Good evening, everyone. Welcome to XP's earnings call for the first quarter of 2022. I am Andre Martins, the Head of Investor Relations. On behalf of the company, I would like to thank you all for your interest in this call. Today we have with us Thiago Maffra, our CEO, Bruno Constantino, our CFO, and the investor relations team, myself, Antonio Guimarães, and Marina Montemor. We will all be available for the Q&A session, which is going to happen right after the presentation. You can raise your hand on the Zoom tool to ask your questions. We already have seven raised hands. We have the option of simultaneous translation to Portuguese. You just have to click on the globe button on the Zoom.
If you need simultaneous interpretation into Portuguese or English, please click on the little globe, and you can choose the language of your choice.
Refer to our legal disclaimer on page two of our earnings presentation, on which we clarify the forward-looking statements and their definition. The documents which explain why forward-looking statements might differ from actual results can be found on the SEC filings section of our website. Now, I'll pass the word to our CFO, Bruno Constantino, who will deliver our initial remarks. Thank you all.
Thank you. Thank you very much, Andre. Good evening, everyone. Are we going to have the presentation on so I can get a start. I will be brief. We have already seven hands raised, so I will be brief so we can go to the Q&A. We have basically two sessions here, the highlights and then the financials and KPIs of the first quarter.
Going to the highlights, we have segregated here those five topics that we would like to share with all of you. I will not, you know, spend our time talking about the macro environment, everything that happened in the first quarter. All of you are pretty much familiar with it, jumping directly into the results. I believe the first quarter shows the resilience of our business model. Gross revenue grew 17% year-over-year, and we kept our adjusted net margin above 30%. It's worth mentioning in this first highlight that a quarter, of course, is made of three months, and we had very different months in the beginning of the year.
Just to give you one data point, if we compare the gross revenue of March with an average of January and February, March was more than 45% greater than the average of the first two months of the quarter. Very different months that resulted in the 17% growth year-over-year in the quarter of 2022. The second point that we always reinforce as well is this portfolio effects. Two segments that did not perform well in the first quarter because of the macro conditions, everything related to capital markets and also equities and futures.
On the other hand, we had some records, for example, in the institutional revenue that beat the previous record in the second quarter last year by 46%, mainly driven by the war, a lot of hedge protection and derivatives being used by our clients in our trading desks. Also the retail fixed income platform that on fourth quarter last year had hit a record in terms of volumes being traded, and the first quarter of this year was even greater than the fourth quarter. Considering that in this year we didn't have the tailwinds of primary offers coming to the market because of very weak capital markets activity. Number three is our distribution network. As you know, we have a unique distribution network, especially when you look at the IFA network, and we keep growing.
We have grown by when you add the IFAs plus the B2C, more than 5% quarter-over-quarter. We always like to remember that when we think about the IFA network, we have almost 11,000 IFAs, entrepreneurs working 24/7 to succeed in their profession. Of course, we are helping them as we can. When we compare to the world of bank managers, more than 50,000, we believe there is still a lot of room to keep growing here. Number four, of course, the new verticals. We decided last year to share with investors those new verticals. They are what we call internally extends the core, being the core investments, and they will reinforce the core. When we look at them standing alone by themselves, they can become really big, important.
When we look at where we are in each of those verticals, I will talk a little bit more about it. We are at very early stage. The growth exponential year- over- year, threefold, and they represented 7.6% of total gross revenue this quarter. Just to give you a comparison here, first quarter 2021, they represented less than 3%. Finally, but not less important, we received the award of the best advisory for the fourth consecutive year. It's something in investments. Being investment our core, this kind of award is something that we are very honored to receive. It's an indication that we are going in the right direction.
Especially, when we look at the first reward that was given in 2019, we had five points in advance compared to our closest competitor. You fast-forward four years, 2022, now we have eight points of distance to our closest competitor, which is a very good indicator. On the other hand, when we think about investments, we are not number one in custody, in revenues, so we still have a very long journey ahead of us in investments. Now we are going to share some freebies. We never talk too much about developments in the investment world. We've been talking about the new verticals and developments. We brought here some examples of what we have delivered in the first quarter.
In investments, the automated equity portfolio, it's really, you know, simple to navigate and push buttons and decide for the clients to decide which portfolio the client wants to follow on a monthly basis. More than 20 portfolios available. It was something that our IFA network demanded a lot in our ecosystem. A good thing about having 11,000 IFAs, we get input on a daily basis. Of course, we have a roadmap, and we are always focusing to serve the IFAs better. More than 70% of the IFAs are already using this tool in the first month. On the bottom, we have the alternative fund secondary trading that we launched this year. It's just an example of innovation.
We are very positive about the alternative asset class, especially in Brazil, where the penetration is too low. We are believers that for any security or asset class to perform well, it's important to have liquidity in the secondary market, as we have done with bond market, with REITs, and with our tax-exempt fixed income instruments in the secondary trading. We also plan to bring liquidity with a platform with a tool for alternative funds to be traded in the secondary market as well. On the right hand on the top, XP Future is just our DNA. We launched XP Future. What is it? It's an educational program using our knowledge to help new professionals to get the qualification and the training to become new advisors.
