Q2 2022 XP Inc Earnings Call
Okay.
I'm the head of Investor Relations and I'm joined here today by our CEO , Chuck Mascara, and our CFO Bruno Constantino as well.
The Investor Relations team Martina.
Martina and Antonio I.
I hope everyone is safe.
And well.
The materials from these results are already on the Investor Relations website, you can find the SEC filings of Expedia, Inc. And the definition of forward looking statements and forward looking statements of this call can differ from actual results.
It's important to highlight as well that this call is being translated to Portuguese. So you can use your.
You can use the tool in June to change <unk>.
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We'll take is thats, just going back to <unk> for voters ophthalmic zoom for our broker dealer.
And also important to highlight that for any questions at the end of the session. You can raise your hand, and we will call you on a first in first served.
Basis, I can see that we have already.
Seven raised pan here. So thank you for participating already.
Now I'll move to Bruno to kick off our our earnings call hybrid.
Thanks Anthony.
Hi, Mark.
And.
Hybrid.
Sure.
Okay.
Good evening.
Okay.
Okay.
No.
He.
Okay.
Campbell.
Liberals.
Yeah.
We are still a little hangover here from the experts that we had last week.
So let's go for the video and then I come back.
Realism.
Okay.
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Okay.
Okay.
Okay.
Okay.
Yes.
Great.
Sure.
Okay.
Okay.
I'm going to as always.
Interest rates are very productive.
Can you just say how glad I am to be here.
This is a really important.
Ed.
I think what you do at X P.
Is very very important.
Okay.
Okay.
Sure.
Okay.
Sure.
Sure.
Okay.
Okay.
This is my first time, Tim Brazil.
And I am here because of this incredibly amazing company.
Investment.
I really do think is really.
About the future.
Sure.
Okay.
Okay.
Yes.
Okay.
Okay.
<unk>.
Okay.
Okay.
Okay.
Okay.
It is taking a little hit the Mr mobility related to available with this is my first expert very glad to be here and I hope it won't be the last.
Okay.
Yes.
Thanks.
<unk>.
Okay.
Okay.
Yes.
Now I hope you like the media.
We have Ed.
Youre still recovery from expert.
Three very intense days.
Yeah.
And.
<unk>.
But sport all the personnel that really made it happen it seems easy, but it's not people are already working on the 2023 expert event. So it takes a long time to plan everything.
And it was really amazing after three years without it.
In PRASM.
Event, we did in 2020 virtual only virtual and also in 2010, you because of the go deep and finally this year we came back.
So it was really really great.
As Mark automation during the expert.
These one.
Was special because.
As you.
You already know in our in our numbers and everything that we have disclosed in terms of the growth in our head counts in.
A lot of new initiatives that we have been investing.
We ask expert.
How many people to raise their hands that what they are first contact with the expert only internal employees.
And more than 60%.
They are for the first time in an example like that.
The energy was really just sharing that before.
We go to the presentation.
So on the App.
I don't know.
Let's move weekly here.
The first the main highlights.
I don't know if I have a lagging effect.
Okay.
We have selected five <unk>.
Main points here the first one.
<unk>.
Business model resilience not new here, we have been repeating that.
Every quarter.
We are in that.
Macro environment.
We have a bear markets and that has an impact in the investment business, especially.
But despite these tough macro environment, we were able to still deliver our.
All time high and record quarterly revenues three 6 billion in the second quarter this year.
Also an all time high retail revenues, a growth of 15% quarter over quarter I'm going to talk more about that.
Why.
Number two.
We've been diversifying our revenue stream.
Last year December we highlighted the new verticals to give more disclosure about those new verticals that are in very early stage.
And they do not get the same impact of the macro environment as investments and by the new verticals I mean.
The credit card.
Granted.
The retirement funds and insurance.
And those new words coast added together.
They grew 113% year over year, very strong growth quarter over quarter.
Also a strong growth of 7%.
The cost discipline.
And it's our printers we are.
Paranoid about keeping our costs under control.
We've been investing a lot.
As a nation.
You highlighted here the first two masters each year first waterflood second water, we have approximately $500 million.
<unk> invested in what we call early stage initiatives and by early stage initiative.
We mean.
Banking from scratch.
Direct international investment platform and also we built from scratch.
At this stage, our digital asset platform.
I'll talk more about it also built from scratch and being Chernow advisors investment as we believe there is a huge opportunity to together with the <unk> plus internal advisors.
To keep growing in disrupting the concentration in the investment and financial.
The landscape in Brazil.
We've been doing all of these investments.
And we get here.
Upfront and the revenue is not there yet, but even considering that everything is expensed upfront.
<unk> kept our margins.
In a very healthy.
Numbers, adjusted EBITDA margin above, 35% and adjusted net margin even.
Above the top range of 32014, 30%, so above 30% and we expect to keep like that going forward.
Four.
This second quarter, we have delivered a lot of.
New products, we are very proud of it.
And of course, those products, we need to keep evolving and getting better getting the feedback from our clients, but we delivered the depth guard.
<unk> Bank accounts.
The direct international investment platform and the creep told the exchange.
Digital asset platform and finally, we got rewarded as the most innovative financial service company by vote economic we are very proud of that.
We know we have Bob Concord anything yet, we still have a lot to accomplish but it is always good to get these type of recognition.
Moving to the next slide.
I'm going to just recent developments I'm going to talk about the direct investment internationally investment platform and ex stage only those cheap here. We believe this can be the beginning of our.
Internationalization of our business, we're going to start as always from the Logan fruit, so taking our Brazilian clients that want to invest outside Brazil.
And the experience is something that we really care about and.
And here.
For those that are XP client, you're going to see that is frictionless and why is that because everything is already embedded in the app that you use it.
