Earnings Call: Q1 2021

May 4, 2021

Just wait for everyone to get in the room. Okay. Good afternoon, everyone. We hope all of you and your families are healthy and safe. Welcome to XP Inc. Earnings conference call for the Q1 of 2021. I am Andre Martin, Head of Investor Relations at XP Inc. And on behalf of the company, I would like to thank you all for the interest in our earnings call and make myself and Antonio Gamaerenc available for future conversations and any follow ups that you might have about this call or any other subject. Joining me today for the call are Bruno Constantino, our CFO and also Jose Beringue, XP Bank. We will be available for today's Q and A session. You can send your questions in the Q and A tool that can be found in your screen or raise your hand to speak with us. And the replay of this call will be available tomorrow or later today actually on the same web page. I kindly ask you to refer To our legal disclaimer on Slide 2 and remind that certain statements in this call may relate to future events and expectations and as such constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Information concerning factors that could cause actual results to differ from forward looking statements is contained in our reports filed with the SEC. We will begin now the presentation with the quarter highlights delivered by Bruno Constantino. Hi, Bruno. Hi, Andrea. Thank you. Hi, everyone. Pleasure to be here with all of you one more time. In today's conference, we are going to we set up a shorter presentation in order for us to have more time for the Q and A. I hope you enjoy this model. So I'm going to open with the highlights. Berenger is going to give an update about the banking. I come back to talk about the Q1 KPIs and financials, and then we go straight to the Q and A. We also have moved several slides to the annex. You have access to that. There are a lot of details and numbers there, if you want to look. So the highlights of this Q1, first of all, our strongest quarter ever. All the way we look at the numbers, either the KPIs or the financials, they were all very strong as we are going to see when we move to the 3rd section. You also can see the cost discipline and the efficiency that we have in our business model through our margins expanding, even considering that we have been hiring A lot of people. Just to give you the numbers, in this Q1 2021, the headcounts in our company grew 64% year over year. We hired and onboarded In the Q1, more than 300 people, actually 322 people, more than 100 per month, and we expect this space to accelerate going forward. And the reason for that is The new businesses we are entering, the opportunity that we see in the markets and the investment in technology that we have been doing throughout this digital transformation journey that we have started 3 years ago as we mentioned in our last call. This operating leverage give us the opportunity to reinvest in our platform. And that's very important. We see it as a competitive advantage and it's our expectation to keep reinvesting 100 percent of our results in our growth going forward. The reason for that, As you have heard a lot from myself and other partners of the company, it's the huge opportunity that we see in the financial system, especially in Brazil, to be disrupted. Now moving to the second point, investments. We have two highlights here that we'd like to share with you. 1 is about the international funds. It's interesting because this segment basically it didn't exist few years ago. And we invested in it. We established several partnerships with global players, we brought them to Brazil, some of them with exclusivity. And as of March, we have reached BRL 20,000,000,000 of assets under custody. That's 6 times higher year over year with 120 funds in our platform as of March this year. We also recently established new partnerships with Systematica, Nordea with 2 ESG Global Funds and with Goldman Sachs as well for emerging market bonds strategy. It's always it's also known because it was published in the market recently. We have established a partnership with Bridgewater for the Global Macro Fund. And it's interesting to mention that this fund, we are going to give access to investors, retail investors with a ticket as low as BRL 500, that's less than $100 So we are fulfilling our purpose to democratize investments in Brazil, and this is recent achievement that we celebrate because those small investors, they are going to have access to one of the most desired funds all over the world. And it's also worth mentioning that this industry, the investment funds industry, when we look at the funds industry as a whole in Brazil, According to Enbima, it has surpassed the amount of BRL 6,000,000,000,000, 6,000,000,000,000 and less than 1% is invested in international funds. So that's The potential of growth of this segment is standing alone. Now when we move to pension funds, it's not different in terms of the potential. We have been growing a lot, but still we represent a very small part of the industry when we look at assets under custody. Also, our insurance company is new. It was, as you know, established in 2019, And we have only 1.6% of market share in terms of assets under custody. But despite that, And we are talking here about more than BRL 1,000,000,000,000 segment. Despite having only 1.6%, In March, for example, we had an 88% market share of the transfers in this segment. So we've been growing a lot, but still we have a lot more to grow considering our market share in terms of custody. Moving to banking, I'm not going to last long here because Berenger is going to talk about it. I just want to highlight The official launch of our credit card, ExpiVisa Infinity in March and also Our low end portfolio keeps growing. We it grew 22% quarter over quarter And in a very healthy way, 0% NPL as you're going to see down the road. And lastly, We wanted to share with everyone, I don't know if you had the opportunity to see when we released our 20 F a few weeks ago. We had 3 material weakness when we went for our IPO late in 2019, and that's normal Because of these standards, PCAOB standards required by SEC for a company that Brazilian company that doesn't have these kind of requirements, it's normal to have those material weakness. We had 3 and we were able to remove all the 3 It keeps our company stronger for the long term. So we thought it would be interesting to share that with all of you. So now I would like to pass over to Jose Beringer, the CEO of our bank, so he can share some banking highlights. Beringer, the floor is yours. You are on mute, Beringue. On mute. Thank you very much, Bruno. Good evening, good