Q4 2022 XP Inc Earnings Call

We've got to build up crazy.

Is that full year presentation, I will take longer than usual in the introduction Bart give you more context about how XP business model works in different macroeconomic cycles.

I will also mention the important achievements and lessons learned in 2020 two.

On slide five.

We highlight how XD benefits from a positive mark market environment.

The recent bull market that went on until 2021 attracted many brazilians to the capital market as you know.

From 2018 to 2020 one.

We had an increase of more than 4 million individuals coming to the market.

Still nothing compared to the size of the Brazilian population as you know, but a lot compared to less than 1 million we had in 2018.

And then as the main investment platform in Brazil.

And having the biggest specialized distribution that's work XP benefited a lot from the scenario with our disruptive and scalable business model from 18 to 21, we grew our client assets by a CAGR of 59% our revenue by a CAGR of 58%.

And our net income by a CAGR of 98% basically doubling our net income for three consecutive years way above market and our own expectation at IPO.

And then comes 2022.

A very challenging year.

Especially for the investment advisory business with the Selic rates rising from 2% to $13, 75%. There was a meaningful change on investors' willingness and sense of urgency to diversify investments from low risk fixed income options.

This movement.

Which.

Also what's seen in other asset classes is clearly shown by the almost 30% reduction in individuals equity average daily trading volume in full year 'twenty two compared to 21.

Other external factors contributor to the standby mode and lower client activity, we saw in 'twenty or 'twenty, two I will remain five of them.

Number one the.

The global inflation and restrictive monetary policy all over the world number two.

Rebound of Covid in early 'twenty two number three.

War in Eastern Europe number for uncertainty pre and post elections in Brazil, and number five the World Cup fever in November December , which led to a reduction on actual business days I know.

Everything I'm, saying here is well known by each of you.

But it is important to contextualize, so everyone can better understand the impact of those events not only in the full year 'twenty, two but on a quarterly basis as well.

We'll talk more about it in our results section.

Going back to the list.

Except for global inflation and restrictive.

Terry Polish which happened throughout the whole year, Covid rebound and war.

In the first quarter 'twenty, two and the elections in Brazil and World Cup happened in the fourth quarter 'twenty two.

Not by coincidence, but you weakest quarters of XP last year.

This is important to understand.

Last year was unusual when looked on a quarterly basis.

So in our view, it's better to look the full year and staff.

We had a lot of volatility between segments on a quarterly basis.

It will become clear when we get to the results parts, we have some slides to share with you.

Going back to the advisory business.

So.

The financial Advisory business is basically in human interactions.

Circumstances, which make these interactions less frequent as we head into the fourth quarter for example.

Does have a negative effect in the investment business.

Going back in time on the bar graph in the rights of this line.

We will allow us to verify the evolution of our business.

I know that in 2014 X fuel was a different business is much smaller but the point to make here is to show how resilient our ecosystem became overtime.

The last monetary tightening cycle in Brazil began in 2013 and.

And took the selic rate closer to the current level of 13, 75% it.

It took the Brazilian central Bank, two years and four months to complete the tightening cycle.

And the total magnitude of it.

700 basis points.

In 2014 ex fee net income fell 40% relative to 13.

It's 80% of our revenues at that time came from equity.

With the market worse in our main metrics net inflow.

New clients and I, a face were strongly affected as well we.

We were much more I'll say, a better play at that time.

Now fast forward to 'twenty to 'twenty two.

The recent monetary tightening cycle.

Has been faster and more severe than the last one it.

Took the central bank, only one year and five months to complete the tightening cycle and the total magnitude of it was 1175 basis points. So it went from 2% to 13, 75% really fast.

But in 'twenty or 'twenty two different than what happened in the last cycle in 2014, our revenue grew 10% year over year and our net income remained flat year over wheat.

The recent investments we have we have done in the new verticals.

Helped to mitigate these challenges scenario improving the resilience of our business model.

Let's talk a little bit more about those investments and also about some lessons learned in 2022 in the next few slides.

Since the IPO.

We have been investing in new verticals as you know.

And according to our strategy to go beyond investments to become dominant in investments.

We are confident that our strategy is in the right track and by going beyond the investments we achieved three main things one we.

We increased the LTV of our existing clients.

Number two.

We enhanced the mould of Rx system and number three we increase our total addressable market.

Basically in three years since the IPO, we have built our own insurance company X be viewed it but if they if you're starting with the retirement plans and recently moving into life insurance, we have created a bank from scratch, starting with collateralized credit moving into credit cards.

Guards and recently the store count.

We have developed an international investment business also from scratch instead of doing it inorganically we.

We have created X stage, our digital assets platform organically as well, allowing our clients to.

Two by prepaid all assets in the same app they used to invest.

We have invested in corporate business basically nonexistent in 2019 year of our IPO, which made a revenue of 600 million highs last year and finally, we have the expansion of the internal advisory team our beat you see improving.

Our total specialized sales force, which we expect to reap the full benefit of it when the macro cycle reverts.

These projects demanded an initial location of financial and human resource that is decreasing as they mature.

And honestly.

I don't remember.

In our history.

<unk>, where we have done so much and so fast.

And maybe here is the lesson learned in 'twenty to 'twenty two.

We.

As a company.

And as interpreters were disruptors.

Once more.

And it's always good to remember that Brazil is one of the most concentrated financial industry in the world just to.

You take that in a very benign scenario of recent years.

Where are we there.

Our net income for three consecutive years.

And we must recognize these environment has influenced the pace of our expansion.

As I said.

We have executed our plan too fast.

And as you can see we heavily expanded the head count base.

Almost three times in three years.

And people.

70% of our SG&A.

We added 1.2 thousand employees in 2020.

$2 5000 in 'twenty one.

And we haven't done it right before a market downturn.

Again.