Those are not, bank managers that decide to leave and become entrepreneur. Our new people come into this new profession and, we train them, we qualify them to make sure their probability of success is even greater. Finally, last week, it was on the local news, we launched our first flagship store. It's basically. It's in Manaus, Amazonas in Brazil, the north of Brazil. It's to create a new experience with our clients. A hub to have a sense of the digital world together with the traditional world. Too early to tell, but so far the feedback that we have gotten, very good and, we're going to have more of those flagship, concept stores, around Brazil. Now moving to the new verticals updates before I jump into the financials.
I'm going to just touch on the four new verticals that we have. The credit business, we had a revenue growth of year-over-year more than 200%, so growing a lot. You've seen the KPIs, BRL 11.5 billion of credit portfolio. Here is just an announcement of our partnership with Direto. It's in pilot phase, but it's going to be a marketplace for the mortgage and real estate business. Direto is a joint venture between XP and Direcional, a listed company in B3 that has decades of performance in the real estate world in Brazil. This marketplace is something that can provide a good experience without carrying the balance sheet to provide the credit.
Also we have developed the collateralized credit end-to-end, 100% digital. It was something that was in our backlog, and now it's up and running, improving the client journey. In terms of the credit card, we have announced our KPIs of more than 300 active cards. Here is interesting because we only have credit card in part of our XP's clients. We do not have a Rico or Clear brand. When we look at the 3.5 million active clients that we have in the group as a total, we have less than 10% penetration. There is a huge potential for cross-selling, and of course, this will happen over time.
We already have some interesting data points about the credit card. One of them is all the cohorts, they look pretty much the same so far. As time goes by, the usage of our card until it becomes the primary card is happening with all the cohorts. We have already more than 50% of our active cards as a primary card.
Number two is that for those clients that really use the banking parts, the credit cards specifically, and then the digital accounts, the churn is 4 x lower, which is also a good indicator of the strategy of developing new services products for our investor clients so we can increase the loyalty, the stickiness with the platform, reduce the churn, increase the LTV, and then you create this positive loop that reinforces itself. The roadmap. It's on track. Until the end of this year, we are going to have all of that, digital accounts, debit card, cash withdrawal, credit card for Rico clients as well.
Remember that we have everything as a service with one foundation to be 100% scalable, and we plan to have Rico clients at the end of this year. Now moving to the last two new verticals, private pension and insurance. Private pension, I like this chart very much because it shows that the growth of the business is doing just fine. What is in this chart? It is the net new money of the private pension world for the first quarter. XP Vida e Previdência, we are talking only about our insurance company, not the third-party insurance companies that distribute beyond our broker insurance. Our insurance company got BRL 3.2 billion of net new money in the first quarter.
When you look at the incumbent banks, because those top five players, they belong to the same top five commercial banks in Brazil, they lost more than BRL 4 billion. Here we have a portability as the case. We do not take into account recurrence. It's basically portability. We are getting 50% of the market share of net new money. But when you look at the market share that we have as AUM in our insurance company is less than 3.5%. There is a huge space here. It's more of the same. We just need to keep improving, bringing more products, the experience better, cross-sell internally, and then this market share, it's our expectation will keep growing over time. Now, insurance. Mainly we are focused on life insurance for now.
We have launched our digital life insurance experience at XP. The growth is 69% in terms of revenue year- over- year. There is a lot to come. When we think about the insurance world. For example, we have a small revenue of health insurance using our banking, our platform, but there, just health insurance, there is a huge opportunity to grow. We have other types of insurance as well that are really small. As I said, the focus right now is life insurance, but we're going to keep scaling to other insurance products. When we look at the insurance market as a whole, the revenue that we get is less than 0.1% of the market share, so it's nothing. Now we can move to our KPIs. I talked already about the new verticals.
The new verticals added together, they had a revenue growth of 205% year-over-year. Our highlights of the KPIs, 3.3 billion gross revenue at 17% growth year-over-year. Already talked about it. Gross profit being greater. 25% growth year-over-year, BRL 2.2 billion, so an increase in gross margin. Much to do with product mix. As you migrate away from products that have a higher commission to products that have a lower commission, this has an impact in the costs and increases the gross margin. Also, of course, the floating parts as well has a role in the increase of gross margin. The Adjusted EBITDA growing 14%, BRL 1.2 billion.
Lower than the gross revenue growth, mainly impacted by the growth of SG&A year-over-year. We have another slide, I'm going to talk about the headcounts. Basically, year-over-year, our headcounts, our main expense line grew around 60% in terms of personnel. Of course, this has an impact in SG&A, but we're going to see that, quarter-over-quarter, the personnel expense at the end of the day has decreased. Year-over-year, it has this impact of margin compression in the Adjusted EBITDA. Then when we go to the adjusted net income, the lower effective tax rate plays a role, and then goes back to the same growth as we had in the gross revenue, 17%, keeping a margin of 31.6% in the first quarter.
