Q1 2021 Xp Inc Earnings Call
Our strongest quarter ever.
All the way, we look at the numbers either the keep the ice or the financials. They were all very strong as we are going to see when we move to the third section.
You also can see.
The.
The cost discipline and efficient debt we have.
Our business model through our margins expanding.
Even considering that we have been hiring.
A lot of people.
Just to give you the numbers in this first quarter 'twenty one.
And the head counts in our company grew 64% year over year.
We hired and onboard and the first quarter more than 300 people actually 322 people.
More than 100 per month, and we expect the space.
To accelerate going forward.
And the reason for that is the new businesses, we are entering the opportunity of data we see in the markets.
And the investment and technology that we have been doing through all of this digital transformation journey that we have started three years ago as we mentioned in our last call.
This operating leverage.
Give us the opportunity.
To reinvest in our platform and that's very important we see as the competitive advantage.
And it's our expectation to keep reinvesting 100% of our results.
And our growth going forward. The reason for that as you have heard the lots from myself and other partners of the company is the huge opportunity that we see in.
The financial system, especially in Brazil to be disruptive.
Now moving to the second point investments.
We have to highlight here that we'd like to share with you.
One is about the international funds, it's interesting because this segment basically it didn't exist a few years ago and.
And.
We invested in it.
We established several partnerships with the.
Global players we.
Got them to Brazil, some of them with exclusivity.
And as of March we have reached $20 billion of.
Assets under custody.
Six times.
Higher.
Year over year with the 120 funds.
Our platform as of March this year.
And we also recently established new partnerships with the systematic.
Nordea with two ESG global funds.
And with Goldman Sachs as well for the.
Emerging market bonds is true.
<unk>.
And as always.
It's also a non because it was publishing and the market recently.
We have established a partnership with our Bridgewater for the global macro fund and.
It's interesting to mention that these funds.
We're going to give access.
Two <unk>.
Investors retail investors with the ticket as low as 500 <unk>.
And I know that's less than $100.
So we are fulfilling our purpose to democratize the investments in Brazil.
And this is recent achievement that we celebrate because those and small investors, they're going to have access to one of.
The most of the desire funds all over the world.
And it's also worth mentioning that D C industry of the investment funds industry.
When we look at the funds the industry as a whole and Brazil. According to and Bema. It has surpassed the amount of $6 3 million BRL, six trillium and less than 1%.
And is invest the international fund so that's the potential of growth of the segment extending our now when we move to pension funds and it's not different in terms of the potential we have been growing a lot, but it still represents a very small part of the industry. When we look at <unk>.
Assets under custody also our <unk>.
Insurance company is new it was as you know established.
In 2019 and.
And we have only one 6% of.
Market share in terms of assets under custody, but despite that and we're talking here about the more than one <unk> and BRL.
Segment.
Despite having only one 6%.
In March for example.
We had of 88% market share of the transfers in the segment. So we've been growing out of loss, but its too.
We have a lot more to grow considering our.
Market share in terms of casting.
Moving to banking I'm not going to.
Less long here because of that anger is going to talk about it I just want to highlight the official launch of our credit card XP visa infinite in March and also our low and portfolio keeps growing.
And it grew 22% quarter over quarter.
And in a very healthy way zero percent NPL as youre going to see down the road and lastly.
We wanted to share with everyone and I don't know if you had the opportunity to see when we release our 20-F.
Few weeks ago.
We had three material weakness when we went for our IPO late in 2019, and Thats normal because of the spenders PCA youll be standards required by FCC for a company that the Brazilian company that doesn't have these kind of requirements. It's normal to have those.
The tier weakness.
We have three and we were able to remove all of the three.
In our first year as a listed company. So we're not only playing offense, but we also are playing defense here, we know thats very importantly, and keeps our company stronger for the long term. So we thought it would be interesting to share that with all of you and so now.
I'd like to pass over to use of that anger the <unk>.
And over a bank. So he can share some banking highlights and anger the floor is yours.
You're on mute bidding.
On mute.
Thank you very much Bruno good evening with up to and when everybody is great. The view, we do today.
And we'll talk a little bit about the what is going on and our banking initiative, but also I will give you. Some some views on the on the banking environment, and Brazil, and let me start by saying that we think that there is something really important and different going on regarding open banking and eastern payments and this into specific market.
The level of of change.
Change and the central bank or the authorities and the regulators are putting in place will change a lot. The way we do banking in this country and I will mention some of the examples as we move forward, but before we talk about open banking, let me talk about what is being delivered and the.
The events in terms of the banking strategy within the XP. So we continue to grow our of collateralized debt, our credit portfolio, reaching $4 7 billion of Reais.
This is a conservative approach everything is collateralized with securities the zero.
MTL and of course, lower capital requirements and difference of a comparison with with standard loans as Bruce highlighted before we launched the the visa and affinity card a higher than expected card activation rates.
And we delivered the marketplace within two months, which was once again of sooner than we anticipated.
And our timetable.
We are moving forward with the marching loan product, it's a credit.
That line, we are piloting as we speak.
And there's going to be very relevant to the trading experience and once again, we're talking about collateralized.
Credit, which has of course of very low capital requirements of the bulk revenues.
If I may go back for the up open banking.
The initiatives in Brazil.
It will comprise or also affect some other products, which is different from the reality and the UK or Europe, or Australia will have corporate clients and Smes participating as well in the open banking initiative.
Products, such as insurance and investments will be included and.