We have no doubt that each of these initiatives will add value in the long term and are 100% connected with our strategy.

But we must be humble and recognize that we have entered 2022 with their own cost structure its effect.

No.

It is time to operate on a much leaner cost structure going forward.

And the ongoing transformation process that <unk> is going through and I've talked about it in previous quarters.

Will be key to help us execute these expense reduction without jeopardizing, our service quality or ability to advance with our strategy.

Just to connect the movements, it's important to remind that.

These transformation process has started.

Through our tech team at the time lag by Master.

When he was our CTO and extended to the whole company when he became our CEO at the end of second semester 21.

With a leaner cost structure.

Greater addressable market and advancing in our core business, which we are going to show in the next few slides.

We believe XP is well position for tough times ahead.

The scenario.

As we all know.

1175 basis points in just one year and a half.

And Mr Yu.

Our main kpis for the investment business gapped extending.

At the lower pace of course, but expanding.

Last year more than 2000 independent advisers on a net basis joined Xp's platform.

Which reinforce not only the potential of this profession.

But the leadership of XP in attracting new ifa's into Rx system.

If we were a new broker dealer starting up in 2020 two.

They're tough time to start a business.

We wouldn't be by far at the end of the year, the third largest IFA network in Brazil.

One year only behind X be the dominant player in BTG.

Net inflows totaled.

<unk> and <unk> 5 billion hash.

We believe this shows the resilience of our distribution model and the premium quality of our client base.

And we added 406000 net new clients in our ecosystem.

Just as a reference it took us.

16 years of existence to achieve that number of clients.

And our client assets depth growing as well, reaching 946 billion at the end of the year. So in summary.

Despite the strong headwinds.

That continues in 2020 three.

<unk> was able to keep growing and advancing in its core business Kpis net inflow.

I have faith in that new clients.

When we have the next tailwind scenario and it will happen.

Our ecosystem is going to be much bigger and complete then win.

The last bull market happen.

We are expanding our ability to grow exponentially.

When a reversal of the Titan.

Monetary cycle occurs.

Cross sell.

Cross sell is one.

One of the biggest opportunities we have beyond investments.

The clients are in the house.

And have already trusted us with the most precious thing they have their savings, which we are.

Honored.

For the trust.

The combination of our client base growth and the maturation of new products in our platform.

The best compelling opportunity for revenue growth in 2020 three considering we're going to have.

Very high interest rates for long if that is the scenario than cross selling is the most compelling opportunity for revenue growth that we have.

Credit cards.

Insurance.

Crowded retirement plans these dot com and international investments.

Counted altogether for $1 3 billion of revenue.

In 2022.

In the previous years 'twenty to 'twenty, one it was less than 600 million.

So more than double in one year.

We believe.

A growth of 50.

50% to 60%.

This year 2023, it's pretty reasonable.

During the low penetration of these products in our existing client base as you can see in D. C. Slide International investments for example, which should benefit from the current scenario.

For.

Diversification purpose and risk management as well as less than 1% penetration of our client base credit cards at the most mature product that we have.

Steel has been I think 20% penetration. So we will continue to have businesses inside our ecosystem.

With high double or even triple digits of growth even in a challenging macro environment.

Yeah.

Expenses, the lessons learned in 2020 two.

SG&A.

Drew alongside head count in new verticals as I already said, reaching $5 6 billion highs extra incentives in.

In 2022.

We went from $1 9 billion.

In 2019 to.

$5 6 billion in 'twenty two.

That's almost 4 billion highs in three years.

We have been more.

With more.

Our SG&A.

Expense ratio.

Went from 37% in 2019% to 42% in 2020 two.

So our main priority for this year 'twenty to 'twenty three is to regain the inherent operating leverage of our business.

How.

Through our companywide adjustment of expenses that already began.

Fourth quarter 'twenty two.

Plain and simple execution.

And as.

As I've said already helped by the ongoing transformation in the company.

This is an important point because what we are saying here is.

Our business.

Which has always had a strong operating leverage.

We see ongoing transformation will increase that operating leverage through a much leaner cost structure.

Sustainable and.

And not impacting our deliverables are clients.

<unk> will show its maximum benefits in the next market upturn.

Differently from Duane.

Duane in 'twenty, two when costs were controlled but not reduced the current initiatives should allow for margin expansion, even in tough center hours for revenue growth.

And is 100% under our control.

And to better align.

Market expectations around expenses.

We estimate that SG&A.

Extra incentives.

For this year will range between 5 billion.

255 billion highs.

Which at the bottom of this range implies a nominal reduction of 11% year over year.

And that is connected to our EBT margin guidance as well up 26% to 32% in 'twenty to 'twenty three 'twenty to 'twenty five moving from the bottom to the top in the period.

Now moving to the financials.

One of the slide 12.

We provide some context on the headwinds.

Especially by our advisory channel in fourth quarter, 'twenty, two which relies on human touch and availability I mentioned earlier.

The post election period, coupled with World Cup.

And the approach of holidays.

Added a layer of difficulty.

Dr Advisor client interaction in the quarter and this is important and when you analyze our business you cannot only look at our average daily trading volume, what's going on with Dmitry, because the advisory business it.

It demands a relation.

Of adviser and client and that's why January for example, it's a weak month because people are on vacations clients and advisers. So this kind of interaction whenever.

They have difficulties.

Has an impact in the fourth quarter is exactly what we lived.

So because of that.

And also because of lower official business days relative to the third quarter retail revenues didn't grow as expected.

You can also see that on the left part of the slide.

The first quarter seasonality.

Usually the strongest quarter of the year.

Because of our strong capital markets activity and performance fees that happens in the fourth quarter.

It didn't work last year.

Last year was unusual in that sense.

From 18 to 21 fourth quarter represented on average 30% of total revenue for the specific ear last year, each represented less than 24%.

