Q2 2023 PagSeguro Digital Ltd Earnings Call
Participants
Alexandre Magnani; CEO & COO; PagSeguro Digital Ltd.
Artur Gaulke Schunck; Chief Financial & IR Officer, CAO and Director; PagSeguro Digital Ltd.
Éric Krahembuhl de Oliveira; Head of IR; PagSeguro Digital Ltd.
Ricardo Dutra da Silva; Principal Executive Officer; PagSeguro Digital Ltd.
Daer Labarta; VP; Goldman Sachs Group, Inc., Research Division
Gabriel Gusan; Research Analyst; Citigroup Inc. Exchange Research
John James Coffey; Research Analyst; Barclays Bank PLC, Research Division
Jorge Kuri; MD; Morgan Stanley, Research Division
Joshua Michael Siegler; Research Analyst; Cantor Fitzgerald & Co., Research Division
Kaio Penso Da Prato; Analyst; UBS Investment Bank, Research Division
Mario Lucio S Pierry; MD in Equity Research; BofA Securities, Research Division
Neha Agarwala; Analyst, LatAm Financials; HSBC, Research Division
Pedro Leduc; Research Analyst; Itaú Corretora de Valores S.A., Research Division
Presentation
Operator
Good evening. My name is Kyle, and I will be your conference operator today. Welcome to PagSeguro Digital Earnings Conference Call for the second quarter of 2023. (Operator Instructions) This event is also being broadcast live via webcast and may be accessed through PagBank website at investors.pagseguro.com. Participants may view the slides in any order they wish. Today's conference is being recorded and will be available after the event is concluded.
I would now like to turn the call over to your host, Éric Oliveira, Head of IR. Please go ahead.
Éric Krahembuhl de Oliveira
Hello, everyone. Thanks for joining our second quarter 2023 earnings results call. After the speakers' remarks, there will be a question-and-answer session. Before proceeding, let me mention that any forward-looking statements included in the presentation or mentioned on this conference call are based on currently available information and PagSeguro Digital's current assumptions, expectations and projections about future events.
While PagSeguro Digital believes that the assumptions, expectations and projections are reasonable in view of currently available information, you are cautioned not to place undue reliance on these forward-looking statements. Actual results may differ materially from those included in PagSeguro Digital's earnings presentation or discussed on this conference call for a variety of reasons, including those described in the forward-looking statements and Risk Factors sections of PagSeguro Digital's most recent annual report on Form 20-F and other filings with the Securities and Exchange Commission, which are available on PagSeguro Digital's Investor Relations website at investors.pagbank.com.
Finally, I would like to remind you that during this conference call, the company may discuss some non-GAAP measures, including those disclosed in the presentation. We present non-GAAP measures when we believe that the additional information is useful and meaningful to investors. The presentation of this non-GAAP financial information, which is not prepared under any comprehensive set of accounting rules or principles is not intended to be considered separately from or as a substitute for our financial information prepared and presented in accordance with IFRS as issued by the IASB.
For more details, the foregoing non-GAAP measures and the reconciliation of these financial measures to the most directly comparable IFRS measures are presented in the last page of this webcast presentation and earnings release.
With that, let me turn the call over to Ricardo. Thank you.
Ricardo Dutra da Silva
Hello, everyone, and thanks for joining our second quarter 2023 earnings call. Tonight, I have the company of Alexandre Magnani, our CEO; Artur Schunck, our CFO; and Éric Oliveira, Head of IR.
Before Alexandre and Artur share the main highlights for the quarter, I would like to share the most recent milestones in the first half of 2023.
Going to Slide 3. We ended June with 29.5 million clients which along the past years found in our comprehensive set of payments and financial services solutions, the opportunity to experience a simple, safe, seamless and digital way to manage their financial lives. By using our POS devices, our online and cross-border payment platforms, our proprietary set of softwares in our digital bank, we were able to surpass more than BRL 2 trillion in volumes processes.
Interesting to point out that it took 16 years for the company to surpass the first BRL 1 trillion in volumes, and all in 1 year to surpass the second trillion. At the same time, we have maintained our consistency and discipline throughout several scenarios such as pandemic, interest rate cycles and changes in the competitive and regulatory landscape. Still, our strategy to combine growth with profitability since day 1 led to our solid financial position of BRL 7.6 billion in accumulated net income and more than BRL 10 billion in net cash balance.
