Q3 2023 XP Inc Earnings Call
I'd like to thank you all for the interest and welcome you to the 2023 third quarter's earnings call. This quarter, we had a strong set of results, which will be presented by our C. E O juggle moffitt and our CFO Bruno Constantino, who will also be both available for the Q&A session right. After the presentation. If you want to ask a question you can raise your hand on the zoom too and we will attend.
Are you on a first come first serve basis. We also have the option of simultaneous translation to part to us. So there's a button on the zoom. If you went to turn on the translation and before we begin our presentation. Please refer to our legal disclaimers on page two.
Which we clarify forward looking statements.
Information or forward looking statements can be found on the SEC filings section of the IR website. So now I'll turn it over to juggle Mafia you'd even him after thanks Antonio.
Good evening everyone.
Thank you for joining us today on our 2023 third quarter earnings call. It's a pleasure to be here with you Tonight.
I will start with a brief introduction traduce Quakers highlights and key updates in the third quarter of 2023, we had a strong quarter with increase in topline growth and profitability across different matrix just barker. Despite the tough macroeconomic conditions that led to weaker organic.
Net new money.
We ended the quarter with $1 one trillion in client assets, reaching all time high records in most of our investment Kpis.
Largest quarter as a result of our continuous folks in executing our strategy. We achieved the highest net income in our history at $1 1 billion up 11% quarter over quarter, and 5% year over year, our discipline in cost control has reflected in.
The best efficiency ratio in the last three years at 37, 3% down more than 400 bps year over year, and 100 bps quarter over required as a result of our efforts our ROE rose 58 bps quarter over quarter, reaching 22, 6% the high.
During the year at less but not least our diluted earnings per share increased 7% quarter over quarter to $1 96, Reais also the highest in our history moving to the next slide I want to reinforce our three folks points.
First leadership investments by protecting and expanding our acquired business.
In this quarter, we have incorporated more Dallas financials, and operations, which should be fully integrated in 2024.
At the same time, we have reached.
An all time high in G for an investment tpi's enhancing our capacity to reap the benefits for our leadership position handing him with more positive market conditions second superior product offering translated into the continuous improvement of our new verticals performed.
New vertical revenue grew three times in the last two years and now represents 11% of our total last 12 months revenue.
We are certain that expanding the product offering into new verticals was the right decision, enabling us to diversify our revenues and deliver growth.
Even in a tough environment for the investment market does evolution confirms our initial thesis of the importance of having clients investments first for <unk>.
Example, in credit cards, we estimate we have 50% of <unk> out of our total cardholders base.
This is a clear example of many opportunities we will explore a had inappropriate time lastly client folks.
I quality and excellence in everything we deliver is a key pillar to achieve our long term goals.
We remain focused on that.
Maintaining the NPS above 70 at the top of the industry. Once again this quarter high NPS directly translates into high share of wallet and we see just consistently in our client base.
Directly translate.
Into high share of wallet and we see this consistently in our client base. Our strategy is centered on providing advisors with the best tools technology and products. So they can better serve our clients.
She is direction, we have evolved during sanction with plans to add advisers, providing them with morning pathogen models and systems in order to improve clients' asset allocation, resulting in superior experience for our retail investors moving to the next slide.
As I mentioned earlier, we are happy to see improve it broke stability in our financial results for the quarter, while we have made progress on what those integration.
Following an initial recovery and capital markets activity in the second quarter.
<unk> volumes have continued to increase in the third quarter with all time high revenue in corporate and issuer services.
As we said in the last quarter, a faster recovery in retail revenue and net inflows may take more time as it depends on better performance and riskier assets, which is tougher due to high interest rates on the profitability front, we have increased the three key metrics for XP.
74 bps in EBT margin quarter over quarter.
Higher operating leverage plus 58 bps on row quarter over quarter, one of the main metrics, we look going forward plus 13 cents in diluted EPS. Despite the issuance of $18 7 million of shares related to more <unk>.
In the quarter.
Looking at Baltimore Dol, we are ready to have fully consolidated more Dallas financials into our third quarter results.
<unk> first quarter of integration model has accounted for.
$161 million in top line.
And $111 million in SG&A.
Lastly in accordance to what we have been saying about the returning more capital to shareholders.
We just announced an additional <unk> <unk> of 73 cents of dollar per share.
Should be paid in December 22nd contributing to the optimization of our capital structure now I will hand, it over to Bruno So he can discuss this quarter's financials. Thank you.
Thanks Martha.
Good evening, everyone. It's a pleasure to be here with you again star.
Starting with our garage rather on the left part of the slide.
