Good morning, ladies and gentlemen, and welcome to the audio conference call of B3's earnings results for the first quarter of 2022. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions to participate will be given at that time. If you should require assistance during the call, please press the star key followed by zero. As a reminder, this conference is being recorded and broadcast live via webcast. The replay will be available after the event is concluded. I would now like to turn the conference over to André Milanez, B3's CFO, who will be joined by Fernando Campos, Investor Relations Associate Director. Please go ahead.
Good morning, everyone. Thanks for joining our first quarter earnings call. It's a pleasure being here for the first time with you. Well, let me start making some remarks about the quarter. 2022 started with more uncertainties in the financial markets globally with the war in Eastern Europe and inflationary pressures around the main economies around the globe. In Brazil, we saw that movement as well with interest rates increasing and reaching the highest level in five years. Even in that more challenging scenario, our volumes were still very healthy during this quarter. We had BRL 31.2 billion in ADTV on the equities listed segment. And on the derivatives ADV, a total ADV of 4.4 million contracts.
Those represent a reduction in relation to the first quarter of last year. We have to remember that the first quarter, actually the first half of last year was a very strong period, with the second wave of the COVID pandemic, and we experienced all-time high volumes in our platforms. In terms of the revenue, it's worth remembering as well that last year, the first quarter did not fully reflect the impacts of the pricing policy changes that we implemented, which were only done in February. Despite that, we presented very healthy volumes. In relation to the last quarter, our volumes were pretty much in line. The ADTV for equities was slightly lower, and the ADTV for derivatives grew in relation to the last quarter.
During this quarter, we also had the opportunity to see the resilience of our business model playing an important role. Despite the reductions that we saw in volumes in relation to last year, our revenues did not reduce at the same level. We closed the quarter with total revenues of BRL 2.5 billion, a reduction of 4.6% in comparison to the first quarter of last year. With a recurring EBITDA of BRL 1.7 billion, and a recurring net income of BRL 1.2 billion . It's also perhaps highlighting that these figures, the figures for the first quarter, they incorporate the figures for Neoway, a company that we acquired at the end of last year.
We try to highlight the impacts of the incorporation of those figures in our numbers for the quarter in order to allow you to make better comparisons. Finally, also because of the acquisition and the consolidation of Neoway in our figures, we've announced the revision of some of our guidances. The expenses and investments on new initiatives, the guidance for that was reviewed, as well as the guidance for depreciation and amortization and the expenses linked to revenues. Those were the three guidances that were reviewed as a result of the acquisition and consolidation of Neoway in our financial statements.
With that, I would like to pass on to Fernando, who is gonna go into a little bit more details about the results for the quarter.
Good morning, everyone. Entering in more details about the segments. In the listed segment, we saw a 10% decrease in revenue, reflecting the lower trading volumes mentioned by Milanez and also the price, or the new pricing policy, that he also mentioned in cash. It's worth mentioning in cash equities also the lower turnover, which was 166% in 1Q 2022 against 176% in 1Q 2021. But the turnover was in line with 4Q 2021. In FICC, there was a 5% growth in volumes compared to fourth quarter 2021, and a 16% decrease compared to first quarter 2021.
The RPC rose 6%, compared to the first quarter 2021, mainly in the BRL interests, given the market volatility implying more volumes of long-term contracts. In OTC, we saw an increase of 12% in revenue, mainly as a collateral effect from the increase in the basic interest rate during the period, with our growth in fixed income instruments and from new issuance of bank instruments and corporate debt. We also saw in Treasury Direct, the number of investors grew by 27% and the outstanding balance grew by 20%. Talking about the infrastructure for financing, there was a 10% decrease in revenue, reflecting the decline in the automotive market in the quarter, with the financing falling 9%, due to the less favorable scenario.
Finally, in technology, there was a 33% growth in revenue with a 16% increase in the number of monthly customers using our OTC system and 58% increase in data analytics, mainly explained by the inclusion of Neoway in this line. Just talking a little bit about the adjusted expenses, excluding Neoway. We saw adjusted expenses growing by 34% versus the first quarter of 2021, mainly due to the lines of personnel with the Collective Bargaining Agreement and new hires. There was an increase of about 20% in the number of employees over the three from those two quarters.