The KPIs, the investment AUM, BRL 873 billion, all-time high. This also has an impact in the take rate because of course, especially if you, instead of looking at the last twelve-month take rate as we do, where you have five data points of AUC. When you look at only the annualized quarter and try to get the take rate, this higher AUC as a denominator will have an impact there, but a growth of 22% year-over-year. Pension fund BRL 50 billion, out of which, it is worth mentioning, the pension of our own insurance company. We had the 50 billion of 45% increase over 35 billion one year ago. When we look at our insurance company, 36 billion out of that 50 billion belongs to our own insurance company.
Out of the $35 billion first quarter last year, our insurance company represented $17 billion out of the $35 billion. The growth of our own insurance company in terms of assets under custody is 112% year-over-year. A very strong growth. Finally, the credit card, $4.5 billion, but revenue of the credit card growing much higher than this. It's better to compare quarter-over-quarter, to be honest, because the first quarter last year, we launched it in March, right? Quarter-over-quarter, the revenue of credit card increased 14%. The NPS close to all-time high, 76%. Very important for us. Total revenue. We talked about total gross revenue already, 17% increase.
A decrease compared to fourth quarter 2021. You have a seasonality there, performance fees and more capital market activity. W e had a decrease. What explains that mostly is the capital market activity. We had in capital markets generally a decrease of 55% quarter-over-quarter. If you look at issuer services revenue related to capital markets, it's a 48% decrease year-over-year, 55% decrease quarter-over-quarter. It's also important to highlight the three months of the quarter. Why am I going back to this? Because I think it's important to understand that in January was really a very weak month on all metrics I can think of. Then we start to see recovery in February and March, much stronger.
When we look at the capital markets activity and getting all the revenues that we get from their issuer services, retail channels, rates, and compare the revenue of March to the average revenue again of January and February together, March was 260% greater than the average of the first two months of the year since giving a sign of a recovery ahead. That's exactly what you can see in the breakdown of the total revenue here. Retail keeps 3/4 of the total revenue, but then you have institutional increasing the relevance basically because of the record that we had this year because of the war, the trading desk, everything that I explained already, going to 17%, which is unusual. Usually it's like 11%, 12%.
We have issuer services that usually is like 8%-10% going down to 4% because of capital markets activity. This slide explains very well what happened in the first quarter in terms of mix, but it shows the portfolio effect at the end of the day. Revenue grew 17% year- over- year. Moving to retail revenue. Retail revenue year- over- year grew together with the total revenue, close to 17%, 16%. Take rates on last twelve month metric kept the pace stable at 1.3%. Again, if you go to the annualized quarterly take rate, it's lower because of what I just said. Because of the weak start of the year in January and February together. If we had the March it would be totally different.
The increase that we had in the assets under custody, market appreciation that happened in the beginning of the year, helping the custody to grow as well, not necessarily contributing to the revenue, having an implication in the take rate there. When you look at the last 12 months, pretty much stable no matter what the interest rates are. Going 4.5%-2%, back to 12%, and we keep our take rate pretty much stable. That's again, resilience and portfolio effect that I talked already about. Adding new products like the new verticals, so forth and so forth. Finally, our last slide, so we can jump into Q&A. The Adjusted EBITDA growing to 14%. There is a margin compression from 39.7% to 38.2%.
Still a very healthy margin. You have the number of total headcounts at the end of the period. You can see that we jumped at March 2021 from less than 4,000 employees to more than 6,300 employees. That's almost 60% increase, and that's what I talked about the natural pressure in our margins in SG&A, because we are investing a lot in new verticals. We are building new products, new services that will more than pay off in the near future, as they already have shown in the growth of the revenue of the new metrics, the new verticals.
Another interesting thing to look at when you compare the Adjusted EBITDA on a quarterly basis as well, that you capture in the first quarter part of that growth in the headcounts, not 100% because we still are growing. As you can see, we ended the year with 6,200 employees, and we ended the first quarter at 6,300. We kept growing. We have a lot to deploy at, to develop. If you take out of the EBITDA the net other operating income that has a seasonality there because most of it are incentives that we received in one specific quarter related to the whole year, but you only can recognize once you receive it, mainly Bitfury incentives, Visa, and etc., it has an impact.
If you take that, and in the fourth quarter was $233 million. If you take that out, you're going to see that the Adjusted EBITDA in the first quarter was pretty much flat, a little bit greater than fourth quarter. Without the benefit of the capital market activity that we had in the fourth quarter. When we look at the adjusted net income, it has the contribution, the additional contribution of the lower effective tax rate because of product mix. We had a tax rate of 17.4% in the first quarter last year, and, our effective tax rate was 16% in this quarter, making the growth of our adjusted net income equal to the growth of the revenue at 17%.
With that, I mean, I think I don't know how many hands we have already raised, but it would be better to go to the Q&A. Maffra will be here helping me out, so we are at your disposal to answer any questions you might have. Thank you very much.
