Everyone, we're just waiting for a couple of seconds, a couple of minutes to onboard everyone in the room. Okay. Good evening, everyone, or good afternoon, depending on where you are at. Welcome to another conference call or earnings call for XP Inc. This time around for the fourth quarter of 2021, or for the whole year of 2021. I am André Martins. I am responsible for investor relations at the company. We also have with us today our CEO, Thiago Maffra, and also Bruno Constantino, our CFO, together with the IR team, Maria and Antonio as well. Just before we begin, again, always refer to page two of our presentation to read the disclaimers, right? Some comments on forward-looking statements, okay.
Anything regarding the forward-looking statements and how actual results may differ from them can be found in the SEC filings in our IR website. Once again, thank you so much for your interest. We have translation to Portuguese on this call. You just use the tool in the Zoom app. For Q&A, I can see that we already have five raised hands. Whoever wants to participate on the Q&A after the initial presentation, please raise your hand on the Zoom link and we can address your question and you can talk to the management.
Before I pass the word to Bruno, we will show a quick video just to show in a nutshell how the year of 2021 happened, what were the main milestones and so forth. Just a quick video before we begin. Thank you. Okay, great. That was our short video. Bruno, please, the floor is yours.
Okay. Thank you very much, André. Hi, everyone. Good evening or good afternoon. A pleasure to be with all of you again in one more earnings call. I'm gonna do the presentation. I promise to be brief here. I know we have already a lot of raised hands for the Q&A. Maffra, our CEO, is gonna be alongside with me for the Q&A session. Before we start, I think because we're talking about, you know, full year results 2021, two years after our IPO listing the company in 2019, I would like to say a few words here to all of you. I think that what we had in the video, the word remarkable, is the right word for last year.
It was really a very strong year in all ways we can think about. Not only about the financial numbers, the growth that we had, but especially the investments that we've been doing in the company. We hired more than 2,500 new employees to our company. We have been developing new products, as you're gonna see alongside the presentation.
We are really happy about the year we had last year, knowing that we still have a lot to accomplish and a lot to do, looking forward. I would like. I don't know if you had the chance to read Maffra's letter in our earnings release, but I strongly recommend that all of you read it because I believe that letter says a lot about the kind of entrepreneurs that we are here in XP, considering our history since the foundation of the company by Guilherme Benchimol in 2001. What do I mean by that? For us, entrepreneurship is keep bringing better experience to customers, for sure, but with sustainable financial results.
We believe that in times of abundant capital and an explosion of entrepreneurship all over the world, we often repeat in an environment like that to our teams that doing it well is quite easy. The hard thing, in our view, is doing it well, bringing alongside solid results and balancing and improving the company's basic financials. By that, we mean revenues and expenses. In 2021, we added, as I said, more than 2,500 people in our company. That's a lot. We continue to invest in all new businesses, and by those new businesses, I mean pension, credit cards, and insurance, among others as well. That together resulted in an increase in our SG&A year-over-year of more than 54%, a lot in terms of OpEx that we have.
Despite all of the investments that we had, our adjusted net income, as you saw, surpassed the historic mark of BRL 4 billion, a 76% year-over-year increase. When we compare that to our adjusted net income at the year of our IPO in 2019, only two years ago, it's almost 4x greater. What to expect for this year, 2022? We're gonna talk about that probably in the Q&A, the challenging year ahead, elections in Brazil, interest rates going up, et cetera. In our view, we still hope to follow the same path of entrepreneurship that we've been doing year-over-year in our history, in our lifetime for more than 21 years.
By that I mean growing revenues, controlling our costs really well and also delivering an even better experience for our clients in all ways we can think of. With that, I will go. We have just a few slides here to share with you, basically three sections, and I will ask to move forward so I can present the numbers. Our first slide is like just a recap about the IPO. We think that we owe that to investors accountability. During the IPO time in our roadshow, we didn't want to give any guidance at all. We were convinced by the investment bankers that it was important for a high-growth company like XP. Why didn't we want to give any guidance? Because we are long-term thinking.
If you give a guidance, especially short-term, no way we're gonna do that, you get, you know, stick to that guidance, and that's not the way we manage the company. Anyway, we got convinced. We gave the long-term guidance, mid to long-term guidance of growth in terms of total gross revenues of 35%+ and an adjusted net margin between 18%-22%. In 2019, our total gross revenue was BRL 5.5 billion. You add the 35% compound growth in two years, we would reach BRL 10.5 billion gross revenue in 2021. We delivered BRL 12.8 billion, a 52% figure instead of 35% in those two years.
When we look at the adjusted net margin, mid to long-term guidance, and we go to the upper limits, the 22% at the time of the IPO, it would lead us to a BRL 2.1 billion adjusted net income, and we delivered, four billion net income, much higher. So those are the results of two years. Again, the main message here in my view is a long-term journey, and that's just, you know, accountability that we believe we owe investors that participate in our IPO and that believe in what we have said. Now, going to the numbers of the fourth quarter in the year. Oh, before that, I'm sorry, I forgot. Just to share two recent developments. Why have we put that this in our presentation?
Because we get a lot of questions about that. The digital bank, when it's gonna be ready, what's going on? Well, guess what? It's ready already. It's plain. I already use it a lot. It's my primary bank, of course. We have approximately already 150,000 digital account users. It's fully integrated experience. We can pay day-to-day bill. We can transfer between XP accounts. We have the Pix working perfectly. We already have the automatic debits, payroll portability and deposits with fare codes, everything that is there. Is it complete? No, it's not. That's why we're investing a lot. We already have 6%-7% completion, and we believe that by the second semester this year, we're gonna have more than 90% completion.
