Earnings Call: Q3 2022

Nov 8, 2022

Good evening, everyone. Thanks for waiting. We were just I'll give some seconds for everyone to join. I'm Andre Martinez, Head of Investor Relations. And on behalf Of the company, I'd like to thank you all for your interest in our quarterly earnings call. Today, we have with us Bruno Constantino, our CFO. We will both be available for the Q and A session right after the presentation. Remember that you can raise your hand in the Zoom I see that as usual, we have some raised hands, and we will answer them after the presentation. Please refer to our legal disclaimer on Page 2. There we have we clarify actually the forward looking statements, their definition. And on our IR website, you can find additional documents to forward looking statements and why they might differ from actual results. So without further ado, I'll pass the word to Bruno Constantino. We have a lot to talk about today. And It's later in Sao Paulo, right, Bruno, than usual. So let's get going with the presentation. Thank you so much, every one of you, for the interest. Yes, sure. Thank you, Andrea. Good evening, everyone. A pleasure to be here with all of you one more time in our 12 earnings call. This call might take a little longer than usual, but I promise I'll try to be as brief as possible So we can jump into Q and A. So we can move to the highlights. So here on Slide 5, the highlights. We have selected 4 main highlights for Q3 2022. 1st is the improvement in our disclosure. Always considering feedbacks from investors and thinking about how to enhance our transparency over time, We have changed 3 points in our managerial disclosure. We have incorporated Digital content into retail. As you know, digital content is an enabler, much more than a relevant contributor to our revenue. So it doesn't make sense to disclose it on a stand alone basis anymore. Number 2, We separated corporate clients, companies with annual revenues above BRL 700,000,000 BRL annually from retail clients. This change was motivated by 1, growth of the corporate business, which was irrelevant until the end of 2021 last year and has been gaining traction throughout this year, as you're going to see throughout the presentation as well. And number 2, different profile of clients as well. And third, we have opened The retail revenue base on its main product classes, I think this is the main change in terms of disclosure that we are making from now on. What are the main product classes: 1, equities 2, fixed income and 3, funds platform. I hope that will help all of you understanding the dynamics of each business line depending on what the macro environment is. The second highlight is about expenses. We are still absorbing the impact of headcount growth in 2021, as you know. But we do believe that Our ongoing transformation should result in efficiency gains and better margins in 2023 onwards. Our total SG and A, as you're going to see, Already showed this quarter signs of stabilization. I will talk more about that as well. And the 3rd highlight, we are discontinuing the adjusted net margin guidance. And as of today, we introduce In exchange of the adjusted net margin guidance, a new earnings before tax margin that will take into account the expenses related to share based compensation. And finally, the last point is just an announcement that we have just released a 6 ks informing about the increase in our actual share buyback program, moving it from a total of BRL 1,000,000,000 to BRL 2,000,000,000 and keeping the same time frame, which is until May next year. So moving to the next slide, starting with client assets. So all time high client assets, R925 billion, helped by higher interest rates that tends to increase, as you know, total client assets. Net new money has been accelerating from an average of BRL 14,000,000,000 per month in Q4 last year to SEK 11,000,000,000 in Q3 this year, but it's still between the soft guidance of SEK 10,000,000,000 to SEK 15,000,000,000 net new money per month. There is, as I've said, When you have 2 facts added together, it makes the scenario poses a very strong headwind for net new money growth, which is not only higher interest rates, but higher interest rates Coupled with uncertainty, investors tend to choose daily liquid fixed income instruments instead of allocating their capital in anything else, especially in the Q3. We also had an inversion in the interest rates curve and that makes even harder to make investors extending their duration. So there is a scenario that poses a headwind. It's not new. It's been with us throughout this year, but we are able to keep the low end of our soft guidance despite all of that. And then we have on the right side the breakdown of retail client assets per products as we have done in terms of retail revenue, we also are going to disclose the total retail client assets breakdown by the same buckets. And here, it's pretty much clear from a year over year view, mix shift in terms of investment allocation. We had in the Q3 last year 42% of total client retail client assets in equities and That number decreased to 34% 3rd quarter this year. When we look at fixed income, it's the opposite. It was 22% last year, it increased to 30% this year. So everything that we already have been talking and you know, but now putting figures on it. So moving To the next slide here is just to show what we have done. So the old segmentation was retail, including corporate, institutional, issuer services, digital content and other. And now we have many more detailed and the segments, retail, Institutional, corporate is not with retail anymore, it's together with issuer service. There is a lot of cross selling there, corporate clients and investment banking activity, so we believe it makes sense to put it together. And in retail, We have, as I said, opened the 3 main revenue streams of retail revenue, equities funds platform and Fixed income and all the others are part of the new vertical. Digital content is included in other retail. Now talking about gross revenue. So our total gross revenue went from BRL3.4 billion Q3 last year to BRL 3,800,000,000 this year, a 13% increase. This risk off scenario has mainly impacted our retail revenues. That represents, as you can see on the right side of the charge, close to 70% of our total gross revenue. So retail in the Q3 