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.