We kicked off August with S&P Global attributing the highest rating in the local scale, brAAA to Banco Seguro, our subsidiary responsible for the issuance of PagBank certificate of deposits, one of our competitive strengths in our funding strategy. I would like to take advantage to reinforce our commitment to our mission to make easier the financial lives of Brazilians by offering a one-stop shop solution through one app, one internet banking and one customer care center.
Now I pass the word over to Alex for the commentaries on the second quarter 2023 highlights. Thank you.
Alexandre Magnani
Thank you, Ricardo. Hello, everyone. I would like to present how the growth, profits and cash generation drivers behaved during the second quarter of 2023. Our earnings per share market BRL 1.18, 7% higher year-over-year. Our strategy to grow in selected verticals resulted in higher margins with adjusted EBITDA reaching BRL 849 million, 90 basis points higher than the second quarter of 2022, resulting in net income of BRL 415 million in non-GAAP basis.
Our cash earnings grew 24% year-over-year, and our capital expenditures was 8% lower than the second quarter of 2022. Our one-stop shop solution has been consistently attracting more and more clients' engagement. Total payment volume from our payments division reached BRL 92.7 billion and PagBank cashing of BRL 50 billion driving up deposits on platform.
In Financial Services division, the highlight was the sustained breakeven point despite the expected impact related to the regulatory change on prepaid and debit cards in Brazil. Adjusted EBITDA improved BRL 66 million versus the second quarter of 2022. In Payments division, our strategy for the last 12 months was to focus on key segments that kept us on track. MSMB TPV grew 10%, almost twice as much as the industry growth this quarter. Our merchant acquiring business remains solid and through the combination of our superior value proposition and the broad reach of our sales channels. We have been able to grow above the market in the MSMB segment as presented in Slide 5.
During the first 45 days of 3Q '23, we noticed an uptrend in TPV growth to 8.5% year-over-year from 4% on the second Q '23. In an MSMB, we have improved our sales on the online channel which we expect to contribute to the TPV growth moving forward. Hubs presented further improvements in sales productivity and increased cross-selling of financial service through PagBank business account. This not only allows merchants to have access to our instant prepayment product, but also settle direct deposits from different acquirers into PagBank in the case where merchants adopt more than one acquire. This has been driving up accounts balance deposits and improving our understanding about merchants' needs, resulting in higher share of wallet. As a result, our consolidated TPV per merchant went up 15% year-over-year.
In large accounts, our developments in online and cross-border have been evolving, increasing our footprint in Latin American countries, expanding our set of features and fostering the omnichannel offerings. Through our strategy of diversifying our merchant's base, focusing on key segments, we expect to drive incremental volumes and gross profit contribution in the future.
Moving to Slide 6, we present our client base and cash in evolution. Our number of PagBank clients reached almost BRL 30 million placing us among the most relevant Brazilian financial institutions. From now on, we'll pivot our focus on activation and principality rather than number of clients, stimulate higher usage and revenue growth per client. Our BRL 93 billion in TPV and BRL 50 billion in PagBank cashing led deposits on platform up 25% compared to the second quarter of 2022. This represents 86% of our total deposits and kept our annual percentage yields at 94% of the CDI. We expect further growth in our deposits in the next months, which may be boosted by our AAA rating attribute by S&P Global, which we will enhance our CDIs distribution among institutional and retail investors on and off platform.
Slide 7 shows that our outstanding credit portfolio reached BRL 2.8 billion, with 52% being composed by secured products, such as payroll OEMs and credit cards. The ongoing downtrend in NPLs over 90 days to 14.4% combined to our tax planning allowed us to write off BRL 219 million. This amount is already fully provisioned in previous quarters with no impact in P&L. At the same time, we continue to grow our payroll book loan, which is focused on the public sector employees and retirees. This opportunity remains extremely attractive to us as our development to provide end-to-end digital underwriting allow us to give very competitive price with incremental gross profit contribution, which will continue to open new growth avenues.
Now I turn over to Artur for the financial highlights of the second quarter 2023. Artur, please.
Artur Gaulke Schunck
Thanks, Alexandre. Hello, everyone, and thank you for joining us tonight. Once again, PAGS presented another set of records for a second quarter in the company's history. TPV gross profit, net income and cash earnings marked all-time high figures.
