Q1 2022 Xp Inc Earnings Call
Our CFO and the Investor relations team and myself and <unk> and.
Martina multimodal will be all available for the Q&A session, which is going to happen right. After the presentation and you can raise your hand on the zoom tool.
To ask your questions, we already have seven raised hence already.
We have the option of simultaneous translation to Portuguese.
You just have to click on the go button on the zoom.
King guests that you call in Portuguese double Eagle Ford work with Ikea <unk>. So due soon.
Before we begin our presentation. Please refer to our legal disclaimer on page two of our earnings.
Presentation on which we clarified the forward looking statements and their definition the documents, which explained why forward looking statements might differ from actual results can be found on the SEC filings session of our web site.
Now I'll pass the word to our CFO vehicles, the sooner we will deliver.
Our initial remarks, thank you all.
Thank you very much under that.
Everyone voyage aboard.
With age.
Are we going to are going to have the presentation on.
So I can't wait to start I will I will be brief we have already.
Kevin.
<unk>, so I will be brief so we can go to the Q&A. So we have basically two session here the highlights and then.
The financials and Kpis of the first quarter.
Boeing.
Going to the.
The highlights we have.
Segregated here those five topics that we would like to share with all of you.
Number I will not spend our time talking about the macro environment everything that happened in the first quarter all of Europe pretty much familiar with it so jumping directly into the results I believe the first quarter shows the resilience of our business model.
Revenue grew 17% year over year and recast our adjusted net margin above.
Steady first half as well.
Mentioning when this first highlight.
A quarter of course is made of three months and we had very different months.
In the beginning of the year just to give you one data point.
We compare the gross revenue of March with an average of January and February March was more than 45% greater than the average of the first two months of deepwater so very different months that resulted in the 17% growth year over year.
Here in the quarter.
22, the second point that.
Always swing for us as well is this portfolio effects.
Two segments that did not perform well in the first quarter because of the macro conditions everything related to capital markets and also equity can features.
On the other hand, we had some records for example in the institutional revenue.
That.
The previous record in the second quarter.
Last year by 46%.
Mainly driven by the war a lot of hedge protection.
And the reality is being used by our clients in our trading desks and also the retail fixed income platform that on fourth quarter of last year had hit a record in terms of volumes being traded in the first quarter of this year was even greater than the fourth quarter considering that.
In this year, we didn't have the tailwind of primary offers coming to the market because of very weak capital markets activity.
Number three is our distribution network as you know we have.
Unique distribution network, especially when you look at the IFA network and we keep growing.
We have grown by when you add the <unk> plus the.
The BTC more than 5% quarter over quarter.
We always like to remember that when we think about the IFA.
Network.
Have almost 11000 <unk> interpreters working 24, 7% to succeed in their profession of course, we are helping them as we can.
But when we compare two world bank managers more than 50000.
We believe there is still a lot of room to keep growing here.
Number four of course, the new verticals, we decided last year to share with investors.
Those new verticals.
Our what we call internally expanded the core being the core investments.
<unk> will reinforce the core but when we look at them standing alone by themselves.
They can become really be important and when we look at where we are in each of those verticals I will talk a little bit more about it.
We're at very early stage, so the growth exponential year over year, three fold and they represented seven 6% of total <unk> revenue this quarter just to give you.
A comparison here first quarter 'twenty, one they represented less than 3%.
And finally, but not less important.
We received.
The reward of the best advisory for the fourth consecutive years something in investments so being investment our core these kind of reward is something that we are very honored to receive its an indication that we are going in the right direction and especially.
When we look at the first.
Reward that what's giving.
In 2019, we had five points.
In advanced compared to our closest competitor.
In fact for four years, joining join the queue now we have eight points.
Of these 10 store closest competitor, which is a very good indicative, but on the other hand, when we think about investments we're not number one in custody revenues. So we still have a very long journey ahead of us and investments.
Now we're going to share some previous.
We never talk too much about developments in the investment world, we've been talking about the new verticals and developments. So we brought here. Some examples of what we have delivered in the first quarter.
The investments the automated equity portfolio, it's really simple to navigate and bush victims into site for the clients who decide.
Which portfolio the client wants to follow on a monthly basis more than 20 portfolios available and why something that our IFA network demanded a lot.
In our ecosystem.
Good thing about having 11000 higher phase we are getting through to on a daily basis and of course, we have a roadmap and we are always.
Focusing to serve the <unk> banner.
More than 70% of the IFC as offs already using these two in the first month.
On the bottom we have the alternative.
Funds secondary trading that we launched this year is just an example of innovation we are very.
Positive about the alternative asset class, especially in Brazil, where the penetration is too low.
And we are believers that for any secured or asset class to perform well it's important to have liquidity in the secondary markets as we have done with.
Bonds.
Both markets with reach.
And we saw our tax exempt.
Fixed income.
Instruments in the secondary trading we also plan to bring liquidity with our platform.