We're gonna be, you know, fully operational in 2022. The next slide is about another example, the life insurance launch. We're gonna talk about insurance. It's one of the new businesses that we believe has a huge potential for growth. This product we have started the concept of the product fourth quarter last year. It's about like four months, less than four months. We have just launched in January this year a fully integrated experience for hiring a life insurance in our app. Transparency, no hidden costs. You can do it really fast by clicking three buttons. Those are, you know, just two examples of products that we believe will expand our core business, which is investments, and will also reinforce our core business as well.
We can increase the share of wallet of our investor clients. Now going to the numbers, the KPIs and financials of the fourth quarter. On the left part here we have the gross revenues, BRL 3.4 billion in the quarter, a record in our history. 34% growth year-over-year. A gross profit of BRL 2.4 billion, 62% growth year-over-year. We also present a higher gross margin since our IPO in this quarter. An adjusted EBITDA of BRL 1.4 billion and adjusted net income, as we said, BRL 1.1 billion, a 51% increase with an adjusted net margin greater than 33% in the fourth quarter 2021. When we look at the KPIs on the right part, you have seen that already.
We have released in our press release investment, AUC's domain KPI, BRL 815 billion by December. Our pension AUC, it's considered in those BRL 815 billion. It was BRL 48 billion. We have in that number, not only our own insurance company, but also third party that goes into our marketplace and benefit from our distribution capability. Altogether BRL 48 billion by December, a 51% growth year-over-year. In the credit part, we started in 2020, small credit amount, ended the year of 2020 with 3.9 billion of portfolio. Huge growth and by the end of last year, more than BRL 10 billion. 164% growth year-over-year.
The credit card, the TPV, BRL 4.4 billion, more than BRL 1 billion per month and growing, in the fourth quarter of 2021. Also the NPS, the main KPI that we keep on track to understand if we are going the right direction for our clients. 76. A strong number as well. In this slide 10, we have the total revenues and the retail revenues. Retail revenues accounted for 79% of total revenue. We lost relevance of issuer service and institutional in comparison to retail. Not only because of the high growth of the retail business, especially with those new businesses that they are mainly retail businesses. Also at the issuer services, we had a good quarter in DCM, but the equity capital markets suffered because of the macro environment.
In institutional we had a growth, but not a strong growth as we had in retail. The relevance increased. When we look at the contributions, the new verticals, we're gonna talk more about it, and fixed income products as well, that benefits from the high interest rates. We can go forward. We put this slide here. I don't know if all of you have seen. You can see in our site, we presented in our investor day December last year. What is this slide? Basically, we have on the blue line, the Selic rate that, you know, was around 14% in 2015, 2016. Went down to almost 2% and then it start to go up at 10.75% and probably going up close to 12%. That's the blue line.
On the green line, what we have is the last 12 months of revenues of fixed income plus floating divided by equities and futures. It's a ratio, okay? This ratio, as you can see, when the Selic rate starts to go down, so does the ratio. Because the denominator, equities and futures, benefits from this positive, this tailwind of lower interest rates. It's the equitization process in Brazil, and then it gains relevance in comparison to fixed income and floating. When we have a different scenario of interest rates going up, equities and futures, they suffer because of this macro impact. On the other hand, fixed income and floating, they benefit from higher interest rates. You have this green line going up, the ratio going up.
Remembering that here in the ratio we are seeing last twelve month data point, and Selic rate is one data point. It's, it has, Selic rate is a leading indicator of what we can expect of the green line going forward. In our Investor Day, the revenue growth we had the third quarter numbers was 28x greater than the last 12 months of 2015. Adding one more quarter, this revenue growth went from 28x to 31x . Despite Selic going up, the revenue growth is still intact there. Retail revenue and the new vertical. 'Cause retail revenue, I'm only gonna make two comments here. Number one is the take rate. As you know, it's an output of a math equation. Retail revenue is divided by average AUC.
What is interesting to note is since our IPO in 2019, every quarter, if you look at the take rate, retail revenues divided by the last 12 months, retail revenues divided by the average AUC for the last 12 months, 1.3% intact. The mix has changed a lot, but that's the number and it's flat. We have in the middle of that wave forfeited more than probably BRL 200 million of revenue per year when we decided back in 2020 to zero online brokerage commissions at the Rico brand and reduced by 75% at XP brand. At Clear brand was already zero. Despite all of that, 1.3%. One of the reasons are the new verticals that I'm gonna talk about right now.
Other reasons is this portfolio effect that when we think about investments, depending on what the macro environment is, you're gonna change your portfolio location, but you still have opportunity in terms of investments. Now, talking about the right part of this slide, revenues from new verticals. That's a promise we have made in our Investor Day. Here it is. Pension funds, credit cards, credit and insurance. Fourth quarter 2020, all those four new businesses combined, they represented less than 2% of total revenue. You fast-forward one year, fourth quarter 2021, the relevance of those new businesses combined went up to 6.5% of total revenue with a growth year-over-year of 387%. Very strong growth. Now we are gonna talk about each of them, so you can see that the growth has been impressive.
Of course, the base is also low because they are new businesses. The potential looking forward is still amazing. We are at a very early stage in each of those new businesses. Let's talk about pension. Here we have only private pension, and by that we mean, the pension from our own insurance company that we have started as a startup back in 2019. So basically two years ago. Brand new. At that time, we had a little bit more than 6% of the market share of net new money in terms of pension, our insurance company. You fast-forward two years. Last year we had more than 50% of market share. We were number one, as you saw in the video. Oh, that's great. That's really impressive. What is your market share in total AUC?
3%. Nothing. If you look at, you know, the main players, more than 20%-25% market share. We have a long way to go here. Now move to credit cards. TPV. The market share we are using third quarter because we do not have all the data for the fourth quarter from the Central Bank. But you can see that brand new product, 0.5% market share in the third quarter. In the fourth quarter, we expect this number to increase, but it doesn't change the picture. Nothing. Despite BRL 10 billion TPV for the whole year of 2021, knowing that we only had three-fourths of the entire year in terms of officially launching our credit card. In December last year, one month ago, we lowered our threshold for BRL 5,000 of investment at XP brand. That's another important information.
