CSU Digital S.A. (CSUD3) Earnings Call Transcript

Good morning, ladies and gentlemen. Welcome to the conference call of CSU Digital to announce the results of the second quarter of 2025. This video conference is being recorded, and a replay can be accessed at the company's website at ricsu.com.br. The slide deck is also available for download. [Operator Instructions] I would remind you that the contents will be presented in Portuguese with simultaneous interpretation into English. [Operator Instructions] Before I continue, I would like to take the opportunity to say that forward-looking statements are based on the beliefs and assumptions of CSU Digital management and on information currently available to the company. Forward-looking statements may involve risks and uncertainties considering that they regard future events and therefore, depend on circumstances that may or may not occur. Investors, analysts and journalists should take into account that events related to the macroeconomic scenario, industry-specific factors and other factors may lead the results to be materially different from those expressed in such forward-looking statements. Today, with us in this conference call, we have Mr. Pedro Alvarenga, CFO and IRO; and Mr. Fabiano Droguetti, CTO and the Investor Relations team. Now, I would like to give the floor to Mr. Alvarenga to start the presentation. Mr. Alvarenga, please, the floor is yours.

Good morning, everyone. It's a pleasure to be here once again to talk about the results of the second quarter of 2025 and the first 6 months of 2025. Well, this quarter, to the company, once again, has been very positive for us with many improvements in the main operational and financial metrics of the company. Those who have been with us for more time over the last 5 or 6 years, the company has gone through a very important time to change the business, not so much in terms of strategy, but adding new competencies, new technologies, new platforms. And this movement has been extremely important for us to reach the levels that we have been presenting in recent years in a sequence in terms of operational evolution in both our business units. So recapping briefly, we have transformed our platform in a way that it became very broad, meeting multiple needs, multiple businesses in the environment of financial services and well beyond card processing. So today, the company has a full platform, including banking, loyalty, Pix installments. So ultimately, today, any customer that wants to operate financial services can count on an end-to-end discussion that is scalable, that is very efficient in management day-to-day for each one of these modalities. In addition to this very intense work of transformation of our platform, transforming financial services along, we worked very intensely in bringing new mechanisms of hyperautomation, AI to bring this in home to become increasingly more efficient in each one of our activities. And I think that the result is something that we are going to talk over the next few slides. So when we talk about the performance of each one of our business verticals, starting in access in terms of cards and accounts. So we have been improving all our operational metrics, number of users that are in our platforms that has exceeded 38 million in the second half -- quarter rather of 2025 and active users that are able to bill through our unit that has grown 10% in this quarter, exceeding 23.5 million users active in our platform. Just another number to share with you, the ratio between these 2 indicators already represents 62% in terms of activation rate. This number is well above the market. The market operates at about 43%, and this reinforces how important it is for the company to position itself in this logic in terms of products, full service, end-to-end services in each one of lines of financial services to our customers. We can have a very outstanding result when compared to our competitors. And even if we compare to the companies and banks that have in home processing, and this makes us effectively keep along the company's trajectory 3 years in this leadership position. Another group of information that is important is related to transactions. Just as we increase the number of users and then we'll talk more about this further on. The second biggest challenge to the company from the operational standpoint is to continue encouraging and we have many different mechanisms such as AI so that incentive is recurring so that users use more and more each one of the possible transactions that we offer. Just as the number of transactions has been growing 18% per year since 2021, in the first half of 2025, we had a growth of about 4%. And the financial volume of the company is very relevant if we think in terms of the share of the financial volume, thinking of the country as a whole already exceeds BRL 234 billion. Now a little bit about DX. This is a business unit that has gone through an even more intense transformation process than the other business unit. For many years we've been operating exclusively in customer experience and an activity that is very analogic or was at least originally. And we worked intensely in bringing new digital channels, new -- creating to having automation processes that would bring more quality for each one of the solutions that we manage in our platform. So today, 73% of the operations are purely digital, and this is a number that is very significant. And this is what has been making it possible for the company to advance in its financial performance as a whole. We have also created new products, HAS was launched in the end of 2023. So in addition of providing the first care to customers, we work in the processes, along the processes in terms of onboarding, document, curatorship, fraud prevention. So we go into much more complex layers that demand much more technology to manage large volumes. This product, in fact, has changed the growth dynamics of this vertical. We have been able to have a very fast pace of expansion. We have 8 new contracts that we signed in the past 12 months, of which 6 are new. So in the last quarter, we had closed 7 contracts. So now we have made that we closed so another new contract with a new customer this quarter of 2025 in the second quarter. The consequence -- a natural consequence of this operational evolution that I have mentioned before is that the company goes into a different pace that is much more accelerated in terms of growth than what we had been having in the last few years. Operationally, we've been growing at 2 digits already, but this digitalization platform sometimes sacrifice the unit price of each one of the transactions, each one of the interactions, which has made us to grow at 5%, 6%, 7% over the past 5 or 6 years. Now when we take out this effect and we look at the operational performance, specifically this growth dynamic changes, the company accelerates this. So in the first half of the year, we already exceeded 9% growth. In the second quarter it was even slightly stronger than that average, very much related to the growth in both verticals. And this is a key point of this message. We are not growing just in one place. We are growing recurrently in both businesses, which is natural, as I said. As we operate in a full service model, these 2 verticals have great interaction, so we have the same customers in both units. Sometimes one customer starts using one unit and goes to the other. And so we have this recurrent evolution as part of the growth of our business. So in CSU Pays this is related to our strategy with partners. So this year, we could