Data processing, that it's worth remembering that the development of new initiatives, given the nature and the way in which they are being managed, by Agile methodology and other project management tools to accelerate the go-to-market of these new initiatives, has the effect in our statements of higher expenses and lower CapEx. With that, I'm gonna Milanez will talk a little bit about the strategic progress that we had on the part.
Thank you, Fernando. I think before we move on to Q&A, I just wanted to highlight some of the launches that we had during the quarter in terms of our roadmap. On the listed segments, we've started the Retail Liquidity Provider for certain stocks in listed equities. Remembering that the RLP was before that only available for derivatives, for the Ibovespa and USD mini contracts. This is an experimental offering that was launched at the end of January and is gonna be run for 12 months. In the OTC segment, we launched our platform for receivables, credit card receivables.
We aim to provide here high- quality infrastructure for market participants and hope to become a relevant player in this market. Finally, in insurance, where we have been making some good progress, have over 80 clients already registering with us. We started to register house insurance policies and property insurance policy actually this quarter. Hope to expand this offering further during the following quarters as other categories of insurance, the registration of other categories of insurance become mandatory. I think that's it for the main highlights and I'll leave more room for Q&A.
Ladies and gentlemen, we will now begin the question and answer session for investors and analysts. If you have a question, please press the star key followed by the one key on your touch-tone phone now. If at any time you would like to remove yourself from the questioning queue, please press star two. Our first question comes from William Barranjard, Itaú BBA.
Hi. Good afternoon. Thanks for this opportunity. We have two questions. The first one is about Neoway numbers. We would like to understand them better. Is there any non-recurring or seasonality effect in the first quarter? How much of those numbers was recurrent. We would like to understand basically if it is okay to annualize the first quarter numbers to project the entire year. Our second question is about the company overall expenses. We would like to understand if in a scenario where revenues are not performing as expected, if you see any room to slow down the speed of the expenses growth. That's it.
This is Fernando. I'm gonna answer the first one, and then André will answer the second one. Regarding annual numbers, the numbers are within the budget. Most of the revenues are recurring revenues, so it's long-term contracts that we have. The numbers are within the budget that we have for the company. We expect them to accelerate throughout the year. I wouldn't annualize them now, but because they're what we have in the budget, although there isn't any seasonality, but we expect the revenues to accelerate with the connections that we are making.
Thanks, William, for your question. Regarding the expenses, look, we are very confident that the strategy that we are adopting for the company to grow is a good one. What we try to do, and that's why we decided to change a little bit the way we communicate this to you and all the investment community by segregating our guidances between the core business and the new initiatives, was to ensure that was clear to everyone. We will continue to make the efforts to strengthen our core business and, you know, work on the roadmap of new products and new features to unlock value in our core business.
We expect to be able to seek efficiencies in terms of expenditure in the core business and, you know, keep growing at a more normalized levels in terms of expenses for the core business. We also think it is necessary to separate a part of our cash generation to explore those new opportunities that could be potential opportunities of growth for the company in the future. Some of them could be, let's say important investments that we are making. We do not plan to change that in the short term. If the volumes are not performing as good as they have in the past, we believe this is important to ensure the future and the future growth of the company.
Okay. Thank you for the answers, Fernando and André. Very clear.
Thank you.
Our next question comes from Carlos Gomez from HSBC.
Hello and good morning. Two questions. The first one is, what your expectation is for velocity for this year and next year, and where do you think it will end up stabilizing turnover velocity for your equities business? Second, could you give us an update about the litigation regarding, the case with the Central Bank from 1999, and whether there has been any development there? Thank you.
Thank you, Carlos, for your question. Well, it's a very good question. What we don't know where this is gonna land or normalize. What we believe is that we will not return to the levels that we had two years ago. I think we saw some structural changes taking place during this period. You know, number of investors, number of advisors, the deepening and the dynamic of the capital market has structurally changed during these two years. That's why we do not believe the turnover or the trading volumes will resume to what they were before the beginning of the pandemic.