This quarter, we reached record quarterly revenue in our history $4 4 billion has a 17% growth quarter over quarter and 14% growth year over year.
After discounting more Dallas revenue contribution of 161 million highs.
<unk> revenue would be $4 2 billion <unk>, 10% higher than our previous record of $3 8 million highs reached on third quarter 'twenty two.
The sequential growth in gross revenue was.
It was mainly led by retail.
We towards responsible for 45% of the growth quarter over quarter incorporate an issuer services, representing 37% of the growth quarter over quarter.
Both.
Retail and corporate and issuer services.
Benefited from capital markets activity, especially in DCM.
Which we will explore in detail on the next few slides.
On the right in terms of revenue mix between segments the.
To highlight this corporate and issuer services with the strongest growth quarter over quarter.
Increasing its relevance by 57% from seven 6% in second quarter to 11, 9% in third quarter.
On the next couple of slides, we're going deeper into retail revenue first focus on retail core and then all new verticals.
Moving to the next slide.
When we look at our core.
Equities fixed income and funds platform.
The main highlight for the quarter as fixed income.
We had a strong sequential improvement.
718 million half hour.
All time high fixed income quarterly revenue.
Representing a growth of 24% quarter over quarter.
Our previous record was in second quarter 'twenty, two when fixed income revenue reached 580 million hacks.
As you know.
Fixed income revenue has two main components.
Secondary trading and distribution of primary offerings.
The later half.
A growth of 100% quarter over quarter.
And was five times the revenue of the first quarter.
When we experience dysfunctional corporate bond market do.
Due to the impact of americanas.
We under wrote some offerings during these turbulent moment aiming.
Aiming to distribute them whenever conditions return to normal.
These had an important contribution to the record quarter.
We continue to see a healthy DCM pipeline, but.
But we expect the third quarter fixed income revenue to be the best quarter for the year.
Funds platform had a slightly decrease of 5% quarter over quarter, reaching 323 million highs as expected considering the second quarter had performance fees, which is seasonal and recognize at the end of average semester.
Excluding revenue from performance fees from second quarter results third quarter was 8% higher quarter over quarter.
And lastly.
Equities revenue increased 6% sequentially to $1 1 billion hats.
Positively impacted by more dull approximately half of the growth.
A continuous gradual improvement over time in equities moving to slide nine our new verticals continued to grow well, reaching a total of 442 million highs in third quarter.
Plus 52% year over year, and 11% quarter over quarter, enhancing our diversification and cross sell opportunities.
The main highlight of the quarter has continued to be cards revenue, reaching 259 million has a growth of 12% quarter over quarter and 77% year over year.
When we compare our quarterly growth in TP vision with the market based on recent data released by our backs.
XP grew 11% quarter over quarter compare to 7% from the market.
We expect cards to remain outperforming the other new verticals in the following quarters moving to slide 10 coming back to total retail revenue. We have updated this slide to include third quarter results. The two key messages, we delivered last quarter.
Still stand.
Number one.
SP is a cyclical grower pumping.
Core retail revenue is the best demonstration of the cyclicality.
The big of $8 3 billion highs in revenues in 2021.
<unk> has not been reached yet again.
Third quarter 'twenty retreat last 12 months or retail revenue improved from last quarter to seven 6 billion highs.
Reducing these gaps.
That was 1 billion last quarter to $740 million has this quarter.
It is worth remembering.
That in 'twenty or 'twenty, one our clients' assets were 815 billion has our active clients were $3 4 million and our IFA score 10 3000.
As of third quarter. This year the same kpis are.
<unk> premium highs of clients assets.
$4 4 million active clients.
And $14 3000 higher face.
The development of the main kpis investments fostered the way or potential upside as the market recovers.
And number two.
New verticals.
To help offset macro headwinds.
Diversifying our business and increasing the resilience of our model.
If we go in beer the last 12 months revenue.
<unk> 2021 revenue new verticals have increased approximately 182%.
In summary.
<unk> potential for growth as the market recovers, although we expect a more gradual recovery considering the pace of interest rate cuts the terminal interest rate debates.
And the impacts for riskier assets and with.
We keep increasing the resilience and diversification of our business model.
Moving to slide 11.
Corporate and issuer services together with retail fixed income were the highlights of third quarter 'twenty three results.
This shows the importance of our strategy to keep diversifying our revenue stream.
Opening new addressable markets at corporate for example, and connecting everything with our core retail.
This quarter corporate in issuer services revenue, which reached all time high record at 519 million highs grew 83% quarter over quarter and 19% year over year.
