So, I don’t know if it’s clear for you or if you need any clarification.
John Coffey: No, that was very helpful. I appreciate it. Thank you.
Ricardo Dutra: Thank you.
Operator: Our next question comes from Gabriel Gusan with Citi. Please go ahead.
Gabriel Gusan: Hi, guys, good evening. So a couple of questions. So maybe just a different way to ask this point about competition. So do you see any signs that competition or any other financial aspects to be more broader here, could make PAGS not enjoy the full benefit or the bulk of the benefit of the lower SELIC in its bottom line? And second question is CapEx increased quarter-over-quarter. So kind of expecting that first quarter level to be more of a trend. And so what’s the background there? Why we are not seeing a lower level here given the lower additions of clients? Thank you.
Ricardo Dutra: Hi, Gabriel. I will start with the first one and then Artur can talk about the capital expenditures. To be honest, we are not seeing big changes in competition in the — in the segments that we decide to play, which are — which is essentially MSMB. We know there is some competition happening in the key accounts, but we are not part of that game. So we are more focusing — most of our focus in MSMBs. And the competition — the competitive environment we’ve seen in the past quarter is similar to what it will be seen in the last years, in the past year. So we don’t see big changes. I know some players say they are going to increase salesforce and things like that, but to be honest, we don’t see that hurting us in such a way that we need to change our strategy or to change the way they work here, so competition seems to be similar to levels that we had before.
And answer to your question about how we can benefit about the SELIC went down, as I was saying before, we don’t plan to be the first one who — to pull the trigger and decrease prices. So we — we try to offer better services for our clients in such a way they can use us and they are not that price sensitive. That’s much more — we can see that much more in the longtail and micro clients and we try to do that with the same for the SMBs by offering PagBank to them. So I mean it’s hard to predict to you. If SELIC goes down, if some competitors start to decrease prepayment rates if you do the same, but we don’t plan to be the first one. We will keep following the competitors. I guess, after these two years of pandemic and the SELIC with 13.75%, companies are not looking for growth at any price as they used to do in 2021.
So every — everyone is more rational looking for profitability. So, I mean, I don’t think it’s going to be irrational movements if we keep seeing SELIC going down, but we are going to be close to our clients to understand what’s going on. Yes, that’s pretty much the way that we think here.
Artur Schunck: Gabriel, thank you for your question. Nice to talk to you again. Regarding to CapEx, it’s true. It was higher than Q1 ’23, but it was lower than Q2 ’22. But the good point is the CapEx that we are having right now is under control, in line with our budget, our annual budget. And the reasons that the CapEx was higher in this — in this quarter was because we need to increase inventory levels because of higher POS sales. Looking ahead, what we are expecting is to have a similar or likely lower than 2022 CapEx.
Gabriel Gusan: Perfect. Thanks a lot.
Artur Schunck: Thank you, Gabriel.
Ricardo Dutra: Thank you, Gabriel.
Operator: Our next question comes from Neha Agarwala with HSBC. Please go ahead.
Neha Agarwala: Hi, thank you for taking my question. Can we just talk about the dynamics of the SMB segment? You posted stronger growth around 10% for the SMB segment versus the entire TPV, but should we expect a strong — stronger acceleration for the SMB segment? Is that your focus? And how the dynamics that you’re seeing in that particular segment? And then can we talk a bit about the long tail segment? Your active merchants continue to decline as that probably are being more selective and focusing on profitability, but when can we see that stabilize? And do you see an impact from — there are some new players who got their full acquiring license, have you seen any change in competition or with tone going down market, do you see more aggressive price subsidies for the POS or any other change in dynamics which is worth highlighting? Thank you so much.
Ricardo Dutra: Hi, Neha, I’m going to answer your question in two parts. First about SMBs and then we can talk a little bit about longtail. Well, what we’re seeing in SMB is similar to what we’ve been seeing the past quarters. We understand that we — we have a very powerful combination here, we have a very clear value proposition for the SMBs. To be honest, I didn’t see any other competing in the market with the same combination of payments and digital bank that we have here. And also we have this instant settlement that other players don’t offer for the SMB. So if you’re an SMB and you use PagBank, you can have the plus zero right after a transaction, receive your money. You don’t have PagBank with high-yield CDs. So for the SMBs, they understand the value proposition, we have this advantage, of course.
Some of them don’t understand or they prefer to work with the banks they already work. But at the end of the day, we think we have a strong value proposition with a very powerful combination. That’s why we tried to leverage and to use our sales force to sell for the SMBs and we are doing — we’re doing very well, to be honest. As you could see, we are growing 10% TPV twice as much as the industry has been growing SMB. So that’s first part. The second one about longtail. We know we have seen some net add losses in longtail, part of that is churn that happened one year ago, so we’re not seeing this TPV for the past 11 months because they stopped working with us one year ago and then we are seeing churn right now. We try to always balance the subsidies that you have, the acquisition cost with the value that we understand the longtail is going to bring to us.
We try not to do, I would say, rational movements, always looking for this equation CAC divided — CAC versus LTV. And, yes. But to be honest in Q3, now we’re seeing increase in our gross adds. We’re seeing better response for the market. We’re getting more gross adds. And as I said before, in the first 45 days of the Q3, we are seeing 8.5% growth overall for the company. No new player in the market that is — no new kid in the block tried to disrupt the market, things like that. It’s — the dynamic is similar to what do we see so far. That’s pretty much what we’re seeing. The other thing that we’re always discussing here, the way that we’re going to measure how it’s going to be longtail when the longtail TPV is growing? It’s very common here in the base that companies start with us as a longtail and after a while it becomes — it goes to SMB because his or her business is growing and then it starts with one TPV and after one year it is like 50% more, 60% more and then we consider an SMB.
