Q1 2023 XP Inc Earnings Call
These revenues were driven by several positive trends such as the float in our broker dealer business, which benefits from high interest rates and.
And good growth in our international investment platform and FX.
Moving to slide 14.
On slide 14.
We show our retail revenues in 2000 22021 and for the last 12 months as of.
First quarter 2023.
I think these helps illustrate the negative impact of the macro environment in our revenues, but also the benefit we're getting from our diversification into new verticals.
As you can see our core retail investments revenue grew significantly in 2021.
With an increase of nearly 3 billion highs.
But have decreased nearly $1 billion since them due to the macro environment not our competitive position.
Despite this our total retail revenue has increased 64% over the same time period, given our more diversified revenue stream and ex feasibility to scale new products really fast in its ecosystem.
As you can see revenue from our new verticals increased over two X in 15 months.
<unk>.
750 million high since 2021.
This has helped our business to become more resilient and helped absorb some of the negative macro impact from the more cyclical parts of our business.
And when the micro the macro cycle turns which will at some point in time. These diversification could provide a new premium to pay Williams for us.
Now.
Let's shift to the expense side of our P&L.
Where we had some strong performance in first quarter.
On slide 15.
You can begin to see some of the benefits of our cost structure adjustments starting to capitalize.
In first quarter 'twenty, three SG&A, excluding incentives decreased 24% quarter over quarter, and 17% year over year to just over $1 billion.
Our head Count management plan.
It resulted in a net reduction of 782 employees in the quarter to 6143.
This impacted share based compensation two rich.
53 million highs in this quarter, but we expect to return to normalized levels in the following quarters similar to what we had in fourth quarter 'twenty to share based compensation expenses.
Our efficiency ratios improved this quarter.
Breaking the pattern of best years in bringing the company structure, where we want it to be.
For example.
On the left side of the page under the bar charts.
You can see that our last 12 months efficiency ratio, which is SG&A, excluding incentives divided by net revenues.
Decreased 161 basis points quarter over quarter to reach 44% our lowest level since first quarter 'twenty two.
On the right side of this line.
You can see that our last 12 months comp ratio, which is people SG&A salaries bonuses and share based compensation expenses divided by net revenues.
<unk> 107 basis points quarter over quarter to reach 28, 5%, our lowest level since fourth quarter 'twenty one.
We expect to keep improving our efficiency ratio going forward.
I believe we remain one claim to meet our annual 2023 guidance for SG&A, excluding centers of $5 billion to $5 5 billion highs and we will remain very focused here.
Now moving to slide 16.
EBIT and net income.
As a result of our strong cost management, our earnings before tax and net income margins were positively impact as you can see in this slide.
During the quarter, we generated 870 million half of EBT with a 26% margin or 977 million highs, excluding the onetime loss.
At 29, 6% EBIT margin.
I think the quality of PBT in the first quarter 2003 compared to the fourth quarter 'twenty. Two has also improved significantly and is sustainable.
Recall that in the fourth quarter of 2022 seasonal incentives benefited our SG&A by 242 million hatch.
Excluding these our fourth quarter EBIT would have been closer to 500 million hash.
In the first quarter, we had only 3 million half of these benefits.
I believe.
The operator average that we are realizing in the business is an important achievement and gives us a stronger position to face any macro headwinds going forward.
As a result.
We remain on plan to meet our EBIT margin guidance range of 26% in the near term to 32% by 2025.
And finally.
On the right side of the page.
You can see that our net income in first quarter, 'twenty was 796 million or nine.
927 million <unk>, excluding the onetime nonrecurring loss of $131 million net of taxes.
As <unk> already mentioned.
Our annual guidance for net income between three eight and $4 4 billion.
These steps.
And now we will move to the Q&A session in which both Mafra ni will be available to answer your questions. Thank you very much.
Thank you Bruno so now we will move to the Q&A session, we have a lot of Ah.
I ask you to be patient we have.