To use.
With two clicks.
Clicks you can open your account you can move your money do your FX transaction and then you are ready to buy.
<unk> hundred 10000 equities in the U S ETF <unk> reach et cetera.
We are still there.
At this stage, so we're going to move forward with mutual funds bonds banking service and much more but.
The products Ray so it's something that we are really.
Optimistic about when we look for the following years to come.
And at this stage, it's another venture that we started from scratch, we did a lot of survey with our clients.
59% of our clients already invest in presale assets.
58% they invest directly.
And when we ask at those clients that have premarital assets.
Most 90% of them told us that they would have the intention to invest through XP.
So that's the reason we decided to move forward with these venture, but it's important to mention that this is just the beginning we start with <unk>.
Bitcoin and ethereum, but when we think about ex stage is much more than that.
Digital asset platform.
That starts with a.
Very powerful technology behind we have NASDAQ as the service provider. We did a lot of research we used our previous experience through <unk> to choose what we believe to be the best solution in terms of scalability for X stage.
As we scale the business, we are ready in terms of latency in terms of velocity and everything that needs to provide a very good <unk>.
Two.
Help our clients navigate through these <unk> asset classes.
Now we can move directly to the Kpis. The Kpis you havent seen already so I'm going to focus on the financials I mentioned already three 6 billion in gross revenue drives profit 2.5.
5 billion, we've kept our gross margin.
At a very high level.
In the second quarter as we had already in the first quarter first quarter was $771 five second quarter Stephanie.
2% gross margin basically the main reason mix of products more fixed income.
Yes.
It has an impact in terms of commission.
It helps that drives margin.
When we look at our adjusted EBITDA $1 2 billion.
2% decrease year over a year and a 1% increase.
In the adjusted net income more than 1 billion and I'm going to talk about the adjusted EBITDA and the adjusted net income, but the main impact there is because of the new the early stage initiative that we have been investing a lot.
As I said, we expense the whole thing and the revenue is not there yet so there is an impact.
We.
Always.
Investing to have the growth in the future.
With sustainability in our perpetuity.
And we expect those businesses to scale as we move forward, but the highlight here is the margins they are at very healthy.
Despite all of those investments, which shows the resilience of the disease.
Now we can move to the next slide total revenues, 13% growth year over year.
<unk> in the first quarter when we look at the first half of this year.
15% growth.
In the first semester of 2022 compared to 2021.
Let me pause here just to mention a few highlights that I think it's worth.
Sharing.
When we think about the.
<unk> mix and the difference between a bear market to the bull market and of course, there is a difference we have said that too. Many investors that you should not expect the growth of XP to be the same in the bear market compared to the bull markets.
What happens in terms of product mix in a bull market.
We have.
Equities and futures.
Going up we have.
Capital market activity going up we have listed funds secondary trading in the halls of listed funds we.
Going up they are all connected and related.
When we have a bear market all those three together.
Get hit.
On the other hand 16.
Floating and the interest on our adjusted gross cash they benefit from the bear market because of higher.
Interest rates.
When I look at the mix the product mix.
Just to give you.
Some numbers here.
Equities.
Capital markets in listed funds altogether as a percentage.
Of our total revenue in the first semester last year.
It's close to 35% of total revenue so very important revenue stream.
When we move to 2022 in a bear market.
All of those components of our revenue they represented less than 22% of our total revenue so a big hit.
When we add all of them together.
The decrease year over year.
Close to 30%.
So it says if.
The main revenue lines in terms of products.
He by 30% year over year because of the macro environment any steel we delivered.
Our all time high drives revenue in this quarter that's why.
We have that first highlight it as the business model resilience because that's what we believe <unk> is considering the ecosystem we have built.
On the other hand when.
When we look at fixed income floating.
And the remuneration over our adjusted Ross cash and we add all of that together.
In the first semester last year.
Market.
They represented less than 20% of the total revenue.
In the first semester this year they represented together more than 30%.
So this is just to give you the magnitude of the shifts that we have in terms of the product mix.
The top line. The total is what you see.
In our in our numbers.
On the right side of the slide we have the breakdown.
And of course retail keeps being the most relevant.
Segments in our business.
But I'm going to talk about institution is one in a while.
It's still growing at a very health based.
As well.
So going to the retail rates.
All time high we had.
In the first quarter of this year, we had a lot of questions from investors about the take rates of the first quarter.
When you annualize that take rates it was 115 in the first quarter.
And we mentioned that we had a very weak start of the year that March was already a better month in terms of take rates for retail business.
And we didn't know what the second quarter would be.
Expected to be better than the first quarter in terms of the take rate and the take rate in the second quarter 1.3.
<unk> three <unk>.
So much better than the one point.
15 <unk>.
<unk> the way I like to look at the take rate.
Is the last 12 months and why is that because the big rates not only a function of the rent the retail revenue. It's always also a function of the denominator. The AUC the average AC and millennia you look at the last 12 months you have five data points in the denominator.
That makes softer in terms of changed quarter over quarter.
So here we have.
The take rates in the last 12 months you can see that there is volatility, but it's really small volatility.
Over quarters, despite the macro environment. So we had 131 32 and 127% in this quarter, a little bit better than the first quarter, which was 120.
2006.
Moving to.
The adjusted EBITDA before we'd go to jail adjusted EBITDA Len just mentioned the institutional I think its own.
The annex of the presentation, but institutional revenue.
Oh, there we go thank you.
Additional revenue.
436 was really strong.
16%.
Year over year growth in <unk>.
2021, the second quarter was the best quarter for institutional revenue was 375 million Thats the highest quarter, we had last year for our institutional revenue.
So a very strong pace of growth.
But.
Lower than the first quarter as we have already anticipated because we had.