When you look at the 3.4 million clients that we have at XP Inc, it's only a portion of that number that is considered eligible today to have our credit card. We don't have it at Rico brand. We don't have it at Clear brand today. Only in-house, a great potential for growth in the credit card business. Now let's talk about credit and then insurance. Credit, it's hard to put a market share here because we are almost creating a market when we talk about collateralized credit with investments. It used to be almost a non-existent market in Brazil. We innovated there in scale, and we went from nothing to BRL 10 billion credit portfolio really fast. In terms of percentage of our assets under custody, in 2020 it represented 0.6%.
By the end of last year, 1.3%. Most importantly, zero NPL. What that means, very good credit quality because we have the right client, the investor clients, in the sense that for a credit perspective, it's a really good credit wallet. Now, when we go to insurance, we see a lower growth here, but that's a brand-new product. As I showed the life insurance in our app, we just launched it this January this year. This business, we believe it has maybe one of the greatest potential. Here we are talking about two verticals of insurance. We are talking about a marketplace, and we are talking about our own insurance company writing policies for life insurance. When we look at our own insurance company, it's nothing in 2021.
We are gonna start this basically this year. When we look at the marketplace, it does exist for a longer time. We do have a broker insurance company for a while. But when we think about other insurance products, everything is new. Auto insurance, health insurance, all of that, they are products that our clients can, you know, want to consume through our app, through our platform, that we did not offer to our clients, and we're gonna offer right now. The market share is irrelevant, 0.1%, nothing. We're gonna aim high here as well. Moving forward for the financials. The adjusted EBITDA, we...
Looking in the right part of the chart, the adjusted EBITDA went up from BRL 891 million in the fourth quarter 2020 to BRL 1.4 billion in the fourth quarter 2021. 56% increase, increasing the EBITDA margin from 37% to 42.7% approximately. When we look at the operating expenses, you can see an increase year -over -year of 38%. On a quarterly basis, it's tricky. I'd rather see it on a full year basis. On a quarterly basis, you have a reduction in the fourth quarter. Mainly because we do have some incentives that we receive from third parties. We have had that in all the years since our IPO in 2019, 2020, 2021. We expect to have this year as well, 2022.
The main components there in 2021 were Visa incentives and B3 incentives as well. We do have more than that. That's why when you look on a quarterly basis, it's a little bit tricky. I would look at the whole year in terms of operating expenses. Now, moving to the next slide, adjusted net income. A record quarter, BRL 1.086 billion of adjusted net income with a 33.3%, as I have already said. When we look at the whole year, 4x two years before 2019, the IPO year, a 76% growth year-over-year. Finally, last slide, I promise. Here we put this slide because we also get a lot of questions about the effective tax rate.
Is it sustainable or not? What happens there? You guys seem to present a very low effective tax rate. That's tricky because that's what the IFRS tells us to show in our financials. At the end of the day, we pay much more tax. That's exactly what we try to put here. You have this profile managerial income statement in our earnings release. You had already in the third quarter, but we decided to bring to the earnings presentation, so everyone here can see. Basically, what we have here, looking at the column of the fourth quarter 2021, you go down to taxable equivalent adjustment. What is that? The $157 million that you can see there.
That's the tax paid at our investments, that the revenue associated with this tax, it's recognized in our total revenue net of the tax. That's because it's, you know, done through funds, and that's the way it has to be recognized. But at the end of the day, the tax does exist, and we pay that. What we did here, we added the tax to the earnings before tax, and then we also added the tax to the tax expense. It's a tax expense normalized. That's the BRL 287 million. When we do the math, you're gonna see that in the fourth quarter 2021, our effective tax rate was 22.5%. In the whole year of 2021, it was 18%. This number can vary from 15%- 25%.
It's a large spread here. Basically, because it depends on the revenue mix that we are gonna get. If we have a lot of, for example, offers, hot equity markets, probably the effective tax rate is gonna be higher. If the flow business is the one that benefits the most, the opposite way around because it's a lower tax business. It depends on the mix, but the main point here is the effective tax rate's not 65%, it's more like 20%-25%. With that, I end my presentation. Thank you one more time for the interest, and let's go for the Q&A.
Great, Bruno. Once again, we have a lot of raised hands here. If anyone wants to ask a question, please, we will do like a first come, first served type of line. I kindly ask you to limit your question to just one, so we can go through all of you. Okay. The first participant is Mr. Tito Labarta from Goldman Sachs. Hey, Tito.
Hey, André. Good evening, everyone, Bruno, Maffra, Bruno. Thank you.
Hi, Tito.
Thanks for the presentation. Very helpful as usual. I guess that my question will be on the retail revenues. You know, AUC was up 23%, retail revenues up 48%, right? I mean, you showed there the benefits of the new products, which as you've guided for, you expect around BRL 10 billion by 2025. But also you mentioned in the press release it benefited from higher rates. Is that still a tailwind, do you think? How much more can you benefit from rising interest rates? Just trying to think about, you know, how that revenues should grow in 2022 in a higher interest rate environment. If you can help us think about it. I mean, it's an indirect way of asking your take rate, no?
Just to try to understand because, you know, very strong growth given, you know, the AUC did not grow nearly as much.
Do you want me to take or do you wanna start, Maffra? It's your call here.
I can. Yeah. No, I can start, but that's funny, Tito, when you ask that because a few months ago we are receiving the opposite question, okay? Like, okay, now that the interest rate went up, what's going to happen with your revenues? As Bruno mentioned, it's because we have a powerful ecosystem and a portfolio of products that some of them benefit from high interest rates, some others benefit from low interest rates. What we see is that we are able, like, to grow in any environment because it's a micro play and not a macro play in Brazil because we're still very highly concentrated market in Brazil.
