XP Inc.

Good evening, everyone. I'm Andrew Parisi, Head of Investor Relations at XP, Inc. It's a pleasure to be here with you today. On behalf of the company, I would like to thank you all for the interest in welcoming you to our 2023 fourth quarter earnings call. This quarter, along with 2023 results, will be presented by our CEO, Thiago Mafra. and our CFO, Bruno Constantino, who will both be available for the Q&A session right after the presentation. If you want to ask a question, you can raise your hand on the Zoom tool and we will attend you on a first-come, first-served basis. We also have the option of simultaneous translation to Portuguese. There is a button below if you want to turn on the translation. And before we begin our presentation, please refer to our legal disclaimers on page 2 on which we clarify forward-looking statements. And additional information on forward-looking statements can also be found on the SEC filing section on the IR website. So now, I'll turn it over to Thiago Mafra. Good evening, Mafra.

Thanks, André. Good evening, everyone. Thank you for joining us today on our 2023 fourth quarter earnings call. It's a pleasure to be here tonight. I will start with a brief introduction to this year's highlights and key updates. As I mentioned, my annual letter, 2023, was both a challenging and a transformative year for XP. Despite these two difficult macro environment, we remain committed to better serving our clients through innovation, high quality service and growth. In this slide, I would first like to talk about our financial performance for the year, marked by the resilience of our business model. I will leave for Bruno to talk about the fourth quarter's financials. In 2023, we celebrated the milestone of surpassing the 1 trillion mark in client assets, with a market share at still less than 12% in investments for individuals in the country. This shows the large potential growth we still ahead of us. Despite the macroeconomic condition I just mentioned, we were able to achieve a 12% growth year over year in top line and 10% growth year over year in bottom line. with approximately 100 bps growth in our ebt margin this year was also marked by a strong focus on efficiency and cost discipline through the whole company as we achieved an efficiency ratio of 36 percent the lowest level since our ipo our diluted eps increased 16% year-over-year, reaching R$ 7.22 per share. Also, in 2023, we returned almost R$ 4.5 billion in capital to our shareholders, both in dividends and share-by-backs, totaling a payout ratio of 114%. Lastly, I would like to talk about our guidance. We prefer midterm guidance than annual guidance, but at the start of 2023, we opened an exception aiming to better guide investors about 2023 in the context of an unusual weak results for the fourth quarter of 2022. We gave two annual guidance, SG&A and net income, as you can see on the right-hand side of the slide. Happily, we delivered on both metrics, even adding modal in SG&A, what had not been considered in our guidance at the beginning of 2023. Back in 2022, we also gave the market a medium-term EBT margin guidance from 26% to 32% from 2023 to 2025. We closed 2023 with an EBT margin at 26.8% within our median term in guidance. We expect to see our annual EBT margin improving on the next couple of years. Moving to the next slide, I would like to give you all an update on our strategy tracker for 2023, in line with what we talked about on our investor day last December. First, leadership in retail investment, by which we aim leadership in our core business. This year, we estimate we have gained approximately 66 bps in market share for individuals. This is yet another sign of client recognition and trust in our service. Yet, we have much to do with still less than 12% market share. Also on retail investments, I would like to highlight how we have managed to position ourselves as a premier hub for entrepreneurs by consistently pioneering in our distribution channel efforts to IFAs, consultants, wealth managers, among others. Second, in relation to our retail cross-sell, which we talked a lot about in our investor day, We aim to continuously grow together with our clients' needs. Clients' adherence to new products and services shows a strong bond of relationship. When we consider everything beyond investments, new verticals plus corporate and SMBX investments, we have seen an increase in their representativeness from 2.6% of our total gross revenue in 2019 to 17.5% in 2023, bringing more resilience to our model. Besides, in 2023, we improved our service specifically in effects and insurance, and both are responding with strong growth. During the year, we also had relevant product launches in our platforms, like our global account, which allows clients to spend and invest internationally, providing them with a seamless experience within the app. Third, in corporate and SMB, I believe we have a unique competitive advantage in wholesale banking, due to our sophisticated retail investors' client base and large distribution channels. Because of our singular distribution to these sophisticated clients, we are able to provide corporate and SMBs broader access to capital, creative product structuring and tailored solutions although we are still in the very beginning of our wholesale franchisee i believe this is a large untapped opportunity which will continue to focus on the next years lastly Central to these pillars is our commitment to a culture of quality and our client focus. We have talked a lot about this on our investor day last December, and I strongly believe this is the new true differential we will have in the years to come. Quality isn't just a word for us at XP Inc. It's a commitment to excellence that permeates everything we do. Today, I want to go deeper into what quality means for us and how it shapes our long-term strategy. When we talk about quality, we envision putting our clients at the heart of everything we do. It's about understanding their needs, anticipating their objectives, and delivering solutions to exceed their expectations. From that, we organize our value proposition with precision ensuring that it resonates with the diverse and evolving needs of our clients but quality doesn't stop at words and promise it's about tangible results we believe in delivering concrete outcomes that make a difference in our clients lives take for example our strategic initiative to offer comprehensive financial planning service rooted in asset allocation discipline by centralizing asset allocation under a single chief investment officer or CIO and tailoring or services to individual needs through financial planning We aim to ensure that every client receives personalized attention and optimal investment strategies. We have had major success in the past on democratizing access to top-tier investment products to high-income clients. Now we aim bigger. We are democratizing access also to premium services to a broader audience, services that were previously only available to private clients. Moreover, we are committed to maximizing value for both our clients and our shareholders. We recognize that even in the simple act of correcting asset allocation, there is a large opportunity for revenue generation and increased LTV. This is just one small example of how our dedication to quality translates into tangible benefits for both our clients and our business. In essence, quality isn't just an end goal for XP. It's a mindset that drives us to constantly innovate, improve, and surpass our clients' expectations. As we move forward, we will continue to uphold the highest standards of quality in everything we do, because that's what sets us apart and propels us towards sustained success. Now I will hand it over to Bruno so he can discuss this quarter and annual financials. Thank you.