And the timetable.
And the second semester and the Central Bank continues to say that the the plan is to finalize.
100% of the initiative by the end of this year. So what will happen is the individual or a corporate client who will provide an authorization for the financial company to look at the data and to offer products within the ecosystem of this this new database.
For for any client at the end of the day. So for instance, the brutal has a car financing transaction of role with another player ex PR and other bank will be able to provide a competitive rate.
And some human and information about the offering.
And by just looking at the database of it will be available.
So this is substantial.
It will also.
And as in other geographies.
<unk> and.
The the information obligation systems, but the.
Effectively of targeting also corporate clients Smes and the other products that will be it will be material and and we think this is going to be completely different from me all of it from other geographies.
<unk>. So this is this is important we like the state that this is going to be.
As important as the <unk> when we brought the inflation down to zero and 90 495 for the banking system and this could be important also to give clients the ability to shop around and through to.
To basically select the best alternatives in terms of products and a very smooth and client user and user friendly way. So we want to pay attention to debt and the good news of that we are developing our banking initiative and Belo and parallel with the open banking initiative that is happening and the market as a whole.
So this gives us.
Competitive advantage and also for Cedar and the fact that we have.
Newer.
<unk> platform compared to some of the incumbent players, but also we have lower cost of symptom and so of our branch network. Because we don't have any branch network and we basically have the IFA stepped up our base if they sell so we believe our pricing points will be substantially more competitive compared to the for the other players.
<unk>, just once again, combining and technology of binding lowered costs and by activating our existing client base, we're talking about 3 million individuals and roughly 35% to 40000.
Corporate clients theres huge potential and the SME and middle market.
The client base to expand its client base and also to deliver.
The financial products for them, but we are going to start as we always have been and the best with the existing client base and.
And then Ben of trading as we penetrate more of an oasis in the client base will expand.
The space moving forward.
<unk> think we believe that of total wallet of the financial markets and Brazil is close to 800 billion Reais to date with targets less and were 100 <unk> with existing products that we have so the plan is as we move forward. Once again is to move into more products and to basically penetrate the swallow. This.
And be more effective with well with day plants, we haven't and audit clients that will capture.
And in our in our strategy with our strategy. So this is this is in a nutshell, what's going on and <unk>.
And they moved to the us with the order slide please.
At the different ways to look on what we've been doing is and the short term, let's say between now and next year looking at individuals and.
And our important thing to highlight is that we target and we bank and we do business with the top of the pyramid and not the part of the pyramid, we have mass affluent and private bank clients. The idea is by the end of the year to half of full digital accounts.
Preparing ourselves to offer debit cards and peaks of instant payments of two.
<unk>.
We will expand the credit offering we will expense the insurance products offering as well credit products. Once again, we plan to use technology op and banking positively of role and also the.
Central receivables platforms that are being created to mitigate the credit risks and the portfolios and to use collateralized.
Loans as well the <unk>.
Business plan.
Yes.
The possibility of the optionality to attract and monetize retail clients through cross sell and on the investment products and there are several open banking opportunities.
Other way to look at it we started with the top of the pyramid, we will gradually go lower and in terms of the client base and with fewer we have confidence and our systems and our.
Credit and risk management tools are working well, but this of client base that we have is the sweet spot of the marketplace.
The the client typically has the investments with us has collateral collateral for pulse against us some of the transactions and this is what we plan to do with the expanded client base and moving forward.
Once we are confident that we have everything working well.
And the companies our SME, the oil and corporate clients.
We want to scale existing products, such as the investments foreign exchange collateralized credit for transactions and derivatives.
We are launching on the energy trading desk, which will provide our hedging and the and the financing alternatives using energy as collateral.
And the middle and the midterm, let's say between two and three years, we'll continue to expand the credit offering day.
And our main insurance products also will be provided and offer to our client base and as we move forward cash management tools using because of our instant payments and open banking and dose will be provided and offered to corp.
Corporate clients Smes or companies overall.
We have the optionality to enter the acquiring business and payments markets.
And hence our used data analytics to be more effective of our client base.
Corporate pension systems or corporate pension price.
Yes.
Being cross sold to our existing claim basis also.
And opportunity and once again open banking will provide a different.
Geography of just a different game plan for the corporate clients as well. So we are very very optimistic with what we have in front of us once the and.
Slowly, but with the XP style I mean, the sense of urgency is presence every day, but creating this.
The new tools these new products will be offered to decline base.
Using.
A very competitive competitive pricing point technology, and the branch or the <unk>.
IFA network that we have in our ecosystem.
So and I'm not sure. This is what we are planning to do.
We think that the there are plenty of opportunities and we are confident that we will deliver.
The platforms and the flow products.
And I talked about and the banking in the banking business.
I don't think you are bidding and was.
Very very helpful.
You gave the detailed roadmap how powerful the banking business can be and our ecosystem.
Also important to mention debt.
We didn't bring.
Line to talk specifically about strategy of.
Of course bidding already gave a lot of color.
Our banking strategy going forward, but the reason is that we are going to have the and I forgot to comment that and.
And the beginning youre going to have ex fee strategy day, and the second semester.
Several of our C level are going to be there to present to all of you and our long term strategy in more details.
But I think that is important to.
And to mention.
Our strategy.
For example.
Individuals markets and.
And when we talk about the bank.
We did a lot of research with our customers. So we always want to think about the.
