Inter & Co. Inc.

Good morning and thank you very much for waiting. Welcome to Interrevenue's teleconference on the results of the second quarter of 2022. We have our CEO, João Vitor Menin, our VP of Finance, Helena Caldeira, CFO, and Santiago, who is our Director of Relations with investors. This event is being broadcast on the internet and the replay will be available on our website. We will only be in the listening mode. Then there will be a Q&A session and, for this session, we ask you to write your questions in the Q&A icon at the bottom of the screen. You can then ask your question. At this moment, you can activate your microphone. If you don't want to open the microphone, please write any non-microphone at the end of your question. In this case, our operator will read your question aloud and it will be answered in the language we receive. Note that the translation too, the button is on the right side of the screen, you can choose the language you want. And now let's hear Mr. Victor Menin, our CEO, please. You have the floor. Thank you very much, Operator. Good morning to everyone. Thank you very much for participating in our conference. I would like to say first that this is our first call as a NASDAQ listed company. We are very proud to have achieved this achievement. It is very important to see Brazil listed in the United States. We are the first Brazilian company to carry out This transaction opens the way, we hope, for other companies. It is important to say that this achievement is the result of our effort, which took two years to be realized. As in most of our strategic decisions, the idea is to create a long-term value for our stakeholders in our mission to simplify people's lives through technology. On page 3, I would like to highlight some of the main achievements of the quarter. We passed 20 million customers with approximately R$ 1.5 billion in gross revenue. Our credit and financing reached R$ 19.5 billion and R$ 29.5 billion respectively, that is, with excellent annual growth. Regarding our economy, we managed to make an ARPAC with a liquid financing cost of R$ 32 per quarter. And as we will say later, according to the IFRS, we make the provisioning following this methodology of expected credit losses that impacts our results and, in addition, Thank you very much Santiago. E bom dia a todos. Muito bom estar com vocês nesse novo call de resultados. A frase que escolhemos para descrever o trimestre é sair da zona de conforto. Embora isso seja sempre verdade no Inter, especialmente nesse trimestre, considerando a... Quotação, now at Nasdaq, this phrase is extremely opportune, as we have already said several times. Our goal is to eliminate the friction that makes it difficult for people's lives while they make transactions, simplifying their lives. This is consistent with our history since we started as a digital bank. Some examples are, first, we are the first bank to be 100% in the cloud. and the first to launch a complete and free digital account, first in Brazil. We were also the first financial institution to launch the first complete e-commerce platform in 2019. And finally, the first Brazilian bank to migrate from B3 to the United States. We are convinced that we are still in the first days of our history and we hope to continue to deliver innovative solutions to our clients. The result of this incredible journey was that we have already attracted more than 20 million customers, we have achieved a fund base of almost R$ 26 billion and we have achieved gross revenue of almost R$ 4.7 billion in the last 12 months. The natural consequence of this disruptive growth can be seen in our market share. which is still far from our goals, we began to see the benefits of the consistency and dedication we had. As you can see on the right side of the page, our market share for all products is increasingly significant and relevant, as we will show later, it begins to translate into a positive operational leverage. On page 8, now, I'm going to comment on how I see the company's future. algumas diretrizes estratégicas que gostaria de compartilhar. Esperamos, primeiro, continuar a entregar esse crescimento disruptivo que vai traduzir-se em um aumento de participação de mercado. Em segundo lugar, o crescimento vai continuar a ser diversificado nos diversos produtos, tanto com relação a taxas e juros. Em terceiro lugar, esperamos continuar a melhorar our operational leverage as we gain scale and we gain efficiency as well. Number four, we also aspire a self-financed business plan from the point of view of capital, using our excess capital plus organic capital created with our positive profitability. And finally, from the point of view of business, we aspire to maintain our innovative and top-notch mentality, and we also seek to mature our business in the United States, a market in which we see a massive growth potential for our platform. Finally, on page 9, all this is done with the focus on compliance with ESG first-line standards, and this is not new to us at Inter, we have already achieved this This is what we have been doing since our first days. We were born ESG, as I said, and the reflection of this commitment is also in our MSCI ESG rating. We had two upgrades, from B of 2019 to now BBB. Details of our ESG initiatives can be found in our annual report. Now I will pass the word to Alexandre, who will talk about the business part. Thank you, João. Good morning everyone. I will talk about the highlights of our business verticals in the second TRI. We are proud to say that each of the verticals has evolved well and I will give details of this evolution. Regarding the banking part, we had a stellar growth in cards, the total processed volume increased by 70% year-on-year, and credit cards now have a stronger