Thanks, Mafra. Good evening, everyone. It's a pleasure to be here with you again. Moving on to slide nine. Starting with our gross revenue on the left part of the slide, this quarter we had a relatively stable gross revenue quarter over quarter at 4.3 billion reais. despite having roughly 6% less business days than the third quarter. On a year-over-year comparison, we had a 29% gross revenue growth in the fourth quarter 23. When we look at the full year, we posted 12% growth in our total gross revenue. Our strategy to go beyond investments with new verticals and corporate and SMBX investments has played an important role sustaining our gross revenue growth, as the core retail is still impacted by the macro. Looking to the right side of the slide, in terms of revenue mix between segments, we maintain a relatively stable mix quarter over quarter, while year over year, we can notice an increment in retail revenue relevance, mainly due to new verticals growth. as we are going to see in the next slide. Before we deep dive in new verticals, it is important to highlight that in this slide, we are only looking at the four new verticals we currently disclose, which are retirement plans, cards, credit and insurance, not including effects, digital accounts and global investments as presented in the investor day. So, new verticals continued to perform in the fourth quarter, reaching a total gross revenue of R$ 491 million, plus 21% year over year, and plus 11% quarter over quarter. The main highlights of the quarter were cards and insurance. Cards reached R$ 306 million. plus 18% quarter-over-quarter and plus 30% year-over-year. And insurance reached 46 million reais plus 28% quarter-over-quarter and plus 48% year-over-year. As you know, the fourth quarter has a positive seasonality to cards activity due to the holiday season. On the right side of the slide, When we look at the full year of 2023, new verticals revenue reached 1.7 billion reais, a growth of 43% year over year. And if we add the other new verticals, FX, digital account, global investments, and corporate and SMBX investments, In line with our presentation in the investor day, the total gross revenue sum up to 2.7 billion reais in 2023, enhancing our diversification and cross-sell capabilities. Now let's look on the next slide at our core retail revenue and its potential as the macro improves. Retail revenue reached its all-time high in 2023 at 11,791,000,000 reais, helped by new verticals, which grew 3x from 2021. But core retail revenue which grew 9% year over year, reaching R$8.73 billion in 2023, is still 3% lower than the peak of 2021, despite a bigger ecosystem. It is important that we acknowledge the high operating leverage potential a business like ours has at our core. Equities, fixed income, and funds, they all should benefit in a scenario of risk-owned, which eventually will happen considering it is cyclical. And then the high operating leverage of our unique ecosystem should kick in. On the right side of the slide, we brought some data to help envisioning this operating leverage. Even in a tough environment for our core in the last couple of years, we were able to grow our core retail client assets by more than 40% in this period. But the take rate suffered. reducing from 1.5% to 1% in the same period. If we take this 50 bps difference intake rate and apply to today's client assets, just as a math exercise, we would have more than 4 billion reais in additional revenue. XP's ecosystem gives us a unique position in terms of operating leverage in a bull market for investments. Our market share in retail traded volumes on B3, for example, of 48% is four times larger than our closest competitor. So in summary, we believe XP is well positioned to benefit from the next positive cycle for investments whenever it comes. Now moving to slide 12. Corporate and issuer services presented another solid quarter with revenue of 508 million reais plus 85% year over year and a slightly decrease of 2% quarter over quarter. which had a tough comp considering corporate results in the third quarter 23. As we anticipated in last quarter's conference call, the third quarter was the peak for corporate revenue due to increased derivative demand related to DCM activity in the period. But the fourth quarter 23 was the second best quarter for corporate revenues, reaching R$177 million, 10% lower quarter-over-quarter, but 31% higher year-over-year. The main highlight here in fourth quarter 23 was the all-time high issuer services revenue at R$330 million, a growth of 3% quarter-over-quarter and 136% year-over-year. boosted by the evolution of our franchise in investment banking with M&A as the main contributor for the growth. These positive numbers are a result of a complete range of products and continue to show the benefits of the increased diversification of our business model, translating on a 22% growth in 2023 compared to 2022. On slide 13, Our SG&A expenses