Also.

After a record third quarter third quarter last year was our best quarter.

When our drives revenue reached $3 8 billion highs.

Helped by anticipated deals and traded volumes in institutional and corporate issuer services that in the fourth quarter.

Faced a lesser favorable quarter.

As previous signal in our last call earnings call.

So together just to give you a sense institutional incorporates an issuer services represented 80% of the sequential revenue decline quarter over quarter.

Looking at the full year 2022.

Which we believe is the best way to look at the results.

<unk> XP last year because of this disparity that we had among quarters throughout the year.

Our gross revenue.

Grew 10% relative to a strong 2021.

The high of the Bull market cycle.

Which reinforces what I said earlier, the resilience of our business even tough scenarios.

The retail segment.

The most relevant one and together with issuer services.

Were the most impacted by this challenging macro environment in 2022.

But it's still.

Retail grew 4% year over year, despite the dropdown.

Seen in the equity parts, the most relevant for retail rate of 21% year over year.

Equity.

In 'twenty, one represented 55% of the retail revenue each.

<unk> decreased to 42%.

<unk>.

So what helped retail revenue in investment.

Number one fixed income.

Plus 17% year over year and number two folds.

That is in other retail 17% growth year over year, both of them benefiting from higher interest rates.

Student retail we also.

So with a strong contribution from the new verticals initiatives.

Retirement plans for example grew 47% year over year.

Crowded.

For insurance 62.

Cards.

229% year over year growth.

Institutional and corporate.

Both had growth in 2022, and a strong growth institutional 50%.

Incorporates 250%.

Institutional there is a more mature level revenue line.

Benefited last year from mostly Fic's, Iraq fixed income currency and commodities.

And corporate benefitted from the natural growth of the new business that had a very positive year in 2022.

On the other hand.

Issuer services.

Decreased 33% versus a very strong 2021.

Basically due to a weaker.

Capital market activity, especially in ECM.

Compared comparing year over year.

When we look at our gross margin.

Despite on an annual basis being virtually flat in 2022 compared to 2020 one.

Margin fell.

Seven 1%.

In fourth quarter versus third quarter 'twenty two.

This margin compression was mainly related to number one.

Revenue mix was that change among quarters remember that institutional and issuer services.

They have almost 100% <unk> margins because commission, which is the most relevant line in Cogs.

Is mostly related to retail investment revenues.

Prepaid expenses write offs, we had these one off in the first quarter regarding ended contracts with <unk> remember that we have a prepaid expenses related to a long term contract with the <unk> face it.

If one IFA leaves.

We write off everything that is prepared on the other hand.

We receive the fine of whatever we have paid in double and that goes in our other income.

Income in SG&A.

And third we had a change in interchange fee recognition criteria aligning with other players in the industry. So as of fourth quarter 'twenty to interchange fee is recognized upon transaction. So he talks directly to the PPV that we release.

Looking at this year 2023.

We expect gross margin to remain.

Stable relative to 'twenty, two and 2021 on an annual basis, despite volatility between quarters, it's always good to remind that between quarters.

We can have volatility as we had last year.

Moving to expenses.

When analyzing SG&A expenses.

We preferred to exclude revenue from incentives from two sort of jet at the big three and others.

We've seen other operating income you have that in our financial statements.

Because despite being a recurring line.

Its magnitude is volatile by nature.

As a reference design.

Was 200, a positive number $285 million in 2022.

A positive.

366 million in 2021 and $353 million in 2020, so when you look at the last three years.

We always had a positive reduction in SG&A coming from revenues that are not recognizing the top line, but inside operating income.

And as Jenny.

So we're going to have something in 2020 three I have no doubt about it the magnitude of it is hard to forecast. So that's why when we look at expenses we.

We exclude these revenue and then the SG&A is higher.

So edge in the SG&A expenses, excluding excluding the incentives.

Grew 18% in 2022, reaching the five 6 billion.

People expenses as I said represents.

70% of total while non people 30%.

And as previously mentioned for 'twenty to 'twenty three expenses we.

We are estimating IRA.

A range of five to $5 5 billion.

What's going to drive this range, it's mostly the revenue growth.

And the performance of the business.

For instance.

If we think that 'twenty two 'twenty three is going to be.

More of the same in like 20 to 22 and our.

Revenue would grow at the same thing the 10% for example.

It would be in terms of SG&A at the bottom 5 billion hatch.

To get to the top.

Our revenue should grow at high double digits. So that's why we have this range because there is a component of our SG&A.

Based on performance, which is the bonds that can vary.

Depending on the results.

In fourth quarter.

Looking at the right.

SG&A was flat relative to fourth quarter 'twenty one.

And on an annualized basis, it was $5 5 billion already.

We think the guidance range.

So over the next quarters, we expect further reductions in SG&A.

Yeah.

Net income.

Net income is basically a result of everything that I've. Just said, so 2022 net income flat year over year $3 6 billion.

With a slightly higher earnings per share growth due to the buyback program that we've been fulfilling.

So during 2022.

We have bought back $1 8 billion highs of which $1 3 billion.

Only in the fourth quarter.

On the quarter.

Our net income was $783 million.

Which fell 21% year over year, and 24 quarter over quarter due to the impacts that I already explained in the previous slides revenue ought to look in the gross margin compression. It's what explains this drop.

Factoring in our expectation for.

The business and the SG&A guidance.

We estimate 2023 net income to be between $3 8 billion and $4 4 billion.

Usually we do not give that kind of estimation on an annual basis, but we understand that in.

Such soft macro environment.

<unk> been harder.

For many investors to understand the impact in our in our company and in our business.

It would be important to give this kind of guidance for the year. So you can follow in.

Next quarters to come in.

And finally before we go to the Q&A.

Just wrapping up the main message here.

Expenses already talked a lot about it so leaner cost structure, that's the main priority.

