Q3 2021 Xp Inc Earnings Call
Wait.
And again I.
And then just back on to the more lucky shot there.
Sure.
Alright.
Yes.
So that's just a <unk>.
Begin a good evening everyone.
I'm wondering what changed the head of Investor Relations here at X being Ken on behalf of the company I would like to thank you very much for your interest in our.
Webinar, so welcome to XP, Inc.
Third quarter of 2021 earnings call today, we have with us gyro market, our CFO and Bruno Constantino, our CFO and also the IR team myself and funding in mining and mining more similar.
We will all be available for the Q&A right. After the presentation. So as you. Most of you are already used to you can hazer Rand on the zoom to two extra questions.
Also have because of the BTR in August story that you know about we have now the simultaneous translation to Portuguese. So you just have to click on the.
The globe icon and you can switch to Portuguese its bets matter.
Better for you. So before we begin our presentation. Please refer to our legal disclaimer on page two that page, we clarified forwardlooking statements and there are definitions the documents explaining why.
Forward looking statements might differ from actual results can be found in our SEC filings section of our website. So now to begin the remarks and the presentation of the third quarter.
Police grunow.
The floor is yours, well first first of all let me apologize for.
Delayed here I was having problems getting into zoom. So thank you for the patience and thank you for attending our poll one more time.
We are are we going to project for the presentation Andre.
Yeah, I'm going to I'm going to try to be.
We are here and these lives.
So we can go as fast as we can to Q&A I believe is more interesting.
So the first is live we can move through the first two slides.
Yes. The opening remarks is I don't know if you had time to read.
Thiago markers ladder, but I think it's worth explaining.
All of the investments we have been doing recently in our company and how we organize.
The big pockets of investments.
We focus.
If we can yes.
Yes.
Okay. So that's how we look.
And separate the investments we have been doing in the company number one it's what we call. The foundations. The foundations are mainly investments in technology before the <unk>.
Headcount growth that we have had most of it is in tech people.
And this is really important because it will allow our scalability and also our exponential growth going forward. The second bucket is what we call protect and expand our core business and our core business.
Has been since the foundation of the company investments.
So cheap protect and expand the core means innovating and bringing new products to the market creating market that.
Don't exist yet.
Enforcing our ecosystem.
Investing a lot in the capital markets.
And also in our distribution channels, either through our IFA network or our direct channels and all of that controlling the costs. So we can.
As one to our clients.
<unk>.
Profitability in the core business and third the last one is build the future.
Where all the new businesses, we have been investing a lot recently are so banking and by banking the transactional part of the credit card.
Insurance and also as Sandy so thats, how we segregate and it's important to share with all of you because.
Youre going to see in our numbers.
The investments we've been doing and we're going to continue to do in the next quarters.
So moving to the highlights of the third quarter this year.
With Big three main highlights for this quarter number one again the results we had our record results.
One more time, it's our all time high.
Revenue Barclays was revenue $3 4 billion and also our adjusted net income more than 1 billion.
One more time.
Another point worth highlighting here is the gross margin.
That's the highest gross margin we have had since the IPO 71, eight despite all the investments we have been doing in our IFA network.
Which as you know impact the Cogs and by consequence, the gross margin.
Another point is the nephew mining.
The base of.
Adjusted net new money above 15 billion highs for me.
Months.
Is that an important base in our view because as you remember I kept mentioning the range between 10% to $15 billion of net new money per months.
And now it's the second quarter that we consistently deliver.
Numbers above 15 billion per months.
The second point the improve the governance that has improved after the merger with <unk>.
More than welcome I don't know, how many shareholders new shareholders, we have here in our.
Third quarter comp, but we would like again more than welcome all of you.
To have <unk>.
500000, new individuals as investors of our company is something that make us really proud and.
What I can tell you.
As Mark has said in his ladder hearing an XP disease. Our life. We have no plan B you can count on us that we're going to be work really hard to make this company, even greater going forward.
And the last one.
Some product highlights.
We hit the record.
Pension funds inflows.
In this quarter, you can see that in our balance sheet more than $5 billion in our own insurance company. Those are the retirement funds pension fund business.
And what is interesting about in my view is that these business.
Has only two years, we started this company back in 2019.
If you fast forward two years.
We have grown a lot.
But we only have two 5% of the total AUC.
These market, which is.
More than one premium hikes of AC So we have approximately 26 billion.
<unk> of AUC to 5%, but.
We are able to get more than 50%.
Five zero percent of the net inflows of this business. It's a business that's going to keep growing it's a very recurrent business important one it reduces the churn a lot as well it increases the cross sell in our platform.
And it's the business, we're really optimistic about.
But we are really we are very small yet.
And the other point is the credit card the TPG of $3 3 billion in this quarter more than 1 billion has been.
