Form 20-F PagSeguro Digital Ltd. For: Dec 31

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April 16, 2019 6:09 AM EDT

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

for the fiscal year ended December 31, 2018

Commission File Number 1-38353

PAGSEGURO DIGITAL LTD.

(Exact name of registrant as specified in its charter)

The Cayman Islands

(Jurisdiction of incorporation or organization)

Av. Brigadeiro Faria Lima, 1384, 4º andar, parte A

São Paulo, SP, 01451-001, Brazil

(Address of principal executive offices)

Eduardo Alcaro

+55 11 3038 8123 – [email protected]

Av. Brigadeiro Faria Lima, 1384, 4º andar, parte A

São Paulo, SP, 01451-001, Brazil

(Name, telephone, e-mail and/or facsimile

number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:


Title of each class:		Name of each exchange on which registered:
Class A common shares, par value US$0.000025		New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

As of December 31, 2018, there were 162,168,013 Class A common shares (including treasury shares), par value of US$0.000025 per share, and 165,620,861 Class B common shares, par value of US$0.000025 per share, outstanding.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.


Yes ☐		No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934.


Yes ☐		No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes ☒		No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).


Yes ☒		No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


Large Accelerated Filer ☐		Accelerated Filer ☐		Non-accelerated Filer ☒		Emerging growth company ☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:


U.S. GAAP ☐		IFRS ☒		Other ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.


Item 17 ☐		Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes ☐		No ☒

Table of Contents


	Page
FORWARD-LOOKING STATEMENTS		1
CERTAIN TERMS AND CONVENTIONS		2
PRESENTATION OF FINANCIAL AND OTHER INFORMATION		2
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS		3
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE		3
ITEM 3. KEY INFORMATION		3
ITEM 4. INFORMATION ON THE COMPANY		32
ITEM 4A. UNRESOLVED STAFF COMMENTS		65
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS		65
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		86
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		92
ITEM 8. FINANCIAL INFORMATION		96
ITEM 9. THE OFFER AND LISTING		98
ITEM 10. ADDITIONAL INFORMATION		98
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		120
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		121
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		121
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		121
ITEM 15. CONTROLS AND PROCEDURES		122
ITEM 16. [RESERVED]		123
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT		123
ITEM 16B. CODE OF ETHICS		123
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES		123
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES		124
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS		124
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT		124
ITEM 16G. CORPORATE GOVERNANCE		125
ITEM 16H. MINE SAFETY DISCLOSURE		126
ITEM 17. FINANCIAL STATEMENTS		126
ITEM 18. FINANCIAL STATEMENTS		126
ITEM 19. EXHIBITS		126
GLOSSARY OF TERMS		128
SIGNATURES		131

FORWARD-LOOKING STATEMENTS

This annual report contains information that constitutes forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, principally under the captions “Item 3. Key Information—Risk Factors, “Item 4. Information on the Company,” and “Item 5. Operating and Financial Review and Prospects.”

These estimates and forward-looking statements are based mainly on our current expectations and estimates of future events and trends that affect or may affect our business, financial condition, results of operations, cash flow, liquidity, prospects and the trading price of our Class A common shares. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to many significant risks, uncertainties and assumptions and are made in light of information currently available to us.

These statements appear throughout this annual report and include statements regarding our intent, belief or current expectations in connection with:

•

the inherent risks related to the digital payments market, such as the interruption or failure of our computer or information technology systems;

•

our ability to innovate and respond to technological advances and changing customer demands;

•

the maintenance of tax incentives;

•

our ability to attract and retain qualified personnel;

•

general economic, political and business conditions in Brazil, particularly in the geographic markets we serve as well as any other countries we may serve in the future and their impact on our business, notably with respect to inflation;

•

labor disputes, employee strikes and other labor-related disruptions, including in connection with negotiations with unions;

•

management’s expectations and estimates concerning our future financial performance and financing plans and programs;

•

our interest rates and our level of debt and other fixed obligations;

•

inflation, appreciation, depreciation and devaluation of the real;

•

expenses, ability to generate cash flow, and ability to achieve, and maintain, future profitability;

•

our ability to anticipate market needs and develop and introduce new and enhanced products and service functionality to adapt to changes in our industry;

•

our anticipated growth and growth strategies and our ability to effectively manage that growth;

•

the impact of increased competition in our market, innovation by our competitors, and our ability to compete effectively;

•

our ability to successfully enter new markets and manage our expansion;

•

our ability to further penetrate our existing client base to grow our ecosystem;

•

our expectations concerning relationships with third parties and key suppliers;

•

our ability to maintain, protect and enhance our brand and intellectual property;

•

the sufficiency of our cash and cash equivalents and cash generated from operations to meet our working capital and capital expenditure requirements;

•

our compliance with applicable regulatory and legislative developments and regulations and legislation that currently apply or become applicable to our business;

•

other factors that may affect our financial condition, liquidity and results of operations; and

•

other risk factors discussed under “Item 3. Key Information—Risk Factors.”

The words “believe,” “understand,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “seek,” “intend,” “expect,” “should,” “could,” “forecast” and similar words are intended to identify forward-looking statements. You should not place undue reliance on such statements, which speak only as of the date they were made. We do not undertake any obligation to update publicly or to revise any forward-looking statements after we file this annual report because of new information, future events or other factors. Our independent public auditors have neither examined nor compiled the forward-looking statements and, accordingly, do not provide any assurance with respect to such statements. In light of the risks and uncertainties described above, the future events and circumstances discussed in this annual report might not occur and are not guarantees of future performance. Because of these uncertainties, you should not make any investment decision based upon these estimates and forward-looking statements.

CERTAIN TERMS AND CONVENTIONS

A glossary of industry and other defined terms is included in this annual report, beginning on page 133.

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

The following references in this annual report have the meanings shown below:

•

“PagSeguro Digital” or the “Company” mean PagSeguro Digital Ltd. PagSeguro Digital Ltd. is an exempted company with limited liability incorporated under the laws of the Cayman Islands.

•

“PagSeguro Brazil” means Pagseguro Internet S.A., our operating company, a sociedade anônima incorporated in Brazil. Pagseguro Internet S.A. is substantially wholly-owned by PagSeguro Digital Ltd.

•

“We,” “us” and “our” mean PagSeguro Digital, PagSeguro Brazil and PagSeguro Brazil’s subsidiaries on a consolidated basis.

•

“PagSeguro” means our digital payments business, which is operated by PagSeguro Brazil.

•

“UOL” means Universo Online S.A., the controlling shareholder, of PagSeguro Digital. For more information regarding UOL, see “Item 7. Major Shareholders and Related Party Transactions.”

The term “Brazil” refers to the Federative Republic of Brazil and the phrase “Brazilian government” refers to the federal government of Brazil. “Central Bank” refers to Banco Central do Brasil. References in this annual report to “real,” “reais” or “R$” refer to the Brazilian real, the official currency of Brazil and references to “U.S. dollar,” “U.S. dollars” or “US$” refer to U.S. dollars, the official currency of the United States.

This annual report contains various illustrations of our products and services. For convenience, we have translated the text in those illustrations into English. The actual products and services are generally presented to our customers in Portuguese only.

Effect of Rounding

Certain amounts and percentages included in this annual report, including in the section of this annual report entitled “Item 5. Operating and Financial Review and Prospects” have been rounded for ease of presentation. Percentage figures included in this annual report have not been calculated in all cases on the basis of the rounded figures but on the basis of the original amounts prior to rounding. For this reason, certain percentage amounts in this annual report may vary from those obtained by performing the same calculations using the figures in our audited consolidated financial statements. Certain other amounts that appear in this annual report may not sum due to rounding.

Market and Industry Data

This annual report contains data related to economic conditions in the market in which we operate. The information contained in this annual report concerning economic conditions is based on publicly available information from third-party sources that we believe to be reasonable. Data and statistics regarding the Brazilian Internet, payment solutions and e-commerce markets are based on publicly available data published by the Brazilian Association of Credit Card and Services Companies (Associação Brasileira de Empresas de Cartões de Crédito e Serviços, or ABECS); comScore, a cross-platform measurement company that measures audiences, brands and consumer behavior, and provides market and analytical data to clients; Datafolha, a research institute and affiliate of UOL created by Grupo Folha, which conducts statistical surveys, election polling and opinion and market surveys for the market at large; the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística, or IBGE); the World Bank; SEBRAE; Neoway Business Solutions; Webshoppers; and eMarketer; among others. We also make statements in this annual report about our competitive position and the size of the Brazilian digital payments and e-commerce markets.

Although we have no reason to believe any of this information or these reports are inaccurate in any material respect and believe and act as if they are reliable, neither we nor our agents have independently verified it. Governmental publications and other market sources, including those referred to above, generally state that their information was obtained from recognized and reliable sources, but the accuracy and completeness of that information is not guaranteed. In addition, the data that we compile internally and our estimates have not been verified by an independent source. Except as disclosed in this annual report, none of the publications, reports or other published industry sources referred to in this annual report were commissioned by us or prepared at our request. Except as disclosed in this annual report, we have not sought or obtained the consent of any of these sources to include such market data in this annual report.

Emerging Growth Company Status

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our IPO, (b) in which we have total annual revenues of at least US$1.07 billion or (c) in which we are deemed to be a large accelerated filer and (2) the date on which we have issued more than US$1.0 billion in non-convertible debt during the prior three-year period. As an emerging growth company, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, exemptions from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and any Public Company Accounting Oversight Board, or PCAOB, rules, including any future audit rule promulgated by the PCAOB (unless the Securities and Exchange Commission, or SEC, determines otherwise). Accordingly, the information about us available to you will not be the same as, and may be more limited than, the information available to shareholders of a non-emerging growth company.

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.

KEY INFORMATION

Selected Financial and Operating Data

PagSeguro Digital Ltd., our Cayman Islands company, was incorporated on July 19, 2017 for an indefinite term. Prior to the contribution of Pagseguro Internet S.A. to it on January 4, 2018, PagSeguro Digital Ltd. had not commenced operations and had only nominal assets and liabilities.

Following our IPO on January 23, 2018, PagSeguro Digital began reporting consolidated financial information to shareholders, and PagSeguro Brazil no longer presents consolidated financial statements. PagSeguro Brazil prepares and presents individual financial statements in accordance with Brazilian GAAP, as applicable to payment institutions authorized by the Central Bank.

The following tables summarize financial data for PagSeguro Digital at and for each of the years ended December 31, 2018, 2017, 2016, 2015 and 2014, derived from our audited consolidated financial statements. The selected consolidated financial data as of and for the year ended December 31, 2018, 2017, 2016, 2015 and 2014 derive from our year-end financial statements audited by PricewaterhouseCoopers Auditores Independentes, with offices at Av. Francisco Matarazzo 1400, Torre Torino, São Paulo, SP, Brazil 05001-903, Caixa Postal 61005. These audited consolidated financial statements were prepared in accordance with IFRS, as issued by the IASB. PagSeguro Digital maintains its books and records in reais.

You should read this information in conjunction with the following other information included elsewhere in this annual report:

•

our audited consolidated financial statements and related notes; and

•

the information under “Item 5. Operating and Financial Review and Prospects.”

The following tables present our selected financial and operating data as of and for each of the periods indicated.

STATEMENT OF OPERATIONS DATA


	For the Years Ended December 31,
	2018			2018			2017			2016			2015			2014
	(US$)⁽¹⁾			(R$)			(R$)			(R$)			(R$)			(R$)
	(in millions, except amounts per share and %)
Net revenue from transaction activities and other services		585.1			2,267.1			1,224.3			480.0			268.2			160.1
Net revenue from sales		96.7			374.6			471.9			260.6			176.5			48.2
Financial income		365.1			1,414.5			818.6			392.4			219.5			115.8
Other financial income		71.9			278.5			8.6			5.3			10.7			1.8

Total revenue and income		1,118.7			4,334.7			2,523.4			1,138.4			674.9			325.8

Cost of sales and services		(553.5	)		(2,144.7	)		(1,324.4	)		(623.7	)		(382.5	)		(142.5	)
Selling expenses		(90.7	)		(351.4	)		(245.8	)		(199.9	)		(162.6	)		(81.4	)
Administrative expenses		(150.1	)		(581.7	)		(153.2	)		(84.5	)		(61.1	)		(51.3	)
Financial expenses		(8.1	)		(31.2	)		(104.5	)		(68.3	)		(29.7	)		(11.1	)
Other (expenses) income, net		(2.1	)		(8.1	)		(12.0	)		(6.7	)		1.3			(3.3	)

Profit before Income Taxes		314.2			1,217.6			683.5			155.4			40.3			36.2

Current income tax and social contribution		(46.7	)		(180.9	)		(215.0	)		(7.4	)		(2.6	)		(9.9	)
Deferred income tax and social contribution		(32.6	)		(126.3	)		10.3			(20.1	)		(2.2	)		1.0

Income Tax and Social Contribution		(79.3	)		(307.2	)		(204.7	)		(27.6	)		(4.8	)		(8.9	)

Net Income for the Year		235.0			910.4			478.8			127.8			35.5			27.2

Attributable to:
Owners of PagSeguro Digital		234.7			909.3			478.8			127.2			35.1			26.0
Non-controlling interests		0.3			1.1			—			0.6			0.4			1.3

Basic earnings per common share – R$		0.7388			2.8625			1.8254			0.4849			0.1338			0.0990

Diluted earnings per common share – R$		0.7376			2.8582			1.8254			0.4849			0.1338			0.0990

(1)

For convenience purposes only, amounts in reais for the year ended December 31, 2018 have been translated to U.S. dollars using a rate of R$3.8748 to US$1.00, the commercial selling rate for U.S. dollars at December 31, 2018 as reported by the Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange rate. See “—Exchange Rates” below for further information about recent fluctuations in exchange rates.

OPERATING DATA

At and For the Years Ended December 31,

2018⁽¹⁾

2018

2017

2016

2015

2014

Operating Statistics:

Active merchants at year-end (in millions)

—

4.1

2.8

1.4

0.9

0.5

TPV (in billions)

US$19.7

R$76.1

R$38.5

R$14.1

R$7.4

R$3.7

Average spending per active merchant

US$5,675

R$21,988

R$18,013

R$12,401

R$11,046

R$10,449

(1)

BALANCE SHEET DATA

The following table presents key line items from PagSeguro Digital’s consolidated balance sheet data:


	At December 31,
	2018		2018		2017		2016		2015		2014
	(US$)⁽¹⁾		(R$)		(R$)		(R$)		(R$)		(R$)
	(in millions)
Current Assets
Cash and cash equivalents		713.1		2,763.1		66.8		80.0		6.9		1.2
Financial investments		—		—		210.1		131.2		—		—
Note receivables		2,091.6		8,104.7		3,522.3		1,715.5		1,110.0		665.9
Receivables from related parties		—		—		124.7		300.8		55.9		84.3
Inventories		22.9		88.6		61.6		21.0		41.2		16.1
Taxes recoverable		16.9		65.7		14.4		17.7		5.8		6.7
Other receivables		5.2		20.1		28.0		4.5		21.0		4.3

Total Current Assets		2,849.7		11,042.1		4,028.0		2,270.8		1,240.8		778.6

Non-Current Assets
Judicial deposits		0.4		1.5		0.9		0.5		0.4		0.5
Prepaid expenses		0.2		1.0		0.1		0.1		0.4		—
Deferred income tax and social contribution		—		—		37.0		8.3		6.7		8.1
Property and equipment		17.3		67.1		10.9		4.6		3.8		1.9
Intangible assets		78.9		305.6		158.9		86.1		48.6		28.5

Total Non-Current Assets		96.8		375.2		207.8		99.7		59.9		39.0

TOTAL ASSETS		2,946.5		11,417.3		4,235.8		2,370.4		1,300.7		817.6


	At December 31,
	2018		2018		2017		2016		2015		2014
	(US$)⁽¹⁾		(R$)		(R$)		(R$)		(R$)		(R$)
	(in millions)
Current Liabilities
Payables to third parties		1,116.0		4,324.2		3,080.6		1,304.0		683.1		369.9
Trade payables		42.6		165.2		92.4		61.7		35.3		3.5
Payables to related parties		7.9		30.8		39.1		76.2		92.4		—
Derivative financial instruments		—		—		—		6.6		—		—
Borrowings		—		—		—		205.2		—		—
Salaries and social charges		19.1		73.9		34.3		20.3		13.7		0.4
Taxes and contributions		20.7		80.1		52.1		6.9		3.0		2.8
Provision for contingencies		1.8		7.0		4.6		0.7		—		1.6
Dividends payable and interest on own capital		—		—		—		22.2		3.2		3.1
Other payables		7.6		29.5		15.9		15.2		1.8		4.0

Total Current Liabilities		1,215.7		4,710.8		3,319.0		1,719.2		832.5		385.3

Non-Current Liabilities
Deferred income tax and social contribution		34.1		132.1		42.8		24.4		6.3		5.4
Provision for contingencies		—		—		3.6		—		—		0.3

Total Non-Current Liabilities		34.1		132.1		46.4		24.4		6.3		5.7

TOTAL LIABILITIES		1,249.8		4,842.9		3,365.4		1,743.5		838.8		391.0

TOTAL EQUITY		1,696.7		6,574.4		870.4		626.9		461.9		426.6

TOTAL LIABILITIES AND EQUITY		2,946.5		11,417.3		4,235.8		2,370.4		1,300.7		817.6

(1)

NON-GAAP FINANCIAL MEASURES

We present non-GAAP financial measures when we believe that the additional information is useful and meaningful to investors. These non-GAAP financial measures are provided to enhance investors’ overall understanding of our current financial performance and its prospects for the future. Specifically, we believe the non-GAAP financial measures provide useful information to both management and investors by excluding certain expenses, gains and losses, as the case may be, that may not be indicative of our core operating results and business outlook.

These measures may be different from non-GAAP financial measures used by other companies. The presentation of this non-GAAP financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered separately from, or as a substitute for, our financial information prepared and presented in accordance with IFRS. Non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with IFRS. These measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP financial measures.

Reconciliation of Non-GAAP Financial Measures

The following table presents a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP measures for the year ended December 31, 2018:


	For the Twelve Months Ended December 31,
	2018
	(in millions of **reais, except for amounts per share)**
Total revenue and income		4,334.7
Less: Foreign exchange gain on IPO and follow-on offering primary share proceeds		(131.3	)

Non-GAAP total revenue and income⁽¹⁾		4,203.4

Total expenses		(3,117.1	)
Less: Share-based long-term incentive plan (LTIP)		419.3
Less: Tax related to remittance of IPO and follow-on primary share proceeds (IOF tax)		18.0

Non-GAAP total expenses⁽²⁾		(2,679.8	)

Profit before taxes		1,217.6
Plus: Total non-GAAP Adjustments		306.0

Non-GAAP profit before taxes⁽³⁾		1,523.6

Income tax and social contribution		(307.2	)
Less: Income tax and social contribution on non-GAAP adjustments		(148.7	)

Non-GAAP deferred income tax⁽⁴⁾		(455.9	)


	For the Twelve Months Ended December 31,
	2018
	(in millions of **reais, except for amounts per share)**
Net income		910.4
Plus: Total non-GAAP adjustments		157.3

Non-GAAP net income⁽⁵⁾		1,067.7

Basic earnings per common share—R$		2.8625
Diluted earnings per common share—R$		2.8582

Non-GAAP basic earnings per common share—R$⁽⁶⁾		3.3578
Non-GAAP diluted earnings per common share—R$⁽⁶⁾		3.3527

(1)

Non-GAAP total revenue and income excludes a foreign exchange gain on our January 2018 IPO proceeds and June 2018 follow-on offering proceeds in the amount of R$131.3 million in the year ended December 31, 2018, which relates to the impact of exchange rate variation on the conversion from U.S. dollars into Brazilian reais of the proceeds from our IPO and our June 2018 follow-on offering. We exclude this foreign exchange variation from our non-GAAP measures primarily because it is unusual income. The foreign exchange gain on our January 2018 IPO proceeds and June 2018 follow-on offering proceeds is included within Other financial income. Other financial income in the amount of R$278.4 million is therefore adjusted by excluding the foreign exchange gain on our January 2018 IPO proceeds and June 2018 follow-on offering proceeds, resulting in non-GAAP Other financial income in the amount of R$147.2 million.

(2)	Non-GAAP total expenses excludes:

(a)

Stock-based compensation expenses in the total amount of R$419.3 million, consisting of expenses for equity awards under the LTIP. We exclude stock-based compensation expenses from our non-GAAP financial measures primarily because they are non-cash expenses and they depend on our stock price and the exchange rate from U.S. dollars into Brazilian reais at the time of the vesting of the equity awards. The related employer payroll taxes depend on our stock price and the exchange rate from U.S. dollars into Brazilian reais at the time of the exercises and the vesting date of the equity awards, over which management has limited to no control, and as such management does not believe these expenses correlate to the operation of our business. The total of stock-based compensation expenses is allocated between Cost of sales and services, Administrative expenses and Selling expenses. Excluding the stock-based compensation expenses, Cost of sales and services in the amount of R$2,144.7 million is adjusted by R$58.8 million resulting in non-GAAP Cost of sales and services of R$2,084.9 million; Administrative Expenses in the amount of R$581.7 million is adjusted by R$359.2 million resulting in non-GAAP Administrative expenses of R$222.5 million; and Selling expenses in the amount of R$351.4 million is adjusted by R$0.3 million resulting in non-GAAP Selling expense of R$351.1 million.

(b)

Tax related to remittance of January 2018 IPO proceeds and June 2018 follow-on offering proceeds (IOF tax) in the amount of R$18.0 million in the year ended December 31, 2018, which represents the impact of Brazilian IOF tax (currency remittance tax) payable when we remitted the proceeds from our sale of new shares in our IPO and our June 2018 follow-on offering from the Cayman Islands to Brazil. We exclude this IOF tax on the remittance of January 2018 IPO proceeds and June 2018 follow-on offering proceeds from our non-GAAP measures primarily because it is an unusual expense. The IOF tax is fully allocated to Financial expenses. Financial expenses in the amount of R$31.2 million is therefore adjusted by excluding the IOF tax, resulting in non-GAAP Financial expenses in the amount of R$13.2 million.

(3)	Non-GAAP Profit before taxes is equal to the sum of the adjustments described in footnotes (1) and (2) above.

(4)

Non-GAAP Income tax and social contribution consists of income tax at the rate of 34% calculated on the non-GAAP adjustments described in footnotes (1) and (2) above, other than the foreign exchange gain on our January 2018 IPO proceeds and June 2018 follow-on offering proceeds of R$131.3 million, which is not taxable, and the tax benefits related to other non-GAAP adjustments.

(5)	Non-GAAP Net income is equal to the sum of the adjustments described in footnotes (1), (2) and (4) above.

(6)	Non-GAAP Basic earnings per common share and non-GAAP Diluted earnings per common share reflect the adjustments to non-GAAP Net income, which is allocated in full to Owners of the Company.

Financial Information U.S. Dollars

We have translated some of the real amounts included in this annual report into U.S. dollars. You should not construe these translations as representations by us that the amounts actually represent these U.S. dollar amounts or could be converted into U.S. dollars at the rates indicated. Unless otherwise indicated, we have translated real amounts into U.S. dollars using a rate of R$3.8748 to US$1.00, the commercial selling rate for U.S. dollars at December 31, 2018 as reported by the Central Bank. See “—Exchange Rates” below for more information regarding the real/U.S. dollar exchange rate.

RISK FACTORS

Risks Relating to Our Business and Industry

If we cannot keep pace with rapid technological developments to provide new and innovative products and services, and address the rapidly evolving market for transactions on mobile devices, the use of our products and services and, consequently, our revenues could decline.

Rapid, significant and disruptive technological changes continue to impact the industries in which we operate, including developments in payment card tokenization, mobile payments, social commerce (i.e., e-commerce through social networks), authentication, virtual currencies, distributed ledger or blockchain technologies, near field communication and other proximity or contactless payment methods, virtual reality, machine learning and artificial intelligence.

For instance, mobile devices are increasingly used for e-commerce transactions and payments. A significant and growing portion of our customers access our platforms through mobile devices, including for regular online shopping as well as for in-person transactions. In the year ended December 31, 2018, 61% of our customers accessed our platforms through mobile devices, compared with 44% in the year ended December 31, 2017. We may lose customers if we are not able to continue to meet our customers’ mobile and multi-screen experience expectations. Different mobile devices and platforms use a wide variety of technical and other configurations, which increase the challenges involved in providing payments in the mobile environment. In addition, a number of other companies with significant resources and a number of innovative startups have introduced products and services focusing on mobile markets. We cannot guarantee that we will be able to continue to meet customer expectations in the mobile environment or increase our volume of mobile transactions.

We cannot predict the effects of technological changes on our business. In addition to our own initiatives and innovations, we rely in part on third parties for the development of and access to new technologies. We expect that new services and technologies applicable to the industries in which we operate will continue to emerge and may be superior to, or render obsolete, the technologies we currently use in our products and services. Developing and incorporating new technologies into our products and services may require substantial expenditures, take considerable time, and ultimately may not be successful. In addition, our ability to adopt new products and services and develop new technologies may be inhibited by industry-wide standards, payment networks, changes to laws and regulations, resistance to change from consumers or merchants, third-party intellectual property rights, or other factors. Our success will depend on our ability to develop and incorporate new technologies, address the challenges posed by the rapidly evolving market for mobile transactions through our platforms and adapt to technological changes and evolving industry standards; if we are unable to do so in a timely or cost-effective manner, our business could be harmed.

Substantial and increasingly intense competition, both within our industry and from other payment methods, may harm our business.

We compete in markets characterized by vigorous competition, changing technology, changing customer needs, evolving industry standards and frequent introductions of new products and services. We compete with existing providers of digital payment solutions, in-person payments via POS, free digital accounts, prepaid cards and acquisition activities. In the online digital payments market, we compete primarily with international online payment services, such as PayPal, and regional players, such as MercadoPago from MercadoLibre and MoIP/Wirecard. In the POS payments market, we compete primarily with international players, such as SumUp/Payleven, and regional players, such as MercadoPago from MercadoLibre. As is the case with the digital payments industry in general, we also compete with other means of payment, both digital and traditional, including cash, checks, money orders and electronic bank deposits.

We expect competition to intensify in the future as existing and new competitors introduce new services or enhance existing services. We compete against many companies to attract customers, and some of these companies have greater financial resources and substantially larger bases of customers than we do, which may provide them with significant competitive advantages. These companies may devote greater resources than we do to the development, promotion and sale of products and services, and they may be more effective in introducing innovative products and services that hinder our growth. Competing services tied to established banks and other financial institutions may offer greater liquidity and create greater consumer confidence in the safety and efficiency of their services than PagSeguro. Mergers and acquisitions by or among these companies may lead to even larger competitors with more resources. We also expect new entrants to offer competitive products and services. For example, established banks and other financial institutions currently offer online payments and those which do not yet provide such services could quickly and easily develop them. Certain merchants have longstanding exclusive, or nearly exclusive, relationships with our competitors to accept payment cards and other services that we offer. These relationships may make it difficult or cost prohibitive for us to conduct material amounts of business with them. If we are unable to differentiate ourselves from and successfully compete with our competitors, our business will suffer serious harm.

We may also face pricing pressures from competitors. Certain competitors are able to offer lower prices to merchants for similar services by cross-subsidizing their digital payments services using other services they offer. This competition may mean we need to reduce our pricing, which could reduce our profits. As they grow, merchants may demand more customized and favorable pricing from us, and competitive pressures may require us to agree to this, further reducing our profits. If market conditions require us to increase the discounts or incentives we provide, our business could suffer serious harm.

Interruption or failure of our information technology and communications systems could impair our operations, which could damage our reputation and harm our results of operations.

Our success and ability to process payments and provide high quality customer service depend on the efficient and uninterrupted operation of our computer and information technology systems. Any failure of our computer systems and information technology to operate effectively or to integrate with other systems, performance inadequacy or breach in security may cause interruptions in the availability of our sites, delays in product fulfilment and reduced efficiency of our operations. Any failures, problems or security breaches may mean that fewer customers are willing to purchase the products we offer in the future. Factors that could occur and significantly disrupt our operations include: system failures and outages caused by fire, floods, earthquakes, power loss, telecommunications failures, sabotage, vandalism, terrorist attacks and similar events, software errors, computer viruses, worms, physical or electronic break-ins and similar disruptions from unauthorized tampering with our computer systems and data centers; in addition, security breaches related to the storage and transmission of proprietary information or customer information, such as credit card numbers or other personal information. Also, if too many customers access our sites within a short period of time due to any reason, we have experienced in the past and may in the future experience system interruptions that make our sites unavailable or prevent us from efficiently completing payment transactions, which may reduce the attractiveness of our products and services. We cannot assure you that such events will not occur. While we have backup systems and contingency plans for certain aspects of our operations and business processes, our planning does not account for all possible scenarios.

Specifically, we have contracted with one party, UOL Diveo, to provide us with Internet data centers to host our sites and keep them operational, and we rely on it and its operational, privacy and security procedures and controls and its ability to keep our sites operational. UOL Diveo is controlled by our parent company UOL and is therefore an affiliate of our company. Failure by UOL Diveo to adequately keep our sites operational, including any prolonged or unscheduled service disruption that affects our customers’ ability to utilize our sites, could result in the loss of sales and customers and/or increased costs, which could materially affect our reputation or results of operations. In addition, we rely in part on UOL Diveo to advise us of any security breaches. If UOL Diveo does not provide notice on a timely basis, our reputation and results of operations may be harmed. We may not be able to timely replace UOL Diveo, or find a replacement on a cost-efficient basis, in the event of disruptions, failures to provide services or other issues with it that may harm our business. For more information on our agreement with UOL Diveo, see “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions.”

Any disruptions or service interruptions that affect our sites could damage our reputation, require us to spend significant capital and other resources and expose us to a risk of loss or litigation and possible liability. Some of our agreements with third-party service providers do not require those providers to indemnify us for losses resulting from any disruption in service. Any of the above disruptions could seriously harm our results of operations.

Our business is subject to cyberattacks and security and privacy breaches.

Our business involves the collection, storage, processing and transmission of customers’ personal data, including financial information. In addition, a significant number of our customers authorize us to bill their payment card or bank accounts directly for all transaction and other fees charged by us. We have built our reputation on the premise that our platform offers customers a secure way to make payments. An increasing number of organizations, including large merchants and businesses, other large technology companies, financial institutions and government institutions, have disclosed breaches of their information security systems, some of which have involved sophisticated and highly targeted attacks, including on portions of their websites or infrastructure.

The techniques used to obtain unauthorized, improper or illegal access to our systems, our data or our customers’ data, to disable or degrade service, or to sabotage systems are constantly evolving, may be difficult to detect quickly and often are not recognized until launched against a target. Unauthorized parties may attempt to gain access to our systems or facilities through various means, including, among others, hacking into our systems or those of our customers, partners or vendors, or attempting to fraudulently induce our employees, customers, partners, vendors or other users of our systems into disclosing user names, passwords, payment card information or other sensitive information, which may in turn be used to access our information technology systems. Certain efforts may be supported by significant financial and technological resources, making them even more sophisticated and difficult to detect. Although we have developed systems and processes that are designed to protect our data and customer data and to prevent data loss and other security breaches, and expect to continue to expend significant additional resources to bolster these protections, these security measures cannot provide absolute security. Our information technology and infrastructure may be vulnerable to cyberattacks or security breaches, and third parties may be able to access our customers’ personal or proprietary information and card data that are stored on or accessible through those systems. Our security measures may also be breached due to human error, malfeasance, system errors or vulnerabilities, or other irregularities. Any actual or perceived breach of our security could interrupt our operations, result in our systems or services being unavailable, result in improper disclosure of data, materially harm our reputation and brand, result in significant legal and financial exposure, lead to loss of customer confidence in, or decreased use of, our products and services, and adversely affect our business and results of operations. In addition, any breaches of network or data security at our customers, partners or vendors (including data center and cloud computing providers) could have similar negative effects. Actual or perceived vulnerabilities or data breaches may lead to claims against us.

In addition, under card rules and our contracts with our card processors, if there is a breach of card information that we store, we could be liable to the payment card issuers for their cost of issuing new cards and related expenses. We also expect to spend significant additional resources to protect against security or privacy breaches, and may be required to address problems caused by breaches. Additionally, while we maintain insurance policies, we do not maintain insurance policies specifically for cyber-attacks and our current insurance policies may not be adequate to reimburse us for losses caused by security breaches, and we may not be able to collect fully, if at all, under these insurance policies.

Currently, several rules, such as the Federal Constitution, the Consumer Protection Code and the Internet Civil Registry regulate personal data processing in Brazil. Efforts to protect personal data created and/or made available in our systems may not guarantee that these protections are fully adequate and that they fully comply with the rules established by the current legislation. Failure to comply with certain provisions of applicable law, especially as regards (i) providing clear information on the data processing operations we perform, (ii) respect for the purpose of the original data collection; (iii) legal deadlines for the storage and exclusion of user data, and (iv) the adoption of legally required security standards for the preservation and inviolability of the processed personal data, can give rise to penalties, such as fines and even temporary or permanent suspension of our personal data processing activities.

Data protection and privacy laws in Brazil are changing to take into account cultural and local consumer attitudes towards personal data protection. There can be no guarantee that we will have sufficient financial resources to comply with any new regulations or successfully compete in the context of a shifting regulatory environment.

In 2017, Law No. 13,709/2018, the General Data Protection Act (Lei Geral de Proteção de Dados), or GDPA, was signed, which will come into force in August 2020 and will change personal data protection in Brazil. The GDPA establishes a new legal framework covering personal data processing, including client, supplier and employee data. The GDPA establishes, among others, personal data owners’ rights, the legal basis for personal data protection, requirements for obtaining consent from data owners, obligations and requirements related to security incidents, data leaks and data transfers, as well as the creation of the National Data Protection Authority.We have begun initial preparations to comply with the GDPA ahead of its August 2020 effective date, however we may have difficulty adapting our systems and processes to the new legislation due to the legislation’s complexity. In the event of non-compliance with the GDPA, we may be subject to penalties including information disclosure to authorities, elimination of personal data and a fine, per infraction, of up to 2% (subject to an upper limit of R$50,000,000) of our billings in Brazil during the last fiscal year, excluding taxes.

The GDPA and other laws and regulations that may be passed in the future may be interpreted and applied differently over time and from jurisdiction to jurisdiction. It is possible they will be interpreted and applied in ways that will materially and adversely affect our business. Any failure to comply with (i) our privacy policies, (ii) any regulatory requirements or orders, (iii) or other local, state, federal, or international privacy or consumer protection-related laws and regulations could materially and adversely affect our business.

Our services must integrate with a variety of operating systems and networks, and the hardware that enables merchants to accept payment cards must interoperate with mobile networks offered by telecom operators and third-party mobile devices utilizing those operating systems. If we are unable to ensure that our services or hardware interoperate with such networks, operating systems and devices, our business may be seriously harmed.

We are dependent on the ability of our products and services to integrate with a variety of operating systems and networks, as well as web browsers that we do not control. Any changes in these systems or networks that degrade the functionality of our products and services, impose additional costs or requirements on us, or give preferential treatment to competitive services, including their own services, could seriously harm the levels of usage of our products and services. We also rely on bank platforms to process some of our transactions. If there are any issues with or service interruptions in these bank platforms, users may be unable to have their transactions completed, which would seriously harm our business.

In addition, our hardware interoperates with mobile networks offered by telecom operators and mobile devices developed by third parties. Changes in these networks or in the design of these mobile devices may limit the interoperability of our hardware with such networks and devices and require modifications to our hardware. If we are unable to ensure that our hardware continues to interoperate effectively with such networks and devices, or if doing so is costly, our business may be seriously harmed.

Our business depends on a strong and trusted brand, and any failure to maintain, protect and enhance our brand would harm our business.

We have developed a strong and trusted brand, highly linked to the reputation and public image of UOL, our controlling shareholder, which has contributed significantly to the success of our business. Our brand is predicated on the idea that sellers and buyers will trust us and find value in building and growing their businesses with our products and services. Maintaining, protecting and enhancing our brand are critical to expanding our base of sellers, buyers and other third-party partners, as well as increasing engagement with our products and services. This will depend largely on our ability to maintain trust, be a technology leader, and continue to provide high-quality and secure products and services. Any negative publicity about our industry, our company or UOL, our controlling shareholder, the quality and reliability of our products and services, our risk management processes, changes to our products and services, our ability to effectively manage and resolve seller and buyer complaints, our privacy and security practices, litigation, regulatory activity, the experience of sellers and buyers with our products or services, and changes in the public opinion of UOL, could harm our reputation and the confidence in and use of our products and services. Harm to our brand can arise from many sources, including failure by us or our partners to satisfy expectations of service and quality; inadequate protection of sensitive information; compliance failures and claims; litigation and other claims; employee misconduct; and misconduct by our partners, service providers or other counterparties. If we do not successfully maintain a strong and trusted brand, our business could be seriously harmed.

Our business is subject to extensive government regulation and oversight and our status under these regulations may change. Violation of or compliance with present or future regulation could be costly, expose us to substantial liability and force us to change our business practices, any of which could seriously harm our business and results of operations.

In December 2014, PagSeguro Brazil applied for authorizations from the Central Bank relating to three of our digital payments activities, and those authorizations were formally approved on October 17, 2018. The activities involved are the PagSeguro digital account, our issuance of PagSeguro prepaid cards, and our activities as an acquirer. We applied for these authorizations because those businesses began to be regulated by Brazilian Federal Law No. 12,865/2013. PagSeguro Brazil also applied in February 2019 to the Central Bank for authorization to conduct activities as a payment institution in order to act as an issuer of post-paid cards within third-party payment schemes. This authorization was formally approved on March 16, 2019.

In addition, the early payment of receivables feature that we offer merchants makes up a significant portion of our activities. Law No. 12,865/2013 prohibits payment institutions such as PagSeguro Brazil from performing activities that are restricted to financial institutions. There is some debate under Brazilian law as to whether providing early payment of receivables to merchants could be characterized as “lending,” which is an activity that is restricted to financial institutions. Similarly, there is some debate as to whether the discount rates applicable to this early payment feature should be considered as “interest,” in which case the limits set by the Brazilian Usury Law would apply to these rates. If new laws are enacted or the courts’ interpretation of this activity changes, either preventing us from providing this feature or limiting the fees we usually charge, our financial performance could be negatively affected. For further information regarding these regulatory matters, see “Item 4. Information on the Company—Regulation—Regulation of the digital payments industry in Brazil.”

Furthermore, if we are found to be in violation of any current or future regulations, we could be (i) required to pay substantial fines (including per transaction fines) and disgorgement of our profits, (ii) required to change our business practices or (iii) subjected to insolvency procedures such as an intervention by the Central Bank and the out-of-court liquidation of PagSeguro Brazil. We could also be subject to private lawsuits. Any of these consequences could seriously harm our business and results of operations.

We are subject to costs and risks associated with increased or changing laws and regulations affecting our business, including those relating to the sale of consumer products. Specifically, developments in data protection and privacy laws could harm our business, financial condition or results or operations.

We operate in a complex regulatory and legal environment that exposes us to compliance and litigation risks and that could materially affect our results of operations. These laws may change, sometimes significantly, as a result of political, economic or social events. Some of the federal, state or local laws and regulations that affect us include: those relating to consumer products, product liability or consumer protection; those relating to the manner in which we advertise, market or sell products; labor and employment laws, including wage and hour laws; tax laws or interpretations thereof; data protection and privacy laws and regulations; and securities and exchange laws and regulations. For instance, data protection and privacy laws are developing to take into account the changes in cultural and consumer attitudes towards the protection of personal data. There can be no guarantee that we will have sufficient financial resources to comply with any new regulations or successfully compete in the context of a shifting regulatory environment. Any additional privacy laws or regulations could seriously harm our business, financial condition or results of operations.

Changes in tax laws, tax incentives, benefits or differing interpretations of tax laws may harm our results of operations.

Changes in tax laws, regulations, related interpretations and tax accounting standards in Brazil, the Cayman Islands or the United States may result in a higher tax rate on our earnings, which may significantly reduce our profits and cash flows from operations. For example, in 2015 the Brazilian government increased the rate of PIS/COFINS tax (which is a social contribution on gross revenues) from 0% to 4.65% on financial income realized by Brazilian companies that are taxed under the non-cumulative regime (which is the tax regime that applies to us). In addition, our results of operations and financial condition may decline if certain tax incentives are not retained or renewed. For example, Brazilian Law No. 11,196 currently grants tax benefits to companies that invest in research and development, which significantly reduces our annual income tax expense. If the taxes applicable to our business increase or any tax benefits are revoked and we cannot alter our cost structure to pass our tax increases on to customers, our financial condition, results of operations and cash flows could be seriously harmed. Our payment processing activities are also subject to a Municipal Tax on Services (Imposto Sobre Serviços, or ISS). Any increases in ISS rates would also harm our profitability.

In addition, Brazilian government authorities at the federal, state and local levels are considering changes in tax laws in order to cover budgetary shortfalls resulting from the recent economic downturn in Brazil. If these proposals are enacted they may harm our profitability by increasing our tax burden, increasing our tax compliance costs, or otherwise affecting our financial condition, results of operations and cash flows. Tax rules in Brazil, particularly at the local level, change regularly, and it is common for taxpayers to challenge such changes, which may result in additional tax assessments and penalties for our company.

In this sense, we are involved in tax proceedings based on differences of interpretation between us and the Brazilian tax authorities regarding tax laws and regulations. For further information, see “Item 8. Financial Information—Tax and Social Security Proceedings.”

Our financial success is sensitive to the method consumers choose to make payments, since these methods differ in profitability. Our profitability could be harmed if the proportion of our business funded using less profitable methods goes up.

We pay transaction fees to card schemes, banks and other intermediaries that vary according to the method chosen by consumers to fund payment transactions. These transaction fees are higher when consumers fund payments using credit cards, and lower when consumers fund payments with debit cards. Transaction fees are nominal when customers fund payment transactions by digital transfer of funds from bank accounts, and we pay no fees when customers fund payment transactions from an existing PagSeguro account balance. Our financial success is therefore sensitive to changes in the proportion of our business funded by consumers using credit and debit cards, which would increase our costs if we were unable to adjust the rates we charge our customers accordingly. Consumers may resist funding payments by digital transfer from bank accounts because of the incentives offered by credit cards, for example, or general concerns about providing bank account information to a third party.

Failure to deal effectively with fraud, fictitious transactions, bad transactions or negative customer experiences would increase our loss rate and harm our business, and could severely diminish merchant and consumer confidence in and use of our services.

We incur losses and expenses due to claims from consumers that merchants have not performed or that their goods or services do not match the merchant’s description. We seek to recover these losses and expenses from the merchant, but may not be able to recover them in full when the merchant is unwilling or unable to pay. We also incur losses and expenses from claims that the consumer did not authorize the purchase, from consumer fraud and from erroneous transmissions. In addition, if the losses we incur related to card transactions become excessive, they could potentially result in a loss of our right to accept cards for payment. In the event that we were unable to accept cards, the number of transactions processed through our platform would decrease substantially and our business would be harmed. We are also subject to the risk of fraudulent activity by merchants, consumers of products purchased through our platform, or third parties handling our user information. We take measures to detect and reduce the risk of fraud, but these measures need to be continually improved and may not be effective against new and continually evolving forms of fraud or in connection with new product offerings. If these measures do not succeed, our business could be harmed.

We rely on third parties in many aspects of our business, which creates additional risk.

We rely on third parties in many aspects of our business, including, among others:

•

networks, banks, payment processors, and payment gateways that link us to the payment card and bank clearing networks to process transactions;

•

third parties that provide certain outsourced customer support and product development functions, which are critical to our operations; and

•

third parties that provide facilities, infrastructure, components and services, including data center facilities and cloud computing.

The third parties that we rely on to process transactions may fail or refuse to process transactions adequately. Any of the third parties we use may breach their agreements with us, refuse to renew these agreements on commercially reasonable terms, take actions that degrade the functionality of our services, impose additional costs or requirements on us, or give preferential treatment to competing services. Financial or regulatory issues, labor issues, or other problems that prevent these third parties from providing services to us or our customers could harm our business. If our service providers do not perform satisfactorily, our operations could be disrupted, which could result in customer dissatisfaction, damage our reputation, and harm our business.

In particular, we rely on UOL, our largest shareholder, and its subsidiaries for a number of business services, particularly: data storage services; telecommunications services; internet security services; software development, maintenance and management; and call center, marketing, corporate, litigation and back-office services. UOL and its subsidiaries also provide us with advertising and media space and resell cloud services to us. For further details of these services, see “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions.”

Our failure to manage the assets underlying our customer funds properly could harm our business.

Our ability to manage and account accurately for the assets underlying our customer funds requires a high level of internal controls. As our business continues to grow and we expand our product offerings, we must continue to strengthen our internal controls accordingly. Our success requires significant public confidence in our ability to handle large and growing transaction volumes and amounts of customer funds. Any failure to maintain the necessary controls or to manage the assets underlying our customer funds accurately could severely diminish customer use of our products and/or result in penalties and fines, which could harm our business.

The e-commerce market in Brazil is developing, and the expansion of our business depends on the continued growth of e-commerce, as well as increased availability, quality and usage of the Internet in Brazil.

Our future revenues from digital payments depend substantially on consumers’ widespread acceptance and use of the Internet as a way to conduct commerce. Rapid growth in the use of the Internet (particularly as a way to provide and purchase products and services) is a relatively recent phenomenon in Brazil and we cannot assure you that this acceptance and usage will continue or increase. Furthermore, if the penetration of Internet access in Brazil does not increase quickly, it may limit our potential growth, particularly in regions with low levels of Internet quality and access and/or low levels of income.

Internet penetration in Brazil may never reach the levels seen in more developed countries for reasons that are beyond our control, including the lack of necessary network infrastructure or delayed development of enabling technologies, performance improvements and security measures. The infrastructure for the Internet in Brazil may not be able to support continued growth in the number of users, their frequency of use or their bandwidth requirements. Delays in telecommunication and infrastructure development or other technology shortfalls may impede improvements in Internet reliability in Brazil. If telecommunications services are not sufficiently available to support the growth of the Internet in Brazil, response times could be slower, which would reduce Internet usage and harm our services. In addition, even if Internet penetration in Brazil increases, this may not lead to growth in e-commerce due to a number of factors, including lack of confidence by users in online security.

Furthermore, the price of Internet access and Internet-connected devices, such as personal computers, tablets, mobile phones and other portable devices, may limit our growth, particularly in parts of Brazil with low levels of income. Income levels in Brazil are significantly lower than in the United States and other more developed countries, while prices of both portable devices and Internet access in Brazil are higher than in those countries. Income levels in Brazil may decline and device and access prices may increase in the future.

Any of these factors could limit our ability to generate revenues in future.

Our quarterly results of operations and operating metrics may fluctuate and are unpredictable and subject to seasonality, which could result in the price of our Class A common shares being unpredictable or declining.

Our quarterly results of operations may vary significantly and are not necessarily an indication of future performance. These fluctuations may be due to a variety of factors, some of which are outside of our control and may not fully reflect the underlying performance of our business. In addition, we operate in a somewhat seasonal industry, which tends to experience relatively fewer transactions in the first quarters of the year, increased activity as the year-end holiday shopping season initiates, and fewer transactions after the year-end holidays. In addition, businesses operating in Brazil, such as ours, tend to experience relatively fewer transactions during certain international sporting events, such as the soccer World Cup.

Factors that may cause fluctuations in our quarterly results of operations include our ability to attract and retain customers; the timing, effectiveness and costs of expansion and upgrades of our systems and infrastructure, as well as the success of those expansions and upgrades; the outcomes of legal proceedings and claims; our ability to maintain or increase revenue, gross margins and operating margins; our ability to continue introducing new services and to continue convincing customers to adopt additional offerings; increases in and timing of expenses that we may incur to grow and expand our operations and to remain competitive; period-to-period volatility related to fraud and risk losses; system failures resulting in the inaccessibility of our products and services; changes in the regulatory environment, including with respect to security, privacy or enforcement of laws and regulations by regulators, including fines, orders, or consent decrees; changes in global business or macroeconomic enforcement of laws and regulations by regulators, including fines, orders, or consent decrees; changes in global business conditions; general retail buying patterns; and the other risks described in this annual report. Future fluctuations in quarterly results may mean that our business is less predictable and may harm the trading price of our Class A common shares.

Our business could be harmed if we are unable to forecast demand for our products accurately or to manage our product inventory adequately.

With the goal of increasing our transaction business and POS device sales, we invest broadly in our POS unit technology. Our products, such as the Moderninha and the Minizinha, often require investments with long lead times. An inability to forecast the success of a particular product correctly could harm our business. We must forecast inventory needs and expenses and place orders sufficiently in advance with our third-party suppliers and contract manufacturers based on our estimates of future demand for particular products. Our ability to forecast demand for our products accurately could be affected by many factors, including an increase or decrease in demand for our products or for our competitors’ products, unanticipated changes in general market conditions, and the change in economic conditions.

If we underestimate demand for a particular product, our contract manufacturers and suppliers may not be able to deliver sufficient quantities of that product to meet our requirements, and we may experience a shortage of that product available for sale or distribution. The shortage of a popular product could seriously harm our brand, our seller relationships, the acquisition of additional sellers and our total transaction business. If we overestimate demand for a particular product, we may have excess inventory for that product and the excess inventory may become obsolete or out of date. Inventory levels in excess of demand may lead us to write down or write off the inventory or sell excess inventory at further discounted prices, which could harm our profit and our business.

Some of the key components of our POS devices are sourced from a limited number of suppliers. We are therefore at risk of shortage, price increases, changes, delay or discontinuation of key components, which could disrupt and harm our business.

Some of the key components used to manufacture our POS devices, such as the chip and pin reader, come from limited sources of supply. In addition, we currently rely on one manufacturer to manufacture, test and assemble a significant amount of our POS devices. The agreements for the components used to manufacture our POS devices are entered into directly by the manufacturer of our POS devices and we do not have agreements with these suppliers.

Due to reliance of our POS manufacturers on these components, we are subject to the risk of shortages and long lead times in the supply of certain products. If our manufacturers cannot find alternative sources of supply, we could be subject to components shortages or delays or other problems in product assembly. In addition, various sources of supply-chain risk, including strikes or shutdowns, or loss of or damage to our products while they are in transit or storage, could limit the supply of our POS devices. Any interruption or delay in component supply, any increases in component costs, the inability of our manufacturers to obtain these parts or components from alternate sources at acceptable prices and within a reasonable amount of time, and/or difficulties in fulfilling obligations in connection with the warranties we provide for our POS devices, would harm our ability to provide our POS devices or other services to our merchants on a timely basis. This could hurt our relationships with our customers, prevent us from acquiring new customers, and seriously harm our business.

We are subject to anticorruption, anti-bribery and anti-money laundering laws and regulations.

We are subject to various anticorruption, anti-bribery and anti-money laundering laws and regulations that prohibit, among other things, our involvement in improper payments to certain public officials for the purpose of obtaining advantages or in transferring the proceeds of criminal activities. We have programs designed to comply with new and existing legal and regulatory requirements. However, any errors, failures, or delays in complying with anticorruption, anti-bribery and anti-money laundering laws and regulations could result in significant criminal and civil lawsuits, penalties, forfeiture of significant assets, or other enforcement actions, as well as reputational harm.

Regulators may increase enforcement of these obligations, which may require us to further revise or expand our compliance program, including the procedures we use to verify the identity of our customers and to monitor our transactions. Regulators regularly re-examine the transaction volume thresholds at which we must obtain and keep applicable records or verify identities of customers and any change in such thresholds could result in greater costs for compliance. Costs associated with fines or enforcement actions, changes in compliance requirements, or limitations on our ability to grow could harm our business and any new requirements or changes to existing requirements could impose significant costs, result in delays to planned product improvements, make it more difficult for new customers to join our network and reduce the attractiveness of our products and services.

The loss of any member of our management team and our inability to make up for such loss with a qualified replacement, could harm our business.

Our business depends upon the efforts and skill of our senior management, who has played an important role in shaping our company culture. Our future success depends to a significant extent on the continued service of our senior management team, who are critical to the development and the execution of our business strategies. Any member of our senior management team may leave us to set up or work in businesses that compete with ours. There is no guarantee that the compensation arrangements and noncompetition agreements we have entered into with our senior management team are sufficiently broad or effective to prevent them from resigning in order to set up or join a competitor, or that the noncompetition agreements would be upheld in a court of law. In the event that a number of our senior management members leave our company, we may have difficulty finding suitable replacements, which could seriously harm us.

Our future success also depends on our ability to identify, attract, hire, train, retain, motivate and manage other highly skilled technical, managerial, information technology, marketing, product, risk management and customer service personnel. Competition for these personnel is intense, and we may not be able to successfully attract, hire, train, retain, motivate and manage sufficiently qualified personnel.

We partially rely on card issuers or card schemes to process our transactions. Changes to credit card scheme fees, rules or practices may harm our business.

We partially rely on card issuers or card schemes to process our transactions, and must pay a fee for this service. From time to time, card schemes such as MasterCard and Visa may increase the interchange fees that they charge for each transaction using one of their cards. Credit card processors have the right to pass any increases in interchange fees on to us as well as increase their own fees for processing. In addition, card schemes have imposed and may again impose special assessments for transactions that are executed through a “digital wallet,” and these fees could particularly affect us and significantly increase our costs. These increased fees increase our operating costs and reduce our profit margins.

We are also required by credit card schemes to comply with their operating rules. The credit card schemes and their member banks set and interpret these rules. The bank accounts offered by those member banks compete with our digital account services. Visa, MasterCard, American Express or other credit card companies could adopt new operating rules or reinterpret existing rules that we or our processors might find difficult or even impossible to follow. As a result, we could lose our ability to provide our customers the option of using credit cards to fund their payments and our users the option to pay their fees using a credit card. If we were unable to accept credit cards, our business would be seriously harmed.

We could lose the right to accept credit cards or could be required to pay fines if credit card schemes such as MasterCard or Visa determine that users are using our platform to engage in illegal or “high risk” activities, or if users generate a large volume of chargebacks related to fraudulent transactions. Additionally, we may be unable to access financing in the credit and capital markets at reasonable rates to fund our operations and for that reason our profitability and total transaction business could decline significantly.

We might not successfully implement strategies to increase adoption of our digital payment methods, which would limit our growth.

Our future profitability will depend, in part, on our ability to successfully implement our strategy to increase adoption of our digital payment methods. We cannot assure you that the market for digital payments will continue to grow or will remain viable. We expect to invest substantial amounts to:

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drive consumer and merchant awareness of digital payments;

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encourage consumers and merchants to sign up for and use our digital payment products;

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enhance our infrastructure to handle seamless processing of transactions;

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continue to develop state of the art, easy-to-use technology;

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expand our operations;

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increase the number of users who collect and pay digitally; and

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grow and diversify our customer base.

Despite these investments, we may fail to implement these programs successfully or to increase substantially the number of customers who pay for our digital payment methods. This would hold back any growth in our revenues and harm our business.

If we fail to establish and maintain proper and effective internal controls over financial reporting, our results of operations and our ability to operate our business may be harmed.

We are subject to the Sarbanes-Oxley Act, which requires, among other things, that we establish and maintain effective internal controls over financial reporting and disclosure controls and procedures. Under the SEC’s current rules, since 2018 we have been required to perform system and process evaluation and testing of our internal controls over financial reporting to allow management to assess the effectiveness of our internal controls. Our testing may reveal deficiencies in our internal controls that are deemed to be material weaknesses or significant deficiencies and render our internal controls over financial reporting ineffective. If we are not able to comply with these requirements in a timely manner, or if we or our management identifies material weaknesses or significant deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our Class A common shares may decline and we may be subject to investigations or sanctions by the SEC, the Financial Industry Regulatory Authority, Inc., or FINRA, or other regulatory authorities. In addition, we may be required to expend significant management time and financial resources to correct any material weaknesses that may be identified or to respond to any regulatory investigations or proceedings.

Our operating results are affected by decreases in consumer discretionary spending. Changes in macroeconomic conditions may reduce the volume and prices of transactions on our payments platforms and harm our growth strategies and business prospects.

Our operating results are affected by the condition of the economy. Our business and financial performance may be harmed by current and future economic conditions that cause a decline in business and consumer spending, including a reduction in the availability of credit, increased unemployment levels, higher energy and fuel costs, rising interest rates, financial market volatility and recession. Additionally, we may experience difficulties in operating and growing our operations as a result of economic pressures.

As a business that depends on consumer discretionary spending, we may suffer harm if our merchants’ customers reduce their purchases due to continued job losses, foreclosures, bankruptcies, higher consumer debt and interest rates, reduced access to credit, lower consumer confidence, uncertainty or changes in tax policies and tax rates. Decreases in customer traffic or average value per transaction negatively affect our financial performance, and a prolonged period of depressed consumer spending could seriously harm our business. Promotional activities and decreased demand for consumer products, particularly higher-end products, could affect our profitability. The potential effects of the ongoing economic crisis in Brazil are difficult to forecast and mitigate. Any of the foregoing could seriously harm our business, results of operations and financial condition and could cause the trading price of our Class A common shares to decline.

Increases in interest rates may harm our business.

Processing consumer transactions made using credit cards, as well as providing early payment of receivables to merchants when consumers make credit card purchases in installments, both make up a significant portion of our activities. If Brazilian interest rates increase, consumers may choose to make fewer purchases using credit cards; and fewer merchants may decide to use our early payment of receivables feature if our overall financing costs require us to increase the discount rate we charge for this feature. Either of these factors could cause our business activity levels to decrease.

Customer complaints or negative publicity about our customer service could reduce usage of our products and, as a result, our business could suffer.

Customer complaints or negative publicity about our customer service could severely diminish consumer confidence in and use of our product. Breaches of our customers’ privacy and our security measures could have the same effect. Measures we sometimes take to combat risks of fraud and breaches of privacy and security, such as freezing customer funds, can damage relations with our customers. These measures heighten the need for prompt and accurate customer service to resolve irregularities. Effective customer service requires significant expenses, which, if not managed properly, could impact our profitability significantly. Any inability by us to manage or train our customer service representatives properly could compromise our ability to handle customer complaints effectively. If we do not handle customer complaints effectively, our reputation may suffer and we may lose our customers’ confidence.

We are susceptible to illegal or improper uses of our platform, which could expose us to additional liability and harm our business.

We, like our platforms, are susceptible to potentially illegal or improper uses. These may include illegal online gambling, fraudulent sales of goods or services, illicit sales of prescription medications or controlled substances, software and other intellectual property piracy, money laundering, bank fraud, child pornography trafficking, terrorist financing, prohibited sales of alcoholic beverages and tobacco products and online securities fraud. The owners of intellectual property rights or government authorities may seek to bring legal action against us if our platform is used for the sale of infringing items. These claims could result in reputational harm and any resulting liabilities, loss of transaction volume or increased costs could harm our business.

In addition, our services could be subject to unauthorized credit card use, identity theft, employee fraud or other internal security breaches. We may incur significant costs to protect against the threat of information security breaches or to respond to or alleviate problems caused by any breaches. Laws may require us to notify regulators, customers or employees of security breaches and we may be required to reimburse customers or banks for any funds stolen as a result of any breaches or to provide credit monitoring or identity theft protection in the event of a privacy breach. These requirements, as well as any additional restrictions that may be imposed by credit card companies, could raise our costs significantly and reduce our attractiveness.

In addition to the direct costs of such losses, if they are related to credit card transactions and become excessive they could result in us losing the right to accept credit cards for payment. Since credit cards are the most widely used method for our customers to pay for the products we sell, our business will be harmed if we are unable to accept credit cards.

Unauthorized disclosure of sensitive or confidential customer information or our failure or the perception by our customers that we failed to comply with privacy laws or properly address privacy concerns could harm our business and standing with our customers.

We collect, store, process, and use certain personal information and other user data in our business. A significant risk associated with e-commerce and communications is the secure transmission of confidential information over public networks. The perception of privacy concerns, whether or not valid, may harm our business and results of operations. We must ensure that all processing, collection, use, storage, dissemination, transfer and disposal of data for which we are responsible comply with relevant data protection and privacy laws. The protection of our customer, employee and company data is critical to us. Currently, a number of our users authorize us to bill their credit card accounts directly. We rely on commercially available systems, software, tools and monitoring to provide secure processing, transmission and storage of confidential customer information, such as credit card and other personal information. Despite the security measures we have in place, our facilities and systems, and those of our third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors, or other similar events. Any security breach, or any perceived failure involving the misappropriation, loss or other unauthorized disclosure of confidential information, as well as any failure or perceived failure to comply with laws, policies, legal obligations or industry standards regarding data privacy and protection, whether by us or our vendors, could damage our reputation, expose us to litigation risk and liability, subject us to negative publicity, disrupt our operations and harm our business. Our security measures may fail to prevent security breaches, which could harm our business.

We have only a limited ability to protect our intellectual property rights, which are important to our success.

We believe the protection of our intellectual property, including our trademarks, patents, copyrights, domain names, trade dress, and trade secrets, is critical to our success. We seek to protect our intellectual property rights by relying on applicable laws and regulations, as well as a variety of administrative procedures. We also rely on contractual restrictions to protect our proprietary rights when offering or procuring products and services, including confidentiality agreements with parties with whom we conduct business.

However, contractual arrangements and other steps we have taken to protect our intellectual property may not prevent third parties from infringing or misappropriating our intellectual property or deter independent development of equivalent or superior intellectual property rights by others. Trademark, copyright, patent, domain name, trade dress and trade secret protection is expensive to maintain and may require litigation. Protecting our intellectual property rights and other proprietary rights is expensive and time-consuming and may not be successful in every jurisdiction. Also, we may not be able to discover or determine the extent of any unauthorized use of our proprietary rights. We have licensed certain of our proprietary rights, such as trademarks or copyrighted material, to others in the past, and expect to do so in the future. These licensees may take actions that diminish the value of our proprietary rights or harm our reputation. Any failure to protect or enforce our intellectual property rights adequately, or significant costs incurred in doing so, could materially harm our business.

As the number of products in the software industry increases and the functionalities of these products further overlap, and as we acquire technology through acquisitions or licenses, we may become increasingly subject to infringement claims, including patent, copyright, and trademark infringement claims. We may be required to enter into litigation to determine the validity and scope of the patents or other intellectual property rights of others. The ultimate outcome of any allegation is uncertain and, regardless of the outcome, any such claim, with or without merit, may be time-consuming, result in costly litigation, divert management’s time and attention from our business, require us to stop selling, delay shipping, or redesign our products, or require us to pay substantial amounts to satisfy judgments or settle claims or lawsuits or to pay substantial royalty or licensing fees, or to satisfy indemnification obligations that we have with some of our customers. Our failure to obtain necessary license or other rights, or litigation or claims arising out of intellectual property matters, may harm our business.

If we continue to grow, we may not be able to appropriately manage the increased size of our business.

We are currently experiencing a period of significant expansion and anticipate that further expansion will be required to address potential growth in our customer base and market opportunities.

We must constantly add new hardware, update software, enhance and improve our billing and transaction systems, and add and train new engineers and other personnel to accommodate the increased use of our platforms and the new products and features we regularly introduce. This upgrade process is expensive, and the increasing complexity and enhancement of our website results in higher costs. Failure to upgrade our technology, features, transaction processing systems, security infrastructure, or network infrastructure to accommodate increased traffic or transaction volume could harm our business. Adverse consequences could include unanticipated system disruptions, slower response times, degradation in levels of customer support, impaired quality of users’ experiences of our services and delays in reporting accurate financial information.

Our revenues depend on prompt and accurate transaction processes. Our failure to grow our transaction-processing capabilities to accommodate the increasing number of transactions that must be billed on our website would harm our business and our ability to collect revenue. Furthermore, we may need to enter into relationships with various strategic partners, websites and other online service providers and other third parties necessary to our business. The increased complexity of managing multiple commercial relationships could lead to execution problems that can affect current and future revenues, and operating margins.

We cannot assure you that our current and planned systems, procedures and controls, personnel and third-party relationships will be adequate to support our future operations. In addition, our current expansion has placed a significant strain on management and on our operational and financial resources, and this strain is expected to continue. Our failure to manage growth effectively could seriously harm our business, results of operations and financial condition.

Failure to maintain sufficient working capital could limit our growth and harm our business, financial condition and results of operations.

We have significant working capital requirements, primarily driven by payment terms agreed with our merchant clients and the extended payment terms that they offer their customers. Differences between the date when we pay our merchant clients and the date when we receive payments from financial institutions may harm our liquidity and our cash flows. We expect our working capital needs to increase as our total transaction business increases. In order to finance our working capital needs, we have recently been entering into financing arrangements that decrease the amount of time it takes for us to collect our accounts receivable, and to increase the amount of time we have to pay our accounts payable. We believe these financing arrangements allow us to gain access to capital faster and more cheaply than we would otherwise be able to. There can be no assurance that these types of financing arrangements will continue to be available to us on acceptable terms, or at all. If we do not have sufficient working capital, we may not be able to pursue our growth strategy, respond to competitive pressures or fund key strategic initiatives, such as the development of our sites, which may harm our business, financial condition and results of operations.

We may face restrictions and penalties under the Brazilian Consumer Protection Code in the future.

Brazil has a series of strict consumer protection laws, referred to together as the Consumer Protection Code (Código de Defesa do Consumidor). These laws apply to all companies in Brazil that supply products or services to Brazilian consumers. They include protection against misleading and deceptive advertising, protection against coercive or unfair business practices and protection in the formation and interpretation of contracts, usually in the form of civil liabilities and administrative penalties for violations. These penalties are often levied by the Brazilian Consumer Protection Agencies (Fundação de Proteção e Defesa do Consumidor, or PROCONs), which oversee consumer issues on a district-by-district basis. Companies that operate across Brazil may face penalties from multiple PROCONs, as well as from the National Secretariat for Consumers (Secretaria Nacional do Consumidor, or SENACON). Companies may settle claims made by consumers via PROCONs by paying compensation for violations directly to consumers and through a mechanism that allows them to adjust their conduct, called a conduct adjustment agreement (Termo de Ajustamento de Conduta, or TAC). Brazilian Public Prosecutors may also commence investigations of alleged violations of consumer rights, and the TAC mechanism is also available as a sanction in those proceedings. Companies that violate TACs face potential automatic fines. Brazilian Public Prosecutors may also file public civil actions against companies who violate consumer rights, seeking strict observation of the consumer protection laws and compensation for any damages to consumers.

At December 31, 2018, we had approximately 3,500 active judicial proceedings and proceedings with PROCONs and small claims courts relating to consumer rights. Most of these proceedings are related to consumer allegations of non-delivery of products by merchants and requests for withdrawal of digital account balances that were blocked by PagSeguro because they were under investigation for fraud or undergoing claim resolution. To the extent consumers file such claims against us in the future, we may be required to pay fines for noncompliance that could harm our results of operations.

We are subject to regulatory activity and antitrust litigation under competition laws.

We receive scrutiny from various governmental agencies under competition laws. Other companies or governmental agencies may allege that our actions violate antitrust or competition laws, or otherwise constitute unfair competition. Contractual agreements with buyers, sellers, or other companies could give rise to regulatory action or antitrust investigations or litigation. Also, our unilateral business practices could give rise to regulatory action or antitrust investigations or litigation. Any such claims and investigations, even if they are unfounded, are usually very expensive to defend, involve negative publicity and substantial diversion of management time and effort, and could result in significant judgments against us.

Unfavorable outcomes in litigation or our inability to post judicial collateral or provide guarantees in pending legal or administrative proceedings could have a material adverse effect on our business, financial condition and results of operations.

We are defendants in a significant number of judicial proceedings, including indemnity, labor and tax proceedings. At December 31, 2018, we had recorded R$7.2 million in provisions for current civil and labor proceedings and no provisions for non-current proceedings. We have not recorded any provisions with respect to our proceedings in which our chance of loss has been deemed possible. We cannot guarantee that such proceedings will have favorable outcomes for us or that the provisions made will be sufficient to pay any amounts due. Any proceedings that require us to make substantial payments, affect our reputation or otherwise interfere with our business operations could have a material adverse effect on our business, financial condition and operating results.

Additionally, we may not have sufficient funds to post collateral or provide guarantees in judicial or administrative proceedings that claim substantial amounts. Even if we do not post such collateral or provide guarantees, we will be liable for paying any amounts due pursuant to any unfavorable outcomes in legal proceedings. We cannot assure you that, if we cannot make such payments, our assets, including financial assets, will not be attached, or that we will be able to obtain tax good standing certificates, all of which may have a material adverse effect on our business, financial condition and results of operations.

We may pursue strategic acquisitions or investments. The failure of an acquisition or investment to produce the anticipated results, or the inability to integrate an acquired company fully, could harm our business.