A lot of our hands raised and we will.
As usual due on our search.
For server basis. The first question is.
From Tito <unk> from Goldman Sachs.
Alright.
Hi, Andrew Hey, Bruno.
Thank you for the call taking my questions and congratulations on the good results a couple of questions.
If I can I guess.
Just first on the inflows.
Which we had already known before they came out today and just help us think about the sort of the rest of the year do you think those inflows can recover.
And just.
Along those lines right.
Your revenues were fairly stable considering all the impact relatively weakened flows just to think about what can drive revenues up from here and how dependent would that be on inflows increasing.
And then just a second question on the guidance I know you kept the guidance.
And you also had some of the impacts here.
<unk> could potentially be on track at least for that bottom end of the guidance do you think is it fair to think that this is like a seasonally weak quarter and can earnings improve from here.
Definitely delivered on the expenses and it goes back a little bit too Ken revenues growth.
To sum it all up kind of revenue growth outlook, given the inflows that you have right now and if there is upside from here. Thank you.
Okay.
Hello, Chad how are you. Thank you very much for being here and for your question I will take the first part and Linda can take the second one about the inflows.
Being very honest and a regulatory issue.
It's hard to imagine that in an environment like we have today.
That our investors they are afraid they have high level of uncertainty.
And we've just high interest rates at $13 75, they prefer to keep their money in very liquid and.
Very low risk investments. So it's hard to imagine that we will have like the same levels of net inflows that we had in the past if the especially the level of uncertainty okay not much the interest rates of course, it helps if it goes down but.
When you'll get the two things together, that's the difficult part okay.
And to give you give you some numbers okay.
When we look.
Of course, we track all the inflows and outflows throughout the financial institutions.
And all of them.
<unk> went down I would say the same level. Okay. So we don't see any player getting more.
Efficiency against US then order okay. So that's in our opinion reflect that.
It's more important.
The liquid broad, it's Leica LCA CGS with tax free at $13 75 than anything else and the second point is if.
If you look.
The net inflows not the net new money, we are close to their all time highs what happened, we see higher outflows and when we look.
Outflows there more concentrated on companies. Okay. So it's not on the Ddos, it's more companies because they need the cash okay. They have.
Lower credits at the banks right now they have a tough environment. So we see a lot of outflows of companies right now.
So in our opinion, it's something that's cyclical that's part of the the investment business. Okay. We have cycles and we are in a bad cycle flaring batson's, but at the other hand, we have all the new verticals the all the new business lines.
Our growing and more than compensating.
The decreasing investments.
Yes.
And to answer your other part of the question about the revenue part of the net inflows being lower.
It's it's less relevant today.
And then it was in the bull market for sure and also.
What my information about netting.
Net inflow.
A component of <unk>.
Two numbers gross inflow and outflow so if the net inflows loader because the outflow is higher for example.
In the wholesale, especially for corporates and companies.
As Matt formation, it doesn't mean that the revenue is.
You're going to be severely impacted by that number.
On the contrary, if we keep the level of inflows.
And outflows.
Being higher we can depending on the case, even making more revenue in the short term okay.
Your second part of the question about the guidance and if there is a season.
Seasonality.
I believe yes, I believe that.
First quarter was really weak in terms of capital market activity, especially after.
What happened in January the corporate credit market was dysfunctional in the first quarter.
We see resuming.
Right now, but he still.
Very weak so far this year when we look at a longer term period for DCM for example.
The last five years on average there was the seasonality that favors the second semester compare to the first semester around 40%.
The revenue in the first semester compared to 60% in the second semester, we do not know if it is going to be the case this year, but the beginning of the year was really weak regarding capital market.
Great. Thanks, Bruno Thank you Rafa.
Very helpful and maybe if I can just one follow up on the.
The gross inflows kind of any color you can give on how I guess are those gross inflows with individuals have evolved over the last year I mean, how have those decelerated as well.
Any acceleration there just.