afternoon, everybody. It's great to be with you today. I will talk a little bit about what is going on in our banking initiative, But also, I will give you some views on the banking environment in Brazil. And let me start by saying that We think that there is something really important and different going on regarding open banking and instant payments in this specific market. The level of change that the Central Bank or the authorities and the regulators are putting in place will change a lot the way we do banking in this country. And I will mention some of the examples as we move forward. But before we talk about open banking, let me talk about what being delivered and the events in terms of the banking strategy within XP. So we continue to grow our collateralized debt or credit portfolio reaching BRL4.7 billion. This is a conservative approach. Everything is collateralized with securities of 0 NPL and of course, lower capital requirements in terms of a comparison with a standard loan. As Bruno highlighted before, we launched the Visa Infinity card, higher than expected card activation rates, and we delivered the marketplace within 2 months, which was once again sooner than we anticipated in our timetable. We are moving forward with the margin loan product. It's a credit line. We are piloting as we speak. This is going to be very relevant to the trading experience. And once again, we are talking about collateralized credit, which has, of course, a very low capital requirements and default rates. If I may go back to the Open Banking initiative in Brazil, It will comprise or also affect some other products, which is different from the reality in the we'll have corporate clients and SMEs participating as well in the open banking initiative. Products such as insurance and investments will be included, and the timetable will evolve in the 2nd semester, and the Central Bank continues to say that the plan is to finalize 100% of the initiative by the end of this year. So what will happen is an individual or a corporate client will provide an authorization for the financial company to look at the data and to offer products within the ecosystem of this new database for any client at the end of the day. So for instance, if Bruno has a car financing transactional loan with another player, XP or any other bank will be able to provide a competitive rate and send him an information about the offering by just looking at the database that will be available. So this is substantial. It will also, as in other geographies, include the information aggregation systems. But the fact that we are targeting also corporate clients, SMEs and the other products will be material, and we think this is going to be completely different from other geographies. So this is important. We like to say that this is going to be as Important as the Plano Real when we brought inflation down to 0 in 'ninety four, 'ninety five to the banking system, And this could be important also to give clients the ability to shop around and to basically select the best alternatives in terms of products in a very smooth and client user friendly way. So we want to pay attention to that. And the good news is that we are developing our banking initiative in parallel with the open banking initiative that is happening in the market as a whole. So this gives us a competitive advantage. And also considering the fact that we have newer IT platform compared to some of the incumbent players, but also we have lower costs in terms of our branch work because we don't have any branch network and we basically have the IFAs that are paid if they sell. So we believe that our pricing point will be substantially more competitive compared to the other players. Essentially more competitive compared to the other players by just once again combining technology, combining lower costs and by activating our existing client base. We are talking about 3,000,000 individuals and roughly 35,000 to 40000 corporate clients. There's huge potential in the SME and middle market client base to expand this client base and also to deliver financial products to them. But we're going to start as we always did in the past with the existing client base and then penetrating as we penetrate more in our existing client base, we'll expand this base moving forward. One important thing, we believe that the total wallet of the financial markets in Brazil is close to BRL 800,000,000,000. Today, we target less than BRL100 1,000,000,000 with existing products we have. So the plan is, as we move forward, once again, is to move into more products and to basically penetrate this wallet and be more effective with the clients we have and other clients that will capture in our strategy with our strategy. So this is in a nutshell what's going on. If we may move to the other slide, please. A different way to look on what we've been doing is in the short term, let's say, between now and next year, Looking at individuals and another important thing to highlight is that we target and we bank and we do business With the top of the pyramid and not the bottom of the pyramid, we have mass affluence and private bank clients. The idea is By the end of the year, to have a full digital account, we are preparing ourselves to offer debit cards and picks up with instant payments tools. We will expand the credit offering. We will expand the insurance products offering as well. Credit products, again, we plan to use technology, open banking, positive bureau and also the central receivables platforms that are being created to mitigate the credit risks in these portfolios and to use collateralized loans as well. The business plan has the possibility or the optionality to attract and monetize retail clients through cross sell and on investment products, and there are several open banking opportunities. Another way to look at it, we started With the top of the pyramid, we will gradually go lower in terms of the client base as we view or we have confidence that our systems and our credit and risk management tools are working well. But this client base that we have is the sweet spot of the marketplace. The clients typically has investments with us, has collateral to post against some of the transactions, and this is what we plan to do with the expanded client base Moving forward, once we are confident that we have everything working well. In the companies, our SME, middle and corporate clients, We want to scale existing products such as investments, foreign exchange, collateralized credit transactions and derivatives. We are launching an energy trading desk, which will provide hedging and financing alternatives using energy as collateral. In the