Months.
And yes, we.
We have a base of clients.
That is not big.
It's less than 200000 clients.
So far using our credit cards.
What does that tell us.
That there is a benefit of attracting the right clients in your ecosystem with not many clients you can make great numbers and we are very optimistic as well about our credit card business going forward. So those are the highlights of the quarter and I think we can jump straight to the numbers kpis in.
Financials, and then we go to Q&A.
You have seen these kpis except for the financials.
When we look at our core investments totaled <unk>.
789 billion at the end of September.
The reduction compared to the second quarter totally driven by market to market.
We had a positive.
And net inflows of 47 billion heights in the quarter.
A very healthy number in our view and also we cap the growth of number of clients, reaching the mark of $3 3 million at the end of quarter in our three brands.
When we look at the banking business.
It's still very strong growth $8 6 billion.
Of credit portfolio. The credit card business is not included in that number.
Our credit business.
It's not all most of it is collateralized so any concern regarding delinquency rates, we don't have it as you can see the NPL ratio. So far is zero percent.
And.
We intend to keep like that going forward.
And going to the credit card business. The $3 3 billion has already talked about is that 55% growth quarter over quarter.
Our financials as I said <unk>.
Record number in.
In the garage revenue and in the adjusted net income and our adjusted EBITDA $1 2 billion up 61% growth year over year and with the NPS hitting the mark of $7 77, a very strong number and a very important kpis.
<unk> as you know.
Talking about the revenue the total revenue the grow 50% year over year, hitting the mark of $3 37 billion.
The main driver.
Driver for that growth.
As usual has been the retail business contributing with 80% of that growth and then.
The issuer services business contributing with 10% of that growth.
We pay a representing more than three fourth of our total revenue and.
And I'm going to talk about.
In detail.
The retail revenue in the next two lines.
Retail.
Growing more than the average of the company.
As usual, 53% year over year.
And Thats the interesting part in my view.
We hear sometimes concerns about.
The macro environment and interest rates going up in Brazil.
And our business.
Is ah.
A business that has a portfolio effect.
And a very unique ecosystem.
Depending on the macro environment, what happens with our business is that the mix of product and this portfolio effect change.
But at the end of the day, if you look throughout our history, we have gone through different macro cycles in Brazil throughout our history, we are company with more than 20 years of existence.
And no matter, what the macro environment has been.
Ex these results.
Have been strong.
The main reason for that is as I said.
This unique model of our portfolio effects and ecosystem.
Together with I still.
Highly concentrated financial market in few banks, so the growth potential.
In my view is intact.
And what Youre going to see is going to be a change in mix, Let me give you a.
A few examples so you can you can put that in numbers.
Going from only talking about the retail revenue that is as I said three fourth of our total revenue.
When you look at the.
First quarter of this year, Okay 2021.
Fixed income.
Plus financial products.
It presented around 37% of our total retail revenue.
Two quarters later.
Fixed income.
Plus financial products.
Jumped from 37 to more than 44% of the total revenue.
And equities.
That represented approximately equity can features.
Approximately one third in the first quarter decreased two.
One force.
In the third quarter.
Again some products.
Losing relevance.
Other products that are gaining relevance and that's the portfolio effect.
Additional to that when we have a higher interest rates.
We also benefit from.
Two other revenue source.
One floating that goes into retail in Q <unk>.
The return in our own <unk>.
<unk> financial assets that we have our proprietary cash.
During the same math.
Comparing first quarter this year to third quarter this year.
When we look at our.
Interest on our <unk> cash in the first quarter represented.
Less than 2% of the total revenue of the company.
Now two quarters later this number jumped to three 5% of course interest rates are higher.
When we go into the falling revenue.
Inside the retail.
RASM.
Yes.
In the first quarter it was around 4% of total retail revenue.
In the third quarter. These.
This number double to almost 8% of the retail revenue in the third quarter.
So I'm just sharing some numbers with all of you.
So you can understand what this portfolio effect means in terms of revenue growth going forward.
And also.
On the right side of the chart when we look at the take rates for.
Our retail revenue.
It's interesting to note.
By coincidence that it's been stable since the IPO I remember at the IPO time.
A lot of analysts and also buy side investors questioning the take rates and thinking about price compression going forward and these take rates should go down.
And in the middle of.
This period, we have reduced our price as we have as you know.
Zero.
Brokerage online commissions at Rico, we have reduced by 75%.
Our prices at XP brand and.
In spite of all of that.
Take rate is stable.
Why is that we have a lot of <unk>.
Moving parts affecting the take rate as you know, but we are also adding new products and business.
And increasing the LTV of our clients and also the engagement and the loyalty of our clients with our brands.
To give you one example here.
