Q3 2024 XP Inc Earnings Call

Thomson Reuters StreetEvents11-20 23:20

Participants André Parize; Investor Relations; XP Inc Thiago Maffra; Chief Executive Officer; XP Inc Victor Mansur; Chief FInancial Officer; XP Inc Thiago Batista; Anlayst; UBS Eduardo Rosman; Analyst...

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I'm Andre Parize, investor Relations Officer 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 and welcome you to our 2024 third-quarter earnings call. This quarter, the results will be presented by our CEO, Thiago Maffra and our CFO, Victor Mansur, who will both be available for the Q&A session right after the presentation.  And before we begin our presentation, please refer to our legal disclaimers on page 2 on which we clarify forward-looking statements and for additional information on forward-looking statements can also be found on the SEC filings section on our IR website. So now I'll turn it over to Thiago Maffra. Good evening, Maffra.","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"XP":"XP Inc."},"translate_title":"2024年第三季度XP Inc收益看涨期权","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"XP":1},"content_text":"Participants\nAndré Parize; Investor Relations; XP Inc\nThiago Maffra; Chief Executive Officer; XP Inc\nVictor Mansur; Chief FInancial Officer; XP Inc\nThiago Batista; Anlayst; UBS\nEduardo Rosman; Analyst; BTG Pactual\nYuri Fernandes; Analyst; JP Morgan\nMario Pierry; Analyst; BofA Global Research\nTito Labarta; Analyst; Goldman Sachs\nNeha Agarwala; Analyst; HSBC\nDaniel Vaz; Analyst; Safra\nAndrew Garey; Analyst; Morgan Stanley\nRenato Meloni; Analyst; Autonomous\nHenrique Navarro; Analyst; Santander Investment Securities Inc.\nPresentation\nAndré Parize\n Good evening, everyone. I'm Andre Parize, investor Relations Officer 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 and welcome you to our 2024 third-quarter earnings call. This quarter, the results will be presented by our CEO, Thiago Maffra and our CFO, Victor Mansur, who will both be available for the Q&A session right after the presentation. (Operator Instructions) And before we begin our presentation, please refer to our legal disclaimers on page 2 on which we clarify forward-looking statements and for additional information on forward-looking statements can also be found on the SEC filings section on our IR website. So now I'll turn it over to Thiago Maffra. Good evening, Maffra.\nThiago Maffra\n Thank you, Andre. Good evening to all. I appreciate everyone joining us for our third-quarter 2024 earnings call. It's a pleasure to be here tonight. Let's explore and discuss our quarterly results as well as our strategy in place to accomplish our goals. This is another positive quarter for XP. Our strategy has been executed as planned and it's translating in solid results. Let me share with you the highlights, starting with client assets, which have achieved BRL1.21 trillion posting, a 12% increase year over year. As we will see during the presentation, it's important to mention that it was another consistent quarter regarding net inflows, aligned with our levers and our capacity to adapt becoming more relevant in fixed income in the current scenario. We also increased our total number of advisers, reaching 18,400, growing 9% year over year and continued to expand our achieved client base, marking 4.7 million, increasing 6% year over year. During the nine months 2024, gross revenues grew 17% year over year, reaching BRL13.3 billion. Our EBT posted 25% growth year over year, delivering BRL3.7 billion. Our net income reached BRL3.3 billion, expanding 17% year over year, and it was the highest in our history in the quarter at almost BRL1.2 billion with 27.5% margin. The set of results indicate that we are at the right pace to meet the 2026 guidance released in the last year's Investor Day. We will go into more details on the financials later on. Going to balance sheet and profitability, we ended the quarter with an ROTE of 28.4%, an increase of 258 bps year over year. Our managerial BIS ratio was 21.5%. And the EPS was BRL2.18 per share, the all-time high in our history. On the right, you can see that EPS, since the IPO, grew almost 4 times, reaching BRL7.93 in the last 12 months. Today, we also announced an extra payout of BRL3 billion, contemplating dividends and a new share buyback program. Recently, recommended that we are targeting to deliver more than 50% payout until 2026. This year, it's well above it. All in all, we keep our targets to 2026 to reach a BIS ratio between 16% and 19%, with more than 50% payout in the next couple of years. Our capital discipline in how we operate our business considers an efficient capital allocation and capital return to shareholders. As I commented recently, we were already expecting to deliver better results in second half '24 based in our growth levers, cost discipline, and capital allocation. Third quarter '24 results reaffirm that our execution plan is on track and enhances our confidence in delivering the guidance. Moving on to