Okay. Hello, good evening. Good afternoon, everyone. Thank you for participating another earnings call of XP Inc, now for the Second Quarter of 2022. I am André Martins. I am the Head of Investor Relations, and I'm joined here today by our CEO, Thiago Maffra, and our CFO, Bruno Constantino, as well as the investor relations team, Marina and Antonio. I hope everyone is safe and well. The materials from these results are already on the investor relations website. There you can find the SEC filings of XP Inc. and the definitions of forward-looking statements and how forward-looking statements of this call can differ from actual results.
It's important to highlight as well that this call is being translated to Portuguese, so you can use your, you can use the tool in Zoom to change to Portuguese. Also important to highlight that for any questions at the end of the session, you can raise your hand, and we will call you on a first come, first served basis. I can see that we have already seven raised hands here. Thank you for participating already. Now I'll move to Bruno to kick off our earnings call. Hi, Bruno.
Hi. Thanks, André. Hi, Maffra. Hi, everyone. Good evening. It's a pleasure to be here with you for, I believe, the 11th time in terms of quarterly results. As usual, I'm gonna be brief in the presentation, so we can go to the Q&A, as we have already many raised hands, right? Before I start the presentation, we would like to share a video with you. We are still a little bit hungover here from the Expert XP that we had last week. Let's go for the video and then I come back really soon.
Let me just first say how glad I am to be here. I think this is a really important event. I think what you do at XP is very, very important.
This is my first time in Brazil, and I'm here because of this incredibly amazing company, XP Investments, that I really do think is really thinking about the future.
This is my first Expert XP. Very glad to be here, and I hope it won't be the last.
Yeah, I hope you like the video. As I said, we are still recovering from Expert. It's three very intense days and I'd like to take the opportunity and thank you know all the personnel that really made it happen. It seems easy, but it's not. People are already working on the 2023 Expert event, so it takes a long time to plan everything. It was really amazing after three years without in-person event. We did it in 2020 virtual, only virtual, and also in 2021 because of COVID, and finally this year we came back. It was really great.
As Maffra mentioned, during the Expert, this one was special because as you already know in our numbers and everything that we have disclosed in terms of the growth in our headcounts and a lot of new initiatives that we have been investing, we asked at Expert how many people, you know, to raise their hands that was their first contact with the Expert, only internal employees. More than 60% their first time in an event like that, so the energy was really good. Just sharing that before we go to the presentation. André, I don't know. Let's move quickly here. The main highlights. I don't know if I have a lagging effect. Okay. We have selected five main points here.
The first one is the business model resilience. Nothing new here. We have been repeating that every quarter. We know we are in a tough macro environment with the bear markets, and that has an impact in the investment business, especially. Despite this tough macro environment, we were able to deliver our all-time high and record quarterly revenues, BRL 3.6 billion in the second quarter this year, with also an all-time high retail revenues, a growth of 15% quarter-over-quarter. I'm gonna talk more about that in a while. Number two, we've been diversifying our revenue stream. Last year, December, we highlighted the new verticals to give more disclosure about those new verticals that are in very early stage, and they do not get the same impact of the macro environment as investments.
By the new verticals, I mean, the credit card, credits, the retirement funds, and insurance. Those new verticals added together, they grew 113% year-over-year. Very strong growth. Quarter-over-quarter, also a strong growth, 7%. The cost discipline. As entrepreneurs, we are paranoid about, you know, keeping our costs under control. We've been investing a lot, as I mentioned. We highlight here the first semester this year, first quarter plus second quarter. We have approximately BRL 500 million invested in what we call early stage initiatives. By early stage initiatives, we mean banking from scratch, the direct international investment platform that also we built from scratch. XTAGE, our digital asset platform that I'm gonna talk more about it, also built from scratch.
Internal advisors investments, as we believe there is a huge opportunity to, together with the IFAs plus internal advisors, to keep growing and disrupting the concentration in the investment and financial landscape in Brazil. We've been doing all these investments, and we get hit upfront, and the revenue is not there yet. Even considering that everything is expensed upfront, we kept our margins in a very healthy numbers. Adjusted EBITDA margin above 35% and adjusted net margin even above the top range of 24%-30%, so above 30%. We expect to keep like that going forward. Number four, this second quarter, we have delivered a lot of new products. We are very proud of it. Of course, those products we need to keep evolving and getting better, getting the feedback from our clients.
We delivered the debit cards, the digital bank accounts. As I mentioned, the direct international investment platform and the crypto, the exchange, the digital asset platform. Finally, we got rewarded as the most innovative financial service company by Valor Econômico. We are very proud of that. We know we have not conquered anything yet. We still have a lot to accomplish, but it's always good to get this type of recognition. Moving to the next slide, I'm gonna talk about the direct international investment platform, and XTAGE, only those two. Here, we believe this can be the beginning of our internationalization of our business. We are gonna start, as always, from the low-hanging fruit, so taking our Brazilian clients that want to invest outside Brazil. The experience is something that we really care about.
Here, for those that are XP client, you're gonna see that it's frictionless. Why is that? Because everything's already embedded in the app that you're using to use. With two clicks, you can open your account, you can move your money, do your FX transaction, and then you are ready to buy more than 10,000 equities in U.S., ETFs, ADRs, REITs, et cetera. We are still, you know, in early stage, so we're gonna move forward with mutual funds, bonds, banking service, and much more. The product's ready, so it's something that we're really optimistic about when we look for, you know, the following years to come. XTAGE, it's another venture that we started from scratch. We did a lot of survey with our clients. 59% of our clients already invest in crypto assets.