Let's take the banking.
Revenue and by banking, we're talking about credit card, we are talking about.
Credit and FX basically.
So the banking business, which is.
Totally new for XP.
Represented in the first quarter this year.
Fleet, one and a half one 7% of our total revenue in the third quarter more than 3% already on a relative basis on absolute <unk> growing much faster.
And these business.
In the future can represent much more of our revenue mix in the company. So that's one example of this innovation and building the future effort that we are going through and that.
Is done by a lot of investments in our foundations for tax and extend the core as a nation earlier.
Now moving to the next slide we go to our adjusted EBITDA and margin and here you can see.
The investment.
Where it can be skewed investment head counts.
That's the main investments we have.
We have grown our headcount by 64% year over ear.
It's a lot.
But.
Is necessary.
It's as if we have a mature.
Major business.
Investments, what we call our business as usual that we keep innovating.
And.
This business has a huge operating leverage.
On the other side, we have like a startup inside ex fee that we are building from scratch a bank we start.
Corona scratch, our credit card business that we in six months, we're able to make a purchase using our physical credit card as a start and then six months later, we launch the product to our customers. So this businesses.
They are like startups, they are going to they are being built by a scratch.
And of course, we're going to keep growing the head count. So we can keep delivering more features and evolving.
Those products and those business as we learned from the clients and keep moving forward and Thats what explains the increase of SG&A.
Care to the net revenue growing from 31, 9% to 35, 2%.
Year over ear.
There is one.
Other effects.
That is a tough call because in the third quarter of last year.
We had <unk>.
Operating revenues in our SG&A.
That reduced the amount of the SG&A.
And that operating revenues they are not present any more are there like <unk>.
One offs, if you take that out of the equation basically even with all of those investments and these increase in head count.
This number of 31.9 should be higher than 36%.
That's why in our earnings release, we mention.
Our EBITDA margin going to the right side of the chart 36, 9%.
Adjusted EBITDA margin, which is the low 40% level is not a normal margin for a company like ours. So this is temporary in our view.
It is going to stay probably below 40% in the next quarters and why is that because we're still investing a lot in those new businesses.
We believe this.
Investments are going to peak.
At the fourth quarter next year, and then we're going to start seeing this.
These margins going up again getting all the benefits of the revenue that those new businesses are going to bring to the company.
I don't know if you remember last quarter Mafra.
Commented about the expansion of the addressable market I have also talked a lot about it.
So today.
We are addressing between 100 to 120 billion.
Of addressable market in the financial industry financial industry revenue pool of more than 800 billion hacks.
By the end of.
2024.
We are going to be addressing.
Four times, what we addressed today, so we're going to be addressing 350 to 400 billion of annual revenue to not considering that this revenue pool Kim growth from today until the end of 'twenty 'twenty four.
So thats what just five.
The investments we have been doing in the company.
Now the next slide before we go to just the net income we put here the.
Math to reach what we call our normalized effective tax rates.
I know this is also a point of discussion and confusion, sometimes with investors. So we thought would be helpful to share with all of you. So what we have here.
We have the earnings before tax as you can see in our financials.
Then the income tax reported in the financials.
Okay.
Then add the.
Withholding tax that we have in our structure.
But that does not go into our Reg.
Which in the first quarter was $105 million.
Of withholding tax.
Those are tax that are going to be paid locate but.
But they do not go through our financials in the second quarter, we had $126 million in this quarter 179 million has.
Of withholding tax so when you add back that withholding tax.
Earnings before tax and then you add the tax because thats effects together with the income tax.
<unk> you rich.
The normalized effective tax rates that you can see it's around.
2014 to 17% to 18%. This is the number that we have been talking about between 15% to 20%. These number.
Can be volatile depending on the product mix that we have.
But.
That's what explains the lower effective tax rate that you see in our financials financial financials.
Reported officially.
And also we have added.
In our earnings release.
All of those numbers in our managerial income statement. So it can be easier for you to see the numbers as we see it and then forecast though.
You would like.
And now he's our adjusted net income and margin.
At 82% growth of adjusted net income more than 1 billion has again with 32, 8% adjusted net margin.
Explain again by retail.
Revenue the operating leverage impacted by the growth of the SG&A and the lower effective tax rate.
So with that I think.
I think.
I am here right.
And we go straight to the <unk>. So as I said I try to be brief. So we can have the Q&A session.
You very much and.
Youre going to.
Did the one.
During the Q&A perfect. So we'll see USA.
Thank you. Thank you Bruno so we have a lot of <unk>.
<unk> raised here I just ask you.
To limit yourself, please to one question.
Since we have I think 10 or 10 people on.
On the line here. So the first question comes from Jorge Kuri from Morgan Stanley.
Great.
