Good morning, ladies and gentlemen, and welcome to the Audio Conference Call of B3's Earnings Results for the Second Quarter of 2022. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and 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 Veiga Milanez, B3 CFO, who will be joined by Fernando Campos, Investor Relations Associate Director. Please go ahead.
Thank you. Good morning, everyone, and thanks for joining our call to discuss the results of our second quarter. I'm here together with the whole team. Fernando and I are gonna go through a few highlights of the quarter, and then we're gonna leave more time for Q&A. Starting with a general comment. During this quarter, we had a continuity of concerns regarding the global macroeconomic scenario, with base interest rate hikes across major economies in the world in order to try to contain the inflation increases. Some concerns also being raised about potential recessions coming into place. In Brazil, it wasn't that much different.
The main difference perhaps is that we started that movement before the rest of the world, but we have seen the interest rate hikes continuing with the central bank raising our basic rate to almost 14%, more recently. In this more challenging context for the equities market, we saw our volumes in the listed segment presented some deceleration. We've had an ADTV of BRL 29 billion during this quarter, which represented a decrease of 13% in relation to the same quarter last year. Looking at the derivatives, the performance was more positive with volumes pretty much in line with those that we saw during the second quarter of 2021.
In relation to the first quarter of this year, the ADTV was 7.5% lower, and the ADV was down by roughly 3%. This quarter, once again, we saw the importance of our revenue line diversification with the performance of the OTC segment that presented an increase in the outstanding position of fixed income instruments, and also on the new issues during the quarter of more than 20%. An increase also in relation to the first quarter of this year, which helped to mitigate partially the impacts of the decrease that we saw in the listed segment.
The main financial highlights, we closed the quarter with total revenues of BRL 2.5 billion, a reduction of 7.1% in comparison to the second quarter of 2021. Our EBITDA reached almost BRL 1.7 billion, a reduction of 10%, and our net income was BRL 1.2 billion, pretty much in line or small decrease in relation to the second quarter of 2021. In this more, I'd say, challenging environment, we have also revised our guidance, our leverage guidance. The prior guidance was a leverage ratio of 1.6x gross debt to EBITDA. We've increased that to 1.9x gross debt to EBITDA. The other projections or guidances that we give to the market were reaffirmed during this quarter.
Lastly, since we are still on the topic of leverage, we just concluded our sixth issue of the debentures in the local market, through which we raised BRL 3 billion at a rate of CDI + 1.3% per year. Most of the proceeds from that new issue are gonna be used to early redeem a debenture that was issued during the pandemic in a liability management exercise. With that, I would like now to turn the word to Fernando, who will talk in a little bit more detail about the results for the quarter.
Thank you, André. Good morning, everyone. Starting with the listed segment, we saw a 10.4% decrease in revenues against the second quarter of 2021, mainly because of the cash equities, which saw a decrease of 13.8%. Due to the lower volumes explained by André, and the impact of incentive programs to large and loyal traders that was implemented on June 2021. I think it's worth mentioning that, even in this challenging scenario, turnover velocity was remaining high, standing at 160%, in the second quarter.
In the listed derivatives, there was a decrease of 3.5% in revenues compared to the second quarter of 2021, which reflects the decrease in the revenue per contract from interest rates in USD and FX contracts, given the appreciation of the Brazilian real against the USD. Talking a little bit about the OTC, we saw an increase of 13.7% against the second quarter of 2021, that this stems from the increase in the basic interest rates and the rebalance of portfolios that we saw during the quarter. It was explained mainly by the growth in fixed income or with outstanding of bank instruments and corporate debt growing by 19.8% and 26.9% respectively.
About infrastructure for financing, we saw a decrease of 5.3% in revenue, mainly against the second quarter of 2022, mainly as a result of the decline in the automotive market in the quarter, with financing falling 9.3% due to a less favorable scenario. Technology was impacted by Neoway. We saw 28% growth in revenue with 86.1% increase in data and analytics stemming from Neoway's revenue, which accounted for BRL 46.6 million in the quarter. We also saw a huge increase in the number of monthly customers using the OTC system, which impacted the line of technology. Talking about the expenses, adjusted expenses.
Adjusted expenses ex Neoway, not considering Neoway, grew 40% against the second quarter of 2021, especially due to the new stage of the company as the implementation of our business diversification strategy is intensified by new initiatives that we will be accounting for as expenses rather than CapEx. You can see in the chart that we have in the presentation that most of the increase comes from new initiatives. But also we have increase in personnel that we had a 10% wage agreement in August last year. New hires of 15% was net.