58%, they invest directly. When we ask those clients that have crypto assets, almost 90% of them told us that they would have the intention to invest through XP. That's the reason we decided to move forward with this venture. It's important to mention that this is just the beginning. We start with Bitcoin and Ethereum, but when we think about XTAGE, it's much more than that. It's a digital asset platform that starts with a very powerful technology behind. We have Nasdaq as the service provider. We did a lot of research. We used our previous experience through XDEX to choose what we believe to be the best solution in terms of scalability for XTAGE.
As we scale the business, we are ready in terms of latency and in terms of velocity and everything that needs to provide a very good UX to help our clients navigate through this digital asset platform. Now we can move directly to the KPIs and finance. The KPIs you have seen already, so I'm gonna focus on the financials. I mentioned already BRL 3.6 billion gross revenue. Gross profit, BRL 2.5 billion. We kept our gross margin at a very high level in the second quarter, as we had already in the first quarter. First quarter was 71.5%. Second quarter, 72% gross margin. Basically, the main reason, mix of products. More fixed income, less equities. It has an impact in terms of commissions and helps the gross margin.
When we look at our adjusted EBITDA, BRL 1.2 billion, 2% decrease year-over-year, and 1% increase in the adjusted net income, more than BRL 1 billion. I'm gonna talk about the adjusted EBITDA and the adjusted net income. The main impact there is because of the early-stage initiatives that we have been investing a lot. That, as I said, we expense the whole thing and the revenue is not there yet. There is an impact. We always investing to, you know, have the growth in the future, with sustainability in our perpetuity. We expect those business to scale as we move forward. The highlight here is the margins. They are at very healthy pace despite all those investments, which shows the resilience of the business.
Now we can move to the next slide. Total revenues, 13% growth year-over-year, 17% in the first quarter. When we look at the first half of this year, 15% growth in the first semester of 2022 compared to 2021. Let me pause here just to mention a few highlights that I think it's worth sharing. When we think about the product mix and the difference between a bear market to the bull market, and of course there is a difference, we have said that to many investors that you should not expect the growth of XP to be the same in the bear market compared to the bull market. What happens in terms of product mix? In a bull market, we have equities and futures going up.
We have capital market activity going up. We have listed funds, secondary trading and own loans of listed funds, REITs going up. They are all connected and related. When we have a bear market, all those three together, they get hit. On the other hand, fixed income, floating, and the interest on our adjusted gross cash, they benefit from the bear market because of higher interest rates. When I look at the mix, the product mix, just to give you some numbers here, equities, capital market and listed funds all together as a percentage of our total revenue in the first semester last year was close to 35% of total revenue. Very important revenue stream.
When we moved to 2022 in a bear market, all those components of our revenue, they represented less than 22% of our total revenue. A big hit when we add all of them together, the decrease year-over-year is close to 30%. It shows this, the main revenue lines in terms of products, you know, got hit by 30% year-over-year because of the macro environment. Still, we delivered our all-time high gross revenue in this quarter. That's why we have that first highlight at the business model resilience, because that's what we believe XP is considering the ecosystem we have built.
On the other hand, when we look at fixed income, floating and the remuneration over our adjusted gross cash, and we add all of that together, in the first semester last year in a bull market, they represented less than 20% of the total revenue. In the first semester this year, they represented together more than 30%. This is just to give you the magnitude of the shifts that we have in terms of the product mix. The top line, the total, is what you see in our numbers. On the right side of this slide, we have the breakdown and of course, retail keeps being the most relevant segment in our business. I'm gonna talk about institutional in a while. It's still growing at a very healthy pace as well.
Going to the retail revenues. All-time high in the first quarter this year. We had a lot of questions from investors about the take rates of the first quarter. When you annualize the take rates, it was 1.15% in the first quarter. We mentioned that we had a very weak start of the year, that March was already a better month in terms of take rate for retail business. We didn't know what the second quarter would be, but we expected to be better than the first quarter in terms of the take rate. The take rate in the second quarter, 1.3%, so much better than the 1.15%. The way I like to look at the take rate is the last 12 months. Why is that?
Because the take rate is not only a function of the revenue, the retail revenue, it's always also a function of the denominator, the AUC, the average AUC. When you look at the last twelve months, you have five data points in the denominator that makes softer in terms of change quarter-over-quarter. Here we have the take rates in the last 12 months. You can see that there is volatility, but it's really small volatility over quarters despite the macro environment. We had 1.30%, 1.32%, and 1.27% in this quarter. A little bit better than the first quarter, which was 1.26%. Moving to the adjusted EBITDA. Before we go to the adjusted EBITDA, let me just mention the institutional. I think it's on the annex of the presentation, but institutional revenue.
Oh, there we go. Thank you. Institutional revenue, BRL 436 million, was really strong. 16% year-over-year growth. In 2021, the second quarter was the best quarter for institutional revenue. It was BRL 375 million. That's the highest quarter we had last year for institutional revenue. So a very strong pace of growth, but lower than the first quarter as we have already anticipated because we had an astonishing volume in terms of derivative demands because of the war in February in our institutional desks. Now also issuer services, there is related. That's not 100% of the investment banking revenue. There is part of it that goes into retail and institutional by distribution channels fees, but it's approx.
As you can see, there is a strong recovery compared to the first quarter, as expected. First quarter was really weak in terms of capital markets activity. Second quarter, much better. When we look at 2021, still a drag in terms of capital market activity. Going back to the adjusted EBITDA and adjusted net income. Here, I mean, the main impact, as I mentioned, is the early stage initiatives we could have done inorganically. For example, direct international investments for retail clients or a digital asset platform. We could have done M&As. We decided to do organically. We think it's much better in terms of costs. It's much less money. We need to recognize all the expenses upfront. We expect those business to scale over time.
