XP Inc.

Good evening, everyone. I'm Andrew Prezi, Head of Investor Relations at XP, Inc. It's a pleasure to be here with you today. On behalf of the company, I'd like to thank you all for the interest in welcoming you to our 24 first quarter earnings call. This quarter's results will be presented by our CEO, Thiago Mafra, and our CFO, Bruno Constantino. We 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. You also have the option of simultaneous translation to Portuguese. There's 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 four local statements, additional information, and four local statements can also be found on the SEC filing section in our 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 2024 first quarter earnings call. It's a pleasure to be here tonight. Before we review our financial results, it's important to acknowledge the devastating floods that have impacted Rio Grande do Sul, resulting in tragic loss of lives and homes. It's particularly heartbreaking as XP began its journey in a small 200 square foot office in Porto Alegre. During this difficult time, we are committed to supporting the affected communities. Our hearts go out to all those affected. Now, let us discuss our quarterly performance and the steps we are taking to ensure our continued growth and commitment to all stakeholders. As we continue our conversation today, I want to reiterate our commitment to serving our clients by delivering innovative and high-quality service. I am proud to announce that during this quarter, we have implemented a sophisticated and scalable financial planning tool. This technology provides us with a clear view of our clients' financial cycles, enhancing our service offerings. additionally it integrates seamlessly with our recently launched open investments initiative which broadens our ability to present diverse investments alternatives at better rates and lower price i will revisit this topic shortly to provide more details on how it functions before we delve into our financial performance it's crucial to address the macroeconomic environment which remains challenging. The first quarter of 2024 began with terminal interest rates expectations nearing 9% per year, controlled inflation, an appreciating real and a managed fiscal situation. However, as the quarter progressed, we saw interest rates adjust to 10%, a slightly depreciation of the real, and an ongoing fiscal challenge. In terms of market activity, the appetite for equities has continued the trend from previous quarters with slightly lower turnover, while attention remains focused on fixed income. Despite competing with tax exempt credit notes, our competitive portfolio continues to grow, benefiting from our complete ecosystem. For instance, during the quarter, our corporate credit book saw gains from narrowing credit spreads, and our debt capital market flow remained strong for a first quarter. On the flip side, we can say that we prepared ourselves to another tough year, both in terms of expenses and also in what we would expect in terms of revenues. So, recent worsening in market conditions didn't change much our overall expectations for the year. Turning now to our financial performance, despite the challenging macroeconomic scenario, we achieved a 28% year-over-year growth in top line and a 29% growth in bottom line. Our EBT margin expanded by approximately 81 basis points. This quarter was also marked by a strong focus on efficiency and cost discipline across all operations, as presented by an efficiency ratio of 36.5%, which is 384 basis points lower year over year. Our diluted earnings per share increased by 25% year over year, reaching 1.85 reais per share lastly i like to highlight our return on tangible equity which we consider a more accurate measure for running our business it stood at 25.4 percent mark an increase of 491 basis points year over year moving on to the next slide Let me provide an update on our strategy tracker for 2024, following up on our discussions on Investor Day last December. Firstly, regarding our leadership in retail investments, we are pleased to announce the appointment of Cesar Chicaiban as the new CEO of our private banking division. This division has seen relevant enhancements in process, product offerings, and service levels. With Cesar, we are confident in our path toward establishing ourselves as one of the top private banks in Brazil. Also, we have once again been recognized by Folha de São Paulo as the best advisor platform in the country, a testament to our commitment to excellence in client service. Our vision is clear. We aim to dominate the investment industry in Brazil, a big but achievable goal. I will dive deeper into the specifics of this strategic pillar in the next slides. Last quarter, we introduced our financial planning tool for advisors, marking an important milestone in how we serve our clients. This tool represents the third wave of differentiation for XP, following our open architecture platform for third-party products and our extensive distribution network. Moving on to our retail cross-sell strategy, Particularly in banking, we are proud to be ranked second in the Stadão ranking of the best banking services for 2024. Our digital account, though relatively new, has a Red Game recognition. This rapid recognition is incredibly gratifying. Beyond investments, our new virtual segments have grown to represent a larger share of our total gross revenue, almost 13% in the first quarter of 2024, enhancing the resilience of our business model. In the corporate and SMB, our unique position in wholesale banking continues to strengthen. This quarter, our role in structuring and distributing corporate credit has been once again prominent, underscoring our competitive advantage through sophisticated retail investor clients and a large distribution channel. Our corporate and SMB revenue was 5% of total revenue. Lastly, on the topic of quality and strategic execution, we have launched a financial planning tool for all our advisors and with rapid adoption. With over 2,500 active advisors in the platform within only two weeks of the launch. We have also centralized the Chief Investment Officer role with Artur Wichman to provide consistent allocation calls across all client and risk profiles, which have been recently reviewed. This launch coincides with Open Investments Initiative, which we see as a good opportunity for us. As I have previously mentioned, the next phase of XP's growth will be driven by our ability to provide higher quality experience for our clients throughout their financial journeys. Our ongoing enhancements to the solutions we offer are designed to empower our advisors to deliver smart and more precise investment advice. By optimizing client portfolios to align closely with individual goals, we are raising the bar for what it means to engage in high-quality financial planning. We are committed to democratizing access to premium services. broadening our perspective to proactively meet clients' objectives and offer a complete and curated set of investment alternatives. These efforts are designed to not only meet but exceed client expectations. This new approach to allocating resources presents great opportunities for revenue generation and increasing lifetime value. exemplifying how our emphasis on quality translates into tangible benefits for both our clients and our business. This strategy distinguishes us further from incumbent banks and strengthens our position for continued leadership in the coming years. This quarter, we have introduced new features that integrate our financial planning platform with open investments regulations, creating a positive feedback loop. With our financial planning tools and service incentives, clients are encouraged to share their data, enabling us to provide even better services. With client permission, we gain visibility into their entire financial portfolio across XP and other platforms. We have already begun training our advisors on these new capabilities and we expect to complete training across our entire advisor base in the coming quarters. Granting XP access to their full financial portfolio is a straightforward process for clients. allowing us to present an integrated and comprehensive view of their investment options. By leveraging our modern financial planning platform, already a differentiator in the market, we provide advisors with tools to offer holistic advice and compare investment opportunities both within XP and across competitors. I want to highlight this as an important differentiator that sets us apart in the market. Currently, we are not aware of any other player implementing strategies similar to ours on the same scale. This initiative represents a big step forward for XP, marking what we like to call the third wave of differentiation. This follows our development of the open architecture product platform and the establishment of a more sophisticated and complete distribution channel through our network of IFAs. These innovations underscore our commitment to staying ahead in the industry and continuously improving the value we offer to our clients. Now I will hand it over to Bruno so he can discuss this quarter financials.

