from R$3,134.0m, and R$18,072.9m payable to third parties, up from R$13,217.2m. These balances relate substantially to customer deposits and merchant settlement obligations, not simply conventional corporate debt.
Material changes and unusual items
- Financial income grew faster than transaction revenue and accounted for about 41% of total revenue and income, reflecting receivables advances, transaction mix and 2022 repricing.
- Other income/expenses shifted from R$7.3m of income in 2021 to R$338.4m of expense in 2022. Items included a R$199.9m provision for POS devices, R$40.2m of software disposals, R$12.6m impairment related to Boletoflex and a R$10.0m payment agreement with a POS supplier. The 2021 comparison included a R$29.1m reversal of an ICMS-related provision.
- Credit losses and other total losses were R$984.5m in 2022. Expected credit loss allowances for loans and credit-card receivables were R$521.9m and R$451.3m, respectively. Management’s estimates rely on probability-of-default, loss-given-default and exposure-at-default assumptions, including forward-looking macroeconomic inputs.
- Brazil’s SELIC rate reached 13.75% at year-end 2022. Management said it began merchant repricing in April 2022 and phased additional adjustments through the second and third quarters, while seeking to keep churn near historical levels.
Outlook, risks and contingencies
- Management sees continued opportunity from digital payments and financial inclusion, but expects Brazil’s macroeconomic outlook, high interest rates, credit conditions and consumer spending to affect performance. The filing cites an IMF estimate of 1.2% Brazilian GDP growth for 2023; this is an external macroeconomic estimate, not company guidance.
- Management expects expenses to decline as a percentage of revenue and income over the medium term as growth investments scale, while continuing substantial investment in technology and product development. It also expects financial income to grow in absolute terms but potentially decline as a share of revenue over the medium and longer term. No specific company revenue or earnings guidance is provided.
- Key risks include competition and pricing pressure; dependence on card schemes, banks, technology providers and POS suppliers; cybersecurity, fraud and data-protection exposure; Brazilian regulatory and tax changes; interest-rate, currency and liquidity risk; and credit losses. New payment-institution prudential capital rules were scheduled to begin in July 2023, with full implementation by January 2025.
- The filing reports R$60.6m of provisions for probable legal losses and R$376.1m of judicial deposits. Possible-loss proceedings were disclosed without provisions; the audited notes report R$635.5m in aggregate, including a R$267.0m IOF tax assessment that the company contests. Legal outcomes are uncertain.
- A 2021 cyberattack at subsidiary MOIP affected personal profile information in its separate IT environment. The company reported no material financial impact and said it found no evidence of unauthorized access to passwords or card details; regulatory follow-up was disclosed.
- Management stated that current liquidity and working capital supported the company’s ability to continue as a going concern for at least the next 12 months. The auditors gave an unmodified opinion on the IFRS financial statements and concluded internal control over financial reporting was effective at year-end.
Most important facts for investors to verify
- Confirm the distinction between full-year results and Q4-only performance; this filing does not provide clear standalone Q4 figures.
- Track whether receivables-advance income and its funding costs remain profitable as interest rates, pricing and payment mix change.
- Examine the growth and quality of credit exposures, including the R$985.6m total ECL allowance and the aging of past-due receivables.
- Monitor deposits and merchant settlement liabilities, liquidity needs and compliance with phased-in regulatory capital requirements.
- Review the basis and subsequent developments for the POS provision, software write-offs, Boletoflex impairment and material possible-loss legal matters.
- Assess merchant retention after the decline in active merchants, alongside TPV growth and PagBank user growth.