Q3 2022 XP Inc Earnings Call
Its main product classes I think this is the main.
Change in terms of disclosure that we're making from now on.
What are the <unk>.
Main product classes one equities.
Fixed income.
And three funds platform.
I hope that will help all of you understanding the dynamics of each business line, depending on what the macro environment is.
The second highlights.
Is about expenses.
We are still absorbing the impact of head count growth in 2021 as you know.
But we do believe that our ongoing transformation.
Should result in efficiency gains and better margins.
In 2023.
<unk>.
Our total SG&A is youre going to see already sure this quarter signs of stabilization.
I will talk more about that as well.
And.
Third the highlights.
We are discontinuing.
Adjusted net margin guidance.
And as of today, we introduce.
The next change of the adjusted net margin guidance.
Our new earnings before tax margin.
That will take into account.
The expenses related to share based compensation.
And finally, the last point is just an announcement.
That we have just released the 6K informing about the increase in our actual share buyback program.
Moving it from a total of 1 billion BRL, two 2 billion BRL and keeping the same timeframe, which is until May next year.
So moving to the next slide.
Starting with client assets.
So all time high client assets 925 billion BRL.
Helped by higher interest rates.
That tends to increase as you know.
Total client assets.
Net new money has been accelerating from.
From an average of 14 billion BRL per month.
In fourth quarter last year to 11 billion in third quarter. This year, but it is to you.
Between the soft guidance of 10 to 15 billion net new money per month.
There is as I've said.
When you have Q4.
<unk> added together it makes the scenario.
<unk> posted a very strong headwinds for net new mining growth, we achieved not only higher interest rates, but higher interest rates coupled with.
Uncertainty.
Investors tend to.
Choose.
Daily liquid fixed income instruments, instead of allocating their capital in anything else, especially in the third quarter.
We also had.
Conversion in <unk> in the interest rate curve.
And that makes.
Even harder to make investors extending their duration. So there is a scenario that poses a headwind.
It's not new it's been with us throughout this year, but we are able to keep.
The low end of our soft guidance, despite all of that.
And then.
We have one on the right side the breakdown.
Our retail client assets per products as we have done in terms of retail revenue. We also.
Are going to disclose that.
Total retail client assets breakdown by the same buckets and here, it's pretty much per year.
From a year over year view.
A mix shift in terms of investment allocation, we had in the third quarter last year.
42% of total client retail client assets.
In equities.
That number decreased to 34%.
Third quarter. This year when we look at fixed income is the opposite it was 22%.
Last year it increased to 30% this year, so everything that we already have been talking and you know, but now putting figures.
So moving.
To the next slide here is just to show what we have done so the old segmentation was retail, including corporate institutional issuer services digital content and auger and now.
We have.
Many more.
These tail and the segments retail institutional corporates not routine anymore. It's together with issuer serves there is a lot of cross selling their corporate clients in investment banking activity. So we believe it makes sense to put it together.
In retail we have as I said opened the three main.
Revenue streams of retail revenue equities funds platform and fixed income and all the others are part of the new vertical digital content is included in other retail.
I was talking about broad revenue so.
Our total gross revenues.
Went from three four.
<unk> high third quarter last year to $3 8 million has this year at 13%.
Increased.
This risk off scenario.
<unk> has mainly impacted our retail revenue.
That represents as you can see on the right side of the chart.
Close to 70% of our total <unk> so retail in the third quarter represented six nine.
Nine months, 71% of total gross revenue the main component of our revenue.
Is the part of the revenue that has been impacted the most because of the bear market.
Yeah.
Our natural.
Consequence of that is a deceleration of our growth pace, but it's still a growth.
13% as I said year over year, five 4% quarter over quarter.
But.
We also have been saying.
Thanks to our more verse five ecosystem.
Part of retail revenue.
Especially the new verticals that we are going to show.
And also.
Outside retail revenue institutional rather incorporate issuer services revenue.
Have a different dynamic in search.
A tough scenario.
Helping the overall.
Results of the company.
That is why we believe.
XP has been building over time.
Even more resilient business model.
And Thats, what make us believe as Marty mentioned in his letter to stakeholders that our strategy is in the right path going beyond the investments and investments, adding more products and services. So we can keep diversifying our revenue stream.
Increased.
The loyalty of our clients and also the LTV of our clients' imagine if.
XP nowadays in this scenario that we are leaving.
We're XP back 10, 15 years ago, when we were mono product equities and monoplane retail.
And moved to.
We pay a break now yes. This is lidar.
We'll take a little longer if you allow me.
That's new all the number of year.
It's completely a new window, we're going to share with you every quarter from now on.
I will explain a little bit the dynamics of each block.
Pretty much straight forward impact of macro when we have a.
A bull market.
Equities.
Benefit the most from it.
Funds platform also benefits from it.
Fixed income is hard to tell depending on which moment of ore of the blue market EUR.
When we have a bear market is the opposite equities.
<unk> heard <unk>.
<unk> platform also get hit by the bare market and fixed income benefits.
Benefits, mostly because of higher interest rates.
But here it is interesting to look at the relevance of those three blocks that we are showing right now equities fixed income and finance Abbott to gather.