So as you put that out there just if you can put that into context.
Also given the market.
That's it over to Bruno.
Martha.
Tito just to give you a few numbers so we do not disclose the gross inflow.
But just for you to have the big picture when we look at the first quarter this year and compared to the average quarters of last year inflow was down around 5%. Okay. So that's the number so considering the macro environment is not much in our view, but.
When we look at outflows.
It was up 20%. So that's what has been hurting the most than that.
The net inflow when we breakdown between our I would call our core engine of retail investors and segregate the wholesale part mostly companies.
The.
Core engine of our business all the outflow related to the total client assets. It's been stable. It has not increased so we don't see a problem. There of course, the level is not where we'd like to be but as my information considering that investors are not investing.
They are keeping their savings in daily liquid low risk products.
We understand.
It's a headwind for the investment business, but even with these environment.
Our engine in terms of a percentage.
Outflow compared to total client assets, it's not increasing.
Okay. No that's very helpful. Bruno Yeah, and I can see the retail AUC went up in corporate AUC going down. So that's good context. Thank you very much.
Thank you Tito have a good one.
Yes.
Next question is from Mario <unk> from Bank of America.
Hi, Mario.
Thanks for taking my question, let me ask two questions as well.
First one on your cost reductions, if youre expecting to make anymore.
Changes to your employee base.
Also if it can be a little bit more specific in which areas where these reductions concentrated in.
<unk> you mentioned that you expect the stock based compensation to go up in the second quarter back to the fourth quarter levels I was just trying to understand why.
So thats one on expenses and then my second question is related to your NPS score and again, it's still we have a high NPS.
But I think it's down to 70 and used to be a peak of 77.
Can you give us some color on why NPS is going down what are you doing to improve that thank you.
Yeah.
Hello Mitra. Thank you for your question as travel here.
About your first question about the employees and in areas where <unk>.
Happiness.
Since I became the CEO of the company, we have been implementing what we called a digital transformation of the company. So last year I would say we finished the reorganization of the business units.
The whole structure of the multidisciplinary teams in the company and.
Of course.
<unk>.
That but when you do a transformation when you reorganize the company you have.
Some efficiency gains you have some.
Imagine that you have been piece of Lego and when you put all together you'll need eight okay. So part of the reduction is because of Gs.
Transformation on the company owned at best.
Three years, Okay, and part is because we commit to some excess during the pandemic. Okay. We over hired we hired people.
Not necessarily we for culture. So it's.
Because of efficient and part is because of the excess okay. So all the reductions they are done okay. So as Bruno mentioned when you have a company with owners with partners we are very fast.
Sure correct the mistakes rigid so we already did the corrections you guys can see on the numbers and we don't have.
Any specific areas of course, we.
We have intelligence like true to say where could more where to cut less.
We did.
Good over the company, but of course, we preserve.
The business lines that are in early stage of course, we preserved like the.
Yeah.
The risks are.
Areas of the company granted and so on compliance and so on so.
But the reductions there Don.
Only our first question I believe you you asked about.
The SG&A and as the innovation the guidance still holds.
Course, right now we are I would say March the bottom of the guidance okay.
But the reductions they are done.
Your second question about the NPS.
Happen.
We mentioned on the presentation.
We have our own NPS, that's the number that you see.
On the presentation. The 70 that you mentioned, but we have third party.
Consultant companies that do like cutting the band then NPS survey and when you look what happened with the NPS for affluent clients.
In investments for the five big banks.
All of them. They went up in the last eight months 35 points, Okay and when you go.
Why when they ask the customers in this survey why it's because of the level.
Of the returns $13 75 with low risk. Okay. So that's the point we are right now of course, we sell we don't consider buying <unk> investing because you are not buying a portfolio you are not diversify and of course when you have.
A more well balanced portfolio in.
<unk> scenario.
Hard to believe that we are beating the selic rate right now. So we believe that's an important factor right now that it's been a fee team. The the five big banks, Okay, and we are suffering a little bit.