Great, Bruno. Let me just organize. We have a lot of hands raised. We are going to answer them on a first come, first serve basis, starting with Thiago Batista from UBS. We ask you kindly to restrict to one question so we can address the more than 10 questions that we have here. The first one is Thiago from UBS, as I said. Hi, Thiago. Can you hear us?
Yes. Hi, guys. Can you hear me?
Yes.
I have one question on the take rate of XP. Take rate was super resilient up to last quarter, but this quarter, we saw a big decline. Do you see this decline as a kind of temporary event or this lower level should continue for a while?
No, I see it, Thiago, as I tried to put in my speech. Again, just to be clear, January was kind of awkward start of the year because of Omicron and third phase. We had basically no capital markets activity; it was very low. The numbers that I gave in terms of comparison between March and the average, not only taking because against January would be even higher, but only the average of January plus February, everything related to capital markets activity, investment banking, March was, to be exact, like 267% greater than the average. It's, I mean, the take rate; it's the annualized one in the quarter. It is what it is. You take the retail revenue, which grew year-over-year by 16%.
We also have the impact of the custody. When you take the take rate of a specific. To be honest, I don't like that metric. I understand you're trying to get the sense of what's going on on the margin, but it's tricky. You can get it wrong if you take that because there is an impact of the custody as well. We ended last year with BRL 815 billion, if I'm not mistaken, of assets under custody, and we ended the first quarter BRL 873 billion. It's a high custody that you're using as denominator, a retail revenue that has grown 16% year-over-year, but had a huge impact in terms of specifically capital market activity.
The benefits of the portfolio effect helped in fixed income and helped in institutional as well with derivatives that does not impact the take rate as well. I wouldn't take this take rate as the trend for the rest of the year.
V ery clear, Bruno. Thanks for the answer.
Thank you. Thank you, Thiago, again. Next in line is Mr. Jorge Kuri from Morgan Stanley. Good evening, Kuri.
Hi, everyone. Thanks for taking the questions. Good to see everyone. I wanted to maybe talk more about those metrics that you provided for March, which I evidently think show that indeed the quarter was pretty odd. You said 45%, March net revenue above the average for January or February, or that 45% is for the retail revenue?
That total rev.
Total revenue, okay. I wanted to ask you about how does that look for the retail revenue specifically, and I guess this will probably also help answer the previous question.
Yeah. For retail revenue, it's even a little bit higher. Pretty much the same, but higher.
You mean higher than the 45%, that's what you're saying?
All right. Again, maybe I'm asking too much, but for April, how does April look like? I mean, have you continued to see an uptick in April versus March? You know, how are things trending so far, yeah?
Jorge, the way I like to see is, as Bruno already mentioned, January was like a really bottom of everything because the activity was very low because of all the reasons you guys know very well. When you look at the trend for February and especially for March, they are much higher. They are in normal levels for the year, and we expect the rest of the year to be on normal levels, not to January levels. Okay?
Got it. All right. Thanks, everyone.
Thank you so much, Kuri. Next we have Jeff. Jeff from Autonomous. Hey, Jeff.
Hi. I'm going to have to work on my reaction times. I need to move my finger a bit faster. We've spoken quite a bit about revenues, and clearly the revenue environment was more difficult than most of us would have expected, at least at the start of the quarter. It looks like you took quite a lot of action on the cost and expense side to try to absorb as much of that as possible. Can you go into a bit more detail about what you've been doing there to try to keep costs and expenses down? Then how you balance the short-term benefits from doing that against any long-term implications from lower growth, for example? Thank you.
S ure, Jeff. Thank you. You are 100% right. Let me start saying, I don't think that having the costs really under control will impact the growth in the future. There is nothing to do with that. If you think together here with me, a company like XP that grows exponentially. Last year we had an amazing year in any way you look at it. We had in our budget a number of 4,200 people at the end of the year. We ended the year with more than 6,000 people. We decided to do so. We wanna do so many things. We are at very early stage in different segments that we have a lot to accomplish here.
That's why Maffra, whenever he has his letter, he keeps saying, "We are at very early stage of our journey." That's true. Whenever you double the number of headcounts in your company in one single year, no matter how diligent you are with efficiency, and we are, you're going to lose some of the efficiency. You're going to spend much of your energy in the tailwinds, in the new projects, everything you wanna do. That's where your energy is going to be, and you lose part of your energy in other important stuff as well for the company.
We have this start of the year that at the end of last year, we had already a lot of indications that we should adapt, and we should focus on the more than 3,000 new employees that we brought to XP and make sure we have the right people in the right place 100% integrated in our culture that we believe is a strong competitive advantage that we have. What you can see in terms of cost control in the first quarter of this year compared to the fourth quarter last year and for example, if you go into our expenses accounting in personnel, you're going to see that we had a decrease actually in the first quarter, despite increasing the number of headcount around 5% decrease in personnel expenses.