middle in the midterm, let's say, between 2 3 years, we'll continue to expand the credit offering. Tailor made insurance payments and open banking tools will be provided and offered to corporate clients, SMEs or companies overall. We have the optionality to enter the acquiring business and payments markets, enhance or use data analytics to be more effective with our client base. Corporate pension systems or corporate pension products being cross sold to our existing client base is also an opportunity. And once again, Open Banking will provide a different geography, a different game plan for the corporate clients as well. So we are very, very optimistic with what we have in front of us. Once they Slowly, but with the XP style, I mean, the sense of urgency is present every day. But creating these new tools, these new products to be offered to this client base using a very competitive pricing point, technology and the branch or the IFA network that we have in our ecosystem. So in a nutshell, this is what we are planning to do. We think that there are plenty of opportunities, and we are confident that we will deliver the platforms in terms of products that I talked about in the banking business. Thank you, Beringue. That was very, very helpful. You gave a detailed roadmap how powerful the banking business can be in our ecosystem. It's also important to mention that We didn't bring a slide to talk specifically about strategy. Of course, Beringue already gave a lot of color in our banking strategy going forward. But the reason is that we are going to have and I forgot to comment that In the beginning, we're going to have XP Strategy Day in the 2nd semester, where several of our C level are going to be there to present to all of you our long term strategy in more details. But I think that is important to mention Our strategy, for example, in the individuals markets, when we talk about the banking, We did a lot of research with our customers. So we always want to think about the sequence that makes sense to approach the existing clients and then you expand that to other profile of clients moving forward down the road. So the reason we started with, for example, the credit card and the collateralized credit is exactly because All the research that we did internally, those two products were the most desired ones, more than, for example, the digital Bank accounts that we are going to have, we are going to start next month a pilot test and in the second semester is going to be total operational. So just to give you a highlight about that. So but thank you very much, Beringue. And now I think we can move to the Q1 KPIs and Financials, and then we go straight to the Q and A. So here in the KPIs, you have seen already the KPIs. We just brought some banking KPIs. When we talk about investments, BRL 715,000,000,000 of AUC, 3,000,000 clients. And DARTs, they were very, very strong, EUR 3,200,000 we had in the Q1 of EUR 1,700,000. And remember that the Q1 of last year, we had the pandemic, so a lot of activity, especially in March, end of February March because of the COVID and it's still a growth of 91% year over year that was impressive. When we go to the banking KPIs, Beringue already mentioned, the EUR 4,700,000,000 is worth mean, the credit card is brand new. We officially launched in March. And it takes there is a natural inertia to pick up as people ask for the card, activate the card and start using the card, as you know. But in the Q1, we already had more than BRL 500,000,000 of TPV transactions in our using our credit card and all of that with the 0% NPL ratio as I have said already. And when we look at the financials, everything record, BRL 2,800,000,000 EIS of gross revenue, 50% growth year over year. Our EBITDA adjusted EBITDA and is adjusted just by The share based compensation surpassed the mark of EUR 1,000,000,000 also a quarterly record. And our adjusted net income of BRL 846,000,000 more than double of the net income of the Q1 last year and with the NPS of EUR 74,000,000 which is a very high NPS. We can move forward. Here just a net new money, we already talked about the other KPIs. The net inflow was very strong this first quarter, 69,000,000,000 when we adjust that for extraordinary inflows and outflows and those inflows I'll pull them there. They are important because they are basically equity custody. But considering that they are Usually from high net worth individuals and they are more uncertain, we always like to be transparent about it when it happens. So the market analysts do not project that for the next quarter and so forth, But we would be more than happy to have those extraordinary inflows more frequently. So but extracting that our equation, we still have a very strong net inflow of BRL 43,000,000,000 BRL in the quarter, the highest in the last four quarters with an average of more than SEK 14,000,000,000 per month. So a very strong pace and that talks to investments we have made in our IFA network. Also the digital, the XP direct is growing really well. So there is not one that's important to mention, there is not one single channel here that we would have to say this is responsible for the growth. It's basically across the board. All brands are going well And all channels, XP direct and the IFA channel is also going well in terms of net new Revenue, I already talked about 50% growth, Only mentioning that in the last 12 months, retail is the great responsible for that growth, more than 90% of the growth year over year and in the Q1 represented 75% of our total revenue. The take rates. So going to retail revenue, as I mentioned, you can see that the growth is higher than the company growth is pushing up, 67% growth, more than BRL 2,000,000,000 in the Q1. And again, this quarter, All the products and channels, they were all strong. So very diversified, very, I would say quality results because we cannot highlight one product compared to the other. Equities, Futures, financial products, fixed income, all of it was very strong in the Q1 this year. And When we go to the last 12 months take rates, what we can see is that despite The Xero brokerage at Clear and lastly, at the end of Q3 of last year, The 0 online price for Ricoh and 75% reduction for XP, We still kept the take rates at 1.3%. So stable, when I get this question, when I think about The feature I always answer stable because it's hard to predict and forecast, but that's what our trend shows when we look backwards. And that it's important to mention, even considering that we do not have In the Q1 this year, these online brokerage revenues that we had in the Q1 of last year. So we had, let's say, a 3rd comp just based on that metric, But it's