Pics N.V. Stock

Good evening, everyone, and welcome to PicPay's Second Quarter 2026 Earnings Conference Call. Joining the call today are Eduardo Chedid, Chief Executive Officer; Andre Cazotto, Chief Financial and Investor Relations Officer; and Danilo Caffaro, Vice President of Consumer Banking.

Please note that this presentation may contain forward-looking statements and non-GAAP financial measures. Please refer to the disclaimer on the screen and to the earnings materials available on the Investor Relations section of PicPay's website for additional information. This call is being recorded, and a replay will be available on the company's website shortly after the conclusion of the call. At this time,

I would like to turn the call over to Eduardo Chedid, Chief Executive Officer of PicPay.

Thank you, operator, and welcome, everyone. This is our third earnings call as a public company and I'm proud to share another quarter of strong execution across our platform.

Before we get into the results, I want to say a few words about our CFO transition. As we announced in early August, Andre Cazotto has succeeded Rodrigo Couto as our Chief Financial Officer. This transition is the result of a planned succession process, and I'm confident in the strength and [ of ] our leadership team. Rodrigo played a key role in a critical phase of PicPay's evolution, strengthening our finance organization, leading our Sarbanes–Oxley preparation and being instrumental in our successful IPO in January.

He has been a tremendous partner, and I'm glad he will continue working with us as special adviser through year-end. Cazotto brings over 20 years of experience in payments and financial services and has been with PicPay since 2021 leading the capital markets work stream for our NASDAQ listing, Investor Relations and M&A. He has deep institutional knowledge and strong relationships with our financial stakeholders. Cazotto, I'm confident you are the right person for this role. Welcome and best of luck as we enter this new chapter together.

Thank you Eduardo. It's a privilege to step into this role at such an exciting moment for the company. I have spent the past few weeks working closely with Rodrigo and our teams to ensure a seamless transition. What stands out to me is the strength of our financial foundation and the discipline with which this business operates. I'm excited to lead the next phase of PicPay's financial journey.

Thank you, Cazotto. Let's jump into the second quarter results now. I'm proud of what we delivered in the second quarter. This slide tells the story in one picture with big guidance on virtually every metric. Credit portfolio came in at BRL 31.9 billion, 3% above the high end of guidance. Cost of risk came in at 3.9%, aligned within our guidance range. Revenues reached BRL 3.7 billion, 3.6% above guidance and net interest income was BRL 2 billion, 5.4% above our guidance range. But the real story is in the profitability.

Gross profit came in at BRL 1.25 billion that's 8.4% above guidance, driven by the operating leverage. And adjusted net income reached BRL 283 million, 15.5% above guidance reflecting strong top line momentum and continued cost discipline. That's the story. We delivered on our commitments across the board with particularly strong [ bets ] on the profitability metrics that matter most.

Let me start with our operating metrics, which are scaling with consistency. Total accounts reached BRL 70.4 million, up 10% year-over-year and 3% sequentially. Quarterly active clients grew to BRL 45.4 million, reflecting sustained engagement across our base. Consolidated TPV came in at BRL 167.6 billion, 27% above the prior year and 7% higher sequentially. Wallet and banking TPV reached BRL 142.6 billion, up 19% year-over-year and 6% quarter-over-quarter.

Total cash in was BRL 136.4 billion, growing 17% versus a year ago and 9% sequentially. On average, more than BRL 45 billion per month. Deposits grew to BRL 35.8 billion, up 45% year-over-year and 10% higher than last quarter. This is a strong signal of increasing trust and principality in our franchise. And active insurance policies reached BRL 11.1 million, 63% ahead of last year and 9% above Q1 as our insurance vertical continues to scale rapidly across every metric, consistent sequential growth on top of already strong comparables.

Turning to financials. And this is where the monetization engine really shows its power. Total revenues reached BRL 4.1 billion, a 67% increase year-over-year and 17% higher than last quarter. That's the top line growing fast. But let me highlight what's underneath. Excluding derivatives and hedge accounting, managerial revenues were BRL 3.7 billion up 59% year-over-year and 17% sequentially. That acceleration is driven by secured and partially secured credit origination, deeper card engagement and a richer fee-based product mix.

ARPAC grew to BRL 92 per active client, 52% above where we were a year ago and 14% ahead of Q1. Excluding hedge accounting, ARPAC was BRL 83.3 showing that even on a like-for-like basis, we are monetizing each client significantly more. Gross profit came in at BRL 1.25 billion up 48% year-over-year and 14% higher sequentially. The gap between revenue growth at 67% and cost growth at a fraction of that is the operating leverage this model was built for and that leverage shows up clearly in our unit economics.

Cost to serve was 21.3% per active client up 13% year-over-year, but only 5% sequentially. It's worth noting that this figure includes BRL 0.70 per client of opportunistic investments in marketing campaigns for seasonal events that we brought forward from the third quarter. Excluding this anticipation, cost to serve would have been BRL 20.6 representing only a 1% sequential increase.

Let me put that in perspective. Revenue per client expanded 67% year-over-year, while cost to serve grew just 13%. For every real, we invest in serving our clients, we are generating over BRL 4 in revenue. That's the leverage embedded in this model. Adjusted earnings before taxes reached BRL 291 million, up 174% year-over-year and 17% sequentially. This reflects a business that is scaling efficiently and translating top line growth into bottom line results. Adjusted net income was BRL 283 million, up 135% year-over-year and 67% above last quarter.

The sequential jump from BRL 169 million to BRL 283 million reflects strong top line momentum, continued cost discipline and the positive tax benefit from Brazil's Lei do Bem incentive program for technology companies. I want to spend a moment on this slide because it captures a planned structural shift in PicPay's revenue mix. Total revenue of BRL 4.1 billion is broken down as follows: 29% from unsecured credit, 24% from secured and partially secured products, 24% from fees and commissions and 23% from float and hedge accounting. The key number, 71% of our revenues are now driven by no or lower credit risk streams, float, hedge accounting, fees, commissions and secure and partially secured credit. That's up from 63% just 12 months ago.

Let me say that again, we are growing total revenue 67% year-over-year, while simultaneously building a fundamentally more resilient business. A more diversified revenue mix, combined with a higher share of collateralized credit revenues allows us to balance growth across more mature collateralized portfolios while using intentional risk as a lever, growing through small and progressive limits on cards, buy now, pay later on loans and selectively expanding into slightly higher risk clusters within private payroll loans, all of this while maintaining the same risk appetite and targeted risk-adjusted returns.

Looking at the 3 revenue engines individually over the last 5 quarters, secure credit revenues reached BRL 1 billion, up 158% year-over-year and 23% sequentially. Trajectory from BRL 391 million to BRL 1 billion in 12 months tells the story of our payroll loan franchise reaching meaningful scale. Unsecured credit revenues came in at BRL 1.2 billion, up 40% year-over-year and 11% above last quarter, growing at a strong deliberate but measured pace. Noncredit revenues hit BRL 1.9 billion up 57% year-over-year and 19% higher sequentially. This is fees, commissions, float, hedge accounting, insurance and acquiring, all capital-light, all compounding quarter after quarter. Three engines, three growth vectors and each one getting stronger.

On returns, let me walk you through the two charts on this slide. First, adjusted net income, BRL 283 million, up 135% year-over-year and 67% sequentially. This represents a significant acceleration in profitability as we scale the business. Second, adjusted ROE, 20.2%, up from 15.5% in the previous quarter. Both metrics benefited from the positive impact of Lei do Bem, our R&D tax incentive program, which contributed to the strong quarterly performance.

Moving to credit. PicPay card TPV was BRL 19.5 billion, up 40% year-over-year and 12% sequentially. Card engagement continues to deepen as our maturing vintages drive higher spend per user. Consumer loan origination reached BRL 4.8 billion, up 78% year-over-year and 7% above last quarter. Total credit portfolio reached BRL 31.9 billion, up 99% from a year ago and 14% higher sequentially. The consumer book represents 93% of the total with SMBs and others comprising the remaining 7%.

On our audiences and ecosystem business unit, we've built a portfolio that lets our users solve most of their daily needs within PicPay. More reasons to use that every day drives higher engagement, which creates opportunities to cross-sell financial products and increase customer lifetime value. From shopping and food delivery to travel, entertainment, telecom and urban mobility, we cover the key journeys of everyday life.

One standout example is iGaming. In just 1 year, we built a high-margin business with over 2.7 million clients across lucky numbers, national lotteries and themed World Cup games, all integrated into our ecosystem. This broader everyday ecosystem increases our relevance, deepens engagement and strengthens the financial relationship with our customers. On our small and medium businesses segment, we are seeing real momentum across the board. New small and medium business accounts, reached 85,000 per month in the first half of 2026, up from 27,000 in the first half of 2025, a threefold acceleration. Supply chain finance is scaling fast.

Origination hit BRL 1.05 billion in the quarter from BRL 40 million in the last quarter of last year and BRL 693 million just a quarter ago. The trajectory is clear and the unit economics are attractive. We're also rolling out tap on phone to individual consumers turning 70 million paid users into potential merchants. It's a distribution play that uniquely positions us in the payments value chain. And we just launched our marketing AI agents. SMBs now can create self-serve ads and our platform identifies the most relevant customers within the merchant geographic footprint and delivers the ads to them. First week results, 10,000 [ options ] 1,500 campaigns and 1.7 million individuals reached, AI-powering SMBs to boost sales through our base of more than 70 million customers.

Danilo, please tell us more about our highlights on consumer finance products.

Thanks, Eduardo. I'm pleased to share an update on our progress and priorities. Our focus remains simple: serve customers well, build products, people value and grow with discipline. Our day-to-day banking business continues to evolve, reflecting growing customer trust and deeper engagement across payments, credit and everyday benefits, supported by disciplined execution, thoughtful risk management and a strong customer experience.

Our investment platform now offers more than 280 products, including investment funds and fixed income. We also launched a brokerage platform that allows customers to buy and sell stocks through our app. We are gradually rolling out the Epic segment to existing customers. The offer reached 23% penetration of the eligible base this quarter. Epic credit cards account for 14% of total card TPV and 80% of the user base is actively using benefits such as Amazon Prime, Einstein telemedicine and same [ Podar ] toll tags.

In Brazil, convenience matters. Whether paying a bill, using telemedicine or passing through a toll, the experience should be quick and reliable. AI agents are also becoming central to our strategy. We are the first Brazilian bank with an official plug-in in both the Claude and OpenAI ecosystems. We are also rolling out second-generation WhatsApp and in-app agents with more tools, memory, Internet access and sequential multistep execution. This reinforces our [ Atlas ] strategy, solving broken journeys wherever our users need us. with contextual and relevant products and services.

Turning to credit. We continue to gain market share by increasing our share of wallet across the products used by our customers. We reached 6.4% in private payroll loans, 2.8% in personal loans, 1.6% in card TPV and 1.2% in the credit card portfolio. We still believe we have significant room to grow.

Moving to portfolio growth. Our credit portfolio grew BRL 3.9 billion in the second quarter. 86% of that growth came from lower-risk loans and mature credit cards. New cards also almost doubled their contribution to portfolio expansion compared with last quarter, reflecting our progressive limits approach and the maturation of newer card cohorts.

Moving to underwriting strategy and cohort performance. We continue to execute our underwriting strategy across two complementary objectives: performance optimization and growth optimization. Progressive limits are becoming a larger share of the portfolio as the cohorts mature. NPL creation in the credit card portfolio is trending better than in the same period last year across both strategies and remains relatively stable versus recent quarters even after considering seasonality. Cohort performance across both strategies has remained relatively stable in recent quarters, reflecting the resilience of our models and our active risk management approach.

In private payroll loans, we resumed increasing originations in growth clusters after regaining confidence in the product's operational maturity and implementing new features since the fourth quarter of 2025. This is increasing the growth strategy mix. Newer cohorts reflect the deliberate incremental risk assumed to accelerate growth while remaining within our approved risk appetite and targeted risk-adjusted returns. Although we see no relevant early signs of credit deterioration within the same risk groups, we expect portfolio indicators to reflect additional intentional risk taking in private payroll loans and cohort aging and maturation in the coming quarters. These indicators include 90-plus NPL Stage 3 and cost of risk as a percentage of the total portfolio.

As new originations become a smaller share of the outstanding portfolio, their dilution effect on these metrics will naturally decrease. Cazotto will provide further detail on these dynamics in the next session.

Now a deeper dive into our private payroll loans operation. We reached a portfolio of BRL 7.2 billion this quarter with more than 3.6 million contracts and well-diversified employer risk. Expected marginal ROEs remain attractive supported by risk-adjusted pricing and credit-related revenues. We are also seeing better ARPAC and cross-selling indicators for these clients, supporting other revenue streams. We remain confident in our ability to scale this operation with healthy ROEs and risk-adjusted returns.

Now I will pass it to Andre Cazotto, our CFO, to cover our financial results.

Thank you, Danilo. Now let me go over the evolution of our delinquency metrics and explain the dynamics behind these curves. On the left-hand side, we show our early NPL, define it as loans between 15 and 90 days past due. After reaching 8.4% in the first quarter, early NPL improved to 7.5% in the second quarter. A quarter-over-quarter reduction driven by a favorable seasonal effect in the period, combining with improving performance in more recent vintages.

On the right-hand side, NPL over 90 days increased to 9.8% in the quarter while Stage 3 reached 12.9%. These two metrics need to be interpreted together. NPL over 90 days is fully captured within Stage 3. Meaning the loans driving that metric are already classified as credit impaired and provisioned accordingly. Stage 3 is the broader classification as it also encompasses other [ Credipar ] exposures that may not be at be more than 90 days past due, but have already been identified as deteriorated.

In other words, there is no additional credit risk sitting outside Stage 3. It's all already recognized it and provision it within that bucket. The increase in these later-stage metrics is primarily driven by portfolio aging. As our products and vintages mature, a larger portion of the book naturally migrates into later stages of delinquency. A mechanical and expected dynamic in a rapidly growing portfolio, not a sign of deterioration. It's also worth noting that these metrics will continue to be influenced by our deliberate strategy of intentional risk taken in private payroll loans. A conscious portfolio decision where we are comfortable assuming higher delinquents in exchange for meaningfully better risk-adjusted returns over the life of the product.

As the portfolio continues to season and this strategy matures, we expect both NPL over 90 days and Stage 3 to gradually converge toward a more stable level. It's also important to highlight that Stage 3 portfolio is already more than 75% provisioned reflecting a robust level of coverage against expected losses and reinforcing the adequacy of our provisioning framework.

Moving to the next page. This slide breaks down the key drivers behind the sequential movement in both NPL over 90 days and Stage 3 from the first quarter '26 to the second quarter '26. Starting with the NPL over 90 days, which moved from 80.9% to 9.8%, a net increase of 93 basis points. The primary driver was portfolio aging which contributed to 318 basis points, reflecting the natural seasoning of earlier vintages flowing to later delinquency stages. This was partially offset by the [ Disney Holo ] program, which contributed in 117 basis points improvement.

