Earnings Call: Q4 2020

Feb 23, 2021

Okay, let's start. Good evening, everyone. Welcome to XP Inc. Earnings conference call for the quarter ended on December 31, 2020. I am Andrea Martins, Investor Relations at XP Inc. First of all, we would like to thank you all for the interest in our call and participation and also make myself and the rest of the IR team available, Antonio and Natalia Madrid, sorry, for any future touch points and follow ups. The replay of this call will be available tomorrow on our IR website. Presenting today, we have Bruno Constantino, our partner and CFO and also Thiago Maffra, our partner and CTO. After the presentation, we'll be available for the Q and A session. And you just need to raise your hand on the Zoom tool For us to unmute you for your question or you can do like Otavio Tangarelli, for example, and send a question directly through the Zoom chat. Regarding legal disclaimers, I kindly ask you to refer to the Slide 2 of our presentation. Certain statements in this presentation and in the Q and A session may relate to future events and expectations and therefore constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Information concerning factors That cause actual results to differ from forward looking statements can be found in our reports filed with the SEC and also in our website on the SEC filings section. Now I'll turn to Bruno who will deliver our initial remarks. Thank you very much again. Thanks, Andrea. Mahfra, thank you very much for Join us one more time in this call. And good afternoon, everyone, And thank you all for attending our results call and a very special one for us. It's our 1st year as a listed company. So on Slide 5, I will highlight the main takeaways from 2020, which was, As you all know, a very challenging year for all of us, where resilience and adaptation were key elements. We understand it would be a waste to go through this pandemic and not learn from it. We kept thinking about what we could learn from the pandemic to become a better company and improve our business model going forward. And now I would like to share some key lessons we have taken from this pandemic. So number 1, INX. XP from anywhere, a different way of working. If not for the pandemic, we would not know how productive and functional We can be working from home. XP from anywhere brings a total new way of corporate working going forward, Delivering a very interesting equation in our opinion. 1st, happier employees. People can be closer to that they love, not going to the rush hours, wasting a lot of time in the traffic. And happier employees usually mean happier clients as well, and all of that based on a more productive company. Also, our talent pool has expanded immensely and that's how Vila XP, As it's known or Viooma XP was born because of the pandemic. Number 2, ESG initiatives. We have the obligation to set the example, we know that, to add a better world than we inherent. This was already a clear trend before the pandemic, but it accelerated when the pandemic hits especially the poor. So XP decided to move forward, speed up several initiatives we already had in our roadmap, such as Establishing our ESG Board, starting Juntos Transformamos and together for Amazonas, seeding some ESG funds in our platform and several others. This is a topic we are going to be focused on and expect to lead by example and contaminate others in a good way. And number 3, the digitalization acceleration. Our long term plan has been anticipated Due to how people embraced technology during the lockdowns, there was no other way around. So we already plan to deal with the whole financial life of our customers, but we have decided to accelerate some initiatives such as credit, credit card and digital bank accounts that we will talk more later. We have also delivered during last year our best historical numbers ever, Thanks to what we believe to be our main competitive advantage, our culture, dream big, open minded and entrepreneurial spirit. We are basically close to 4,000 obsessed people in a good way, walking together, driven by the same and strong purpose, to transform the financial markets and improve people's lives. And we believe this is a very powerful force pushing us along our journey. Now before I explain our long term strategy, I would like to share a quick video about our results and what last year represented to us. I hope it works. So, Andrea? Yes, I also hope it works. So if the sound is not okay, if it's too loud, please let me know. I was on mute, sorry. Okay. So this was our quick video and now we move to the strategy session. So on Slide 7, We are going to talk about our long term strategy to address, if not all, most of the Brazilian financial revenue pool. As you can see on the left side, since 2016, we have grown our revenue by a CAGR of 60%, Reaching the BRL 8,700,000,000 in 2020, but it's still irrelevant compared to the size of the total revenue pool in the system. The actual size of the revenue pool based on our internal estimates is close to R800 1,000,000,000. XP's participation in the revenue pool is less than 1.2%, and our strategy is to keep increasing the size of our TAM. At the IPO time, Back in December 2019, our addressable TAM was roughly BRL 70,000,000,000 or less than 10% of the total. As of last year 2020, we increased our TAM to approximately BRL125 billion or less than 20% of total. This year, 2021, especially with the credit card and debit card and also the digital bank accounts, Our TAM expands to approximately BRL 180 1,000,000,000 Or less than 25% of the total, less than onefour of the total. And this is more less than onefour of the total is more than 20 times our revenue in 2020. We know that It will take time in order to address our revenue pool, but the long term opportunity here and that's what we want to emphasize is massive. We believe that through technology and the acceleration of digitization, we will be able to speed up things in our ecosystem. This is why you keep hearing from me and other partners of the company repeating that we truly believe Our journey is just beginning. So now we move to Slide 8, where I will explain how XP will complement the client journey. As Guilherme Sending his letter to shareholders, I don't know if you all had the opportunity to read it already, but connecting the dots And picking low hanging fruits with a focus on profitability, execution and the experience of our clients, it's been our history Inc. Since the beginning, we have been focused on the asset part of our clients' balance sheet, which is the most difficult market to penetrate investments. We have done through education and a vision that investments Should be democratized for everyone independently of the client size. Now we are going to address the liability part of our clients Step by step, as we have started with the asset part and have built this unique ecosystem throughout our history, We believe to have an important competitive advantage when addressing the liability part of our clients. We