We know this is an issue because of the reduction in the margins, and that's why we decided to highlight here so you can have a sense of how much we have been investing for our growth in perpetuity, and the impact that those investments they have in our margins. In the first semester, approximately 500 million BRL invested in the revenue is at very, very early stage, and we expect, as I said, to see the revenue growing from in the following years. I think with that, I stop here, and let's go directly to the Q&A, so we can answer all doubts and questions you might have. Thank you very much.
Oh, before we go to the Q&A, I didn't mention that, but we would love to have our investors and all of you in our Expert XP next year, because it's an event that I believe it's worth. It's the largest investment event in the world. We are very proud of that. When I remember what used to be when I joined XP more than 10 years ago, it's really a huge event, and it would be an honor to have all of you visiting us in Brazil next year for the event. We're gonna send invitations when the time comes. Andre, you're gonna be the one responsible for the Q&A, right?
Yes, I will. For sending the invitations as well next year.
Yeah.
Thank you, Bruno. As I said, we'll be answering the questions first whoever raised their hands first. I know that Rosman fell off, but he was, I guess, number five here. We will start with Andrew from Morgan Stanley. I kindly ask you to limit to one question, so we can be productive and everyone can ask their questions. Again, thank you very much for the interest. Now, Andrew, can you hear us?
Hi, it's Jorge Kuri from Morgan Stanley. Hi, everyone.
Oh, hi, Jorge.
Hi.
I'm sorry. There's a different tag here.
No, that's fine. Thanks for taking my question, and congrats on the numbers. I guess I wanted to see if you could share with us how the business is tracking in July and so far the first day of August. How much of that normalization in inflows and AUC and take rate that we saw for the full quarter, especially versus what was the beginning of the year, continues so far in August? And if you also can quantify how much back to normal you are, or if there's still sort of like at the beginning of this quarter, the second quarter, a little bit weaker than expected trends, and if we should see sort of like even further normalization to the upside for the full third quarter. Thank you.
Okay. Look, if I had to answer, for example, the first quarter this year based on January, it would be a disaster. Because January was really weak and we had, you know, a better March, much better March. It was the BRL 10 billion per month net new money. Second quarter, we saw a very positive trend. We had the BRL 14.3 billion net new money per month. Third quarter, I mean, I'd rather wait for, you know, the end of the quarter. What I can tell you, we have this, the soft guidance of BRL 10 billion-BRL 15 billion. I wouldn't change that, Jorge. The reason is, think this business investment, it's not on a quarterly basis, right?
You need to keep convincing the clients to come and test our platform. When they do, we hook them, and then they become our clients for the long term, and they keep bringing more money. That's what our cohorts show. Those that are our clients already, we have this strategy to go beyond investments to get the other 50% of the share of wallet that we still don't have, right? We just launched the digital bank accounts, and all those investments that we've been doing. This thing, it will pick up in the future, as we believe, but it takes time.
Until we get there, the BRL 10 billion-BRL 15 billion per month of net new money seems a reasonable soft guidance, considering that we do not have the tailwind that we had in the bull market for equities and people wanting, you know, to trade, new individuals opening accounts at the stock exchange. That's not happening anymore. Despite all of that, you saw the numbers of the second quarter. I will not give you know, the guidance of the third quarter because we do not do that. I would say between BRL 10 billion-BRL 15 billion. I know it's, you know, a huge spread, like 6%, but it's because we do not know. We can have a very strong month, a less strong month, so it's hard to tell.
All right. Thanks, Bruno. On take rate, any commentary on take rate on?
Yeah, I do. Sorry, I forgot the take rate question.
Thank you.
The take rate, the only thing that I would mention is, we did have a very good take rate, at least the way I see it, in the second quarter, the 1.3%. I'm talking about now the way, the analysts, look at the results, not the way I look at, but I respect that. It's the annualized, quarterly take rate, right? The 1.3%—a very strong one. I would expect a little bit lower in the third quarter. Why is that? Because we have performance fees in the second quarter. Performance fees, for the funds distributor for retail clients, it goes into retail revenue and has a positive, impact on that. If we take that out, roughly, I could be wrong with the numbers.
Roughly speaking here, we're talking about take rates of 1.24, around 1.25. We are talking about five to seven base points of take rates in terms of performance fees.
That was very clear. Thanks a lot, and congrats again.
Thank you.
Thank you, Jorge. Nice to hear from you. Okay, Jeff. Jeff from Autonomous is the next in line. Hi, Jeff.
Hi. Can you hear me okay?
Yeah.
Yeah. We can.
Great. Thank you. You've spoken in the past about your desire to seek to identify new investors who potentially could mop up some of this overhang, maybe somebody strategic come in and take a stake. Can you give us any updates on that? How much progress you've been able to make there?
Well, let me answer this way. I know Itaú, they had their results today as well. I couldn't, you know, hear, so I don't know what they specifically said about that, because usually investors ask them what they're gonna do with their XP shares.
Yeah. They said they are not in a rush to sell the shares, and they don't have a price target, so.
Yeah, that's. Yeah. I mean, it's their decision. What I can tell you, Jeff, based on the talks that we have with investors, generally speaking, is there is demand. It's not a problem of demand, okay? I know some investors have already talked directly to Itaú. Our position here is to tell Itaú when we have done that, "Look, Itaú, if you wanna sell, we are here to help to do it in a very organized way." By the way, we also want to buy, okay? We have done that. As you know, we have a share buyback program in progress for Class A shares, the listed shares. Itaú, they also have Class B shares, not listed shares, that we can buy on top of the share buyback plan.