Thank you. Thanks, Mafra. Good evening, everyone. It's a pleasure to be here with you again. Moving on to the next slide. Starting with our core operating KPIs. All three main KPIs for investments, our core, hit record numbers as of first quarter 24, signaling we are on the right path towards our goal to be dominant in investments. One, total client assets at R$1,141,000,000, a 20% growth year over year. Two, total active clients at R$4,587,000, a 16% growth year over year. And three, total advisors at R$17,700, a 16% growth year over year. Total Advisors number on the right includes our IFAs, or B2B as we call it, already disclosed in our previously quarters, added by Internal Advisors, our B2C, and RIAs, Registered Investment Advisors, which includes consultants and wealth managers, among others. We decided to disclose these numbers starting in 2024 because of the growth of other channels beyond IFAs. We believe this number better represents our total distribution capability. As you know, the investment advisory profession in Brazil has evolved, with XP leading this movement. And different channels to serve the client have appeared and presented relevant growth in recent years. From now on, we are going to present the total number of advisors, including all channels. On the left, we can see that Total net new money, another important KPI, stood at 15 billion reais in first quarter 24. With retail net new money is likely better quarter over quarter, moving from plus 12 billion reais in fourth quarter 23 to plus 13 billion reais in first quarter 24. While lower than its potential, especially considering the actual size of our ecosystem, we believe retail net new money will improve down the road. As we keep growing our total advisors, improve the client experience with a powerful financial planning tool, as Mafra already mentioned, invest in our private banking segment, also already mentioned, and expect less tax-exempt credit notes from the incumbent banks due to change in regulation. Of course, there is a macro component which impacts net new money, and resilient inflation coupled with still high interest rates don't help. But we see a positive trend going forward, considering we are moving towards a better cycle for investments, even acknowledging the pace is probably going to be slower than initially thought. Moving on to the next slide, we are going to take a closer look at our gross revenue. Total gross revenue grew 28% year over year, helped by the diversification of our ecosystem, a strong DCM activity, and easy comp with first quarter 23, when we had a dysfunctional market due to corporate credit problems in Brazil. On the right-hand side of the slide, where we can see our gross revenue breakdown, the main highlight is the continued relevance of corporate and issuer services. at 12% of total revenue, and retail is still representing the majority of our total revenue, at 73%. A strong performance from capital markets is reflected in both retail, especially in fixed income, and corporate and issuer services. Let's move to the next slide, which focuses on retail new verticals. New verticals. continuing to deliver strong growth year-over-year. In first quarter 24, New Vertical's revenue stood at R$ 493 million, a 35% growth year-over-year. On a quarter-over-quarter basis, New Vertical's revenue remained almost flat, mainly due to the seasonality of cards in Q4, the main contributor to New Vertical's revenue. It is worth remembering this number only includes retirement plans, cards, insurance, and credit, to be consistent with our previous disclosure. If we add digital account, international platform, and effects, all of them included in other retail revenue, we would have approximately an additional R$100 million in revenue in the first quarter. The main highlight here is that the evolution of new verticals underscores our efforts to make the company less cyclical and, more importantly, enhance the investor experience at XT. Moving on to the next slide, we will talk about our institutional and corporate and issuer services revenue. Starting with institutional revenue displayed on the left-hand side of the slide, we had a R$354 million revenue in first quarter 24, a 7% growth year-over-year, and 14% decrease quarter-over-quarter, mainly impacted by lower market activity by institutional clients in Brazil sequentially. Now, turning to the right-hand side of the slide, Corporate and issuer services revenue reached 509 million reais in first quarter 24, a strong growth of 91% year-over-year and flat quarter-over-quarter. In the last three quarters, sequentially, corporate and issuer services presented revenue north 500 million reais. reinforcing our strategy to diversify our revenue stream through our wholesale bank and also demonstrating XP's well-positioned to continue benefiting from DCM activity in Brazil. Now