Various punishing volume in terms of the derivative demand because of the war in February in our institutional desks.
Now.
And also using issuer services related and it's not 100% of the investment bank and revenue. There is parts of it that goes into retail institutional by distribution channels fees, but.
It's a proxy and as you can see.
There is a strong recovery.
Compared to the first quarter as expected first quarter was really weak in terms of capital markets activity second quarter much better, but when we look at 2021 it's still a drag in terms of capital market activity.
Going back to the adjusted EBITDA and adjusted net income.
<unk>.
Here the main I mean in fact as I mentioned.
Is the early stage initiatives.
We have.
We could have done Inorganically for example, the international direct international.
Investments for retail clients or.
Additional asset platform, we could have.
Done.
On M&A, we decided to do.
Organically, we think it's much better.
In terms of costs.
Much less money.
But we need to recognize all of the expenses upfront, we expect those businesses to scale over time.
And we know this is an issue because of the.
Reduction in in the margins and that's why we decided to highlight here. So you can have a sense of how much we have been investing for our.
Growth in perpetuity.
And the impact that those investments they have our margins in the first semester 500, approximately $500 million cash.
And the revenue.
At very very early stage and.
And we expect as I said to see the revenue growing.
From in the following years.
And I think with that.
This bump here and let's go directly to the Q&A.
So we can answer all doubts and questions you might have thank you very much.
And before we.
We go to the Q&A I didn't mention that but we would love to have.
Our investors and all of you in.
In.
Our act or.
Our next year.
Because it's a revamped that I believe it's worth its the largest investments.
Events in the World. We are very proud of that when I remember what used to be when I joined XP more than 10 years ago, It's really.
Huge events would be an honor to have all of us.
Visits in Brazil next year, our dividend, we're going to send invitations when the time comes.
So youre going to youre going to be at the one responsible for the Q&A rights and yes, very wealthy and forced anything but COVID-19 patients as well next year.
Yes.
Thank you Bruno so.
As I said, we will be we will be answering your questions on our first.
However, our raised their hands first just I know thats, a hard month fell off but he was I guess number five years. So we will start with Andrew from Morgan Stanley and I kindly ask you to.
Limit to one question. So we can read we can be productive and everyone can ask their questions. So again, thank you very much more.
The interest and all.
Andrew Engineers.
Hi, it's hard equity from ISI hi, everyone.
I'm, sorry, there's a different tack here.
Thanks for taking my question and congrats on the numbers I guess I wanted to.
See if you could share with us how the business is tracking in July and so far the first day of work.
How much of that normalization in inflows.
Youll see.
And.
Take rates that we saw for the full quarter, especially versus what was the beginning of the year.
Got it.
Jean <unk>.
So alright.
Ill.
And then bill.
Okay.
Back to.
Paul.
Sure.
There is.
Okay.
This.
Okay.
Thank you okay.
Look if we if I had to answer for example, the first quarter. This year based on January it would be a disaster and then we had because January was really weak and we had.
A better March much better March.
<unk>.
What the 10 billion per month.
Net new money second quarter.
We saw.
Very positive trend.
We have the $14 3 billion net new money.
For months third water.
Wait for the end of the water what I can tell you we have the soft guidance of 10 to 15 billion I wouldn't change that and the reason is.
Thank you.
This business investment, it's not on a quarterly basis right you need to keep convincing the clients.
To come and test our platform and when they do we do.
Look them and then they become more clients for the long term and they keep bringing more months, that's what our cohorts shown.
Those that are our clients already.
We have these strategy.
To go beyond investments to get the other 50% of the share of wallet that we still don't have right and we just launched the digital bank.
Accounts and all those investments that we've been doing so this thing it will.
Pick up in the future.
We believe.
But it takes time, so until we get there.
215 billion per month of net new mine with a reasonable soft guidance considering that we do not have the tailwind that we had in the bull market.
Equities and people wanting to trade.
New individuals opening accounts at the stock exchange, that's not happening anymore and despite all of that you saw the numbers of the second quarter.
So I will not give you the guidance of the third quarter, because we do not do that so I would say between 10 to 15 million I know.
A huge spread line, 6%, but it's because we do not we do not know when we can have a very strong month are less strong.
So it's hard to sell.
Alright, Thanks Robert.
Take rate to any any commentary on the take rate on yeah, I do sorry, I forgot the take rate question.
The take rate the only the only thing that I would mention is.
We did have a very good take rate at least the way I see it in the second quarter to one 3% that I'm talking about now the way.
Emily.
Look at the results not the way I look at I respect that the annualized.
A quarterly peak.
<unk>.
Right.
So for the one 3%.
Yeah.
First one.
I expect.
So performance fees.
For the funds distributed for retail clients it goes into retail revenue.
And it has a positive.
In fact on that then if we take that out.
Roughly.
I can be wrong and that was roughly speaking here, we're talking about the take rates of 124 around around 125, So we're talking about.
Five to seven basis points of take rate in terms of performance fees.
That was very clear thanks, a lot and congrats again.
Thank you.
Thank you Jorge and nice to hear from you.
Okay, Jeff Jeff from our funnels as the next in line.
Hi, Jeff.
Hi can you hear me okay.
Yes.
Okay great.
Alright, thank you.
You've spoken in the past about your desire to speak to identify new investors, who potentially could multi hub.
Some of this overhang may be somebody strategic come in.
Take a stake.
Can you give us any updates on how much progress you have been able to meet that.
Okay.
Well.
Yeah.
Let me answer this way.
I know they have their results today as well I couldn't hear.
So I don't know what they specifically set about that because usually investors ask them, what you're going to do with their XP shares.
Yes.
They said they are not in a rush to sell the shares.
Have a price target so.