Sequence that makes sense to approach the existing clients and then you expand that to other profile of clients moving forward down the road. So the reason we started with for example, the credit card and the collateralized credit and equity because all of the research that we do.
And it internally and those two products were the most desired won more than for example, the digital bank accounts that we're going to have we're going to start the next month.
Of the test and in the second semester is kind of view.
Total operational and so just to give you a highlight above that so but thank you very much betting and now I think we can move to the.
The first quarter of Kpis and financials and the.
Then we go straight to the Q&A.
So here and.
And the Kpis you Havent seen already of the Kpis. We just brought some banking kpis when we talk about investments seven.
716 billion.
And all of the AUC tuning and clients and in Darts. They were very very strong three 2 million, we had and the first quarter of between $1 7 million and remember that the first quarter of last year, we had the pandemic. So a lot of activity, especially in March and of February and March because.
The COVID-19 and the steel.
Growth of 91% year over year debt wasn't grasses, when we go to the bank and keep your eyes bidding already mentioned the $4 7 billion.
And is worth I mean, the <unk>.
<unk> is brand new we officially launched in March and.
It takes there is a natural inertia to pick up as people ask for the carb activate the cards and start using the card and you know.
During the first quarter, we already had.
More than $500 million.
<unk> of <unk>.
TPG transactions in our in our using our credit card and.
All of that.
100% NPL ratio as I have set a range and when we look at the financials.
Everything rapid.
The $2 8 million.
<unk> revenue, 50% growth year over year.
Our EBITDA adjusted EBITDA and the as adjusted just by the share based compensation.
Surpassed the Mark of 1 billion also accordingly.
Record and our adjusted net income of 846 million more than double of the net income of the first quarter last year and with the NPS of 74, which is the very high NPS.
And can move forward.
Here just the net new mining you already talked about the other kpis. The net flow was very strong this first quarter $69 billion, when we adjust that for extraordinary inflows and outflows and those inflows or outflows and there they are important because the basically equity custody.
But considering that they are usually from high net worth and the bureaus and.
They are more uncertain and we always like to be transparent about it when it happens.
The market and at least do not <unk>.
Project debt for the next quarter and so forth but.
We would be borne and happy to have.
Those extraordinarily inflows.
The more frequency of.
Frequently.
So, but extracting that of our equation, we still have a very strong net inflow of 43 billion of BRL and the quarter the highest in the last four quarters with an average of more than 14 billion per month.
And we're very strong pace and that talks to.
The investments, we have made and our fitness work also.
The digital of the XP direct.
And is growing really well. So there is there is not one that's.
Important to mention there is not one single channel here that we would have to say this is responsible for the <unk>.
So it's basically across the board of all brands are going well and all channels excuse Iraq and the IFA channel is also going well in terms of.
Net new loans.
Revenue already talked about 6% growth.
The only mentioning that in the last 12 months retail is the group responsible for that growth more than 90% of the growth year over year and in the first quarter represented 75% of our total RASM.
The take rates, so moving to retail revenue as I mentioned and you can see that the growth is higher than.
The company growth is pushing up 67% growth more than 2 billion in the first quarter and.
And then again this quarter.
For the products and channels they were all strong so very diversified.
The very.
I would say quality of results because we cannot highlight one product compared to the other.
Equities futures.
Financial products fixed income all of it was very strong in the first quarter this year and.
And when we go to the last 12 months take rate what we can see is that.
Right.
The zero brokerage at clear and.
And lastly at the end of third quarter of last year.
The zero online.
The price for Rico, and 75% reduction for XP, we still GAAP the take rates.
And one 3% so stable when I get this question when I think about the future of our sensor stable because it's hard to predict and forecast, but thats, what our trans shows when we look backwards.
And that is important to mention.
Even considering that we do not have.
And the first quarter. This year. These online brokerage revenues that we had in the first quarter of.
And last year. So we had the let's say of tough comp just based on that metric, but it's still we and Morten.
The compensated and mitigated that effect with other products of the growth of the platform and so forth and.
And also important to mention debt and when you look at and our consolidated financial net income from financial instruments, because we are and the financial business saw a lot of the revenue comes from.
And that accounting.
The segment.
Almost 80% of it is related to retail clients.
Moving to EBITDA, we decided last call to show our operating results. So we can get away from the discussion about the effect of tax the low effective tax rate so looking at the EBITDA.
And as I said earlier, we had more than 1 billion.
For the EBITDA in this first quarter, our record ever with the growth of 75%.
For the.
This number shows the benefit of the operating leverage model that we have as I mentioned earlier, we have been investing a lot in existing <unk>.
Business to improve technology experience and so forth and we're going to keep investing especially in new businesses.
And despite all of that.
We're able to scale the business and our operating results show shows clearly the benefits of these operating model that we have and.
And the adjusted EBITDA margin also more than 500 basis points of expansion based on the what I just mentioned, despite the growth of headcounts and etcetera.
Very scalable business model that we have.
Yeah, just the net income it's everything I've said, plus the lower effective tax rate.
The more than double the.
The adjusted net income of from $450 million and the first quarter last year to $846 million and the first quarter. This year with the margin expansion from 23, 9% last year to 32, 2% this year and as you can see on the right.
You see the benefits I mentioned, so revenue growing 50% the operating leverage.
The EBITDA to grow more than revenues and 75%.
And for more than 500 basis points increase and.
Adjusted net income because of the corporate structure and allowing that.