growth than those in debt. Regarding the number of cards used, we reached 6.4 million in the TRI, representing an increase of 56% year-on-year. Regarding credit, our gross credit portfolio increased by 55%, reaching R$ 19.5 billion. And our originations in the second TRI were almost in a straight line a year ago, now reaching R$ 4.7 billion. We decided to strategically slow down the credit subscription, monitoring the portfolio performance and the macro environment. We also hope to speed up once we see the right conditions happening, leveraging our experience and also our excess capital. On page 12, I will now talk about insurance and investments. Regarding insurance, we obtained a revenue of R$ 35 million in the TRI, a growth of 64% year-on-year. Another record. Our insurance assets exceeded the mark of R$ 1 million, almost twice as much as a year ago. From the point of view of innovation, this quarter we launched a product called Dr. Inter, Dr. Inter, in English, is a product that allows our clients to perform quick and easy medical consultations through our app. Regarding investments, We obtained R$ 36 million in revenue in the quarter, representing a 116% increase year-on-year. And we finished the quarter with R$ 53.4 billion in AOC, under custody. Another excellent number from a product point of view. This quarter, we launched the Interinvest Portal, offering financial education and investment for our customers once again. Moving on to page 13. I will now talk about Intershop, which is our e-commerce vertical and also our cross-border services. In relation to Intershop, our gross revenue more than doubled compared to a year, reaching R$ 113 million in the TRI. And this with an increase in GMV of 56% year to year, which is also the result of a significant expansion of our stake rates. In gross terms, the stake rates expanded 11.4%, that is, an expansion of 4.2 percentage points. From the point of view of liquid cashback, they expanded 3.6 percentage points. We continue to expand our retail network, which sells on our platform, ending the quarter with more than 900 active sellers With regard to cross-border services, We ended the quarter with more than 141 global accounts active, with 383 million dollars in volume, in transactional volume. And we are super excited about this vertical because it has the potential to become very special and quite distinct. We see that immigrants in the United States are very poorly served with excess charges, very similar to our customers in Brazil when we started our digital service. So we see our super app as a very strong product that will simplify the needs of these clients' banking transactions, simplifying their lives. In addition, it was also encouraging to see the initial success of our global account, used by our Brazilian clients, who use this account to travel and also invest abroad. With that, I will pass the word to Helena, our CFO, who will now talk about the financial part. Thank you, Alexandre. Moving now to page 16. Here we see that our gross credit, the portfolio, reached R$ 19.5 billion. This represents an expansion of 56% year-on-year. On the quarterly basis, there was also deliberately less growth because we reduced our subscription model. As Alexandre said, we hope that this deceleration is temporary and we will accelerate until the beginning of next year. It is also worth noting that over time, consistently, our credit mix continues to diversify in various products, reducing the risk of concentration. Moving on to page 17, the quality of our assets remains strong. Starting on the left, we see that, in relation to the total credit portfolio, 73% of it remains collateralized by real assets, invoices or payment sheets. In the central part of the page, our coverage index also shows a healthy trend of 129%. When we see NPLs on the right side, our total NPL index is 3.9% of the total portfolio, a slight increase explained especially by the increase in NPL cards, which reached 7.9%. On page 18, the financing reached R$ 25.9 billion, an increase of 47% year-on-year. On the quarterly basis, it grew 12%, which is practically twice of the growth of the credit portfolio. It is also worth noting that, more than we have doubled the distribution of third parties in the last 12 months, the balance now is approximately R$ 4.4 billion. also considering the rate environment that we have seen customers now increasingly focused on assets with more profitability, such as CBD, LCIs and also CDBs. And we see this advantage especially when we consider the Brazilian rates, if this is possible due to a bank with total licenses that allows us to really carry out CDBs. On the right side, we see that the financing cost, with the percentage of SELIC, reached 61%, which is still one of the lowest in the sector. On page 19, regarding revenue, I would like to show the following highlights. Year by year, our growth was close to 130% and R$ 6 billion per year. And year-on-year, the gross growth grew 130%, and in liquid terms, 88%. The growth of taxes continues to exceed the growth in NII, growing 91% and 73%, respectively, also year-on-year, and 9% and 6%, respectively, in quarterly terms. On the right side, in the charts, you can see how our recitation stream continues to be highly diversified. We consider this to be another competitive advantage of having so much diversification and not just mono or duo. And this also gives us resilience in relation to our products. On the next page, page 20, we show the economic analysis of the units from the point of view of the revenue. On the left, the longevity of our customers shows how our base of customers is still quite young at Inter. the orange part of each column, we see that a year ago, only 49% of our customers had been in Inter for more than a