Yes, I mean, it's their decision.
One eight.
What I can tell you based on <unk>.
Talks that we have.
Investors.
Generally speaking is there is demand it is not a problem of demand okay.
Some investors have already talked directly to <unk>.
Our position here is two.
To tell you when we have done that Luke.
If you want to sell we are here to help.
To do it in a very organized way and by the way.
We also.
<unk>.
We have done that.
As you know we have a share buyback program.
In in progress.
For class a shares the least in shares but Ito.
They also have class b shares not least of shares that we can buy on top.
The share buyback plan and Thats exactly what.
We did in.
In June .
This year.
What's a bit.
Middle class shares.
When they decided to sell a small parts of their stake to go below the 10% total capital NXP. So they didn't.
Get the impact in your Basel ratio.
And we.
We are ready to buy more shares if they want to sell we only can buy class b shares outside the share buyback program from other investors.
I am pretty confident that.
It's not a demand problem, but.
We have to rely on it I would think so.
It's their shifts not ours.
Fortunately.
Thank you.
Okay.
Thank you Jeff.
Okay.
Okay next is Mr above route.
From Bradesco.
High end smartphone Bruno.
Hello.
My question I have a real quick one.
Little bundling to me to see EBITDA margins compressing.
Warner given that.
Everything that you mention about operating leverage and cost discipline. So I understand that you are ramping up some of the products that are expected to mature in the coming quarter.
But because it just gives us a little background what requirements are.
A high level of investments or what are your plans for design in the coming quarters. When we expect this to Joe actually reap the benefits updated operating leverage thanks.
Yes, sure I will I'll start here and Mark feel free to join me.
If you're feeling.
Tanya.
I mention about the organic or inorganic inorganic this season for example.
They they acquired Avenue right.
It's our direct international investment we built from scratch.
Everything that we'd need to book in the App.
The transaction for our appliance from scratch everything.
We improved our cost and expense.
For example, ex stage same thing.
I don't know we could have tried to buy.
Yeah.
<unk> for example.
We built from scratch.
The costs and it goes in our P&L and despite all of that.
We kept our margins at a very healthy pace and we believe those new businesses early initiatives, they will pay off more than pay off and they also give us optionality for our <unk> growth. We are always thinking about innovation in perpetuity always and we need to plant the seeds at some point in time.
And that's exactly what we've been doing in terms of the $500 million.
In the first mastered that our nation.
We we have two main impacts in the short term okay.
Cards banking and cards.
Specifically guards in the Cogs, because we have the vast back so as.
You know you have analyzed new bank and other players in the market as you keep growing.
Your number of cards and the growth of revenue on cards, you have a lot of expenses.
Uploaded.
Ryan <unk>.
Florida that are set.
And that's exactly what's happening you saw our TPG in this quarter of $5 5 billion has grown a lot quarter over quarter, because we have a small market share we have a lot to cross selling internally. So this will keep growing.
And the costs go.
So again, when we look at the cohorts.
More than pays off but we expect to keep growing we do not have for example.
The credit card at the REIT vehicle brands, we intend to have it.
It's going to be an investment and it's going to be.
Our P&L.
Internal advisors same theme.
We are growing our face as you saw the number and internal advisors and why is that because there is more than 50000 bank managers in Brazil. We believe there is a window of opportunity for us to grow in this business and we believe it's a human business.
Advisory business.
In the next three years three to four years, and we want to accelerate that when our IFC.
Higher new IFA. It does not go into our P&L straightforward only when the revenue comes through commissions, but when we hired our internal advisors. It goes upfront and then as these adviser.
As the coastal in the portfolio of declines and start to build that.
It's more of a it will pay off breakeven less than 15 months.
So it's an investment that goes through the P&L and brings the margin down and we have been investing a lot in all of that and we're going to keep investing.
Because.
Evening.
We need.
New.
Okay.
Okay.
Neutral.
Sure.
Sure. Let me give you one data point. So you can you can follow.
Rationale here.
Year over year.
We.
We have grown our headcount base by more than 40% second quarter last year to second quarter. This year.
When we look at our.
Personnel.
Expenses are people.
Bonus altogether.
They represented.
In the second semester last year.
24% of our net revenues close to 25% of our net writings.
In the first semester. This year you have these statistical effect because.
Yeah.
We had.
Yes.
Let them 4500.
People.
In June 2021, and we ended this quarter with more than 6300 people in our company.
And our personnel plus bonus expense is below 25% of our net revenues.
So our cost we are paranoid about that but of course, there is going to grow we're hiring a lot of people. We are building new businesses and the revenue is not there yet, but despite all of that we believe.
Profitability of the business.
Is healthy which give us the conference because we are very conservative for certain decisions we are aggressive in.
Some and conservative in others.
We do not have the crystal ball here, we do not know what's going to happen inflation all over the world with global recession. So the macro environment that we do not control.
We need to be prepared for doors.
But we are not going to have a short term view.
The clear strategy that we believe it makes sense for NXP in the long run and the time is now because we see this window of opportunity, we're going to invest and that's what.
Okay.
Okay.
Yeah.
Okay.
Okay.
Sure.
Hmm.
Well.
Oh.
Favre.
Sure.
Term.
Hmm.
Could be.
And there are many investments that we have been doing during the year and we will keep investing because as Brent mentioned the payback is very short in some business there like 12 months in some other 24 months, so we would be.
Invest in part for the whole year here.
We are not accelerating more because we need to find for example, the advisory business, either IFA, where internally you need to find the right advisor train et cetera.
We had the certainty that we have found the right worms and would double we wouldnt do it with.
But it takes time, but we're going to keep investing.
Okay.
Quickly.
Thank you Flavio.
Okay.
Moving to <unk>.