Net income to grow more than 100% with more than 800 basis points of margin expansion.
With that I mean.
Before we go to the Q&A and I open for.
Sure.
For your questions I would like to close here with some some points that we've talked myself and Beth anger and during the presentation number one.
Is the size of the revenue pool close to 800 billion <unk>, that's what the financial system in Brazil. When you take into accounts everything is going to make.
We are only half if we look at our last 12 months revenue.
A little bit more than 1% 1%.
A little bit more of 121, 3% of these revenue.
We are going to address if not all.
Most part of this revenue pool and our merger that's why we keep saying we have a long journey ahead of us.
But what is our strategy to do that.
So we started as been Inger mentioned from the top.
And the most profitable profitable and the harvest market to penetrate investments from the middle and the top of the affluent and the private of the.
Sure.
Being profitable.
And having the.
And separately the spirits and this long term mindset and also using the price and power.
And we have on behalf of the customer.
That's our strategy to address the base of the pyramid.
And as Gary mentioned in his letter I don't know if you had the time to read it.
It's important to connect the dots in the chronological sequence that makes sense and thats exactly what we are doing.
Now.
It has to talk also with our purpose the.
And the value proposition that we offer to our existing and future clients needs to be clear transparent.
And with the pricing that is sustainable.
And for ourselves as the company and especially for the customer as the claim.
And we believe there are several.
The pricing has been.
Executing and the market in the segments that we are still about two.
To address and to answer that are not sustainable at least.
And the lands of the customer.
And as I mentioned on the second semester of this year, we don't have a specific date, yet but as soon as we do we're going all out of you. All know we're going to have ex fee strategy day. So we can go deeper in details about our long term strategy with that.
I open for Q&A.
Greg Bruno Thank you very much. Thank you biddinger for searching for presentation.
We have.
We will do a first come for served.
And.
Droege please.
Please leave.
And that's one question so we can.
And we can have the participation of several.
So of all participants.
The first question is from Jorge Kuri from Morgan Stanley.
And we will of new true for him.
Hi, everyone. Thanks for the presentation and congratulations on the.
Very strong numbers and.
I wanted to ask you about <unk>.
Margin expansion.
At the EBITDA level 535 basis points year on year.
And so under a 47% quarter on quarter.
How do you see the level.
Nevertheless margin.
And <unk>.
And sustainable going forward.
The level of that to be the of AP or AR.
We'll go for Europe.
And I heard or the fuel.
From the investments to make that will probably bring down the margins north of where they were for last year.
And if you don't mind the limited.
The other water piece of it is related to the margin between the tax rate.
And the subsequent to the net margin.
And the.
The tax rate.
Surprisingly no.
Got it.
And that's when you'll know.
The point of view new percentage.
The tools and now we're at 6% so.
And what is the right level.
The six to low.
Yes, I don't know maybe not so those of our method like the thank you very much.
Thank you for your market.
Yes.
Moving forward.
Okay.
It's hard to predict during the half.
Thanks.
The next one is a little bit and stable.
Yes.
You cannot just yet.
Yeah.
Alright, thanks for your time.
Right.
Yes.
Of the camera, maybe it will improve.
And <unk>.
And the <unk> gets better.
No it's not room.
Great.
Yeah.
And.
And again and again.
Got it okay.
And since one sector.
Let's just wait.
For.
Moving to come back.
Thank you. Thank you.
We actually have as line on the back with some additional information on taxes of Dana.
This will be useful to show because we're we're kind of conciliating the taxes that we actually paid.
With what we report right for.
The result of purposes, So I think that at the end of the Booz explanation. After he talks about the operating leverage and the opportunities that we have for margin expansion going forward and be sure that there are plenty.
And we can show that this particular slide about the tax rate headroom pattern is it better.
Perfect.
Okay can you hear me well.
Alright, sorry about that.
And going back to your question about the margin going forward as always change hard to forecast because we have we have a lot of investments considering.
The the number I just gave you know almost 800 billion.
<unk> of total revenue grew and the financial industry and you want to address it.
We will over time and that will require a lot of investments from our side.
Having said that we do have.
Our strong operating leverage in our business model as our numbers show. So for example in the short term.
We wish we had hired more than the 320 head counts in this first quarter, but sometimes the execution you have to find the right person with the.
And the right culture, and so forth so sometimes we have.
Our base that is the layer and we hope to accelerate the pace and the following quarters in terms of Onboarding.
Onboarding.
The new employees compared to the first quarter. So that's by itself.
<unk> debt will increase our SG&A and by consequence, reduce our margins, but on the other hand, we have.
And keep growing our revenues.
And expanding all the business so.
And so it depends on the mix.
The.
All of our revenues as well.
So we think that the.
There is from.
Important to day in our margins that it's not the.
I would say the.
The margin at maturity, because we have been investing a lot and the ramp of new is not there yet.
But we're going to keep investing going forward. So I wouldn't expect the phone orders.
And to have a margin of strong margin expansion as we keep investing but again.
It will depend how fast the new businesses of pickup and.
In terms of the effective tax rate, we have and slides to show and share I think it's page 22.
To walk you through but basically.
Yes. This one is the.
It is going to be up.
Consequence of the revenue mix, depending on where the revenue is coming from or most of the revenue is coming from.
So here and you can see.
And our financials, we show of $6 for effective tax rates right I don't know see volume.
And you are taking care of the the malware and if you can.
And when I talk just showed the $6 four and thank you very much.