Corporate had its better quarter year to date, probably the best quarter for the year, reaching 197 million highs of wrapping benefiting from derivative demand from our corporate clients.
Also related to DCM activity in the period.
Issuer services reached the highest level in 11 quarters at 322 million has a growth of 105% quarter over quarter and 41% year over year.
The positive result was led by DCM activity as already said.
Rewarding some underwriting we did with good corporate quality names in the first quarter. This year when DCM market became dysfunctional after americanas events we.
We do not expect the same magnitude of revenue for corporate and issuer services in the fourth quarter.
Moving to slide 12.
It'll SG&A excluding revenue from incentives has increased to $1 5 billion has as already anticipated in our previous quarter.
The main impact on third quarter order.
Inclusion of more Dol expenses, which represented 111 million highs.
And the seasonal expenses related to the expert events around $60 million.
The ratio between people and non people expenses were 68% people and 32% non people in line with the long term trend of 70 and 30% respectively.
When we gave our SG&A guidance between five and $5 5 billion highs for the year.
No doubt.
Has not been considered.
Even including more down in our numbers the SG&A guidance remains the same.
Finally slide 13.
As we said on the last earnings call.
We remain focused on cost discipline, keeping both efficient and comp ratios near all time lows since our IPO.
Last 12 months efficiency ratio decreased from 38, 3% to 37, 3% quarter over quarter close to our lowest level since fourth COVID-19, when we reached 37, 1% efficiency ratio.
Compensation ratio decreased from 26, 8% to 25, 7% quarter over quarter, the best level in 12 quarters sequentially.
It is natural to assume higher levels of comp ratio when compared to 2020, when our share based compensation program was just kicking in.
Our cost control discipline is a priority and has played an important role in our operating margins, which we're going to talk on the Max to flight.
EBIT at <unk>.
Good proxy for earnings power.
Reached.
$1 billion 157 million has this quarter.
18% growth year over year, and 20% growth quarter over quarter.
It is our all time high quarterly EBT, beating the fourth quarter twin one MBT at the peak of the last bull market cycle.
Our EBIT margin has also improved in the quarter.
Increasing 86, bips year over year, and 74 bps quarter over quarter.
Driven by operating leverage.
Excluding more Dol, our EBIT margin would have been 28, 8%.
Our year to date EBIT margin is in line with our annual guidance between 26% and 32% from 'twenty to 'twenty three 'twenty to 'twenty five moving.
Moving to the next slide.
Our net income.
Also benefited from operating leverage reaching $1 billion and 87 million has this quarter up 11% quarter over quarter and 5% year over year.
Despite the best quarterly net income in our history the growth has been lower when compared to EBIT growth.
We expect these to be the trend given our accounting tax expenses should be higher going forward in the next years to come.
In terms of net margin.
Third quarter Tween, the tree presented at 26, 3% margin.
A 123 bps decrease quarter over quarter, and that 218 bps decrease year over year.
Expert model.
And higher tax expenses in the quarter are the main reasons behind lower net margin sequentially.
Excluding the impact from both mobile and expert in the quarter net margin would have been around 100 bps higher and flat quarter over quarter.
Now moving to the last slide.
Our return on average equity has continued to grow sequentially in.
Third quarter 'twenty, three our annualized ROE reached 22, 6%, increasing 58 basis points quarter over quarter, Despite more Dallas effects, which added 2 billion has to our equity.
Excluding more DAU.
Our return on average equity would have been 23, 4% an increase of 143 deep squatter over quarter NXP.
We have a conservative approach towards our balance sheet, but when we look at our capital ratio plus our capacity to continue generating healthy profits over time, plus the lack of need to retain too much capital to grow it.
It is our desire to gradually reduce the level of our capital ratio at XP, Inc platform.
In second quarter between the three.
Our capital ratio was 24, 2%.
We ended third quarter 'twenty treat with a capital ratio of 22, 1%.
The reduction quarter over quarter was mainly driven by the dividend payment of $320 million in September looking forward we.
We expect to end next year with a capital ratio below 20% fewer very conservative level to get there we need to continue expanding our net income and returning capital to shareholders.
In that context.
We have decided to pay an additional dividend in December.
This year of 73 cents per share around 400 million U S dollars.
Now, both Martha and I will be happy to take your questions.
Great. Thanks, Andrew.
So now we're moving on to the Q&A session. We have men has raised here. So as usual we will attend you in a first come first serve basis.
First one today is Mr. Jorge Kuri from Morgan Stanley.
Can you hear me Hello.
Can you hear me.
Hello.
Hello, now now we're here in Georgia, great. Thank you sorry for that.
Congrats on the.
Congrats on the results.