let's move on to the next slide where we will explore our SG&E and efficiency ratios. As stated in previous quarters, cost discipline is a priority at XP. SG&A Ex-Incentives reached R$1,416,000,000 in Q1 2024, a growth of 36% year-over-year and a decrease of 9% quarter-over-quarter. The growth year-over-year is mainly explained by two facts. One, tough comp with first quarter 23 when we had very low share-based compensation due to the layoffs implemented in that period. And two, we didn't have modal SG&A in first quarter 23. The decrease quarter over quarter can be explained by, one, our continuous focusing efficiency, and two, seasonality of some expenses, like marketing and expert events, for example. The bottom line, as you can see on the graph in the right, is that our efficiency ratios continue to be close to its lowest levels since IPO, with comp ratio at 25.2% and efficiency ratio at 36.5%. This instability in our expenses ratios underscores the positive operating leverage of our business, which should benefit our EBT in the next years to come. Moving on to EBT, thanks to the operating leverage and efficiency ratios, we have achieved a record EBT number for our first quarter at R$1,088,000,000, a 33% improvement year over year and a 9% improvement quarter over quarter. This brings our pre-tax profit margin to 26.9%, 81 BIPs growth year over year, and 226 BIPs growth quarter over quarter. Looking ahead, as per our midterm public guidance, we aim to reach a pre-tax profit margin between 30% and 34% by the end of 2026. this goal underscores our commitment to progressively moving towards these levels while we may see some volatility on a quarterly basis as we saw in fourth quarter 23 for example it's important to focus on our annual performance or on a last 12 month basis which we believe better incorporates the seasonality aspects of our business to get there we expect to see better results at our core in the years to come benefiting from its operating leverage and until then we will keep doing our homework to keep costs under control and enhance the experience and quality of service to our clients moving on to our net income we see similar improvement to what we have discussed with ebt net income reached 1 billion and 30 million reais in first quarter 24 also a historical record for first quarter numbers representing a 29 growth year over year and almost flat quarter over quarter and net margin stayed at healthy levels in first quarter 24 at 25.4 percent finally our return on tangible equity We kept our annualized return on tangible equity in similar levels of the fourth quarter 23 at 25.4%. This consistency underscores the returns we are able to generate on our tangible equity independently of the macro environment, demonstrating the evolution of our ecosystem and business model. We continue to be diligent about how to allocate capital. Every year we analyze our capital needs, liquidate, decide how much of our excess capital we are going to return to shareholders. This is usually done in the second semester of the year when we also have our budget for the next year. As a company that is profitable, generates cash, is under leveraged, and has excess capital, it is reasonable to assume a distribution of capital to shareholders at some point in the second semester of this year. And before I hand the call back to Mafrem for his final remarks, I want to touch on our CFO transition, as well as the important change that we have implemented from a corporate governance perspective. First, this will be my last earnings call as CFO, as I transition to a board member role. I'm excited that Victor Mansur will become CFO effective August 1st. He's a long-term partner of XP, has joined the firm at the same year I did, 2012, is already a member of our executive committee, and has worked together with me in the finance team since 2022 as Deputy CFO. He's the natural successor with his strong capabilities and experience to lead the finance organization. I have no doubt in my mind that I'm leaving the role in great hands. On behalf of the board, I'm also pleased with the recently announced changes we have made to our corporate governance structure. Following the upcoming annual meeting, we will have a majority-dependent board of directors in line with best-in-class corporate governance practices. we are thrilled to add four new independent directors that bring critical skill sets to the board especially in risk management banking and credit as we continue to diversify and grow our business in a dynamic financial landscape we have also formed two new committees one Risks, Credit, and ESG Committee, and two, Strategy and Performance Committee, that will strength board oversight in areas that are important to the next chapter of Growth for XP. With that said, I will now turn it over to Mafra for his final remarks. Thank you very much.