85% of the revenues and investments, it's a ballpark, right?, is still inside the five big banks, okay? It doesn't mean like, high interest rates doesn't mean that we are going to grow less or more, and the same thing for low interest rates. We have been telling this, like, to investors for a few months and so it's what we see.
It's a resilient business model, Tito. The growth rate, it's hard to tell. We do not give, as I said in the beginning, annual guidance. We want to, you know, have our main investors focused like we are in the long term. As Maffra said, I mean, and last year it was tricky as well because the first semester in terms of equities and trading activity was really great, right? The second semester, especially the fourth quarter, if you look at the daily average revenue trades, was a disaster compared to the first quarter. It's, if I'm not mistaken, something like 25% reduction when you compare the fourth quarter with the first quarter.
Still we were able to in an environment like that, of course, again, that has an impact in the equity parts of the business. No question about it. We were able to mitigate that effect with other businesses. Because at the end of the day, again, our business is not selling one product or other product. Our business is about establishing this deep long-term relationship with our clients. If our core business is investment independently of the macro environment is something that you have to consider always what to do with your portfolio, how to allocate, and that's exactly our business.
Great. Thanks, Bruno, Maffra. Maybe just one follow-up, if I can on that revenue. I think at the Investor Day you mentioned, you know, BRL 40 billion in revenues by 2025. I mean, do you still feel comfortable with that? I think maybe, you know, maybe on a more shorter term too. I know you don't wanna give annual guidance, but maybe on a two-year guidance. Should that trajectory be sort of fairly steady? Do you think similar to the IPO, is there upside to that? Like, or how conservative do you think that outlook is from here?
Tito, we are never comfortable, okay? Because we always have like one of our key values is big dream, okay? We always have very challenging like dreams and goals for the team, but-
Aim high, right, Maffra? Always.
If it gets comfortable, like, during the journey, we will increase for sure the internal goals, okay? It's not never easy for us, like, to beat the internal goals that we have because we have big dreams, okay? We like to say that we prefer people that have an achievable goals and reach like 60%-70% of these goals than people that have very weak goals and reach like 150% of the goals, okay? That's the way we think here. We are not comfortable, but for sure, we'll do all efforts like to beat the goal that we believe, okay?
Your first part of the question, yeah, I mean, we gave that guidance a month ago, right? Something like that. A little bit more than a month ago, so
Nothing changing.
Nothing changed. You saw the total revenue of those four new businesses; they represented 6.8% of our record gross revenue in the fourth quarter. Our long-term guidance for those four businesses combined by 2025 is to represent 25% of the total revenue. They're gonna get traction in relevance for sure. The slope of the growth will depend on many factors. We are gonna share the results with all of you each quarter, no matter what the results are, okay? Either good or bad.
Yeah.
We are gonna share.
Just another point here, like, because we... You guys saw some numbers that in insurance we have 0.1% of market share. In pension, 3% market share. Even if we get there, the BRL 4 billion, we will have like 3% of market share in the total revenue in the financial market in Brazil. It's still a very small market share, like BRL 40 billion in revenue. That's what I'm trying to say about the micro play. We still have like around, today around like BRL 800 billion in revenue in the financial market in Brazil. BRL 40 billion is nothing because the market will grow to BRL 1 trillion in 2025. It's gonna be 4% market share, so it's nothing.
Great. Thanks, Bruno. Thanks, Maffra. Congratulations on the strong quarter.
Thanks, Tito.
Thank you, Tito. Next is, Jorge Kuri from Morgan Stanley. Hi, Jorge. Good evening.
Hi. Hi, everyone. Congrats on the numbers. Great quarter. Let me ask you about your margins, which are pretty impressive, 400 basis points increase in EBITDA margins year-on-year if I look at the full year 2020 versus 2021, and 500 basis points increase in your adjusted net margin. Given the significant investments that you've made during the year to grow the IFA network, to grow the new businesses, it's very surprising to see this very attractive margin expansion. Where are we in that process? How much can you continue to grow those margins? Is it the right thing to grow the margins and not maybe put more money in the business? How do...
How should we think about, you know, what's doable or not doable over the next couple of years in terms of margins for your business? Thank you.
We have put a lot of money in the business, Jorge, and we are gonna still put more. As we tell investors that ask us, "What about dividends?" We say, "Look, we are in a high growth business, great opportunities, and we believe the right course of action here is to reinvest 100% of our profitability into our growth in new businesses, considering the returns we see each way we look around in the financial industry in Brazil." Again, as Maffra said, highly concentrated. Having said that, our long-term new guidance after the IPO that we revisited last year between 24%-30%, we are not gonna change that for now. We see...
We do see this high growth, especially in terms of hiring and those new businesses peaking this year, 2022. We are probably the growth of headcounts that we had, I think close to 70% last year year-over-year, it's gonna slow down in 2021. We are, you know, passing the peak in terms of... You have an inertia there, because you do not hire everyone in one single month, so you do have a cost carry consequence of this hiring. People is our main expense in the company. We see that peaking in 2022.
By that only, everything else constant, you could expect that by 2023 onward, you would see the operating leverage playing itself. On the other hand, we have new businesses with different margins, right? That will have an impact in the business. If we look at credit card, for example, we do get the main revenue that we have in the credit card is interchange. We have the fees. The revolving credit part is not really relevant for the type of client XP has. We do have the Investback of 1%, so it goes into our costs.