evolve in the relationships that we have with the base of companies that operate in this vertical. This quarter alone, we signed 3 new contracts to sell new services such as Pix and other services related to transactions within the payment and credit environment. So I think that the main highlight is when we talk about Pays. For DX, most of the growth is more related to these new contracts that we signed with existing customers and as well as new customers, which weren't in our portfolio before. So today, we've been able to reach many other industries such as telecom, financial services, insurance. So we have expanded greatly our capacity to provide services to new markets. And this explains the strong growth of CSU DX, which in the first half of the year had a growth in excess of 15%. Now when we talk about results and more specifically in terms of gross profit, the company, as I said before, is benefited by all this digitalization movement that we implemented over the last few years in both verticals. So gradually, we've been increasing our profitability and productivity in each one of the operations that we manage in our platform. So today, the company has a gross profitability close to 42% with a very significant growth that we have had over the last few years, very much driven by Pays, and now obviously gaining new components in DX because of HAS. So HAS has dual possibility of leveraging our results both augmenting the growth of revenue and also delivering results that are effective for each BRL of revenue. So at CSU Pays for some time, we've been having 54%, 55%, 56%. This is a level that sounds very appropriate for this business unit. DX, we had a very significant evolution of margin. So we expanded our gross profit by 38% year-on-year, and the margin is close to 21%, more than 3 percentage points above the last half, just with the 8 initial contracts and only 6 of them have been implemented. So this is really transformational for our business. Now, when we look at the other financial indicators, just as the company has a significant capacity to leverage its operational results. We are a company that generates very good results, and we have an admin expense that is usually very flat. So we have the significant operational leverage capacity and isolate investments in new businesses. This is reflected quite significantly in our indicators. So we closed this half year with more than 10% of our EBITDA with an adjusted margin in excess of 36%. And when we look at net income, we grew almost 26%, 27% as compared to the same quarter last year with a margin of 21%. Now just a short break here and about the other indicators. We are going to talk a lot about the future in the next slides. I think Fabiano will be able to explain to you our project of -- for the company to go international, all the evolution that we've been implementing in AI both for Pays and DX. And naturally, to invest in these new modalities, we need to have different skills in the company, different partners in the company. And this has been requiring a level of investment from the company that is higher than what we used to have before. So we have been hiring data engineering, statisticians, people from banks to help us to handle the financial aspects. So we have partner offices, both in Brazil and overseas to help us with regulation affairs. So there is significant demand for new events, new expenses that have effectively brought new possibilities. But in the short term, this creates some pressure, of course. So in terms of EBITDA after the effects of investments, we ended with BRL 94.5 million of EBITDA this quarter, and the net income is BRL 48.1 million. So this is a very important part of our business strategy. It's important for investors to follow the maturation of these initiatives because this addresses a huge growth potential for the company in the next quarters and years to come. Okay. Now talking a little bit about how we imagine creating this and how we are focusing. So strategy are decisions and choices that we make of paths to follow. And our path here is very much focused on 3 major pillars. We need to help our customers to have more users -- bring in more users to their --offers whatever financial services or customer service, customer relationship. To expand the number and types of transactions per user for our -- with these end users, having more possibilities of contacts, have greater usage of the tools available to get to a point of customization of the offers that is much greater than what we used to have until then to use technologies to help with that regard. And in this manner to generate more businesses, new businesses with the same user that I already have a relationship with, and I can use the relationship and include new offers, new services, new possibilities to make customers even more profitable. And lastly, we want to make our operations increasingly more efficient. So the focus is to get more customers to offer more services and business possibilities that is greater and greater with each one of the customers and the back office and is for us to be more efficient, more automated with higher quality. Always looking at digital relationship with our customers, looking into the customization of this relationship with a focus very much on building loyalty. So we have this primacy considering the level that we have and the many possibilities that the market offers to users. And when we add up, we can generate value. So we tested this in-house. We applied this in our operation. We applied this to our customers, and we see results coming. So this is a tested and approved hypothesis, and now we are going to expand it to other business possibilities that we have, both in terms of payment means, loyalty programs, banking, banking-as-a-service, banking with services included in customer relationship and also automation of new processes that we are not working in today, and we are going to seek more expertise to work there. So as part of this execution, we have knowledge with new people in our team with expertise and specialized companies. We've been using this strategy to gain knowledge. And this is going to be very important because more and more, we want to add value, which means to learn and to know more about this business. It's not just a preformat its technology to meet needs. Also because we want to gain scale to help customers to lead better what they are experiencing today. So everything that we look at in terms of efficiency, either in a relatively small process in a company or something that is really central in the relationship with end users, we are going to deal with it in the same way with expertise and details, trying to differentiate ourselves from a mere technology services. We offer specific services using technology as a lever. This is an important point of our strategy. Now going a little bit into more detail. Everyone is talking about AI. AI, artificial intelligence is transformational for many businesses, but we have been using this with responsibility in the sense of bringing concrete actual feasible initiatives with whatever is available today, which is not perfect. There's still another step in the evolution that is going to come very fast for sure, but we are basing ourselves very much on big tech to bring this specific technology knowledge. But of course, to translate this into some business reality with our customers and our internal operations, there is a long way to go there. So we've been having quite interesting initiatives and very detailed, and we can go into more detail afterwards. But the 3 main focuses are