represented 6.9 months, 71% of total gross revenue is the main component of our revenue and is the part of the revenue that has been impacted the most because of the beer markets. A natural consequence of that is a deceleration of our growth pace, but it's still a growth, 13%, as I said, year over year, 5.4% quarter over quarter. But as we also have been saying, Thanks to a more diversified ecosystem, part of retail revenue, especially the new verticals we are going to show and also outside retail revenue, Institutional revenue and corporate issuer services revenue have a different dynamic in such a tough scenario, helping the overall results of the company. That is why we believe XP has been building over time even more resilient business model. And that's what make us believe, as Mahfar mentioned in his letter to stakeholders, that our strategy is in the right path, going beyond investments and in investments, adding more products and services, so we can keep diversifying our revenue stream, increase the loyalty of our clients and also the LTV of our clients. Imagine if XP nowadays in this scenario that we are leaving were XP back 10, 15 years ago when we were a monoproduct, Equities and Monoplin Retail and move to Retail breakdown. Yes, this slide that will take a little longer if you allow me because that's new, all the numbers here. It's completely new, and we are going to share with you every quarter from now on. I will explain a little bit the dynamics of each block. It's pretty much straightforward impact of macro, when we have a boom market, equities benefit the most from it. Funds platform also benefits from it. Fixed income is hard to tell depending on which moment of the bull market you are. When we have a bear market, it's the opposite equities, They get hurt. Funds platform also get hit by the bear market and fixed income benefits mostly because of higher interest rates. But here it's interesting to look at the relevance of those three blocks that we are showing right now. Equities, fixed income and funds added together in Q3 last year, they represented 86% of total retail revenue. In Q3 this year 2022, Their relevance decreased from 86% to 72% of total, a very relevant decrease in relevance, but it's still the most relevant block of retail revenue by far compared to all the other components. What explains that decrease? The bear market scenario. And this headwind has taken away more than BRL 1,500,000,000 in revenue from our results in 2022. How do we get to that math? You just add together equities and funds platform, for example, in the Q3 this year, it will give you roughly BRL1.4 billion and you compare to funds and platform In the Q3 last year, to keep the same seasonality, that will reach BRL 1,800,000,000. So this BRL 400,000,000 per quarter, if you annualize that, you would reach almost BRL1.5 billion in annual revenue for Fate. Now another way to see this impact that I've been mentioned about this headwind, Including fixed income, you can include your fixed income just to get the 3 main blocks of our retail revenue And fixed income is a positive number comparing year over year, okay? But Let's add it together. You're going to see that those 3 blocks added together, even with fixed income, they decreased year over year, 15%. So here we can do all the math we want to, but it's going to be pretty much clear why retail is suffering in terms of revenue and revenue mix. Despite all of that, retail has been able to deliver strong Revenue numbers that has to do with all other components of the retail revenue, fixed income helping, other that mainly it has other things there, but as there is in the note, float, digital content, FX, among others, everything that is not embedded in any of those blocks goes into other. But float is more than 80% of that revenue. So fixed income, float and all the new verticals, Retirement plans, cards, credit, insurance, they all have been helping retail revenue to keep a very healthy number and still growing year over year despite this headwind that I've been talking about. Another interesting Data that we can extract from this chart is a comparison quarter over quarter. When we look Q3 2022 compared to Q2 this year is a different real. Basically, equities, for example, it's growing 5%. Similar to our best number, the daily average trading number that grew 3% quarter over quarter. Funds platform here decreased 29%, but if you take out because then when you compare quarter over quarter, there is a seasonality, Okay. So 2nd quarter, we have performance fees. When you take out performance fees, 3rd quarter increased close 10% quarter over quarter. So the 2 main blocks that have been hit the most year over year, Quarter over quarter, they show sign of stabilization, which is a good thing in my view. So looking at the other components that I mentioned, New verticals, the growth goes from 45% year over year up to 170% with cards. Cards has been growing a lot, 26% growth quarter over quarter. So this is, I think the main slide of the presentation where you can drive many different conclusions, but it shows Hopefully, the impact of this macro environment in our retail revenue as a total. So we can move to the next one. Take rates. So take rates is that retail revenue divided by average AUC, As you know, now what is the difference? Now the stake rate is taking into account retail revenue ex corporate revenue that went together with issuer services and the client assets, the total client assets, We are only doing the take rate for retail using retail client assets for sure. So the take rate, 1.33, it was 1.40 in the second quarter, but in the second quarter, we had the performance fees. As I said, you take out approximately 8 basis points of performance fee, we have SEK 1.32 with SEK 1.33, again, a signal of stabilization. On the right side, we highlighted Funds platform and retirement plans, why have we done that? Because we believe when we think about take rate as a price, So relating to the client assets and then as a price, those two components of the retail revenue are the components that makes more sense relating to client assets, funds platform and retirements plans, because all the others, Equities, fixed income and the other verticals, especially equities and fixed incomes, they have a lot of revenues that are transactional based instead of plant