Yes, hi, everyone. Thanks for the presentation I mean, congrats on the great numbers.
My question is.
If possible could you.
And maybe elaborate more on the expectations for EBITDA margin.
No.
Maybe help us a little bit more with.
When do you think they will they will peak in.
Sorry, and then.
What do you think they can be once you're finished.
Investments for growth in the banking business.
It seems that you're planning until the end of next year, where should they be say in 2020, a city and what is the risk that you know than Europe.
Find another growth Avenue, one then invest more in maybe the margins just stay.
Low for a while.
I guess the bigger question is do you really have to have higher margins. I mean, you are generating very good returns I'll say is I mean, it would or it just makes sense to continue investing in growing the business and keep it.
The margins from that mine is whenever you when I look at it I think.
Got it.
Net margin was 25% just keep it there for the next three to five years and grow more or is that just not theirs.
Available avenues for you to do that so.
I know I'm rambling, but anyway. Thanks for the thanks, Thanks, hopefully it was clear.
Yeah. Thank you Jorge.
That's a market a few fitzgerald theme of dish.
But that's something we discuss a lot and we are investing as I.
I tried to show here we are.
We're investing heavily.
The 64% growth in head count and we're going to have.
Almost 3000, new people in our company in one year, that's a lot.
And Thats basically because all the new businesses that we're answering E. But also.
We are a company.
Results driven as well.
We are cost conscious.
We like we don't like to fewer margins going up.
I understand that because it's temporary.
We understand the opportunity huge and we understand we have to do it is the right decision for the long term and we are doing.
But.
We don't want to do it in a way that the profitability is not there really strong because that's somewhere like XD has been profitable since the beginning it's as I have said that many times.
<unk> small half has said that many times about.
The necessity of this company to be profitable to disrupt the bank because imagine we were.
Nobody know Miami competing against the huge banks with a lot of capital with a lot of money a lot of profitability.
And without any financial sponsor for 10 years.
Many years, and we became the largest independent broker dealer like that without any sponsor.
And with our own money, how being profitable being profitable and reinvesting 100% of the profitability in the future of the business and that's exactly what we have been doing.
Haven't distributed any dividend since the IPO and ones that we see a lot of opportunity.
And we are profitable and we're going to keep reinvesting the pace of investment.
We have constraints.
One of them talents.
Talents people you need to find them.
Cultural fit you need to have that.
To.
Execute we know that is easy to create a narrative.
Hard to execute and deliver.
And do a lot of things at the same time.
It's not that easy.
Yes, another way to answer your question is.
Of course, we made side should be.
Well faster or slower but.
In our view.
<unk>, a very fast pace, because we are building for a huge visa line insurance credit banking and businesses so for <unk>.
These designs that will bring us from our 100 billion.
Market to over 400, beating the next 24 36 months. So we believe we are growing very fast, but it takes some time to build.
Such business line will not be able to everything from in acquired there are two quarters and we believe that you have.
Very good execution, we need people, we need some time and but as the numbers starts to show from credit card credit card will be the 10 top issuers in Brazil in the next months months, our acquired <unk> for sure. The same thing for effects will be stopped.
Then top five players in the next quarters. So everything we build we want to beat the top players, but we will take a few quarters. So we believe we are growing fast.
If we find a way to go even faster for sure we will be.
Thank you.
Great. Thank you I didn't answer sorry, hi, Adena and industry, you talked about the margin in the future.
Yeah, it's it's it's going to be beyond <unk>.
40% for sure because the business is really scalable.
So we are in and what we see the way we see them.
Transitory period.
And now we're going to we are building the future actually that's.
And only in investments.
Forget about the building the future only investments.
We are still in early stage there because.
The cross sell capability of our ecosystem has proven really interesting not only for the new businesses. As you can see in the numbers of collateralized credit and credit card, but also when we have any new product in our in our system and our platform International Fund.
Yes.
We went from nothing to more than 25 billion of AUC really fast creating.
Creating the market anything that we cross sell here because <unk>.
Brazil, so underpenetrated in many many products.
It's I mean, it's a real positive for the company and the financials as well.
Great Thanks, and congrats again.
Hi.
Judy.
It was great to hear from you.
Our next question is from a private thing early brothers.
Okay.
Hi, guys. Thanks for taking my question and congrats on the results as well.
I wanted to understand a little bit better.
Our revenue mix that youre thinking going forward, especially if you have seen that the margin any trends out.
Ryan switching back to fixed income products, obviously, they're higher interest rates should have a positive impact on a portion of your revenues.
Why don't you get your sense on the client's behavior throughout the products and also if I can add there or potential revenue trends that we may see going forward.
Thank you sure higher value.
Let me clarify that when you have a mix.
For example away from equities into fixed income, that's not necessarily something negative for a company like CFO.