The $6 for Okay Dan.
When we think about the share based compensation that is of noncash expense.
Net generates.
The tax credits that is also noncash.
But it goes in our financials, we are talking about.
Just by that effect itself, our effective tax rate would go from $6 four to 12, 1%. So we would add.
$6 million to $7 million.
He is in our tax income tax and the first one.
And then.
If we add.
The impact of the corporate structure and what is the corporate these structures and basically the way we.
We have to recognize.
The revenue that comes from our proprietary funds.
Most of the books of flow or.
Because of the proceeds that we received since the primary of the IPO 2019 and lately the.
The phone that we did in December and the recognition of debt revenue is net of.
Tax so it's the revenue that goes.
Directly to the bottom line, but only at the end of the day the revenues higher than the one we show and the first quarter $105 million.
So the revenue instead of $2 8 billion my.
And my view of it should be $2 9 billion, okay, because we had that revenue.
But.
When we deduct the <unk>.
The provision for tax if we redeemed debt cash from the fund there is the tax bracket from 15% to 20% depending on how the funding structure.
We would GAAP net of debt provisions and Thats, what we take into accounts in our numbers the effective tax rate would go up by debt effect.
The 28% and $17 for only by debt effect added with the share based compensation benefit to 28%.
No.
All of the quarters that we have very strong revenue coming from <unk>.
<unk> directly this will bring a lower effective tax rates in our results.
When.
There is less revenue coming from ex being directly and more from the other companies of the group the tax effective tax rate shown in our numbers is going to be higher.
Thank you Bruno of that's clear.
Thank you hi.
Okay and next.
Next question is for them of type of thing.
From Bradesco <unk>.
Hi, guys. Thanks, and thanks for taking my question.
Wanted to understand the little bear the margin expansion trends.
Especially because of the acquired there there was a mark.
Relevance of the repay revenues so what what's really driving this margin expansion. So.
Probably obviously credit that is gaining more relevance and that probably has a 100% margin and that's why it does not and pay a lot of.
Of Cogs, but if you could give us a little more color and that would be very helpful. Thank you.
Yeah, as I said think of the bond view and as I said.
Net debt.
The growth in.
It was upfront of the board. Okay. So features equities fixed income.
And when.
Net revenue goes.
From our proprietary books of the books of flow that I mention there is the margin expansion.
Also.
It's it's the benefits of the scalability of the business. So those it's.
The banking and keep the bank.
Take the banking revenue.
It was really small compared to the total there is a huge potential for growth there.
We're talking about the year.
Less than 2% of revenue so.
And taking into account for everything that the bank offers because a lot of things are brand new and the Orange scanning is still so it's not relevant yet so the margin expansion. It's what I explained during the presentation it's related to the.
And the business model that we have all products were strong and.
And we were able I mean, we did in the first quarter and remember that the first quarter. We don't we don't have performance fees.
Usually because of seasonality and.
And I still we presented a revenue.
The stronger than the fourth quarter, where we have of performance fees and.
The trading activity was really strong you can see that in our dark numbers. So it was spread all over the business I do not have one single explanation to give you each of the sum of the parts.
And thank you.
And Q book value.
Next is Mr. Tito of Martha from from Goldman Sachs.
Hey, Tito.
Hi.
Hi, everyone. Thanks for can you hear me okay, yes.
Yes.
Great. Thank you. Thank you for the call and taking my question My question's on that I guess I'm of the inflows.
Even if you exclude the the nonrecurring inflows still near the highest level, we've seen and.
And if he can give some color of how how do you see that evolving this quarter it throughout the year and that continues to increase.
Just to get a sense of.
And my inflows.
Yeah, no you're right Tito inflows.
They were higher than in the previous quarter. We explained at end of 14.
<unk> 3 billion, and Fanapt and state compared to $12.
<unk> on the monthly average and the last quarter.
I mean as I mention.
It was all the channels were strong.
If I would have two highlights.
The two channels I would say that the high net worth the privates and also.
The IFA.
I think that some of it is related to the investments, we've been making and the IFA network.
Because of competition again allowed us to to make those investments and our IFA and its work.
He is taking the money and make them very good to use it of it.
Taking the opportunity that the market is offering.
Because of the financial deepening and Brazil at early stage and the.
The banks.
In closing branch mode that they will keep like that for the next years to come.
And.
That's been very good for the business so yeah.
Yeah.
Look forward I think that the the first quarter trend. It is a very positive one and I expect that to continue but we'll see.
Thanks, Bruno against just the I guess the follow up on that.
More in the eye of phase III, and you've been investing a lot of and IFA and there was a lot of competition last year, but I guess, one day continue expect to continue to investing and the IFA and as much as you have them.
And today see a big increase and I say that and how long does that take for and I paid.
And sort of get the.
The level, where they are bringing a lot of inflows.
Yes.
We expect to continue investing EASA.
We want to we think it's a very good use of capital.
Our business model and.
And the competition is still there and it's going to be there.
And as I've sat at I don't see competition.
Reducing in the future because of especially because of our our onset says and our business model and.
And we just have to keep moving forward faster and folks from the kind of so it's more of the same that simple and of course.
Last year.
We made a lot of investment already so the base of future investments should not be.
And like last year, but we're going to keep investing and the.
The maturity of the Ifa's hiring new eye of phase and bring and mining it.
Bands on the profile of the new IFA, but it usually it matures.
After six months. So there is a lagging there from six to 12.