If you grow very fast, the credit card business, you have an accounting policy that you need to estimate the NPL, no matter the client's not gonna default, and you need to recognize in your financials, and that has an impact in the rev. It's a mix there that the credit card, for example, growth should lower the rate. The carry effects of the high growth in headcounts should lower the rate. Other businesses and the operating leverage of the more mature businesses in investments should expand the operating margins at the company. I know I didn't give you a straight answer, but-
Oh.
We don't give guidance.
I was gonna say that, but glad you said it.
No, I know that.
Thanks. No, I understand. Thank you. Well, thanks, Bruno. Again, thanks again.
Why? Look, the way we think here internally, it's not that well. Okay, we can sacrifice 300 basis points of EBITDA margin to accelerate investments growth and it. Yeah, but we are doing already. That's the point. It's not. We are investing a lot, okay? It's not about putting more money to, you know, to work here. That's not the issue here. You have an execution issue. You have to learn about the product with your clients so you can involve the product. So it takes time. There is a time frame to develop that.
Another way to say that, Bruno, is as you mentioned, we have hired 2,500 people last year. It's a lot of people. We cannot hire more people like because it's impossible, like, to put more people, like, inside the company at once. You say, okay, you should invest like building new business lines. We are building like, I would say dozens of new business lines, new products in the last year. We are growing really fast. If you look at the numbers, we are growing like 50%, 60%, in some new business lines, like triple digits. It's growing, and it's growing fast. It's not a matter of, like, investing more.
As Bruno mentioned, and it's on the letter, we are the type of entrepreneurs that we like to grow with profitability, okay? Yeah. We are not going to grow just to, like, for growing. Like, okay, let's put, like, millions of clients inside the platform because it will show growth. It doesn't make sense. It's not a strategy, okay? We stick to the strategy. We believe we are growing really fast, with profitability. That's the strategy, okay? The idea is to continue to grow at this similar level of, like, of growth for many, many years. It's a long-term investment for us. It's a long-term, like, mindset and view, okay?
Thanks, everyone.
Thank you.
Thanks, Jorge.
Thank you, Kuri. Next question is from Thiago Batista from UBS. Hi, Thiago.
Hi, André. Hi, Bruno. Hi, Maffra. Hi, everyone. I have one question about the credit card business. A couple of months ago, XP reduced the threshold of the credit card to BRL 5,000, if not wrong, of investment in XP.
In December.
In December, yes. Can you give us the first impression of this process? How was the sector of the clients with this card for this type of clients? Clearly, those guys are kind of middle-income individuals, not, let's say, high income as the previous threshold. How was the first impression of this business for those type of clients?
Do you wanna take, Bruno? You can take.
I can take here. Yeah. How can I answer that? Okay. We just released in December, so it's very new. Today we sell the credit cards 100% online, okay? So when the penetration is close to 35, 40, 45, it depends on the aging of the cohorts, okay? 100% online, okay? And when you look the credit card for BRL 5,000+ , it seems to be, again, it's very new, okay? One month that we have been operating, one and a half months we have been operating this new product. So it seems that's even stronger, okay?
Of course, we have a sample with like 20,000, 30,000 that has like six months. And the most impressive is the NPL. That's very close to zero. Because for the BRL 50,000+ , we have the collateral, it's even lower. Okay. Again, it's zero. It seems that it will be a very good fit because usually to have in Brazil a card with this kind of benefits, you have to be affluent plus client in Brazil with I would say BRL 200,000, BRL 300,000 inside the big banks. Or otherwise you have to pay huge fees. I believe it's gonna be a very good product for these guys. And if you...
I don't know if you saw last week, but we just announced some new benefits like VIP room in airports and some other stuff. Because we collect the feedback from the clients, okay, we still have a lot of clients that they are allowed to have the credit card, but they didn't ask. Why? For example, VIP rooms was actually the top point. We are going to address the points and the goal, as we always have, is to penetrate 100% of our clients. Because our clients they, for sure they have credit cards, and they have very low NPL, so that's the target.
Another interesting point that we have not mentioned about our credit card is when it becomes, you know, eligible for someone, it just appears in the app. It's a message. It's not that we advertise our credit card yet, you know, on an aggressive perspective. That's again, the product is developing itself. It's evolving. It's getting better and better, listening to the clients, and that's how it goes.
The most important part about the credit card and checking account, and the banking part, payment part, what's the thesis behind it? Today we have about like a 50% share of wallet of the investments, okay, of the clients that invest with us. We can double the company if we bring 100% of the share of wallet. The thesis is why? We ask actually the clients why they don't have 100% with us. Because they need some service that we didn't have or we still don't have, okay. They have to keep an account with one of the big banks here in Brazil.
Now that we have cohorts of like ten months, almost a year, and when we compare the heavy users of the banking, the payment products with the non-users, we see a very big increase in the Share of Wallet. Okay, that's the thesis. Okay. By the way, when you look at the credit card, the product itself, it's profitable. We reinforce the ecosystem, we increase the Share of Wallet. That's the beauty behind the banking part that we are developing here.
Very clear. I'm off then, Bruno, and congratulations for the results.
Thanks, Thiago.
Thiago. Otávio Tanganelli from Bradesco BBI is the next question. Hi, Otávio.
Hi, guys. Congratulations on the results, and thanks for taking my question. I just have a quick one. Maybe you mentioned on the press release that the mix of products had a positive impact on gross margins. Going forward with higher interest rates and also with the slide that you showed that it's likely for us to continue to see the contribution coming from this portion of the revenues that would likely have lower commissions. Let's put it this way, what's the margin outlook that you think that you can reach here? Is it possible for us to see sustainably higher gross margin levels than what we saw in the past?
No, I, honestly, I wouldn't say that. It can happen, of course, but, I wouldn't say it's the base case. I would say that the mix of the fourth quarter, if it continues, you should see pretty much the same type of of margins we presented in the fourth quarter. Again, that's not a guidance because, you know, there is volatility in our margins depending on the mix of products. As you mentioned, for example, when you compare equities and fixed income, the commissions for equities are higher than fixed income. If equities go down and fixed income go up, this balance only in terms of the COGS and the gross margin would have a positive impact.