That's exactly what we did in June this year. We bought a little bit more than one million Class B shares from Itaú when they decided to sell a small part of their stake to go below the 10% total capital in XP, so they didn't, you know, get the impact in their Basel ratio. We are ready to buy more shares if they wanna sell. We only can buy Class B shares outside the share buyback program. From other investors, I am pretty confident that it's not a demand problem, but we have to rely on Itaú, right? It's their shares, not ours, unfortunately.
Thank you.
Thank you, Jeff. Okay, next is Mr. Otávio Tanganelli from Bradesco.
Hi, André, Maffra, Bruno.
Otávio.
Hello, Otávio.
Thanks for taking my question. I have a real quick one. It was a little puzzling to me to see EBITDA margins compressing in the quarter, given that everything that you mentioned about operating leverage and cost discipline. I understand that you're ramping up some of the products that are expected to mature in the coming quarters, but if you could just give us a little background, what's requiring such a high level of investments, or what are your plans for this and in the coming quarters, when we expect this to actually reap the benefits of this operating leverage? Thanks.
Yeah, sure. I will start here, and Maffra, feel free to join me, if you feel like. Otavio, I'll give. I mentioned about the organic or inorganic decision. For example, Itaú, they acquired Avenue, right? It's our, you know, direct international investment. We built from scratch. Everything that we did to put in the app the transaction for our clients from scratch. Everything went through our cost and expenses. Another example, XTAGE, same thing. I don't know, we could have tried to buy Mercado Bitcoin, for example. We didn't. We built from scratch. It costs, and it goes in our P&L. Despite all of that, we kept our margins at a very healthy pace.
We believe those new businesses, early initiatives, they will pay off, more than pay off, and they also give us optionalities for our perpetuity growth. We are always thinking about innovation and perpetuity, always. We need to plant the seeds at some point in time, and that's exactly what we've been doing. In terms of the BRL 500 million in the first semester that I mentioned, we have two main impacts in the short term, okay? Cards, banking and cards, specifically cards in the costs because we have invested that. You know, you have analyzed Nubank and other players in the market. As you keep growing your number of cards and the growth of revenue on cards, you have a lot of expenses from upfront, right? Upfront that are set.
That's exactly what's happening. You saw our TPV in this quarter, BRL 5.5 billion, growing a lot quarter-over-quarter because we have a small market share. We have a lot to cross-sell internally. This will keep growing and the costs go together. When we look at the cohorts, more than pays off, but we expect to keep growing. We do not have, for example, the credit card at Rico yet. We intend to have. It's gonna be an investment, and it's gonna be in our P&L. Internal advisors, same thing. We're growing IFAs, as you saw the number, and internal advisors. Why is that? Because there is more than 50,000 bank managers in Brazil.
We believe there is a window of opportunity for us to grow in this business, and we believe it's a human business, advisory business, in the next three years, three to four years. We want to accelerate that. When our IFAs hire new IFAs, it does not go into our P&L straightforward, only when the revenue comes through commissions. When we hire our internal advisors, it goes up front. Then as this advisor has the custody, the portfolio of the clients, and starts to build that, it more than pays off. It breakevens in less than 15 months. So it's an investment that goes through the P&L and brings the margin down. We have been investing a lot in all of that.
We are gonna keep investing because we believe it's what we need to do and there is a huge opportunity and it pays off. In the short term, it has this impact. As I mentioned, the way we look internally, despite all of that, the costs are under control. Let me give you one data point, so you can follow my rationale here. Year-over-year, we have grown our headcount base by more than 40%, second quarter last year to second quarter this year. When we look at our personnel expenses, people plus bonus altogether, they represented in the second semester last year, 24.4% of our net revenues, close to 25% of our net revenues.
In the first semester this year, you have this statistical effect because we had for less than 4,500 people in June 2021, and we ended this quarter with more than 6,300 people in our company. Our personnel plus bonus expense is below 25% of our net revenues. Our costs, we are paranoid about that. Of course it's gonna grow. We are hiring a lot of people. We are building new businesses. The revenue is not there yet. Despite all of that, we believe the profitability of the business is healthy, which give us the comforts. Because we are very conservative for certain decisions. We are aggressive in some and conservative in others. We do not have the crystal ball here. We do not know what's gonna happen, inflation all over the world, global recession.
The macro environment that we do not control, we need to be prepared for the worst. We are not going to have a short-term view. If there is a clear strategy that we believe it makes sense for XP in the long run, and the time is now because we see this window of opportunity, we are gonna invest, and that's exactly what we've been doing.
This point is very important, Bruno. We will not favor a short-term result instead of a long-term investment that we believe will return to our shareholders. Credit card, it's a J curve, internal IFAs, and many other investments that we have been doing during this year. We will keep investing because as Bruno mentioned, the payback is very short. In some business they are like 12 months, in some other 24 months. We'll be investing for the whole year here.
We are not accelerating more because we need to find, for example, the advisory business, either IFA or internal. We need to find the right advisor, train, et cetera. If we had the certainty that we have found the right ones and would double, we would do it. We would. It takes time, but we're gonna keep investing.
Yeah, it's super clear.
Thank you, Otávio. Moving to, Tito Labarta from Goldman Sachs. Hi, Tito.
Hi. Good evening. Thanks, André. Hey, Bruno. Maffra, good to see you.
Hi, Tito.
Hi, Tito.
My question, following up a little bit on Otávio's question on margins, but digging a little bit more into the expenses, you know, which spiked a lot. I know you talked about, you know, personnel expenses. You have a lot more people than you did last year. Can you give some color in terms of, you know, hiring needs going forward? You know, I think you had mentioned you would expect that to slow down a bit. Just, you know, we have 8,000 people by end of the year. Any color you can provide on that. The other expense that increased a lot was also data processing, up like 60% compared to last year.