The transformation will allow us check spend margin.

On a sustainable way number two cross sell sporadic talked a lot about it we have businesses with exponential growth.

Three.

We keep evolving our strategic roadmap.

And our business.

<unk> is getting better the way, we look at it, especially when we compare to previous cycles and number four above the 2020 for expectations or the guidance net income between three eight and $4 4 billion SG&A, excluding Santos between 525 points.

<unk> 5 billion with that.

I think we should go to Q&A now.

Okay. Okay. Bruno so again, we have a lot of a lot of analysts.

On on the line here. So I'll ask you to be patient, we will go one by one.

Answering the questions.

First one Hoffman as our Muslim from BTG.

Yes, Hi, Ondrej Hydrophone I Bruno how are you guys.

Good how are you <unk> I have that.

And finally as well thank you very much I have two questions.

The first one.

It's more related to the short term and the second one more related to the long term dupe referred me to do this both at the same time or do they prefer so let me just do the both of them.

So the first the short term.

You gave the guidance, which was great. Thanks, I think it helps.

Guidance implies earnings growth rate year on year, I think it has to do a lot with your cost control right.

But how do you think that will evolve throughout the year right because.

My sense here is that first quarter is likely to be pretty weak right. So.

These sham window.

It's very bad after the medical situation January's Bad you don't have the let's say the incentives you know at costs as I know usually you have some upfront costs and then you'll benefit throughout the year you know so it's fair to assume that the first quarter very life is going to be the week the weakest of the year.

And then we're gonna be recovery over time, so that's the first one and the second one I think it's related to it's more it's more about the long term right. We know that the short term stuff. So let me try to think about the long term here.

I think it's an important theme, which is the partnership model.

<unk> you can.

Maybe talk a little bit more about you know the model how it's working today.

We know that you had a model in the past, which was or the controlling group all the partners, where they are and that worked pretty much pretty well drilling let's say many years.

But you had to change how you had to change that because it's all about a big stake in no different times I know you changed that to know a few times, where a couple I don't know.

And I assume there's a chance to change again, so so how crucial you think its this partnership model. If you have any any any anything to add to us because we were seeing here is something very important.

No perfect Hoffman.

Yeah, I mean, the first question about the.

We are going to evolve over 2020 three with the guidance, you're 100% correct first quarter.

Should be the weakest quarter in 2023.

The americanas events that he mentioned has a secondary effect in capital markets activity, we know that DCM activity has been like.

Like frozen.

Especially in the distribution part where SP X.

As the key role there so yeah first quarter.

It continues to be a tough quarter, we do have the expense reduction.

That is 100% under our control as I mentioned, so we do expect when we look at SG&A.

To show.

Already a reduction considering the guidance that we gave.

You also are correct. When you when you say that are in the first quarter, we had the benefits of the SG&A.

Because of these sensors and we are not going to have that in the first quarter, that's correct, but as our guidance goes to SG&A ex incentives.

It doesn't matter that much but yeah, well youre going to see evolution of the SG&A in the first quarter. Okay. And then we expect to keep evolving that throughout the whole year.

Going to the partnership in a more long term question you already gave some of the answer when you mentioned what happened with the <unk>.

We.

We liked a lot the model that we had in the past.

With XP controller.

We had to change that model after the IPO exactly because of Utah would they went to super voting rights Supervoting voting rights should be for the controlling shareholders, but he was the agreement.

We had to accommodate that and we didn't have.

I would say space to keep the same model that we had as a non listed company.

Then.

We start to.

With the restricted stock units with a different vesting periods in the middle of the way we improved.

The model that we had learning.

From feedbacks and from experience as a new listed company and we are always thinking about improvements in our partnership model that I can assure you because that's the heart.

Our business and we take that as the main priority.

The model that we had in the past not directly related to <unk>.

Share price fluctuations for example, take the model of a return on equity.

Model, where you buy and sell based on return on equity we think it's a very good model because it aligns you in terms of the return of the company in terms of cost reductions for example.

And you are not directly exposed to market fluctuations, but more about the fundamentals of the business. We like that very much. We don't have anything to announce right now, but what I can tell you is that we are always open and thinking about ways.

To improve our partnership model their restricted stock units are working are working just fine can it be improved we think yes.

No Greg Crystal clear, but we do think that when you have a you should do any changes or anything on that front I think it would be great to know if you know we would announce we will now we will announce that that's for sure because there is as I said Hoffman.

And we think it's a priority in terms of it's a very important topic for for the company no question about it.

Great. Thanks, Thanks, Andreas Thanks Bruno.

Hi, good tissue.

Okay.

Okay. Our next question.

Yeah.

Is from module.

Yeah.

Yeah.

Just a couple of seconds.

We have some delay we're trying you should announce that I'm that we're trying to.

In your model, where we can see.

The analysts.

Whoever is asking the questions. So it might have.

Hi, mom of a delay.

Hi, guys.

Thanks for taking my question two questions.

Yeah.

In the last quarter I think you had changed your guidance to be on our earnings before tax because of the volatility in the tax rate.

Hello, I was wondering what kind of effective tax rates are you assuming on your guidance for the net income that you gave.

And then the second question is related to your expense.

Expense reductions.

Talking about you reduced head count by five 5%.

And from December to January <unk>.

I was wondering if you have any other plans like in order to get to the bottom of your guidance Randy It's a 11% reduction in SG&A.

So in order for you to get to the 11% doesn't mean further head count reductions or does it mean cost savings in other areas.

And what kind of impact this could have on your on the growth of some of your other businesses.

Perfect.

See you.

Regarding the income tax rate your Europe , you're right, we gave the earnings before tax.

Margin guidance, and we know that the accounting.

Income tax rate is tricky, depending on the mix of revenue, but that's exactly why we have these.