the next slide, we see our strategy tracker, which presents how our business evolve in time. We will analyze each pillar during the presentation. Our gross revenue in third quarter '24, last 12 months, marked BRL17.6 billion, posting a 20% growth. Hypothetically, if we target to reach the top of the guidance, it will be necessary a 20% CAGR until fourth quarter '26. Regarding our LTM EBIT margin, we have reached 28.1%, 183 bps expansion compared to third quarter '23 LTM figures, demonstrating that we are in the right pace to reach the 30% to 34% target range in 2026. In retail investments, we reinforce that our aim is to become leaders in investments, which is our core business. As highlighted in the beginning of this presentation, a strategic achievement was to keep consistency on net new money. We record BRL31 billion in net new money for the quarter, each represents 124% growth year over year, excluding model acquisition. It's important to highlight that out of the BRL31 billion, BRL25 billion is from retail. Important to remind you that around BRL20 billion in retail net new money, it's a good level for the current scenario. This achievement was possible due to improvement to several factors, and I would like to remind you of our main levers. Number one, product platform, the most complete investment platform in the country, positioning us ahead of peers. As an example, during the quarter, our fixed income platform posted solid results once again with innovative and competitive products and sophisticated instruments. Second, our multichannel distribution keeps evolving and as we mentioned in the recent past, IFA's internal advisers, and RIAs work synchronized to increase our client base and grow AUC. In this quarter, we reached 18,400 total advisers, which 2,700 are our internal sales force. When compared net inflows, internal advisers already represents, in many months, a higher net inflow than the IFA network. Third, for the past few years, we have implemented more intelligence in our offering with the right value proposition for each segment from private to retail. For example, pricing adjustments for each product and serves with a better understanding on economics, providing private clients a more active portfolio management while providing retail clients an objective based approach to run their portfolios. Additionally, during the year in private bank, we hired many seasoned professionals including the CEO for the segment that will pay off in the next years. This change in the way of doing business translate into a potential faster growth in private banking and retail, since we are already very competitive in the affluent segment. Lastly, transitioning from a product distribution firm to a service provider is key to differentiate ourselves from other players for the next decade. While competitors render financial planning to ultra high private bank clients, we are offering to clients with $300,000 and above, which is only possible because of our tech-enabled platform. No other player in Brazil can do it in the same scale we are doing. We continuously keep improving our service and product offering and the combination of these levers are translating to a consistent retail net inflow, higher productivity, higher quality from client perspective and more profitability for the company. Note worth that we received many questions regarding retail take rate direction. As we said recently, for the midterm, we do not expect big change. In this quarter, it increased 4 bps, marking 1.33%. Now let's move to our cross-selling initiatives. We are continuously implementing new initiatives and products to attend and excel our clients' financial needs. When a client decides to enhance the relationship with XP, acquiring other service or product, we see the cross-sell results materially lifting revenues. On the left side of the slide, we can see how retail cross-sell is evolving. Credit card grew 12% year over year, achieving BRL12 billion in TPV in third quarter '24 and gained market share during the year. It still has roughly 29% penetration, while we estimate incumbent banks present around 50% penetration. Life insurance keeps a fast pace, posting 46% growth year over year in written premiums, reaching BRL362 million in the quarter. Penetration is around 2%. And when we compare to other players, we believe there is a lot of room to increase our penetration on our client base since market presents average of 17% penetration. From a revenue perspective, it still has a lagging effect since sales from our marketplace impact revenues positively during the first three years. Sales from our own insurance company takes three years to present revenues positive impact. This effect relies on the high commissions and provisions in the beginning of the terms. On retirement plans, our client assets grew by 15% year over year, reaching BRL78 billion. XP has 5% market share and the market leader has 28%. We are addressing new efforts to keep growing our share. Initiatives as cash back and sales force expansion