In data processing, we have some of those new initiatives that I mentioned that given the nature and the way that they are being managed with agile methodology and other project management tools that accelerate the go-to-market of those new initiatives that are accounted for as expenses. Now I'm gonna turn the call back to André to talk about the strategic development of the quarter.
Thanks, Fernando. Just briefly, some of the business developments that we had in the quarter that are perhaps worth highlighting. Line up with our strategy to keep developing and strengthening our core business. We launched in May, EDS and UDS transactions for interest rate derivatives. These transactions, EDS stands and UDS stands for Exchange Defined Strategies and User Defined Strategies. Those are designed to enable multiple instruments with different maturities to be traded in a single transaction, which can lower costs for participants and mitigate the risk of execution. This is an important development to also meet demand from our participants and clients. In May, we also announced a partnership with Microsoft and Oracle to speed up our journey of migration to the cloud.
This is a 10-year agreement that seeks to bring greater agility in this journey, which will benefit the development and launch of new products and services. We also announced the launch of our corporate venture capital and builder fund with initial commitment of BRL 600 million for investments in the innovation ecosystem over the next five years. The focus of that initiative is to find potential high growth business related to B3's activities in sectors such as energy, carbon, DeFi, tokenization, solutions for fintech, new banks, payments, among others. Another important development that we had during the quarter was the announcement of the new regulations, resolutions by CVM that disciplines our operation and the operation of the markets that we have in the beginning of June.
Those are Resolutions 134 and 135 after a long period of discussion. If you recall, we had a public hearing discussing those rules for almost two years, but it was a very, let's say, thorough discussion and job that was done by the regulator. The main points that were, to a certain extent, impacted by these new resolutions were self-regulation, best execution rules, and trading of large blocks outside the exchange. Regulators are still discussing the definition of a large block. As you were aware, we have already been discussing that and preparing ourselves for a potential change in that rule. We will be ready to offer solutions for trading of large blocks to the market when these new rules come into force.
We have already started the presentation and discussions with the market of our solutions. We see the regulators' intention to promote the updates in regulation and meet important demands from clients and market participants as very positive for the development of the Brazilian capital markets. Finally, I perhaps would like just to mention some developments in relation to Neoway. We have advanced on the integration of our technology platforms to consolidate databases where possible and speed up product development, and have already started the development of a new vertical within Neoway to offer solutions and data products for the capital markets, with the first product being already launched which is a surveillance tool for insider trading which has been very well accepted by the market so far. I think those were the main highlights.
With that, I would like to perhaps turn the floor back to the presenter and open the session for Q&A. Thank you.
Thank you. Ladies and gentlemen, we will now begin the question and answer session from investors and analysts. If you have a question, please press the star key followed by the number one key on your touchtone phone now. If at any time you would like to remove yourself from the questioning queue, press star two. Please hold while we assemble our roster. The first question comes from Marcelo Telles with Credit Suisse.
Hi André, hi everyone, and thanks for the opportunity to ask questions. I have a couple questions. I think the first one, if you can comment a little bit about, you know, the sustainability of your turnover velocity. I know there are a lot of things that you don't control, but I think turnover velocity on the cash equity side has been remarkably resilient. You know, we've seen, I think, a big increase of co-location volumes as well. So if you can perhaps elaborate a bit, you know, whether you think, you know, the levels of turnover velocity, especially compared to pre-pandemic levels, you know, can be sustained, you know, or not, at higher levels.
My second question, regarding you know, more on the technology side, in terms of blockchain. I mean, you announced like the, I think, you know, this fund, you know, to look at different technologies or so. If you can just perhaps, give us a bit more detail, on you know, how you see, you know, blockchain technology, you know, playing out, you know, in your business. We've seen some, you know, I think Itaú Unibanco, you know, announced a tokenization department, you know, trying to do, you know, issue some debentures through token.
Is there a threat to your business, you know, especially the, you know, your registration business or Cetip business, you know, from that, or that could be an opportunity for you guys as well? Thank you.
Thank you, Telles, for joining and for bringing the questions. I'll start with the first about the turnover velocity. I'll try to do as best as I can to answer that. The truth is, we don't know exactly where this is gonna stabilize. But we've seen this level being maintained since we started to see interest rates increasing in Brazil, and in other jurisdictions. We were expecting, of course, some deceleration coming from this scenario. The scenario will remain challenging, at least for the remainder of this year. A lot of uncertainty, interest rates increasing even further, potentially outside Brazil.
It is difficult to tell where this could exactly stabilize, but what we believe is that those levels will not go back to what they were before the pandemic because we believe the market has reached a different level, right? I think there were a lot of important transformations during this period. More companies, more products, more investors, more high-frequency traders in our platforms. All of that contribute to a different dynamic. Perhaps we've reached a different stage after these two year. That's why we do not believe that those levels will return to what they were pre-pandemic. July, as you know, we have disclosed the data for July was a weaker month.