I would say wider range in terms of the net income from three 8 billion to $4 4 billion.

We have many different.

Assumptions here, so I cannot give you a specific what we used to give these guidance because it depends from the range. What I can tell you is where we are confident that we can deliver the bottom of the range and one simple math here to to help you out is the following.

<unk> that.

We were in 'twenty to 'twenty, two the whole year, So 14 billion revenue.

Three 6 billion.

<unk> of net income.

We would have instead of 565 billion has of SG&A.

$600 million of.

Reduction in expenses would mean more than 300 million highs.

Additional to net income so with that.

We would be able to.

To reach the bottom of the guidance of course.

As I answered the previous question.

The year started in a very tough way because of what happened with America and us capital markets activity and so on.

But we do not expect the market to state I would say dysfunctional throughout the whole year.

So capital market activity should resume at some point.

Companies need to.

Rollover their debt.

We have several investments in fixed income that mature around this year. So all of that sector, Inc. Is what gave us.

The confidence we have.

They got so I don't have a specific income tax rates to two gives you.

Your second question about the the head Count you mentioned the $5 five to $5 five reduction is only comparing January to December .

But.

What I would I would say two things here number one.

Yes, you can expect further.

Redemptions, that's gonna be Deficience theme is it going to be constant throughout the whole year.

But most important than paying attention to head counts is to pay attention to SG&A.

Right because.

We can have for example in third quarter last year just to give you. An example, third quarter last year, our head count growth.

Went up.

We had a growth in head count compared to the second quarter.

But we had a lot of U turns and Jan developers that we had a partnership with <unk> that we bring brought in the company.

And that's a different structure of layers.

The transformation.

The benefits of the transformation ongoing is that exactly to have less spun and layers to have merge of leadership to simplify.

And that's how.

The reduction in SG&A will come head count.

Decrease it's happening, but I would pay attention to be.

<unk>.

So the expense itself.

It's more relevant than the number of head count that as one of them frankly.

Okay, and the impact that this head count reductions could have them on revenue growth sorry, I didn't I didn't answer that men and that's what I tried to I tried to explain throughout the presentation.

It's the benefits of the transformation. It's whenever you have a transformation it's natural to have a.

<unk> curve, because youre going to be working with more than you need but it is important so you do not lapped anything fall.

Off the table.

And we accelerated that that process.

Intensified when MOSFET assumed as our CEO .

And last year, the second semester, mostly in the fourth quarter, we accelerated our launch so the way XP now he's organized through business units. It gives us more agility and efficiency in terms of.

The teams working together and that's the big benefit. So we are not postponing any deliver deliverable in terms of products are you know, we're not jeopardizing experience for our clients as I mentioned nothing like that so.

We're not perfect not dropping anything.

And this is all related like.

On the SG&A guidance that you gave are you, including any severance charges associated with these layoffs.

Yeah, Yeah, Yeah, we are already so that's not going to be additional no no. It's not additional we are including because you are correct. We have severance layoffs. So everything it's going to be in the first quarter. So basically.

Most of it.

And then when you talked about like the SG&A falling from $5 65.600 billion Delta in.

And you said it will be 300 million to the bottom line, but we know that your effective tax rate and has been close to zero.

No it depends but it depends on where I'm using you know.

I would say a conservative approach in terms of.

Where we are reducing their costs, but.

Yeah, that's just a conservative approach.

The tax rate the tax rates is the accounting one is trickier than the one that we released when we have the equivalent because remember that we do pay.

More tax than what is shown in our accounting because we have part of our business.

Where we do not recognize the full revenue we recognize the revenue already net of tax.

That's what happens, but we paid the taxes.

Okay.

Thank you.

Sure. Thank you Mario Thank you Mike.

Well Jeremy <unk>.

Jeff in from Autonomous research.

He will be.

Hey, Jeff can you hear us.

Hi, I can hear you can you hear me.

Hi, Jeff.

Great. Thank you first just a very quick clarification. The net income guide is that on an adjusted basis or a GAAP basis.

Oh, no it's Geoff it's on the accounting basis not adjust okay.

We withdraw we still we still adjustments yes.

It's the GAAP net income GAAP, we will.

We still believe the adjusted net income, but we have withdrawn the adjusted net margin guidance.

As we look at it including the share based compensation, despite a noncash expense.

We consider an expense.

Great. Thank you that's in the last quarter great.

Great. Thank you.

In terms of the pressure that you saw in the retail business specifically.

Equities how.

How much of that is simply less activity and how much of that is product mix.

People trading cash equities versus toys, and derivative products and things like that.

What's driving the pressure there.

Yeah, I would say activity.

Especially in the full year.

It's you know we have.

Equity part clients migrating out of equity into <unk>.

More fixed income products because of interest rates.

But on a quarterly basis in the fourth quarter activity not not for the brokerage business the trading parts, but for example, you mentioned.

Stricture note structure notes.

I believe the industry felt like a 20% to 25% quarter over quarter. So yeah, there was less activity.

So that's basically.

What I would say in terms of the equity dropped in the first quarter.

Is.

The base is low now Jeff because we've been in that same for for a while right.

Understood. Thank you my Jeff Thank you.

Yes.

Okay.

Next in line.

<unk> from Jpmorgan.

Hi.

We can hear you.

Yes, Hello, everyone. Thanks for taking the question two I think more simple questions. In here first one is you mentioned you are now recognizing interchange and the moment of Bpd. My question is how did you recognize prior to that because it's <unk>.

Is there any way I can think of recognizing this.

And it wasn't materially impact right. The second one is everybody had one off impact on lending.

No Matt.

Big expected to make sufficient I guess go towards americanas, but in any case, everybody had some sort of loss just curious.

If you had any one off impact in your income statement this quarter I appreciate it.

Now regarding the impair changed dawn was.

It was basically.