Before I go to my final remarks, I want to take a moment to thank Bruno for his outstanding service as a CFO. We are profoundly grateful for his dedication and contributions. Bruno, we look forward to your continued contributions on the Board of Directors and wish you all the best in this new role. So, to wrap things up, we have had a strong quarter, especially considering seasonality. we have kept our expense under control and we are confident in our ability to manage the company effectively throughout the year this disciplined approach positions us well to capitalize on any improvements in the market conditions whenever they arise additionally The integration of open investments as a catalyst in our financial planning tool is something we are particularly optimistic about, creating an opportunity to make our clients' financial lives better, enhancing overall service equality, the third wave of differentiation for XP. Now, let's proceed to the Q&A session.

Thank you, Mafra. Now we're going to take your questions. And the first one is from Chago Bautista, UBS. Chago, now you can make your question.

Thanks, Farizi. Thanks, Mafra, Bruno. My first question, Mafra, you mentioned several times about this tough macro scenario that we have right now. What are, in your view, the main alternatives that XP has to post a higher EPS in the case of no improvement in the macro scenario that seems more likely now than a couple of months ago? And also, a second one, about the NetNewMonday. The total net new money of 14, 15 billion in this quarter or 13 for the retail only is probably one of the lowest ever or at least lowest in the last years. Bruno's speech was a bit more positive with the outlook of the net new money. So can you give to us an idea of the evolution of the net new money in the last couple of months, not necessarily with the numbers, but only with the trends, only to see this sense of possible improvement in this net new money? And finally, Bruno, thanks a lot for the partnership in the last couple of years.

Thank you, Thiago. And Bruno will continue with us forever here. I'll be here, I'll be here.

Thank you for your words, Thiago.