asset based. But going back to funds platform and retirement plans, we are not considering in the funds platform Performance fees here, what we see is the same movement, a shift away from equity and multi market funds that have higher management fees into fixed income funds. So the take rate went from 71 basis points last year to 50 5 basis points this year, a 16 basis points contraction. But again, quarter over quarter, a slightly increase of 1 basis point, so basically flat quarter over quarter, same segment. Now going to issuer corporate and issuer service and institutional. On the left, institutional on the right, corporate plus issuer services. Both here, both revenues, both segments, They performed really well in the Q3. It's a fact. The numbers speak for themselves. Institutional more than doubled year over year. Corporate and issuer services increased 34% year over year and quarter over quarter, both of them grew more than 30% quarter over quarter. So 3rd quarter, no doubt was a very strong quarter for institutional and corporate plus Insure services. We believe there is a relation with the elections in Brazil, a lot of anticipation, The positive impact in the OTC derivatives trading that we do with our clients either corporate or institutional clients. So this shows the Benefit of the diversification, it's very positive, anticipating myself that I expect a question in the Q and A. In the Q4, we do not expect those 2 segments to perform as they did in the 3rd quarter. It's natural to think that if there is an anticipation in the Q3 because of elections, you need like a transitional period like a handover to absorb everything that has been anticipated. It's hard to estimate how much, but the concept behind the fundamentals, I believe the Q3 should be the record quarter for 2022 in those two segments. And one more thing that I forgot to mention about issuer service. It's interesting to note that in our we had this quarter And now time high quarterly securities placement revenue of BRL 525 1,000,000. Yes, you can see that in our earnings release. That number is it's as per our Accounting income statement, okay? Out of the SEK 525 1,000,000, we have SEK 202 BRL28 1,000,000 in the Q3 here in Issuer Services, but everything is kind of related. The other part of the revenue goes into retail. It's mainly distribution fees and they go into retail in different segments. So it was an all time high of secured Placement revenue in the quarter that we still are in a bear market, not equities playing a role because ECM is really weak, but BCM and also alternative funds playing an important role in this quarter. SG and A and earnings before tax margin. So total SG and A has been flat quarter over quarter. I believe that's a good thing. The apparent growth In non people, you have the breakdown here on the left of people and non people that are included in total SG and A. So the apparent growth in non people expense quarter over quarter from BRL 374,000,000 to BRL 405,000,000 is lower than it shows. Why is that? We I talked about a reclassification from depreciation, amortization into SG G and A. You can see that also in our earnings release. Depreciation quarter over quarter decreased Approximately BRL 12,000,000 and that's most of it are reclassification between lines, okay? So discounting this effect, non people would have grown 5% quarter over quarter. And remember that in the Q3, we also have our annual event expert that the expense is embedded in there. We also can see an EBIT Earnings before tax margin on the right part of the slide recovering. So we had our Lowest EBT margin in the 2nd quarter, 25.3%, coming from 28.6% in the first quarter and 3rd quarter already shows a recovery going to 27.2%. We are giving this new guidance of EBT margin From 26% to 32%, we tend to be always conservative in our guidance. As you know, We had 25.3% EBITDA margin in the Q2 this year, but it's our expectation that, As I mentioned, the ongoing transformation in the company, no matter what the macro environment is, Looking at the signals that I also mentioned of stabilization in those revenue lines that get hit the most by a bear market Compared to a bull market, we believe we are going to scale up our EBIT margin from 23% to 2025 in the next 3 years. So next year, you could expect our margins closer to what it is nowadays and increasing a little bit, Moving towards the 32%, the top of the range in 2025. That's what we are going to fight for here in the company. And also in terms of expense growth For next year, when we look at total SG and A and also people expenses, We for sure are going to have a lower growth than we had this year compared to 2021. No question about it. Net income and net margin, here, It's a record net income helped by the earnings before tax quarterly that we have in the 3rd quarter. It was the 3rd higher EBT in our history, only behind the Q4 of last year and Q2 of last year, but remember that second and fourth quarter, usually they can have seasonal revenues that the 3rd quarter doesn't have, performance fees and also helped by a positive account tax expenses, so record net income ever. We also kept a health margin here 28.5 percent in the 3rd quarter. Our basic earning per share is growing a little bit more than our net income that's related to the buyback in place. And our adjusted net income, although we are not using anymore The adjusted net margin as a guidance, we're going to keep our adjusted net income in our spreadsheets in our Investor relation side in the Internet. Finally, we have 2 more slides to share with you. This one is about the net asset value. We've had several doubts in the last two quarters about our cash flow conversion, cash flow generation and capital allocation. So we thought in a way to bring here and share with all of you Some slides that hopefully they will help to understand better those issues. So first, it is complicated issue, especially considering that Expi is a platform, but also is a financial institution. So we hold several types of financial instruments with different characteristics in our balance sheet. I've said that before, so when you go into our cash flow statement that follows an accounting rule, it's not business sense to analyze that. We are working on a managerial a better managerial cash flow statement to help you to understand