Q3 2024 XP Inc Earnings Call
You have joined the meeting as an attendee and will be muted throughout the meeting.
Good evening everyone, I'm Andre Parize, best of
and the operations officer at XP, Inc. It's a pleasure to be here with you today. On behalf of the company, I would like to thank you all for the interest and welcome you to our 2024.
third quarter earnings call. This quarter the results will be presented by our CEO Thiago Maffra and our CFO
who will both be 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 tool.
and we will attend you on a first-come, first-served basis. We also have the option of simultaneous translation to Portuguese. There is a button below if you want to turn on the translation.
And before we begin our presentation, please refer to our legal disclaimers on page 2 on which we clarify forward-looking statements.
Speaker Change: and for additional information on forward-looking statements can also be found on the SEC filing section on our IR website. So now I'll turn it over to Thiago Maffra. Good evening, Maffra.
Thank you, Andrea.
Thiago Maffra: Good evening to all. I appreciate everyone joining us for our third quarter 2024 earnings call. It's a pleasure to be here tonight. Let's explore and discuss our quarterly results as well as our strategy in place to accomplish your goals.
Thiago Maffra: This is another positive quarter for XP. Our strategy has been executed as planned and it's translating into solid results.
Let me share with you the highlights.
Thiago Maffra: starting with client assets which have achieved $1.21 trillion posting a 12% increase year-over-year.
Thiago Maffra: As we will see during the presentation, it's important to mention that it was another consistent quarter regarding netting flows.
aligned with our levers and our capacity to adapt
Thiago Maffra: becoming more relevant in fixed income in the current scenario. We also increased our total number of advisors, reaching 18.4 thousand, growing 9% year over year, and continued to expand our active client base.
Thiago Maffra: marking $4.7 million, increasing 6% year-over-year. During the nine months of 2024, gross revenues grew 17% year-over-year, reaching $13.3 billion.
Our EBT posted 25% growth year-over-year, delivering $3.7 billion.
Our net income reached $3.3 billion, expanding 17% year-over-year.
Speaker Change: and it was the highest in our history, in the quarter, at almost 1.2 billion reais.
with 27.5% margin.
Speaker Change: The set of results indicate that we are at the right pace to meet the 2026 guidance released in the last year's Investor Day.
Speaker Change: We will go into more details on the financials later on.
Speaker Change: Going to balance sheet and profitability, we ended the quarter with an ROTE of 28.4%, an increase of 258 dips year-over-year.
Speaker Change: Our managerial base ratio was 21.5% and the EPS was R$2.18 per share, the all-time high in our history.
Speaker Change: On the right, you can see that EPS, since the IPO, grew almost 4 times, reaching R$7.93 in the last 12 months.
Speaker Change: Today, we also announced an extra payout of R$ 3 billion, contemplating dividends and a new share buyback program.
Speaker Change: recently recommended that we are targeting to deliver more than 50% payout until 2026.
Speaker Change: This year, it's well above it. All in all, we keep our targets to 2026 to reach a BIS ratio between 16% and 19%, with more than 50% payout in the next couple of years.
Speaker Change: Our capital discipline in how we operate our business considers an efficient capital allocation and capital return to shareholders. As I commented recently, we were already expecting to deliver better results
Speaker Change: in second half 24, based in our growth levers, cost discipline, and capital allocation.
Speaker Change: Third quarter 24 results reaffirmed that our execution plan is on track and enhances our confidence in delivering the guidance.
Speaker Change: Moving on to the next slide, we see our strategy tracker, which presents how our business evolve in time. We will analyze each pillar during the presentation.
Speaker Change: Our gross revenue in Q3 2014, last 12 months, marked $17.6 billion, posting a 20% growth.
Hypothetically, if we target
to reach the top of the guidance.
Speaker Change: it will be necessary a 20% CAGR until Q4'26. Regarding our LTM EBT margin, we have reached 28.1%, 183 BIPs expansion compared to Q3'23 LTM figures.
Speaker Change: demonstrating that we are in the right place to reach the 30 to 34 percent target range in 2026.
in Retail Investments.
Speaker Change: We reinforce that our aim is to become leaders in investments, which is our core business.
Speaker Change: As highlighted in the beginning of this presentation, a strategic achievement was to keep consistency on net new money.
Speaker Change: We recorded $31 billion in net new money for the quarter. It represents 124% growth year-over-year, excluding modal acquisition.
Speaker Change: It's important to highlight that out of the $31 billion, $25 billion is from retail. It's important to remind you that around
Speaker Change: 20 billion in retail net new money is a good level for the current scenario. This achievement was possible due to improvement to several factors and I would like to remind you of our main levers.
number one
Speaker Change: Produce Platform, the most complete investment platform in the country, positioning us ahead of peers.