Total revenue and income grew 2% quarter-over-quarter, positively impacted by TPV growth and financial income, partially offsetting the impact on top line related regulatory change in interchange cap on prepaid and debit cards that came in force in April 1. Our winning funding strategy has led down for the third consecutive quarter, the financial expenses despite no change in Brazilian interest rate in the second quarter 2023. Our additional leverage coming from lower losses and operating expenses led to EBITDA growth of 8% quarter-over-quarter with significant improvement in our EBITDA from payment unit, which grew 18% versus first quarter led by lower transactional costs yield and also related to the regulatory change on prepaid and debit cards, neutralizing potential effects in bottom line from lower revenues.
Earnings before tax also presented a strong growth of 13% quarter-over-quarter and 7% year-over-year due to the sustained adjusted EBITDA breakeven in Financial Services division. Better-than-expected financial services results led to a higher tax income rate which did not imply headwinds for profitability. Net margin on a non-GAAP basis grew 60 basis points versus second quarter 2022. Resulting in BRL 450 million in net income. Earnings per share increased again and achieved BRL 1.18 in the quarter, 5% better than Q1 '23.
Going to the next slide, we would like to deep dive in our revenue performance. This quarter, we had several moving parts. In financial services, we lost BRL 74 million versus second quarter '22 due to interchange cap on prepaid and debit cards with negligible impact in bottom line, given the natural offset in transaction costs and financial expenses. Mix change towards secured credit products which have lower yields and longer durations. However, this short-term negative effect is expected to disappear as the portfolio grows and mature.
In payments, TPV growth led to revenue incremental of BRL 141 million, offset by lower gross take rate, mainly driven by shorter duration on TPV of credit card installments and faster growth in SMB over the other segments. In other financial income, we had a positive contribution related to the higher average interest rate in comparison to the same period of last year.
On Slide 10, revenues from payments unit grew 4% quarter-over-quarter due to carry effect from the massive merchant repricing done last year, partially offset by client mix change towards larger merchants with lower take rates but incremental gross profit contribution. As a result, gross profit reached BRL 1.3 billion, an increase of 11% when compared to the same period of last year, with transaction costs and financial expenses performances being the main operating leverage drivers.
In the next slide, Financial Services verticals total revenues reached BRL 242 million in second quarter 2023, 27% lower than first quarter impacted by the regulatory change on paid and debt card interchange fee and settlement term and higher share of secured credit products with lower APRs but longer duration as payroll loans. On the other hand, gross profit reached BRL 111 million, up 57% year-over-year, led by better asset quality in the credit portfolio, requiring lower provisions for expected credit losses.
Moving to Slide 12. Financial expenses closed at BRL 796 million, versus BRL 756 million in second quarter 2022. This year-over-year increase is mainly explained by the higher average Brazilian interest rate in the period and TPV growth. On the other hand, financial expenses fell in comparison to first quarter 2023, driven by our unique funding mix strategy backed by deposits and returned earnings, rising more than 70% of our working capital needs at a lower cost than market average. Total losses decreased 55% year-over-year, accounting BRL 122 million driven by lower provision for expected credit losses of credit portfolio, healthier coverage ratio and credit underwriting mostly on secured products.
Operating expenses reached BRL 589 million, down 5% year-over-year and flattish quarter-over-quarter. This amount represents 15.4% of total revenue and income, similar to the level of second quarter 2022, despite of lower revenue levels derived from the regulatory change. Our headcount resizing and market optimization led to the leverage.
Our cash earnings continued to gain momentum, reaching a positive amount of BRL 319 million up 24% versus second quarter 2022. CapEx marked BRL 530 million, down 8% year-over-year but higher quarter-over-quarter due to the upbeat trends in merchants gross adds that required additional POS inventory levels. Still, our discipline in capital allocation and efficiencies in IT investment stands still, which we expect to result in a similar or lower capital expenditure disbursement versus last year.
Depreciation and amortization, including POS write-off totaled BRL 374 million representing close to 10% of total revenue and income, keeping the pace to conversion to CapEx levels in the coming quarters to unlock additional profitability in the future. On the final slide, our net cash balance ended the second quarter surpassing BRL 10 billion from BRL 8.6 billion in comparison to second quarter 2022.
In the past 12 months, our cash generation amounted BRL 3.5 billion, which we disbursed BRL 1.8 billion in investments and BRL 200 million in our share buyback program. Our equity position continued to increase with 56% being composed of returned earnings, reinforcing our commitment to shareholders on capital allocation and returns.
Now we have ended the presentation and we will open the Q&A section. Operator, please.
Question and Answer Session
Operator
Thank you. Ladies and gentlemen, we will now begin our question-and-answer session. (Operator Instructions) Our first question comes from Mario Pierry with Bank of America.