Third quarter last year, they represented 86% of total retail revenue.
In third quarter this year 'twenty two.
They're relevant decreased from 86% to 72% of total.
A very relevant decrease in relevance.
Ladies SKU.
The most relevant block all repay revenue by far.
Compared to all the other components.
What explains that decrease the bear market scenario.
And these headwind.
Has taken.
<unk> taken a waning.
More than $1 5 billion.
And revenue from our results in 2022.
How do we get to that math, you just add to gather.
Equities and funds platform for example in the third quarter. This year. It will give you roughly $1 4 billion.
And you compare two funds and platform.
In the third quarter last year to keep the same seasonality that we will reach $1 8 billion. So these $400 million highest per quarter, if you annualize.
That.
You would reach.
Almost.
$1 5 billion.
Ice in annual revenue for fate.
Okay.
Now.
Another way to see this impact that I've been mention about these headwinds.
Including fixed income you can include in fixed income just to get the three main blocks of our retail revenue.
And fixed income is a positive number.
Comparing year over year, but.
Let's added together.
Youre going to see that those three blocks added together.
Even with fixed income be decreased.
Over a year <unk>.
15%.
So here, we can do all the math <unk>, but there's going to be pretty much clear why retail.
Is suffering in terms of revenue and revenue mix. Despite all of that retail has been able to de lever.
Strong revenue numbers that has to do with all other components of the retail.
Revenue.
Fixed income helping.
That mainly has.
Other thing there but.
There is in the north slope.
Appointed at Factset, among others everything that is not embedded.
In any of those blocks goes into other but float is more than 80% of that.
That revenue.
So fixed income flows and all the new verticals retirement plans cards credit insurance.
They all have been helping retail revenue.
Two to keep.
A very healthy number and as to growing year over year. Despite.
These headwinds that I've been talking about.
Another interesting.
Beta that we can extract from discharge.
As a comparison quarter over quarter.
When we look.
Third quarter 22, compared to second quarter this year.
Is that different.
A different real basically equities for example.
It's growing 5%.
Similar to our best numbers, the daily average trading number that grew 3% quarter over water.
Funds platform.
<unk> decreased 29%, but if you take out because then when you compare quarter over quarter. There is a seasonality. Okay. So second quarter, we have performance fees.
When you take out performance fees.
Third quarter increased.
10% quarter over quarter. So the two main blocks that had been hit the most year over year quarter over quarter.
They show sign of.
Stabilization, which is a good thing.
In my view.
So.
Looking at the other components that I mentioned.
Bert new verticals the growth goes from 45% year over year up to 107% with guard cards has been growing a lot 26% growth quarter over quarter. So this is.
I think the main is alive.
Of the presentation, where you can.
Can drive.
Many different conclusions, but it shows.
Hopefully the impact of these macro environment in our retail revenue as a total.
So we can move.
The next one.
Okay great.
So take rate is debt repay revenue divided by average AUC as you know.
Now what is the difference now these take rate is taken into accounts retail revenue ex corporate revenue that went together with issuer services and.
The client assets of total client assets were only.
Doing the take rate for retail.
Using retail client assets for sure.
So let's take raised $1 33, it was $1 40.
In the second quarter, but in the second quarter, we had the performance fees as I said.
You take out approximately eight basis points of performance fee. We have won 32 with $1 33 again.
AV is stabilization.
On the right side.
We highlighted.
<unk> platform and retirement plans.
Why have we done that because we believe when we think about take rate as a price.
So relating to the client assets and then as a price those two components of the repair revenue.
Are the components that make more sales relating to client assets funds platform and retirement plan because I'll be others.
Equities fixed income and the other verticals, especially equities and fixed income they have a lot of revenue that are transactional base instead of plant asset based but going back to funds platform and returning plants, we are not considering in the funds platform.
Performance fees here, what do we see the same movement shifts away from equity and multi market funds that have higher management fees into fixed income funds sold.
Take rates went from 71 basis points last year to 55 basis points. This year at 16 basis points contraction.
But again quarter over quarter, a slightly increase of one basis points, so basically flat quarter over quarter same season.
Now going to insure.
Corporate <unk> institutional on the last institutional underwrite corporate plus issuer services.
Both both.
Revenues.
Both segments.
<unk> performed really well in the third quarter. It's the fact the numbers speak for themselves.
Institutional more than double year over year.
Corporate and issuer services increase.
34% year over year and quarter over quarter, both of them grew more than 30% quarter over quarter. So third quarter, no doubt was a very strong quarter for institutional and.
Corporate plus issuer services.
We believe there is a relation with the elections in Brazil, a lot of anticipation.
The positive impact in the OTC derivatives.
Trading that we do with power clients, either corporate or institutional clients.
So.
This shows the.
Benefits of the diversification it is very positive.
Anticipating myself that I expect a question in the Q&A in the first quarter, we do not expect those two segments to perform.
<unk> in the third quarter, it's natural to think that if there isn't then spacing that third quarter, because although actions.
You need like a transitional period like a hangover to absorb everything that has been anticipated it's hard to estimate how much.
But the concept behind us on announce holes.