Speaker Change: As an example, during the quarter, our fixed-income platform posted solid results once again, with innovative and competitive products and sophisticated instruments.
Speaker Change: Second, our multi-channel distribution keeps evolving, and as we mentioned in the recent past,
Speaker Change: ISAs, Internal Advisors, and RIAs worked synchronized to increase our client base and grow AUC. In this quarter, we reached 18.4 thousand total advisors, which 2.7 thousand are our internal sales force.
Speaker Change: When compared net inflows, internal advisors already represent, in many months, a higher net inflow than the AFA network.
Speaker Change: Third, for the past few years, we have implemented more intelligence in our offering with the right value proposition for each segment, from private to retail.
For example
Pricing adjustments
Speaker Change: for each product and service with a better understanding on economics.
Speaker Change: providing private clients a more active portfolio management while providing retail clients an objective-based approach to run their portfolios. Additionally, during the year in private bank, we hired many seasoned professionals, including the CEO for the segment, that will pay off in the next years.
Speaker Change: This change in the way of doing business translates into a potential faster growth in private banking and retail, since we are already very competitive in the affluent segment.
Speaker Change: Lastly, transitioning from a product distribution firm to a service provider is key to differentiate ourselves from other players for the next decade.
While competitors render financial planning to ultra-high private bank clients,
We are offering to clients with $300,000 and above.
Speaker Change: which is only possible because of our tech-enabled platform. No other player in Brazil can do it in the same scale we are doing.
We continuously keep improving our service and products offering.
Speaker Change: And the combination of these levers are translating to a consistent retail net inflow, higher productivity, higher quality from client perspective, and more profitability for the company. Noteworthy that we receive many questions regarding retail take great direction.
Speaker Change: As we said recently, for the mid-term, we do not expect big change, and this quarter it increased 4 Bps, marking 1.33%.
Speaker Change: Now, let's move to our cross-setting initiatives. We are continuously implementing new initiatives and products to attend and excel our clients' financial needs.
Speaker Change: When a client decides to enhance the relationship with XP, acquiring other services or products, we see the cross-sell results materially lifting revenues. On the left side of the slide,
we can see how retail cross-sell is evolving.
Speaker Change: credit card grew 12% year-over-year achieving 12 billion in TPV in third quarter 24 and gained market share during the year
Speaker Change: It still has roughly 29% penetration, while we estimate incumbent banks present around 50% penetration.
Life Insurance
keeps a fast pace.
Posting
46% growth year-over-year in retained premiums.
Speaker Change: reaching $362 million in the quarter. Penetration is around 2%, and when we compare to other players, we believe there's a lot of room to increase your penetration on our client base, since market presents average of 17% penetration. From a revenue perspective, it still has a lagging effect.
Speaker Change: since sales from our marketplace impact revenues positively during the first three years. And sales from our own insurance company takes three years to present revenues positive impact.
Speaker Change: This effect relies on the high commissions and provisions in the beginning of the terms.
Speaker Change: On retirement plans, our client assets grew by 15% year-over-year, reaching $78 billion.
Speaker Change: XP has 5% market share and the market leader has 28%. We are addressing new efforts to keep growing our share.
Speaker Change: Initiatives as cashback and salesforce expansion are resulting in faster growth pace.
Speaker Change: We are confident that we will gain much more relevance during the next years. Retail credit presented 51% growth year-over-year, marking R$ 75 million in revenues in the quarter.
Speaker Change: Our objective is not to grant money through clean credit lines.
Speaker Change: but with client investments as collateral. We have the best client base from a credit risk perspective and as a consequence our ECL to loans is one of the lowest in the local market.
In this new vertical concept
Speaker Change: We have other products as FX, Global Investments, Digital Account, and Consortium, which grew 92% year-over-year, with revenues reaching R$201 million this quarter.
Speaker Change: This is a clear example of our capacity to launch new features and reap the benefit rapidly. If you remember a few years ago, we had zero revenues on these products.
Speaker Change: On the right side of the slide, to illustrate the relevance of cross-sell, we can see revenues per client among different segments. On this example, we are using a 100-base chart.
Speaker Change: On average, clients with more than two products present 38% more revenues and clients with more than three products present two times more revenues than a client with one product.
Speaker Change: It's important to highlight that our retail offers include more than one product. Therefore, this is how we monetize clients with tickets lower than $100,000.
Speaker Change: With that in mind, we understand that there is a big opportunity in front of us.
Speaker Change: We have a complete product range, with room to increase penetration and profitability while we keep launching new ones.
and finally the corporate and SMB.
As we mentioned before,
Speaker Change: Wholesale clients are crucial to our ecosystem. Each quarter, we have been able to innovate and to meet our corporate client needs, while distributing these instruments to retail and institutional networks. Now, let's explore our wholesale business from origination, distribution, lending to derivatives, and FX Treasury SERVs.