year, and now this index has increased to 58%. In the center of the page we have our ARPAC analysis by cohort. We should note that the cost of liquid ARPAC financing, considering that this reflects the capacity of production of receipts from our customers. And from the first quarter to the second, from 2018 to 2022, customers start producing liquid receipts, monthly, from R$ 10 to R$ 15 in the first quarter to about R$ 50 in the last quarters. This is seen in a court-to-court analysis, and we then see this level of revenue, which is also a reflection of the fact that our customers adopt our products at a more accelerated pace. On the right side, we see our ARPEC, now not in courses, but now in a quarterly way. ARPEC grew in relation to the same quarter of the year, the growth was 16% and we see that this compression of the last two quarters has a lot to do with the increase in the financing cost. On page 21, we see now that our customer service cost is R$ 13 per month. On the right side, you can see that our revenue cost index is improving in the last quarter, from 93% to... Approximately 72% and, as already said, we have a great focus on improving operational leverage as we gain scale and by the investment made in our platforms and teams. On page 22, in this quarter, we now see the result of the re-pricing of our credit portfolio. Despite the increase in reference rates, we have also managed to increase our liquid interest margin of 20 BPS compared to the first quarter of the year. We want to continue to increase the NINs with the re-pricing of these portfolios of longer duration. And finally, on page 23, regarding Interco's liquid revenue, we had a positive result of R$ 16 million in earnings this quarter. And also, in this slide, we have as a reference the Inter Bank's liquid revenue according to BASEN. It is no longer a listed entity, now it is Interinco. And we also have in our results disclosure a detailed table showing how to make the conversion and reconciliation of the financial data of Inter S.A. Bank to Interenco. Now I pass the word to João for his final comments. Very well, Helena. And to everyone, thank you very much. I am very excited to see what we can achieve. I would like to talk about three main aspects of our company before moving on to the Q&A session. First, operational leverage is a fundamental priority for me. We have the scale, we have the technology and we also have the team that can absorb a much larger volume of business. Secondly, despite the macro environment, I am extremely convinced and happy with credit cards, that is, we can really dominate these cards by improving three fundamental factors. First, subscription and price. Second, A good user experience, UX, and UI interference. And finally, the charge. We have also improved our charge a lot in this last quarter. I spent a lot of time studying this product and I can say that I am confident that we will really have an excellent business for our company. with this potential to add value to our ecosystem. And finally, the global account. We have the best product for Brazilians who live or travel to the United States. And this was one of our innovations, once again being the first bank to launch a product like this. And now let's open our Q&A session. Thank you very much everyone. Let's now start our Q&A session. Once again, for this session, we ask you to write your questions in the icon at the bottom of the screen, your name, and then you can ask your question if you want to open the microphone and do it live. At this point, your request to activate the microphone will appear on your screen. If you prefer not to open it, please write não quero microfone, não microfone, e a operadora, nesse caso, vai ler a sua pergunta ao vivo. A primeira pergunta vem de Yuri Fernandes, que é analista sell-side da JP Morgan. Vamos abrir a pergunta para que o senhor possa fazer a sua pergunta. Yuri, por favor. Hello, João, Helena, Santiago and everyone. Thank you very much and congratulations. with these results better than expected, excellent rates. Regarding NPL, the question is, has the worst already passed? Will NPLs reach 20 or 40 according to IFRS or 20 according to GAP? better or worse than credit cards. When we think about the level of expectation, that was good. And when we look at negotiated loans, portfolio sales, all the rates seem quite low this quarter. What is your view regarding NPLs and the risk cost that we can expect in the next quarters? That's my first question. And, if I may, a second one regarding margins. We've heard a lot of talk about the repayment of loans and we've also seen the repayment of your credit cards, personal loans. The question is, what can we expect in relation to NIMS from now on in the second half, in the second semester and for 2023 as well? And once again, congratulations. Yuri, this is João Vitor. Thank you very much for the question. I will cover the first one and Helena will cover the second one. You said... I really believe that the worst is already behind, as you said, in relation to NPLs. It is important to say that, as we have a very collateralized portfolio, this is very good, but in relation to the security issue and the credit card part, we don't have personal loans, I would say that You talked about 20 bps of increase in NPL, but in terms of adjusted growth, we have 6.5% of NPL. In other words, we stopped growing at the same rate, so we will really have an excellent quarter in that sense. Another point, NPL has to do with its training process, that is, the NPL comes from other cuts and more subscription, but more importantly, we would also like to track real-time KPIs. like 60 days, which I believe is a good, a better measure for us to be able to make the payment of credit cards. And the good news is