The third quarter should be the.
The record quarter for 2022 in those two.
Segments.
And one more one more thing.
I forgot to mention about issuer service.
It's interesting to note that in our.
We had this quarter and now all time high.
Quarterly Securities placement RASM.
$525 million, you can see that in our earnings release.
That number is.
<unk> per hour.
Accounting income statement okay.
Out of the 525 million, we had 202.
$28 million in the third quarter here in issuer services, but everything is kind of related the other part of the revenue goes into retail.
It's mainly distribution fees and.
And they go into retail and different segments.
So it's was an all time high of Securities.
<unk> revenue in the quarter that we skew or in a bear market not equities, playing a role because <unk> really weak.
But DCM and also alternative funds playing an important role.
In this quarter.
SG&A and earnings before tax margin.
So total SG&A.
Has been flat quarter over quarter I believe that's it.
Good thing.
The apparent growth.
In non people you have the breakdown here on the laptop people and non people that are included in total SG&A. So the apparent growth in non people expense quarter over quarter from 374 million to $405 million is lower damage shops.
Why is that.
I've talked about a reclassification from.
Depreciation amortization into SG&A.
You can see that also in our in our earnings release depreciation quarter over quarter decrease.
Approximately $12 million and that's most of it a reclassification.
Between lines. Okay. So discounting these facts are known people would have grown 5% quarter over quarter.
Remember that in the third quarter, we also have our.
Annual events expert.
That the expanses embedded in there.
We also can see.
Earnings before tax margin on the right part of the slide.
Recovery, So we had our.
Lois.
EBT margin in the second quarter of 25, 3% coming from 28 six in the first quarter and third quarter already shows a recovery go into 27, 2%.
We are giving these new guidance of PBT margin from 26% to 32.
Percent, we tend to be always conserve conservative in our in our guidance as you know.
We had 25, 3% EBIT margin in the second quarter of this year, but it's our expectation that as I mentioned the ongoing transformation.
And the company no matter, what the macro environment is.
Looking at the signals that I also mentioned of stabilization in those revenue lines that get hit the most by a bear market compared to a boom market.
We believe.
We are going to scale up our EBT margin from 23 two.
28 25 in the next three years. So next year, you could expect our margins.
Closer to what it is nowadays and increasing a little bit.
Moving towards that 32% the top of the range.
In 2025, that's what we're going to we're going to fight for here in the company and also in terms of expense growth.
For next year, when we look at total SG&A and.
And also people.
Expenses.
We for sure are going to have a lower growth than we had this year compared to 21 no question about it.
Net income and net margin.
Here, it's a record net income helped by.
The earnings before tax.
Quarterly that we have in the third quarter. It was the the third higher EBT in our history only behind.
The fourth quarter of last year in second quarter of last year, but remember that second and fourth quarter, usually they can have.
<unk> revenues that the third quarter doesn't have performance fees.
And also helped by a positive account tax expenses.
So record net income after.
We also kept our health margin here 28, 5%.
In the third quarter our.
Basic unimpressed shares is growing a little bit more than our net income thats related to the buyback in place.
And our adjusted net income, although we are not.
Using anymore.
The net margin as our guidance, we're going to keep our adjusted net income in our spread of sheets in our Investor Relations site in China.
Finally, we have two more slides to share with you. This one is about the net asset value.
We've had several <unk> seen in the last mainly in the last two quarters about tower cash flow conversion.
Our cash flow.
Generation in capital location, so we thought it in a way to bring here and share with all of you.
Some slides that hopefully they will help.
To understand.
Better dose issues.
So first.
It is complicated issue, especially <unk>.
Considering that XP as a platform.
But also as a financial institution. So we hold several types of financial instruments.
With different characteristics in our balance sheets.
I've said that before so when you go into our cash.
Cash flow statement that falls in accounting rule.
It's not business fast to NOI that we are working on a managerial a better moment Europe , our cash flow statement to help you to understand exactly.
What our cash flow generation you may say.
<unk>.
But the way we look internally here.
<unk>.
So our net asset value.
That can be an analogy to our net cash.
What is it is basically the adjusted broad financial assets that you have on the last part of these lines.
And that we have been sharing we see move through our earnings release.
Minus.
Our.
That instrument that are not in bad debt.
Adjusted Raj financial assets, because the adjusted broad financial assets.
Jake.
Other financial liabilities, so anything that goes into our.
Results as NII net interest income is because there is a financial liability associate tweets, it's already embedded in the adjusted <unk> financial assets.
But we also have corporate debt that is not embedded in there like.
The bonds that we have this slide that the balance sheet that we have issues. So on like the IFC that that we still have in our balance sheet. So all of the borrowings the corporate debt. We have is what we are calling here that <unk> on the right part of the slide.
We discounted from the adjusted <unk> financial asset.
<unk>, then that asset value, which at the end of this quarter was.
Nine 8 billion.
Yes.
And the last slide we want to present a bridge.
Bridge.
That.
Explains a little bit.
The way, we look at it internally and we get the asset allocation. So why do we have of the year.
Starting with December 19.
<unk> September 'twenty, two we're talking about two or three years and nine months.