We already, you know, started to see some deceleration during the second half of last year when interest rates here in Brazil started to. You know, the first quarter of this year was pretty much in line with the last quarter of last year. So I mean, it's difficult to say, but I think we don't see those levels reducing much further than what they currently are. I think April perhaps was slightly slower. We do not see as yet a trend there. I think, you know, it's worth highlighting that April had two holidays here in Brazil, long holidays. There was also a holiday in the U.S.
I'm not saying this is the reason for the April figures, but definitely it didn't help a lot. You know, that's how we see it. We do not see those levels reducing much further or going back to what they were before the pandemic. Hopefully, with all these changes that took place, once we start to see the conditions for, you know, for further increase in volumes, perhaps what we will see it's a much stronger movement than we saw. Because we, as I said, we are in a very different position than we were when this movement occurred.
This is not something that will occur in the short term, perhaps over, I don't know, 12 - 18 months, provided all the conditions in terms of inflation control, level of interest rates, allows such movement. And finally, in relation to your question regarding the contingency, we do not have any development during the quarter. As we said, it's difficult to have a projection or of when we should have any news here. We are still in the same situation as we were since the last time we spoke about it.
If I can follow up, originally the idea was that you might get a resolution on the case in about two years, I believe, and that was, I think the initial message, back in the middle of 2021. Does that mean we are about a year and a half away from it or is it still two years from today?
Look, it's difficult to say. This is the best estimate, but the timings for the Justice here in Brazil do not have a specific schedule or a specific timetable, so this is our best assumption in terms of the time that could take for us to have some news. It could be sooner than that. It could take longer than that. It's really difficult to say, Carlos. Unfortunately-
Yeah. I know.
That's the best we can provide you with in terms of information as at this moment.
Thank you. Thank you so much.
Thank you.
Our next question comes from Ian White with Autonomous Research.
Hi. Thanks for doing the presentation and for taking my questions. Just a couple of fairly short follow-ups, please. First of all, I wondered if you could say something about the equity issuance pipeline that you're seeing, particularly the IPO pipeline, and whether you think we should be expecting a return to potentially healthier IPO activity over the course of the second quarter or whether we might expect that later in the year. Just the second question was around competition. I just wondered what your expectations were now in terms of outcomes from the CVM's study there into equity market structure. Thank you.
Thank you very much for your questions, Ian. Well, in terms of IPO, we still have a very strong pipeline. As you know, the current market conditions are not ideal for companies to do their listings. It's really difficult to predict when we could have a new bull for those companies to access the market, and that will depend heavily on the evolution of the macro environment. It's hard to say. It's difficult to see that changing significantly in the short term, but that doesn't mean that we could not have, you know, small windows opening yet this year. It's really difficult to say.
I wish I had a precise answer to your question, but I think that's the best we can give in terms of expectations. Highly dependent on the macro environment and market conditions for those transactions to become effective. We have a very strong pipeline of companies waiting for that window of opportunity. The second question was regarding the regulation. We expect the regulation to be issued probably next month before the end of the term of the current president of CVM. We are not expecting any material impact for our business in terms of the regulation, there might be some changes regarding block trading of blocks.
We have already been working since actually before that in a trading block facility that we plan to launch to the market right after the new regulation is issued. Of course, we need to wait for that in order to ensure that we have all the details in terms of what is gonna be required in the regulation. That could potentially be something that could help to unlock some value and make trading blocks easier for our clients and participants. Overall, I think we are very optimistic in terms of how the new regulation will evolve. I think it's pretty much in line with what we expect for our activity.
That's helpful. Thanks very much.
Thank you, Ian.
Our next question comes from Kaio Da Prato, UBS.