Speaker Change: During the last years, we have been improving our position in rankings and league tables in investment banking.
Speaker Change: We are number one in Rich Issuance and C.R.A., Agriculture Receivable Certificates, and number two in C.R.I., Real Estate Receivable Certificates. As a matter of fact,
Speaker Change: During 30 quarter 24, we reached 8.6 billion in GCM volume, positioning XP as the top two ranking year to date.
Since we have the largest investor platform in the country
Speaker Change: When we think about secondary trading, we are number one by far, with more than 50% market share.
Institutional is another piece that benefits from our ecosystem.
as a market leader in independent fund managers distribution.
Speaker Change: We are the fourth largest player in equities traded volume. With our quality in execution and strong relationships, we keep gaining market share and we understand this trend remains looking ahead, expanding beyond investment banking and brokerage.
Speaker Change: A few years ago, we have started to develop new businesses.
Speaker Change: such as corporate securities trading, which can be monitored by our capacity to originate and distribute our expanded loan book. Corporate securities achieved $23 billion, a 79% growth year-over-year.
Speaker Change: We are the largest broker for corporate cred in Brazil, and a portion of this corporate securities is related to our flow book, which turns over around three times per quarter.
Speaker Change: Our unique recycling mode provides better NIMS risk-adjusted, aligned with our credit risk discipline. Another example, derivatives. We keep evolving our offering while increasing penetration in OTC derivatives.
Speaker Change: And this quarter, we were ranked 4th position compared to 10th two years ago. More than that, we became number one in interest rate swaps.
Speaker Change: This is another clear view of our powerful ecosystem. On effects, a similar improvement.
Speaker Change: four years ago when we started. Lastly, we have been developing and deploying more products and services. For instance, last quarter we launched the Corporate Digital Account and we will launch Trade Finance in the next months.
www.microsoft.com.ca
Speaker Change: We are also acting as the insurance broker for corporate clients.
Speaker Change: As these businesses grow, we will bring additional disclosure regarding them. The new loans corroborate to increase cross-sell as it's part of our plan to gain profitable market share with lower risk. As a consequence, wholesale business printed a solid 36% revenue growth last 12 months.
Speaker Change: Victor will give more details about the revenue growth. Now we will hand it over to Victor so he can discuss this quarter financials. Thank you.
Victor: Thanks Maffra. Good evening everyone. It's a pleasure to be here with you. And before we go to the results of the quarter, I would like to recall some ideas anticipated in the second quarter of 2024.
Victor: First, in the second quarter, we explained that warehousing assets by underwriting more fixed income offerings would drive an increase in our wholesale revenues.
Victor: particularly if in the history services. At the same time we anticipated a lagging impact on retail until the distribution phase of those offerings.
Victor: As expected, when the distribution phase of those offerings took place this quarter, we observed a positive impact on retail fixed income revenues.
Victor: Second, for the reason just mentioned, in the second quarter we have increased our balance sheet growing 10 billion reais in corporate securities in a single quarter as part of a warehousing business.
Victor: And, finally, we had also anticipated that revenue mix, along with a few other minor effects, resulted in a higher EBT margin and tax rate in the second quarter. We emphasized that using a trading 12-month metric for both
Victor: would serve as a more reliable guide for expectations in the coming quarters.
Victor: With that in mind, remember that the last quarter we focused on discussing our last 12-month figures. We are evolving the right way to deliver our commitments in 2026, and the third quarter of 2024 was a positive quarter with the retail business on the spotlight.
Victor: Total gross revenue grew 17% on nine months of 2024 and 4% year-over-year. Retail was the highlight during the quarter. Corporate and issuing services posted solid results and institutional revenue was flat each quarter-over-quarter.
Victor: On the right-hand side of the slide, we see our gross revenue break down and retail increased participation to 77% on total revenues on the back of another positive quarter for fixed income.
Victor: Let's move to the next slide with more details on retail.
Victor: Retail revenue posted $3,494,000,000, a 15% growth in 9 months 2024 and 10% growth year-over-year.
Victor: Fixed income was once again the highlight, with 56% growth 9 months 24 against 9 months 23, and 31% growth year over year.
Victor: That growth was supported by both, our ability to keep launching new products, including corporate credit and structural notes, being very competitive against tax exempt notes from incumbent banks.
Victor: and second, our relevance in secondary trading, higher than 50% in terms of market share, which enables us to provide liquidity to our client base. Moving on to the next slide, we will talk about corporate interest services revenue.
Victor: Corporate and issue services continue to be an important driver to total revenues, posting R$ 552 million in the quarter, which represents a 58% growth in the nine months 24 and 6% growth year over year.
Victor: Issue servers delivered positive results on back on DCM activity, reaching 323 million reais in the quarter and 71% growth in the 9 months 24 and flat year over year.