have an asset light model when compared to the incumbent banks and a differentiated distribution capability When compared to other platforms, altogether should result in better prices and products to our clients. And this is a game changer. Almost 80% of that revenue pool is related to credit, including in that number, credit cards and all types of credit products. In the Brazilian markets, credit prices are still extremely high, Probably one of the highest, if not the highest in the world. We do not believe that, for example, 12% Month interest rates in a sustainable or a health product for the client in the long run. And That 12% or 13% or 14% is exactly what several players charge nowadays in their revolving credit card business. How come can a client or a person survive with an interest rate that will double your debt in just 6 months? And as I said, we believe to have an opportunity or an important competitive advantage here And we can use our profitability and scalability that will allow us to charge a reasonable and sustainable price for our clients. When we think about the liability part of our clients, we want to help them as we did with the asset part. Take our credit card as an example. We created the Invest Back concept, mixing expenses with investments. There was something it's a cash back, but with an important concept here, invest back. Talk about investments when you are expanding. That's new. And our credit card, of course, there is no annual fee. And we are not talking only also because I talked about the credit card that's for retail clients, but we are not talking only About retail clients here, we are also talking about corporate clients. When we say we are going to address the liability Inc. That includes our corporate clients as well. And we believe our differentiated IFA network We'll be a powerful origination channel in our ecosystem. And also Anticipa, the acquisition we made last year brings the technology to scale that origination and integrate with the capital markets. If we can help our clients, either retail or corporate, to better deal with the liability parts of their balance sheet, Probably, they will increase the asset part over time. They are both interconnected, as I said. We believe we can help our clients to deal with their expenses the same way we have helped them to deal with their investments using our education DNA and technology to do so. Another important consideration is our intention to remain an asset light business model. This doesn't mean We are going to become a balance sheet business. We are not. We The development and that's important to say, the development of the Brazilian Capital Markets is Inc. Interconnected with the development of our unique ecosystem. When we talk about our ecosystem, to build it, we had to develop the Brazilian capital markets Inc. We can use some of our cash we have planning to do so to seed some credit strategies here Using our own balance sheet, but only as a warehouse concept. That's going to be a tiny part. And then we recycle the products Inc. More products in the capital market, which is good for the development of the Brazilian capital markets. And we create this virtual cycle that keeps going by itself. We also have 2 recent examples to share with you. One of it, We have already done when we released our KPIs of the Q4, the collateralized credit and the credit card business that goes exactly those 2 products goes exactly in the direction I'm talking about to address the liability part of our clients. Now Before I go to the numbers, I would like to pass on to Mafra, so he can explain how our ecosystem Inns. We can scale our product, cross selling our base and through technology bring new products really fast to the market, Fantastic at feedback, improve and keep evolving the client's experience. So, Maher, now it's with you. Thank you, Bruno. Hello, everyone. Well, on this slide, we have 2 business lines that didn't exist less than a year ago. Scaling this line from the scratch in such a short period of time, it was only possible because of our advanced tech platform. As we recently reported, as Bruno mentioned, our collateralized credit portfolio has grown exponentially during 2020, Attracting individuals and SMBs due to its low interest rates and friendly experience. Our credit model allows our book to be asset light in terms of capital requirements, and we are Confident that we can multiply this portfolio by several times on the next 3 to 5 years. Now I would like to spend more time on our XP Visa Infiniti credit card, which will be available to our customer base In the next month, as Bruno mentioned, we truly believe this is an important step to build our financial ecosystem. Our goal is to offer all the financial service, including digital account, payments, Credit and become a one stop shop for all banking service. This will expand our customer base And our ability to cross sell other products, which will cut the less tie our clients have with the big banks. On the 1st 2 months of operation, our credit card has shown a penetration of almost 50%, yes, five-zero percent of the eligible customer base. Our TPV in February has reached already Inc. BRL 110,000,000 with 1 week more to go. Remember that I just mentioned Inc. Show launch will be next month, so we not even release the product for the whole base. All these developments Were made possible by our technology efforts and investments. And I will discuss a few tech milestones on the next slide. We have recently announced the successful implementation of Soma, our proprietary design system that will allow us to deliver technology improvements with more efficiency. This ecosystem will serve all XP Inks brands, and we expect to save about 60 minutes of work per employee each month and reduce up to 30% the time to market of new products. As we mentioned, we have Many products on our road map and having a proprietary design system will give us Much more faster time to market. I'm confident that XP is one of the top tier Technology companies around the world, and we are ready to support our business exponential growth with immense scale and excellence. I will mention another remarkable achievements. First, the credit card itself, which took only 3 months for the first payment And 6 months until the 1st client to receive the card. 2nd, we just released our marketplace with about 25 stores, And we expect to go up to over 50 stores in the next months. Despite being on a beta phase Our GMV will reach over BRL 1,000,000 in February. Despite all the last developments I just mentioned, Be sure that we will keep investing all the energy and resource to improve and expand our financial ecosystem well beyond investments. Now we will turn back to Bruno. Thank you, Mafra. So now we go Inc. Actually, we have another video before. We have the Soma video. You're right. It's a short video. Yes, just a quick one. Okay. Now we go to the KPIs. So moving to the next Slide 12. You can see our We have already released that. So our custody, EUR 606,000,000,000 as of December 2020, increase of 61% year over year. Active clients, EUR 2,800,000 almost, an increase of 63% year over year. And then we have our net inflow. 