are resulting in faster growth pace. We are confident that we will gain much more relevance during the next years. Retail credit presented 51% growth year over year, marking BRL75 million in revenues in the quarter. Our objective is not to grant money through clean credit lines, but with client investments as collateral. We have the best client base from a credit risk perspective. And as a consequence, our ECL to loans is one of the lowest in the local market. In this new vertical concept, we have other products as FX, global investments, digital account, and consortium, which grew 92% year over year with revenues reaching BRL201 million this quarter. This is a clear example of our capacity to launch new features and reap the benefit rapidly. If you remember a few years ago, we had 0 revenues on this product. On the right side of the slide, to illustrate the relevance of cross-sell, we can see revenues per client among different segments. On this example, we are using 100 base chart. On average, clients with more than two products present 38% more revenues, and clients with more than three products presents 2 times more revenue than a client with one product. Important to highlight that our retail offers include more than one project. Therefore, this is how we monetize clients with tickets lower than 100,000. With that in mind, we understand that there is a big opportunity in front of us. We have a complete product range with room to increase penetration and profitability while we keep launching new ones. And finally, the corporate and SMB. As we mentioned before, wholesale clients are crucial to our ecosystem. Each quarter, we have been able to innovate and to meet our corporate clients' needs while distributing these instruments to retail and institutional network. Now let's explore our wholesale business from origination, distribution, lending to derivatives, and FX treasury terms. During the last years, we have been improving our position in rankings and league tables in investment banking. We are number one in rich issuance in CRA, agricultural receivables certificates; and number two, in CRE, real estate receivable certificates. As a matter of fact, during third quarter '24, we reached 8.6 billion in DCM volume, positioning XP as the top 2 ranking year-to-date. Since we have the largest investor platform in the country, when we think about secondary trading, we are number one by far, with more than 50% market share. Institutional is another piece that benefits from our ecosystem. As a market leader in independent fund managers distribution, we are the fourth largest player in equity traded volume for quality in execution and strong relationships we keep gaining market share, and we understand the strength remains looking ahead, expansion beyond investment banking and brokerage. Few years ago, we have started to develop new businesses such as corporate secured trading, which can be monitored by our capacity to originate and distribute our expanded loan book. Corporate securities achieved BRL23 billion, a 79% growth year over year. We are the largest broker for corporate credit in Brazil, and portion of this corporate securities is related to our flow book, which turns over around 3 times per quarter. Our unique recycling mode provides better NIM risk-adjusted aligned with our credit risk discipline. Another example, the derivatives. we keep evolving our offering while increasing penetration in OTC derivatives. And this quarter, we were ranked fourth position compared to10th two years ago. More than that, we became number one in interest rate swaps. This is another clear view of our powerful ecosystem. On FX, a similar improvement, reaching 15th from first 41st four years ago when we started. Lastly, we have been developing and deploying more products and terms. For instance, last quarter, we launched the corporate digital account, and we will launch trade finance in the next months. We are also acting as the insurance broker for our corporate clients. As this business grew, we will bring additional disclosure regarding them. The new launch collaborate to increase cross-sell as its parts of our plan to gain profitable market share with lower risk. As a consequence, wholesale business printed a solid 36% revenue growth last 12 months. Victor will give more details about the revenue growth. Now we will hand it over to Victor so he can discuss this quarter financials. Thank you.