Due to a banker from Goldman Sachs Hi, Tito.
Hi, good evening, Thanks, Andreas Hey, Bruno.
To see if Peter.
Okay.
My question following up a little bit and I'll talk to you a question on margins, but digging a little bit more.
So the expenses, which spiked a lot I know you talked about personnel expenses you have a lot more people than you did last year.
Can you give some color in terms of hiring.
The hiring needs going forward I think you had mentioned you would expect that to slow down a bit.
8000 people by end of the year any color you can provide on that the other expense that increased a lot. It was also a data processing up like 60% compared to last year is that related to the investments in the apps or just some color on that to help us think about it.
I guess forecasting model.
Some of them. Some of these expenses from here just given there was a big spike in SG&A in the quarter.
Yes sure.
Zero data processing. There is also related to the Gulf of head counts the license et cetera.
And but there is also one component that.
In terms of accounting measures.
There is some parts of it that was depreciation and became.
SG&A instead.
Net of depreciation was in the lines. So when you look at the EBITDA.
That was a catch.
<unk>, then amortize and outage expense through the time of the contracts that we that we have but we can we can.
Discuss that offline in details with you later.
Look.
The number of head counts in the second quarter, it was a little bit more than 300 personnel and in the.
The first quarter.
<unk>.
<unk>.
A little bit.
December was a little bit less than 200.
Personnel, so the growth of personnel.
Head count had headcounts in 2020 two.
It has not been that significant right.
The growth happen, mostly in the second semester last year.
We started all of those new initiatives the digital.
Direct investment platform in the U S. The X stage October September last year, we hired personnel along.
To move forward.
The base of what we have.
I would not expect the head count growing our lines.
We can grow but it's going to be.
Single digit right what can change that is internal advisors as a nation.
We are we think there is a window of opportunity in the next three to four years.
And we believe investment is a business of advisory service.
So IFC and internal advisors, we want to keep growing it.
It's much more a matter of finding the right personnel to join us in this journey than anything else.
So if we do not fine.
We are going to and we are very data driven right.
So for example, we were hiring and then we follow up the data and then we said look the strategy of hiring these type of.
Personnel.
It's not the best one let's go back there and accelerate.
France, we have DXP future as you know.
Education is in our DNA. So we have built a lot of tools to help the advisor even those that are not from the financial world.
To be successful in the financial World.
Those that have a commercials.
Bill.
So we've been doing a lot there the growth of personnel.
They're going to do.
Finding like what do you think there.
We could grow a lot there.
Yes.
No you didn't answer your question.
Got it.
I can.
You bet David.
They've had three but it's like it's like.
Central Bank and stream questions about inflation that is data dependent.
That's right.
Yes, I missed it but that's some helpful color. Thanks, just one quick follow up just on the bonus because you mentioned I guess it gets paid in <unk> and <unk>. If I look at it looks like there was a jump last year in Q2, but I don't see as big of a jump in <unk> is that we should expect kind of similar level in <unk> in terms of bonus yeah look look.
The bonus in as a percentage of net revenue look at SD Master base. That's my advice is better generally on a quarterly basis.
And when you look at the first semester.
This year it was 13, 4% of net revenue.
Second semester last year was 15% even higher.
Of net revenue and first.
She master last year was $13 seven a little bit higher compared.
Compared to on a percentage basis compared to the first semester.
This year.
They are a part of the bonus that they depend there more objective they depend on performance fees that you've been on institutional desks.
And then only.
In December we will know right because it's the the whole year.
And but.
But I would I would expect to keep.
Keep close to those percentage.
Percentage of net revenue on a semester basis.
Okay. That's clear thanks, Thanks Brent.
Sure.
And you don't have a good one.
Our next as travel, but she still from UBS.
When you travel.
Yes, hi, guys.
Thanks for that.
You hear me, yes, yes.
Yeah. My question is about our excess capital or excess cash of XT.
I'm trying to figure out how awesome flight east XP Nowadays.
The company has presented an let's say an EBITDA or earnings of 1 billion per quarter.
It's tough for us to really see these excess cash or capital.
So in your view the company has this excess capital or in a different way.
Uh huh.
<unk> enough to offset slight company or Oh, this cash consumption that we're seeing in <unk> is more a temporary event because all the investments that you've already mentioned in Brazil and in the future. We will see the company again and being a kind of a slight company or no the new business or changed it.
The company and XP should it become more.
Hey.
Clermont more capital so how old.
You guys are seeing.
This capped off a cookie.
Oh I start let me start answering new job with that so yeah. We believe that we are an asset light business.
Keep like that.
We do have some capital requirements, especially because of the credit card business.
The credit business, we can mitigate a lot of capital because most of it is collateralized.
But mainly.
We use our cash flow and we do generate a lot of cash every month.
We use our cash flow.
For our market, making activity, that's where most of the cash goals.
So the market, making activity is something that.
In the future.
The Brazilian capital markets keep developing.
It should require less capital from our warehouses. It works like a warehouses buying and selling in the secondary markets are there are some products that.
These works much more like a brokerage fee, but the nature of the product requires a spread.
<unk> and <unk> cell like fixed income for example.
<unk>.
But that's where most of the capital Google's, okay, but when we look at our adjusted draws cash we have close to $10 billion.
Of adjusted gross cash, but these cash.
Is.
<unk> been using mostly for market making activity.
Our in our boots in the best in the recent past.
We have used a lot of cash.
For two main.
Lines I would say number one.
Isa's.
As you.
Since joining <unk> when we had.
Huge attacking our IFA network and we.
We invested two.
Have the long term contracts with our <unk>.
And you can say can look at that in our prepaid expenses close to 4 billion.
Yes.
And M&A is mostly with.