Hello, everyone. Thank you for the opportunity for asking question. I have two questions here. The first, if you could talk a little bit about the OTC business. I would like to better understand if you expect the same level of growth during the rest of the year, of more than 10% year-over-year. How are you seeing competition in this line of business, if you are already witnessing any pricing pressure from other market participants? The second is on the credit card receivables segment. You mentioned that your platform was launched this quarter. If you could detail a little bit how many players are already linked to your platform? What is your competitive advantage versus the existing companies, or if it is just a matter of pricing?
How is the interoperability working with the other platforms? Finally, if I may, what can we expect in terms of revenues going forward? Thank you.
Thank you for your question, Kaio. I'll take the first one regarding OTC and Fernando will help me here with the second question that you made. As I try to highlight during my initial remarks, I think, you know, in times like this, the other segments that we have that are less exposed to the, let's say, to cyclical movements tend to work as a cushion and help in terms of maintaining the resilience of our revenues. That's clearly the example here with the OTC market, where we have revenues that are more dependent on level of interest rates, but that they're also more recurring revenues.
The fixed income market as you know, there has been a huge demand for that during this first quarter. We have seen a significant increase in the level of issuances, and that has helped to improve or to increase the revenues in this segment. I think that trend should continue, at least for the next months. Those new issuances they also help in terms of boosting the total inventory of assets that we have, which coupled with higher interest rates, should also translate into positive revenues for the company. It's difficult to say if it's gonna keep growing at exactly the same rate, but we still see a positive trend here.
Regarding competition, I mean, I don't think we have anything major in terms of news. As you know, we have some competitors that have been launching initiatives in specific asset classes, sometimes targeting specific types of clients. So far they haven't been capable of stealing significant share from us. We remain very relevant in this market. We have been working hard to maintain that position, being very close to our customers, ensuring that, you know, their needs are being met by the products that we are launching, by the products we are developing. We're gonna keep doing that in order to maintain these competitors without any significant market share increase. You know, that is not new.
It has been going on for more than two years now. We're gonna keep of course being wary of the potential threat of those guys. We take that matter very seriously here. I think, you know, we're gonna keep working very closely to our customers. I think that's the key, the main thing that we can do in order to continue to be successful here.
Kaio, regarding the credit card receivables platform, it's still in early stages, so I think it's too early for us to share any numbers with you guys. Regarding interoperability, our platform, one of the advantages that we had, it was that we went a little late on the market, but it kind of helped us because we worked on the interoperability issues before we launched the platform. The platform is ready and, from a technological standpoint, it's going well. Since we launched it about a month or a month and a half ago, we are still rolling our commercial strategy and our commercial efforts to increase the number of players that uses our platform.
It's too early to share any numbers with the market. Okay. Sorry for that.
Yeah. We're going to go after the big fishes here.
Okay, great. It is really clear. Thank you both.
Our next question comes from Domingos Falavina from JP Morgan.
Thank you. Good morning or good afternoon, everyone. I think it's your first call as CFO, André . Congratulations on a well-deserved move. My question is.
Thank you.
You're welcome. My question is regarding Neoway, right? We're trying to crunch down some numbers in here to see, quite frankly, if the M&A made sense, right? We're seeing an increase in CapEx of about BRL 200 million. Very bold partner numbers here, okay? You're spending about BRL 1.8 billion in acquisition, which with, you know, today's Selic is some BRL 200 million carrying costs once you fully, you know, pay it. It seems to generate about, you know, BRL 20 million losses in the quarter, annualized about BRL 100 million. So you're basically, you know, having a carrying cost of about BRL 500 million for this Neoway acquisition. My question is, like, in your business plan, by when does this carrying cost turn positive?
If we did anything wrong in our assumptions here, basically not BRL 200 million of the incremental CapEx is to Neoway, and if not, how much it is? Anything else that could help us kind of, you know, draw this income statement.
Well, thanks for your question, Domingos. The number you're referring to is the size of the change that we made to the guidance, right? Is that the figure you're using to-?
Yeah. Correct.
To make those assumptions, correct?
In the middle of the range. Correct.