With a tool for alternative funds to being traded in the secondary markets as well on the right hand on the top equity futures just our DNA, we launched XP future what is it.
Is an educational program using all our knowledge to help.
New professions.
To get the qualification and the training to become new advisers those are not.
Bank managers that site to be even becoming trip.
Our new people coming to these new profession.
<unk>.
We've trained them, we've quantified them to make sure their probability of success is even greater and finally last week. It was on the local news.
We launched our first flagship store, it's basically it's in my house, Amazonas and resumed the north of Brazil.
It's to create a new experience with our client a hub.
You have a sense of the digital world together with the traditional world.
Early to tell but so far the feedback that we have gotten very good then, but we're going to have more of those flagship concept stores around Brazil.
Now moving to the new verticals updates before jumping into the financials.
I'm going to just touch point and the four new verticals that we have so the credit business.
We had a revenue growth of year over year more than.
200%.
Growing a lot you've seen the kpis of $11 5 billion of credit portfolio, but here is just an announcement of our partnership with Apple.
It's a pilot phase.
But it's going to be a marketplace for the mortgage and real estate business jet ethylene joint venture between XD Mgd somehow.
Listed company be three that has decades of.
Performance in the real estate.
Oregon, Brazil.
So these marketplace is something that can provide a good experience to adult Gary.
The balance sheet.
To provide that.
Okay.
Also we have developed the collateralized credits MQM, 100% digital it was something that was in our backlog and knowledge.
And Ronnie improving the client journey.
In terms of the credit card.
We have announced our kpis of our more than 300.
<unk> guards.
Here, it's interesting because we only have <unk>.
Credit card in part of our SP X. These clients. So we do not have that ricoh or clear Graham.
But when we look at the $3 5 million active clients that we have in the group as a total we have less than 10% penetration.
So there is a huge potential for cross selling in a forced these will happen over time.
But.
We already have some interesting data points about the credit card one of them is all of the cohorts. They look pretty much the same so far.
And as time goes by the usage of our card until it becomes the primary card is happening with <unk>.
All the cohorts and we have already more than 50% of our active cards as a primary card.
Number two is that for those clients that really use the.
The banking parts.
Credit cards, specifically and then the destock counts.
The churn is four times lower which is also a good indicative of the strategy.
Of developing new services products for our investor clients. So we can increase the loyalty of the stickiness with.
The platform reduce the churn increase the LTV and you create these positive moves that reinforces itself.
And then the roadmap it is on track.
Until the end of this year, we're going to have all of that these accounts that are cash withdraw.
Credit card for repo clients as well remember that we have everything as a service with one foundation to be 100% scalable.
And we plan to have Rico clients at the end of this year.
Now moving to.
The last two new verticals private pension and insurance.
Private pension I like this chart very much because it shows that the growth of the business is doing just fine.
In this chart is the net new money.
The private pension were for the first quarter so XP.
<unk> and trade with Asia, we're talking only about our insurance company or not.
Third party insurance companies that distribute.
On our broker insurance, so our insurance company got $3 2 billion highs of Nazi mining the first quarter and when you look at the income in <unk>.
Banks, because those top five players they belong to.
<unk> top five commercial banks in Brazil.
The last one.
4 billion.
We have.
Okay.
In the first quarter.
The kpis.
The investment ASC 873 billion all time high.
This also.
It has an impact.
The take rate because of poor, especially EPC instead of looking at the.
The last 12 months take rates as we do where you have five data points of Asia. When you look at only the annualized quarter and tried to get the take rate. This higher AUC as the denominator will have an impact there, but our growth of 22% year over year.
Pension fund 50 billion.
<unk>.
It is worth mentioning.
The the pension.
Our own insurance company. So we had the 50 billion a 45% increase over 35 billion one year ago, but when we look at our insurance company.
That is 6 billion out of that 50 billion belongs to our own insurance company.
Out of the 35 billion first quarter last year.
Our insurance company represented 17 billion out of the side effects. So the growth of our own insurance company in terms of assets under custody is 112% year over year, So a very strong.
Growth.
And finally the <unk>.
$4 5 billion, but revenue of the credit card growing much higher than.
Then vendors.
Around.
Revenue grew its better to compare quarter over quarter to be honest because the first quarter last year, we launched in March right so quarter over quarter.
The revenue of credit card increased 14% and.
<unk> gas.
Close to all time high 70 seats very important for us.
Okay.
Total revenues. So we talk about total gross revenue already.
17% increase or decrease compared to fourth quarter 'twenty, one you havent seasonality there performance fees and.
More on capital market activity.
Yes, we had a decrease and what explains that mostly is the capital market activity.
We had.
In capital markets generally.
A decrease of 55% quarter over quarter. If you look at issuer services revenue related to capital market, It's a 48% decrease year over year, two 5% decrease.
Quarter over quarter, it's also important to highlight that.