And depending on the fake and breakeven.
After 12 months or 18 months.
Great. Thank you Bruno.
Sure.
Okay.
Thank you Tito most of the CEO of our interest you.
People cannot open the camera on the newer version of it is not I mean.
We have to talk to someone and assume we have we have of goodwill exceeded <unk> head of photo grid.
We are of good license for these webinars and unfortunately.
And I.
I'll do that so next question is from Ehealth Agarwalla from HSBC Hi, Neal.
Hi, congratulations on the day that can you hear me.
Yeah.
And from here.
Congratulations limit and Jonathan and thank you for all of those comments.
And quickly wanted to get some color on the.
Of course.
Despite the significant increase and the head count and that he mentioned the costs negatively the heaps, how should we think about that index.
For the quarters, you will continue to invest and the impact from Mike should the cost flow nice whether you've seen and the first of all day or should that should they be a jump and.
And they did and you and you pick up.
And investing and the satcom and hiring more people and the.
The second question is named Lisa and on the banking services and he was he mentioned.
Do you intend to you and your IP network and any way to.
And do you tier banking platform and how do you think natkin net can walk out of it with your client base.
And you kind of and that would be helpful. Thank you alright, Thank you and yeah.
And above above the cost.
Absolute terms.
It is going up.
Because of the investments and the hiring that we have been doing.
And so thats the certainty.
But on a relative basis, we expect to Kip.
Showing the operating leverage that we have and our business as the revenue grows faster than the cost.
As we like to think you always have to you know.
To grow revenues.
Faster than expenses and if you are able to do that for too long and youre going to be of successful entrepreneur.
So we have a strict cost control in the company.
We do grow exponentially.
Any explanation company is a big challenge to keep cash.
Costs under control, but we have.
Our very talented team internally only focused on that so we are always looking for efficiency opportunities and we always have.
And any way you look around and doesn't matter.
<unk> Your company East you have opportunities to reduce cost and.
And to be more efficient so that's.
What I have to tell you about costs and efficiencies. So you can expect us to keep a very tight cost control, but that doesn't mean, we're not going to invest a lot in new businesses and opportunities that we see ahead of us we will and we arent and we have been.
In terms of of the client service and in the IC I mean.
We always try to use and once you use these IFA network, it's very powerful.
It's very powerful they are all interpret and orders as well they benefit from the ecosystem we have built.
So yes, it depends on the product and it depends on the profile of the IFA office.
But it's natural.
To use the ecosystem.
And and benefit from it as we move forward in different segments.
Hey, Thank you from.
Pleasure.
Thank you.
Next question is from Marcellus and various credit Suisse.
And the <unk>.
And the if at all no.
But anger, thanks for the for the time and congratulations on the on the results.
I have a couple of questions. The first one.
And when you think about you know the when you look at the growth and your net flows and all of the 43 below the just the muscles in the quarter.
Where is it coming from can you give us the assessed and all how much is coming from.
From the deed, the IFA channel and how much of a stomach from the BTC.
Uh huh.
And and the test for <unk>.
Three years and.
I will think no debt.
Debt composition will will be.
Do you see be to seek any more route of us and you are.
And our business.
Sure.
Hi, Ken.
Thank you.
In terms of the net inflows, we do not give the breakdown the exact breakdown.
About the channels, but what I can I can tell you and your question is that when you think about number of clients.
I think we have shown that in the past.
Extra direct.
<unk> has gained more traction than the IFA network when we go for net inflow the.
The.
The breakdown is pretty much stable overtime. So the the IFA they have.
A larger on a relative base.
Sure.
In terms of per clients because naturally they look for clients of.
Higher income otherwise they will as interpret and were not be able to.
Either the.
Profitable or serve the client well.
So it's natural that the smaller client the client that the mass affluent that is at the lower in the pyramid.
And to execute our act and also we have and debt numbers.
<unk> and <unk>.
Brands that we have that do not have.
And I have fit and that's worth plugged in.
So going forward.
I believe both channels are going to go and confused and I also believe that the advisory the IFA model.
Needs to aim for higher ticket.
And to pay the bill at the end of the debate.
So the average ticket from the IFC is going to keep being higher than the average tickets from the direct channel.
And the relevant from a relative basis.
Hard to predict so far it's been stable both of them growing.
Helpful.
Take care. Thank you Bruno and just one just one additional question just going back to the opportunity.
For the banking side and particularly on the credit book I think you've reached a 0.7% of AUC. So it was off of.
Our credit book to AFC and.
Now that I think had more time and the Cisco you launch the product and why do you think is the is the the real potential.
In terms of POC for the for the credit book.
Yes, this credit book.
That you mentioned.
Is about the collateralized credit when we think about the credits there are so many different types of credit.
Debt, if we only talk about what we have today.
What we're gonna having the future we're going to have many more credit modalities going forward.
We sat and the fact that we could have between 2% to 3% of AC as the credit book.
Still too early.
To tell if that number is too conservative or too aggressive because the aoc it keeps growing.
And at very strong pace.
And so as of the credit book.
What I can tell you in terms of granted is that we think there is a huge and large avenue for our sales, but as Ben Inger mentioned, we're going to do it.
With a lot of responsibility and they're sending the clients.
Evaluating the risks and.
Using when needed the capital markets. That's another important thing to understand about our strategy going forward ex fee.
Has the benefits to be at the heart of the Brazilian capital market sweep.
Bye.