exactly what our cash flow generation, if you may say, is. But the way we look internally here is to our net asset value. That could be an analogy to our net cash. What is it? It's basically the adjusted gross financial assets that you have on the left part of this slide and that we have been sharing we see you through our earnings release, minus our that instruments that are not embedded in the adjusted gross financial assets, because the adjusted gross financial assets Take all the financial liabilities, so anything that goes into our results as NII, net interest income, is because there is a financial liability associated to it. It's already embedded in the adjusted gross financial assets. But we also have corporate debt, that is not embedded in there like the bond that we have issued like the debenture that we have issued. So like the IFC debt that we still have in our balance sheet. So all of the borrowings, the corporate debt that we have is what we are calling here the gross debt On the right part of the slide, we discounted from the adjusted gross financial asset, reaching the net asset value, which at the end of this quarter was BRL9.8 billion. Reais. In the last slide, we want to present a bridge, a bridge that explains a little bit the way we look at it internally and the assets allocation. So what we have here, Starting with December 2019 until September 2022, we're talking about 2 years 9 months after the year of our IPO. On December 2019, our NAV was BRL 6,400,000,000 Here is already considering here the proceeds from the IPO. Then we have a total net income of BRL 8,500,000,000 plus BRL 1,400,000,000 of a follow on that we did on December 20. If you add 8.5000000, 1.4000000 to the 6.4000000 of NAV, at the beginning of the period, we should have, If net income conversion rate to NAV was 100%, BRL 16.3 billion of NAV, but we have a little bit less than BRL 10,000,000,000. Where did the money go? What happened with the company throughout those 2.9 years roughly. So you have the bridge here showing what happened. Most of the money, if you take out the share buyback that is EUR 500,000,000 and EUR 300,000,000 is basically working capital and that's I mean, SEK 300,000,000 in a period of SEK 2,900,000,000 is nothing. But we always are going to have Some variation between quarters because between quarters, NAV can fluctuate a lot In terms of the working capital, for example, tax reasons, for share base compensation reasons and other reasons that might have this fluctuation. But when you extend the period, This effect gets, of course, diluted. But the main thing here to highlight is the SEK 4,200,000,000 in investment in our IFA network and the almost BRL 1,500,000,000 in M and A. So here we add together BRL 5 point BRL 6,000,000,000 of investments that we have made. And those investments, they are not financial assets per se in the sense that we use in our adjusted gross financial assets, so they get They are not included there and that's why they reduced the NAV, right? And We as Matra also stated in his letter, we believe that the Investment that we decided to do in our distribution network was important. That's a competitive advantage that we have. We were able to sign long term contracts with our IFAs. And of course, all of The transactions including M and As, we always look to several metrics, but the 2 main metrics are payback and return equity and we consider all of that in our decisions here. And also M and A is small. I have said already that we are not Planning to do any relevant M and A going forward, we already have the deal with Modal waiting for approval of the Central Bank in Brazil. So the message here is this BRL5.6 billion should be much lower going forward. That's exactly one of the additional reasons that we decided to increase our share buyback program in place because we are going to have more investments as we have had throughout this year, especially in the IFA net worth, but nothing compared to the size of what we have done in the past, except for the a little bit more than BRL 1,000,000,000 that we already have committed, but we have not done yet with our IFA network in terms of the broker dealers that we're going to be minority shareholders of our IFAs. So except for that, the other It's more of the same. It's basically investments that we do on an annual basis, considering that we have distribution network that is the biggest one in Brazil. So with that, I will stop here, open for Q and A and then We can answer doubts that you might have. Thank you very much. Thank you, Bruno. So let's go to the Q and A. Our first question comes from Tito Labarta from Goldman Sachs. Hey, Tito. Hi. Yes, can you hear me? Good evening, Bruno, Andre. Thanks for the call. Thanks for all the additional information. That's very helpful and useful to think about and help us model the business. So appreciate that the color. A couple of questions, I guess. 1, just looking at The retail revenue breakdown, right, you show there that other line has increased a lot. I think is that Should that be just mostly a function of the higher interest rates that we're in right now? And as rates come down, that should come down? And a second question on the inflows. I know you still have the guidance, the 10 to 15. Have you seen any We saw the equities picked up a little bit in 2Q. I would expect in lower interest rate environment should be positive for that. But With markets doing a little bit better, any visibility there in terms of inflows either like by segment? Are you seeing more interest in equities? Is it still more like fixed income? Just to try to get a sense of when there can be an inflection point on those inflows kind of longer term. Yes. The other retail, It's most of it is flows revenue, that is a retail revenue and goes into earlier. That's the most relevant 1, okay. Regarding your second question about The client assets inflow, net client net inflow, it's what I said, Thierry, it's When you have uncertainty, I think as an individual investors, affluent client with a lot of uncertainty in the market, where if you're going to buy a longer duration secured, fixed income secured, you're going to get a nominal remuneration that is less than the one that you can have with daily liquidate and then It makes hard. It's a headwind. And even in that scenario, net new money that it's above