these. So number one, to have a different offer that is personalized, that is aligned with the needs of end users or end customers also to add efficiency to these processes, relationship, services, how can I enhance efficiency and efficiency means quality and speed. And how can we drink from the source of new technologies and incorporate that in our offers in a way that is current, not just as an isolated initiative. Innovation is not just a department in CSU. This is important. It's not isolated with a little team or in products. Now innovation permeates our work fronts, our teams, innovation is in finance, in HR. So in all our departments, we have innovation. This is our objective, and we have been working intensely to engage and bring all of this as part of our culture. So this is the third pillar. We want to look at other geographies, products that will be globalized shortly. We'll talk about the geographical expansion. Engaging teams, engaging the company as a whole to bring innovation. And then we use the technologies available, and we are going to talk about AI a lot because this is being transformational and changing any of the services, but with very specific results, focus on primacy, focus on customer relationship. And in the second layer with automation, quality, well, higher levels of satisfaction. This is something that we seek to -- so drinking from this source. Today, we have bringing many start-ups closer to us, and this is a significant challenge. So start-ups, many times, they don't have balance sheets to show to us, for us to assess them. Sometimes they are very new. They don't even have an organizational structure that is robust. And we have this challenge. How can I feed good ideas, good technologies that started from start-ups? And how can I make this fit, whether they are finance, retail, whatever industry, how can I fit this? How can I have responsible data governance, information security within this context? So we are seeing this in the market, how can I coordinate the good ideas with good technologies that emerge and how can I deliver this in a robust way that is fast and robust, efficient and safe. How can we coordinate that? So this is the main source of our endless hours of work. Now explaining a little bit more detail of primacy. We have been developing a few initiatives in home, talking about advisory. We explained in other presentations just explaining briefly how can I give tips to the customer to use better to -- so that they can have more benefits and customers and users of the product and how can they can make their experience be more productive in that relationship. So in this manner, our customers gain primacy. On the other hand, in the market, we have an activation rate that we are always provoking it. And we talked about our success with an activation rate that is better than the market average, but this is also related to choosing the right campaigns, the right benefits to bring users into the game. So users that had some initial contact with the product, the brand, the customer, but they are not interacting in the day-to-day. How can I bring them back into the game. So I should use this in an intelligent way in the right way, and this is super important. The example of the smart limit. Today, there are so many possibilities of payment means available. How can one control that? How can one organize all of this? So using a card limit for example, 2 different brands, how can I use this on a day-to-day in a simpler way? And this is what we have been bringing in terms of offer to complement the relationship with customers so that they can interact with users. The smart authorizer is another interesting. So many times we experience that you are at a drugstore and you can buy something because of some problem, and this is a critical time, more delicate. So having an authorizer that can identify certain situations. Sometimes you are over your limit by just a few BRLs, but then allowing that transaction to happen with building trust with the customer, this is going to bring the so-called primacy in a responsible way and without really incurring too much risk. And lastly, we can't fail to talk about financial products without talking about security. We handle a large amount of data, 38 million accounts and cards that we handle every day, billions of transactions that we process of APIs every week, every month. And all of this demands great care from our security department. And we have been investing heavily on this. Our main focus of investment is to create these experiences in a safe and controlled way with the right tools to really drive and boost the business. So security part is an integral part of our deliveries. It's not someone department is there to build barriers to the launch of new products, and we have been able to do that. And of course, using AI, AI was being used as a security tool for many years, maybe we didn't use -- didn't call it that. And of course, we reinforce that with new possibilities and other areas that use very much machine learning techniques more specifically. So now they have evolved. And it's always a race between the fraud and our technology. This fight is ongoing, and we are very proud of everything that we have done so far. But we can't ever stop not even for a second because people committing fraud they are very dynamic. Just a comment. Just each one of these initiatives, they are closely related to the previous point that Fabiano mentioned. So whenever we launch new products and new functions, we are bringing in new customers as potential customers with more users. If users are more active and with more transactions, the company generates more results. And all the transactions need to be safe and valid. So every much is related to the company's growth strategy. Now when we look at HAS, especially, and we mentioned the importance of this product line in our company and especially in our results. So it has also brought something important and opened doors in customers that were more difficult for us to access. It's an enabler of these relationships and new opportunities have come up. And today, we're at one step in the evolution of HAS. So today, we are developing HAS 3.0, which is the use of GenAI to use this technology that is available in the market as a reasonable cost with more accessible or affordable technology, using this in process, in process automation, bringing hyperautomation, making it affect, not just a robot that performs preprogramed tasks and expanding this execution to customer relationship. Sometimes I need to bring some feedback or input from customers into the process. And today it's still done with human beings talking and we are testing and we can have this in production using generative AI to -- in whichever channel, it can be voice, text, WhatsApp app to provide some input and create some results so that we will make the process automated without depending on the interaction with human beings. And now the next step, we've been talking a lot about technology and those covering technology will understand are the agents. So AI agents. They are just specialized applications with the use of technology in some business process, some product interaction to solve some problems. And this is not more than the technology that is trained to perform a certain role or function, for those who watched Matrix and like Geek Culture. So you can see it there, and they're very present there. But now drawing a parallel with reality, we've been developing, for example, agents that will try to help human beings to be more efficient. So we call operator AI, all our