still we more than compensated and mitigated that effect with other products, the growth of the platform and so forth. And also important to mention that when you look at in our consolidated financials, net income from financial instruments because we are the financial business, so a lot of the revenue comes from that accounting segment. Almost 80% of it is related to retail clients. Going to EBITDA, we decided last call to show our operating results, So we can get away from the discussion about the effective tax the low effective tax rate. So looking at the EBITDA, As I said earlier, we had more than EUR 1,000,000,000 adjusted EBITDA in this first quarter, our record ever, with a growth of 75%. So this number shows the benefit of the operating leverage model that we have. As I mentioned earlier, we have been investing a lot in existing business to improve technology and so forth and we're going to keep investing, especially in new businesses. And despite all of that, We are able to scale the business and our operating results show clearly the benefit of this operating model that we have. And the adjusted EBITDA margin, also more than 500 basis points of expansion based on what I just mentioned, despite the growth of headcounts and etcetera, very scalable business model that we have. The adjusted net income, it's everything I said, plus the low effective tax rate. We more than doubled The adjusted net income from BRL 415,000,000 in the Q1 last year to BRL 846,000,000 in the Q1 this year with a margin expansion from 23.9% last year to 32.2% this year. And as you can see on the right, you see the benefit I mentioned. So revenue growing 50%, the operating leverage Allowing the EBITDA to grow more than revenue 75 percent with more than 500 basis points increase And adjusted net income because of the corporate structure, allowing the net income to grow more than 100% with more than 800 basis points of margin expansion. With that, I mean, before we go to the Q and A and I open for your questions, I would like to close here with some points that we talked myself and Derenga during the presentation. Number 1 is the size of the revenue pool, close to BRL 800,000,000,000. That's what the financial system in Brazil, when you take into account everything, is going to make. We only have, If we look at our last 12 months revenue, a little bit more than 1%. So 1%, A little bit more, 1.2%, 1.3% of this revenue pool. We are going to address, if not all, most part of this revenue pool in our journey. That's why we keep saying we have a long journey ahead of us. But what is our strategy to do that? So we started, as Beringer mentioned, From the top, the most profitable and the hardest market to penetrate, investments from the middle and the top, the affluent and the private of the pyramid. Being profitable And having the entrepreneur spirit and this long term mindset and also using the pricing power that we have on behalf of the customer, that's our strategy to address the base of the pyramid. And as Guilherme mentioned in his letter, I don't know if you had the time to read it, It's important to connect the dots in a chronological sequence that makes sense, and that's exactly what we are doing. Now it has to talk also with our purpose. The value proposition that we offer to our existing and future clients, it needs to be clear, transparent and with the pricing that is sustainable for ourselves as a company and especially for the customer as a client. And we believe there are several pricings being executing in the market in the segments that we are still about to address and to enter that are not sustainable, at least on the lens of the customer. And as I mentioned, on the 2nd semester of this year, we don't have a specific date yet, but as As soon as we do, we're going to let you all know we're going to have XP Strategy Day, so we can go deeper in details about our long term strategy. With that, I open for Q and A. Great, Bruno. Thank you very much. Thank you, Beringue, for such a thorough presentation. We have I mean, We will do a first come, first served approach. Please limit to one question, so We can have the participation of several participants. The first question is from Jorge Curi from Morgan Stanley. I will unmute you, Juan here. Hi, everyone. Thanks for the presentation and Congratulations on the very strong numbers. I wanted to ask you about margin expansion. At the EBITDA level, 535 basis points year on year, it's 147 quarter on quarter, how do you see this level of margin? Is this sustainable going forward? Is this So a level that should be the basis for the build up of your business ahead? Or you still Strong investments to make that will probably bring down the margins closer to where they were, say, last year. And if you don't mind, let me just add another one because it is related to the margins, which is a tax rate, at least obviously to the net margin, but The tax rate has been surprisingly low. We started in 2018 that's So in 2018, we're about 23% in the last year in the teens and now we're at 6%. So What is the right level? And EBITDA is too low. But yes, I don't know, maybe not. So those are my 2 questions. Thank you very much. Thank you, Hamid. Yes. The margin going forward, as I always say, It's hard to predict particularly how we have. Your connection is a little bit unstable. Yes. Or turn off the camera, maybe it will improve. Let's just wait for Bruno to come back. Thank you. Thank you. We actually have a slide on the deck with some additional information on I think that this will be useful to show because we are kind of conciliating the taxes that we actually pay with what we report, right, for result purposes. So I think that at the end of Bruno's explanation, after he talks about the operating leverage and the opportunities that we have for margin expansion going forward and be sure that there are plenty. We can show this particular slide about the tax rate. Hey, Bruno. Better. Is it better? Perfect. Okay. Can you hear me well or? All right. Sorry about that. So, Jorge, going back to your question about the margin going forward, as I was saying, it's hard to forecast because We have a lot of investments considering the number I just gave, almost BRL 800,000,000 of total revenue pool in the financial industry, we want to address it. We will over time and that will require a lot of investments from our side. Having said that, we do have a strong operating leverage in our business model as our numbers show. So for example, in the short term, we wish we had hired more than the 320 headcounts in this Q1. But sometimes the execution, you have to find the right person with the right culture and so forth. So