Okay. Well, I think just to make clear, the revision of the guidance is, as I mentioned, all of that was due to the acquisition of Neoway. The impact, the direct impacts of Neoway are the ones you are seeing on the guidance for new initiatives and the revenue-linked expenses. Depreciation and amortization is just a consequence, right? You know, I know that you know that well, but in the acquisition we've acquired Neoway. When we acquired Neoway, we had to recognize intangible assets and goodwill, and those intangible assets, they start to be amortized, and that's why our depreciation and amortization expenses increase. You know, our business plan, we expect Neoway to.
It's not gonna break even this year, and we knew that. We don't expect it to break even this year. According to our projections in our business plan, we expect the operation to become profitable by next year. We knew that there are other potential opportunities that are not, let's say, more related to the potential that Neoway could have in terms of helping to unlock value in data and products that we already have rather than just the existing products that they have. I think that's it.
André , the BRL 200 million, how should we think about, you know, this being a one-year investment versus the recurring levels of CapEx that Neoway is gonna take? Because, like, breakeven is far from the cost you're gonna have in carrying this, right? The opportunity cost of the cash and et cetera. Also wanna understand if this BRL 200 million is one-off or it's something we should be seeing BRL 50, BRL 100 million every year from now on.
Well, I think the first thing is that the majority, just for you to understand, I think the majority of not only the. You mentioned CapEx, but a lot of the resources that we are spending in these new initiatives, because of the nature of those, some of them are being developed as MVPs in Agile methodology, a lot of those new technologies that are being developed using cloud rather than being developed on premises. We expect that although these are, to a certain extent, investments, a good portion or a majority of that figure will not meet the accounting criteria to be recognized as CapEx. Okay? This is the level for this year. I don't.
There are some one-offs in that figure, but I don't see that level reducing much further going forward, what we expect our revenues to more than compensate for that. It's less cost reduction, more revenue opportunity and synergies.
Very clear on that. Thank you very much.
Thank you.
Our next question comes from Marcelo Telles, Credit Suisse.
Marcelo Telles, thanks for the time, and then, you know, congratulations on the new position. I have one follow-up question to, you know, to Domingos's question and another question on crypto. Just going back to Neoway. You know, this incremental CapEx that, you know, that you are now forecasting, is this a different level from the, you know, or a much higher level than the CapEx that Neoway was doing if they were doing any type of investments.
I think it'd be interesting to, you know if you are, you know, ramping up the, you know, the CapEx effort in the business versus what Neoway used to do. That's the, you know, the first part of the question.
When we look at the you know the expenses you know plus the investments as per your guidance of new businesses, can you tell us you know how much you know is you know what percentage would be you know actual operating expenses and how much would be you know actual you know CapEx so that you know it can help us get a better sense of what your overall operating expenses is you know is going to be. On crypto, can you comment. I know you had a lot of initiatives you know as you mentioned in your Investor Day about the crypto for 2022.
I know that several ETFs, you know, of crypto, you know, already trading, but I think you had a more ambitious goal for crypto. If you can, you know, give us, you know, a bit of a view on, you know, where do you stand now on crypto. You had the announcement, I think, you know, for some, like BTG, XP, you know, setting up their, you know, crypto trading platforms, and what does that entail for you?
Okay. The first question on Neoway, and sorry, thanks for the question, Marcelo. Good to hear from you. The question regarding Neoway. You can have a sense for the figures of Neoway because we have to publish their figures during the process of approving the acquisition in our shareholders' meeting. There is some increase, not significant ones, but there are some increases in terms of the money that's being spent, primarily, to develop new verticals that they didn't have. The main one is the connection with the, let's say, the vertical for capital markets, something that they did not have.
That we believe is important for them, for the business and to help to unlock value in terms of some of the products and data that we already have. I think we can leverage from the platform from Neoway to distributing those products and other new products as well.
Hello, can you hear me? Sorry, I can't hear you. I just wanna make sure the line won't even go down.
Excuse me, ladies and gentlemen, please hold.
Okay. It's currently working.
Hello?
Sorry, I think we had our call was disconnected here. Where when was the last time you guys heard us? Sorry, Marcelo.
I think, André, I think you were starting to answer the second part of the question. I think probably regarding, you know, the breakdown, you know, of expenses and CapEx for new initiatives and business.