The installments we recognize.

Basically on a cash basis, okay, and the installment paid we didn't recognize and we adjusted that in the first quarter. So that's why we say it's related to the to give you. Our recognition was below what actually was the PPV. That's that's what we are we.

Change.

Regarding one off I mean, we.

We decided to.

Not adjust anything for one off right because we always operating business you have one offs every every single quarter or every single day.

So if you would adjust anything for what we believe to be a one off.

It would be a mess.

The americanas event.

I believe can be like a one off because it was a like a very singular events.

We didn't have.

Any impact.

Like the banks in the credit book, because our our credit book of seven.

17 billion.

<unk> at the end of last year zero exposure to americanas.

90% of that credit book is collateralized, so we're no different.

Situation here, but we do have.

Market, making boot in fixed income that.

That of course, the band trees and bonds of Americanas, where trade it and we had an exposure that but we could not recognized in the first quarter because it was not a.

Our credits that you can have a NPL there and recognized it was recognized in January this year.

With the market to market proceeds of.

The tradable parts of the book and to give you.

The impact because that's going to it's going to be I believe it's fair to consider a one off.

It's going to impact the first quarter and the amount is close to 125 total 100% 125 million highs in the bottom line.

How are you clear of this risk is it fully done yes, basically Korea, yeah. We.

We don't have our our market, making activity, we don't have big exposures to one single name right. So it's basically a function of what the clients buy and sell.

And we do have a many different names americanas. Unfortunately, it was one of them.

It's 100% recognized in January .

Youre going to see that in the first quarter, but that.

So it's super clear. Thank you Andre Thank you Brenda.

You.

Thank you Luiz.

Okay next.

So anyhow from HSBC.

The sushi cheese.

Hi, Nina.

Yeah, I think you're on mute if you can.

Harris.

So, let's let's strike.

Okay.

We can come back to me.

Yeah.

I'm reading.

Tito <unk> from Goldman Sachs, Hi, Tito.

Okay.

Hey, guys. Thanks, Peter Yeah, Hey, Bruno Andrei Thanks.

See you.

Okay great. Thank.

Thank you thanks for the call and thanks for the guidance and the color that's helpful.

Maybe just on the revenues.

You had the aggravation challenging quarter in <unk> is going to be a bit challenging.

But it's helped us think about sort of the long term growth potential on the revenue side.

One what do you think needs to happen is it just a better macro environment interest rates coming down.

And I know, there's a lot of moving parts in there, but just trying to think about that and I'll go back a little bit yeah at the end of 2021 your Investor day.

$10 billion in revenues from new verticals that would be 25% of revenues like $40 billion in 2025, which is only two years away. So I mean, I think we can reset those expectations I imagine, but just help us think about revenue growth from here.

Downside risks and upside risks.

As much as you can would be helpful.

Yes.

Sure.

I think that I will I'll separate my answer here in two parts Tito.

Let's look at these tough environment for investments with high interest rates and assume we're going to be in these environments for longer right.

If that is the case.

The equity part of the business.

He's going to continue to suffer.

From the macro environment.

Why do we have as an ecosystem.

<unk>.

Positive things that will benefit from its no matter what number one I already talked about the new verticals.

If you look at $1 3 billion.

50 to 60.

Percent of growth this year, we are.

Confident that we can deliver that.

And it's not correlated with the investments.

We are talking about.

700 to 800 million of additional revenue this year right.

Number two.

And then when I think about the funds platform and we have the largest funds platform open funds by reforming the market.

And I think about the fixed income business both of them.

They should grow what at Selic rate, which is $13 75, So we're talking about mid.

Mid double digits here, it's important to have that in mind.

The client assets.

Because of the shift that we already are.

<unk> hands in terms of movement in the fourth quarter. It was the first quarter were fixed income.

Assets was greater than equities.

In our breakdown.

So.

What I'm trying to say here is.

The impact.

<unk> continued to happen yes.

But a lot.

Has been done already in the fixed income park and the funds platform should grow.

At Selic rates, so that component also will help.

Revenue growth.

When I think about a longer term perspective or revenue.

Two really.

Played these operating on average an exponential growth again.

Wouldn't need the.

The market.

<unk> churn again, so the reverse of the tightening cycle, we don't need anything close to what we had in the last financial deepening process in Brazil have interest rates of 2% not at all actually is not.

Even good for <unk>, when we are at 2% it's not sustainable.

So I think that.

Low.

Hi, Amy.

Single digits.

Lower than double digit interest rates is more than enough.

The psychological effect. If you have 90% is one thing if you have 10% is another thing.

So this is important and we believe that we are going to get there. We don't know when it depends on macro policy, but we believe we're gonna be cyclical right.

So when that happens.

What I the point I tried to make during the presentation is look our business still has a very strong operating leverage.

And we are growing and we are expanding not only the sales force.

But we are complementing the services and products that we can offer to our clients through our ecosystem. So our ecosystem is not only becoming more resilient with bigger.

When we have the reverse of the cycle.

And with this transformation and we adjust in.

And the cost structure with a much leaner cost structure. This operating leverage that our business do you have.

It is going to play an important role.

I don't know when its going to happen.

But it will at some point in time.

That's what I'm, saying so the growth of revenue, that's how I would I would I would put it.

Selic rate for funds platform and fixed income part.

Floats same theme and new verticals growing exponentially the equity parks.

Already you know in a very low base should stay like that if the scenario is a conservative one in terms of <unk>.

Higher interest rates for longer.

Great. That's very helpful. Thanks for the color on that one follow up if I may.

I guess just on <unk>.

Why are you confident at the cost cutting.

One impact the revenues and particularly some head count reductions.

Do you think you over hired.

Will you when the cycle comes back will you need to hire again and is there no impact from that.

No we over hired.

I think we over hired right. That's one part of the explanation.