SEK10 1,000,000,000, Yes, it's per month. In a scenario like that, usually people, they freeze, they wait, they don't have to, they have an instrument that is daily liquid, that is on a nominal terms more than extending the duration. So it's not easy. You need to do a lot of explanations and that's why Advisories are so important in a scenario like that, but it's not an easy sell. And that's what explains in my view the weaker net inflow. We have seen stabilization across all signals, but not a reversal yet. We still have A lot of uncertainty upon us. You have global inflation, you have a Global recession, you have higher interest rates where Fed funds are going to stop. You have a war still going on. You have a lockdown in China. So many things happening. Brazil has a new government that needs to tell about what the fiscal policy is going to be and so on. So too much uncertainty in my view, to see a reversal. But the good thing is it has stabilized. So I think the worst is behind us. That's the point. Great. Thanks Bruno. Thanks for that. Just looking because you also disclosed the assets sort of by segments. So I'm just trying to how much of like equities was up by $30,000,000,000 But I don't know how much of that was just the market performance versus potential inflows? Because looking at the fixed income, it was like $28,000,000,000 last quarter, down to 20,000,000,000 So just to try to understand what drove the increase in the assets by segment? Yes. You mean the equity The Q3 going to compared to the 2nd quarter? Yes. If we look on the breakdown of the AUC, it was like $278,000,000,000 it was $247,000,000,000 last quarter. So I imagine there's some market appreciation in there. Looking at the fixed income number, it was lower relative to last quarter. So Just to try to see how those inflows are evolving by segment, no? Okay. I got it. Yes, I would have to get what was exactly the market appreciation of equities quarter over quarter. I think I can get back we can get back to you later on. But at the end of the day, we are not Look, we are not opening any more adjusted anything like adjusted client assets or anything like that. So as we segregated corporate from retail, In our view, it doesn't make sense because corporate by nature has a different kind of volatility compared to retail. But of course, we can have some unusual movements in 1 single quarter. Whenever We have something like that, we are going to explain in our earnings release, Okay. Thanks, Bruno, and thanks again for the additional disclosure. Thank you, Tito. Next is Geoffrey from Autonomous. Hey, Geoff. Good evening. Hi. Can you hear me okay? Hi, Jeff. Hi. Can you hear me? Yes. Great. Thank you for Taking the question and thanks for the new disclosure. There have been some articles recently talking about IFAs moving away from XP. I wondered if you could Elaborate on why you think some of those IFA moves have happened. And can you confirm, Are these IFAs where you had the long term exclusivity in place and they decided to pay a break fee to go somewhere else? Yes. Look, Jeff, it's Competition, so a competitor comes, pays, the IFA decides to go or we do not think it's worth retaining the IFA, whatever the case is, then It happens. It's natural. It's not the first and it's not going to be the last time that it happens, okay? Remember that We have more than 13,000 I feel we have close to 12,000. We have more than 13,000 advisers in total. But we have close to 12,000 IFAs in our network. We have approximately, If you look only at the IFA world, 70%, roughly speaking, market share. So it's something natural, Okay. We look at it as a natural thing that will happen again, and it has happened In the past. Yes, the IFAs that you referred to, they had long term contracts. You also I mean, you can in this quarter, we had If you go in our financials, you're going to be able to see the disclosure of revenue. Where we have revenue from incentives from B3, Chisoro Gereto and others, Part of that revenue, when we get back the fine that we have in the contracts, it goes in there. So this quarter, if I'm not mistaken, the total amount of that line was close to BRL 40,000,000 And part of it was helped by 1 IFA, and we might have that going forward as well. So we get our revenue, get the cash back and that's it. And when they decide to leave, do they tell you that's purely a financial consideration for them? Or are there elements of your competitors' offerings that they're Choosing because they think the competitor offers something that XP doesn't? Money. Got it. Thanks very much. On to Jeff. Thank you, Jeff. Have a good one. Thank you. Next is Thiago from UBS. Good evening, Thiago. How are you? Yes. Are you guys hearing me? Yes. Yes, Charlie. Okay. Thanks for the new disclosure. Very good, in the new format. I have one question about the excess cash that you mentioned in the press release. You mentioned BRL5 1,000,000,000. Only to make sure if I understood the concept of this excess cash. So to the concept of this excess cash. So in the case of no relevant acquisition or M and A, Do XT will be able to distribute these BRL 5,000,000,000 in the coming years? Or these or part of this EUR 5,000,000,000 should be used in your organic expansion, so with CapEx, with IT investments. So only to make sure if this EUR 5,000,000,000 should be distributed in the near future if you don't have any big M and As? Look, the EUR 5,000,000,000 in the near future, I don't think so. In the future, yes. But in the near future, I don't think so. Why is that? Number 1, we are conservative the way we approach our financials and we always think about the long term. Number 2, we still have a lot of uncertainty upon us. I just talked about it. So we think it's we are here for the long term. It's wise to keep a higher, let's say, margin of safety in moments like that. And what I can tell you, Thiago, is we keep generating cash. Our company does generate a lot of cash on an annual basis. And yes, we are going to keep evaluating the excess cash because We are distributing. We think SEK 5,000,000,000 is enough for now to keep as excess capital in our balance sheet. We can change our mind in the future and decide work with less than that or a little bit more, but for now SEK 5,000,000,000 seems more than enough. And The excess above the SEK 5,000,000,000, yes, we can