1 on the left, the real numbers And on the right, adjusted by the extraordinary outflows or inflows, which we had only in the Q1 and Q3. I think that's our known numbers, so nothing to say here. We can move to Slide 13. Yes, on slide 13, we have our total gross revenue growing 50 8% year over year, reaching the BRL 8,700,000,000. When we compare to the BRL 5,500,000,000 of 2019, It's interesting to note that in 2020, basically, we added on top of the 2019 revenue, The whole revenue we had on 2018, which was approximately BRL3.2 billion. Inc. The main line pushing up the revenue is the retail business, contributing with 81% growth on a near basis and 92% Inc. In the Q4. When we look at the breakdown, retail is by far the most relevant revenue line, representing almost 3 fourths of our business, institutional 12%. Issuer services, it's interesting to highlight because this number Throughout the year, that's only on the Q4, okay? The revenue breakdown here is only for the Q4, not the entire Issuer services for the entire year has been close to 8%. So this means that it's picking up And that talks a lot not only with our leadership that we got last year in fixed income and hybrids For the first time, all of the deals that we take to the market are genuine deals, so we don't have a balance sheet business or Private placement that go directly into our own asset management. All of those transactions are really capital markets transactions, and we got Number 1 by Ambima in 16 Command Hybrids and also the equity part. ECM, as probably you have noticed With the deals that are going to the market, either IPOs or follow ons, XP has taken a lead in several of them And participating as a global coordinator as well, and this is a business line that we believe is going to keep growing. And on top of that, we announced Last year at the end of last year, the acquisition of Riza Capital that came to Complete and enhance our M and A team, and now we have the whole suite of products in Investment Banking to offer our corporate clients. Moving to Slide 14, we talk about the retail revenue and take rate. Retail revenue, as I said, the main revenue line pushing the growth upwards. So total revenue grew 58% year over year. Retail revenue grew 71%, reaching EUR 6,300,000,000 compared to EUR 3,700,000,000 1 year ago. And the key Growth drivers were equities and futures, financial products and fixed income. All the product lines, they worked really well in 2020. When we look at the take rate, it's pretty much stable. The way we do The math for the take rates and that's a change. So you might notice one difference because it was 1.2, 1.3. Just to explain, we divide by the average AUC. We used to divide by the beginning of period and end of period AUC. But when we talk about the last 12 months now, considering we have quarterly numbers released to the market, we are taking 5 data points, which we believe It's a better way to do the math. And then we take the average of the AUC considering All those data points in the middle of the way, not only beginning and end of period. And it is stable, but it's worth Mentioning that on September last year, we decided to forfeit part of our revenue. So that number is despite forfeiting parts of our revenues on online brokerage fees. Remember that we decided to 0 the online brokerage fees at Ricoh level and reduced by 75% at XP So this gives a sense of how strong the growth in the retail business has been. Now moving to the next slide, that's a new slide we wanted to share with you because we get a lot of questions From investors about the net income from financial instruments. When you look at our accounting financials, you have that revenue line that is growing a lot throughout the years. And that's true. That's the black bar representing the total in retail revenue. And the total I mean, the black bar I'm sorry, the black bar is the retail revenue and the blue one is the total net income from Financial Instruments. So what we want to show here is that this revenue line is recurrent by nature. 75% of net income from financial instruments is allocated in retail revenue, and that's because it comes from Our retail client base in several different products, either equities, either fixed income and structured products and also other financial products related to equity as well. And all of that together, As we keep growing our platform in terms of number of clients, in terms of AOC, it's our expectation that the net income from Financial The net income from financial instruments is going to keep growing altogether. You can see by The percentage number that is the total financial revenue as a percentage of total retail revenue is pretty much stable. So It's between 45% to 50% in our past. It doesn't mean it's going to continue like that going forward, but It's just to give a sense how recurring that business is. It's a client business. It's a flow business that we have because we have built this unique ecosystem in terms of secondary market trading in all different types of securities. Now moving to the expenses for COGS and SG and A. In COGS, you can see that Our growth was 68%. So we had a compression here in terms of gross margin from 68.7% In 2019 to 6.9% in 2020. And what explains that is basically The product mix impacts a lot. For example, in the Q4 of 2020, we had a lot of offers coming to the market. Usually, The commission for IFAs is higher and that has an impact direct impact in COGS. Also the investment we have announced in our IFA network, we have been amortizing that investments and that's going to keep in our Inc. Going forward. And also the long term incentive plan where we have IFAs with RSUs, We have allocated that expense, which is a non cash expense, but we have allocated as well in COGS, Okay. When we go to the right side to look at our operating expenses, we went from BRL 1,800,000,000 In 2019 to BRL 2,600,000,000 in 2020, a 44% increase. And that's much less than what our revenue grew. So you can see as a percentage of net revenue, The operating leverage playing a role there. So basically, year over year, as a percentage of net revenues, we reduced 3 30 basis points. And when you compare quarter over quarter, it's even higher, Most of it because of product mix as well and operating leverage that I will talk Inc. More on the next slide when we talk about our adjusted EBITDA. Our adjusted EBITDA And our adjusted EBITDA margin, it's a KPI. The management already follows this number because it gives us A sense of how the operating numbers of the business really are going, and we decided to share that with the market as well, Mostly because some investors were looking at our lower effective tax rate and the results of our net adjusted net income. And we decided to segregate what is operating, what is corporate structure, okay? So the adjusted