The survivorship.
And we needed to invest and unlocking the Brazilian capital market to bring products to develop of the secondary trading. So we can bring more products to the market to our retail base and also help the corporate clients and the capital markets and Brazil still has a lot through the value, but it has developed very well in the past.
Yes.
And when we think about credit going forward, we know several.
Asset managers with the specific funds that would love to buy several different types of credit. So we can use the capital market as the leverage to help the whole ecosystem and not carry.
A lot of credit in our own.
The balance sheet, that's not what we want to do we want to we're going to carry credit and our balance sheet, but as we keep growing and we also are going to recycle and the capital markets. Because we believe it's a good use for the capital markets and we keep them.
And asset light business model, I don't know better and get it for you have anything to comment on it.
And I think is spot on Bruno I think it will cover of Dolby the analysts. Thank you.
Excellent. Thanks.
And thanks, again, and Bruno thinks but anger and Brad.
Thank you break out and to cherish.
Paresh.
Next question from Mr. Geoffrey Elliott from Autonomous research a Geoffrey can you.
Hey, Jeff kind of yours.
And I can hear you fine and hope you can hear me and as well.
Question on the accounting P&L.
Trading revenue number is pretty big this quarter and accounts for a lot of the growth can you just help us understand why.
And that was so strong and then how sustainable that should be going forward.
Sure sure.
Sure. Thank you Geoffrey and first of all of that Nice meeting you and I hope we have the chance to.
And to talk.
Later, but going to your question Geoffrey baked.
Basically.
To understand the what you call the trading book.
Paul the flow book and.
And it's based on.
The development of the Brazilian and capital market Everything's embedded.
So it's not like on the.
Natural trading book and so looks for example for the United States or for and broker dealer that's not it.
This is more related to creating new experienced for new products and it's not only equities and fixed income and we are talking about reads. We are talking about the structure notes with the secondary market that gives you the weighted even the derivatives markets and so forth. So this part of the financial.
So.
Income that we have.
In our financials is related as we explained to the retail business most of it.
As shown in the first quarter of 79%.
The financial income.
Was related to retail business, so as the retail business growth.
Half of this is like the warehouse that we buy and sell and using our proprietary capital based on <unk>.
Providing a better experience for the client in the markets and.
And we also are able to make money out of it but most importantly, we developed the liquidity of the cyclic and markets and provide.
And they're good experienced for for the clients. That's how the for example of the corporate debt.
Debt market in Brazil has been developed it trades nowadays more than 1 billion <unk> per day still nothing compared to the corporate bond market in United States. For example, the trades more than 30 beat and U S dollars.
Few years ago, it used to trade less than 100 million, yes, and the secondary market. So.
We've created these markets same thing with reeds.
At least the funds and so forth. So this cash.
Kind of books for books.
And that's what explained the.
And the most of the growth that we have and as the platform grows.
It's natural to see these revenue growing as well so it's linked to the platform.
Thank you and if I could squeeze something else and quickly the stock comp number look.
Pretty high again similar to the full Q.
It sounded on the last call like the <unk> number you said was higher because of some acceleration of stock comp and two to 2020. So just wanted to understand why it's still at the same sort of the levels.
Although the share based compensation and share based compensation, Okay. Yeah, no that's actually.
<unk>.
It's not going to reduce because when you on the fourth quarter last year, we had a strong share based compensation in our fourth quarter results because we.
We had.
Our program.
And was relieved too.
Our partners on October the first basically a very sizable.
The program of long term incentive plan and then that reflected on the fourth quarter and we'll keep reflecting in all the numbers going forward first quarter second quarter third quarter and you have of matured.
Most of those claims they are of five year plan and.
And you have a methodology.
Based on.
And our model that you keep.
Recognizing.
Those expenses in our numbers despite.
The non cash expenses and when the.
The.
The restricted stock units are vested and at that time, we're going to have the real cash expense to two pace to pay for it so.
So that's the recognition model. So you can expect to have.
The same size going forward it has the volatility it varies.
The part of it varies with the share price and so forth. So it has a volatility water.
Over a quarter, but that's what explains.
Thank you.
For him.
We would be happy to wrap this up with you on a later call. This week on the two questions and anything that you might need. Thank you very much for the question is number one.
Thanks very much thank you.
So next in line is Mr amount of G&A from Bank of America.
Hey, Mario.
Hi, guys.
Congratulations on the quarter.
Thank you for taking my question most of my questions have been asked already so that's the loss.
Just wondering when I look at your credit portfolio. This quarter day, it seems like the origination slowed down a little bit.
At the same time you show the Npls remain of zero. So I was just wondering are you just being a little bit more conservative of what happened I think you were originating close to 2 billion reais per per quarter. This quarter, I think was closer to sort of lessen and $1 billion.
And how should we think about.
The way that debt if you can quantify the revenues generated from this portfolio.
Okay.
Hi, Mario.
And the origination.
Not reduced on the contrary okay. So.
First you need to take into accounts.
The natural.
The natural and installments that are phase and then reduces the the credit portfolio. What we shows net already of that so the originations higher than the $4 seven.
Thanks for the $2 nine, but probably what you're talking about because of the fourth quarter, especially on the fourth quarter. We had a very strong number because of December and debt was related to the exempt of the iOS for credit in from not mistaking the law.
Yes.
Couple of weeks on December and then we did a lot of campaign efforts and a lot of clients took the opportunity because you wouldn't have to pay the tax and that was announced the line.