So, about your first question, EPS, as we have been talking about our strategy and how we think about the company for the future, the growth, I like to think on the three pillars that we have been talking, investments, cross-sell, and wholesale banking, okay? So, these are the three pillars. And, of course, investments, we have been growing, but at a very slow pace compared to the past because of the macro environment. And we have been growing more on cross-sell and the wholesale part, okay? So... that's how we have been managing to keep growing of course at the lower levels that we have been growing 2020 2021 but we have been growing despite the macro environment it's because we have been investing in these new verticals on the wholesale part and diversifying the business and besides that we have been controlling costs so what we have planned for 2024 uh internally of course not the the market uh um math or expectations is despite any macro improvement, okay? So we have prepared the company for 2024, expecting another very tough year as we had in the past two years, okay? But at some point, for sure, we will have a better market, we will have operational leverage, but for sure, on the first pillar, investments will grow at a slower pace if the macro doesn't change, okay? But we have been investing in new verticals and we believe we can deliver a good growth not an spectacular growth despite the macro environment improving or not okay so that's my view and about that new money yes i believe uh that the worst is behind us but uh as you mentioned we are and about like uh what bruno said we are more optimistic today than we were like a year ago or two years ago i believe uh the worst is behind but it will take some time to recover to levels that we have been seeing again in 2020, 2021. I mentioned a lot about what we have been doing here, diversifying channels, what the wealth managers, the internal advisors and so on to keep growing. We have been investing a lot on financial planning, on delivering another level of services to our clients. So we have been investing a lot in what we call the third wave of differentiation because we believe that will pay off. Okay. So, and that's the way we believe we will recover that new money. Okay. And we already see that in some of our numbers. And, again, we also see some improvement from the change on the tax exempt notes. Okay, so that's our view.

Very clear, Mafra. Thanks.

Next question is from Jorge Cury, Morgan Stanley. Jorge, you can make your question.

Hi, everyone. Thanks for the call and all the best of luck, Bruno, in your new role at XP and thank you for all of your insights these years. I wanted to ask something. I wanted to ask about the tax rates. Given the change in the macro landscape that you described before and how that, you know, maybe changes the type of business and profit centers that you're going to be booking versus the environment that we thought was going to play out earlier this year. Can you help us understand how does that affect your effective tax rate or not? if more of the business is going to come from the excess capital, right, and the capital deployment locally because, you know, it's a slower business environment, does that benefit your tax rate? And if you can help us get our arms around how does that look over the next two years if, indeed, we have sort of like a slow, sluggish equities environment with SELIC rates, you know, stuck at 10% for the next 18 months, which seems to be the consensus view today. Thank you.

Yeah, sure. Thank you, Jorge. Yeah, regarding the tax rate, we saw a higher tax rate, effective tax rate, if we come back with the tax withholdings that we have in funds. It was 18% this quarter. For example, compared to 11% in fourth quarter 23 and 17% in first quarter last year. So if there is more, and depends a lot on the mix of the revenue, right? So it's hard to forecast the tax rate because we do not know what the mix is going to be. It depends part on the macro, capital market activity, and so forth. But I would say in the next two years, if we continue with an environment like the one we are living right now, the first quarter, 24, is a good guess. So that's, but it's a hard forecast, honestly. Okay, got it.

Thank you. Okay, next question is from Renato Meloni, Autonomous Research. Renato, you can make your question.

Hi, everyone. Thanks for the space for the questions. So mine is on the equity take rate. I wonder if you can give us some more clarity here on the decline this quarter. Was this a mixed shift or maybe the competitive environment is a bit tougher and you're seeing some declines here in fees? And then some expectation on the trends in the equity take rate if the scenario continues the same. Thank you.

Yeah, the take rate, the take rate, it was a marginal decrease, right, a few base points. And that's normal because, again, it's a function of total client assets in the denominator and revenues in the numerator. So there is a little bit of mix. But it's been in the range that we believe is normal in the past years or quarters, if you look at it.

Just a comment. the answer here there was no change in price okay so because you mentioned if we had any price pressure there was no no changing any price okay okay so you respect stable equity take rates for the rest of the year in the scenario scenario yeah equity equity take rates remember that in the equity uh bucket

In retail, we have not only brokerage, futures, but we also have, for example, listed funds. So depending on if we have a quarter with a lot of the listed funds doing follow-ons or even IPOs, then the tick rate could go up. If we don't, it can be less favorable compared to quarters where we have that kind of activity. There is also structure notes and structure – finance there in that bucket as well. So again, it's more about the mix Then in turnover, mix and the turnover of the equities, you saw that the debt year over year has decreased. So the activity in capital markets and the velocity turnover, whenever it's weak, then it's a negative impact. Everything else equal, a negative impact in the equity take rate. If a turnover picks up, it's a positive impact in take rate. Thanks.

My next question is from Antonio Huet, Bank of America. Antonio, you can make your question.