EBITDA Went from SEK 1,700,000,000 and we only adjust by long term incentive plans, okay? That's basically the only adjustment we have here. So the EUR 1,700,000,000 from 2019 went up to almost EUR 3,000,000,000, an increase of 74% year over year. The reasons we already explained, but it's important highlighting that all of that happened despite Our investments in new businesses, as you know, the credits, the digital bank that is Inc. Coming this year, the credit card and so forth and many others and also hiring approximately 50% Additional people in 2020 compared to 2019. Despite all of that, which is 100% impacting Our SG and A, we were able to show the operating leverage of our business. So that's what this margin going from 32.7% to 35.8% shows. And of course, the 38.7 percent sorry, 35.8% in 2020 It's far from our mature state because we are not. We are in a company that has an exponential growth. So it's Natural to assume that we are going to keep reinvesting in the business as we keep growing our business. But it's important to say that we already see a marginal decrease benefiting from All the investments we have made in the last 3 years in technology in our company. So we are adding there are a lot of forces Operating there, a lot of investments in new business, hiring a lot of people. This year, we are going to hire maybe 1,000 people more. We don't know yet for sure, but we are going to hire a lot of people, okay? But having said that, The slope of the curve has changed. So we can see already the benefits of our technology investments, And you're going to be able to follow that on a yearly basis or quarterly basis, if you will, in our adjusted EBITDA margin as well. Now moving to the adjusted net income and the margin, We had BRL 2,300,000,000 of adjusted net income, a record. Also in the quarter, We also had a record EUR 721,000,000 adjusted net income compared to EUR 4.17 in the Q4 of 2019, considering that Performance fees in 2019 were higher than in 2020. When we look at the growth year over year, more than 100%, we are able to more than double our adjusted net income and expanding the margin considerably from 20.9% to 27.8% in 2020. And on the right side, what explains that growth in the margin is basically The growth of the business gross revenue is growing 58%. The operating leverage playing a role, and you can see that By the adjusted EBITDA growing more than the revenue, 74%, increasing more than 300 basis points in margin and our efficient corporate structure, Especially after the IPO that gave us a lower effective tax rate, especially the way our financials are released because, again, I have said that before, all the revenue that goes into XP Inc. Investing directly in Brazil because it's done through funds. It's not that there is no tax. There is 15% to 20% tax bracket. But the way we recognize that in our financials, it's net of tax. So actually, the way I like to think is our revenue It's higher than the one we released, and our tax is higher than the one we released. But because of the way the accounting is done, we release net of taxes and that number goes straight to the bottom line, which means In our financials, a 0% tax bracket, but it's not the case. We pay, of course, from 15% to 20% tax bracket there. And that explains the additional more than 300,000,000,000 basis Inc. Points on top of the adjusted EBITDA margin growth to our adjusted net income margin. And before we go to the last topic, I would like to move to our last slide in this session. We decided to show this slide just to explain because probably looking at the numbers of the sell side and we don't know the buy side, But this share based compensation expense, I believe it's worth explaining. Basically, what happened in the Q4 of 2020 was a one time anticipation in the Q4. Nothing has changed related to the original plan of granting Out of the 5% in 4 to 5 years going forward since the IPO, that has not changed. What has changed We anticipated a lot of the brands because of the reorg we have done in the controlling company, and we wanted to have our main shareholders aligned with the company for the long term with the right incentives there. So you should not expect at all What happened in 2020 to be repeated going forward. And we made like a simple math here, looking at What we have approximately 14,000,000 shares granted already, which is 2.5% or in other words, half Of what we have approved before the IPO and the other half should be granted in the next 3 to 4 years going forward, Which means that the dilution of these grants, it's going to be between 0.6 between 0.6 and 0.8 maximum Going forward. And again, that's a non cash expense, but we need to recognize and none of the grants Inc. And finally, before we go to the Q and A, last session, We are revising our guidance. We have shown a much higher Adjusting net margin than the guidance we had given at the IPO time. We have not Considered at the IPO time, the corporate structure that would that I just explained, which Basically, by itself, reduced a lot the effective tax rate. And also, we had not factored In our guidance at the IPO, all these new businesses that we plan to enter throughout our journey. So our new guidance now is Long term guidance, okay, that's not a quarterly guidance, is from 24% to 30% of adjusted net margin. That will depend A lot. It's not easy to forecast that because it will depend a lot where most part of the revenue is. So the mix, where the revenue is, we have companies, As I said, that goes from 15% to 45% tax bracket and some of the 15% to 20%, as I explained, it's shown as 0 percent tax bracket in our financials. So with that, I conclude our presentation and leave for Q and A. Okay, Bruno. So we have quite a few people here on the line. I will allow Tito Abbardo to ask us a question because I see that before The call was already there. Hi, Andre. Hi, Bruno, Thiago. Can you hear Yes. Okay. Great. Good evening. Thank you for the call and for all the information, very helpful. A couple of questions. Maybe just first on the last point on the net margin guidance that you gave. What tax rates should we assume? Because The 15% to 20%, it was 9% in the quarter. So maybe that's my first question and then I'll have another question. Okay. Yes, that's hard because, for example, let me give you one example, Tito. The 9% that you saw in the 4th quarter, If we had not the impact of the long term incentive plan, it would be approximately 18%, Okay. So the 9% because when we increased and we anticipated some grants And we've shown the numbers of the 4th quarter. I think it was 200 and $180,000,000 in the 4th quarter in terms of share based compensation expenses. That gives a tax shield The tax that you see, in other words, it gives you a tax shield. Basically, if we didn't have that, our effective tax rate would be higher. But in other words, The tax that we have there in our financials now is not what we pay. We Because of the share based compensation plan, we have this tax shield, but