I wanted to ask.
Now that we've seen more of the rate cuts this quarter.
Order visibility that previous quarters, how do you see your retail revenues trending and particularly how are you seeing equities under false platform.
So far this quarter and as.
And you mentioned something Bruno.
Evidently is super important for us.
The narrative of NXP, which is the debate on the terminal rate for Brazil. So the focus survey shows.
Consensus is moving rates all by.
By year end 2024, I think is now 925.
I know some.
<unk> are already up to 10% so I wanted to get your reaction.
How does the business look again on the rebuild revenues, particularly equities how does that look if it was kind of like kind of notable below 10% rates at least during 2024. Thank you.
Hello, Shar is it due to some upfront. Thank you very much for your question.
Yeah.
Going straight to your point, we haven't.
I haven't seen yet any big change on the retail clients flow so.
We have been repeating that in the last calls and meetings with investors.
When we are talking about retail clients. They are lagging they will not move.
Just because we see 100 150 bps cut on Selic rate. If you look a the level of interest rates still very high but more important than that if you look at the performance of riskier assets.
In the past 12 or 24 months.
Almost every.
Asset class is losing to selic rate the only asset class, that's not losing to Selic rate is basically the the.
The LCI is L C as that excess empty cg's from banks when you gross up the tabak, okay. So.
It's very hard to see retail clients moving if we don't see the price action from all their assets going up. So that's my view, so we don't see yet any come.
Coming back from retail clients.
And finally, if I may add just one data point here to what Martha just mentioned.
A moderate portfolio moderates not aggressive.
In the past.
Two years.
Is probably below 60% of the Selic rate.
So that pretty much the picture that we have right now and in these environment is.
It's hard to see the flow coming although usually in moments like these is especially.
Good moment to invest.
In those asset classes.
So that's the job that the advisors are need to do but it is hard for dengue veto.
To move in that direction individuals are being well remunerated to keep their mining in cash 12% per year. So that's.
That's the picture.
And.
Thank you for that and regarding the second part of my question on on next year and the current expectations for our rates maybe to settle probably not much below 10%, how do you envision the retail investor base.
So as such.
I mean, we are positive for the future considering.
Interest rates have variety starts coming down and.
And we believe that's.
One path to see riskier assets performing better.
So whenever the assets are performing better they tend to attract.
More into vehicles and more flow.
Two the assets to the funds and so on if you ask the portfolio managers.
We know because we are the largest funds platform in Brazil, if look at the performance of Multimarket funds for example, everybody's below the you know the hurdle.
Whenever you have those funds performing better and interest rates going down again.
It's a precondition for that to happen, we believe we're going to see a better market environment. It's more about the performance of riskier assets them the level terminal level of interest rates by itself.
Great. Thanks for that congrats again.
Thanks Walter.
Next one in line is it might've been added for Omega of America.
Yeah.
Hey, guys good afternoon.
Let me ask them two questions. One is a follow up to <unk> question.
But if you could discuss a little bit more about the productivity of the IFA is ramping as we see our inflow.
On a standalone basis of 14, <unk> only in the quarter and this is a drop of 60% year on year.
Or your IFA base expanded by 25% so.
Can you.
I get that the high rates negative impact, but the productivity of your IFA network has declined quite a bit if again just discuss what you think is impacting how can that improve also if you can give us any perspective on the inflows throughout the months of the quarter or are they fairly.
Even though did you see like a drop off in September.
And then the second question.
Quick one related to more DAU.
We see that your head count increased by about.
700 people roughly six 600.
I think it was about 700 people, even though mobile only brought in about 200000 clients. So.
How do you think.
Are there like any cost synergies the BB aligns with mobile have you already achieved that if you can give us some color on that also there would be helpful. Thank you.
Thank you Amanda does chagos so.
Sure first question.
For me, it's the same reasons that we all read nation Judge. This question about the performance of riskier assets marketing environment, and so on and off course.
The Reds achieves you off diet phase there much lower <unk> year than it was in the best for the same reasons, we already mentioned, but we are keeping vaccine on ex Beijing AR.
The IFA numbers named Fahrenheit advisers, because we believe the investment is made by humans by advisors, So and when the market comes back we are ready to capture market share and growth, but again for the same reasons the level of productivity is much lower one year.
Second question about the model.
We received the approval in July.
July 1st So we are at the very beginning of the integration and for sure we have a lot of synergies and.
Probably the easiest way to answer your question, we believe already 'twenty 'twenty four.
The deal will be accretive on an earnings per share basis. Okay. So on earnings we are.
We will already be accretive in 2024.
Yes for that for that to happen we need the <unk>.