Mario Lucio S Pierry
Congratulations on the results. Let me ask your question focused on your headcount reduction, right? You talked about operating expenses declining year-over-year due to some changes in headcount that you made. However, we're hearing some of your competitors talking about expanding headcount going forward, especially sales force. So can you give us an idea of where your headcount reductions -- which areas they impacted? And how do you think about headcount going forward?
Artur Gaulke Schunck
Mario, it's Artur speaking. Thank you for your question. Related to headcount reduction that we did. There is only one department that we didn't change anything that is related to commercial team. As you know, we have a little bit more than 300 hubs, 3,000 people in the streets. And there is no intention to increase any people in the sales force at this point. What we did is relocate some hubs from one side to another side, when we identified that there are many opportunities in other places that we don't have the hubs at this point.
And the reduction so was related to other departments, including IT, (inaudible) other departments. And looking ahead, we do not understand that there is a need to hire more people, neither for commercial team. So the 2 downsize that we did this year is enough to our intention to going -- continuing to grow in the company for the future.
Mario Lucio S Pierry
Okay. That's clear. And then if I may ask a second question related to volume growth, TPV growth of 4% year-on-year. We do see that the industry is decelerating. But can you give us a little bit more of a color on why we're seeing this slowdown in growth overall? Is it because card penetration in Brazil is already reaching like a mature level? Is it because we're seeing disruption from PIX? And how should we think about volume growth going forward?
Ricardo Dutra da Silva
Hi, Mario, thank you. This is Ricardo. We saw that Q2 was -- we saw some decrease in card volumes in the overall economy. I think it's more related to macroeconomic variables than to the penetration of cards and things like that. Of course, if you look at PIX and if you look at the ABECS report, you'll see that debit is not growing year-over-year. If you sum debit and prepaid, you're going to see there's going to be some increase there, but it probably PIX is cannibalizing the growth of debit. We don't see cannibalization of credit. But if you look at our numbers, and we had some number on the slide here, in the first 45 days in Q3, we grew 8.5% TPV.
So we are seeing some acceleration in our TPV, in the first half of the quarter was 8.5% and it seems that the worst was in Q2 2023 for the industry as a whole. So again, going back to your question, it seems to be more related to macroeconomic scenarios, people without credit card limits and things like that, then to saturation or other variables.
Mario Lucio S Pierry
And going forward, how should we work? Do you think that the -- we could see double-digit growth going forward in volumes?
Ricardo Dutra da Silva
Well, we're seeing 8.5% in the first 45 days. I think in Q3 is going to be close to that. Let's see what we're going to have in Q4. As far as you know, from the industry, people are more optimistic about the second half. So probably in Q4, you're going to see acceleration again. I mean it's -- maybe it's too early to say, but the signs that we're having in Q3 are encouraging with 8.5% growth year-over-year in the first 45 days of Q3.
Mario Lucio S Pierry
Okay, guys, thank you very much.
Operator
Our next question comes from Pedro Leduc with Itaú BBA.
Pedro Leduc
The question is on the expenses or losses front. You expected credit losses on the lease or close to 0. I understand you shrunk your loan book, but I don't know if it has anything to do with the lower expected losses, lower origination. Just really looking to review what the underlying driver for this 0 credit losses? And then also the same line chargebacks, again, rose this quarter as I thought maybe 1Q levels or have more sustained. So just 2 questions on this side.
Artur Gaulke Schunck
It's Artur speaking. Thank you, Pedro, for your question. Regarding to provisions for credit losses. As you may know, last year, we decided to shift our originations and the portfolio to secure products. Also last year, we increased a lot of the provisions to cover the NPL performance that we identify with the legacy, and all the legacy is 100% provisioned. So the new underwriting is related to secure products that requires less provisions than unsecured products. And so this is the reason that we have this almost no impact in the provisions because it's not necessary to increase provisions for credit.
Regarding to -- regarding to chargebacks, Pedro, it's -- you're right that we see the small increase from Q2 compared to Q1. But something, let's say, it's not a onetime event, but it's something that is not -- it's going to be in this level for the future. It's going to be around 10 bps, 11 bps. That's what we expect for the future. So there's going to be some more increase here and there. But overall, it's going to be between 10 and 11 bps for the whole year. So that's what we expect.
And there might be some quarter that you have 2 bps more or 2 bps less because you know chargebacks -- you can receive chargebacks up to 6 months after a transaction. Sometimes you have this time mismatch between the transaction -- the date of the transaction, the date of the chargeback, but it's not something that is crucial here and it's not a problem that we have regarding chargebacks, it's just more variation to be honest.