Hey, guys. Thank you for your time. And, Bruno, thank you for all your time with us. So I would like to follow up on Tiago's question on clients. So if you could explore a little bit more on how to serve these clients, because my question comes from the decline in NPS. So we continue to see on top of inflows, we see weak client additions and declining NPS. So what does it reflect in your opinion? And also, would you say that going forward, your revenue expansion tends to come from outside or inside? Do you still have market share gains or should it come much more from the monetization of your own clients? And how have you seen outflows in this scenario? Okay, so this is my first question. And also, if you could explore a little bit the performance of the IFA commissions in this quarter. Thank you.

Okay, I will take the first question about the NPS. The decline was one point, so it's probably not even like a statistical relevant. Okay, so, but... Yeah, and at a very high level. So we don't see any relevant decline on NPS, and so don't see any problem here. And we should, as we have been investing a lot on quality, increasing the level of service to our customers, the tools, financial planning, and so on, We expect to see, in the medium term, an increase on NPS. Okay, so about how we expect to make money, if it's internally or externally, it's both of them. When we talk about the first pillar, it's investments, it's, again... about gaining market share but also if we have a market recover here will increase revenues so there are like two main catalysts here uh we kept growing market share in the past years despite the macro environment will keep growing okay And also, as Bruno mentioned, if we have a recovery, we'll see people moving from low fees products to more risk on products. So we should see an increase on take rate. Okay, so that's how we grow in investments. And then we have the cross-sell part. That's basically how we cross-sell products. Okay, now we have dozens of products here that we can sell to our investor clients. Okay, so basically what we have been reporting on the new verticals. Of course, we have some other products that are not included here. on the new verticals but we have been talking about them uh explicitly and so we should increase uh the the air pool uh in the next quarters okay so both internally and externally market share plus crosstalk

Regarding your second question about the commission costs, it's an expected, I would say, number considering... percentage of net revenue, for example. So we have oscillations among quarters, but it's nothing relevant. If you take the first quarter, 23, for example, our total commission costs represented 22% of net revenue. If you look at the last quarter, first quarter, 23, it represented 20% of net revenue. In this quarter, 21%. So it's It's inside a natural band. And what explains that fluctuation is one thing, mix. So it depends on the mix. We can have higher percentage of net revenue or lower percentage of net revenue.

All right. Thank you.

Okay. Next question is from Neha Argawala from Age SBC. Neha, you can make your question.

Hi, thank you for taking my question. Just quickly on the open finance initiative that you mentioned, with the open investments, you seem to be trying to produce that with your client base. How much traction you have received on that? And you mentioned that you don't see most of the competitors utilizing that. But once they do, do you see that as a hindrance for your platform? So just discussing a bit more of the dynamics from open investments. And the second question is on costs. You come here to maintain cost discipline, but are there any more levers for pulling down the cost to income ratio? Or are we kind of done here and this is the level that we should continue, we should expect going forward? Thank you.

You broke up, sorry, Neha. So the first question is about the financial plan.

Open investments, yeah. Open investments. And how the competition is behaving. And the second one is on the costs. Do you have any cost level? Or should we expect this kind of cost-revenue ratio kind of continuing going forward?

We just released the tool to our IFAs, internal advisors, and clients. So it's at a very early stage. But the beauty for us is what we have been doing when we talk about financial planning is – uh we have replicate the level of service that only high and ultra high clients usually have at private bankings to all our clients okay so we have created we and we have been developing this system uh for the past year We just released financial planning system and open investments together. So the beauty here is you have a completely different conversation with your clients because it's not you're trying to sell a product or only trying to sell a product or a portfolio, but you are selling a service, okay? So you really understand their needs, their goals, their lifetime, their objectives, and so on. and then you help them to get there. So it's a much broader conversation. and where open investments get here because once they give they allow us to go to the banks and get all the information we see all the portfolio okay so we have been doing that for i would say two to three weeks now and the results they they are quite impressive okay the level of conversation and engagement with the clients but it's too soon to give a number or any stream achieve about the use years or something but we are very optimistic about uh the tools and especially with the new service that we are providing to our clients

And this service, if I can follow up, this service is all digital and there's no extra expenditure that you have to make to provide this better quality service. And do you still think that your service is much superior than the incumbents or have the incumbents kind of closed the gap in terms of service level that you provide?