That scenario, but of course the investment.
Cycle at some point, we would change it.
And we believe we can go through more normalized levels. Okay of NPS saw net inflows and so on.
Yes.
Excuse me.
And I can take the question about the share base.
Compensation.
We yes, we had.
<unk> of restricted stock units and performance stock units in this quarter and that result in lower level, then we expect to see.
In the next quarters to come.
That's why I mentioned that we should come back without these impacts that is only one time.
We should come back to.
A normal level as of the fourth quarter something between 160 to 170.
Medium has and not the 53 million highs that we saw in the first quarter.
And also.
Just to comment that.
We also have recently.
New partners.
That we.
More than welcome in our partnership and matching that is going to happen.
In the second quarter. So all of that together, we should have an increase.
In that expense line going forward.
Okay. No that's clear let me just follow up then.
Just to be clear there were no one off charges related to this.
This head count reduction there were no severance charges taken this quarter.
Using there.
Sorry.
Everything using Darren I don't know if you heard me sorry.
So everything is well can.
Can you quantify how much were the severance charges.
We are aware that look.
I would stick to the guidance annual guidance that we have $5 billion to $5 5 billion.
<unk>.
SG&A.
<unk> incentives.
<unk> my affirmation.
Considering what happened in the first quarter, we are leaning towards the low end of the guidance.
Okay. Thank you very much.
Thank you Mario.
Yeah.
Next question Geoffrey Elliott from Autonomous research.
Good evening, Jeff.
Hi can you hear me okay.
Yes Hello.
Great. Thanks, very much for taking the question.
On capital Festival. The the buyback program has been completed can you talk about that 50% payout ratio in the slides.
Why not announce another buyback now and what are you thinking in terms of options for deploying capital and then second related to that Modelo, it's been awhile since we heard much there, but we did see that.
<unk>.
Or calculate.
Installation.
Why was that issued and when should we expect <unk> to close.
Thank you.
Hi, Jeff.
So I will start with the second one.
First we expect to close soon.
Now the only family in part D. Central Bank approval as you mentioned, we we have withdrawn the F. Four because we went in a different.
Route to conclude that transaction everything.
Happen as planned so the general meeting of Madonna was approved so everything is on track and now suddenly Central Bank approval, hopefully we're going to get at is during the first semester, but we cannot.
Guarantee.
In terms of the capital allocation share buyback yes.
Yes, we have completed the.
The program of the 2 billion highs if you look at all the blocks that we have bought including <unk> and <unk> block last year.
In less than 12 months, we have bought back around $2 7 billion.
One 8 billion in 2022.
960 million already.
This year as my affirmation, we're going to.
Probably keep a similar payout ratio, which is around 50%. We don't know what the net income for 2023 will be.
We are still in the first semester, we have our guidance three 8% to $4 4 billion has of net income.
And we are going to complete in the second semester, either through dividends or share buyback, we haven't decided yet.
Thank you.
Yeah.
Thanks, Jeff.
Next thing line, all our <unk> from UBS.
Yeah.
Hi, guys.
Can you hear me.
Yes.
Sorry for that.
Thank you. Thank everybody for taking my question actually I have two questions basically related to the credit card business.
Because the overall trend of credit cards continued to extend well and I believe this is.
Is evolving according to the expectations of the company.
My first question on this regard.
We noted the increased penetration of cards on active clients.
That stood up more than 20% this quarter. So my question is.
How much more could this figure increased like is there a target.
That you guys can share with us for this penetration.
40%, maybe 50% or even above that.
And my other question.
All credit cards is basically related to the multi fleet average spending.
As you can see here, it's drop it to 4.2 thousand this.
This quarter.
This is below the average of the last year or even well below when compared to the first quarter of 2020 was so could you just clarify if these are solely related to stricter credit policies with lower limits or something like that.
Is that a world like two questions. Thank you very much.