Think that fixed income nowadays different than in the previous upward.
The interest rate cycle that Brazil had.
Has <unk>.
Much more.
Fixed income related credit in the market right and with <unk>.
Even longer duration than before so.
So you have a lot of benefits as well.
In the investment business.
From interest rates going up going up it's not that this is like only at an equity business is not we are not we are not in the equity business. We are in the investment business and an investment business. The disruption is going to be always there because.
It's the same business that debt.
We have been disrupted in equities fixed income as well, we sell Cds from banks in our platform we have.
Distributed for example, CD from one of the incumbent banks in our platform. We do that we are an open platform.
There is a lot of demand, but we also have a lot of other fixed income products as well so just to.
To make sure we don't get it wrong say, okay, because it's not equity anymore. We are in a risk off mode. Its fixed income so that's going to hurt resin no not necessarily I show the numbers of fixed income it's grown a lot in terms of the mix is going to change you are correct and Thats natural so let me share some data with you.
When we think about the AUC when.
When we think about <unk>.
We have like in the first quarter.
Equities is the largest part of AUC not lagging a bit revenues less than.
But the AMC is higher.
Because we have large customers that does not.
Necessarily deliver too much revenue.
So it used to be in the first quarter more than 40%.
Now.
Is left would be like 44, now reflect and 30 39, 38%. So it has reduced a lot because of the market to market.
Fixed income is to be less than 20% now it's more than 20%.
Going to one part of this mix is natural and we are a company that we are always looking for the opportunities always looking for what is the best thing for the client and of course the.
The product mix the offer of the product respecting the client profile risk profile and everything else. It depends on the macro environments and we do not dictate the macro environment. So we take it for granted and then when we act and we always.
We have a very.
Strong sales team and Treasury department that keep thinking about what could make sense for <unk>.
Our different profiles of clients and Thats, how we got here in the investment business again.
Portfolio think about a portfolio effect and this mix change depending on the market environment.
And then another just a trend here.
Very important point as Bruno mentioned earlier on.
This part of the revenues that are not oil related choice. They have been increasing a lot and then you would've increased a lot in the near future because we have been investing in projects that.
They know they have no correlation with AUC theyre not investments has created card created this kind of stuff. So.
Our revenue mix is becoming less and less correlated to AFC.
Uh huh.
As used to be in the past so that's a very important part of our business model for the future.
Super.
Okay.
You guys did back in.
<unk>.
I understand a little bit.
The segments are bad.
This revenue being generated but really up to you.
Regarding the disclosure thanks guys.
Thank you Antonio so let's move on to Mr. Mr. Tito <unk> from Goldman.
Hi, everyone. Good evening, thanks for the call taking my question.
My question is on the net inflows.
I know you mentioned it closer to 15 billion.
How should we think about that given the rising interest not just rising interest rates, but going into an election year.
Inflation concerns about GDP.
Well, it's getting worse.
Now how resilient is that can you get back to the 10 billion is there upside from here any color or how you think about that net inflow number going forward.
Thank you.
Can we get back to the <unk>, yeah anything can happen.
And I expect that and be happy with that number not at all not at all because of the growth of the distribution channels I mentioned at the beginning.
We protect the core and all the investments we've been doing our distribution channels.
We expect to keep the base that we have delivered in the last two quarters.
So we don't see that.
Reducing because of interest rates going up again, what changed is.
Is the product mix not the net new money because the nephew mining considering how concentrated is still is the investment business inside the bank.
It doesn't need to grow we just need to do more and more of the same and yet.
For me, that's a good way to answer detailed.
If you think of XP in Brazil, it's less about the macro environment and more about the micro environment because.
And as Joe inside the five big banks, so it doesn't matter how the macro environment is growing in Brazil.
Our goal is to keep growing because the minus James decided five being banks. So we believe we can continue to grow it doesn't matter what's happening in the macro environment.
Yeah.
If I may I mean, a crisis as.
As Martha said, we don't know if we are in a crisis or not yet youre going to see.
Time will tell.
And of course <unk>.
<unk> is not warranted and not welcome.
<unk>.
A tailwind of a risk on mode is more than welcome.
But not Hasnt das and Havent apprised in Manhattan.
In a business like ours.
It's not really a problem sometimes on the contrary because for other players it might be a problem, but we do have.
A very consistent and resilient business model and our ecosystem and business.
Has become more diversified and more resilient over time, and we have much more money than we had in any other crisis that we have faced in the past so.
That's how we see.
The tailwind in the investment business.
This helped to get people out of the nurse shift.
Moving from one place to the other investments that's that's a positive thing about our recall and that tailwind.
We don't have that right now.
But that doesn't mean, we're not going to grow the claim.