Again, a lot of uncertainty that coupled with holidays on the northern hemisphere, but we're already seeing some pickup at beginning of this month with the ADTV so far around BRL 27 billion. That's how we see it. I cannot give you an exact number, but I can give you our view in terms of roughly where this could stay. Regarding the new technologies, we see that as potential opportunities. Of course, as we want to be closer also to those initiatives, to ensure that if those could potentially present a threat to our business, that we are very close to that and can adopt that into our product offering.
A lot of the initiatives that are being carried out, besides the new initiatives that we are conducting within the company, the initiative of being closer to some of those smaller initiatives through our venture builder, CVC and venture builder vehicle have also to do with that desire of us to be close to the new developments in the market, following those, testing those technologies and seeing potential applications in our business. There are both here, opportunities for us and trying to be closer to those new initiatives and mapping potential threats to our business. So far, I mean, there are a few experimentations with those. We already adopt blockchain with very specific process within the company.
We haven't seen anything, let's say, major or transformational, but we will be closer to those initiatives and others as well.
Just one. Thanks so much for the answers. Just one follow-up. Do you plan to have, you know, a crypto trading platform at some point?
We are working on different fronts here regarding crypto, so we will be launching this year a Bitcoin future. As you know, we already have assets in our platform that give the opportunity for clients or investors to have exposure to that asset class. We already have several crypto ETFs being traded in our platform, and we want to offer now Bitcoin future to give another alternative for investors that want to have that exposure to that asset class within the regulated market. That should be launched during the second half of this year. We are also working on a different initiative to provide infrastructure to our participants to be able to offer crypto to their customer base. We're basically offering an infrastructure almost a crypto-as-a-service.
If a broker wants to offer to their customer base the ability to buy crypto, we are gonna provide all the infrastructure so the broker can just basically plug in its home broker in our infrastructure that will enable the offering of such product. We do not plan to become a crypto broker or something like that.
That makes sense. No, that's great. Thank you very much.
Thanks, Marcelo.
The next question comes from Pedro Leduc with Itaú BBA.
Hello, everybody. Thank you so much for the call and taking the question. Quickly on the margin in the equities markets, as you showed there, it was down another piece this quarter, 3.4 basis points. You explained part of it has to do with the new program for the large non-day traders which went into effect last year. That's still boiling down, but also for new contracts. Can you elaborate a little bit on how you're seeing this trend down further until the end of the year, or if it should be more stable from now on, considering a mix effect being constant? Thank you.
Thanks for the question, Pedro. I'm gonna start here, and Fernando please, jump in if you want to add anything. You know, the major changes that we did, that we had to do in our pricing schedule, as you know, were done last year, and we're still seeing the, let's say, the impacts when making the comparisons of this year's performance with last year's, of those changes. We've implemented the bulk of the changes that we planned. We do not have a timeline or even confirmation that we will be making further changes or major changes, right? Our expectation is that this will now in comparison terms, will become more stable and basically fluctuating given the mix of the different products. That's our expectation.
Of course, pricing is always a matter that we look at very closely. We're gonna continue to be adjusting our pricing schedule in particular points where necessary, but we do not expect any significant changes, new changes in terms of our pricing policy going forward, or at least in the short term.
Great. Thank you. More stability in this line from now on. Appreciate it.
Yeah.
Thank you.
You're welcome, Pedro.
The next question comes from Tito Labarta with Goldman Sachs.
Hi, good morning. Thank you for taking my question. Just one question. On your cash flow statement, looks like it was a big decline in financial investments around BRL 4 billion, which led to an increase in the cash flows. Just wanna understand the decline there, what drove that, just so we can understand the expectations for that or what was the big driver of that?
Sorry, Tito. Thank you. Thank you for the question. Can you just repeat, please? 'Cause I think we missed a bit of your question here. You're talking about cash flow, right?
The decline, around BRL 4 billion, in financial investments, which boosted your cash flow related to that. Just wanna understand what was that related to.
Sorry, Tito. Are you looking at our cash flow statement? 'Cause we cannot seem to find-
Yes.
exactly what
Yeah. It's on page 20 of your cash flow statement in your financial statement. It says, you know, financial investments. There is, I guess a decrease in assets around BRL 4.2 billion.
I was just looking at that here. This is basically the change in our cash position. This line here is just a movement between balances during the quarter. This has to do with the fact that we were, let's say if you see our cash flow, you're gonna see that this quarter, given that we have distributed a large amount of money, we had a reduction in the cash balance. That's what shows here as a movement, a net movement in our cash position. That's basically it.