If you look at the total of administrative expenses, same thing, 3%-4% decrease quarter-over-quarter. That has nothing to do with compromising the growth in the future. No, it's the right thing to do as entrepreneurs to make sure now that more than 3,000 people that we have, they are 100% adapt to our culture at the right place, sorry, and so on. That's what explains this reduction of the pace in terms of hiring in the first quarter that we believe it's going to continue in the next quarters of this year. Just to finalize, we're going to deliver the whole thing. You saw the roadmap of the credit card that I mentioned, digital accounts, withdraw, debit cards, Rico with the credit card.
We're going to do the whole thing. We are. There is not one single project that we, you know, gave away or we postpone because of this, cost control in terms of personnel and everything else.
Another way to think about it is, if you remember the last earnings calls, at some of them we mentioned that we start to see the peak of investments because we doubled the number of people in the last two years, okay? We believe that we have the right amount of resource to deliver all the new verticals, all the new projects. Of course, we'll have to grow in the future, but we are not compromising any of the projects this year because of cost control or this kind of stuff. We are going to deliver everything because we are like organizing all the resources we have to deliver the same thing with the same people. Of course you guys will see new hires along the year, but we believe we are not compromising anything for the next years.
We are not compromising growth. Okay?
Thank you.
Thanks, Jeff. Thank you, Jeff. I guess it's very late in London, so thanks for your participation. Our next question is from Otavio Tanganelli, Bradesco BBI. Hi, Otavio.
Hi, André Martins, Bruno Constantino, Thiago Maffra. Thanks for taking my question. Real quick one on my end. Everyone already asked about the revenues. I wanted to get a little more color on the gross margin trends, especially because if March was that much better, can we think of margins improving something closer back to Q4 levels or even higher than that now that you're going to have a better mix of higher interest rates and other products that benefit probably don't share that much commissions with the IFAs?
Yeah, I think it's a fair assumption, Otavio. The gross margin, it depends a lot on the product mix, as I have said, but I think it's a fair assumption.
Thank you, guys.
Thank you, Otavio.
Thank you, Otavio. Have a good one. Tito Labarta from Goldman Sachs. Oh, sorry. Hey, Tito.
Hi. Good evening, everyone. Can you hear me okay?
Yeah. Hi, Tito.
Great. Hey, Bruno, Maffra, Andre, everyone. Thanks for taking my question. Sorry, another follow-up on the revenues. Just want to. I'm still not clear exactly like what specifically happened in January that made it such a weak month. Beause I mean, it looks like Ibovespa was up. I mean, war broke out more in February. Was it. I mean, rates have been rising since last year. Like, was there something specific? Was just your clients stopped trading in January? You didn't get a lot of inflows in January? I don't know if you have like the monthly inflow numbers, but like, was there something specific in January, particularly on your retail revenues, right?
Beause the capital market activity, if I understand that would be more on the issuer services revenue, right, not on the retail?
No, but there is an impact in retail as well because of the channel fees that you have. Whenever you have offers, primary offers in the market, any retail channel fees goes into the retail revenue and, depending on the capital market activity, can be relevant. That was one of the detractors of the revenue on the retail side in general. It's not one thing specifically. Net new money played a role as well. When you look at the $46 billion of net new money and even not considering the concentrated custody, the $30 billion that it's at the low range of our, you know, soft guidance, between $10 billion-$15 billion per month, that is an average of the quarter.
January was like half of March, just to give you another data point. It was really a weak start of the year that, as we said, recovered in February and kept recovering in March.
Sorry to interrupt you, Bruno, but we always have seasonality in January, okay? If you go back like, I believe we have two Januaries now or three with this one. There's always seasonality, but this year was e ven worse than predicted for January. If you remember what happened January, the stock exchanges around the globe, they went down 10%-15%. We have vacation in Brazil. We have the peak of COVID in January.
For us, it was similar to what happened 2020 with the first month of COVID. Usually every two years in Brazil, something happen, okay? We have some of these months. What we see is it goes down a lot one month, but it recovers really fast, okay? It happens in the COVID 2020, it happens with Dilma impeachment, it happened with Joesley day and truckers the strike. It happens many times in the past, and we have like one bottom, but it recovers really fast.
Okay, great. That's helpful. If I can just one follow-up then. Should we pay attention more to kinda the global market as opposed to. Because Ibovespa was up in January, right? You're saying more because global markets were down, that impacted activity more for you guys than the Ibovespa going up?
No, I would look at the Brazilian capital markets activity. Again You saw the quarterly revenue, total revenue, issuer services that usually represents, as I said, between 8%-10%, going down in relevance to 4%. On the other hand, institutional went up to 17%. It's I mean, whenever you have a very weak capital market activity, there is an impact in retail, and there is an impact for sure in issuer services. But on the other hand, depending on the reasons for that, you have other parts of the business that compensate that. Also it's worth mentioning that, capital market activity, except for ECM, especially when we think about DCM, you have a we do have a huge pipeline here. At some point it will resume in the market because companies they need to fund themselves.
I would see it, Tito, to be honest, as transitory. As it is what it is. It's a, you know, weak start of capital market activity in the first quarter. Hopefully other quarters will more than compensate this weak start. To be seen.