Number of clients, we are not going to grow then that's the mine because the money is still outside XP inside the bank.
We believe that we have a better product offer we believe that our company has a better brand awareness because we have been side by side with the clients since the beginning.
So our history here.
We believe we can provide a better experience and knowledge about investments as well as an advisor so all of that together.
We just adjust to the macro environment.
Great. Thanks for taking my friend, if I could just I guess, one follow up on that and the IFA, you're continuing to grow over 1000.
For the quarter.
Yes, how much.
Will that help and also.
I was surprised by the gross margin.
Creasing right, particularly given the investments you've had to do the IFA.
If you can give some color on that like IFA and impact on gross margin and how that contributes to go now.
The IFA.
Phase two is what I believe <unk> mentioned that in the last earnings call.
We believe that in the next three years, we're going to have like the 30 is more than <unk> hundred 5000 IFA.
<unk> wave that is a trend of the profession, it's people need to understand better about investments you have the incumbent banks.
Reducing costs closing branch being attacked.
By all the places from different players in the market.
So this trend I believe it will continue and that's the number you see of more than 1000, new <unk> phase.
Coming to our ecosystem per quarter.
Organically, it's not even ourselves doing this ecosystem of the <unk> phase.
<unk> doing it themselves with the mine we have injected in the network.
The broad margie.
Product mix for example, sometimes people do not realize that but okay fixed income.
Third to equities.
Different commissions.
Fixed income has a greater gross margin than Atlas for example.
So there are many factors there that explains.
The growth of the garage margin and you're correct.
We still have the impact of the investments we have been doing and we're going to continue to have these impacts going forward in our cogs, but the product mix plus <unk>.
Different channels plus.
Different products, it's related to the product mix, but any products that are from the new businesses like banking products.
All of that together explained the record.
<unk> margin since the IPO.
Great. Thanks, but no thanks, Mark thanks.
Cathedral.
Have a good one.
Our next caller is Oliver <unk> from UBS.
Okay.
Hello, Hi.
Hi, guys Okay.
Hello, Bruno Chug, Linda and Hello, everybody. Thank you for taking my question I.
Just had one just to make it very quick.
It's about the credit operation was of the company.
Because I understand that short 90 day NPL ratio is very close to zero a bunch of credit portfolio is growing at solid states. So I was wondering.
How big you expect the credit portfolio of the company to reach of thinking about the next five years.
For instance.
This expansion coping fleets a different segment of our credit product that is offered to date and also what is the NPL ratio level of the company is assuming a stable for this credit portfolio, which was it. Thank you.
Yeah sure. Thank you <unk>.
The credit business credit as you know.
Risky business and we like to look for low hanging fruits and the low hanging fruit in our ecosystem is collateralized credit.
<unk>.
Less riskier for sure.
We know the client the client invests with us so it's a different type of credit and we cross sell a lot in our ecosystem.
The loan portfolio.
Has grown very fast and Thats one of the things that I explained about the potential of cross selling our platform.
We were impressed ourselves about the growth of the credit portfolio.
And the NPL is euro 12 million has that we have in our in our npls so far as a provision.
And we expect to stay like that for now.
We decide to.
To move.
Further.
Start getting crowded like green credit without collateral and etcetera, then of course, the NPL, we will credit it's a function of risk appetite that you have at the end of the day.
We have the benefit of.
Having started <unk>.
Recently.
Having started with.
A very.
I would say shakier.
The credit risk.
A different profile and collateralized. So we're going to go step by step I don't have a number to give you like what should be the NPL five years from today the type of the credit we know that.
Most of.
The revenue of the 800 billion Reais in the financial industry is driven by different types of credits and where do we think about granted there are different setting.
Segments of Craig we like.
The low hanging fruit the collateralized than we get moving and get the experience and so forth and credit is something that you need to be cautious about.
It's easy to grow it T J answers to you in a different way if we wanted to grow our credit portfolio is youre, giving Mike so give money antibody once mining.
Depending on the interest rates of course, but then you'll have to correct and you have to get back and we are cautious about that.
We will see we're going to go step by step we know we are in a different macro environment. So.
We need to be cautious here, but we're in very good shape, we do not expect our NPL to raise further as we are today because of enterprises or whatever again because of the type of the credit.
Yes, just a.
Moreover on this.
How much penetrated.
Compared to the potential of penetration of this credit portfolio.
The company has with all.
All of their clients be considered the asset under custody.
Yeah.
Nowadays I mean, we used to have like <unk>, we did it like a metric of total custody because it fits collateralized investments. It's a function of the investments you have in house right in the platform in the ecosystem.
So we had like 46% of AMC this number because of the reduction of AMC.
Driven by the market took to market effects, it's now around 1% something like that.