Victor Mansur, Bruno Santos, Thiago Maffra
Victor: Corporate results typically align if the issue is services performance, if cross-selling opportunities are arising from new fixed income issues, particularly if derivatives. Corporate post $229 million in the quarter, 43% growth in 9 months and 4, and 17% growth year-over-year.
Victor: On the right-hand side of the slide, we'd like to present our ecosystem rationale, connecting our retail and corporate investment banking business in a profitable risk-recycling mode.
Victor: In the second quarter of 2024, we expended R$ 10 billion in new corporate securities warehoused in our balance sheet. And in Q3, we already distributed around two-thirds of that book to our retail and institutional clients, as we said we would do.
Victor: Moving on to the next slide, we will explore sDNA and efficiency ratios.
Victor: SG&A X incentives reached 1.5 billion reais in the third quarter, a decrease of 2% year-over-year.
and a 7% higher quarter over quarter.
Victor: Since every third quarter we have investments in your firm, experts, quarter-over-quarter comparison has a seasonality effect.
Victor: As we said before, cost-discipline and efficiency are part of our plan and DNA, since both position XP in a better competitive level.
Victor: I'm happy to announce that this quarter we marked another record. It's 35% efficiency ratio, the lowest in history since the IPO. Printing 179 base points lower year over year and 6 base points lower quarter over quarter.
Victor: Important to mention that we are confident to deliver our goals for 2026 with a powerful combination of innovative solutions to our clients, our new business and internal advisory expansion becoming each year more mature coupled with our cost discipline.
Moving on to EBP now.
Victor: MBT achieved 1.2 billion reais in the quarter, a 5% growth year over year and 3.7 billion in 9 months 24, a 25% growth
Victor: As I commented before, we emphasize that using trading 12-month metrics for both EBT margin and FX tax rate would serve as a more reliable guide for expectation in the coming quarters.
which was already the case in this one.
Victor: In this quarter, our EBT margin in the last 12 months was 28.1%, flat year-over-year, and also flat against the second quarter, 2024, last 12-month EBT margin. We believe our EBT margin will keep growing on an annual basis, reaching our goals for 2026.
Let's see our net income on the next slide.
Victor: Even considering the different revenue mix, I'm happy to share with you that during the quarter we set a new net income record, printing R$ 1,187,000,000. It represents a 7% growth in the 9 months 24 and a 9% growth year over year.
Victor: Another important achievement was the increased net margin in 118 base points, posting 27.5%.
Victor: Let's move on to the next slide to talk about capital management.
Victor: As you might have seen, this quarter we start to disclose our BIS ratio data, including risk-weight-assets breakdown in two years of historical data.
Victor: We achieved 21.5% bees ratio in the equator and one of our goals is to operate the business between 16 to 19 percent.
Victor: So, efficient capital management is key. Therefore, besides the R$7.5 billion already distributed through dividends and share buybacks during the last years,
Victor: We announced today an additional three billion reais to be distributed in dividends and share buyback
Victor: Considering this distribution and full execution of the buyback program, we would have a BIS ratio at 18.3% in line for guidance.
Victor: On the right side of this slide, we can observe that the RWA total assets ratio stands at 30% this quarter, if the credit RWA accounting for 45% of our total risk.
Victor: The shift in the mix between credit and market RWA compared to the previous quarter is primarily due to the implementation of new central bank resolution in this quarter, the 313 resolution.
Victor: According to this new resolution, the risk associated with securities and derivatives held in the trading book must now be classified as market RWA. We believe this regulatory adjustment provides a more accurate representation of a risk profile.
Victor: which corroborates to our discipline in allocating capital across the ecosystem. Also important to consider that our business not only consumes lower credit RWA but also has a low average daily VAR at 22 million in third quarter or 10 basis points of our equity.
Victor: Our strategy is based on increased profitability and capital return to shareholders, while keeping a conservative BIS ratio when compared to the Brazilian financial industry.
Victor: This slide summarizes our capital distribution, if more than R$10.5 billion in dividends in buybacks in the last three years.
4.5 billion reais
Victor: capital return. And this year, if the new announcements, it indicates more than 9% payout ratio, if more than R$4.2 billion of capital return. As Maffra mentioned earlier, our goal is to keep delivering higher than 50% payout ratio for the next two years.
Victor: aiming to operate between 16 to 19 percent in this ratio. Now let's see our EPS and ROT numbers.
Victor: Our earnings per share evolution continues to post a solid growth and achieved two reais and 18 cents, an 11% increase year-over-year and an 8% increase quarter-over-quarter.
Victor: During the 3Q24, XP posted 28.4% in ROT if I increase of 258 base points year over year and 114 base points quarter over quarter.
Speaker Change: Now, moving back to Maffra so he can do his final remarks and then we go to the Q&A.