\nVictor Mansur\n Thanks, Maffra. Good evening, everyone. It's our pleasure to be here with you. And before we go to the results of the quarter, I would like to recall some ideas anticipated in the second quarter of 2024. First, in the second quarter, we explained that warehousing assets by underwriting more fixed income offerings would drive an increase in our wholesale revenues, particularly in the issuer services. At the same time, we're anticipating a lagging impact on retail until the distribution phase of those offerings. As expected, when the distribution phase of those offerings took place this quarter, we observed a positive impact on retail fixed income revenues. Second, for the reasons just mentioned, in the second quarter, we have increased our balance sheet, growing BRL10 billion in corporate securities, in a single quarter as part of warehousing business. And finally, we had also anticipated that revenue mix along -- if a few of the minor effects resulted in higher EBITDA margin and tax rate in second quarter. We emphasized that using a trading 12-month metric for both would serve as a more reliable guide for expectations in the coming quarters. If that in mind, remember that the last quarter, we focused on discussing our last 12 months figures. We are evolving the right way to deliver our commitments in 2026, and the third quarter of 2024 was a positive quarter in the retail business on the spotlight. Total gross revenue grew 17% on nine months of 2024 and 4% year over year. Retail was a highlight during the quarter. Corporate and issue services posted solid results, and institutional revenue was flattish quarter-over-quarter. On the high hand side of the slide, we see our gross revenue breakdown and retail increased participation to 77% on total revenues on the back of another positive quarter for fixed income. Let's move to the next slide with more details on retail. Retail revenue posted BRL3.494 billion, a 15% growth in nine months 2024 and 10% growth year over year. Fixed income was once again the highlight, if 56% growth nine months '24 against nine months '23 and 31% growth year over year. That growth was supported by both our ability to keep launching new products, including corporate credit and restructuring notes being very competitive against taxes and notes from incumbent banks. And second, our relevance in secondary trading higher than 50% in terms of market share, which enables us to provide liquidity to our client base. Moving on to the next slide, we will talk about corporate and issuer services revenue. Corporate and issuer services continue to be an important driver to total revenues, posting BRL552 million in the quarter, which represents a 58% growth in the nine months '24 and 6% growth year over year. Issuer services delivered positive results on back on DCM activity, reaching BRL323 million in the quarter and 71% growth in the nine months '24 and flat year over year. Corporate results typically align with the issue services performance. If cross-selling opportunities arising from new fixed income issues, part (inaudible) it's derivatives. Corporate posed to BRL129 million in the quarter, a 43% growth in nine months '24 and 17% growth year over year. On the right-hand side of the slide, we like to present our ecosystem rationale, connecting our retail and corporate investment banking business in a profitable risk recycling mode. In the second quarter of 2024, we expanded BRL10 billion in new corporate securities warehouses in our balance sheet. And in Q3, we already distributed around two-third of that book share retail and institutional clients, as we said we would do. Moving on to the next slide, we will explore SG&A and efficiency ratios. SG&A incentives reached BRL1.5 billion in the third quarter, a decrease of 2% year over year and a 7% higher quarter over quarter. Since every third quarter, we have investments in our expert quarter over quarter comparison has a seasonality effect. As we said before, cost discipline and efficiency are part of our plan and DNA, since both position XP in a better competitive level. I'm happy to announce that this quarter, we marked another record, with 35% efficiency ratio, the lowest in our history since the IPO, printing 179 basis points lower year over year and 6 basis points lower quarter over quarter. Important to mention that we are confident to deliver goals for 2026 is a powerful combination, our innovative solutions to our clients, our new business and internal advisory expansion becoming each year more mature coupled with our cost discipline. Moving on to EBT now. EBT achieved BRL1.2 billion in the quarter, a 5% growth year over year and BRL3.7 billion in nine months '24, a 25% growth. As I commented before, we emphasized that using trading 12 months naturally for both EBT margin and FX tax rate would serve as a more reliable guide for expectations in the coming quarters, which was already the case in this one. In this quarter, our EBT margin in the last 12 months was 28.1%, flat year over year and also flat against the second quarter 2024, last 12 months EBITDA margin. We believe our EBT margin will keep growing on an annual basis reaching our goals for 2026. Let's see our net income on the next slide. Even considering the different revenue mix, I'm happy to share with you that during the quarter, we set a new net income record, bringing BRL1.187 billion. It represents a 7% growth in the nine months '24 and the 9% growth year over year. Another important achievement was the increased net margin in 118 basis points, posting 27.5%. Let's move on to the next slide to talk about capital management. As you might