Is that related just to the investments in the apps or just some color on that to help us think about how to, I guess, forecast a model, some of these expenses, from here, just given, you know, there was a big spike in SG&A in the quarter?
Yeah, sure. Just going backwards, Tito, the data processing there is also related to the growth of headcounts, the license, et cetera. There is also one component that in terms of accounting measures, there is some part of it that was depreciation and became SG&A instead of depreciation in the line. When you look at the EBITDA, that was capitalized and amortized, and now it's expense through the time of the contracts that we have. We can discuss that offline in details with you later.
Look, the number of headcounts in the second quarter, it was a little bit more than 6,300 personnel, and in the first quarter was a little bit less than 6,200 personnel. The growth of personnel headcount in 2022 has not been that significant, right? The growth happened mostly in the second semester last year. We started all those new initiatives, the direct investment platform in U.S., the XTAGE. October, September last year, we hired this personnel a lot. To look forward to the base of what we have, I would not expect the headcount growing a lot. It can grow, but it's gonna be single digit, right? What can change that is internal advisors.
As I mentioned, we think there is a window of opportunity in the next three to four years, and we believe investment is a business of advisory service. IFA and internal advisors, we want to keep growing, and it's much more a matter of finding the right personnel to join us in this journey than anything else. If we do not find, we are gonna. We are very data-driven, right? For example, we were hiring and then we follow up the data and then we said, "Look, this strategy, hiring this type of personnel is not the best one. Let's go back there and accelerate in other fronts." We have the XP Future. As you know, it's education is in our DNA.
We have built a lot of tools to help the advisor, even those that are not from the financial world, to be successful in the financial world, and those that have a commercial skill. We've been doing a lot there. The growth of personnel there, it's gonna depend on finding the right people. If you think there are more than 50,000 bank managers, I mean, we could grow a lot there.
Okay.
I know I couldn't answer your question, you know, specifically because, I can't. You know, it's data-driven. It's like, you know, central bank answering questions about inflation that is data dependent. It's like that, right?
No, understood. But that's some helpful color. Thanks, Bruno. Just one quick follow-up, just on the bonus, 'cause you mentioned, I guess it gets paid in Q3 and Q4. If I look, it looks like there was a jump last year in Q3, but I don't see as big of a jump in Q4.
Is that what we should expect kind of similar level in 4Q in terms of bonus?
Yeah. Look, the bonus as a percentage of net revenue, look at a semester basis, that's my advice. It's better than on a quarterly basis. When you look at the first semester this year, it was 13.4% of net revenue. Second semester last year was 15%, even higher of net revenue. First semester last year was 13.7. A little bit higher compared to on a percentage basis compared to the first semester this year. There are parts of the bonus that they depend, they are more objective. They depend on performance fees, they depend on institutional desks. Only in December we will know, right? Because it's the whole year when it ends.
I would expect you to, you know, keep close to those percentages as percentages of net revenue on a semester basis.
Okay. That's clear. Thanks, Bruno.
Sure.
Thank you, Tito. Have a good one. Next is Thiago Batista from UBS. Hi, Thiago.
Yes. Hi, guys. Thanks for the opportunity. Can you hear me?
Yeah. Yes.
Okay. Yeah. My question is about excess capital or excess cash of XP. I'm trying to figure out how asset light is XP nowadays. The company is presenting, let's say, an EBITDA or earnings of BRL 1 billion per quarter. It's tough for us to really see this excess cash or capital. In your view, the company has this excess capital or in a different way. Is XP still an asset light company or all this cash consumption that we are seeing in XP is more temporary event because all the investments that you already mentioned, Bruno.
In the future, we'll see the company again being a kind of asset light company or no, the new business are changing the profile of the company and XP should become more requiring more capital. How you guys are seeing this, the capital, of XP?
Let me start answering you, Thiago, that, yeah, we believe that we are an asset light business, and we want to keep like that. We do have some capital requirements, especially because of the credit card business. The credit business, we can mitigate a lot of capital because most of it is collateralized. Mainly we use our cash flow, and we do generate a lot of cash every month. We do use our cash flow for our market making activity. That's where most of the cash goes. The market making activity, it's something that in the future, as the Brazilian capital markets keep developing, it should require less capital from our warehouse. It works like a warehouse, buying and selling in the secondary markets.
There are some products that this works much more like a brokerage fee, but the nature of the product requires, you know, a spread, you buy and you sell, like fixed income, for example. That's where most of the capital goes. Okay. When we look at our adjusted gross cash, we have, you know, close to BRL 10 billion of adjusted gross cash. This cash is being used mostly for market making activities in our books. In the past, in the recent past, we have used a lot of cash for two main lines, I would say. Number one, IFAs, as you know, followed since 2020 when we had a huge attack in our IFA network and we invested to have the long-term contracts with our IFAs.
You can look at that in our prepaid expenses, close to BRL 4 billion. M&As, mostly with minority stakes in assets, asset managers and some funds that we have seeded. All that together is close to BRL 2 billion in total. We're talking about BRL 6 billion, roughly speaking. We do not foresee many close to this amount in the future, right? We have done that with our own cash generation. That's, for me, a proof of how asset light we are in that sense. To answer your question about the capital return, yes, the new initiatives, when they mature, they will return the capital. Capital markets activity, when the Brazilian capital markets develops, it's gonna need less capital from us, and we're gonna be able to return the capital.