We may from time to time acquire or invest in complementary companies or businesses. The success of an acquisition or investment will depend on our ability to make accurate assumptions regarding the valuation, operations, growth potential, integration and other factors related to that business. We cannot assure you that our acquisitions or investments will produce the results that we expect at the time we enter into or complete a given transaction. Furthermore, acquisitions may result in difficulties integrating the acquired companies, and may result in the diversion of our capital and our management’s attention from other business issues and opportunities. We may not be able to integrate successfully the operations that we acquire, including their personnel, financial systems, distribution or operating procedures. If we fail to integrate acquisitions successfully, our business could suffer. In addition, the expense of integrating any acquired business and their results of operations may harm our operating results.

Our developer platforms, which are open to merchants and third-party developers, subject us to additional risks.

We provide third-party developers with access to application programming interfaces, software development kits and other tools designed to allow them to produce applications for use, with a particular focus on mobile applications. There can be no assurance that merchants or third-party developers will develop and maintain applications and services on our open platforms on a timely basis or at all. A number of factors could cause them to curtail or stop development for our platforms. In addition, our business is subject to many regulatory restrictions. It is possible that merchants and third-party developers who utilize our development platforms or tools could violate these regulatory restrictions and we may be held responsible for such violations, which could harm our business.

We are a holding company and do not have any material assets other than the shares of our subsidiaries.

We are a Cayman Islands exempted company with limited liability. Our material assets are our direct and indirect equity interests in our subsidiaries, particularly Pagseguro Internet S.A., our Brazilian operating company, which we refer to as PagSeguro Brazil. We are, therefore, dependent upon payments, dividends and distributions from our subsidiaries for funds to pay our operating and other expenses and to pay future cash dividends or distributions, if any, to holders of our Class A common shares or Class B common shares, and we may have tax costs in connection with any dividend or distribution. Furthermore, exchange rate fluctuations will affect the U.S. dollar value of any distributions our subsidiaries make with respect to our equity interests in those subsidiaries. See “—Risks Relating to Brazil—The Brazilian federal government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement as well as Brazil’s political and economic conditions could harm us and the price of our Class A common shares,” “—Risks Relating to Our Class A Common Shares—We have not adopted a dividend policy with respect to future dividends. If we do not declare any dividends in the future, you will have to rely on price appreciation of our Class A common shares in order to achieve a return on your investment.” and “Item 10. Additional Information—Memorandum and Articles of Association—Dividends and Capitalization of Profits.”

An occurrence of a natural disaster, widespread health epidemic or other outbreaks could seriously harm our business, financial condition and results of operations.

Natural disasters, such as fires or floods, the outbreak of a widespread health epidemic, or other events, such as wars, acts of terrorism, political events, environmental accidents, power shortages or communication interruptions could seriously harm our business. The occurrence of a disaster or similar event could materially disrupt our business and operations. These events could also cause us to close our operating facilities temporarily, which would severely disrupt our operations and seriously harm our business, financial condition and results of operations. In addition, our net sales could be significantly reduced to the extent that a natural disaster, health epidemic or other major event harms the economy of Brazil or any other jurisdictions where we may operate. Our operations could also be severely disrupted if our customers, merchants or other participants were affected by natural disasters, health epidemics or other major events.

Risks Relating to Brazil

The Brazilian federal government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement as well as Brazil’s political and economic conditions could harm us and the price of our Class A common shares.

The Brazilian federal government frequently exercises significant influence over the Brazilian economy and occasionally makes significant changes in policy and regulations. The Brazilian government’s actions to control inflation and other policies and regulations have often involved, among other measures, increases in interest rates, changes in tax policies, price controls, foreign exchange rate controls, currency devaluations, capital controls and limits on imports. We have no control over and cannot predict what measures or policies the Brazilian government may take in the future. We and the market price of our securities may be harmed by changes in Brazilian government policies, as well as general economic factors, including, without limitation:

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growth or downturn of the Brazilian economy;

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interest rates and monetary policies;

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exchange rates and currency fluctuations;

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inflation;

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liquidity of the domestic capital and lending markets;

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import and export controls;

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exchange controls and restrictions on remittances abroad;

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modifications to laws and regulations according to political, social and economic interests;

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fiscal policy and changes in tax laws;

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economic, political and social instability;

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labor and social security regulations;

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energy and water shortages and rationing; and

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other political, social and economic developments in or affecting Brazil.

In addition, Brazil is currently experiencing a recession and weak macroeconomic conditions are expected to continue through the first six months of 2019, while the social security reform proposal remains pending, see “Item 5. Operating and Financial Review and Prospects—Principal Factors Affecting Our Financial Condition and Results of Operations.” We cannot predict what measures the Brazilian federal government will take in the face of mounting macroeconomic pressures or otherwise.

Uncertainty over whether the Brazilian federal government will implement changes in policy or regulation affecting these or other factors in the future may affect economic performance and contribute to economic uncertainty in Brazil, which may have an adverse effect on us and our Class A common shares. Recent economic and political instability has led to a negative perception of the Brazilian economy and higher volatility in the Brazilian securities markets, which also may adversely affect us and our Class A common shares. See “Item 5. Operating and Financial Review and Prospects—Principal Factors Affecting Our Financial Condition and Results of Operations —Brazilian political environment and macroeconomic conditions, interest rates, consumer credit and consumer spending.”

Ongoing political instability may adversely affect our business, results of operations and the trading price of our Class A common shares.

The recent economic instability in Brazil has contributed to a decline in market confidence in the Brazilian economy as well as to a deteriorating political environment. Despite the slow economic recovery and the still high fiscal vulnerability, several Brazilian macroeconomic fundamentals improved during 2017-18. The main highlight was the deceleration of inflation and the achievement of historically low interest rates.

The economic outlook for 2019 continues to face significant uncertainties. The Brazilian economy is expected to continue recovering at a moderate pace. The median market forecast currently predicts that the GDP growth rate will accelerate from 1.1% in 2018 to around 2.5% in 2019 (according to Focus Report on January 4, 2019).

In addition, various ongoing investigations into allegations of money laundering and corruption being conducted by the Office of the Brazilian Federal Prosecutor, including the largest such investigation, known as “Operação Lava Jato,” have negatively impacted the Brazilian economy and political environment.

Under “Operação Lava Jato” members of the Brazilian federal government and of the legislative branch, as well as senior officers of large state-owned and private companies, have faced allegations and, in certain cases, convictions, or, also, entering into plea bargains, related to crimes of political corruption, involving alleged bribes by means of kickbacks on contracts granted by the government to several infrastructure, oil and gas and construction companies. The profits of these kickbacks allegedly financed the political campaigns of political parties of the government that were unaccounted for or not publicly disclosed, in addition to alleged personal enrichment of the recipients of the bribes and the favoring of companies in contracts with the Brazilian government. Furthermore, certain of these companies have or are also facing investigations, and, in certain cases, being convicted by the competent authorities, such as the Brazilian Securities Commission (Comissão de Valores Mobiliários), the SEC and the United States Department of Justice. Certain of these companies have chosen to enter into leniency agreements with the competent authorities, when possible. The potential outcome of these investigations, convictions, plea bargaining and leniency agreements is still uncertain, but they have already had an adverse impact on the image and reputation of the implicated companies, political parties and on the general market perception of the Brazilian economy and political environment. We cannot predict whether such investigations will lead to further political and economic instability or whether new allegations against government officials, officers and/or companies will arise in the future. In addition, we cannot predict the outcome of any such investigations or allegations nor their effect on the Brazilian economy.

We also cannot predict which policies the current President of Brazil, Jair Bolsonaro, may adopt or change during his mandate or the effect that any such policies might have on our business and on the Brazilian economy. During his presidential campaign in 2018 and at the start of his four-year term beginning in January 2019, Bolsonaro reportedly favored the privatization of state-owned companies, economic liberalization, new pension legislation and tax reforms. However, there is no guarantee that Bolsonaro will be successful in executing his campaign promises or passing certain favored reforms fully or at all, particularly when confronting a fractured congress. Moreover, Bolsonaro was generally a polarizing figure during his campaign for presidency, particularly in relation to certain social views, and we cannot predict the ways in which a divided electorate may continue to impact his presidency and ability to implement policies and reforms. Any such new policies or changes to current policies may have a material adverse effect on us or the price of our Class A common shares. Furthermore, uncertainty over whether the current Brazilian government will implement changes in policy or regulation in the future may contribute to economic uncertainty in Brazil and to heightened volatility in the securities issued abroad by Brazilian companies.Inflation and certain measures by the Brazilian government to curb inflation have historically harmed the Brazilian economy and Brazilian capital markets, and high levels of inflation in the future would harm our business and the price of our Class A common shares.

In the past, Brazil has experienced extremely high rates of inflation. Inflation and some of the measures taken by the Brazilian government in an attempt to curb inflation have had significant negative effects on the Brazilian economy generally. Inflation, policies adopted to curb inflationary pressures and uncertainties regarding possible future governmental intervention have contributed to economic uncertainty and heightened volatility in the Brazilian capital markets.

According to the National Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo), or IPCA, Brazilian inflation rates were 3.75%, 2.95% and 6.29% in 2018, 2017 and 2016, respectively. Brazil may experience high levels of inflation in the future and inflationary pressures may lead to the Brazilian government’s intervening in the economy and introducing policies that could harm our business and the price of our Class A common shares. In the past, the Brazilian government’s interventions included the maintenance of a restrictive monetary policy with high interest rates that restricted credit availability and reduced economic growth, causing volatility in interest rates. For example, the SELIC (Sistema Especial de Liquidação e de Custódia), the Central Bank’s overnight rate, as established by the Monetary Policy Committee (Comitê de Política Monetária do Banco Central do Brasil), or COPOM, increased from 10.00% at the beginning of 2014 to a high point of 14.25% in 2016 before a series of rate reductions in 2017, bringing the SELIC rate down to 7.00% as of December 7, 2017, where it remained at year-end 2017. The COPOM reduced the SELIC rate to 6.75% on February 7, 2018, and further reduced it to 6.50% on March 21, 2018, where it currently remains. Conversely, more lenient government and Central Bank policies and interest rate decreases have triggered and may continue to trigger increases in inflation, and, consequently, growth volatility and the need for sudden and significant interest rate increases, which could negatively affect us and increase our indebtedness.

Exchange rate instability may have adverse effects on the Brazilian economy, us and the price of our Class A common shares.

The Brazilian currency has been historically volatile and has been devalued frequently over the past three decades. Throughout this period, the Brazilian government has implemented various economic plans and used various exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system. Although long-term depreciation of the real is generally linked to the rate of inflation in Brazil, depreciation of the real occurring over shorter periods of time has resulted in significant variations in the exchange rate, between the real, the U.S. dollar and other currencies. The real depreciated against the U.S. dollar by 32.0% at year-end 2015 as compared to year-end 2014, and by 11.8% at year-end 2014 as compared to year-end 2013. The real/U.S. dollar exchange rate reported by the Central Bank was R$3.9048 per U.S. dollar on December 31, 2015 and R$3.2591 per U.S. dollar on December 31, 2016, which reflected a 19.8% appreciation of the real against the U.S. dollar during 2016. Between year-end 2016 and year-end 2017, the real remained relatively stable, depreciating 1.5% against the U.S. dollar. Between year-end 2017 and 2018, the real depreciated greatly, by 16.9%, against the U.S. dollar, primarily as a result of lower interest rates in Brazil, which reduced the volume of foreign currency deposited in Brazil in the “carry trade,” as well as uncertainty regarding the results of the Brazilian presidential elections held in October 2018. The real/U.S. dollar exchange rate reported by the Central Bank was R$3.8748 per U.S. dollar on December 31, 2018. There can be no assurance that the real will not again appreciate or depreciate against the U.S. dollar or other currencies in the future.

A devaluation of the real relative to the U.S. dollar could create inflationary pressures in Brazil and cause the Brazilian government to, among other measures, increase interest rates. Any depreciation of the real may generally restrict access to the international capital markets. It would also reduce the U.S. dollar value of our results. Restrictive macroeconomic policies could reduce the stability of the Brazilian economy and harm our results of operations and profitability. In addition, domestic and international reactions to restrictive economic policies could have a negative impact on the Brazilian economy. These policies and any reactions to them may harm us by curtailing access to foreign financial markets and prompting further government intervention. A devaluation of the real relative to the U.S. dollar may also, as in the context of the current economic slowdown, decrease consumer spending, increase deflationary pressures and reduce economic growth.

On the other hand, an appreciation of the real relative to the U.S. dollar and other foreign currencies may deteriorate the Brazilian foreign exchange current accounts. We and certain of our suppliers purchase goods and services from countries outside Brazil, and thus changes in the value of the U.S. dollar compared to other currencies may affect the costs of goods and services that we purchase. Depending on the circumstances, either devaluation or appreciation of the real relative to the U.S. dollar and other foreign currencies could restrict the growth of the Brazilian economy, as well as our business, results of operations and profitability.

Infrastructure and workforce deficiency in Brazil may impact economic growth and have a material adverse effect on us.

Our performance depends on the overall health and growth of the Brazilian economy. Brazilian GDP growth has fluctuated over the past few years, with growth of 3.0% in 2013 but decreasing to 0.5% in 2014, a contraction of 3.5% in 2015, a contraction of 3.3% in 2016, growth of 1.1% in both 2017 and 2018. Growth is limited by inadequate infrastructure, including potential energy shortages and deficient transportation, logistics and telecommunication sectors, the lack of a qualified labor force, and the lack of private and public investments in these areas, which limit productivity and efficiency. Any of these factors could lead to labor market volatility and generally impact income, purchasing power and consumption levels, which could limit growth and ultimately have a material adverse effect on us.

Developments and the perceptions of risks in other countries, including other emerging markets, the United States and Europe, may harm the Brazilian economy and the price of Brazilian securities, including the price of our Class A common shares.

The market for securities issued by Brazilian companies is influenced by economic and market conditions in Brazil and, to varying degrees, market conditions in other Latin American and emerging markets, as well as the United States, Europe and other countries. To the extent the conditions of the global markets or economy deteriorate, the business of Brazilian companies may be harmed. The weakness in the global economy has been marked by, among other adverse factors, lower levels of consumer and corporate confidence, decreased business investment and consumer spending, increased unemployment, reduced income and asset values in many areas, reduction of China’s growth rate, currency volatility and limited availability of credit and access to capital. Developments or economic conditions in other emerging market countries have at times significantly affected the availability of credit to Brazilian companies and resulted in considerable outflows of funds from Brazil, decreasing the amount of foreign investments in Brazil.

Crises and political instability in other emerging market countries, the United States, Europe or other countries could decrease investor demand for Brazilian securities, such as our Class A common shares. In June 2016, the United Kingdom had a referendum in which the majority voted to leave the European Union. We have no control over and cannot predict the effect of the United Kingdom’s exit from the European Union nor over whether and to which effect any other member state will decide to exit the European Union in the future. On January 20, 2017, Donald Trump became the President of the United States. We have no control over and cannot predict the effect of Donald Trump’s administration or policies. These developments, as well as potential crises and forms of political instability arising therefrom or any other as of yet unforeseen development, may harm our business and the price of our Class A common shares.

Any further downgrading of Brazil’s credit rating could reduce the trading price of our Class A common shares.

We may be harmed by investors’ perceptions of risks related to Brazil’s sovereign debt credit rating. Rating agencies regularly evaluate Brazil and its sovereign ratings, which are based on a number of factors including macroeconomic trends, fiscal and budgetary conditions, indebtedness metrics and the perspective of changes in any of these factors.

Brazil has lost its investment grade sovereign debt credit rating with the three main U.S. based credit rating agencies, Standard & Poor’s, Moody’s and Fitch. Standard & Poor’s downgraded Brazil’s sovereign debt credit rating from BBB+ to BB in February 2016 and further reduced it to BB- in January 2018 with a stable outlook. In December 2015, Moody’s placed Brazil’s Baa3 sovereign debt credit rating on review and downgraded Brazil’s sovereign credit rating in February 2016 to Ba2 with a negative outlook, citing the prospect for further deterioration in Brazil’s indebtedness figures amid a recession and challenging political environment. In April 2018, Moody’s reaffirmed the Ba2 rating, but raised the outlook from negative to stable, citing expectations that the winner of the October 2018 presidential elections will pass fiscal reforms. Fitch downgraded Brazil’s sovereign credit rating to BB with a negative outlook in February 2016, citing the country’s rapidly expanding budget deficit and worse-than-expected recession, and further downgraded Brazil’s sovereign debt credit rating in May 2017 to BB- with a negative outlook. As Brazil’s credit ratings are closely linked to the proposed social security reform, expected to occur in 2019, Brazil’s credit ratings may suffer if this proposal is not approved.

Brazil’s sovereign credit rating is currently rated below investment grade by the three main credit rating agencies. Consequently the prices of securities issued by Brazilian companies have been negatively affected. A prolongation or worsening of the current Brazilian recession and continued political uncertainty, among other factors, could lead to further ratings downgrades. Any further downgrade of Brazil’s sovereign credit ratings could heighten investors’ perception of risk and, as a result, cause the trading price of our Class A common shares to decline.

Internet regulation in Brazil is recent and still limited and several legal issues related to the Internet are uncertain.

In 2014, Brazil enacted a law, which we refer to as the Internet Act, setting forth principles, guarantees, rights and duties for the use of the Internet in Brazil, including provisions about Internet service provider liability, Internet user privacy and Internet neutrality. In May 2016, further regulations were passed in connection with the Internet Act. However, unlike in the United States, little case law exists around the Internet Act and existing jurisprudence has not been consistent. Legal uncertainty arising from the limited guidance provided by current laws in force allows for different judges or courts to decide very similar claims in different ways and establish contradictory jurisprudence. This legal uncertainty allows for rulings against us and could set adverse precedents, which individually or in the aggregate could seriously harm our business, results of operations and financial condition. In addition, legal uncertainty may harm our customers’ perception and use of our service.

Risks Relating to Our Class A Common Shares

UOL, our largest shareholder, owns 100% of our outstanding Class B common shares, which represent approximately 91.1% of the voting power of our issued share capital, and controls all matters requiring shareholder approval. This concentration of ownership and voting power limits your ability to influence corporate matters.

Our Class B common shares are entitled to 10 votes per share and our Class A common shares are entitled to one vote per share. Our Class B common shares are convertible into an equivalent number of Class A common shares and generally convert into Class A common shares upon transfer subject to limited exceptions. UOL controls our company and holds all of our outstanding Class B common shares, representing 50.5% of our issued share capital. Because of the ten-to-one voting ratio between our Class B common shares and Class A common shares, these Class B common shares give UOL approximately 91.1% of the voting power of our issued share capital. UOL therefore controls the outcome of all decisions at our shareholders’ meetings, and is able to elect a majority of the members of our board of directors. It is also able to direct our actions in areas such as business strategy, financing, distributions, acquisitions and dispositions of assets or businesses. UOL’s decisions on these matters may be contrary to your expectations or preferences, and it may take actions that could be contrary to your interests. It will be able to prevent any other shareholders, including you, from blocking these actions. For further information regarding shareholdings in our company, see “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders.”

If UOL sells or transfers any of its Class B common shares, they will generally convert automatically into Class A common shares, subject to limited exceptions, such as transfers to affiliates, to trustees for the holder or its affiliates and certain transfers to U.S. tax exempt organizations. The fact that any Class B common shares convert into Class A common shares if UOL sells or transfers them means that UOL will in many situations continue to control a majority of the combined voting power of our outstanding share capital, due to the voting rights of any Class B common shares that it retains. If our Class B common shares at any time represent less than 10% of the combined voting power of our Class A common shares and Class B common shares together, however, the Class B common shares then outstanding will automatically convert into Class A common shares. For a description of the dual class structure, see “Item 10. Additional Information—Memorandum and Articles of Association.”

Class A common shares eligible for future sale may cause the market price of our Class A common shares to drop significantly.

The market price of our Class A common shares may decline as a result of sales of a large number of our Class A common shares in the market (including Class A common shares issuable upon conversion of Class B common shares) or the perception that these sales may occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

As of March 31, 2019, we had outstanding 162,267,064 Class A common shares (including treasury shares) and 165,620,861 Class B common shares. All Class B common shares are beneficially owned by UOL. Subject to the lock-up agreements described below, the Class A common shares sold in our June 2018 follow-on offering are freely tradable without restriction or further registration under the Securities Act by persons other than our affiliates within the meaning of Rule 144 of the Securities Act.

Our shareholders or entities controlled by them or their permitted transferees are, subject to the lock-up agreements described below, able to sell their shares in the public market from time to time without registering them, subject to certain limitations on the timing, amount and method of those sales imposed by regulations promulgated by the SEC. If any of our shareholders, the affiliated entities controlled by them or their respective permitted transferees were to sell a large number of their Class A common shares, the market price of our Class A common shares may decline significantly. In addition, the perception in the public markets that sales by them might occur may also cause the trading price of our Class A common shares to decline.

PagSeguro Digital has agreed with the underwriters to its June 2018 follow-on offering, subject to certain exceptions, not to offer, sell or dispose of any shares in its share capital or securities convertible into or exchangeable or exercisable for any shares in its share capital during the 12 month period following June 21, 2018, the date of our follow-on offering. UOL has also agreed to lock-up restrictions for 12 months following the June 21, 2018, the date of our follow-on offering, in substantially similar terms, except that the lock-up restrictions applicable to UOL are not subject to any exceptions. The lock-up restrictions applicable to PagSeguro Digital and UOL are not subject to waiver by the underwriters of the June 2018 follow-on offering. The lock-up agreement entered into by PagSeguro Digital is subject to the exceptions described in “Item 10. Additional Information—Common Shares Eligible for Future Sale,” including the right for our company to issue new shares if we carry out an acquisition or enter into a merger, joint venture or strategic participation.

Sales of a substantial number of our common shares upon expiration of the lock-up agreements, the perception that such sales may occur, or early release of these lock-up periods, could cause our market price to fall or make it more difficult for you to sell your Class A common shares at a time and price that you deem appropriate.

We have not adopted a dividend policy with respect to future dividends. If we do not declare any dividends in the future, you will have to rely on price appreciation of our Class A common shares in order to achieve a return on your investment.

We have not adopted a dividend policy with respect to future dividends. The amount of any distributions will depend on many factors such as our results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by our board of directors or, where applicable, our shareholders. Accordingly, if we do not declare dividends in the future, investors will most likely have to rely on sales of their Class A common shares, which may increase or decrease in value, as the only way to realize cash from their investment. There is no guarantee that the price of our Class A common shares will ever exceed the price that you pay.

We may raise additional capital in the future by issuing equity securities, which may result in a potential dilution of your equity interest.

We may issue additional equity securities to raise capital, make acquisitions, or for a variety of other purposes. Additional issuances of our shares may be made pursuant to the exercise or conversion of convertible debt securities, warrants, stock options or other equity incentive awards such as the LTIP and LTIP-Goals. Any strategic partnership, issuance or placement of shares and/or securities convertible into or exchangeable for shares may affect the market price of our shares and could result in dilution of your equity interest.

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, the market price and trading volume of our Class A common shares could decline.

The trading market for our Class A common shares depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our Class A common shares could decline, which might cause the market price and trading volume of our Class A common shares to decline.

Our dual class capital structure means our stock will not be included in certain indices. We cannot predict the impact this may have on our stock price.

In July 2017, S&P Dow Jones, a provider of widely followed stock indices, announced that companies with multiple share classes, such as ours, will not be eligible for inclusion in certain of their indices. As a result, our Class A common shares are not eligible for these stock indices. Additionally, since September 2017, FTSE Russell, another provider of widely followed stock indices, requires new constituents of its indices to have at least five percent of their voting rights in the hands of public stockholders. UOL controls approximately 91.1% of the voting power of our outstanding share capital. Many investment funds are precluded from investing in companies that are not included in such indices, and these funds would be unable to purchase our Class A common shares if we were not included in such indices. We cannot assure you that other stock indices will not take a similar approach to S&P Dow Jones and FTSE Russell in the future. Exclusion from indices could make our Class A common shares less attractive to investors and, as a result, the market price of our Class A common shares could be adversely affected.

We are a Cayman Islands exempted company with limited liability. The rights of our shareholders may be different from the rights of shareholders governed by the laws of U.S. jurisdictions.

We are a Cayman Islands exempted company with limited liability. Our corporate affairs are governed by our Memorandum and Articles of Association and by the laws of the Cayman Islands. The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights of shareholders and responsibilities of directors in companies governed by the laws of U.S. jurisdictions. In the performance of its duties, the board of directors of a solvent Cayman Islands exempted company is required to consider the company’s interests, which is generally defined with reference to the interests of its shareholders (both present and future) as a whole, which may differ from the interests of one or more of its individual shareholders. See “Item 10. Additional Information—Memorandum and Articles of Association—Principal Differences between Cayman Islands and U.S. Corporate Law.”

Our shareholders may face difficulties in protecting their interests because we are a Cayman Islands exempted company.

Our corporate affairs are governed by our Memorandum and Articles of Association, by the Companies Law of the Cayman Islands (as amended), or the Companies Law, and the common law of the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under the laws of the Cayman Islands are not as clearly defined as under statutes or judicial precedent in existence in jurisdictions in the United States. Therefore, you may have more difficulty protecting your interests than would shareholders of a corporation incorporated in a jurisdiction in the United States, due to the comparatively less formal nature of Cayman Islands law in this area.

While Cayman Islands law allows a dissenting shareholder to express a shareholder’s view that a court sanctioned reorganization of a Cayman Islands company would not provide fair value for the shareholder’s shares, Cayman Islands statutory law in respect of schemes of arrangement does not specifically provide for shareholder appraisal rights in connection with a merger or consolidation effected by a scheme of arrangement of a company. This may make it more difficult for you to assess the value of any consideration you may receive in a merger or consolidation or to require that the acquirer gives you additional consideration if you believe the consideration offered is insufficient. However, Cayman Islands statutory law, which permits a merger/consolidation without a court order, provides a mechanism for a dissenting shareholder in a merger or consolidation to require us to apply to the Grand Court for a determination of the fair value of the dissenter’s shares if it is not possible for the company and the dissenter to agree on a fair price within the time limits prescribed.

Shareholders of Cayman Islands exempted companies (such as us) have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders. Our directors have discretion under our Articles of Association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

Subject to limited exceptions, under Cayman Islands law, a minority shareholder may not bring a derivative action against the board of directors. Class actions are not recognized in the Cayman Islands, but groups of shareholders with identical interests may bring representative proceedings, which are similar.

Our Memorandum and Articles of Association contain anti-takeover provisions that may discourage a third party from acquiring us and reduce the rights of holders of our Class A common shares.

Our Memorandum and Articles of Association contain certain provisions that could limit the ability of others to acquire our control, including a provision that grants authority to our board of directors to issue new shares in our company from time to time (including common shares and preferred shares) without action by our shareholders. These provisions could have the effect of depriving our shareholders of the opportunity to sell their Class A common shares at a premium over the prevailing market price by discouraging third parties from seeking to obtain our control in a tender offer or similar transactions. See “Item 10. Additional Information—Memorandum and Articles of Association—Anti-Takeover Provisions in our Memorandum and Articles of Association.”

United States civil liabilities and certain judgments obtained against us by our shareholders may not be enforceable.

PagSeguro Digital is a Cayman Islands exempted company and substantially all of our assets are located outside of the United States. In addition, all of our current directors and officers are residents of Brazil, and a substantial portion of their assets is located outside of the United States. As a result, it may be difficult to effect service of process within the United States upon these persons. It may also be difficult to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and those officers and directors.

Further, it is unclear if original actions predicated on civil liabilities based solely upon U.S. federal securities laws are enforceable in courts outside the United States, including in the Cayman Islands and Brazil. Courts of the Cayman Islands may not, in an original action in the Cayman Islands, recognize or enforce judgments of U.S. courts predicated upon the civil liability provisions of the securities laws of the United States or any state of the United States on the grounds that such provisions are penal in nature. Although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, courts of the Cayman Islands will recognize a foreign judgment in personam of a court of competent jurisdiction and give a judgment based thereon if such judgment is final, for a liquidated sum, provided it is not in respect of taxes or a fine or penalty, is not inconsistent with a Cayman Islands’ judgment in respect of the same matters, and was not obtained in a manner which is contrary to the public policy of the Cayman Islands. In addition, a Cayman Islands court may stay proceedings if concurrent proceedings are being brought elsewhere.

Judgments of Brazilian courts to enforce our obligations with respect to our Class A common shares may be payable only in reais.

Most of our assets are located in Brazil. If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of our Class A common shares, we may not be required to discharge our obligations in a currency other than the real. Under Brazilian exchange control laws, an obligation in Brazil to pay amounts denominated in a currency other than the real may only be satisfied in Brazilian currency at the exchange rate in effect on the date the judgment is obtained as determined by the Central Bank. These amounts are then adjusted to reflect exchange rate variations through the effective payment date. The exchange rate at that time may not afford non-Brazilian investors with full compensation for any claim arising out of or related to our obligations under the Class A common shares.

As a foreign private issuer and an “emerging growth company” (as defined in the JOBS Act), the disclosure requirements that we must comply with and other requirements are different from those applicable to U.S. domestic registrants and non-emerging growth companies.

As a foreign private issuer and emerging growth company, the disclosure requirements that we must comply with and other requirements are different from those applicable to U.S. domestic registrants and non-emerging growth companies. For example, as a foreign private issuer for U.S. purposes, we are not subject to the same disclosure requirements as a domestic U.S. registrant under the Securities Exchange Act of 1934, as amended, or the Exchange Act, including the requirements to prepare and issue quarterly reports on Form 10-Q or to file current reports on Form 8-K upon the occurrence of specified significant events, the proxy rules applicable to domestic U.S. registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules applicable to domestic U.S. registrants under Section 16 of the Exchange Act. In addition, we rely on exemptions from certain U.S. rules which permit us to follow Cayman Islands legal requirements rather than certain of the requirements that are applicable to U.S. domestic registrants.

We follow the Cayman Islands laws and regulations that are applicable to Cayman Islands companies. However, these laws and regulations do not contain any provisions comparable to the U.S. proxy rules, the U.S. rules relating to the filing of reports on Form 10-Q or 8-K or the U.S. rules relating to liability for insiders who profit from trades made in a short period of time, as referred to above.

Furthermore, foreign private issuers are required to file their annual report on Form 20-F within 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, even though we are required to file reports on Form 6-K disclosing the limited information that is material to us and which we make public pursuant to Cayman Islands law, or are required to distribute to shareholders generally, you may not receive information of the same type or amount that is required to be disclosed to shareholders of a U.S. company.

The JOBS Act contains provisions that, among other things, relax certain reporting requirements for emerging growth companies. Under this act, as an emerging growth company, we are not subject to the same disclosure and financial reporting requirements as non-emerging growth companies. For example, as an emerging growth company we are permitted to, and take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Also, our auditors do not have to comply with any new auditing standards promulgated by the PCAOB (unless the SEC determines otherwise) or attest to our internal controls under Section 404(b) of the Sarbanes-Oxley Act. We may follow these reporting exemptions until we are no longer an emerging growth company. As a result, our shareholders may not have access to certain information that they deem important. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our IPO, (b) in which we have total annual revenues of at least US$1.07 billion or (c) in which we are deemed to be a large accelerated filer and (2) the date on which we have issued more than US$1.00 billion in nonconvertible debt during the prior three-year period. Accordingly, the information about us available to you will not be the same as, and may be more limited than, the information available to shareholders of a company that is not an emerging growth company.

We cannot predict if investors will find our Class A common shares less attractive because we will rely on these exemptions. If some investors find our Class A common shares less attractive as a result, there may be a less active trading market for our Class A common shares and our share price may be more volatile.

PagSeguro Digital is a foreign private issuer and, as a result, in accordance with the listing requirements of the NYSE we rely on certain home country governance practices from the Cayman Islands, rather than the corporate governance requirements of the NYSE.

We report under the Exchange Act as a non-U.S. company with foreign private issuer status. The NYSE rules provide that foreign private issuers are permitted to follow home country practice in lieu of certain NYSE corporate governance standards. The standards applicable to us are considerably different from the standards applied to U.S. domestic issuers. For instance, we are not required to:

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have a majority of independent members on our board of directors (other than as may result from the requirements for the audit committee member independence under the Exchange Act);

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have a minimum of three members on our audit committee;

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have a compensation committee or a nominating and corporate governance committee;

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have regularly scheduled executive sessions of our board that consist of independent directors only; or

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adopt and disclose a code of business conduct and ethics for directors, officers and employees.

As a foreign private issuer, we may follow home country practice from the Cayman Islands in lieu of the above requirements. Therefore, the approach to governance adopted by our board of directors may be different from that of a board of directors consisting of a majority of independent directors, and, as a result, our management oversight may be more limited than if we were subject to all of the NYSE corporate governance standards. Accordingly, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.

Although we do not expect to be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes, there can be no assurance that we will not be a PFIC for any taxable year, which could subject United States investors in our shares to significant adverse U.S. federal income tax consequences.

We do not expect to be a PFIC for the current taxable year or any future year, based on our current business plans. However, whether we are a PFIC will be determined annually based upon the composition and nature of our income and the composition, nature and valuation of our assets (including goodwill), all of which are subject to change, and which may be determined in large part by reference to the market value of our shares, which may be volatile. The determination of whether we are a PFIC will also depend upon the application of complex U.S. federal income tax rules concerning the classification of our assets (including goodwill) and income for this purpose, and the application of these rules is uncertain in some respects. Our status as a PFIC may also depend, in part, on how we utilize the cash proceeds from our January 2018 IPO and June 2018 follow-on offering, in our business. Accordingly, there can be no assurance that the IRS will not challenge any determination by us that we are not a PFIC.

If we were classified as a PFIC, special adverse U.S. federal tax rules would generally apply to a United States Holder (as defined in “Item 10. Additional Information—Taxation—U.S. Federal Income Tax Considerations”) that holds our Class A common shares. United States Holders are urged to consult their own tax advisors with respect to the potential tax consequences of the PFIC rules to their particular circumstances.

Although we consider ourselves to be actively engaged in an active business with respect to a number of business lines, and to be engaged in an active financing activity with respect to the early payment of receivables feature that we offer merchants regarding credit card transactions in installments in particular, and we believe that income from such businesses and features is likely not treated as passive income for purposes of the PFIC rules, it is not entirely clear how such income will be treated for these purposes. In particular, certain of our income may be treated as passive income unless such income is eligible for an exception for certain income derived in the active conduct of a financing business under Section 954(h) of the Code (the “active financing exception”), and related assets may be considered passive assets unless the active financing exception applies. We believe that the active financing exception will likely apply to treat such income as active, but if it is determined, contrary to our view, that the income from these businesses and features is passive for such purposes, that would alter the composition of our income and assets for purposes of testing our PFIC status, and may cause us to be treated as a PFIC. For more information on the application of the PFIC rules to us, see “Item 10. Additional Information—Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Company.”

Our Class A common shares may not be a suitable investment for all investors, as investment in our Class A common shares presents risks and the possibility of financial losses.

The investment in our Class A common shares is subject to risks. Investors who wish to invest in our Class A common shares are thus subject to asset losses, including loss of the entire value of their investment, as well as other risks, including those related to our Class A common shares, the company, the sector in which we operate, our shareholders and the general macroeconomic environment in Brazil, among other risks.

Each potential investor in our Class A common shares must therefore determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:

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have sufficient knowledge and experience to make a meaningful evaluation of our Class A common shares, the merits and risks of investing in our Class A common shares and the information contained in this annual report;

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have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in our Class A common shares and the impact our Class A common shares will have on its overall investment portfolio;

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have sufficient financial resources and liquidity to bear all of the risks of an investment in our Class A common shares;

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understand thoroughly the terms of our Class A common shares and be familiar with the behavior of any relevant indices and financial markets; and

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be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.

ITEM 4.

INFORMATION ON THE COMPANY

Overview

We are a disruptive provider of financial technology solutions focused primarily on Micro-Merchants, Small Companies and Medium-Sized Companies, or SMEs, in Brazil. Among our peers, we are the only financial technology provider in Brazil whose business model covers all of the following five pillars:

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Multiple digital payment solutions;

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In-person payments via POS devices that we sell to clients;

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Free digital accounts;

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Issuer of prepaid cards to clients for spending or withdrawing account balances; and

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Operating as an acquirer.

Our end-to-end digital ecosystem enables our customers not only to accept payments, but also to grow and manage their businesses. Before PagSeguro, many of these Micro-Merchants and SMEs were overlooked or underserved by incumbent payment providers and large financial institutions in Brazil. For example, according to a survey conducted by us in June 2017, 75% of merchants who own our entry-level mPOS device, the Minizinha, did not accept card payments prior to signing up with PagSeguro. We offer safe, affordable, simple, mobile-first solutions for merchants to accept payments and manage their cash through their PagSeguro digital accounts, without the need for a bank account. Our digital account offers more than 35 cash-in methods and eight cash-out options including our PagSeguro prepaid card, all using our proprietary technology platform and backed by the trusted PagSeguro and UOL brands. Our digital ecosystem also features other digital financial services, business management tools and functionalities for our clients.

At December 31, 2018, the PagSeguro network consisted of active clients in all 26 states and the Federal District in Brazil. Our business has continued to grow rapidly, despite the major macroeconomic slow-down in Brazil since 2014:

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At December 31, 2018, our active merchants totaled 4.1 million, representing an increase of 48.2% compared with R$2.8 million at year-end 2017. Our active merchants at year-end 2017 represented an increase of 92.9% compared with R$1.4 million at year-end 2016.

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In 2018, our TPV totaled R$76.1 billion, representing an increase of 97.9% compared with R$38.5 billion in 2017. Our TPV in 2017 represented an increase of 173.0% compared with R$14.1 billion in 2016.

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In 2018, our average spending per active merchant totaled R$ 21,988, representing an increase of 20% compared with R$18,374, in 2017. Our average spending per active merchant in 2017 represented an increase of 48.1 % compared with R$12,404 in 2016.

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In 2018, our Total revenue and income totaled R$4,334.7 million, representing an increase of 71.8% compared with R$2,523.4 million in 2017. Our Total revenue and income in 2017 represented an increase of 121.7% compared with R$1,138.4 million in 2016. The principal components of our Total revenue and income posted the following growth:

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Our two net revenue items (Net revenue from transaction activities and other services and Net revenue from sales) together totaled R$2,641.7 million in 2018, an increase of 55.7% compared with R$1,696.2 million in 2017. The total of these net revenue items in 2017 represented an increase of 129.0% compared with R$740.6 million in 2016.

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Our Financial income totaled R$1,414.5 million in 2018, an increase of 72.8% compared with R$818.6 million in 2017. Financial income in 2017 represented an increase of 108.6% compared with R$392.4 million in 2016.

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In 2018, our Net income for the year totaled R$910.4 million, representing an increase of 90.1% compared with R$478.8 million in 2017. Net income for the year in 2017 represented an increase of 274.6% compared with R$127.8 million in 2016.

Brazil has approximately 7.9 million Individual Micro Entrepreneurs, 4.5 million Micro Companies, 0.5 million SMEs and 0.04 million Large Companies according to SEBRAE (Portal do Empreendedor) and IBGE. Micro Entrepreneurs and Micro Companies represent a major market opportunity, as most of them remain unbanked and seek digital payments solutions. In addition, according to SEBRAE, the number of Individual Micro Entrepreneurs in Brazil increased by approximately one million each year from 2010 to 2017, from 780 thousand to 7.9 million (which amount remained stable in 2018). We believe that by continuing to migrate these Individual Micro Entrepreneurs and Micro Companies into our ecosystem, we can continue to drive significant additional revenue growth in the coming years. At the same time, we will continue to introduce more value-added products and services targeted at larger clients. For example, in February 2018, we announced a new functionality for our Monderninha Wi-Fi and Moderninha Pro, enabling multiple merchants to share a single POS device; in March 2018, we launched our Minizinha Chip, a POS device that combines high-end functionalities, such as Wi-Fi and GPRS connection (chip) in compact hardware that can fit in a merchant’s pocket and comes with its own SIM card and a free data plan, thus no longer requiring smartphone pairing like traditional mPOS devices; in May 2018, we launched our Moderninha Plus, the next-generation substitute for our highly successful Moderninha Wi-Fi, now with an improved physical keyboard, a faster processor and double the battery life; and in September 2018, we launched our Moderninha Smart, a modern, portable and fully integrated Android based POS device that offers a full integration of hardware, our apps and a fast and secure payments network.

The 2015 Reorganization of PagSeguro Brazil

PagSeguro Brazil was incorporated as a legal entity in 2006, although it did not operate the PagSeguro business prior to August 1, 2015 since most of the PagSeguro business activities were operated by other UOL group members prior to that date. On August 1, 2015, UOL carried out a corporate reorganization in which it segregated some of the PagSeguro activities from its other activities and contributed them to PagSeguro Brazil.

Prior to the contribution of these PagSeguro activities to PagSeguro Brazil, their results of operations were recorded in UOL’s financial statements. As a result, the financial information of PagSeguro Digital reflects a carve-out of the PagSeguro activities for periods prior to August 1, 2015. That carve-out financial information is derived from UOL’s accounting records and does not necessarily reflect the financial position, results of operations or cash flows that would have been recorded had PagSeguro Brazil been operating as a separate entity in those periods or at those dates.

From January 1, 2014 through July 31, 2015, certain of the assets and liabilities, revenues, costs and expenses directly related to the PagSeguro business were already controlled separately from UOL’s other activities. On the other hand, certain other corporate balances and transactions relating to the PagSeguro operations were not accounted for separately within UOL; these have been allocated to our audited consolidated financial statements for the period from January 1, 2014 through July 31, 2015 based on assumptions similar to those used after August 1, 2015, when the PagSeguro business was transferred to PagSeguro Brazil.

Prior to the completion of our IPO, PagSeguro used centralized cash management with UOL. Consequently, all amounts received or paid in connection with the PagSeguro business were recognized as balances between related parties in our audited consolidated financial statements. This approach is consistent with the treatment of our audited consolidated financial statements prior to August 1, 2015, which were prepared on a carve-out basis. PagSeguro’s cash management was separated from UOL’s cash management starting from the date of completion of our IPO. Any remaining balances that related to prior cash management activities began accruing interest on arms’ length terms from the date of completion of our IPO, and all such balances were repaid by UOL following completion of our IPO.

In addition, during 2016, UOL transferred its 100% interest in Net+Phone and its 75% interest in Boa Compra to PagSeguro Brazil as a capital contribution, and PagSeguro Brazil purchased the remaining 25% non-controlling interests in Boa Compra from its minority shareholders.

Our History

UOL launched PagSeguro in 2006, acquiring a Brazilian digital payments startup and combining it with UOL’s own know-how in Internet services. Initially launched as an online payment platform, PagSeguro aimed to provide the digital payment infrastructure necessary to support the growth of e-commerce in Brazil and by 2016 we were considered the largest Brazilian online payment company in terms of TPV, according to data compiled by Ebit. UOL’s credibility in the Brazilian Internet sector was key to this successful launch, and remains so today. Founded in 1996, UOL is Brazil’s largest Internet content, digital products and services company. According to comScore, 90.4 million unique visitors (approximately 75% of Brazilian internet users) accessed a UOL website in April 2018. The PagSeguro and UOL brands together gave Brazilian online consumers the confidence to use their sensitive personal and financial data on our payments platform, in order to shop online easily and safely. As an example of our commercial initiatives to instill trust and safety in online shopping, we introduced our escrow service where we hold the consumer’s payment for a set period of time following the purchase, as a precaution in case of a commercial claim.

In 2008, PagSeguro was named “Preferred E-commerce Company” by Info Exame magazine. Customer numbers continued to grow, with 20,000 stores and approximately 600,000 consumers carrying out transactions through the PagSeguro platform during the year.

In 2009, we strengthened our presence in digital payments by acquiring Boldcron Technologies, a gateway payment company linked to the main acquisition providers in Brazil, which offered payment programs and networks. In the same year, Exame magazine named UOL in the Digital Industry category as one of the 1000 Melhores e Maiores (“biggest and best”) companies in Brazil, when many of the PagSeguro business activities were still operated by UOL. In 2009, approximately 100,000 online stores carried out transactions through the PagSeguro platform.

In 2010, approximately 5,000,000 consumers carried out transactions through the PagSeguro platform.

In 2011, we acquired Boa Compra, a company focused on online gaming licenses and digital payment solutions in various countries. In the same year, approximately 311,000 online stores and approximately 6.5 million consumers carried out transactions through the PagSeguro platform using one of the 14 payment methods we accepted at the time.

In 2013, the Central Bank amended regulations to terminate the exclusive banking arrangements between banks and some card and meal voucher schemes, ending the effective duopoly in the acquirer industry in Brazil. This move was part of a concerted focus by the Central Bank on concentration in the market, following a report issued by it in 2010 on the effective duopoly between two acquirers, both of which were owned by some of the largest banks in Brazil: RedeCard (now known as Rede, which had exclusive accreditation with MasterCard) and Visanet (now known as Cielo, which had exclusive accreditation with Visa).

Also in 2013, we expanded from online payments into point of sale, or POS, payments, which enable merchants to receive in-person payments from payment cards, becoming the first payment provider in Brazil to sell POS devices (as opposed to offering rentals). Our first POS, a magnetic strip card reader that plugged into a smartphone headphone jack combined with an app, was released in April 2013. In the same year, we became accredited with Sorocred, a local card scheme, as an acquirer, and we also received PCI-DSS Certificate-Data Security Standard Certification. In 2013, approximately 7.8 million consumers carried out transactions through the PagSeguro platform.

In 2014, we applied to the Central Bank to become an authorized payment institution under Brazilian Federal Law No. 12,865/2013. Since we were already accredited by Sorocred as an acquirer, the Central Bank regulations permit us to continue carrying out our activities until the authorization is granted, as further described in “—Regulation—Regulation of the digital payments industry in Brazil.”

In March 2014, we launched our first POS device, which was compatible with iOS and Android, that allowed merchants to process debit and credit cards using chips. In the same year, we accepted 25 payment methods.

In 2015, we launched the Moderninha, our first standalone POS device branded with its own nickname, and our PagSeguro prepaid card under the MasterCard scheme. We also established a partnership with Ticket, a major meal voucher scheme. With the launch of our PagSeguro prepaid card, we became the first payment provider in Brazil to operate as a closed loop where clients are able to receive and spend funds all within our end-to-end digital ecosystem.

In 2016, we became the first payments provider in Brazil, other than the incumbent acquirers associated with banks, to obtain accreditation as an acquirer with MasterCard and Visa. We had already been operating as a local acquirer for Sorocred since 2014, and we began operating as an acquirer on a large-scale basis in the second half of 2016, once we had completed the integration of our platform with Visa and MasterCard. In the same year, we established partnerships with Elo, a card scheme, and Sodexo, a major meal voucher card scheme. We also launched our Moderninha Wi-Fi and Moderninha Pro standalone POS devices; began accepting in-app checkout; and launched our free POS app PagSeguro Vendas. In 2016, we became larger than our parent company UOL for the first year in terms of our Total revenue and income as compared with UOL’s net revenue (without including its consolidated subsidiaries).

In 2017, we launched PlugPag, our POS device Minizinha, EFTPOS, our i-Banking app PagSeguro Minha Conta and Pag.ae and other new services such as our Facebook chatbot, reconciliation services and one-day approval for merchants who wish to obtain early payment of their installment receivables. The launch of our EFTPOS integration solution made us the first payment provider in Brazil to connect POS devices to a merchant’s sales system. We also obtained accreditation as an issuer with Visa, established partnerships with major meal voucher schemes VR and Alelo, and obtained accreditation as an acquirer with Hipercard. Furthermore, in October 2017, we acquired a controlling interest in Bivaco Holding S.A., or BIVA, an online platform that facilitates peer-to-peer lending. Between November 2017 and April 2018, we acquired an additional interest in BIVA, bringing our total interest to 77.4% of BIVA’s share capital. The total amount we paid for our shareholding in BIVA was R$23.9 million.

In January 2018, we carried out our IPO, in which we and UOL offered and sold a total of 121,193,388 of our Class A common shares. Our Class A common shares are listed on the NYSE. In February 2018, we announced a new functionality for our Moderninha Wi-Fi and Moderninha Pro, enabling multiple merchants to share a single POS device, and in March 2018, we launched our Minizinha Chip, a POS device that combines high-end functionalities, such as Wi-Fi and GPRS connection (chip) in compact hardware that can fit in a merchant’s pocket and comes with its own SIM card and a free data plan, thus no longer requiring smartphone pairing like traditional mPOS devices. In May 2018, we launched our Moderninha Plus, the next-generation substitute for our highly successful Moderninha Wi-Fi, now with an improved physical keyboard, a faster processor and double the battery life. In June 2018, we carried out a follow-on offering, in which we and UOL offered and sold a total of 35,950,000 of our Class A common shares. In September 2018, we launched our Moderninha Smart, a modern, portable and fully integrated Android based POS device that offers a full integration of hardware, our apps and a fast and secure payments network. In October 2018, our board of directors authorized a share repurchase program under which our management is responsible for determining the timing and number of shares to be acquired, within the limits established by the board of directors. For more information on our share repurchase program, see “Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.” In December 2018, we acquired Tilix Digital S.A., or Tilix. Tilix provides software development for managing payment solutions for business-to-customer, or B2C, and business-to-business, or B2B.

In January 2019, we acquired BBN Banco Brasileiro de Negócios S.A. (renamed Bancoseguro S.A. in February 2019), or Bancoseguro, through BS Holding Financeira Ltda., or BS Holding, a holding company incorporated under PagSeguro Digital. Bancoseguro holds a multi-bank license to provide financial services. We expect that this acquisition will allow us to expand our products and services offering. As a financial institution, Bancoseguro is subject to Law 4,595/64 and the rules of the CMN and the Central Bank.

Our Products and Services

We provide a wide range of affordable solutions and tools to help our merchants manage and grow their businesses. These include a variety of cash-in and cash-out options with features designed to attract and retain clients, provide them with access to working capital and help them manage their cash flow.

We have an in-depth understanding of our clients, the issues they face and the markets in which they operate. As a pioneer in the Brazilian digital payments market, we are able to anticipate trends and translate them into new products and solutions that meet our clients’ needs more efficiently than foreign competitors operating in Brazil. For example, the Brazilian market expects digital payments providers to offer a number of country-specific features, such as installment payments on credit cards, early payment of installment receivables and payments via boletos, all of which are central to Brazilian financial culture. We built our end-to-end digital ecosystem and our digital financial services offering around these local specificities.

With the increased adoption of mobile devices by merchants and consumers as a form of payment, we design all our solutions on a mobile-first basis so that our merchants can be self-sufficient at all times and offer payment options to consumers using mobile devices.

Our industry is characterized by rapidly changing technology, changing customer needs, evolving industry standards and frequent introductions of new products and services. For example, in addition to the products and services that we currently offer, WeChat Pay and Alipay, players in the Chinese digital payments industry, already offer promotions and cashback features as well as on-platform third-party bill payments. We strive to continue to develop and release new products and services to match the needs and expectations of our clients.

The PagSeguro Ecosystem

Our end-to-end digital ecosystem operates as a closed loop where our clients are able to address their main day to day financial needs, including receiving and spending funds and managing and growing their businesses. Clients do not need to purchase a POS device in order to gain access to our end-to-end digital ecosystem. Our main products and services fall into the following categories, described in further detail below:

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the free PagSeguro digital account, around which all our functionalities and services are designed

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more than 35 cash-in solutions

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early payment of merchants’ installment receivables

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advanced built-in functionalities as well as value-added services and features

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a variety of cash-out methods

The diagram below shows our main cash-in and cash-out solutions:

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The Free PagSeguro Digital Account

The free PagSeguro digital account, which is the core of our client offering for both merchants and consumers, centralizes all cash-in options, functionalities, services and cash-out options in a single ecosystem so that our clients can grow their business in a safe, affordable, scalable and simple way, all without needing a bank account. As a “closed-loop domestic” payment scheme for Brazilian regulatory purposes, the PagSeguro digital account does not provide credit facilities or enable holders to incur negative balances, however.

Merchants can sign up for a free PagSeguro digital account, gaining access to all of the offerings in our ecosystem, through a single online contract that can be completed in minutes without paperwork. Our online contract is typically for an indefinite term, but for certain clients who generate higher TPV, we may offer contracts with terms between 12 and 24 months. By signing up with us, merchants can automatically start accepting more than 35 cash-in methods, all with antifraud protection, and can begin accessing our business management tools. For merchants who require more complex functionalities, we offer value-added services and features such as the early payment of installment receivables for merchants, accounting reconciliation and shipping solutions. With our free PagSeguro digital account, merchants may request the transfer of their account balance to a bank account and also use our products and services to spend their account balance or other funds directly on our platform by (i) buying online, (ii) making peer-to-peer transfers or (iii) transferring their balance to the PagSeguro prepaid card, allowing them to buy goods and services in-person and online or withdraw cash at more than one million Cirrus network ATMs in Brazil and abroad.

For consumers, the free PagSeguro digital account offers not only numerous simple and safe options to pay merchants, but also the option to save their card details on our eWallet solution and to make and receive payments on a peer-to-peer basis.

We believe that these products and services create a “network growth effect.” The advantages of our digital payment solutions for merchants drive growth in their businesses, and the advantages of our digital payment solutions for consumers lead them to prefer merchants who offer these solutions, resulting in the acquisition of new clients through word-of-mouth recommendations by both merchants and consumers.

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Cash-In Solutions

Our cash-in methods can be accepted through web checkout, in-app checkout or in-person using our POS devices. They include credit and debit cards, meal vouchers, boletos, bank transfers, bank debits, transfers between PagSeguro digital accounts and cash deposits.

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Online and In-Person Payment Tools

Our merchants can choose to accept payments from consumers through various online and in-person payment tools. For our merchants conducting business online, we offer web checkout solutions and in-app payment options. For merchants conducting in-person transactions, we offer a range of POS devices.

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Online Payment Tools

We offer a variety of online payment tools that enable merchants to integrate sophisticated checkout and payment processes into their online business. These include (i) three web checkout options for merchants conducting business over browsers (whether desktop or mobile), (ii) an in-app payment tool for merchants conducting business using mobile apps and (iii) P2P and social payment tools.

Web Checkout: Our web checkout options offer tokenization, advanced handling of shipping information, management of subscriptions and automatic billing and order tracking. We offer three different levels of web checkout integration: “Redirect,” “Lightbox” and “Transparent,” all of which are easy to set up and customize. We supply our code and documentation to the merchant free of charge, allowing the merchant to select and implement the web checkout solution that best meets his or her needs.

Redirect: With Redirect, upon clicking on the payment option, the consumer is redirected away from the merchant’s website to the PagSeguro secure domain, where the payment is processed. After payment, the consumer is redirected to the merchant’s website.

Lightbox: With Lightbox, the payment is processed on the merchant’s own website but using the PagSeguro secure domain. The consumer sees both interfaces during the online checkout process, with a PagSeguro pop-up overlaying the merchant’s website. After completing the purchase, the pop-up will close and the consumer can continue navigating on the merchant’s website.

Transparent: The Transparent checkout solution allows the merchant to create a fully customized consumer experience. Payments are processed by us under the merchant’s domain while still benefiting from the features and functionalities of the PagSeguro ecosystem, such as antifraud and consumer data protection.

In-App Checkout: Our in-app checkout is a payment tool developed to be integrated in our merchants’ mobile apps which allows payment processing via the PagSeguro secure domain, while offering single-click checkout within the merchant’s mobile app.

P2P and Social Payment Tools (Pag.ae): Our innovative P2P and “social payment” tools allow our clients to request payments by sending a web link via social media straight to the person paying, creating a fast and easy way for anyone to send and receive money electronically. Users can request payments even if they do not have a website, and the person paying does not need to register with PagSeguro and may pay through a variety of options, including credit card, boleto or bank deposit. With our Pag.ae social payment tool, our customer can request payments using a link and can send this link to one or more payer(s) via e-mail, social network or messaging service such as WhatsApp, using the recipient’s phone number or e-mail address. The payer clicks on the link and can make the payment easily in various ways (credit card, boleto or bank deposit). Pag.ae allows the recipient to pay in up to 12 installments.

We believe these P2P and social payment tools drive organic growth in our customer base, establishing relationships with potential PagSeguro customers and encouraging them to join our platform when they make a payment.

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In-Person Payment Tools

Our range of affordable POS devices allows merchants to accept credit, debit and meal voucher card payments on an in-person basis. Our POS devices can be set up in less than five minutes. They are designed to be easy to use and have high levels of system availability, efficient back-up solutions, value-added functionalities and a five-year warranty.

With PagSeguro, merchants can purchase their own device with a flexible payment plan and no monthly rental or other recurring fees. For the equivalent of three to six months’ rental payments to an incumbent, merchants can buy a comparable or better device from PagSeguro, freeing them from the incumbents’ continuous monthly rental fees. No credit checks on the merchant are required. All of our POS devices come with a free PagSeguro prepaid card to give the merchant an immediate cash-out option without needing a bank account.

We offer a comprehensive suite of POS devices, from our entry-level Minizinha to the Moderninha Smart. These POS devices are offered separately from our transaction services.

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The Minizinha mPOS device connects via Bluetooth to our free POS app PagSeguro Vendas installed on the merchant’s smartphone and provides a simple yet secure means to accept payment cards. The Minizinha provides receipts via SMS for the consumer. We offer the Minizinha for a purchase price of 12 monthly installments of only R$4.90 (or US$1.26), appealing to the Micro-Merchants and SMEs who plan their own business expenses on a monthly basis.

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The Minizinha Chip mPOS device combines high-end functionalities, such as Wi-Fi and GPRS connection (chip) in compact hardware that can fit in a merchant’s pocket. This mPOS device that comes with its own SIM card and a free data plan, improving the merchant experience by no longer requiring smartphone pairing like traditional mPOS devices. These features make the Minizinha Chip appealing to Micro-Merchants and SMEs seeking mobility and convenience. We offer the Minizinha Chip appealing to Micro-Merchants and SMEs seeking mobility and convenience. We offer the Minizinha Chip for a purchase price of 12 monthly installments of only R$9.90 (or US$2.55).

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For businesses with greater needs we offer three more sophisticated units, the Moderninha Plus (priced at 12 monthly installments of R$19.90 (or US$5.14)), the Moderninha Pro (priced at 12 monthly installments of R$35.90 (or US$9.26)) and the Moderninha Smart (priced at 12 monthly installments of R$39.90 (or US$ 10.30)). The Moderninha Plus, which provides consumer receipts via SMS, is aimed at merchants who generate lower transaction volumes; while the Moderninha Pro, which provides consumer receipts via SMS or in paper form, is aimed at merchants who generate higher transaction volumes. The Moderninha Pro is the first single unit to offer GPRS/2G/3G chip connection, NFC, plug-and-play Wi-Fi and Bluetooth connections (for commercial automation and connection to other devices) on the same device, making it the POS device with the most connectivity features in Brazil. The device switches automatically between the various connection formats. In February 2018, we launched a new functionality for the Moderninha Pro and Moderninha Wi-Fi (substituted for the Moderninha Plus in May 2018), enabling several merchants to share a single POS device (each terminal can serve up to six digital accounts, handling sales transactions for each account separately). The Moderninha Smart has all the features of the Moderninha Pro, plus the integration of a product catalogue and inventory management software, an installment payment calculator, boleto issuance and payment links. The integration of software and hardware helps merchants be more productive and better serve their clients.

We also offer a virtual POS terminal via our free Android and iOS app that enables the merchant’s smartphone to be used as a POS device for credit card payments with no external hardware. The merchant types the consumer’s card number into the app, with security provided via network encryption.

We generate revenues from our sales of POS devices to merchants, in addition to the commissions generated on the credit, debit and meal voucher card transactions processed through the device. All POS devices are set up to offer up to 12 monthly installments on credit card payments at the point of purchase if the consumer chooses.

We currently rely on one manufacturer to manufacture, test and assemble a significant amount of our POS devices. The Agreement for the Supply of Equipment, dated as of June 26, 2014, as amended from time to time, by and among PAX BR Comércio de Equipamentos de Informática Ltda., or PAX, Transire Fabricação de Componentes Eletrônicos Ltda., or Transire, and Net+Phone Telecomunicações Ltda, or Net+Phone, sets forth the types of POS devices to be sold by PAX and Transire to Net+Phone and the standard terms and conditions governing this supply of POS devices. PAX and Transire together serve as our main supplier of POS devices. Consideration payable to PAX and Transire under this agreement is determined by the number of POS devices ordered by Net+Phone. For more information, see Item 3. Key Information—Risk Factors—Some of the key components of our POS devices are sourced from a limited number of suppliers. We are therefore at risk of shortage, price increases, changes, delay or discontinuation of key components, which could disrupt and harm our business.

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Payment Methods

The free PagSeguro digital account provides more than 35 cash-in methods, including the items listed below. Our cash-in methods can be accepted through web checkout, in-app checkout, or in-person using our POS devices. For debit card transactions, card issuers in Brazil pay us as acquirer on the first business day following the consumer transaction; and for credit card transactions, card issuers in Brazil pay us as acquirer on the 30th business day following the consumer transaction. We believe our pricing model is simple, transparent and easy to understand, when compared with that of incumbent payment processing providers, which is typically determined based on a mix of volume, card scheme and payment method. We believe that these incumbent providers have little incentive to make aggressive price changes as they may run the risk of cannibalizing their own merchant base as a result.

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Credit cards

We accept card payments, through our online and in-person POS payment tools, from all the major credit card schemes active in Brazil, including Visa, MasterCard, Elo, American Express, Hiper and regional schemes. The credit card schemes accepted on our platform together represent 99% of the total payment volume carried out using credit cards in Brazil in 2016, according to the Central Bank. We generate revenue from credit card transactions by charging a merchant discount rate, or MDR, a commission withheld by us from the transaction value paid to the merchant. The transaction amount, less the MDR, is credited to the merchant’s PagSeguro digital account. Our MDR pricing model is standardized, easy to understand and transparent. We also offer customized MDR pricing for certain merchants who process large payment volumes. We recognize the MDR fees in our financial statements as revenue.

In the standard payment cycle in Brazil, merchants receive sales revenues from credit card transactions 30 business days after the consumer transaction. We offer our merchants the option to receive their credit card revenues from us earlier, on either the first or the 14th business day following the consumer transaction. We refer to this option as the merchant’s “payment date election” service (regime de recebimento). If the merchant selects the one-day or 14-day payment date election, the fees for this service are included in the merchant’s overall MDR fee. This service is separate from the early payment of receivables feature that we offer merchants, which is described in the following paragraph.

Except when merchants choose to receive early payment of their receivables related to credit card transactions to be paid in installments, as described in the following paragraph, and/or when merchants select the 14-day or one-day payment date election service, we release the amount of the consumer transaction (less our commission) to the merchant’s PagSeguro digital account three days after we receive the underlying payment from the credit card issuer.

In addition, Brazilian consumers expect merchants to allow them to choose at the point of purchase to have the purchase price either (i) charged to their credit card accounts in a single payment, as in other markets, or (ii) split into several payments and only charged to their credit card accounts in monthly installments. In this case, the merchant only receives the revenues after the respective monthly installment has been charged, rather than 30 business days after the original transaction. To help our merchants offer the installment payment option to consumers, we offer to pay the monthly installment receivables to our merchants up-front in a lump sum when the consumer choses to pay in installments. Micro-Merchants and SMEs have historically faced difficulties obtaining this service from the incumbent payment processing providers, and they often require merchants to request early payment on a transaction-by-transaction basis. We offer a solution to these bottlenecks through simpler onboarding and preapproval of a merchant’s early payments. The underlying receivables relating to these payments are owed to us by the credit card issuers, which are owned primarily by Brazil’s large retail banks.

When merchants choose to make use of this early payment of receivables feature we charge them a finance fee in the form of a discount from the lump sum of the receivable. This discount is additional to the MDR fee withheld from the merchant. The finance fee is deducted from the amounts payable to the merchant at the same time as MDR, but is recognized in our financial statements as financial income rather than revenues. The discount that generates our Financial income relates only to the early payment of the second and successive installments of the purchase; the first installment is not paid early as it is disbursed to the merchant within the normal billing cycle, so it does not generate remuneration in the form of Financial income (although it does generate MDR, which is recognized as Gross revenue from transaction activities and other services). (The lump sum receivable, less the finance fee discount and the MDR or the intermediation transaction, is credited to the merchant on the 30th, 14th or 1st business day after the transaction, according to the merchant’s “payment date election” described in the paragraph above.)

Merchants who choose not to make use of our early payment of receivables feature only receive the amount payable to them under the consumer transaction (after deduction of the MDR fee) after the monthly installments are charged to the consumer’s credit card and the card issuer has paid us.

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Debit cards

We accept debit cards from all the major card schemes active in Brazil, including Maestro (MasterCard), Visa Electron and Elo, for in-person payments. The debit card schemes accepted on our platform together represent 98% of the total payment volume carried out using debit cards in Brazil in 2016, according to the Central Bank. We generate revenues in the form of MDR commissions using a standardized, easy to understand and transparent pricing model. Unlike credit cards, Brazilian debit cards do not offer an installment payment option.

For debit card transactions, we receive the underlying payment from the debit card issuer one business day after the consumer transaction, and we pay the amount of the consumer transaction (less our commission) to the merchant on the same day as we receive it.

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Meal voucher cards

Meal voucher cards are a labor benefit included in Brazilian employment contracts. The employer simply credits the employee’s card on a prepaid basis, and the employee can use the prepaid balance on the card to make purchases in restaurants and grocery stores. We accept in-person card payments from the principal meal voucher card issuers active in Brazil, generating revenues in the form of a value added network, or VAN, commission, which is currently charged at a flat rate per transaction. Meal voucher cards do not offer an installment payment option.

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Boletos

Boletos are payment slip documents issued by Brazilian businesses and utilities through banks to enable consumers to pay their bills. Boletos can be used for products or services, utilities or taxes. Each boleto refers to a specific merchant and customer transaction, and includes the merchant’s name, customer information, expiration date and total amount due, plus a serial number that identifies the account to be credited and a barcode so that the entire document can be read and processed. The consumer can pay the boleto through his or her bank either online, over the phone, at a branch or at an ATM. Merchants can receive credits from boletos directly into their PagSeguro digital account. We generate MDR commissions on cash-in payments made via boletos to a merchant’s PagSeguro digital account.

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Bank transfers and bank debits

Consumers can make transfers from bank accounts, either to their own PagSeguro digital account in order to add funds to their account balance that can then be used anywhere on our ecosystem, or to a merchant’s digital account to pay for a product or service. These payments can be made via any bank transfer or, in the case of payments to merchants, via an online bank debit tool. We generate MDR commissions on payments made via bank transfer or bank debit to a merchant’s PagSeguro digital account. There is no MDR or any other commission charged by us when consumers add funds to their own PagSeguro digital account.

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Cash deposits

Similar to bank transfers, consumers can make cash deposits at a bank branch or ATM directly to PagSeguro digital accounts – either to a merchant’s digital account to pay for a product or service, or to the consumer’s own digital account. We generate MDR commissions on payments made via cash deposit to a merchant’s PagSeguro digital account. There is no MDR or any other commission charged by us when consumers add funds to their own PagSeguro digital account.

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Early payment of installment receivables

As described under “—Cash-in Solutions—Credit Cards” above, our early payment of installment receivables feature helps our merchants offer the installment payment option to their consumers paying by credit card, without sacrificing their own cash flow. In addition to generating financial income for us, this early payment feature is an important source of working capital for merchants, in particular for our Micro-Merchants and SMEs, who may not otherwise have efficient access to capital from banks or traditional financial institutions. We believe that by offering this feature, we can strengthen our business partnerships with our merchants by providing this capital to help them grow their businesses.

We generate financial income through this early payment feature by charging a finance fee in the form of a discount from the second and successive installments that are paid early in the lump sum, in addition to the MDR fee on the intermediation transaction. The finance fee is deducted from the amounts payable to the merchant, but is recognized in our financial statements as financial income rather than revenues.

Prior to our IPO, we funded the working capital for this early payment service using debt incurred by us. In addition, in November 2017 we set up a Brazilian investment fund to purchase and hold receivables known as a FIDC through which we may raise debt to finance the early payment of receivables feature. The FIDC is controlled by our Brazilian operating company (by virtue of subscribing for its subordinated quotas) but raises capital by issuing senior quotas in the fund to outside investors, who receive interest on these investments from the FIDC. The FIDC uses the capital it raises to finance the growth of this early payment of receivables feature. Our remuneration from the early payment of receivables feature continues to be reflected as Financial income in our consolidated financial statements. We do not expect the establishment of the FIDC to impact the discount rate we charge in connection to the early payment of receivables feature or the expenses we incur to obtain early payment of note receivables from card issuers and acquirers. For further information regarding the FIDC, see “—Organizational Structure.”