Seasonality added 50 basis points, consistent with typical patterns for the period. It's also worth noting that lower pace of new originations relative to prior years, generated a smaller dilution effect on the metric. Meaning the denominator grew less rapidly contributing to the upward pressure on the ratio. Product mix and other factors contributed modest offsets of 34 basis points and 7 basis points, respectively. For Stage 3, which moved from 12.7% to 12.9%, a net increase of only 27 basis points. The drivers are broadly similar but with one important distinction.

Aging contributed 184 basis points, materially lower impact than the 318 basis points observed in NPL over [ '19. ] This is not a constant. Stage 3 is a pre-NPL metric capturing credit deterioration earlier in the cycle. As a result, the aging dynamic that is still fitting NPL over 90 days has already been partially absorbed in the Stage 3 in prior quarters resulting in a lower incremental aging effect. Seasonality added 41 basis points, while the [ Desal ] program offset 46 basis points. Origination offset 117 basis points and product mix and others provided additional offsets of 26 and 9 basis points, respectively.

Taken together, these waterfall charts reinforce our earlier message. The NPL dynamics we are observing are mainly driven by vintage maturation seasonality in our deliberate strategy of intentional risk taking private payroll loans and not by a deterioration in the underlying quality of our portfolio.

Moving to the next slide. On the left-hand side, Stage 2 plus Stage 3 formation continue to improve. Declining to 4.9% in the second quarter compared to 5.1% in the previous two quarters. On the right-hand side, Stage 3 formation declined to 3.65% in the second quarter. from 3.9% in the previous quarter. This improvement was mainly driven by the impact of the [ Desire ] negotiation program. Most of the loans renegotiated under the program were still on our balance sheet as were less than 360 days past due.

The renegotiated exposure totaled approximately BRL 520 million on a gross basis. Considering an average discount of approximately 50%, the outstanding balance was reduced by around BRL 260 million. This reduction directly lowered the balance contributing to Stage 3 formation and was, therefore, the main factor behind improvement in the ratio to 3.65%. Excluding the impact of the [ inhale ], Stage 3 formation would have been around 4%, broadly in line with the previous quarters. This underlying level also reflects the natural aging of the portfolio. Our products and vintages continues to mature.

Now let me walk you through the portfolio classification by stage and our coverage levels. Stage 3 remained stable at approximately 13% of the total credit portfolio in the second quarter. In terms of coverage, we continue to see comfortable levels with coverage for Stage 2 plus Stage 3 at 62.7% and Stage 3 coverage at 74.1%. Stage 3 coverage decreased from 77% in the first quarter to 74.1% in the second quarter. This reduction was primarily related to the [ Disinhala ] renegotiation program.

Loans renegotiated under the [ Sinhala ] benefit from FGO guarantee, the operations guarantee fund covering 50% of the outstanding exposure. This guarantee increases the expected recovery on these loans and consequently reduces the LGD applied to those exposures. Since a lower LGD results in lower provisional requirements, the inclusion of these loans mechanically reduced the overall Stage 3 coverage ratio. Therefore, the reduction from 77% to 74% does not reflect the deterioration in portfolio quality a change in our provisioning standards or a change in our risk appetite. It's primarily a mix effect resulting from the lower LGD of the [ Sinhala ] portfolio supported by the FGO [ GGR ].

As this effect normalize, we expect Stage 3 coverage to move back toward the high 70% range in the coming quarters. On credit risk management, our three key metrics, loss absorption, cost of risk and portfolio coverage, collectively paint a picture of well-controlled and increasingly well provisioned book. Our loss absorption ratio reached 56.5% in the second quarter, comfortably within our internal guidelines of 40% to 60%.

Moving to quarterly cost of risk which came in at 3.9% in the second quarter. We think the 3.7% and 3.9% guidance range we provided at the beginning of the quarter. The sequential increase from 3.7% in the first quarter was primarily driven by the natural aging of our private payroll one portfolio as earlier vintages continue to season and flow through the provisional cycle, a mechanical and expected dynamic given the rapid growth of this product over the past several quarters. This increase was partially offset by a BRL 59 million positive impact from the [ Sinhala ] program, which represented approximately 5% of our total cost of credit in the quarter.

Finally, on credit loss allowance expenses and total coverage, CLA expenses reached BRL 1.2 billion in the second quarter, up from BRL 974 million in the first quarter, consistent with the pace of portfolio expansion. More importantly, total portfolio coverage held stable at 13.9%, unchanged from the prior quarter, reinforcing the adequacy of our provisioning levels as the book continues to scale. The combination of stable coverage and growing absolute provision balances reflects a disciplined and consistent approach to credit risk management.

Moving to the next slide on operating leverage. The trend speaks for itself. Net revenues reached BRL 4.1 billion in the second quarter, up 17% quarter-over-quarter and 67% year-over-year compared to BRL 2.5 billion we reported in the second quarter of last year. Over the same period, adjusted operating expenses, which exclude stock-based and expenses, grew to BRL 955 million, increasing a fraction of the pace of the revenue growth. The result is a continued and consistent improvement in our adjusted efficiency ratio, which declined to 44.8% in the second quarter, down from 46.9% in Q1. A 210 basis point sequential improvement. A key driver of this dynamic is AI. Its impact on our operations is already tangible and measurable.

Our head count has been flat since October 2025 and the projected 10% increase we had originally anticipated for 2026 will not materialize. Productivity gains are translating directly into margin expansion rather than incremental hiring. We expect AI to be a major and accelerating driver of our operational leverage going forward, making the efficiency trajectory you see on this slide, not a ceiling but a floor.

Moving to financial margin expansion. Net interest income reached BRL 2 billion, up 18% quarter-over-quarter and 65% year-over-year. Our net interest margin came at 19.4%, growing from the 18.7% reported in the first quarter. Margin from credit products reached BRL 2.1 billion, growing 18% sequentially and 81% year-over-year. This metric captures the full economic contribution of our credit operations including revenues from products directly tied to the credit origination such as credit card interchange and credit insurance, while excluding cash remuneration and derivative revenues providing a cleaner view of the true margin generated by our lending activity.

Net interest margin from credit products came in at 27.8% and growing from the 27.2% reported in the first quarter. Equally important is the margin from credit products after losses, which reached BRL 980 million in the second quarter up 14% quarter-over-quarter and 68% year-over-year. The net interest margin after losses held stable at 12.1%.

Moving to funding on the next slide. Our funding base grew 10% quarter-over-quarter, reaching BRL 35.8 billion in the second quarter, up 45% year-over-year from BRL 24.8 billion in the second quarter, '25. The modest sequential increase in the cost of funding from 94% to 96.2% of CDI is largely explained by the issuance of our new [ Fiji ] in May 2026. A securitized structure, backed by our FGTS portfolio through which we raised BRL 1.2 billion.

More recently, in July and August, we executed additional capital markets transactions. Raising funds through promissory notes and debt security issuances, consistent with our strategy of continuously diversifying our funding sources. These transactions further strengthen our balance sheet and enhance our capacity to sustain the rapid growth of our credit portfolio in a disciplined and cost-efficient manner. We will continue to mobilize multiple funding channels, spanning digital platform deposits third-party platforms, creditory funds and capital markets instruments, actively seeking the most efficient funding alternatives available to support our growth ambitions.

On the capital side, we maintain a solid capital position with a total capital ratio of 17.6% and a common equity Tier 1 ratio of 15.6% in the second quarter. It's worth highlighting that approximately BRL 450 million, equivalent to roughly 1.7 percentage points of our total capital and common equity Tier 1 ratio remains held at our holding company in the Netherlands and has not been injected in the operating entity. With the acquisition of cover now closed, we expect the capital consumption of approximately 150 basis points in Q3 even after absorbing this impact, we remain comfortably above our internal capital appetite thresholds.

And we expect to close the year with a total capital ratio of approximately 14% and a common equity Tier 1 ratio in the 12% to 12.5% range. Levels that provide meaningful headroom above regulatory requirements and fully support our growth ambitions.

Finally, on the next slide, we're now providing guidance for the third quarter of 2026. As with our previous guidance, these figures reflect PicPay's stand-alone operations and exclude any contribution from [ over ]. We expect our total credit portfolio to reach approximately BRL 34.7 billion. Quarterly cost of risk is expected to remain within the 3.9% to 4.1% range.

On the revenue side, managerial revenues are expected at approximately BRL 4 billion, and net interest income should reach approximately BRL 2.1 billion. Gross profit is guided at approximately BRL 1.3 billion. On profitability, we expect strong pretax earnings expansion. IFRS earnings before taxes is guided at approximately BRL 360 million. 34% higher sequentially and adjusted EBITDA at approximately BRL 378 million, up 30% from the second quarter 2026.

The net income level, however, it's important to provide context on the sequential dynamics. IFRS net income is expected at approximately BRL 255 million down 5% sequentially and adjusted net income at approximately BRL 265 million, 6% below the second quarter. This decline is not driven by any operational deterioration, quite the opposite. The second quarter, we benefited from a significant positive impact from the late [ Ben ], a recurring tax incentive that this year was heavily concentrated in the second quarter, materially reducing our effective tax rate in the period. In Q3, our effective tax rate normalized back to levels consistent with the first quarter of the year.

With that, I will now hand the call back to Eduardo Chedid for his closing remarks.

Thanks, Cazotto. Before my closing remarks, I want to highlight a milestone that deserves attention on its own. After obtaining approval from the insurance regulator, the antitrust authority and the Central Bank, the acquisition of cover was finalized on August 3. This is not just an M&A transaction. It's a strategic acceleration of our insurance ambitions. Cover brings a full-service insure platform with over 100 products a senior executive team with over 20 years of track record in insurance and established distribution channels that complement our own. The economics are compelling, and we expect a meaningful incremental contribution to PicPay's bottom line from August to December 2026.

But what really excites me even more is the strategic fit and opportunities in the coming years. For the insurance products that cover sales through our channels, we will now capture the full economics and be able to develop more customized products for our client base. Furthermore, around 70% of cover's business is done with high-quality partner distributors, and we expect that channel to keep delivering. With cover, we now have the product development speed the underwriting expertise and the distribution reach to turn insurance into an even more meaningful recurring earnings stream. We're maintaining covers independence and strengthening its partnerships. This is just the beginning of a new phase, and it's already marked by a change of brand.

Cover is now CAV. Let me leave you with 6 points to summarize where we stand. First, the [ macro ] -- while delinquency remains elevated, recent [ bans ] point to stabilization. The economic scenario continues to offer important support for credit quality. The labor market remains highly resilient with unemployment near historic lows and more than 103 million people employed.

Real wage income reached approximately BRL 380 billion as of June up 3.6% year-over-year. Notably, net formal job creation was concentrated in income brackets earning up to 2x the minimum wage with more than 160,000 new positions generated in that segment while economic activity is showing gradual deceleration as expected under contractionary monetary policy growth remains positive. Our scenario does not contemplate an abrupt employment deterioration, but rather a progressive normalization the labor market at historically strong levels. This combination of elevated employment resilient income and moderate [ pension ] reduces the risk of a systemic deterioration in households repayment capacity and positions PicPay well for the quarters ahead.

Second, asset quality. Our portfolio remains resilient by design, supported by greater exposure to secure and partially secured products disciplined underwriting and robust risk management following our credit fundamentals of a balanced portfolio loss absorption ratios between 4% and 6% and ROEs above 30%. The increasing NPL over 90 days reflects portfolio aging and intentional risk taken in payrolls not deterioration. Early delinquency improved to 7.5%. Cover ratios are robust and the underlying quality of our origination remains strong. All of this while maintaining the same risk appetite and targeted risk-adjusted returns.

Third, private payroll loans. This product is scaling with attractive economics. We have reached more than 3.6 million contracts since inception very healthy marginal ROEs and stable over 30 days NPL metrics on both the standard and the growth portfolios. That is supporting profitable growth in partially secured lending. Fourth, noncredit revenue. It's up 57% year-over-year, underscoring the strength of our broader platform monetization beyond credit-related revenue streams. Fifth, small and medium businesses. This segment is gaining scale, relevance and customer traction with increasing potential to contribute meaningfully to future growth. And sixth, cover, the acquisition accelerates our insurance ambitions, creating opportunities to devalued products and penetration, capture additional economics within our customer base and also through distribution partners. It should unlock a meaningful and recurrent contribution to earnings growth.

Finally, we beat guidance on all major metrics this quarter. We are confident in our ability to deliver sustainable, profitable growth and create long-term value for our shareholders. We'll move with urgency but never at the expense of quality or trust. Thank you, and we'll now open the line for questions. Operator?

[Operator Instructions] The first question comes from Mario Pierry from Bank of America.

Let me ask you 2 questions. First one on the [ Zinhola ]. I think you made it clear, right, the 117 basis points benefit to NPL and about a 5% reduction in the cost of credit. So that's about BRL 59 million. Were there any other benefits from the [ Zinhola ]? And my understanding is that the program was extended, right? So should we expect further benefits in the third quarter from the debt renegotiation program? And then I'll ask the second question later.

All right. Thanks, Mario. Thanks for your question. Let me try to reinforce the messages that we just shared in our conference call. So yes, in terms of cost of risk, the [ this ] generated a positive impact of approximately BRL 59 million which is equivalent to around 5% of our total cost of credit in the quarter.

On the NPL over 90 days, the program reduced the ratio by approximately 117 basis points partially offsetting the impact from portfolio aging and the seasonality. This also helped the Stage 3 formation, just like we said in the conference call, approximately BRL 20 million of loans were renegotiated on a gross basis, applying an average discount of 50% basically reduced the outstanding balance by around BRL 260 million directly lowering the balance contributing to stage reformation. So as a result, the ratio declined from 3.9% to 3.65% excluding the [ Zolastage ] formation, let's say that the ratio will be close to 4%, broadly in line with previous quarters. For Q3, yes, we are expecting some additional positive impact from this [ enroll ], but more limited. I think that we had a much higher impact in the second quarter.

Okay. I think that's clear. Now one thing that surprised us on the results was the funding cost it came a little bit higher than what we had in our models. When we look at your deposits, right, they're growing slower than your loans, and you talked about you are issuing other sources of funding. Can you just talk a little bit about the ability to continue to grow deposits from your existing clients?

Mario, thanks for your question. Yes, I think we're very comfortable with the level of deposits that we're capturing in our platform. We are expanding our capabilities. Like we said in the conference call, the slightly increase in our cost of funding from 94% to 96.2% is primarily driven by the issuancy of our [ fiji ] that's basically backed by our FGTS portfolio. We're also accessing other funding capabilities in capital markets.

We are increasing, let's say, the principality of our customer base. So our platform more and more is getting more transactional. We continue to grow the cash in around 20% year-over-year. So more and more, we are converting more cash into deposits. So we feel very comfortable and keep growing our deposit franchise going forward. We're expecting to keep, let's say, the funding cost around 95% of CDI in the coming quarters. So we do believe that we can continue to grow access new lines of funding and still deliver a very healthy cost of funding in our operations.