In the credit space, we want to grow in this business, but not using our balance sheets. Of course, we're gonna have to use something of our balance sheet as a warehouse, then recycle and securitize and have a good product to distribute for independent asset managers using our ecosystem. We want to disrupt the credit business through the asset management business and not through our own balance sheet. It's something, in our view, similar to what the hedge fund industry has done in the United States to the banks in the United States. We believe there is, you know, a win-win situation here for the Brazilian capital markets, for democratizing investments for individuals and for our ecosystem to grow and penetrate in the credit world. Yeah, we are gonna keep being an asset-light business model.
Oh, very clear, Bruno. Thanks for the answer.
Thank you, Thiago. Have a good one. I'll pass the word here to Eduardo Rosman from the BTG Pactual, because he was first in line, and then he fell off the call. Rosman, can you hear us?
Yes. Yes. Can you hear me?
Yes.
Yes.
Hi, Bruno. Hi, Maffra and Andre. No, my question is a follow-up on Thiago's one. I think it's an important theme, because XP, you have been growing earnings quite fast over the last few years. When we look to ROE and ROA, they have been trending down, right? I know that recently, if I'm not mistaken, you raised also BRL 1.8 billion in debentures to run day-to-day operations. Just trying to understand here if ROE and ROA, if this is a metric that you follow internally or not, 'cause I know you talk about net margin and EBITDA margin, but, like, I'm just trying to understand here if you have any sort of a long-term ROE or if just trying to understand here, what could be, you know, your returns longer term. Thanks.
Sure. Sure, Rosman. We do follow all the metrics, Rosman. That's one of the metrics that we follow. Basically what you mentioned about the ROE or ROA decreasing, it's more, in our view, more a consequence of the macro environment than anything else. Look, our credit portfolio, it's not big. It's BRL 12.9 billion in the second quarter. It was nothing in the past. The best way, at least for me, that I like to think about when we now have entered in the banking world with our own bank, but the reason we have a bank is different than our competitors, the incumbent banks, right? We have a bank now because we realized we need to go beyond investments to serve our clients.
By that, digital bank accounts, other products, other services, and you need a bank license for that. We are an investment platform that acquired a bank. If you look at our organizational charts, it's the only one in Brazil that has a broker-dealer with a 100% subsidiary that is a bank, as we speak today. All the other players in the market, they are the opposite way around. The leverage of the bank is something that we do not use at full speed as we speak right now, okay? Because of this logical sequence that led us to have a bank. The impact in return on equity and et cetera has much more to do, in my view, with the macro environment.
We lost BRL billions of revenues year-over-year because of the macro environment. If you look at equities and futures, for example, used to be our main line. I mentioned, you know, the mix of equities and futures plus capital markets plus listed funds used to be more than 1/3 of our total revenue. Now it's close to 20%. That's a lot going down, and that's not market share being lost. On the contrary, we still have 50% of market share in equities and futures in the secondary market in Brazil. It's a macro impact. Of course, that hits the operating leverage of the business. We more than compensated that with other business, new verticals, et cetera, fixed income, floating, and so on. For example, credit card has a lower margin because of the investment.
It's a mix, a portfolio mix that has an impact. Plus the BRL 500 million that I mentioned. When the macro environment is different, I expect you know, the metrics that you mentioned to scale back the way I see it.
Okay. Thanks a lot, Bruno.
Sure. Thank you, Rosman. Next is Credit Suisse. Hello?
Oi, André. É o Telles aqui. Tudo bem, pessoal? Tudo bem, Bruno? Thiago.
Oi, Telles.
Obrigado pelo tempo de vocês aí. Parabéns aí pelo resultado. Eu queria falar um pouquinho ainda nessa questão, né, da geração de caixa. Eu sei que já teve a pergunta aí, né, do Thiago e também do Rosman. Olhando, quando a gente olha o teu caixa líquido, ele, pelas minhas contas aqui, foi cerca de BRL 9.5 billion no trimestre, cês tinham aí um pouco acima de BRL 9 billion, né, no primeiro trimestre. Então isso significa que, cês tiveram uma geração de caixa de BRL 450 million no trimestre, né? O que indicaria aí, um free cash flow conversion de EBITDA perto aí de uns 37%, né, que é um número, assim, baixo, né?
Se a gente considerar que no primeiro trimestre vocês tiveram, na verdade, né, um uso de caixa, né? É como se vocês nesse semestre, vocês não geraram caixa, né? Então eu queria entender um pouquinho, né, assim, o que que vocês imaginam que seja, né, o run rate, né, de geração de caixa de vocês. E ainda nessa pergunta, o investimento em IFAs, acho que só nesse tri acho que cês gastaram quase BRL 300 million, né, de reais, sendo BRL 200 million, né, que é aquelas luvas, né? E eu lembro, acho que de conversas anteriores com vocês, acho que a ideia era ter esse número aí mais ou menos perto dos BRL 400 million por ano, né? E então e a gente tá BRL 200 aí no só nesse tri, né?
Eu queria entender um pouquinho de vocês como é que vocês tão vendo também esses pagamentos de luvas, qual que é o patamar sustentável, né? Só pra gente poder também chegar aqui no fluxo de caixa, né, correto aí pra vocês. Muito obrigado.
Okay, Telles. Eu, respondo em português ou inglês?
Melhor voltar pro inglês, por causa da gravadora.
Okay. Thank you, Telles. Now look, in terms of the cash flow, it's more than the BRL 500 million per quarter you've mentioned. It's close to the adjusted EBITDA, if we do not have M&As and incentives for the IFA, as you mentioned. We did have a small M&A in the second quarter, probably BRL 100 million, roughly speaking. The IFA was less than the BRL 300 that you've mentioned, okay? A little bit more than BRL 200 million. It's hard to forecast that number going forward. We analyze case by case. As we said in the past, we do have the benefit of knowing very well all the IFAs in our network.