Okay. I don't wanna hog up the questions, but that's helpful. I may follow up with someone afterwards. I appreciate the color. Thank you.
Sure. Thank you, Tito. Our next question is from Marcelo Telles from Credit Suisse. Marcelo?
Hi, guys. How are you?
Hi, Marcelo.
Thanks for the time. I have, you know, I have two quick questions. The first one, you know, I was looking at your. It's a kind of a different question from, you know, from the rest of the peers, but I was looking at your cash flow statement. You show your adjustment, you know, adjusted net cash flow from operating activities. I see it was significantly negative in the quarter. It was BRL 1.2 billion negative. You know, it looks like it's the first time, you know, at least looking over the next, you know, four to six quarters that this number is negative.
It seems there was a very big change in your working cap, working capital, about BRL 1.25 billion. Given this is the cash flow pretty much just for from your recurring business, does not include securities or anything, I'm curious to understand what happened there, because it seems a very significant move there. That's my first question. The second question is with regards to your institutional revenues. There was a very big increase quarter-over-quarter, and you mention in the press release that there could be some kind of one-offs that might not repeat in the future.
Maybe some derivatives, you know, that five derivatives that you guys have done. How should we think about that line going forward? Because you know, it was, I think, almost a BRL 200 million increase quarter-over-quarter.
Sure, Marcelo. Regarding the cash flow, w e can go later offline with you because I wouldn't see the operational cash flow as you know, you look at industrial company or something like that. I would read the whole thing because, for example, there is the bond, the effects in the bonds that goes in there, and you have compensation for that in other line that does not go in that cash flow variation.
Does that go in, because this is cash flow from operating activities. It doesn't include securities, repos, as per your disclosure.
It doesn't seem that would be the case.
No, but there is, for example, some hedge that do not go there. There is a mix between. Yes, it goes in with our operating activities, you know, financial instruments. It goes in there, part of it as well. We need to get the whole detail. To be honest, I mean, that's something that you go through the accounting, but that's not how we look at our operating cash flow. It's a different way we look at our. We look at our, you know, for example, net operating cash, the gross cash that we have, and the cash deducted all the debts that we have, and that has increased quarter- over- quarter.
It's not a reduction there. I mean, if we go on-
Yeah, yeah. Yeah, I know. That'd be great if you can follow up.
We can.
Because I'm looking at our adjusted cash flow, the one that you, I think, use managerially, and it shows a
Very negative number. We can follow up after the call. Yeah.
There is a cash, for example, every first quarter and third quarter, you have an impact of cash flow reduction because of the bonus payment, because that's when we pay bonus. Everything that is already recognized in the P&L, you pay in February and August, and then there is an impact in the first quarter and third quarter. Again, we can. I'm more than happy to go line by line and explain to you. I wouldn't, you know, look at operating cash flow and take for granted that the operating cash flow is reducing or increasing because of that. That's the only point. Sorry, Marcelo, your second question.
No, no problem, Bruno. No, my second question is regards to institutional revenues.
No, but look, Marcelo, that was mostly the increase, and you are correct, as I said, it was 46% higher than the previous record in the second quarter last year. What happened is because of the war in February, we had a lot of activity in our trading desks using derivatives, fixed income and so forth, protections, and the volume was really high. I would not expect the same volume going forward, because the protections are done, right? The war is there. I wouldn't expect the same activity that we had in the institutional trading desk in the first quarter because of that.
On the other hand, retail should be much higher.
Oh, yeah. Just answering the question of Marcelo about the institution, the institutional line. Yeah.
Thank you. I appreciate the answers.
Thank you, Marcelo.
Thank you, Telles. Next is Mario Pierry from Bank of America.
Hi, guys.
Mario.
Can you hear me?
Yeah. Hi, Mario.
Thanks for taking my question. Let me ask you the question on this new revenue lines that you have, right? This new growth avenues. You talk a lot about the revenues there, like BRL 247 million. But can you help us understand what are the costs related to building out these revenue lines, right? You gave a target at your investor day of reaching BRL 10 billion by 2025 in revenues. I was trying to understand what is the right cost-to-income ratio for these new verticals? Also, like we read recently, right, that you're opening points of services in Brazil. You know, again, are those related, you know, are these like investments necessary to build out these revenues?
You know, when I think long term, BRL 10 billion coming out of these lines, how many clients do you think you need to have to get to that level? Because when I look at your net client adds, right, you only added 88,000 clients. It seems like the trend is going against you. Can you also, you know, help us understand how big do you think your client base needs to get? Why we not seeing the client base growing faster? What are you doing to grow the client base? Thank you.
Sure. Going to your first question, Mario, when we look at the cost, I mean, the company is one, okay? We have all the P&Ls divided by segments, the businesses, but we do have a lot of costs being shared inside the company. That's why it's hard to give you that kind of detail, specifically because also is strategic. When I look at the margin, EBITDA margin, for example, I think that the big hits we already had, the reduction this year compared to last year because of the increase of headcounts. We invest a lot in technology, but the biggest investment is in people.