For the three months of the quarter why am I going back to this because I think it's important to understand that the year January .
Really.
<unk>.
Weak months on all metrics I can think of and then we start to see.
Recover in February and March much as Paul is stronger when we look at the capital markets activity and getting all the revenue that we get from their issuer services.
Teo channels.
Reeds and compare the revenue of March to the average revenue again of January and February together March was 260% greater than the average of the first two months of the year soon.
A sign of recovery.
Hey.
And Thats exactly what you can see the breakdown of the total revenue year. So retail keeps the three fourths of the total revenue, but then you have institutional.
Increasing the relevance basically because.
The record that we had.
This year because of the war the trading desk everything that I explained already going to 17%, which is unusual usually psych 11, 12% and then we have issuer services that usually is like 8% to 10% going down to 4% because of capital markets activity. So these lives.
Explained very well what happened in the first quarter in terms of mix, but it shows the portfolio effect at the end of the day revenue grew 17% year over year.
Moving to retail revenue.
So retail revenue year over year grew together with the total revenue close to 17, 16% take rates one last 12 month metric.
The base is stable at one three.
3% again, if youre going to be annualized quarterly take rate is slower.
Because of what I've, just said because of the.
Weak start of the year in January and February together.
We had the March it would be totally different plus the increase that we had in the assets under custody.
Market depreciation that happened in the beginning of the year, helping the custody to grow as well.
Necessarily contributing to the revenue.
Having an implication in the take rate there, but when you look at the lesser of most pretty much stable no matter what the interest rates are so going for 5% to 2% to 12%.
And we keep our take rates pretty much stable and Thats again resilience and portfolio effects that I talk to them already amounts.
And adding new products like the new verticals, so forth and so forth and.
And finally, our last slide so we can jump into Q&A.
Adjusted EBITDA growing 14%. So there is a margin compression from 39 seven.
738 to steal a very.
Healthy margin you have the.
Number of total head counts.
And of the Beard. So you can see that we jumped at.
At March 21 strong less than 4000.
Employees to more than 6% to 300 employees, that's almost 60% increase and Thats why I talked about the natural pressure in our margins and SG&A because we are investing a lot in new verticals we are building.
New products, new services that will more than pay off in the near future as they already have shown in.
The growth of the.
The revenue of the new metrics the new verticals.
Another interesting thing to look at when you compare the adjusted EBITDA on a quarterly basis as well that you can capture on the fourth quarter part of that growth in the head counts not 100% because we still are growing we as you can see we ended the year with.
Six.
<unk>.
<unk> thousand employees and we ended the first quarter at $6 three so we kept growing.
We have a lot to deploy app to develop but.
If you take out of the EBITDA.
The net other operating income that has a seasonality there because most of these are incentives.
We received the one specific quarter related to the whole year.
But when we can recognize once you receive it mainly beef treat incentive visa and et cetera.
It has an impact so if you take that and in the fourth quarter was 233 million. If you take that out youre going to see that digest that EBITDA in the first quarter was pretty much flat to a little bit greater than fourth quarter.
Without the benefit of the capital markets activity that we had in the fourth quarter.
When we look at the adjusted net income.
It has the contribution the additional contribution of the lower effective tax rate.
And so we had a tax rate of $17 four in the first quarter last year and our debt.
Our effective tax rate was 16% in this quarter, making the growth of our adjusted net income equal to the growth of the revenue at 17.
<unk>.
With that I mean I think.
I don't know how many hands, we have already raised but.
Would be the energy book between the macro will be here.
Helping me out so we are at your disposal to answer any questions you might have thank you very much.
Great.
Just organized and have a lot of <unk>.
<unk> raised.
We are going to add.
Some of them on a first come first serve basis, starting with Tom <unk> from UBS. So we ask you kindly to restrict to one question. So we can address.
More than 10 questions that we have here so.
The first one is <unk> from UBS as I said.
Hi, Charles.
Yes, Hi, guys hear me.
Yes.
I have one question.
On the take rate of XP takes away to a super resilient.
But this quarter, we saw a big decline.
Do you see this decline as a kind of a temporary event.
This lower level should continue for a while.
As I tried to put in my speech at temporary we had again.
Just to be clear January was kind of awkward.
Part of the year because of.
Only crawl and third phase we had.
Basically no capital markets activity was very low so the numbers that I gave in terms of comparison.
Between March and the average not only taken because I guess January would be even higher but only the average of January February .
The everything related to capital markets activity in investment banking March was to be exact by 267% greater than the average so.
I mean, the take rates at <unk>.
The annualized one in the water. It is what it is so I think the retail revenue, which grew year over year by 16%. We also have the impact of.
The cost studies, so when you take the take rate of a specific item.
To be honest I don't like that that metric I understand you are trying to get the sense of what's going on on the margin, but it's tricky you can get it wrong. If you think there because there is an impact of the custody as well. We had we ended last year with 815 billion, if I'm not mistaken of acid.