Thiago Maffra: Thanks, Victor. So, before we go to the Q&A, I would like to emphasize four things. First, we had another solid quarter confirming that we are on track to deliver our 2026 guidance.
second
Thiago Maffra: As we presented, our levers are delivering positive results with R$25 billion in revenue money this quarter and indicating that our target should deliver around R$20 billion per quarter is feasible. Third, we believe we are enhancing our modes by offering to our clients the most complete and sophisticated product platform in the country.
Thiago Maffra: expanding our best-trained sales force and evolving our value proposition properly to each segment through better offering, objectives and higher level of service excellence.
Thiago Maffra: And lastly, our commitment to manage our company with capital discipline, efficiency and return to our shareholders. Once executed, we will have returned more than R$10.5 billion to shareholders throughout the last three years.
Now, André Parize will start the Q&A session.
Andre Parize: Okay, now we're going to start our Q&A, attending you on the first-come, first-served basis.
Thiago Maffra: First question is from Thiago Batista, UBS. Thiago, you may proceed.
i
Hello guys, can everyone hear me?
Yes.
Speaker Change: of Expeed, about 400 new individuals. Is relevant the amount of those guys that went to the B2C advisor or not? And my second question, I know that you don't have a guidance for possibility or Hoy or Holt.
Speaker Change: But can you give to us a ballpark idea of what level of profitability that you believe XP will have in the long term?
Speaker Change: And by the way, you are looking more to Hoy or Hoti?
Speaker Change: Hi Thiago, thank you for your question. Good evening to all, it's a pleasure to be here. I will take the first question and Victor will answer the second one.
and Thiago Maffra.
They're about 400 employees, 300, and to B2C, they're advisors.
Why you don't see that increase on the total?
We had a change in regulation a few months back.
and now the IFA.
Speaker Change: They don't need the IFA partners, imagine the managers, the people that work not as advisors on the IFA. They don't need anymore to be IFAs.
So now they are under employee contract agreement.
Speaker Change: and they are like leaving the IFA number so if you look then total number at Ambima it's going down okay and it's not because people are leaving the profession of advisor is because of this new change in regulation and they are becoming regular employees in Brazil okay so out of the four hundred
Speaker Change: People that we hired internally, 300 went to the B2C as advisors.
Thank you.
Speaker Change: Perfect, thank you. I will take the second question about ROE.
Speaker Change: Looking at our ROT number of 2008, you can say that our return on capital employed is around that and after we deliver our guidance of base index, by the end of the guidance, you can expect our ROE will be mid to high 20s.
Thank you.
No, very clear, Maffra and Victor.
Okay, next question is from Eduardo Hosman, BTG.
Speaker Change: Hi guys, good evening. I want to talk more about capital allocation and Victor, I think he...
Speaker Change: He talked a lot about it, he came up with new information as well, so I wanted to get more.
Speaker Change: More details about, you know, the RWA, you know, what could, can we expect in terms of growth, you know, for, for next year, maybe, you know, in the midterm, you know, if there is
Speaker Change: If there is kind of a gain of scale there on operational risk or market risk, you know, if you grow more, eventually, if there's room, you know, to improve efficiency there. Now you also have, you know,
the ability to issue Tier 1 and Tier 2.
Speaker Change: You know, so if you see room to do that, you know, and eventually, you know, bring your court, your one, you know,
Speaker Change: down. At the end of the day, I'm trying to understand, you know, what level of payout, you know, in the form of dividends and buybacks, you know, we can probably work, you know,
Speaker Change: in the next two years, right? You paid out, you have a very high payout in the last couple of years, right? So I wanted to have an idea if we can work, you know, with something of at least 50%, you know, for the next couple of years. Thanks.
Okay, thank you for a question, Osman.
Speaker Change: First, there is operational leverage in the RWA numbers that can give you a color. If you look at our revenues in issue services and corporate, which is basically a more capital intensive business, the revenues grew 38% in the last 12 months.
Speaker Change: and the RWA grew only 30%. So there is a gain between the relation in revenue and the RWA. And when you go to marketing and operation RWA, also our gains that we can make over the years using more efficient structures as now we can use the bank in its full capacity.
Speaker Change: Talking about payout, you can expect 50% or more of our net income paid in 2025-26. That should be the levels to reach our guidance in terms of BIS ratio. And after that,
we should stabilize near 30.
i
Awesome. Thanks a lot.
Okay, our next question is from...
Yuri Fernandez from J.P. Morgan. Yuri, you may proceed.
Speaker Change: Thank you for our question Yuri. The BIS ratio in the end of the quarter was actually 21.5 and after the dividend it goes to 19 and considering the buyback done it goes to 18.3 and as we said you can expect that we will pay more than 50% of our earnings in the next two years and after that our payout ratio should normalize between 30 and 50 percent of our net income.
And going...
Please see the complete disclaimer at https://sites.google.com
Going to the second question about other revenue.