continue to be under control, as cost discipline is a priority for us. SG&A, excluding revenue from incentives, total 1.5 billion reais, 2% lower quarter over quarter and 10% higher year over year. considering we didn't have modal in fourth quarter 22. Looking at the full year, our SG&A was 5.3 billion reais in 2023, compared to 5.6 billion reais in 2022, a result of strict cost control, with our efficiency ratios improving substantially year over year. as we are going to see in a while on the following slide. Those numbers consider a one-off adjustment of 44 million reais write-offs in the fourth quarter, due to an impairment related to the termination of XTAGE and one investment asset. One year ago, when we first gave our SG&A guidance between five and 5.5 billion reais, modal was not being considered. Even after including modal in our numbers, we were able to deliver the 5.3 billion reais within the range. if we exclude modal we would be closer to the bottom of the guidance for 2024 cost discipline continues to be one of our top priorities within the company as my affirmation in his letter now Let's look at our efficiency ratios on the next slide. Efficiency ratio is at its all-time low since IPO, reaching 36.3% in fourth quarter 23 or 36% if you adjust for the one-off event of the quarter. Compensation ratio decreased once again from 25.7% to 25.1% quarter over quarter, the lowest level in 13 quarters sequentially. Our cost control discipline has played an important role in our operating margin, which we are going to talk on the next slide. Moving to EBT. Adjusting for the one-off event, this quarter's EBT was 1 billion and 39 million reais, down 10% quarter over quarter and up 41% year over year. Also, considering the adjustments, EBT margin was 25.7%, plus 245 bps year-over-year, and minus 233 bps quarter-over-quarter. Revenue mix was the main driver for quarter-over-quarter margins decrease, impacting COGS and our gross margin, which decreased from 70.1% in third quarter 23, to 68.1% in fourth quarter 23. When we look at the full year with adjustments, EBT total 3,980,000,000 reais, up 16% year over year, with an EBT margin of 26.8%, up approximately 100 bps year over year. On slide 16, Our net income for the fourth quarter 23, considering plus 31 million reais from the one-off event, total 1 billion and 71 million reais, down 1% quarter over quarter and up 37% year over year. Net margin was 26.5%, up 18 bps quarter over quarter, and up 184 bps year over year. Looking at the annual metrics, on the right side of the slide, Net income increased 10% year over year to R$ 3.9 billion in 2023, with net margin slightly decreasing 38 bps year over year to 26.4%. In 2023, we've continued distributing capital to shareholders, returning R$ 4.5 billion in buybacks and dividends. representing a payout ratio of 114% for the year. We kept a solid and comfortable balance sheet, with our managerial BIS ratio ending the year around 20%, impacted by the dividend distribution on fourth quarter 23 and modal acquisition. we also announced a new by that program of 2.5 million shares which aims to neutralize 2024 shareholder dilution due to the vesting of share based compensation from the company's long-term incentive plan we expect to return more capital to shareholders throughout the year in line with our intention to reduce our managerial this ratio between 16 and 19 percent over the next years finally On my last slide, I talk about a metric which has become more relevant to us since the IPO and the growth of our bank. return on equity or return on tangible equity. We believe the return on tangible equity is even a better metric than accounting return on equity. But we look at both. Why return on tangible equity is important in our case, especially if you want to compare XP with Brazilian peers. First, we believe it's a metric closer to our marginal return on equity or closer to our return on capital employed, which, by the way, we use to decide how to allocate capital. Second, return on tangible equity excludes intangibles and goodwill, which makes it a metric more comparable to Brazilian GAAP. which amortize goodwill differently than IFRS. Return on tangible equity has slightly decreased quarter over quarter by 19 bps to 25.6%, while increasing 570 bps year over year from 19.9 percent in fourth quarter 22. annual return on tangible equity is likely decreased by 21 bps to 25 percent important to remind that this return on tangible equity at 25 percent has been achieved in an environment where our core has not benefited from the operating leverage which our ecosystem provides, highlighting the resilience and sustainability of our business model, independent on where we are in the cycle. When we get the positive part of the cycle for investments, we expect to see our operating leverage kicking in and benefiting our return on tangible equity as well. Now, I will hand over to Mafra for his final remarks. Thanks, Bruno.