We decide based on the math that makes sense for ourselves. If it doesn't make sense, we are not gonna spend money, you know, in a long-term contract with IFAs. If it does make sense, we are ready to do so. That's exactly what we've been doing. We have done a lot already, so that's why we do not expect the same pace going forward. Nothing close to that. But on a quarterly basis, you can have fluctuations. Last quarter, for example, it was close to nothing. This quarter was a little bit higher than the BRL 200 million. The cash flow and I remember now that I didn't answer the second question of Rosman about the BRL 1.8 billion debentures.
This is just going back, Rosman. This is something we want to leave an open relationship with the local bond market. In May, we repaid the last bond. We have BRL 800 million of bond issued by our holding company in Brazil. And then, 800 in the past is close to three to four billion nowadays considering the size of XP, and we did BRL 1.8 billion. That's not much considering, you know, the size and the relationship. We had a very strong demand for that issuance in the market, close to BRL 3 billion. We were gonna do BRL 1.5 billion and we decided to have more idle cash considering the scenario. As I said, we are aggressive for some things, conservative for others.
In a bear market, we like to have more cash than we need. Now going back, Telles, to your question, looking forward, I would expect something close to the adjusted EBITDA, you know. The BRL 1.2 billion per quarter. When we pay bonuses, we pay on a semester basis, so there is a drag in the cash. We're gonna have that in August this month. We're gonna have that in February next year. Despite that, it's basically the adjusted EBITDA close to that, our cash conversion. The working capital is really small. In the second quarter, we have a small more than BRL 100 million of working capital that is impacted by performance fees. It's really short-term. It was paid in July, okay?
In June, when you close the balance sheet, there is a revenue recognized in June from performance fees that was close to BRL 150 million that is paid in less than 30 days, right? That's basically the main fluctuations that we have. M&As, IFAs, outside the P&L, performance fees, a payment of bonus on a semester basis. The rest is pretty much close to the adjusted EBITDA.
Thank you. Thanks, Bruno. Thanks, Thiago and André. Appreciate it.
Thank you, Telles. Bye-bye. Next question comes from, Neha from HSBC. Hi, Neha.
Hello. Hi. Hi André, Thiago, Bruno. Congratulations on the results.
Hi, Neha.
I have two questions, quick ones. First one on the credit revenues, which looked a bit softer this quarter. Could you shed some light on that? And the second question is on the tax rate. I mean, the tax rate has been pretty volatile over the past few quarters. How should we think about this in the coming quarters? If you could give us some sense on how to focus. Thank you.
Yeah, sure, Neha. I didn't hear well your first question.
Credit revenues.
The what, sorry?
Credit.
Credit revenues.
Credit re-
Were a bit softer this quarter.
Yeah. Credit revenues on a quarterly basis is tough. We have sometimes some bigger one-time transactions in terms of credit that you have, like a fee up front that can create a distortion. In the first quarter, we had something similar to that that made the first quarter like a tough call. The credit part, we are gonna keep growing, but again, here our decision process is about the risk rather than to, you know, hit any targets, whatever, right? We are owners of the company. We think for the long term. If we are risk averse in terms of the credit, then we do not want to grow the credit business. We are not.
If we feel comfortable about it, as you can see in our NPL ratios, we are gonna keep doing it if we're comfortable about it. Regarding the tax rate, the way I like to think about the effective tax rate, that's the best way to look at it, because remember, you know, all the market-making activity that goes from specific funds, it has a 15%-20% tax bracket that is not recognized in our financials. So the revenue goes net from that tax, but the tax does exist, and we pay that tax. When we add that back, we have an effective tax rate normalized of close to 15% in the first semester this year. That's low.
We expect in the future to have higher effective tax rate, but that talks to the capital market activity as well, right? When we have, for example, a strong capital market activity, most of the revenue goes into the broker-dealer level with a 40% tax bracket, and then the effective tax rate goes up. When we do not have that, we have more costs than revenue at the broker-dealer level. We have the tax benefits of the credit of the expenses at 40%, and this lowers the effective tax rate. Going forward, I would expect, as the capital market activity specifically keeps rising, the tax rate should increase compared to what we had in the first semester this year.
Yeah. The point here, Neha, is if we have a different revenue mix for the future as capital markets comes back, we will have a higher tax rate, but we will have higher revenues in absolute numbers. If you see tax, higher tax rate, you see much higher revenues. Okay.
That's correct. Oh, I said at the beginning of the call that I'm still with a hangover of Expert, right? I forgot Telles. On your previous question, I forgot to mention the buyback. We have been buying back shares as well, so that's also part of the cash flow that we have been doing. We've done more than we have done approximately 1/4, a little bit more of 1/4 of the whole buyback program we have announced back in May, all right? Sorry. Move forward.
Thank you, Neha. Next, is Mario Pierry from Bank of America. Mike.
Hey, guys. Good afternoon. Thank you for taking my question. Just two quick questions. First one is a follow-up on the revenue yield that you talked about on the retail revenue yield that you had about five to seven basis points benefit from performance fees. Can you just remind me how often are these performance fees recognized and if there were any performance fees one year ago? Then the second question is related to the integration of Modal, right? If you can provide us an update of the timeline. When do you expect this transaction to close? I know Modal reported earnings last night.
It seems like the earnings are coming below what the market was expecting at the beginning of the year. I was wondering also, and I don't remember if the price that you're paying for Modal that was fixed, right? I think you were issuing like 13 million shares. But I was just wondering, you know, how are you seeing the performance of Modal? When do you think this transaction is gonna close? Any potential synergies from the transaction?