I would say that I wouldn't say that you should expect gross margins going up, you know, from the level of the fourth quarter, but it can happen.
Very clear, guys. Thank you.
Thank you, Otávio. Mario from Bank of America. Good evening, Mario. Mario, can you hear us?
Is he on mute? Are you on mute, Mario or?
Perhaps she's having some connection problems. Mario Pierry, please send us a message if you want to talk, and we can put you again. Geoffrey Elliott from Autonomous. Hey, Geoff.
André, have you blocked all the analysts from asking us questions?
I would never do that. We will put all of them one by one.
We're gonna get a bad NPS from the analysts of the sell-side about this call.
Geoff, okay, let me try the next one. Domingos Falavina from JPMorgan. Maybe we can hear him.
Can you guys hear me?
Yes.
Yeah.
Great. Since I benefited from it, the NPS goes up on the moat of the other guys. Jokes aside, guys, you had a pretty big benefit. My numbers here is around, you know, I estimate around BRL 200 million in the bottom line or so, coming from a revenue that you book in other operating income, specifically something that used to be Tesouro Direto, so B3 rebates, I think you mentioned Visa. Nine months, it was tracking BRL 111 million. 4 Q, it went to BRL 360 million, implying BRL 250 million in the last quarter. My questions are twofold. Number one, kind of what's the breakdown of, you know, the B3 versus if you wanna bucket, you know, Visa and others in a separate group, ballpark, 50/50, 80/20?
'Cause I understand this was pretty much only B3 in the past. Number two, which ones are recurring? We always assume that B3 was recurring. I mean, they changed the goals, but they keep remaining. Should we assume Visa and others are recurring in the future as well?
Sure. We cannot disclose the numbers because of contract issues, you know, about incentives that we get. What I can tell you to help answering your question, Domingos , is B3 is more recurring than Visa, but we had Visa in 2020, we had Visa in 2021, and probably we're gonna have in 2022 as well, right? There is a seasonality in those numbers. Usually, they occur heavily in the fourth quarter compared to the other quarters. You should not expect that on a quarterly basis to be repeated in the first, second or third quarter this year, but in the fourth quarter, yeah.
If you look, as I said, in that slide of the adjusted EBITDA and the operating expenses, and you look on a year basis, that I prefer dilute the impact on a year basis, in 2019, we had that line to 2020, 2021, we probably are gonna have in 2022. There is a volatility in terms of the magnitude. But yeah, we do expect that to be recurring somehow.
Bruno, just a quick one. You're right. Year on year, it didn't grow as much, but like it was unusually strong this quarter. Any reason for having this bigger seasonality this year?
No. Basically, the main impact of seasonality this year was more about Visa than B3, that I can tell you. That's because of you know launch agreements that we had in our contract. That again, I cannot give you the specifics of the contract, but
We had the same seasonality last year. I mean.
Last year as well. 2020. Not last year, the previous year. Right.
Yeah, the previous year. Yeah. We are already in 2023.
Yeah. It was BRL 150 million versus BRL 250 million the last quarters, so it was bigger this year, the seasonality.
Yeah. The access to the XP distribution capability, it's become more expensive, I would say.
Got you. Thank you, guys. Congrats again.
Thank you, Domingos.
Thank you, Domingos . Let's see what's working. Marcelo Telles from Credit Suisse. Good night, Telles.
Hi. Good evening, everyone. Can you hear me well?
Yeah.
Yes. Hi, Telles.
Hi. How are you? Thanks for the time and for the presentation. I have two questions. The first one, I kinda wanna dig a little bit deeper in terms of the core evolution of your core performance in the quarter. Kind of a follow-up on Domingos question. You know, if we consider this, I think that line, the other operating expenses that was positive or, you know, it was roughly BRL 233 million in the quarter, and then I think for the year, you finished around BRL 366 million, right?
That's probably, you know, if you consider, let's say a normalized level of about a quarter of that amount, and we're probably implying maybe, you know, you'd have to maybe provisionally deduct, you know, from your adjusted profit around BRL 140 million, which, you know, would probably lead to, you know, a 10% decline in your earnings vis-à-vis the third quarter. You know, because of course, you know, I'm trying to normalize, right, on a quarterly basis, right? That benefit from this sector. Attached to that is also, you know, I was looking at your accounting income statement. When you look at the evolution of your.
Actually, your core business revenues, right, the service revenues as you report, they are actually down 2%, quarter-over-quarter. When we try to reconcile that with the growth in the total revenues, which I think was around 3% growth, it looks like, you know, the entire growth came from, you know, mark-to-market losses, you know, that were lower than, you know, in the third quarter, meaning, you know, your business, you know, your core business seems to be going down in revenues and not up, you know, when you compare that to the third quarter. You know, I'd be interested to, you know, to hear your views on that.
My second question is just regarding the floating balance. There was a very significant decline in floating customers, I think of 24%, quarter-over-quarter. If you know can explain, I mean, do you think this will continue to decline as rates go up? Where has this money gone? Maybe some fixed income funds and how that decline in flowing from customers what is the net impact for you from you know from a contribution standpoint? Thank you.
Sorry, Telles. The second question was about what? Was about.
Oh, I apologize.
That one.
I'm having problems with my headset. With the floating balance, you know, from customers.
The floating. Perfect.
Yes.
Okay.
Yes. It was down 24% quarter-over-quarter and it was a very big decline. Yeah.