Our next question comes from Dan Dolev from Mizuho.

Great results. Congrats Cazotto on the new role. Very much looking for you in this role.

I have a question on AI. You showed a lot of very exciting products on the genetic side or AI. Can you maybe, Cazotto or Eduardo, can you comment a little bit about those products, we found it very interesting.

This is Eduardo. I could comment, but I think that I'll pass that to Danilo as he is actually heading the AI initiatives here, who'll be able to give you a more, let's say, a deeper understanding on all the dimensions we're going through.

Well, first of all, I think we have -- our AI strategy is actually tacked on 2 different pillars. The first one is customer-facing products. The second one, I comment a little bit is around our AI operational capabilities. So for the agents that we mentioned throughout the presentation was more focused on the first one, right, for the customer-facing products. And that's the ones that we have the goal actually to empower our customers anywhere they need it.

So we mentioned the agents for consumers that are actually on our second generation, and they are actually able to not only answer questions, but actually execute tasks like pay bills, same PIX transactions, managed savings, renegotiations and so on. All of that, of course, with user confirmation in every transaction. But it's actually more than 70 tools now that we are releasing to our customers. And the agent is actually capable of executing multiple sequational tests for the customer, right? And then also leads now multiple channels.

So not only on our app, but also on WhatsApp. And as we mentioned, we were the first Brazilian bank to actually have it available on both Tropic and OpenAI official pllug-in store, our Plugin. So that's for the consumer. We also mentioned around small and medium business agent -- marketing agent that is actually able to create and distribute ad campaigns for our small and medium business clients to our customer base based on geolocation of the business. That's the one that we just launched, and we shared some of the first week results. But we also have agents for our internal operational capabilities, right?

So from the beginning of the year, what we did, we actually developed our own proprietary platform, our AI harness around some of what we think is the key in order to extract value of the -- for the AI agents. So we built a platform that has our model routing, cashing, a lot of governance layers. And because of that, we were actually able to reduce our token costs by 70% from the beginning of the year to now.

And that actually enables us to maintain access to the best frontier models without scaling total token costs because of that, right? And we are using different areas. So we are using credit. So we're just rolling out our proprietary foundation model for personal loans underwriting. That's a model that we expect to have something around 15% to 20% benefit from the previous one. We also have agents and people using our internal platform for product development. So they are supporting coding, designing, quality assurance.

Nowadays, approximately something around 90% of our employees are actively using our AI platform with most of them using daily. -- we have like from the beginning of the year, we are up 30% of employees that are contributing with deployments and real deployments for prepaid products. And most of them such as myself, wouldn't be able to contribute without AI, right, without actually coders, but now that's possible. So we are having more and more people contributing with real products.

And the number of deployees actually doubled from the beginning of the year because of that productivity. And we are doing some very good stuff internally as well, and we hope to benefit from that also on leveraging our operational efficiency.

Our next question is from Gustavo Schroden with Citi.

Congratulations on another quarter of solid results and congratulations Cazotto for the new role. Let me concentrate the first question that I have on the private payroll loan. You've continued to grow this product at a very strong pace. Even though it's considering a secured product, we've seen a delinquency trends worsening and in some cohorts, the NPL ratio is starting to get closer to what we see in unsecured personal loans. It is according to the Central Bank data, right? So I mean, how are you thinking about the risk reward balance in this private [ per ] loan today and are you considering being more selective or adjusting your risk appetite in this product going forward.

So -- and why do you think that the consolidated data from the Central Bank is pointing to this faster deterioration in this product? So this is my first question and then I do my second question later.

Gustavo, it's Chedid here. First of all, I think that we haven't seen any deterioration at the risk at the same risk profile. What we have seen in our case, it's there in the presentation, is that we're actually opening intentionally to riskier profiles, which, on average, you will see the NPLs going up, but not a deterioration on the same risk profile.

If we look forward, and that's -- I'd say that this is kind of philosophy we've been adopting for all [ products ]. Every gain that we are actually getting from our new models, we're actually not, let's say, deploying that into further growth but basically maintaining origination, but with the gains of the models so that asset quality remains, let's say, in control. If you look at the Central Bank data, I think it also is a reflect of -- if you look at the previous product, the only -- let's say, it only cater for very large companies.

Now that this is a product that -- and that's mainly due to the new way of doing it. People are actually extending that to also smaller companies. And that's a benefit of the centralized system. So as you are actually getting more companies and more employees of those, let's say, smaller companies. It's very hard to compare the previous product with what you have now going on.

Sorry, a just to complement here on this delivery strategy of taking incremental risk in very specific and selected customer segments. It's very important to highlight that our risk framework remains unchanged. So we continue to target the loss absorption ratio between 40% to 60%, and our ROE is above 20%. So that's very important to highlight.

Okay. Cool. Just a follow-up here -- 2 follow-ups on this private payroll loan. Have you seen an improvement on the operational issues that we saw in a few months ago? And if you -- I mean, if you can share with us what is the cost of risk level that we have in this product?

Gustavo, on the operational issues, I'd say that we went through kind of three stages, right? So the first stage where we had huge operational issues. In the beginning, we were seeing FPDs around 17%, then we went through a cycle, a second momentum, basically where we've diminished originations very much so that we could see the operational issues being solved. Some of them were solved by the centralized system. Some of them were soft by workarounds that we have implemented ourselves. At the same time, we also -- I think we're in the third or fourth different concept for the evolution of the concession model, which also helped us on basically getting to the third phase, which is expanding the product. If you're mentioning any, let's say, large games from core to this one, I wouldn't say that. And if we look at guarantees as well as the automatic [ tankage ].

Payroll we linkage. We're still not underwriting as if they were meaningful. And so that means that we still think that those were not meaningful enough so that we could take that into consideration.

And in terms of the cost of risk, it's basically in line with other, let's say, public peers that published this number recently. So we can say that around mid to high teens in annual basis.

Just still on asset caller, just to finalize here. What are your expectations for the trajectory of NPLs stage -- sorry, 90 days NPLs and Stage 3 over the next quarter. So should we expect some further normalization as the portfolio matures? Or do you believe current levels are already broadly representative of the underlying credit performance?

Let's say that we are still expecting NPLs to continue to be impacted by the aging effect, right? So we are expecting by the end of this year, the NPLs over 90 days could be more around, let's say, low teens. So basically converting to something similar that we have on our Stage 3 over total credit portfolio. Remember that the Stage 3 is a pre-NPL metric and it's pretty much absorbing, let's say, all the credit impaired than we had in the model.

So basically, we believe that could convert to a level similar to what we have currently on Stage 3 over the total credit portfolio by the end of this year. But again, we are not seeing deterioration. It's basically the portfolio aging. The growth that we have on the payroll loan that is still maturing. We were, let's say, earlier doctors of this product, probably the second company prepared to operate private payroll ones in Brazil. So naturally, that portfolio continues to age and impact this metric going forward.

Our next question is from Ricardo Buchpiguel from BTG Pactual.

Hi, everyone. Thanks for the opportunity of making questions. I have just one follow-up here on private payroll. With the increasing concerns about the macro environment, higher unemployment has been -- become an important risk we have been discussing with some investors on private payroll loan, particularly because it has like a higher duration.

So could you comment to what level of unemployment would you become more concerned about the profitability of the product? What would be like a more -- a level where the profitability would be closer to breakeven in your view, depending on a rise in employment?

Okay. Thanks for your question. I think that I'm going to answer, I would say, not as you were expecting, but trying to get to the same answer, right? So if you look at our credit approach, it's primarily based on the loss absorption indicate, right? So for private payroll loans, in order for those vintages to breakeven, we could withstand an increase of up to 70% in the products delinquency rates. So meaning that my expected losses could actually grow 17% and I will still be on a breakeven condition.

Now talking about the unemployment. And if you look ahead, market consensus and focused projections currently -- they actually expect unemployment to remain pretty stable and quite healthy and basically growing from 5.4% to around 6% and through 2027, which kind of reinforces our evolved structure of floor under household income rather than any sudden labor market deterioration.

Even if we look at the most pessimistic scenarios in the focused survey, unemployment will peak at levels back around what we saw through 2024. Something between 6.5% and 7.2%, meaning that even under stress scenarios, we're talking about historical levels that didn't mean a heavy deterioration on credit or households or household repayment.

Obviously, we keep dynamically looking at those projections. And as I told you, we are currently using gains from our concession model, more to actually keep the levels of originations than actually growing originations. So that's how we feel about it.

That's super clear. And if I may do a second question, if you could comment what's your expectation for the bottom line in 2026 now that you have -- that they will be consolidating cover, any sense on how much cover could eventually contribute in the second half of the year will be very helpful for us here?

Okay. Let's talk about the cover acquisition, right? And cover now it's called [ CAF ]. So [ CAF ] will be consolidated from August 3. Our expectation is something around -- something between BRL 80 million to BRL 100 million in net income contribution for the August, December period. So that's basically what we are sharing on cover for those 5 months of the remaining of the year. And well, we also share third quarter guidance. So that's about what we can share right now.

Our next question is from Dan Perlin from RBC.

I just had -- I had a little bit of a follow-up on the ARPAC. It remains very strong here again and your monetization rate continues to improve. I wonder if you could just kind of revisit the strategy like the go-forward strategy and maybe how some of that dovetails into the product road map and mix shifts that you're seeing in the business, clearly, it's moving in the right direction, but I'm just making sure I understand the cadence as to how that progresses from here.

So I think it's more or less the same story moving forward. So it is still basically driven by more penetration of our products and mainly that instead of being new clients, but heavily concentrated on cross-selling those products and mainly, let's say, credit and insurance products into our user base. This is what's primarily driving growth in ARPAC at the same time, you can see that our cost to serve is growing at a much lower pace, growing at 52%, while you have cost to serve growing at a 13% rate year-over-year.

And most of that growth in cost to serve mainly driven by the adoption of new profit. So I'm just trying to give you other proof points that this is what's actually driving all of that RPO growth. If you look at more mature cohorts that you will see also ARPAC more than doubling, if you compare to the average ARPAC, which just reinforces the thesis, which is cross-selling more of those products, especially credit products will be the key driver for further increasing ARPAC ahead.

Great. And then just real quickly on [ cover ], I heard you on the contribution from August to December in terms of net income. Is there just -- is there a revenue number that you're also attributing to that, that we could just make sure we're level setting appropriately in the model?

Maybe we can share that with you everyone else. [ Leer ] not -- we don't have that figure right now, but we can share later.

Our next question is from Neha Agarwala from HSBC.

Hi, I actually have three questions, quick ones. First one on the operating expenses, there was a bit of a jump in 2Q, I believe there were some extraordinaries some extra marketing expenses that you undertook in 2Q and your guidance. implies the sequential decline in 3Q. Could you just shed a bit more color on the trend for OpEx growth that we should expect going forward? And what were the one-offs in 2Q?

My second question is on risk-adjusted margins. So on the reported numbers, it went down 20 basis points. But if you adjust for the [ Desenrola ], benefit it probably is around 11.3% in risk-adjusted margins. What should we -- what trajectory should we assume in the coming quarters and where should this is adjusted margin stabilize for you? And my third question is on the write-off policy. Could you remind us right of policies? And has there been any change lately to that.

So Neha, thanks for your question. Let me start from the last one. Our write-off policies remained unchanged, 360 days for both credit cards and personal loans. On the risk-adjusted NIM, we're expecting stabilization for Q3 compared to what we did in the second quarter, around 12.1%. And in terms of efficiency, we had anticipation of BRL 30 million in marketing expenses this quarter. We decided to anticipate because of the workout, we took a decision to accelerate some initiatives on marketing for very specific products like the iGaming platform they have and other initiatives that we saw the opportunity to accelerate.

So we should expect some, let's say, better benefit from lower marketing expenses compared to the second quarter. In terms of the overall efficiency, we are in the very health trend. As you can see in the quarter, our efficiency ratio reached around 44%, coming down more than 200 basis points sequentially. We're expecting that trend to continue going forward. We are seeing AI accelerating our operating leverage opportunities.

Head count is pretty much flat since October '25. If you remember, we were expecting to grow head count by around 10% the year. It's not happening because of AI and all the initiatives that we have. So we believe that we can deliver our efficiency ratio around low 40s 30s by the end of this year, contemplating many initiatives that we have including AI opportunities on the let's say, personnel expenses, but also on tech expenses as well.

Perfect. I just have a quick follow-up there. On the risk-adjusted margins, you mentioned you should expect to be around 12.1%. So if you exclude the [ Desenrola ] benefit from my calculations, it's around 11.3%. So you expect a rebound in 3Q and for it to stay around the 12% range. Is that right?

Correct. We're expecting in Q3, risk-adjusted means to being the same, let's say, pretty much flattish sequentially. We do have some impact from this [ hall ] in Q3 as well. But like we said a bit more limited compared to the second quarter. But yes, we are expecting this ratio to be around 12%, 12.1% pretty much in line with the previous quarter.

And what would be the driver for that? Because based on your guidance, cost of risk will continue to enter up quarter-on-quarter. So what would be -- and deposit costs will probably be around the same level, not much improvement based on your comments earlier. So what would be driving the improvement of the stability in NIMs, right, excluding the [ Zennoa ] impact?

Yes. Basically, a mix effect. We are, like we said, growing slightly lower on board, let's say, segments that are okay in terms of capturing incremental risk. So we do have this risk-adjusted strategy in the business. Funding costs should be slightly lower compared to this quarter. So we did it 96.2% of CDI in the quarter. We're expecting probably Q3 to be more in the range of 94%, 95%. So it's another, let's say, improvement that we can see on this risk-adjusted earning.

Our next question is from Craig Maurer from FT Partners.

Again, congratulations, Andre. I just wanted to ask with the growth you're seeing in payroll loans, what are the attach rates you're seeing in other products once you've made those loans, credit cards, other offerings?

This is Eduardo here. First of all, if you look at our, let's say, the average ARPAC on clients with that product. It's 8.9x higher than of the average client in PicPay. And that's driven by both the product itself, but also, let's say, the attachments, as you said, that he basically gets it. And if you look at the gross selling, it's 30% higher at what we have on for average customers. And that includes many different products but on average, 30% higher than our average client. So it's also, let's say, it poses not only ARPAC part but also adoption of other products.

[Operator Instructions] The question-and-answer session is over. We would like to hand the floor back to Mr. Eduardo Chedid for the company's final remarks.

So guys, thanks again for being with us in our third call. We remain confident here on the year-end results. We finalized the Cover acquisition, which was an important milestone, not only for this year, but for the coming years as well. And well, let's see if we can surprise you next quarter again. Thank you.

PicPay's conference is now closed. We thank you for your participation and wish you a nice evening.

Good evening, everyone, and welcome to the PicPay Earnings Conference Call for the first quarter of 2026. I'm Andre Cazotto, PicPay's Strategy, M&A and Investor Relations Officer. Today, I'm joined by Eduardo Chedid, our CEO; Rodrigo Couto, our CFO; Danilo Caffaro, Vice President of Consumer Banking; and our Investor Relations and Strategy teams.