We do not know, it's like 2% two 5%.
Samsung on interest rates of course interest rates is higher but also depends on the opportunity of the investments our clients might face and sometimes it's easy to get the credits and invest so we're learning the potential of this business because it's a brand new business in Brazil.
For that type of client in our ecosystem.
I can give you a lot more I can give you two examples.
That we will illustrate very well if you take our credit card as Brent mentioned, we have about 200000.
<unk>.
Issuance cards in the market.
If we look at the number of clients. We have that number is very low and Hawaii is very low because today, we only allow clients from that brand X weave.
<unk> 50, K plus to apply for a card.
In the next quarter.
We'll go down at XP two zero.
Requirement for foreign investments and you'll see the number of eligible clients growing up.
But so broadly in the next quarters, we wish you a lot of cards.
The same thing for our margin loan, it's a brand new product, we just released last quarter.
It's going up like <unk>.
Really really fast.
The penetration is still very low so most of these new product lines.
Just starting to ramp up and we expect a very high growth in the next quarter or so.
We are just beginning to do business lines.
Okay. That's very clear. Thank you Bruno Thank you Charles for this level.
Thank you Arthur.
Our laboratory.
So our next call is from HSBC.
Yeah.
Hi, good evening.
Good evening. Thank you so much for taking my question congratulations on the based on this quarter.
Just one quick question.
They have called increase that you've had I believe a part of that is coming from some of the exact except in February.
Holiday, which I've asked the national Blind test customer for clients.
Right. So could you explain your strategy there.
Our claim to have some in house financial advisors as there are.
What is the outlook.
We do have we do have our internal financial advisory I don't know if I first of all would you believe me I don't know if I understood. Your question, but we do have exceed direct.
In the IFA network they coexist.
The brand at the XD brand, we do have the.
Self attendance client that.
It's it's a do it yourself, but we also have an important channel of advisor there with internal advisors.
As Rico and clear brand, we do not have that okay.
So yes part of the growth of <unk>.
Our head count is up from internal advisors as well.
Brazil is big.
The concentration is huge.
Yes.
Despite all the growth <unk> has had.
90% of the Miami is invested inside the bank.
I think that's what kept bothering ourselves we look at it and say why we are not growing faster and what can we do what we have been investing.
So how's the growth in our financial advisor that you have internally for the XP bump has.
That really fast and now you're trying to hire more people who have <unk> interest in taking group.
For our business.
Yeah.
It's accelerating.
Together with the IFA network.
The channels. They are they are going to coexist disliked DXP direct for the shelf.
Attendance type of clients, we are agnostic about.
Channels, we think as an ecosystem and platform we need to have all channels like the wealth service channels same thing we have been investing a lot in the wealth service channels for different managers and private bankers to connect through our ecosystem.
So.
Both of them are growing at very healthy pace.
And my.
My last question are uncovered and completely understand that we want to grow on the credit side very very consciously and wound up completely make sense what are the new products and we expect to be launched in the coming two total CES.
So I just wanted to get a sense of the new products that we can see from XP.
When we think about for example, the insurance business.
There are a lot of products that we can go after writes a different type of insurance and we can do partnerships using our platform.
And so far so insurers as much information as one of the four main.
Blocks of businesses that we are looking and investing a lot.
When we think about.
The banking part the digital bank is something that we started our digital bank.
One year ago, one year ago, when you think about all the competition and et cetera.
They've had a bank for many many decades, we have starts with our bank from scratch basically one year ago, because we decided before having the digital bank accounts to start with the credit card because we believed would be the most.
Most important products to get out of service.
So the banking, it's going to be.
Up and running for our clients at the end of this year beginning of next year and then we keep adding new features as we move forward is like any other business is scaling from the scratch right.
Ben.
When we think about.
SMB is a different market we do have.
Many.
Corporate clients.
No.
And large corporate clients in our platform, but we do not have all the products to serve them and invest and we're going to have that.
In the next in the next years so the roadmap.
For the next two to three years I would say they are concentrated in those four blocks that Marshall talked about banking and here. There is a lot of investments you do not you do have the credit card here Dirty you Youll make money and it impacts the <unk>.
Revenue growth, but the other part of the digital banking is to get the transactional part of the clients and then understand better with the data and engage their clients. So.
<unk> Cross sell later and increase the loyalty of the clients and in our case for our existing clients.
As we have said the strategy is to compete with the link with the banks, we have nowadays approximately 50% of share of wallet.
If.
Our clients.
Already trusted us with their investments to trust us with the transactional part.
It's a matter of.
XP proving to the clients that we can deliver a V.
Very good experience and we're going to do that throughout time.
Okay. So that's a huge potential in our view that we have without adding one single additional clients in our ecosystem. So bank and park Sterling you have the credit.