Yeah. No, got you. Regarding your first question, when we look at margins, to be honest, I think it's tricky to compare on a quarterly basis because you have those impacts. For example, you mentioned some of the provisions we had in the quarters. In one of the quarters we had an adjustment increasing some of the provisions and that has an impact in that specific quarter. At the end of the day you have, you know, one year to make those adjustments. There are adjustments that you make on the fourth quarter because you are looking at, you know, the whole year on an accounting perspective.
Remembering that every quarter it's revised and the one that is really out is the whole year. That happens between quarters. That's a little bit tricky. About your consideration in terms of you know margins and what the net profit would be if you discounted the SG&A other expenses that BRL 233 million out of it would have decreased from the third quarter into the fourth quarter. Yeah, that's correct. If you do that adjustment, your math is 100% correct. But at the end of the day, remember that the top line, in my view, it's the you know most important thing. It has grown in the fourth quarter compared to the third quarter.
I strongly, you know, recommend that you look on a year basis than on a quarterly basis because we do have some of those adjustments in terms of the expenses between quarters. Regarding the floating, we had a reduction in the floating amounts, and that doesn't have to do exactly with the interest rates going up, right? It has more to do with the trading activity because the floating at a broker-dealer level, it's related to trading activity. As you have more customers buying and selling, they set aside, you know, the uninvested cash for very short-term periods, and then the floating rises. When you have less activity, as happened, I mentioned that the DARTs, Daily Average Trading, in the fourth quarter last year was 25% less than the first quarter last year.
The first semester last year, the activity was much stronger than the second semester. That had an impact in the floating. That's the main correlation. Of course, you can have a secondary effect of interest rates going up, but it's hard to measure that. I don't know if that answered your questions, Telles.
Yeah. No, you did. No, thanks so much, Bruno. Can I just follow up on my first question, you know, regarding the evolution of your revenues? When you look at the accounting income statement and your service revenues were actually down quarter-over-quarter, and what seems to explain the growth in your total revenues, you know, is really lower mark-to-market losses. Meaning like it seems like the business, you know, the revenues from your core business is actually down quarter-over-quarter and not up. So, what was behind. You know, what is this like, you know, the mark to market? What drove that down? And, or, and how should we think about, you know, the evolution, you know, going forward, of your service revenues?
No. I mean, it was not provisions. You have. When you look at the way I recommend looking at that accounting standard, you probably are on our notes of the financials, if I'm not mistaken, the 28, something like that, about the total revenue and income, where you have a different kind of segmentation. You have net revenues from service rendering. There you have brokerage, stop loss, risk. You have also placement fees. So all the placement fees are there. Insurance, management fees, the funds platform.
Yeah.
There are basically fees there altogether that they represented in the whole year, something around 50%-55%. Then you have the net income from financial instruments. That part of the revenue, you have two different accountings there. You have through profit and loss and also amortized at cost, right? I strongly recommend, Telles, that you look both of them together. Why is that? Because when we have our flow business, the way we manage our risk is to hedge everything we can. Of course, not always we have like a perfect hedge, so we do have some exposure. We try to hedge most of what we can.
When you have a derivative as a hedge instrument, that goes into profit and loss. It's mark-to-market. When you have an underlying asset that is being hedged, that is recognized at amortized cost, it goes in a different line. All of them are together, net income from financial instruments. Which, by the way, we disclosed at our presentation that 88% of that number in the fourth quarter came from retail activity. It's pretty much recurrent, as you can see throughout our history. That portion of our revenue has been growing over time because of the growth of clients plus activity in the market in Brazil. Floating also goes into that revenue line. Okay?
There is a component of floating that benefits from higher interest rates, also presenting a growth in the fourth quarter, compared to the other quarters because the interest rates has gone up, in the fourth quarter. I don't know if that explains a lot.
Yeah, no, that's clear. I think it's very much aligned, you know, understood in the sense that, you know, you are earning more financial revenues either on the float or, you know, on your own, you know.
Yeah
Cash a little bit. Then in terms of services, you know, they are going down and you are partially, you know, you are like, say, more than compensating that.
Yeah
with the impact of higher rates or whatever, you know, here, you know.
Yeah.
The composition of the revenue is changing, it looks like, towards more financial revenues.
Yeah. Look, the fourth quarter, for example, it was not a good quarter, on the opposite, in terms of equity capital markets, you know that, and also, REITs. We are number one in the REITs market in Brazil, so new distribution of REITs products in the fourth quarter was really not good. Also, management fee, performance fees that usually they are stronger in the fourth quarter because of the performance of the fund industry in our platform as well. In 2021, the performance fees were also not good. All of that, those revenues that I mentioned, REITs, ECM and performance fees, they go in the service rendering net revenue, right? They decreased in the fourth quarter because of the market conditions.
You're correct, we more than compensated that with other revenues. Most of it goes into net income from financial instruments.
Thank you.
Sure. My pleasure.
Appreciate your time.
Thank you, Telles. Indeed, Mario Pierry, we couldn't hear him, but he sent us two simple questions. The first one is, why other revenues declined, right? He was assuming that since the cash is higher and also the Selic, that revenue should be benefited. That's the first. The second is, commissions, right? Which are falling as a percentage of retail revenues. Again, Otavio mentioned that in his question. Mario's only. He wants to know the dynamics for the future, Bruno, because we signed the long-term agreements, right, with the IFA network through prepaid expenses. Maybe some of the market was expecting those revenues or those expenses to be higher as a percentage of retail revenues, but they're lower.
He's asking about the dynamics. These are the two questions.
Okay. No, in terms of other revenue, we have there, besides the interest on adjusted gross cash, is also our asset liability management results. We have a hedge policy, you know, to hedge our floating balance up to 50% of the floating. When you hedge, basically you're taking out risk of the income in terms of pre-fixed rates. When you have a market where pre-fixed rates are going up, as we had in the second semester, you do have a negative impact on that, right? That's what explains other revenues being less than probably you would expect. Regarding the second question, André, is about the IFAs. But the income-
Yeah, like the commission.