As you can see by the first quarter number of headcounts, we kept increasing, as I said, but at a very much lower pace. I wouldn't expect any different impact in margins going forward because of the new verticals as they keep growing. Of course, if you look only at credit cards, there is a different margin there because we have the main revenue is interchange. There is the interchange fee that goes into COGS. Credit card growing, you have COGS growing at the same pace of the credit card revenue because of the interchange fee. When we look at credit or private pension or insurance, that's not the case.
Go ahead.
Another way I'd like to answer your question when you think about number of clients is the way I like to see here is when you think about investments or segment targets, we have about 15 million investors in Brazil, okay? Once we start to add more financial service like a credit card, banking, insurance and so on, we can increase that to 30 million clients. I'm talking here about high income people with no savings, okay? I would basically say that we have like 30 million possible clients in Brazil, so it's not like a 100 million, 150 million. You'll not see like us adding like a 1 million people a month because that's not our play. It's not our segment, it's not our target, okay?
Another factor that some people miss about XP is the cross-selling, because we are adding more and more products. Imagine that twoto three years ago, our business was, let's say, only, it's not only, but it was mainly investments, okay? Now we have other products to sell. Okay? When people ask about take rate, "Oh, okay, take rate should go down." I say, it depends, because if you consider all the products, all the cross-selling that's possible because we are adding more products, take rate should go up, okay? Because we are adding more products that are not correlated to AUC. That that's the way of thinking for me. When we look like some internal metrics, the number for cross-sell is still very low, okay? Imagine that we have 10, 15 products, okay?
Assuming that we have the investments as one product. The cross-sell is still very low. We have a big opportunity to grow if the customer base that we already have, okay? If we don't add any client, we should be able to add a lot of revenue, okay? You can think about like a revenue growth, new clients and clients that we already have. Of course, the investments, that new money can come from both clients. Even if we don't bring any new investment for the customers we already have, we should be able to generate much more revenue. Because when you look at ARPU by client and by number of cross-selling products, it's exponential, okay? That's something that we only have been doing for like a year with credit card, insurance and all these products and credit.
It's something very new, but we already see the ARPU increasing really fast.
Yeah.
No, just follow up, Mario, because I think it's a good opportunity to clarify a little bit the way we think as entrepreneurs. I know, you know, I understand your question about, okay, BRL 10 billion, 2025, you're going to need more clients. I don't see that growth coming. What's going on? How are you going to achieve? The way we think as entrepreneurs is linking the dots. There is a right sequence for that. Think about the credit card. We have 388,000 active cards. We have 3.5 million clients. We don't have the credit card at the Rico brand, for example. We will have. There is a sequence there.
We could open up the digital accounts and say on board on XP, we would have many millions of new clients on board in our digital bank. The number would look good, but we don't think it's the right sequence. We might get there in the future, but before we get there is a lot to be done with our existing client, adjusting the experience, make sure we have not 50%, but 100% of our active cards using our cards as a primary card. That's how, you know, you keep evolving over time. There is no right or wrong here, but there is the way XP is as an entrepreneur. You look at our history, that's exactly what we've done since the foundation of the company in 2001.
You could ask when we were number one broker-dealer in 2009 in retail, why only retail? Where is institutional? No, because we want to conquer retail. Then we went to institutional. It's linking the dots.
Yeah. Imagine that we have three brands, okay? We have XP, Rico and Clear. It's easy to imagine that when the stock exchange rates are very high, the number of clients that we can add to Clear, it's very high, okay? We don't disclose to you this number, but if you look at the numbers for XP, they are growing, okay? If you exclude the Clear brand, for example.
No, that's clear.
Regarding the point of services, I mean, it's an experience, a hub experience, our first flagship. It's not related to the new verticals, anything like that. It's basically. I mean, to simplify, here it's like, you know, digital companies that decided they need to have some experience in the real world with the customer that would enhance the digital world as well. It's the same thing here. We have this first trial in Manaus last week. We don't have the data yet. I mean, we have the data, but it's very short term. Give us more time and we will come back with the feedback. We have another, you know, point of sales that we want to experiment as well, but it's a bet. We think it makes sense.
We did a lot of survey. It's not very much money that we're spending on that.
Do you have any specific targets, Bruno, of number of stores that you wanna have? Also if I follow up there, like, as you're building out these new initiatives, can you talk about how Modal could help you accelerate?
Look, the number we do have. For strategic reasons, we don't wanna disclose that. What I can tell you, it's not going to be material in terms of expenses. It's not going to impact the margins, anything like that. Of course, we are very data-driven. We are measuring the whole thing. If we see very good data really fast, we can accelerate. That's the way we are as entrepreneurs. If not, we're going to
The point here is we believe that we are in a competition for the best customer experience, okay?
We believe we have a hypothesis that's not proven yet, as Bruno mentioned, because we don't have the data, that having some physical presence is part of this experience, okay. It's not a bank branch that people go there, like, to do transactions or something like that. It's not that. We will not have thousands of XP space around Brazil. But for us, the hypothesis, it's important to have, like, a very immersive experience with our customers. Because when you go, like, to affluent and high-net-worth clients, it's important to have some touchpoint with your customer, okay. That's what this space is about. It's about education. It's about, like, having some time with the clients, having time with employees. That's all about experience, okay. That's the concept.