<unk> and <unk> clients, because we have already migrated part of the clients <unk> and <unk> brands.
To deliver.
The bottom line above 150 million hash. So that's that's the threshold to make it accretive in EPS base and we believe we can achieve that next year.
Okay.
Let me ask a couple of follow up questions.
What was the net impact of model this quarter on your bottom line, you talked about revenue and SG&A, what about the bottom line.
That is not relevant something around 20 million.
$20 million, Okay, and then to go back on the question about the inflows or the inflows relatively stable throughout the quarter or did you see like a drop in September or an acceleration in September.
And also you know.
How do you think about your market share and because the <unk>.
Inflows the organic inflows decelerated quite a bit we saw data from some of your other peers.
<unk> that showed like higher inflows than what you had some.
Some people are starting to speculate if you'll have already reached unlike pure market share that you know.
It will be very difficult for you to continue to gain share how do you feel about that.
Yeah regarding your first part of the question Marty.
We prefer not to answer.
On a monthly basis and the main reason is that we believe is.
He is leading for investors the business has already a lot of volatility on a quarterly basis imagine on a monthly basis.
Regarding your second part of the questions, we still feel confident about the potential we are planting the seeds, we can talk.
Better about the affluent client, where we have the highest share.
Among the segments that we have in terms of client assets in XP platform.
And.
The affluent client.
It's it's the scenario will describe it already with the industry performance.
The fund's performance.
And so on and being well remunerated to sustained cash so we believe it's a.
The cyclical part of our business.
And we are still investing because it's cyclical so it will.
The tide will turn at some point and we're going to be ready and Abuja. The ecosystem now is much bigger is that slide that I.
I talked about for the third quarter consecutively.
That shows the potential of the core and retail that it is still not an all time high in terms of revenues.
But in terms of the kpis of investments client assets.
Active clients and number of advisors all of them are in all time high so are we.
We don't believe there was room.
To grow in terms of market share.
Okay. Thank you very much mark.
Yeah.
Thanks Murdo no next one is chugging about just a from UBS.
But just looking to reduce.
So, let's let's move to the next one and try.
Sorry to go back too much as the leader.
Next one then is you said still about <unk> from Goldman Sachs.
Hi, good evening.
ONEOK getting Martha.
We'll take one more question.
A little bit of a follow up.
Maybe just to play a little Devil's advocate.
And that's why you mentioned on slide 12, right, where the core revenues are down despite all the.
Okay great.
All of the business.
But you can look at this Nick you've made all these investments and your revenues are down right. So aside from interest rates do you think there is anything else at play there maybe competitive environment has gotten tougher.
Which is also why the revenue down.
As rates come down you need rates to get below that 9% level just to go back to those all time high just to understand how sensitive. It is to rates is there anything else going on in terms of competition or something else.
And potentially limit.
Outside that you potentially see when things are at.
Sure Tito.
First let me start saying that we.
We invested a lot E in the new verticals. Okay. So in the revenue is up it's like a 182% up when we compare the last 12 months too.
2021 the investment that we've made in advisors for the core business.
It's I mean, we've been innovating in the IFA industry. What we are we are doing we are.
Investing in people that are outside the financial industry that want to make a career change.
Use all the education part of our company as an enabler, we started as an indication of business as you know.
And we have been using all of that.
Through models are training to form more advisors, because we strongly believe this.
These are a business of relationship a human contact and if we have the right.
People with the soft skills.
And we give the tools so they can understand about the financial market and they can create these relationship and trust with our clients.
That's a good way to go so it's not a heavy investment there and again we believe.
Whenever the macro.
Helps we believe there is a huge potential and high operating leverage in that part of the business.
The core one.
Your second part I forgot if you can repeat.
I mean, I guess, it's just a little bit related to the level of rates.
The right to go below the 9% level to see that inflection or.
Yes.
One rating later coming from as low as 2%. Thank you.
Hello.
Great anything relative to that.
Benefit.
It's it's hard to say a number honestly because we don't know if rates are.
Above 10%, but our riskier assets are performing really well and delivering returns higher than that it's a good environment.
Single digit interest rates for that to happen then we.
We will have to wait for single digits. So I don't have like a precise answer.
To your question, but.
But I think we are in the good trends.
But at a slower pace than we would like but again, we do not control that.
Sure our non Mr. Thanks, Bruno maybe just one quick follow up on the inflows I think in the past I know you had net inflows into open we mentioned in the past with new gross inflows actually much much higher right. So you are seeing outflows any color you can give on how gross inflow engineering.
Yeah, it's it's it's as stable.