After the year of our IPO on December 19, our.
<unk> was $6 4 billion.
Already considering here the proceeds from the IPO.
Then we have a total net income.
Our $8 5 billion.
One 4 billion of our foam that we did on December 20 <unk>.
<unk> $8 514 to the sixth.
Four of earnings.
At the beginning of the period, we should have.
If.
Net income conversion rate to <unk>.
<unk>.
100% 16 3 billion.
AV and EV, but we have a little bit less than $10 billion.
Where did the Miami go what happened.
The company's throughout those two nine years roughly.
So when you have the bridge year, showing what happened most of the mining if you take out the share buyback base <unk> 5 billion and <unk> 3 billion is basically working capital and Thats also tricky because I mean $3 billion in the period of $2 90 as nothing but.
We always are going to have some of our relation between quarters because between quarters.
Amy can fluctuate a lot in terms of the working capital for for example tax reasons for.
Sure.
<unk> based compensation reasons and other reasons that might have flipped.
<unk>, but when you extended the period. These FX gets of course segregated, but the main theme here to highlight is the.
The $4 2 billion in <unk>.
Investment in our IFA network.
The almost $1 5 billion in M&A. So here, we added together five 6 billion.
<unk>.
All the investments that we have made in those investments they are not.
Financial assets for CE in the in the sand that we use in our adjusted abroad financial asset. So big gap. They are not included there and thats why they reduced the AAV right.
And we as Mark had also stated in his letter.
We.
We believe that the investment that we decided to do in our distribution network was important.
Competitive advantage that we have we were able to sign long term contracts with our.
<unk>.
And of course follow this.
Transactions, including M&A is we always look to several matrix, but.
Two main metrics, our payback and return on equity and we consider all of that.
Our decisions years and also M&A small has said already that we are not planning to do any relevant M&A going forward and we already have the deal with <unk> for approval of <unk>.
The central banking in Brazil. So the message here is this five 6 billion.
Should be much lower going forward, that's exactly one of the additional reasons that we decided to increase our share buyback program in.
In place because we're going to have more investments as we have had throughout the year, especially in the IFC and thats work, but nothing compare to the size of what we have done in the past except for.
One a little bit more than $1 billion.
That we already have committed but we have not done yet we have power.
<unk>.
Network in terms of the the broker dealers that we're going to be minority shareholders of <unk>.
Our IFA, so except for that.
Other is more of the sandwich basically investments that we do on an annual basis.
Considering that we have.
Distribution network that is the biggest one in Brazil, so with that.
I will stop here open for Q&A and then we can we can.
Can answer valves steady you might have thank you very much.
Okay.
Thank you Bruno so let's go to the Q&A.
Our first question comes from.
Tito <unk> from Goldman Sachs.
Hey, Tito.
Hi, yes.
Can you hear me good evening Bruno Andre Thanks for the call.
Thanks for all the additional information that's very helpful and useful.
To think about.
And help us model the business so I appreciate that color.
A couple of questions.
One just looking at the.
The retail revenue breakdown Randy show there that other line has increased a lot I think.
Is that should that mean, just mostly a function of the higher interest rates that we in that we're in right now.
And as rates come down that should come down.
And a second question on the inflows I know you said the guidance the 10 to 15.
Have you seen any yet we saw the equity pick up a little bit in Q I would expect and lower interest rate environment should be positive for that but with market is doing a little bit better any visibility there in terms of inflows either by segment or are you seeing more interest in equities. It is still more like fixed income just to try to.
Get a sense of when there can be an inflection point on those inflows kind of longer term.
Yes, the other retail.
It's most of its flows.
The retail revenue and goes into <unk>, that's the most relevant.
One okay.
Regarding.
Your second question about.
Client assets inflow net clients Madden football.
It's what I said Tito.
When you have uncertainty.
Is there any individual investors affluent clients.
A lot of uncertainty in the market.
If you are going to.
If youre going to buy.
Our longer duration securities fixed income securities Youre going to get.
Nominal remuneration that is less than the one that you can you can have with daily liquidity.
And then.
It makes it makes hard it's a headwind and even in that scenario.
Net new money of that.
About 10 billion per.
Per month.
In a scenario like that usually people.
<unk> they way they don't have to be have a need.
Instrument that is daily liquid.
On a nominal chairman's terms more than X.
Taming the duration.
So it's not a as you need to do a lot of explanations and Thats why advisers are so important in a scenario like that.
But it's not a it's not an easy sell.
<unk>.
And Thats what explains in my view.
The weaker net inflow.
We have seen.
Amortization.
Across all signals.
But not a reversal yet we still have.
A lot of uncertainty.
Upon us.
Have.
Global inflation you have.
Global recession, you have higher interest rates, where fed funds are.
Go into Spa.
A war SKU going on you have a lockdown in China. So many things happening in Brazil has a new government that.
Needs to tell about what the fiscal policy is going to be.
And so long so too much uncertainty.
In my view to see a reversal, but the good thing is it has stabilized so I think the worst is behind us that's the point.
Great. Thanks, Bruno Thanks, Greg just looking at because you also disclose the assets sort of by by segments.