Okay. Just, you know, it's related, but like, the acquisition of Modal and how that could accelerate your growth in this new segment.
We need to wait, Mario, for all the approvals and regulatory approvals to, you know, give you a proper answer to that question. Of course, we believe the acquisition of Modal can accelerate many segments and initiatives that we have when we are together. I don't know if you saw, we filed our F-4 this morning related to this transaction. It's still pending approval of central bank and CADE. And only after that, we can give a better answer regarding how it's going to be Modal plus XP together. Before that, we'll have to wait.
Okay, guys. Thank you very much.
Thank you, Mario.
Thank you, Mario.
Thank you, Mario. Our last question is from Carlos, from HSBC. Hi, Carlos.
Hi, thank you for taking the last question. Two brief questions. The first one, so you say you're at the beginning of the journey, but you have been at it for a year or two years. What have you learned? What changes would you make compared to how you started, you know, going outside your core business? What adjustments do you think you have made or you would have wanted to make to your strategy? The second one refers to the Itaú acquisition that was completed or announced, yesterday. You know, that's the largest stake which is there. It's clearly an overhang for the market. Is there anything that you can do about that stake, or do you have a dialogue with Itaú as to what you could do with it? Thank you.
I can take the first one, Bruno, and you take the second part. Carlos, the way I see it is, XP has always been on the edge of innovation, okay? We started as an education company, monoline, monoproduct, only equity clients, one product equities. You can imagine what happened in 2008. We had, like, to reinvent ourselves. We built the first open platform for investments in Brazil, like, investment shopping in Brazil, as you guys know very well, in the U.S. It was the first one in Brazil, 10 years ago. We have been innovating since then. We have, like, helped to develop the capital markets in Brazil in many products, REITs, asset management, everything in Brazil.
We have been innovating for 20 years, okay? Now we are, like, going to new verticals, as we already, like, mentioned many times. That's our DNA. How we keep innovating, how we keep disrupting the markets in Brazil. Something that I always say here internally, for example, it's not in the numbers that we show, it's nowhere. But how we disrupt the credit market in Brazil? How we do that? We don't know yet. But we have smart people working on that, and we'll find a way to develop the capital markets in Brazil. Because if you imagine the credit market in Brazil, it's all on the balance sheets of the banks. It happened a change like 20 years in the US, 20 years back in the US in this market, okay?
I believe we have much room, like, to keep innovating, to keep disrupting some business lines in insurance, in credit and so on. If you ask me what worries me for the future is how we keep our culture, how we attract the best talents for the future. Because it's all about ourselves. If we keep our culture, if we are able, like, to keep the best people working with us in Brazil, I'm sure that we are going to do amazing things in the future and have, like, amazing results and growth for the future. For me, it's all about people, culture and management, okay? That's the tripod that we like to work here.
Yeah. Regarding Itaú question, Carlos, it was something already on track back in 2017, most of the transaction with General Atlantic, but also including XP Controle and Dynamo. Yeah, we have started conversations not only with Itaú, but Itaúsa as well, to see how XP Inc. can participate in any block they want to come to the market. We have interest to participate. We don't have specific formats and how to do it yet. Of course, we need them to want to sell. It's their shares. We are going to keep talking to them for sure.
Okay. If I may ask, because that is new. In the past you have not expressed an interest in buying back the stake. It seems to me that at this price you would be willing to contemplate buying perhaps the package.
Yeah. We are talking to them, as I said. We don't have anything agreed in how to participate in those potential blocks that might come to the market. Yeah, we would like to participate if possible. That's just the beginning of conversations.
Sure. Very clear. Thank you so much.
Thank you.
Thank you.
Carlos was the last one. Actually, I now pass the word to Bruno first for closing remarks and then Maffra, and then we can finalize the call.
I just would like to thank you all for, you know, staying till late and the interest in hearing our tenth quarter. It's a long journey. I will repeat myself. You know, on a quarterly basis we have ups and downs. I hope that, you know, the next quarters, we are going to, you know, keep growing and show you how resilient and consistent our business model is. Maffra, if you wanna wrap up.
Yeah. Just to finish and to add to what Bruno just said is, as I always say, XP is our life. We love what we are doing, we love what we are building. We always like to mention that we are building something for the next 10, 20, 30 years. We are not here for the next two to three years. We are not like executives. We are owners of the company. This is our life. We always say that most of our worth, like, it's XP shares. So we are more committed than ever. We are very excited about the other three quarters that we have ahead for the year. Because as we mentioned, we start to see very good numbers for the year.
We're still very excited and very committed to the goals that we put ourselves last year for this year. We're still very excited, and we're still very committed for the next 10 years. Okay. That's all.
Thank you.
Thank you everyone. Have a great night.
Have a great night.
Thank you.
Bye-bye.