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Advanced Built-In Functionalities and Value-Added Services and Features

Our PagSeguro digital account comes with a number of advanced built-in functionalities, provided free of charge, as well as value-added services and features that are designed to protect both merchants and consumers and help our merchants better manage their businesses. These functionalities and value-added services and features include purchase protection mechanisms, antifraud platform, account and business management tools, eWallet and our POS App. Our platform also provides solutions such as PlugPag, a free tool compatible with iOS, Android and Windows, aimed at our medium-sized and larger merchants, enabling them to connect their POS device directly to their enterprise resource planning, or ERP, software or sales automation system via Bluetooth; cart recovery solutions to improve sales conversion rates on e-commerce websites; and developer platforms allowing merchants to give third-party developers access to their PagSeguro digital accounts on a secure basis using application programming interfaces, or APIs; among other functionalities.

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Purchase Protection

Our Purchase Protection solution adds multiple layers of security for online purchases made on our platform. As a payment card industry, or PCI, compliant company, we do not share consumer credit card data or sensitive information with merchants, helping to prevent fraud and data misuse. For added protection to online consumers, our ecosystem holds consumer payments in escrow for a set period after purchase. If there is no consumer complaint, the funds are typically released to the merchant in two weeks from the purchase date. If a problem occurs with the purchase and the transaction is eligible for Purchase Protection, the consumer can file a claim and, if requested, we will act as mediator to help resolve the issue with the merchant. If the issue is not resolved, we reimburse the consumer for the full purchase price plus shipping costs. In the year ended December 31, 2018, only 0.13% of our online transactions required claim mediation and for those that did, the average time for claim mediation settlement was 16 days. 81% of the disagreements related to non-receipt of a purchase, and 33% were resolved in favor of the merchant.

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Antifraud platform

In addition, our IT background combined with the 11 years of historical transaction data we have amassed since our launch allow us to develop proprietary technology and gain expertise against online fraud and chargebacks related to fraudulent transactions in Brazil. Our antifraud platform combines proprietary features, such as internal risk modeling and scoring through artificial intelligence and risk assessment tools that collect public and private market information, as well as front-line third-party solutions such as Feedzai, Emailage and Threatmetrix. The antifraud platform is fully integrated into our ecosystem, and features processes designed to monitor potential fraud in real time, tracking transaction approvals and denials, enabling us to maintain high transaction approval rates and low incidences of fraud.

When a client requests a chargeback from the card issuer, we verify whether the sale occurred and whether the product or service was delivered by the merchant. If the chargeback claim was fraudulent, we pay the amount due to the merchant and we contest the attempted chargeback with the card issuer by providing the supporting documentation. If the chargeback claim was justified, we pass on the cost to the merchant. For information on claim mediation requests filed by our clients on our platform, see “—Protecting Our Clients—Transaction Security.”

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Account management tools

We aim to help our merchants expand their businesses by offering free tools such as account statements for their PagSeguro digital account, customized digital invoicing, sales data reports, simulations of early payment of merchants’ receivables, and revenue management.

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Business management tools

For merchants who generate larger transaction volumes and require more complex controls, we offer services such as flexible crediting dates, payment into separate bank accounts for each card scheme, and a split payment solution that automatically segregates credits between two different companies. Our split payment solution allows merchants to generate payments, integrate employees, manage receivables and receive commissions in real time. We offer these services by providing our merchants with the code and documentation to implement these tools.

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eWallet

With our eWallet, users can save their credit card information directly to our ecosystem, allowing them to make online payments to merchants without having to type in the credit card details for each purchase. This improves user experience and makes the payment process faster, easier and more secure. Our eWallet allows users to save multiple credit cards. Credit card transactions made using credit cards stored in eWallet generate MDR fees.

Our related eWallet app, currently available in the Google Play store, offers an in-app card scanner and allows clients to use the credit card information saved in their eWallet to pay any PagSeguro merchant via their smartphone. In addition, using a QR code feature that is currently in the pilot phase, consumers will be able to make purchases with our eWallet app by simply scanning the QR code (created using our proprietary QR code technology) generated by the merchant’s PagSeguro Vendas app, Moderninha Pro, Moderninha Smart or Moderninha Wifi. After scanning the QR code, the consumer’s eWallet app will authenticate and finalize the transaction by scanning the consumer’s fingerprint on his or her smartphone.

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POS App (PagSeguro Vendas)

Our free sales app PagSeguro Vendas is a POS software app available for smartphones and tablets running iOS or Android that integrates seamlessly with our payment processing solution but can also be used on a stand-alone basis. The tablet version of the app allows merchants using POS devices to improve their business operations by registering and itemizing their services and products, selling merchandise on customizable terms, tracking business data and allowing for faster in-app checkout. Items can be grouped, categorized, sorted, and linked to inventory management. PagSeguro Vendas is user-friendly and secure, and fully integrated with our merchants’ free PagSeguro digital accounts and the Moderninha Pro, Moderninha Smart, Moderninha and Minizinha POS devices. As of March 31, 2019, PagSeguro Vendas was rated an average of 4.8 stars by 85 thousand reviewers in Apple’s Brazilian app store and 4.4 stars by 86 thousand reviewers in the Android app store.

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PagSeguro Minha Conta (i-Banking App)

Our free digital account app, PagSeguro Minha Conta, is a transaction and digital account management app available for smartphones and tablets running iOS or Android which provides our clients with an easy and practical way to manage their transactions and account balances. Through PagSeguro Minha Conta, our clients can pay their bills and transfer their account balances directly to their PagSeguro prepaid cards or third-party financial institutions. PagSeguro Minha Conta also provides real-time statements of a user’s historical account and PagSeguro prepaid card activity. As of March 31, 2019, PagSeguro Minha Conta was rated an average of 4.8 stars by 219 thousand reviewers in Apple’s Brazilian app store and an average of 4.8 stars by 316 thousand reviewers in the Android app store. In addition, beginning in June 2018, users of our i-Banking app PagSeguro Minha Conta will have the option to top up credits on their prepaid mobile phones.

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PlugPag

PlugPag is a free tool, aimed at our medium-sized and larger merchants, enabling them to connect their POS device directly to their enterprise resource planning (ERP) software or sales automation system via Bluetooth. The PlugPag feature offers various advantages such as a direct connection between the merchant’s software and the POS device, which automates the flow of information, avoiding human intervention so as to minimize potential mistakes and fraud. By sending the confirmation or rejection of each sale directly to the merchant’s software, this tool facilitates automatic reconciliation of sales records, a common requirement of larger merchants.

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Accounting reconciliation

We offer merchants a platform for reconciling their digital transaction revenues and the related fees with their bank account balance and accounting records. This service offering ramped up significantly with our acquisition of R2Tech Informática S.A., or R2Tech, a company specialized in reconciliation, and is backed by our expertise in middleware and back-office solutions processing. We generate revenues from this service in the form of a flat commission per transaction reconciled for the client.

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Peer-to-Peer Lending

Through our 77.4% controlling interest in BIVA, which we acquired between October 2017 and April 2018, we facilitate peer-to-peer lending services. This activity consists of connecting a borrower to a lender or group of lenders. We generate revenues from this service in the form of a commission per transaction, plus a performance fee if the lenders’ return on their portfolio of loans exceeds certain targets. The lenders take the full credit risk on the loans; as intermediary between lender and borrower, we are not exposed to this credit risk.

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Cart recovery

Our cart recovery solution aims to improve sales conversion rates on e-commerce websites. If the consumer accesses a merchant website, places items in the website’s virtual cart, continues to our web checkout but then leaves the website before finalizing the purchase, this tool keeps the items in the cart, saving the consumer time if he or she later returns to the merchant’s website to complete the purchase. It also features e-mail reminders and remarketing to direct the consumer back to the merchant’s web checkout.

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Subscription service and automatic billing

Our Merchants can provide subscription services and automatic billing for their consumers. This tool enables the merchant to manage, cancel or renew subscriptions and manage and cancel automatic billings, all through the free PagSeguro digital account.

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Smart Supply

Our Moderninha Smart and Moderninha Pro have built-in technology that measures the consumption of POS receipt paper. This technology, combined with an advanced logistics system, allows us to deliver replacement paper rolls to the merchant automatically in advance. We believe this tool increases merchant satisfaction while reducing inquiries and the related customer service costs. We consider this service a loyalty initiative and provide it free of charge.

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POS Assistance

All of our POS devices have a five-year warranty. In order to reduce the inconvenience of waiting for repair to or replacement of a POS device, we offer eligible merchants three levels of assistance: (i) standard service, where the replacement device is delivered via mail, (ii) express service, where the replacement device is delivered via courier service, and (iii) quarterly preventive assistance for larger clients, where our field technicians visit the merchant periodically to carry out maintenance on a preventive basis.

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Developer platform

We enable merchants to give third-party developers access to their PagSeguro digital accounts on a secure basis using application programming interfaces, or APIs. Our APIs are designed to allow developers a plug-and-play service to create integrated websites and software applications that connect to the PagSeguro platform, allowing merchants to benefit fully from the features and value-added services and features available on our ecosystem, while keeping our customers’ financial information confidential. Our developer platform offers integration tests and guides (including modules and a virtual library) and community and GitHub forums.

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Shipping solutions

Through a partnership with the Brazilian Post Office, we offer integrated shipping solutions enabling online merchants to send, insure and track their packages at lower overall shipping rates than the Brazilian Post Office’s standard prices. Delivery fees can be included in the online sales transaction or paid separately by the purchaser. Using our shipping cost calculator, merchants can choose to offer (i) a fixed freight rate based on the number of items shipped, (ii) a weight-based rate or (iii) a customized rate based on a fixed amount plus an incremental rate for each additional item. Merchants can also track all shipments and insure their products against loss. We monitor and review the Brazilian Post Office’s performance and compliance with our contractual terms.

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EFTPOS Integration Solution

Our EFTPOS integration solution, which we launched in August 2017, offers solutions that integrate EFTPOS technology with merchant software, secured via PIN pad. This service allows merchants to process of large transaction volumes and issue tax receipts more easily than with traditional POS devices.

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Single-Click

Our Single-Click service is a functionality offered across our e-commerce platforms that enables merchants to request customer approval to save their payment information, simplifying future purchases. Once approved, e-commerce merchants can provide a seamless checkout option, allowing customers to make purchases with a single click.

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Promotional engine

Our promotional engine is a marketing tool that allows merchants to advertise across our client base. For example, a merchant can offer promotional discounts to other PagSeguro customers in specific sectors.

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Multiple merchant feature

In February 2018, we launched an innovative functionality for both our Moderninha Wi-Fi and Moderninha Pro which enables multiple merchants to share a single POS device. Our Moderninha Smart (which we launched in October 2018) also has this functionality. With this new functionality, each of these POS devices can serve up to six digital accounts, handling sales transactions for each account separately and allowing entrepreneurs and merchants to manage multiple businesses using a single POS device. The launch of this new functionality, innovative in the Brazilian market, furthers our continuous process of democratization and greater penetration of our payment terminals for entrepreneurs and merchants across all types of businesses.

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Cash-Out Solutions

Our cash-out solutions enable our clients to transfer or spend the balance on their PagSeguro digital account securely by a variety of means including online purchases via eWallet, in-person and online purchases or cash withdrawals using our PagSeguro prepaid card, on-platform peer-to-peer transfers, transfers to bank accounts and cross-border remittances.

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Online purchases via eWallet

Users can save information for multiple credit cards directly to our ecosystem using our eWallet solution, allowing them to make online payments to merchants on a secure basis without having to type in the credit card details for each purchase. This improves user experience and makes the payment process faster and easier. For further information regarding our eWallet solution, see “—Our Products and Services—The Free PagSeguro Digital Account—Advanced Built-In Functionalities and Value-Added Services and Features—eWallet.”

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PagSeguro prepaid cards

Our PagSeguro MasterCard prepaid cards allow merchants or consumers to use the balance from their free PagSeguro digital account to buy goods and services in-person and online or withdraw cash at more than one million Cirrus network ATMs in Brazil and abroad. Merchants can therefore receive payments from sales transactions into their PagSeguro digital account and spend that money directly using the PagSeguro prepaid card, without needing a bank account. With a modest initial purchase cost, the card comes with no annual fees or interest rates – and we provide it free to merchants who purchase a PagSeguro POS or mPOS device. The PagSeguro prepaid card does not require credit checks on the merchant or preapproval for issuance. At December 31, 2018, more than 1.4 million PagSeguro prepaid cards had been issued.

We generate revenues from (i) the issuance fees for PagSeguro prepaid cards, (ii) interchange fees we receive, as a card issuer, from each transaction made through PagSeguro prepaid cards, and (iii) a flat fee for cash withdrawals at ATMs using PagSeguro prepaid cards. After the initial issuance fee, the cardholder does not pay an annual fee or other fees for using the card.

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On-platform peer-to-peer transfers

Our clients can use the balance on their PagSeguro digital account to transfer funds to other PagSeguro digital accounts on our platform. We charge a commission paid by the recipient of the payment.

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Bank transfers

Clients can make transfers from their PagSeguro digital account directly to a bank account. We believe, however, that our numerous direct cash-out options are increasingly reducing the need for our merchants to transfer balances out of our digital platform. We do not receive revenues from cash-out bank transfers.

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Bill payment

Clients can pay a wide variety of bills, such as utilities, consumer, tax and other boletos, through our i-banking app PagSeguro Minha Conta using the cash balance in their PagSeguro digital account. There is no cost to our clients for using this feature. We receive revenues in the form of a flat fee from the issuer of the bill for each bill payment processed.

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Cross-border remittance

Our “Boa Compra” platform allows our clients to operate cross-border transactions when consumers are located in different countries across Latin America, Spain, Portugal and Turkey (for example, for foreign merchants selling to Brazilian consumers, or for Brazilian merchants selling to foreign consumers – although the platform is also used for transactions where neither party is Brazilian). Boa Compra originally operated in the online gaming industry and has been particularly attractive to clients in that industry. Since its launch, however, Boa Compra has now expanded to serve other industries.

Using Boa Compra, international online merchants, such as Valve (Steam), Electronic Arts and Riot Games, can provide their end-users with local payment methods, leveraging conversion rates and unlocking the market potential of cross-border e-commerce. The Boa Compra platform features an integrated web-checkout solution which allows clients to save their credit card information for future transactions and enables international checkout by offering users more than 140 payment methods in multiple currencies, including our proprietary digital currency Créditos Gold. Créditos Gold can be purchased online through Boa Compra’s online digital gaming portal Go4Gold in Brazil, Chile, Peru, Mexico, Portugal and Turkey. Once purchased, Créditos Gold can be used immediately to make in-app purchases. When Brazilian consumers, for instance, make a purchase abroad using Boa Compra, we organize the remittance of the funds outside Brazil on behalf of each customer in accordance with Central Bank regulations using the consumer’s Brazilian taxpayer identification number.

Our Customers

We offer our clients free digital accounts which they can use to sell products as merchants, or to buy products as consumers. There is no division between the two categories, since the same digital account serves both types of clients – indeed, our merchants are also consumers when they spend their digital account balance using our cash-out features, and our consumer clients can also be merchants.

We offer the following major benefits for both merchants and consumers:

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Customers do not need a bank account to join our ecosystem. With a 100% online onboarding process (as compared with the offline onboarding process of incumbent providers, which typically requires a technician to install the POS device), without paperwork, quick turnaround and a high acceptance rate, we offer access to our advanced digital payment processing and receivables early payment features. We accept merchants who are either individuals or companies. The incumbent providers, on the other hand, generally require their clients to have bank accounts and do not offer online onboarding, which we believe reduces their ability to reach lower volume clients, even with lower pricing.

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We offer a full suite of more than 35 cash-in options under a single contract, with security and reliability, plus eight cash-out options including bank transfers, online purchasing, and spending both in-person and online as well as cash withdrawals using our PagSeguro prepaid card.

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Our pricing model for all of our services and features – whether transaction fees, early payment of installment receivables or sales of POS devices – is simple, transparent and easy to understand. For example, we offer the Minizinha mPOS device for a purchase price of 12 monthly installments of only R$4.90 (or US$1.26), the Minizinha Chip mPOS device for a purchase price of 12 monthly installments of only R$9.90 (or US$2.55), the Moderninha Plus for a purchase price of 12 monthly installments of R$19.90 (or US$5.14), the Moderninha Pro for a purchase price of 12 monthly installments of R$35.90 (or US$9.26) and the Moderninha Smart (which we launched in October 2018) for a purchase price of 12 monthly installments of R$39.90 (or US$10.30). We also offer promotions on our MDR pricing, such as our April 2018 promotion offering new merchant clients a reduced MDR rate of 0.99% on credit and debit card transactions without installments up to R$10,000 in value. In May and June 2018, our promotional campaign offered new merchant clients a MDR rate of 0% on credit and debit card transactions without installments up to R$1,500 in value.

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Our social payment solutions, such as Pag.ae, allow both consumers and merchants to use their PagSeguro account to request payments via web links sent through e-mail, social networks or messaging services such as WhatsApp.

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We offer a comprehensive suite of affordable POS devices, with user-friendly features and functionalities, reliable connectivity and a five-year warranty. Our devices range from the entry-level Minizinha to the Moderninha Smart. Our merchants purchase their own device through a flexible payment plan. For the equivalent of three to six months’ rental payments with incumbents, merchants can buy a comparable device from PagSeguro and avoid continuous monthly rental fees.

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Data protection and confidentiality for consumers, with merchant verification and transaction protection mechanisms, including escrow periods and claim mediation services.

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Our payment solutions reduce the need for consumers to carry cash since more Micro-Merchants and SMEs are able to accept digital payments in-person.

Since we only provide the payment service and the acquiring service, the consumer in the underlying commercial transaction is not our client, and we are not responsible for providing the goods or services or fulfilling the consumer order. As provider of the payment service, we facilitate the payment transaction on behalf of the merchant; while as acquirer, we enable merchants to accept payment cards by completing the processing of the payment transaction.

Our merchant base is highly diversified, which shields us from dependence on a small number of business sectors or major accounts. In 2018, restaurants/food and beverage merchants, our largest volume sector, and department/general retail stores, our second largest volume sector, accounted for 13% and 12%, respectively, of our overall transaction business. No other major business sector (clothing stores (6%), beauty parlors (5%), auto spares and repair shops (3%) or supermarkets/grocery stores (2%)) accounted for more than 10% of our overall TPV. We are not dependent on any individual merchants. In 2018, our top 10 clients represented less than 3% of our TPV and our top 100 clients represented less than 5% of our TPV.

We principally target Micro-Merchants and SMEs, many of whom were ignored or underserved by the incumbent payment providers and financial institutions in Brazil before PagSeguro was launched. These incumbents generally charge Micro-Merchants and SMEs higher overall fees and commissions because they generate lower transaction volumes. Our platform enables us to keep overall per-transaction fees lower for merchants who generate lower transaction volumes. We believe our client data supports this model: According to a survey conducted by us in October 2016, 81% of our merchants used PagSeguro as their sole electronic payments service (while 2% of our merchants also used GetNet, 4% also used MercadoPago, 6% also used Rede and 11% also used Cielo, according to the same survey) and according to a survey conducted by us in January 2019, 85% of Minizinha owners did not accept cards before signing up with us.

We strive to provide relevant products, efficient customer service, account support and protection from fraud and loss. We have developed a number of security procedures to provide protection to consumers by offering escrow periods and claim mediation, covering issues such as non-delivery or failure to match the merchant’s description of the product sold. See, “—Protecting Our Clients” and “—Our Products and Services—The Free PagSeguro Digital Account—The PagSeguro Ecosystem—Advanced Built-In Functionalities and Value-Added Services and Features—Purchase Protection.”

Product Development and Technology

We develop most of the software technology used by our digital payments platform in-house, although we also outsource certain projects to outside developers in order to expedite the delivery of software and keep our time-to-market advantage. Through this combination of technology, developed both in-house and by outsourced developers, we have developed a stable, reliable, proprietary and highly scalable platform with intuitive user interfaces, management tools, transaction processing, APIs, and database and network applications that help our customers utilize our suite of products and services, while keeping their financial information confidential.

Our platform allows consumers to make purchases using a broad range of payment methods, regardless of where a merchant is located. For purchases made outside Brazil, we partner with local payment service providers.

We manage large volumes of system access data and transactions, with more than 99.9% availability in 2018, using Internet data centers provided by UOL Diveo, a UOL group company that focuses on IT outsourcing, data centers, cloud computing and other managed IT services. This allows us to have multiple redundancies and, to the benefit of our merchants, automatically switch to the networks of other acquirers in the case of connection failure. Backed by UOL Diveo, we are able to scale up our services while retaining high availability for peak – volume occasions such as Christmas, Mother’s Day and Black Friday. This high-availability and continuously deployed platform ensures that all of our clients are able to operate with the latest features and the newest innovations without any need to patch or upgrade their software. Our scale as a UOL group company allows us to establish favorable partnerships with several suppliers, including software developers and hardware manufacturers. We work with these suppliers to continuously tailor our solutions and POS devices to fit the needs of our main target merchants.

At December 31, 2018, 65% of the total headcount of PagSeguro was engaged in products and engineering. With our specialized team of 1,168 people focused on developing reliable, scalable and proprietary systems and new products and features, we regularly roll out innovative and disruptive solutions that are tailored to the Brazilian market. Our expenditure on software and technology (including salaries) amounted to R$218.9 million in the year ended December 31, 2018, R$95.0 million in 2017 and R$68.6 million in 2016.

We strive to offer new features and formats to improve our users’ experience on our platform. This process starts by listening to suggestions from our clients. We hold focus group meetings and conduct surveys periodically with regular and highly active customers to obtain feedback regarding our products and services, as well as suggestions and ideas for new features.

We test all new products and features rigorously in-house and with pilot groups of merchants before rolling them out. Once our internal team has ensured they are working properly, we typically roll them out first to a select group of customers on a trial basis, listening to feedback and suggestions and enhancing the final details of the product or feature before rolling out to all customers. We frequently update our software products and follow a regular software release schedule with improvements deployed periodically, ensuring our merchants get immediate access to the latest features.

Managing our platform’s software architecture and hardware is as important as offering new products and features. We focus on optimizing our processes and equipment to help ensure that our systems are capable of handling our rapid growth in an efficient and cost-effective way.

Our technology infrastructure simplifies the storage and processing of large amounts of data, automates many administrative tasks, and enables us to deploy and operate products and services on a wide scale. Our technology infrastructure is designed to reduce downtime in the event of system outages or catastrophic events, with continuity features, system redundancy and protection against cyber-security threats. For further information on the measures we take to protect against cyber-security threats, see “—Protecting Our Clients.” We strive to improve our technology infrastructure and platform continuously in order to enhance the customer experience and to increase security, efficiency and scalability.

Our research and development team focuses on our ongoing pipeline of reliable, scalable and proprietary systems and new products and features tailored to the current Brazilian market. Using our qualified product and service design teams and research and development team, we intend to roll out a portfolio of new solutions, for both merchants and consumers, based on mobile apps, further strengthening our mobile-first commitment and simplifying our clients’ lives. We anticipate that we will continue to devote considerable resources to research and development in the future as we add new features and functionality to our products and services. Our market is characterized by rapidly changing and disruptive technologies, as well as evolving industry and regulatory standards, and we seek to remain in the front line of these changes. We believe our ability to adapt to rapidly changing technologies, products and services in an evolving industry is the cornerstone of our future success. For further information on the technological challenges in our industry, see “Item 3. Key Information—Risk Factors—Risks Relating to our Business and Industry—Substantial and increasingly intense competition, both within our industry and from other payment methods, may harm our business.”

Protecting Our Clients

Trust and security are essential to success in the digital payments market. Fraud is a constant threat, involving items such as account takeover, identity theft and malicious counterparty activities. The ability to protect our clients from financial loss and data theft has been key to our competing successfully and growing our business sustainably, and we believe security will continue to be a major competitive factor in the future. We invest in providing comprehensive protection for our clients on our ecosystem, focusing on three main areas: transaction security; platform security; and customer service. Our investments in this area have been recognized by our customers and the industry. For example, we were recognized as the “Best Company for Consumers” for electronic payments in both 2017 and 2016 and for online payments in 2015 by Época magazine and Reclame Aqui, a consumer protection service and were recognized for client service excellence in the financial services category in 2015 and 2017 by Consumidor Moderno.

Transaction Security

We have focused since our launch on ensuring the security of payment transactions carried out on our ecosystem. We believe we have been a pioneer in developing technology and expertise against online fraud and chargebacks related to fraudulent transactions in Brazil, backed by the reputation of the PagSeguro and UOL brands. Our transaction approval rate continues to increase, with rates in the year ended December 31, 2018 being higher than those achieved in 2017 and earlier years. In 2016, we were named the Brazilian acquirer with the lowest chargeback-to-sales ratio by Visa. Our net chargeback rates for transactions of six months old averaged 0.15% in 2018, a decline of 0.3 percentage points from 0.18% in 2017. These net chargeback rates compare highly favorably with the 1.0% limit established by the card schemes. We achieve transaction security through a combination of antifraud technology, the design of our platform, and protection programs for our clients.

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As is the case with any digital transaction, those that take place on our digital platform are susceptible to potentially fraudulent or improper sales. We use two main processes to control this fraud risk. The first process consists of monitoring credit card, debit card and boleto transactions on a real time basis, through systems that identify potential fraud. This process approves or rejects suspicious transactions at the time of the authorization, based on statistical models that are revised on an ongoing basis. The second process, which occurs after approval of the transaction, consists of a reconciliation process in which PagSeguro Brazil follows up on all chargebacks with the card issuers and, where appropriate, opens a claim process to seek reversal of the chargeback. This is a complementary process and increases our ability to avoid and manage chargebacks.

Our antifraud platform combines proprietary features, such as internal risk modeling and scoring through artificial intelligence and risk assessment tools that collect public and private market information, as well as front-line third-party solutions such as Feedzai, Emailage and Threatmetrics. For more information, see “—Our Products and Services—The Free PagSeguro Digital Account—The PagSeguro Ecosystem—Advanced Built-In Functionalities and Value-Added Services and Features—Antifraud Platform.”

The design of our platform also assists in preserving data confidentiality. Consumers can make payments through PagSeguro without sharing sensitive financial information such as credit card or debit card details with the merchant. Transactions on PagSeguro are tokenized and payment authorization credentials are kept separated from account holder’s information, helping us to better detect and prevent fraud when funds enter, flow through and exit our ecosystem. In addition, the ability to make and accept digital payments increases personal security in in-person transactions by reducing the need for both consumers and merchants to carry cash.

Our protection programs guard our clients from loss through fraud and counterparty non-performance. We believe the history and critical mass of our consumer database allows us to provide quicker and more reliable transaction approval when compared with smaller or more recently established digital payments providers in Brazil. Our protection programs, which apply to online purchase transactions completed through our ecosystem, aim to reassure consumers the confidence that they will only be required to pay if they receive the product in the condition as described, and merchants the confidence that they will receive payment for the product that they are delivering to the customer.

Our merchant program protects against losses for chargebacks related to fraudulent transactions and similar claims on substantially all of our online transactions. A chargeback situation may also occur if the card used was unauthorized or if there is a non-fraudulent cardholder claim. If a chargeback claim is valid, the card issuer sends the transaction back to the merchant and charges the merchant the amount of the questioned sale. If the merchant cannot remedy the chargeback, it is the merchant’s loss. If there are not sufficient funds in the merchant’s account, the chargeback amount is charged to the acquirer.

For consumers, we provide protection against losses under which they can submit a claim if there is a problem with a purchase. The consumer can file a claim through our PagSeguro website, in which case the consumer and the merchant can seek to resolve the claim together. If they cannot resolve the claim within seven days after the claim is filed, the consumer has up to 20 days after filing the claim to request our assistance, in which case we act as mediator to help resolve the issue with the merchant. If a consumer does not request mediation within 20 days after filing a claim, the claim will be resolved in favor of the merchant.

Platform Security

The architecture of our proprietary end-to-end payments platform coupled with third-party front-line solutions are key to our ability to provide consumers and merchants with continuity and security in their transactions. Through our numerous cash-in and cash-out options we are able to collect data from our clients, which allows us to save important information on customers for purposes of the approval of future transactions. The multiple layers of protection included in our platform help ensure continuity as well as addressing the cybersecurity risks discussed in “—Transaction Security” above.

We have developed intuitive user interfaces, customer tools and transaction processing and database and network applications that help our users complete transactions reliably and securely, both on our platform and on merchant sites integrated with PagSeguro. Our technology infrastructure simplifies the storage and processing of large amounts of data, facilitates the deployment and operation of large-scale global products and services, and automates administrative tasks. This technology infrastructure has been designed around industry-standard architectures to reduce downtime in the event of outages or catastrophic occurrences. We work hard to improve our technology infrastructure continuously in order to enhance customer experience and increase efficiency, scalability and security. We also make use of well-known security protocols and solutions to secure user data, including, among others: EV-SSL certificate, multiple data encryption techniques, intrusion detection (IPS/IDS), application firewalls (WAF), Anti-Distributed Denial-of-Service (Anti-DDos), Data Loss Prevention (DLP), 2-factor authentication and encrypted communications. We also hold the following certifications: PIN security; MasterCard and Visa merchant acquiring host; MasterCard terminal integration process, or M-TIP; Visa acquirer device validation toolkit, or ADVT; MasterCard end-to-end demonstration services, or ETED; PCI Data Security Standard, or PCI-DSS; and Europay, MasterCard, and Visa, or EMV, Levels 1 and 2. Our data centers are also certified under the International Organization of Securitization, or ISO, standards 9001, 20000 and 27001. We also perform security penetration tests on a regular basis and apply top-most security solutions for code and application scanning (SAST/DAST). For information on new data protection regulations, see “Item 3A. Key Information—Risk Factors—Risks Relating to Our Business and Industry—Our business is subject to cyberattacks and security and privacy breaches.”

Our platform’s architecture enables us to connect all parties regardless of whether the transaction is occurring at a traditional physical location (such as inside a store), a non-traditional physical location (such as in a park), or online, and whether through a mobile or fixed-line device. We believe that mobile devices, in addition to being the future of e-commerce, create opportunities to make digital payments safer. For example, we are able to use location data from mobile devices to reduce risk for our clients.

Customer Service

We believe in excellence in customer service. By helping our clients navigate our applications and answering their questions quickly, we have been able to grow rapidly and to build trust with our clients, which has increased their loyalty and enhanced our reputation.

We provide our customers with an array of digital self-service features including real-time online chat, chatbots, customer service e-mail and a customer service hotline. Our customer service operations are provided by a combination of PagSeguro employees and outsourced providers, which together make up approximately 1,700 full-time equivalent, or FTE, positions.

We maintain service quality by placing emphasis on careful selection of our customer service personnel and regular monitoring of employee performance. Our employees are trained to have in-depth product and service knowledge, professional service attitudes and communication skills to best address customer needs and inquiries.

Sales and Marketing

Our marketing strategy is designed to grow our platform by building and maintaining the brand recognition and trust of the PagSeguro and UOL brands, attracting new users and generating more frequent activity by our existing users. Our marketing initiatives aiming to recruit merchants to our ecosystem currently focus on our POS devices, web checkout solutions and other online payment solutions. We believe that introducing our digital payment solutions to merchants who are not yet our clients is the most efficient and cost-effective strategy to sustain our growth among both merchants and consumers, creating a “network growth effect.” The advantages of our digital payment solutions for merchants drive growth in their businesses, and the advantages of our digital payment solutions for consumers lead them to prefer merchants who offer these solutions, resulting in the acquisition of new clients through word-of-mouth recommendations by both merchants and consumers.

Our existing clients, many of whom use PagSeguro as an exclusive payment method, enable us to grow our merchant base rapidly and organically. Each time a consumer who has not yet registered with PagSeguro visits our website or pays a merchant using one of our online or in-app checkout solutions, the consumer is invited to open a free PagSeguro digital account to make his or her next purchase with PagSeguro easy and seamless.

We strive to position PagSeguro products and services in top of mind and present them as a desirable, easy and secure means to accept and make payments in Brazil, while accompanying the consumer throughout the purchasing process, from general brand awareness through to actual purchase or account registration. As a digital company, and with the support of UOL’s audience, we continue to build and maintain brand recognition and awareness, while generating demand for our products and services through a variety of marketing campaigns, including:

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traditional offline media: television advertisements and merchandising (broadcast and cable), radio, movie theaters, the printed press, festivals and events, and display media such as billboards, urban digital time and weather displays, and airport and bus station displays;

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traditional online advertising: display media (including banners, rich media, interstitials, videos and native ads) on a variety of online platforms, such as premium websites, portals, video platforms such as YouTube, social media platforms such as Facebook and Instagram, mobile apps, e-mail marketing and affiliates programs; and

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search: we have expertise in positioning our products in preferential placements on search platforms displayed on desktops, tablets and smartphones, using specific initiatives such as paid search (Search Engine Marketing, or SEM, which includes bid management tools and keywords analysis) and natural or organic search (Search Engine Optimization, or SEO, which includes website optimization).

Our marketing department develops all these online and offline marketing strategies using single integrated concepts, so that our campaigns include key visual characteristics and consistent messages across all channels. In line with our growth strategy, most of our campaigns focus on Micro-Merchants and SMEs, with messages that highlight our easy, safe and hassle-free way of accepting payments, such as “a single online contract that allows you to accept more than 35 cash-in methods” and “free yourself from POS rental fees.” We regularly compare our pricing to our competitors’ and point out the advantages of our products and services for new or growing businesses. At the same time, we also advertise value-added products and services targeted at larger merchants and consumers from higher income sectors, including our business management tools and commercial automation solutions.

We believe that our association with the UOL group brings experience and competitive advantages in designing, negotiating and purchasing advertising space.

Through our ongoing focus on expanding our payment solutions and increasing our brand recognition, the strength of our brand, products and services has been recognized in a number of awards, including:

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Recognized as the 8^th Most Innovative Company in Latin America by Fast Company in 2019;

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Recognized for conducting the Initial Public Offering of the Year by LatinFinance and Deal of the Year in Latin America by IFR in 2018;

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Recognized as Best Fintech in Capital Markets by LatinFinance in 2018;

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Recognized as having the most easily memorizable commercial in April 2017 and the commercial that attracted the most attention in 2018 by Forebrain, a consumer opinions research company;

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Named as the “Best Company for Consumers” for electronic payments in 2018, 2017 and 2016 and for online payments in 2015 by Época magazine and Reclame Aqui, a consumer protection service;

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Recognized for “Best Payment Processing” in 2015 by Afiliados Brasil, a marketing company;

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Recognized as the best company in its industry in terms of client service excellence by Consumidor Moderno Award in 2015 and 2017; and

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Recognized for leading performance in Brazilian retail by Prêmio BR Week in 2016.

As further support of the increasing strength of our brand, according to Google Trends, and as illustrated by the below chart, as of December 2018, “PagSeguro” and “Moderninha” have experienced rapid growth in search volume over the past six years (or since the March 2015 launch, in the case of Moderninha) when compared to the other digital payment solutions in Brazil (the vertical axis in the below chart represents the relative number of Google searches for each name). According to Google Trends, in February 2019, for every 95 Google searches for the terms “Pagseguro,” there were 33 for the term “Mercado Pago” and 18 for the term “PayPal.”

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We use our proprietary tools and market measurement systems developed by third parties, such as Adobe and Google, to deepen our knowledge about consumer behavior and, consequently, optimize our marketing efforts and expenditures by customizing our sales messages to make it easier for users to understand, find and buy our products and services.

Our marketing strategy is customized and we manage our desktop sites, mobile websites and mobile applications differently, each optimized for the screens they fit and the way our customers use them.

In addition to our online and offline advertising efforts described above, we developed a broad range of marketing and sales channels to access potential clients, including:

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our own sales team, mainly focused on sales of our POS devices and online products and solutions to larger clients, as well as on providing ongoing support to those clients;

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partner companies that distribute PagSeguro devices and solutions to their customer base (mostly point of sale solutions’ companies);

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third parties hired as independent sale organizations to distribute our POS devices across Brazil;

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online store platforms and web development companies, which integrate PagSeguro as an exclusive or preferred payment method to their clients; and

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third-party call center service provider hired to answer calls, e-mails and chat inquiries from our clients and prospects, and to sell our devices and solutions.

Organizational Structure

We are an exempted company with limited liability incorporated under the laws of the Cayman Islands with the legal name PagSeguro Digital Ltd. and are a subsidiary of Universo Online S.A., or UOL. Our principal executive office is located at Avenida Brigadeiro Faria Lima, 1384, 01452-002 São Paulo – SP, Brazil and our telephone number is +55 (11) 3038-8127. Our investor relations office can also be reached at +55 (11) 3038-8127 and our website address is www.pagseguro.uol.com.br. Information provided on our website is not part of this annual report and is not incorporated by reference herein.

UOL is a Brazilian sociedade por ações that was founded in 1996. UOL is Brazil’s largest Internet content, digital products and services company. Its majority shareholder is Grupo Folha, one of the largest media groups in Brazil and the owner of the São Paulo daily newspaper Folha de S. Paulo, Brazil’s most-read newspaper according to the Circulation Verifier Institute (Instituto Verificador de Circulação, or IVC). Grupo Folha also includes Transfolha, one of the three top eCommerce logistics companies in Brazil in terms of orders during 2017, based on data from Ebit; Plural, the largest printing company in Latin American in terms of rotate offset printers during 2015, according to ABRO; UOL Host, the second largest Brazilian web hosting company in terms of “br” domain names in May 2017, according to Hostmapper Brasil; and UOL Diveo, the largest cloud and IT infrastructure services company controlled by Brazilian shareholders in terms of data center area as of December 11, 2017, according to publicly available information.

We carry out our operations principally through our Brazilian operating company, PagSeguro Internet S.A., a Brazilian sociedade por ações.

Pagseguro Internet S.A. carries out most operations directly, and also has seven subsidiaries. The following subsidiaries are wholly-owned: (i) R2Tech, organized in Brazil, which manages our reconciliation product and (ii) Tilix, organized in Brazil, which provides software development for managing payment solutions for B2C and B2B. We acquired 51% of R2Tech in 2017 and the remaining 49% in February 2019. We acquired Tilix in 2018. The following subsidiaries are substantially wholly-owned: (i) Boa Compra Tecnologia Ltda., organized in Brazil, which operates our online gaming and cross-border digital services in Latin America, Portugal, Spain and Turkey; (ii) NET+Phone Telecomunicações Ltda., organized in Brazil, which handles purchases and sales of our POS devices; (iii) BCPS Online Services, Lda, or BCPS, organized in Portugal, which serves as Boa Compra’s hub in Portugal and handles part of its account management; and (iv) BIVA, organized in Brazil, which is an online platform that facilitates peer-to-peer lending. We acquired BCPS in 2017.

In addition to our operations carried out by PagSeguro Internet S.A., on January 4, 2019, we acquired 100% of Bancoseguro, organized in Brazil, through our wholly-owned direct subsidiary BS Holding. Bancoseguro holds a license to provide financial services. We expect that this acquisition will allow us to expand our product and services offering.

In November 2017 we set up a FIDC through which we may raise debt to finance the growth of our business. The FIDC is controlled by PagSeguro Brazil and raises capital by issuing senior quotas in the fund to outside investors, who receive interest on these investments from the FIDC. As of the date of this annual report, the FIDC is rated AA+ by Fitch Ratings. In accordance with Brazilian law, the FIDC may use between 50% and 100% of its capital to purchase merchant receivables. The FIDC uses the capital it raises to finance the early payment of receivables feature. Our remuneration from the early payment of receivables feature continues to be reflected as Financial income in our consolidated financial statements. We do not expect the establishment of the FIDC to impact the discount rate we charge in connection with the early payment of receivables feature or the expenses we incur to obtain early payment of note receivables from card issuers and acquirers. The FIDC is a common structure for Brazilian payment providers who offer early payment of merchants’ receivables. In addition to broadening our financing options for this feature generally, it reduces certain regulatory constraints since the FIDC structure is specifically designed for this financing activity under Brazilian law, and we also expect it will allow us to defer certain tax obligations. For further information regarding our early payment of receivables feature, see “—Our Products and Services—The Free PagSeguro Digital Account—The PagSeguro Ecosystem—Early payment of installment receivables.”

The chart below shows our corporate structure, including our wholly-owned and majority owned subsidiaries, as of the date of this annual report:

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(*)	Including 0.15% consisting of treasury shares and shares issued under the LTIP, representing less than 1% of the outstanding shares.

Competition

The Brazilian payments industry is highly competitive and fast-changing. We compete in the online digital payments market and in the POS payments market.

In the online digital payments market, we compete primarily with international online payment services, such as PayPal, and regional players, such as MercadoPago from MercadoLibre and MoIP/Wirecard. In the POS payments market, we compete primarily with international players, such as SumUp/Payleven, and regional players, such as MercadoPago from MercadoLibre. Our business model differs from the model used by the incumbent Brazilian providers, such as Cielo, Rede, GetNet and Stone, who generally offer their POS devices under long-term monthly rental contracts with pricing that works out to be more expensive than the monthly installments for the purchase of our POS devices. These incumbent providers also target larger clients, since their business model results in more expensive products and services, while our primary target customers are currently Micro-Merchants and SMEs, who are underserved by incumbent payment providers and large financial institutions in Brazil.

Like the digital payments industry in general, we also compete with other means of payment, both digital and traditional, including cash, checks, money orders and electronic bank deposits.

Among our peers, we are the only financial technology provider in Brazil, however, whose business model covers all of the following five pillars:

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Multiple digital payment solutions

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In-person payments via POS devices that we sell to clients

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Free digital accounts

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Issuer of prepaid cards to clients for spending or withdrawing account balances

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Operating as an acquirer

We seek to differentiate ourselves from our competitors primarily on the basis of this end-to-end coverage as well as our focus on transaction security, on ease of use, and on the mobile environment. While competitive factors and their relative importance vary based on the size, industry and focus of each merchant, we believe the following factors are key to competition in the digital payments market in Brazil:

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an ecosystem that attracts, retains and engages merchants and consumers;

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speed and simplicity of the customer onboarding process;

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consumer confidence in transaction security, including the ability for consumers to make payments without sharing their financial information with the merchant or counterparty;

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POS devices with affordable prices and no rental fees;

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quality of customer service;

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breadth and depth of features and functionality; and

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brand recognition and reputation.

For information on risks relating to increased competition in our industry, see “Item 3. Key Information—Risk Factors—Risks Relating to our Business and Industry—Substantial and increasingly intense competition, both within our industry and from other payment methods, may harm our business.”

Insurance

We have insurance policies with reputable insurers in amounts that our management considers to be sufficient to cover potential losses arising from events that may affect our assets, as well as for any damages that we may have to pay to third parties due to our business activities. We seek coverage against risks that are appropriate for our business activities and our scale, taking into account the nature of our business, the risks we are exposed to, market practices in our industry, and advice from our insurance consultants. We currently have the following insurance policies, which were contracted by our controlling shareholder, UOL, and list our company and/or our subsidiaries as co-beneficiaries, as applicable:

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insurance policy for coverage of damages to property, business interruption and lost profits, which expires on December 10, 2019 and has a coverage limit of R$1,819.0 million;

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D&O insurance, contracted for by UOL, which expires on March 1, 2020 and has a coverage limit of US$15 million;

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warehouse and storage facility insurance policy, which expires on November 17, 2019 and has a coverage limit of R$105 million; and

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general liability insurance, which covers damage awards paid by us in connection with tort claims. This policy expires on December 31, 2019 and has a coverage limit of R$15 million.

We review our coverage limits every year when the policies are renewed, to ensure that they remain consistent with the value of our assets and the liabilities linked to our business. We do not currently anticipate any difficulties in renewing any of our insurance policies.

While we believe our insurance contracts reflect standard market practices, there are certain types of risks that may not be covered by our policies (such as war, terrorism, acts of God and force majeure, liability for certain harm or interruption of certain business activities). Therefore, if any of these uncovered events occur, we may be required to incur additional costs to remedy the situation, reconstitute our assets or indemnify our customers, which may adversely affect us. In addition, even if a risk is covered by our policies, we cannot assure you that any payment from our insurers will be sufficient to cover the loss.

Seasonality

We operate in a somewhat seasonal industry, which tends to experience relatively fewer transactions in the first quarter of the year, increased activity as the year-end holiday shopping season initiates, and fewer transactions after the year-end holidays. While we have not experienced significant seasonality in our results at the date of this annual report due to our ongoing growth, this could change in the future. For additional information, see “Item 3. Key Information—Risk Factors—Risks Relating to Our Business and Industry—Our quarterly results of operations and operating metrics may fluctuate and are unpredictable and subject to seasonality, which could result in the price of our Class A common shares being unpredictable or declining.”

Regulation

Regulation of the digital payments industry in Brazil

Our activities in Brazil are subject to Brazilian laws and regulations relating to digital payments. Law No. 12,865/2013, which took effect on October 9, 2013, establishes the first set of rules regulating the digital payments industry within the overall Brazilian Payment System (the Sistema de Pagamentos Brasileiro, or SPB), which refers to all the entities, systems and procedures related to the clearing and settlement of funds transfer, foreign currency operations, financial assets, and securities transactions in Brazil). This law created the concepts of payment schemes (arranjos de pagamento), payment scheme owners (instituidores de arranjos de pagamento) and payment institutions (instituições de pagamento).

Law No. 12,865/2013 gave the Central Bank and the National Monetary Council (the Conselho Monetário Nacional, or CMN) powers to regulate entities involved in the digital payments industry. These powers cover matters such as the incorporation and operation of these entities, risk management, the opening of payment accounts, and the transfer of funds to and from payment accounts. After enactment of Law No. 12,865/2013, the CMN and the Central Bank created a regulatory framework regulating the operation of payment schemes and payment institutions. Originally, the framework consisted of Resolutions No. 4,282 and 4,283 and Circulars No. 3,680, 3,681, 3,682 and 3,683, all of which were published on November 4, 2013 and became effective on May 5, 2014, and oCircular No. 3,685, published on March 26, 2018, as amended since that date.

Payment Schemes

A payment scheme, for Brazilian regulatory purposes, is a body of rules and technical standards for the execution of payment transactions through a payment system. The regulations applicable to payment schemes depend on certain features, such as the number of users and the annual cash value of transactions handled by the payment scheme:

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Payment schemes that exceed certain thresholds are considered to form part of the SPB and require authorization by the Central Bank.

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Payment schemes that operate below these thresholds are not considered to form part of the SPB and are therefore not required to obtain authorization from the Central Bank, although they are required to report certain operational information to the Central Bank on an annual basis and the Central Bank can issue an order requiring these payment schemes to apply for authorization to be part of the SPB on a case-by-case basis.

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Certain types of payment schemes have specific exemptions from the requirement to obtain authorization from the Central Bank. This applies, for example, to limited-purpose payment schemes, payment schemes set up by governmental authorities and payment schemes related to employee benefits established by law, such as meal voucher cards.

Payment Scheme Owners

Payment scheme owners, for Brazilian regulatory purposes, are the legal entities responsible for managing the rules, procedures and the use of the brand associated with a payment scheme. Central Bank regulations require that payment scheme owners must be incorporated in Brazil, must have a corporate purpose compatible with payments activities, and must have the technical, operational, organizational, administrative and financial capacity to meet their obligations. They must also have clear and effective corporate governance mechanisms that are appropriate for the needs of payment institutions and the users of payment schemes.

Payment Institutions

Payment institutions are classified into the following types under Brazilian regulations, as per Circular No. 3,885, which replaced former Circular No. 3,683:

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Issuers of electronic currency (i.e., e-money, generally in the form of prepaid deposits): these payment institutions manage prepaid payment accounts for cardholders or end-users. They carry out payment transactions using electronic currency deposited into these pre-paid such accounts, and convert the deposits into physical or book-entry currency or vice versa.

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Issuers of post-paid payment instruments (principally credit cards): these payment institutions manage payment accounts where the cardholder or end-user intends to make payment on a post-paid basis. They carry out payment transactions using these post-paid accounts.

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Acquirers: these payment institutions do not manage payment accounts, but enable merchants to accept payment instruments issued by a payment institution or by a financial institution that participates in a payment scheme. They participate in the settlement process for payment transactions by receiving the payment from the issuer of the prepaid or post-paid instrument, and settling with the merchant.

A payment institution must be incorporated in Brazil and must have a corporate purpose that is compatible with payments activities. Only payment institutions that operate above certain thresholds are required to obtain authorization from the Central Bank in order to operate. The CMN and Central Bank regulations applicable to payment institutions cover a wide variety of issues, including penalties for noncompliance; the promotion of financial inclusion; the reduction of systemic, operational and credit risks; reporting obligations; and governance.

The regulations applicable to payment institutions also cover “payment accounts” (contas de pagamento), which are the end-user accounts, in registered (i.e., book-entry) form, which are opened with payment institutions that are issuers of prepaid or post-paid instruments and used for carrying out each payment transaction. Circular No. 3,860/2013 classifies payment accounts into two types:

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Prepaid payment accounts: where the funds have been deposited into the payment account in advance of the intended payment transaction.

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Post-paid payment accounts: where the payment transaction is intended to be performed regardless of whether or not funds have been deposited into the payment account in advance.

In order to provide protection from bankruptcy, Law No. 12,865/2013 requires payment institutions that are issuers of prepaid electronic currency to segregate the funds deposited in prepaid payment accounts from their own assets. In addition, with respect to prepaid electronic currency, the payment institution must hold a portion of the funds deposited in the prepaid payment account in certain specified instruments: either (i) in a specific account with the Central Bank that does not pay interest; or (ii) in federal government bonds registered with the SELIC. The portion of the prepaid electronic currency that must be held in this form is currently 100%.

PagSeguro Brazil’s Regulatory Position

In December 2014, PagSeguro Brazil applied to the Central Bank for the following authorizations:

Authorization as a payment scheme owner of a “closed-loop domestic” payment scheme, forming part of the SPB. This application relates to the PagSeguro digital account, which is a prepaid account available to our customers. The application relates to our rules applying to the PagSeguro digital account and our brand.

Authorization as a payment institution, as an issuer of prepaid electronic money. This application relates to the PagSeguro digital account and to our issuance of PagSeguro electronic currency and prepaid cards. The application regarding the PagSeguro digital account relates to our rules and our brand, and the application regarding our prepaid cards relates to the third-party payment schemes within which the cards are issued.

3.	Authorization as a payment institution, as an acquirer.

These authorizations were formally approved on October 17, 2018.

PagSeguro Brazil is also a payment scheme owner of a “closed-loop domestic” payment scheme not forming part of the SPB, which relates to peer-to-peer transfers between accounts opened by our clients within the PagSeguro digital account, using our rules applying to the PagSeguro digital account and our brand. Since this payment scheme does not form part of the SPB it does not currently require Central Bank authorization; however, we are required to report certain operational information regarding this scheme to the Central Bank on an annual basis, such as the number of users and the annual cash value of our peer-to-peer transfer transactions. If these numbers or certain other operational data exceed the relevant Central Bank thresholds in the future, we will also be required to apply for Central Bank authorization for this payment scheme.

PagSeguro Brazil also applied to the Central Bank in February 2019 for authorization to conduct activities as a payment institution in order to act as an issuer of post-paid cards within third-party payment scheme. This authorization was formally approved on March 16, 2019.

Law No. 12,865/2013 prohibits payment institutions from performing activities that are restricted to financial institutions, which are regulated by Law No. 4,595/1964. There is some debate under Brazilian law as to whether providing early payment of receivables to merchants could be characterized as “lending,” which is an activity that is restricted to financial institutions. Similarly, there is some debate as to whether the discount rates applicable to this early payment feature should be considered as “interest,” in which case the limits set by the Brazilian Usury Law would apply to these rates.

For transactions that form part of the Brazilian financial system, financial institutions may set interest rates freely, provided that they are not excessive for consumers. For transactions that do not form part of the Brazilian financial system, historically, the Brazilian Usury Law (Decree-Law No. 22,623/1933) capped interest rates at 12% per year. Subsequently, the Brazilian Civil Code, which replaced the Usury Law, capped interest rates at two times the interest rates applicable to the National Treasury (Fazenda Nacional), which is currently the SELIC rate (although there is some legal debate as to whether the Brazilian Civil Code has effectively replaced the original Brazilian Usury Law). As a result, if the discount rate that we charge merchants for early payment of their receivables is considered to be “interest,” it would be capped at two times the SELIC rate. This limitation is mitigated by the FIDC that we use to finance our early payment of receivables feature.

If we fail to comply with the requirements of the Brazilian legal and regulatory frameworks, we could be prevented from carrying out our regulated activities, we could be (i) required to pay substantial fines (including per transaction fines) and disgorgement of our profits, (ii) required to change our business practices or (iii) subjected to insolvency procedures such as an intervention by the Central Bank and the out-of-court liquidation of PagSeguro Brazil. We could also be subject to private lawsuits. For additional information, see “Item 3. Key Information—Risk Factors—Risks Relating to Our Business and Industry—Our business is subject to extensive government regulation and oversight and our status under these regulations may change. Violation of or compliance with present or future regulation could be costly, expose us to substantial liability and force us to change our business practices, any of which could seriously harm our business and results of operations.”

The Central Bank also regulates our international transfers of funds under foreign exchange regulations. Compliance with these rules is mandatory and any failure to comply may result in penalties against us.

The Central Bank’s regulations also allow payment schemes to set additional rules for entities that use their brands. Since we participate in these third-party payment schemes, we must comply with their rules in order to continue accepting payments from payment instruments bearing their brands.

Anti-Money Laundering Rules

We comply with all anti-money laundering, or AML, rules applicable to us and have implemented policies and procedures to report suspicious activities to the authorities, including any suspected terrorism financing and other potentially illegal activities.

Our activities in Brazil are subject to Brazilian laws and regulations relating to anti-money laundering, or AML, terrorism financing and other potentially illegal activities. These rules require us to implement policies and internal procedures to monitor and identify suspicious transactions, which must be duly reported to the relevant authorities. We have implemented all the required policies and internal procedures to ensure full compliance with these rules and regulations, including structuring a risk and fraud division led by a risk officer. Our employees are trained and informed of our policies and internal procedures and their compliance is mandatory and supervised.

The Brazilian anti-money laundering law establishes the basic framework to prevent and punish money laundering as a crime. It prohibits the concealment or dissimulation of origin, location, availability, handling or ownership of assets, rights or financial resources directly or indirectly originated from crimes, subjecting the agents of these illegal practices to imprisonment, temporary disqualification from managing enterprises up to 10 years and monetary fines.

The Brazilian anti-money laundering law also created the Financial Activities Control Council, or COAF, which is the Brazilian financial intelligence unit that operates under the jurisdiction of the Ministry of Finance. COAF performs a key role in the Brazilian anti-money laundering and counter-terrorism financing system, and its legal responsibility is to coordinate the mechanisms for international cooperation and information exchange.

In compliance with the Brazilian anti-money laundering law, payment institutions in Brazil must establish internal control and procedures aiming at:

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identifying and knowing their clients;

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checking the compatibility between the movement of funds of a client and such client’s economic and financial capacity;

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checking the origin of funds;

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carrying out a prior analysis of new products and services, under the perspective of money laundering prevention;

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controls, resources and monitoring systems for the rapid detection and reporting of suspicious activity;

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compliance with all applicable regulatory requirements for recordkeeping and reporting;

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keeping records of all transactions;

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applying special attention to (i) unusual transactions or proposed transactions with no apparent economic or legal basis; (ii) client and transactions for which the UBO cannot be identified; and (iii) situations in which it is not possible to keep the clients’ identification records duly updated;

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offering anti-money laundering training for employees;

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monitoring transactions and situations which could be considered suspicious for anti-money laundering purposes;

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reporting to COAF the occurrence of suspicious transactions, as required under applicable regulations, and also, at least once a year, whether or not suspicious transactions are verified, in order to certify the non-occurrence of transactions subject to reporting to COAF (negative report); and

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ensuring that policies, procedures and internal controls are commensurate with the size and volume of transactions.

E-Commerce, Data Protection, Consumer Protection and Taxes

In addition to regulations affecting digital payment schemes, we are also subject to laws relating to Internet activities and e-commerce, as well as consumer protection laws, tax laws and other regulations applicable to Brazilian companies generally. Internet activities in Brazil are regulated by Law No. 12,965/2014, known as the Brazilian Civil Rights Framework for the Internet, which embodies a substantial set of rights and obligations relating to Internet service providers. This law exempts intermediary platforms such as PagSeguro from liability for activities carried out by their users. Since there are no settled court decisions in this area, however, it is still possible that we may be subject to joint civil liability for activities carried out by our users.

Law No. 8,078/1990, known as the Consumer Protection Code, regulates consumer relations in Brazil, including matters such as: commercial practices; product and service liability; areas where suppliers of products or services are subject to strict liability; the reversal of the burden of proof so as to benefit consumers; the joint and several liability of all companies within a supply chain; unfair contract terms; advertising; and information on products and services that are offered to the public. Consumers have the right to receive clear and accurate information regarding retail products and services, with correct specification of characteristics, structure, quality, price, risks, and consumers’ rights to access and amend personal information collected about them and stored in private databases.

Customer accounts on our digital platform are subject to data protection under the Brazilian Civil Rights Framework for the Internet and Article 17 of the CMN’s Resolution No. 4,282/13. We are also subject to trademark protection rules, and to tax laws and related obligations such as the rules governing the sharing of customer information with tax and financial authorities. It is unclear whether the tax and regulatory authorities would seek to obtain information regarding our customers. Any such request could come into conflict with the data protection rules, which could create risks for our business.

The laws and regulations applicable to the Brazilian digital payments industry are subject to ongoing interpretation and change, and our digital payments business may become subject to regulation by other authorities. For further information on the risks relating to regulation of business, please see “Item 3. Key Information—Risk Factors—Risks Relating to our Business and Industry.”

Property, Plant and Equipment

Our Facilities

We do not own any real estate. Our head office and operations center in São Paulo are provided by UOL on a cost-sharing basis under an agreement for apportionment of expenses signed between us and UOL. For more information on this agreement, see “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions—Agreements with UOL and UOL Subsidiaries—Cost-Sharing Agreements.” We also lease office space for our subsidiaries.

Other Equipment

The majority of our equipment consists of data processing equipment, which made up 23.1% of our equipment costs in 2018. The rest of our equipment consists of machinery, facilities and furniture and fittings.

Intellectual Property

We regard the protection of our trademarks, copyrights, logos, service marks, trade dress, domain names, patents and trade secrets as critical to our future success. To establish and protect our proprietary rights in our products and services, we rely on a combination of trademark, copyright, service mark, patent and trade secret laws, administrative procedures and contractual restrictions. We have entered into confidentiality and invention assignment agreements with our employees and certain outside contractors. We have also established non-disclosure agreements with our employees, strategic partners and some suppliers in order to limit access to and disclosure of our proprietary information and technology.

We actively pursue registration of our trademarks, copyrights, logos, service marks, trade dress and domain names. We have registered or applied for registration of trademarks with the Brazilian Patent and Trademark Office (Instituto Nacional da Propriedade Industrial, or INPI) including, among others, the trademarks and logos of “PagSeguro,” “Moderninha,” “Minizinha” and “PlugPag.” We have also registered several domain names with NIC.br, Brazil’s Internet domain name registry, and domain registrars in the United States and elsewhere, including “pagseguro.com.br,” “pagseguro.com,” “moderninha.com.br,” “moderninhapro.com.br,” “minizinha.com.br,” “boacompra.com.br” and “moderninhasmart.com.br.” We own or have the right to use all of the material intellectual property that we use.

We have material contracts with Visa, MasterCard and Elo in connection with our activities as an acquirer for these card schemes. Our Visa Payment Arrangements Participation and Trademark License Agreement, dated as of August 24, 2015 and amended on July 3, 2017, between Visa do Brasil Empreendimentos Ltda. and PagSeguro Brazil, sets forth the general terms and conditions under which PagSeguro Brazil acts as a merchant acquiring principal participant for Visa in Brazil and provides PagSeguro Brazil with a non-exclusive and non-transferable license to use certain trademarks owned by Visa in connection with its activities as an acquirer in Brazil. Under this agreement, PagSeguro Brazil is exclusively responsible for all the costs and risks associated with its participation as a merchant acquiring principal, and fees payable to Visa under this agreement is determined by the standard payment terms set forth in the Visa Core Rules and Visa Product and Service Rules, available on Visa’s website. Our License Agreement, dated as of June 18, 2015 and as amended from time to time, between MasterCard International Incorporated and PagSeguro Brazil sets forth the general terms and conditions under which MasterCard grants PagSeguro Brazil a non-exclusive license to use certain trade names, trademarks, service marks and logotypes (including MasterCard, Cirrus and Maestro branded marks) in Brazil in connection with PagSeguro Brazil’s issuing and acquiring activities. No consideration is due to MasterCard under this agreement. Our Agreement for Accreditor Participation in ELO Payment Arrangements, dated as of February 13, 2019, between Elo Serviços S.A. and PagSeguro Brazil, sets forth the general terms and conditions under which PagSeguro Brazil acts as a merchant acquiring principal participant for Elo and provides PagSeguro Brazil with a non-exclusive and non-transferable license to use certain trademarks owned by Elo in connection with its activities as an acquirer. Under this agreement, PagSeguro Brazil is exclusively responsible for all the costs and risks associated with its participation as a merchant acquiring principal, and fees payable to Elo under this agreement is determined by the standard payment terms set forth in the Elo Arrangements Manual, available on Elo’s website.

We operate software products under licenses, including certain open source licenses, from our vendors, including, among others, Verifone, Oracle, Feedzai and Cisco. Even if any such third-party technology did not continue to be available to us on commercially reasonable terms, we believe that alternative technologies would be available as needed in every case.

The standard online contract entered into between us and our merchants when they open a PagSeguro digital account provides a limited, non-transferable license to certain of our proprietary rights, such as our name and logo, for use by our merchants for commercial purposes. We expect to continue this practice in the future as part of our marketing strategy. While we attempt to ensure that our licensees maintain the quality of the PagSeguro brand, they may take actions that could materially adversely affect the value of our proprietary rights or reputation.

For information about risks affecting our intellectual property, see “Item 3. Key Information—Risk Factors—Risks Relating to our Business and Industry—We have only a limited ability to protect our intellectual property rights, which are important to our success.”

Our Industry

Micro-Merchants and Small and Medium Businesses Drive the Brazilian Economy

According to SEBRAE (Portal do Empreendedor) and IBGE, in 2017, Micro-Merchants and SMEs accounted for 99.7% of Brazil’s 12.7 million businesses. According to data compiled by Neoway Business Solutions in 2017, Micro-Merchants and SMEs represented 35.4%, or R$1.8 trillion, of the R$5.1 trillion total annual TPV from businesses in the following sectors: wholesale, retail, other commercial, electronics, pharmaceutical, hotels and food service, education, healthcare, professional and technical services, textiles and transportation.

Significant Room for Growth of Alternative and Digital Payment Methods

Business and consumers in developed economies are moving away from cash and paper payments at a slow but steady rate and migrating to electronic payment mechanisms. Since this trend has not yet fully impacted the Brazilian economy, the opportunity for expansion of digital payments in Brazil remains significant. The migration away from checks, in particular, creates efficiencies for businesses, who can reduce cost and accelerate cash flow if their accounts payable and accounts receivable functions are automated through electronic payments and reconciliation. Similar opportunities exist for consumer bill payment, direct deposit, and person-to-person payments.

In e-commerce, transaction volumes in Brazil grew to R$47.7 billion in 2017 from R$18.7 billion in 2011 according to ebit, representing average growth of 16.9% per year for the period. In addition, the growth of e-commerce over mobile devices, which, according to eMarketer, in 2017 represented 26.4% of e-commerce transactions in Brazil, compared to 34.5% in the United States and 43.3% in the United Kingdom, creates new payments options for both sellers and buyers, bringing business opportunities for acquirers and digital payments providers.

The Structure of the Brazilian Financial Market Creates Significant Opportunities for Disruption

The structure of the Brazilian financial market creates significant opportunities for technology-driven disruption, particularly when compared to more developed markets. The banking market is relatively concentrated for global standards. For example, a World Bank report using 2015 data rated principal banking markets using the Herfindahl-Hirschman Index, or HHI, which expresses market concentration of gross loans, where 10,000 represents a perfect monopoly and 1 represents perfect competition. According to this report, Brazil had HHI concentration of 1,248 in 2015, making it the 18th most concentrated market in the world on this measure. In the same year the United States had HHI concentration of 714, making it the 36th most concentrated market; and the United Kingdom had HHI concentration of 432, making it the 42nd most concentrated market. The same report showed that banking penetration in Brazil lags more developed markets in terms of the percentage of the population that had a bank account, had a credit card, or had made or received a digital payment. Brazil’s relative lack of penetration was even greater with respect to e-commerce and mobile payments. These lower penetration measures are amplified among the lower income classes in Brazil.

Payment card use also remains relatively low in Brazil compared to more developed markets. According to a September 2018 report by the Bank of International Settlements, or BIS, with data from the World Bank and ABECS, debit and credit card payments accounted for 34.0% of Brazilian household consumption between January and September 2018, compared with 46.0% in the United States and 68.6% in the United Kingdom, representing significant growth potential for acquirers in Brazil. Credit card penetration levels are a fundamental driver for the digital payments industry.

Commerce Is Increasingly Digital and Mobile Worldwide

According to the International Telecommunications Union, an estimated 343 billion people, or 45.5% of the total global population, used the Internet in 2016, compared with 2.2 billion people, or 31.1% of the total global population, in 2011. Of this user base, 58.3% carried out e-commerce transactions in 2016, compared with 37.2% in 2011, showing significant growth in e-commerce. This growth is supported by the global increase in mobile device penetration, reductions in the cost of Internet access in various markets, and improving telecommunications network infrastructure.

The increasing number of businesses offering online shopping is fueling consumer demand for faster and more reliable payment methods. We believe these trends create an environment where merchants feel compelled to interact more closely with a broader range of customers, through the use of online stores, mobile-friendly technologies and extensive compatibility with digital payment methods, such as cards and e-wallets. We believe that there is a significant market opportunity for growth in e-commerce in Brazil.

Businesses Are Shifting Towards Increasingly Non-Bureaucratic, Friendly and All-in-One Services

As technology and the regulatory environment evolve, sellers of all types and sizes face a continuous need for new solutions. A significant number of businesses in Brazil remain unserved or underserved in terms of online payments, POS and mPOS services as well as value-added financial services tools for a number of reasons, including lack of access, lack of all-in-one offerings, time-consuming, limited access to conventional funds and lack of transparency.

ITEM 4A.

UNRESOLVED STAFF COMMENTS

None.

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto included elsewhere in this annual report, as well as the data set forth in “Item 3. Key Information—Selected Financial and Operating Data.” The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report, particularly in “Item 3. Key Information—Risk Factors.”

Operating and Financial Review and Prospects

Overview

We are a disruptive provider of financial technology solutions focused primarily on Micro-Merchants, Small Companies and Medium-Sized Companies, or SMEs, in Brazil. We are the only financial technology provider in Brazil whose business model covers all of the following five pillars:

•

Multiple digital payment solutions

•

In-person payments via POS devices that we sell to clients

•

Free digital accounts

•

Issuer of prepaid cards to clients for spending or withdrawing account balances

•

Operating as an acquirer.

Our end-to-end digital ecosystem enables our customers not only to accept payments, but also to grow and manage their businesses. Before PagSeguro, many of these Micro-Merchants and SMEs were overlooked or underserved by incumbent payment providers and large financial institutions in Brazil. For example, according to a survey conducted by us in January 2019, 85% of merchants who own our entry-level mPOS device, the Minizinha, did not accept card payments prior to signing up with PagSeguro. We offer safe, affordable, simple, mobile-first solutions for merchants to accept payments and manage their cash through their PagSeguro digital accounts, without the need for a bank account. Our digital account offers more than 35 payment methods and eight cash-out options including our PagSeguro prepaid card, all using our proprietary technology platform and backed by the trusted PagSeguro and UOL brands. Our digital ecosystem also features other digital financial services, business management tools and functionalities for our clients.

Financial Presentation and Accounting Practices

For information on our consolidated financial statements, see “Presentation of Financial and Other Information.”

Principal Factors Affecting Our Financial Condition and Results of Operations

We believe our operating and business performance is driven by various factors that affect the global and Brazilian economy, the Brazilian digital payments market, trends affecting the broader Brazilian financial technology solutions industry, and trends affecting the specific markets and customer base that we target, particularly Micro-Merchants and SMEs in Brazil. The following key factors may affect our future performance.

Adoption of our digital payment services and POS devices, and usage of our early payment of receivables feature

We believe our digital platform, digital payment services and POS devices are the foundation of our relationship with our clients. We generate revenue through the commissions and other fees that we charge for electronic payment intermediation, as well as fees for other services and revenues from sales of POS devices and related items, and we generate financial income through the early payment of receivables feature that we offer our merchant clients. We intend to continue to drive growth in our digital payment services, POS devices and early payment of receivables feature by scaling our solutions to meet the needs of our clients.