we pay more taxes than what is believes in our financials. It's a non cash win and if those RSUs and PSUs become vested, then the tax is going to be due. Right. Okay. That makes sense, Bruno. I guess the question as that normalizes, right, because you said you sort of it was a one time sort of Acceleration. So as that normalizes, you should get back to between 15% to 20% tax rate? Or can it go above that, just to be clear? It can. It can. It can go below 15% as well because that depends on the revenue breakdown. If a lot of the net income from financial instruments, we have a Part of that, that is done through XP Inc, because that's where the cash from the IPO, the follow on we did is placed, okay? If that part of the revenue is higher than other parts, then the effective tax rate should be lower. If other parts of the business have more relevant stake in the breakdown of the revenue, then the effective tax rate Should be higher. So it fluctuates. That's why we gave a large guidance Going forward, because it's not easy to for example, credit card. If we scale the business really fast And then we have a lot of revenue there that will bring down the effective tax will bring up the effective tax rate and down Yes, just the net margin. So it's not easy to work. No, I understand. I can understand. It's not easy Okay. So my second question on the take rate, the revenue yield, you showed in the slide there was stable This year compared to last year. But in the quarter, it did come down a bit. So just to understand maybe some of the volatility On a quarterly basis, and I know this is also difficult to understand. But just to get a sense of what happened, right? Is it just less Trading because you had a lot of volatility earlier in the year and that came down a bit. If you can give some color on sort of the quarterly movements we saw this year. Sure. No, no, it was not that. I mean, the take rate came down on a quarterly basis marginally. It was, I think 1.32 in the Q3 if you look the last 12 months. Maybe you're taking only the quarter and multiplying by 4. And if you take the last 12 months in the Q3 was around 1.32, and it went down to 1.29. And remember, in the Q4, I think it should be even lower than 1.29 Because we forfeit relevant part of our revenue. We zeroed the online brokerage fees in mid September at Ricoh. And in next year, we reduced by 75%. So out the year, in the 1st 9 months, We had that revenue. In the Q4, we did. But we more than compensated that with Other revenues in our ecosystem. And because of the growth and the appreciation of the custody in the Q4, you have this math In fact, if you look at the revenue itself, not only the retail, I mean, quarter over quarter, it went from a little bit less than BRL 1,700,000,000 in the 3rd quarter to Almost BRL 1,850,000,000 in the 4th quarter. So the revenue for retail, it went up In the Q4, the take rates, it went down a little bit because of mainly because of those two effects. We didn't have a revenue line that we had in the Q3, brokerage Online brokerage for Ricoh and reduced by 75% XP and the growth of AOC, which increased the denominator and makes that number go down because of the market appreciation in the Q4. Right. Okay. That makes sense. But I guess, so going forward, if we just look at the Quarterly take rate because of the elimination of the brokerage fees at Enrico and Clear, is that more representative of what to I would say, again, depends on how the other business We'll perform because take the credit card as an example. Again, the credit card has no AUC Attached to it, it has a revenue, and it's basically retail revenue. So because of the credit card, Retail revenue will increase, no way you see attached, which means that only using that factor, take rate should go up. We're going to have other forces impacting the take rate. So usually, when the market Appreciation is really high. Take rate goes down a little bit. When it's the market has a sell off and it goes down, take rate goes up because our revenue Doesn't have the volatility that the AUC might have because of market appreciation or depreciation. And that's the point. It's much more recurrent in several different aspects than I believe most people think. So take rates will vary, but the denominator plays an important role Right. And just to clarify, the revenues from the credit card portfolio flow in through the retail revenues. Is that correct? Yes. The way the managerial income statement, we have those four lines in our Revenues, either retail, institutional, issuer services or digital content. And then it's based by Inc. The client profile, most of it, and if it's an institutional client, either corporate or institutional is there. If it's more Retail originated revenue, it goes into retail. Yes, great. Okay, thanks a lot, Bruno. Sure. Thank you. That was Tito from Goldman Sachs. Now we will allow Mario Pier from Bank of America Merrill Lynch. Hey, Mario. Hi, guys. Thank you for the presentation. Congratulations on the results. Let me ask you two questions, Bruno, as well. The first one, we saw, right, you added 1,600 IFAs this quarter. I think this is a 25% increase Inks. But when we look at the net client adds of 132,000, this Seem to be weak relative to what you've been doing. So when should we expect this big increase in IFAs to start reflecting in number of clients and AUC? Inc. And then my second question is related to your credit portfolio. There was a big jump in your loan book. It seems like you're growing this very well. I was just trying to get a little bit of more color on what is the ROE of this business, right? You showed that you had 0 NPLs. Loan book is growing very aggressively. So just trying to understand a little bit better about the profitability of the loan book. Thank you. Okay. Yes. Mario, regarding the IFA question, there is a time to make Inc. That happened, what you mentioned, in the Q4, basically because of the positive scenario we have for The IFA profession in Brazil, especially with the banks closing the branch. So we believe this is going to stay for A longer term, but we believe the numbers will come. I think that When we have the full experience in terms of banking services and products, which will happen this year With the digital bank account, the credit card that, as Mahfra mentioned, we are going to launch next month and we already Show those numbers that Mahfra mentioned this year, TPV this year, I'm sorry, this month at TPV North BRL 110,000,000 and the month is not over yet, and we have not even started for real. So all of that, when we have all of that In our ecosystem, the dream that we have to have 100% of share of wallet of our clients and basically double our company with our existing clients, I think It will be a reality not to have 100% necessarily, but to be able To have and cut completely the link with our with other banks in our existing clients. So that's what I believe to be the trigger. But again, it's really short period because that happened in the Q4 And then