So just how much of like equities is up by $30 billion I don't know how much of that was just the market performance.
Versus potential inflows because looking at the fixed income it was like 28 billion last quarter down to 20 billion.
Just to try to understand what drove the increase in net assets by segment.
You mean.
The equity and the <unk>.
Third quarter going to comparative quarter, yes, if we look on the breakdown of the AUC was like 278 billion. It was $2 47 billion last quarter. So I imagine there is some market appreciation in there.
Fixed income number.
It was lower relative to last quarter. So.
Just to start to see how those inflows are evolving my segment now.
Okay I got it yes, I would have to get what was exactly the market appreciation.
Of equities quarter over quarter.
I can get back we can get back to you.
Later.
At the end of the day, we are not.
Look we are not opening any more adjusted anything like adjusted.
Client assets or anything like that so as we segregated corporate.
Our own.
Hi.
From retail in our view it doesn't make sense because corporate by nature has a different kind of volatility compared to retail.
But of course, we can have some.
Unusual movements in one single quarter whenever we have something like that we are going to explain in our earnings release okay.
Okay, Thanks, Brian and thanks again for the additional disclosure.
Thank you Tito.
Next is jeffrey from promos.
Good evening, Hi, can you hear me okay.
Hi, Jeff.
Hi can you hear me yeah.
Great. Thank you for taking the question and thanks for the new disclosure.
There's been some.
Articles recently talking about.
<unk> is moving away from XP.
I wondered if you could elaborate on why you think some of those moves have.
And can you confirm.
All of these assays.
You had.
The long term exclusivity in place and they decided to pay a break fee to go somewhere else.
Yeah outlook.
Jeff.
Competition, so a competitor comms base.
The IFA decides to go or we do not think its worth.
Retaining the IFA whatever the kz's.
Then it happened in a snapshot it is not the first.
And it's not going to be the last time that you would have some update remember that we have.
We have more than 13000.
I figure, we have close to 12000.
13000 advisors in total, but we we have close to 12000 IFA.
In our network, we have approximately if you look only at the IFA World.
70% roughly speaking market share so it's something naturally okay, we look at it.
As a macro.
Things that will happen again and it has happened.
In the past.
Yes, <unk> that you referred to.
They have long term contracts.
You also I mean, you can in this quarter, we we had.
You can see is to go in our financials, you are going to be able to see the disclosure of our revenue where we have revenue from incentives from the three <unk>.
<unk> and others.
Part of that revenue when we get back the fine that we have in the contracts. It goes in there.
So this quarter.
If I'm not mistaken.
The total amount of that line was close to $40 million.
<unk>.
Part of it was helped by <unk>.
One <unk>.
And we might have that going forward as well so we get a revenue get the cash back.
And thats it.
And when they decide to leave.
Please tell me if that's purely a financial consideration for them or of the.
Elements of your competitors' offerings.
Choosing because they they think the competitive offers something that XP doesn't.
Money.
Got it.
Thanks very much.
Thank you Jack.
Thank you, Jeff I have a good one.
Thank you.
Nexis jargon from UBS.
Grieving sharp volume.
Yes.
You guys hear me.
Yes.
Okay.
Thanks for the new <unk>.
Disclosure of a very good.
Did you in the new format.
I have one question about the excess cash that you mentioned in the press release, you mentioned that <unk> been in the ice.
I wanted to make sure if I understood the concept of this excess cash.
Cash.
In the case of no relevant position or M&A.
Do X fuel will be able to.
To distribute.
5 billion highest in the coming years or a.
These or part of the 5 billion should be use it in Europe , we're going to expansion so with Capex with.
Investments so I wanted to make sure. If this 5 billion should it be distributed in the near future. If you don't have any.
<unk>.
Look the <unk> 5 billion in the near future.
Don't think so in the future, yes, but in the near future I don't think so why is that number one we are conservative the way.
We approach.
Our financials.
And we always think about the long term.
Two we still have a lot of uncertainty.
<unk> I just talked about it. So we think it's we are here for the long term it's wide too.
To keep.
A higher let's say margin of safety in moments.
In moments.
Like that.
And.
What I can tell you is Jonathan is we keep generating cash our company does generate.
A lot of cash on an annual basis.
<unk>.
Yes, we are going to keep.
Evaluating the excess cash because it.
We are distributing we think $5 billion is enough for now.
To keep as excess.
Capital.
In our balance sheet.
We can.
Change our mind in the future and decide to work with.
Last and therefore, a little bit more but for now 5 billion seems more than enough.
And.
The access.
Above the 5 billion, yes, we can.
<unk> distributing.
Two shareholders.
Remember.
That XP.
He's a disruptor we.
We are in the financial industry, mostly in Brazil.
And.
We have less than 2%.
The financial.
Industry revenue pool.
So.
We are very early stage.
Of the potential that the financial industry in Brazil offer this as a disruptor.
And the opportunities might arise.
Right now.
Where we are in our strategy, what we have done I think that <unk> has already invested a lot our expense numbers. They showed it so we have.
Invested a lot of new verticals.
Half.
<unk> put in place are these two accounts we have.