Minority Stakes in.
Assets asset managers and <unk>.
Some funds that we have seen all of that to get this close to 2 billion in total.
We're talking about 6 billion.
Roughly speaking, we do not foresee.
Anything close to these amounts in the future right and we have done that with our own cash generation. So that's that's for me approve of how asset light we are in that sense.
But to answer your question about the capital return, yes, the new initiatives Wendy matured.
They will return to capital.
Capital markets activity, when the Brazilian capital markets develops.
It's going to need less capital from us.
We are going to be able to return the capital and in the credit.
Base.
We want to grow in this business, but not using our balance sheet of course, we are going to have to use something.
Of our balance sheet as of warehoused, and recycle and securitize and have a good product to distribute for independent asset managers using our ecosystem, we want to disrupt the credit business through.
The asset management business and not through our own balance sheet.
And it's something.
In our view similar to what the hedge fund industry has been in the United States to the banks in the United States. We believe there is.
<unk> situation here for the Brazilian capital markets.
Sure.
Rising investments for individuals and for our ecosystem to grow and penetrate in the credit world. So, yes, we're going to keep being the Nash supply.
Business model.
Yeah.
Brandon Thanks for the answer.
Thank you Chad we will have a good one.
Hum.
So I'll pass the word here towards onto Hofmann from BTG Pactual because he was first in line and then do you fell off the call.
Hoffman can hear us.
Yes, Yes can you hear me, yes, yes heiko.
Hi, Hi, Bruno Hi, Mara and Andre so.
My question is a follow up on Chog was one I think it's a it's an important theme because it's X P. You have been growing earnings quite fast over the last few years, but when we look to our ROE and ROA.
<unk> been trending down right. So.
I know that you recently, if I'm not mistaken do raised also $1 8 billion Reais in debentures to run day to day operations. So.
I'm just trying to understand here is.
ROE and ROA. If this is a metric that you follow internally.
Or not because I know, you'll talk about net margin and EBITDA margin, but like I'm just trying to understand here. If you have any sort of a long term Roe or just trying to understand here.
What could be an opioid returns longer term. Thanks.
Sure sure Rozman yeah, yeah.
<unk>.
We do follow all the metric as Ross, who perhaps one of the metrics.
We followed but basically what he mentioned about the ROA or Roe.
Decreasing.
It's more in our view more.
A consequence of the microenvironment and anything else, we do not look our credit portfolio, it's not big.
$12 9 billion.
In the second quarter was nothing in the past, we the best way at least for me that I like to think about.
We know we have answered in the banking world with our own bank, but the reason we have a bank is different than.
Our competitors the incumbent banks right, we have a bank now.
Because we realized we need to go beyond investments to serve our clients and by that digital bank account other products other services and you need a bank license for them. So we are an investment platform that acquired a bank. If you look at our.
Organizational charge is the only one in Brazil that has a broker dealer.
With 100% subsidiary that is a bank.
As we speak today all of the other players in the market. They are the opposite way around so the leverage of the bank is something that we do not use.
At full speed as we speak right right now okay because of this logical sequence that.
As to half.
Our bank debt impact in return on equity and et cetera has much more to do in my view.
Yes.
The macro environment, we lost.
Billions of revenues year over year because of the macro environment. If you look at equities and futures for example used to be our mainline I mention the mix.
Of equities and futures plus capital markets players need to fund.
To be more than one third.
Of our total revenue now is close to 20%.
That's all up going down and that's not market share being launched on the contrary.
You have <unk>.
60%.
Our market share in equities and features in the secondary market in Brazil macro impact of course that hits the operating leverage of the business, we more than compensated that with other business, new verticals et cetera fixed income floating.
And so on.
But for example credit card has a lower margin because of the investment. So it's a mix of portfolio mix that has an impact plus the $500 million.
That I mentioned, so when the macro environments different I expect.
The metrics that you mentioned.
<unk> scaled back.
The way I see.
Okay. Thanks Alberto.
Sure.
Thank you Hoffmann.
Next is credit Suisse Hello.
Well, Oh, Oh, there's a kid so debate with sort of the main Bruno Chagal hotel in Chicago.
People say as a part of it but it was a dog.
Uh huh.
A follow up on <unk> now.
Now that I've, just shown you kasha shakes out to about but it won't be Ethernet, though the chalk with how many of those are all of them.
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You may ask what those are key.
So could you not be be mail.
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Free cash flow conversion on that Jamie.
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Yeah.
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We've issued may two E. EIF face just solid state restrictions I startled quasi presents to me the only as Magid you high single does that mean noise not go up and tell us move us not you'll label could you call Bachelors update orders, but we'll say the sky there add up based on what <unk> put on.
Nah Ito Fabulous aimed towards are you normal so on Asia III.
You don't get it at a book you Yuval Cisco My Kid Microsystems to me, it's plug them into Jabil was cocoa butter Mark.
Our sustained darvill nice opportunity for there to be sure got keen on appropriately kasha.
Cohabitate premises when somebody got.
Okay.
And his point in Portuguese and English.
Our vote operating lease.
Order.
Thank you think about it.
No look in terms of the cash flow.
It's more than the 500 million per quarter, you've mentioned, it's close to the.
<unk> adjusted EBITDA.
If we do not have M&A as in.
Incentives are for the IFA.
As you mentioned.
And we did have a small M&A in the second quarter, probably $100 million.
Roughly speaking and MBIA was less than the 300, <unk>, you've mentioned a little bit more than $200 million to $100 million, it's hard to forecast that that number going forward, we analyze case by case.
As we said in the past, we do have the benefit of.
Knowing very well <unk> phasing our network.
And we we decide based on.
The math that makes sense for our subs if it doesn't make sense, we're not going to spend money.