depends on the market, depends on other circumstances to keep bringing more clients in the custody of those clients. Regarding the credit part and the ROA, I mean, you mentioned the growth was really very High growth that we had, especially in the 2nd semester. Just bear in mind, as we put in our press release that in December, We had a benefit to increase that credit portfolio because of the tax exempt for IOF in credit in the last 2 weeks of December, if I'm not mistaken. So that helped the December number. The credit origination in December was really high. And we I mean, when we look forward, we see a great market there. And why is that? Number 1, because it's an underpenetrated market. People that invest Usually, our sub leverage in Brazil a lot, especially when you compare to other countries, people don't have Any type of that. And then when you add on top of that the fact that the macro environment with interest rates Still at single digits, it's a favorable one for people to seek for Higher returns and longer duration products. And then number 3, those products are like alternatives and Other type of products where in Brazil, the allocation is really non relevant at all. So You combine those three things, you have a great potential to increase and create this collateralized credit market for many more people than only high net worth individuals, which was the history back then. So we are positive about the growth of our credit collateralized credit book. But just remember that December was really high, so because of the tax exempt. Your other question about the ROA, we are I mean, the ROA is not the way we look at it. I'm going to answer you given The way we look at it, and I'm not sure you're going to be able to model that, but we're going to try to help Later on, the way we look at it, we have a lot of credit as a service. What is that? Credit as a service is basically looking at Our custody from our clients in our platform and thinking about Products that are products that those clients would like to buy. And it makes a lot of sense, not only from a suitability perspective, but also from an allocation perspective, as I said, a lot of clients are not allocated in several different products as alternatives, for example, And we can give the solution for the clients at a very reasonable cost for the client. So basically, we tell them because most clients, they don't want to Buy some product because they don't want to redeem from other investments they have. And we give that option and we do it through technology. It's very easy To get this credit in our apps and it makes a lot of sense because it's underpenetrated, because The client doesn't have the allocation and that's what we've been doing. When we look at the whole picture there, We have other revenues embedded on that because they are related. If you buy a long term fund, You're going to have to pay for the management fee of those funds and we're going to get the distribution of that management fee over time. So we use this concept of credit as a service. And why? Because collateral credit demands little capital In terms of Basel Index and everything else, our what I can tell you is that our return on equity on that product is really high. And by really high, it's high double digits depending on the products, Okay. So that's the way we look at the collateralized credits in our business. But we do, of course, Inc. All the calculation to know the price. But remember that we are we have a low cost Inc. Funding as well and we can distribute those products because we do it for several other players in the market. So that is something We have experienced because the bank is something new. We can raise capital either issuing CD or structure notes in the market really fast. Okay. If I can just follow-up, and again, the growth is fantastic. You are at 0.6 percent of AUC. What do you think this number should be? And Now I'm looking for a short term like but what do you think you can get to in the next 5 years? We looked at other markets To see we went to United States, that number stays between 2% to something percent. It depends. But in Brazil, I mean, we said like 3%, 5%. We don't know. I mean, we don't know because it's a brand new product. What we know is that Brazilians, generally speaking, are really Brazilians that have money to invest are really under leveraged. We do not have the culture to leverage our investments or take debts and do whatever. Most people that do that are the people that don't have the asset part to deal with. If you take the Just one example. If you think about the real estate market, in United States is what? 20% equity, 80% debt. In Brazil, 5% equity, I would guess, 95%, I mean, 95% equity and 5% debt. So Brazilians with assets, They are under leveraged financially. And then I don't know what the number in terms of the AUC will be, But we think 0.6% is too little. So we expect a growth there. Thank you very much, Bruno. Sorry, I was on mute. Thank you, Mario. We will now answer Mr. Marcelo Telles from Credit Suisse. Hi, Thales. Thales, I think you're muted. Can you hear me now? Yes. I apologize. Okay. Inc. Thanks, Bruno. Thanks, Andre, and congrats on the results. I have a couple of questions. Some of my main questions Have you answered earlier, but can you comment a little bit how do you see competition from other platforms? Of course, you took a big step to try to retain your most important IFAs. So where are we where are you in that respect? I mean, do you see the need that you engage in other type of retention agreements Going forward or you think that perhaps the environment, the competitive environment has already started to normalize a little bit? So that's the first question. And the second question, can you talk a little bit about The growth in net inflows, you had a BRL 36,000,000,000 Inc. Nothing flows in the quarter. Do you see room for that growth to Accelerate into 2021, 2022, particularly with the increase consider the increase you had In your IFA network, Boris? Thank you. Sure, Marcelo. Thank you for the questions. Regarding competition, I mean, it's going to be intense for the future because it's a massive opportunity As we presented in our long term strategy chart, it's almost BRL 800,000,000,000 revenue pool and a lot of players. Some of the players are trying not to lose that pool. Others are trying to gain that pool. And it's part of the game. We have built this Company from scratch with nothing competing with the banks, and we think it's a good thing. Competition is a good thing for the client, special. So we got to keep folks on the client, give the best experience, product, services, lowest price and that's it. That's going to be It has to be the focus here. But we I mean, in terms of the IFA competition, it has been more intense in the past. But again, it's a natural thing, at least in my mind, when I think what we have built. XP has developed this profession throughout the years. So we are by far number 1. You look at what we onboarded