Cards, we have launch of cards that we co brand we have our offshore accounts, we have our digital asset play.
Flat a forum we have.
<unk> <unk> business.
Running up and running and developments.
Happening.
As we speak.
So.
We have done all of those investments now it's time to consolidate the investments that we've done.
To increase the share of wallet of our existing clients.
Part of the strategy why we decided to go beyond the investments.
And consolidate all of that.
And look for more efficiency in our company because of course, we can be more efficient than we are right now.
It's natural in a company like ex feed that Morgan.
Double its head count base during the pandemic.
Since the pandemic two today doing so many things to gather that we now believe is the right time to put.
Our energy into consolidating everything that we have invested in plus 13 four.
More and more efficiency in our company and Dan.
If that is the strategy for the near term and we are concentrated in that.
The excess the additional excess capital.
Above the 5 billion highs.
We start to distribute that we don't need that right now we don't want to also to keep distributing capital.
And then.
Remember that we have likely 2% of the revenue one year. Later, we think now we want to do this or that so we go back to shareholders and to our phones every six months, that's not what we want to do.
So we are conservative the way, we make these decisions, but when we do it we go forward.
Very clear Bruno thanks, Thanks, Kevin.
Next question from.
Morgan Stanley Hi, Jorge.
Hi.
I'm great how are you.
Congrats on the numbers and again I know, it's been said before books really thank you very much for the additional disclosure I think it's going to go a long way in helping to markets understand.
Your business so thanks for that.
My question is kind of like around what you've been discussing Bruno so sorry for that but.
When you think about your retail business.
If it.
Do you think that the direction of interest rates that.
Would potentially.
Improve the.
Inflows.
Is it actually the level of interest rates and I'm thinking obviously on the equities business, which is a big part of your revenues.
Saying this because we have so you know hopefully.
We've seen the pickup rates right I mean, the central Bank has been on pause now and the next move hopefully is down.
So the fact that rates are going to start to come down do you think thats the trigger or is a trigger actually the absolute level of rates.
What do you think that absolute level is for us to get for you to get more.
Inflows into the equities business.
Yeah.
I think it's more the direction than the level.
But.
Remember what I just mentioned.
Few minutes ago.
Retail investors.
They look.
Nominal terms, so if interest rates are still going down.
But the long term rates.
Our lower than the spot rates.
That's.
A headwind because unit convincing each explain why <unk> what is the premium embedded what is the expectation of futures rage and so on.
And we do that of course, we do.
But it's.
A headwind I would say, but at the end of the day, it's more about.
The direction in my view.
But we need to take outs.
Part of the uncertainty.
And then when we take all parts of the uncertainty.
QWERTY market should we act first gas as usually.
And investors will will fall.
It is a cycle that we've had in the past.
For ourselves.
The best I would say the best.
The sweet spot.
These when you have.
Sure.
Boom market.
Start forming but level of interest rates our SKU.
Is too high for XP, the interest rates at 2%.
It's not the best scenario.
Honestly.
We'll be in the middle range I don't know six 6% to 8% something like that when you have a more stable environment with higher level of interest rates by the stable.
That's a good environment a very good environment.
But we have the gating all kind of scenarios, we have been what change is the mix gets worse.
And but we keep growing and we grow.
At a slower pace.
That's what is happening exactly in 2020 two.
But the business is resilient.
Matter, what the macro environment is.
Great. Thank you.
I have a second question.
Can you remind dose.
What is the level of asset that Trey has shown a year later when you lose a IFA I remember you.
Maybe like a year ago, or so you published a press release.
Some of the actual numbers of specific I didn't phrase that you lost in the past.
The numbers were very very small.
Okay.
That change.
And then can you remind us what the level is today and how does it compare to <unk>.
As of the last three or four years ago.
Sure.
70% to 80% of the client assets.
<unk>.
With the X gene two.
It doesn't migrate.
What.
What we lose is basically the grow.
Of that <unk>.
Hey office, if it was a good IFA office.
We move if it was not.
A very good IFA office I mean.
We don't want as much at the end of the day, that's basically because women.
The assay migrates the client saw or if that plant has X E comp Ed XP at everything and then we have.
More than 30.
Advisors in our acquisition that would be more than willing to serve that client.
And that's what happens.
Great. Thank you and thanks again for the additional disclosure.
Sure glad that Iridium <unk>.
Next module.
From Bank of America.
Hi, Andrea Hi, Bruno thank.
Thank you for taking my question also we really appreciate the improved disclosure.
My question is related to what Jorge just asked you last year you published this report seemed to 80% of the AUC of the eye.
His face were left state with you.
So when we see this slow down new net new money are you able to break down for us how much is like more inflows and how much is due to higher outflows can you just give us the dynamics that you're seeing between inflows and outflows.
And then my second question is related to your buyback right. So you're increasing your buyback program by 1 billion Reais on your presentation you show that you only executed.
Half of your previous buyback so I'm, assuming you still have $1 5 billion left to be bought back.
But I wanted to understand the decision between buybacks and dividends why why are you doing everything in buybacks.
In the form of dividends.
Okay.
Your first question.
It hasnt changed its not the.