It's it's not improving but it's also not deteriorating further where we have more volatility in terms of draws inflows and outflows.
Is in the corporate and company.
Science that you know with the threshold of 700 million has of annual revenue.
It's allocated into retail client assets. So there we have more volatility.
Okay, great. Thank you very much.
Thanks, Matt.
Next question comes from <unk> from Citi.
Hey, guys. Good evening. So a couple of questions first can you remind us what is inside of their revenues and their main contributions there and why we saw such a strong pace to squatter both in the sequential comparison in year over year.
Hum.
And also we saw this quarter your effective tax rate.
Come up both in their accounting and managerial views.
Can you remind us why is that what's the driver of this ups and downs. Thank you.
I'll take that.
Hum.
Our other revenue by definition, it's a you know everything that we cannot allocate in the other segments retail institutional corporate and issuer services.
The main revenue there.
It's the remuneration over our AUM Cassia a L M asset liability management, but we also have a lot of other stuff that does not fit in in the previous segments that I just mentioned.
In third quarter, specifically, we had them.
Someone offs impact that made the revenue higher that we do not see happening in the following quarters.
Like for example.
We had the termination of this back.
There was.
There was a financial positive in that with an associated expense. So net impact for EBT was zero, but something around 40 million highs.
<unk> impacted positively the revenue and also negatively impacted the SG&A.
And regarding our effective tax rate.
Third quarter basically capital markets activity, that's what explains the DCM activity a lot of revenue at the broker dealer level. If you look at secured placement in our accounting income statement youre going to see all time high there.
And broker dealer has.
40% tax bracket, so it pushed up the accounting effective tax rate when.
When we look with a longer time horizon, it's our expectation that EBIT.
Should be growing at.
At a faster pace than net income.
Secondly, because effective tax rate should be higher.
Going forward, but that's on an annual basis on a quarterly basis, there is going to be volatility.
Perfect. Thank you.
Great and next one is the regular Hoffman from BTG.
Hi, everyone congrats on the numbers.
I have a question on your credit card business, we've been able to see very strong growth in revenues, but I wanted to know if we should be thinking about this business as a as an important bottom line contributor in the future or not tried I asked that because as far as I know and all your clients that invest a lot probably you'll have to offer like cash.
Backwards, that's back and have a lot of benefits.
Your clients do not go into revolving so just wanted to try to understand is still Ah if it's possible to generate no. Good amount of bottom line in the future with that business.
And also trying to understand in all your risk appetite right. Now. We're just we're just saw let's say the market as a whole going through problems right. We I think are clearly you didn't face the same let's say headwinds, but just trying to understand you know.
As to if you could increase your risk appetite to know and eventually attract to know.
More clients, who know that don't have a lot of AUC with you know are.
Using the credit card to do that thanks a lot.
Thanks for the question Hoffman.
First.
When we look at the bottom line of our or the contribution margin of credit cards as of today is still negative but do you expect like that should change I would say at the end of Jews year, beginning of next year. So it really started to to be Rajiv.
Contributor on margin for XP, Okay. So as you know the business of credit card there is a J curve.
As we are we are skull aging issue new cards, but we are at the point to become positive okay.
When we look at NPL.
Of course, we have us.
A big part of the portfolio.
I mean like.
Like four five to 5 billion arise out of 7 billion. That's collateralize. It so Daniel P. O is its very low okay, but when we look the whole portfolio, it's close to Daniel payoff over 90 days is close to 1%, Okay and when we look at the provision.
We have two days, 2%. So we have two times provisions.
Over what we are realizing on on NPL. So that's basically it's because of the profile of the customers. We have of course. Okay. So then you pay out that we have it's much lower than what the market has okay. So we have been expanding the portfolio at <unk>.
<unk> brand that has a higher NPL, but we felt very good.
L. A rachel when you looked at their revenues over <unk>.
Provision so they still very good.
No great great Martha if I may just another question here on another topic right.
I think Bruno was talking about to know that.
Company has access capital right and you actually are paid a lot right. This year I, if we add in or buybacks and the dividends.
Assuming here, let's say $4 5 billion Reais, which is more than 100% of the net income rate naturally.
I don't think that that's sustainable over time, but just trying to understand if it's your idea to two over time to keep paying dividends.
Dividends and or kind of our buybacks you know on a recurring basis.
Future. Thanks.
Want me to take that.
Yes. The answer is yes, we're going to keep returning capital to shareholders through buybacks or dividends.
And.
What I mentioned in the presentation.
When we look at our.
Capital ratio at <unk> level, we ended <unk>.
Be squandered third water.
Above 22% so it said.