In the COGS, that's the question.
Yes.
Okay. Yeah, I mean, we have impact there, right? What probably came different than your expectation, I'm assuming that it's not the impact of the prepaid expenses that we have with long-term contracts with our IFA network. It's the mix of products. And then the commission went down because of the mix of revenue that we had through the IFA channel. That's probably what explains the difference. All the prepaid expense, they are amortized through their lifetime of the contract we have with each IFA.
Great. Thank you, Bruno. We have two more. Gabriel Gusan from Citi. Gabriel.
Can you hear me?
Yes. Hi, Gabriel.
Great. Hi. My question is also about the prepaid expenses. We're seeing it at almost BRL 4 billion right now, increasing around BRL 500 million just in the fourth quarter. I'm getting more and more questions from investors about that. When will this stop, if this will stop at some point? Do you have some insight that you can give us into the future of that line? Thank you.
Look, I cannot say when it's going to stop. It has reduced each quarter, but our decision-making process here is about what it makes sense for us to take over, what it doesn't. It's an economic analysis. We have the data. We have said many times that we do benefit from an adverse selection process in terms of, you know, knowing which IFA we should retain here. It has reduced each quarter, but I cannot tell you that it's gonna stop in X quarters, you know. I don't know. It's a day-by-day business here. We are gonna analyze if we do have any proposal on the table that we, you know, would consider take over or not, and it's gonna be an economic analysis.
We collect strong data points to guide our decision. That I can assure you.
Perfect. Thank you very much.
Sure.
Thank you, Gusan. The next question is from Carlos, from HSBC. Hi, Carlos.
Hello, can you hear me?
Yes.
Yes, we do.
Hi, thank you very much for taking my question. I have two, and they are both related to your equity, actually. First, if you could give us some idea about how much you're expecting share-based compensation. There was a significant increase this year, sorry, in 2021 versus 2020. What do you expect for 2022 and 2023? Again, share-based compensation. The other question, I'm sure you receive this all the time, would you consider anticipating or buying back from Itaú the stake that they are supposed to buy during 2022 to reduce the overhang in the market? Thank you.
Yeah. Regarding share-based compensation, we have been discussing internally to, you know, to give a better range, so we don't have sell-side analysts forecasting a very wide range. Basically, what we have. The way it works is when you have one share-based compensation issue for any partner, what varies each quarter or each month is basically the taxes that you have to pay over that over time. So that's a more volatile expense because it fluctuates with the share price. And then it has the same volatility of the share price. And that's around, to give you a rough number, around one-third of the total amount that we have in our expenses, okay?
We expect that number to increase from 2021 to 2022, but we don't have here a specific figure to give you know. It would be probably, you know, more than 30% increase, I would guess. It depends on the share price that you estimate each quarter. Regarding the share, the Itaú, I think the other question was about Itaú acquisition, right? The one that has been approved by Central Bank, and that's-
That's correct.
Yeah, it's gonna happen. Right now, we were waiting for the financials to be released. There is a process there, and I believe that in the first quarter, we are gonna have these shares being bought by Itaú. Remembering that, we are talking about here all secondary shares, so no primary shares being sold, which approximately 80% are, you know, from General Atlantic and 20% from XP controllers.
No, the question is there, would you consider buying back from Itaú to reduce the overhang? Because eventually Itaú will want to dispose the share. Would you be willing to put a bid on them?
I mean, they need to tell us they wanna sell. We could analyze that. Remember that here we have a lot of, you know, investments to still do in our company, in our growth. We are as we tried to show here in our presentation, at very early stage in many different verticals. Even in our core business investment, the way we look at market share in the investment business, we are not number one yet. A long journey ahead of us.
If we have to decide to buy back shares in the short term and not having enough cash to invest in our business, thinking about the long term, because of overhang issues, I mean, we are gonna opt for, you know, investing in the business. Because again, we think like owners, we think for the long term of the company, and we believe that's the right course of action, especially considering, you know, all the opportunities we see ahead of us. If we had idle cash, we would be more than happy to consider that hypothesis. The business is growing very fast and many different business is scaling. We do not have that idle cash.
We do have a great amount of gross cash in the company, but we use that for our business outflow and many other businesses. I don't think you know, that option would be on the table right now, considering our you know, balance sheet as it is.
That's a very clear answer. Thank you. Going back to the first one. The BRL 700 million that we have this year, that should be the base. We should think about the number above that for share-based compensation in 2022.
Yeah, I think so. Because you think like that, Carlos. We always have the partnership meritocracy once a year, and usually it happens in the beginning of the second semester. We have the RSUs being released at October usually, okay? So all the new shares that were released last year, they only accounted for, you know, one-fourth of the year, and now they have the whole year here. We also are gonna have this year, the first issuances of RSUs being vested by December. Yeah, December, probably December 23rd.
November, maybe.
Yeah.
Sure. That's clear. Thank you so much.
Okay. My pleasure.
Thank you, Carlos. We're out of the Q&A. I'm happy that we could answer all of you. The participation was great, the audience, and so forth. Thank you, everyone, so much for your interest. I would leave maybe Bruno or Maffra or both of you to finalize the call. On our part here, thank you very much for the participation, and we are fully available for the many follow-up calls that we might have on the next few days.
Yeah. No, I can start, and Maffra can finish here. Now, just, I'd like to thank you very much for the interest and hope to see you in the next earnings call and be together in this long-term journey that we have ahead of us. Thank you very much.
Thank you. Thank you very much, everyone. As we like to say, we are at the very beginning of our journey here. As I mentioned, we still have very small market shares of revenue in Brazil. We're still at a very early stage here, and this is our life. We are here for the next 10, 20 years. I hope to have you guys alongside all the journey, all the way. Thank you very much.