operators in interacting with end customers and in the processes, they will have available to them agents that will help them be more efficient. So they no longer need to do research, re-document or remember or ask something to a colleague or manager. So they have the agents to support them and help them to have faster and more efficient services or to solve a back-office problem in a more assertive way. And this is the kind of development that we are aiming at in the next phase of HAS, which is to use automated agents, not just automated processes, but having agents that will solve problems in a truly smart way. So I think that this road map is a road map that we are very much focused on and then start-ups help us with new ideas, new possibilities and lots of good people in the market creating AI agents for very specific problems. So for credit analysis, if we use AI for credit analysis, it has been used for a while. An agents solving a specific problem within -- as part of this very long process is something that is new, and we are looking at the market very carefully in that regard. And once again, translating into numbers. So each one of these evolutions should bring in more volume, more capacity to escalate the business and obviously, much more productivity, efficiency and profitability to us, our customers and everyone should win. End users are more satisfied, better quality as our business becomes more profitable and for our customers to same. So they balance out loyalty, primacy in an efficient way of offering services. This is a way for us to preserve our long-term relationships. No customer stays with a company just because they have a long-term contract. This is important. They stay because they are happy and they understand that we have something new in technology that we are helping them to differentiate from the competition because they have the traditional market competitors. I think that this is very important we are investing, and it's just not just to serve the AI wave to say that our product is AI or something. We need to offer concrete benefits to our customers and help them differentiate. And we've been doing this over the past 33 years. Now a little bit about our geographic expansion. Of course, Brazil is a very important market for us. This is where we were born. This is where we grew and got stronger, but there is a set of factors, and we've mentioned in other virtual meetings such as this. There is something very favorable for us to go to the U.S. market. Despite the entire political discussion and macroeconomic discussions going on, the market is still extremely interesting for our offer. The potential that we have in competing in the American market is something that we know very well. This is an important market. We are already competing with American players here in Brazil. We know which are the strengths and weaknesses, how they work. And we think we have significant differential so much that we are very well established here in Brazil as market leaders ahead of them. We also know that we can't get to a new geography and just go there and think that we are going to do everything alone. So we already have some very significant partners with important partnerships so that we have this opening in the American market in the most efficient possible way, both in terms of brands, financial services to enable our going in there. This is very well advanced. And then implementation, we have customization and even adjustments in the platform so that they will meet the American way, the way they like to work. They have their unique features. They are different from Brazil. Brazil is much more complex, but there are differences there. So it is important for us to have this vision very clear in terms of what -- or how we can help the U.S. market to transform itself. But we also need to be aware and to go into their pace to then present innovations. We should fit in first and then bring in innovation. And in the implementation of the operation, there are natural challenges in this type of initiative. But the initial success that we have had that gives us an indication that this is the way to go. Some certifications will be necessary. We have to trigger them. Formal homologations with brands and audit certificates that we will need to show to our customers to become a service provider. So this is already going on. And we are expecting a launch shortly, and we have high expectations. We're really looking forward to seeing the first results later this year or early next year. So now moving to the final part of our presentation. As I said before, the company has always been working on the binomial of growth and sustainable and profitable growth. This is our DNA. This is how we manage our day-to-day businesses. So in terms of operational generation, the company has still generating very good results. We have an EBITDA 86% in operational cash. This is effectively a major strength of our business, and this is what has made it possible for us to repeatedly expand investments, reinforce teams, bringing in new partners quarter-after-quarter. In addition, the company is also seeking new ways of providing faster return to our investors. We know that the market is really eager to find recurring profitability combined with growth, combined with good assets. So we've been creating a practice of payout of dividends that is very attractive, the payout of 50%, more than 70% of debt yield in the quarters. And this year, specifically, we have already paid BRL 32 million between dividends related to the year of 2024. So BRL 14 million in interest on equity related to the current year. So we are keeping this practice in a very consistent way along recent years. Now when we talk about the capital markets, so the company has been showing a strategic change, how good our business is, and we are getting closer to other agents in our industry. This has provided a significant evolution in the price of our shares and total return to shareholders is in excess of 78%. So we've also had significant movements in our base of shareholders more and more. We have partners, investors that turn into our partners that contribute to our business for the evolution of each one of these initiatives that we want to lead. Despite the appreciation of our shares, we are still far away in terms of market multiples. So we show this visibility to the market and everything that we've been building is something that we've been doing more recently. So despite the evolution, the company is still being traded at 1x revenue, 3x the EBITDA, very distant from the average in the industry, both in Brazil and internationally. And then as closing remarks, I think that -- the summary of CSU. This is a company that has a strong focus on results, always thinking innovation, always implementing new initiatives, a long-term vision that is important. I think that's a company that is more than 33 years old, that it speaks for itself. And right now, we are launching an operation in the United States from now until the end of the year. We are investing heavily in artificial intelligence to leverage our competencies in hyperautomation of processes. So there is still a lot to come, not just in terms of past results that we highlighted during the presentation, but we expect these investments to be able to leverage even more our platform. Today, the company has a very good capital structure, strong cash generation, which makes it possible for us to keep the pace of investments and to be attractive for investors. So I think this was it for today. Now we are going to open for questions. Thank you.