Are we.

Again.

When I look at when I look at the what happened.

In.

We double our net income and three consecutive years, and we were doing too too much too fast at.

At the same time.

So it's really it's really hard to.

To stop the train and we did that.

And a pandemic so.

We start in 'twenty, we hired 1000.

<unk> thousand employees in 'twenty or 'twenty.

And the pandemic to 5000.

In 2020, one working from home.

Of course, it's hard to manage that and of course, we have over hiring I have no doubt about it. So that's one part of the explanation, but I think the most important than that because that's easy to correct milk.

And it's been already okay.

But the other parts of the cost.

Cost reduction in my view, it's more important is the transformation.

It give us.

A structural competitive advantage in terms of the way, we are organized and our agility. So.

We are not.

Lapsing anything we're not giving up anything we have already invested right. So.

So we have.

The bank.

Working the destock counts, we have our insurance company, where it can we have our international accounts work and we have ex stage working we have the corporate business.

Working and we have our internal advisors already hired now it's time to consolidate everything that we have done.

And through the transformation with a leaner cost structure. So it's not about letting anything goal.

It's about not doing anything new but on the other hand.

Consolidating and taken the opportunity of the cross sell of everything we have done.

Okay. Okay, no that's clear thanks Robert.

Thank you Tito.

Yeah.

I'm reading.

Marcel Luke.

From credit Suisse.

Hi can.

Can you hear us.

Yeah, I can hi, Andre Hi, Bruno <unk> hard time.

I have two questions I think the first one is more strategic.

Question, I mean, we've seen XP.

Have you had a very successful.

Business model.

Previous years, there was certainly a very strong growth in a scenario where interest rates were abnormally low.

And where I think the XP had indeed.

A winning value proposition right part of the customer, especially the visa fee no what was being offered by the banks at a time. So there's a lot of growth not the relationship would be ifa's was easy right their relationship with internal stakeholders, it's probably easier RASM theres more money.

<unk> and <unk>.

No.

In that respect.

But now we are in an environment, where interest rates are double digit we can argue whether theyre going to be <unk> 15, or 10, but they are definitely not going back.

2% they had before.

And you have an environment, where <unk> made him the mr's troubling.

In this environment.

And in an environment, where you may not have that same winning value proposition.

That you had before because now I mean banks.

We are fighting back right to have products that don't have.

As you mentioned earlier some.

Investors are looking for lower risk type of instruments, which.

At times the puts.

The large banks in our advantage and now you have a large banks large banks also.

Willing to replicate a bit your.

Your model right of having no.

Offices in ophthalmology for countries.

I tried to bring that to bring your spirit.

So to them, it's something that you guys did very well.

Over over the years and when I hear you.

Your.

You talked a lot about.

Now, let's talk let's reduce costs, which I think is something that you have to do we know for sure in that environment and are trying to equate to a new level of revenues.

<unk> talked a lot about the internal transformation of.

Of the.

Opex be.

And the nature of this cost, which I agree I think that's important.

But I think what worries me.

Is that I didn't hear much about if there isn't a need for changing the strategy.

<unk> B in terms.

These are the environments. So how are we going to approach.

Get your relationship with IFA, there seems to be from what we see with talk there's a lot more attrition today would there would die space.

Before we see a consolidation with.

<unk> face.

That their bargaining power only increases over overtime and when things are hard to smaller phase needs to attach themselves struck the bigger effect that ends up in our great.

Great attrition that relationship or maybe <unk> have to spend more money right to redeem them either through <unk> or are buying direct stake so.

What's the strategy.

<unk>. My question is there any broader strategy in that respect and one.

Uh huh.

Attached to that is.

Paul.

Do you think about this conflict of interest that exist.

Between the <unk> phase of the clients the model that was a winning model back then now.

Nowadays Zika equates a lot of complex identity the day, sometimes its not in the best interest of the client.

So what is X P. Thank you strategically to address those issues.

<unk>.

Okay. TV you made a lot of questions in assumptions, there I'll try to address.

The concept and please let me know if.

If I do it.

I don't I mean, I don't see eye to.

I think there is a narrative there.

That I.

I don't necessarily agree with that I think it seemed clear than that.

Xb is evolving in the business and the investment business, it's not that.

Of course, there is competition and so on.

But that's not the point the point is a very tough macro environment that makes the investment business to suffer.

As I said people are there is.

Our hiring their shift.

And moving mining when you have.

Very high interest rates and then your mind me just investing in fixed income is more than fine.

So when you look at the.

The Kpis that I mentioned the main kpis for the investment business, we advanced last year with all of that competition.

With.

Interest rates going from.

Less than 10% to 13, 75%.

We added 2000, new eye a phase we.

Added net inflows of 155 billion.

And we added new clients 406000, new clients. If you look at our market share in 2000, and the investment the way we see it in the investment business in 2097, 3%.

<unk> 20th 28 six.

In 2020 110, one.

November the last data that we have last year, 11%.

We're gaining market share the pace of it is.

He is reducing because of high interest rates is not because of competition.

I am confident that whenever the.

The cycles change.

<unk>.

He is going to be.

The main destiny from clients to come here, because we have of Salesforce train in a different way to serve.

In terms of investments.

Or not other reason, we've being elected in four consecutive years as the top of mind platform for investments in Brazil. So I think it has to do much more with the macro environment then.

Structural thing I don't I don't think there is honestly and we keep evolving so the accretion that you mentioned about the <unk> phase I don't know what attrition you're talking about I think we have more than 12000 I have faith in our network in the past we used to have less than 1000.

We communicate with all of them on a daily basis.

And if I wouldn't you know show you all the complaints we would.

Stay here you know for the whole months.

And we like that because that's exactly what makes us.

Batter.

To listen and to serve.

And that's how we're going to get better and Thats, what <unk> been doing for more than 20 years.