Operator
Our next question comes from Jorge Kuri with Morgan Stanley.
Jorge Kuri
I wanted to ask about the take rate contraction during the quarter. If you can walk us through what exactly drove the contraction? And how is third quarter moving along relative to that second quarter print that we saw today? And then the second part of my question is what are you seeing in terms of price changes for prepayment rates now that the Central Bank started the easing cycle, you were a bit guarded in the first quarter conference call, saying that you would benefit from falling rates, but that the elasticity would probably be tested by aggressive price competition. And so curious to see if you are seeing anything positive or negative so far.
Ricardo Dutra da Silva
Jorge, thank you for your question. Good to hear you. I will start with the second question, and then Artur can answer the first one.
Regarding prepayments, we didn't see any pressure in terms of prepayment rates at this point. Of course, we have a small -- a very small part of our TPV, where prepayments are related to the base interest rate of the economy, it's related to CDI. So once CDI goes down for these clients, rates goes down automatically, but that's a very, very small part of our TPV.
For the other part, we didn't change our price. We don't see movements from competition decreasing price at this point. And remember that we had this decrease from 13.75% to 13.25%, so although it's 50 bps, it's not something that I think is, let's say, structure for people to start changing the price at this point. So we don't see -- if the rates keeps falling down if some competitors will start decreasing prices. As we said before, we don't plan to be the first one to keep decreasing prices. We try to keep the prices alive that we have as long as we can.
But of course, we're going to evaluate and look what the competitors are doing. But at this point, we didn't see pressure. Looking to the end of the year, the basic interest rates expect to come to around 11.75% or 12%. And for next year, around 9%, 9.5%. So we'll keep following the movements of competitors. But going back to your question, at this point, we don't see pressures for prepayment rate decrease yet. So let's see. And Artur, would you like to take the first one?
Artur Gaulke Schunck
Yes. Jorge, good to talk to you. Thank you for your question. And related to this take rate, there are many moving parts, and we decided to include a slide, Slide 9 in the presentation that shows everyone what -- the most clear way to show to everyone that there are moving parts and those moving parts related to Financial Services division and also payments.
In financial divisions, as you know, in April 1, we start the interchange cap on prepaid cards and debit cards that affected our revenues in Financial Services division. On top of that, we decided to change the underwriting and also the portfolio from unsecured products to secure products that present a lower yield but longer durations, better for engagement to the clients when we move our originations to payroll loans that also reduce the level of revenue that we have in financial services, but with lower expected credit losses.
In terms of payments, we have a positive effect of our TPV growing 4% year-over-year. That resulted in BRL 141 million of revenues. However, we saw that in the second quarter, we had shorter duration on TPV credit card installments, reducing the number of installments that affected our take rates because as we have less installments, we have less take rate. And also, we continue to change the client mix in payments to SMB clients that has lower take rates, but good contribution in terms of gross profit and EBITDA. On top of that, we have this BRL 22 million in other financial income that also contributed a little bit because of interest rate in the country that was higher than before.
Jorge Kuri
That was very clear. And just the last part of my question was how is that take rate trending so far in the third quarter relative to the second quarter?
Artur Gaulke Schunck
We are expecting a take rate reducing a little bit, not too much but reducing because of this client shift mix.
Operator
Our next question comes from John Coffey with Barclays.
John James Coffey
Great. I just had 2 short questions, which were somewhat overlapped with the last caller. My first question was on Page 9, which I thought was a great slide, and I find it to be very clear. As far as that 74%, which as a result of the prepaid interchange caps, I understand that, and I see that, that will -- I would presume, continue to some level for the next 3 quarters before it lapse. Regarding the 171, which you're getting from the shorter duration on TPV for credit card installments, could you give me some thoughts about when that lapse. Is that something that we should also expect for 3 quarters? Or have we seen this already in the past couple of quarters, and we should see that impact diminish.
And my second question is if we do see 50 -- 350 basis point declines in the SELIC over the course of 2023. How should we think about the different puts and takes on your P&L because you already seem able to mitigate the effects of SELIC increases just due to your strong balance sheet, how can you take advantage of this if you start to see these interest rate declines?