keep distributing to shareholders. Remember that XP is a disruptor. We are in the financial industry, mostly in Brazil, and we have less than 2% of the financial industry revenue pool. So we are at very early stage of the potential that the financial industry in Brazil offer us as a disruptor and opportunities might arise. But right now, where we are in our strategy, what we have done, I think that has already invested a lot. Our expense numbers, they show it. So we have Invested a lot in new verticals. We have put in place our digital account. We have Cards, we have launched cards at Ricoh Brands. We have our offshore accounts. We have our digital asset platform, we have the insurance business running up and running and developments happening as we speak. So we have done all those investments. Now it's time to consolidate the investments that we've done to increase the share of wallet of our existing clients, that's part of the strategy why we decided to go beyond investments and consolidate all of that and look for more efficiency in our company because, of course, we can be more efficient than we are right now. It's natural in a company like XP that more than double its headcount base during the pandemic since the pandemic to today, doing so many things together that we now believe is the right time to put our energy into consolidating everything that we have invested in, plus searching for more and more efficiency in our company. And then if that is the strategy for the near term and we are concentrated in that, The excess the additional excess capital above the BRL 5,000,000,000, we start to distribute that. We don't need that Right now, we don't want to also to keep distributing capital and then Remember that we have less than 2% of the revenue. 1 year later, we think now we want to do this or that, so we go back to shareholders and do a follow on every 6 months. That's not what we want to do. So we are conservative the way we make these decisions, but when we do it, we go forward. Very clear, Bruno. Thanks. Thanks, John. Next question from Morgan Stanley. Hi, Jorge. Hi, Bruno, Andre, how are you? Congrats Congrats on the numbers. And again, I know it's been said before, but really thank you very much for the additional disclosure. I think it's going to go Wrong way in helping the market understand your business. So thanks for that. My question is Kind of like around what you've been discussing, Bruno, so sorry for that. But when you think about your retail business. Is it you think the direction of interest rates that would potentially improve the inflows? Or is it actually the level of interest rates. And I'm thinking obviously on the equities business, which is a big part of the revenues. And I'm saying this because We've hopefully, we've seen the peak of rates, right? I mean, the Central Bank has been on pause now and the next move hopefully is down. So the fact that rates are going to start to come down, do you think that's the trigger? Or is the trigger actually the absolute level of rates? And what do you think that absolute level is for us to get for you to get more inflows it to the equities business? Yes. I think it's more the direction than the level. But remember what I just mentioned a few minutes ago, Retail investors, they look to nominal terms. So if interest rates is still going down, but the long term rates are lower than the spot rates, that's a headwind because you need to convince, you need to explain why is it, what is the premium embedded, what is the expectation of futures rates and so on. We do that, of course, we do, but it's a headwind, I would say. But at the end of the day, it's more about the direction in my view, but we need to take out part of the uncertainty. And then when we take out part of the uncertainty, equity market should We act first, I guess, as usually, and investors will fall. It's the cycle that we've had in the past. For ourselves, the best I would say, the best The sweet spot is when you have a bull market start forming, but level of interest rates are still high. For XP, The interest rate at 2%, it's not the best scenario, honestly. It would be in the middle range, I don't know, 6% to 8%, something like that. When you have a more stable environment with higher level of interest rates, but stable, That's a good environment, a very good environment. But we navigate in all kind of scenarios. We have been. What changes? The mix, it gets worse, and but we keep growing, and we grow at a slower pace. That's what is happening exactly in 2022. But the business is resilient, no matter what the macro environment is. Great, Bruno. Thank you. And I have a second question. And can you remind us What is the level of asset attrition a year later when you lose IFA, I remember maybe like a year ago or so, you published a press release With some of the actual numbers of specific IFAs that you lost in the past and the numbers were very, very small. Has that changed? Can you remind us what the level is today and how does it compare to IFA that you lost 3, 4 years ago? Yes, sure. No, the 70% to 80% of the client asset stays within XP. It doesn't migrate. What we lose is basically the growth of that IFA office. If it was a good IFA office, we lose. If it was not A very good IFA office, I mean, we don't lose much. At the end of the day, that's basically it because when the I say my grades, the client's hours, the client has XP account, has XP app, everything and then we have more than 13 advisors in our ecosystem that would be more than willing to serve that client and that's what happens. Great. Thank you. Thanks and thanks again for the additional disclosure. Sure. Glad to take it to all, Mike. Next, Mario from Bank of America. Hi, Andre. Hi, Bruno. Thank you for taking my question. Also, we really appreciate the improved disclosure. My question is related to what Jorge just asked you. Brian, last year, you published this report saying that 80% of the AUC of the IFAs who left stayed with you. So when we see this slowdown in your net new money, are you able to break down for us How much is like lower inflows and how much is like due to higher outflows? Can you just give us the dynamics, right, that you're seeing between inflows and outflows? And then my second question is related to your buyback, Right. So you're increasing your buyback program by BRL 