[Operator Instructions] Our first question comes from Bernardo Guttmann from XP.

So about the HAS solutions, are we seeing a quarterly evolution in terms of contracts signed and implemented? What share does this solution have in the company's bottom line? And what should we expect in terms of share of this product from now on?

Thank you, Bernardo, for being in the call, and thank you for the question. Well, I joke that I am suspected and one of the most enthusiastic persons with HAS. HAS is a product that, in essence, practically all major companies, regardless of where they operate, they need to have it. So along the life of any company, there are acquisitions of new businesses, new platforms are developed. We adapt solutions. And so it's very common to have multiple systems, multiple tasks. And this makes companies to gradually have some degree of inefficiency in managing their internal processes. So whether they are business processes, so in the way that you manage your HR, sales. But usually, when I talk about companies that have an intense relationship with many users now looking outside, inefficiencies are kind of naturally expected. And this is where we're go in. HAS this capacity of organizing in a great way all the data generated by each one of the platforms to get the data and turn them into business input and then you manage each one of the activities that used to be 100% manual with lots of difficulty for the people conducting those activities to use top efficiency to optimize each one of the processes. So more and more, the market will be looking at these solutions. We are already looking. There is a very rapid expansion, so 15%, basically with few contracts. It already demonstrates the potential of this business.