Okay.
Hello level. Thank you very much for a question about the first question about the penetration in credit cards.
Remember that we started only at XP, okay with clients above 50 key okay. So that was the the segment that we started and there we stuck for like almost 10 years, then we went through.
<unk> clients below 50, K, Okay, and I would say in December .
Someone recall me here, but December or November last year.
We started like to escalate.
The card.
Recall brand okay. So when we look the the penetration that we can achieve if you looked at the five big banks.
And if you look like.
Affluent brands for just two banks.
Banks, they have 90% penetration okay. So.
Our top 10 clients at one of Ge's affluent brands in any off just banks nine eight out of 10 have credit cards. So that's our target of course, it's going to take awhile, but.
We believe we can increase the penetration of law. So we don't have any specific target of course 90.
It's very high but.
We are improving we are delivering we have a lot of like new features new benefits in the cards for the next months or quarters. So we are working on penetration.
And more than than penetration. We are we have been working a lot on high level of service to increase the share of wallet. We have of course when you have the primary card of someone you have 80% of the PPV. So that's our main focus right now and.
Again, we are going to deliver new features new brought us new benefits. So we can increase the penetration and about the.
The spending that you mentioned as we start to move down the pyramid of our segmentation for example, with clients below 50, <unk> Xb and <unk> clients.
Of course, we have lower spending clients, that's just segments, because if you'll get the top clients. They have like a 10-K.
Spending if you go to the bottom we have.
I would say 2000 2500 <unk>.
<unk> per customer so.
Thats why Youre seeing de Spain Jean.
Going down because we are.
Increasing the number of clients at the low <unk>.
<unk> okay.
Mark can I just add one comment.
That I think.
It's Burton.
To the question.
You have to think about our strategy here and our strategy.
It's pretty clear.
Long term journey, okay. So on a quarterly basis, it's hard to analyze but if you extend.
The view to the long term.
Cards, we started with cards, we didn't have a digital bank account, which is essential for cards, but we didn't have it because we are moving brick by brick.
Looking after our profitability as we go down this road and this long term journey.
Now we have the digital bank accounts, so those things and of course, we need to evolve all of those new products and service and we're going to do it listen to our clients, but our strategy is totally connected with the evolution of penetration and cross selling in our ecosystem.
On this slide that I talked about in my part of the presentation.
It makes clear how fast XP and our ecosystem is scale.
Anything.
We put to sale.
The 750 million that we added one revenues in only 15 months of new verticals not related to investment directly where we come from.
It's something that tells about the potential of cross sell and the scaling those new business, but it takes time I wouldn't just focus on a quarter would extend the view.
That's what we're going after is to be able to convince our clients to do everything in their financial life with XP. If we are able to do that they're going to be.
So able to cut completely the link with the banks it takes time, but we're going after it.
Okay. Thank you very much just a quick follow up on this.
Can you just share with us how much of that are for 2000, mostly average same thing like represents of the average credit limits that you guys give to clients just first to understand the potential here.
Always hard to make that math.
For many of our clients we have a dynamic limit for example, so you because it is related to the investments okay.
We would have to segregate the portion that is a clean proud of it.
And we do not give that type of disclosure. So I'm, sorry, I cannot I cannot help you to make that math I know what you've done.
Do you see the potential but.
Yes, we expect all of those new verticals as I mentioned.
When you add them together.
This year, we expect the revenue to grow between 50% to 60%, yes, but just to complement Bruno here.
You can assume and that of course, we have some opportunities some rule like Shaw better Manish.
Credit limits of the.
Auto segmentation of our customers, but I would say that the increase of TPG the growth for the business.
Biggest opportunity is not there okay because different from other players.
The limit constrain it is not.
A big issue for our customers. Okay of course, we have an opportunity we can better manage for some clients, but it's not a huge opportunity okay.
Thank you very much.
Thank you Laura.
Next question from HSBC.