Ricardo Dutra da Silva
Hi, John, thank you for the question. I'll start backwards here. If -- just to give a sensitivity analysis here for every 100 bps decrease in SELIC, if we did not change the price and keep the same capital structure and client mix, I mean, all variables equal. We're going to have something like close to BRL 1,200 million EBIT benefit. For over 100 bps for 1 year, if everything else keeps the same. So of course, we cannot predict how it's going to be the other variables because you cannot control. And let's say, if the client mix changes a little bit or if competitors start decreasing price and you may respond a little bit. We don't know how it's going to be the size of our response and things like that. But everything else equal, it's going to be BRL 200 million, around BRL 200 million EBT for every 100 bps. So that's the sensitivity to give a sense how is the P&L related to the SELIC.
Regarding the order 171, that's something that may happen in some quarter, maybe the next quarter is going to be better. What we saw here is that the duration went down a little bit. But let's say, in Q4, when you have some people using more debit, but we also have some people buy like holiday gifts and things like that, the duration could go up. So it's hard for you -- for us to predict to say to you that 171 will keep going down in Q3 and in Q4. We are just putting here what happened in this quarter. It doesn't mean it's going to happen in following quarters. And also important to say that for the whole analysis for the P&L, so to say, we should look at the financial expenses and also the financial income because at the end of the day, what is the net of these 2 lines, the financial income, minus financial expenses, and here, we are just talking about the financial income in this Slide 9. Just we're explaining only the revenue part of the P&L. So I don't know if it's clear for you or if you need any clarification.
Operator
Our next question comes from Gabriel Gusan with Citi.
Gabriel Gusan
So a couple of questions. So maybe just a different way to ask this point about competition. So do you see any signs that competition or any other financial aspects to be more broader here could make banks not enjoy the full benefit or the bulk of the benefit of the lower SELIC in its bottom line.
And second question is CapEx increase quarter-over-quarter. So kind of expecting that first quarter level to be more of a trend. And so what's the background there? Why we are not seeing a lower level here given the lower additions of clients?
Ricardo Dutra da Silva
Hi, Gabriel, I will start with the first one, and then Artur can talk about the capital expenditures. To be honest, we are not seeing big changes in competition in the segments that we decided to play, which are -- which is essentially MSMB. We know there is some competition happening in the key accounts but we are not part of that game. So we are more focusing -- most of our focus is in MSMBs. And the competitive environment we've seen in the past quarter is similar to what we've been seen in the last years, in the past year. So we don't see big changes. I know some players say they're going to increase sales force and things like that. But to be honest, we don't see that hurting us in such a way that we need to change our strategy or to change the way they work here. So competition seems to be similar to levels that we had before.
And to answer your question about how we can benefit about the selling point now. As I was saying before, we don't plan to be the first one to pull the trigger and decrease prices. So we try to offer better services for our clients in such a way they can use us, and they are not that price sensitive. That is much more -- we can see that much more in the long tail and micro clients. And we try to do that the same for the SMBs by offering PagBank to them.
So I mean it's hard to predict to you if SELIC goes down, if some competitors start to decrease prepayment rates if you do the same. But we don't plan to be the first one. We will keep following the competitors. I guess, after these 2 years of pandemic and this SELIC with 1375 companies are not looking for growth at any price as they used to do in 2021. So everyone is more rational, looking for profitability. So I mean I don't think there's going to be irrational movements if we keep seeing SELIC going down. But we are going to be close to our clients to understand what's going on. Yes, that's pretty much the way that we think here.
Artur Gaulke Schunck
Thank you for your question. Nice to talk to you again. Regarding to CapEx, it's true, it was higher than Q1 '23, but it was lower than Q2 '22. But the good point is the CapEx that we are having right now is under control, in line with our budget, our annual budget and the reason that the CapEx was higher in this quarter was because we need to increase inventory levels because of higher POS sales. Looking ahead, what we are expecting is to have a similar or slightly lower than 2022 CapEx.
Operator
Our next question comes from Neha Agarwala with HSBC.
Neha Agarwala
Can we just talk about the dynamics of the SMB segment. You posted stronger growth around 10% for the SMB segment versus the entire TPV. But should we expect a stronger acceleration for the SMB segment? Is that your focus and how the dynamics that you're seeing in that particular segment?
And then can we talk a bit about the long tail segment, your active merchants continue to decline as that probably you're being more selective and focusing on profitability. But when can we see this stabilize and do you see an impact from there some new players who got their full acquiring license. Have you seen any change in competition or with tone going down market, do you see more aggressive price subsidies for the POS or any other change in dynamics, which is worth highlighting?