So.

The conflict steadier mention we always fails.

V I a phase in internal advisors look we have to do the best for the client periods. If you don't do that and of course, you have to make money in the client needs to understand that better.

But it has to be a win win situation if.

If you don't do that.

That is going to be a successful intrapreneur periods.

So our I face they have a very high.

Score in terms of NPS.

So honestly I mean, I think that in our strategy at least for me it's pretty clear.

It's gone beyond the investments to be dominant in investments because we are not yet.

And we have a very.

I would say interesting.

<unk>.

Which is our client base, our client base of 4 million clients.

It's a client that has money to invest.

And that's really good.

So we need to focus on those clients serve them better and to go beyond the investment.

It means that.

As I said, they have already trusted us with the <unk>.

Part of their life that it's.

One of the most important their savings.

We need to take very good care of it serve them well.

And then convince them to try other products other things.

And that's exactly what is going to expand our addressable market increase the moat of our ecosystem.

The LTV of our clients and then we can bring a win win situation.

Again with that client throughout the period.

So.

I I I mean I.

I don't think there is something here in terms of the strategy that needs to change honestly.

Thanks, Bruno Columbia adjustable one my second question.

D.

The cash flow.

The I saw I couldnt find the demand at your cash flow statement in our press release.

I don't know.

The reason why I wasn't there but.

I just don't understand I saw there was a reduction in the net assets of about 459, mineralized harbor quarter, but because.

You guys didn't publish the cash flow statement I don't know if thats, what they call a share buyback or you know.

Our payments to our Facebook, if you could explain what drove that cash burn.

That'd be great. Thank you.

No shirt Dallas, Yeah, the share the share buyback you you brought up an important point that I didn't mention.

We have bought throughout the year.

One 8 billion highs in share buy back approximately.

We have an ongoing treasury more than.

Three 5% I guess from total capital Nowadays.

But most of it was in the.

Fourth quarter, because remember that in the fourth quarter.

On top of the share buyback program, we have the <unk> block.

That was more than.

550 million has something like that so in the fourth quarter.

We have bought one 3 billion has approximately in total right.

And that's probably.

What is for there, but we can go into details later because.

I don't have here in front of me, but that's probably the share buyback program.

That continues right. So we have been generally at Amgen mate.

<unk> phase in this quarter.

Yeah.

This quarter.

It's going to be minor, yeah, there'll be minor because it.

Sooner based on Apple.

Recent quarters remember tell us that we have withheld the long term agreements that we have done with the <unk> phase.

We have some.

Variable.

Components of it.

Linked to performance rights. So if achieves we pay if it doesn't we don't.

And then depending on its a case by case.

Thank you I appreciate your time now think of Dallas.

Thank you David.

Okay.

Okay.

Okay.

Last one in line.

Scherbo Schuster from UBS.

There he is.

Hi, Joe can you hear us.

Hi, Thiago we cannot hear you.

I don't know you doesn't seem AUM you know yeah.

Yeah, No no portfolio sorry, guys.

Hi, Bruno Ida.

So I have two questions one follow up the follow up about the guidance of only 2223 sure.

Piet topline growth of the guidance early my question that is a low single digits.

Is that the case, so the top lines to expand into new entry at single digits. The.

And the second one.

About the impact of the higher interest rates in your working capital. So I believe who have not seen yet the full impact of the working cap of the highest degree of editing your working capital if it's possible to see define expanding into inventory.

Okay.

The top line.

Yeah. The next time, we should give the P&L because you do the backwards calculation to get to the top line okay.

Look.

We.

The guidance that we gave.

We are not giving topline guidance right.

<unk>.

To your point can we achieve.

Net income guidance with.

High single digit or.

High single digit no.

No high single digits or low double digit revenue growth.

Yes, we believe we can.

So that's it.

It's an approach that we factor in especially considering that the first quarter.

It's probably going to be tough considering the Americana, zanten and what happens with capital markets.

We were conservative in the assumptions too.

Bringing these guidance right. So that's but it's not a top line guide.

And regarding the tax we do have that in.

In the.

Cash for working capital variation here, but.

I don't know exactly.

What you're missing their job.

Another data point is the highest vickery to attempt to have a positive impact.

In your working capital after a while.

You're not wrong can you guys are investing part of the working capital and kind of fixed income securities.

So probably we will see.

A higher impact of dis in 2003 onwards.

From the increase in in.

And <unk> in New York.

Not ex Europe .

Go ahead.

Charles.

Understood.

Interest on gross cash and interest all of them.

On equity for example.

Yes.

Okay their working capital Okay, now I got it.

Yeah, it's going to be it's going to be higher youre right.

No. Okay I do have the magnitude of these injuries.

Oh boy.

Of interest on gross cash.

Yes, if I answer wrong, you guys invest part of the of this working capital in our fixed income securities So take them.

Now in a lot of different secures, but yeah its fixed income.

But everybody is we have not seen yet the full impact of the highest take rate in your working capital.

It's true to say that.

I don't know if youre talking about the other revenue other revenues, yes, youre talking about at all.

<unk> no no no I understood, yes, because we also have.

All the hedge of the floating the network that we have offshore.

And the corporate F to be there.

That goes into other revenue as a reduction in some parts. So.

We do have that benefit, but we also have I would say negative numbers that when you add it together probably is what explains our lower number than you expected that's what I'm guessing here, but we can we can go offline later too so I can understand exactly what your math our.

<unk> is and we can help you with that for sure.

Victor I can telco with you guys.

Thank you chairman.

Yes.

Okay.

Okay sure it was the last one.

Thank you everyone for your participation and hope to see you all soon in Dutch basis.

Bruno.

Final remarks for Woodbine just just thank you for being here with us in one more call.

Yeah.

That's all.

<unk>. Thank you bye bye.