Hi, good evening.
Good evening congratulations on the results and thank you for taking my question two quick questions first on the <unk> business could you shed some light on.
What is the sentiment would be as it is right now.
Inflows net inflows.
But we did more investment in fixed income to go these are clean room at Le so.
Are you seeing some mortality in terms of the number of new licenses opening up your gross debt.
It was strong but any any color would be very healthily.
The change in the economy for the assay network.
And also any change in the competitive dynamics.
Regarding Nancy.
Second question is regarding your markets easy market share you mentioned that.
If I'm not if I didn't hear you didn't correctly, you mentioned that about <unk>. When you think your market share.
Could be achievable in the long term.
Is it a time horizon.
Do you have in mind and one of the main drivers for you almost doubling.
Market share.
Thank you so much.
Okay, Hi, Thank you this Bruno I'll take the first one.
And my friend.
Can take the second one.
So regarding the IFA.
First first thing to have in mind.
The IFA business model is a very asset light business model we have.
Not too big.
The investment portfolio of clients.
Can breakeven when you compare to the bank manager salary for example.
One of the reasons is not only because it is asset light, but because has tax benefits compared to the bank manager as well.
Of course these.
Tough environment for the investment business makes it harder to grow at maxillary base.
So everybody.
Is getting this headwind in terms of investments, but it doesn't mean.
Bar below the water thats not the case.
For those.
Biggest IFA offices that have during the especially during the bull market have invested a lot have made.
<unk> hired.
Ifa's.
<unk>.
Lump sum there was too much considering the environment. We are now they need to adjust exactly like expedia and they have done and we are together with them, helping them, but those are biggest.
Biggest IFA offices are also the most capitalized one.
So we do not see.
Any problem in terms of financial health in our.
<unk> network.
To your point about attracting phase I mean, I think the numbers.
For themselves in the first quarter, we added.
More on a net basis more than 600, new Ifa's XP two e's. The main destination of new Ifa's. These market keeps growing even in the.
The macro environment.
And I believe, especially with the new regulation of CGM.
It's really good for the IFA business. This will continue going forward and <unk> is going to be there for all the new phase that want to join our platform.
Hello, <unk> I can take the second question.
<unk>.
Yeah.
The way I like to see when we say that we have 11% market share.
Only talking about age of vehicles, Okay. If.
If you look and if you include companies, we have only 8% market share okay.
But.
And when you breakdown going back change videos when you breakdown. The segmentation, we have I would say, 2% at the bottom clients with zero to 300, K Aoc, we have let's say about 20% on the middle Okay 302.
300, K should 10 million and we have 5% at the top of the fire. Okay. So 2% at the bottom 20% in EMEA to 5% at the top so we have been investing a lot like.
Should go down basically is technology. So a few years ago. It was very hard for us to go below 300, K today, we have.
Internal advisors are <unk> focused on customers.
Above 25, K Y that's possible because we have much more technology, we have CRM we have.
All of the information ways of having higher account loads.
And to just serve just clients okay in EMEA, though it's more of the same how we keep increasing and at the top okay. It's how we create.
Even better services for high net worth and ultra high net worth customers. Okay. So we have been investing a lot on the extremes and we haven't been investing in EMEA continue to show growth one way you mention how many years in.
Time horizon, we could reach 20 or 25% if you go back.
'twenty 'twenty, we increased 400 basis points, our market share. Okay. So in good years, we increased 160 bps and last year that was a very tough environment for investments, we increased 80 bps.
So that's.
Thats.
That's the plan, how we keep increasing 100 5200 bps.
For a year of course.
Yes.
We will grow less in better years, where we're Omar so that's how we see and.
And how we do that.
We like to say that we are the only housing Brazil that are 100% focused on investments. Okay. So we don't sell products with cell.
Cell allocation, we have higher level of SaaS when you compare to the incumbents to the other players and that's how would you differentiate ourselves of course in a very tough environment.