Ricardo Dutra da Silva
Neha, I'm going to answer your question in 2 parts. First on SMBs, and then we can talk a little bit about long tail. Well, we're seeing SMB similar to what we've seen in the past quarters. We understand that we have a very powerful combination here. We have a very clear value proposition for the SMBs. To be honest, I don't see any other company in the market with the same combination of payments and digital bank that we have here. And also, we have this instant segment that other players don't offer for the SMB.
So if you're an SMB and you use PagBank, you can have D plus 0 right after the transaction receiver money. You have a PagBank with higher CD. So for the SMBs to understand the value proposition, we have this advantage. Of course, some of them don't understand or they prefer to work with the banks, they already worked. But at the end of the day, we think we have a strong value proposition with a very powerful combination. That's why we try to leverage and to use our sales force to sell for the SMBs and we are doing very well, to be honest. And as you could see, we are growing 10% TPV twice as much as the industry has been growing in SMB. So that's the first part.
Second one about long tail, we know we've seen some net add losses in long tail. Part of that is churn that happened 1 year ago. So we are not seeing this TPV for the past 11 months because they stopped working with us 1 year ago, and then we are seeing churn right now. We try to always balance the subsidies that we have, the acquisition cost with the value that we understand along that it is going to bring to us.
We try not to do, I would say, rational movements, always looking for this equation CAC divided CAC versus LTV. And yes. But to be honest, in Q3, now we are seeing an increase in our gross adds. We are seeing better response for the market. we are getting more gross adds. And as I said before, in the first 45 days of the Q3, we are seeing 8.5% growth overall for the company. No new player in the market that is -- I mean, no new kid in the block, try to disrupt the market and things like that. It's the dynamic that is similar to what we see so far. Yes, that's pretty much what we are seeing.
The other thing that we are always discussing here the way that we are going to measure, how it's going to be long tail and the long tail TPV is growing. It's very common here in the base that companies start with us as a long tail. And after a while, it becomes -- it goes to SMB because his or her business is growing and then it starts with 1 TPV and after 1 year, it is like 50% more, 60% more. And then we consider an SMB.
So that's why long tail at the end of the day is, I would say, it's losing clients because they are journey or they are going up for SMB. So that's why it's hard to give you the exact number, how is long tail performed. But I would say it keeps in a very healthy way, with new clients' activation, it's very decent levels. And if you look at the whole MSMBs, growing 10% in the second quarter, which is very impressive if you look at -- if you think that the market is growing like 5%. So that's pretty much -- I mean, many moving parts here, I try to answer your question. If it's not clear, let me know.
Operator
Our next question comes from Kaio Prato with UBS.
Kaio Penso Da Prato
I have just 1 question here, related to your mix shift strategy on payments. I understand when you mentioned that you are moving towards larger merchants, and this is positive in terms of EBITDA growth. But what we are seeing is that actually your TPV is growing slightly below industry, at least on a year-over-year basis. And more importantly, total revenues, excluding transaction costs are declining year-over-year. So your EBITDA did increase but seems to be much more related to expenses control rather than revenue. So having said that, just would like to understand your view about this dynamic if we are missing anything here. And what is the strategy going forward in order to reaccelerate revenue tax transaction costs, please?
Alexandre Magnani
Kaio, this is Alexandre. Thank you for your question. I think there's -- we are going through an optimization cycle since second semester last year, where we started an important repricing movement going up our price. And also, we implemented very strict risk management policies in order to control and reduce our chargeback losses. Going over this cycle from last -- at the end of last year to the beginning of this year, this slowed down our growth in the acquiring business in general, affecting long tail and affecting large accounts, especially. Obviously, moving forward, as we have of this risk management program in place and a better balance as we have went through the repricing side. And now we see opportunities to further grow in the future as we have been experienced this in the beginning of the third quarter.
So moving forward, we see an acceleration. We didn't lose focus and keep growing long tail segment, even though we grow SMB faster right now. And we see opportunity to keep it growing faster till the end of the year our TPV and consequently, our revenues.
Operator
Our next question comes from Josh Siegler with Cantor Fitzgerald.
Joshua Michael Siegler
First of all, I'd like to talk a little bit about the potential long-term expansion on the payroll loan side of things. How are you thinking about the total growth opportunity?