Our digital payment solutions and POS devices are the principal way in which our clients become familiar with our full range of products and services. We seek to leverage the familiarity generated by these services, features and devices to encourage merchants to sign up for our other services, which can help them increase their sales and, in turn, generate incremental revenue for us. As a result, the number of new merchants who adopt our digital payment services and purchase our POS devices will affect our growth.

Furthermore, our customer base consists primarily of Micro-Merchants and SMEs, who tend to generate relatively high levels of early payment of receivables from installment transactions in order to fulfill their working capital needs. These Micro-Merchants and SMEs are at the core of our strategy. In the future, however, as we sign up a greater proportion of larger merchants, we expect early payment to represent a smaller relative proportion of our overall results, since larger merchants tend to request significantly lower volumes of early payment, given their easier access to alternative funding. Hence, we believe that while our Financial income will continue to increase in absolute terms as our client base grows, it may decrease as a proportion of our Total revenues and income in the medium and longer term.

Increased use of credit and debit cards and expanded card payments network

The results of our operations depend to a significant degree on the use of credit and debit cards to make digital payments in Brazil. In 2014, according to ABECS and the Central Bank, the transaction volume for payment cards overtook the transaction volume for checks for the first time. Credit and debit card transaction volume in Brazil has increased at a compound annual growth rate of 13.8% from 2010 to 2017 according to ABECS. As a further indication of this growth, MasterCard stated in its annual report that the Brazilian real was one of its three primary revenue billing currencies in 2017, surpassing the British pound and only behind the U.S. dollar and the Euro.

Growth of e-Commerce

Our results of operations depend in part on consumers’ widespread acceptance and use of the Internet as a way to conduct commerce and financial transactions. E-commerce is also underpenetrated compared to e-commerce levels in more developed economies. In Brazil, e-commerce accounted for only 4.8% of retail sales in 2018, compared to 11.9% worldwide, according to eMarketer. According to a 2018 report commissioned by ABECS and carried out by Datafolha, online purchases made up only 22.8% of the total credit card transaction volume in Brazil in 2017, an increase of 4.2 percentage points from 18.6% in 2015. Since we view commerce via mobile devices as a key driver of growth going forward, we focus on maintaining a mobile-first digital platform, and we design our solutions on a mobile-first basis so that our merchants can be self-sufficient at all times.

Launch of new products and services and cross-selling to our clients

We strive to stay on the cutting edge of the financial technology solutions industry by developing and launching new products and services to offer to both new and existing clients and intend to continue to invest in product development to build new products and services and to bring them to market. This allows us to continue to meet the needs of our clients, as these needs grow and change over time. While we expect our total expenses to increase in the short term as we plan for growth, we expect our expenses to decline as a percentage of our Total revenue and income over the medium term as these investments benefit our business and our business grows.

Our existing clients represent a sizable opportunity to cross-sell products and services with relatively low incremental marketing and advertising expenses for us. We believe that our range of services, many of which can be used for both business and personal needs, represents an opportunity to further increase engagement with our existing clients. We plan to continually invest in product development so as to maintain and increase the attractiveness of our products and services. To the extent that we are able to cross-sell these products and services and develop and introduce new products and services to our existing clients and attract new clients, we expect our revenues and financial income to continue to grow and our margins to increase.

Marketing and advertising

For information regarding our marketing and advertising, see “Item 4. Information on the Company—Sales and Marketing.”

Merchant size

We benefit from our primary focus on Micro-Merchants and SMEs, who we believe were overlooked or underserved by incumbent payment providers and large financial institutions in Brazil before PagSeguro. As our existing merchants grow and as we serve increasingly larger merchants we expect our TPV to grow accordingly, while we will remain focused on Micro-Merchants and SMEs. Serving an increasing number of larger merchants also presents an opportunity to cross-sell value-added services and features such as accounting reconciliation, which generate incremental revenues and margin with low or no customer acquisition costs. Over time, we expect an increasing portion of our growth to come from a combination of increased numbers of active merchants and increased average spending per active merchant.

Consumer adoption of our products and services

Many of our products and services reach consumers directly. Our escrow period service for consumer protection and mediation services make e-commerce safer for consumers, and we believe our digital account and PagSeguro prepaid cards provide easy, attractive alternatives for consumers who do not have bank accounts. In addition, our social payment solutions, such as Pag.ae, allow our clients to use their PagSeguro account for either business or personal needs. We have made significant investments in the development of these consumer-facing products and services, and our ability to grow our consumer network going forward will be important for strengthening our ecosystem and driving our growth.

Currency fluctuations

We do not generate material revenues in foreign currencies that could substantially affect our results of operations. Certain of our expenses are subject to currency fluctuation, as the prices of the POS devices we purchase are set in U.S. dollars (both for the devices we imported from outside Brazil prior to mid-2015, and for the locally-made devices we have been purchasing since then).

Inflation

Inflation, government policies adopted to curb inflationary pressures and uncertainties regarding possible future governmental intervention have contributed to economic uncertainty in Brazil. According to the IPCA, Brazilian inflation rates were 3.75 %, 2.95% and 6.29% in 2018, 2017 and 2016, respectively, while the SELIC rate, the Central Bank’s overnight rate, increased from 10.00% at the beginning of 2014 to a high point of 14.25% in 2016, before a series of rate reductions in 2017, bringing the SELIC rate down to 7.00% as of December 7, 2017, where it remained at year-end 2017. The COPOM reduced the SELIC rate to 6.75% on February 7, 2018, and further reduced it to 6.50% on March 21, 2018, where it currently remains. For more information, see “—Brazilian political environment and macroeconomic conditions, interest rates, consumer credit and consumer spending” and “Item 3. Key Information—Risk Factors—Risks Relating to Brazil—Inflation and certain measures by the Brazilian government to curb inflation have historically harmed the Brazilian economy and Brazilian capital market, and high levels of inflation in the future would harm our business and the price of our Class A common shares.”

Inflation has a direct effect on our contracts with certain suppliers, such as telecommunications operators, whose costs are indexed to the IPCA, and data processors, whose labor costs are adjusted according to inflation. While inflation may cause our suppliers to increase their prices, we are generally able to offset this effect by increasing the prices we charge for our products and services.

When merchants adjust their prices for inflation, the purchasing power of consumers may be reduced, which may adversely affect our revenue if it results in a reduction in the number and volume of transactions. However, if our merchants raise their prices due to inflation, the amount we receive on each transaction also increases.

Pricing and revenue mix in our payment processing services

We generate revenue in the form of commissions and fees on the capture, transmission, processing and settlement of transactions carried out using credit, debit and meal voucher cards, as well as fees for other services. Credit and debit cards generate commissions in the form of the merchant discount rate, or MDR, which is a commission withheld by us from the transaction value paid to the merchant. The MDR we charge may vary over time and we may make different commercial offers for different services or for larger clients. However, overall, the MDR for debit cards is lower than that for credit cards. Our current standard MDR rates are 1.99% for POS debit card transactions, 3.19% for POS credit card transactions not paid in installments, 3.79% for POS credit card transactions paid in installments and 3.99% for online transactions, irrespective of whether such online transaction was paid in installments. Online transactions are also charged a fixed amount of R$0.40 per sale in addition to these MDR rates. Payments made using meal voucher cards and other payment methods generate per-transaction and/or percentage commissions at various rates. The MDR rates for credit card transactions vary according to whether the merchant has opted for the 14-day or one-day payment service under our payment date election service. For merchants who select the one-day payment date election, the standard MDR is 4.99% for POS credit card transactions not paid in installments and 5.59% for POS credit card transactions paid in installments. For merchants who select the 14-day payment date election, the standard MDR is 3.99% for POS credit card transactions not paid in installments and 4.59% for POS credit card transactions paid in installments. Our revenues are therefore impacted by the mix of these types of services that we sell, as well as any changes in the pricing for each service.

We face competition in all of our payment services and sales of POS devices, and we expect this competition to intensify in the future. For further information, see “Item 3. Key Information—Risk Factors—Substantial and increasingly intense competition, both within our industry and from other payment methods, may harm our business.” In addition, we currently offer lower pricing to certain of our clients who generate higher TPV, and we may be required to extend this pricing to other clients as our merchant base expands to include a greater proportion of larger merchants.

Financing of our early payment of merchants’ receivables feature

We receive significant financial income from offering our merchants the option to obtain early payment of their receivables from credit card installments. We also incur significant financial expenses in order to fund this optional feature. Through the date of our IPO, we funded this feature (i) principally by obtaining early payment of note receivables due to us from the card issuers and acquirers, enabling us to provide the related early payment to merchants, as well as (ii) through our general third party borrowings and own capital. Our ability to maintain adequate funding for the early payment feature is important for our operations and future income generation. For further information, see “—Principal Components of Our Results of Operations—Financial Expenses.”

Interchange fees

We rely on card issuers and card schemes to process our transactions, and we are required to pay fees for this service. In addition, although we are accredited as an acquirer, we also use third-party acquirers. From time to time, card schemes such as MasterCard and Visa may increase the interchange fees that they charge for each transaction using one of their cards. Credit card schemes have the right to pass any increases in interchange fees on to us as well as increase their own fees for processing. In addition, card schemes have imposed and may again impose special assessments for transactions that are executed through a “digital wallet,” and these fees could particularly affect us and significantly increase our costs. Although our standard contract with our merchant clients allows us to adjust our rates and tariffs at our discretion by notice to the merchant, our ability to vary our pricing remains subject to a variety of factors, including competition from other payment providers, market conditions and, in certain cases, direct price negotiations with the merchant. As a result, we may not necessarily be able to pass through all interchange and processing fees to our merchant clients and increases in these fees may therefore increase our Cost of sales and services and reduce our margins.

The interchange fee, which we record as Transaction costs within Cost of sales and services, has the potential to affect our margins. An increase in interchange fees will result in an increase in our Cost of sales and services and if we cannot pass the interchange fees onto customers via a corresponding increase in MDR, our margin will also be affected. Currently, the difference between interchange fees and the MDR we charge is less for debit card transactions than for credit card transactions, so our margins on credit card transactions are greater. We cannot predict if or when the card schemes will increase their interchange fees, or what the amount of any such increases may be. For further information, see “Item 3. Key Information—Risk Factors—Risks Relating to Our Business and Industry—We partially rely on card issuers or card schemes to process our transactions. Changes to credit card scheme fees, rules or practices may harm our business.”

Brazilian political environment and macroeconomic conditions, interest rates, consumer credit and consumer spending

Substantially all of our operations are located in Brazil. As a result, our revenues, financial income and profitability are affected by political and economic developments in Brazil and the effect that these factors have on the availability of credit, disposable income, employment rates and average wages in Brazil. Our operations, and the financial technology solutions industry in general, are particularly sensitive to changes in economic conditions.

Our Total revenue and income are affected by levels of consumer spending, interest rates and the expansion or retraction of consumer credit in Brazil, each of which impact the number and overall value of payment transactions. The interest rates charged on consumer credit transactions have an indirect effect on us to the extent that lower interest rates can lead to increases in private consumption, and therefore increases in the number of credit and debit card transactions or decreases in the number of installments consumers elect when making a purchase. Increases in interest rates, on the other hand, may lead to a decrease in private consumption or an increase in the number of installments consumers elect when making a purchase. Increases in interest rates may also cause fewer merchants to decide to use our early payment of receivables feature if our overall financing costs require us to increase the discount rate we charge for this feature.

The recent economic instability in Brazil has contributed to a decline in market confidence in the Brazilian economy as well as to a deteriorating political environment, and weak macroeconomic conditions are expected to continue through the first six months of 2019, while the social security reform proposal remains pending. For more information, see “Item 3. Key Information—Risk Factors—Risks Relating to Brazil—The ongoing economic uncertainty and political instability in Brazil may harm us and the price of our Class A common shares.”

Brazil is the largest economy in Latin America, as measured by gross domestic product, or GDP, yet digital payment penetration remains low compared to more developed economies. According to a September 2018 report by ABECS and data from the Bureau of Economic Analysis, or BEA, card usage as a payment method in Brazil represented only approximately 34% of private consumption in 2018, compared to approximately 46% in the United States. According to a 2018 report by SEBRAE, 46% of entrepreneurs in Brazil own POS devices, of which PagSeguro has the leading market share at 35% of such POS devices. According to the same report, this percentage is even higher for Individual Micro Entrepreneurs, with 54% using PagSeguro’s POS devices. Furthermore, according to the same report, 72% of entrepreneurs are served by only one acquiring company. This illustrates the potential for the provision of additional financial services by us in this segment, which is insufficiently served by the banking sector. We believe that a significant portion of this underpenetration is due to the number of unbanked individuals, who make up a major target sector for us. According to data from the World Bank, as of 2017, 30.0% of the Brazilian population above 15 years old, or 65.2 million individuals, did not have a bank account.

The following table shows data for real GDP, inflation and interest rates in Brazil and the U.S. dollar/real exchange rate at the dates and for the periods indicated.


	For the Years Ended December 31,
	2018		2017		2016
Real growth (contraction) in gross domestic product		1.1%		1.1%		(3.3)%
Inflation (IGP-M)⁽¹⁾		7.55%		(0.5)%		7.2%
Inflation (IPCA)⁽²⁾		3.8%		3.0%		6.3%
Long-term interest rates – TJLP (average)⁽³⁾		6.7%		7.1%		7.5%
CDI interest rate (average)⁽⁴⁾		6.4%		10.1%		14.1%
LIBOR⁽⁵⁾		2.8%		1.3%		0.7%
Period-end exchange rate—reais per US$ 1.00		3.87		3.31		3.26
Average exchange rate—reais per US$ 1.00⁽⁶⁾		3.66		3.19		3.48
Change in average exchange rate of the real vs. US$		(14.7)%		8.3%		(4.2)%
Average unemployment rate⁽⁷⁾		12.3%		12.7%		11.5%

Source: FGV, IBGE, Central Bank and Bloomberg

(1)	Inflation (IGP-M) is the general market price index measured by the FGV.

(2)	Inflation (IPCA) is a broad consumer price index measured by the IBGE.

(3)	TJLP is the Brazilian long-term interest rate (average of monthly rates for the period).

(4)	The CDI interest rate is an average of interbank overnight rates in Brazil (daily average for the period).

(5)	Average US dollar three-month London Interbank Offer Rate.

(6)	Average of the exchange rate on each business day of the period.

(7)	Average unemployment rate for year as measured by the IBGE.

The Brazilian political and economic environment has recently been characterized by high levels of uncertainty and instability, including a contraction of economic growth, despite a recent appreciation, an overall sharp depreciation of the real against the U.S. dollar, increased levels of unemployment and depressed levels of consumer confidence and spending. Brazil entered a recession in 2014 due in part to a decrease in global commodities prices as well as wide-scale corruption probes focused on certain state-owned and private companies. For further information, see “Item 3. Key Information—Risk Factors—The ongoing economic uncertainty and political instability in Brazil may harm us and the price of our Class A common shares.”

Our business has grown rapidly, driven by new clients and increased TPV, with our Total revenue and income increasing to R$4,334.7 million in 2018 from R$2,523.4 million in 2017. In addition to continuing to grow our client base, we believe that our business model will allow us to benefit from Brazil’s economic growth potential, particularly among Micro-Merchants, SMEs and individuals without bank accounts.

Seasonality

For information regarding our seasonality, see “Item 4. Information on the Company—Seasonality.”

Trend Information

We believe that demand for our products and services will remain strong in coming years, since our addressable market remains significant. We believe that this market opportunity will continue to fuel volume growth in our business, supported by increasing levels of penetration and usage of credit cards among the Brazilian population and the introduction of new products and services.

New IFRS standards that may affect our future results of operations

Certain IFRS standards and interpretations that have been issued but are not yet in effect could impact the presentation of our financial position or performance once they become effective. For further information, see Note 2.19 to our audited consolidated financial statements.

Principal Components of Our Results of Operations

The following is a summary of the items comprising our statements of income:

Total revenue and income

Our Total revenue and income consists of the total of our Net revenue from transaction activities and other services, Net revenue from sales, Financial income and Other financial income.

Net revenues

We generate revenues from transaction activities and other services, and from sales. In each case, our net revenues consist of gross revenues less deductions from those revenues.

Net revenue from transaction activities and other services

Our Net revenue from transaction activities and other services consists of Gross revenue from transaction activities and other services, less deductions from those gross revenues.

Our main source of Gross revenue from transaction activities and other services is commissions and fees on the capture, transmission, processing and settlement of transactions carried out using credit, debit and meal voucher cards and fees for other services. We have the primary responsibility for providing the services to our clients and we also directly set the prices for such services, independently from the related transaction costs agreed between us and the card schemes or card issuers. Since we have primary responsibility for providing our merchant clients with the intermediation service, and we have price discretion to adjust the rates and tariffs we charge merchants, we are the principal in the intermediation transaction. We therefore recognize our transaction fees as revenue on a gross basis, and we recognize the transaction costs separately as discussed below. Depending on the type of cash-in payment or transaction, these commissions and fees consist of the MDR, which is a commission withheld by us from the transaction value paid to the merchant, and/or other commissions or per-transaction fees. This line item also includes the fees we charge for other services. We recognize revenues from these commissions and fees when the purchase is approved by the card issuer, in the case of cash-in payments made via payment cards; when the transaction is carried out, in the case of payments made via other cash-in payment methods; or in the case of services, when the service, is rendered.

The amounts deducted from our Gross revenue from transaction activities and other services consist principally of the applicable Brazilian sales taxes and social security contributions: service tax (Imposto sobre Serviços, or ISS); contributions to the Brazilian government’s Social Integration Program (Programa Integração Social, or PIS); and contributions to the Brazilian government’s social security program (Contribuição para o Financiamento da Seguridade Social, or COFINS). We are required to collect each of these on our transaction activities and other services.

Net revenue from sales

Our Net revenue from sales consists of Gross revenue from sales, less deductions from those gross revenues.

We earn revenue from the sale to merchants of our POS devices. We currently offer the Minizinha for a purchase price of 12 monthly installments of R$4.90, the Minizinha Chip (which we launched in March 2018) for a purchase price of 12 monthly installments of R$9.90, the Moderninha Plus for a purchase price of 12 monthly installments of R$19.90, the Moderninha Pro for 12 monthly installments of R$35.90 and the Moderninha Smart (which we launched in October 2018) for 12 monthly installments of R$39.90. This line item also includes revenues from sales of POS device peripherals such as charging bases and protective covers. We recognize these revenues upon delivery of the equipment to the merchant.

The amounts deducted from our Gross revenues from sales consist of (i) PIS and COFINS, as well as the Imposto sobre Circulação de Mercadorias e Serviços tax, or ICMS, that we are required to collect on sales of devices and peripherals, and (ii) amounts corresponding to defective POS devices that are returned to us and purchases that are cancelled by merchants.

The applicable taxes and contributions vary according to whether the device and peripheral was manufactured in Brazil or imported. For locally-made devices, when we purchase the device we pay the taxes and contributions to the supplier at standard rates; and when we sell the device to our clients, we collect these taxes at the same rates on the selling price, record the tax on the sale in this line item as a deduction, and remit the difference between the taxes on or input cost and our selling price to the taxing authorities. For imported devices, we pay a lower rate of tax in place of ICMS on the purchase, and are not required to charge ICMS when we sell the device to our clients, meaning that the amount recorded in this deductions line item is relatively lower for imported devices. Prior to mid-2015 we purchased significant numbers of imported POS devices, but since mid-2015 substantially all of the POS devices we sell have been manufactured in Brazil.

Financial Income

As described under “Item 4. Information on the Company—Our Products and Services—Cash-in Solutions—Credit Cards,” our early payment of receivables feature consists of paying our merchants their installment receivables upfront when consumers paying by credit card choose to pay the merchant in installments. We account for the remuneration from this feature as Financial income. This Financial income makes up a significant portion of our overall Total revenue and income.

Our remuneration from the early payment of receivables feature consists of a discount that we withhold from the transaction value of the receivables that we pay to merchants in advance. We recognize this discount as Financial income (separate from and in addition to the MDR fee for the payment processing transaction, which we recognize as Gross revenue from transaction activities and other services). We recognize the discount amount as Financial income at the time a sale transaction is approved involving a merchant who has opted to receive early payments of the receivables from their credit card installment sales. The discount that generates our Financial income relates only to the early payment of the second and successive installments of the purchase; the first installment is not paid early as it is disbursed to the merchant within the normal billing cycle, so it does not generate remuneration in the form of Financial income (although it does generate MDR, which is recognized as Gross revenue from transaction activities and other services).

In addition, the Financial income line item does not include the fees we charge for the merchant’s payment date election within the monthly billing cycle, which are part of the MDR and are accounted for in Gross revenue from transaction activities and other services.

Our Financial income relates to early payments to merchants of amounts related to receivables from purchase transactions that have been approved by the card issuer and the card scheme.

The financial expenses we incur in funding this early payment of receivables feature are accounted for in our Financial expenses, discussed below.

For more information regarding our early payment of receivables feature and the FIDC that we established in the fourth quarter of 2017 to finance a portion of our related Financial expenses, see “Item 4. Information on the Company—Our Products and Services—Advanced Integrated Functionalities and Value-Added Services and Features—Early Payment of Receivables.”

Other Financial Income

Our Other financial income consists principally of interest generated by bank savings accounts and by deposits we make with Brazilian courts, known as judicial deposits, which guarantee any compensation we may be required to pay in litigation matters.

Our Other financial income also includes our net foreign exchange variations, i.e., the net gain or loss on our assets and liabilities related to the appreciation or depreciation of the real against foreign currencies, which has limited impact on our cash position. We had swaps in place to protect us against exposure to currency fluctuations on all of our borrowings in foreign currencies.

Cost of Sales and Services

Our Cost of sales and services represents the amounts that make up the cost of the services and devices we sell. These amounts are divided into Transaction costs, Cost of goods sold, Marketing and advertising, Personnel expenses, Depreciation and amortization and Other costs. For further information on these costs, see Note 21 to our audited consolidated financial statements.

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Our Transaction costs consist of interchange fees set by card schemes that are paid to the financial institution that is the issuer of the card; assessment fees paid to card schemes; fees paid to third-party payment processors; fees paid to acquirers; and bank settlement fees. All of our Transaction costs are accounted for within our Cost of sales and services. Since we are the principal in the intermediation transaction, we recognize the transaction costs that we pay to third parties, such as card schemes and card issuers who process these transactions, within our Cost of sales and services separately from the transaction fees we receive, which we recognize on a gross basis. The transaction costs are agreed between the card schemes or card issuers and us, independently from the fees we charge our merchant clients.

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Cost of goods sold consists of the amounts we spend in purchasing POS devices and peripherals from our suppliers, together with the related shipping charges and applicable purchase tax. All of our Cost of goods sold is accounted for within our Cost of sales and services.

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Our Marketing and advertising expenses are divided between our Cost of sales and services as well as our Selling expenses. Of this total, the portion of Marketing and advertising that is accounted for within our Cost of sales and services relates to customer support.

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Our Personnel expenses consist of wages, overtime, benefits (such as meal vouchers, transportation vouchers and medical insurance, among others), profit sharing, and social contribution and payroll taxes. In Brazil, social contribution and payroll taxes consist of the Brazilian Social Security Institute (Instituto Nacional de Seguridade Social – INSS) contribution and the Brazilian Unemployment Compensation Fund (Fundo de Garantia por Tempo de Serviço – FGTS) contribution. Our Personnel expenses are divided between our Cost of sales and services as well as our Selling expenses and our Administrative expenses. Of this total, the portion of our Personnel expenses that is accounted for within our Cost of sales and services refers to employees engaged in activities related to the cost of goods and services that we sell, such as technology, customer support, logistics, antifraud activities and mediation services.

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Our Depreciation and amortization expenses are divided between our Cost of sales and services as well as our Selling expenses and our Administrative expenses. Of this total, the portion of our Depreciation and amortization expenses that is included in our Cost of sales and services consists mainly of (i) the depreciation of equipment, furniture, technology and installations that form part of the cost of the goods and services that we sell, and (ii) the amortization of software that we develop internally for use in our operations.

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Our Other expenses are divided between our Cost of sales and services as well as our Selling expenses and our Administrative expenses. Of this total, the portion of our Other expenses that is included in our Cost of sales and services consists mainly of items such as travel expenses and office supplies that form part of the cost of the goods and services that we sell.

Selling Expenses

Our Selling expenses represent the amounts that we spend on publicity, marketing, quality control and direct or indirect relations with our clients. These amounts are divided into Marketing and advertising, Personnel expenses, Chargebacks, Depreciation and amortization expenses and Other expenses. For further information on these expenses, see Note 21 to our audited consolidated financial statements.

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The portion of Marketing and advertising expenses included in our Selling expenses relates to the production and distribution of our marketing and advertising campaigns on traditional offline media, traditional online advertising, the positioning of our products in search platforms, telemarketing related to POS device sales, commissions to our third party sales force and partners such as platforms, bloggers and developers, expenses incurred in relation to trade marketing at events, and amounts that we spend on consulting services and call centers for our telemarketing campaigns.

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The portion of our Personnel expenses included in our Selling expenses relates to employees engaged in marketing and advertising of our services, POS devices and features.

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Chargebacks consist of transaction losses arising from chargebacks related to fraudulent transactions, which occurs, principally in online transactions, when a consumer makes a purchase via credit card and then requests a chargeback from the issuing bank after receiving the goods or services purchased. All of our Chargeback expenses are accounted for within our Selling expenses.

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The portion of our Depreciation and amortization expense included in our Selling expenses consists of the depreciation of equipment used for client relationships.

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The portion of our Other costs included in our Selling expenses consist of expenses related to travel, lodging and insurance, facilities, rent, consultancy fees and office supplies relating to marketing and advertising of our services, POS devices and features.

Administrative Expenses

Our Administrative expenses represent the amounts that we spend on back office and overhead expenses. These amounts are divided into Personnel expenses, Depreciation and amortization expenses and Other costs. While we expect our Administrative expenses to increase in the short term as we plan for growth and as we incur costs of compliance associated with being a public company, we expect these expenses to decline as a percentage of our Total revenue and income over the medium term as our business grows.

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The portion of our Personnel expenses that form part of our Administrative expenses relates to our finance, legal, human resources, and administrative personnel, as well as fees paid for professional services, including legal, tax and accounting services.

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The portion of our Depreciation and amortization expenses that form part of our Administrative expenses relates to (i) the depreciation of the equipment, furniture, tools and technology used in our head office and back-office operations and (ii) the amortization of software developed internally to support our head office and back-office needs, which is shown in Note 12 to our audited consolidated financial statements.

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The portion of our Other costs that form part of our Administrative expenses includes items such as bank charges, travel, reimbursement of staff expenses and office supplies.

Financial Expenses

Our financial expenses include (i) the charges we incur to obtain early payment of note receivables owed to us by card issuers and acquirers in order to finance the early payment of receivables feature that we offer merchants, (ii) interest expense on our other borrowings and (iii) the cost of swaps relating to our foreign currency borrowings. Variations in our Financial expenses when expressed as a percentage of Financial income are driven by Brazilian interest rates, which determine the cost of most of our financing, together with changes in the mix of the financing we use for our early payment of receivables feature.

Through the date of our IPO, we funded the early payment of receivables feature (i) principally by obtaining early payment of receivables owed to us by card issuers and acquirers, as well as (ii) through our general third party borrowings and own capital. In addition, in November 2017 we set up a Brazilian investment fund to purchase and hold receivables known as a Fundo de Investimento em Direitos Creditórios (a Fund for Investment in Credit Rights, or FIDC) through which we may raise debt to finance the early payment of receivables feature. The FIDC is controlled by our Brazilian operating company (by virtue of subscribing for its subordinated quotas) but raises capital by issuing senior quotas in the fund to outside investors, who receive interest on these investments from the FIDC. The FIDC uses the capital it raises to finance the growth of our early payment of receivables feature. Our remuneration from the early payment of receivables feature continues to be reflected as Financial income in our consolidated financial statements. We do not expect the establishment of the FIDC to impact the discount rate we charge in connection with the early payment of receivables feature or the expenses we incur to obtain early payment of note receivables from card issuers and acquirers. For further information regarding the FIDC, see “Item 4. Information on the Company—Organizational Structure.”

We did not have any outstanding borrowings at December 31, 2018 and 2017. All of our third-party borrowings at December 31, 2016 were denominated in U.S. dollars and therefore exposed to currency fluctuations when we contracted derivative financial instruments known as swaps in order to protect us against this exposure. For further information on our borrowings, see “—Loans and Financing.”

Other (Expenses) Income, Net

Our Other (expenses) income, net line item consists mainly of contingencies, charges and miscellaneous income and/or expense items.

Current Income Tax and Social Contribution

Current income tax and social contribution consists of tax assets and liabilities for the current year. Our liability to income tax principally reflects the level of our Profit before income taxes; this line item also varies, however, to the extent that we are entitled to defer tax on certain investments in technological innovation, in which case our tax base for income tax for the year is reduced and the related deferred tax liability is accounted for in the Deferred income tax and social contribution line item below.

Our tax assets for the current year are calculated based on the expected recoverable amount, and tax liabilities for the current year are calculated based on the amount payable to the applicable tax authorities. The tax rates and tax laws used to calculate this amount are those enacted or substantially enacted at the balance sheet date. Current income tax and social contribution related to items recognized directly in equity is also recognized in equity. We periodically evaluate our tax positions with respect to interpreting tax regulations and, when appropriate, establish provisions.

Deferred Income Tax and Social Contribution

Deferred income tax and social contribution consists of temporary differences between the tax basis of assets and liabilities and their carrying amounts at the balance sheet date. This line item refers principally to deferrals of tax liability that we are entitled to take on capital investments that we make in technological innovation under Brazilian Law No. 11,196/2005, known as the Technological Innovation Law or “Lei do Bem.” We are able to use this tax deferral law principally for the investments we make in developing software internally, where we capitalize the labor and other costs involved as an intangible asset rather than accounting for these amounts as expenses, and we depreciate the accounting value of the intangible asset over its useful life. The Lei do Bem allows us to defer our tax liability on these investments. Other Brazilian tax rules also allow us to defer tax on certain items, for example on unpaid amounts due from creditors. The Deferred income tax and social contribution line item consists of our liability to future tax under the Lei do Bem and these other tax laws, less the depreciation and amortization that we take during the year on the respective capitalized assets, and less the tax losses carried forward from prior years that we are able to offset against our tax liability during the year. For further information on this line item, see Note 17 to our audited consolidated financial statements.

Deferred tax liabilities are recognized for all taxable temporary differences, except in certain situations explained in Note 2.14 of our audited consolidated financial statements. The carrying amount of deferred tax assets is reviewed at each balance sheet date and impairment is recognized to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reviewed, at each balance sheet date, and recognized to the extent that it is probable that future taxable profit will be available to allow for their utilization.

There is no Cayman Islands taxation on the income earned by PagSeguro Digital and as such, we do not have any tax impacts at the PagSeguro Digital level.

With respect to our subsidiaries, deferred tax assets and liabilities are measured using the prevailing tax rates in the year in which the assets will be realized and the liabilities will be settled. The currently defined tax rates of 25% for income tax and 9% for social contribution are used to calculate deferred taxes. Deferred tax assets and liabilities are presented on a net basis when there is a legally or contractually enforceable right to offset the tax asset against the tax liability, and the deferred taxes are related to the same taxable entity and subject to the same tax authority.

Results of Operations

The following discussion of our results of operations is based on the financial information derived from our audited consolidated financial statements included elsewhere in this annual report.

Results of Operations in 2018, 2017 and 2016


	For the Years Ended December 31,
	2018			Percent Change		2017			Percent Change		2016
	(in millions of *reais*, with the exception of percentages and per-share amounts)
Net revenue from transaction activities and other services		2,267.1			85.2%		1,224.3			155.1%		480.0
Net revenue from sales		374.6			(20.6)%		471.9			81.1%		260.6
Financial income		1,414.5			72.8%		818.6			108.6%		392.4
Other financial income		278.5			3,138.4%		8.6			62.3%		5.3

Total revenue and income		4,334.7			71.8%		2,523.4			121.7%		1,138.4

Cost of sales and services		(2,144.7	)		61.9%		(1,324.4	)		112.3%		(623.7	)
Selling expenses		(351.4	)		43.0%		(245.8	)		23.0%		(199.9	)
Administrative expenses		(581.7	)		279.7%		(153.2	)		81.3%		(84.5	)
Financial expenses		(31.2	)		(70.1)%		(104.5	)		53.0%		(68.3	)
Other (expenses) income, net		(8.1	)		(32.5)%		(12.0	)		79.1%		(6.7	)

Profit before Income Taxes		1,217.6			78.1%		683.5			339.8%		155.4

Current income tax and social contribution		(180.9	)		(15.9)%		(215.0	)		2,805.4%		(7.4	)
Deferred income tax and social contribution		(126.3	)		(1,326.2)%		10.3			(151.2)%		(20.1	)

Income Tax and Social Contribution		(307.2	)		50.1%		(204.7	)		641.7%		(27.6	)

Net Income for the Year		910.4			90.1%		478.8			274.6%		127.8

Attributable to:
Owners of PagSeguro Digital		909.3			89.9%		478.8			276.4%		127.2
Non-controlling interests		1.1			100.0%		—			(100.0)%		0.6
Basic earnings per common share – R$		2.8625			56.8%		1.8254			276.4%		0.4849
Diluted earnings per common share – R$		2.8582			56.6%		1.8254			276.4%		0.4849

Total revenue and income

Our Total revenue and income amounted to R$4,334.7 million in 2018, an increase of 71.8% from R$2,523.4 million in 2017. Our Total revenue and income in 2017 represented an increase of 121.7% from R$1,138.4 million in 2016.

Net revenue from transaction activities and other services

Our Gross revenue from transaction activities and other services in 2018 amounted to R$2,638.1 million, an increase of R$1,246.7 million, or 89.6%, from R$1,391.4 million in 2017. Gross revenue from transaction activities and other services in 2017 represented an increase of R$847.6 million, or 155.9%, from R$543.8 million in 2016.

The increase in Gross revenue from transaction activities and other services during 2018 compared to 2017 was principally due to a continued increase in our active merchant base and TPV. Our Gross revenue from transaction activities and other services increased by a lesser percentage than our TPV, which increased to R$76.1 billion from R$38.5 billion in 2017. This difference in the growth rate was driven by the mix of debit and credit card payments processed containing a higher percentage of debit card payments and within the credit card payments processed, a lower percentage of credit card transactions made in installments.

The increase in Gross revenue from transaction activities and other services during 2017 compared to 2016 was principally due to a continued increase in our customer base and TPV. Our Gross revenue from transaction activities and other services during 2017 increased by a lesser percentage than our TPV, which increased to R$38.5 billion from R$14.1 billion in 2016. This difference in the rate of growth was principally due to the higher proportion of debit card transactions in our TPV in 2017 as compared to in 2016, driven by the fact that in December 2016 we established a new partnership with Elo, a Brazilian card scheme whose business is heavily weighted toward debit cards. Our TPV for 2017 therefore included this additional debit card TPV that we did not have for most of 2016; and debit cards generate lower MDR than credit card transactions.

The increase in gross revenue from transaction activities and other services in 2016 was principally due to an increase in TPV during the period. This increase was partially offset by a change in mix in 2016 as cash-in payments from debit cards, which generate lower MDR fees, increased in proportion to cash-in payments from credit cards, which generate higher MDR fees.

Our Deductions from gross revenue from transaction activities and other services, which consist principally of sales taxes, amounted to R$371.0 million in 2018, or 14.1% of our Gross revenue from transaction activities and other services for the year. In 2017, Deductions from gross revenue from transaction activities and other services totaled R$167.1 million, or 12.0% of our Gross revenue from transaction activities and other services for the year. In 2016, Deductions from gross revenue from transaction activities and other services totaled R$63.8 million, or 11.7% of Gross revenue from transaction activities and other services for the year. The increase in the Deductions from gross revenue, as a percentage of our Gross revenues from transaction activities and other services, in 2018 when compared to 2017 was principally due to the repeal of the law that charges ISS based on the municipality where the POS device is used. Since the repeal of this law is being contested, we are currently making judicial deposits for the full tax rate regarding sales made within the São Paulo municipality and recognizing a provision for the difference charged by other municipalities. The increase in the Deductions from gross revenue in 2017 when compared to 2016 was principally due to sales taxes related to the transaction services provided by R2Tech.

As a result of the above, our Net revenue from transaction activities and other services in 2018 amounted to R$2,267.1 million, an increase of R$1,042.8 million, or 85.2%, from R$1,224.3 million in 2017. Net revenue from transaction activities and other services in 2017 represented an increase of R$744.3 million, or 155.1%, from R$480.0 million in 2016.

Net revenue from sales

Our Gross revenue from sales in 2018 amounted to R$513.8 million, a decrease of R$141.4 million, or 21.6%, from R$655.2 million in 2017. Gross revenue from sales in 2017 represented an increase of R$283.7 million, or 76.4%, from R$371.5 million in 2016. The decrease in Gross revenue from sales in 2018 compared to 2017 is due to a reduction of our POS devices’ sales price and promotional activity during the year. The significant growth in this item in 2017 compared to 2016 was due to an increase in the volume of POS devices sold and the rapid ramp-up of our POS device sales, and our rollout of an increasingly broad range of POS devices.

Our Deductions from gross revenue from sales in 2018 amounted to R$139.2 million, or 27.1 % of our Gross revenue from sales for the year. In 2017, these Deductions totaled R$183.2 million, or 28.0% of our Gross revenue from sales for the year. In 2016, these Deductions totaled R$110.9 million, or 29.9% of our Gross revenue from sales for the year.

The small decrease in these Deductions as a percentage of our Gross revenue from sales in 2018 compared with 2017 and 2017 compared with 2016 is due to changes in the mix of Brazilian states in which we sold POS devices, since ICMS is levied by each state at a different rate. As a result of the above, our Net revenue from sales in 2018 amounted to R$374.6 million, a decrease of R$97.3 million, or 20.6% from R$471.9 million in 2017. Net revenue from sales in 2017 represented an increase of R$211.3 million, or 81.1%, from R$260.6 million in 2016.

Financial income

Our Financial income, which represents the volume of the discount fees we withhold from TPV in the early payment of receivables feature that we offer merchants, amounted to R$1,414.5 million in 2018, an increase of R$595.9 million, or 72.8% from R$818.6 million in 2017. In 2017 this item represented an increase of R$426.2 million, or 108.6%, from R$392.4 million in 2016. The year-on-year increase in this activity was driven by growth in our TPV.

Other financial income

Our Other financial income amounted to R$278.5 million in 2018, an increase of R$269.9 million, or 3,138.4% from R$8.6 million in 2017. Our Other financial income in 2017 represented an increase of R$3.3 million, or 62.3%, from with R$5.3 million in 2016.

Our Other financial income in 2018 included a positive net foreign exchange variation of R$138.1 million, an increase of R$136.3 million compared to a positive net foreign exchange variation of R$1.8 million in 2017. Of the R$138.1 million in net foreign exchange variation in 2018, R$131.3 million was related to the foreign exchange gain on our January 2018 IPO proceeds and June 2018 follow-on offering proceeds, and the remaining increase of R$6.8 million was due to income from short-term investments, which increased significantly due to our January 2018 IPO proceeds and June 2018 follow-on offering proceeds. Our Other financial income in 2017 included a positive net foreign exchange variation from R$1.8 million, a decrease of R$0.5 million from R$2.3 million in 2016. These variations reflect the effect of exchange rate fluctuations in our foreign currency accounts located outside of Brazil. In 2016 and 2017, our net foreign exchange variation related to Boa Compra’s international operations as well as cash-out payments using PagSeguro prepaid cards outside of Brazil and cash-in payments via international cards in Brazil, both of which are settled in foreign currency.

Expenses

Our total expenses amounted to R$3,117.1 million in 2018, an increase of R$1,277.2 million, or 69.4% from R$1,839.9 million in 2017. As a percentage of our Total revenue and income, our total expenses in 2018 decreased by 1.0 percentage point, to 71.9% in 2018 from 72.9% in 2017. Our total expenses amounted to R$1,839.9 million in 2017, an increase of R$856.9 million, or 87.2%, from R$983.0 million in 2016. As a percentage of our Total revenue and income, our total expenses in 2017 decreased by 13.5 percentage points, to 72.9% in 2017 from 86.4% in 2016.

Cost of sales and services

Our Cost of sales and services amounted to R$2,144.7 million in 2018, an increase of R$820.3 million, or 61.9% from R$1,324.4 million in 2017. As a percentage of the total of our Net revenue from transaction activities and other services and our Net revenue from sales, our Cost of sales and services decreased by 13.6 percentage points, to 94.6% from 108.2% in 2017.

Within our Cost of sales and services line item, our Cost of services, expressed as a percentage of our Net revenue from transaction activities and other services, decreased to 66.6% from 67.8% in 2017. This decrease is due to the mix of debit and credit card payments processed containing a higher percentage of debit card payments and lower interchange fee expenses. Our Cost of sales, expressed as a percentage of our Net revenue from sales, increased to 169.2% in 2018 from 104.8% in 2017, due to a reduction of our POS devices sales price and promotional activity during the year.

Our Cost of sales and services amounted to R$1,324.4 million in 2017, an increase of R$700.7 million, or 112.3% from R$623.7 million in 2016. As a percentage of the total of our Net revenue from transaction activities and other services and our Net revenue from sales, our Cost of sales and services remained relatively stable, posting a decrease of 6.1 percentage points, to 78.1% from 84.2% in 2016.

Within our Cost of sales and services line item, our Cost of services, expressed as a percentage of our Net revenue from transaction activities and other services, decreased to 67.8% from 74.5% in 2016. This decrease reflected a reduction in the fees we paid to third party acquirers as well as ongoing economies of scale due to growth in our TPV. Our Cost of sales, expressed as a percentage of our Net revenue from sales, increased to 104.8% in 2017 from 102.0% in 2016, due to the change in our device product mix: the launch of the higher-value Moderninha Wifi in June 2016 and Moderninha Pro in October 2016 led to increased expenses throughout 2017 that largely did not impact the mix in 2016.

Selling expenses

Our Selling expenses amounted to R$351.4 million in 2018, an increase of R$105.6 million, or 43.0% from R$245.8 million in 2017. As a percentage of our Total revenue and income, our Selling expenses decreased by 1.6 percentage points, to 8.1% in 2018 from 9.7% in 2017. This decrease in our Selling expenses as a percentage of our Total revenue and income was driven by our growth, as we continue to leverage our selling expenses base as our TPV increases.

Our Selling expenses amounted to R$245.8 million in 2017, an increase of R$45.9 million, or 23.0% from R$199.9 million in 2016. As a percentage of our Total revenue and income, our Selling expenses decreased by 7.9 percentage points, to 9.7% in 2017 from 17.6% in 2016. Our Marketing and advertising costs in particular, while increasing in absolute terms, decreased significantly as a percentage of Total revenue and income due to growth in our revenue volumes and the return on our investments in marketing and advertising in prior periods, as well as a decision to focus our online advertising on relatively cheaper spaces rather than headline banners.

Administrative expenses

Our Administrative expenses amounted to R$581.7 million in 2018, an increase of R$428.5 million, or 279.7%, from R$153.2 million in 2017. This increase was mainly due to our Share based long-term incentive plan (LTIP) expenses, which amounted to R$359.2 million. As a percentage of our Total revenue and income our Administrative expenses increased by 7.3 percentage points, to 13.4% in 2018 from 6.1% in 2017.

In 2017, our Administrative expenses increased by R$68.7 million, or 81.3%, compared with R$84.5 million in 2016. This increase was mainly due to an increase in employee costs, bank charges and consulting fees. As a percentage of our Total revenue and income, however, our Administrative expenses decreased by 1.3 percentage points, to 6.1% in 2017 from 7.4% in 2016.

Financial expenses

Our Financial expenses amounted to R$31.2 million in 2018, a decrease of R$73.3 million, or 70.1%, from expenses of R$104.5 million in 2017. The same item in 2017 reflected an increase in expense of R$36.2 million, or 53.0%, from expenses of R$68.3 million in 2016. Expressed as a percentage of our Financial income, our Financial expenses represented 2.2% in 2018, 12.8% in 2017 and 17.4% in 2016.

The variation in our Financial expenses when expressed as a percentage of Financial income is driven by Brazilian interest rates, which determine the cost of most of our financing, together with changes in the mix of the financing we use for our early payment of receivables feature, since we have decreased our external financing due to our January 2018 IPO proceeds and June 2018 follow-on offering proceeds. The SELIC rate was held at 14.25% for the first nine months of 2016, being reduced to 14.00% in October 2016 and 13.75% in December 2016. The SELIC rate was further reduced to 8.25% at September 30, 2017 and to 7.00% at December 7, 2017, where it remained at year-end 2017. The COPOM reduced the SELIC rate to 6.75% on February 7, 2018, and further reduced it to 6.50% on March 21, 2018, where it currently remains. Our financial expense also reflected changes in our mix of financing: in 2016, in addition to our existing financing sources, we further increased our levels of external financing, with early payment of the receivables due to us from card issuers as well as acquirers, and we incurred third party borrowings. In 2017, we repaid our third party borrowings and thereafter financed the early payment feature by obtaining early payment of note receivables due to us from the card issuers and acquirers. In 2018, we financed the early payment feature using our IPO primary share proceedings For more information, see “—Financing of our early payment of merchants’ receivables feature.”

Other (expenses) income, net

Our Other (expenses) income, net, recorded expenses of R$8.1 million in 2018. This net amount principally reflected expenses related to civil litigation proceedings during the year.

In 2017, our Other (expenses) income, net, recorded expenses of R$12.0 million. This net amount principally reflected expenses related to civil litigation proceedings during the year.

In 2016, our Other (expenses) income, net, recorded expenses of R$6.7 million. This net amount principally reflected expenses related to civil litigation proceedings during the year.

Profit before income taxes

Our Profit before income taxes amounted to R$1,217.6 million in 2018, an increase of R$534.1 million, or 78.1%, from R$683.5 million in 2017. The increase was due to significant continued growth in our Total revenue and income, reflecting volume growth in both our net revenue items as well growth in income from our early payment of receivables feature.

In 2017, our Profit before income tax amounted to R$683.5 million, an increase of R$528.1 million, or 339.8%, from R$155.4 million in 2016. The increase was due to significant growth in our Total revenue and income, reflecting volume growth in both our net revenue items as well growth in income from our early payment of receivables feature.

Income tax and social contribution

Income tax and social contribution amounted to expenses of R$307.2 million in 2018, an increase of R$102.5 million, or 50.1%, from expenses of R$204.7 million in 2017. In 2017, our income tax and social contribution expenses increased by R$177.1 million, or 641.7%, from expenses of R$27.6 million in 2016. This total item consists of Current income tax and social contribution and deferred income tax and social contribution, which relates principally to the tax benefit under the Lei do Bem, which reduces income tax charges based on investments made in innovation and technology, such as those made by PagSeguro Brazil, our Brazilian operating subsidiary.

Our total effective tax rate was 25.2% in 2018, compared with 29.9% in 2017. The decrease in 2018 was mainly due to increase in our Lei do Bem tax benefits and income generated by PagSeguro Digital on the exchange variation from U.S. dollars to reais which is not taxable under the Companies Law.

Our total effective tax rate was 29.9% in 2017, compared with 17.8% in 2016. The increase in 2017 was due to the increase in our Profit before income taxes while the amount of our Lei do Bem tax benefits remained stable.

Net income for the year

Our Net income for the year in 2018 amounted to R$910.4 million, an increase of R$431.6 million, or 90.1%, from R$478.8 million in 2017. As a percentage of our Total revenue and income, our Net income for the year increased by 2.0 percentage points, to 21.0% in 2018 compared with 19.0% in 2017. This increase was principally driven by the volume growth in both our net revenue items as well growth in income from our early payment of receivables feature, as discussed above.

Our Net income for the year in 2017 amounted to R$478.8 million, an increase of R$351.0 million, or 274.6%, from R$127.8 million in 2016. As a percentage of our Total revenue and income, our Net income for the year increased by 7.8 percentage points, to 19.0% in 2017 compared with 11.2% in 2016. This increase was principally driven by the volume growth in both our net revenue items as well growth in income from our early payment of receivables feature, as discussed above.

Liquidity and Capital Resources

The following discussion of our liquidity and capital resources is based on the financial information derived from our audited consolidated financial statements included elsewhere in this annual report.

General

Our principal liquidity requirements relate to the early payment of receivables feature that we offer merchants. We believe our current working capital is sufficient for present requirements. Through the date of this annual report, we have satisfied our funding and working capital requirements (i) through the cash generated by our businesses and (ii) by obtaining early payment of note receivables due to us from the card issuers and acquirers.

The table below presents our cash position at the beginning of each period, and our net cash provided by operating activities, net cash used in investing activities and net cash provided by financing activities during the periods indicated:


	At and for the Year Ended December 31,
	(in millions of *reais*)
	2018			2017			2016
Liquidity and Capital Resources
Cash and cash equivalents		2,763.0			66.8			80.0
Net cash provided by (used in) operating activities		(1,763.2	)		453.6			77.0
Net cash (used in) investing activities		(44.3	)		(207.3	)		(203.3	)
Net cash provided by (used in) financing activities		4,503.8			(259.5	)		199.4

Our cash and cash equivalents include cash on hand, deposits with banks and other short-term highly liquid investments with original maturities of three months or less, and with immaterial risk of change in value. For more information, see Note 6 to our audited consolidated financial statements.

Cash Flows

Our Net Cash provided by operating activities consists of (i) our Profit before income taxes for the year, (ii) amounts that are recorded as expenses or revenues in our statement of income but which do not affect cash, (iii) amounts representing changes in our operating assets and liabilities, (iv) the cash amounts of income taxes and social contributions that we pay during the period, (v) the cash amounts of interest income received and (vi) interest paid on outstanding borrowings.

Our Cash flows used in investing activities consist of amounts paid on acquisitions, our purchases of property and equipment, our purchases of intangible assets, and our new financial investments less the payments we make to redeem existing financial investments.

Our Cash flows from financing activities consist of the proceeds from our January 2018 IPO and June 2018 follow-on offering and respective transaction costs. In 2018, we also repurchased shares in accordance with our share repurchase program, which was approved by our board of directors in October 2018. For more information on our share repurchases, see “Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.”

Cash Flows in 2018

Our cash and cash equivalents at the beginning of 2018 amounted to R$66.8 million.

Our Profit before income taxes in 2018, as discussed above, was R$1,217.6 million.

The adjustments for revenue, income and expenses recorded in our statement of income in 2018 but which did not affect our cash flows totaled the positive amount of R$454.8 million, mainly due to R$264.2 million of Share-based long-term incentive plan (LTIP) expenses, R$71.5 million in Chargebacks and R$95.4 million of Depreciation and amortization recorded in our statement of income. Share based long-term incentive plan (LTIP) relates to expenses for equity awards under the LTIP. Chargebacks relate to amounts that we initially recorded as revenues but for which we did not receive the related cash payment due to fraud.

The adjustments for changes in our operating assets and liabilities in 2018 amounted to negative cash flows of R$1,954.2 million:

•

Our Note receivables item, which is presented net of transaction costs and financial expenses we incur when we elect to receive early payment of the note receivables owed to us by card issuers, consists of the difference between the opening and closing balances of the Note receivables item of Current Assets on our balance sheet (R$8,104.7 million at year-end 2018 versus R$3,522.3 million at year-end 2017) excluding interest income received in cash and chargebacks, which are presented separately in the statement of cash flows. Note receivables represented negative cash flow of R$5,048.5 million in the year ended December 31, 2018. From the R$5,048.5 million of negative cash flow, R$1,737.5 million was from note receivables for which we received early payment from issuing banks as of December 31, 2017 and which were subsequently repaid during 2018 with our IPO primary share proceeds. We do not expect this line item to have any further impact on our cash flow in 2019. The remaining R$3,310.9 million negative cash flow is related to TPV growth in the year ended December 31, 2018.

•

Our Payables to third parties item, which is presented net of revenue from transaction activities and financial income we receive when merchants elect to receive early payments, consists of the difference between the opening and closing balances of the Payables to third parties item of Current Liabilities on our balance sheet (R$4,324.2 million at year-end 2018 versus R$3,080.6 million at year-end 2017). Payables to third parties represented positive cash flow of R$1,243.7 million in 2018.

•

Our Receivables from (payables to) related parties item consists of the difference between the opening and closing balances of the Receivables from related parties item (i.e., UOL) of Current Assets on our balance sheet (no balance at year-end 2018 versus R$124.7 million at year-end 2017) offset by the difference between the opening and closing balances of the Payables to related parties item (i.e., UOL) of Current Liabilities on our balance sheet (R$30.8 million at year-end 2018 versus R$39.1 million at year-end 2017), which represented movements in our treasury cash position with UOL prior to the completion of our IPO. Receivables from (payables to) related parties represented positive cash flow of R$112.8 million in the year ended December 31, 2018. For more information on our treasury cash position with UOL, see Note 9 to our audited consolidated financial statements. Our cash management has been separate from UOL’s cash management starting from the date of completion of our IPO, and all such balances were repaid by UOL.

•

Our Inventories item represents changes in the carrying value of the Inventories item of Current Assets on our balance sheet. This item represented negative cash flow of R$47.0 million in 2018.

•

Our Salaries and social charges item represents amounts that were recorded on our statement of income, but which remained unpaid at year-end, principally because they related to the final month of the year. This item represented positive cash flow of R$39.3 million in 2018.

•

Our Taxes and contributions item represents sales taxes (ISS, ICMS, PIS and COFINS). This item represented positive cash flow of R$31.8 million in 2018.

Since our statement of cash flows begins with our Profit before income taxes, it also adjusts for cash amounts paid in respect of our income tax and social contribution, which totaled R$203.6 million during the year ended December 31, 2018. Our statement of cash flows also adjusts for interest income received, which represented a positive cash flow of R$394.6 million in 2018.

As a result of the above, our Net Cash used in operating activities in 2018 totaled R$1,763.2 million, of which R$1,737.5 million was from note receivables for which we received early payment from issuing banks as of December 31, 2017 and which were subsequently repaid during 2018 with our IPO primary share proceeds.

Our Cash flows used in investing activities in 2018 totaled R$44.3 million. This amount consisted of R$211.1 million in redemptions of financial investments, representing total cash that we withdrew during the year. We also invested R$192.0 million in purchases and development of intangible assets, which represent purchases of third-party software and salaries and other amounts that we paid to develop internally software and technology, which we capitalize as intangible assets. For more information on our intangible assets, see Note 12 to our audited consolidated financial statements.

Our Cash flows provided by financing activities in 2018 totaled R$4,503.8 million, consisting of R$4,717.9 million representing our January 2018 IPO proceeds and June 2018 follow-on offering proceeds, less R$189.9 million representing transaction costs, both of which related to our January 2018 IPO and June 2018 follow-on offering. During 2018 we also repurchased R$39.5 million in Class A common shares according to our share repurchase program. For further information see Notes 1 and 18 to our audited condensed consolidated financial statements and “Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.”

After accounting for the total increase in Cash and cash equivalents of R$2,696.3 million discussed above, our Cash and cash equivalents at the close of 2018 amounted to R$2,763.0 million.

Cash Flows in 2017

Our cash and cash equivalents at the beginning of 2017 amounted to R$80.0 million.

Our Profit before income taxes in 2017, as discussed above, was R$683.5 million.

The adjustments for revenue, income and expenses recorded in our statement of income in 2017 but which did not affect our cash flows totaled the positive amount of R$103.7 million, principally reflecting R$47.9 million of Chargebacks and R$51.6 million of Depreciation and amortization recorded in our statement of income, which are detailed in Note 21 to our audited consolidated financial statements. Chargebacks relate to amounts that we initially recorded as revenues but for which we did not receive the related cash payment due to fraud.

The adjustments for changes in our operating assets and liabilities in 2017 amounted to negative cash flows of R$366.7 million. Our Note receivables item, which is presented net of transaction costs and financial expenses we incur when we elect to receive early payment of the note receivables owed to us by card issuers, represented reduction of cash flow of R$2,060.9 million (Note receivables on our balance sheet were R$3,522.3 million at year-end 2017 versus R$1,715.5 million at year-end 2016) excluding interest income received in cash and chargebacks, which are presented separately in the statement of cash flows. Our Payables to third parties item, which is presented net of revenue from transaction activities and financial income we receive when merchants elect to receive early payments, represented positive cash flow of R$1,776.5 million (Payables to third parties on our balance sheet were R$3,080.6 million at year-end 2017 versus R$1,304.0 million at year-end 2016). Our Receivables from (payables to) related parties item represented negative cash flow of R$64.4 million (Receivables from related parties item, i.e., UOL, of Current Assets on our balance sheet were R$124.7 million at year-end 2017 versus R$300.8 million at year-end 2016; and Payables to related parties item, i.e., UOL, of Current Liabilities on our balance sheet were R$39.1 million at year-end 2017 versus R$76.2 million at year-end 2016). Inventories represented negative cash flow of R$40.6 million; and Salaries and social charges represented positive cash flow of R$13.3 million.

We paid income taxes and social contributions in cash totaling R$166.4 million and we recorded a positive cash flow of R$208.6 million and a negative cash flow of R$9.2 million related to interest income received in cash and interest paid, respectively, during the year.

As a result of the above, our Net Cash provided by operating activities in 2017 totaled R$453.6 million.

Our Cash flows used in investing activities in 2017 totaled R$207.2 million. This amount consisted of R$77.5 million in acquisitions of financial investments net of redemptions of financial investments, representing total cash that we withdrew during the year, less the R$22.2 million we paid for our acquisitions of R2Tech, BCPS and BIVA. We also invested R$99.7 million in purchases and development of intangible assets, which represent purchases of third party software and the salaries and other amounts that we paid to develop internally our software and technology, which we capitalize as intangible assets. For more information on our intangible assets, see Note 12 to our audited consolidated financial statements.

Our Cash flows used in financing activities in 2017 totaled R$259.6 million, consisting in part of R$199.5 million representing the repayment of our two outstanding borrowings and R$5.8 million representing the liquidation of derivative financial instruments (swaps) relating to those borrowings during the year. For further information on our borrowings, see “—Loans and Financing.” Furthermore, on September 29, 2017, PagSeguro Brazil’s shareholders approved a distribution of R$238.8 million in dividends. This amount consisted of (i) R$142.8 million of dividends related to the six-month period ended June 30, 2017 and (ii) R$96.0 million in dividends related to the year ended December 31, 2016. For more information regarding the 2016 dividend, see Note 18 to our audited consolidated financial statements.

The R$238.8 million in dividends were distributed on September 29, 2017 in the following manner: (i) R$54.3 million paid in cash and (ii) R$184.5 million offset against amounts then due to PagSeguro Brazil and Boa Compra under our centralized cash management with UOL. For further information on our centralized cash management with UOL, see “Presentation of Financial and Other Information—Corporate Events—The 2015 Reorganization.”

In addition, subject to certain limitations, Brazilian companies generally also distribute amounts in respect of interest on own capital, which is calculated based on a government interest rate. In its 2016 financial statements PagSeguro Brazil recorded an amount of R$22.2 million in interest on own capital payable to UOL. This amount was paid to UOL on April 30, 2017, although the payment was offset in full against amounts then due to PagSeguro Brazil and Boa Compra under our centralized cash management with UOL, rather than being paid in cash.

After accounting for the total decrease in Cash and cash equivalents of R$13.2 million discussed above, our Cash and cash equivalents at the close of 2017 amounted to R$66.8 million.

Cash Flows in 2016

Our cash and cash equivalents at the beginning of 2016 amounted to R$6.9 million.

Our Profit before income taxes in 2016, as discussed above, was R$155.4 million.

The adjustments for revenue, income and expenses recorded in our statement of income in 2016 but which did not affect our cash flows totaled the positive amount of R$75.6 million, principally reflecting the positive amount of R$31.6 million of Chargebacks and the positive amount of R$31.2 million of Depreciation and amortization recorded in our statement of income, which are detailed in Note 21 to our audited consolidated financial statements. Also in 2016, we recorded an unrealized loss of R$6.6 million on derivative instruments (swaps).

The adjustments for changes in our operating assets and liabilities for 2016 amounted to negative cash flows of R$282.2 million. Our Note receivables item, which is presented net of transaction costs and financial expenses we incur when we elect to receive early payment of the note receivables owed to us by card issuers, represented negative cash flow of R$784.0 million (Note receivables on our balance sheet were R$1,715.5 million at year-end 2016 versus R$1,110.0 million at year-end 2015) excluding interest income received in cash and chargebacks, which are presented separately in the statement of cash flows. Our Payables to third parties item, which is presented net of revenue from transaction activities and financial income we receive when merchants elect to receive early payments, represented positive cash flow of R$620.9 million (Payables to third parties on our balance sheet were R$1,304.0 million at year-end 2016 versus R$683.1 million at year-end 2015). Our Receivables from (payables to) related parties item represented negative cash flow of R$214.5 million (Receivables from related parties, i.e., UOL, were R$300.8 million at year-end 2016 versus R$55.9 million at year-end 2015; and payables to related parties, i.e., UOL, were R$76.2 million at year-end 2016 versus R$92.4 million at year-end 2015). Inventories represented positive cash flow of R$20.2 million; and Salaries and social charges represented positive cash flow of R$6.6 million. Taxes and contributions represented positive cash flow of R$3.9 million.

We paid income taxes and social contributions in cash totaling R$18.1 million and we recorded a positive cash flow of R$146.3 million related to interest income received during the year.

As a result of the above, our Net Cash provided by operating activities in 2016 totaled R$77.0 million.

Our Cash flows used in investing activities in 2016 totaled R$203.3 million. This amount consisted of acquisition of financial investments of R$337.1 million, representing total cash that we invested in short-term deposits during the year, less R$206.2 million in redemptions of financial investments, representing total cash that we withdrew from these short-term deposits during the year. We also invested R$70.4 million in purchases and development of intangible assets, which represent purchases of third party software and the salaries and other amounts that we paid to develop internally the software and technology, which we capitalize as intangible assets. For more information on our intangible assets, see Note 12 to our audited consolidated financial statements.

Our Cash flows from financing activities in 2016 provided total cash flows of R$199.4 million, which we received as the proceeds of the borrowings we incurred during the year.

After accounting for the total increase in Cash and cash equivalents of R$73.1 million discussed above, our Cash and cash equivalents at the close of 2016 amounted to R$80.0 million.

Loans and Financings

We had no third-party borrowings at December 31, 2018, since we satisfied our funding and working capital requirements during this year through our January 2018 IPO proceeds and June 2018 follow-on offering proceeds. We had no third party borrowings at December 31, 2017, since we satisfied our funding and working capital requirements in this year (i) through the cash generated by our businesses, (ii) by obtaining early payment of note receivables due to us from the card issuers and acquirers, as well as (iii) through our own capital. Our total third-party borrowings amounted to R$205.2 million at December 31, 2016.

In July 2016, we obtained a loan in the amount of US$40.0 million (approximately R$129.4 million applying exchange rates in effect at the time), which matured in January 2017. In September 2016, we obtained a further loan in the amount of US$21.8 million (approximately R$70.0 million applying exchange rates in effect at the time), which matured in March 2017. We purchased swaps to provide protection against exchange rate fluctuations for both loans. Neither of these credit agreements contains any provisions requiring us to provide collateral or comply with any financial covenants.

These loans were repaid on schedule in the first half of 2017 and we have incurred no new borrowings since then. As discussed above, we are increasingly financing our services and features by obtaining early payment of receivables owed to us from acquirers and card issuers, in order to finance the early payment of receivables feature that we offer to our merchant clients.

For further information on our financing activities, see Note 24 to our audited consolidated financial statements.

Capital Expenditures

The net total of our capital expenditures (purchases of property and equipment and purchases and development of intangible assets), for each of the years ended December 31, 2018, 2017 and 2016 were R$253.6 million, R$107.6 million and R$72.4 million, respectively, most of which related to data processing equipment, facilities, machinery and equipment, furniture and fittings, leasehold improvements, vehicles, software and technology, all in Brazil.

For further information on our capital expenditures, see Notes 11 and 12 to our audited consolidated financial statements.

Commitments and Contractual Obligations

Our contractual obligations at December 31, 2018 consisted of obligations to purchase POS devices and platform technology for our acquirer operations as follows:


	At December 31, 2018
	Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years		Total
	(R$ millions)
POS device purchases		409.6		—		—		—		409.6
Acquirer platform technology		3.4		2.0		—		—		5.4

Total		413.0		2.0		—		—		415.0

Off-Balance Sheet Arrangements

Other than the contractual obligations shown above, we do not have any off-balance sheet arrangements and did not have any such arrangements for the years ended December 31, 2018, 2017 or 2016.

Critical Accounting Estimates and Judgments

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying our accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are described below and in Note 3 to our audited consolidated financial statements.

Accounting estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Based on assumptions, PagSeguro Digital makes estimates concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below:

Estimated useful life of intangible assets

PagSeguro Digital uses an estimated useful life to calculate and record the amortization applied to its intangible assets which may differ from the actual term over which the intangible assets are expected to generate benefits for PagSeguro Digital.

The amortization of software usage rights is defined based on the effective period of the license contracted.

The amortization of internally developed software is defined based on the period over which the software will generate future economic benefits.

Deferred income tax and social contribution

PagSeguro Digital recognizes deferred income tax and social contribution based on future taxable profit estimates for the next ten years. These projections are periodically reviewed and approved by management.

Provision for contingencies

PagSeguro Digital recognizes provisions for civil and labor suits. We recognize provisions for legal proceedings in our financial statements when we are advised by independent outside counsel that (i) it is probable that an outflow of resources will be required to settle the obligation, and (ii) a reliable estimate can be made of the amount of the obligation. The assessment of probability of loss includes assessing the available evidence and jurisprudence, the hierarchy of laws and most recent court decisions. Provisions are reviewed and adjusted to take into account changes in circumstances such as the applicable limitation period, findings of tax inspections and additional exposures identified based on new issues or decisions of courts.

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Directors and Senior Management

Board of Directors

Our board of directors is responsible for, among other things, establishing our overall strategy and general business policies, supervising management, electing and removing our executive officers, and appointing our independent auditors.

Our board of directors is composed of seven members. Each director holds office for the term, if any, fixed by the shareholders’ resolution that appointed him or her or, if no term is fixed on the appointment of the director, until the earlier of his or her death, resignation or removal. Directors appointed by the board of directors hold office until the next annual general meeting. Our directors do not have a retirement age requirement under our Articles of Association. Maria Judith de Brito was appointed to our board of directors on July 19, 2017, Luiz Frias, Eduardo Alcaro and Ricardo Dutra da Silva were appointed on December 18, 2017, Noemia Gushiken was appointed on January 23, 2018, Marcos de Barros Lisboa was appointed on April 13, 2018, and Cleveland Prates Teixeira was appointed on December 18, 2018, effective January 1, 2019. All current members of our board of directors have been appointed to serve for an indefinite period.

We do not have any service contracts with our executive directors that provide benefits upon termination of employment.

The table below sets forth certain information of the current members of our board of directors:


Name	Title	Date of Birth
Luiz Frias	Chairman	April 6, 1963
Eduardo Alcaro	Director	April 26, 1972
Maria Judith de Brito	Director	April 30, 1958
Ricardo Dutra da Silva	Director	December 1, 1975
Noemia Gushiken*	Director	November 3, 1972
Marcos de Barros Lisboa*	Director	August 2, 1964
Cleveland Prates Teixeira*	Director	August 15, 1966

*	Independent according to SEC and NYSE rules.

The following is a brief summary of the business experience of our current directors. Unless otherwise indicated, the current business address for our directors is Av. Brigadeiro Faria Lima, 1384, 4º andar, parte A, São Paulo, SP, 01451-001, Brazil.

Luiz Frias. Mr. Frias has been the Chairman of our board of directors and our Principal Executive Officer since December 18, 2017. He joined Grupo Folha in 1981 and has been its principal executive officer since 1989. In that capacity he led Grupo Folha’s expansion into various new markets, such as commercial printing (through Plural, a partnership with Quad Graphics) and e-commerce logistics (through Transfolha). In 1996, he founded UOL, a pioneering Brazilian Internet company. As Principal Executive Officer and Chairman of the Board of Directors of UOL, he has expanded UOL’s business, through organic growth and more than 20 acquisitions, to cover digital content and products, e-learning and cloud/IT services, as well as the PagSeguro financial technology business. He holds a bachelor’s degree in economics from the University of São Paulo (Universidade de São Paulo – USP).

Eduardo Alcaro. Mr. Alcaro has been a member of our board of directors and our Chief Financial and Investor Relations Officer and Chief Accounting Officer since December 18, 2017. He has been the Chief Financial Officer of the UOL group and Executive Officer of the Folha Group since 2011. He holds a bachelor’s degree in business administration from the Getulio Vargas Foundation (Fundação Getulio Vargas – FGV-SP) in São Paulo. Before joining our group, Mr. Alcaro held several positions, including Finance Vice President at Walmart Brazil from 2008 to 2011, Financial Planning and Investors Relations Director at Walmart USA from 2006 to 2008, Mergers & Acquisitions Director at Walmart International from 2003 to 2006, Finance Manager at Walmart Brazil from 1997 to 2003 and Auditor at PricewaterhouseCoopers from 1992 to 1997.