In the long term contract with <unk>, if it does make sense.
We are ready to do so.
And that's exactly what we've been doing we have done a lot already so that's why we do not expect.
The same states going forward nothing close to that but on a quarterly basis. You can have fluctuations last last quarter for example.
It was.
Close to nothing this quarter was a little bit higher than that too.
200 million heads.
The cash flow.
I remember now that I didn't answer the second question on horizon above the $1 8 billion debentures. So it has helped.
Just going back.
<unk> this is.
Something we want to leave them open relationship with the local bond markets and in May we repaid the last month, we have 800 million of bonds issued by our.
Holding company in Brazil.
And then 800 in the past disclosed 232 4 billion nowadays considering the size of NXP and we did $1 8 million.
Thats not much considering the size of the relationship we had a very strong demand for debt issuance in the market close to 3 billion has.
We were going to do one five and we decided to have more idle cash considering the scenario as I said, we are aggressive for some things conservative.
For others in a bear market, we like to have more cash than we need.
Now going back probably two.
To your question looking forward.
I I would expect something close to the adjusted EBITDA.
So the $1 2 billion per quarter.
When we have there is a volatility and when we pay bonus we paid on a semester basis. So there is a drag and the cash we're going to have that in August this month youre going to have in February next year.
But despite that basically the adjusted EBITDA.
Close to that as our cash conversion the working capital, it's really small in the second quarter.
We have it's more more than 100 million of working capital that is backed by performance fees, So, but it's really short term.
What's baked in July okay, but in June when you close to the balance sheet.
There is.
Our revenue record recognized in June from performance fees was close to 160 million has that.
It's paid.
In less than 30 days right.
So that's basically the main fluctuations that we have M&A.
<unk>.
Outside the P&L performance fees of payment of bonus on a semester basis.
The rest is pretty much.
Close to the adjusted EBITDA.
Thank you, thanks, but no. Thanks Thiago.
Alright I appreciate it thank you Travis.
Okay.
Okay.
Next question comes from <unk> from HSBC.
Hi, Neil.
Hi, I'm glad you cannot do that maturation is limited.
Mike I have two question.
So a quick ones first one relocated to the news that slipped a bit softer this quarter. So could you shed some light on that.
And the second question is on the tax rate, but actually it has been pretty volatile over the past few quarters. So how should we think about this in the coming quarters.
Give us some sense on how to forecast. Thank you Sharon.
I didn't hear well your first question.
Service revenues, the one chart right.
Alright that into revenues.
Yeah, Yeah, Yeah, I Wanna credits revenues on a quarterly basis is tough we have we have sometimes some.
Bigger.
One time transactions in terms of credit that you have like a fee upfront that game.
Create a distortion in the first quarter, we had something similar to that that made the first quarter like a typical the granted barred from youre going to keep growing but again.
Here our decision process is about the risk then too you know hips any targets what effort right.
We are owners of the company, we think for the long term. So if we are risk averse in terms of the credits and we do not want to grow the credit business we are not.
If we feel comfortable about it as you can see an hour.
NPL ratios.
Keep doing if we are comfortable about regarding the tax rate.
Is.
The way I like to think about the effective tax rate, that's the best way to look at it because remember.
Market, making activity that goes.
From specific funds it has a 15% to 20% tax bracket that is not recognized in our.
Financials.
The revenue goals net from that fact, but the tax does exist and we paid that back.
When we add that back.
We we have.
Attacks.
Effective.
Tax rates normalized of.
Close to 15% in the first semester this year that's slow.
We expect in the future to have higher effective tax rate.
But that talks to the <unk>.
Capital market activity as well right. When we have for example, a strong capital market activity most of the revenue.
It goes into the broker dealer level with a 40% tax bracket sedan, the effective tax rate goes up.
We do not have that we have more cost than revenue at the broker dealer level, we have to.
Tax benefits of the credits of the expenses at 40% and this lowers the effective tax rate so going forward I would expect as the capital market activity specifically.
<unk>.
The tax rate should increase compared to what we had in the first semester this year.
Point here is if if we have a G frame revenue means for the future as the capital markets comes back we will.
We'll have a higher tax rate, but we will have higher revenues in absolute numbers. So if youll see thats higher tax rates, you will see much higher revenues okay.
That's correct.
Oh.
I said at the beginning of the call that any steel with the hangover of expert right I forgot tallies.
On your previous question.
I forgot to mention the buyback we have been buying back shares as well so thats also.
Part of the cash flow that.
We have been doing and we've done more than.
We have been approximately one fourth a little bit more of one fourth of the whole buyback program, we have announced that kidney alright.
Sorry.
Move forward.
Thank you Neil.
Okay.
Okay.
Next.
Okay from Bank of America.
Hey, guys.
Good afternoon. Thank you for.
Taking my question.
Just two quick questions first one is a follow up on the revenue yield that you talked about on the retail revenue yield that you have about five to seven basis points benefit from performance fees.
Just.
Remind me how often that these performance fees recognized.
And if there were any performance fees one year ago.
And then the second question is related to the integration of Nadal.
Right if I can.
<unk> provided an update of the timeline.
When do you expect this transaction to close and no more doubt reported earnings last night.
Seems like the earnings are coming below what the market was expecting at the beginning of the year.
Was wondering also and I don't remember if the price that you're paying for more down that was fixed rate. I think you are issuing like 13 million shares.
But I was just wondering how you're seeing the performance of medallion. When do you think this transaction is going to close and any potential synergies from.
From the transaction.
Sure module.
About the.
The take rates and.
And the impact of the positive impact of performance fees on the take rates.
Last year, we did have.
Performance fees in the second quarter, but it was much lower than.
The 150 rough numbers.