This lower pace of net.
Client assets, it's not because of migration avaya phase.
Of course, there is a component, but it's too small okay too.
Two small so is basically the macro environment.
A headwind in terms of bringing more money into into the platform, we are still bringing but not.
Not.
With the size or amount that we would like to think we can do it so it's not related to.
IFA, leaving the platform.
Your second question about buyback.
You are right in what you said, it's approximately $1 5 billion considering the additional $1 billion, we announced today that we have to buy back shares from Q may next year.
And the reason we decided for buying.
Buyback is basically because we think keeps them more attractive options nowadays.
Basically the reason.
But it could be dividends, but we decided to buy back shares.
And Bruno.
Any updates on.
On the <unk>.
A decision to continue to sell down their stakes are you talking to them could you use your buyback them to negotiate directly with them.
No no news about that so we <unk> or <unk>.
They have.
Our direct contact for sure they know.
We are here to help them to sell whenever they want we have said that.
But.
As far as I know, it's not in bearing patients. So.
I don't know you would have transdermal module.
Okay. Thank you.
And commodities.
Thank you Mario.
Marcel Dennis from Credit Suisse.
Hi, guys good evening.
Hi, Andre Hi, Bruno Thanks.
At the time and started to BR to sound like a broken a broken record here, but I'm very happy to see the disclosure.
You guys did so great initiatives I think there's definitely help people understand the stores so.
Well done.
Oh, My I have a couple of questions actually three questions.
The first one with regards to investment in Ifa's.
You mentioned in your presentation right you had about $4 2 billion.
Reais of investments in our plus some M&A.
As well and I remember I think on two recently I think kind of like a soft guidance for investments in our face on a yearly basis would be to be something similar to the <unk>.
The amortization right off this of the investments you now have peso, which I saw I think it was about four 400.
Malaria is.
A year or so how should we think about that.
Going forward I mean is that still a reasonable.
A reasonable assumption. So that's my first question.
The second question is more of a housekeeping item I was looking at the.
Our adjusted gross gross cash flow.
And for.
For the second quarter is a bit different versus the number that it guys.
<unk> I think there's almost like a 600 million reais.
Deforest I just want to understand you know.
What was that.
The change there I think you guys had about a $9 8 billion.
Gross cash flow and I think now is around like nine two.
Bill or I understand the difference.
And then my last question is more of a.
A strategic question thinking of your business.
Going forward you know of course, a very successful.
You've asked a plot of form.
Adding.
New businesses too.
Uh huh.
Two are core.
Business.
Carts and at the bank and so on.
When you think of your business today, including this deal.
Products.
What are the areas that you think you are not in yet, but I do like to be either no I'm thinking you know.
Acquiring maybe be more like a.
Digital bank, so how should we think about you know.
Your business.
Five years down the road would still look.
Very different from what happened today with those new products.
Uh huh.
Or maybe more of the same.
Thank you.
Thank you Dallas.
Regarding your first question about the IFA amount.
The amount of annual investment.
It's hard to tell you mention about a soft guidance, probably when we get that kind of <unk>.
Question.
Answer a number.
I don't know if we should but at the end of the day.
It depends because we analyze case by case, that's how we do it and as I mentioned in terms of the.
Capital allocated in the IFA distribution network.
We analyzed all the deals that we have done using several different matrix using the data that we have for so many years.
With those <unk>.
Considering payback return on equity and so on so it's hard to tell how much is going to be.
What I can tell you is.
We do have.
Part of our long term contracts we have.
Our <unk> distribution network there is a component.
That is upon certain performance, okay. So that part of the investments if the IFA reach.
The performance that we have establishing contract Dan we have to pay.
X.
Million.
Edition and when we do that because it's embedded into the same contract. It goes into that line the prepaid expense. So that's one.
Part of the explanation and we keep doing.
Our network keeps growing you can see by our number of <unk> phase and so on and we keep doing.
Some incentives in contracts we have.
Our.
Phase when we think it's a good opportunity to win win situation for NXP and the IFC.
Of course.
We this year, we probably are around food.
Putting all together 500 million in AI, so greater than the $400 million.
If you look at the prepaid expense it has increased.
A little bit.
This year.
But it's not relevant.
If you go to them. So I don't have a specific number to tell you it could be higher than what he mentioned a soft guidance of the 400 million, but it's not going to be anything close.
To the amount that we have disbursed in the past.
As I've said.
Your second question about.
<unk> full year right you remind me of something I should have SaaS.
We included in our earnings release, we included the image for example, and.
Commvault story in the asset part.
<unk>, we have <unk>. Thank you.
Yeah, So energy.
That's probably what you're talking about that as the 619 million housing.
In the third quarter, and 540 million ads in the second quarter.
In the second quarter, we had.
The liability part.
But we didn't have the asset part of the energy because the way the accounting recognizing this is a credit business prepaid <unk> for corporate clients.
We have these business here.
But the accounting.
Measure gold zinc too.
A line that is not considered a financial asset but at the end of the <unk>. So thats the adjustment that we have made there and the other I just something that we have made.
Our commitment subject to possible redemption that he can senior liability parts.