1,000,000,000. On your presentation, you showed that you only executed Half of your previous buyback. So I'm assuming you still have SEK 1,500,000,000 left to be bought back. But I wanted to understand the decision between buybacks and dividends. Why are you doing everything in buybacks and not in the form of dividends? Okay, Mario. Your first question, it hasn't changed. It's not the The slower pace of net client assets, it's not because of migration of IFAs. Of course, there is a component, but it's small, okay? It's small. So it's basically the macro environment posing a headwind in terms of bringing more money into the platform. We are still bringing, but not with the size or amount that we would like to and think we can do. So it's not related to IFA leaving the platform. Your second question about buyback, You're right in what you said. It's approximately SEK 1,500,000,000 considering the additional SEK 1,000,000,000 we announced today that we have to buy back shares until May next year. And the reason we decided for buyback is basically because we think it's a more attractive option nowadays. That's basically the reason. But it could be dividends, but we decided to buy back shares. And Bruno, any updates on the Itau and Itau's decision to continue to sell down their stakes? Are you talking to them? Could you use your buyback then to negotiate directly with them? No news about that. We Itau or Itauze, they have Our direct contact, for sure, they know we are here to help them to sell whatever they want. We have said that. But as far as I know, it's not in their intention. So I don't know. You would have to ask them, Mario. Okay. Thank you. Thank you, Mario. Thank you, Mario. Marcel Thales from Credit Suisse. Hi, Thijs. Good evening. Hi, Anders. Hi, Bruno. Thanks for the time and sorry to To sound like a broken record here, but I'm very happy to see the disclosure you guys did. So great I think this definitely helped people understand the story. So well done. I have a couple of questions. Actually, 3 questions. The first one, with regards To investment in IFAs, as you mentioned in your presentation, right, you had about BRL 4,200,000,000 reals of investments and plus some M and A as well. And I remember, I think, until recently, I think, kind of like a solid guidance for investments in IFAs on a yearly basis would be to be something similar to the amortization, right, of this of the investments in IFA, so which I thought I think was about BRL 400 1,000,000 a year. So how should we think about that going forward? I mean, is that still A reasonable assumption? So that's my first question. The second question is more of a housekeeping item. I was looking at the at your adjusted gross cash flow. And for the second quarter, it's a bit different versus the number that you guys published. I think there's almost like a BRL600 1,000,000 difference. I just want to understand what was the change there? I think you guys had about a BRL9.8 billion in gross cash flow, and I think now is around like BRL 9,200,000,000. So I want to understand the difference. And my last question is more of a strategic question. Thinking of your business Going forward, of course, very successful investment platform, you've been adding new businesses to your core business, cards, the bank and so on. When you think of your business today, including these new products, what are the areas that you think you are not in the ad that you like to be, I don't know, thinking acquiring, maybe be more like a digital bank. So how should we think about your business 5 years down the road? Would it still look very different from what we're having today with these new products or maybe more of the same? Thank you. Thank you, Thales. Regarding your first question about the IFA amount of annual investment. It's hard to tell. You mentioned about a soft guidance probably. When we get that kind Of question, we answer a number. I don't know if we should, but at the end of the day, It depends because we analyze case by case. That's how we do it. And as I mentioned, in terms of the Capital allocated in the IFA distribution network, we analyzed all the deals that we have done using several different metrics, using the data that we have for so many years with those IFAs, considering payback, return on equity and so on. So it's hard to tell how much it's going to be. What I can tell you is, We do have part of our long term contracts with our IFA distribution network, there is a component that is upon certain performance, okay? So that part of the investments, if the IFA reach the performance that we have established in contract, then we have to pay X1000000 additional. And when we do that, Because it's embedded into the same contract, it goes into that line, the prepaid expense. So that's one part of the explanation. And we keep doing our network keeps growing. You can see by our number of IFAs and so on. And we keep doing some incentives and contracts with our IFAs when we think it's a good opportunity, it's a win win situation For XP and the IFA, of course. This year, we probably are around Putting all together, BRL 500,000,000, so greater than the BRL 400,000,000, if you look at the prepaid Expense, it has increased a little bit this year, but it's not relevant if you go to Benoit. So I don't have a specific number to tell you. It could be higher than what you mentioned the guidance of the EUR 400,000,000, but it's not going to be anything close to the amount that we have disbursed in the past, As I said. Your second question about the cash flow, you're right, you remind me something I should have said. We included in our earnings release, we included the energy, for example, and compulsory In the asset part, energy, we have there you go. Thank you. Yes. So energy, That's probably what you're talking about, Thales, the BRL 619,000,000 in the 3rd quarter and BRL 540,000,000 in the In the second quarter, we had the liability part, But we didn't have the asset part of the energy because the way the accounting recognizing this is a credit business, prepaid energy for corporate clients that we have this business here. But the accounting measure goes into a line that is not considered a financial asset, but at the end of the day, it is. So that's the adjustment that we have made there. And the other adjustment that we have made is the commitment