Okay, good. Apologies for that. As I was saying, I briefly mentioned during the previous question. The vast majority of those are gonna be, although they are investments in nature, right? We are developing new products, making new initiatives, because, you know, some of them are being developed in cloud, some of them are, you know, starting to develop MVPs. We check if it's working, then we start to implement additional features, doing that using Agile methodology, et cetera. Most of that do not meet the accounting criteria to be recognized as CapEx.
Different from perhaps what you had in the past, where you had a big project where you knew exactly everything that you would be doing and, you know, you would be capitalizing that over a longer period of time and then starting to amortize that. That changes slightly with the way of developing those things now, and, you know, although investment in nature, vast majority is gonna end up being recognized, accounted for as expenses. I would say it's more around 80%-85% expenditure. Sorry, around 85%. 85%, 15%. That's slightly different, but the investment around that number. 85% expenditure and around 15%-10% as CapEx, as pure CapEx.
Excellent. That's very clear. Yeah. Thank you. On crypto?
Regarding crypto, as you mentioned, we already have some crypto products on the, let's say, regulated market. We have several ETFs. We are planning to launch Bitcoin futures this year over the next, I don't know, three to six months. We are planning on doing that. As we mentioned during our investment day, we are working on initiatives for the, let's say, non-regulated market. We want to be able to provide our participants with infrastructure solutions that they could use to offer if they wish to do that, as some of the examples you mentioned.
If they want to offer that to their customers, provide them with the infrastructure that they can offer through which they can offer access to crypto to their existing client base. That's what we are working on. You know, other solutions in terms of reconciliation, potentially custody services that could help those clients that are wishing to offer that alternative to their client base.
We have two more questions from the web. The first one is from Christopher [audio distortion] . Have you now entirely implemented the new pricing policies or should we expect revenue margins to begin to decline again at some point in the future?
Thank you for the question. I think we mentioned that already, but we have implemented around 80% of what we planned to do when we announced the pricing changes. We are very satisfied with the results. I think the main objectives that we were seeking when we implemented those changes have been achieved. Our main concern was to prevent our pricing schedule, pricing policy to be an obstacle for the growth of our customers and the market. We eliminated fixed fees that perhaps were being a reason of complaint for retail investors and for brokers in order to attract more retail investors.
We addressed trading fees for those players that are more price sensitive, such as the high frequency traders. We're very satisfied with the results. The bulk of what we planned to do was implemented. The reality is that the remaining 20% of the part that was not implemented, it's very difficult in terms of the implementation effort. We probably will try to bundle those changes with other changes in the future. We do not have a timeline for doing that, nor feel a huge pressure to do that. There's no clear expectation at this stage of implementing, at least not the way it was initially conceived.
The second question that we got from the web was from Thiago Paura from BTG Pactual. The second question is about new rate contribution, but I think we tackled that on our last question. The second one is how long does the tax benefit coming from the amortization could be left?
Thank you for the question. The goodwill was being amortized over five years. Business combination occurred mid-2017. I think actually Cetip was incorporated around June, if I'm not mistaken, of 2017. That's when the deal really started to be amortized or deducted for tax purposes. That benefit will end at the end, probably around the end of the first half of this year. You also have to remember that despite the goodwill, there was a significant portion of the acquisition price that was also recognized as intangibles. This is being amortized as well. The main difference is that goodwill for accounting purposes is not amortized.
Intangibles are amortized, but that also generates some tax benefits. That will last a little bit longer because if I'm not mistaken, the average amortization term was around seven years. That will last slightly longer than purely the goodwill amortization.
Excuse me. This concludes today's question and answer session. I would like to invite André Milanez to proceed with his closing statements. Please go ahead.
I just would like to thank you all for joining our call and for your continued support. Also thank all the team that made all this hard work of putting all the our materials together to communicate our results to you guys. Have a nice day, and I hope to see you soon. Bye-bye.
That does conclude B3's audio conference for today. Thank you very much for your participation, and have a great afternoon, and thank you for using Chorus Call.