Now that people are worried about the political environment about the macro environment and you'll have 13, 75% interest rate.
People get very comfortable with.
Low risk very liquid broad so it's harder to convince them to really invest to buy portfolios to leave the bank's income here, but we know.
Just microenvironment is temporary it's going to change at some point and we believe we can go back to.
Faster pace of growth okay.
Understood if I can just follow up quickly.
On the.
The market share question. So you mentioned that you're.
Interestingly a lot in technology to be able to expand your chart on the bottom of the settlement.
How do you do you have other problems with some of the newly off by 5%.
At the top of the pyramid, where do you see you can go in.
<unk>. Thank you so much.
Yes, when you go to the top of the pyramid is much more personalize. It serves okay. Because each client is different when you're talking about high net worth and ultra high net worth clients. So one point that was very important for us should be combat ships.
Was the.
I'm just trying to remember the word.
Thank you Mr suffer the scatter.
Secured service secured service. Okay. So we have been investing a lot because we have to do the custody of the funds we have true the administration of the funds and so.
<unk> seen that we have been <unk> for the past two years, but it takes time, okay. I would say that we are close to having the same level of service.
Are their house at the top so we believe we can start to gain a lot of market share.
Well I think if I can just one last thing on the IC why did your current market share in terms of number of pharmacies and in terms of the E&C with this coming Monday.
Thank you so much.
We have 70% market share in the IFC.
Business. The ALC, we do not disclose we just keep saying it's less than half of total, but we do not give a number.
And to your question.
When we think about channels distribution channels.
Of course higher phase important one and one.
One that we expect to keep growing and as I mentioned <unk> is going to be there.
With all the tools that we have to help them succeed but we also.
Have many more channels we are agnostic.
<unk> about channels, we want to be.
And interpreted ship hub, where intrapreneur in the investment business can connect.
Our platform. So for example, well services business that if I'm not mistaken we announced these new channel and the dynamic back in 2020.
It is growing a lot.
Consultant and other.
Channels in our ecosystem. So it is not only.
<unk> is important.
We're going to keep growing but we have many more channels.
Excellent. Thank you so much.
Thank you bye bye.
Next question Marcelo Telles from credit Suisse.
That is thank you for joining us.
Hi can you hear me now.
Yes, we can.
Hi, Mark Hi, Mantra, Hi, Hi, Bruno.
And Ryan Thanks for the time I have two questions.
Regarding the denouncing flow each what you already alluded to the.
2016.
During the quarter.
The yield curve was implying.
The decline in interest rates.
How do you think that impact.
Your your business business, especially when you're applying to maybe start taking more risk again, I mean do you need to see just like you know inverted yield curve already.
It would be enough to see perhaps a rebound.
On that thing floors, or we need to see.
Perhaps interest rates going to single digit levels.
To really start.
Bring people back so if you can comment on that considering we are.
Potentially.
Monetary.
Is a cycle. So that's my first question.
And the second question is with regards to your revenue performance in the quarter.
Quite resilient despite the very.
Difficult macro environment.
In looking at your accounting.
Disclosure.
We see I think that the revenue from services, they were down quite meaningfully about 14% quarter over quarter.
And we saw that the net income from financial instruments.
I think going from 14 to 500 meter AI. So I just wanted to know.
Is there any.
And no recurrence or some sort of some extra revenues.
Maybe its truck structured operations that might have helped you in the quarter.
Or you think this is just more back to normality given that the fourth quarter was already.
A very very weak quarter are from that standpoint, just to understand how sustainable.
This level of rebate.
In the first quarter can be.
In the quarters to come thank you.
Okay.
Dennis.
So.
Your your I'll start from the second question and then.
The first one here go back to the first one.
So about the net income from financial instruments.
That you mention.
Over a quarter it was a growth of around 10% if I'm not.
The mistake and so.
No there I mean.
If you look on a longer.
Term view net income from financial instruments.