sometimes we have a pace that is delayed, And we hope to accelerate the pace in the following quarters in terms of onboarding new employees compared to the Q1. So that's by itself a fact that will increase our SG and A and by consequence, reduce our margin. But on the other hand, we are going to keep growing our revenues and expanding our business. So it depends on the mix of our revenues as well. So we think that There is a component today in our margins that it's not, I would say the margin at maturity because we have been investing a lot and the revenue is not there yet. But we are going to keep investing going forward. So I wouldn't expect the following quarters to have a margin a strong margin expansion as we keep investing. But again, It will depend how fast the new businesses pick up. And in terms of the effective tax rate, we have a slide to show and share. I think it's Page 22 to walk you through. But basically, it's yes, this one. It's going to be a consequence of the revenue mix depending on where the revenue is coming from or most of the revenue is coming from. So here, as you can see, in our financials, we show a 6.4 Effective tax rate, right? I don't know if Antonio, you are taking care of the mouse there, if you can When I talk just show the 6.4, thank you very much. Yes, 6.4, okay? Then When we think about the share based compensation that is a non cash expense that generates A tax credit that is also non cash, but it goes in our financials, we are talking about If we adjust by that effect itself, our effective tax rate would go from 6.4 to 12.1%. So we would add BRL 67,000,000 in our tax income tax in the Q1. And then if we add The impact of the corporate structure and what is the corporate structure is basically The way we have to recognize the revenue that comes from our proprietary funds, where most of the books of flow are because of the proceeds that we received since the primary of the IPO in 2019 and lately the phone that we did in December. And the recognition of that revenue is net of tax. So it's a revenue that goes directly to the bottom line. But at the end of the day, the revenue is higher than the one we show In the Q1, BRL 105,000,000. So the revenue instead of BRL 2,800,000,000, In my view, it should be EUR 2,900,000,000, okay, because we had that revenue. But when we deduct The provision for tax, if we redeem that cash from the funds, there is a tax bracket from 15% to 20% depending on how the fund is structured, we would get net of that provisions. And that's what we Take into account in our numbers, the effective tax rate would go up by that effect to 20.8%, 17.4 only by that effect added with the share based compensation benefit to 20.8%. So all the quarters that we have very strong revenue coming from XP Inc. Directly. This will bring a lower effective tax rate in our results. When There is less revenue coming from XP Inc. Directly and more from the other companies of the group, the tax effective tax rate Sean, in our numbers is going to be higher. Thank you, Bruno. That's clear. Thank you, Haiyan. Okay. Next question is from Motavio Tenganeri From Bradesco. Hi, guys. Thanks for taking my question. I wanted to understand a little better the margin expansion trends, especially because in the quarter there was a more Relevance of the retail revenue. So what's really driving this margin expansion? So Probably, obviously, credit has gaining more relevance and that probably has 100% margin as well, does not entail a lot of COGS. But if could give us a little more color on that would be very helpful. Thank you. Yes. As I said thank you, Otavio. As I said, The growth in it was across the board, okay? So features, equities, fixed income. And when that revenue goes From our proprietary books, the books of flow that I mentioned, there is a margin expansion. Also, it's the benefits of scalability of the business. So those it's not the banking, okay? The banking if you take the banking revenue, it was really small compared to the total. There is a huge potential for growth there. We are talking about here less than 2% of revenue. So taking into account everything that the bank offers, because a lot of things are brand new and are scaling still. So it's not relevant yet. So the margin expansion, it's what I explained during the presentation. It's related to the business model that we have. Our products were strong and we were able I mean, we did in the Q1. Remember that the Q1, we don't have Performance fees, usually because of seasonality and still we present a revenue stronger than the Q4 where we have performance fees. And the trading activity was really strong. You can see that in our dark numbers. So it was spread all over the business. I do not have one single explanation to give you. It's the sum of the parts. Very clear, Buran. Thank you. Thank you, Octavio. Next is Mr. Tito Barta from Goldman Sachs. Hey, Tito. Hi, Andre. Hi, Bruno. Hi, everyone. Thanks. Can you hear me okay? Yes. Great. Thank you. Thank you for the call and taking my question. My question is on the I guess on the inflows, right? Even if you exclude the nonrecurring Inflow is still the highest level we've seen. If you can give some color, how do you see that evolving this quarter throughout the year? Can that continue to increase? Just to get a sense of yes, thinking about inflows. Yes. No, you're right, Thierry. Inflows, They were higher than in the previous quarter. We explained that at 14 point 300,000,000 if I'm not mistaken compared to EUR 12,200,000,000 on the monthly average in the last quarter. I mean, as I mentioned, it was all the channels were strong. If I would have to highlight Two channels, I would say, the high net worth, the private and also the IFA. I think that some of it is related to the investments we've been making in the IFA network Because of competition, again, it allowed us to make those investments in our IFA network is taking the money and make a very good use of it, taking the opportunity that the market is offering because of the financial deepening in Brazil at early stage and the banks in a closing branch mode that they will keep like that for the next years to come and that's been very good for the business. So Yes. When I look forward, I think that the Q1 trend, it's a very positive one and I expect that to continue, but we'll see. Great. Thanks, Bruno. If I can just I guess a follow-up on that, more on the IFAs, right? You've been investing a lot in IFAs. There was a lot last year. But I guess, do you continue expect to continue to investing in the IFAs as much as you have? We continue to see a big increase in IFAs. And how long does that take for an IFA to sort of get to