We will begin with a short presentation highlighting our quarterly results, followed by a live Q&A with our management team. Please note that this presentation may contain forward-looking statements and non-GAAP measures. Please refer to the disclaimer on the screen and in our earnings materials available on our Investor Relations website for additional information. This call is being recorded, and a replay will be available on our website shortly after the call.

Before I hand the call over to our CEO, Eduardo Chedid, I would like to briefly highlight the strength of our execution. As you can see on the next slide, we delivered results above the guidance we presented across all key metrics for the first quarter of 2026. Our total credit portfolio reached BRL 28 billion, 5.8% above our guidance of BRL 26.5 billion, driven by a better-than-expected performance on our private payroll loans, which continued to gain traction during the quarter.

Our cost of risk came in at 3.7%, fully aligned with guidance, reflecting stability in our asset quality metrics, underpinned by a more resilient and diversified credit portfolio. On the revenue side, our managerial revenues, which exclude derivative revenues and hedge accounting effects, reached BRL 3.2 billion.

Net interest income came in at BRL 1.7 billion, surpassing 20% net interest margin for the quarter, and gross profit reached BRL 1.1 billion, with both delivering slightly above guidance. Looking at our profitability metrics, IFRS earnings before taxes came in at BRL 222 million, 3.1% above the guidance and the IFRS net income reached BRL 152 million, 8.4% above the guidance of BRL 140 million. On an adjusted basis, which excludes stock-based compensation expenses, adjusted EBT reached BRL 248 million, 5.7% above the guidance of BRL 235 million, and our adjusted net income came in at BRL 169 million, 9.3% above the guidance of BRL 155 million.

These results reinforce our strong execution and our ability to consistently grow with profitability. With that, I will now turn the call over to Eduardo Chedid.

Thank you, Andre. Good evening, everyone, and thank you for joining us for our second earnings call. I'm pleased to report that we delivered another strong quarter, beating our guidance across every single metric we track. Let me walk you through the highlights. We delivered solid results in the operational metrics.

Total accounts reached 68.6 million, up 11% year-over-year and 2% quarter-over-quarter, continuing to expand at a steady pace. Quarterly active clients grew to 44.3 million. Consolidated TPV came in at BRL 156 billion, 31% above the prior year. Sequentially, the 1% decline is consistent with typical Q1 seasonality following a strong fourth quarter.

Wallet and banking TPV reached BRL 134 billion, a 24% year-over-year expansion. The 5% sequential decline reflects the same seasonal dynamic and is fully expected. Total cash in was BRL 125.4 billion in the quarter, growing 22% versus a year ago. On a sequential basis, the 10% decline mirrors the typical Q1 pattern relative to Q4's elevated activity.

Consumer deposits grew to BRL 30.8 billion, up 46% year-over-year and 7% higher than last quarter, reinforcing the trust and principality trends we have been building. And active insurance policies reached 10.2 million, 78% ahead of Q1 last year and 13% above Q4 as our insurance vertical continues to scale at a rapid clip.

Turning to financials. Net revenues reached BRL 3.5 billion, a 70% increase year-over-year and 17% higher than last quarter. Excluding derivatives and hedge accounting, managerial revenues were BRL 3.2 billion, up 60% versus the prior year and 9% sequentially. Average revenue per active client grew to BRL 80.7 in the quarter, 55% above where we were a year ago and 14% ahead of Q4.

Excluding hedge accounting and derivatives, ARPAC was BRL 73.3, up 46% year-over-year and 6% quarter-over-quarter. Deeper monetization and a richer product mix are driving this expansion. Gross profit came in at BRL 1.1 billion, representing a 44% year-over-year gain and an 8% step-up from the prior quarter.

On efficiency, cost to serve was BRL 20.3 per active client, up 9% from a year ago, but down 1% versus Q4, showing that scale benefits are kicking in. For context, revenue per client expanded 55% year-over-year, while cost to serve grew just 9%. That's the leverage embedded in this model.

Adjusted earnings before taxes reached BRL 248 million, more than tripling year-over-year with a 224% increase and advancing 3% sequentially despite the seasonally lower activity typical of first quarters. This demonstrates the consistency of our earnings trajectory. Adjusted net income was BRL 169 million, nearly doubling with 92% year-over-year growth.

The 10% sequential decline is entirely attributable to normal Q1 seasonality following a strong fourth quarter. As you can see, our revenue diversification continues to evolve. We now have a significantly more diversified and resilient revenue mix, as only 31% is driven by unsecured credit.

To put that in perspective, in Q1 2024, secured credit accounted for only 4% of net revenues. Today, secured credit represents 23%. Fees and commissions contribute 25% and float plus hedge accounting accounts for 21%. The key takeaway, 69% of our revenues are now driven by no or low credit risk streams. That's up from 63% just 12 months ago.

So we're growing net revenues 70% year-over-year while building a fundamentally more resilient business. Looking at the 3 revenue engines individually. Secured credit revenues reached BRL 820 million, up 272% compared to a year ago and 41% higher than Q4, fueled by the rapid ramp-up of our payroll loan portfolio.

Unsecured credit revenues came in at BRL 1.1 billion, a 44% year-over-year expansion and 10% above last quarter, growing at a measured pace as we deliberately shift the mix toward collateralized products.

Noncredit revenues hit BRL 1.6 billion, 47% ahead of Q1 last year and 11% higher sequentially. This line includes fees, commissions, float, hedge accounting, insurance, acquiring and revenues originated by our audiences and ecosystem business unit. Essentially, all revenue streams that carry no credit risk. Quarter after quarter, this capital-light engine continues to compound.

On returns, adjusted net income grew 92% year-over-year to BRL 169 million. The 10% sequential decline reflects normal Q1 seasonality. Quarterly annualized adjusted ROE was 15.5% compared to 24.4% last quarter. The sequential compression is fully explained by the expanded equity base from our IPO capital raise.

As we deploy these proceeds into our high-returning credit portfolio, we expect ROE to trend back above 20% within the next couple of quarters. Now moving to credit. PicPay card TPV was BRL 17.4 billion, 41% higher year-over-year with a modest 1% sequential decline, reflecting typical first quarter seasonality rather than any change in engagement trends.

Consumer loans origination reached BRL 4.5 billion, more than doubling year-over-year at 119% growth and edging up 2% from Q4, holding essentially flat against a seasonally strong fourth quarter, demonstrates the strength of our origination engine. Total credit portfolio reached BRL 28 billion, 116% above the prior year and 17% above last quarter.

The consumer book represents 93% of the total with SMBs and others comprising the remaining 7%. Beyond the numbers, we advanced several strategic initiatives in the quarter. On PicPay Card, we launched Skip Purchases, a feature that allows cardholders to pause a monthly payment without penalties, improving their cash flow management and deepening engagement with the product.

On small and medium businesses, new business accounts openings grew from 60,000 per month in Q4 to 80,000 in Q1, a 33% sequential increase. We also rolled out supply chain finance, enabling businesses to anticipate receivables and improve their cash cycles.

In its first quarter, the product generated BRL 693 million in origination. We also announced a strategic partnership with TIM, one of Brazil's largest telecom operators. Structured as a two-way distribution agreement, PicPay will offer TIM's telecom plans within our app while TIM will offer PicPay accounts and credit products to its large customer base.

The partnership is expected to reduce our customer acquisition cost by activating new users through TIM's existing infrastructure while driving higher engagement for both platforms. On the Kovr acquisition, we reached an important milestone. CADE, the Brazilian antitrust agency, approved the transaction on May 28 without restrictions.

We are now awaiting final clearance from SUSEP, the insurance regulator as well as from the Central Bank to close the deal. Finally, on brand. In the quarter, we launched a new brand positioning. PicPay, your next bank. It marks PicPay's evolution from a payment platform to a full-service digital bank, building trust and daily relevance while preserving the simplicity and innovation that set us apart.

The campaign has already generated 1.2 billion impressions and over 75 million views, achieving 81% brand favorability, nearly double the 44% average in the financial services category. This is a strategic investment in long-term principality and the initial data confirms it's working.

Now I will hand it over to Danilo Caffaro, our Consumer Banking Vice President.

Thank you, Eduardo. In this next slide, we can see that we continue to execute on our strategy, gaining market share of major credit products by gaining share of wallet of our clients. As of first quarter '26, we reached 4.93% market share for private payroll loans coming from 0.2%; 2.76% market share of personal loans coming from 2% and 1.53% market share of credit card TPV and 1.08% of credit card portfolio coming from 1.18% and 0.77%, respectively.

On the next slide, we have the breakdown of our portfolio growth for the consumer business. We reached BRL 26.1 billion in the first quarter of '26. It represents a BRL 3.6 billion growth from fourth quarter '25, already after a one-off public payroll portfolio sale. As you can see, we continue to grow our portfolio, 91% of the total growth on lower-risk products and more mature cohorts, meaning clients that already have built credit behavior with us. Last but not least, the following slides take a deeper look at our private payroll loans operation. We continue to believe in the massive opportunity of private payroll loans, and we have seen strong evolution since the product launch in April 2025.

From the very beginning, we have been operating this product very tightly, following our prudent underwriting strategy. Early on, as operational issues affected first payment defaults in the initial cohorts, we decided to slow down origination in the following months. As the product matured and we gained more confidence in its performance, we increased origination quarter-over-quarter.

This shows our ability to respond quickly to changing market conditions. As you can see on this slide, first payment defaults, FPDs have improved significantly from the first cohorts and are now stable at around 9% across recent cohorts. January FPDs are currently tracking broadly flat quarter-over-quarter, although we still do not have the quarter fully closed given the product's 30-day grace period plus an additional 30 days for payroll processing. Delinquency rates represented here by the over 30 days metric have also improved month after month. Important to mention that origination, FPDs and over 30 for third quarter 2025 cohorts are reflecting a more conservative underwriting strategy.

On the following slide, we continue to see very healthy unit economics in private payroll loans with lifetime NIMALs around 30%, lifetime ROEs consistently above 100% and FPDs stable at high single-digit levels. While FPDs remain stable and within a controllable range, our strategy is not centered on minimizing this metric at any cost, but rather on optimizing risk-adjusted returns.

We are comfortable and already expanding into new customer segments with higher cost of risk, provided they are properly priced and structured to deliver returns and loss absorption levels in line with or above what we achieved today. In practice, the riskier the segment, the higher the spread, the shorter the duration and the tighter the leverage to income criteria.

Importantly, our current pricing model does not yet incorporate the potential upside from collateral enhancements such as FGTS balances and severance package proceeds, which should become effective throughout the year and help reduce cost of risk, particularly in higher-risk segments.

Now I will hand it over to Rodrigo Couto, our CFO. Thank you.

Now I'll walk you through our financial performance. On Page 22, we see the familiar pattern of revenue growth several times higher than expense growth, leading to an improvement of 3 percentage points in our efficiency ratio relative to the fourth quarter. This means that our operating leverage continued to deliver impact even in a quarter in which revenues are seasonally weaker.

AI is already having an impact as our headcount has been flat since October '25 and the projected 10% increase during 2026 will not materialize. We expect AI to be a major booster of our operational leverage, which should be even more powerful going forward. On the right-hand side of the page, we see that our ROE for the first quarter was 15.5% as our average equity increased by more than 40% from the incorporation of the IPO proceeds.

ROE will go back up towards the 20s in the next couple of quarters as we gradually deploy the IPO proceeds. On the next slide, we present the expansion of our financial margins. Our net interest income, margin from credit products and margin from credit products after losses all grew between 17% and 19% relative to the fourth quarter.

While our net interest margin rose back above 20% to 20.7%.

The main driver of the margin expansion was a credit portfolio growth of 17%, which we will detail on the next slide. Net interest margin rose to 20.7% due to an increase in the share of credit over total interest-earning assets.

On the next slide, looking at the credit portfolio, we reached approximately BRL 28 billion in total credit, growing 17% quarter-over-quarter and sustaining a triple-digit growth rate year-over-year. The main driver of our credit growth continues to be the private payroll loan product, which has been performing within our expectations, as Danilo explained.

When we look at the composition of our credit portfolio growth, we see that collateralized products corresponded to 69% of the portfolio expansion, which is similar with the 70% figure observed in the last quarter. As a result, the proportion of the portfolio that is collateralized continued to rapidly increase, reaching 54%.

On the next page, #25, we present a classification of our portfolio by stages and the coverage of each stage. The composition of the portfolio by stages did not change significantly and the coverages of Stages 2 and 3 rose, resulting in a 1.9 percentage point increase in the coverage of Stages 2 plus 3 of 63.9%.

Moving on to the next slide. We see that Stage 2 formation rose slightly to 5.8%, which is typical of the first quarter due to seasonality. When compared to the first quarter of 2025, Stage 2 formation was 1.3 percentage points lower. Stage 3 formation normalized to 3.9% after the spike observed in Q4, which is caused by a change in methodology.

To finalize the presentation and credit metrics on the next slide, we see that the ongoing loss absorption ratio rose slightly and that the cost of risk remained stable at 3.7%, while total portfolio coverage increased to 13.9%. For Q2, we expect the cost of risk to be between 3.7% and 3.9%.

Moving on to funding on Slide 28. You see that our funding base grew 8% quarter-on-quarter, while the cost of funding remained largely flat at around 94% of CDI. We continue to execute our diversified funding strategy, notably with the structuring of our second FGTS, through which we raised BRL 1.25 billion last month.

We will continue to mobilize different sources of funding as well as to strengthen our own deposit distribution capabilities to finance the rapid growth of our credit portfolio. Finally, we present on the next slide our common equity capital. With incorporation of the IPO proceeds, approximately BRL 2 billion, our common equity Tier 1 ratio reached 16.7% with approximately BRL 500 million corresponding to 2 percentage points of the ratio held at our holding company in the Netherlands. With that, I will turn back the call to Eduardo Chedid for his final remarks.

Well, we're issuing guidance for the second quarter of 2026, excluding any Kovr contribution. We expect the total credit portfolio to reach approximately BRL 31 billion, 11% growth quarter-over-quarter. Quarterly cost of risk should remain within the 3.7% to 3.9% range, consistent with the levels we've delivered this quarter.

Managerial revenues are expected at approximately BRL 3.6 billion, a 13% sequential increase. Net interest income should reach approximately BRL 1.9 billion, up 12% from Q1. On profitability, we expect gross profit of approximately BRL 1.15 billion, 5% above this quarter. IFRS earnings before taxes are expected at approximately BRL 265 million, 19% higher sequentially.

On an adjusted basis, we expect earnings before taxes of approximately BRL 285 million, a 15% step-up from Q1. IFRS net income is expected at approximately BRL 235 million, a 55% sequential increase. Adjusted net income should reach approximately BRL 245 million, 45% above this first quarter.

As you can see, across the Board, sequential acceleration in every profitability metric, reinforcing the trajectory we've outlined today. Before we open to Q&A, I would like to reinforce an important point regarding our credit strategy and the recent discussions around asset quality.