in the 4th quarter, The 15 100 IFAs approximately, that's 2.5 times, probably 2.5 times our closest competitor, just what we did in the 4th quarter. So again, it's natural that other platforms that want to build distribution like that comes to our IFA network and try to up here. What we have to do is to offer our IFAs a better service, better tools. They can be more productive that we can increase the probability of them as entrepreneurs to be successful. And that I can tell you, I mean that I am pretty confident we do that. And if you look, MAPFRE can complete here if he wants About all the developments of the hub or platform for the IFA is when we think we are the IFA is a client for us That we treat the same way we treat other clients. So we are totally focused on them to making them succeed Side by side with us as we want to do with our clients as well. But again, competition I don't see competition Creating a price pressure, if that's your concern. I don't know if that's the concern, but I don't see competition creating a price Pressure on us. I see it creating a price pressure on the banks Because we still see a lot of fixed income funds inside the asset management of the banks charging 100 basis points, 150, more than 200, 350. It's still there is a fund charging debt Management fee to buy government bonds, it doesn't make any sense, and I think that's where the price pressure is. We are Market leaders. So for example, what we did with Ricoh and XP in the equity market is because we wanted to, because we looked On our mentality of giving back to the clients and increasing that connection, So the clients can give us back through time, increase the loyalty of the clients. We're going to have more products. Now that we have all the technology In our company to keep adding products, we are going to do it so throughout the journey. And it's important for us To show our clients that whenever possible, we are going to keep giving back. And that's what we did with Ricoh And with XP and then the other competitors in the equity market, they follow us. I saw advisors some Matias exactly like ours, but it's part of the competition game. You mentioned the net new money, the 36,000,000,000, 37,000,000,000 net new money BRL in the 4th quarter. I mean, I think that the answer to see that number growing faster, it's about The experience the whole experience of the client. So the digital bank, I believe, it's going to be important. We will have to see. But as I keep saying, the EUR 10,000,000,000 or EUR 15,000,000,000 per month, that's net new money Inc. Coming into our platform. It's I mean, it's a number that it's going to stay there for many, many years in our belief Because of the transformation is going on and it takes time. It takes time to convince people to open a new account, to bring the money. So I see it as natural. It's hard to say it's gone. Because of the IFAs that we onboard, this number is going to grow up Really high. We don't know for sure the time in the short term, but we know Where we have a very strong confidence in the long term that we are going to get That wallet and that money because it makes sense. It makes sense with all that we are doing and providing to our clients. We believe it makes sense for our clients to bring more money into our platform and other clients to join us and leave the banks, Inc. And that's what we've been doing and we're going to keep doing. And just to add to Bruno's point and answering another question that's on the chat. We really believe that once we Complete our digital account and the date is by, I would say, by the end of the 1st semester. And we truly believe that we will be able to bring more accounts. We will be able to bring more share of wallet And the stickiness to our platform will increase. So we believe that adding new products, Digital account, credit and the other products, we bring more money, we increase the stickiness, we bring more clients. So it's Virtual Inc. Okay. I can take just one, Bruno. Go ahead. Yes. I ask in Portuguese. I Inc. I apologize. I should not ask in English. So I apologize for that. For the English guys here, the question was about the credit What we can expect like in spending, what we can expect like in contribution margin, that was the question. So to answer your question, when I mentioned 50% of penetration on the eligible clients, It's only for the clients that are already eligible. That's a small part of The whole clients of XP, because the launch is next month. So we not even released the product when we had and we had So far this month, BRL 110,000,000. So you can expect this number to increase really fast on the next months. And my point about the 50% is to show our power to cross sell products on our base. Inc. That was my point because we are not doing marketing. We are not like proactive selling the card And the clients are coming. Once we release the card, for example, for any client, 50% of them Order the card. That was my point. About your other question was about spending. Of course, you can imagine that we most of our clients, they are like high net worth clients when compared to Brazil. These numbers are public, so you can see that the average spend for like high And credit cards in Brazil, they are like between BRL 7,000 to BRL 10,000. So I would say that Per month, yes. So I would say that's the range for the clients that we have today, Okay. Perfect. And just on my first question regarding the economics of the credit business, is 200 basis points, 250 basis points, a reasonable ROA assumption for Let me give you that answer, Marcelo. Yes, it's a reasonable assumption. It can be lower than that because as I said, we look at credit as a service, okay? So sometimes we I mean, if you look only at that part of the business, you are going to miss The other part that is going to be part of the revenue because of the credit as a service, okay? And it's hard to model that. We know. And we I mean, it's hard to open exactly how we do our math here, But what I can tell you is that your assumption around 200 basis points only in terms of the credit, it's not wrong, Okay. But what I'm trying to say is that there is more than that. And you're going to see that where are you going to see that? In our retail revenue. It's going to appear in our take rate. It's going to appear there, because we do have this credit as a service and we look at the return on equity That everything we are doing considering all the products that the credit is pushing and helping to Increase the penetration and so forth as well. Thanks for your answers. I very appreciate it. Take care, everyone. Thank you, Thales. Have a good one. We just have 2 more questions, Bruno. I think that they will be Let me before sorry. Okay. Before Thales asked about the numbers of the credit card. Again, we cannot open the base points specifically, but what we can tell is we of course, we have our business plan, Okay. And we have not, as Mastro said, launched yet the credit card, but it's with a select