Two under leverage we are conservative in terms of our balance sheet, we are not going to.
B, where the banks in Brazil for example that we compete against are usually are with a capital ratio around 14% to 15%.
But we see room.
To leverage.
A little bit more, especially considering that we have a bank now we are.
Under our corporate restructuring in our group to have the bank as the parent company of the Prudential conglomerate with the broker dealer.
Uh huh below it.
And.
That's something ongoing in the central bank and that will give us the.
Possibility to use the bank better and by that I mean.
As the main vehicle.
For funding.
Instruments because of bank as you know can fund itself that cheaper and in with.
Strong depth in terms of market.
Shipments so growing going forward, we're going to keep our profitability, we expect to keep growing our earnings and we do not need.
To retain capital to keep growing and with that in mind.
Yes, you can expect us to keep the distribution.
Capital to shareholders as we move forward.
Great Great. Thanks, Bruno Martha.
Thank you Cosmos now, let's try to connect with but you still again from from UBS, but just please.
Hi, guys hear me.
Yes, yes.
Okay, sorry for the other time.
I have one question about the profitability of XP, we already mentioned in the past that we should achieve a 30%.
And but when do you believe this is possible would be 10 years five years, all driver a time horizon for these.
Because what do we look for additional peers, we can see some players like <unk> that has a narrow view of 30%, but we also have a central hub for earlier, 30%.
Trying to see a win.
If it's three 510 years of origin to achieve at this level and the second question is a follow up about what the new money I know that the U S. We're already a lot of a lot of questions about it but how negative has been the latest N C and C. I E. How much negative has been those instruments for <unk>.
And if a part of their corporate corporate structure that you just mentioned.
Is to be able to issue a L C and it's easy to put it but at least a C. S. Here so.
So if this is linked with your corporate structure.
Start with the ROE question.
We we didn't set a target for ROE in the 30% that you mentioned.
Jaguar is is basically a math equation.
Based on the second quarter earnings results that we said look if we take.
Out of the capital the excess capital and we also discount from the 977 million highs of net income in the second quarter.
The remuneration post tax of that excess capital and we annualize that net income and divided by the new.
Equity, we would get close to 30%. So that was just a math calculation to say look we have the potential as we move forward and start distributing more capital to shareholders again, keeping our balance sheet in a very conservative way in terms of liquidity in terms of leverage.
So long we are not going to change that but using batter the vehicles that we have in the group leveraging more and reducing our capital ratio as we move forward.
The time horizon for that I, rather not answer you directly because.
Otherwise it would become out of guidance you know when we're going to achieve.
The potential 30%.
And in the future what I can tell you is that there is a plan ongoing in the company in terms of corporate restructuring in terms of of course controlling efficiency ratio. That's a must we are not going to.
We are not going to take our eyes out off the ball in terms of efficiency ratio.
To keep evolving.
Net income and.
Controlling the capital ratios so as I mentioned in the call, we want to and next year with the capital ratio below.
20% and we only going to achieve that keeping our profitability if we distribute capital.
Two to shareholders.
Regarding.
Net income was the net inflow.
Question right traveled the second one.
Yes. The second question is about the LLC.
Yeah, Lisa <unk>.
How bad team attacks.
Yeah, Ed impact.
It's hard to say how much drive through we know there is more than Q3 and highs sitting on cash in the system right now more than that.
And we know that.
When you have these banking.
Funding instruments being favor because of the macro conditions. It becomes much more of a balance sheet business been and investment business by itself.
And XP that does not have the balance sheet that our competitors have do not want to have and.
In times like that.
We have.
Less products like these one off course, we have a lot of fixed income products with good returns, we will try to compensate that with other offers I mentioned in past.
I don't know if calls or conversation with investors. For example, we did an agreement with one of the big five banks to buy some LCI from them and we could distribute billions in a matter of a few months. So there is appetite in our client base to buy that type of product whenever the market is like the way. These are.
Right now.
But we do not have the balance sheet business as of the banks that that's a certainty.
The last follow up this little favorable but in your corporate structure to trying to become a bank is to trying to issue at least for us yeah.
Or are not sure.
No not really that's not the plane. The plan again, we the strategy started to go beyond the investments so we could have.
Other products too.
Make our clients get read of the incumbent banks in and got completely the link with incumbent banks that was the strategy. We are following up that a strategy as we move forward and by having a bank.
It gives us the possibility with this corporate restructuring to put the bank as the main entity in Brazil for funding purposes, and then we can leverage more we can lower the cost of funding just to give you. An example, we have a corporate bond issue at XP Investor Memphis SCR.