At PicPay, we do not manage the business with the objective of simply minimizing NPLs at any cost. Our approach has always been centered around risk-adjusted profitability, supported by a very disciplined underwriting framework and a structurally low cost to serve model. Our operating model allows us to selectively participate in higher risk segments as long as those products remain within our risk-return metrics, particularly in terms of loss absorption between 40% and 60% and minimum 30% ROE thresholds.

In practice, our playbook is very consistent. The riskier the product, the higher the spread, the shorter the duration and the lower the leverage relative to income. What gives us confidence is that the current stability we're seeing across asset quality metrics is fully consistent with the portfolio mix strategy we intentionally designed over the past quarters, a more diversified credit portfolio, combining secured products, mature unsecured cohorts and transactional-led underwriting.

And this is where the strength of our ecosystem becomes a key differentiator. Because our digital wallet is deeply transactional, we are able to leverage proprietary behavioral data and real-time engagement signals that provide a much more accurate understanding of customer risk than traditional market benchmarks alone. On top of that, we layer in data obtained through open banking, which is nonproprietary but highly complementary.

The combination of proprietary transactional intelligence with open banking insights gives us a uniquely powerful underwriting edge. Our market-beating performance in private payroll loans as reflected in lower FPD metrics demonstrates our product philosophy, our agility in learning and adapting, the strength of our underwriting model, our digital distribution model and our operational excellence.

Finally, although some market credit indicators suggest some deterioration, a closer look at PicPay's portfolio, which is more resilient by design, reassures us about our risk-adjusted return policy and our ability to meet projections for the 2026 unchanged. Okay. Now we're ready to move into the Q&A session. Please, operator, take over.

[Operator Instructions] Our first question is from Gustavo Schroden with Citi.

Congrats on the numbers in line is slightly above the guidance for the first Q. So decent trends. Congrats. I have 2 questions. The first one is we saw good trends in the Stage 2 plus 3 formation, but we saw an increase in NPLs, 90 days NPLs. So if you could clarify this mathematical or this mismatch between numerator and denominator, I think that would be great, right?

Because usually, when we see the strong credit growth, denominator grows faster than the numerator and offsetting this pressure. So I think that it would be welcome if you give some color or clarify this increase in 90 days NPLs.

And my second question is regarding the guidance for the second quarter. You are guiding for BRL 3 billion growth in -- or BRL 3 billion additional loan book, right, quarter-on-quarter. It is slightly below the growth you presented in the first quarter. But we know that the first quarter usually we have this seasonal effect, so lower loan growth. I was expecting an acceleration in a sequential base in this loan growth.

If you could explain us if it is -- there are some, let's say, conservative strategy here or what is behind this number?

Thank you, Gustavo. I will pick up the question on NPLs. The ratios are fundamentally different, right? when NPLs -- and NPL coverage, let's talk about NPLs first. It's simply days past due, right? So it's -- first of all, it only takes into account one form of deterioration. And it also is highly sensitive to the write-off policy of each bank. Therefore, the levels are very hard to compare. We've said all along that our NPL ratios would continue to grow as our portfolio matures and will end up somewhere in the low teens. And this is what we expect to see going forward. The way we look at our credit performance and our coverage is in the proportion of stages, which is fairly stable and also in the coverage of each stage with which we are comfortable.

So while NPLs will continue to rise, they're really not reflecting the dynamics because they're very, again, limited in terms of the risk sensitivity and also highly subject to not only the write-off policies, but also the renegotiation policies of each institution. And therefore, it's very hard to use NPLs as a metric to manage the business. And that's why we manage in terms of cost of risk, loss absorption and the proportion information of each of the stages as well as our coverage.

This is Chedid now. Going back to your second question, I think that we actually remain very positive on credit origination and on credit overall. I'd say that it's much more a conservative guidance than a conservative, let's say, way of doing business. If I could take you through what we believe on the macro credit scenario as well as on PicPay's, let's say, ability to navigate there.

I'd say that talking about the macro, yes, the Central Bank data shows a gradual deterioration on delinquency. But at the same time, household debt service ratios remain stable and the labor market is providing a strong floor. If we take a look at Brazil is at a record low 5.8% unemployment rate with real aggregate wages growing 6.5% year-over-year, which in total, it means that families in Brazil have BRL 22.9 billion of additional real income in circulation and that acts as a buffer.

Also, if you look at job creation, it remains concentrated in the lower income brackets, the segment, which is typically more sensitive to income shocks, right? As long as unemployment holds at the same levels, we don't see a systemic risk of mass delinquency in lower ticket credit.

In summary, our baseline, any credit quality deterioration is likely to be gradual and not systemic. And this is very consistent with a controlled accommodation cycle without disruption. And looking at PicPay, it's fully consistent with the guidance we have provided.

Looking at our own positioning within this macro environment, we believe that we are really well positioned for a more challenging backdrop. We have deliberately built a more diversified revenue mix, as we explained in the call, 69% of our revenues now come from no or low credit risk streams.

Which translates into a more resilient business itself, where only 31% is exposed to unsecured credit. And if you look at our credit underwriting strategy, it delivered a total credit portfolio, which is 54% secured and only 46% unsecured.

And Q1 numbers show that 90% -- 91% actually of new volumes are coming from lower-risk loans and mature credit card cohorts. And this is by design. I mean, over the past several quarters, we have been intentionally rotating the portfolio towards secured products and seasoned unsecured vintages with proven performance. On top of that, which gives us an additional layer of protection. I would say that our playbook allows us to adapt quickly to the changing scenarios.

The riskier the product, the higher the spread, the shorter the duration and the lower the leverage relative to income. And this is a framework which is not reactive. It's embedded in how we originate every day. So to summarize, I mean, we've built a diversified revenues model, a deliberately resilient portfolio mix, and we've been very, let's say, strict and discipline on the origination. So we believe we are well positioned to navigate this cycle.

Just one additional comment here, Gustavo, [Santre] speaking. For the consumer loan book, we're expecting the origination to be pretty much flattish with the fourth quarter. So we're expecting to originate close to BRL 3.5 billion, okay? That's our expectation on the consumer banking. We also have some SMB credit portfolio rolling off. So that's probably something that is impacting, let's say, the total credit figure that we share in our guidance.

All right. That is clear, very clear. Just if I may, just a follow-up on my first question regarding NPL. So what is the write-off policy? Is that 360 days, 540 days? What is the write-off policy?

It's 360 days.

Both cards and loans.

The next question is from Mario Pierry with Bank of America.

Let me ask 2 questions as well. I want to focus on the private payroll loan. I don't know if you -- when you said that the NPL should be in low teens. Did I understand that correctly?

Yes, for the whole portfolio.

For the whole portfolio...

But go ahead, Mario. We'll wait until you finish and then we'll let you.

Okay. And you showed right on Slide 17 that your market share in private payroll loans has gone from 0 to almost 5% in 1 year. What do you think is making you so successful in this product? What are you doing different from the other players? Also, you talked about this collateral enhancements, right, especially related to FGTS.

We've been waiting for that and appears to be delayed. What is delaying that? When do you think those collaterals are going to be effective? And what are you seeing in terms of interest rates that you're charging on this product? Clearly, right, this is not a uniform product. If you are doing a private payroll to someone who works in a small company for a short period of time, you're going to charge a higher rate than for someone who has a longer-term, more mature job.

But can you tell us the direction of rates that you're charging in this product? And then my second question is unrelated to this is related to Kovr. Like you said, you got all the approvals, expecting now SUSEP to approve the transaction. Just remind us again, what is the expectation for net income from Kovr on a full year basis?

Mario, going back to the private payroll loans. I think that our performance, as you said, it's been pretty solid. And I think it's -- at the end of the day, it's a result of several factors. I mean we were the second company to be accredited in this product, and we entered very early. As we identified operational deficiencies in the system, we adapted quickly and developed some proprietary workarounds on those deficiencies.

Our underwriting model has evolved significantly since the beginning. On top of that, I'd say that our digital distribution capabilities also played an important role with around 70% of all origination being done in app. And from the beginning, I think that we maintain focus and conviction in the product's potential, which gave us a meaningful, let's say, and quicker learning curve, which we're taking into advantage. So I think it's a mix of many things that we did and also driven by a lot of focus and the belief that this would unlock a meaningful opportunity for us. When you talked about -- we said that FPDs in our case, it's around 9%. And this has been steady throughout quite a few, let's say, vintages now.

So we are -- let's say, we're pretty confident on the product, and we're getting more confident as time goes by. At the same time, you asked about, yes, there is an upside, possible upside when the additional guarantees, the FGTS as well as the severance package access are implemented.

And you're right, I mean they've been delayed quite a couple of times. And we're being conservative. So we are actually, in our view, will -- we expect them to be, let's say, have some impact on our case in the fourth quarter of the year, provided there are no additional delays. And all in, we remain pretty positive and product is behaving, let's say, as expected.

Okay. Chedid, when you talked about the low teens NPLs, are you talking specifically for private payroll? Or are you talking about for the entire loan book?

The entire loan book, well, that's over time when we stabilize the portfolio, right?

So just to be clear, you had an NPL ratio of 8.9% this quarter, 7.2% in previous quarter, and you expect this to normalize around low teens.

That's correct, Mario.

Okay. And then on Kovr?

The expected net income, that was your question, right?

Correct. Correct.

Yes. I think, Mario, we could talk about what we expected last year. As we still didn't have full clearance and approval, I cannot be -- I mean, I don't have access to how they're performing this year. But I can share with you is that with the products that we distribute from them, we are performing pretty well.

So we should expect that from their total portfolio, but I'm talking mainly from my own perspective. And so I cannot be precise now. But hopefully, in a few weeks, as soon as the SUSEP, the insurance regulator approves and Central Bank also will be able to actually give you much more visibility on what we expect for the full year.

The next question is from Dan Dolev with Mizuho.

Can you hear me?

Yes.

Great results here, really strong first quarter. Congrats from our end at Mizuho. I have one question. I mean, I caught some of the comments you mentioned about AI and how accretive the initiatives are to margin. Can you maybe elaborate a little bit on what you're doing in AI specifically and what the opportunities do you see down the road? And congrats again.

Danilo here. So we've been using AI and LLM models since the beginning of 2023. Our first use case was around customer service. And we continue to adopt AI heavily on our entire value chain actually from customer service to credit, engineering, marketing and so on. We currently have our own version of OpenClaw running on a multi- LLM stack with most of our employees using on a weekly basis.

And of course, it's still early days, but we are already seeing significant performance improvements on AI first teams. And as we mentioned in the release, this is one of the factors that enables us to continue growth to grow the business while keeping the headcount flat since October 2025. And we believe that it will be a major boost of our operating leverage in the upcoming quarters.

The next question is from Ricardo Buchpiguel with BTG Pactual.

Most of my questions were already answered. So I have just one here. If you could provide an update on the new Desenrola program, giving a bit more color on how origination and the program has been evolving? And how important do you feel that this program could be to mitigate any potential delinquency risk depending on how the macro unfolds?

Thanks. Well, we see it positively, and we actually entered early on. So we're quick to begin. the program originations are responding well. We already have converted about 10% of the potential that we believe we can do that. And then we have the collateral for 50% of the renegotiated value granted by the federal government fund.

So I'd say that in terms of final, let's say, impact, it's definitely an upside, but I wouldn't say that it's relevant for the full year results. Although we remain positive on it, and we've been originating quite well.

No, that's very clear. And if I may do a follow-up here. You mentioned that you are seeing that the commitment to debt payment has been more or less stable in recent months, but there is overall a concern that disposable income could be impacted by decelerating economy, right?

So it would be interesting to see how you guys factor this risk in your underwriting. And if you expect that we can have like increase in delinquency, not necessarily for PicPay, but the market as a whole towards the second semester of this year or perhaps next year?

I'd say that generally speaking, we are expecting some increase in delinquency for the market overall. As I said before, we don't see anything that is sudden. So it's probably a very gradual thing. If you look at our own portfolio and our, let's say, ability to, let's say, navigate those -- that backdrop, I'm going back to the diversified revenue mix. As well as a more secured credit portfolio. And if you look at how we're growing the credit portfolio, we are mainly growing that through low-risk loans, mainly collateralized as well as mature credit card cohorts. So we don't -- I mean, we expect a reasonable stability both on credit risk as well as on Stage 3 formation, let's say, around 4%.

The next question is from Craig Maurer with FT Partners.

Good to hear from you, Eduardo and Andre. I wanted to ask again about the private payroll loans. I wanted to understand the positioning you think this product is taking with the consumer. Is this, do you think, muting growth in credit card in any way? And also, do you think that the private payroll loans are better path to principality versus, say, the credit card? So trying to understand how this changes the relationship with the consumer in terms of ongoing product usage.

So I'd say that in the first half of your question, we see lots of people who are, let's say, out of the credit market taking that product. So it's -- somehow it's additional. If you look at the PicPay case specifically, I'd say that it's taken, let's say, share from personal loans instead of credit cards.

And I think that one of the key aspects in our case is the ability to actually distribute that product digitally. If you compare our distribution with what we've been hearing from the average of the market, we've been able to distribute more in-app than most of the other players, which just shows that -- I mean, the engagement with the app is basically an important tool to distribute.

Clients, I'd say that private payroll loans to clients, the trend is to actually increase PicPay usage as well as product adoption. I mean we've seen that with the current clients. So it's not only a factor of the direct benefits from the product, but the overall, let's say, driver of engagement and adoption of other products.

Craig, just to complement here, currently, around 70% to 75% of all private payroll loan origination is already done through our app. So basically, this is helping to increase the cross-selling of additional products like insurance -- and of course, this is going to be extremely helpful in terms of, let's say, creating better engagement and faster principality for our customer base.

The next question comes from Dan Perlin with RBC.

Two quick ones here. So the commentary around AI and headcount growth not materializing now because you've got all these efficiency gains. I'm wondering, one, are you planning on leaning in on those cost savings into marketing or kind of higher risk private payroll opportunities that you talked about?

And then secondly, the net interest income growth guidance of 12% versus the 5% gross profit growth. I'm just assuming that, that is a function of your kind of mix shift such that your credit loss allowance is just stepping up in that period of time?

Dan. Frst part of your question, definitely, I mean, we're leaning in on AI. And besides -- Danilo already mentioned that we've been running headcounts flat since October. But if you even got only the, let's say, the avoided hiring that we had on the customer service platform.

In the last 2 years, we avoided hiring an additional 3,000 new customer service reps. So it's not only about having it flat, but also avoiding some meaningful new hires. On your point of, yes, part of those efficiency gains will be deployed on growth and part will be converted into better margins. But yes, we definitely plan to invest some of that additional, let's say, productivity.

That's great. And then on the net interest income guidance versus gross profit growth guidance, just is that a function of just a step-up in your credit loss allowances that you got going into the next quarter? Or is there something else that I'm just not.

No, that's correct. We do expect our credit loss allowances to be a little higher than our income -- net interest income growth, all within the dynamics of the portfolio within the, let's say, our risk return parameters. But yes, we do expect it to be a little higher.