Maria Judith de Brito. Mrs. de Brito has been a member of our board of directors since July 19, 2017. She has also been head of human resources, legal matters and institutional relations of the UOL group since its creation in 1996, and has been the Vice Chairman of UOL’s board of directors since 2005. She has worked for Grupo Folha since 1990, and is the current Superintendent of Grupo Folha. She holds a bachelor’s degree in public administration from the Getulio Vargas Foundation (Fundação Getulio Vargas – FGV-SP) in São Paulo and a master’s degree in political science from the Pontifical Catholic University of São Paulo (Pontifícia Universidade Católica de São Paulo – PUC-SP). Mrs. de Brito was a professor of the undergraduate course in Business Administration at the Getulio Vargas Foundation from 1986 to 1990, and professor of the graduate program in journalism at ESPM (Escola Superior de Propaganda e Marketing) from 2011 to 2013. She was president of the National Newspaper Association (Associação Nacional de Jornais) from 2008 to 2012, and is currently a member of the board of ABECS.

Ricardo Dutra da Silva. Mr. Dutra has been a member of our board of directors and our Executive Officer since December 18, 2017. He has been Chief Executive Officer of PagSeguro Brazil and Chief Executive Officer of UOL Digital Content and Products since 2016. Mr. Dutra worked for the UOL group from 1997 to 2005, holding management positions in operations, marketing and sales, and rejoined the group in 2009 as Country Manager at UOL Argentina in Buenos Aires, where he served until 2010. He holds a bachelor’s degree in electrical/industrial engineering from the Industrial Engineering University (Centro Universitário da Faculdade de Engenharia Industrial – FEI), a post-graduate degree in business from the Getulio Vargas Foundation (Fundação Getulio Vargas –FGV) in São Paulo, and a full-time MBA from Darden Graduate School of Business Administration at the University of Virginia. Prior to rejoining UOL, he was a management consultant at Bain & Company from 2007 to 2009.

Noemia Gushiken. Ms. Gushiken has been a member of our board of directors since January 23, 2018. She has more than 20 years of experience in the technology and consumer industries. She advises and assists companies in Brazil in operations, management, and legal, corporate governance and compliance matters. She is also a partner at Esper, Gushiken Advogados. Ms. Gushiken served as strategic advisor for family offices and start-ups in Brazil, as well as the operations director at Cerveja Proibida from 2013 to 2017, legal counsel at Microsoft from 2007 to 2013, and as the head of legal at UOL from 2000 to 2007. She has also represented these companies in industry associations and corporate affairs initiatives in Brazil. She holds a law degree and a post-graduate degree in Commercial and Corporate Law, both from the Pontifical Catholic University of São Paulo (Pontifícia Universidade Católica de São Paulo – PUC). Ms. Gushiken also studied Japanese Constitutional Law at the University of Shizuoka – Japan from 1993 to 1994. She is admitted to the Brazilian Bar in São Paulo.

Marcos de Barros Lisboa. Mr. Lisboa has been a member of our board of directors since April 13, 2018. Mr. Lisboa holds a bachelor’s degree and a master’s degree, both in economics, from the Federal University of Rio de Janeiro (Universidade Federal do Rio de Janeiro). He also has a Ph.D. in economics from the University of Pennsylvania. He was an assistant professor in the economics department at Stanford University from 1996 to 1998 and an assistant professor at the School of Economics of Getulio Vargas Foundation (Fundação Getulio Vargas) from 1998 to 2002. Since 2013, he has worked at Insper, a business, economics and engineering school, initially as vice-president and, since 2015, as president. From 2003 to 2005, Mr. Lisboa served as Secretary of Economic Policy for the Brazilian Federal Ministry of Finance. He also served as president of the Instituto de Resseguros do Brasil from 2005 to 2006 and, from 2006 to 2013, he worked at Itaú-Unibanco, where he served as vice-president from 2009 to 2013.

Cleveland Prates Teixeira. Mr. Teixeira holds a master’s degree in Economics from Getulio Vargas Foundation (Fundação Getulio Vargas – FGV-SP) in São Paulo and a bachelor’s degree in economics from the University of São Paulo (Universidade de São Paulo – USP). From 2002 to 2004, he served as a Commissioner of the Administrative Counsel for Economic Defense (Conselho Administrativo de Defesa Econômica – CADE), the Brazilian antitrust agency, and from 1999 to 2002, he served as Deputy Secretary for Economic Monitoring (Secretaria de Acompanhamento Econômico – SEAE) of the Brazilian Ministry of Finance, and as Coordinator General of Trade and Services and Cartel Prosecution for the same department. In 2002, he was a member of the Federal Fund for the Defense of Collective Rights of the Brazilian Ministry of Justice, and from 2006 to 2008, he was Council of the Brazilian Institute of Economics (Instituto Brasileiro de Economia – IBRE) at Getulio Vargas Foundation (Fundação Getulio Vargas – FGV). Since 2007, he has taught courses on Microeconomics, Economic Analysis of Law, Antitrust and Regulation at the GVLaw graduate program at the law school of Getulio Vargas Foundation (Fundação Getulio Vargas – FGV-SP) in São Paulo, and has coordinated a course in Market Regulation at the Foundation Institute of Economic Research (Fundação Instituto de Pesquisas Econômicas – FIPE). He is also the Managing Partner of Microanalysis Consultoria Econômica, having worked on economic issues and coordinated projects in financial, regulatory and competition affairs in various sectors of the economy, including consultancy to both national and international government agencies, such as the Applied Economic Research Institute (Instituto de Pesquisa Econômica Aplicada – IPEA), the United Nations Conference on Trade and Develoment (UNCTAD) and the World Bank.

Executive Officers

Our executive officers are primarily responsible for the day-to-day management of our business and for implementing the general policies and directives established by our board of directors. Our board of directors is responsible for establishing the roles of each executive officer. Our executive officers were appointed by our board of directors for an indefinite term.

The table below shows our current executive officers:


Name	Title	Date of Birth
Luiz Frias	Principal Executive Officer	April 6, 1963
Eduardo Alcaro	Chief Financial and Investor Relations Officer and Chief Accounting Officer	April 26, 1972
Ricardo Dutra da Silva	Executive Officer	December 1, 1975

The business address of each of our executive officers is Avenida Brigadeiro Faria Lima, 1384, 01452-002 São Paulo – SP, Brazil.

Audit Committee

Our board of directors has established an audit committee. Members will serve on this committee until the earliest of (1) the moment they cease to be a director, (2) their resignation or (3) as otherwise determined by our board of directors. Our audit committee currently consists of three members, including Marcos de Barros Lisboa, Noemia Gushiken and Cleveland Prates Teixeira. All of our audit committee members satisfy the “independence” requirements of the NYSE rules and meet the independence standards under Rule 10A-3 under the Exchange Act. Noemia Gushiken satisfies the criteria of an audit committee financial expert as set forth under the applicable rules of the SEC.

The audit committee oversees our accounting and financial reporting processes and the audits of our financial statements. Our audit committee is responsible for, among other things:

•

selecting our independent auditor, approving related fees and terminating our relationship with our independent auditor in the committee’s discretion;

•

pre-approving audit and non-audit services permitted to be performed by the independent auditor;

•

annually reviewing the independent auditor’s report describing the auditing firm’s internal quality control procedures, any material issues raised by the most recent internal quality control review, or peer review, of the independent auditors and all relationships between the independent auditor and our company;

•

reviewing with the independent auditor any audit problems or difficulties and management’s response, as well as resolving any disagreements between management and the independent auditor regarding financial reporting;

•

reviewing and discussing the annual audited financial statements with management, internal audit team (or third-service provider performing this function) and the independent auditor, as well as quarterly unaudited financial statements;

•

reviewing and discussing with management and the independent auditors major issues regarding accounting principles and financial statement presentations;

•

discussing earnings press releases with management, as well as financial information and earnings guidance provided to analysts and rating agencies;

•

reviewing the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on our financial statements;

•

overseeing our disclosure controls and procedures and internal control over financial reporting;

•

assessing and monitoring our risk exposures, as well as the policies and guidelines with respect to risk management;

•

timely reviewing reports from the independent auditor regarding all critical accounting policies and practices to be used by our company, all alternative treatments of financial information within IFRS that have been discussed with management and all other material written communications between the independent auditor and management;

•

establishing procedures for the receipt, retention and treatment of complaints received by our company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters;

•

analyzing our related-party transactions based on our policy for these transactions;

•

periodically reviewing and reassessing the adequacy of our audit committee charter;

•

any other matters that are specifically delegated to our audit committee by our board of directors from time to time;

•

periodically meeting with management, internal audit team (or third-party service providers performing this function) and the independent auditors, separately; and

•

reporting regularly to the full board of directors.

Duties of Directors

Directors are responsible to the company and not, in the absence of special circumstances, to the shareholders as individuals. For the purposes of describing directors’ duties, the company is generally defined with reference to the interests of both present and future shareholders of the company as a whole. Under Cayman Islands law, a director owes two types of duties to the company: fiduciary duties and duties of skill and care. In fulfilling their duty of care to us, our directors must ensure compliance with our Memorandum and Articles of Association, as amended and restated from time to time. You should refer to “Item 10. Additional Information—Memorandum and Articles of Association—Principal Differences between Cayman Islands and U.S. Corporate Law” for additional information on our standard of corporate governance under Cayman Islands law.

Compensation

Management Compensation

Our executive officers, directors and management receive fixed and variable compensation. They also receive benefits in line with market practice in Brazil. The fixed component of their compensation is set on market terms and adjusted annually.

The variable component consists of cash bonuses and awards of restricted shares (or the cash equivalent) under the LTIP, as discussed below. Cash bonuses are paid to executive officers and members of our management based on the previously agreed corporate results-sharing plan (plano de participações nos resultados) and overall targets for the business.

Certain of our directors and officers receive compensation from UOL for services rendered to PagSeguro. The related cost is apportioned between UOL and PagSeguro in accordance with the services that are rendered.

The aggregate compensation paid to the executive officers of PagSeguro Brazil in 2018 was R$99.3 million. This includes benefits paid in kind and variable compensation.

Long-Term Incentive Plan – Goals

LTIP-Goals was established at PagSeguro Brazil on December 18, 2018, as approved by our board of directors. Currently, no beneficiaries of LTIP-Goals have been named and as such, no new Class A common shares have been issued under the LTIP-Goals. We believe the LTIP-Goals will help us attract and retain individuals who have a high potential to contribute to our success, and further align their interests with ours. Beneficiaries under the LTIP-Goals will be selected by the LTIP-Goals Committee, which consists of our Chairman of our board of directors and two officers of UOL.

Beneficiaries under the LTIP-Goals will be granted awards, which may be payable in cash, Class A common shares or a combination of the two, at the discretion of the LTIP-Goals Committee based on the goals established in our corporate results-sharing plan for any given year. If any portion of an award is payable in Class A common shares, the relevant value will be converted into Class A common shares on the last business day of January following the year for which such amount was awarded.

We expect that all of the directors of PagSeguro Digital Ltd., except for Noemia Gushiken, Marcos de Barros Lisboa and Cleveland Prates Teixeira, will be named beneficiaries under the LTIP-Goals.

If a beneficiary is dismissed by us, resigns, retires or dies before of any given year, the beneficiary will not be entitled to any awards under the LTIP-Goals for that year. If a beneficiary is dismissed by us, resigns, retires or dies after the end of any given year, but before the date on which the value of such beneficiary’s award is converted into our Class A common shares, the beneficiary will be entitled to his or her award under the LTIP-Goals, provided that the goals for the previous year have been met.

The maximum number of Class A common shares that can be delivered to beneficiaries under the LTIP-Goals may not exceed 1% of our total issued and outstanding share capital at any time.

Long-Term Incentive Plan

Members of our management participated in the LTIP (replaced by the LTIP-Goals on December 18, 2018), which was established by UOL for its group companies on July 29, 2015 and was adopted by PagSeguro Digital Ltd. Beneficiaries under the LTIP were selected by UOL’s LTIP Committee, which consists of our Chairman and two officers of UOL. Since the establishment of LTIP-Goals on December 18, 2018, no new rights have been, nor will be, granted under the LTIP.

Beneficiaries under the LTIP were granted rights in the form of notional cash amounts without cash consideration. These rights vest in five equal annual installments starting one year after the beneficiary’s grant date. Under the terms of the LTIP, upon completion of our IPO, the vested portion of each beneficiary’s LTIP rights was converted into Class A common shares of our company at our IPO price. The number of Class A common shares issued with respect to the vested LTIP rights was calculated, pursuant to each beneficiary’s individual LTIP agreement, based on our IPO price of US$21.50 per Class A common share. The unvested portions of each beneficiary’s LTIP rights will be settled on each future annual vesting date, at the discretion of the LTIP Committee, by either (i) delivery of a fixed number of Class A common shares of PagSeguro Digital or (ii) the equivalent in cash of the fixed number of shares at the current fair value. The vesting conditions of the LTIP awards include the completion of our IPO and the attainment of certain service conditions. Upon completion of our IPO in January 2018, payment of future LTIP rights became probable, resulting in us commencing to recognize compensation expenses related to each beneficiary’s LTIP rights.

At March 31, 2019, a total of 3,123,676 new Class A common shares were issued without cash consideration to certain members of our management who are beneficiaries under the LTIP, upon closing of our IPO and in the following months.

All of the directors of PagSeguro Digital Ltd., except for Noemia Gushiken, Marcos de Barros Lisboa and Cleveland Prates Teixeira, are beneficiaries under the LTIP.

If a beneficiary is dismissed by us, resigns, retires or dies, the portion of his or her rights under the LTIP that has vested at that date will be delivered, but the non-vested portion will be cancelled. If a beneficiary is terminated for cause, all of his or her rights under the LTIP will be cancelled.

The shares issued under the LTIP upon completion of our IPO were subject to a one-year lock-up period under the terms of the LTIP. Any shares that were issued on a subsequent vesting date during the first year after our IPO were subject to the remainder of that same lock-up period, expiring one year after the closing of our IPO. After the close of that one-year period, shares issued or to be issued under the LTIP are no longer be subject to a lock-up. As such, shares issued under the LTIP are now freely tradable without restriction or further registration under the Securities Act by persons other than our affiliates within the meaning of Rule 144 of the Securities Act. For further information, see “Item 3. Key Information—Risk Factors—Risks Relating to our Business and Industry—Class A common shares eligible for future sale may cause the market price of our Class A common shares to drop significantly.”

The maximum number of Class A common shares that can be delivered to beneficiaries under the LTIP may not exceed 3% of our issued share capital at any time.

Share Ownership

The total number of common shares owned by our management as of March 31, 2019 was 162,267,064 Class A common shares (including treasury shares) and 165,620,861 Class B common shares. No member of our management beneficially owns one percent or more of our common shares.

Our Team

We believe that our team is one of PagSeguro’s most important assets. Our culture reflects UOL’s teamwork and innovation-driven focus, instilling in our professionals a passion for our customers and merchants. At December 31, 2018, our total team consisted of 1,807 people, including 653 employees plus outsourced staff, all located in Brazil. At December 31, 2018, our employees had an average age of 33, 84% of whom held a bachelor’s degree or higher and 40% of whom were women, with 65% of our employees specializing in products and engineering. The following table sets forth the number of our employees and a breakdown of employees by category of activity as of the dates indicated in each area of our operations.


	As of December 31,
	2018		2017		2016
Products and Engineering		515		327		229
Commercial and Marketing		245		137		85
Operations		254		165		82
Administrative		140		87		50

Total		1,154		716		446

Together, our management team and employees represent experience in all areas of the Brazilian payments market, with in-depth knowledge of online payments, retail and financial services, technology, payment processing, in-person electronic payments, acquiring and card issuance. They therefore represent a complete picture of all of our customers’ needs and can prepare the future of our organization.

We seek to attract and train the best professionals in the market. We seek to motivate our employees to provide next-generation payment capabilities through a corporate results-sharing plan for all employees and a long-term motivation plan for key professionals. Our corporate results-sharing plan includes salary multiples of two for coordinators, three for managers, 3.5 for general managers, 4.1 or more for directors and one for other employees and is based on annual targets for metrics such as free cash flow, net income, revenues, working capital and TPV. Through the LTIP-Goals, part or all of a beneficiary’s award under our corporate results-sharing plan may be paid in Class A common shares. See “—Long-Term Incentive Plan-Goals” and “—Long-Term Incentive Plan.” We believe that we offer competitive compensation packages and a dynamic culture, and have therefore been able to attract and retain qualified personnel and a stable management team. We also offer our employees medical and dental insurance, life insurance, meal voucher cards and a retirement savings plan, among other benefits. In a 2017 survey carried out by the website LinkedIn, UOL was named as the second best place to work in Brazil. We are aware, however, that our continued success will depend on our ability to continue to attract and retain these qualified professionals. See “Item 3. Key Information—Risk Factors—Risks Relating to our Business and Industry—The loss of any member of our management team and our inability to make up for such loss with a qualified replacement, could harm our business.”

We train our teams in the use of modern management tools such as Agile, Lean, Kanban and Management 3.0.

Our employees are represented by the Union of Employees of Information Technology Businesses and Course Providers of the State of São Paulo (Sindicato dos Trabalhadores nas Empresas e Cursos de Informática do Estado de São Paulo—SINDIESP). We consider our relations with our employees to be good. We have not experienced any significant labor disputes.

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major Shareholders

The table below contains information regarding the beneficial ownership of PagSeguro Digital’s Class A common shares and Class B common shares by UOL (our controlling shareholder and parent company), our major shareholders and members of our management, as a single group, as of March 31, 2019.

Beneficial ownership, which is determined under SEC rules, generally includes voting or investment power over securities or the right to receive the economic benefit of ownership of the securities. We believe that each shareholder identified in the table below possesses sole voting and investment power over all the Class A common shares or Class B common shares shown as beneficially owned by the shareholder in the table. Common shares subject to options, warrants or rights that are exercisable at the date of this annual report, or that will be exercisable within 60 days thereafter (which in the case of the Company, only consist of Class A common shares), are considered to be outstanding and beneficially owned by the person who holds such options, warrants or rights for purposes of computing that person’s common share ownership, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

The percentages of beneficial ownership in the table below are based on 162,267,064 outstanding Class A common shares (including treasury shares) and 165,620,861 outstanding Class B common shares. As of March 31, 2019, approximately 83.3% of our Class A common shares (including treasury shares) were held of record by 151 record holders in the United States, and 0% of our Class B common shares were held of record in the United States.

The holders of our Class A common shares and Class B common shares have identical rights, except that UOL as holder of Class B common shares (i) is entitled to 10 votes per share, whereas holders of our Class A common shares are entitled to one vote per share (ii) has certain conversion rights and (iii) is entitled to maintain a proportional ownership interest in the event that additional Class A common shares are issued. For more information, see “Item 10. Additional Information—Memorandum and Articles of Association—Preemptive or Similar Rights” and “Item 10. Additional Information—Memorandum and Articles of Association—Conversion.” Each Class B common share is convertible into one Class A common share.


	Shares Beneficially Owned								% of Total Voting Power ⁽¹⁾
	Class A				Class B
Name	Shares		%		Share		%
Universo Online S.A.⁽²⁾		—		—		165,620,861		100.0%		91.1%
Capital World Investors⁽³⁾		43,985,860		27.1%		—		—		2.4%
Ameriprise Financial Inc.⁽⁴⁾		9,666,089		6.0%		—		—		0.5%
Artisan Partners LP⁽⁵⁾		9,173,839		5.7%		—		—		0.5%
Melvin Capital Management L.P.⁽⁶⁾		8,241,440		5.1%		—		—		0.5%
Treasury		503,642		0.3%		—		—		0.0%
Others		90,696,194		55.9%		—		—		5.0%

Total		162,267,064		100%		100%		100%		100%

(1)

Percentage of total voting power represents voting power with respect to all of our Class A common shares and Class B common shares, as a single class. UOL as holder of our Class B common shares is entitled to 10 votes per share, whereas holders of our Class A common shares are entitled to one vote per share. For more information about the voting rights of our Class A common shares and Class B common shares, see “Item 10. Additional Information—Memorandum and Articles of Association—Voting Rights.”

(2)

The following persons are beneficial owners of 5% or more of PagSeguro Digital’s Class A common shares and Class B common shares indirectly through their ownership interests in UOL, considering UOL’s share capital on a fully diluted basis (excluding UOL’s treasury shares): ((i) Folhapar S.A., which holds a 64.46% ownership interest in UOL on a fully diluted basis (not considering treasury shares), (ii) João Alves de Queiroz Filho, who holds a 14.90% ownership interest in UOL on a fully diluted basis (not considering treasury shares), (iii) Negotio Magni, S.A. de C.V., which holds a 10.81% ownership interest in UOL on a fully diluted basis (not considering treasury shares), and (iv) BTG Pactual Principal Investments Fundo de Investimento em Participações, which holds a 6.46% ownership interest in UOL on a fully diluted basis (not considering treasury shares). The following persons hold ownership interests in Folhapar S.A.: (i) Empresa Folha da Manhã S.A., which holds a 33.23% non-voting direct ownership interest in Folhapar S.A., and (ii) Luiz Frias, who holds a 66.27% voting direct ownership interest and a 8.76% non-voting indirect ownership interest in Folhapar S.A. Luiz Frias also holds a 2.04% direct ownership interest in UOL. The principal business address of Universo Online S.A. and Luiz Frias is Avenida Brigadeiro Faria Lima, 1384, 01452-002 São Paulo – SP, Brazil. The principal business address of Folhapar S.A. is Avenida Brigadeiro Faria Lima, 1384, Andar 11, Sala F, 01452-002 São Paulo—SP, Brazil. The principal business address of João Alves de Queiroz Filho is Av. Brigadeiro Faria Lima, 2277, 6th floor, São Paulo – SP, Brazil, 01452-000. The principal business address of Negotio Magni, S.A. de C.V. is Av. Chapultepec, 218, Col. Roma Norte, Mexico City, DF 06700 – Mexico. The principal business address of BTG Pactual Principal Investments Fundo de Investimento em Participações is Av. Brigadeiro Faria Lima, 3729, São Paulo – SP, Brazil, 04538-133.

(3)

Consists of shares beneficially owned by Capital World Investors, a division of Capital Research and Management Company, or CRMC. Capital World Investors divisions of CRMC and Capital International Limited collectively provide investment management services under the name Capital World Investors. As of January 31, 2018, New World Fund, Inc., a client of Capital World Investors has the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, our Class A common shares. The address for Capital World Investors is 333 South Hope Street, Los Angeles, CA, USA 90071.

(4)

Consists of shares beneficially owned by Ameriprise Financial, Inc. These shares are held of record by Ameriprise Financial, Inc. and its subsidiary Columbia Management Investment Advisers, LLC. The address of Columbia Management Investment Advisers, LLC is 225 Franklin St., Boston, MA 02110. The address of Ameriprise Financial, Inc. is 145 Ameriprise Financial Center, Minneapolis, MN 55474.

(5)	Consists of shares beneficially owned by Artisan Partners LP. The address of Artisan Partners LP is 875 East Wisconsin Avenue, Suite 800, Milwaukee, WI 53202.

(6)	Consists of shares beneficially owned by Melvin Capital Management LP. The address of Melvin Capital Management LP is 537 Madison Avenue, 25th Floor, New York, NY 10022.

Prior to our IPO, UOL held 100% of our outstanding common shares, totaling 262,288,607 Class B common shares. In our IPO, UOL converted 70,267,746 Class B common shares to Class A common shares. Such converted shares were subsequently sold in our IPO, bringing UOL’s total number of Class B common shares held to 192,020,861. In our June 2018 follow-on offering, UOL converted 26,400,000 Class B common shares to Class A common shares. Such converted shares were subsequently sold in our June 2018 follow-on offering bringing UOL’s total number of Class B common shares held to 165,620,861.

There is currently no shareholders’ agreement in place.

Related Party Transactions

All of our related party transactions are conducted at arms’ length, based on terms that reflect those that would apply to transactions with third parties, other than our centralized cash management with UOL, described below. The total amount of costs and expenses incurred by PagSeguro Digital for shared services and sales of services provided by UOL and other affiliated companies in the year ended December 31, 2018 under such of these agreements as were in force during the year ended December 31, 2018 was R$204.0 million, representing 6.5% of our total expenses for the year. Of the total amount of costs and expenses incurred by PagSeguro Digital for shared services and sales of services provided by affiliated companies during the year, 77.2% were provided by UOL, 13.5% were provided by UOL Diveo and 9.3% were provided by Transfolha. PagSeguro also provided services to UOL and certain UOL affiliates during the year ended December 31, 2018 for an amount of R$3.2 million. For more information, see Note 9 to our audited consolidated financial statements.

Prior to our IPO, PagSeguro’s cash management was centralized with UOL, leading to positive or negative balances with UOL from time to time as referred to in Note 9 to our audited consolidated financial statements. When PagSeguro provided cash to UOL or UOL provided cash to PagSeguro, these transactions were not carried out at arms’ length because no interest was recorded in either company’s income statement. Our cash management was separated from UOL’s cash management starting from the date of completion of our IPO. Any remaining balances that relate to prior cash management activities began accruing interest on arms’ length terms from the date of completion of our IPO, and any such balances were repaid by UOL following completion of our IPO.

Agreements with Our Management and Directors

Certain of our directors and officers receive compensation from UOL for services they provide to PagSeguro. The cost is apportioned between UOL and PagSeguro in accordance with the services provided. In addition, we have entered into indemnification agreements with our directors and officers, as described below.

Indemnification Agreements

We have entered into or will enter into indemnification agreements with each of our directors and officers. Pursuant to these agreements, we have agreed to indemnify and hold harmless each director and officer to the full extent permitted by applicable law in the event of any claim made against him or her in any proceeding due to the fact that he or she is or was a director or officer of our company or served at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise.

In addition, under the terms of these agreements we have agreed to cover all expenses actually and reasonably incurred by each director and officer in connection with any such proceeding, with certain limited exceptions.

The indemnification extends to the beneficiary’s services as a director or officer prior to the date of the indemnification agreement as well as afterward. It continues after the beneficiary ceases to be a director or officer.

Agreements with UOL and UOL Subsidiaries

PagSeguro Brazil was incorporated as a legal entity in 2006, although it did not operate the PagSeguro business prior to August 1, 2015 since most of the PagSeguro business activities were operated by other UOL group members prior to that date. On August 1, 2015, UOL carried out a corporate reorganization in which it segregated some of the PagSeguro Brazil activities from its other activities and contributed them to PagSeguro Brazil. Following this reorganization, PagSeguro Brazil entered into the contracts summarized below governing its relationship with UOL and its subsidiaries.

Advertising Space Assignment Agreement

Under this agreement, UOL may assign to PagSeguro Brazil certain advertising and media space on UOL’s own website, as well as other space that UOL obtains from unrelated third parties. We pay UOL monthly fees for this space, based on the actual amount of advertising and media space we use. For advertising and media space on UOL’s own website, UOL charges us a price that it determines on market terms. For space that UOL obtains from unrelated third parties, UOL charges us the same price as it pays for the space.

Cost-Sharing Agreements

PagSeguro Brazil is party to two agreements with UOL under which UOL apportions to PagSeguro Brazil the expenses of certain services and personnel hired by UOL for the benefit of PagSeguro Brazil and expenses related to our head office and operations center in São Paulo, which are provided by UOL. Under one agreement, UOL apportions to PagSeguro Brazil expenses relating to call center services, marketing activities, certain ordinary course corporate services, and certain contingency expenses related to litigation. All insurance policies listed under “Business – Insurance” are contracted by UOL under this agreement. Under the other agreement, UOL apportions to PagSeguro Brazil expenses relating to certain back-office personnel who are employed by UOL but allocated to work on matters related to our business.

The two agreements apportion the costs and expenses for these services as between PagSeguro Brazil and UOL. The amounts PagSeguro Brazil pays to UOL are based on different criteria depending on the type of service:

•

for marketing, financial and legal services, the amount payable is based on the number of hours actually worked by UOL personnel on PagSeguro Brazil’s behalf;

•

for human resources services, the amount payable is based on the number of hours actually worked by UOL personnel on PagSeguro Brazil’s behalf and on the number of UOL personnel dedicated to PagSeguro Brazil matters;

•

for call center services, the amount payable is based on the number of UOL personnel dedicated to PagSeguro Brazil matters;

•

for technology services, the amount payable is based on the expenses incurred by UOL on PagSeguro Brazil’s behalf.

Platform Licensing Agreements

PagSeguro Brazil and UOL are party to an agreement under which UOL provides services related to the development, maintenance and management of the software used to conduct PagSeguro Brazil’s business. The services include the development of new software, analysis and improvement of the efficiency of existing software and resolution of technical issues. The services are provided in accordance with parameters set by PagSeguro Brazil. The amount payable under this agreement is based on the number of hours actually worked by UOL personnel.

Boa Compra and UOL are party to an agreement under which UOL provides services related to software for Boa Compra’s business on substantially the same terms.

UOL Diveo Agreements

Cloud Services Agreement

PagSeguro Brazil is party to two agreements with UOL Diveo under which UOL resells cloud services provided by Amazon Web Services, Inc., or AWS, and Microsoft Ireland Operations Limited, or Microsoft, to PagSeguro Brazil. These cloud services include the storage of PagSeguro Brazil data on the cloud managed by the respective services providers and related technical support. PagSeguro Brazil may manage its data through online access or specific software provided by AWS and Microsoft. UOL Diveo, as a reseller of the services, is not responsible for the quality, warranty, technical support, efficiency or results of the services or for any losses incurred by PagSeguro Brazil deriving from these services.

Hosting and Colocation Agreements

PagSeguro Brazil and UOL Diveo are party to a hosting agreement and a colocation agreement under which UOL Diveo provides data storage services to PagSeguro Brazil. These services include the lease of equipment, software licenses, assignment of information technology infrastructure and provision of space and internet access to PagSeguro Brazil’s data center. In addition, under technical proposal OPT-17-21638 related to the hosting agreement, UOL Diveo also provides PagSeguro Brazil with payment methods monitoring and invoice issuing services.

Telecommunication Services Agreement

PagSeguro Brazil and UOL Diveo are party to an agreement under which UOL Diveo provides telecommunication services that allow PagSeguro Brazil to offer national and international transmission capacity (voice, data and images) and the submission and reception of multimedia information to its customers throughout the telecommunications network of UOL Diveo or third parties.

Internet Security Agreements

PagSeguro Brazil is party to three agreements with UOL Diveo under which UOL Diveo provides internet security services to PagSeguro Brazil. The payments under these agreements are made on a monthly basis in fixed amounts previously agreed between the parties.

Under the first agreement, UOL Diveo provides brand protection services regarding the management of threats and the improper use of PagSeguro Brazil’s brand on the internet, including on social networks, domain names, malicious emails, such as phishing and spam, piracy and other threats involving PagSeguro Brazil’s intellectual property.

Under the second agreement, UOL Diveo provides internet security services against denial-of-services attacks (DoS attacks) that may impact PagSeguro Brazil’s technological infrastructure or online services. This service uses technology to prevent and mitigate such attacks thorough the behavioral analysis of the data flowing through PagSeguro Brazil’s data center and network.

Under the third agreement, UOL Diveo provides application firewall against threats of fraud, unavailability and theft of information on PagSeguro Brazil network, as well as the protection of PagSeguro Brazil’s security operation and data centers.

ITEM 8.

FINANCIAL INFORMATION

Consolidated Statements and Other Financial Information

See Item 18. Financial Statements.

Legal Proceedings

From time to time, we are involved in proceedings that arise in the ordinary course of our business. Any claims against us, whether or not they have merit, can be time consuming, result in costly litigation, and require significant management time and operational resources.

We are subject to a number of proceedings in the Brazilian judicial and administrative court systems, relating to civil, tax and labor law claims. We believe these proceedings are normal and incidental to the operation of a business in Brazil. We recognize provisions for legal proceedings in our financial statements when we are advised by independent outside counsel that (i) it is probable that an outflow of resources will be required to settle the obligation, and (ii) a reliable estimate can be made of the amount of the obligation. The assessment of the likelihood of loss includes analysis by outside counsel of available evidence, the hierarchy of laws, available case law, recent court rulings and their relevance in the legal system. Our provisions for probable losses arising from these matters are estimated and periodically adjusted by management. In making these adjustments our management relies on the opinions of our external legal advisors.

The amounts we had accrued in our financial statements as at December 31, 2018 for all types of legal proceedings for which we believe a loss is probable were R$7.0 million. However, legal proceedings are inherently unpredictable and subject to significant uncertainties. If one or more cases were to result in a judgment against us in any reporting period for amounts that exceeded our management’s expectations, the impact on our operating results or financial condition for that reporting period could be material. See “Item 3. Key Information—Risk Factors—Risks Relating to our Business and Industry—Unfavorable outcomes in litigation or our inability to post judicial collateral or provide guarantees in pending legal or administrative proceedings could have a material adverse effect on our business, financial condition and Results of Operations of PagSeguro Digital.”

We make judicial deposits, which are court-ordered deposits that serve as collateral until the final settlement of the disputes to which they are related, in connection with certain of these civil proceedings. At December 31, 2018, we had judicial deposits in an aggregate amount of R$0.9 million.

Civil Proceedings

The civil claims to which we are party generally relate to customer claims, including those related to non-delivery of products by merchants, denials by PagSeguro of requests for withdrawal of digital account balances and allegations of POS device defects.

At December 31, 2018, we were party to approximately 3,500 proceedings of a civil nature (consisting of proceedings with PROCONs and small claims courts relating to consumer rights). PagSeguro does not appear in the rankings of companies with large numbers of consumer claims published by the PROCON. At December 31, 2018, we had recorded R$6.6 million in provisions for current civil proceedings and no provisions for non-current civil proceedings. Most of these proceedings are related to consumer allegations of non-delivery of products by merchants and requests for the withdrawal of digital account balances that were blocked by PagSeguro because they were under investigation for fraud or undergoing claim resolution.

At December 31, 2018, we were not a party to any civil lawsuits involving risks classified by management as possible losses. For more information, see Note 16 of our audited consolidated financial statements.

Labor Proceedings

At December 31, 2018, we were party to approximately 30 labor-related judicial and administrative proceedings for which we recorded a provision of R$0.3 million. In general, the labor claims to which we are a party were filed by former employees of third-party service providers hired by us as part of the outsourcing of certain of our non-core activities.

We are not a party to any labor lawsuits involving risks classified by management as possible losses. For more information, see Note 16 of our audited consolidated financial statements.

Tax and Social Security Proceedings

At December 31, 2018, we had made judicial deposits of R$17.1 million related to the Brazilian government’s Social Integration Program (Programa Integração Social, or PIS), R$105.2 million related to Brazilian social security (Contribuição para o Financiamento da Seguridade Social, or COFINS) relating to our financial income, R$52.2 million related to ISS and R$19.5 million related to ICMS taxes. Our PIS and COFINS judicial deposits relate to a tax proceeding filed by us to challenge certain Brazilian regulations that changed the PIS/COFINS taxation regime. Laws 10,637/2002 and 10,833/2003 increased the PIS and COFINS calculation basis, which was previously assessed on operating revenues and expanded to cover all types of revenue, including revenues generated by financial investments, with a few exceptions. Since the issuance of Decree No. 5,164/2004, taxpayers subject to the non-cumulative PIS/COFINS methodology, like our company, were subject to PIS and COFINS at a 0% tax rate on financial income. On April 1, 2015, the Brazilian federal government published Decree No. 8,426/2015, which increased the PIS and COFINS rates levied on financial income by legal entities subject to the non-cumulative methodology to 0.65% and 4%, respectively. In December 2015, we filed a tax proceeding alleging the unconstitutionality of the PIS/COFINS increase on financial income by Decree No. 8,426/2015, based on violation of the constitutional principle of legality, which provides that an increase in existing taxes can only be implemented by federal law. As an alternative request, we asked the court to recognize our right to discount PIS/COFINS tax credits from financial expenses incurred by us. As we were not granted injunctive relief, we have obtained a court decision allowing us to deposit the amount related to these PIS/COFINS payments in escrow while this payment obligation is discussed in court. For more information, see Note 15 to our audited consolidated financial statements and “Item 3. Key Information—Risk Factors—Risks Relating to our Business and Industry— Changes in tax laws, tax incentives, benefits or differing interpretations of tax laws may harm our Results of Operations.”

Our ISS judicial deposits relate to a tax proceeding filed by us against the São Paulo municipality to challenge certain regulations recently enacted that changed the municipality to which the ISS is due from the municipality where the service provider is located (PagSeguro) to the municipality where the clients are located (which in our case means the municipality where the POS device is used). Given that this new ISS collection rule is being challenged, we are currently making judicial deposits of the amounts supposedly due to the São Paulo municipality and recognizing a provision for differences with the ISS charged by other municipalities. For more information, see Note 15 to our audited consolidated financial statements.

Our ICMS judicial deposits relate to a tax proceeding filed by Net+Phone against several Brazilian states to challenge the legality of certain constitutional amendments which require that ICMS taxes be collected by those who ship goods to final customers in interstate operations, at a tax differential corresponding to the difference between the rate of the destination state and the interstate rate. As we were not granted injunctive relief, we have obtained a court decision allowing us to deposit the amount related to these ICMS payments in escrow while this payment obligation is discussed in court. For more information, see Note 15 to our audited consolidated financial statements.

As December 31, 2018, we were party to tax lawsuits classified by legal advisors as possible losses which involved an aggregate amount of R$47.2 million and for which no provision has been made.

Dividend Policy

For our policy on dividend distributions, see “Item 10. Additional Information—Memorandum and Articles of Association—Dividends and Capitalization of Profits.”

ITEM 9.

THE OFFER AND LISTING

Plan of Distribution

Not applicable.

Trading Markets

Our Class A common shares are listed on the NYSE under the symbol “PAGS.” Our Class A common shares are listed in registered form and are not certificated. The Class A common shares commenced trading on the NYSE on January 24, 2018. At March 31, 2019, the Class A common shares represented 49.5% of our shares and 100% of our current global public float.

If your shares are registered in the name of The Depository Trust Company, or DTC, you are not be a shareholder or member of the company. Each person owning Class A common shares held through DTC must rely on the procedures thereof and on institutions that have accounts therewith to exercise any rights of a holder of the Class A common shares.

Selling Shareholders

Not applicable.

Dilution

Not applicable.

Expenses of the Issue

Not applicable.

ITEM 10.

ADDITIONAL INFORMATION

Share Capital

Not applicable.

Memorandum and Articles of Association

Corporate Purpose

The corporate objects of PagSeguro Digital, as stated in the Memorandum of Association, are unrestricted and PagSeguro Digital has the authority to carry out any object not prohibited by any law, as provided by Section 7(4) of the Companies Law.

Issuance of Shares

Except as expressly provided in PagSeguro Digital’s Memorandum and Articles of Association, PagSeguro Digital’s board of directors has general and unconditional authority to allot, grant options over, offer or otherwise deal with or dispose of any unissued shares in the company’s capital without the approval of our shareholders (whether forming part of the original or any increased share capital), either at a premium or at par, with or without preferred, deferred or other special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise and to such persons, on such terms and conditions, and at such times as the directors may decide, but so that no share shall be issued at a discount, except in accordance with the provisions of the Companies Law. PagSeguro Digital will not issue bearer shares.

PagSeguro Digital’s Articles of Association provide that at any time that there are Class A common shares in issue additional Class B common shares may only be issued pursuant to (1) a share split, subdivision of shares or similar transaction or where a dividend or other distribution is paid by the issue of shares or rights to acquire shares or following capitalization of profit, (2) a merger, consolidation, or other business combination involving the issuance of Class B common shares as full or partial consideration, or (3) an issuance of Class A common shares, whereby holders of the Class B common shares are entitled to receive a number of Class B common shares that would allow them to maintain their proportional ownership interests in PagSeguro Digital. For more information see “—Preemptive or Similar Rights.”

PagSeguro Digital’s Articles of Association also provide that the issuance of non-voting common shares requires the affirmative vote of a majority of the of then outstanding Class A common shares.

Fiscal Year

PagSeguro Digital’s fiscal year begins on January 1 of each year and ends on December 31 of the same year.

Voting Rights

The holders of the Class A common shares and Class B common shares have identical rights, except that (i) the holder of Class B common shares is entitled to 10 votes per share, whereas holders of Class A common shares are entitled to one vote per share, (ii) Class B common shares have certain conversion rights and (iii) the holder of Class B common shares is entitled to maintain a proportional ownership interest in the event that additional Class A common shares are issued. For more information see “—Preemptive or Similar Rights” and “—Conversion.” The holders of Class A common shares and Class B common shares vote together as a single class on all matters (including the election of directors) submitted to a vote of shareholders, except as provided below and as otherwise required by law.

PagSeguro Digital’s Articles of Association provide as follows regarding the respective rights of holders of Class A common shares and Class B common shares:

(i)

Class consents from the holders of Class A common shares or Class B common shares, as applicable, shall be required for any variation to the rights attached to their respective class of shares, however, the Directors may treat any two or more classes of shares as forming one class if they consider that all such classes would be affected in the same way by the proposal;

(ii)	the rights conferred on holders of Class A common shares shall not be deemed to be varied by the creation or issue of further Class B common shares and vice versa; and

(iii)

the rights attaching to the Class A common shares and the Class B common shares shall not be deemed to be varied by the creation or issue of shares with preferred or other rights, including, without limitation, shares with enhanced or weighted voting rights.

As set forth in the Articles of Association, the holders of Class A common shares and Class B common shares, respectively, do not have the right to vote separately if the number of authorized shares of such class is increased or decreased. Rather, the number of authorized Class A common shares and Class B common shares may be increased or decreased (but not below the number of shares of such class then outstanding) by the affirmative vote of the holders of a majority of the voting power of the issued and outstanding Class A common shares and Class B common shares, voting together in a general meeting.

Preemptive or Similar Rights

The Class A common shares and Class B common shares are not entitled to preemptive rights upon transfer and are not subject to conversion (except as described below under “—Conversion”), redemption or sinking fund provisions.

The Class B common shares are entitled to maintain a proportional ownership interest in the event that additional Class A common shares are issued. As such, except for certain exceptions, if PagSeguro Digital issues Class A common shares, it must first make an offer to each holder of Class B common shares to issue to such holder on the same economic terms such number of Class B common shares as would ensure such holder may maintain a proportional ownership interest in PagSeguro Digital. This right to maintain a proportional ownership interest may be waived by a majority of the holders of Class B common shares.

Conversion

The outstanding Class B common shares are convertible at any time as follows: (1) at the option of the holder, a Class B common share may be converted at any time into one Class A common share or (2) upon the election of the holders of a majority of the then outstanding Class B common shares, all outstanding Class B common shares may be converted into a like number of Class A common shares. In addition, each Class B common share will convert automatically into one Class A common share upon any transfer, whether or not for value, except for certain transfers described in the Articles of Association, including transfers to affiliates, trusts solely for the benefit of the shareholder or their affiliates, and partnerships, corporations and other entities exclusively owned by the shareholder or their affiliates and certain transfers to organizations that are exempt from taxation under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended. Furthermore, each Class B common share will convert automatically into one Class A common share and no Class B common shares will be issued thereafter if, at any time, the voting power of the outstanding Class B common shares represents less than 10% of the combined voting power of the Class A common shares and Class B common shares then outstanding.

No class of PagSeguro Digital’s common shares may be subdivided or combined unless the other class of common shares is concurrently subdivided or combined in the same proportion and in the same manner.

Equal Status

Except as expressly provided in PagSeguro Digital’s Memorandum and Articles of Association, Class A common shares and Class B common shares have the same rights and privileges and rank equally, share ratably and are identical in all respects as to all matters. In the event of any merger, consolidation, scheme, arrangement or other business combination requiring the approval of our shareholders entitled to vote thereon (whether or not PagSeguro Digital is the surviving entity), the holders of Class A common shares shall have the right to receive, or the right to elect to receive, the same form of consideration as the holders of Class B common shares, and the holders of Class A common shares shall have the right to receive, or the right to elect to receive, at least the same amount of consideration on a per share basis as the holders of Class B common shares. In the event of any (1) tender or exchange offer to acquire any Class A common shares or Class B common shares by any third party pursuant to an agreement to which PagSeguro Digital is a party, or (2) any tender or exchange offer by PagSeguro Digital to acquire any Class A common shares or Class B common shares, the holders of Class A common shares shall have the right to receive, or the right to elect to receive, the same form of consideration as the holders of Class B common shares, and the holders of Class A common shares shall have the right to receive, or the right to elect to receive, at least the same amount of consideration on a per share basis as the holders of Class B common shares.

100

Record Dates

For the purpose of determining shareholders entitled to notice of, or to vote at any general meeting of shareholders or any adjournment thereof, or shareholders entitled to receive dividend or other distribution payments, or in order to make a determination of shareholders for any other purpose, PagSeguro Digital’s board of directors may set a record date which shall not exceed forty (40) clear days prior to the date where the determination will be made.

General Meetings of Shareholders

As a condition of admission to a shareholders’ meeting, a shareholder must be duly registered as a shareholder of PagSeguro Digital at the applicable record date for that meeting and, in order to vote, all calls or installments then payable by such shareholder to PagSeguro Digital in respect of the shares that such shareholder holds must have been paid.

Subject to any special rights or restrictions as to voting then attached to any shares, at any general meeting every shareholder who is present in person or by proxy (or, in the case of a shareholder being a corporation, by its duly authorized representative not being himself or herself a shareholder entitled to vote) shall have one vote per Class A common share and 10 votes per Class B common share.

As a Cayman Islands exempted company, PagSeguro Digital is not obliged by the Companies Law to call annual general meetings; however, the Articles of Association provide that in each year the company will hold an annual general meeting of shareholders, at a time determined by the board of directors. For the annual general meeting of shareholders the agenda will include, among other things, the presentation of the annual accounts and the report of the directors. In addition, the agenda for an annual general meeting of shareholders will only include such items as have been included therein by the board of directors.

Also, PagSeguro Digital may, but is not required (unless required by the laws of the Cayman Islands), to hold other extraordinary general meetings during the year. General meetings of shareholders are generally expected to take place in São Paulo, Brazil, but may be held elsewhere if the directors so decide.

The Companies Law provides shareholders a limited right to request a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting in default of a company’s articles of association. However, these rights may be provided in a company’s articles of association. PagSeguro Digital’s Articles of Association provide that upon the requisition of one or more shareholders representing not less than one-third of the voting rights entitled to vote at general meetings, the board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. The Articles of Association provide no other right to put any proposals before annual general meetings or extraordinary general meetings.

Subject to regulatory requirements, the annual general meeting and any extraordinary general meetings must be called by not less than ten (10) clear days’ notice prior to the relevant shareholders meeting and convened by a notice discussed below. Alternatively, upon the prior consent of all holders entitled to receive notice, with regards to the annual general meeting, and the holders of 95% in par value of the shares entitled to attend and vote at an extraordinary general meeting, that meeting may be convened by a shorter notice and in a manner deemed appropriate by those holders.

PagSeguro Digital will give notice of each general meeting of shareholders by publication on its website and in any other manner that it may be required to follow in order to comply with Cayman Islands law, NYSE and SEC requirements. The holders of registered shares may be given notice of a shareholders’ meeting by means of letters sent to the addresses of those shareholders as registered in our shareholders’ register, or, subject to certain statutory requirements, by electronic means.

Holders whose shares are registered in the name of DTC or its nominee, which is currently the case for all holders of Class A common shares, will not be a shareholder or member of the company and must rely on the procedures of DTC regarding notice of shareholders’ meetings and the exercise of rights of a holder of the Class A common shares.

A quorum for a general meeting consists of any one or more persons holding or representing by proxy not less than one-third of the aggregate voting power of all shares in issue and entitled to vote upon the business to be transacted.

101

A resolution put to a vote at a general meeting shall be decided on a poll. An ordinary resolution to be passed by the shareholders at a general meeting requires the affirmative vote of a simple majority of the votes cast by, or on behalf of, the shareholders entitled to vote, present in person or by proxy and voting at the meeting. A special resolution requires the affirmative vote on a poll of no less than two-thirds of the votes cast by the shareholders entitled to vote who are present in person or by proxy at a general meeting. Both ordinary resolutions and special resolutions may also be passed by a unanimous written resolution signed by all the shareholders of our Company, as permitted by the Companies Law and our Articles of Association.

Pursuant to PagSeguro Digital’s Articles of Association, general meetings of shareholders are to be chaired by the chairman of our board of directors. If the chairman of our board of directors is absent, the directors present at the meeting shall appoint one of them to be chairman of the general meeting. If neither the chairman nor another director is present at the general meeting within fifteen minutes after the time appointed for holding the meeting, the shareholders present in person or by proxy and entitled to vote may elect any one of the shareholders to be chairman. The order of business at each meeting shall be determined by the chairman of the meeting, and he or she shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Company, restrictions on entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the polls.

Liquidation Rights

If PagSeguro Digital is voluntarily wound up, the liquidator, after taking into account and giving effect to the rights of preferred and secured creditors and to any agreement between PagSeguro Digital and any creditors that the claims of such creditors shall be subordinated or otherwise deferred to the claims of any other creditors and to any contractual rights of set-off or netting of claims between PagSeguro Digital and any person or persons (including without limitation any bilateral or any multi-lateral set-off or netting arrangements between the company and any person or persons) and subject to any agreement between PagSeguro Digital and any person or persons to waive or limit the same, shall apply PagSeguro Digital’s property in satisfaction of its liabilities pari passu and subject thereto shall distribute the property amongst the shareholders according to their rights and interests in PagSeguro Digital.

Changes to Capital

Pursuant to the Articles of Association, PagSeguro Digital may from time to time by ordinary resolution:

•

increase its share capital by such sum, to be divided into shares of such amount, as the resolution shall prescribe;

•

consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares;

•

convert all or any of its paid-up shares into stock and reconvert that stock into paid up shares of any denomination;

•

subdivide its existing shares or any of them into shares of a smaller amount, provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; or

•

cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled.

PagSeguro Digital’s shareholders may by special resolution, subject to confirmation by the Grand Court of the Cayman Islands on an application by the Company for an order confirming such reduction, reduce its share capital or any capital redemption reserve in any manner permitted by law.

102

In addition, subject to the provisions of the Companies Law and our Articles of Association, PagSeguro Digital may:

•

issue shares on terms that they are to be redeemed or are liable to be redeemed;

•

purchase its own shares (including any redeemable shares); and

•

make a payment in respect of the redemption or purchase of its own shares in any manner authorized by the Companies Law, including out of its own capital.

Transfer of Shares

Subject to any applicable restrictions set forth in the Articles of Association, any shareholder of PagSeguro Digital may transfer all or any of his or her common shares by an instrument of transfer in the usual or common form or in the form prescribed by the NYSE or any other form approved by the Company’s board of directors.

Our Class A common shares are traded on the NYSE in book-entry form and may be transferred in accordance with PagSeguro Digital’s Articles of Association and NYSE’s rules and regulations.

However, PagSeguro Digital’s board of directors may, in its absolute discretion, decline to register any transfer of any common share which is either not fully paid up to a person of whom it does not approve or is issued under any share incentive scheme for employees which contains a transfer restriction that is still applicable to such common share. The board of directors may also decline to register any transfer of any ordinary share unless:

•

a fee of such maximum sum as the NYSE may determine to be payable or such lesser sum as the board of directors may from time to time require is paid to PagSeguro Digital in respect thereof;

•

the instrument of transfer is lodged with PagSeguro Digital, accompanied by the certificate (if any) for the common shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;

•

the instrument of transfer is in respect of only one class of shares;

•

the instrument of transfer is properly stamped, if required;

•

the common shares transferred are free of any lien in favor of PagSeguro Digital; and

•

in the case of a transfer to joint holders, the transfer is not to more than four joint holders.

If the directors refuse to register a transfer they are required, within two months after the date on which the instrument of transfer was lodged, to send to the transferee notice of such refusal.

Share Repurchase

The Companies Law and the Articles of Association permit PagSeguro Digital to purchase its own shares, subject to certain restrictions. The board of directors may only exercise this power on behalf of PagSeguro Digital, subject to the Companies Law, the Articles of Association and to any applicable requirements imposed from time to time by the SEC, the NYSE, or by any recognized stock exchange on which our securities are listed.

Dividends and Capitalization of Profits

We have not adopted a dividend policy with respect to payments of any future dividends by PagSeguro Digital. Subject to the Companies Law, PagSeguro Digital’s shareholders may, by resolution passed by a simple majority of the voting rights entitled to vote at a general meeting, declare dividends (including interim dividends) to be paid to shareholders but no dividend shall be declared in excess of the amount recommended by the board of directors. The board of directors may also declare dividends. Dividends may be declared and paid out of funds lawfully available to PagSeguro Digital. Except as otherwise provided by the rights attached to shares and the Articles of Association of PagSeguro Digital, all dividends shall be paid in proportion to the number of Class A common shares or Class B common shares a shareholder holds at the date the dividend is declared (or such other date as may be set as a record date); but, (i) if any share is issued on terms providing that it shall rank for dividend as from a particular date, that share shall rank for dividend accordingly, and (ii) where we have shares in issue which are not fully paid up (as to par value) we may pay dividends in proportion to the amounts paid up on each share.

103

The holders of Class A common shares and Class B common shares shall be entitled to share equally in any dividends that may be declared in respect of PagSeguro Digital’s common shares from time to time. In the event that a dividend is paid in the form of Class A common shares or Class B common shares, or rights to acquire Class A common shares or Class B common shares, (1) the holders of Class A common shares shall receive Class A common shares, or rights to acquire Class A common shares, as the case may be; and (2) the holders of Class B common shares shall receive Class B common shares, or rights to acquire Class B common shares, as the case may be.

On September 29, 2017, PagSeguro Brazil’s shareholders approved a distribution of R$238.8 million in dividends. This amount consisted of (i) R$142.8 million of dividends related to the six-month period ended June 30, 2017 and (ii) R$96.0 million in dividends related to the year ended December 31, 2016. For more information regarding the 2016 dividend, see Note 18 to our audited consolidated financial statements. No dividends were declared or paid in 2018.

In addition, subject to certain limitations, Brazilian companies generally also distribute amounts in respect of interest on own capital, which is calculated based on a government interest rate. In its 2016 financial statements PagSeguro Digital recorded an amount of R$22.2 million in interest on own capital payable to UOL. This amount was paid to UOL on April 30, 2017, although the payment was offset in full against amounts then due to PagSeguro Brazil and Boa Compra under our centralized cash management with UOL, rather than being paid in cash. No interest on own capital was declared or paid in 2018.

Appointment, Disqualification and Removal of Directors

PagSeguro Digital is managed by its board of directors. The Articles of Association provide that, unless otherwise determined by a special resolution of shareholders, the board of directors will be composed of four to 11 directors, with the number being determined by a majority of the directors then in office. There are no provisions relating to retirement of directors upon reaching any age limit. The Articles of Association also provide that, while PagSeguro Digital’s shares are admitted to trading on NYSE, the board of directors must always comply with the residency and citizenship requirements of the U.S. securities laws applicable to foreign private issuers.

The Articles of Association provide that directors shall be elected by an ordinary resolution of our shareholders, which requires the affirmative vote of a simple majority of the votes cast on the resolution by the shareholders entitled to vote who are present, in person or by proxy, at the meeting. Each director shall be appointed and elected for such term as the resolution appointing him or her may determine or until his or her death, resignation or removal.

Our directors are Luiz Frias, Eduardo Alcaro, Maria Judith de Brito, Ricardo Dutra da Silva, Noemia Gushiken, Marcos de Barros Lisboa and Cleveland Prates Teixeira. Ms. Gushiken, Mr. Lisboa and Mr. Teixeira are “independent” as that term is defined under the applicable rules and regulations of the SEC and the listing standards of the NYSE.

Any vacancies on the board of directors that arise other than upon the removal of a director by resolution passed at a general meeting can be filled by the remaining directors (notwithstanding that they may constitute less than a quorum). Any such appointment shall be as an interim director to fill such vacancy until the next annual general meeting of shareholders.

Additions to the existing board (within the limits set pursuant to the Articles of Association) may be made by ordinary resolution of the shareholders.

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Upon the completion of our IPO, the board of directors put in place an audit committee. See “Item 6. Directors, Senior Management and Employees—Audit Committee.”

Grounds for Removing a Director

A director may be removed with or without cause by ordinary resolution. The notice of general meeting must contain a statement of the intention to remove the director and must be served on the director not less than ten calendar days before the meeting. The director is entitled to attend the meeting and be heard on the motion for his removal.

The office of a director will be vacated automatically if he or she (1) becomes prohibited by law from being a director, (2) becomes bankrupt or makes an arrangement or composition with his creditors, (3) dies or is in the opinion of all his co-directors, incapable by reason of mental disorder of discharging his duties as director, (4) resigns his office by notice to us or (5) has for more than six months been absent without permission of the directors from meetings of the board of directors held during that period, and the remaining directors resolve that his or her office be vacated.

Proceedings of the Board of Directors

The Articles of Association provide that PagSeguro Digital’s business is to be managed and conducted by the board of directors. The quorum necessary for the board meeting shall be a simple majority of the directors then in office (subject to there being a minimum of two directors present) and business at any meeting shall be decided by a majority of votes. In the case of an equality of votes, the chairman shall have a casting vote.

Subject to the provisions of the Articles of Association, the board of directors may regulate its proceedings as they determine is appropriate. Board meetings shall be held at least once every calendar quarter and shall take place either in São Paulo, Brazil or at such other place as the directors may determine.

Subject to the provisions of the Memorandum and Articles of Association, to any directions given by ordinary resolution of the shareholders and the listing rules of the NYSE, the board of directors may from time to time at its discretion exercise all powers of PagSeguro Digital, including, subject to the Companies Law, the power to issue debentures, bonds and other securities of the company, whether outright or as collateral security for any debt, liability or obligation of our company or of any third party.

Inspection of Books and Records

Holders of PagSeguro Digital shares will have no general right under Cayman Islands law to inspect or obtain copies of the list of shareholders or corporate records of the Company. However, the board of directors may determine from time to time whether and to what extent PagSeguro Digital’s accounting records and books shall be open to inspection by shareholders who are not members of the board of directors. Notwithstanding the above, the Articles of Association provide shareholders with the right to receive annual financial statements. Such right to receive annual financial statements may be satisfied by publishing the same on the company’s website or filing such annual reports as we are required to file with the SEC.

Register of Shareholders

Our registered Class A common shares are held through DTC, and DTC or Cede & Co., as nominee for DTC, is recorded in the shareholders’ register as the holder of our Class A common shares.

Under Cayman Islands law, PagSeguro Digital must keep a register of shareholders that includes:

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the names and addresses of the shareholders, a statement of the shares held by each member, and of the amount paid or agreed to be considered as paid, on the shares of each member;

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the date on which the name of any person was entered on the register as a member; and

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the date on which any person ceased to be a member.

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Under Cayman Islands law, the register of shareholders of PagSeguro Digital is prima facie evidence of the matters set out therein (i.e., the register of shareholders will raise a presumption of fact on the matters referred to above unless rebutted) and a shareholder registered in the register of shareholders is deemed as a matter of Cayman Islands law to have prima facie legal title to the shares as set against his or her name in the register of shareholders. The shareholders recorded in the register of shareholders should be deemed to have legal title to the shares set against their name.

If the name of any person is incorrectly entered in or omitted from the register of shareholders, or if there is any default or unnecessary delay in entering on the register the fact of any person having ceased to be a shareholder of PagSeguro Digital, the person or member aggrieved (or any shareholder of PagSeguro Digital, or PagSeguro Digital itself) may apply to the Cayman Islands Grand Court for an order that the register be rectified, and the Court may either refuse such application or it may, if satisfied of the justice of the case, make an order for the rectification of the register.

Exempted Company

PagSeguro Digital is an exempted company with limited liability under the Companies Law. The Companies Law distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except for the exemptions and privileges listed below:

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an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies;

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an exempted company’s register of shareholders is not open to inspection;

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an exempted company does not have to hold an annual general meeting;

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an exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance);

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an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;

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an exempted company may register as a limited duration company; and

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an exempted company may register as a segregated portfolio company.

“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).

PagSeguro Digital is subject to reporting and other informational requirements of the Exchange Act, as applicable to foreign private issuers. Except as otherwise disclosed in this annual report, PagSeguro Digital complies with the NYSE rules in lieu of following home country practice.

Anti-Takeover Provisions in our Memorandum and Articles of Association

Some provisions of the Memorandum and Articles of Association may discourage, delay or prevent a change in control of PagSeguro Digital or management that shareholders may consider favorable. In particular, the capital structure of PagSeguro Digital concentrates ownership of voting rights in the hands of UOL. These provisions, which are summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of PagSeguro Digital to first negotiate with the board of directors. However, these provisions could also have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of the Class A common shares that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in the management of PagSeguro Digital. It is possible that these provisions could make it more difficult to accomplish transactions that shareholders may otherwise deem to be in their best interests.

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Two Classes of Common Shares

The Class B common shares of PagSeguro Digital are entitled to 10 votes per share, while the Class A common shares are entitled to one vote per share. Since it owns of all of the Class B common shares of PagSeguro Digital, UOL currently has the ability to elect all directors and to determine the outcome of most matters submitted for a vote of shareholders. This concentrated voting control could discourage others from initiating any potential merger, takeover, or other change of control transaction that other shareholders may view as beneficial.

So long as UOL has the ability to determine the outcome of most matters submitted to a vote of shareholders as well as the overall management and direction of PagSeguro Digital, third parties may be deterred in their willingness to make an unsolicited merger, takeover, or other change of control proposal, or to engage in a proxy contest for the election of directors. As a result, the fact that PagSeguro Digital has two classes of common shares may have the effect of depriving you as a holder of Class A common shares of an opportunity to sell your Class A common shares at a premium over prevailing market prices and make it more difficult to replace the directors and management of PagSeguro Digital.

Preferred Shares

PagSeguro Digital’s board of directors is given wide powers to issue one or more classes or series of shares with preferred rights. Such preferences may include, for example, dividend rights, conversion rights, redemption privileges, enhanced voting powers and liquidation preferences.

Despite the anti-takeover provisions described above, under Cayman Islands law, PagSeguro Digital’s board of directors may only exercise the rights and powers granted to them under the Memorandum and Articles of Association, for what they believe in good faith to be in the best interests of PagSeguro Digital.

Protection of Non-Controlling Shareholders

The Grand Court of the Cayman Islands may, on the application of shareholders holding not less than one fifth of the shares of PagSeguro Digital in issue, appoint an inspector to examine the Company’s affairs and report thereon in a manner as the Grand Court shall direct.

Subject to the provisions of the Companies Law, any shareholder may petition the Grand Court of the Cayman Islands which may make a winding up order, if the court is of the opinion that this winding up is just and equitable.

Notwithstanding the U.S. securities laws and regulations that are applicable to PagSeguro Digital, general corporate claims against PagSeguro Digital by its shareholders must, as a general rule, be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by PagSeguro Digital’s Memorandum and Articles of Association.

The Cayman Islands courts ordinarily would be expected to follow English case law precedents, which permit a minority shareholder to commence a representative action against PagSeguro Digital, or derivative actions in PagSeguro Digital’s name, to challenge (1) an act which is ultra vires or illegal, (2) an act which constitutes a fraud against the minority and the wrongdoers themselves control PagSeguro Digital, and (3) an irregularity in the passing of a resolution that requires a qualified (or special) majority.

Registration Rights and Restricted Shares

Although no shareholders of PagSeguro Digital have formal registration rights, they or entities controlled by them or their permitted transferees will be able to sell their shares in the public market from time to time without registering them, subject to certain limitations on the timing, amount and method of those sales imposed by regulations promulgated by the SEC. PagSeguro Digital has agreed to lock-up provisions that restrict us, subject to specified exceptions, including the right for PagSeguro Digital to issue new shares if we carry out an acquisition or enter into a merger, joint venture or strategic participation, from selling or otherwise disposing of any shares for a period of 12 months after the date of our June 2018 follow-on offering. UOL has also agreed to lock-up restrictions for 12 months following the date of our June 2018 follow-on offering in substantially similar terms, except that the lock-up restrictions applicable to UOL are not subject to any exceptions. The lock-up restrictions applicable to PagSeguro Digital and UOL are not subject to waiver by the underwriters of our June 2018 follow-on offering. For more information, see “Item 10. Additional Information—Lock-up Agreements.”

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Principal Differences between Cayman Islands and U.S. Corporate Law

The Companies Law was modelled originally after similar laws in England and Wales but does not follow subsequent statutory enactments in England and Wales. In addition, the Companies Law differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the Companies Law applicable to PagSeguro Digital and the laws applicable to companies incorporated in the United States and their shareholders.

Mergers and Similar Arrangements

The Companies Law permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies.

For these purposes, (a) “merger” means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company and (b) a “consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies in the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company; and (b) such other authorization, if any, as may be specified in such constituent company’s articles of association. The plan must be approved by the directors of each constituent company and filed with the Registrar of Companies together with a declaration as to: (1) the solvency of the consolidated or surviving company, (2) the merger or consolidation is bona fide and not intended to defraud unsecured creditors of the constituent companies; (3) no petition or other similar proceeding has been filed and remains outstanding and no order or resolution to wind up the company in any jurisdiction, (4) no receiver, trustee, administrator or similar person has been appointed in any jurisdiction and is acting in respect of the constituent company, its affairs or property, (5) no scheme, order, compromise or similar arrangement has been entered into or made in any jurisdiction with creditors; (6) a list of the assets and liabilities of each constituent company; (7) the non-surviving constituent company has retired from any fiduciary office held or will do so; (8) that the constituent company has complied with any requirements under the regulatory laws, where relevant; and (9) an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and published in the Cayman Islands Gazette.

Dissenting shareholders have the right to be paid the fair value of their shares (which, if not agreed between the parties, may be determined by the Cayman Islands’ court) if they follow the required procedures, subject to certain exceptions. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.

In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement in question is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder would have the right to express to the court the view that the transaction should not be approved, the court can be expected to approve the arrangement if it satisfies itself that:

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PagSeguro Digital is not proposing to act illegally or ultra vires and the statutory provisions as to majority vote have been complied with;

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the shareholders have been fairly represented at the meeting in question;

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the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and

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the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law or that would amount to a “fraud on the minority.”

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When a takeover offer is made and accepted by holders of 90.0% in value of the shares affected within four months, the offeror may, within a two-month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection may be made to the Grand Court of the Cayman Islands but is unlikely to succeed unless there is evidence of fraud, bad faith or collusion.

If the arrangement and reconstruction are thus approved, any dissenting shareholders would have no rights comparable to appraisal rights, which might otherwise ordinarily be available to dissenting shareholders of U.S. corporations and allow such dissenting shareholders to receive payment in cash for the judicially determined value of their shares.

Shareholders’ Suits

Class actions are not recognized in the Cayman Islands, but groups of shareholders with identical interests may bring representative proceedings, which are similar. However, a class action suit could nonetheless be brought in a U.S. court pursuant to an alleged violation of U.S. securities laws and regulations.

In principle, PagSeguro Digital itself would normally be the proper plaintiff and as a general rule, whilst a derivative action may be initiated by a minority shareholder on behalf of PagSeguro Digital in a Cayman Islands court, such shareholder will not be able to continue those proceedings without the permission of a Grand Court judge, who will only allow the action to continue if the shareholder can demonstrate that PagSeguro Digital has a good case against the Defendant, and that it is proper for the shareholder to continue the action rather than the Company’s board of directors. Examples of circumstances in which derivative actions would be permitted to continue are where:

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a company is acting or proposing to act illegally or beyond the scope of its authority;

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the act complained of, although not beyond the scope of its authority, could be effected duly if authorized by more than a simple majority vote that has not been obtained; and

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those who control the company are perpetrating a “fraud on the minority.”

Corporate Governance

Cayman Islands law restricts transactions between a company and its directors unless there are provisions in the Memorandum and Articles of Association which provide a mechanism to alleviate possible conflicts of interest. Additionally, Cayman Islands law imposes on directors’ duties of care and skill and fiduciary duties to the companies which they serve. Under PagSeguro Digital’s Articles of Association, a director must disclose the nature and extent of his interest in any contract or arrangement, and following such disclosure and subject to any separate requirement under applicable law or the listing rules of the NYSE, and unless disqualified by the chairman of the relevant meeting, the interested director may vote in respect of any transaction or arrangement in which he or she is interested. The interested director shall be counted in the quorum at such meeting and the resolution may be passed by a majority of the directors present at the meeting.