I like to say that we have three waves of differentiation here at XP. The first one back in 2010 was product. The first open platform, the second one, that we still have a huge differentiation is distribution. We have a much... bigger uh sales force dedicated to investments better uh trained 100 100 folks on investments okay so we still have a big differentiation here but we are working on the third wave of differentiation that's not selling products but selling a completely different service okay i i would say that the banks there the incumbent banks they are trying to replicate the first two waves Of course, they open the platform, okay, but they still sell 80%, 85% of their own products on the client's portfolio, okay, and they are trying to replicate the distribution, training people, and creating specialized people on investments. But, again, I believe we are already opening the gap again on the third wave of differentiation here. We have been training about the cost that you mentioned. the cost here is we have to train or retrain all the the the ifa network the internal advisors we have invest a lot in technology because it's a high scale business here so of course it's very easy to do that a very good job on financial planning when you're working with only high net worth individuals. But when you do that for 5 million clients, it's not so easy. So we have been training a lot of people. We have developed tools, technology, and again, what we call financial planning plus open investments, for example. We just centralized the CIO figure on Artur Vichman. We recreate all the segments in the company, and Artur is giving all the locations calls to all the segments and these financial planning tools. They give the correct allocation, they rebalance the portfolios, and so on, okay? So, it's a completely different service from what you can get on the incumbent banks. Again, if you are a high net worth client, for sure you have this service in any bank, okay? But if you have... If you are affluent or if you have only a few thousand U.S. dollars, you don't have the service, okay, in order to place the NXP.

Here, Miha, is to do what Mafra explained at scale. That's the main challenge, you know. We just released in this quarter our total number of advisors, more than 17,000 advisors. Talking about investments, which is a complex topic, especially if you are going into financial planning. And make that at scale with the quality and service that we want to achieve. That's the challenge. But we believe we have all the tools to make it happen. And your second question was about the costs. Yeah, look, last year we mentioned that for this year you should look more at the second semester SG&A than the first semester, mainly because of modal. We didn't have modal in the first semester. We had it in the second semester. Now everything is integrated. It's only XP now. And the level of SG&A that you saw in the first quarter is Of course, there will be volatility among quarters, but when we look throughout the year, our expectation is to keep costs under control, as Mafra mentioned in his speech. In this slide, during the presentation, I also mentioned just that we have some seasonality, which is how our company works. So, for example, we will have expert events in the third quarter. we will have higher marketing expenses throughout the year compared to the first quarter because there is seasonality there. But overall, the efficiency ratio should be close to the lowest levels going forward as well.

Thank you so much, Bruno. Thank you so much, Derko. Very helpful.

Thank you, Neha.

Okay, next question is from Guilherme Grispan, JP Morgan. Guilherme, you can make your question.

Thank you, Paris and Mafra, Bruno. Thank you for the call. Two questions on your side. The first one is related to net asset value. I think you guys departed from $9.9 billion in the fourth quarter. You printed $1 billion profit, so it was supposed to go up to $10.9 billion. But I see this number actually declined to 9.4 billion in NAV this quarter. So it's a 1.6 billion gap. We were taking a look here on the notes. I know that it spent something close to 700 million in IFA, probably the brokerage of select IFAs, but still close to a billion missing here in NAV being burned. Just want to understand the breach, what exactly drove this declining NAV. And then the second question is related to energy. You published here an adjustment on the financial assets that is related to energy, has been growing a lot, quarter over quarter, 3.6 billion to be precise. Just want to make sure I understand what exactly you mean by energy assets, if you can explain just what you put there and what the 3.6 billion mean in the context of the energy trading business. Thank you.

Yeah, sure. I can take those two questions. So, the NAV, it's basically... Remember that there is part of this variation that is explained by seasonality, especially in the first quarter, third quarter as well, but most in the first quarter because of tax and bonuses payments. So tax and bonuses payments in the first quarter, 24, net payments. presented almost close to 800 million reais deduction of the NAV, right? So that coupled with the close to 700 million reais that you highlighted in investments that we made that had a cash disbursement The investments were made at the end of last year, but the cash disbursement happened in the first quarter this year deducts from the NAV as well because you change the lines, right? So it's not a financial asset anymore. It becomes an investment. So those three components all together, Guilherme, the investments, right, Tax and bonuses, they are close to 1.5 billion reais in this quarter, so mainly explains the variation that you asked for. Regarding the energy, It's basically an energy prepayment. We have an energy desk in XP. So it's a loan book that is not in the loan operations, right, because it's a merchant. It's not a financial asset the way it's considered by accounting standards, but it's a loan book. It's basically a prepayment against AAA corporate clients that we have. and resell. Yeah, so that's basically it.