The next question is from Neha Agarwala with HSBC.

Just a quick one. You mentioned that the NPLs will be in the low teen levels. And given that your book is almost 70% secured and why should we continue to see a pickup in NPLs? Why not -- maybe a pickup for a quarter or 2 because of the private payroll and then an easing as the economy improves and rates decline. If you can split for us how much of the increase in the NPL ratio and the cost of risk is driven by the strong growth in the private payroll that will help us understand what is the core dynamic for your remaining part of the portfolio?

Increase in the NPL ratio is basically a catch-up of things that are already in our Stage 3, right? So if you look at our Stage 3 as a proportion of the portfolio in the first quarter, it was 12.7%, while NPL was 8.9%. The 8.9% will end the year in the low teens. The 12.7% will end the year in the mid-teens, right?

So if you want to see what's going to happen with NPL, just look what's happening with the share of Stage 3, which is ultimately a better metric because it captures other forms of increasing risk that are not captured in the NPL 90 days.

The levels we see of NPLs and the share of Stage 3, again, are highly influenced by our write-off policy, which is our 360 days. And there are players in the market that do 270. There are players in the market that do 120, and that results in very different levels of NPLs. Ultimately, also as we find more opportunities to grow in private payrolls, the NPLs for that product will also increase or that the credit losses will increase, but the revenues will increase by at least double.

And ultimately, we're going to make more money, have higher returns. So just taking, let's say, a credit loss metric without looking at what's happening in revenues doesn't tell the whole story. And the way we manage is by looking at both things in conjunction.

And pretty much, let's say, keeping our, let's say, guidelines in terms of loss absorption ratios that should be between 40% to 60% and ROEs -- minimal ROEs at 30%.

Understood. I mean, I understand that NIMAL is a more relevant parameter than just looking at what's happening with the cost of risk. But what is a bit confusing is that given that majority of your book is secured, when I look at other players who have a similar composition, their NPLs are not at similar levels.

So I just wanted to understand why the NPL -- and I understand that Stage 3 is higher, so the natural progression will be you expect that the NPL for the book will be in low teens by the end of the year. So we have a progression throughout the year. But I just want to understand why these level of NPLs. Are you seeing a much worse asset quality in the private payroll than what the system is seeing? Or is there any other pockets where you're seeing more pressure for your clients?

Yes. Comparisons of levels of NPLs are very difficult to make, especially in the Brazilian market where write-off policies are pretty different. And so it's hard to compare the levels. And what's driving the increase in the NPL ratio, it is partly a maturation of the private payroll loans, but they are not the big contributors here. It's the unsecured portfolio that is responsible for the majority of the NPLs and of the share of Stage 3.

But again, I think going back to the comment that was made in another question that our gross profit grows by less than our net interest income, you'll see already in the second quarter, our NPLs close to where they should be and closer to our Stage 3 proportion and then they change only slightly throughout the rest of the year.

And Neha, just complementing here. If we look at a product-by-product and cohort-by-cohort analysis, we're not seeing any great deterioration on any of those pockets. It's just a compounded effect of many different things it's the credit portfolio mix. It's also the fact that, yes, the private payroll loan is a secured product, but it's not a no-risk product. It is a low-risk product. So as we keep growing the portfolio, there is going to be some delinquency there as well. But in every sense, a much more secure product than the unsecured ones.

Understood. And in terms of loan mix, probably looking at 75% secured by year-end, given the growth that you're having in the private payroll...

No, that shouldn't be the case because we still grow quite well, especially on credit cards, which are not secured. I mean it's definitely going to increase from 54% but definitely not going to be around 70%.

The question-and-answer session is over. We would like to hand the floor back to Mr. Eduardo Chedid for the company's final remarks.

Yes. Thanks a lot for being here with us again. I think that we've delivered a strong first quarter. As you will see, guidance for the second quarter means that we remain positive. And I'd say that the main message here is that we hold the high conviction on delivering full year results. With that said, I'd just like to thank you guys, and we'll see you guys in the next earnings calls.

PicPay's conference now is closed. We thank you for your participation, and wish you a nice evening.

Good afternoon, everyone, and welcome to the Picpay Earnings Conference Call for the Fourth Quarter and Full Year 2025. I am Andre Cazotto, Picpay's Strategy, M&A and Investor Relations Officer. Today, I'm joined by Eduardo Chedid, our CEO; Rodrigo Couto, our CFO; Danilo Caffaro, Vice President of Consumer Banking; and Pedro Lippi, our Strategy Director. We will begin with a short presentation highlighting our quarterly and annual results, followed by a live Q&A with our management team.

Please note that this presentation may contain forward-looking statements and non-GAAP measures. Please refer to the disclaimer on screen and in our earnings materials available on our Investor Relations website for additional information. This call is being recorded, and a replay will be available on our website shortly after the call.

Before we begin, I would like to take a moment to thank all the analysts and investors who supported and followed PicPay throughout our IPO journey. It was a long and intense process, and we truly appreciate the engagement, the questions, and the trust many of you placed in our story. Today's call marks an important milestone for us as we begin our journey as a public company, and we look forward to continue this dialogue with the investor community in the years ahead. Thank you for being with us. Finally, before I hand the call over to our CEO, Eduardo Chedid, I would like to briefly highlight the strength of our execution.

As you can see on the next slide, we deliver results above the top end of the guidance we presented in our IPO prospectus across all key metrics, both for the fourth quarter and for the full year of 2025. In particular, looking at our adjusted profitability metrics, which mainly excludes stock-based compensation expenses and the recognition of deferred tax assets, we delivered adjusted pre-tax earnings of BRL 241 million, 12.1% above the top end of the guidance for the quarter, and BRL 592 million, 11.5% above the top end of the guidance for the full year.

At the same time, adjusted net income reached BRL 188 million, 31.5% above the top end of the guidance for the quarter, and BRL 502 million, 14.1% above the top end of the guidance for the full year. These results clearly reinforce our strong execution and our ability to deliver results above expectations.

With that, I will now turn the call over to Eduardo Chedid.

Thanks, Cazotto, and good evening, everyone. Let me start with our operational highlights. On accounts, we ended the quarter with 67 million total accounts, up 11% year-over-year. Quarterly active clients reached 42.7 million, also up from 39 million in the prior year. On volume, consolidated total payment volume reached BRL 157.5 billion in the quarter, up 28%, and BRL 550 billion for the full year, a 31% increase. Wallet and Banking total payment volume followed the same trajectory, reaching BRL 141.6 billion in Q4, up 27%, and BRL 497 billion for the year, up 30%.

Total cash-in, meaning the total amount of money our customers brought into our platform, accelerated to BRL 139.4 billion in the quarter, up 27%, and BRL 483.4 billion for the year, up 29%. In Q4, our customers cashed in almost BRL 47 billion per month, reflecting deepening and growing principality across our client base. Another two metrics this quarter. Deposits grew 44%, reaching BRL 28.7 billion, a strong signal of increasing client trust and balance retention.

And active insurance policies nearly doubled, growing 76% to 9 million insurance policies, demonstrating the traction of our cross-selling engine. Across the board, strong and accelerating operational performance. Turning to credit products, the key engines of our monetization strategy. PicPay Card TPV reached BRL 17.6 billion in Q4, up 42% year-over-year.

For the full year, Card TPV hit BRL 58.7 billion, a 50% increase as we continue to expand card penetration and drive higher engagement per cardholder. Personal loans origination more than doubled in Q4 when compared to the previous year, reaching BRL 4.4 billion, up 116%, and totaled BRL 11.4 billion for the full year, a 67% increase. We are scaling origination while maintaining portfolio quality, and we see significant runway ahead as we deepen credit penetration across our 42 million active client base. On the credit portfolio side, total outstanding balances reached BRL 24.1 billion, up 128% from the BRL 10.6 billion a year ago. This growth was driven by disciplined expansion across both secured and unsecured products, supported by continued improvements in our underwriting capabilities.

Now let's look at the financial outcomes of this operational momentum. Net revenues reached BRL 3 billion in Q4, up 69% year-over-year, and BRL 10.3 billion for the full year, an 85% increase. This is the clearest evidence of the operating leverage embedded in our platform. ARPAC, Average Revenue Per Active Client, rose to BRL 71 in Q4, up 52%, and BRL 62.9 for the full year, up 66%. Importantly, this is happening while our cost to serve per active client grew only 11%, both on a quarterly and annual basis, reaching BRL 20.4 and BRL 19.1 respectively. The widening gap between ARPAC and cost to serve is the defining feature of our unit economics and a structural advantage we expect to sustain.

Gross profit came in at BRL 3.6 billion for the year, up 28%, and earnings before taxes reached BRL 241 million in Q4, nearly four times the prior year, and BRL 592 million for the full year, up 71%. Adjusted net income grew 136% in Q4 and nearly doubled for the full year, up 99%, underscoring the profit inflection underway at PicPay. This slide puts it all together, the trajectory of scale, profitability, and diversification. Total quarterly revenues have tripled over the past two years from BRL 937 million in Q4 '23 to over BRL 3 billion in Q4 '25. But what's equally important is how we are growing.

Look at the revenue mix. In Q4 '23, 97% of our revenues came from fees, commissions, and float. Two years later, the composition has fundamentally shifted. Float fees and commissions now represent 48% of revenues, while secure credit has grown to 19% and unsecured credit to 33%. This is a far more balanced and resilient revenue base, and it reflects the maturation of PicPay as a full-service financial platform.

On the bottom line, net income grew from BRL 25 million in Q4 '23 to BRL 188 million in Q4 '25. Our quarterly annualized return on equity expanded from 8.5% to 24.4% over the same period, a nearly threefold increase and a clear indicator that we are generating attractive returns on the capital that we deploy. To summarize, PicPay is scaling rapidly, diversifying its revenue streams, and converting that growth into meaningful profitability.

Now let me shift to product velocity, the innovation engine behind these results. We had an exceptionally productive quarter across every vertical. Starting with our move into the affluent consumer segment. In December, we soft-launched Epic, PicPay's premium product package purpose-built for high-income clients. This is a strategic long-term bet to address the needs of the affluent segment in our customer base, around 2 million customers that earn more than BRL 15,000 a month. The value proposition is compelling.

Domestically, Epic offers 1.3% cashback on all transactions. For international spend, customers get 4% cashback. Besides that, for the first time ever, Brazilians will be able to split international purchases into three interest-free installments. We also offer 10 gigabytes of free roaming data, a differentiated bundle that directly addresses pain points for frequent travelers. Beyond that, Epic customers get access to higher-yield investment products and a suite of embedded premium services, creating a holistic affluent experience that deepens engagement and drives principality.

Complementing Epic, we also launched our Global Account, extending PicPay's platform beyond Brazilian reals for the first time. The Global Account offers a multicurrency balance in U.S. dollars and euros paired with a global debit card that can be used anywhere in the world. The economics for our clients are best in class, a 4% annual yield on balances and 0 FX spread on convergence. Together, Epic and the Global Account represent PicPay's full-stack affluent strategy, and we believe they open a significant new revenue pool. We're just beginning, and we know this is a multi-year project, but with time and continuous innovation, we believe we can make a difference.

Moving to small and medium businesses where we made significant progress on two fronts. For the long tail, microentrepreneurs and individual sellers, we deepened the integration between our consumer banking and our business platform. The improvements include a simplified onboarding flow that helped us reach 60,000 new business accounts per month in Q4. We also launched payment links, enabling any seller to generate a payment link and collect instantly, no website or point-of-sale terminal required. And we introduced one-click integration, which allows any individual to transition from a personal account to a business account in a single tap, removing the friction that typically prevents informal sellers from formalizing.

For larger SMBs, we soft launched three important capabilities. Tap on Phone, which turns any NFC-enabled smartphone into a payment terminal, eliminating hardware costs entirely. Working capital loans, giving merchants access to credit based on their PicPay transaction history, and supply chain finance, which allows businesses to anticipate receivables and improve their cash cycle. Now, audiences and ecosystem, where we made several high-impact launches that expand PicPay's surface area and drive active engagement.

First, we completely redesigned PicPay Shop, our integrated marketplace. It now features a full end-to-end experience with over 300 retailers and seamless integrated checkout. The customer discovers, shops, and pays without ever leaving PicPay. This is a powerful engagement and monetization layer built on top of our existing user base. Second, we launched food delivery in partnership with Rappi, one of the leading delivery platforms in Latin America.

PicPay users can now order food directly within our app, adding a high-frequency use case that drives daily opens and reinforces the habit loop. Third, we introduced a travel hub in partnership with CVC, Brazil's largest tour operator. Users can browse and book flights, hotels, and travel packages, again, entirely within PicPay with integrated payment installment options. And fourth, we expanded our iGaming hub beyond our existing offerings to include scratch cards, raffles, and lottery products.

This is a high-engagement, high-margin vertical that complements our entertainment ecosystem. The common thread across all of these is clear. Every new vertical increases time spent in the app, deepens engagement, and creates new monetization surfaces, all without acquiring a single new user. Finally, our open platform strategy, a core differentiator for PicPay. Our thesis is simple. Customers shouldn't have to choose between PicPay and their other financial institutions. Instead, we bring everything together in one place, and in doing so, we become the hub of their financial life. We pioneered this approach with our account aggregator, which allows clients to view and manage balances from multiple banks directly inside PicPay.

This quarter, we expanded the strategy into two new verticals. First, the cards aggregator. Customers can now register and track credit cards from any issuer within PicPay, giving them a complete view over their card spend, statements, and limits regardless of the issuing bank. Second, the investment aggregator, which consolidates investment portfolios from multiple brokers and banks into a single investments hub inside our app. The strategic logic is powerful. Every aggregator deepens engagement, generates proprietary data on customer behavior, and creates natural cross-selling opportunities. When we see a customer's full financial picture, we can serve them better, and that translates directly into better underwriting, higher ARPAC, and profitability.

Now I'll hand it over to Danilo Caffaro, our Vice President of Consumer Banking.

Let me open this session with the opportunities ahead in credit, which we believe is the single largest lever for value creation at PicPay. On the left side of this slide, you can see the share of wallet funnel. Brazil has a vast addressable market of individuals with credit lines. Of those, a meaningful portion are already PicPay customers. But today, our credit share of wallet stands at just around 6%. That means 94% of our own customers' credit wallet is held elsewhere. The upside is enormous, both from deepening penetration with existing clients and from onboarding new to credit customers. On the right side, you see how our market share has evolved across key products and the momentum is unmistakable. Private payroll loans, our newest credit vertical, went from 0% market share in Q4 '24 to 3.7% in just one year.

This is a product with strong structural advantage, low risk, payroll deduction, and a growing addressable base. Personal loans nearly doubled their market share from 0.9% to 1.78%. Credit card portfolio share grew from 0.67% to 0.98%, almost 1%. And the card's total purchase volume moved from 1% to 1.3%. We are gaining share across every credit product, and we are still in the very early stages. With 42 million active clients, best-in-class data, and a platform that enables contextual embedded credit offers at the point of need, we see a long runway of profitable growth ahead.