Indemnification of Directors and Executive Officers and Limitation of Liability

The Companies Law does not limit the extent to which a company’s articles of association may provide for indemnification of directors and officers, except to the extent that it may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. PagSeguro Digital’s Articles of Association provide that we shall indemnify and hold harmless our directors and officers against all actions, proceedings, costs, charges, expenses, losses, damages, liabilities, judgments, fines, settlements and other amounts incurred or sustained by such directors or officers, other than by reason of such person’s dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil, criminal or other proceedings concerning PagSeguro Digital or our affairs in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.

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Insofar as indemnification for liabilities arising under the Securities Act may be permitted to PagSeguro Digital’s directors, officers or persons controlling the Company under the foregoing provisions, we have been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Directors’ Fiduciary Duties

As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company. Accordingly, directors owe fiduciary duties to their companies to act bona fide in what they consider to be the best interests of the company, to exercise their powers for the purposes for which they are conferred and not to place themselves in a position where there is a conflict between their personal interests and their duty to the company. Accordingly, a director owes a company a duty not to make a profit based on his or her position as director (unless the company permits him or her to do so) and a duty not to put himself or herself in a position where the interests of the company conflict with his or her personal interest or his or her duty to a third party. However, this obligation may be varied by the company’s articles of association, which may permit a director to vote on a matter in which he has a personal interest provided that he has disclosed that nature of his interest to the board of directors. PagSeguro Digital’s Articles of Association provides that a director must disclose the nature and extent of his or her interest in any contract or arrangement, and following such disclosure and subject to any separate requirement under applicable law or the listing rules of the NYSE, and unless disqualified by the chairman of the relevant meeting, such director may vote in respect of any transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting.

A director of a Cayman Islands company also owes to the company duties to exercise independent judgment in carrying out his functions and to exercise reasonable skill, care and diligence, which has both objective and subjective elements. Recent Cayman Islands case law confirmed that directors must exercise the care, skill and diligence that would be exercised by a reasonably diligent person having the general knowledge, skill and experience reasonably to be expected of a person acting as a director. Additionally, a director must exercise the knowledge, skill and experience which he or she actually possesses.

A general notice may be given to the board of directors to the effect that (1) the director is a member or officer of a specified company or firm and is to be regarded as interested in any contract or arrangement which may after the date of the notice be made with that company or firm; or (2) he or she is to be regarded as interested in any contract or arrangement which may after the date of the notice to the board of directors be made with a specified person who is connected with him or her, will be deemed sufficient declaration of interest. This notice shall specify the nature of the interest in question. Following the disclosure being made pursuant to PagSeguro Digital’s Articles of Association and subject to any separate requirement under applicable law or the listing rules of the NYSE, and unless disqualified by the chairman of the relevant meeting, a director may vote in respect of any transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting.

In comparison, under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself or herself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he or she reasonably believes to be in the best interests of the corporation. He or she must not use his or her corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.

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Shareholder Proposals

Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. The Delaware General Corporation Law does not provide shareholders an express right to put any proposal before the annual meeting of shareholders, but Delaware corporations generally afford shareholders an opportunity to make proposals and nominations provided that they comply with the notice provisions in the certificate of incorporation or bylaws. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.

The Companies Law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. PagSeguro Digital’s Articles of Association provide that upon the requisition of one or more shareholders representing not less than one-third of the voting rights entitled to vote at general meetings, the board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. The Memorandum and Articles of Association provide no other right to put any proposals before annual general meetings or extraordinary general meetings.

Cumulative Voting

Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. As permitted under Cayman Islands law, PagSeguro Digital’s Articles of Association do not provide for cumulative voting. As a result, the shareholders of PagSeguro Digital are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.

Removal of Directors

The office of a director shall be vacated automatically if, among other things, he or she (1) becomes prohibited by law from being a director, (2) becomes bankrupt or makes an arrangement or composition with his creditors, (3) dies or is in the opinion of all his co-directors, incapable by reason of mental disorder of discharging his duties as director (4) resigns his office by notice to us or (5) has for more than six months been absent without permission of the directors from meetings of the board of directors held during that period, and the remaining directors resolve that his/her office be vacated.

Transaction with Interested Shareholders

The Delaware General Corporation Law provides that; unless the corporation has specifically elected not to be governed by this statute, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that this person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting shares or who or which is an affiliate or associate of the corporation and owned 15% or more of the corporation’s outstanding voting shares within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which the shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.

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Cayman Islands law has no comparable statute. As a result, PagSeguro Digital cannot avail itself of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that the board of directors owe duties to ensure that these transactions are entered into bona fide in the best interests of the company and for a proper corporate purpose and, as noted above, a transaction may be subject to challenge if it has the effect of constituting a fraud on the minority shareholders.

Dissolution; Winding Up

Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. If the dissolution is initiated by the board of directors it may be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company resolves by ordinary resolution that it be wound up because it is unable to pay its debts as they fall due. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.

Under the Companies Law, PagSeguro Digital may be dissolved, liquidated or wound up by a special resolution of shareholders (requiring a two-thirds majority vote). PagSeguro Digital’s Articles of Association also give its board of directors authority to petition the Cayman Islands Court to wind up PagSeguro Digital.

Variation of Rights of Shares

Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of that class, unless the certificate of incorporation provides otherwise. Under PagSeguro Digital’s Articles of Association, if the share capital is divided into more than one class of shares, the rights attached to any class may only be varied with the written consent of the holders of two-thirds of the shares of that class or the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class.

Also, except with respect to share capital (as described above), alterations to PagSeguro Digital’s Memorandum and Articles of Association may only be made by special resolution of shareholders (requiring a two-thirds majority vote).

Amendment of Governing Documents

Under the Delaware General Corporation Law, a corporation’s certificate of incorporation may be amended only if adopted and declared advisable by the board of directors and approved by a majority of the outstanding shares entitled to vote, and the bylaws may be amended with the approval of a majority of the outstanding shares entitled to vote and may, if so provided in the certificate of incorporation, also be amended by the board of directors. Under Cayman Islands law, PagSeguro Digital’s Memorandum and Articles of Association generally (and save for certain amendments to share capital described in this section) may only be amended by special resolution of shareholders (requiring a two-thirds majority vote).

Rights of Non-Resident or Foreign Shareholders

There are no limitations imposed by PagSeguro Digital’s Memorandum and Articles of Association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on PagSeguro Digital’s shares. In addition, there are no provisions in the Memorandum and Articles of Association governing the ownership threshold above which shareholder ownership must be disclosed.

Transfer Agent and Registrar

American Stock Transfer & Trust Company, LLC maintains our shareholders’ register and acts as our transfer agent, registrar and paying agent for the Class A common shares. The Class A common shares are traded on the NYSE in book-entry form. The transfer agent, registrar and paying agent’s address is 6201 15th Avenue, Brooklyn, NY, 11219, and its telephone number is +1 (800) 937-5449 or +1 (718) 921-8124.

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Material Contracts

For information concerning our material contracts, see “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects,” “Item 6. Directors, Senior Management and Employees—Compensation” and Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions.”

Exchange Controls and Other Limitations Affecting Security Holders

The Cayman Islands currently has no exchange control restrictions.

Taxation

The following summary contains a description of certain Cayman Islands and U.S. federal income tax consequences of the acquisition, ownership and disposition of our Class A common shares but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase, own or dispose of Class A common shares. The summary is based upon the tax laws of the Cayman Islands and regulations thereunder and on the tax laws of the United States and regulations thereunder at the date hereof, which are subject to change. Holders of our Class A common shares should consult their own tax advisors as to the tax consequences of the acquisition, ownership and disposition of Class A common shares.

Cayman Islands Tax Considerations

The Cayman Islands laws currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty or withholding tax applicable to us or to any holder of Class A common shares. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands. The Cayman Islands is not party to any double tax treaties which are applicable to any payments made by or to our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.

As a Cayman Islands exempted company with limited liability, we have received an undertaking from the Cabinet Office of the Cayman Islands, dated August 10, 2017, as to tax concessions pursuant to Section 6 of the Tax Concessions Law (1999 Revision). This undertaking provides that, for a period of 20 years from the date of issue of the undertaking, no law thereafter enacted in the Cayman Islands imposing any taxes to be levied on profits, income, gains or appreciation will apply to us or our operations and, in addition, no such tax shall be payable:

(a)

on or in respect of our shares (including our Class A common shares), debentures or other obligations; or

(b)

by way of withholding in whole or in part of any payment of dividend or other distribution of income or capital to any holder of our shares (including our Class A common shares) or any payment of interest or other sums due under our debentures or other obligations.

There is no income tax treaty or convention currently in effect between the United States and the Cayman Islands.

U.S. Federal Income Tax Considerations

The following discussion describes certain U.S. federal income tax consequences of the purchase, ownership and disposition of our Class A common shares. This discussion deals only with Class A common shares that are held as capital assets by a United States Holder (generally property held for investment).

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As used herein, the term “United States Holder” means a beneficial owner of our Class A common shares that is, for U.S. federal income tax purposes, any of the following:

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an individual who is a citizen or resident of the United States;

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a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

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an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

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a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.

This discussion is based upon provisions of the Internal Revenue Code of 1986, as amended, or the Code, and regulations, rulings and judicial decisions thereunder at the date hereof. Those authorities may be changed, perhaps retroactively, so as to result in U.S. federal income tax consequences different from those summarized below.

This discussion does not represent a detailed description of the U.S. federal income tax consequences applicable to you if you are subject to special treatment under the U.S. federal income tax laws, including if you are:

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a dealer in securities or currencies;

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a financial institution;

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a regulated investment company;

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a real estate investment trust;

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an insurance company;

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a person holding our Class A common shares in a retirement account or other tax-deferred account;

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a tax-exempt organization;

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a person holding our Class A common shares as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle;

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a trader in securities that has elected the mark-to-market method of accounting for your securities;

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a person liable for alternative minimum tax;

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a person who owns or is deemed to own 10% or more of our stock by vote or value;

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a partnership or other pass-through entity for U.S. federal income tax purposes; or

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a person whose “functional currency” is not the United States dollar.

If a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our Class A common shares, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our Class A common shares, you should consult your tax advisors.

Except where specifically described below, this discussion assumes that we are not a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. See the discussion under “—Passive Foreign Investment Company” below.

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This discussion does not contain a detailed description of all the U.S. federal income tax consequences to you in light of your particular circumstances and does not address the Medicare tax on net investment income or the effects of any state, local or non-United States tax laws. If you are considering the purchase of our Class A common shares, you should consult your own tax advisors concerning the particular U.S. federal income tax consequences to you of the purchase, ownership and disposition of our Class A common shares, as well as the consequences to you arising under other U.S. federal tax laws and the laws of any other taxing jurisdiction.

Taxation of Dividends

Subject to the discussion under “—Passive Foreign Investment Company” below, the gross amount of distributions on the Class A common shares will be taxable as dividends to the extent paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year, the distribution will first be treated as a tax-free return of capital, causing a reduction in the tax basis of the Class A common shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain recognized on a sale or exchange. We do not, however, expect to determine earnings and profits in accordance with U.S. federal income tax principles. Therefore, you should expect that a distribution generally will be reported as a dividend.

With respect to non-corporate United States Holders, certain dividends received from a qualified foreign corporation may be subject to reduced rates of taxation so long as certain holding period and other requirements are met. A foreign corporation is treated as a qualified foreign corporation provided that (i) the corporation was not, in the year prior to the year in which the dividend was paid, and is not, in the year in which the dividend is paid, a PFIC (as discussed below), and (ii) either (A) the corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that the IRS has approved for purposes of the qualified dividend rules or (B) the stock with respect to dividends paid by that corporation is readily tradable on an established securities market in the United States, such as the NYSE. Our Class A common shares are listed on the NYSE.

We believe that dividends we pay on our Class A common shares will meet the conditions required for the reduced tax rate. There can be no assurance, however, that our Class A common shares will be considered readily tradable on an established securities market in later years. Non-corporate United States Holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. You should consult your own tax advisors regarding the application of these rules to your particular circumstances.

Any dividends that you receive will be includable in your gross income as ordinary income on the day actually or constructively received by you. Such dividends will not be eligible for the dividends received deduction allowed to corporations under the Code.

Passive Foreign Investment Company

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Under the Code, we will be a PFIC for any taxable year in which, after the application of certain “look-through” rules with respect to subsidiaries, either (i) 50% or more of the average quarterly value of our assets consist of assets that produce, or are held for the production of, passive income (the “asset test”) or (ii) 75% or more of our gross income consists of passive income (the “income test”). For purposes of the asset test, any cash, including proceeds from the public offering, will generally be treated as a passive asset and the amount of cash held by us in any year will depend, in part, on when we spend the cash raised from the public offering and generated in our operations. Furthermore, to the extent any of our receivables are considered to give rise to passive income, such receivables will be considered passive assets for purposes of the asset test. In addition, the determination of our PFIC status will depend upon the nature of the assets acquired by us. Moreover, the determination of the value of our assets may depend on our market capitalization, and that market capitalization may fluctuate. Accordingly, there can be no assurance that we will satisfy the asset test in the current or any future year.

For purposes of the income test, passive income generally includes dividends, interest (including certain types of income that are equivalent to interest), royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person), as well as gains from the sale of assets (such as stock) that produce passive income, foreign currency gains, and certain other categories of income. If we own at least 25% (by value) of the stock of another corporation, we will be treated, for purposes of determining whether we are a PFIC, as owning our proportionate share of the other corporation’s assets and receiving our proportionate share of the other corporation’s income.

Although we consider ourselves to be actively engaged in an active business with respect to a number of business lines and to be engaged in an active financing activity with respect to the early payment of receivables feature that we offer merchants regarding credit card transactions in installments in particular, and we believe that income from such businesses and features is likely not treated as passive income for purposes of the PFIC rules, it is not entirely clear how such income will be treated for these purposes. In particular, certain of our income may be treated as passive income unless such income is eligible for an exception for certain income derived in the active conduct of a financing business under Section 954(h) of the Code (the “active financing exception”), and related assets may be considered passive assets unless the active financing exception applies. We believe that the active financing exception will likely apply to treat such income as active, but if it is determined, contrary to our view, that the income from these businesses and features is passive for U.S. federal income tax purposes, that would alter the composition of our income and assets for purposes of testing our PFIC status, and may cause us to be treated as a PFIC.

If we are a PFIC for any taxable year during which you hold our Class A common shares and you do not make a timely mark-to-market election, as described below, you will be subject to special tax rules with respect to any “excess distribution” received and any gain realized from a sale or other disposition, including a pledge, of Class A common shares. Distributions received in a taxable year will be treated as excess distributions to the extent that they are greater than 125% of the average annual distributions received during the shorter of the three preceding taxable years or your holding period for the Class A common shares. Under these special tax rules:

•

the excess distribution or gain will be allocated ratably over your holding period for the Class A common shares,

•

the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and

•

the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year for individuals or corporations, as applicable, and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

Although the determination of whether we are a PFIC is made annually, if we are a PFIC for any taxable year in which you hold our Class A common shares, you generally will be subject to the special tax rules described above for that year and for each subsequent year in which you hold the Class A common shares (even if we do not qualify as a PFIC in such subsequent years). However, if we cease to be a PFIC, you can avoid the continuing impact of the PFIC rules by making a special election to recognize gain as if you had sold our Class A common shares on the last day of the last taxable year during which we were a PFIC. You are urged to consult your own tax advisor about this election.

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In lieu of being subject to the special tax rules discussed above, you may make a mark-to-market election with respect to our Class A common shares provided such Class A common shares are treated as “marketable stock.” The Class A common shares generally will be treated as marketable stock if they are “regularly traded” on a “qualified exchange or other market” (within the meaning of the applicable Treasury regulations), such as the NYSE.

If you make an effective mark-to-market election, for each taxable year that we are a PFIC you will include as ordinary income the excess of the fair market value of our Class A common shares at the end of the year over your adjusted tax basis in the Class A common shares. You will be entitled to deduct as an ordinary loss in each such year the excess of your adjusted tax basis in the Class A common shares over their fair market value at the end of the year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. Your adjusted tax basis in the Class A common shares will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark-to-market rules. In addition, upon the sale or other disposition of our Class A common shares in a year that we are a PFIC, any gain will be treated as ordinary income and any loss will be treated as ordinary loss, but only to the extent of the net amount of previously included income as a result of the mark-to-market election. If you make a mark-to-market election, the tax rules that apply to distributions by corporations that are not PFICs would apply to distributions by us, except that the reduced rate discussed above under “—Taxation of Dividends” would not apply.

If you make a mark-to-market election, it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the Class A common shares are no longer regularly traded on a qualified exchange or other market, or the Internal Revenue Service consents to the revocation of the election. You are urged to consult your tax advisor about the availability of the mark-to-market election, and whether making the election would be advisable in your particular circumstances.

Alternatively, you can sometimes avoid the special tax rules described above by electing to treat a PFIC as a “qualified electing fund” under Section 1295 of the Code. However, this option is not available to you because we do not intend to comply with the requirements necessary to permit you to make this election.

If we are a PFIC for any taxable year during which you hold our Class A common shares and any of our non-United States subsidiaries is also a PFIC, you will be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of the PFIC rules.

You are urged to consult your tax advisors about the application of the PFIC rules to any of our subsidiaries.

You generally will be required to file Internal Revenue Service Form 8621 if you hold our Class A common shares in any year in which we are classified as a PFIC. You are urged to consult your tax advisors concerning the U.S. federal income tax consequences of holding Class A common shares if we are considered a PFIC in any taxable year.

Taxation of Capital Gains

For U.S. federal income tax purposes, you will recognize taxable gain or loss on any sale or exchange of the Class A common shares in an amount equal to the difference between the amount realized for the Class A common shares and your tax basis in the Class A common shares. Your initial tax basis in the Class A common shares will be the U.S. dollar value of the purchase price determined on the date of purchase. Subject to the discussion under “—Passive Foreign Investment Company” above, such gain or loss generally will be capital gain or loss and generally will be long-term capital gain or loss if you have held the Class A common shares for more than one year. Long-term capital gains of noncorporate United States Holders (including individuals) are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any gain or loss recognized by you generally will be treated as United States source gain or loss.

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Information Reporting and Backup Withholding

In general, information reporting will apply to dividends in respect of our Class A common shares and the proceeds from the sale, exchange or other disposition of our Class A common shares that are paid to you within the United States (and in certain cases, outside the United States), unless you are an exempt recipient. Backup withholding may apply to such payments if you fail to provide a taxpayer identification number or certification of exempt status or fail to report in full dividend and interest income. Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information is timely furnished to the IRS.

In addition, you should be aware that additional reporting requirements apply (including a requirement to file IRS Form 8938, Statement of Specified Foreign Assets) with respect to the holding of certain foreign financial assets, including stock of foreign issuers which is not held in an account maintained by certain financial institutions, if the aggregate value of all of such assets exceeds US$50,000 at the end of the taxable year or US$75,000 at any time during the taxable year. The thresholds are higher for individuals living outside of the United States and married couples filing jointly. You are encouraged to consult your own tax advisors regarding the application of the information reporting rules to the Class A common shares and the application of these additional reporting requirements for foreign financial assets to your particular situation.

YOU ARE ENCOURAGED TO CONSULT YOUR OWN INDEPENDENT TAX ADVISORS TO DETERMINE THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF CLASS A COMMON SHARES.

Dividends and Payments Agents

Not applicable.

Statements by Experts

Not applicable.

Documents on Display

Statements contained in this annual report regarding the contents of any contract or other document are not necessarily complete, and, where the contract or other document is an exhibit to the annual report, each of these statements is qualified in all respects by the provisions of the actual contract or other documents.

We are subject to the informational requirements of the Exchange Act that are applicable to foreign private issuers. Accordingly, we are required to file reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. You may inspect and copy the reports and other information to be filed with the SEC at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington D.C. 20549. Copies of the materials may be obtained from the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC in the United States at 1-800-SEC-0330. In addition, the SEC maintains an Internet website at http://www.sec.gov, from which you can electronically access the registration statement and its materials.

As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements and our executive officers, directors and principal shareholders are exempt from reporting and short swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.

You may request a copy of our SEC filings, at no cost, by contacting us at our headquarters at Av. Brigadeiro Faria Lima, 1384, 4º andar, parte A, São Paulo, SP, 01451-001, Brazil. Our investor relations office can be reached at +55 11 3038-8127.

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Subsidiary Information

Not applicable.

Common Shares Eligible for Future Sale

As of March 31, 2019, PagSeguro Digital had 162,267,064 Class A common shares (including treasury shares) issued and outstanding, and 165,620,861 Class B common shares issued and outstanding.

Lock-up Agreements

Lock-up Agreement of PagSeguro Digital

In connection with our June 2018 follow-on offering, PagSeguro Digital has agreed not to carry out any of the following actions regarding our Class A common shares of PagSeguro Digital for 12 months after June 21, 2018, the date of our follow-on offering:

•

offer, pledge, sell or contract to sell any Class A common shares;

•

sell any option or contract to purchase any Class A common shares;

•

purchase any option or contract to sell any Class A common shares;

•

grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of any Class A common shares or any other securities so owned convertible into or exercisable or exchangeable for Class A common shares;

•

enter into any swap or other agreement that transfers to another, in whole or in part, any of the economic consequences of ownership of Class A common shares

(whether any of the transactions described above are to be settled by delivery of Class A common shares or other securities of our company, in cash, or otherwise), or file a registration statement with the SEC related to any of our Class A common shares.

These lock-up restrictions apply to Class A common shares of PagSeguro Digital and to securities convertible into or exercisable or exchangeable for Class A common shares of PagSeguro Digital.

These lock-up restrictions are, however, subject to certain exceptions, including any issuance of Class A common shares by PagSeguro Digital in connection with a merger, acquisition, joint venture or strategic participation entered into by us, provided that (i) the aggregate number of Class A common shares issued or issuable thereunder shall not exceed 10% of the total number of Class A common shares issued and outstanding as of the date of such merger, acquisition, joint venture or strategic participation, and (ii) the recipient of such Class A common shares shall have agreed with the representatives of the underwriters not to carry out any of the actions described above regarding such Class A common shares.

The lock-up restrictions applicable to PagSeguro Digital are not subject to waiver by the underwriters of our June 2018 follow-on offering.

Lock-up Agreement of UOL

In connection with our June 2018 follow-on offering, UOL has agreed not to carry out any of the following actions regarding Class A common shares of PagSeguro Digital for 12 months after June 21, 2018, the date of our follow-on offering:

•

offer, pledge, sell or contract to sell any Class A common shares;

•

sell any option or contract to purchase any Class A common shares;

•

purchase any option or contract to sell any Class A common shares;

•

enter into any swap or other agreement that transfers to another, in whole or in part, any of the economic consequences of ownership of Class A common shares

(whether any of the transactions described above are to be settled by delivery of Class A common shares or other securities of our company, in cash, or otherwise), or request that PagSeguro Digital file a registration statement with the SEC related to the sale by UOL of any Class A common shares.

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These lock-up restrictions apply to Class A common shares of PagSeguro Digital and to securities convertible into or exercisable or exchangeable for Class A common shares of PagSeguro Digital.

The lock-up restrictions applicable to UOL are not subject to waiver by the underwriters of our June 2018 follow-on offering or to any exceptions.

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General

Our activities expose us to a variety of financial risks: foreign exchange risk, fraud risk (chargebacks), credit risk and liquidity risk. Our overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on our financial performance. We use derivative financial instruments to hedge certain risk exposures, when applicable. See, Note 11 to our audited consolidated financial statements.

Among the main market risk factors that may affect the PagSeguro business are the following:

Foreign Exchange Risk

Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency. At December 31, 2018 and 2017, we did not have any borrowings. At December 31, 2016, we had borrowings denominated in foreign currency that were linked to derivatives (swaps).

Fraud Risk (Chargebacks)

Our sales transactions are susceptible to potentially fraudulent or improper sales. We use the following two main procedures to control fraud risk:

The first procedure consists of monitoring, on a real time basis, transactions carried out using credit and debit cards and boletos through an anti-fraud system. This process approves or rejects suspicious transactions at the time of the authorization, based on statistical models that are revised on an ongoing basis.

The second procedure detects chargebacks and disputes not identified by the first procedure. This is a complementary procedure and increases our ability to avoid and manage chargebacks.

Credit Risk

Credit risk is managed on a group basis. This risk is limited to the possibility of default by (a) card issuers, who are required to transfer the fees charged for transactions carried out by their card holders to the credit and debit card schemes, and/or (b) acquirers, which we use to approve transactions with card issuers.

In order to mitigate this risk, PagSeguro Brazil has established a Credit and Liquidity Risk Committee, whose responsibility is to assess the level of risk of each card issuer served by us, classifying them into three groups:

(i)	card issuers presenting a low level of risk, who have credit ratings assigned by Fitch, S&P or Moody’s and who do not require additional monitoring;

(ii)	card issuers presenting a medium level of risk, who are monitored in accordance with Basel requirements and property, plants and equipment ratios; and

(iii)

card issuers presenting a high level of risk, who are assessed by the Credit and Liquidity Risk Committee at monthly meetings.

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No credit limits were exceeded in 2018, 2017 or 2016. Management does not expect any losses from non-performance by these counterparties in addition to the amounts already recognized as chargebacks, presented as fraud risk.

Liquidity Risk

We manage liquidity risk by maintaining reserves, bank and credit lines to obtain borrowings when deemed appropriate. We continuously monitor actual and projected cash flows, and match the maturity profile of our financial assets and liabilities in order to ensure we have sufficient funds to honor our obligations to third parties and meet our operational needs.

We invest surplus cash in interest-bearing financial investments, choosing instruments with appropriate maturity or sufficient liquidity to provide adequate margins as determined by the forecasts.

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

None.

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

On January 23, 2018, we commenced our IPO. On January 26, 2018, we closed our IPO, pursuant to which we issued and sold 50,925,642 Class A common shares and UOL sold 70,267,746 Class A common shares. Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC acted as the representatives of the underwriters in our IPO. The 121,193,388 registered Class A common shares were sold to the public at a price of US$21.50 per Class A common share, for an aggregate price of US$2,265,789,433. We incurred approximately US$5.3 million in expenses related to our IPO and paid approximately US$91.2 million in underwriting discounts and commissions.

On June 18, 2018, we commenced our follow-on offering. On June 26, 2018, we closed our follow-on offering, pursuant to which we issued and sold 11,550,000 Class A common shares and UOL sold 24,400,000 Class A common shares. Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC acted as the underwriters in our June 2018 follow-on offering. The 35,950,000 registered Class A common shares were sold to the public at a price of US$29.25 per Class A common share, for an aggregate price of US$1,110,037,500. We incurred approximately US$1.8 million in expenses related to our June 2018 follow-on offering and paid approximatley US$7.9 million in underwriting discounts and commissions.

The net proceeds to PagSeguro Digital from the sale of Class A common shares in our January 2018 IPO and June 2018 follow-on offering were approximately US$1,045.8 million and US$328.1 million, respectively, after deducting underwriting discounts and commissions and estimated expenses payable by us.

To date, we have used our net proceeds from our January 2018 IPO and June 2018 follow-on offering to finance working capital, particularly the early payment of receivables feature that we offer merchants, and to fund future selective acquisitions and investments in businesses, technologies or products that are complementary to our business. We currently plan to continue using our net proceeds from our January 2018 IPO and June 2018 follow-on offering for the same purposes. Any remaining net proceeds will be used for other general corporate purposes. Our management will have broad discretion in allocating the net proceeds from our January 2018 IPO and June 2018 follow-on offering.

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We did not receive any proceeds from the sale of common shares by UOL in our January 2018 IPO and June 2018 follow-on offering.

ITEM 15.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We have evaluated, with the participation of our chief executive officer and chief financial officer, the effectiveness of our disclosure controls and procedures as of December 31, 2018. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2018 to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our Management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for assessing the effectiveness of internal control over financial reporting.

Our internal control over financial reporting is a process designed by, or under the supervision of, our Principal Executive Officer and our Chief Financial and Investor Relations Officer and Chief Accounting Officer, and effected by our board of directors, management and other employees, and is designed to provide reasonable assurance regarding the reliability of financial reporting and of the preparation of our consolidated financial statements for external purposes, in accordance with IFRS as issued by the IASB.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with our policies or procedures may deteriorate.

Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2018, based upon the criteria established in Internal Controls—Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of Treadway Commission (COSO). Based on this assessment and criteria, our management has concluded that our internal control over financial reporting was effective as of December 31, 2018.

Attestation Report of the Registered Public Accounting Firm

This annual report does not include an attestation report of our independent registered public accounting firm on our internal control over financial reporting.

Changes in internal control over financial reporting

Not applicable.

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ITEM 16.

[RESERVED]

ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT

At our board meeting held on January 8, 2018, we established an audit committee, as defined under section 3(a)(58) of the Exchange Act. Our board of directors has determined that Noemia Gushiken qualifies as an “audit committee financial expert” as defined for the purposes of this Item 16A in Item 16 of Form 20 F. Noemia Gushiken is an “independent director” within the meaning of the SEC rules. For more information, see “Item 6. Directors, Senior Management and Employees—Audit Committee.”

ITEM 16B.

CODE OF ETHICS

We consider ethics to be an essential value for our reputation and longevity. PagSeguro Digital, including all of our employees, is subject to UOL’s Code of Ethics and Conduct, or the Code of Ethics. We will report each year under Item 16B of our annual report on Form 20-F any waivers of the Code of Ethics, in favor of our principal executive officer, chief financial officer, principal accounting officer and persons performing similar functions. The Code of Ethics governs all relations between companies in the UOL group and their stakeholders (shareholders, clients, employees, suppliers, service providers, governments, communities and society). A copy of the Code of Ethics is available on our website at http://investors.pagseguro.com/Cache/1500109327.PDF?O=PDF&T=&Y=&D=&FID=1500109327&iid=9282297 (This URL is intended to be an inactive textual reference only. It is not intended to be an active hyperlink to our website. The information on our website, which might be accessible through a hyperlink resulting from this URL, is not and shall not be deemed to be, incorporated into this annual report).

ITEM 16C.

Principal Accountant Fees and Services

Audit and Non-Audit Fees

The following table sets forth the fees billed to us by our independent registered and public accounting firm during the years ended December 31, 2018 and 2017. Our independent accounting firm was PricewaterhouseCoopers Auditores Independentes for the years ended December 31, 2018 and 2017.


	Year ended December 31,
	2018		2017
	(in thousands of *reais*)
Audit fees⁽¹⁾		2,687.6		4,211.6
Audit-related fees		—		—
Tax fees		—		—
All other fees⁽²⁾		—		196.0

Total		2,687.6		4,407.6

(1)

“Audit Fees” include fees for (i) the audit of our annual consolidated financial statements for the years ended December 31, 2018, 2017 and 2016, prepared in accordance with IFRS, as issued by the IASB, (ii) the review of our interim financial statements for the three-month periods ended March 31, 2018 and 2017, for the six-month periods ended June 30, 2018 and 2017 and for the nine-month periods September 30, 2018 and 2017 and (iii) the preparation and issuance of comfort letters in connection with our January 2018 IPO and June 2018 follow-on offering.

(2)	“All other fees” include fees for services related to the reconciliation of transactions and amounts with credit card issuers.

Audit Committee Pre-Approval Policies and Procedures

In accordance with the requirements of the US Sarbanes-Oxley Act of 2002 and rules issued by the SEC, in connection with the establishment of our audit committee (which was undertaken as a result of our IPO in January 2018), we introduced a procedure for the review and pre-approval of any services performed by PricewaterhouseCoopers Auditores Independentes, including audit services, audit related services, tax services and other services. The procedure requires that all proposed engagements of PricewaterhouseCoopers Auditores Independentes for audit and permitted non-audit services are submitted to the audit committee for approval prior to the beginning of any such services.

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ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

On October 30, 2018, we announced the adoption of our share repurchase program in an aggregate amount of up to US$250 million. Our share repurchase program went into effect in the fourth quarter of 2018 and does not have a fixed expiration date. The program may be executed in compliance with Rule 10b-18 under the Exchange Act.

The table below summarizes the repurchases we made in the periods indicated.


Month	Total Number of Class A Common Shares Purchased		Average Price Paid Per Class A Common Share (R$)		Total Number of Class A Common Shares Purchased as Part of Share Repurchase Program		Approximate Dollar Value of Class A Common Shares that May Yet Be Purchased Under Share Repurchase Program⁽¹⁾ (US$, in millions)
January 2018		—		—		—		—
February 2018		—		—		—		—
March 2018		—		—		—		—
April 2018		—		—		—		—
May 2018		—		—		—		—
June 2018		—		—		—		—
July 2018		—		—		—		—
August 2018		—		—		—		—
September 2018		—		—		—		—
October 2018		—		—		—		—
November 2018		3,400		91.87095		3,400		249.9
December 2018		500,242		77.97326		500,242		239.9

(1)	Our share repurchase program, which was adopted in October 2018 authorized the repurchase in an aggregate amount of up to US$250 million with no fixed expiration date.

ITEM 16F.

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

PricewaterhouseCoopers Auditores Independentes was appointed to act as our independent public accounting firm to audit our consolidated financial statements for the fiscal years ended December 31, 2017 and 2018, until the filing of this Form 20-F with the SEC. On March 14, 2019, we dismissed PricewaterhouseCoopers Auditores Independentes as our independent public accounting firm, effective upon the filing of this annual report. On March 2, 2019 our audit committee approved the appointment of Ernst & Young Auditores Independentes S.S. to act as our independent public accounting firm beginning with a review of our quarterly information for the first quarter of 2019.

The reports of PricewaterhouseCoopers Auditores Independentes on our financial statements for each of the fiscal years ended on December 31, 2017 and 2018 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the fiscal years ended December 31, 2017 and 2018 and the subsequent interim period through March 14, 2019, there have been no disagreements with PricewaterhouseCoopers Auditores Independentes on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreement, if not resolved to the satisfaction of PricewaterhouseCoopers Auditores Independentes, would have caused PricewaterhouseCoopers Auditores Independentes to make a reference to the subject matter of the disagreement in connection with its audit reports for such fiscal years, and there were no “reportable events” as that term is defined in Item 16F(a)(1)(v) of Form 20-F.

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We have provided PricewaterhouseCoopers Auditores Independentes with a copy of the foregoing disclosure, and have requested that it furnish us with a letter addressed to the SEC stating whether or not it agrees with such disclosure. A copy of this letter is filed as Exhibit 15.1 to this Form 20 F.

During the fiscal years ended December 31, 2017 and 2018 and the subsequent interim period through March 14, 2019, we did not consult Ernst & Young Auditores Independentes S.S. as to the application of accounting principles to a specified transaction, either completed or proposed, the type of audit opinion that might be rendered on our financial statements or any matter that was either the subject of a disagreement (as defined in Item 16F(a)(1)(iv) of Form 20 F) or a “reportable event” (as described in Item 16F(a)(1)(v) of Form 20 F).

ITEM 16G.

CORPORATE GOVERNANCE

Significant Differences between our Current Corporate Governance Practices and the U.S. Corporate Governance Standards

We are subject to the NYSE corporate governance listing standards. As a foreign private issuer, however, the standards applicable to us are considerably different from the standards that apply to U.S. listed companies. Under the NYSE rules, as a foreign private issuer, we may follow the “home country” practice of the Cayman Islands, except that we are required (a) to have an audit committee or audit board that meets certain requirements, pursuant to an exemption available to foreign private issuers (subject to the phase-in rules described above under “Item 6. Directors, Senior Management and Employees—Audit Committee”) (b) to provide prompt certification by our chief executive officer of any material non-compliance with any corporate governance rules; and (c) to provide a brief description of the significant differences between our corporate governance practices and the NYSE corporate governance practice required to be followed by U.S. listed companies.

A summary of the significant differences between our corporate governance practices and those required of U.S. listed companies is included below.

Majority of Independent Directors

The NYSE rules applicable to U.S. companies require a majority of the board of directors to be comprised of Independent Directors. Independence is defined by various criteria, including the absence of a material relationship between the director and the listed company. This is not required by the laws of the Cayman Islands. While our directors meet the qualification requirements of Cayman corporate law, we do not believe that a majority of our directors would be considered independent under the NYSE test for director independence. Currently, three of our directors, Noemia Gushiken, Marcos de Barros Lisboa and Cleveland Prates Teixeira, are independent.

Compensation committee

The NYSE rules applicable to U.S. companies require the company to have, and to certify that it has and will continue to have, a compensation committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities. This is not required by the laws of the Cayman Islands. Our board of directors is responsible for determining the individual compensation of each executive officer, as well as the compensation of our board and committee members. In making such determinations, the board will review the performance of our executive officers, including the performance of our principal executive officer, who will be required to excuse him- or herself from discussions regarding his or her performance and compensation.

125

ITEM 16H.

MINE SAFETY DISCLOSURE

Not applicable.

ITEM 17.

FINANCIAL STATEMENTS

Not applicable.

ITEM 18.

FINANCIAL STATEMENTS

See pages F-1 through F-47, incorporated herein by reference.

Item 19.

EXHIBITS


No.		Description
1.1		Memorandum and Articles of Association of the Registrant (incorporated by reference to Exhibit 3.1 of Form F-1/A filed on January 10, 2018).
4.1†		English translation of the Agreement for the Supply of Equipment – PIN pad Terminals, dated as of June 26, 2014, among PAX BR Comercio de Equipamentos de Informática Ltda., CIS Eletrônica Indústria e Comércio Ltda., and Net+Phone Telecomunicações Ltda., including 1st Addendum to the Agreement for the Supply of Equipment, dated as of October 21, 2014, among PAX BR Comercio de Equipamentos de Informática Ltda., CIS Eletrônica Indústria e Comércio Ltda., Densam da Amazônia Industria Eletrônica Ltda., and Net+Phone Telecomunicações Ltda.; 2nd Addendum to the Agreement for the Supply of Equipment, dated as of July 3, 2015, among PAX BR Comercio de Equipamentos de Informática Ltda., CIS Eletrônica Indústria e Comércio Ltda., Densam da Amazônia Industria Eletrônica Ltda., Transire Fabricação de Componentes Eletrônicos Ltda., and Net+Phone Telecomunicações Ltda.; 3rd Addendum to the Agreement for the Supply of Equipment, dated as of October 8, 2015, among PAX BR Comercio de Equipamentos de Informática Ltda., Transire Fabricação de Componentes Eletrônicos Ltda., and Net+Phone Telecomunicações Ltda.; Statement of Liability for the Application Signer’s Use on PAX Terminals, dated as of March 9, 2016, among PAX BR Comercio de Equipamentos de Informática Ltda. and Net+Phone Telecomunicações Ltda.; 4th Addendum to the Agreement for the Supply of Equipment, dated as of May 20, 2016, among PAX BR Comercio de Equipamentos de Informática Ltda., Transire Fabricação de Componentes Eletrônicos Ltda., and Net+Phone Telecomunicações Ltda.; 5th Addendum to the Agreement for the Supply of Equipment, dated as of December 9, 2016, among PAX BR Comercio de Equipamentos de Informática Ltda., Transire Fabricação de Componentes Eletrônicos Ltda., and Net+Phone Telecomunicações Ltda.; 6th Addendum to the Agreement for the Supply of Equipment, dated as of February 6, 2017, among PAX BR Comercio de Equipamentos de Informática Ltda., Transire Fabricação de Componentes Eletrônicos Ltda., and Net+Phone Telecomunicações Ltda. (incorporated by reference to Exhibit 10.1 of Form F-1 filed on December 26, 2017).
4.2†		English translation of 7th Addendum to the Agreement for the Supply of Equipment, dated as of August 25, 2017, among Net+Phone Telecomunicações Ltda., PAX BR Comércio e Serviços de Equipamentos de Informática Ltda. and Transire Fabricação de Componentes Eletrônicos Ltda.
4.3†		English translation of the Colocation Agreement, dated as of January 1, 2017, between Pagseguro Internet S.A. and UOL Diveo Tecnologia Ltda., including Commercial Proposal – Colocation Center – OPT-17/21630, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; Technical Proposal – Glete Colocation Datacenter, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; Commercial Proposal – Tamboré Colocation Center – OPT-17-17/21632, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; and Technical Proposal – Tamboré Colocation Datacenter, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda. (incorporated by reference to Exhibit 10.2 of Form F-1 filed on December 26, 2017).

126


No.		Description
4.4†		English translation of the Hosting Agreement, dated as of January 1, 2017, between Pagseguro Internet S.A. and UOL Diveo Tecnologia Ltda., including Commercial Proposal – Hosting/APM – OPT-17/21629, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; Technical Proposal – Hosting – Tamboré DTC & Licensing Service and Dynatrace Support – RUXIT, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; Commercial Proposal – DDos Protection – OPT-17/21631, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; Technical Proposal – DDoS Protection, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; Commercial Proposal – WAF – Web Application Firewall – OPT-17/21635, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; Technical Proposal – WAF – Web Application Firewall, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; Commercial Proposal – Brand Protection – OPT-17/21636, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; Technical Proposal – Brand Protection, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; Commercial Proposal – BPAG & NOTANET – OPT-17/21638, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; and Technical Proposal – Payment Means Management Services, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda. (incorporated by reference to Exhibit 10.3 of Form F-1 filed on December 26, 2017).
4.5†		English translation of the Service Agreement, dated as of January 1, 2017, between Pagseguro Internet S.A. and UOL Diveo Tecnologia Ltda., including Commercial Proposal – Allocation of Resources – OPT-17/21087, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; and Technical Proposal – Allocation of Resources, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda. (incorporated by reference to Exhibit 10.4 of Form F-1 filed on December 26, 2017).
4.6†		English translation of the Telecommunications Service Agreement, dated as of January 1, 2017, between Pagseguro Internet S.A. and UOL Diveo Tecnologia Ltda., including Commercial Proposal – TELECOM Services, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; and Technical Proposal – Lan-to-Lan between Data Centers – Lan-to-Lan, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda. (incorporated by reference to Exhibit 10.5 of Form F-1 filed on December 26, 2017).
4.7†		License Agreement, dated as of June 18, 2015, between MasterCard International Incorporated and Pagseguro Internet Ltda., including the Acceptance Letter, dated as of June 18, 2015, from MasterCard International Incorporated to Pagseguro Internet Ltda.; the Summary of Licenses Granted, dated as of June 18, 2015; and Supplement to MasterCard License Agreement, effective as of March 11, 2015, between MasterCard International Incorporated and Pagseguro S.A. (incorporated by reference to Exhibit 10.6 of Form F-1 filed on December 26, 2017).
4.8†		English translation of the Service Agreement, dated as of January 1, 2017, between Pagseguro Internet S.A. and UOL Diveo Tecnologia Ltda., including Commercial Proposal – Managed Services – OPT-17/21628, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda.; and Technical Proposal – IT Asset Management and Monitoring, dated as of January 1, 2017, from UOL Diveo Tecnologia Ltda. to Pagseguro Internet Ltda. (incorporated by reference to Exhibit 10.7 of Form F-1 filed on December 26, 2017).
4.9		Visa Payment Arrangements Participation and Trademark License Agreement, dated as of August 24, 2015, between Visa do Brasil Empreendimentos Ltda. and Pagseguro Internet Ltda. (incorporated by reference to Exhibit 10.8 of Form F-1 filed on December 26, 2017).
4.10		First Amendment to the Visa Payment Arrangements Participation and Trademark License Agreement, dated as of July 3, 2017, between Visa do Brasil Empreendimentos Ltda. and Pagseguro Internet Ltda.
4.11		Advertising Space Assignment Agreement for Insertion of Advertisements, dated as of August 1, 2015, by and between Universo Online S.A. and Pagseguro Internet Ltda., including 1st Addendum to the Advertising Space Assignment Agreement for Insertion of Advertisements, dated as of January 1, 2017 and UOL – Table of Prices – August 2016. (incorporated by reference to Exhibit 10.9 of Form F-1 filed on December 26, 2017).

127


No.		Description
4.12		English translation of the Long-Term Incentive Plan (LTIP) Restricted Shares Plan – Universo Online S.A., dated as of July 29, 2015. (incorporated by reference to Exhibit 10.10 of Form F-1 filed on December 26, 2017).
4.13		Form of Indemnification Agreement (incorporated by reference to Exhibit 10.11 of Form F-1 filed on December 26, 2017).
4.14		English translation of the Long-Term Incentive Plan – Goals (LTIP-Goals) – Pagseguro Internet S.A., dated as of December 18, 2018.
4.15		English translation of the Agreement for Accreditor Participation in ELO Payment Arrangements, dated as of February 13, 2019, between Elo Serviços S.A. and PagSeguro Internet S.A.
8.1		Subsidiaries of the Registrant.
11.1		English translation of the UOL Code of Ethics and Conduct (incorporated by reference to Exhibit 11.1 of Form 20-F filed on April 6, 2018).
12.1		Certification of Luiz Frias, Principal Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2		Certification of Eduardo Alcaro, Chief Financial and Investor Relations Officer and Chief Accounting Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1		Certification of Luiz Frias, Principal Executive Officer, Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2		Certification of Eduardo Alcaro, Chief Financial and Investor Relations Officer and Chief Accounting Officer, Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
15.1		Letter from PricewaterhouseCoopers Auditores Independentes to the SEC, dated April 15, 2019, regarding the change in independent accounting firm.
99.1		Consent of Datafolha (incorporated by reference to Exhibit 99.1 of Form F-1 filed on December 26, 2017).
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

(†)	Certain identified confidential information has been redacted from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

GLOSSARY OF TERMS

“ABECS” means the Brazilian Association of Credit Card and Services Companies (Associação Brasileira de Empresas de Cartões de Crédito e Serviços).

“ABRANET” means the Brazilian Internet Association (Associação Brasileira de Internet).

“acquirer” means a payment institution that does not manage payment accounts, but enables merchants to accept payment cards issued by a payment institution or by a financial institution that participates in a card scheme. The acquirer receives the card transaction details from the merchant’s terminal, passes them to the card issuer via the card scheme for authorization, and completes the processing of the transaction. The acquirer arranges settlement of the card transaction and credits the merchant’s bank account with the funds in accordance with its service agreement with the merchant. The acquirer also deals with any chargebacks that may be received via the card issuer regarding consumer transactions with merchants.

128

“active merchant” means a merchant that has completed at least one transaction during the 12 months prior to a specified date.

“average spending per active merchant” is calculated by dividing our total TPV for a specified period by the number of active merchants in such period.

“boleto” means a printable document issued by merchants that is used to make payments in Brazil. Boletos can be used to pay bills for products or services, utilities or taxes. Each boleto refers to a specific merchant and customer transaction, and includes the merchant’s name, customer information, expiration date and total amount due, plus a serial number that identifies the account to be credited and a barcode so the entire document can be read and processed by a Brazilian ATM. A boleto can be paid in cash at a bank teller, at an ATM, or by bank transfer. PagSeguro’s payment platform and merchant account can be used to pay boletos.

“Brazilian Payments System” (Sistema de Pagamentos Brasileiro, or SPB) refers to all the entities, systems and procedures related to the clearing and settlement of funds transfer, foreign currency operations, financial assets, and securities transactions in Brazil. The SPB includes systems in charge of check clearing; the clearing and settlement of electronic debit and credit orders, funds transfer, and other financial assets; the clearing and settlement of securities transactions; the clearing and settlement of commodities and futures transactions; and, since the introduction of Law No. 12,865/13 of May 17, 2013, payment schemes and payment institutions.

“card scheme” means a payment network using payment cards, such as debit or credit cards. Any bank or any other eligible institution can become a member of a card scheme, allowing it to issue payment cards operating on the card scheme. The card scheme passes card transaction details from the acquirer to the issuer and passes payments back to the acquirer, which in turn pays the merchant. MasterCard and Visa are major card schemes.

“Chargeback” refers to a claim where the consumer makes a purchase using a payment card and subsequently requests a reversal of the transaction amount from the card issuer on the basis of a commercial claim (for example, if the goods are not delivered, or are delivered damaged). Chargebacks occur more frequently in online transactions than in in-person transactions, and more frequently for goods than for services.

“Chargebacks related to fraudulent transactions” refers to chargebacks where the consumer’s request for a reversal of the transaction amount is related to an illegitimate transaction.

“eWallet” is a digital wallet that offers customers the ability to make payments online using a variety of payment methods, including cards, without having to type in the card details each time.

“FIDC” means Fundo de Investimento em Direitos Creditórios (Fund for Investment in Receivables), a type of investment fund established under Brazilian law composed of receivables.

“GPRS” means “General Packet Radio Service,” a packet-based wireless communication service on the 2G and 3G cellular communication systems that provides continuous connection to the Internet for mobile phone and computer users.

“Grupo Folha” means the group of companies of which PagSeguro is a part. Grupo Folha also includes the newspaper Folha de S. Paulo; the eCommerce logistics companies Transfolha and SPDL; the research company Datafolha; the printing company Plural; the digital content and products companies UOL, UOL Host and UOL Ad_Lab; the e-learning company UOL Edtech; and the cloud and information technology, or IT, infrastructure services company UOL Diveo.

“Individual Micro Entrepreneurs” refers to businesses that are classified as such in accordance with the standard segmentation of Brazilian businesses by size under Brazilian Law No. 123/2006, known as the General Law on Micro and Small Enterprises, as amended, and the Brazilian tax code. This classification refers to businesses with annual gross revenues of up to R$81,000 for periods through December 31, 2018.

“Large Companies” refers to legal entities with annual gross revenues in excess of R$78 million. This commonly-used definition in Brazil refers to companies that are not eligible for the deemed profit (lucro presumido) taxation regime under Brazilian Law No. 9,718/1998, as amended.

129

“MDR” means merchant discount rate, a commission that we withhold from the transaction value paid to the merchant.

“meal voucher card” refers to a labor benefit included in Brazilian employment contracts, where employers provide cash for employee meals on a tax-efficient basis. The employer deposits the benefit to a prepaid card held by the employee, and the employee can use the balance on the card to make purchases in restaurants and grocery stores.

“Medium-Sized Companies” refers to legal entities with annual gross revenues of between R$3.6 million and R$78 million. This commonly-used definition in Brazil refers to companies that are eligible for the deemed profit (lucro presumido) taxation regime under Brazilian Law No. 9,718/1998, as amended.

“Micro Companies” refers to legal entities with annual gross revenues of up to R$360,000, as determined in accordance with the standard segmentation of Brazilian businesses by size under Brazilian Law No. 123/2006, known as the General Law on Micro and Small Enterprises, as amended, and the Brazilian tax code.

“Micro-Merchant” means Micro Companies and Individual Micro Entrepreneurs.

“Mobile Payments” refers to the payment method where a mobile phone is used to complete payment (with payment information being transmitted in real-time), instead of simply as an alternative channel to send payment instructions.

“mPOS” means mobile POS. mPOS devices are similar to POS devices, but they require the merchant’s cell phone in order to function and accept payments. mPOS devices connect to a merchant’s cell phone network by Bluetooth. As an example, the Minizinha is an mPOS device.

“NFC” means near-field communication.

“Portal do Empreendedor” means the Entrepreneur’s Portal – Individual Micro Entrepreneur (Portal do Empreendedor – Microempreendedor Individual), a Brazilian government web portal for Individual Micro Entrepreneurs.

“POS” means point of sale. POS devices allow merchants to accept payments where a sale is made, whether inside an establishment or outside on the street. POS includes mPOS, although various features differentiate the two systems. As an example, the Moderninha Pro is a POS device.

“SDK” means software development kit, which is typically a set of software development tools that allows for the creation of applications for software packages or frameworks, hardware platforms, computer or operating systems or similar development platforms.

“SEBRAE” means the Brazilian Micro and Small Businesses Support Service (Serviço Brasileiro de Apoio às Micro e Pequenas Empresas).

“Small Companies” refers to legal entities that are classified as such in accordance with the standard segmentation of Brazilian businesses by size under Brazilian Law No. 123/2006, known as the General Law on Micro and Small Enterprises, as amended, and the Brazilian tax code. This classification refers to businesses with annual gross revenues of between R$360,000 and R$4.8 million for periods through December 31, 2018.

“SMEs” refers to Small Companies and Medium-Sized Companies.

“TPV” means total payment volume, being the value of payments successfully processed through our end-to-end digital ecosystem, net of payment reversals.

“unique visitor” refers to a person who visits a website at least once in a predetermined time period, typically 30 days. Each visitor to the website is only counted once during the relevant period (i.e., if the same IP address accesses the website several times, it only counts as one visitor).

130

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant, PagSeguro Digital Ltd., hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of São Paulo, Brazil, on April 15, 2019.


PagSeguro Digital Ltd.

By:		/s/ Eduardo Alcaro
Name:		Eduardo Alcaro
Title:		Chief Financial and Investor Relations Officer, Chief Accounting Officer and Director

131

PagSeguro Digital Ltd.

Consolidated Financial Statements at

December 31, 2018 and 2017

and Report of Independent Registered

Public Accounting Firm

F-1

PagSeguro Digital Ltd.

Consolidated financial statements

at December 31, 2018 and 2017

Contents


Management’s Report on Internal Control over Financial Reporting			F-3
Report of independent registered public accounting firm			F-4
Consolidated financial statements
Consolidated balance sheets			F-6
Consolidated statements of income			F-7
Consolidated statements of comprehensive income			F-8
Consolidated statements of changes in equity			F-9
Consolidated statements of cash flows			F-10
Notes to the consolidated financial statements			F-11

F-2

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for assessing the effectiveness of internal control over financial reporting.

This management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report this year.

February 18, 2019

/s/ Eduardo Alcaro

Eduardo Alcaro

Chief Financial and Investor Relations Officer,

Chief Accounting Officer and Director

F-3

Report of independent registered

public accounting firm

To the Board of Directors and Stockholders

PagSeguro Digital Ltd.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of PagSeguro Digital Ltd. and its subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2018 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

F-4

PagSeguro Digital Ltd.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

São Paulo, Brazil, February 19, 2019

/s/ PricewaterhouseCoopers Auditores Independentes

We have served as the Company’s auditor since 2015.

F-5

PagSeguro Digital Ltd.

Consolidated balance sheets

At December 31

(All amounts in thousands of reais)


CURRENT ASSETS
Cash and cash equivalents	6	2,763,050		66,767
Financial investments	7	—		210,103
Note receivables	8	8,104,679		3,522,349
Receivables from related parties	9	—		124,723
Inventories		88,551		61,609
Taxes recoverable		65,653		14,446
Other receivables		20,148		27,956

Total current assets		11,042,081		4,027,953

NON-CURRENT ASSETS
Judicial deposits		1,511		872
Prepaid expenses		968		160
Deferred income tax and social contribution	17	—		37,015
Property and equipment	11	67,104		10,889
Intangible assets	12	305,614		158,868

Total non-current assets		375,197		207,804

TOTAL ASSETS		11,417,278		4,235,757


CURRENT LIABILITIES
Payables to third parties	13	4,324,198		3,080,569
Trade payables		165,246		92,444
Payables to related parties	9	30,797		39,101
Salaries and social charges	14	73,936		34,269
Taxes and contributions	15	80,093		52,064
Provision for contingencies	16	7,004		4,648
Other payables		29,501		15,872

Total current liabilities		4,710,775		3,318,967


NON-CURRENT LIABILITIES
Deferred income tax and social contribution	17	132,125		42,809
Other payables		—		3,590

Total non-current liabilities		132,125		46,399


TOTAL LIABILITIES		4,842,900		3,365,366


EQUITY
Share capital	18	26		524,577
Legal reserve	18	—		30,216
Capital reserve	18	5,688,134		—
Equity valuation adjustments	18	(7,325	)	55
Profit retention reserve	18	909,267		312,047
Treasury shares	18	(39,532	)	—

		6,550,570		866,895

Non-controlling interests		23,806		3,496

TOTAL EQUITY		6,574,376		870,391

TOTAL LIABILITIES AND EQUITY		11,417,278		4,235,757

The accompanying notes are an integral part of these consolidated financial statements.

F-6

PagSeguro Digital Ltd.

Consolidated statements of income

Year ended December 31

(All amounts in thousands of reais unless otherwise stated)


	Note	December 31, 2018			December 31, 2017			December 31, 2016
Net revenue from transaction activities and other services	20		2,267,103			1,224,261			480,025
Net revenue from sales	20		374,612			471,924			260,594
Financial income	20		1,414,532			818,624			392,429
Other financial income	20		278,445			8,576			5,337

Total revenue and income			4,334,692			2,523,385			1,138,385
Cost of sales and services	21		(2,144,699	)		(1,324,380	)		(623,667	)
Selling expenses	21		(351,439	)		(245,759	)		(199,937	)
Administrative expenses	21		(581,668	)		(153,177	)		(84,461	)
Financial expenses	21		(31,209	)		(104,544	)		(68,301	)
Other expenses, net	21		(8,054	)		(12,021	)		(6,660	)

PROFIT BEFORE INCOME TAXES			1,217,623			683,504			155,359
Current income tax and social contribution	17		(180,884	)		(214,988	)		(7,431	)
Deferred income tax and social contribution	17		(126,331	)		10,278			(20,149	)

INCOME TAX AND SOCIAL CONTRIBUTION			(307,215	)		(204,710	)		(27,580	)

NET INCOME FOR THE YEAR			910,408			478,794			127,779

Attributable to:
Owners of the Company			909,267			478,781			127,186
Non-controlling interests			1,141			13			593
Basic earnings per common share—R$	19		2.8625			1.8254			0.4849
Diluted earnings per common share—R$	19		2.8582			1.8254			0.4849

The accompanying notes are an integral part of these consolidated financial statements.

F-7

PagSeguro Digital Ltd.

Consolidated statements of comprehensive income

Years ended December 31

(All amounts in thousands of reais)


	2018		2017		2016
NET INCOME FOR THE YEAR		910,408		478,794		127,779
Currency translation adjustment		208		55		—

Total comprehensive income for the year		910,616		478,849		127,779

Attributable to
Owners of the Company		909,475		478,836		127,186

Non-controlling interests		1,141		13		593

Total comprehensive income for the year		910,616		478,849		127,779

The accompanying notes are an integral part of these consolidated financial statements.

F-8

PagSeguro Digital Ltd.

Consolidated statements of changes in equity

(All amounts in thousands of reais)


											Capital reserve					Profit reserve
	Note	Share capital			Net parent Investment			Treasury shares			Capital reserve		Share-based long-term incentive plan (LTIP)			Legal reserve			Profit retention reserve			Retained earnings			Equity valuation adjustments			Total			Non-controlling interests			Total equity
At December 31, 2015			441,616			9,730			—			—		—			757			7,588			—			—			459,691			2,186			461,877

Net income for the period	18		—			—			—			—		—			—			—			127,186			—			127,186			593			127,779
Non-controlling acquisition	18		—			—			—			—		—			—			—			2,779			—			2,779			(2,779	)		—
Capital increase	18		26,610			36,654			—			—		—			—			—			—			—			63,264			—			63,264
Payout capitalization			56,351			(46,384	)		—			—		—			(267	)		4,539			(14,239	)		—			—			—			—
Constitution of legal reserve	18		—			—			—			—		—			5,787			—			(5,787	)		—			—			—			—
Distribution of interest on own capital			—			—			—			—		—			—			—			(26,059	)		—			(26,059	)		—			(26,059	)
Profit retention reserve	18		—			—			—			—		—			—			83,881			(83,881	)		—			—			—			—

At December 31, 2016			524,577			—			—			—		—			6,277			96,008			—			—			626,862			—			626,862

Net income for the period	18		—			—			—			—		—			—			—			478,781			—			478,781			13			478,794
Currency translation adjustment	18		—			—			—			—		—			—			—			—			55			55			—			55
Non-controlling acquisition	18		—			—			—			—		—			—			—			—			—			—			3,483			3,483
Constitution of legal reserve	18		—			—			—			—		—			23,939			—			(23,939	)		—			—			—			—
Equity valuation adjustments	18		—			—			—			—		—			—			—			—			—			—			—			—
Distribution of dividends	18		—			—			—			—		—			—			(96,008	)		(142,795	)		—			(238,803	)		—			(238,803	)
Profit retention reserve	18		—			—			—			—		—			—			312,047			(312,047	)		—			—			—			—

At December 31, 2017			524,577						—			—		—			30,216			312,047			—			55			866,895			3,496			870,391

Conversion of profit reserve to common shares	1.1		(524,556	)		—			—			866,819		—			(30,216	)		(312,047	)		—			—			—			—			—
Net income for the period	18		—			—			—			—		—			—			—			909,267			—			909,267			1,141			910,408
Currency translation adjustment	18		—			—			—			—		—			—			—			—			208			208			—			208
Non-controlling acquisition	18		—			—			—			—		—			—			—			—			(7,588	)		(7,588	)		19,169			11,581
Issurance of common shares in initial public offering, net of offering costs	18		5			—			—			4,522,278		—			—			—			—			—			4,522,283			—			4,522,283
Shares issued—Share based long term incentive plan (LTIP)	18		—			—			—			258,166		(258,166	)		—			—			—			—			—			—			—
Share based long term incentive plan (LTIP)	18		—			—			—			—		299,037			—			—			—			—			299,037			—			299,037
Acquisition of treasury shares	18		—			—			(39,532	)		—		—			—			—			—			—			(39,532	)		—			(39,532	)

At December 31, 2018			26			—			(39,532	)		5,647,263		40,871			—			—			909,267			(7,325	)		6,550,570			23,806			6,574,376

The accompanying notes are an integral part of these consolidated financial statements.

F-9

PagSeguro Digital Ltd.

Consolidated statements of cash flows

Years ended December 31

(All amounts in thousands of reais)


	December 31, 2018			December 31, 2017			December 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before income taxes		1,217,623			683,504			155,359
Expenses (revenues) not affecting cash:
Depreciation and amortization		95,363			51,571			31,246
Loss on sale of property		—			49			—
Chargebacks		71,491			47,854			31,557
Accrual of provision for contingencies		3,745			3,538			603
Share based long term incentive plan (LTIP)		264,179			—			—
Unrealizes on derivative instruments		—			—			6,613
Inventory provisions		20,070			—			—
Other financial cost, net		1			660			5,549
Changes in operating assets and liabilities
Note receivables		(5,048,464	)		(2,066,867	)		(783,954	)
Changes in receivables subject to early payment		(1,737,545	)		1,161,430			406,159
Changes in receivables not subject to early payment		(3,310,919	)		(3,228,297	)		(1,190,113	)
Inventories		(47,012	)		(40,586	)		20,181
Taxes recoverable		(22,936	)		8,055			8,579
Other receivables		773			(23,495	)		17,214
Other payables		(7,330	)		(2,046	)		13,491
Payables to third parties		1,243,629			1,776,538			620,940
Trade payables		72,579			29,531			25,430
Receivables from (payables to) related parties		112,790			(64,400	)		(214,549	)
Salaries and social charges		39,312			13,341			6,618
Taxes and contributions		31,764			(3,109	)		3,867
Provision for contingencies		(1,792	)		486			(42	)

		(1,954,212	)		414,624			(51,298	)

Income tax and social contribution paid		(203,631	)		(166,389	)		(18,059	)
Interest income received		394,643			214,555			146,346
Interest paid		—			(9,175	)		—

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		(1,763,200	)		453,615			76,989

CASH FLOWS FROM INVESTING ACTIVITIES
Amount paid on acquisitions, net of cash acquired		(1,813	)		(22,225	)		—
Purchases of property and equipment		(61,560	)		(7,873	)		(1,996	)
Purchases and development of intangible assets		(192,048	)		(99,673	)		(70,394	)
Acquisition of financial investments		—			(209,569	)		(337,098	)
Redemption of financial investments		211,116			132,107			206,190

NET CASH USED IN INVESTING ACTIVITIES		(44,305	)		(207,233	)		(203,298	)

CASH FLOWS FROM FINANCING ACTIVITIES
Payment of borrowings		—			(199,480	)		—
Proceeds from borrowings		—			—			199,390
Payment of derivative financial instruments		—			(5,831	)		—
Distribution of dividends		—			(54,273	)		—
Proceeds from offering of shares		4,717,875			—			—
Transaction costs		(189,852	)		—			—
Acquisition of treasury shares		(39,532	)		—			—
Transaction with non-controlling interest		(5,389	)		—			—
Capital increase by non-controlling shareholders		20,686			—			—

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		4,503,788			(259,584	)		199,390

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		2,696,283			(13,202	)		73,081

Cash and cash equivalents at the beginning of the year		66,767			79,969			6,888
Cash and cash equivalents at the end of the year		2,763,050			66,767			79,969

The accompanying notes are an integral part of these consolidated financial statements.

F-10

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

1.	General information

PagSeguro Digital Ltd. (“PagSeguro Digital” or the “Company”) is a holding company, subsidiary of Universo Online S.A. (“UOL”), referred to together with its subsidiaries as the “PagSeguro Group”, was incorporated on July 19, 2017 99.99% of the shares of Pagseguro Internet S.A. (“PagSeguro Brazil”) were contributed to PagSeguro Digital on January 4, 2018 and, PagSeguro Digital maintains control of PagSeguro Brazil.

PagSeguro Brazil is a privately-held corporation established on January 20, 2006, headquartered in the city of São Paulo, Brazil, and engaged in providing financial technology solutions and services and corresponding related activities, focused principally on micro-merchants and small and medium-sized businesses (“SMEs”).

PagSeguro Brazil’s subsidiaries are Net+Phone Telecomunicações Ltda. (“Net+Phone”), Boa Compra Ltda. (“Boa Compra”), BCPS Online Services LDA. (“BCPS”), R2TECH Informática S.A. (“R2TECH”), BIVACO Holding S.A (“BIVA”), Fundo de Investimento em Direitos Creditórios—PagSeguro (“FIDC”) and Tilix Digital S.A. (“TILIX”).

These consolidated financial statements include PagSeguro Brazil and its subsidiaries Net+Phone, Boa Compra, BCPS, R2TECH, BIVA, FIDC and TILIX.

1.1

Initial Public Offering (“IPO”)

On January 26, 2018, PagSeguro Digital completed its Initial Public Offering (“IPO”). 50,925,642 new shares were offered by PagSeguro Digital and 70,267,746 shares were offered by the controlling shareholder UOL.

The initial offering price was US$21,50 per common share, for gross proceeds of US$1,095.2 million (or R$3,444.2 million). The Company received net proceeds of US$1,046.0 million (or R$3,289.8 million), after deducting US$43.8 million (or R$137.8 million) in underwriting discounts and commissions and US$5.2 million (or R$16.7 million) of other offering expenses.

The shares offered and sold in the IPO were registered under the Securities Act of 1933, as amended, pursuant to the Company’s Registration Statement on Form F-1 (Registration N_o 333-222292) which was declared effective by the Securities and Exchange Commission on January 26, 2018. The common stock has been traded on the New York Stock Exchange (NYSE) since January 26, 2018, under the symbol “PAGS”.

1.2

Follow-on public offering

On June 26, 2018, PagSeguro Digital completed its follow-on public offering. 11,550,000 new shares were offered by PagSeguro Digital and 26,400,000 shares were offered by the controlling shareholder UOL.

The offering price was US$29,25 per common share, for gross proceeds of US$337.8 million (or R$1,274.4 million). The Company received net proceeds of US$326.8 million (or R$1,232.6 million), after deducting US$7.9 million (or R$29.9 million) in underwriting discounts and commissions and US$3.1 million (or R$11.9 million) of other offering expenses.

1.3

Long-Term Incentive Plan (“LTIP”)

Members of management participate in a Long-Term Incentive Plan, or LTIP, which was established by UOL for its group companies on July 29, 2015 and has been adopted by PagSeguro Digital. Beneficiaries under the LTIP are selected by UOL’s LTIP Committee, which consists of the Chairman and two officers of UOL, and are submitted to our Board of Directors for adoption.

The policy for recognizing and measuring share-based payments in the interim period is described in Note 18.

F-11

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

2.	Preparation of the consolidated financial statements and significant accounting policies

2.1

Basis of financial statements

These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). The consolidated financial statements are presented in thousands of Brazilian reais, unless otherwise indicated, which is the functional currency of PagSeguro Digital and its subsidiaries.

The consolidated financial statements have been prepared under the historical cost convention, which is modified for certain financial assets and liabilities (including derivative instruments) measured at fair value.

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying PagSeguro Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 3.

PagSeguro Group has adopted all pronouncements and interpretations issued by IASB that were in effect at December 31, 2018.

These consolidated financial statements for the years ended December 31, 2018, 2017 and 2016 were approved by PagSeguro Digital’s Board of Directors at a meeting held on February 15, 2019.

2.2

Basis of consolidation

Consolidated financial statements

PagSeguro Group consolidates all entities over which PagSeguro Digital has control, when it is exposed or has rights to variable returns on its interest in the investee, and has the ability to govern the investee’s relevant activities.

The subsidiaries included in the consolidation are described in Note 4.

Subsidiaries

Subsidiaries are all entities over which PagSeguro Digital has control. Subsidiaries are fully consolidated from the date on which control is transferred to PagSeguro Digital. They are deconsolidated from the date that control ceases.

Identifiable assets acquired and liabilities and contingent liabilities assumed for the acquisition of subsidiaries in a business combination are measured initially at their fair values at the acquisition date.PagSeguro Group recognizes any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the fair value of the acquiree’s identifiable net assets. Non-controlling interests are determined upon each acquisition. Acquisition-related costs are accounted for in the statement of income as incurred. These accounting practices do not apply to transactions under common control.