So we.
I think in December we originated one months like 1 billion BRL. So that's not something that you can.
No.
It is going to keep happening at that base. So if you take that out of the base.
<unk> is growing and it's very healthy.
But.
Again, it's the collateralized granted the claim and needs to want to take it.
So there is a process, it's something and Brazil really underpenetrated people.
At least those profile of customers. They are not that use it to take these type of that so the need to get used it to each of <unk>.
Process, but the way we look at it it's going just fine.
Sure. So yes, we see I think you answered my question.
And that's what I meant by that I think originations are still going up but it was just slower than the previous quarter and as you mentioned and you hit $1 billion.
Almost like non recurring advance in December and and how should we think about the and the money. How are you monetizing on this portfolio.
What is the return you're getting all of this portfolio.
And the return if you look at directly to the portfolio.
It is going to be different than if you look at the cross sell debt most of the time of this type of credit and generates in our and our platform.
So for example, we can have a product that.
It's raising capital like.
We did we did have.
For example, last year of private equity fund several client for long term.
The investment several clients wanted to participate but they did not want to redeem their other investments to participate and incomes.
What we call the credit as a service.
If you take that into account.
It's going to be a lot higher than if you do not take that into accounts. So the credit as a service if we for some cases, depending on the collateral if we have to do to breakeven on the credit box, we will do it okay. Because it makes sense for the client experience and when we look at the whole we still.
Have a very profitable operation and in terms of the client experience, it's really differentiate it and.
In that sense.
But if we look only at the.
The breakeven and the credit for.
Art.
I would say that on average we are talking about our spreads between 100 to 300 basis points on the year basis, that's on average and depends on on the collateral we're talking about and so forth.
This part of the revenue model is still.
Not as relevant as I said in the first quarter, but it's supposed to grow going forward.
And the rate.
If you think about the future model.
Once the open banking platform is up and running.
And be able to.
Create campaigns to core clients say listen you have the ism debt.
Loan with another player Here's what you can do here is Europe.
Our offered too.
Adult babies is transaction with another player and the systems that are being created about round. This initiative will basically all of the client with one click to pay the loan with one other player and.
And brings the transaction too to any other player that will provide the most of record keeper offered to them.
Very clear thank you.
And commodity of.
Thank you Mario.
Last but not least to have <unk> <unk> from Citi.
Payable.
Good evening.
My question is about the pension plans.
And we have 88% of market transfers and March and though.
<unk> products.
And just like to understand that if you check the.
The figures and some of that.
There are much lower debt still impressive, but something around 36% of its what we had.
And for February.
And I'd like to understand.
Of this 88% consider for.
And that you are distributing could you be allison for details of distributing.
And from other managers and from others and the other insurance companies is that why you have debt.
The big of a difference. Thank you know high hang up and out no.
No no only considers our own insurance, we also distribute from.
From other insurance partners and our platform the <unk>.
EBITDA percentage in March if you look at the first quarter.
On average I think it's 45% it has a lot of volatility on the monthly.
Basis.
As you consider all of the transfers there, but I think the main point of year I mean, so 88% is the only is not the first quarter and is only March okay.
If you take January and February and March it would be 45%.
And of all of the transfers I think of at least 8 billion. The total.
Of the system and we've got the three 6 billion and the first quarter of.
The net new money coming from those transfers only for our insurance that has total.
Total custody of little bit above as of March 16 billion.
Yes. So the point here is we are like number one or two depending on because the other players that.
Have the <unk>.
Largest AUC they have of natural inflow and that business.
With the lagged and 2% per of market share is really hard to be number one or two.
But we have been and several months. That's the main point of view of the opportunity is huge and we believe to have the best.
The pension platforming the markets with the many products to offer digital experience for our clients and.
And.
We expect to keep growing this business.
Stand alone and as.
The different growth profile debt investments.
But it is related.
Just because of the nurse share of the client in the pension business. It is.
Slower, but it's the very.
Interest and business because he created this long term relationship with the clients and as I mentioned, we earned the business of.
Of establishing a deep and long term relationship with our clients and pension is strategic for them.
Perfect. Thank you very much thank.
Thank you and everybody else.
Okay I think we're done.
For the Q&A. Thank you so much everyone for the interest and for your questions, we hope that for us.
So again, we are available for any follow up that you that you'd like on the next day or so myself, Jim and Don you were all available.
And so that always wants to deliver some closing remarks, but thank you all for the interest and have a great week.
I just would like to thank you all for participating again.
Thank you Beth and good for participating here with us and.
And remind me of that on the second semester, you're going to have.
Several of our senior partners and C level to gather and XP strategy day myself that India Java Monster that is going to be the new CEO next next week.
Glenn and base from all of our founder and the next week, the executive Chairman and.
And other partners. So we can give more color of both our long term strategy, but bear in mind that.
We are very optimistic about the long term I don't like to answer your questions of both the short term the quarterly results I understand that everybody has to model it but I think that the big picture here is the 800 billion and BRL revenue pool.
We have entered in our history and several different businesses, we started as a one product one of the clients retail equities and you look at it as now we have been.
Able to diversify.
And the interpreter successful for printers, and we hope that's not going to be different in the other segments that we want to address we believe to have the brands to have the culture.
To have the money.
And the mindset to do the work to do it. So we are very optimistic about the long journey ahead of us. So thank you one more time and see you on the next for portfolio results have a great night stay safe.