a level where they're bringing a lot of inflows? Yes. We expect to continue investing in the IFA. We want to. We think it's a very good use of capital in our business model. And competition is still there. It's going to be there. As I've said, I don't see competition reducing in the future because especially because of our own success in our business model, and we just have to keep moving forward faster and focus on the kind. So It's more of the same that said, but of course, last year, we made a lot of investment already. So the pace of future investments should not be like last year, but we are going to keep investing. And The maturity of the IFAs hiring new IFAs and bringing money, it depends on the profile of the new IFA, But usually, it matures after 6 months. So there is a lag in there from 6 to 12 And depending on the IFA, it can breakeven after 12 months or 18 months. Great. Thank you, Bruno. Sure. Thank you, Tito. Nice to see you or at least hear you. People cannot open that camera, Andre. No, of course, it is not. I mean, we have to talk to someone at Zoom. We have have a good license. I think Hiro had a photo. So if you could see the Yes, we have a good license for this webinar, but unfortunately, we I mean, we just cannot do that. So next question is from Neha Agarwala from HSBC. Hi, Neha. Hi, congratulations on the results. Can you hear me? Hi, Miha. Yes, holding for you. Congratulations on the results and thank you for all those comments. Just quickly wanted to get some color on the costs. Despite the significant increase in the headcount that you mentioned, the costs were relatively well behaved. How should we think about that in the coming quarters? You'll continue to invest in your platform. But should the costs grow like what we've seen in the Q1? Or should that should there be a jump later as you pick up investing in the platform and hiring more people? And the second question is very brief on the banking services That Jose mentioned, do you intend to use your IFA network in any way to to distribute your banking platform? And how do you think that can work out with your client base? Any color on that would be helpful. Thank you. All right. Thank you, Neha. About the cost, on absolute terms, it's going up because of the investments and the hiring that we have been doing. So that's a certainty. But on a relative basis, We expect to keep showing the operating leverage that we have in our business as the revenue grows faster than the costs. As we like to think, You always have to grow revenues faster than expenses. And if you're able to do that for too long, you're going to be a successful entrepreneur. So we have a Street cost control in the company. We do grow exponentially. Any exponential company It's a big challenge to keep costs under control, but we have a very talented team internally only focused on that. So we are always looking for efficiency opportunities and we always have. It's I mean, any way you look around, doesn't matter how lean your company is, you have opportunities to reduce cost and to be more efficient. So that's what I have to tell you about costs and efficiency. So you can expect us to keep a very tight cost control, but that doesn't mean we are not going to invest a lot in new businesses and opportunities that we see ahead of us. We will and we are and we have been. In terms of the client service in the IFA, I mean, We always try to use and want to use this IFA network. It's very powerful. It's very powerful. They are All entrepreneurs as well, they benefit from the ecosystem we have built. So yes, it depends on the products, it depends on the profile of the IFA office, but it's natural to use the ecosystem and benefit from it as we move forward in different segments. Great. Thank you so much. A pleasure. Thank you, Neha. Next question is from Marcelo Terres, Credit Suisse. Hey, Terres, can you hear us? Hey, Andre. Hey, Bruno. Hey, I have a couple of questions. The first one, When you think about the when you look at the growth in your net inflows, the BRL 43,000,000,000 that just now closed in the quarter, Where is it coming from? Can you give us a sense how much is coming from the IFA channel and how much Just coming from the B2C. And if fast forward like 3 years, and How do you think that composition will be? Do you see B2C getting more relevance In your business? Thank you. Hi, Thales. Thank you. In terms of the net inflows, we do not give the breakdown, the exact breakdown about channels. But what I can tell you in your question is that when you think about number of clients, I think we have shown that in the past. XP Direct has gained more traction than the IFA network. When we go for net inflow, the breakdown is pretty much stable over time. So the IFA, they have a larger on a relative base share in terms of per client because naturally they look for clients of higher income, Otherwise, they will, as entrepreneur, not be able to either be profitable or serve the client well. So it's natural that the smaller client, the client that the mass affluent that is at the lower in the pyramid goes to ExpiDirect and also we have in that numbers Ricoh and Clear, 2 brands that we have that do not have an IFA network plugged in. So going forward, I believe both channels are going to coexist, and I also believe that The advisory, the IFA model needs to aim for higher tickets to pay the bill at the end of the day. So the average ticket from the IFA is going to keep being higher than the average ticket from the direct channel. And the relevance on a relative basis, it's hard to predict. So far, it's been stable, both of them growing very healthy. Thank you, Bruno. And just one additional question. Just going back to the opportunity on the banking side and particularly the credit book, I think you've reached 0.7% of AUC in terms of credit book to AUC. And now that I think you had more time since you launch the product. What do you think is the real potential in terms of AUC for the credit book? Yes. This credit book that you mentioned is about the collateralized credit. When we think about credits, there are so many different types of credit that if we only talk about what we have today, it's not what we are going to have in the future. We're going to have many more credit modalities going forward. We said in the past that we could have between 2% to 3% of AUC as a credit book. It's still Too early to tell if that number is too conservative or too aggressive because the AUC keeps growing at very strong pace and so is the credit book. What I can tell you in terms of credit is that We think there is a huge and large avenue for ourselves. But as Berninger mentioned, we are going to