Speaker Change: In this quarter, we had a one-off event. In the beginning of the quarter, we tendered almost half of our outstanding 2026 notes.
Speaker Change: and issue a new 2029 bond. Remember that those notes that we tendered, they were head to Brazilian CDI and by them back, we had to undo the hedge accounting. And by undoing the hedge accounting, we discharged all the P&L in the net income.
Speaker Change: If you consider all the transactions, the carry of the new debt is cheaper than the one that we bought in CDI plus levels, so over time the P&L of the transaction is positive.
Speaker Change: but in this quarter we had this one-off event that reduced the other revenue line and you should expect that we'll be back to average levels in the next quarter.
Speaker Change: All super clear. Thank you for the explanation on this point.
Speaker Change: Okay, our next question is from Mario Pierre, Bank of America. Mario, you may proceed.
Mario Pierre: Hey guys, good evening. Let me ask you three quick questions, two of them are follow-ups.
First one,
Mario Pierre: You talked about you using more internal salespeople, right? However, when I look at the commissions paid to IFAs,
They are growing faster than retail revenues.
Speaker Change: So, in fact, we calculated a ratio of 25.8% this quarter, last year it was 24.6%, previous quarter 25.7%. So when do we see the benefits?
Speaker Change: of lower IFA commissions as you start to use your own internal salespeople. And as you mentioned, right, you had to add about 300 people this quarter. So.
Speaker Change: I'm assuming we're going to see higher FG&A and that should be compensated by lower IFA commissions. So, I was wondering why that did not happen. The second question is very quick. If you can just talk about...
Speaker Change: The impact of the export event on revenues and on expenses, I think that they net out.
Speaker Change: But just to be clear, you know, how much did you book in expenses and revenues this quarter? And then the third one, really, is when we were looking at the revenues from credit,
Speaker Change: It's flat, relatively flat year over year, however your credit revenues went from $71 million to $113 million. Was there anything unusual on the credit revenues? Thank you.
Thank you, Mario.
Speaker Change: So, the first question about the commission costs, it's really hard to see.
change in cogs
Quarters, like a...
Speaker Change: the B2C channel making a change in COGS from a quarter to the next one. You have to see this trend in a longer period of time like in a year or two because if you have a very small change in revenue mix
Speaker Change: it can change everything. So remember what we said in Q2, we did a lot of revenues on investment banking, on credit issuance, and on...
30Q, we distribute a lot of this credit portfolio.
Speaker Change: And when we distribute, we make revenue on the retail and we pay commissions, okay? So it's a completely different...
Speaker Change: Cogs when you compare what you do on when you book the the primary market from the investment banking to when you distribute like to on the secondary market okay when you pay commission the other one you don't pay
Speaker Change: so it's basically revenue mix that's why you're not seeing a big change but if you have to look like a longer trend to see these effects
Speaker Change: Okay about the second one. We don't open how much we
Span on expert, but it's net zero. Okay, so
Speaker Change: for a few years it was slightly negative, last year, this year was...
Speaker Change: zero okay so it's not even positive but it's very important for us because it's one of the
Speaker Change: The largest financial, if not the largest one in the world about investment, so it's really important for the brand, but it's net zero and some years it's like negative.
Victor will take the last one.
Speaker Change: Okay, thank you for the question. About the crack, we had two explanations. The first is the beginning of margin-loan operations in the broker-dealer.
which are more profitable than conventional credit.
Speaker Change: and the second one, some loans from the Covid era, if lower NII, matured during this quarter and they were renovated by new operations, this new normal of price, if higher NII. Basically that is the explanation, the book is almost flat, but we have two new products with higher NII than before.
Thiago Maffra: Okay, that's clear. Maffra, let me just, like, follow up here then on the gross profit and gross margin, right?
Speaker Change: because you provide guidance for EBIT margin. I think 30 to 34, you're running at 28% right now. The improvement in margin, does it come from the gross margin or where should we see the improvement coming from?
Okay, thank you for your question. Talking about the guidance.
Speaker Change: We can give you some color about the improvement. First is operational average. You can see our efficiency ratio in the lowest level ever. And we expect that this ratio will keep improving over the next year. This is one factor.
Speaker Change: Another factor is the J-curve of the cross-cell verticals that we have.
Speaker Change: We mentioned before that credit cards, for example, they had losses in 2022, they also lose money in 2023. This is the first year that they will make positive margins and that grow over our guidance period. Other verticals...
Speaker Change: other verticals as our own internal sales force also lost money over 2022 and 2023. This is the first year of positive margin and as they grow they start being accretive in terms of EBT.
Speaker Change: and basically those three things together can explain the expansion in margins.
Great. Thank you very much.
Speaker Change: Okay, our next question is from Tito Labarta from Goldman Sachs. Tito, you may proceed.