And the testing and we ended the first quarter 870, <unk>. So it's hard.
Heiko study that you are using that denominator, our retail revenue that.
Has grown 16% year over year, but had a huge impact in terms of.
Specifically capital market activity.
And.
The benefits of the portfolio effect health and.
In fixed income and helped institutional as well with derivatives that does not impact the big rates as well so.
I wouldn't I wouldn't take this take rate.
As the trend for the rest of the year.
Very clear to Brendan thanks for the answer.
Thank you. Thank you again.
Next in line is eastern Hornack Li from Morgan Stanley .
Good evening.
Hi, everyone. Thanks for taking the questions good to see everyone.
I wanted.
Two maybe.
Maybe talk more about those metrics that you provided for March.
I.
Sure.
In the quarter was pretty broad.
You said, 45%.
March net revenue above the average for January or February or about 45% is for the rebuild revenue.
That total RASM total revenue, Okay, and so then I wanted to ask you about how does that look for the rebuild revenue specifically.
This will probably also help on sort of the previous question.
Yes.
For retail revenue.
Season, a little bit higher pretty much the same but higher.
You made a hire another 45% that's what I say alright.
So if and again, maybe I'm asking to watch but for April how does April look like I mean, obviously continuing to see how we continue to see an uptick on April versus March.
Alright, I think so far yes.
The way I like to see is as <unk> already mentioned January was like.
A really bought off of <unk>.
Everything because they they act huge was very low because of all the reasons you guys know very well, but when you look.
The trend for February and especially our March they are much higher getting normal laterals.
For the year and we expect the rest of the year to be on normal levels model to January levels. Okay.
Got it alright, thanks, everyone.
Okay.
Okay.
Thank you so much.
Next we have.
Jeff.
Jeff from autonomous.
Hey, Jeff.
I'm going to have to work on my reaction times.
My finger a bit faster.
So we've spoken quite a bit about revenues and clearly the revenue environment was more difficult.
Most of US would have expected at least at the start of the quarter.
It looks like you took quite a lot of action on the cost and expense side to try to absorb as much of that is <unk>.
Can you go into a bit more detail about what you've been doing that to try to keep costs and expenses down and then how are you.
Balance the short term benefits from doing that against any long term implications from lower growth. For example, thank you yeah no sure Jeff.
Thank you.
You are 100% right.
Let me start chain I don't think that having the costs really under control wheel impact.
The growth in the future there is nothing to do with that but if you.
Things together here with me a company like <unk> that growth explanation.
Last year, we had an amazing year in one way you look at it.
We had in our budget.
A number of 4200 people.
At the end of the year.
We ended the year with more than 6000 people.
We decided to do so we wanted to do so many things we are at very early stage.
In different segments that we have a lot to accomplish yes, that's why <unk> whenever he has his ladder. He keeps saying we are at very early stage of our journey and that is true so.
When the effort.
<unk> doubled.
The number of head counts senior company in one single year.
No matter how.
Diligent EUR with efficiency and we are.
Youre going to lose some of the efficiency youre going to youre going to spend much of your energy.
In the T. Williams in the New project everything you want to do that's where your energy is going to be.
And you lose part of your energy in other important stuff as well for the company.
Then we had the start of the year debt.
The end of last year.
Already a lot of indications that we should adapt and we should focus on the more than 3000.
Net new employees that we brought.
<unk> XP and make sure we have the right people in the right place.
100% integrated in our culture that we believe.
He is a strong competitive advantage that we have so what are you. What are you can see in terms of.
Cost control in the first quarter of this year.
Compared to the fourth quarter last year and for example, if you go into our.
<unk> expenses accounting and personnel youre going to see that we had a decrease actually in the first quarter. Despite the increasing the number of head count around five 5% of.
The decrease in personnel expenses, if you look at the total of administrative expenses.
324% decrease quarter over quarter.
That has nothing to do with.
Compromising the growth in the future no. It's the right thing to do as entrepreneurs to make sure now that more than 2000 people that we have BR, 100% adapt to our culture at the right place and so on so that's what explains this reduction.
Of the base.
In terms of hiring in the first quarter that we believe it's going to continue in the following <unk>.
In the next quarters of this year and just finalized.
We're going to deliver to hopefully you saw the roadmap of the credit card that I mention digital accounts withdraw depth guard Rico, we have set.
We're going to do the whole thing we earn there is not one single project that we.
Gave away or we postpone because of these cost control in terms of personnel and everything else.
Another way to think about it is if you remember the last earnings calls at some some of them. We mentioned that we start to see the peak of investments because we doubled the number of people in the last three years. Okay. So when we believe we have the.
Right amount of resource to delivering all of the new merged for resolve the annual Broadsoft <unk> have to growth in the future, but we.