Transactions, balances and unrealized gains on intercompany transactions are eliminated. Unrealized losses are also eliminated, unless the transaction provides evidence of impairment of the asset transferred. The accounting policies of the subsidiaries are changed, where necessary, to ensure consistency with the policies adopted by PagSeguro Group.

2.3

Foreign currency translation

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or the dates of valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of these transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of income.

F-12

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

2.4

Cash and cash equivalents

Cash and cash equivalents are held for the purpose of meeting short-term cash needs and not for investment or any other purposes. PagSeguro Group classifies as cash equivalents a financial investment that can be immediately converted into a known amount of cash and is subject to immaterial risk of change in value. PagSeguro Group classifies financial instruments with original maturities of three months or less as cash equivalents.

2.5

Financial instruments—initial recognition and subsequent measurement

i) Financial assets

Initial recognition and measurement

Financial assets are classified in the following categories: financial assets at fair value through profit or amortized cost. The classification depends on the purpose for which the financial assets were acquired. PagSeguro Group does not classify its financial assets at fair value through comprehensive income.

Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in the statement of income. Financial assets include cash and cash equivalents, current financial investments, note receivables, receivables from related parties, and other receivables.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification, which may be as follows:

Loans and receivables

Loans and receivables are carried at amortized cost using the effective interest rate method.

Financial assets at fair value through profit or loss

This category includes derivative financial instruments which do not meet the hedge accounting criteria defined by IFRS 9 – Financial Instruments.

Financial assets at fair value through profit or loss are presented at fair value in the balance sheet, with the corresponding gains or losses recognized in the statement of income.

PagSeguro Group values its financial assets at fair value through profit or loss, as it intends to trade them within a short period of time. Reclassification to loans and receivables depends on the nature of the asset. This valuation does not affect any financial assets designated at fair value through profit or loss at initial recognition, which cannot be subsequently reclassified.

Derecognition

A financial asset or, where applicable, a part of a financial asset or part of a group of similar financial assets, is derecognized when:

•

The rights to receive cash flows from the asset expire;

•

PagSeguro Group transfers its rights to receive cash flows from the asset, or assumes an obligation to pay the received cash flows in full to a third party under a “pass-through” arrangement; and (a) transfers virtually all the risks and benefits of the asset, or (b) neither transfers nor retains virtually all the risks and benefits of the asset, but transfers control of the asset.

When PagSeguro Group has transferred its rights to receive cash flows from an asset and has not transferred or retained substantially all the risks and benefits of the asset, this asset is recognized to the extent of PagSeguro Group’s continuing involvement in the asset. In such case, PagSeguro Group also recognizes an associated liability.

F-13

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that PagSeguro Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of the consideration that PagSeguro Group may be required to repay.

ii) Impairment of financial assets

PagSeguro Group assesses, at the balance sheet date, if there is objective evidence that a financial asset or a group of financial assets is impaired.

A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

Evidence of impairment may include an indication that the debtors are experiencing significant financial difficulty, probability that the debtor will enter bankruptcy or other financial reorganization, default or delinquency in interest or principal payments, and an indication of a substantial decline in the estimated future cash flows, such as changes in maturity dates or economic conditions related to default.

iii) Financial liabilities

Initial recognition and measurement

Financial liabilities are classified as financial liabilities at fair value through profit or loss, other financial liabilities, or as derivatives designated used for hedge, when appropriate. PagSeguro Group determines the classification of its financial liabilities at initial recognition.

Financial liabilities are initially recognized at fair value plus, in the case of other financial liabilities, directly related transaction costs.

Financial liabilities include payables to third parties, payables to third parties of related parties, trade payables, trade payables of related parties, borrowings, and other payables.

Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification, which may be as follows:

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include held-for-trading financial liabilities and financial liabilities designated at fair value through profit or loss at initial recognition.

Financial liabilities are classified as held-for-trading if acquired for sale in the short term. This category includes derivative financial instruments which do not meet the hedge accounting criteria defined by IFRS 9 – Financial Instruments.

Gains and losses on held-for-trading liabilities are recognized in the statement of income.

Other financial liabilities

After initial recognition, interest-bearing borrowings are subsequently measured at amortized cost, using the effective interest rate method, and are recognized in the statement of income.

F-14

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included in “Financial expenses” in the statement of income.

Derecognition

A financial liability is derecognized when the obligation is discharged, canceled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of income.

iv) Financial instruments—offsetting

Financial assets and liabilities are presented net in the balance sheet if, and only if, there is an existing and enforceable legal right to offset the amounts recognized and an intention to offset or to realize the asset and settle the liability simultaneously.

v) Fair value of financial instruments

The fair value of financial instruments actively traded in organized markets is determined based on quoted market prices at the balance sheet date, without a deduction of transaction costs.

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These techniques include the use of recent arm’s length transactions, reference to other similar instruments, discounted cash flow analysis or other valuation methods.

2.6

Note receivables

The amounts are mainly related to receivables from credit/debit card issuers and acquirers originated from transactions through PagSeguro Group platform, and from sales of credit/debit card readers. If collection is expected in one year or less, they are classified as current assets. Otherwise, they are presented as non-current assets.

However the provision for impairment of note receivables, based on PagSeguro Brazil’s risk assessment, is immaterial because the note receivables are mainly comprised of transactions approved by large financial institutions that have a low risk level based on ratings received from major credit rating agencies. Additionally, these financial institutions are the legal obligors to the note receivables. See Note 23.

Note receivables are initially recorded at the present value of expected future cash flows. The note receivables from installment transactions are estimated based on the present value of the future cash flows, using average appropriate terms and rates, which are in accordance with the terms of these transactions.

PagSeguro Group incurs financial expenses when an election to receive early payment of note receivables from financial institutions is made. This financial expense is recognized at the time the financial institution agrees to liquidate a note receivable due in installments on a prepaid basis, and it is recorded as Financial expenses in the statement of income.

2.7

Inventories

Inventories consist of debit and credit card readers. Inventories are stated at the lower of cost and net realizable value. The cost method used for inventories is the weighted moving average method. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale.

F-15

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

2.8

Property and equipment

Property and equipment are stated at historical cost less accumulated depreciation. Historical cost includes expenditures that are directly attributable to the acquisition of the items and may also include finance costs related to the acquisition of qualifying assets.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with these costs will flow to PagSeguro Group and that such benefits can be reliably measured. The carrying amount of replaced items or parts is derecognized. All other repairs and maintenance expenses are charged to the statement of income during the year in which they are incurred.

The assets’ residual values and useful lives are reviewed at the end of each reporting period, and adjusted on a prospective basis, if appropriate. Depreciation is calculated under the straight-line method, based on the estimated useful lives, as shown below (in years):


Data processing equipment			2.5 to 5 years
Furniture and fittings			10 years
Facilities			10 years
Building improvements			10 years
Machinery and equipment			5 to 10 years
Vehicles			5 years

An asset’s carrying amount is immediately written down to its recoverable amount when the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amounts, and are recognized within “Other (expenses) income, net” in the statement of income.

2.9

Intangible assets

Software licenses are capitalized on the basis of the costs incurred to acquire the software and bring it to use. These costs are amortized on the straight-line basis over the estimated useful life of the software (three to five years).

Costs associated with maintaining computer software programs are recognized as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by PagSeguro Group are recognized as intangible assets.

Directly attributable costs, which are capitalized as part of the software product, include costs incurred with employees and expenses allocated to software development. Borrowing costs incurred during the software development period may also be capitalized.

Other development expenditures that do not meet the capitalization criteria are expensed as incurred. Development costs previously recorded as an expense are not recognized as an asset in a subsequent period, and are presented within “Advisory and consulting services”.

Computer software development costs recognized as assets are amortized over the estimated useful life, which does not exceed five years from the date that technological feasibility is met.

2.10

Impairment of non-financial assets

Non-financial assets are at least annually reviewed for impairment to determine whether there are any events or changes in economic and technological conditions or in operations that may indicate that an asset is impaired. When applicable, such evidence is identified through the annual impairment test. In order to assess a non-financial asset, it is necessary to estimate its recoverable amount. The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs to sell. When the carrying amount of an asset or cash generating unit exceeds its recoverable amount, a provision for impairment is established.

F-16

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

When estimating the value in use of an asset, the future estimated cash flows are discounted to their present value using a pre-tax discount rate that reflects the weighted average cost of capital for the cash generating unit. The net sales price is determined, whenever possible, based on a firm sales contract entered into on an arm’s length basis, between well-informed and willing parties, adjusted by expenses attributable to the asset sale, or, when there is no firm sales contract, based on the price in an active market, or the most recent transaction price for similar assets.

PagSeguro Group annually assesses whether there is any indication that a previously recognized impairment loss no longer exists or has decreased. If there is such indication, the asset’s recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the asset’s carrying amount does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation or amortization, had no impairment loss been recognized for the asset in prior years.

2.11

Payables to third parties

Payables to third parties refer to funds payable and amounts due to merchants that use PagSeguro Brazil platform. PagSeguro Group recognizes the fair value of the transaction which is the transaction amount, net of the transaction cost.

2.12

Provisions

Provisions are recognized when PagSeguro Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. When PagSeguro Group expects the value of a provision to be reimbursed, in whole or in part (for example, due to an insurance contract) the reimbursement is recognized as a separate asset, but only when the reimbursement is virtually certain. Expenses associated with any provisions are presented in the statement of income, net of any reimbursements.

PagSeguro Group is a party to legal and administrative proceedings. Provisions are established for all contingencies related to lawsuits for which it is probable that an outflow of funds will be necessary to settle the contingency/obligation and a reasonable estimate can be made. The assessment of the likelihood of loss includes the evaluation of available evidence, the hierarchy of laws, available case law, recent court decisions and their importance in the legal system, as well as the opinion of outside legal counsel. The provisions are reviewed and adjusted to reflect changes in circumstances.

2.13

Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for transferring goods or services to a customer in the ordinary course of PagSeguro Group’s activities. Revenue is presented net of sales and excise taxes and returns.

PagSeguro Group’s revenue substantially comprises:

•

Revenue from transaction activities and other services: Revenue from fees charged for intermediation of electronic payments, and other services such as prepaid cards, which are recognized at the time the purchase is approved by the financial institution. Revenues from fees charged for intermediation of electronic payments are recognized on a gross basis and related transaction costs are recognized as Cost of sales and services, since PagSeguro Group is considered to be the principal in the intermediation transaction. PagSeguro Group has primary responsibility for providing the services to customers and also directly sets the prices for such services, independently from the related transaction costs agreed between PagSeguro Group and the card schemes or card issuers;

•

Revenue from sales: Revenue from sales of credit and debit card readers and similar items, which is recognized when control of a good is transferred to the customers, i.e., on delivery of the equipment. Under Brazilian consumer law, clients have seven days after ordering Point of Sale equipment (“POS devices”) to cancel the purchase. Returns of devices are accounted for as deductions from revenue from sales at the time the equipment is returned;

•

Financial income: Recognized as a result of the discount rate charged on the early payments of Payables to third parties (merchants). The income is recognized at the time the merchant agrees to receive a sale in installments on an early payment basis, and it is recorded as Financial income in the statement of income.

F-17

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

2.14

Current and deferred income tax and social contribution

Current income tax and social contribution

Tax assets and liabilities for the current year are calculated based on the expected recoverable amount or the amount payable to the tax authorities. The tax rates and tax laws used to calculate the amount are those enacted or substantively enacted at the balance sheet date in the countries where PagSeguro Group operates and generates taxable income.

Current income tax and social contribution related to items recognized directly in equity are recognized in equity. PagSeguro Group periodically evaluates the tax positions involving interpretation of tax regulations and establishes provisions when appropriate.

Deferred taxes

Deferred taxes arise from temporary differences between the tax bases of assets and liabilities and their carrying amounts at the balance sheet date.

Deferred tax liabilities are recognized for all temporary taxable differences, except in the following situations:

•

When the deferred tax liability arises from the initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit; and

•

On temporary tax differences related to investments in subsidiaries, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognized on all deductible temporary differences and tax loss carryforwards, to the extent that it is probable that taxable profit will be available against which they can be offset, except:

•

When the deferred tax asset related to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit or loss; and

•

On the deductible temporary differences associated with investments in subsidiaries. Deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and that taxable profit will be available against which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at each reporting date and a deferred tax asset is recognized to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are re-assessed, at each reporting date and are recognized to the extent that it has become probable that future taxable profits will be available to allow their utilization.

Based on the local law of the Cayman Islands (specifically, the Companies Law of 1960), there is no taxation on the income earned by companies organized in this jurisdiction. Therefore, PagSeguro Digital has no income tax impacts in the Cayman Islands.

For the subsidiaries of PagSeguro Digital, deferred tax assets and liabilities are measured using the prevailing tax rates in the year in which the assets will be realized and the liabilities will be settled. The currently defined tax rates of 25% for income tax and 9% for social contribution are used to calculate deferred taxes.

Deferred tax assets and liabilities are presented on a net basis when there is legally or contractually enforceable right to offset the tax asset against the tax liability, and the deferred taxes are related to the same taxable entity and subject to the same tax authority.

2.15

Employee benefits – Profit sharing

PagSeguro Group recognizes a liability and an expense for profit sharing subject to achievement of operational targets and performance established and approved at the beginning of each fiscal year. PagSeguro Group recognizes a provision when contractually obliged or when there is a past practice that has created a constructive obligation.

F-18

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

2.16

Business combination and goodwill

PagSeguro Group accounts for business combinations using the acquisition method. The cost of an acquisition is measured as the sum of the consideration transferred, based on its fair value on the acquisition date. Costs directly attributable to the acquisition are expensed as incurred. The assets acquired, and liabilities assumed are measured at fair value, classified and allocated according to the contractual terms, economic circumstances and relevant conditions on the acquisition date. Goodwill is measured as the excess of the consideration transferred over the fair value of net assets acquired. If the consideration transferred is smaller than the fair value of net assets acquired, the difference is recognized as a gain on bargain purchase in the statement of income. After initial recognition, goodwill is measured at cost less any accumulated impairment losses.

2.17

Treasury shares

Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the PagSeguro Group’s own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognised in equity.

2.18

Distribution of dividends and interest on own capital

Distributions of dividends and interest on own capital to PagSeguro Brazil’s shareholders are recognized as a liability in the financial statements at year-end, based on the PagSeguro Brazil’s bylaws, which require the distribution of a minimum of 1% of the profit for the year as dividends. Any amount that exceeds the minimum required is only accrued on the date such distribution is approved by the shareholders at a General Medeting. However, these provisions do not exist under PagSeguro Digital Memorandum of Association.

The tax benefit of interest on own capital is recognized in the statement of income.

2.19

New standards and interpretations

(i)

Effective for periods beginning on or after January 1, 2018

IFRS 9 – Financial Instruments

IFRS 9 addresses the classification, measurement and recognition of financial assets and liabilities. The complete version of IFRS 9 was issued in July 2014 and is effective as off January 1, 2018. It replaces the guidance included in IAS 39 related to the classification and measurement of financial instruments. The main amendments brought by IFRS 9 are: (i) new criteria for the classification of financial assets; (ii) new impairment model for financial assets based on expected losses, replacing the current model based on incurred losses; and (iii) relaxation of the requirements for the adoption of hedge accounting.

Beginning January 1,2018, management implemented the new guidelines introduced by IFRS 9 and there is no relevant impact for the PagSeguro Group.

IFRS 15—Revenue from Contracts with Customers

IFRS 15, effective as of January 1, 2018, supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations and it applies, with limited exceptions, to all revenue arising from contracts with customers. The standard establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

Management evaluated the new guidelines introduced by IFRS 15 and applied the five-step model in order to reassess its revenue recognition criteria. Beggining January 1, 2018, management implemented the new guidelines introduced by IFRS 15 and there is no relevant impact for the PagSeguro Group.

There are no other new standards or interpretations that could have a material impact on the PagSeguro Group’s financial statements.

F-19

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

(ii)

Standards issued but not yet effective

IFRS 16—Leases

IFRS 16 was issued in January 2016 and is effective as of January 1, 2019, replaceing IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ‘low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Management evaluated the new guidelines introduced by IFRS 16 and did not identify any material impact for the PagSeguro Group.

There are no other standards or interpretations not yet effective that could have a material impact on the PagSeguro Group’s financial statements.

3.	Critical accounting estimates and judgments

Based on assumptions, PagSeguro Group makes estimates concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below:

3.1

Estimated useful life of intangible assets

PagSeguro Group uses an estimated useful life to calculate and record the amortization applied to its intangible assets which may differ from the actual term over which the intangible assets are expected to generate benefits for PagSeguro Group.

The amortization of software usage rights is defined based on the effective period of the license contracted.

The amortization of internally developed software is defined based on the period over which the software will generate future economic benefits for PagSeguro Group.

3.2

Deferred income tax and social contribution

PagSeguro Group recognizes deferred income tax and social contribution based on future taxable profit estimates for the next ten years. These projections are periodically reviewed and approved by management.

3.3

Provision for contingencies

PagSeguro Group recognizes provisions for civil, tax and labor lawsuits. The assessment of probability of loss includes assessing the available evidence and jurisprudence, the hierarchy of laws and most recent court decisions. Provisions are reviewed and adjusted to take into account changes in circumstances such as the applicable limitation period, findings of tax inspections and additional exposures identified based on new issues or court decisions.

F-20

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

4.	Consolidation of subsidiaries


At December 31, 2018
Company	Assets		Liabilities		Equity			Net income (loss) for the year			Ownership—%		Level
Pagseguro Brazil		12,060,765		5,790,122		6,270,643			776,889			99.99		Direct
Net+Phone		1,440,534		1,411,587		28,948			(15,010	)		99.99		Indirect
Boa Compra		980,529		953,979		26,549			6,588			99.99		Indirect
BCPS		2,447		373		2,074			911			99.50		Indirect
R2TECH		5,813		1,944		3,868			2,691			51.00		Indirect
BIVA		1,882		5,349		(3,468	)		(4,394	)		77.35		Indirect
FIDC		745,236		212,760		532,476			331,179			100.00		Indirect
TILIX		4,410		3,975		435			—			100.00		Indirect

Operations of the subsidiaries

•

PagSeguro Brazil: is engaged in providing financial technology solutions and services and the corresponding related activities. PagSeguro Brazil has investments in the following companies:

•

Net+Phone: Is mainly engaged in acquisition and selling POS devices and similar items. On July 29, 2016, UOL transferred its investment in Net+Phone to PagSeguro Brazil, as a capital contribution, in the amount of R$ 44,317.

•

Boa Compra: Allows its clients to operate in cross-border transactions where the merchant and consumer are located in different countries across Latin America, Spain, Portugal and Turkey. On April 5, 2011, UBN Internet Ltda. (“UBN”), a subsidiary of UOL, acquired a 51% equity interest in Boa Compra. On July 26, 2013, UBN acquired an additional 24% equity interest, increasing its total ownership in Boa Compra to 75%. In May 2016, UBN acquired the remaining 25% equity interest, becoming the owner of 100% of Boa Compra. On July 29, 2016, UBN’s equity interest in Boa Compra was spun off to its parent company UOL. Subsequently, UOL transferred its 99.9% equity interest in Boa Compra to PagSeguro Brazil as a capital contribution, in the total amount of R$ 12,034.

•

BCPS: On January 1, 2017, PagSeguro Brazil acquired 99.5% of the share capital and obtained the control of BCPS. BCPS’s main activity is to serve as Boa Compra’s hub in Portugal and handles part of its account management.

•

R2TECH: On May 2, 2017, PagSeguro Brazil acquired 51.0% of the share capital and obtained the control of R2TECH. R2TECH’s main activity is in the information technology industry, focused on the processing of back-office solutions, including sales reconciliation, gateway solutions and services and the capture of credit cards with acquirers and sub acquirers.

•

BIVA: On October 3, 2017, PagSeguro Brazil acquired a controlling interest of 51.4% in BIVACO Holdings S.A., whose main objective is to acquire participations in other companies, commercial or civil, as partner, shareholder or quotaholder, as well as the management of these holdings.

In November 2017, PagSeguro Brazil acquired an additional interest in BIVA, bringing our total interest to 59.3% of BIVA’s total share capital.

In January 15, March 12 and April 27, 2018, PagSeguro Brazil acquired additional interests in BIVA (15.1%, 0.5% and 2.4%, respectively), bringing its total interest to 77.35% of BIVA’s total share capital (59.3% as of December 31, 2017).

BIVA has investments in the following subsidiaries:

•

Biva Serviços Financeiros S.A : whose main objective is the intermediation among investors, financial institutions and credit borrowers via an electronic platform;

•

Biva Correspondente Bancário Ltda: whose main objective is to structure peer-to-peer financing for small and medium enterprises following the crowdfunding model.

•

Biva Securitizadora de Créditos S.A.: whose main objective is to acquire and securitize financial credits.

F-21

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

•

FIDC: On October 4, 2017, FIDC is an investment fund wich was formed to finance the growth of PagSeguro Brazil’s early payment of receivables feature by acquiring payables to third parties held by PagSeguro Brazil (“Assignor”). PagSeguro Brazil consolidates the financial statements of FIDC. The consolidation is justified by the fact that the risks of default and the responsibility for expenses and administration related to the FIDC are linked to subordinated quotas held by the PagSeguro Brazil.

In March 29, 2018, two investors contributed capital in the amount of R$ 20 million in FIDC, acquiring only senior and mezzanine quotas of the FIDC. The senior and mezzanine quotes pay 107% of the Interbank Deposit Certificate (CDI) with annual amortization of interest.

At December 31, 2018, the share capital of FIDC is composed of subordinated quotas, senior quotas and mezzanine quotas. PagSeguro Brasil owns 100% of the subordinated quotas.

•

TILIX: On December 5, 2018, PagSeguro Brazil acquired 100% of the share capital and obtained the control of TILIX. The company provides software development for managing payment solutions for B2C and B2B.

5.	Segment reporting

Operating segments are reported consistently to the Board of Directors, which is responsible for allocating resources and assessing the performance of the operating segments and to take PagSeguro Group’s strategic decisions.

Considering that all decisions are based on consolidated reports, and that all decisions related to strategic and financial planning, purchases, investments and the allocation of funds are made on a consolidated basis, the PagSeguro Group operate in a single segment, as payment arrangement agents.

PagSeguro Group has revenue arising from Brazilian domestic customers and customers located abroad. The main revenue is related to sales from the Brazilian domestic market. The international market represents 1%, 2% and 5% for the years 2018, 2017 and 2016, respectively.

6.	Cash and cash equivalents


	December 31, 2018		December 31, 2017
Short-term bank deposits		405,227		66,767
Short-term investments		2,357,823		—

		2,763,050		66,767

Cash and cash equivalents are held for the purpose of meeting short-term cash needs and include cash on hand, deposits with banks and other short-term highly liquid investments with original maturities of three-month or less, and with immaterial risk of change in value. The balance as at December 31, 2018 is relatated to an excess of cash and cash equivalents proceeds originated from the IPO and the follow-on offering mentioned in Notes 1.1 and 1.2, respectively.

7.	Financial investments


	December 31, 2018		December 31, 2017
Short-term investments		—		210,103

		—		210,103

Short-term investments consisted of two repurchase agreements, with an average return of 96.0% of the Interbank Deposit Certificate (CDI). This financial asset was classified as fair value through profit and loss.

F-22

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

8.	Note receivables


	December 31, 2018								December 31, 2017
Legal obligors	Visa		Master		Hipercard		Total		Visa		Master		Hipercard		Total
Itaú		570,463		1,979,994		514,627		3,065,084		237,335		751,542		250,817		1,239,694
Bradesco		735,784		170,497		—		906,281		333,108		83,160		—		416,268
Banco do Brasil		566,537		153,633		—		720,170		287,334		84,504		—		371,838
CEF		133,882		173,208		—		307,090		69,974		83,684		—		153,658
Santander		247,950		871,976		—		1,119,926		122,614		310,946		—		433,560
Other (*)		386,808		1,069,323		—		1,456,131		141,802		393,999		—		535,801
Total card issuers (i)		2,641,424		4,418,631		514,627		7,574,682		1,192,167		1,707,835		250,817		3,150,819

Cielo—Elo		—		—		—		366,619		—		—		—		151,851
Cielo		—		—		—		91,402		—		—		—		80,464
Redecard		—		—		—		5,502		—		—		—		45,289
Amex		—		—		—		1,188		—		—		—		39,608
Vero		—		—		—		4,396		—		—		—		21,463
Other		—		—		—		34,367		—		—		—		31,864
Total acquirers (ii)		—		—		—		503,474		—		—		—		370,539

Other		—		—		—		26,523		—		—		—		991
Total other		—		—		—		26,523		—		—		—		991

Total note receivables		2,641,424		4,418,631		514,627		8,104,679		1,192,167		1,707,835		250,817		3,522,349

^(*)	Refers to other pulverized receivables from legal obligors.

(i)

Card issuers: receivables derived from transactions where PagSeguro Brazil acts as the financial intermediary in operations with the issuing banks, related to the intermediation agreements between PagSeguro Brazil and Visa, Mastercard or Hipercard. However, PagSeguro Brazil’s contractual note receivables are with the financial institutions, which are the legal obligors of the note receivables. Additionally, amounts due within 27 days of the original transaction date, including those that fall due with the first installment of installment receivables, are guaranteed by Visa, Mastercard or Hipercard, as applicable, in the event that the legal obligors do not make payment. PagSeguro Brazil started operating directly as a financial intermediary in 2016.

(ii)	Acquirers: refers to card processing transactions to be received from the acquirers, which are third parties acting as financial intermediaries between the issuing bank and PagSeguro Brazil. This balance also includes the receivables from sales of debit and credit card readers.

F-23

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

The maturity analysis of note receivables is as follows:


	December 31, 2018		December 31, 2017
Due within 30 days		4,323,893		2,213,929
Due within 31 to 120 days		3,135,358		1,045,825
Due within 121 to 180 days		468,913		114,953
Due within 181 to 360 days		176,515		147,642

		8,104,679		3,522,349

9.	Related-party balances and transactions

PagSeguro Group is controlled by UOL (incorporated in Brazil).

Balances and transactions with related parties:


	December 31,2018		December 31, 2017
	Payables		Receivables		Payables
Immediate parent
UOL—cash management (a)		—		124,721		—
UOL—sales of services (b)		9,822		—		32,286
UOL—shared service costs		10,234		—		—
Affiliated companies
UOL Diveo—cash management (a)		—		2		—
UOL Diveo—sales of services (b)		3,290		—		621
UOL Diveo—shared service costs		126		—		—
Concurso Virtual S.A.		—		—		1,522
Transfolha Transportadora e Distribuição Ltda.		4,336		—		745
Livraria da Folha Ltda.		32		—		1,078
Empresa Folha da Manhã S/A		2,073		—		2,320
Others		884		—		529

		30,797		124,723		39,101

(a)

The receivables transactions with related parties arising from cash management. The remaining balance was fully paid in April 2018.

(b)

Sales of services refers mainly to the purchase of (i) advertising services from UOL and (ii) services related to technical support in hosting from UOL Diveo Tecnologia Ltda. (“UOL Diveo”).

F-24

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)


	December 31, 2018				December 31, 2017				December 31, 2016
	Revenue		Expense		Revenue		Expense		Revenue		Expense
Immediate parent
UOL—shared service costs (a)		—		105,433		—		58,375		—		31,498
UOL—sales of services (b)		2,233		52,115		689		46,976		—		81,007
Affiliated companies
UOL Diveo—shared service costs (c)		—		534		—		24		—		1,710
UOL Diveo—sales of services (d)		—		26,943		—		28,953		—		18,069
Transfolha Transportadora e Distribuição Ltda.		374		18,889		39		15,405		—		5,500
Livraria da Folha Ltda.		160		—		319		—		349		—
Others		401		54		433		130		395		101

		3,168		203,967		1,480		149,863		744		137,885

(a)

Shared services costs mainly related to (i) payroll, (ii) IT structure / software and (iii) property rental which are incurred by the parent company UOL and are charged to PagSeguro Brazil pursuant to cost sharing contractual agreements. Such costs are included in administrative expenses. The increase in the balance refers to payroll taxes related to LTIP payments made in the year ended December 31, 2018 which amounted to R$ 61,713, and which are paid by the parent company UOL and reimbursed by the PagSeguro Group.

(b)	Sales of advertising services are incurred by the parent company UOL and are charged to PagSeguro Brazil pursuant to contractual agreements.

(c)	Shared services costs are incurred by the affiliated company UOL Diveo and are charged to PagSeguro Brazil pursuant to contractual agreements. The main costs are related to IT structure/software.

(d)	Sales of services from the affiliated company UOL Diveo related to technical support in hosting services (started in 2016) and are charged to PagSeguro Brazil pursuant to contractual agreements.

Key management compensation

Key management compensation includes short and long term benefits of PagSeguro Brazil’s executive officers. The short and long term compensation related to the executive officers in 2018 amounted to R$ 99,331 (R$ 3,487 and R$ 2,658 in 2017 and 2016, respectively, includes only short-term benefits).

10.

Business combinations

Acquisitions for the year ended December 31, 2017


	Amount of purchased books			Evaluation adjustment			Fair value of assets and liabilities acquired
The assets and liabilities arising from the acquisitions
Cash and cash equivalents		51			—			51
Liquid working capital,
Assets acquired		2,598			—			2,598
Liabilities assumed		(1,312	)		—			(1,312	)
Property, plant and equipment and intangible assets		643			2,498			3,141

Value of net assets		1,980			2,498			4,478

Goodwill		26,184			(2,498	)		23,686

Bargain purchase gain		(87	)		—			(87	)

Purchase cost		28,077			—			28,077

Consideration for the purchase settled in cash								22,276

Cash and cash equivalents at the subsidiary acquired								(51	)

Amount paid on acquisitions less cash and cash equivalents acquired								22,225

F-25

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

Acquisition for the year ended December 31, 2018


	Amount of purchased books			Evaluation adjustment (*)		Fair value of assets and liabilities acquired
The assets and liabilities arising from the acquisition
Cash and cash equivalents		1,996			—		1,996
Liquid working capital,
Assets acquired		130			—		130
Liabilities assumed		(3,975	)		—		(3,975	)
Property, plant and equipment and intangible assets		2,284			—		2,284

Value of net assets		435			—		435

Goodwill		19,175			—		19,175

Purchase cost		19,610			—		19,610

Consideration for the purchase settled in cash							3,810

Cash and cash equivalents at the subsidiary acquired							(1,996	)

Amount paid on acquisitions less cash and cash equivalents acquired							1,813

(*)

The purchase price allocation may be subject to changes in the measurement period as defined in IFRS.

The acquisitions described below are in accordance with PagSeguro Group’s business strategies, as well as the products offered by them and their client portfolio.

a) BCPS

On January 1, 2017, PagSeguro Brazil acquired 99.5% of the share capital and obtained control of BCPS.

The amount paid in the acquisition was R$407, which was settled in cash on that date. The fair value of the acquired assets, amounting R$568, and the assumed liabilities amounting to R$75 at the acquisition date are substantially similar to their book value. A bargain purchase gain of R$87 arose from the acquisition of BCPS. The impacts of the acquisition were not considered material to PagSeguro Brazil.

b) R2TECH

On May 2, 2017, PagSeguro Brazil acquired 51.0% of the share capital and obtained control of R2TECH. The consideration for the purchase was R$9,200, of which R$3,500 is a variable installment, subject to the attainment of specific targets for the year 2018, established in the acquisition agreement, after the conclusion of the Company’s audited financial statements. Based on current management expectations, this performance goal will be achieved.

c) BIVA

In October, 2017, PagSeguro Brazil acquired control of BIVA with the acquisition of a 51.4% interest.

The total consideration paid for the initial purchase was R$18,470, which was settled in cash on the acquisition date. The fair value of the assets acquired, in the amount of R$2,350 and the liabilities assumed, in the amount of R$997, on the acquisition date, are substantially similar to their book value.

The goodwill of R$17,117 arising from the acquisition is attributable to the future profitability of the business in synergy with the products offered by the PagSeguro Group.

F-26

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

On November 30, 2017, PagSeguro Brazil acquired an additional interest of 7.9% of the issued shares for a purchase consideration of R$ 2,394, increasing PagSeguro Brazil’s interest to 59.3%. On January 15, March 12 and April 27, 2018, PagSeguro Brazil acquired additional interests of BIVA (15.12%, 0.5% and 2.42%, respectively), bringing its total interest to 77.3% of BIVA’s total share capital (59.3% as of December 31, 2017). The total amount paid for these acquisitions was R$5,389.

d) TILIX

On December 5, 2018, PagSeguro Brazil acquired 100.0% of the share capital and obtained the control of TILIX.The total consideration for the purchase was R$19,610, of which R$3,810 was settled in cash and R$15,800 in variable installments, subject to the attainment of specific targets in 2020 (R$4,100) and 2021 (R$11,700), established in the acquisition agreement The fair value of the assets acquired and the liabilities assumed on the acquisition date, are substantially similar to their book value. Based on current management expectations, this performance goal will be achieved.

The purchase price allocation may be subject to changes in the measurement period as defined in IFRS. The goodwill of R$19,175 arising from the acquisition is attributable to the future profitability of the business in synergy with the products offered by the PagSeguro Group.

11.

Property and equipment

(a)	Property and equipment is composed as follows:


	December 31, 2018
	Cost		Accumulated depreciation			Net
Data processing equipment		23,334		(7,815	)		15,519
Facilities		38		(27	)		11
Machinery and equipment		44,757		(3,096	)		41,661
Furniture and fittings		2,153		(148	)		2,005
Building improvements		6,954		(195	)		6,759
Vehicles		1,371		(222	)		1,149

		78,607		(11,503	)		67,104


	December 31, 2017
	Cost		Accumulated depreciation			Net
Data processing equipment		11,024		(5,114	)		5,910
Facilities		53		(23	)		30
Machinery and equipment		4,738		(444	)		4,294
Furniture and fittings		397		(66	)		331
Building improvements		263		(29	)		234
Vehicles		132		(42	)		90

		16,607		(5,718	)		10,889

F-27

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

(b)	The changes in cost and accumulated depreciation were as follows:


	Data processing equipment			Facilities			Machinery and equipment			Furniture and fittings			Building improvements			Vehicles			Total
At December 31, 2017
Cost		11,024			53			4,738			397			263			132			16,607
Accumulated depreciation		(5,114	)		(23	)		(444	)		(66	)		(29	)		(42	)		(5,718	)

Net book value		5,910			30			4,294			331			234			90			10,889

At December 31, 2018
Cost
Purchases		12,310			—			40,019			1,667			6,341			1,238			61,575
Disposals		—			(15	)		—			—			—			—			(15	)
Acquisition of subsidiary		—			—			—			89			351			—			440
Depreciation		(2,701	)		(4	)		(2,652	)		(82	)		(166	)		(180	)		(5,785	)
Net book value		15,519			11			41,661			2,005			6,759			1,149			67,104

At December 31, 2018
Cost		23,334			38			44,757			2,153			6,954			1,371			78,607
Accumulated depreciation		(7,815	)		(27	)		(3,096	)		(148	)		(195	)		(222	)		(11,503	)

Net book value		15,519			11			41,661			2,005			6,759			1,149			67,104

F-28

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

12.

Intangible assets

(a)	Intangible assets are composed as follows:


	December 31, 2018
	Cost		Accumulated amortization			Net
Expenditures related to software and technology (i)		462,282		(211,929	)		250,353
Software licenses		17,227		(4,073	)		13,154
Customer relationships		1,981		(448	)		1,533
Goodwill (ii)		40,574		—			40,574

		522,064		(216,450	)		305,614


	December 31, 2017
	Cost		Accumulated amortization			Net
Expenditures related to software and technology (i)		241,490		(115,665	)		125,825
Software licenses		9,510		(2,043	)		7,467
Customer relationships		1,981		(91	)		1,890
Goodwill (ii)		23,686		—			23,686

		276,667		(117,799	)		158,868

(i)

PagSeguro Group capitalizes the expenses incurred with the development of platforms, which are amortized over their useful lives, within a range from three to five years.

(ii)

Goodwill provided on the acquisition of the companies R2TECH, BIVA and TILIX.

F-29

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

(b)	The changes in cost and accumulated amortization were as follows:


	Expenditures with software and technology			Software licenses			Customer relationships			Goodwill		Total
At December 31, 2017
Cost		241,490			9,510			1,981			23,686		276,667
Accumulated amortization		(115,665	)		(2,043	)		(91	)		—		(117,799	)

Net book value		125,825			7,467			1,890			23,686		158,868

At December 31, 2018
Cost
Additions		218,947			7,717			—			—		226,665
Acquisition of subsidiary		1,845			—			—			16,888		18,733
Amortization		(96,264	)		(2,030	)		(357	)		—		(98,651	)

Net book value		250,353			13,154			1,533			40,574		305,614

At December 31, 2018
Cost		462,282			17,227			1,981			40,574		522,065
Accumulated amortization		(211,929	)		(4,073	)		(448	)		—		(216,450	)

Net book value		250,353			13,154			1,533			40,574		305,614

F-30

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

13.

Payables to third parties


	December 31, 2018		December 31, 2017
Payables to third parties		4,324,198		3,080,569

		4,324,198		3,080,569

Payables to third parties correspond to amounts to be paid to commercial establishments with respect to transactions carried out by their card holders, net of the intermediation fees and discounts applied. PagSeguro Brazil’s average settlement terms agreed upon with commercial establishments is up to 30 days.

14.

Salaries and social charges


	December 31, 2018		December 31, 2017
Profit sharing		20,653		15,237
Salaries payable		4,378		2,758
Social charges		8,421		5,102
Payroll accruals		14,601		9,807
Payroll taxes (LTIP)		23,816		—
Other		2,067		1,365

		73,936		34,269

15.

Taxes and contributions


	December 31, 2018			December 31, 2017
Taxes
Services tax (i)		122,241			14,837
Value-added tax on sales and services (ii)		23,796			3,830
Social integration program (iii)		17,530			9,918
Social contribution on revenues (iii)		107,872			59,358
Income tax and social contribution (iv)		685			35,474
Other		1,919			1,264

		274,043			124,681

Judicial deposits (v)
Services tax (i)		(52,226	)		(11,375	)
Value-added tax on sales and services (ii)		(19,476	)		(2,665	)
Social integration program (iii)		(17,088	)		(8,188	)
Social contribution on revenues (iii)		(105,160	)		(50,389	)

		(193,950	)		(72,617	)

		80,093			52,064

(i)

Refers to taxes on revenue from transaction activities.

(ii)

Refers to the Value-added Tax on Sales and Services (ICMS) amounts due by Net+Phone, related to tax substitution and tax rate differential, applied on sales of credit and debit card readers.

(iii)

Refers mainly to Social Integration Program (PIS) and Social Contribution on Revenues (COFINS) charged on financial income.

(iv)

Refers to the income tax and social contribution payable on current income taxes and contribution.

(v)

PagSeguro Group obtained court decisions to deposit the amount related to the payments in escrow for matters discussed in items “i”, “ii” and “iii” above.

F-31

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

16.

Provision for contingencies

Some companies of PagSeguro Group are party to labor and civil litigation in progress and are discussing such matters at the administrative and judicial levels, which, when applicable, are supported by judicial deposits. The provisions for probable losses arising from these matters are estimated and periodically adjusted by management, supported by the opinion of its external legal advisors.


	December 31, 2018		December 31, 2017
Civil		6,680		4,326
Labor		324		322

Current		7,004		4,648

Some companies of PagSeguro Group are party to tax lawsuits involving risks classified by legal advisors as possible losses, for which \no provision was recognized at December 31, 2018, totaling approximately R$ 50,978 (December 31, 2017 - R$ 25,800). PagSeguro Group companies are not party to civil and labor lawsuits involving risks classified by management as possible losses.

17.

Income tax and social contribution

(a)	Reconciliation of the deferred income tax and social contribution:


	Tax losses		Tax credit			Technological inovation (i)			Other temporary differences -ASSETS		Other temporary differences - LIABILITY			Total
Deferred tax
At December 31, 2016		1,051		3,606			(24,378	)		3,648		—			(16,074	)
Included in the statement of income		436		(721	)		(16,814	)		28,995		(1,616	)		10,280

At December 31, 2017		1,487		2,885			(41,192	)		32,642		(1,616	)		(5,794	)

Included in the statement of income		1,424		(712	)		(41,987	)		32,073		(117,129	)		(126,331	)

At December 31, 2018		2,911		2,173			(83,179	)		64,715		(118,745	)		(132,125	)

(i)

The main temporary differences representing the balance of the deferred tax liability refers to the benefit granted by the Technological Innovation Law (Lei do Bem).

Tax loss carry-forwards are recognized as deferred tax assets to the extent that the realization of the related tax benefit through future taxable profits is probable. Tax losses do not have an expiration date.

The estimated realization of deferred tax assets in non-current assets and liabilities is as follows:


	December 31, 2018			December 31,2017
	Liability			Assets		Liability
2018		(8,508	)		8,895		(20,728	)
2019		(13,659	)		4,040		(18,008	)
2020		(15,420	)		2,111		(2,454	)
2021		10,556			982		(1,434	)
2022		(105,094	)		20,987		(185	)

		(132,125	)		37,015		(42,809	)

F-32

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

(b)	Reconciliation of the income tax and social contribution expense:

PagSeguro Group computed income tax and social contribution under the taxable income method. The following is a reconciliation of the difference between the actual income tax and social contribution expense and the expense computed by applying the Brazilian federal statutory rate for the years ended December 31, 2018, 2017 and 2016:


	December 31, 2018			December 31, 2017			December 31, 2016
Profit for the year before taxes		1,217,623			683,504			155,359
Statutory rate		34	%		34	%		34	%

Expected income tax and social contribution		(413,992	)		(232,391	)		(52,822	)
Income tax and social contribution effect on:
Permanent additions (exclusions)
Gifts		(352	)		(375	)		—
R&D and technological innovation benefit—Law 11.196/05 (i)		58,893			24,987			15,898
Interest on own capital		—			—			8,860
Taxation of income abroad (ii)		45,008			—			—
Other additions		3,309			3,069			485

Income tax and social contribution expense		(307,134	)		(204,711	)		(27,580	)

Effective rate		25	%		30	%		18	%
Income tax and social contribution—current		(180,884	)		(214,988	)		(7,431	)
Income tax and social contribution—deferred		(126,331	)		10,278			(20,149	)

(i)

Refers to the benefit granted by the Technological Innovation Law (Lei do Bem), which reduces the income tax charges, based on the amount invested by PagSeguro Group on specific intangible assets, see Note 11.

(ii)

Refers to the benefit based on the local law of the Cayman Islands (specifically, the Companies Law of 1960). There is no taxation on the income earned in the companies based in this jurisdiction. As a result of the local tax regulations, all the exchange variantions from U.S. dollars to reais which generate income have no tax impacts for PagSeguro Digital.

F-33

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

18.

Equity

a) Share capital

At December 31, 2018, share capital is represented by 327,285,232 common shares, par value of US$0.000025. Share capital is composed of the following shares for the years ended December 31, 2018 and 2017:


December 31, 2017 shares outstanding	262,288,607

Primary shares offered in the IPO	50,925,642
Primary shares offered in the follow-on offering	11,550,000
Long-Term Incentive Plan	3,024,625
Repurchase of common shares (Note 18 (f))	(503,642	)

December 31, 2018 shares outstanding	327,285,232

During the year ended December 31, 2018, shares of PagSeguro Digital were issued as a result of the IPO, follow-on offering and long-term incentive plan, see details in Notes 1.1, 1.2, 1.3 and 18 (c).

Incremental costs directly attributable to the issuance of new shares or options are shown in equity as a deduction, net of tax, from the IPO and follow-on offering gross proceeds.

b) Capital reserve

The capital reserve can only be used to increase capital, offset losses, redeem, reimburse or purchase shares or pay cumulative dividends on preferred shares.

On January 26, 2018, 50,925,642 new shares were issued at a price of US$ 21.50 per share representing net proceeds of US$1,046.0 million (or R$3,289.8 million). Refer to Note 1.1 for further details.

On June 26, 2018, 11,550,000 new shares were issued at a price of US$ 29.25 per share representing net proceeds of US$326.8 million (or R$1,232.6 million). Refer to Note 1.2 for further details.

c) Share based long term incentive plan (LTIP)

Members of management participate in the LTIP, which was established by UOL for its group companies on July 29, 2015 and has been adopted by PagSeguro Digital. Beneficiaries under the LTIP are selected by UOL’s LTIP Committee, which consists of the Chairman and two officers of UOL, and are submitted to our Board of Directors for adoption.

On January 26, 2018, beneficiaries under the LTIP were granted rights in the form of notional cash amounts without cash consideration. These rights vest in five equal annual installments starting on the earlier of July 29, 2015 and the beneficiary’s employment start date. Under the terms of the LTIP, upon completion of the IPO, the vested portion of each beneficiary’s LTIP rights was converted into Class A common shares of PagSeguro Digital at the IPO price (US$ 21.50) which is the assessed fair value at the grant date. As a result, the beneficiaries of the the LTIP received a total of 1,823,727 new Class A common shares upon completion of the IPO.

The unvested portions of each beneficiary’s LTIP rights will be settled on each future annual vesting date.

The shares granted under the LTIP were subject to a one-year lock-up period, expiring on the first anniversary of the IPO. Any shares that are issued on a subsequent vesting date during the first year after the IPO will be subject to the remainder of that same lock-up period. After the close of that one-year period, shares to be granted under the LTIP are no longer be subject to a lock-up.

F-34

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

This arrangement is classified as equity-settled. For the year ended December 31, 2018, the Company recognized compensation expenses related to the LTIP in the total amount of R$ 299,036.

The maximum number of common shares that can be delivered to beneficiaries under the LTIP may not exceed 3% of our issued share capital at any time. At December 31, 2018, total shares granted were 5,896,861, and the total shares issued were 3,024,625. There were no forfeitures or expirations in the year ended December 31, 2018.

d) Dividends

At the Extraordinary General Shareholders Meeting held on September 29, 2017, PagSeguro Brazil’s shareholders approved the distribution of (i) R$142,797 of dividends related to the six-month period ended June 30, 2017 and (ii) R$96,008 in additional dividends related to the year ended December 31, 2016. The total dividends distributed amounted to R$238,803, of which R$184,530 was offset against receivables under the centralized cash management with UOL and the balance of R$54,272 was paid in cash by PagSeguro Brazil to UOL.

e) Equity valuation adjustments

The Company recognizes in this account the accumulated effect of the foreign exchange variation resulting from the conversion of the financial statements of the foreign subsidiary BCPS, represented by the accumulated amount of R$ 263 as of December 31, 2018 (R$ 55 as of December 31, 2017). This accumulated effect will be reverted to the result of the year as gain or loss only in case of disposal or write-off of the investment.

The Company also recognized the difference between the book value and the amounts paid in the acquisitions of additional interests of the non-controlling shareholders of the subsidiary BIVA, in the amount of R$ 7,588, in this account.

f) Treasury shares

On October 30, 2018, PagSeguro Digital’s board of directors authorized a share repurchase program, under which the Company may repurchase up to US$250 million in outstanding Class A common shares traded on the New York Stock Exchange (NYSE). The Company’s management is responsible for defining the timing and the number of shares to be acquired, within authorized limits.

During the year ended December 31, 2018 a number of 503,642 shares were repurchased for a total of US$ 10,119,425 (average of US$ 20.09 per share) which corresponds to R$ 39,532.

19.

Earnings per share

a) Basic

Basic earnings per share are calculated by dividing the profit attributable to shareholders of PagSeguro Digital by the weighted average number of common shares issued and outstanding during the years ended December 31, 2018, 2017 and 2016:


	December 31, 2018		December 31, 2017		December 31, 2016
Profit attributable to shareholders of the Company		909,267		478,781		127,186
Weighted average number of outstanding common shares		317,647,562		262,288,607		262,288,607

Basic earnings per share—R$		2.8625		1.8254		0.4849

F-35

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

b) Diluted

Diluted earnings per share is calculated by adjusting the weighted average number of common shares outstanding to assume the conversion of all potential common shares with dilutive effects. The share based LTIP is the Company’s only category of potential common shares with dilutive effects. In this case, a calculation is done to determine the number of shares that could have been acquired at fair value.


	December 31, 2018			December 31, 2017		December 31, 2016
Profit used to determine diluted earnings per share		909,267			478,781		127,186

Weighted average number of outstanding common shares		317,647,562			262,288,607		262,288,607
Weighted average number of shares under options		2,581,716			—		—
Weighted average number of shares that would have been issued at average market price		(2,102,607	)		—		—

Adjusted number of shares		318,126,671			262,288,607		262,288,607

Diluted earnings per share—R$		2.8582			1.8254		0.4849

20.

Total revenue and income


	December 31, 2018			December 31, 2017			December 31, 2016
Gross revenue from transaction activities and other services		2,638,103			1,391,381			543,818
Gross revenue from sales		513,795			655,153			371,517
Gross financial income (i)		1,464,877			858,410			411,413
Other financial income (ii)		278,445			8,576			5,337

Total gross revenue and income		4,895,220			2,913,520			1,332,085

Deductions from gross revenue from transactions activities and other services (iii)		(371,000	)		(167,120	)		(63,793	)
Deductions from gross revenue from sales (iv)		(139,183	)		(183,229	)		(110,923	)
Deductions from gross financial income (v)		(50,345	)		(39,786	)		(18,984	)

Total deductions from gross revenue and income		(560,528	)		(390,135	)		(193,700	)

Total revenue and income		4,334,692			2,523,385			1,138,385

(i)

Includes (a) interest income from early payment of notes payable to third parties and (b) interest on note receivables due in installments.

(ii)

The increase in the period refers to foreign exchange gain on the currency conversion of the IPO and follow-on offering proceeds for the year ended December 31, 2018 in the amount of R$ 131,212 and financial income on financial investments classified as cash and cash equivalents for the year ended on December 31, 2018 in the amount of R$ 138,027 (December 31, 2017 -R$ 6,722)

(iii)

Deductions consist of sales taxes.

(iv)

Deductions are composed of sales taxes and returns.

(v)

Deductions consist of taxes on financial income.

F-36

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

21.

Expenses by nature


	December 31, 2018			December 31, 2017			December 31, 2016
Transactions costs		(1,246,480	)		(661,067	)		(283,630	)
Cost of goods sold		(567,807	)		(451,635	)		(233,419	)
Marketing and advertising		(375,519	)		(275,394	)		(204,857	)
Personnel expenses (i)		(546,826	)		(105,794	)		(63,280	)
Financial expenses (ii)		(31,209	)		(104,544	)		(68,301	)
Chargebacks (iii)		(71,491	)		(47,854	)		(31,557	)
Depreciation and amortization (iv)		(95,362	)		(51,571	)		(31,246	)
Other		(182,375	)		(142,022	)		(66,737	)

		(3,117,069	)		(1,839,881	)		(983,027	)

Classified as:
Cost of services		(1,510,770	)		(829,661	)		(357,811	)
Cost of sales		(633,929	)		(494,719	)		(265,856	)
Selling expenses		(351,439	)		(245,759	)		(199,937	)
Administrative expenses		(581,668	)		(153,177	)		(84,461	)
Financial expenses		(31,209	)		(104,544	)		(68,301	)
Other (expenses) income, net		(8,054	)		(12,021	)		(6,660	)

		(3,117,069	)		(1,839,881	)		(983,027	)

(i)

The increase refers to compensation expenses related to the LTIP for the year ended December 31, 2018 in the amount of R$ 264,179, and the respective payroll taxes in the amount of R$ 154,843.

(ii)

Our financial expenses include (a) Financial Operations Tax (IOF) related to the remittance of cash from the Cayman Islands to Brazil in the amount of R$17,975 for the year ended December 31, 2018 (December 31, 2017 - R$0), (b) charges to obtain early payment of receivables owed to us by card issuers to finance our early payment of receivables feature in the amount of R$ 1,476 for the year ended December 31, 2018 (December 31, 2017 - R$95,878).

(iii)

Chargebacks refer to losses recognized in the period reflecting the risks of fraud associated with card processing operations, as detailed in Note 23 (ii).

(iv)

The depreciation and amortization amounts incurred in the period are segregated between costs and expenses as presented below:


	December 31, 2018			December 31, 2017			December 31, 2016
Depreciation
Cost of sales and services		(4,012	)		(1,088	)		(895	)
Selling expenses		(13	)		(10	)		(11	)
Administrative expenses		(1,760	)		(714	)		(371	)

		(5,785	)		(1,812	)		(1,277	)

Amortization
Cost of sales and services		(97,856	)		(54,151	)		(32,846	)
Administrative expenses		(795	)		(375	)		(59	)

		(98,651	)		(54,526	)		(32,905	)

PIS and COFINS credits (*)		9,073			4,767			2,936

Depreciation and amortization expense, net		(95,362	)		(51,571	)		(31,246	)

(*)

PagSeguro Brazil has a tax benefit on PIS and COFINS that allows it to reducedepreciation and amortization expenses when incurred. This tax benefit is recognized directly as a reduction of depreciation and amortization expense.

F-37

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

22.

Financial instruments by category

PagSeguro Group estimates the fair value of its financial instruments using available market information and appropriate valuation methodologies for each situation.

The interpretation of market data, as regards the choice of methodologies, requires considerable judgment and the establishment of estimates to reach an amount considered appropriate for each situation. Therefore, the estimates presented may not necessarily indicate the amounts that could be obtained in the current market. The use of different hypotheses to calculate market value or fair value may have a material impact on the amounts obtained. The assets and liabilities presented in this Note were selected based on their relevance.

PagSeguro Group believes that the financial instruments recognized in these consolidated financial statements at their carrying amount are substantially similar to their fair value. However, since they do not have an active market, variations could occur in the event PagSeguro Group were to decide to settle or realize them in advance.

PagSeguro Group classifies its financial instruments into the following categories:


	December 31, 2018		December 31, 2017
Financial assets
Measured at fair value through profit or loss:
Financial investments		—		210,103
Loans and receivables:
Cash and cash equivalents		2,763,050		66,767
Note receivables		8,104,679		3,522,349
Receivables from related parties		—		124,723
Other receivables		20,148		27,956

		10,887,877		3,951,898


	December 31, 2018		December 31, 2017
Financial liabilities
Amortized cost:
Payables to third parties		4,324,198		3,080,569
Trade payables		165,246		92,444
Trade payables to related parties		30,797		39,101
Other payables		29,501		19,462

		4,549,742		3,231,576

23.

Financial risk management

PagSeguro Group’s activities expose it to a variety of financial risks: market risk (including currency risk and cash flow or fair value interest rate risk), fraud risk (chargebacks), credit risk and liquidity risk. PagSeguro Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on PagSeguro Group’s financial performance. PagSeguro Group uses derivative financial instruments to hedge certain risk exposures, when applicable.

F-38

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

Among the main market risk factors that may affect PagSeguro Group’s business are the following:

(i)

Foreign exchange risk

Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency. As of December 31, 2018 and December 31, 2017, PagSeguro Group is not materially exposed to foreign exchange risk.

(ii)

Fraud Risk (chargeback)

PagSeguro Group’s sales transactions are susceptible to potentially fraudulent or improper sales and it uses the following two processes to control fraud risk:

The first process consists of monitoring, on a real time basis, the transactions carried out with credit and debit cards and payment slips, through an anti-fraud ecosystem. This process approves or rejects suspicious transactions at the time of the authorization, based on statistical models that are revised on a periodic basis.

The second process detects chargebacks and disputes not identified by the first process. This is a complementary process and increases PagSeguro Group’s ability to avoid new instances of fraud.

(iii)

Credit risk

Credit risk is managed on a group basis and is limited to the possibility of default by: (a) the card issuers, which have the obligation of transferring to the credit and debit card labels the fees charged for the transactions carried out by their card holders, and/or (b) the acquirers, which are used by PagSeguro Group to approve transactions with the issuers.

In order to mitigate this risk, PagSeguro Brazil has established a Credit and Liquidity Risk Committee, whose responsibility is to assess the level of risk of each of the card issuers served by PagSeguro Group, classifying them into three groups:

(i)

card issuers with a low level of risk, with credit ratings assigned by FITCH, S&P and Moody’s, which do not require additional monitoring;

(ii)

card issuers with a medium level of risk, which are also monitored in accordance with the Basel and property, plant and equipment ratios; and

(iii)

card issuers with a high level of risk, which are assessed by the committee at monthly meetings.

No credit limits were exceeded during the reporting period, and management does not expect any losses from non-performance by these counterparties in addition to the amounts already recognized as chargebacks, presented under fraud risk.

(iv)

Liquidity risk

PagSeguro Group manages liquidity risk by maintaining reserves, bank and credit lines for the obtaining borrowings, when deemed appropriate. PagSeguro Group continuously monitors actual and projected cash flows, and matches the maturity profile of its financial assets and liabilities in order to ensure that PagSeguro Group has sufficient funds to honor its obligations to third parties and meet its operational needs.

PagSeguro Group invests surplus cash in interest bearings financial investments, choosing instruments with appropriate maturity or sufficient liquidity to provide adequate margin as determined by the forecasts.

At December 31, 2018, PagSeguro Group held cash and cash equivalents of R$ 2,763,050 (R$ 66,767 at December 31, 2017).

F-39

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

The table below shows PagSeguro Group’s non-derivative financial liabilities divided into the relevant maturity group based on the remaining period from the balance sheet date and the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.


	Due within 30 days		Due within 31 to 120 days		Due within 121 to 180 days		Due within 181 to 360 days		Due to 361 days or more days
At December 31, 2018
Payables to third parties		3,968,125		233,694		66,967		55,412		—
Trade payables		141,958		18,744		1,358		3,186		—
Trade payables to related parties		—		28,869		—		—		—
Other payables		—		—		—		29,501		—
At December 31, 2017
Payables to third parties		2,890,080		133,070		31,081		26,338		—
Trade payables		81,152		6,032		1,740		1,083		2,437
Trade payables to related parties		—		—		—		39,101		—
Other payables		—		—		—		15,872		—

24.

Capital management

PagSeguro Group monitors capital on the basis of the gearing ratio which corresponds to net debt divided by total capital. Net debt is calculated as total borrowings (including current and non-current borrowings as shown in the consolidated balance sheet) less cash and banks. Total capital is calculated as equity as shown in the consolidated balance sheet plus net debt.

PagSeguro Group had no loans at December 31, 2018, and December 31,2017. Therefore no gearing ratio is presented.

25.

Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. A three-level hierarchy is used to measure fair value, as shown below:

•

Level 1—Quoted prices (unadjusted) in active markets for identical assets and liabilities.

•

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).

•

Level 3—Inputs for the assets and liabilities that are not based on observable market data (that is, unobservable inputs).

At December 31, 2017, PagSeguro Group had financial investments whose fair value adjustments is classified as Level 1. PagSeguro Group did not have any other assets measured at fair value in 2017.

There were no transfers between Levels 1, 2 and 3 during the year ended December 31, 2018.

26.

Events after the reporting period

On January 4, 2019, Pagseguro Group acquired 100% of the share capital and obtained control of BBN Banco de Negocios S.A. Total consideration paid amounted to R$ 58,820 and the total net assets acquired amount to R$ 44,162. This acquisition is in accordance with PagSeguro Group’s business strategies, ramping up investments on new technologies, products and services for our digital ecosystem.

***

F-40

Exhibit 4.2

REDACTED COPY

Certain identified confidential information has been redacted from this exhibit because

it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

Confidential portions of this Exhibit are designated by [*****].

Agreement No. ADT:02767/17

7th AMENDMENT TO THE EQUIPMENT SUPPLY AGREEMENT

Entered Into on June 26, 2014.

NET+PHONE TELECOMUNICAÇÕES LTDA., a limited liability business society, with headquarters at Avenida Brigadeiro Faria Lima, no. 1.384, 7^th floor, Part A, in the city of São Paulo, State of São Paulo, enrolled at the Corporate Taxpayer Registry of the Ministry of Finance (CNPJ/MF) under no. 06.066.832/0001-97, herein represented as provided for in its By-Laws, hereinafter referred to as “CLIENT”;

PAX BR COMÉRCIO E SERVIÇOS DE EQUIPAMENTOS DE INFORMÁTICA LTDA., a limited liability business society, with headquarters at Rua Santa Mônica, no. 1.391, Lot 03, Block AH, Industrial Park San Jose, in the City of Cotia, State of São Paulo, Zip Code (CEP) 06.715-865, enrolled at CNPJ/MF under no. 11.603.135/0001-68, herein represented as provided for in its Articles of Incorporation, hereinafter referred to simply as “PAX”; and

TRANSIRE FABRICAÇÃO DE COMPONENTES ELETRÔNICOS LTDA., a limited liability business society, with its current headquarters in the city of Manaus, State of Amazonas, at Avenida dos Oitis, no. 2.449, District Armando Mendes, CEP 69.089-035, enrolled at CNPJ/MF under no. 21.785.364/0001-02, herein represented as provided for in its Articles of Incorporation, hereinafter referred to simply as “TRANSIRE”.

WHEREAS:

(i) The Parties entered into the Equipment Supply Agreement (“Agreement”) on June 26, 2014, duly amended on October 21, 2014, July 3, 2015, October 8, 2015, May 20, 2016, May 20, 2016, December 9, 2016, February 6, 2017; and

(ii) The Parties wish to include the company PAGSEGURO INTERNET S.A. as part of the Agreement.

The Parties have mutually adjusted and agreed to enter into the present 7^th Amendment to the Equipment Supply Agreement (“Amendment Term”), under the following terms and conditions:

1. AMENDMENT

1.1. The Parties resolve, by mutual agreement, to include the company PAGSEGURO INTERNET S.A. as a contracting party in the Agreement, with the preamble of the Agreement being from now on in force with the following wording:

“NET+PHONE TELECOMUNICAÇÕES LTDA., a limited liability business society, with headquarters at Avenida Brigadeiro Faria Lima, no. 1.384, 7^th floor, Part A, in the city of São Paulo, State of São Paulo, enrolled at the Corporate Taxpayer Registry of the Ministry of Finance (CNPJ/MF) under no. 06.066.832/0001-97, herein represented as provided for in its By-Laws, hereinafter referred to as “CLIENT 1”;

PAGSEGURO INTERNET S.A., a corporation with headquarters at Avenida Brigadeiro Faria Lima, 1384, 4^th floor, Part A, in the City of São Paulo, State of São Paulo, enrolled at CNPJ/MF under no. 08.561.701/0001-01, herein represented as provided for in its By-Laws, hereinafter referred to simply as “CLIENT 2”, being, CLIENT 1 and CLIENT 2, jointly, also referred to simply as “CLIENTS”;

PAX BR COMÉRCIO E SERVIÇOS DE EQUIPAMENTOS DE INFORMÁTICA LTDA., a limited liability business society, with headquarters at Rua Santa Mônica, no. 1.391, Lot 03, Block AH, Industrial Park San Jose, in the City of Cotia, State of São Paulo, Zip Code (CEP) 06.715-865, enrolled at CNPJ/MF under no. 11.603.135/0001-68, herein represented as provided for in its Articles of Incorporation, hereinafter referred to simply as “PAX” and

TRANSIRE FABRICAÇÃO DE COMPONENTES ELETRÔNICOS LTDA., a limited liability business society, with its current headquarters in the city of Manaus, State of Amazonas, at Avenida dos Oitis, no. 2.449, District Armando Mendes, CEP 69.089-035, enrolled at CNPJ/MF under no. 21.785.364/0001-02, herein represented as provided for in its Articles of Incorporation, hereinafter referred to simply as “TRANSIRE”.

Being CLIENT 1, CLIENT 2, PAX and TRANSIRE hereinafter also referred to, separately, “Party” and, jointly, as “Parties”.

1.2. In view of the above inclusion, the Parties resolve to adjust clause 10.2 of the Agreement, which shall be in force with the following wording:

“10.2. The PRICE of the orders carried out shall be paid by the respective purchasing CLIENT(S), within [*****], upon the issuance of an individualized Fiscal Document/Invoice against the purchasing CLIENT(S), where the CLIENT information shown in the preamble of the Agreement must be observed.”

1.3. Finally, where there is reference only to the CLIENT NET+PHONE TELECOMUNICAÇÕES LTDA. in the Agreement, in whatever is not specific, as in the above payment clause, it should be understood as being a reference also to the CLIENTS NET+PHONE TELECOMUNICAÇÕES LTDA. and PAGSEGURO INTERNET S.A.

2. RATIFICATION

2.1. The Parties have ratified all the other terms and conditions of the Agreement, being clear that the terms and conditions which have not expressly been amended by the present Instrument remain unchanged and in full force.

And in witness whereof, the Parties sign the present instrument, in 3 (three) counterparts of same content, in the presence of two witnesses.


Witnesses:

1.	/s/ Luiz Carlos M. de Jesus	2.	/s/ Fabiana A. Algaves
Name:	Luiz Carlos M. de Jesus	Name:	Fabiana A. Algaves
CPF:	0l0.320.138-69	CPF:	369.450.098-74
RG:	10.614.703-1	RG:	41.880.120-4

[*****] Confidential information redacted.

Exhibit 4.10

PRIMEIRO ADITIVO AO CONTRATO DE PARTICIPAÇÃO NOS ARRANJOS DE PAGAMENTO DA VISA DO BRASIL E LICENCIAMENTO DE MARCA REGISTRADA

ESTE PRIMEIRO ADITIVO AO CONTRATO DE PARTICIPAÇÃO NOS ARRANJOS DE PAGAMENTO DA VISA DO BRASIL E LICENCIAMENTO DE MARCA REGISTRADA (“Contrato”) é celebrado entre a VISA DO BRASIL EMPREENDIMENTOS LTDA., sociedade constituída e em funcionamento sob as leis do Brasil, com sede na cidade de São Paulo, estado de São Paulo, na Av. Presidente Juscelino Kubitschek, 1909, Torre Norte/3º andar, Brasil, inscrita no Cadastro Nacional da Pessoa Jurídica, do Ministério da Fazenda (CNPJ/MF) sob o nº 31.551.765/0001-43 (“VISA DO BRASIL”), VISA INTERNATIONAL SERVICE ASSOCIATION, sociedade constituída e em funcionamento sob as leis dos Estados Unidos da América e do estado de Delaware com sede na Metro Center Boulevard, 900, Foster City, Califórnia 94404 (VISA INTERNATIONAL”) (VISA DO BRASIL E VISA INTERNATIONAL designadas conjuntamente como “VISA”), e

FIRST AMENDMENT TO THE VISA PAYMENT ARRANGEMENTS PARTICIPATION AND TRADEMARK LICENSE AGREEMENT

THIS FIRST TO THE VISA PAYMENT ARRANGEMENT PARTICIPATION AND TRADEMARK LICENSE AGREEMENT (“Agreement”) is entered into by and between VISA DO BRASIL EMPREENDIMENTOS LTDA., a corporation organized and existing under the laws of Brazil, with its head offices in the City of São Paulo, Estate of São Paulo at Av. Presidente Juscelino Kubitschek, 1909, North Tower/3º floor, Brazil, enrolled with the Brazilian Taxpayer Registry of the Ministry of Finance (“CNPJ/MF”) under Nº 31.551.765/0001-43 (VISA DO BRASIL”), VISA INTERNATIONAL SERVICE ASSOCIATION, a company organized and existing under the laws of the United States and the state of Delaware with its head offices at 900 Metro Center Boulevard, Foster City, California 94404 (“VISA INTERNATIONAL”) (“VISA DO BRASIL AND VISA INTERNATIONAL collectively referred to as “VISA”), and



Nome do participante (doravante denominado “PARTICIPANTE”) / Name of participant (hereinafter called “Participant”): PAGSEGURO INTERNET S.A.

