XP, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Client Metrics: Client assets reached BRL1.22 trillion (9% year-over-year growth), advisors totaled 18,200 (5% year-over-year growth), and client base was 4.7 million (3% year-over-year growth).
• Financial Results: Gross revenues were BRL18 billion (15% year-over-year growth), EBT was BRL4.907 billion (26% year-over-year growth), adjusted net income was BRL4.5 billion (17% year-over-year growth), and adjusted diluted EPS grew 16%.
• Strategic Initiatives: Retail net new money targeted BRL20 billion per quarter, with segmentation having accurate value proposition across dimensions like client focus, advisory model, investment options, banking experience, and client support. Financial planning program showed improved client metrics like 2x insurance conversion and 43% increase in net new money.
• Channel Performance: Internal advisors and B2B (IFA) channels were highlighted, with internal advisors showing higher productivity. Focus was on scaling the IFA channel using tools and techniques from internal advisors, and IFA composition changed due to regulatory and quality adjustments.

Segment Performance

• Retail Investments: In 2024, retail net new money was around BRL20 billion per quarter, with Q4 '24 posting BRL20 billion (67% year-over-year growth). Total net new money including corporate was BRL26 billion (37% year-over-year growth), and full-year net new money was BRL103 billion (45% growth). Retail excluding Modal's acquisition had 33% year-over-year growth to BRL81 billion. Fixed income was a key driver, with Q4 '24 fixed income at BRL985 million (5% quarter-over-quarter growth) and full-year BRL3.447 billion (49% year-over-year growth).
• Corporate and SMB: 2024 was a record year. DCM had 31% volume growth quarter-over-quarter to BRL9.3 billion with 13% market share. Corporate credit secondary trading had over 50% market share. Institutional broker dealer had 16% market share. Corporate securities book increased BRL9 billion to BRL32 billion. Issuer services had 46% year-over-year growth to BRL1.324 billion in 2024, Q4 '24 at BRL337 million (5% quarter-over-quarter growth). Corporate division had BRL260 million in Q4 '24 (14% quarter-over-quarter growth), full-year BRL965 million (45% year-over-year growth).

Guidance

• Revenue: Targeting total revenues growth over 10% in 2025, with core investments and new verticals within growth range, while corporate and SMB were above the growth range.
• EBT Margin: Aim to achieve 30% to 34% EBT margin by 2026, with 2024 EBT margin at 29% (263 basis points expansion).
• Net New Money: Retail target was BRL20 billion per quarter, with full-year net new money target BRL103 billion having 45% growth.

Risks

• Macro Environment: Challenging macro conditions affected net new money, though XP's retail net new money showed growth despite this.
• Regulatory Changes: Potential regulatory changes could affect competition with banks, but XP had strategies to mitigate impact.
• Capital Management: Growth in risk-weighted assets and implications for capital ratios, but confident in maintaining BIS ratio between 16% and 19%.

Question and Answer

Q: Regarding the capital or BIS ratio and internal advisors' efficiency.

A: Thiago Maffra discussed that 60% of net new money was from wealth services channels (internal advisors and IFA), and internal advisors had higher productivity due to sales management tools. Victor Mansur explained that market risk RWA increased due to new Central Bank regulation on credit spreads.

Q: About competition with banks and regulation on tax-benefited instruments.

A: Thiago Maffra stated XP had developed ways to compete with banks despite regulatory challenges, and expected to maintain market share even if DCM volumes shrank.

Q: On balance sheet mark-to-market and capital.

A: Thiago Maffra explained OCI was from balance sheet hedges, and Victor Mansur addressed capital ratios remaining within target range with payout plans.

Q: On IFAs, take rate, and expenses.

A: Thiago Maffra spoke about focusing on scaling IFA channel with internal advisor tools, Gustavo Schroden's questions on take rate were addressed with flat expectations, and Victor Mansur discussed expense growth and efficiency ratio management.

Q: On revenue growth, expenses, and DCM.

A: Thiago Maffra and Victor Mansur explained revenue growth drivers including fixed income and corporate products, expense management for efficiency, and DCM expectations considering secondary market strength.

Q: On headcount, new products, and IFAs.

A: Thiago Maffra talked about internal advisor hiring and IFA composition changes, and new product launches like credit cards for different segments.

Q: On expenses, bonuses, and provisions.

A: Victor Mansur discussed expense efficiency and bonus payments tied to performance, while Thiago Maffra explained provisions related to growing loan book.

Q: On DCM contraction, market share, and institutional growth.

A: Victor Mansur and Thiago Maffra addressed DCM expectations, market share gains in tax-exempt products, and institutional growth potential in new business lines.

Q: On DCM, market share, and fixed-income take rates.

A: Thiago Maffra and Victor Mansur explained XP's confidence in maintaining growth despite DCM contraction due to new corporate business lines and secondary market strength, and fixed-income take rates not expected to decrease significantly.