Moving to the next slide, we can see how our market share gain reflected on the evolution of our consumer credit portfolio. We delivered another quarter of solid growth, reaching BRL 22.5 billion, up BRL 4.3 billion or 24% quarter-over-quarter. This reinforce PicPay's ability to originate and scale digital credit. It's important to highlight where this growth is coming from. Basically, secure products and clients with longer relationships. In other words, low-risk loans and mature credit cards clients representing 85% of the total growth. I also want to address the mix shift that is happening in the portfolio composition. FGTS origination declined due to regulatory constraints on FGTS prepayment rules. At the same time, we made a strategic decision to invest in private payroll as a replacement growth engine. This mix shift is positive from a NIM perspective. As you can see on the bottom, private payroll has a higher NIM, so risk-adjusted return on the portfolio is improving.

However, there is an effect on provision levels. FGTS carries almost no credit losses. As private payroll replace FGTS in the mix, you should expect higher provision formation even though the overall economics are better. The bottom line, the portfolio is growing, it is healthier, and the shift towards private payroll is a better business, but it comes with a different provision profile than FGTS. In the next slide, we will cover personal loans origination quality. The key message here is that it remains stable and in some areas, slightly better. On the left, total personal loans origination reach BRL 4.4 billion in Q4, more than doubling from a year ago and 88% coming from secure lending. That's important. The two lines below are those I want to focus. The green line is the monthly spread and the black one is the early delinquency rates.

They are both trending down together. This is exactly how our risk-based pricing model works. As we improve credit quality, delinquency comes down and pricing follows accordingly. That's actually a feature of our model, not a concern. On the right, we isolate unsecured origination. Even here, the same pattern holds. Delinquency dropped to 73% of base, while spread is at 92%, meaning the spread to loss ratio is actually trending better. So across the board, total and unsecured origination quality is holding steady and getting slightly better each quarter. The credit engine is performing as expected.

On the next slide, we have the same analysis, but for the credit card portfolio. On the left, we show the total unsecured card portfolio. It more than double since Q2 '24. Our progressive Limits cards now represents 25% of the portfolio coming from 7%.

These are entry-level cards for customers who are still building their credit history with us. Part of our cost of acquisition strategy, and they carry higher delinquencies by nature, but also higher spreads. Now, when you look at the spread and first roll rate lines, and first roll rate is actually delinquency rate for credit cards, they are both up 22%. The increase in the first roll rate is driven by a larger share of progressive limits in the mix.

On the right, we isolate only the standard card portfolio, the core product where the mix has not changed. The portfolio grew almost 2x. Spread is at 105%, up to 100 basis points on the beginning of the period. Slightly up, but the first roll rate is stable for the last quarters. The key takeaway is the total portfolio shows rising roll rates because of the growing progressive limits segment, which is by design. But the standard book on its own, it's solid and still performing very well.

Now moving to the next slide, let's dive into the private payroll portfolio. This product is central to our growth strategy. We are comparing Q2 2025 cohorts, the early days of the product, with Q4 2025. The progress is clear across every metric. Origination is up 40% quarter-over-quarter. We are originating over BRL 600 million per month. Interest rates remain stable at 4.3% per month, showing consistency in our pricing. Average term is now two times higher than initial cohorts. First payment defaults went from low double digits down to high single digits.

Unemployment rate at 90 days, which tracks whether borrowers remain employed after 90 days of their contract improved by 30%. One final point worth highlighting. The collateral behind these loans. FGTS balances and severance pay is not priced in our models today. There is a potential upside we have not yet captured, and we're still waiting for the rules on the market. We are confident in the fundamentals of the private payroll loan. The operational issues are behind us. The vintage curves are tracking well, and we remain committed to scaling this product as one of our main growth engine.

And now I will hand it over to Rodrigo Couto, our CFO, to walk through the quarter's financial results.

Now I will walk you through our financial performance. As you can see on the graph on the left, our revenues grew 69% year-over-year, while operating expenses grew only 15% over the same period. As a result, our efficiency ratio fell below 50% for the first time in the fourth quarter, which is an improvement of 10 percentage points relative to the fourth quarter of '24. Our ROE for the fourth quarter of '25 was 24.4%. Our ability to grow revenues over 4x as fast as expenses demonstrates the power of our operating leverage resulting from the efficiency and scalability of our digital platform. Overall, our results reflect a consistent theme of accelerated revenue growth, far outstripping expense growth, resulting in rapidly improving efficiency and increasing ROEs. On the next slide, we present the expansion of our financial margins.

Our net interest income, margin from credit products, and margin from credit products after losses all grew around 70% year-over-year and expanded between 9% and 18% in the fourth quarter, demonstrating the health of our core financial services business as we expand our balance sheet. On the next slide, looking at the credit portfolio, we reached approximately BRL 24 billion in total credit, growing 128% year-over-year and 29% in the last quarter alone. The acceleration of our growth was made possible in large part by the new private payroll loan product, which has opened up a new frontier in the Brazilian credit market and in which we are well positioned, as Danilo explained.

As a result, we are able to accelerate the growth of our portfolio, focusing on this new secured product to the point that nearly 70% of our portfolio growth in the fourth quarter was concentrated in secured products despite the decrease in the origination of FGTS advances due to government-imposed limitations. In other words, we have been able to rapidly expand our portfolio while improving overall credit quality.

On the next slide, we present the evolution of the stage 2 and stage 3 formation of our portfolio. We believe those metrics are more representative than traditional NPLs because they are comprehensively defined in the accounting rules and incorporate multiple risk-based criteria while NPLs focus solely on days past due as a measure of quality. On the left-hand side, we see that the stage 2 formation of our portfolio has been falling steadily, which has been the result of declining stage 2 formation in both our secured and unsecured portfolios, as well as of the shift in mix towards the secured portfolio.

Falling stage 2 formation means that a smaller part of our portfolio has been deteriorating in terms of 30-day delinquency and/or in terms of increases in the probability of default. Lower stage 2 formation obviously points in the direction of lowered stage 3 formation in the future. On the right-hand side, we see that stage 3 formation has been increasing from a low base towards a level of around 4%, which we have come to expect going forward. The increase you see in the fourth quarter to 7.1% is due to a one-time effect of a change in methodology.

As part of our annual review of our ECL measurement methodology, we incorporated significantly more data, which allowed us to upgrade our models and our methodology in general. In that context, we made improvements to our stage three classification criteria to make it more robust and less reliant on days past due as the main criteria. That improvement resulted in a one-time reclassification of approximately BRL 590 million of credits from stage 2 to stage 3 with an impact on expected credit loss provisions of BRL 88 million.

After this improvement in our criteria for stage 3 classification and corresponding reallocation of credits to stage 3, we have already seen stage 3 formation reverting to normal levels during the first quarter of '26, and we expect stage 3 formation for the first quarter of '26 to be between 3.7% and 4% with no expected significant increases going forward.

On the next slide, we present the classification of our portfolio by stages and the coverage of each stage. As you can see, the change in stage 3 classification criteria resulted in a changing mix between stages two and three with the proportion of stage one remaining stable. The reclassification of credits from stage 2 to stage 3 resulted in reductions in the coverage of both stages, which is to be expected, as the credits that migrated from stage 2 to 3 had higher coverage than the average of stage 2 and lower coverage than the average of stage 3. Overall, stage 2 plus 3 coverage reached 62%, which is a strong level when compared to that of our main peers.

To finalize this section of the presentation, we show our portfolio level loss absorption ratio, which has been running within our risk return management parameters slightly above 50%. While we run our credit business considering the 50% threshold, the overall portfolio loss absorption is a little higher because of our small limits strategy where we accept higher loss absorption up to a 100% as a cost of acquiring good credit customers. On the right-hand side, we see that quarterly cost of credit has been trending slightly down. Based on our projections of credit provision expenses and portfolio growth, we expect the cost of credit to remain nearly flat in the first quarter of '26 and to be around 3.5% to 4% for the remainder of 2026.

Moving on to deposits on the next slide, you see that our deposit base grew 44% year-over-year, while the cost of deposit funding remained largely flat around 94% of CDI. To finance the rapid growth of our credit portfolio, we have been deploying a strategy of diversifying the sources of funding, which we did in the fourth quarter through the issuance of BRL 500 million in subordinated debt following the issuance of BRL 200 million in senior unsecured debt in the third quarter of '25. We have been actively seeking additional sources of funding either through securitization or bond issuances, and we will continue to do so in the coming months.

Finally, we present on the next slide the evolution of our capital ratios, which are projected to be around 14% common equity Tier 1 and 16% total capital at the end of the first quarter of '26. Our target capital ratios going forward will be between 11% and 11.5% CET1 and between 14% and 14.5% total capital ratio. Our capital ratios are projected to trend down towards those levels as our balance sheet continues to grow quickly until at some point during 2027 we expect to reach the point where our capital generation will be sufficient to support our growth.

I will now hand you back over to Andre Cazotto to finalize the presentation.

As we approach the end of the call, we would like to provide some additional color on our outlook for the year ahead. On the next slide, starting with our first quarter '26 guidance, we're increasing transparency and providing investors with greater visibility into our near-term performance. It's important to highlight that all figures refer to the PicPay standalone business. We are sharing more detailed quarterly outlook across our key financial metrics, reinforcing the consistency of our execution and the strength of our operating model. Even considering the typical weaker seasonality compared to the fourth quarter, we expect to deliver solid results with continued credit portfolio and revenue growth, strong margins, and disciplined risk management.

We would also highlight our profitability outlook with GAAP net income expected to be around BRL 140 million and adjusted net income of around BRL 155 million, primarily adjusted for stock-based compensation. On the next slide, looking ahead to 2026, our priorities are clearly focused on driving sustainable and profitable growth. We expect to deliver strong revenue growth while expanding margins as we continue to capture the benefits from past investments in growth and business diversification. A key lever will be increasing the penetration of credit products within our base, supported by continued cross-sell and a stronger primary relationship with our customers. At the same time, we continue to scale our SMB operations with a full banking approach while advancing our beyond banking strategy to drive deeper customer engagement and additional cross-sell opportunities across our ecosystem. Finally, we remain fully focused on Brazil, where we see a significant opportunity to further consolidate PicPay as one of the leading digital banks in the country.

With that, we conclude our conference call and would like to hand it over to the operator to begin our Q&A session. Thank you.

[Operator Instructions]. Our first question comes from Gustavo Schroden with Citi.

First of all, congrats on the IPO and now congrats on the strong results for super strong growth. So I have 2 questions, if I may. The first one is regarding the asset quality and the credit growth. So analyzing all your information and explanations about what happened in the quarter related to stage 2 and 3. So this, I mean, improvement in the risk models and apparently the increase in stage 3 was a one-off, so we should expect stage 3 normalizing in the first quarter. So you are guiding us that cost of risk in the first quarter '26 should be virtually in line, and it is 3.7% virtually in line with third quarter.

So my question here is that we should assume that the company is guiding us that it is sustainable. There's a strong pace of growth with asset quality under control for 2026 at least. So we should forecast cost of risk between 3.5% to 3.7% for the year in this strong pace of growth. I'm asking this because this is one of the main questions we have received, right? So I'm trying to understand how comfortable you are with this strong pace of growth versus asset quality evolution.

And my second question is regarding the card transactions and operations made through third-party cards, right? So if you could share with us how it is evolving, because I remember that the recent -- the last data you showed, we could see less contribution from these type of transactions. I mean, lower contributions from third-party cards. We couldn't find the information about the fourth quarter '25, so that would be great hearing from you. What is the current level of these transactions versus transactions made with Pix cards? And then what should they expect going forward? Thank you, and congrats again.

Thanks for your question, Gustavo. This is Rodrigo. It's exactly as you mentioned. So we're expecting to continue to grow our credit portfolio with quality improving at the margin because of the concentration of growth in secured products. Within secured products, there is a shift in risk return profile because we'll have less FGTS, which is virtually no risk and lower return, and more private payroll loan, which are both higher risk and higher return and better economics overall. We expect to continue to grow at a fast pace, perhaps not every quarter as fast as the fourth quarter of 2025.

And for the cost of risk and for all of our portfolio metrics to be in the ranges that we mentioned in the presentation. So all our projections point in that direction. Having said that, we'll adjust as conditions change and we will continue to sort of keep a close watch on credit quality.

So in terms of your second question, Gustavo, it's Cazotto here. Let's say that revenues coming from third-party credit cards are representing roughly low teens over total net revenues. So the PicPay credit card is becoming by far much more relevant in wallet transactions. For Pix transactions, for instance, representing more than 50% of the transactions that are backed by, let's say, credit cards in our platform. So naturally we are, let's say, switching gears from third-party credit cards to more and more our own credit capabilities. So naturally we're expecting to see, let's say, the revenues coming from third-party credit cards losing momentum over time.

About 2 years ago, around 14% of total transactions were actually funded by PicPay Card. As you can see now, more than 50%, already at that stage. So PicPay Card is becoming quite rapidly the number one source of funding for Pix finance transactions.

Our next question comes from Dan Dolev with Mizuho.

Great results. Great quarter out of the gate, very, very strong. I just had one quick question about AI. Can you maybe talk about your AI efforts and how it helps PicPay grow the top line and also make the company more efficient? Congrats again.

Hi Dan, thanks. Eduardo here. I think that first to understand our AI strategy, I need to take you back to '23. ChatGPT was launched in November '22, and by March '23, we already had a client-facing model running ChatGPT. So we've been working on that for quite a while now. Maybe the first large product that came out of that relationship was basically migrating all the first-level customer service into ChatGPT about 2 years ago. Just to give you a sense of how much that was good, we ended up avoiding hiring almost 3,000 customer services reps in the past 2 years. So I'd say that this is just one example of things that we've been doing. Maybe Danilo can give you a bit more color on things that we've been also doing on the revenue side, besides the efficiency of adopting AI.

Sure. In terms of the revenue side, last year, we made more than 50 billion recommendations for our customers. That was all AI driven and help us on our cross-selling index and increase the penetration of credit products as well. Just to give an example, more than 10 million users already use our PicPay assistant, that you can do Pix transactions through WhatsApp, and every day we add more and more features. The goal here is actually to have 100% of the PicPay products and service that can be done without the app and actually where the customer is. We're also still going -- we're finalizing the tests on our own foundation model for credit as well. That's something that we're pretty excited because there's a lot actually.

Our next question comes from Mario Pierry with Bank of America.

Congratulations on the IPO. Congratulations on the results. I also have 2 questions. First one is about your guidance for the first quarter. If you can go through the seasonality in the numbers because when we look at the guidance, right, we're talking about revenues growing 5% quarter-over-quarter. We're talking about gross profit growing 8% and your adjusted net income actually declines 17% quarter-on-quarter. So clearly there's some seasonality here, but can you walk us through the seasonality, especially because you have the proceeds of the IPO, right? That should help your revenue generation just to float on that. So I think it's important, first of all, through the seasonality. Look, the first quarter guidance that you gave is better than what we have in our models, but we just wanna make sure that we understand the seasonality.