Tito Labarta: Hi. Good evening, guys. Thank you for the call and taking my question. Just a couple questions on the revenues.
Tito Labarta: continue good performance on the fixed income retail revenues. How do you think that line sort of continues to evolve? I mean, do you think you're benefiting?
Tito Labarta: From a higher rate environment, is there room for that line to continue to grow into next year, just to understand a little bit that the growth dynamics there? And then on the issuer services revenue line, right? I mean, it's been a good year overall, tough comps and two Qs down a bit this quarter. Do you think that comes back in four Q and into next year? Just help us think about sort of DCM activity and how do you feel about the issuer services revenues? Thank you.
Hi, Chitu. Thank you for your question.
Thank you. Bye.
Second, please.
Thank you.
Thank you. Bye.
Speaker Change: Answer both of them together. DCM industry in Brazil is a new level. Our pipeline remains robust and most likely DCM activity remains strong in the next quarters.
Speaker Change: As well, the demand for fixed income coming from our distribution channels, both retail and institutional, is very strong. So, we believe that we'll see both lines, DCM and fixed income lines, strong over the next quarter and next year. And also, you need to take into consideration the impact of our corporate restructuring. If the bank is at a more competitive level, we can originate more deals in DCM, we can warehouse more fixed income, and that increases our competitiveness in both of those lines.
Speaker Change: We are optimists for both in the next year and next quarter.
Speaker Change: Okay perfect that's clear. One quick clarification just on the BIS ratio is that a fully loaded for tier one ratio just to make sure there's anything else in the BIS ratio?
Speaker Change: Yes, that is it. It's fully loaded. Okay, perfect. Great. Thanks so much. Thank you.
Speaker Change: Okay, next question is from Neha Argawala from HSBC. Neha, you may proceed.
Neha Argawala: Thank you for taking my questions. Just a quick one on the credit growth. Credit book was flat year on year. What should we expect going forward? Why don't we see a more strong growth on the credit side? Thank you so much.
Hi, Neha.
Speaker Change: One main point for us, we don't want to pile up credit, so you cannot expect us like coming
Speaker Change: back here one year ahead and saying that now we have like a hundred, two hundred billion reais in corporate credit. So we don't have this strategy. We don't have the business to pile up credit. Of course
as the wholesale bank grows.
We have...
Speaker Change: to warehouse higher amount of volumes for investment banking, for corporate bond flows, and for other business lines, for example, credit risk from derivatives. So, as the business grows,
Speaker Change: It will grow in nominal terms, for sure, but not on the same scale.
Speaker Change: Growth rate as the business growth. So the idea here is always to recycle capital and recycle fast. It's always to give credit with some collateral and that's the strategy. So we don't have any strategy. [inaudible]
pile up a big credit portfolio here, okay?
Very clear. Thank you so much.
Speaker Change: Next question is from Daniel Vaz, SAFRA. Daniel, you may proceed.
Daniel Vaz: Thank you Parize, Thiago Maffra, Victor. Good night. So, to hear my side, looking at your expenses...
Daniel Vaz: I was trying to see beyond XP-Expert, so we see the other revenue, other income and other expenses net line. So we have another quarter of incentives coming from Tesouro Direto, B3, and also positive recoveries and reversal provisions. Can you comment on that, please, so we can get a sense on what are these other operating income?
Daniel Vaz: We're way higher than a year ago. And second, trying to see and get more color on your equity income, or as you name it, or at least your share of profit on JVs and associates.
Daniel Vaz: So it went from $41 million to negative $3 million quarter-over-quarter. So any seasonality effects here, maybe associates pay higher cost to have a stand and next be expert. So if you can get a caller here, it will be very helpful. Thank you.
Speaker Change: Thank you for the question, Daniel. I will split the answer in three parts here. You first asked about the...
Speaker Change: the incentives. Okay, so as we have built one of the largest distribution channels in Brazil, we have today more than 18,000 advisors.
Speaker Change: Some players in the industry that want to have access to our distribution.
Speaker Change: recurring okay there is not not an amount that's recurring every month but is recurring to have this kind of one-offs okay from different partners
Speaker Change: from credit cards, from B3, from consortium, from other players, from whole life insurance.
So, you guys can expect...
Speaker Change: this type of one-offs to be recurring, okay, so because it's part of giving access to these partners to our distribution.
Speaker Change: The second question that you asked it was about about the
We had $42 million from the ACWA.
Speaker Change: payment, there was a provision and it was reverted. So a good way of being thinking about expected credit loss
Speaker Change: for a regular quarter, it's $80 million. Okay, that's a good number, okay, around this number. It can be a little bit less, a little bit more because...
Speaker Change: It smells stable, but it probably looks a little less stable. A third one about minority interest is about the 41 million last quarter and zero in this quarter, but we have done outreach with other nations, foreign languages, European shepherds and so on,
Speaker Change: Some deals with different players, with some asset management, with especially IFAs, and some of them, they are like...