We are not compromising any of the projects this year because of cost control in this kind of stuff, we're going to deliver everything because we are like organizing all the resources, we have to deliver the same thing with the same people but of course, you guys you will see new hires along the year.
But we believe we are not compromising anything for the next years, we are not compromising growth okay.
Thank you.
Okay.
Thanks, John .
Thank you, Jeff I guess, it's very late and in London.
Thanks for your participation.
So our next question is from Bob you bring on early.
This group.
Hi, Tom.
I am Anan Bruner markdowns being starting from my question real quick one on my end.
Everyone already asked about the revenues I wanted to get a little more color on the gross margin trends.
It's really because it's mark.
That's much better income.
Margins, improving persistence equal through back to <unk> levels or even higher than that.
Going to have a better mix up.
Higher interest rates and other <unk>.
Net benefit probably doomed Bouchard, that's much commissions weekly IV.
Yes, I think it's a fair assumption or dilute the gross margin.
It depends a lot on the product mix as I have said, but I think it's.
A fair assumption.
Thank you guys. Thank.
Thank you Doug.
If you go down a good one.
Qdoba Martha from Goldman Sachs.
Oh, sorry.
Yeah.
Hey.
Hi, Good evening, everyone can you hear me okay.
Yes, Hi, Tito Great day, everyone.
Thanks for taking my question.
Sorry, another follow up on the revenues just this one.
So not clear exactly like what specifically happened in January then made it such a weak month.
Because I mean, it looks like you've a basketball was up I mean.
War broke out more in February .
Rates have been rising since last year. So was there something specific with your clients are trading.
In January .
With you didn't get a lot of inflows in January I don't know we have the <unk>.
The internal numbers.
Was there something specific in January , particularly on your retail revenues right because the capital market activity, if I understand that that would be more on the issuer services revenue write down on the retail now, but there is an impact in retail as well because of the channel fees that he has.
Whenever you have offered primary offerings in the market.
Any retail.
<unk> goes into the retail revenue and depending on the capital markets activity can be relevant.
That was one of the detractors.
Of the revenues on the retail.
Right.
In January but it is not.
One thing specifically, Matthew Miami played a role as well.
When you look at the 46 billion of net new money and even not considering the concentrated customers as $30 billion that it's at the low.
Our range of our soft guidance between $10 million to $15 million per month.
That is an average of deepwater.
<unk> was.
Like half of.
March just to give you.
Data points.
So it was really really.
A weak start of the year that as we said with over in February and capped recovery.
March and start <unk>, but we always have seasonality change January okay. If you go back like.
I believe we have through January right now are three.
One.
So there is always says analogy, but geez year was.
Even worse than than predicted for January and if you remember.
What happened in January and May they stock exchanges around the globe. They went down and 15% we have vacation in Brazil, we have the peak of <unk> interest in January so.
For us it was similar to what happened in 2020, if the first month of overheating, So and usually every two years in Brazil something happen. Okay. We have some of these months and what we see.
Hold down a lot one month, but in recover as reade fahs, okay. It happens in the Covid 2020 it happens.
Do you make each men need happen.
Joanne <unk> and throughout <unk>.
The strike so it happened many times in the past and we have like kinda on bottom, but the vehicle is really fast.
Okay, Great. That's helpful. If I if I can just one follow up then so should we should we pay attention we want to kind of the global market as opposed to because ibovespa was up in January but as you say marks because global markets were down that <unk> had good activity more for you guys. The naval vessels lineup.
I would look at the Brazilian capital market activity again.
You saw you saw the quarterly revenue total revenue issuer services that he usually represents as I said between 8% to 10%.
Going down relevance to 12% on the other hand institutional went up to 17%.
So.
I mean whenever you have a very weak capital market activity the reason impact in retail.
And the reason is that for sure at least for service.
But on the other hand dependent in Louisiana for gas you have other parts of the business that compensate that and also it is worth mentioning that.
Capital market activity, except for ECM.
Especially when we think about these sham.
You have a we do have a huge pipeline here and at some point, if we resumed in the market because companies they need to.
To fund themselves and.
So.
I would I would see <unk> to be honest as transitory as it is what it is.
Weak start of the capital market activity in the first quarter.
Hopefully other quarters will more than compensate these weak start to be seen.
Okay, I don't want to hang up for questions, but that's helpful. I may follow up with some will have choice I appreciate the color. Thank you.
Sure and good deal.
Our next question is from <unk> from Credit Suisse.
Amazon.
Hi, guys how are you.
Thanks.
Thanks hard to time Com I have.
I have two quick questions.
The first one.
Luca.
It's a kind of a different question.
From the rest of the peers.
I was looking at your cash flow.
Statements and you show your adjustment in our adjusted net cash flow.
From operating activities and I see it was significantly negative in the quarter. It was one two.
<unk> negative and it looks like it's the first time at least let's look over the next.
Four six quarters that this number is negative and it seems there was a very big change in your working cap working capital.
About $1.