There was a reduction also in the level of third party cash here that ends up translating in a negative net movement in our cash position, but nothing really outside the ordinary here, Tito.
Okay. Yeah. Thank you, sir. Yeah, just wanted to understand, just given the move in the financial investments in and of itself seemed bigger than normal, but just I guess part of some of the other movements.
Yeah.
You had there.
Yeah.
Thank you.
Nothing out of the ordinary. Sorry for taking that long.
No. No problem. Thank you.
Thanks.
The next question comes from Ian White with Autonomous Research.
Hi. Thanks for doing the presentation. Just a couple of questions from my side, please. First of all, on competition. Obviously now the sort of CVM has completed its work on equity market structure. I just wondered if there'd been any discussion from your side with third parties or regulators regarding sort of the potential for new venues to connect, for example, to your post-trade infrastructure in future? Whether there any discussions had gone on there so far. Can you just say a bit about how, like, kind of what that would actually entail? Kinda how long might that process take?
Would there be any extra costs for B3, for example, as a result of allowing a connection to a competing venue in the future? Just some details around that would be interesting, please. Secondly, just on costs. I've just noticed that the split of your costs in the first half was skewed much more heavily towards operating expenses rather than CapEx. I think the previous discussion on the guidance had been that split would then be kind of closer to what we saw in 2021.
I just wondered what was going on there and if we should expect, for example, CapEx to go back to, sort of say 5% of revenue where it's been historically, or whether this is kind of the new normal going forward in terms of how costs are allocated to the P&L. Thank you.
Thank you, Ian, for the question. Regarding the first one, I don't know if you recall, but a few years ago, there was already discussions around that with the project that was being carried out by the ATG Group. At that point, we've made adaptations to our system in order to enable connection by a third party venue to use our post-trade solutions. There is a bit of work that needs to be done on our side in order to enable that if necessary. But I wouldn't say this represent major investments on our side.
The way our structure is settled is set today will enable a connection like this to be developed if necessary in the future. At this stage, there are no major discussions regarding that. In relation to allocation of expenditure between OpEx and CapEx, I think we did mention during the last quarter that given the way... Especially the new initiatives, the new projects that the company is taking are being developed using agile methodology starting with MVPs and things like that. A lot of the development of new things taking place not on premises, but using cloud technology, that we would start to see more of what was treated before as CapEx being classified now as operating expenditure.
This is the trend that we have been seeing during this year, at least the first two quarters, and that should remain going forward, given the conditions that I just described. You will see potential investments that were being classified in the past as CapEx being classified now as operating expenditures on a lot of the development efforts of technological solutions that potentially in the past were classified as capital expenditure. We're gonna see more of that being classified as expenses.
That's great. Thank you.
Thanks, Ian.
The next question comes from Pedro Leduc with Itaú BBA.
Thank you guys so much for taking my follow-up. It goes into the direction of Neoway. We much appreciate you giving out the disclosure. We note there that it came in with a roughly BRL 20 million negative EBIT, the way it's reported at least, which is a bit higher than what we had in mind, at least. Sorry if we did miss something. Just like to pick your brains here, if it's more investments that you're seeing opportunities to grow in, you know, and that's requiring a little more commitment in the near term, or is it a function of revenues that there's a slightly higher loss? Just like to pick your brains here on what's happening. Thank you.
Thanks, Pedro. Well, I think that there are some combinations here. I think, you know, we are seeing the business growing quite a lot. You see the numbers in terms of revenues. I think we are having very strong revenue growth there. There was additional investments required since we decided to implement a new vertical within Neoway to develop the capital market solutions and products. There's also other things such as inflationary pressures, which should not only affect our business but also affect their business, which are again heavily dependent on people as well, and that puts some pressure on the cost side as well. I think nothing really major or out of the ordinary.
We do want to make sure that the investments necessary to develop those new initiatives and the new vertical that stems from the combination of Neoway and B3 are being made to foster revenue growth and product development.
Thank you.
Thanks, Pedro.
Once again, if you wish to ask a question, please press star one. Please hold while we collect new questions. Ladies and gentlemen, this concludes today's question and answer session. I would like to invite André Milanez to proceed with his closing statements.
Well, thank you. Once again, thanks for joining our call. Thank you for the support. I would like also to take the opportunity to thank all the team here that put all this material together and work really hard to make another quarter disclosure. We will continue to be in touch. Thanks again for your support and have a nice day. Bye-bye.
That does conclude B3's audio conference for today. Thank you very much for your participation. Have a good afternoon, and thank you for using Chorus Call Brazil.