Okay, super clear. Thank you, Bruno.

Okay, next question is from Tito Barca, Goldman Sachs. Tito, you can make your question.

Hi, good evening, Mafra, Bruno, Parisi. Thanks for the call and taking my question. And, you know, best of luck. Best of luck, Bruno. Thanks for all the help over the years. A couple questions also. One, first on the midterm EBT margin of 30 to 34%. How dependent was that on rates coming down in Brazil, just kind of going back to when you gave that guidance? You were probably expecting lower rates. Does potentially these higher rates for longer impact that guidance in any way? Would it leave you closer to the lower end of the guidance? just to think about what kind of macro you were thinking about when you gave us the guidance. And then second question, just on the cards revenues, down a little bit in the quarter, I know there's some seasonality there, but it is the first quarter where you see a slight decline. Is that a sign that you're beginning to mature in that vertical and growth going forward could be a bit closer to the industry, just to think how we should take that seasonality and potential future growth in the card revenues? Thank you.

Yeah, I can take the EBT margin here. Remember in the investor day, we said we gave the guidance for 2026 and we said it probably will not be a straight line. So it's more like an exponential, right? So our embedded assumptions to give that guidance, is that, as Mafra mentioned at the beginning of this Q&A, we expected another tough year in 2024. Maybe it's going to be, I don't know, a little bit worse than our expectation, a little bit better. But so far, it's on track with our plan. It's too early to tell. There is part of that operating leverage kicking in that should help the EBT margin. That's for sure. So the 30% to 34% by 2026, if we continue until 2026 with the same macro environment we are as of today, it's going to be really tough to achieve. That's for sure. But we expect to have a different scenario. It doesn't have to be a scenario where you have very low interest rates and the capital markets equities booming that's not embedded in our assumptions just more normalized capital markets activity having a little bit of ipos how many ipos have we had last year how many this year zero zero So, we are in an environment that we believe is not going to stay like that for the next couple of years. Right, Tito? So, there is an assumption of better macroenvironment, but nothing...

really aggressive just to complement Bruno here uh we are confident that we are going to deliver the year one 2024 okay so we are going according to the plan so far and of course we have a good visibility for the rest of the year so we are confident that we are going to deliver 2024 okay and if you look the numbers uh that we showed uh for uh on the investor day especially when you look investments the kager was 13 okay so it was already a very low number okay imagine that the interest rates 10 9 okay uh for for this period okay it's more to 10 plus if you look the curve right now So it means that we have to gain some market share, okay, because the UC will grow the selling rate on average, and we have to gain some market share. So for me, the macro environment, of course, it's going to be harder than a good macro environment, but it doesn't change the plan. If you go to the other two pillars, cross-sell and wholesale banking, then we have... 30% to 30% highs, okay? 30% to 35%, 37% cater, and we are delivering. So we are confident. Going to your point about cards, as you mentioned, you have a big seasonality on the first quarter every year, okay? And I would say that probably we're not growing enough at the same pace that we have been growing in the past years, for sure. But if you look at the penetration that we have, we have a million cards, okay, and we have 5 million customers, okay, rounding the number here. So we still have a lot of clients to penetrate, of course, different risk profiles. But when you compare to OpenSea and to the market, we have very good 5 million clients. So at the right point, at the right time, we are going to penetrate these clients. So we still have a very good pool inside the house here to penetrate cards. So it's not the end of the growth, but we will grow at a slower pace than at the very beginning.

Okay, that's clear, Marfa. Thank you. And thanks again, Bruno, and best of luck to you.

Thank you, Tito. Thank you, Mafra. Thank you, Bruno. Our Q&A session came to an end. If you have any further questions, there are teams available. Thank you so much for attending our earnings call this evening. And we see all of you or we talk to you in the next one. Thank you.