have seen, this quarter, we start to disclose our BIS ratio data, including risk-weighted assets breakdown with two years of historical data. We achieved 21.5% BIS ratio in the quarter, and one of our goals is to operate the business between 16% to 19%. So efficient capital management is key. Therefore, besides the BRL7.5 billion already distributed through dividends and share buybacks during the last years, we announced today an additional BRL3 billion to be distributed in dividends and share buyback. Considering this distribution and full execution of the buyback program, we would have a BIS ratio at 18.3%in line with our guidance. On the right side of this slide, we can observe that the RWA total assets ratio stands at 30% this quarter with the credit RWA accounting for 45% of our total risk. The shift in the mix between credit and market RWA compared to the previous quarter is primarily due to the implementation of new Central Bank resolution this quarter, the 313 resolution. According to this new resolution, the risk associated with securities and derivatives held in the trading book must now be classified as market RWA. We believe this regulatory adjustment provides a more great representation of a risk profile. Given the majority of our credit exposure is tied to corporate bond credit spread, it aligns more closely with market risk. Taking that into consideration, our credit RWA is way lower than peers, which corroborates to our discipline in allocating capital across the ecosystem. Also important to consider that our business not only consume lower credit RWA, but also has a low average daily VaR at BRL22 million in third quarter or 10 basis points of our equity. Our strategy is based on increased profitability and capital returns to shareholders while keeping a conservative BIS ratio when compared to the Brazilian financial industry? This slide summarize our capital distribution with more than BRL10.5 billion in dividends and buybacks in the last three years. Last year, our total payout ratio was 114% with BRL4.5 billion capital return. And this year, with the new announcements, it indicates more than 9% payout ratio with more than BRL4.2 billion of capital return. As Maffra mentioned earlier, our goal should keep delivering higher than 50% payout ratio for the next two years, aiming to operate between 16% to 19% in BIS ratio. Now let's see our EPS and ROTE numbers. Our earnings per share evolution continues to post solid growth and achieving BRL2.18, an 11% increase year over year and an 8% increase quarter over quarter. During the 3Q '24, XP posted 28.4% in ROTE with an increase of 258 basis points year over year and 140 basis points quarter over quarter. Now moving back to Maffra, so he can do his final remarks, and then we go to the Q&A.\nThiago Maffra\n Thanks, Victor. So before we go to the Q&A, I would like to emphasize four things: first, we had another solid quarter, confirming that we are on track to deliver our 2026 guidance; second, as we presented, our levers are delivering positive results with BRL25 billion net new money this quarter and indicating that our target should deliver around BRL20 billion per quarter is feasible; third, we believe we are enhancing our moats by offering to our clients the most complete and sophisticated product platform in the country, expanding our best train sales force and evolving our value proposition properly to segment through better offering, objectives and higher level of service excellence; and lastly, our commitment to manage our company with capital discipline, efficiency and return to our shareholders. Once executed, we will have returned more than BRL10.5 billion to shareholders throughout the last three years. Now Andre Parize will start the Q&A session.\nQuestion and Answer Session\nAndré Parize\n Thiago Batista, UBS.\nThiago Batista\n Hello, guys. I have two questions. The first one, call the attention the increase the head of XP for about 400 new individuals. Is it relevant to the amount of those guys that went to the B2C adviser or not? And my second question, I know that you don't have a guidance for profitability or how or hold, but can you give to us a ballpark idea of what level of profitability that we believe XP will have in the long term? And by the way, you are looking more to (inaudible)?\nThiago Maffra\n Thanks, Thiago. Thank you for your question. It's a pleasure to be here. Good evening to you all. It's a pleasure to be here. I will take the first question, and Victor will answer the second one. Out of the -- there are about 400 employees, 300 to B2C, they are advisers. Why you don't see that increase on the total number of advisers because we had a change in regulation a few months back. And now the IFAs, they don't need the IFA partners. Imagine the managers, the people that work not as advisers on the IFAs, they don't need any more to be IFAs. So now they are under employee contract agreements and they are like leaving the IFA number. So if you look at the total number, and maybe it's going down, okay? And it's not because people are leaving the profession of advisers because of these new changing regulation and they are becoming regular employees in Brazil, okay? So out of the 400 people that we hired internally, 300 is advisers, okay?