Roughly 2 billion highs does make sense the bank can issue a financial bill at a cheaper cost.
And easily.
So it makes part of the strategy to have a better corporate restructuring and these natural we are moving forward as we develop the bank.
It's not to have Els Els, because then it becomes a balance sheet business.
Thank you very clear.
Thank you, but just a and now we have rehab from HSBC Heinie huh.
Hi.
And the one gig taking my question.
On a long term above them without interruption.
What are the bottlenecks.
Wendy.
Awesome.
What is the number that is occurring.
It.
Well, thank you everybody.
Thank you so much.
As Brito mentioned and thanks for your question here is the renovation at the net income impact was close to 20 million Reais positive okay.
And we expect the judge will be accretive in 'twenty 'twenty four as Bruno mentioned should be accretive will have to make a 150 million that income are more okay. So that's what we expect for 2024.
Well, thanks for the first quarter.
Thanks, and now we have Jeffrey from autonomous research.
Hello, Thanks very much for.
Taking the question.
Apologize for the background noise here.
Quick one on the DCM revenues clearly.
Some big DCM deals in the quarter or was there also an impact to retail revenues from those I guess on the distribution side.
Could you help us quantify it.
Yes. These sham.
You as you know there is a secondary trading part and the primary.
Issuance parts that is the general fees in the in this quarter.
We do not we do not disclose jaffrey exactly the numbers are between secondary and.
Primary.
What I can tell you is that secondary is it still the most relevant one and it was more relevant and primary in into the third quarter. This year, but when we compare to previous quarters. The primary component of revenue in third quarter compared to second quarter.
For example was approximately double so yeah. We did have some some very good offers in terms of channel fees.
That helped fixed income to reach.
These historical revenue in a quarterly basis of 718 median has.
Okay. Thank you and then just a quick clarification, the capital adequacy ratio and <unk> been discussing 22 or just over 22%.
Do you disclose the newberry certain denominator on that anymore.
Yeah basically.
Our total R. W. A.
As we calculated it would be around 78 billion highs. So basically we have a.
Balance sheets, North 230 billion. So one third of our balance sheet is.
Uh huh.
Assets with risk the other parts basically no risk assets.
Okay.
Great. Thanks, very much and I apologize again for the background noise.
No reserve now the last question from Yehuda Fernando Fernandez from.
And J P Morgan.
Hey, Joe Bruno monitor I'll limit myself to one question just on expenses.
This quarter was a little bit confusing right. So had MAU DAU revenues were super strong.
So easily.
Higher expenses, but you are within your guidance, even if we assume another <unk> similar to the third quarter, you still will be able to deliver your SG&A guidance, even with modelo.
So just some qualitative takes from you guys. How do you see expenses, we believe expenses should I don't know.
Tolerate because for some reason each invest more or in each normalize obese Asia or XP or know or do you see more room for operating leverage and heavy.
<unk> is growing below revenues for 2020 for anything Okay show in expenses, I think will help us understand a little bit.
Our outlook because you already made it clear during the call that revenues are not totally there yet on retail like there are some improvements year some improvement there.
Revenues are still for my take here a little bit LNG, both on expenses Youre doing with jobs. So I would like to hear from you.
<unk> expenses. Thank you.
Thank you Jody.
Going to your question as Bruno around mention just acquired there we have some <unk>.
In fact, it's okay. The first one is expert AR, we have the revenue and we have that expense.
We have the spark that Bruno nation and of course, we have.
More DAU that we consolidated number that we open that it was 100 million in 11 Nah.
Media Reais, okay. So if we sum up all of these effects is a above 200 million. Okay. So when we look the year that projection for the year will be.
Did.
Delivering the target that we mention on the guidance that we gave will be there remember that the guidance. We gave was excluding more Dow and now you are including more DAU and the number.
And for next year, we don't need to do any big investment Okay true true grow Ah. That's why would have the same about the operational leverage that we have a we don't need more investments should do more revenues on the core business investments.
Of course for all the reasons, we mentioned here about the market the riskier assets performance and so on.
We don't know when we'll sieges recovery on on the retail revenues, but once it happens we expect you to have gains.
Margin here and what they can tell you is for next year. We will continue to pursue better efficiency ratios are of course, we cannot guarantee and we will not give any guidance for that for next year as we already mentioned, but.
You guys have a commitment that we're going to pursue even better efficiency ratios in 'twenty to 'twenty four.
You will see pretty clear Martha and congrats on the quarter.
Thanks, Judy. Thank you for your question. It was less one so we would like to thank you all for participating in the call will be available with the IR team to discuss the results with you later and have a good night everyone.