Ricardo Dutra da Silva
Josh. I mean, the market is very big. Our market share is very, very small. If you look what's going on in our credit portfolio, we are growing like -- in terms of mix shift, we are shifting like 8 percentage points from unsecured to secured credit portfolio every quarter. So -- and of course, part of that is because we are growing in this payroll, but it's a huge market. And our -- to be honest, our market share is very, very, very small. So we see lots of room to grow. We've found a way to bring these clients to us also through our app, through digital. And yes, that's definitely going to be a credit portfolio or credit product that are going to increase in the future. But it's huge. The size -- the total addressable market is huge.
Joshua Michael Siegler
Understood. Looking forward to tracking that progress over time. And then secondly, how are you thinking about capital allocation as we progress through the back half 2023. Do you expect to continue buying back shares at the rate that you've been buying it back or perhaps accelerate it moving forward?
Artur Gaulke Schunck
Josh, it's Artur speaking. Related to capital allocation, we have 3 things that we are doing because we are generating a positive cash flow. The first one is reinvesting in the company. So we are not planning at this point to have any dividends or other type of firms to back to shareholders this money in that way. The other point is changing to funding lines cheaper. So we can use part of this money to move from here and there and reduce the financial expenses that we have. And in terms of buyback, yes, we are doing every quarter some buybacks. Now we have 7.5 million shares in the treasury. The plan is to continue doing that because of the low price that we are seeing in comparison to what we expect to have in the company. So we believe a lot that this company is a great company, especially for the future because it's a solid company, a solid balance sheet, and we are growing this company for the future, not just for 1 quarter.
Operator
Our next question comes from Daer Labarta with Goldman Sachs.
Daer Labarta
A couple of questions also. Maybe just to think a little bit high level in 2024, maybe how are you thinking about revenue growth? You mentioned your TPV growth maybe has bottomed and can begin to accelerate. Maybe take rates still coming down a little bit as you're shifting the mix. Just maybe PagBank starts to contribute more as also as you get past some of the impact from the prepaid interchange. Just high-level thoughts on revenue growth for 2024 would be helpful.
And then my second question, just following up on the take rate impact from the short duration of the receivables. Are you seeing any pressure from the banks there? A lot of talks about ending revolving card and the banks may be pushing for doing less interest-free installments. Any color on how you think that can evolve? Are you seeing any pressure from the banks already offering less installment period than in the past?
Ricardo Dutra da Silva
Tito, this is Ricardo. I'm going to start backwards again and then someone can answer the first part. Regarding this discussion about the revolving credit card interest rates in Brazil, which is around 15% per month and compound is going to be like 440% per year, there are many discussions at this point with Congress and politicians and so on. As a matter of fact, the text for the low that is under discussion about this credit card was published today in the afternoon. There is no relationship or no mention in this law about installments or things like that. So we're not seeing any pressure at this point. Remember, we are a credit card issuer as well. And then we are following the discussion. We are part of the discussions with the government and regulators. But at this point, and the text of the law is focused on decreasing the revolving credit cards, which, again, in Brazil, it's close to 440% per year. But no updates at this point. I mean, everything is just being in a discussion how it is possible to decrease this 440% to a lower level.
Éric Krahembuhl de Oliveira
Tito, this is Éric. I will break down the question related to revenue growth in 2 parts. Starting with the acquiring businesses, we do see an acceleration of TPV growth towards the second half '23, like we shared our guidance for the first 45 days of Q3. And we do expect to keep gaining market share over the next quarters and years. But we understand that as larger market share we have, the biggest -- the bigger markets are the markets where we have SMBs and large accounts, so lower take rates. But the combination with the financial expenses, potential decrease backed by lower interest rates and our funding strategy, the incremental gross profit tends to be very compelling in '24 onwards.
For the financial services, we will have this interchange cap effect and during until Q1 '24. So this will create potential easy comps for second quarter '24 onwards. We also have the compounding effect on the payroll loans as we disburse upfront the cost to underwrite, but we have the compounding effect over the years. And as we keep growing our deposit base, naturally, we also have additional float revenues, and we also expect to grow our credit portfolio in the short term in secured products. In midterm, I think we are working here to further improve our onboarding end-to-end processing credit underwriting, onboarding, risk assessment, underwriting and collection to restore and accelerate the underwriting of unsecured products. So this would be the main revenue streams for the both verticals.
Operator
Ladies and gentlemen, that concludes our question-and-answer session. I would now like to turn the floor over to Mr. Ricardo Dutra for closing remarks. Please, sir, go ahead.
Ricardo Dutra da Silva
Thank you, everyone, for taking the time to participate in our call. See you next quarter. Thank you very much. Good evening.
Operator
The conference has now concluded. Thanks, everyone, for participating. You may now disconnect.