<unk> 25 billion Reais and given this is the cash flow pretty much just for.
Premier recurring business does not include securities or anything.
I'm curious to understand what happened there because it is a very significant move.
There. So that's my first question Andy.
And the second question is with regards to your institutional revenues.
The ones that I know are very big increase quarter over quarter, and you mentioned in the press release that there could be some kind of one offs.
It might not repeat in the future maybe some some derivatives.
That private room does that you guys have done.
How should we think about that line.
Going forward because.
The common stock 200 increase.
Quarter over quarter.
Sure sure myself regarding the cash flow.
I mean, you need that we can go later offline with you because I wouldn't see the operational cash flow as you look at industrial company or something like that so I would read the whole thing because for example, there is the.
<unk>.
The bond.
The FX in the bone that goes in there and you have compensation for Daddy Modern line that does not go in that cash flow.
Variation.
Sorry.
But does that go in deal because this is cash flow from operating activities.
It doesn't include Securities Repos.
Disclosure so it doesn't seem that would be the case.
No, but there is for example, some hedge that do not go there. So there is a mix.
Between.
And yes, it goes with our operating activities financial instruments.
So.
It goes in there part of it as well so.
So we need we need to get the whole detail.
To be honest I mean, that's something that you go through the accounting, but that's not how we look at our operating cash flow.
So it's a different different ways, we look at our we look at our.
For example.
Net operating cash that draws cash that we have.
And.
The cash the decade of the debt that we have and that has increased quarter over over quarter. So.
So it's not a reduction there.
I mean, if we go.
Yes, that'd be great. If we can follow up we can look at.
Because I'm looking at our adjusted cash flow. The one that you are take us materially and it shows our <unk>.
Negative number but.
And after that there is a cash for example.
Every first quarter and third water you have an impact of cash flow reduction because of the bonus payments because that's when we pay.
So everything that is already recognized in the P&L you paid in February and August and then there is an impact in the first quarter and third quarter. So again, we can I'm more than happy to go line by line and explain to you.
But I wouldn't look at operating cash flow and take for granted that the operating cash flow is reducing or increasing because of that that's the only point.
Your sorry, Marcelo Your second question no no probably no. My second question is with regards to our institutional revenue.
Yes, yes, no look.
Look Michele net was mostly the increase in your correct as I said.
It was 46% higher than the previous record.
In the second quarter last year, and what happened is because of the war in February we had a lot of activity in our trading desk using derivatives fixed income and so forth protections.
And the volume was really high.
Would not expect the same volume going forward because the protections are are done right. The awards there but.
I wouldn't expect.
The same activity that we had in the <unk> trading desk in the first quarter because of that but on the up but on the other hand right there should be much higher.
Answering the question of Marcel above trend.
Institutional line.
Yes.
Thank you I appreciate the answers.
Thank you Martha.
Thank you.
Next is mark <unk> from Megaphone Erica.
Hi, guys.
Can you hear me yes.
Mario.
Hi, Thanks for taking my question, let me answer the question.
On this new.
Revenue lines. So you have this new.
Growth avenues, you've talked a lot about the revenues there like 247 million <unk>, but can you can you help us understand what are the costs related to.
Building out these revenue lines right.
Give a target at your Investor day of reaching 10 billion by 2025, the revenues, but I was trying to understand.
What is the right cost to income ratio for this new.
Verticals.
I also like we read recently that Youre opening points of services in Brazil.
Again I those related.
Like investments necessary to build out these are revenues.
And also when.
I.
I think long term <unk> coming out of these lines.
How many clients do you think you'd need to have to get to that level, because when I look at Europe .
Net client adds rather you only added 88000 clients it seems like this.
The trend is going against you. So can you also help us understand.
How big do you think your client base needs to gas why are we not seeing decline base growing up faster.
Are you doing to grow the client base. Thank you.
Sure.
Going to your first question.
When we look at the cost I mean, the company is one we have all the gnl's divided by segments.
Initiatives, but we do have a lot of us.
Costs be sure inside the company. So that's why it is hard to give you.
That kind of detail.
Specifically, because also is strategic but when I look at the margin EBITDA margin.
For example, I think that the big hits, we already have.
The reduction this year compared to last year because of the increase of head count.
We invest a lot in technology, but.
The biggest investment is in people.
As you can see by the first quarter.
Number of head counts, we kept increasing as I said, but at a very much lower.
Pace.
So I wouldn't expect any.
Different impact in margins going forward.
Because of the new verticals as they keep growing of course historically at credit card there is a difference.
Margin there because.
We have the main revenue is interchange and there is the invest back debt levels in two parts so credit card growing.
You have.
Cogs growing at the same pace of the credit card revenue.
Because of the invest back, but when we look at credit.
Or.
Private banking or insurance that's not.
That's not decades.
Mike go ahead, another another way late to answer your question when you think about the number of clients.