that this base of 40, we see an improvement of these metrics, which gives us confidence. As you said, the worst is behind. But of course, We don't have an alpha here with the margin. If everything gets worse, which I don't believe will happen, we'll see even better operations. If things get better, we'll be faster and we'll have an even better improvement than expected. We're very excited about what we expect in terms of NPL and NIMS for our credit portfolio. Helena will now talk about NIMS, João, just one more thing. Before talking about NIMS, the message is that the formation of the new NPL should be more stable in this quarter, at least in the short term, improving, of course, potentially in the future, because 200 million... Yes, yes. The good news is that... First, it starts with default and then 30 to 60 days, which measures the capacity of current customers to pay our credit cards, their balance sheets. This in relation to what was seen in July and August, right? Yes, yes. Yes, for the last few months, yes. Helena, sorry. No problem. Thank you, Yuri. Yuri. With regard to margins, as you said, we are repricing our long book and also credit cards, as mentioned. We increased the rate, the rotating rate, for example, in the first quarter to 14.7% in July. And we will only see the effect of this increase of this last increase in the revolving credit, only in the third quarter. In other words, we hope that we will continue to have growth as we re-pricify our long book and the duration of short-term loans and we also hope that the real estate credit and the payment sheet, perhaps, will take a little longer, but it will happen as we also increase their respective rates. Regarding next year, we still understand that an improvement in the macro scenario, the decrease in inflation in the second quarter, then the market will be ready for the increase in interest rates from next year and this will be quite positive also for 2023, of course. And these are our perspectives, that is, a general improvement from now on. Thank you very much, Helena and João. Thank you for your question. The next one is from Pedro Leduc, CELSAD analyst from Itaú BBA. Let's now open the microphone so that he can ask his question. Thank you very much once again for accepting my question. First of all, following up on the credit card issue, you said that the worst is behind, but what were the lessons learned? And once they are more comfortable at the end of this process, maybe in 2023, how are you going to deal with this situation, new models, segmentation, the approach of customers with a more restricted target. What were the lessons learned with this credit process and how will you work with the expansion next year? Well, Leduc, thank you very much for your question, first of all. We really like our credit card business, it's important to emphasize that, it's an important portfolio for us, to increase the engagement of our clients, it's important for our businesses. And when we have this wind, this difficulty that we live in the market, we need, of course, to be more cautious, when it comes to working with our businesses. We are a disruptive bank, we have gained our market share, and now it's time to slow down a little. The good news is that, despite this macro environment, we have learned a lot in recent years, and as I said during the presentation, we see three very important factors. that should be dominated in relation to our credit portfolio. Of course, the subscription, the models, all this is very important, but... This is also something we have done for some time and with the right team. I believe that we will also be able, on our platform, to make a very good subscription of this product. Secondly, it is very important the UX and UI, user experience and interface. We need the correct churn, we have to have a good way for customers to be able to pay and renegotiate the account of your credit cards. It is important that this works well. And regarding the charge, we also learned a lot. In 2022, we set up a special committee to make the charge. Making the right charge makes a lot of difference in the NPL, that is, I think it was the company that had the best results in 2022. We are very confident with our credit card business, we realize that the market is doing well. we can continue to grow faster than in the last six months. This is my feeling about this specific product from now on. Thank you very much, João Victor. Another strategic follow-up question. You have a lot of capital, you have self-financed growth, but this doesn't always happen with other fintechs. Do you work a lot with cross-selling? Would it be the time to consolidate your capabilities even more? Or would you be open to other players who could also add value, who you could acquire? How is this situation? Well, Leduc, I would say that our focus is on improving and growing. We are the only digital player in the market that has this service or products so complete in our app. I don't see in our strategy any M&A and put something like that on the market to gain momentum or accelerate us. I think we can grow a lot with our client base. We have the products and the clients. It's a matter of time before we can accelerate and gain momentum. But I think this will not bring us so much competitive advantage, despite having a good base of capital. Our focus will be on improving our company and also on increasing our market participation. And we have presence in the verticals, investment, purchase, credit. This is our vision for the future. We don't see M&A, acquisitions and mergers, as a good strategy at this moment.

Thank you very much. Thank you very much, Leduc.

The next question comes from Jeffrey Elias, SiteSell Analyst. Let's open your audio so you can ask your question live.