That as I said, you have to be cautious step by step look at the environment.
Learn from the data that you get and then you can move with the low hanging fruit because there are a lot of different segments that are not really risk.
For our clients that we can get into with partnerships. For example, mortgage just to give you. One other example, or home method.
Do you have insurance that I talked about different types of insurance.
Yes, Sandy as I said this is at.
Our later stage compared to the other three.
Alright, Thank you everyone and thank you so much from Covid.
And can you now bye bye.
Now we have our list.
Question from Mark <unk> from Bank of America.
Video.
Hi, guys. Good evening, Thanks for taking my question here.
Last one let me ask two of them.
I actually don't mind. The first one is on the revenue yields right you show that your revenue yield has been stable.
So a long time and you were talking about now more contribution from the banking offer on credit cards and also from floating.
I don't know Bruno if you're if you mentioned during your comments what percentage of your retail revenues are coming from floating.
If you can give us a breakdown again and what I understood was that the banking revenues were 3% of your retail revenues I think.
That would imply revenues of only $80 million roughly.
Out of a loan book of almost 9 billion Reais. So I was just trying to understand here.
If you can give us some color on the interest rates on those loans that you are charging nothing there would be helpful.
So that's the first question the second question is.
I think right with the share price down following the Divesture chair from <unk>.
You you still remain very constant was the outlook for the company.
Would you are you considering doing a share buyback or how do you see right. The attractiveness of your shares now and why not like.
They are buying some of the shares.
Sure Yeah, so to answer your first and second question Matthew.
It's the floating in the third quarter represented approximately.
A little bit less than 8% of the weekday revenue okay in.
In the first quarter it was roughly 4% so basically doubled in two quarters.
Indeed banking services.
It's it's more than 3% in the third quarter.
Closer to three 5%.
Growing from less than.
2% in the first quarter close to one side.
So it's more than more than the $80 million.
You have mentioned, but remember that our credit.
A very cheap credit for the clients, we use a lot of credit as a service.
Where we have different revenue profile, because sometimes we.
We are distributing a product that makes sense.
And then we provide a crowded also because the credit risk is really low and you can see that in our NPL.
And then.
We can have a profitability by the cross sell in our platform, we get the benefit of a very good experience.
In the perspective of our clients and the engagement.
It's higher for the long term because the client has a credit with us. So it makes a lot of sense. Okay. So.
The net interest margin in that credit is not huge and we are not in the business of.
<unk> taken with <unk> PL.
Month to date right.
We are adding some new products. For example, you just mentioned the margin.
And it's part of the province, it's available for clients, we charged 4% amongst for you to leverage your investment spending averages. So.
Then you can imagine that's a very profitable product.
Because of the NPL list Youre very close to zero, because you leverage on top of your only invest so.
We are creating new products.
I would say that day.
The gradually we have so far as Bruno mentioned theyre bigger tickets with very very low risk or zero risk. So theyre very cheap, but we are adding new products with higher interest rates and higher profitability.
As I just mentioned.
And.
And also Thats, a good point because the only news.
A question before modest about the products I forgot to mention the margin loan so marginal and something new that it should.
It should increase in the next in the next years and go into your third question My view about the share buyback.
Here's how we think okay. We are here for the long term.
We need to think about.
What is the best use of our cash inside the company and the company has grown a lot.
And we do need cash, especially for our business of flow that helps to develop the Brazilian capital markets, bringing.
Bringing new products to secondary markets.
And we are able to make money using that warehousing business outflow as well you can see that in our revenue in the third quarter was almost half and half the fee business in the flow business and that business, despite not hedging the risks and etcetera.
In trading a lot, it's a business that demands capital and we believe it's the best use of our capital because that's the core of the business to buy back shares.
Would be an option if.
If we had.
You know.
Cash debt has no use for the business.
Itself.
So and we're here as I said for the long term.
It's our our net worth year of the main partners of XP more than 90% nine zero percent X P shares so that's.
That's it.
Very clear thank you.
Yes.
Sure.
Okay. Marty was indeed, the last the last caller a relief.
So thank you all very much for your participation in our call. We hope to see you again, we are all available.
Bruno Mars ourselves from IR.
Our follow up calls any questions any subjects that you might want to discuss down the road.
Bruno mantra, if you like to say some closing remarks on our behalf here. Thank you all very much.
I just I just want you finished saying that as Bruno measure and.
As a road in the ladder.
Xps or life.
We are here for the long term and we really believe.
We have big opportunities in Brazil to continue to grow despite the macro environments by any kind of interest rates our cries. So.
We will deliver a very strong resulting in the in the next quarters for sure.
Thank you. Thank you all.
Let's see.
Thank you.
They face.
Alright.
Bye bye.
Oh.