And then my second question is about the profitability of the private payroll product. Like you said, you're gaining a lot of market share. This is a key driver of loans and revenue for you. The product appears to be very profitable. However, we're seeing more and more players entering into this market. Can you talk a little bit about potential competition pressuring your spreads? Also, we heard some noise out of Brazil saying that the government could implement interest rate caps on this product. So I would like to hear your views on that.

Mario, yeah, Chedid here. Good talking to you. First of all, on seasonality, you're quite right. First quarter for us is generally the weakest quarter traditionally. This quarter, as our guidance shows -- it still shows some, let's say, diminishing numbers if you compare to the fourth quarter, but at the same time, it's almost about the strongest first quarter we've ever had. Yes, it is supposed to be the weakest in the year. At the same time, as you said it yourself, it's above numbers you were expecting. And yes, it's been a strong first quarter for us. Do you want to add?

Yes. Just to complement here. Historically, in Q4, let's say credit card TPV is much stronger, naturally, because of the end of the year seasonality. So in both for offline transactions and at the same time in our own ecosystem inside our digital wallet, but also important to highlight that Q1 is coming very strong, even better than our expectations. We continue to originate more than BRL 3 billion in loans in the quarter. So our expectation is to accelerate the performance of our results throughout the next quarters in the business.

For the private payroll, two questions, right? First around competition, yes, we're seeing more and more players coming to the market as it matures. That's expected. We expect that. And also there is some room to grow even with competition because, as you mentioned, now the operational issues are behind us, and we're getting more and more confident in order to actually improve the -- our offerings in terms of -- and we just showed you, right? We just doubled the average term of our offering, and that's pretty much even more important than actually competing on pricing on interest rates, have the right condition for the user. Just to give some numbers, 80% of our origination products is actually done through our own channels, and only 20% we are actually doing on the market platform. So we're pretty confident that it's going to be more competition, but we don't think that's going to affect our trajectory of growth.

Also, in terms of noise about caps. So first of all, we understand that is a completely different product from FGTS, for instance, or even the public payroll, there's different risks. We understand that it's better to have the market free in terms of pricing the risk and serve the market better than, of course, capping and actually having a lower, I would say, penetration on the market for this kind of product. But our prices are like in the low single digits as we show you. So again, that's not something that we have to worry about.

I think that there is a potential positive trend ahead of us as well. As Danilo showed in the presentation, we're still underwriting as if the two additional warrants were not in place. So when they actually get implemented by the government, there is a positive effect because we would probably be able to underwrite to a larger base of clients if you compare to our underwriting model now. So that's also a positive trend that should add to the current, let's say, addressable market.

Okay. That's clear. Let me ask one third question here, just really quick. When we look at your adjusted net income guidance versus your reported net income guidance, the difference is only BRL 10 million roughly. I think we were working on a bigger number than that. Can you -- and just to confirm, you're just assuming here stock-based compensations that you're removing from the reported number?

That's correct. And the net effect of that net income is about BRL 15 million for the first quarter, which is just the amount of the expense net of income taxes.

Our next question comes from Craig Maurer with FT Partners.

Congrats on completing the IPO. I wanted to ask about the launch of Epic. First, how does this product line up against, say, the affluent product from Nubank? And secondly, when we think about affluent customers in general, what's your overlap with that general demographic in Brazil? And therefore, what's the opportunity to cross-sell and rapidly grow the business?

Craig, good talking to you. Well, first of all, I think that we actually launched Epic to address the needs of around 2 million of our clients that actually make more than BRL 15,000, which is a common threshold used by all banks to categorize the affluent segment. So within our own user base, we have 2 million of clients that could be categorized as affluent. In terms of what we're offering, let's say that if you look at the affluent segment, you could say that it varies from BRL 15,000 to a much larger monthly income.

Our target, and that's where we are targeting our value proposition, is actually at someone that makes between BRL 15,000 and BRL 30,000 to BRL 35,000 a month, which is the larger portion of that segment, which we feel that it's also the, let's say, the customers who were less well served by most of the banks, which are, let's say, in the pyramid of the affluent segment, they're in the base, so we target that. And we are offering things that actually address the needs of that base of the pyramid of the affluent segment.

If I can give you one thing that is innovation, which targets specifically that, let's say, base of the pyramid is what we launched, which is the ability to actually make international transactions in 3 installments with no interest, which is not really relevant if you are really the higher end of the pyramid, but if you're in the beginning of that affluent segment, it's quite relevant and nobody had offered that before for Brazilians.

So we believe that this is a multiyear strategy, important for us. But obviously, it takes time to basically get those customers in and bringing more principality. So we believe that we have a suite of products now. Let's say, that we're more weaponized to go after those clients.

And in terms of overlapping, I mean at the end of the day, if you look at -- this is not only true for the affluent segment. On average, Brazilians have around 5 bank accounts, which means that, yes, we overlap with everyone that has a large base of clients. Now 2 million clients on the affluent market puts us definitely among those who have more of those clients on the base, which means that we also overlap with most of the other guys who have larger bases of affluent customers. I don't know if you guys want to add?

If I can follow up just, could you comment quickly on the degree of principality within those 2 million customers versus, say, the remainder of your customer base?

So as we do today, we didn't have, of course, the right bundle of products and service and the offering was pretty much not there. Of those 2 million customers, our principality is actually low. But what I can mention is that for the ones that are already migrated and actually an Epic user with the new product offering and value proposition, we have already above 50% of principality that is higher than our average base.

Craig, just to make a complement, we're talking about the overall customer basis. We are increasing our principality numbers. As you can see, in Q4, our principality achieved is 35% compared to 32% in the previous quarter. So again, I think that we are in the right path in terms of more and more, let's say, becoming the primary relationship of our customer base as we are, let's say, penetrating more financial services, especially credit products within our customer base.

Our next question comes from Ricardo Buchpiguel with BTG.

I have 2 here on my side. Over the beginning of the year, have you seen any changes in customer behavior following the income tax exemption that you have for low-income population, either in terms of higher spending or increasing the capacity to take more credit or even lower delinquency?

And for my second question, can you please share more details on what drove the acceleration in the classification of renegotiated NPLs from Stage 2 to Stage 3, and also the update in the parameters of the expected loss models? And if you also could comment what was the net impact from both these changes in the total provisions of the quarter would also be helpful.

Okay. So I'll start with the second question. Our portfolio is still relatively young, which means that as the time passes, the amount of information we incorporate is quite substantial relative to what we had before. And as we had more information, we were able to detect a part of our portfolio that was in Stage 2 that had characteristics that would be more appropriate to be classified in Stage 3. So we did the reclassification.

The level of provisioning of those credits was already high, around 60%. It went up to 75%, and that had an impact of BRL 88 million in our provision expense. So it's basically the result of us learning more about the performance of our portfolio and making the necessary adjustments to our ECL models to make sure that we have the correct measurement at every point in time.

Ricardo, going back to your first question, I think it's too soon to actually give you any, let's say, color on the tax exemption being a positive force in terms of, let's say, more business or even higher collections, right? At the same time, we are positive about it. It should represent a good trend. There is a large portion of clients that will have a significant increase in disposable income. So in theory, it's quite a positive impact, but it's still too soon to actually reach any conclusions.

Very clear. And if I may do a follow-up on the second point. It's clear that you had like a negative impact in around BRL 90 million in provisions because of this reclassification. But when we look at the cost of risk, it's flat quarter-over-quarter, right? So in theory, you should have a positive impact contributing on that and it will be interesting to understand what was this positive impact as well.

Okay. So this change in our Stage 3 classification criteria came within the context of an overall review of our models, and there were some compensating effects. But when you look at our cost of credit for the fourth quarter, it went up by 10 basis points in a quarter where our portfolio grew 29%, right? So it was actually a quarter where we, let's say, made higher provisions. You can see that on our loss absorption ratio going up. So it's not like the whole impact was offset. No, we did make higher provisions in the fourth quarter. And I think you can see that -- the best way to see that is in the increase in the coverage of Stages 2 and 3 together.

Our next question comes from Darrin Peller with Wolfe Research.

Nice results and congrats again. I just want to start with ARPAC growth and to some degree, user growth also. But help us just remind us and walk through the magnitude of the drivers of the ARPAC growth over 50%. I know private -- there's a number of different factors, private payroll, et cetera, that are really contributing in credit, et cetera, but maybe just help us more specifically the building blocks of the top drivers that you're seeing succeed.

And then more importantly, I mean, I know in our prior model, we had assumed around a 30 -- a little over 30% ARPAC growth for the year. So maybe just a frame of reference of what's occurring in this quarter and the trajectory throughout the year ahead of us as to why that shouldn't sustain at a higher rate than, call it, low 30s.

All right. So starting with the ARPAC, naturally, the biggest driver is, let's say, higher penetration of credit products on top of our digital wallet. We still have the wallet playing a very, let's say, relevant role in terms of, let's say, customer engagement and also revenue growth. But I think that over time, the wallet is becoming much more like a customer of acquisition, too, that is helping us to learn more about the customer behavior and allow us to penetrate more financial services over time.

So naturally, the biggest driver continues to come from secured credit products. As you could see in the quarter, we accelerated the origination of secured credit products, and that should be the pattern going forward with the private payroll loan becoming the biggest driver in our business.

We also can highlight here insurance. As we presented earlier in the presentation, we achieved more than 9 million active policies, so we believe that insurance could be another important driver to accelerate the ARPAC. But overall, Darrin, we are gaining much more momentum on financial services in the platform, gaining more principality of our customer base.

We mentioned before that our customers brought in December close to BRL 50 billion in cash-in, in a month. It's a record for the company. Naturally, with more cash in, with more principality, we feel comfortable to increase the penetration of credit products. But like I said, I think that the biggest driver comes from secured credit products. And going forward, we believe that this trend should continue as well.

Darrin, I think that going to the second part of your question, there is a mathematical effect also, which is, we expect to actually have a higher number of active clients. And then that's what is kind of diluting growth of ARPAC to around 30-something percent, which is what you mentioned. At the same time, if I look at same client growth, then there is a very, very good trend on that. So it's also a mathematical impact.

Very helpful, guys. Just very quickly, I mean, it looks like private payrolls loans are obviously executing well enough to fill that gap from FGTS. Just maybe just remind us again the strategy and confidence in continuing to gain market share here.

I think that two things happening at the same time, right? So new regulatory rules made it harder to originate on the FGTS prepayment. At the same time, we're more and more confident on the private payroll loans. And I think that, first of all, it was always one of our large bets because it basically unlocks a huge opportunity for us as this was probably the largest captive market still in the hands of the incumbent banks because prior to that product, in order for us to conquer a payroll, we'd have to bid on it and then the employer would actually get that -- those huge amounts of money.

So there was a no game for us to play in that arena, and that's basically why incumbent banks had more than 95% of market share of that market. So with the new product, we can access the employee directly without going through the employer. And we were right out of the gate when the product was launched because we thought it was in our benefit to actually learn it quicker. So we were the second company to be actually certified to operate. So we went in early. We saw everything, let's say, I'd say, earlier than most of the other players. So we learned about it.

And then as we actually became more and more confident and as the operational issues actually came to a level where we had comfort to actually start originating more and more, we did so. If you look at the 3 months of the quarter, we actually did on average more than BRL 500 million of origination per month. And the first quarter also indicating an even better trend.

So we were first out of the gate. We learned very well. I think that one of our key strengths is our contextual digital distribution. If you compare what we are doing to most of the peers in the market, we have more origination coming from our own channel than more than almost everyone else. So 80% of our origination is actually driven by in-app contracts. So I think it's a mix of things, but we remain really bullish on it, and we feel that we can be definitely one of the protagonists of that new market.

Our next question comes from Dan Perlin with RBC Capital Markets.

And also, let me add my congratulations on getting the IPO done and good quarterly results. Just a couple of quick ones. In the shareholder letter, you talked about expected credit to be about 60% of total revenues. Obviously, you spent a lot of time here on the call talking about secured growing faster, but it also sounds like that's going to get to about 25% of revenue. So the first question is just, is that your stated goal for your '26? Or is that more your ambitious goal over the next couple of years? And then I have a quick follow-up.

Hi, Dan, good to hear you. Yes, it's our, let's say, midterm expectations. We do believe that credit revenues should go up to 60%. And we believe that the biggest driver will come from secured credit products that should go from 19% up to 25%, let's say, 2 to 3 years from now.

Got it. Okay. That's great. The second question I have is the net interest income was up over 70%. So that was fantastic to see. And the margins still kind of we're holding in around 20%. I guess the question ultimately is, as you think about the mix shift of the business going forward, are there any puts and takes that we need to be thinking about? Like, is the 20% margin sustainable? Should that drift higher? Or is that kind of what you have to manage to in order to kind of continue to have that type of net interest income growth?

I'd say it's broadly sustainable. Of course, as we migrate towards secured products, we might get a little bit of compression just because those products have lower spreads. But we don't see in the horizon any major downward pressure on our margins. So I think that's the level we expect. It might even go up a little bit as interest rates go down.

We also have like, let's say, in terms of comparing to other peers in the market, we do have a higher interest earnings portfolio. Last quarter, it was close to 38% compared to maybe, I don't know, mid-20s from the market. So we have a higher presence of Pix finance transactions in our business model, which drives, let's say, higher net interest margins compared to the average of the market. So that's another complement that I can share in terms of the level of profitability that we have in our business model compared to other players.

Our next question comes from Neha Agarwala with HSBC.

Congratulations on the results. Just following up on one of the previous questions. You've shown phenomenal growth in the private payroll product. And as you detailed, that's been quite strong for you. But now all the large incumbent banks seem to be much more open in terms of growing in that product. Do you see the dynamics changing for you with all the other players being more active in terms of demand for the loans or pricing for the loans? Any expectation in that regard?

So actually, I would say that is the opportunity for us, the upside is much larger than any competition pressure. So we still are pretty positive around that, even though there's going to be more players on that product. But for us, the upside in terms of accessing the payroll deductions and being able to offer a good credit line for private employees is much higher.

Okay. And any concerns regarding asset quality? We know you're originating much more on the secured lending side. Is that more opportunistic? Or are you just being very cautious in terms of taking the credit risk with unsecured product for your customer base?

If you look at our policies, we actually drive it to be at least 40% of our portfolio being secured. So that's the overall policy. At the same time, we see great opportunity on the private payroll loans. So we are, let's say, forcefully directing our efforts into that. And it's, let's say, cannibalizing on what we could originate in unsecured personal loans. But because we feel that the opportunity is great. So that's mainly, yes.

The question-and-answer section is over. We would like to hand the floor back to Mr. Eduardo Chedid for the company's final remarks.

So thank you all for letting us host us today. It's an important milestone for us. It's our first earnings call. Hopefully, you leave with the impression of a quite strong first earnings call, and we expect to keep that promise running for future calls. Thank you so much, and we'll be around in the next few days if you guys like to talk to us. Thank you.

PicPay's conference is now closed. We thank you for your participation, and wish you a nice day.