do it with a lot of responsibility, understanding the clients, evaluating the risks and using when needed the capital markets. That's another important thing to understand about our strategy going forward. XP has the benefit to be at the heart of the Brazilian Capital Markets. We by Survivorship, we needed to invest a lot in the Brazilian capital markets to bring products to develop the secondary trading, so we could bring more products to the market to our retail base and also help the corporate clients. And the capital markets in Brazil still has a lot to develop, but it has developed very well in the past years. And when we think about credit going forward, we know several asset managers with specific funds that would love to buy several different types of credit. So we can use the capital market as a leverage to help the whole at the system and not carry a lot of credit in our own balance sheet. That's not what we want to do. We want to we are going to carry credit in our balance sheet. But as we keep growing, we also are going to recycle in the capital markets because we believe it's a good use for the capital markets and we keep being an asset light business model. I don't know, Berenger, if you have anything to comment on what I just said here. I think it's spot on, Bruno. I think you covered all the ambers. Thank you. Excellent. Thanks again, Bruno. Thanks, Berenberg, Thank you. Next question from Mr. Jeffrey Elliott from Autonomous Research. Hey, Jeffrey, can you hear us? I can hear you fine. Hope you can hear me as well. Question on the accounting P and L. The trading revenue number is Pretty big this quarter and accounted for a lot of the growth. Can you just help us understand why that was so strong and then how sustainable that should be going forward? Sure. Sure. Thank you, Jeffrey. And first of all, nice meeting you. I hope we have the chance to talk Later. But going to your question, Jeffrey, basically, to understand what we you call the trading book, We call the flow book and it's based on the development of the Brazilian capital market. Everything is embedded. So it's not like a natural trading book if you look, for example, for United States or for any broker dealer, that's not it. This is more related to creating new experience for new products And it's not only equities and fixed income, we're talking about REITs, we're talking about structured notes with the secondary market that gives liquidity, even the derivatives markets and so forth. So this part of the financial income that we have in our financials is related, as we explained, to the retail business, most of it. As I showed you in the Q1, 79% of the financial income was related to retail business. So as the retail business grows, we have these it's like a warehouse that we buy and sell using proprietary capital based on providing a better experience for the client in the market, And we also are able to make money out of it. But most importantly, we develop the liquidity of the secondary markets and provide a very good experience for the clients. That's how the for example, the corporate debt market in Brazil has been developed. It trades nowadays more than BRL 1,000,000,000 per day, still nothing compared to the corporate bond market in United for example, that trades more than US30 $1,000,000,000 But few years ago, it used to trade less than BRL 100,000,000 Yes, in the secondary market. So to create this market, same thing with REITs, listed funds and so forth. So these kind of books flow books, that's what explain the most the growth that we have. And as the platform grows, it's natural to see this revenue growing as well. So it's linked to the platform. Thank you. And if I could squeeze something else in quickly, the stock comp number looked Pretty high again, similar to 4Q. It sounded on the last call like the 4Q number you said was higher because of some acceleration of stock comp into 2020. So just wanted to understand why it's still at the same sort of levels. The share based compensation? Share based compensation. Okay. Yes. No, that's I mean, actually, It's not going to reduce because when you on the Q4 last year, we had a strong share based compensation in our 4th quarter results because we had a program that was released to our partners on October 1, basically, a very sizable program of long term incentive plan. And then that reflected on the 4th quarter and we'll keep reflecting in our numbers going forward, Q1, Q2, Q3 and you have a maturity. Most of those Plans, they are a 5 year plan, and you have a methodology based on a model that you keep recognizing those expenses in our numbers despite are vested, then at that time, we're going to have the real cash expense to pay for it. So that's the recognition model. So you can expect to have the same size going forward. It has a volatility. It varies parts of it, it varies with the share price and so forth. So it has a volatility quarter Over quarter, but that's what explains. Thank you. Jeffrey, We would be happy to wrap this up with you on a later call this week on the 2 questions and anything that you might need. Thank you very much for your questions. Have a good one. Thanks very much. Thank you. So next in line is Mr. Mario Piai from Bank of America. Hey, Mario. Hi, guys. Congratulations on the quarter. Thank you for taking my question. Most of my questions have been asked All ready. So I was just wondering, when I look at your credit portfolio this quarter, it seems like the origination slowed down a little bit. At the same time, you show that NPLs remain at 0. So I was just wondering, are you just being a little bit more conservative? Or what happened? I think you were originating close to BRL 2,000,000,000 per quarter this quarter. I think it was closer to less than BRL 1,000,000,000. And how should we think about the way that if you can quantify the revenues generated from this portfolio? Okay. Hi, Mario. No, the origination is not reducing on the contrary, Okay. So first, you need to take into account the net flow installments that are paid and then reduces the credit portfolio. What we show is net already of that. So the origination is higher than the 4.7% compared to the 3.9%. But probably what you are Talking about because on the Q4, especially on the Q4, we had a very strong number because of December. And that was related to the extent of the IOF for credit in, if I'm not mistaken, the last couple of weeks on December. And then we did a lot of campaign with efforts and a lot of clients took the opportunity because you wouldn't have to pay The IOF tax and that was an outlier to speak. So we I think in December, we originated in 1 month like R1 $1,000,000,000 