Speaker Change: going through some reorganizations, as I mentioned, some of them they are like going to employee agreements, some of them they are like in different states.
Speaker Change: But I would say that for next year you can expect this line to be a little bit higher than this year Okay, and a little bit more stable than this year. Okay, because we have a lot of reorganizations this year and this
Speaker Change: investments that we have done in the past years in IFA's, assets and other business they will start to pay off next year. Okay, so it's going to be a little bit higher.
Okay, thank you for the detailed answer. Very helpful.
Navajo, are you listening to us?
Oh
Speaker Change: We're going to move to the next one, if Navajo comes up, we're going to tell you.
Bruno Santos, Thiago Maffra, Bruno Santos, Thiago Maffra
Andrew Garrity from Morgan Stanley. Andrew, you may proceed.
Andrew Garrity: Hi everyone, congratulations on the results and thank you for the opportunity to ask questions. I just want to briefly touch on the take rate, which was certainly a highlight of the quarter, expanding on a sequential basis. It looks like, you know, a lot of the improvement kind of came from the fixed income retail take rate, and so just kind of wanted to ask, I know you had mentioned some new products on the fixed income side. Is there anything in particular that makes you believe that this higher take rate on fixed income specifically is sustainable, or is this again just kind of a quarter-to-quarter fluctuation? Thanks.
Speaker Change: Hi Andrew, thank you for a question. Basically, the highlight of the quarter in the retail line was fixed income and that's what was driving the take rate higher. As we expect the retail revenue to keep growing in the pace of our guidance, you can expect the take rate to be stable or slightly higher than what it is today.
Okay, thank you.
Speaker Change: To complement Victor here, we have been mentioning that for a few quarters, I would say. When we think about take rate, when you look at our guidance, we didn't factor a better take rate into the guidance. So, but...
Speaker Change: If you ask our view, at some point the market will change and we expect to see change in the mix.
Speaker Change: Most of the money flew to fixed income products with low ROA in the past quarters or years. At some point that will revert and we can expect a higher take rate. So that's our view, but a higher take rate is not factored into our guidance for 2026.
Speaker Change: So you can consider that an upside if it starts to go up.
and Thiago Maffra.
Speaker Change: Okay, got it. But you do think that, at least over the coming quarters, take rate, as mentioned earlier, should be somewhat flat to slightly higher from here, is a reasonable assumption.
Yeah.
Okay, thank you.
Bruno Pavão from Autonomous, Bruno you may proceed.
Hello. Can you guys hear me?
Speaker Change: Yes. Oh, hi, this is Renato Meloni from Autonomous. I think it was just a link issue here. So I just wanted to deep dive on the fixed income take rate that's a large expansion this quarter, right? So can you explain the breakdown here of how much was client activity and how much was from the securities that you're having or market to market of securities you're having in your balance sheet? And then further down, just thinking here of the dynamics that we're seeing market with spreads, compressing and the cycle rates. How do you expect the fixed income take rate to behave in the next couple of quarters? Thank you.
Speaker Change: Hi, thank you, Andrew. We don't disclose this level. Sorry, thank you, Renato.
Speaker Change: We don't disclose this level of detail in the Fixed Income Line. What we can say is that almost everything that we are housing in the last quarter, we sold this one, and that was one of the drivers of the revenue.
Speaker Change: About the spread, we are seeing some inflection, but as we said before, the DCM pipeline is still very hot, and the client demand is still at an all-time high, so we don't expect any structural changes in the market.
Speaker Change: Okay, so similar take rates in the next few quarters. It's better and bigger than ever before.
Speaker Change: I guess, sorry, I don't know if you could hear me. So similar take rates, fixed income take rates in the next quarter.
Yes, we believe so.
Okay, thank you.
Okay, next question is Heikki.
Hi Parize, can you hear me now?
Navarro: Hello? Hello? Navarro, are you there? Yeah, can you hear me now? Yeah, we can. You may proceed, please. Sorry for that. My question is on competition. All the large banks have been advancing with their IFAs, I for internal financial advisors, as well as improving the open investment platforms. The level of competition XP is facing was not there maybe two or three years ago and it has been increasing. How do you see this advancement of competition from the large banks affecting your business?
Speaker Change: Structural change in the last I would say two years. It's not that the banks the incumbent banks
Speaker Change: They didn't improve at all, okay, in investments, but when you look the NPS
Speaker Change: from affluent clients from the same bank the NPS went up like 40 bips
with this environment but again we are not like
Speaker Change: blaming the macro environment. We are not waiting the macro to get better and our guidance doesn't depend on the macro environment. That's an upside but for us is more the environment than the structural change in most of these incumbent banks.
Thank you very much. That was very clear.