We had this year I believe it was something around 50 million something like that.
I can follow up with the right number here and I am from anybody as close to that.
So usually performance fees.
We have strong numbers second quarter fourth quarter, those two quarters.
It depends on each fund we have as you know a lot of funds in our platform and ecosystem. We do have for example, we have a small part of performance fees in the first quarter, but really small because of certain funds, so second quarter and fourth quarter. That's what is.
Really relevant.
Ralph.
And.
The five to seven basis points, that's the impact in this quarter.
Of the takeaway per case on the take rate would be $1 23 to $1 25 without the performance fee, but they do exist.
And there could be even higher if the market.
A positive equity effect basically route to market funds.
Macro funds performing well.
<unk> got the performance piece.
Youre going to say something about that.
Okay.
About more down.
We expect to have the deal closed.
By the end of this year.
But we do not control the process.
We are still waiting on mainly too.
Two events Central bank approval and FCC approval because.
There is.
Equity.
Issuance that we're going to do to.
Merge more Dol or have more dollar is 100% subsidiary of.
X genes conglomerate.
The number of shares maximum is $19 5 million and Thats.
Is done right.
Regarding more adult performance.
Again, we have a lot of synergies there more dollars they do not have the diversification.
That we have in XP, so their business get hits.
Is stronger because of the macro environment.
<unk> like I don't know 10 years ago, if we were like 10 years ago.
Our numbers, we would not have had.
All time high retail revenue a record of our quarterly.
Revenue, we would not have.
That kind of results, but it doesn't change anything we believe it's a very accretive.
Acquisition, we know exactly what more dull does we do it internally as well.
We are thinking about the synergies, but we need to wait for your parts approved.
<unk> has approved already.
But the central Bank has to family as you know central Bank they had.
The strike this year that delayed a lot of the process, but they have resumed already.
No.
We will see.
We have mentioned in the past.
As you know we have done several acquisitions in the past.
And he's starting historically, what we have this <unk>.
30% to 50% synergies on SG&A and another 30 <unk> synergies on revenue. So that's the way to think and to model the <unk> model.
That's very helpful. Thank you.
Thank you Mike.
And <unk> module.
So.
Last but not least.
<unk> from JP Morgan good evening.
So.
Good evening guys. Thanks.
Also for the questions.
Circling back a little bit to the cash flow by chief They started several.
And this I guess are asking similar questions in a different way to add one more way to ask the same questions. So I will give us some sort of a base case rate, let's assume your assets under custody or AUC grows mid teens and.
And market activity doesn't accelerate a lot and buy that centers.
Im hoping you understand that basically your capital needs our cash needs don't grow a lot.
By when do you can you pay dividends and what kind of payout do you think you could have is that a 'twenty three 'twenty four.
To that like the beauty of being a technology enabled platform.
Other investors as being an asset light business model in that article compares there'll be three which based 90 plus percent. So this is a sort of Nino.
The message, we're trying to get here.
This cash starts.
Flowing back to investors. The second really quick one is we came out of the newspapers I guess Vela should speak.
Answer that.
Can you guys are doing.
Would it be on hold than you guys would it be searching for the florist backing in.
So my question is is that our cost savings that.
You guys give up on that or not and what studies.
Yeah.
So.
Your first question Louise.
To be honest.
We are.
Growth driven company right. So we are always thinking about.
The next innovation the next product.
And as we have.
A very low.
Market share.
New investment is a little bit higher but its still we are not number one.
Yes.
Despite being recognized as the best investment platform by clients and prospects getting the awards, but we are not number one in sight yet.
So our mindset for the short and mid term.
He has driven to conquer all of that.
Right and as we have been investing new initiatives.
Ian.
I don't have a number to say to you.
Neither a time horizon that we're going to have our cash returning and pay dividend because.
We have so much to do for example think about.
Going international.
As I mentioned direct.
<unk> investment for retail clients in the U S can be.
Small seem to really go international because we are start with equities were going to have.
Banking, there as well we're going to have other products.
And then we can think.
Beyond Brazil, and even in U S. Just to give you. One example, so these mindset.
It doesn't allow us to think about returning the money because we always want to do more to grow.
In perpetuity that's.
That's the mindset. So I don't have a number to tell you about.
Dividend payout etcetera.
Right now I don't know <unk> seasonal peak in your mind to add there.
About the second part of the question about Vela and and other floors.
Saudi anemia.
The way we.
Going backwards, it's not a cost decision. Okay. So it's not based on cost and.
At the beginning of the pandemic we have.
Had.
3500 employees and we used to have.
12 floors, if I'm not mistaken 12 13 Flores.
Between.
Jot that guy in <unk> anemia.
And now we have.
Four floors.
And we have more than doubled during the pandemic. So yes, we are looking for one or two floors.
At the same <unk>, because we have more than doubled during the dynamic and it's mostly for commercial people.
Investment banking asset management drive it and four grade basically commercial people.
And because we need these people they need to be close.
<unk>.
The customers are and they need to be based in Sao Paulo. So that's that's the reason, okay and above the Gila we had many problems.
Construction company license and so many other problems.
But that's it.
Thank you guys congrats on the quarter and good evening.
Thank you Denise.
Thank you Domingos.
Yes.
The last one so once again I would like to thank you so much for your interest in our call.
We are available for any follow ups as usual.
<unk> I think you could invite everyone again for next years event, just to finalize and think we're going to speak about that we are going to think about something.
Especially for our investors outside Brazil.
Make your trip to Brazil, worthwhile and we include expert.
In that agenda, so we would be more than honored and happy to receive all of you.
Our event next year, but thank you. Thank you a lot for the call and then.
Yes.
Thank you guys.
Okay.
Hi, everyone. Thank you bye bye.
Yes.