So that's not something that you can think it's going to keep happening at that pace. So if you take that out, the pace is growing. It's very healthy. But again, it's a collateralized credit. The client needs to want to take it. So there is a process. It's something in Brazil really under penetrated people. At least those profile of customers, they are not that used to take this type of debt, so they need to get used to it's a process. But the way we look at It's going just fine. Sure. So yes, I think you answered my question. That's what I meant, right? I think originations are still going up, but it was just slower than the previous quarter. And as you mentioned, then you had a EUR 1,000,000,000 Almost like nonrecurring events in December. And how should we think about then the how you're monetizing on this portfolio? What is the return you're getting on this portfolio? It's I mean, the return, if you look at directly to the portfolio, It's going to be different than if you look at the cross sell that most of the time this type of credit generates in our platform. So for example, we can have a product that it's raising capital like we did have, For example, last year, private equity fund, several clients for long term investments, several clients wanted to participate, but they did not want to redeem their other investments to participate and then comes what we call the credit as a service. If you take that into account, It's going to be a lot higher than if you do not take that into account. So the credit as a service, If we for some case, depending on the collateral, if we have to do to breakeven on the credit part, we will do Okay. Because it makes sense for the client experience and when we look at the whole, we still have a very profitable operation. And in terms of the client it's really differentiated in that sense. But if we look only at the breakeven and the credit parts, I would say that on average, we are talking about a spread between 100 to 300 basis points on a year basis. That's on average, it depends on the collateral we are talking about and so forth. This part of the revenue, Marius, is still Not relevant, as I said, in the Q1, but it's supposed to grow going forward. Great. And if I may add, Bruno, if you think about the future, Mario, once the Open Banking platform is up and running, we will be able create campaigns to call clients, say, listen, you have this and that loan with another player. Here's what you can do. Here's your our offer to downpay this transaction with another player. And the systems that are being created around this initiative will basically allow the client with one click to pay the loan with another player and bring the transaction to any other player that will provide the most attractive offer to them. Very clear. Thank you. Thank you, Mario. Thank you, Mario. Last but not least, we have Gabriel Grouser from Citi. Hey, Gabriel. Hello, guys. Good evening. My question is about pension plans. So you mentioned you have 88% of market transfers in March in those products. I would just like to understand that if you check the figures in Suezap, They are much lower. They are still impressive, but something around 36%, that's what we had for February. And I'd like to understand, does this 88% consider funds that you're distributing, PGPLs and PGPLs that you're Distributing from other managers and from other under other insurance companies, is that why you have that big of a difference? No. Hi, Gabriel. No, no, it only considers our own insurance. We also distribute from other insurance partners in our platform. The 88% is in March. If we look at the Q1, on average, I think it's 45%. It has a lot of volatility on a monthly basis, because you consider all the transfers there. But I think the main point here, I mean, so 88% is only is not the Q1, it's only March, okay? If we take January, February March, It would be 45% of all the transfers. I think it was EUR 8,000,000,000, the total of the system and we got BRL 3,600,000,000 in the Q1 of net new money coming from those transfers only for our insurance that has total custody a little bit above as of March, BRL 16,000,000,000. So the point here is We are like number 1 or 2 depending on because the other players that have the largest AUC, They have a natural inflow in that business. That's with less than 2% of market share, it's really hard to be number 1 or 2, But we have been in several months. That's the main point here. The opportunity is huge. We believe to have the best pension platform in the markets with many products to offer, digital experience for our clients, And we expect to keep growing. This business standalone, it has a different growth profile than investments, but it's related. It's just because the inertia of the client In the pension business, it's slower, but it's a very interesting business because it creates this long term relationship with the clients. And as I mentioned, we are in the business of establishing a deep and long term relationship with our clients and pension is strategic for them. Okay. I think we're done for the Q and A. Thank you so much everyone for the interest and for your questions. We hope that was Helpful. Again, we are available for any follow-up that you'd like on the next days or so. Myself, Bruno and Antonio are all available. So Bruno, I don't know if you want to deliver some closing remarks, but thank you all for the interest and have a great week. I just would like to thank you all for participating again. Thank you, Beringue, for participating here with us And remind you that on the 2nd semester, we're going to have several of our senior partners and C level together NextP Strategy Day, myself, Beringia, Thiago Mafra, that's going to be the new CEO next week, Guilherme Deschamps, our Founder and next week, the Executive Chairman and other partners, So we can give more color about our long term strategy. But bear in mind that we are very optimistic about the long term. I don't like to answer questions about the short term, the quarterly results. I understand that everybody has to model it, but I think that the big picture here is The BRL 800,000,000,000 revenue pool, we have entered in our history in several different businesses. We started as a mono product, mono client, retail equities. And you look at us now, We have been able to diversify to be entrepreneurs, successful entrepreneurs, And we hope that's not going to be different in the other segments that we want to address. We believe to have the brand, to have the culture, to have the money and the mindset to do, the will to do it. So we are very optimistic about this long journey ahead of us. So thank you one more time