Is the way I like to see here is when you think about the investments our segment targets, we have about 15 million investors in Brazil, Okay.
And once we start to add more financial service like upgrading current banking insurance and.
So on.
Can increase that should 30 million clients I'm talking here about high income people with no savings. Okay. So I would basically say that we have like $30 million.
Possible.
Clients in Brazil, So, it's not like a $100 million $150 million. So you'll not see Leica is edging like a million people a month because that's not our plate is not our segment is not our target okay.
Another factor that has some some people miss about XP is the cross selling because we are adding more and more products imagine that two three years ago. Our business was let's say only is not only but it was mainly investments okay.
And now we have other brothers to sell okay. So when people ask about the great. Okay take rates should go down I'd say defense because if you consider all the products all the cross selling that's possible because we are adding more broad take rates should go up okay. Because we are adding more products that are.
Multiple related to AUC and and that's the way of thinking for me when we look like a certain internal metrics.
The number four cross sell is to hurdle, okay. Four imagine that we have an existing products okay.
Assuming that we have the investments as one product.
The cross sell is to very low so we have a big opportunity to grow the customer base that we already have okay. So if we don't add any clients, we should be able to add a lot of revenue. Okay. So we feel can sneak above like revenue growth new clients.
And.
Clients that we already have of course, we investments net new money can come from love clients, but even if we don't bring any new investments for the customers. We already have we should be able to generate much more revenue because when you look there.
By client and by number of cross selling products its explanation okay. So.
But that's something that we only have been wound for like a year, we've traded car insurance and all just broadens and cranny. So it's something very new but <unk> really fast.
And.
Thanks.
Just follow up model, because I think it's a good opportunity to clarify a little bit.
Hey.
Think as entrepreneurs I know.
I understand your question about Okay 10 billion twin.
<unk> 25, youre going to need more clients I don't see that growth coming so what's going on on how youre going to achieve.
The way, we think is in triple numerous is linking the dots. There is the right sequence for that.
Think about the credit card, we have 388000 active cards, we have $3 5 million clients. We don't have the credit card at the Rico. Graham for example, we will now so there is a sequence there we could open up the digital accounts and see onboard on XD, we would have.
Many millions of new clients on board in our digital bank. The number would look good but we don't think it's the right sequence, we might get there in the future, but before we get there there is a lot to be done with our existing clients adjusting their experience make sure we have not 50%, but 100% of our.
Active cards, using our cards as a primary card.
That's how you keep evolving over time, so there is no right or wrong here, but there is the way XD.
If as an entrepreneur you look at our history, that's exactly what we've done.
Since the formation of the company in 2001, you could ask when we were number one broker dealer in 2009 in retail why only retail, whereas institutional not because we want to conquer retail then we went to institutional so its lincoln the dots.
And also and also you mentioned that we have three brands, Okay, we have X P equal and clear.
And it's easy to imagine that when the <unk>.
Stock stock exchange exchange at <unk> Theyre very high the number of clients that we can add true clear, it's very high okay. So if we.
We don't closures this number but if you look the numbers for XP.
They are growing okay. So.
If you exclude the.
A clear brand for example.
And.
That's clear regarding the points of services.
Net.
And experience.
Our hope experience.
Our first flagship.
It's not related to the new verticals anything like that it basically I mean, just simplify here is like this.
Digital companies that decided they need to have some.
Hearings in the rewards with the customer that would enhance the digital world as well.
Here, we have these.
The first trial in <unk>.
Last week, we don't have the data yet I mean, we have the data, but it's very short term.
So give us more time, and we will come back with the feedback we have another point of sales that we want to experiment as well, but it is something that we think it makes sense. We did a lot of survey.
We will see in it.
It's not very much money that we're spending on that.
Do you have any specific targets.
Number of stores that you want to have and also if I follow up there like as you're building out. These new initiatives can you talk about how more Dow could help you accelerate.
Look the number we do have.
<unk> for strategic reasons.
We don't want to disclose that what I can tell you is not going to be material in terms of expenses, it's not going back to the margins anything like that.
And of course, we're very data driven we are measuring the whole thing if we see.
Very good data really fast we can accelerate.
That's the way we are as Intrapreneur, if not we're going to.
Yes.
The point here is we believe that we.
We are in a competition for the best customer experience, Okay and yes.
We believe we have we have a hypothesis that's not proven yet as Brent mentioned, because we don't have the data that has some physical presence.
Our <unk> experience okay. So it is not.
Bank range that people move their life to do transactions or something like that it's not that we will not have thousands of.
X P space around Brazil.
But.
It's for us to have budgeted eating Barton sure house like.
A very mercies experience, we forecast because when you go like true true affluent and high net worth clients.
Important to have some touch base point, we see our customers okay.
And that's what Jesus base that Bob It's about education, it's about like having some time these declines have enzyme.
Employees and so that that's it's all about experience. Okay. So that's the concept.
Okay.