group of clients. It's working on better phase and we have already this More than BRL 110,000,000 of TPV this month. Our business plan so far, It's more than 1 year advanced in terms of what we had when we decided to move forward. And I think that has to do with 2 facts. Number 1 is the number Mathra mentioned, The 50% penetration, we were much more conservative in terms of the adoption of the credit card, because Usually credit card takes time people to adopt and keep moving and so forth for the type of the clients that we are addressing, Because the type of the clients we are addressing probably the 2, 3 credit cards already, okay? Number 2 is the spending. We were I mean, we know our client spends a lot more And the average, so we need much I mean, many much less, I would say that clients to make the same TPV and but we also were surprised by so far. But we are just at the beginning, so it's hard for us to give any kind of guidance here. I know it's going to be important for all of you to model the business and so forth. We are going to work on something how to help, but what I can tell is that it's much ahead of the business plan, And we are optimistic about the stickiness of the card, especially linked to our brand, and let's see how it plays. Okay. Next one, Jorge, who will send us a question kindly send us a question here at the Q and A. And that's an interesting one. He's asking about what do you feel Bruno about, I mean, recent market volatility, Maybe interest rates will go up eventually. What do you think this could bring to XP's business? I mean, It could hurt structurally the business to have high interest rates or there's a level which is healthy because we make more money and we still have compelling investment alternatives for clients. Okay. Thank you, Jorge, for the question. I will start answering looking at our history. We have We've grown through very high interest rate environment in our history and here we are. Inc. So that's number 1. And the reason for that is because we don't need the market to grow to keep growing. We just need to convince the clients from the incumbent banks to migrate into our platform, and we believe we have all the tools to do so. And now even more as we keep adding new products and enhance the experience of our clients. So that's number 1. Number 2, in the short term, when there is volatility or interest rates going up, that is a positive in the short term Because of fixed income, because of floating revenue, because of volatility itself, remember that we have several books flow books in our business, And we are always hedged for volatility and tail risks. So either the positive or the negative one. Inks. In our history as well, when we had like a lot of market volatility like in Brazil in 2017, That May 17, the Temer Day, we made money. We when you look at the pandemic right after Carnival in February last year, same thing. Yesterday, same thing with the Petrobras case and so forth. So we are always in the short term hedged for tail risks and volatility. In the short term, it's something positive. And as I said, interest rates going up. Considering the size of our business now, Our floating revenue would go up substantially depending on the growth of interest rates and fixed income also It would be much more attractive for investors to trade and to allocate, and we could make money there as well. Thinking about the longer term, of course, to have Brazil on track, Inc. Doing the reforms, keep moving and growing is what we want as Brazilians, as a company that wants Inc. The best for the country that want to generate wealth in Brazil and so forth. So and for our business in the longer term, I also believe it's better to have Brazil developing itself. The Brazilian capital markets is developing a lot. So I don't think interest rates interest rates needs to go up from 2%. We all know that. If we will, this year, We don't know by how much and how fast. But again, if we do not come back to The above 15% interest rate that we had in our past, I think that doesn't change the picture at all. And considering our size nowadays, it might even in terms of the results and the numbers, it might even be better from that perspective. Okay. Thank you, Jorge Curi, Mr. Curi from Morgan Stanley. The last one would be from Carlos Gomez from HSBC. He's asking you to comment on an expected time line for the conclusion of the transaction with Itau. Okay. That's Carlos. Thank you. But that's hard to say because It's pending the creation of Milco, the export, the way Saul laid the company. It's pending approval by Fed and Brazilian Central Bank. It could come at any time. We personally I mean, I personally don't see a reason why not, But it depends on Fed and Brazilian Central Bank. And only after that, this new co is going to be created, And we can move forward with the merger proposal that we have agreed with Itau's controlling shareholders to do so. I think it's reasonable to estimate that we are going to have Everything concluded in the 1st semester this year. But again, it's not a guarantee because I cannot speak for Fed or Central Bank. What I can tell you is that we are ready. As soon as we have this creation of NewCo, We will have to file in SEC some forms and then propose the merge, have the general meeting of XP Inc. Itau. Now XP Parts, Actually, the new company created will have its own general meeting to approve the merger, and we move from there. That's the time. As soon as possible. Great, Bruno. So we are running out of time. We have some Inc. Other questions here, but I kindly ask you to get in contact with us. The IR team, we will be thrilled to talk Inc. About these results and especially about the long term opportunities of XP that Bruno described and Mafu described so well. Thank you very much for your participation. Thank you very much for all your partnership during this intense year of a public company. Would you like to conclude as well? Thank you. Thank you, everyone. Andre, I just would like to thank you all for participating here and supporting us and say that it was A strange year, past year, a different year for all of us, but also An important year in our life as a company because 1st year as a listed company, We are still learning and improving there. And most important, I think we Tested our company in a way we had never tested before and the results, they are What you see and makes me personally even more confident that our journey looking into the future is going to be something else. And the main attribute or competitive advantage, as Guilherme said in his letter, It's our culture. And I think when you have prices like the one we did last year is when the culture of the company is really tested. And I think our response our employees' partners' response to the challenge We're really impressive. So thank you all. And anything you need, we're here to answer and help. Thank you. Thank you, Bruno. Thank you, Maffra. Everyone, have a great day. Good afternoon, everyone. Thank you, Natalie. Bye bye.