Endereço (sede principal) / Street address (principle place of business): AV.BRIGADEIRO FARIA LIMA, 1.384

Cidade/City: SÃO PAULO			Estado/State SP

País/Country: BRASIL			Código postal/Postal Code: 01452-002

Endereço postal (se for diferente)/ Mailing address (if different):

Cidade/City:			Estado/State:

País/Country: BRASIL			Código postal/Postal Code:

Telefone/Telephone:	Código do país/Country Code: 55	Código de cidade/City Code: 11	Número/Number: 30388260

Fax:	Código do país/Country Code: 55	Código de cidade/City Code:	Número/Number:

Descrição jurídica/Legal Description: INST.DE PGTO EMISSORA DE INTRUMENTO PÓS-PAGO

Constituída e em funcionamento sob as leis de (estado ou país da constituição) / Organized and existing under the laws of (state or country of incorporation): BRASIL

CONSIDERANDO que a VISA DO BRASIL é instituidora de arranjos de pagamento controlada pela VISA INTERNATIONAL, e se dedica ao gerenciamento de arranjos de pagamento no Brasil (“Arranjos de Pagamento da Visa”), por meio dos Estatutos, das Regras Básicas da Visa e das Regras sobre Produtos e Serviços Visa, incluindo manuais e guias técnicos e quaisquer outros requisitos complementares da VISA INTERNATIONAL (os estatutos, as regras, guias e manuais, conjuntamente com todos e quaisquer outras regras aplicáveis para a participação nos Arranjos de Pagamento da Visa, as “Regras da Visa”);

CONSIDERANDO QUE A VISA INTERNATIONAL é a proprietária de certas marcas registradas que podem ser usadas na operação de Arranjos de Pagamento da Visa e que são descritas nas Regras Visa (as “Marcas de Propriedade da Visa”);

CONSIDERANDO QUE A VISA DO BRASIL é licenciada e sublicenciadora autorizada das Marcas de Propriedade da Visa em relação a seu uso no Brasil em conexão com os Arranjos de Pagamento da Visa;

CONSIDERANDO QUE A VISA INTERNATIONAL opera arranjos de pagamento fora do Brasil e presta certos serviços internacionais relacionados a programas de serviço financeiro, como previsto nas Regras da Visa;

CONSIDERANDO que a VISA e o PARTICIPANTE celebraram o Contrato de Participação nos Arranjos de Pagamento da Visa do Brasil e Licenciamento de Marca Registrada (o “Contrato”) datado em 24 de Agosto de 2015 por meio do qual regularam os termos e condições para a participação do PARTICIPANTE nos Arranjos de Pagamento Aprovados;

CONSIDERANDO que o PARTICIPANTE deseja, também somente no Brasil (o “País Aprovado”): (i) estender a lista de Arranjos de Pagamento da Visa Aprovados, conforme selecionados a seguir; (ii) usar as Marcas de Propriedade da Visa autorizadas para uso nas Regras da Visa para esses Arranjos de Pagamento Aprovados (“Marcas Licenciadas”); e (iii) obter serviços relacionados da VISA DO BRASIL e da VISA INTERNATIONAL em conexão com essa participação nos Arranjos de Pagamento Aprovados, conforme previstos no Contrato;

EM ASSIM SENDO, com base nos compromissos mútuos assumidos neste documento, VISA e o PARTICIPANTE, na intenção de estarem legalmente vinculados, neste ato acordam o quanto segue:

1. Termos Definidos. Salvo se definidos de outra forma neste Aditivo, os termos iniciados com letra maiúscula terão o significado que lhes foi atribuído no Contrato.

2. Confidencialidade. As Partes permanecerão vinculadas às obrigações de confidencialidade previstas no Contrato, e deverão manter confidenciais todas e quaisquer informações relacionadas ao Contrato, a este Aditivo, e outros documentos a que tenham acesso em virtude do Contrato, de acordo com as Regras e com o Contrato.

WHEREAS, VISA DO BRASIL is a Brazilian payment arrangement settlor controlled by VISA INTERNATIONAL and is engaged in the business of managing payment arrangements in Brazil (“Visa Payment Arrangements”), by virtue of the By-Laws, Visa Core Rules and Visa Product and Service Rules, including manual and technical guides and any other additional requirements of VISA INTERNATIONAL (the by-laws, rules, guides and manuals, collectively with all and any applicable rule for the participation on the Visa Payment Arrangements, the “Visa Rules”);

WHEREAS VISA INTERNATIONAL is the owner of certain trademarks that may be used in the operation of the Visa Payment Arrangements and that are described in the Visa Rules (the “Visa-Owned Marks”);

WHEREAS, VISA DO BRASIL is licensed and authorized sublicensor of the Visa-Owned Marks regarding its use in Brazil in connection to the Visa Payment Arrangements;

WHEREAS VISA INTERNATIONAL operates payment arrangements outside of Brazil and provides certain international financial services, as provided for in the Visa Rules;

WHEREAS VISA and the PARTICIPANT have executed Visa Payment Arrangements Participation and Trademark License Agreement (the “Agreement”) dated August 24, 2015, whereby the Parties have regulated the terms and conditions for the participation of the PARTICIPANT in the Approved Payment Arrangement;

WHEREAS THE PARTICIPANT wishes, also only in Brazil (the “Approved Country”) to: (i) extend the list of Approved Payment Arrangements, as selected below; (ii) use the Visa-Owned Marks authorized for use in the Visa Rules for these Approved Payment Arrangements (“Licensed Marks”); and (iii) obtain related services from VISA DO BRASIL and VISA INTERNATIONAL in connection with this participation in the Approved Payment Arrangements, as set forth in the Agreement:

NOW, THEREFORE, based on the mutual promises made herein, VISA and the PARTICIPANT, intending to be legally bound, hereby agree as follows:

1. Defined Terms. Unless otherwise defined herein, all capitalized terms shall have the meanings ascribed to them in the Agreement.

2. Confidentiality. The Parties shall remain bound to the confidentiality obligations set forth in the Agreement, and shall keep confidential any and all information related to the Agreement, this Amendment, and other documents to which they have access by virtue of the Agreement, pursuant to the Rules and to the Agreement

3. Autorização para participar dos Arranjos de Pagamentos Aprovados. A VISA DO BRASIL autoriza a participação do PARTICIPANTE, de forma não exclusiva, nos Arranjos de Pagamento Aprovados no País Aprovado, sujeito aos termos e condições deste Contrato e das Regras da Visa, incluindo taxas e encargos definidos na Cláusula 5 do Contrato. O PARTICIPANTE terá direito a todos os direitos e privilégios aplicáveis à sua participação nos Arranjos de Pagamento Aprovados, como disposto nas Regras da Visa, observado que o PARTICIPANTE será responsável, de forma exclusiva, por todos os custos e riscos associados a sua participação nos Arranjos de Pagamento Aprovados. No caso de o PARTICIPANTE desejar participar de um Arranjo de Pagamento que não seja um Arranjo de Pagamento Aprovado, o PARTICIPANTE deve previamente notificar a VISA DO BRASIL, por escrito, e o PARTICIPANTE não poderá dar início à sua participação em outro Arranjo de Pagamento nem usar quaisquer Marcas de Propriedade da Visa não incluídas nas Marcas Licenciadas até que tenha recebido consentimento prévio por escrito da VISA DO BRASIL. O PARTICIPANTE declara e garante que obteve todas as autorizações e permissões necessárias sob as leis e os regulamentos do País Aprovado para participar dos Arranjos de Pagamento Aprovados. Se as Regras da Visa exigirem um patrocinador para a participação do PARTICIPANTE em determinados Arranjos de Pagamento da Visa, o PARTICIPANTE deverá (i) ter enviado à VISA DO BRASIL um contrato de patrocínio plenamente cumprido que traga a assinatura de um representante legal do patrocinador; (ii) ter celebrado um contrato de prestação de serviços com aquele patrocinador para prestar os serviços necessários a esses Arranjos de Pagamento Aprovados; e (iii) que notificará a VISA DO BRASIL imediatamente, por escrito, sobre a rescisão ou qualquer modificação material dos referidos contratos. O PARTICIPANTE também declara que enviou à VISA DO BRASIL uma cópia de seu último demonstrativo financeiro, cujos conteúdo declara ser verdadeiro, correto e completo.

3. Authorization to Participate in the Approved Payment Arrangements. Subject to the terms and conditions of this Agreement and of Visa Rules, including fees and charges defined in Section 5 of the Agreement, VISA DO BRASIL authorizes the PARTICIPANT’s non-exclusive participation in the Approved Payment Arrangements in the Approved Country. PARTICIPANT will have right to all the rights and privileges applicable to its participation in the Approved Payment Arrangement, as set forth in the Vis Rules, and PARTICIPANT will be exclusively responsible for all the costs and risks associated to its participation in the Approved Payment Arrangements. In the event the PARTICIPANT wishes to participate in a Payment Arrangement that is not an Approved Payment Arrangement, PARTICIPANT shall notify VISA DO BRASIL in advance, in writing, and PARTICIPANT will not be able to initiate its participation in other Payment Arrangement or use any Visa-Owned Marks not included in the Licensed Marks until it has received prior written consent from VISA DO BRASIL. PARTICIPANT declares and warrants that it has obtained all authorizations and permissions that are required under the laws and regulations of the Approved Country to participate in the Approved Payment Arrangements. If the Visa Rules require a sponsor for the PARTICIPANT’s participation in certain Visa Payment Arrangements, PARTICIPANT must (i) have sent so VISA DO BRASIL a sponsorship agreement dully fulfilled with the signature of a legal representative of the sponsor; (ii) have entered into a service contract with that sponsor to provide the services needed to these Approved Payment Arrangements; and (iii) notify VISA DO BRASIL immediately, in writing, of any material modification or termination of such agreements. PARTICIPANT also declares that it has sent to VISA DO BRASIL a copy of its latest financial statement, which content it claims to be true, correct and complete.

Instruções: Selecionar com um X os Arranjos de Pagamento Aprovados.

Instructions: Select with an X the Approved Payment Arrangements.


	PARTICIPAÇÃO / PARTICIPATION
1.	Participante Principal Emissor / Principal Issuing Participant
	☒	Arranjo de Pagamento Visa Crédito (Doméstico e Internacional) / Visa Credit (Domestic and International) Payment Arrangement
	☐	Arranjo de Pagamento Visa Electron e Visa Débito (Doméstico e Internacional) / Visa Electron and Visa Debit (Domestic and International) Payment Arrangement
	☐	Arranjo de Pagamento Visa Pré-Pagos (Doméstico e Internacional) Visa Prepaid (Domestic and International) Payment Arrangement
2.	Participante Associado Emissor / Associate Issuing Participant
	☐	Arranjo de Pagamento Visa Crédito (Doméstico e Internacional) / Visa Credit (Domestic and International) Payment Arrangement
	☐	Arranjo de Pagamento Visa Electron e Visa Débito (Doméstico e Internacional) / Visa Electron and Visa Debit (Domestic and International) Payment Arrangement
	☐	Arranjo de Pagamento Visa Pré-Pagos (Doméstico e Internacional) / Visa Prepaid (Domestic and International) Payment Arrangement

Programas complementares / Supplementary Programs:

Programa Plus / Plus Program

Patrocinado (somente uma opção de Programa pode ser selecionada) / Sponsored (only one Program option may be selected):

☐

Emissor e Credenciador Plus / Plus Issuer and Acquirer

☐

Somente Emissor Plus / Only Plus Issuer

☐

Somente Credenciador Plus / Only Plus Acquirer.

O PARTICIPANTE reconhece que se aplicam à sua participação aos Arranjos de Pagamento Aprovados todas as disposições previstas no Contrato, inclusive, mas sem se limitar ao disposto em suas Cláusulas 2, 3, 4, 5, 6, 7, 8, 9, 12, 14 e 19.

4. Lei e Foro. Este Aditivo será regido por e interpretado de acordo com as leis do Brasil. As partes designam a jurisdição do foro da comarca da cidade de São Paulo, estado de São Paulo, Brasil, para resolver e dirimir qualquer controvérsia decorrente do presente Aditivo.

5. Prazos. O prazo deste Aditivo terá início na data em que for assinado por todas as Partes (“Data de Vigência”) e continuará por um prazo de 5 (cinco) anos (“Prazo”), depois do qual será renovado automaticamente por períodos adicionais de 5 (cinco) anos, salvo se, no mínimo 180 (cento e oitenta) dias antes do fim do Prazo (ou qualquer renovação deste), o PARTICIPANTE notifique a VISA DO BRASIL, por escrito, de sua intenção de rescindi-lo por ocasião do final do Prazo (ou de qualquer renovação deste).

PARTICIPANT acknowledges that all provisions set forth in the Agreement are applicable to its participation in the Approved Payment Arrangements, including but not limited to its Sections 2, 3, 4, 5, 6, 7, 8, 9, 12, 14 and 19.

4. Choice of law. This Amendment shall be governed by and interpreted according to internal laws of Brazil, without regard to its conflict of law provisions. The parties designate the Forum of the city of São Paulo, State of São Paulo, as the venue to solve and settle any disputes that may arise from this Agreement.

5. Term. This Amendment shall become effective as of the date it is signed by all Parties (the “Effective Date”) and shall continue for a term of five years from the Effective Date, after which this Agreement shall automatically renew for an additional five year period unless, at least 180 days prior to the end of the term (or any renewal term), PARTICIPANT shall have notified VISA DO BRASIL in writing of its intent to terminate this Agreement at the end of the Term (or any renewal term).

6. Aditamentos; Divisibilidade Das Disposições Contratuais. Este documento não poderá ser aditado ou modificado, e nenhum de seus termos e condições pode ser renunciado, salvo por meio de instrumento por escrito assinado por todas as Partes, ou, em caso de renúncia, pela Parte renunciando cumprimento; desde que, contudo, o disposto acima não possa ser interpretado como uma limitação da capacidade da VISA DO BRASIL ou da VISA INTERNATIONAL de aditar, suplementar, ou, de outra forma, modificar de tempos em tempos quaisquer das Regras da Visa sem o consentimento do PARTICIPANTE. Se qualquer prazo, disposição, acordo, pacto ou restrição deste documento ou incorporados por referência a este Contrato forem considerados por um tribunal da jurisdição competente ou outra autoridade como inválidos, nulos ou inexequíveis, o remanescente dos prazos, disposições, contratos, pactos e restrições deste documento continuarão em pleno vigor e validade e, de nenhuma forma serão afetados, prejudicados ou invalidados, desde que a substância econômica ou legal do relacionamento do PARTICIPANTE sob este documento não seja afetada de qualquer maneira materialmente adversa às Partes. Neste caso, se e na medida em que a posição não possa ser remediada por meio de uma alteração das Regras da Visa de forma geral ou de forma específica ao País Aprovado, as Partes negociarão em boa-fé para modificar este documento, para assim dar efeito à intenção original das Partes o mais fielmente possível, de forma a que o relacionamento do PARTICIPANTE sob este documento possa continuar como contemplado originalmente na medida do possível.

7. Sem Interpretação Restritiva. Caso haja ambiguidade ou questionamento das intenções ou interpretação, este Aditivo será interpretado como se tivesse sido redigido conjuntamente pelas Partes, e não haverá presunção ou ônus da prova favorecendo ou desfavorecendo qualquer parte em virtude da autoria de qualquer disposição deste Aditivo.

8. Íntegra do Contrato. Este Aditivo, incluindo seus documentos referenciados, passa a fazer parte integrante do Contrato e, juntos, representam a íntegra do acordado entre as Partes em relação a seu objeto. Não há outros contratos, representações, garantias ou entendimentos entre as Partes em relação à participação do PARTICIPANTE nos Arranjos de Pagamento Aprovados. Este Contrato substitui qualquer outro contrato entre as Partes, escrito ou verbal, em relação à participação do PARTICIPANTE nos Arranjos de Pagamento Aprovados. Para fins de esclarecimento, este Contrato prevalece e substitui qualquer contrato anterior relacionado à afiliação do PARTICIPANTE, à sua participação nos Arranjos de Pagamento da Visa e à autorização para uso de quaisquer Marcas de Propriedade da Visa.

9. Idioma. Este documento é celebrado e assinado nos idiomas Inglês e Português, sendo que em caso de divergências de interpretação, as Partes acordam que a versão em Português deve prevalecer.

EM TESTEMUNHO DO QUE, as Partes assinam o presente Contrato em 3 (três) vias, nas datas indicadas abaixo de suas respectivas assinaturas.

6. Amendments; Severability. This document may not be amended or modified, and none of its terms or conditions may be waived, except pursuant to an instrument in writing signed by all of the parties hereto or, in the case of a waiver, by the party waiving compliance; provided, however, that, the foregoing shall not be construed as a limitation on the ability of VISA DO BRASIL to amend, supplement or otherwise modify any of the Visa Rules from time to time without the consent of PARTICIPANT. If any term, provision, agreement, covenant or restriction of this document or incorporated by reference into this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, agreements, covenants and restrictions of this document shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the PARTICIPANT relationship contemplated hereby is not affected in any manner materially adverse to the parties to this document. Upon such a determination, if and to the extent the position cannot be remedied by an amendment to the Visa Rules either generally or in relation to the Approved Country(s), the parties shall negotiate in good faith to modify this document so as to give effect to the original intent of the parties as closely as possible in a reasonably acceptable manner in order that the PARTICIPANT relationship contemplated by this document may continue as originally contemplated to the fullest extent possible.

7. No Strict Construction. In the event any ambiguity or question of intent or interpretation arises, this Amendment shall be construed as if drafted jointly by the parties to this Agreement, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Amendment.

8. Entire agreement. This Amendment, including the referred documents, is part of the Agreement and, together, they constitute the entire agreement and understanding between the Parties regarding its scope. There are no other agreements, representations, warranties, or understandings between the Parties with respect to the PARTICIPANT’s participation in the Approved Payment Arrangements. To the extent that any other agreement, written or verbal, appears to exist between the Parties with respect to the subject matter hereof, the Agreement supersedes any such agreement. For clarification purposes, this Agreement prevails and supersedes any prior agreement related to the PARTICIPANT’s affiliation to the Visa Systems (either with Visa International or Visa do Brasil) and to the trademark license of Visa Owned Marks.

9. Language. This document shall be executed and signed in the English and Portuguese languages. In case of discrepancies of interpretation the Parties agree that the Portuguese version shall prevail.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed.


VISA DO BRASIL EMPREENDIMENTOS LTDA

Assinatura/Signature:		/S/ FERNANDO TELES
Nome/Name:		Fernando Teles
Cargo/Title:		General Officer
Data/Date:


PAGSEGURO INTERNET S.A.

Assinatura/Signature:		/S/ JUAN FUENTES
Nome/Name:		Juan Fuentes
Cargo/Title:
Data/Date:		June 2, 2017


VISA INTERNATIONAL SERVICE ASSOCIATION

Assinatura/Signature:		/S/ EDUARDO COELLO
Nome/Name:		Eduardo Coello
Cargo/Title:		Group Executive—LAC
Data/Date:		July 3, 2017


Testemunhas/Witnesses:

1.	/S/ ILLEGIBLE	2.	/S/ ILLEGIBLE
	RG		RG
	CPF/MF		CPF/MF

Exhibit 4.14

LONG-TERM INCENTIVE PLAN – Goals (LTIP – Goals)

PAGSEGURO INTERNET S.A.

1.	Long-Term Incentive Plan – Goals

1.1.

The Board of Directors of PagSeguro Digital Ltd., which has been listed on the New York Stock Exchange (NYSE) since January 26, 2018, incorporated as an exempted company with limited liability in the Cayman Islands (“Company”), parent company of the operating company PagSeguro Internet S.A., headquartered in the City of São Paulo, State of São Paulo, at Avenida Brigadeiro Faria Lima, 1,384, 4th floor, A, Zip Code 01451-001, registered with CNPJ/MF under No. 08.561.701/0001-01 (“PagSeguro Brasil”), has approved this Long-Term Incentive Plan – Goals (hereinafter referred to as “LTIP-Goals”), through which PagSeguro Brasil may grant shares of the Company to certain employees (hereinafter referred to as “Beneficiaries”), provided that they are previously selected and approved by the LTIP-Goals Committee, as defined below, within the limits and conditions established herein.

1.2.

The purpose of the LTIP-Goals is to reinforce the alignment of interests between the Beneficiaries and the Company, giving them the opportunity to become partners of the Company, thus deepening their commitment. PagSeguro Brasil hopes to encourage the expansion, success and achievement of its corporate purposes, attracting and hiring highly-committed professionals who wish to succeed.

1.3.

The management of the LTIP-Goals , including the selection of Beneficiaries and the determination of the relevant participation conditions, will be conducted by the LTIP-Goals committee (“LTIP-Goals Committee”), an administrative body of the Company comprised of the Company’s Chairman of the board of directors and two (2) other officers of Universo Online S.A. appointed by the CEO. PagSeguro Brasil may only enter into agreements or amendments with the Beneficiaries of the LTIP – Goals as previously resolved by the LTIP-Goals Committee.

1.4.

The shares provided for in the LTIP-Goals are those issued by the Company.

1.5.

The LTIP-Goals Committee will entitle each Beneficiary the right to receive annually, as payment of part of the PagSeguro Brasil Corporate Results-Sharing Plan (“PPR-PSB”), a Gross Value (“GV”) in Brazilian Reais, provided that the goals established in the PPR-PSB were met in the previous year. If the PPR-PSB goals were not met in the previous year, the Beneficiary will not receive GV for that year.

1.6.

If the abovementioned conditions are met, the GV, net of taxes, shall be paid to the Beneficiary. The payment shall be made in cash or in shares issued by the Company, at the discretion of the LTIP-Goals Committee. If the payment is made in the form of shares issued by the Company, the GV, net of taxes, shall be converted into shares issued by the Company on the last business day of January following the end of the relevant year (“Conversion Date”), pursuant to the conditions set forth in Section 2, below. The shares will be issued by the Company within 10 (ten) business days from the Conversion Date.

1.7.

If the LTIP-Goals Committee decides to include a new Beneficiary by the end of October of any given year, and provided that the goals of the PPR-PSB have been met, the Beneficiary shall receive the GV on a pro-rata temporis basis. If the LTIP-Goals Committee decides to include a new Beneficiary during November or December of any given year, then the Beneficiary shall receive the GV as if the Beneficiary had been included in January of the following year.

2.	GV – Conversion into Shares

2.1.

GV resulting from the achievement of goals of the PPR-PSB in the previous year shall be converted, on the Conversion Date, into shares of the Company, taking into account the GV, net of legal charges and taxes levied on such payment, divided by the average value of the Company’s shares in the last thirty (30) trading sessions before the Conversion Date.

3.	Delivery of Shares and Lockup

3.1.

Once the GV is converted into shares of the Company, (pursuant to Section 2 above), such shares shall be transferred to the Beneficiary within 10 (ten) business days from the Conversion Date.

3.2.

Once the relevant shares of the Company have been delivered, the Beneficiary shall comply with all lock-up rules and/or transfer restrictions established by the SEC (United States Securities and Exchange Commission), by the Company, by PagSeguro Brasil or in the LTIP-Goals concerning the sale of shares.

3.3.

Once the ownership of the shares has been effectively transferred from the Company to the Beneficiary, the latter shall be solely responsible for managing the shares, except as provided for in Section 3.2.

3.4.

As resolved by the LTIP-Goals Committee, the delivery of the relevant shares of the Company shall occur through sale of treasury shares, issuance of new shares or payment in cash to the Beneficiary to acquire the shares of the Company in the market.

4.	Events of Termination of Employment of the Beneficiary of PagSeguro or affiliated companies

4.1.

If termination occurs before the end of the year: the Beneficiary will not be entitled to GV.

4.2.

If termination occurs after the end of the year and before the Conversion Date: the Beneficiary shall receive the GV, provided that the PPR-PSB goals for the previous year were met.

5.	Legal Charges and Taxes – Shares and Settlement in Cash

5.1.

The amounts discussed herein – paid in shares of the Company or settled in cash – are related to the development goals of PagSeguro Brasil, established in each annual PPR-PSB. Thus, they do not result in payment of labor (FGTS, 13th salary and holidays) or social security charges.

5.2.

PagSeguro Brasil, as part of a corporate results-sharing plan, as provided by Law No. 10.101/00, shall perform the due discounts and payments provided by applicable law, considering the payment date as the basis for calculation.

6.	LTIP-Goals Effectiveness

6.1.

The LTIP-Goals was approved by the Company’s Board of Directors and the LTIP-Goals Committee is authorized to take all necessary measures for the Company to implement the LTIP-Goals.

6.2.

The LTIP-Goals shall be effective until the Company’s Board of Directors or the LTIP-Goals Committee decides to terminate it.

6.3.

Without prejudice to the effectiveness and term of the PPR-PSB, the LTIP-Goals and the individual agreements may be amended or terminated, at any time, by decision of the Company’s Board of Directors or the LTIP-Goals Committee, in the event of force majeure or a drastic fluctuation in the general economic conditions that indicates unpredictability or instability, or in the event of changes in the laws or regulations applicable to the Company or to PagSeguro Brasil that may result in material changes to the provisions of the LTIP-Goals and the individual agreement.

6.4.

In the event of a corporate restructuring of the Company and/or PagSeguro Brasil, including the involvement of third-parties, or in the event of a spin-off, merger, consolidation, or in the event of an IPO by one of their subsidiaries, LTIP-Goals and the individual agreement may be adjusted to such new corporate structure and may be amended, as exclusively resolved by the Board of Directors or the LTIP-Goals Committee.

7.	Final Provisions

7.1.

The provisions of the individual agreement and of the LTIP-Goals do not confer any rights to the Beneficiary that ensure his or her continued employment at PagSeguro Brasil or at any other company within PagSeguro Brasil’s corporate group, and they do not interfere in anyway in PagSeguro Brasil’s right to, at any time and pursuant to applicable law, remove the Beneficiary from his or her duties and terminate the legal relationship with the Beneficiary.

7.2.

Any circumstances not provided for in this instrument shall be resolved by the LTIP-Goals Committee or by the Company’s Board of Directors.

7.3.

All the provisions of PPR-PSB, which are available on the intranet of the UOL Group, are applicable to the LTIP-Goals.

Approved on December 18^th, 2018

Exhibit 4.15

AGREEMENT FOR ACCREDITOR PARTICIPATION

IN ELO PAYMENT ARRANGEMENTS

The present Agreement for Accreditor Participation in Elo Payment Arrangements (“Agreement”) is entered into by and between:

ELO SERVIÇOS S.A., a business corporation duly incorporated and operating under the laws of the Federative Republic of Brazil, with headquarters at Alameda Xingu, no. 512, 5^th floor, Alphaville, in the City of Barueri, State of São Paulo, ZIP CODE (CEP): 06455-030 and enrolled at the Corporate Taxpayer Registry of the Ministry of Finance (“CNPJ/MF”) under no. 09.227.084/0001-75 (“Elo”); and

II.

PAGSEGURO INTERNET S.A., a corporation duly incorporated and validly operating under the laws of the Federative Republic of Brazil, with headquarters at Avenida Brigadeiro Faria Lima, no. 1.384, 4^th floor (Part A), in the City of São Paulo, State of São Paulo, CEP 01451-001 and enrolled at CNPJ/MF under no. 08.561.701/0001-01 (“Participant”),

Elo and the Participant, herein represented by their legal representative(s) identified in the page of signatures of the present instrument, are hereinafter jointly referred to as “Parties” and, individually, as “Party”.

WHEREAS:

(i)	Elo is an institutor of payment arrangements, as defined in Law 12.865/2013 and in the Circular 3.682/2013, currently in the process of authorization with the Central Bank of Brazil (“Central Bank”) to perform the activity of institutor of Elo Payment Arrangements;

(ii)	The Participant is a payment institution, as defined in Law 12.865/2013 and in Circular 3.885/2018;

(iii)

Elo wishes the Participant to be part of Elo Payment Arrangements, in the quality of Accreditor;

(iv)	The Participant wishes to participate in Elo Payment Arrangements, in the quality of Accreditor, observing the terms of the Regulations.

THAT SAID, the Parties resolve to enter into the present Agreement, to be governed by the following clauses and conditions:

CLAUSE I

Definitions and Rules of Interpretation

1.1. For all the purposes and effects of the Agreement, the expressions and terms defined, starting with capital letters shall have the meanings indicated in the Glossary and in the Regulations.

1.2.	The Agreement shall be governed and interpreted in accordance with the following principles:

1.2.1. The headings and titles of the Agreement only serve for reference convenience and shall not limit or affect the meaning of the clauses or items which they apply to.

1.2.2. The terms “inclusive”, “including” and other similar terms shall be interpreted as if they were accompanied by the sentence “merely as an example” and “without limitation”.

1.2.3. Whenever required by the context, the definitions contained in the Agreement and in the Glossary shall be applied both in the singular and in the plural and the masculine gender shall include the feminine and vice versa, without changing their meaning.

1.2.4. References to any document or Law include all their amendments, substitutions and consolidations and respective complements, except when otherwise expressly provided for.

1.2.5. Except if otherwise expressly provided for in the present Agreement, references to items or attachments apply to items and attachments of the Agreement.

1.2.6. All the references to any Parties include their successors, representatives and assignees authorized by Law or contractual instrument, as applicable.

1.2.7. All the deadlines provided for in the present Agreement shall be counted as foreseen in article 132 of the Civil Code, disregarding the starting day and including the final day.

CLAUSE II

Object of the Agreement

2.1. Subject to the clauses and conditions of the present Agreement, the Participant herein agrees to participate of the Elo Payment Arrangements, in the condition of Accreditor, being responsible for, without managing the Payment Account, providing services of accreditation and maintenance of ECs and participating in the processing and liquidation of transactions carried out with the Payment Instruments, in conformity with the technical specifications which are part of the Arrangement Manuals, and subject to the terms and conditions of the Regulations (“Services”).

2.1.1. In addition to the provisions under the present Agreement, the Participant represents to have understood that all the provisions of the Regulations apply to the document of adhesion delivered to it on the date of signature of the present Agreement. In case in the future any conflict between the provisions in the Regulations and the Participant business model occurs, the latter can terminate the Agreement under the terms of clauses 5.4, 10.1 and 10.4.

CLAUSE III

Participant Remuneration Fee

3.1. The Participant shall be entitled to receive remuneration applicable in accordance with the Arrangement Manuals, specifications, bulletins and other documents on the matter.

3.2. The remunerations due by the Participant to Elo are provided for in the Manual of Tariffs.

CLAUSE IV

Rights/Obligations

4.1. Without prejudice to the other rights provided for in the present Agreement, in the Regulations and in the Arrangement Manuals, the Participant rights are:

(i)	to collect tariffs for the services provided to ECs, respecting the regulations applicable;

(ii)	participate of the Elo Payment Arrangements, pursuant to the non-discriminatory general rules contained in the Regulations, respecting the freedom of the business models and the applicable laws and regulations;

(iii)

to receive from the ECs the contractually agreed amounts relative to the Purchase Payment Transactions carried out;

(iv)	exercise the rules and rights provided for in Chapter VII—Reasons for Rejection and Return of the Payment Transactions of the Regulations; and

(v)

conduct, at its expenses, by means of a third party contracted and duly qualified, annual audits, between the months of September and November, for verification of the compliance, by Elo, with the obligations of segregation and protection of its technological infrastructure, in the hypothesis of outsourcing of the processing services under Elo’s responsibility.

4.1.1. To exercise the right mentioned in item (v) above, the Participant must inform its intention to Elo, upon previous notice within a minimum of 30 (thirty) days in advance.

4.2. Without prejudice to the other obligations provided for in the present Agreement, the Participant binds itself to observe and comply with the terms and conditions of the Regulations and of the Arrangement Manuals, including, but not limited to the obligation of:

(i)	being a Payment Institution, as defined in Law no. 12.865 of October 09, 2013 and in Circular no. 3.885 of March 26, 2018;

(ii)	respect the rights, duties and responsibilities set forth in Chapter IX—Responsibilities within the Framework of the Arrangement; Section II—Among Participants of Elo Payment Arrangements of the Regulations;

(iii)

meet the minimum requirements set forth in Chapter XI—Modality of Participants of the Regulations, Section II—Requirements to become a Participant, Section III—Criteria and General Participation Requirements for Issuers and Participants, Section IV—Criteria and Requirements for each Modality of Participant, Sub-section IV—Participants, of the Regulations;

(iv)	adopt an adequate structure to manage the risks incurred within the framework of the Elo Payment Arrangements, under the terms of Chapter XII—Risks Incurred by the Participants of the Regulations and under the terms of the regulations in force;

(v)	respect the responsibilities provided for in Chapter VII—Reasons for Rejection and Return of Payment Transactions, of the Regulations;

(vi)	send information on the Purchase Payment Transaction, as provided for in Chapter XIII—Operating Aspects within the Framework of Elo Payment Arrangements, Section IV—Conciliation of information between the Participants, of the Regulations;

(vii)

adopt and maintain a structure dedicated to the detection, investigation, monitoring and reporting of transactions involving fraud, foreign exchange frauds, money laundering and financing to terrorism or other illegal activities related to the provision of its services, subject to the guidelines set forth in the Policy of Prevention against Money Laundering and Anti-Terrorism, under the terms do Chapter XIII—Operating Aspects within the Framework of Elo Payment Arrangements, Section V—Prevention to foreign exchange fraud, money laundering and combat to the financing of terrorism, of the Regulations;

(viii)

notify the competent authorities, under the terms of the legislation and regulations applicable, with respect to the measures to be taken as a result of suspects of foreign exchange fraud, money laundering and financing to terrorism or any other suspect activities related to the provision of its services, as well as to cooperate with Elo and governmental or regulatory authority, to the extent of the legal requirements applicable, in the investigation of any suspect or confirmed activity of money laundering, financing to terrorism, fraud or any other suspect activities related to the provision of its services. Upon Elo’s request, immediately investigate any suspect or confirmed activity, including of any EC which Elo suspects to be involved in activities of such nature;

(ix)	report to Elo and including to the authorities, the results of any investigation requested and adopt immediate corrective measures in case it becomes aware, in any way, that a fraud is imminent, probable or ongoing;

(x)	upon Elo’s request, to make sure that any EC associated to the activities forbidden by the Regulations, Manuals and Elo Policies has its agreement immediately terminated;

(xi)

notify Elo, in writing, within up to 10 (ten) days, preferably by e-mail, about the receipt of notification or judgment which deals about the past or future performance of any of the accredited ECs, in relation to any of their obligations or duties provided for in the present Agreement or in the Arrangement Manuals, for violation, or act which can reasonably be characterized as violation to any legal requirement, including to regulatory approval, specifically, in case it becomes aware of, when this interferes with or prevents the performance of Elo or of any of its commercial partners;

(xii)

be responsible, before the regulatory, administrative and legal bodies, either national and international, under the terms of the legislation and regulations in force, for compliance with its obligations relative to prevention and combat to money laundering and Financing to Terrorism and “know your client—KYC” policies, of the ECs accredited by it;

(xiii)

to adopt mechanisms capable of ensuring the security of the information related to Payment Transactions, under the terms of the legislation in force and in line with Chapter XIII—Operating Aspects within the Framework of Elo Payment Arrangements, Section VII—Information Security, of the Regulations, according to PCI certification and respecting the state of the art of the technology;

(xiv)

to adopt a structure capable of assuring business management and continuity within the framework of the Elo Payment Arrangements, under the terms of Chapter XIII—Operating Aspects within the Framework of Elo Payment Arrangements, Section VI—Management of Business Continuity, of the Regulations;

(xv)	to comply with the obligations related to the use of Elo Brand, under the terms of the Manual of Operating Rules and of Chapter XIV—Rules on the Use of the Brand, of the Regulations;

(xvi)

to ensure interoperability with the other Participants and payment arrangements either integrating or not the Brazilian Payment System, whenever applicable, under the terms of Chapter XV—Interoperability Mechanisms, Section I—Interoperability among Participants, of the Regulations;

(xvii)

carry out the accreditation of the ECs, provide structure for the processing of Purchase Payment Transactions;

(xviii)

maintain a commercial relationship with the ECs, being responsible for obtaining all the ECs’ record information, as well as for the obligation to keep them up to date, based on the regulations in force and in line with the policies of verification of record information, validating the banking domicile data with the Domicile Institutions, making available the necessary information so that all processing and settlement, with the effective payment to the ECs, is properly carried out within the framework of the Elo Payment Arrangements;

(xix)

send the information for settlement to the Clearing and Settlement Clearing House according to the payment schedule of the establishments, rules and layouts defined by the Clearing and Settlement Clearing House;

(xx)	meet the payment position at the Clearing and Settlement Clearing House, to debit or to credit;

(xxi)

impose to ECs and Sub-accreditors observance to the Regulations and the Arrangement Manuals in whatever applicable to them, including with reference to information security;

(xxii)

carry out the payment to the EC, by means of the Clearing and Settlement Clearing House and/or Liquidation Between Arrangements (in case of interoperability, this shall take place under the terms defined in the regulation in force), respecting the deadline and the terms set forth in the Regulations and in the Arrangement Manuals;

(xxiii)

present the supporting documentation to the Issuer within the deadline required by Elo, in accordance with the rules applicable to cancellations, chargebacks and returns of Purchase Payment Transactions;

(xxiv)

definitely credit or debit the payment of the Purchase Payment Transaction to the EC, once the Chargeback is solved;

(xxv)

provide network services within the framework of Elo Payment Arrangements;

(xxvi)

refrain from practicing any non-competitive or discriminatory act in relation to Elo towards other flags, as well as any act that undermines Elo’s relationship with the EC and the relationship between the Participants of Elo Payment Arrangements, assuring security, protection of the economic interests, privacy and protection of ECs’ data;

(xxvii)

adhere to the Clearing and Settlement system, under the terms of Chapter V of the Regulations;

(xxviii)

provide Elo with all and any information for the good and faithful compliance with its obligations, sending the necessary files for execution of Elo’s activities, in the form and within the periodicity informed by Elo;

(xxix)

inform and make available to Elo, in the form and within the periodicity shown in the Regulations and Arrangement Manuals, the status of the settlements made and not carried out in the accounts of the ECs. For unrealized settlements, identify the inconsistency that generates the failure in settlement, provide the correction and resend the information for settlement;

(xxx)

send the analytical information to the Domicile Institutions to make the settlement operational, through and according to the guidelines of the Clearing and Settlement Clearing House, with payment information to the ECs, which shall be used by the Domicile Institutions exclusively for credit to the ECs, under the terms of the applicable legislation and, when applicable, of the Agreement of Domicile Institution Participation in Elo Payment Arrangements;

(xxxi)

participate in the process for settlement of the Purchase Payment Transactions as creditor before the Issuer, in accordance with the rules of Elo Payment Arrangements;

(xxxii)

comply with all the accessory obligations set forth in the regulations and in the legislation in force; and

(xxxiii)

not to discriminate the Elo Brand and any of its products, preventing selective authorization, as well as ensuring that no brand shall have more prominence and visibility than the Elo Brand in signaling relative to acceptance, except in promotional campaigns specific for the promotion of any brand, ensuring non-discriminatory access to the services and to the infrastructures necessary for the functioning of Elo Payment Arrangements.

4.3 Without prejudice to the other obligations foreseen in the present Agreement, the Parties bind themselves, for all and any purposes, not to give, offer, pay, promise, or authorize the payment of, directly or indirectly, any money or any valuable thing to any governmental authority, consultants, representatives, partners or any third parties, for the purpose of having influence on any act or decision of the public agent or of the government, or to ensure any undue advantage, or practice any act which violates the rules of the anti-corruption legislations (Law 12.846/2013).

4.4. To ensure compliance with the obligations referred to in the present Agreement as well as those attributed to the Sub-Accreditor Participant, the Accreditor binds itself to provide, to the benefit of Elo, irrevocable and irreversible guarantees within the timing and in the form requested by Elo, pursuant to the procedures approved by Elo’s Credit Risk Committee.

4.5 Elo shall not practice any non-competitive or discriminatory act in relation to the Participant, relative to other accreditors, or any act which harms the relationship between the Participant with the EC and the isonomy between the Participants of Elo Payment Arrangements, ensuring the security, protection of economic interests, privacy and protection to Participant’s data.

4.6 Elo binds itself to immediately inform the Participant, about any change to the Regulations and keep the updated version of the Regulations in force available for consultation at the following address of the worldwide network of computers www.eloportal.com.br/.

CLAUSE V

Additional Obligations of the Participant

5.1. Further to the other conditions and obligations provided for in the present Agreement, in the Regulations, Arrangement Manuals, Policies, specifications, bulletins and other documents issued by Elo, including by means of its website, the Participant recognizes the need to comply with the following obligations as a condition to receive and maintain the authorization for participation object of the present Agreement:

(i)	Comply with all the obligations assumed in the present Agreement, as well as respect the consumer protection and defense of competition norms, as well as the laws and regulations applicable to the activities performed by the Participants within the framework of the Elo Payment Arrangements;

(ii)	make available all the information necessary to comply with the applicable regulations, norms set forth by Elo, Arrangement Manuals, specifications, bulletins and other documents issued by Elo, including by means of its website;

(iii)

intermediate disputes with the ECs and Issuers, in case the Payment Transactions present any irregularity, under the terms of the Regulations;

(iv)	receive and analyze the disputes sent by the Issuers, as well as the pre-arbitration request, if necessary, with the due arguments or proving documentation and meet the regulatory deadline set by Elo and under the terms of the Arrangement Manuals;

(v)	ensure that the traffic and storage of the Elo Payment Instrument data, in whatever under its competence, comply with the applicable information security standards;

(vi)	observe and implement measures to mitigate the operational, credit and liquidity risks, as required under the regulations in force;

(vii)

endeavor its best efforts to promote and encourage the use of Elo Payment Instruments with the ECs;

(viii)

directly provide all the equipment, facilities and inputs, including those of a technological nature, necessary for the capture, authorization and settlement of the Purchase Payment Transactions, thus assuring the integrity of the systems of capture, authorization, processing, liquidation, rejection and return of the Purchase Payment Transactions, refraining from granting or allowing the use of security mechanisms of the Elo Payment Arrangements to third parties without the due authorization of Elo;

(ix)	provide the information and/or materials and documents requested by Elo and within the deadline required by Elo, subject to the obligations, the criteria of reasonability and proportionality and observing the terms of the present Agreement;

(x)	participate in the procedure for liquidation under the terms set forth and agreed in the present Agreement and in the Regulations;

(xi)	remain bound to payment of the Purchase Payment Transactions before the ECs, as set forth in the Regulations and in the present Agreement;

(xii)

forward to Elo, whenever operationally possible, all the information received from the ECs, relative to judicial decisions, notifications, notices which can be relevant for and/or which impact the liquidation procedure;

(xiii)

previously inform to Elo any changes in its headquarters and/or any substantial changes to its corporate structure, or to its direct or indirect control and/or corporate reorganization;

(xiv)

to keep periodical screenings of the ECs in order to verify their inclusion in the Office of Foreign Assets Control (OFAC) lists, immediately informing Elo about the existence of ECs that integrate such lists or that might come to integrate them;

(xv)	proceed to the immediate termination of agreements with ECs that are or can be included in the Office of Foreign Assets Control (OFAC) lists;

(xvi)

constitute the following processes, susceptible to audit: (a) fraud control process, (b) prevention to money laundering and combat to terrorism, (c) contingency and disaster recovery plan, (d) contingency plan; (e) information security; and (f) anti-corruption policies;

(xvii)

make it evident the compliance with Central Bank norms, including those related to the provision of guarantee, whenever requested by Elo, in order to prevent and/or mitigate the risks related to the possibility of default of the Purchase Payment Transactions as described in the Arrangement Manuals and in the Regulations;

(xviii)

refund Elo for all the expenses incurred, including lawyers’ fees, costs and possible convictions, due to the need to defend the interests of Elo, in judicial and/or extrajudicial actions directly filed by any third party due to the provision of the Participant’s services object of the present Agreement, provided that previously agreed by the Participant. Any modification to the conditions agreed on the guarantee shall result in termination of the present Agreement, without prejudice to the validity of the obligation to provide services and its respective payment;

(xix)

ensure the integrity of the systems of capture, authorization, processing, liquidation, rejection and return of Elo Payment Arrangement transactions; and

(xx)	ensure the security, protection of economic interests, non-discriminatory treatment, privacy and protection of the data of Commercial Establishments.

5.2. The Participant is forbidden to provide the services object of the present Agreement on a misleading, false form or otherwise to reflect negatively on the reputation of Elo’s brand and image, as well as that of any of the Participants of Elo Payment Arrangements and of Elo’s trading partners.

5.3 Elo binds itself, before the Participant, for the exercise of its activities, to comply with the provisions under the norms and in the Regulations in force, in special: (i) the provisions under Chapter IX—Responsibilities within the Framework of the Arrangement, section I—Between the Institutor of the Arrangement and its Participants; (ii) in Chapter XII—Risks Incurred by the Participants; (iii) Chapter XV—Interoperability Mechanisms and (iv) to inform the Participant, whenever allowed by the legislation and regulations in force, the carrying out/occurrence of frauds by the holders and/or Commercial Establishments.

CLAUSE VI

Representations, Rights and Warranties

6.1 The Participant hereby represents: (i) to have received a full copy of the Regulations and the Arrangement Manuals, with which it expressly agrees, assuring that it shall always observe and comply with their terms, obligations, conditions and requirements, and (ii) being aware that the Arrangement Manuals are subject to constant changes, which shall be available at Elo’s website, binding the Participant since the communication by Elo of its availability.

6.2. Each Party is a company duly constituted and validly operating under the laws of Brazil and has full capacity, legal powers and authorizations to hold its own assets, conduct the business in which it is involved and comply with the obligations set forth in the present Agreement.

6.3. Each Party authorized the signature, having the technical and operational capacity, powers and authorization necessary to deliver and comply with the present Agreement. No other corporate measure, including approval from the shareholders or from the management, by any of the Parties shall be required to authorize the signature and compliance with the present Agreement.

6.4. The present Agreement constitutes a valid, binding and enforceable obligation between the Parties in accordance with its terms.

6.5. The signature and compliance with the obligations by the Parties, as provided for in the present Agreement does not require obtaining any additional authorization from any third party or any Governmental Authority.

6.6. The signature of the present Agreement shall not: (i) result in conflict or violation to any Law applicable to any of the Parties; (ii) rely upon any consent, approval or authorization by, notification to, or filing or registration with, any Person, entity, court, Governmental or Regulatory Authority, other than as expressly provided for in the present Agreement; (iii) result in violation, non-compliance, conflict nor shall it otherwise constitute, enable or result in the early expiration of any obligation, termination of any agreement or adjustment entered into by the Parties; (vi) result in any Adverse Material Effect in relation to any of the Parties.

6.6.1. Without prejudice to the above provisions, Elo represents and warrants that (i) the present Agreement is and shall remain, fully in accordance with the provisions foreseen in the Regulations, subject to approval of the Central Bank, under the terms of the regulation applicable and (ii) any change promoted by the Central Bank, to the Regulations shall be made on good-faith, considering the reasonability in the performance of the businesses.

6.7. The exercise, by the Participant and by Elo, of the Services provided for in the present Agreement shall be conducted by the Work Team of the Participant or Elo’s, as applicable, whose fiscal, social security and labor responsibilities shall be under the exclusive responsibility of these, including all and any expenses, either arising from transportation (by air and/or land), stay and/or meals. By “Work Team” it should be understood the employees, agents, subcontracted personnel, directors, partners and any other employee of the Participant or Elo’s, involved, directly or indirectly, in the exercise of such function.

6.8. The Parties hereby represent, for all legal purposes and under the law, to be the sole employers and/or entities responsible for their respective workers assigned to perform the services provided for within the framework of the present Agreement and, in such quality, they assume the responsibility for compliance with the entire labor, social security, tax and civil legislations, as well as of any other nature, including for payment of all federal, state, municipal and autarchic taxes and for compliance with the collective labor norms already existing or which come to be created during the validity of the present Agreement, relative to the performance of the functions object of the present Agreement, exempting the other Party from such responsibility, even if by judicial decision it comes to be declared the joint and several and/or subsidiary responsibility of the latter.

6.9. The Parties hereby represent and warrant to one another that they hold the property or the right to use all and any patents, applications for patent, trademarks, either registered or not, applications for trademark registration, copyrights, author’s rights, including copyrights on software, industrial drawings, utility models, business or industry secrets and non-patented know-how or technology which constitute business or industry secrets to be used under the terms of the present Agreement for the carrying out of the Services (“Intellectual Property”). The Intellectual Property to be used and/or provided by either Parties under the terms of the present Agreement, as well as its use or utilization for the carrying out of the Services, does not constitute nor shall it characterize violation to or undue appropriation of any patent, copyright or any other Intellectual Property of any third parties.

6.10. The present Agreement does not generate any type of exclusivity between the Parties.

CLAUSE VII

Secrecy and Confidentiality

7.1. Given the nature of the Parties’ activities, the object of the present Agreement and because it is so agreed, the Parties acknowledge that, in the exercise of their attributions, they might voluntarily or involuntarily have access (“Receiving Party “) to exclusive or confidential information of the other Party, of their clients or of third parties (“Disclosing Party”) and, therefore, they bind themselves and the persons related to them to maintain the most absolute secrecy, refraining from copying, reproducing, selling, assigning, licensing, commercializing, alienating, transferring or disposing of all and any Confidential Information, under the penalty of bearing any losses and damages it causes due to violation to the provisions of this Clause, without prejudice to the possible application of fine.

7.1.2 Considering that in the processing of the transactions carried out within the framework of the Elo Payment Arrangement there shall be shared with Elo information which is or might come to be considered sensitive in terms of competition, Elo shall ensure to the Participant that its information considered competitively sensitive shall not be accessed by third parties, including by institutions which operate in the same segment as the Participant, including to those affiliates which hold a shareholding relation with Elo (“Elo Group” and “Information Barrier”, respectively).

7.1.3 The purpose of the Information Barrier is to ensure adequate treatment of the information shared by the Participant with Elo, under the guarantee that (i) the information shall be accessed only by persons authorized for the purpose of processing the purchase transactions captured, either directly or indirectly, by the Participant, being forbidden the utilization for any purpose other than those provided for in Elo Payment Arrangements, either by Elo or by any company of the Elo Group; (ii) the integrity of the information provided shall be maintained; (iii) the methods used in the information processing shall be secured; and (iv) the information shall be stored in an environment segregated from Elo Payment Arrangements, being that the access to the information competitively sensitive shall only be allowed to Elo.

7.1.4. The compliance with the provisions in Clause 7.1.3. above shall be ensured upon the adoption of information segregation mechanisms which shall prevent access by non-authorized persons, without prejudice to the right attributed to the Participant, under the terms of clause 4.1, item (v) and 4.1.1.

7.2. The Parties shall neither have nor shall they claim any right in relation to the Confidential Information of the other Party. No Confidential Information of the other Party shall be disclosed or assigned, at any title, to third parties, so considered including those belonging to the same economic group of the Parties, either by acts or omissions of the Party which received it, or of its administrators, employees or contracted personnel. Elo’s and the Participant’s Confidential Information shall not be used by the other Party for any purpose other than for the direct execution of the Services, and for participation of the Participant in Elo Payment Arrangements. The disclosure restriction provided for in this Clause VII is extended to the employees and the Party’s contracted personnel which received the Confidential Information.

7.3. The Parties shall use all the necessary care to prevent the disclosure to third parties of any Confidential Information of the other Party. In case of any disclosure or misleading of any Confidential Information of the Disclosing Party, the Receiving Party shall immediately inform the Disclosing Party as soon as it becomes aware of such fact.

7.4. The duty of secrecy and confidentiality provided for in this Clause shall remain in force even after termination or extinction of this Agreement for a period of 60 (sixty) months from the date of its termination or extinction, except for the data and information of the Participants of Elo Payment Arrangements and/or their Clients or others protected by bank secrecy, which for their nature must have the secrecy preserved on a permanent basis.

7.5. Upon extinction or termination of the present Agreement, each of the Parties shall return or destroy, as instructed by the other Party, all the material in any media that contains, refers to or is related to the Confidential Information of the other Party, and can retain copies only (i) of what is legally required or necessary to prove the compliance with the present Agreement; or (ii) in accordance with Elo’s or the Participant’s internal policies of document retention, in which case the obligations of confidentiality herein provided for shall continue in force.

7.6. The duty of secrecy set forth in this Clause shall not apply to any information that the Receiving Party can prove that (i) at the time of its disclosure, was of public domain; (ii) after its disclosure, is published or otherwise becomes of public domain without being by fault of the Parties; (iii) has been received after disclosure by third parties with legal right to disclose such information without any obligation to restrict its use or additional disclosure; (v) has been independently developed by the Receiving Party without reference to Confidential Information of the Disclosing Party; or (vi) must be disclosed by the Receiving Party by force of a request issued by any Governmental Authority.

7.7. In case any of the Parties is forced to disclose any Confidential Information as required by any Law or upon request of any Governmental Authority, the Receiving Party must, immediately upon receipt of such request and before disclosing it, inform such fact to the Disclosing Party and cooperate, if requested, to prevent the disclosure of such Confidential Information and adopt the legal measures requested by the Disclosing Party which are necessary to protect the information. In case the referred to legal measures are not applicable, possible or have no effect, the Receiving Party must inform only what has been legally requested and shall endeavor its best efforts to obtain the necessary protection or any other reliable guarantee that the disclosed information shall receive the same confidential treatment given to the Confidential Information.

7.8. Without prejudice to the provisions of this Clause with respect to the Confidential Information on the Purchase Payment Transactions carried out by the Users and/or by the ECs accredited by the Participant, the latter shall be fully responsible for the secrecy of such Confidential Information and shall handle and store it in such a way that always protects it, through the adoption and constant review of its internal procedures and the technology used and Elo shall be equally responsible for the secrecy of all the information which it has access to, as provided for under the regulations in force.

7.9. The Parties represent to be aware of and bind themselves to comply with all the provisions of the document “Security Assessment Requirements and Procedures” issued by the company PCI Security Standards Council, LLC, irrevocably and irreversibly assuming full and entire liability for any personal, moral or material damages and losses that might be suffered by the other Party or by third parties as a result of non-observance of the “Security assessment requirements and procedures” on the part of the Participant or Elo, their employees or contracted personnel.

CLAUSE VIII

Elo Rights

8.1. Elo might require the Participant to annually contract the audit it indicates, at the Participant’s expense, provided that at reasonable prices practiced in the market, for verification of the full compliance with the rules contained in the Arrangement Manuals and Regulations. The audit shall be carried out within a maximum of 30 (thirty) working days after formalization of Elo’s request to the Participant, and the result of such work, duly validated by the one responsible, shall be delivered to Elo, with copy to the Participant.

8.2. Without prejudice to the provisions in the previous Clause, Elo reserves itself the right to carry out additional audits, at the expenses of the Participant, provided that on a justified form, to be conducted by itself or by third parties contracted by it, and/or demand information and additional documents from the Participant, provenly necessary for the execution of the audit.

8.3. In addition to the obligations contained in the previous Clauses, the Participant shall be subject to an annual evaluation to be conducted by Elo, or by third parties appointed by it, at the Participant’s expense, with an aim at confirming the compliance with the terms of the present Agreement.

8.4. It is hereby assured to Elo the right, at any time and upon prior notice addressed to the Participant within at least 30 (thirty) days in advance, to conduct, at the Participant’s expense, local assessments, due diligences, and other certification procedures, including audits, strictly necessary to prove the compliance with the current regulations and legislations in force, under the terms of the present Agreement, especially the obligations related to (i) fraud control process, (ii) prevention to money laundering, combat to terrorism and anti-corruption laws, (iii) contingency and disaster recovery plan, (iv) contingency plan; (v) information security; and (vi) periodic screening of the Commercial Establishments to verify their inclusion in the Office of Foreign Assets Control (OFAC) lists.

8.5. Elo can, at its sole discretion, disaccredit the Participant which misrepresents the purpose of using Elo Payment Instruments, as provided for in the present Agreement, in the Regulations and in the rules applicable to the use and commercialization of Elo Payment Instruments, as well as to require the Participant to disaccredit ECs that act in that same way.

8.5.1. In case of occurrence of any situation which supposedly caused the disaccreditation of the Participant, Elo should notify it to present information and verify the grounds of the situation based on the principles of the contradictory and of the due legal proceedings.

8.6. The Participant which omits relevant information or practices any non-competitive or discriminatory act that impairs the proper functioning of the Elo Payment Arrangements shall be subject to warning, suspension, fine and/or exclusion from the Elo Payment Arrangements, at Elo’s discretion, and based on the recurrence and severity of the non-compliance.

CLAUSE IX

USE OF THE BRANDS

9.1. The Parties agree that, within the framework of the present Agreement, their respective Brands can be used, recognizing and agreeing that:

(i)	All and any form of utilization of the other Party’s Brands must be previously approved by the Party which the respective Brand belongs to;

(ii)	It is forbidden to one Party to assign, license, sell, negotiate or otherwise transfer the utilization of the other Party’s Brand to any third parties;

(iii)

Must ensure the good use of the other Party’s Brand and bind themselves to prevent the utilization of the other Party’s Brand in operations or services: (i) offensive or injurious to ethics, morality and good manners; and/or (ii) that could denigrate the integrity and reputation of the Brand; and/or (iii) that in any way result in violation to the provisions of the Brazilian law, especially those dealing with consumer protection and/or which in any way discriminates the Brand in any of its products; and

(iv)	They shall not use the other Party’s Brand differently from what has been approved by the Party which the respective Brand belongs to.

9.2. Without prejudice to what is described above, the Participant binds itself to use Elo’s name and Brands only and exclusively to promote the acceptance of the Payment Instruments issued by it, respecting the characteristics of the Brands, Elo’s intellectual property rights and the applicable legislation.

CLAUSE X

Validity and Rescission

10.1. The present Agreement enters into effect on the date of its signature and shall remain in force for undetermined time, but can be terminated at any time, by either Party and without the incidence of any charge or penalty, upon 90 (ninety)-day previous notice.

10.2. The present Agreement can be terminated with immediate effects, at any time, by either Party, or whenever required under the law, in the occurrence of any of the following circumstances:

(i)	failure to pay or late payment by Elo, which exceeds the deadline of 30 (thirty) days from its respective due date;

(ii)	non-compliance with any of the obligations agreed between the Parties under the terms of the present Agreement, which is not duly corrected within 15 (fifteen) days after notification in writing from the other Party;

(iii)

non-compliance with the obligations relative to the use of the Elo Brand;

(iv)	violation or inaccuracy of any representation or warranty provided in the present Agreement not solved within 15 (fifteen) days after written notification from the other Party;

(v)	act of God or major force which persists for over 30 (thirty) days, making the execution of the present Agreement impossible;

(vi)	decree of bankruptcy, (judicial or extrajudicial) recuperation, liquidation process, intervention or submission to the Regime of Temporary Administration – RAET or any similar proceeding involving the other Party;

(vii)

non-compliance by the Accreditor with its obligations relative to the procedure for processing and liquidation of ECs operations;

(viii)

if the Accreditor undergoes a significant change of control, merger or consolidation with any other Party resulting in the transfer of control to a competitor of Elo;

(ix)	exclusion of the Accreditor from the Elo Payment Arrangements, under the terms of Chapter VIII—Penalties Applied, of the Regulations; or

(x)	if the Accreditor discriminates the Elo Brand in any form. It shall not be considered as discrimination of the Elo Brand the carrying out of trade and/or incentive actions with third parties;

10.3. The termination of the present Agreement does not release the Parties from complying with any obligations which, due to their nature, extend beyond the expiration or termination of the Agreement, which shall remain in force until they are fulfilled.

10.4 Without prejudice to the terms and conditions for termination of participation provided for in the Regulations and in the present Agreement, Elo shall ensure to the Participant the right to set a plan to conclude its activities in case of contract rescission (run-off), the deadlines and conditions of which shall be negotiated on good-faith between Elo and the Participant, except for the application of the disaccreditation penalty.

CLAUSE XI

Indemnification

11.1. Without prejudice to the penalties which are part of the Manual of Tariffs of Elo Payment Arrangements, applicable to the cases of non-compliance with the obligations which are part of the Regulations, of the Arrangement Manuals and of the present Agreement, each of the parties agrees to indemnify and keep the other Party released from all and any direct losses and damages or direct losses which, provenly and exclusively, they cause to the other Party as a result of their participation in the Elo Payment Arrangements and the service provision object of the present Agreement, including those resulting from non-compliance with the obligations relative to the use of the Elo Brands. The liability assumed by each of the Parties before the other Party for the losses, damages and direct losses that they bind themselves to indemnify includes the amounts demanded by third parties, and does not include, in any way, loss of profits and indirect losses or damages, at any title.

11.2. The indemnification provided for in Clause 11.1 additionally applies to events that have specific penalties and indemnities provided for in the Regulations, such as the penalties provided for in Chapter VIII—Penalties Applied, of the Regulations.

CLAUSE XII

General Provisions

12.1. The Parties agree and represent that all the terms and conditions under the present Agreement are valid and binding since the date of signature of this Agreement, being the Parties bound as established herein.

12.2. The communications and/or notifications between the Parties arising from this Agreement shall be made by registered letter or electronic mail (e-mail) with acknowledgment of receipt, to the addresses indicated below. Either Party can change the address to which the communications/notifications are to be forwarded and inform the other Party of the new address.

If to ELO:

Elo Serviços S.A.

Alameda Xingu, no. 512, 5th floor, Alphaville, Barueri

E-mail: [email protected]

Attn.: Mr. Marcelo Marques

If to the Participant:

Pagseguro Internet S.A.

Avenida Brigadeiro Faria Lima, no. 1384, 10^th floor.

CEP: 01451-001

E-mail: [email protected]

Attn.: Alexandre Magnani

12.3. The present instrument shall be governed and interpreted under the Laws of the Federative Republic of Brazil.

12.4. No modification, waiver or change to any terms, conditions or provisions now agreed in the present Agreement shall enter into effect except and until formalized by an amendment duly signed by the Parties or by their legal representatives.

12.5. Elo is allowed to assign or transfer, fully or partially, the rights and obligations arising from the present Agreement, upon previous communication in writing to the Participant. The assignment of the rights and obligations arising from the present Agreement shall be allowed to the Participant to a Related Person without previous and express authorization in writing by Elo. In this case, Elo shall be notified within 60 (sixty) days in advance and the Related Person must necessarily belong to PagSeguro Group and meet the technical-operational requirements stipulated in the regulations in force, in the present Agreement and in Elo Manuals. For the purpose of this clause, Related Person shall be considered colligated, controlled, controlling companies or those under the same shareholding control as the Participant.

12.6. Any tolerance or omission by any of the Parties shall not imply waiver, pardon, novation or change to what is adjusted in the present Agreement, as well as waiver to demand compliance with the provisions contained herein or of the right to request in the future the complete execution of each of the obligations set forth in the present Agreement.

12.7. No provision under the present instrument shall be interpreted so as to place the Parties in a relationship of partners, associated, members of any consortium, holders of commodatum, joint venture members or holders of joint and several or subsidiary liability, as well as neither Party shall be entitled to provide guarantee or make any representation on behalf of the other, forcing or binding it, except in relation to what is agreed upon in the present Agreement.

12.8. If any provision in this Agreement is declared or considered to be unlawful, unenforceable or void, under the terms of the applicable legislation, both Parties shall be released from complying with the obligations set forth in the referred to provision, but only to the extent that such provision is unlawful, unenforceable or void. In the event of the foregoing, the Parties, by mutual agreement, shall amend the present Agreement, modifying that provision, to the extent necessary to render it legal and enforceable, while preserving its purpose or, if this is not possible, replacing it by another provision that is legal and enforceable, and which reaches the same objective.

12.9. If any provision contained in the present Agreement is subsequently considered void, unlawful or unenforceable, the enforceability of the remaining provisions shall not be affected or impaired.

12.10. The present Agreement, together with all its Attachments, constitutes the entire agreement between the Parties with respect to its object and supersedes all previous proposals, negotiations, discussions and understandings between the Parties with respect to the object of the present Agreement.

12.11. Any litigation arising from the present Agreement or related to it shall be resolved by arbitration, managed by the Center of Arbitration and Mediation of the Chamber of Commerce Brazil-Canada, in accordance with its regulations, with the arbitration court being formed by three arbitrators. The arbitration shall be headquartered in São Paulo/SP and conducted in the Portuguese language, observing the confidentiality of the proceeding.

12.1.1 All the expenses and fees related to the arbitration, as well as arbitrators’ and experts’ fees shall be borne by the defeated Party.

12.11.2 For the exclusive purposes of any coercive or urgent measure, as long as the arbitration tribunal is not constituted, the Parties elect the court of the district of São Paulo/SP as the one exclusively competent for that.

12.12 The conditions of the present Agreement are also valid for the successors of the Parties.

Page of Signatures of the Agreement for Accreditor Participation in Elo Payment Arrangements, entered into by Elo Serviços S.A. and PagSeguro Internet S.A. on February 13, 2019.

AND IN WITNESS WHEREOF, the Parties signed the present Agreement in 2 (two) counterparts, in the presence of the undersigned witnesses.

Barueri, February 13, 2019.

ELO SERVIÇOS S.A.



1.	/S/ CARLOS ALBERTO C. MOREIRA JR.	2.	/S/ EDUARDO CHEDID
Name:	Carlos Alberto C. Moreira Jr.	Name:	Eduardo Chedid
Position:	Executive Director of Business and Product Development	Position:	President

PAGSEGURO INTERNET S.A.



1.	/S/ CARLOS ALBERTO C. MOREIRA JR.	2.	/S/ RENATO BERTOZZO DUARTE
Name:	Carlos Alberto C. Moreira Jr.	Name:	Renato Bertozzo Duarte
CPF:	289.059.258-80	CPF:	212.549.598-82

		3.	/S/ RICARDO DUTRA
		Name:	Ricardo Dutra
		CPF:	194.681.388-52

Witnesses:



1.	/S/ NATHALIA C. R. DE FARIA	2.	/S/ LEANDRO [ILLEGIBLE]
Name:	Nathalia C. R. de Faria	Name:	Leandro [illegible]
RG:	30533696-4	RG:	21.334.302-4

Exhibit 8.1

Subsidiaries of PagSeguro Digital Ltd.

1.	Pagseguro Internet S.A.(Brazil)

2.	Boa Compra Tecnologia Ltda. (Subsidiary of Pagseguro Internet S.A.) (Brazil)

3.	NET+Phone Telecomunicações Ltda. (Subsidiary of Pagseguro Internet S.A.) (Brazil)

4.	BCPS Online Services, Lda (Subsidiary of Pagseguro Internet S.A.) (Portugal)

5.	R2Tech Informática S.A. (Subsidiary of Pagseguro Internet S.A.) (Brazil)

6.	Netpos Serviços de Informática S.A. (Subsidiary of Pagseguro Internet S.A.) (Brazil)

7.	Tilix Digital S.A. (Subsidiary of Pagseguro Internet S.A.) (Brazil)

8.	BIVACO Holding S.A. (Subsidiary of Pagseguro Internet S.A.) (Brazil)

9.	Biva Serviços Financeiros S.A. (Subsidiary of BIVACO Holding S.A.) (Brazil)

10.	Biva Securitizadora de Créditos Financeiros S.A. (Subsidiary of BIVACO Holding S.A.) (Brazil)

11.	Biva Correspondente Bancário Ltda. (Subsidiary of BIVACO Holding S.A.) (Brazil)

12.	BS Holding Financeira Ltda. (Brazil)

13.	Bancoseguro S.A. (Subsidiary of BS Holding Financeira Ltda.) (Brazil)

Exhibit 12.1

CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED

I, Luiz Frias, certify that:

1.	I have reviewed this annual report on Form 20-F of PagSeguro Digital Ltd.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5.	The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: April 15, 2019



By:		/s/ Luiz Frias
		Name: Luiz Frias Title: Principal Executive Officer

Exhibit 12.2

CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED

I, Eduardo Alcaro, certify that:

1.	I have reviewed this annual report on Form 20-F of PagSeguro Digital Ltd.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

5.	The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: April 15, 2019



By:		/s/ Eduardo Alcaro
		Name: Eduardo Alcaro Title: Chief Financial and Investor Relations Officer and Chief Accounting Officer

Exhibit 13.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of PagSeguro Digital Ltd. (the “Company”) does hereby certify, to such officer’s knowledge, that:

The Annual Report on Form 20-F for the year ended December 31, 2018 of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 15, 2019



By:		/s/ Luiz Frias
		Name: Luiz Frias Title: Principal Executive Officer

Exhibit 13.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED

Date: April 15, 2019



By:		/s/ Eduardo Alcaro
		Name: Eduardo Alcaro Title: Chief Financial and Investor Relations Officer and Chief Accounting Officer

Exhibit 15.1

LOGO

April 15, 2019

Securities and Exchange Commission

100 F Street, N.E.

Washington, DC 20549

Commissioners:

We have read the statements made by PAGSEGURO DIGITAL LTD., which we understand will be filed with the Securities and Exchange Commission, pursuant to Item 16F of Form 20-F, as part of the Form 20-F of PAGSEGURO DIGITAL LTD. dated April 15, 2019. We agree with the statements concerning our Firm in such Form 20-F.

Very truly yours,

/s/ PricewaterhouseCoopers Auditores Independentes

Sao Paulo, Brazil

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SEC Filings

/s/ Marcelo Ivaldo da Silva

/s/ Siomar de Almeida Torres

/s/ Marcelo Ivaldo da Silva

/s/ Siomar de Almeida Torres

NET+PHONE TELECOMUNICAÇÕES LTDA.

PAGSEGURO INTERNET S.A.

Marcelo Ivaldo da Silva

Controllership Director

RG: 30.034.79

CPF: 497.058.224.69

Siomar de Almeida Torres

Finance Director

RG: 19.713.792

CPF: 125.591.238-55

Marcelo Ivaldo da Silva

Controllership Director

RG: 30.034.79

CPF: 497.058.224.69

Siomar de Almeida Torres

Finance Director

RG: 19.713.792

CPF: 125.591.238-55

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