Okay.
Sorry.
Is related but like the acquisition of mobile and how that could accelerates.
Growth in these new segments.
We need to wait.
For all of the approvals.
And regulatory approvals.
Two.
Give you a proper answer to that question of course, we believe the acquisition of $1 can accelerate many.
Segments and initiatives that we have when we are together, but we are not we still.
I don't know if you saw we.
We filed our F. Ford this morning related to this transaction, but it still is pending approval of central Bank and <unk>.
And only after that.
We can.
We can give a better answer regarding how it's going to be more doubtless XP <unk>.
Together before that.
We will have to wait.
Okay guys. Thank you very much. Thank you Maya same amount.
You might have.
Our last question is from Carlos from HSBC.
Hi, Thank you for taking.
Thank you for that question.
Two brief questions.
The first one you said you were at the beginning of the journey, but you have been at it for.
Two years.
What have you learned what changes would you may compare to how you start these.
<unk> tied to your core business with the adjustments that you see.
You have made that you would have wanted to make to Europe .
To your strategy.
And just a quick one refers to the Ito acquisition that was completed or announced yesterday that the largest stake which is there.
Clearly an overhang for the market is there anything that you can do about that is take or to have a dialogue with you.
You could do with it thank you.
I can take the first one and you take the second part.
So Carlos the way I see it is.
Yeah.
<unk> has always been on the edge of innovation. Okay. So we started as the education company.
<unk> mono product only average clients one brought in equities.
And you can imagine what happened in 2008, so we have like <unk> maintained ourselves.
Then we built the first.
Open platform for investments in Brazil like.
Our investment shopping in Brazil, as you guys know very well.
It was the first one in Brazil.
10 years ago, and we have been operating since then we have like helped to develop the the capital markets in Brazil in many products.
Asset management everything in Brazil, So we have been over <unk> for 20 years. Okay. Now, we're like going through new verge calls.
You already mentioned many times and that's that's our G&A, how how do we keep innovating how we keep <unk> the markets in Brazil, something that I always say here internally for example, it's not in the numbers that we show, it's nowhere, but how do we deserve.
The credit market in Brazil, how do we do that we don't know yet, but we're having smart people working on that and you find a way to develop the capital markets in Brazil, because if we manage the cap the credit market in Brazil, It's all on the balance sheets of the banks.
If it happened that changed.
20 years in the last 10 years back in the U S <unk> market Okay.
So I believe we have many many room like true keep innovating to keep disrupting some some business lines insurance and grabbing and so on.
And if you ask me.
What like where does mean for the future how we keep our culture, how we attract the best talent for the future because it's all about ourselves if we keep our culture. If we are able to keep the best people working for us in Brazil, I am sure that we are going to.
Drug amazing things in the future and have Leica amazing results in growth for the future. So.
For our meat saw about people culture and management, okay, so that that day.
But we like June towards the year.
And regarding the question.
What's something already.
Back in 2017.
Mostly of the transaction.
General plastic, but also including next few control in general.
And yes, we have we start there.
Our conversations not only with <unk>, but he sells as well.
To see how <unk> can participate in many block.
I want to.
Come to the market, we have interest to participate.
We don't have specifically formats and how to do it yet.
And of course, we need them to want to sell them.
<unk> shares so.
But we're going to keep talking to them for sure.
Okay.
Because that is new in the past you have not expressed an interest in buying back to let's take but it seems to me that at these prices would be willing to contemplate buying perhaps if I could.
Yes, we are talking to them is as I said.
We don't have any fee agreed.
Agreed and how to participate in those potential blocks that might come to the market.
But yes, we would like to participate if possible.
But thats just the beginning those conversations.
So, particularly thank you so much.
Thank you.
Thank you.
In Brazil.
Perhaps it was the last one.
Actually.
Yeah.
Okay.
I now pass the word to move first for closing remarks, and then Marcia and then again.
Alright.
Just would like to thank you all for HLA and the interest in hearing our 10th quarter.
It's a long journey, how will repeat myself in on a quarterly basis, we have up to now.
And.
I hope that.
The next quarters.
We're going to keep growing and show you.
How resilient and consistent our business model is.
Muffin with Humana.
Just just to finish into action.
Brian just said is as I always say and XD.
<unk> life.
We love what we're doing we love what <unk> and we always like to mention that we are building something for the next 10 2030 years. We are not here for the next two or three years, we are not like as the actions. We are owners of the company uses our life.
We always say that most of our more like each X b shares. So we are mark will meet in the manner and we are very excited about.
The other three quarters that we have had for the year because as we mentioned we start to see a very.
Very good numbers for four for the year. So we feel very excited and very committed to the goals that we.
With your spouse last year. So for this year. So we're still very excited and we are still very committed for for the next 10 years. Okay. So that's all.
Thank you thank.
Thank you everyone have a good night. Thank you.
Hi.
Yeah.
Okay.