That is a reduction is about the this back that we have in our in our balance sheet.
From our asset management arm.
And as you noticed back staging sick.
Secured two deals which is a financial asset so it goes into the asset line and the liability is not a financial asset. So it was not included in <unk>.
Included there so those are the main.
With that we have made.
Your third question about this strategy, what we can think about XP five years from now.
Look.
We are now focused on consolidating all of the investments we have done I think that's why.
Wise thing to do first because we believe this strategy of those investments. They are on the right track and we believe we can really benefit.
From those investments in the.
All of the investments they are at very early stage. So we each folks there and good traction on that and that's going to take a while it's not going to happen in one quarter two quarters not even in one year.
So that's where I believe most of our energy is going to be.
<unk> of course, the efficient part that I also talked.
About five years from now.
These hard we have many ideas here in <unk>, we are a bunch of interpreters.
That don't believe anything is impossible, that's one of our core values. So we have many managers GPU.
Had asked me the same question five years ago.
I would get totally wrong I would not say that we would have the businesses that we have right now.
And the way the company would be.
So it's hard to tell.
We like to go step by step.
That's how we got here.
We like to keep our profitability.
When we were not satisfied with our margins we understand our margins.
A consequence of the decisions we have made that we believe they are in the right track as I said and they have a clear strategy.
That came down.
But we always think we could have been doing better that's that's how we are.
We drive profitability, we like to go step by step we like to feel that we can move to the next step, but we think of many many ideas. Then we have a very small part of the financial Inc.
Industry, but I don't have.
So we're going go into a client using this as you mention or no.
I don't have them.
Akin to give you as of Tuesday.
Micelle.
That's very clear. Thank you so much if all Amit just to follow up.
On one of the previous questions.
From the other analysts I think regarding to Oh, I think Thiago asked a question about the 5 billion excess capital that you mentioned in your earnings release, which by the way thanks for putting it out there I think the I think that's very helpful. Indeed.
That's this 5 billion does that include.
A lot of money to have let's say to do too.
To do warehousing or to participate in.
Uh huh.
Syndicates.
Should we think about that or are this is in addition.
Two.
To what you already have let's say allocated let's call. It you are let's say minimum operating.
Cash right.
Yeah.
It doesn't mean you need separate at capital from some cash the way we we.
We use.
To get to the 5 billion, we use mats discharges al.
Our assets.
Beyond the.
The Prudential.
Conglomerate.
For the whole the whole group Okay. That's that's what we do here and.
We adjust all our assets by by risk.
And compare that with our available capital.
Also for the whole group and we use them.
Our internal targets.
That is pretty much similar to what we have in our.
Prudential Congo marriage, that's how we get to the.
Excess capital that we have cash.
Cash is not an issue for <unk>.
We are.
We haven't <unk> net asset value, we could leverage.
Our balance sheet, if we wanted to but that's a different.
Discussion so.
I would answer your question, yes, everything is taken into account.
To consider the five 5 billion, but just bear in mind that cash and excess.
Capital.
They are not the same thing because in a financial institution like ourselves those things they get.
Confused sometimes this is one of the reasons that I talked about the cash flow.
Operations for example.
That we have to disclose from the accounting.
<unk> it.
You cannot you cannot you cannot look at a company like <unk> cash flow from operation.
Operations and operate Owen you are not your operations are not making or.
Or generating cash flow this quarter, that's Warner doesn't make any sense to make these analysis because for example, if we take a financial.
Our financial assets.
That is that we have bought in our asset.
Liability for our parts for example, like a government bonds days longer than 90 days and we just decide to sell and investing something shorter term like 60 days. It will not be there anymore. We discuss flow account because it will go directly to cash and equivalents.
Doesn't change.
Anything.
Each.
Same thing with.
If you go there there is financial instruments payable basically the banking business Cds that we issue et cetera.
<unk>.
We.
Have a.
Other financial or when they are issued Cds, there it's gone up.
Be a financing part of our it's going to be in our cash from operations.
The increase of that source cellphone because at the end of the these are financing what matters is what do you do with that money if we buy.
Bye.
That's a short term again matures securities.
Is going to be in the cash and equivalents. So at the end of the day, you're going to look at the cash flow from operations, you're going to see full year cash flow from operation is increasing.
Not because.
We had a financing parks that we are investing.
Cash and equivalents. So we are working on a better managerial cash flow that makes sense. The one that we present these accounting reasons, but it is tricky to look at it.
And get to two any concrete so capital and cash.
But yeah I gave a long answer, but 5 billion take everything into account.
Thanks, a lot.
Thank you. Thank you that is mostly from you.
Yeah.
Okay that was the last question.
Thank you all for sticking with us.
So busy earning season right. When everyone is everyone is looking at the results. So you guys are busy there I know.
Yeah everyone's busy so we will be happy to connect with you guys over the next few weeks to discuss the results in anything.
Anything you might have interest.
And then I don't know Bruno insurance.
Thank you, all and probably youre going to have doubts.
We.
Relieves a lot of new numbers so.
Dawn on us to help you understand any community. So thank you. Thank you very much.
Thank you all have a great man.
Bye bye.