Now if I may, there was a checkpoint just yesterday of the implementations that we are finalizing. There were 33 auditable elements, 33 different screens that they need to go to complete service process. With our implementation, they will do 2.

So just a little color. So screen changes is very symbolic. So you provide great efficiency. What about the number of mistakes that can take place if you have this many steps in the process?

So I can say that HS has a great potential for the growth of our business. Today, it accounts for 12% and 13% of DX revenues, and it has the potential of transforming the pace of growth, the total result of DX to our business. So this is a very promising market in our opinion.

Our next question comes from Alex Andre from [ Alex Invest ].

Can you give us more details about the entry strategy in this competitive market?

So the U.S. project is at a very strong pace now in terms of implementation. We have the objective, the first productive transaction at the end of the third to the beginning of the fourth quarter. So we are very much focused on this team. In terms of schedule, so as Fabiano said, we are way ahead in terms of approvals. So we have done a lot in terms of regulation affairs. So there are a few minor adjustments that we need to do. And we are aiming at this solution to be productive with customers. It's not just our internal productiveness to really making it transactional with the first customer on this front. In our opinion, this is a market that is very relevant, obviously, considering the size of the economy, but much more than that it's a market that needs new solutions. It's a market that calls for new technologies. And the problems that exist on a day-to-day in Brazil that has made our financial system very mature are starting to come up in the American market such as inflation, interest rates, fraud, to pay expenses in installments. So in fact, the market is very demanding. And here, we are even talking about American companies. Now when we look at the Brazilian companies that are already operating in that market or that are going there, they might have an even greater sense of urgency. So we are taking wide steps in that front. So we are investing there because of that because we understand that there is a window of opportunity that is very significant for our business. I think that there have been a few moments in history that we have windows such as this, a market that is very demanding, that is reorganizing itself, but still in need of offers, this is where we go in to bridge that gap. Basically, we are developing technology and the commercial front is already going on. We have the first contact. Just last week, we answered our first RFP and the regulatory and legal parts are going on too, and everything goes in parallel. So the RFP, the request for price, the customer already asking for our prices.

The next question comes from [ Guilherme Cruz ] from [indiscernible] Research.

What are the risks that you think there may be when you go into the U.S. considering the more turbulent relationship between the United States and Brazil right now?

Thank you for the question. Well, it's a difficult question for us to answer because everything is still very unpredictable. What we have today in terms of exposure to that team, I think the impact is zero. Today, the main effort that we have is to create barriers for imports in the American market in order to foster the local economy as we are building an operation there, based there with an office, people, the platform, they're using the technology there. We are not seeing today any type of greater risk in relation to that movement. But we are monitoring it closely because this is an agenda that sometimes changes overnight literally. And so we are paying close attention to each one of these times in the U.S. market.