subject to possible redemption that you can see in the liability part, that is a reduction, is about the spec that we have in our balance sheet from our asset management arm. And as you know, STACK It stays in a secured T Bills, which is a financial asset, so it goes into the asset line. And the liability It's not a financial asset, so it was not included and we included there. So those are the main adjustments that we have made. And your third question about the strategy, what we can think about XP 5 years from now. Look, we are now focused on consolidating all the investments we have done. I think that's the wise thing to do. 1st, because We believe the strategy of those investments, they are in the right track, and we believe we can really benefit from those investments. And all of the investments, they are at very early stage. So we need to focus there and put traction on that. And that's take a while. It's not going to happen in 1 quarter, 2 quarters, not even in 1 year. So that's where I believe most of our energy is going to be besides, of course, the efficiency part that I also talked about. 5 years from now, It's hard. We have many ideas here in XP. We are a bunch of entrepreneurs that don't believe anything is impossible. That's one of our core values. So we have many, many ideas. If you had asked me the same question 5 years ago, I would get totally wrong. I would not say that we would have the businesses that we have right now and the way the company would be. So it's hard to tell. We like to go step by step. That's how we got here. We like to keep our profitability When we we are not satisfied with our margins. We understand our margins. They are a consequence decisions we have made that we believe they are in the right track, as I said, and they have a clear strategy backing them, But we always think we could have been doing better. That's how we are. We like profitability. We like to go step by step. We like to feel that we can move to the next step, but we think of many, many ideas, and we have a very small part of the financial industry. But I don't have no, we're going to go into Acquiring business, as you mentioned or no? And I don't have a clue to give you as of today, Marcelo. No, Bruno, that's very clear. Thank you so much. If I allow me just to follow-up on one of the previous questions From the other analysts, I think regarding the I think Thiago asked that question about the EUR 5,000,000,000 excess capital that you mentioned in your earnings release, which by the way, thanks for putting that there. I think that's very helpful indeed. That's this DKK5 1,000,000,000, does that include The amount of money you need to have, let's say, to do warehousing or to participate like in a syndicate, how should we think about that? Or this is in addition to what you already have, let's say, allocated, let's call it your, let's say, minimum operating cash, right? Yes. No, it does. I mean, you need to separate capital from cash. The way we use To get the EUR 5,000,000,000, we use metrics to adjust all our assets beyond the prudential conglomerate for the whole group, okay? That's what we do here. And we adjust all our assets by risk and compare that with our available capital also for the whole group. And we use our internal targets that is pretty much similar to what we have in our Prudential conglomerate. That's how we get to the excess capital that we have. Cash, Cash is not an issue for us in the sense that we are we have NAVA net asset value. We could leverage our balance sheet if we wanted to, but that's a different discussion. So I would answer your question, yes, everything is taken into account to consider the SEK 5,000,000,000. But just bear in mind that cash and excess capital, They are not the same thing because in a financial institution like ourselves, those things, they get Confused sometimes is one of the reasons that I talked about the cash flow from operations, for example, that we have to disclose from the accounting perspective, it's tricky. You cannot look At a company like Exped, cash flow from operations in operator, and you're not your operations are not making or generating cash flow in this quarter, that quarter, it doesn't make any sense to make this analysis. Because for example, if we take financial assets that is that we have bought in our asset liability parts, for example, like a government bond that is longer than 90 days and we just decide to sell and invest in something shorter term like 60 days, it will not be there anymore in this cash flow account because it will go directly into cash and equivalent, and it doesn't change anything. It's the same thing with if you go there, there is financial instruments payable. Basically, The banking business, CDs that we issue, etcetera, if we have other financials or we are issuing CDs there. It's going to via financing part of our it's going to be in our cash from operations, the increase of that source of funding at the end of the day, it's a financing. What matters is what you do with that money. If we buy Short term, again, maturity securities, it's going to be in the cash and equivalents. So at the end of the day, You're going to look at the cash flow from operations. You're going to say, oh, your cash flow from operation is increasing. It's not, because we had a financing part that we are investing in cash and equivalents. So we are working on a better managerial Cash flow, that makes sense. The one that we present is accounting reasons, but it is tricky to look at it and get to any conclusion. So capital and cash is straight. But yes, I gave a long answer, but SEK 5,000,000,000 take everything into account. Thanks, Alvaro, Bruno and Andre. Thank you, Thijs. Nice to hear from you. Okay. That was the last question. Thank you all for sticking with us. It's a busy earning season, right, Bruno? Everyone is looking at the results. You guys are busy there, I know. Yes, everyone's busy. So we will be happy to connect with you guys over the next few weeks to discuss the results and Anything you might have interest? And I don't know, Bruno, if you want to take a look at that. No, just thank you. Thank you And probably you're going to have doubts and I mean we released a lot of new numbers. So Count on us to help you understand anything you need. So thank you very much. Thank you all. Have a great night.