Sure, Mario. About the take rates and the impact of the positive impact of performance fees on the take rates. Last year, we did have performance fees on the second quarter, but it was much lower than the 150 rough numbers that we had this year. I believe it was something around BRL 50 million, something like that. I can follow up with the right number here. I know I'm familiar, but it's close to that. Usually performance fees, we have strong numbers second quarter, fourth quarter. Those two quarters. It depends on each fund. We have, as you know, a lot of funds in our platform and ecosystem. We do have. For example, we have a small part of performance fees in the first quarter, but really small because of certain funds.
Second quarter and fourth quarter, that's what is really relevant. The five to seven basis points, that's the impact in this quarter of the take rate. Okay? The take rate would be 1.23%-1.25% without the performance fee. But they do exist, and they could be even higher if the market had a positive equity effect. It's basically multi-market funds, macro funds performing well, that got the performance fees. You're gonna say something, Maffra? No.
No.
Okay. About Modal, we expect to have the deal closed by the end of this year, but we do not control the process. We are still waiting on mainly two events, central bank approval and SEC approval because there is equity issuance that we're gonna do to merge Modal or have Modal as a 100% subsidiary of XP Inc conglomerate. The number of shares maximum is 19.5 million, and that's done, right? Regarding Modal performance, I mean, again, we have a lot of synergy there. Modal is. They do not have the diversification that we have in XP. So their business get hits stronger because of the macro environment. It's XP like, I don't know, 10 years ago.
If we were like 10 years ago, our numbers, we would not have had all-time high retail revenue, a record of our quarterly revenue. We would not have that kind of results. It doesn't change anything. We believe it's a very attractive acquisition. We know exactly what Modal does. We do it internally as well. We are thinking about the synergies, but we need to wait for the authorities approve. CADE has approved already, but the central bank is still pending. As you know, central bank they had a strike this year that delayed a lot of process, but they have resumed already. We'll see.
We have mentioned in the past, as you know, we have done several acquisitions in the past. Historically what we have is 30%-50% synergies on SG&A and another 30%-50% synergies on revenue. That's the way to think and to model the synergies on Modal.
That's very helpful. Thank you.
Thank you, Mario.
Thank you, Mario. Last but not least, Domingos from J.P. Morgan. Good evening, Domingos.
Good evening, guys. Thanks also for the questions. I'm circling back a little bit to the cash flow. Batista started and several other analysts, I guess, are asking similar questions in different way. I'll add one more way to ask the same question. I'll give you some sort of a base case, right? Let's assume your assets under custody, right, AUC grows mid-teens and market activity doesn't accelerate a lot. By that sentence, I am hoping you understand that basically your capital needs, your cash needs don't grow a lot. By when can you pay dividends, and what kind of payouts do you think you could have? Is it at 2023, 2024? I'll add to that, like, you know, the beauty of being a technology-enabled platform to a lot of investors is being an asset-light business model.
A lot of people compare it to B3, which pays 90%+. This is sort of, you know, the message we're trying to get here when this cash starts, you know, flowing back to investors. The second really quick one is, you know, it came out in the newspapers, I guess Villa XP, the campus you guys are building-
Would it be on hold and you guys would be searching for the floors back in Faria Lima. My question is that a cost savings? You know, do you guys give up on that or not? What's the latest?
Your first question, Domingos, to be honest we are a growth-driven company, right? We are always thinking about the next innovation, the next product. As we have a very low market share, investment is a little bit higher, but still, we are not number one yet. Despite being recognized as the best investment platform by clients and prospects getting the awards, but we are not number one in size yet. Our mindset for the short and mid-term is driven to conquer all of that, right? As we have been investing in new initiatives, I don't have a number to say to you, neither a time horizon that we're gonna have our cash return even paying dividend because we have so much to do. For example, think about going international.
As I mentioned, the direct investment for retail clients in U.S. can be a small seed to really go international because we start with equities, we are gonna have banking there as well. We are gonna have other products, and then we can think beyond Brazil and even in U.S., just to give you one example. This mindset, it doesn't allow us to think about, you know, returning the money because we always want to do more to grow in perpetuity. That's the mindset. I don't have a number to tell you about dividend payouts, et cetera, right now. I don't know, Thiago Maffra, if you-
No. Yeah.
Have something in your mind to add there.
No. About the second part of the question about Villa and other floors at Faria Lima. Going backwards, it's not a cost decision, okay? It's not based on costs. At the beginning of the pandemic, we had 3,500 employees, and we used to have 12 floors, if I'm not mistaken, 12, 13 floors between Juscelino Kubitschek and Faria Lima. Now we have four floors, and we have more than double during the pandemic. Yes, we are looking for one or two floors at the same building because we have more than double, okay, during the pandemic. It's mostly for commercial people, investment banking, asset management, private, corporate, basically commercial people.
Because we need these people, they need to be close to where the customers are, and they need to be based in São Paulo. That's the reason, okay. About the Villa, we had many problems with the construction company, license and so many other problems, but that's it. Thank you, guys. Congrats on the quarter and good evening.
Thank you, Domingos.
Thank you, Domingos. He was the last one. Once again, I would like to thank you so much for your interest in our call. We are available for any follow-ups as usual. Bruno, I think you could invite everyone again for next year's event just to finalize. Thank you so much.
We are gonna think about something especially for our investors outside Brazil that makes your trip to Brazil worthwhile and we include experts in that agenda. We would be more than honored and happy to receive all of you in our event next year. Thank you. Thank you a lot for the call and that's it.