The growing in relevance in the accounting income statement compared to the net revenue from services.
Rendered and that has to do.
We have two main things.
Number one.
Is the floating revenue that is our financial instruments. So it's embedded in that number and number two.
The brokerage commission part of the accounting income statement has been suffering.
Because of the equity market.
If you look at.
That number for example.
Last year brokerage.
Commissions, we had a.
A higher number of.
$560 million has for example in the first quarter of 'twenty, two that went down to $494 million.
In the first quarter of this year. So these number has been decreasing.
Because of the macro environment and net income.
A lot of components in there, but I would highlight the floating part of it.
Well about your first question Paresh.
Of course, if we have.
Lower interest rate level of course is good for our business. Okay. We have been through other cycles in the past once we start to see the interest rates going down and.
The shape of the curve being upward slope.
It's the best for the business, Okay, because we see longer durations, we see more investments in App, which is we see people moving back from fixed income funds that have much lower ROA.
True Mochi mulch market funds true fee funds extra funds so.
We expect once we start to see interest rates going down we expect people relocating from low.
Fixed income.
Broad it's two more.
High yield brought this okay. So of course, we benefit from that.
The other aspect of that once we start to see interest rates going down it means that probably the level of confidence for <unk>.
The vast stores of the Brazilian investors. They are higher so people are more willingness to move from the banks like true <unk> to invest in a more diversified portfolio. So it's I would say a win win scenario.
It's good for the business and the third point is about <unk> <unk>.
Capital markets as we already mentioned many times here today.
The capital markets for revenues for <unk> being the.
Q4, they were really low.
In Q1, they are even lower okay. So it was the the lowest level for the past many quarters, Okay and of course, we.
You guys. So of course have the public information that you can see it really start to see capital markets going back.
Again after.
The license that medical evidence event light event, so we start to see things going back to normal but.
Q fire prone the.
The peaks that we signed at best Okay, but again once we start to see interest rates going down we expect net new money should go up we expect revenues from higher you'd broad it's going up we start to see capital markets getting better. So it's good for the business.
Thank you and just a follow up on your on your last point.
So if rates do you think like even if rates, let's say they stabilize let's say low double digit levels, let's say 10.
10% or so you think that could still see a positive impact on your business.
They don't need to go to a single digit level question, Amit the level the level of interest.
But at that level or cases than our nine or 11 <unk>.
The problem is when you have a high level of certainty. Okay. Youll see all of the price are around the globe going down inflation very high the price of.
Everything bonds going and so on the investors they get the freight okay. They buy low risk projects and in Brazil, you know very well we have.
<unk> III products with daily liquidity.
$13 75.
So it's hard to convince someone to move from that show any other broad okay.
If.
The macro environment the level of confidence gets better.
For me it doesn't matter, if it's nine or 10, okay.
Not that the point that will change.
How much money, we will make or so on.
So, but there is a mix of very high interest rates with high search that's that's the biggest problem right now okay.
But again.
For us it's not.
When we had 2%. It's also the best scenario for the business something like high single digits I would say that's the best scenario for the business.
Just to add here, probably we have many portfolio managers here in the call investors.
That have funds.
It works pretty much the same right now.
That's a lot of portfolio managers to look at many opportunities in the stock market.
But it's still they're getting outflows and inflows risk aversion. So it's not only the level of interest rates as much as I mentioned, it's about risk aversion.
Whenever people.
That can change quickly we don't know when.
Or how but.
It does happen because it's a cycle.
And when that happens then people will jump in and we're going to start seeing inflows back in <unk>.
<unk> funds.
And then you start to different type of cycle. So level of interest rates is important but it's not key risk aversion, it's more important.
Thank you for your question that is.
It was the last one so we would like to thank you all for participating in the <unk>.
Cole.
We will be available at the IR team to discuss the results with you.
And.
Have a good night everyone.
Thank you everyone.
Thank you very much see you guys next time.
Okay.
Yeah.