\nVictor Mansur\n Perfect. I will take the second question about ROE. Looking at our ROTE number of 28%, you can say that our return on capital employed is around that. And after we deliver our guidance of base index, by the end of the guidance, you can expect ROE will be mid- to high-20s.\nThiago Batista\n No very clear math.\nAndré Parize\n Eduardo Rosman, BTG.\nEduardo Rosman\n Hi, guys. Good evening. I want to talk more about capital allocation. And Victor, I think he -- he talked a lot about it. He came up with new information as well. So I wanted to get more details about the RWA. What could -- can we expect in terms of growth for next year, maybe in the midterm, if there is kind of gains of scale there on operational risk market risk. If you grow more, eventually, if there is room to improve efficiency there? Now you also have the ability to issue Tier 1 and Tier 2, so if you see room to do that and eventually bring your core Tier 1 down. At the end of the day, I'm trying to understand what level of payout in the form of dividends and buybacks, we can probably work in the next two years, right? You paid out -- you have a very high payout in the last couple of years, right? So I wanted to have an idea if we can work with something of at least 50% for the next couple of years. Thanks.\nVictor Mansur\n Okay. Thank you for your question, Rosman. First, there is operational leverage in the RWA numbers. They can give you a color. If you look at our revenues in issuer services and corporate, which is basically a more capital-intensive business, the revenues grew 38% in the last 12 months and the RWA grew only 30%. So there is a gain between the relation in revenue on the RWA. And when you go to market operational RWA, also our gains that we that we can make over the years using more efficient structures as they -- as now we can use the bank in his full capacity. Talking about payout, you can expect 50% or more of our net income paid in 2025, '26, that should be -- the levels to reach our guidance in terms of BIS ratio. And after that, we should stabilize near 30%.\nEduardo Rosman\n Awesome. Thanks a lot.\nAndré Parize\n Yuri Fernandes, JPMorgan.\nYuri Fernandes\n Thank you. Quick one just on Rosman's question. Just making sure the 21.5%, it still does not reflect the BRL2 billion, right? It should maybe drop to 19.5% without any capital generation for the next quarter. So very quickly this. And if I may, a second one, just on the order line, Parize, what happened with the others. It was about 40% decrease quarter over quarter. So if you can provide a little bit of explanation of what hurt that line this quarter. Thank you.\nVictor Mansur\n Thank you for your question, Yuri. The BIS ratio in the end of the quarter was actually 21.5%. And after the dividend, it goes to 19% and considering the buyback then, it goes to 18.3%. As we said, you can expect that we will pay more 50% of our earnings in the next two years. And after that, our payout ratio should normalize between 30% and 50% of our net income. Going to the second question about other revenue, in this quarter, we had a one-off event. In the beginning of the quarter, we tender almost half of our outstanding 2026 notes and issue a new 2029 bond. Remember that those notes that we tender, they were head to Brazilian CDI and buy them back, we had to undo hedge accounting. And by undoing the hedge accounting, we just charged all the P&L and the net income. If you consider all the transaction, the carry of the new debt is cheaper than the one that we bought in CDI plus levels. So over time, the P&L of the transaction is positive. But in this quarter, we had this one-off events that reduced the other revenue line and you should expect that we will be back to average levels in the next quarter?\nYuri Fernandes\n Super clear. Thank you for the explanation on this point.\nAndré Parize\n Mario Pierry, Bank of America.\nMario Pierry\n Hey guys, good evening. Let me ask you three quick questions, two of them a follow-up. First one, Maffra, you talked about you're using more internal salespeople, right? However, when I look at the commissions paid to IFAs, they are growing faster than retail revenues. So in fact, right, we calculated a ratio of 25.8% this quarter. Last year it was 24.6%, previous quarter, 25.7%. So when do we see the benefits of lower IFA commissions as you start to use your own internal salespeople. And as you mentioned, right, you had to add about 300 people this quarter. So I'm assuming we're going to see higher SG&A and they should be compensated by lower IFA commissions. So I was wondering why that did not happen. The second question is very quick. If you can just talk about the impact of the export event on revenues and on expenses, I think that they net out. But just to be clear, how much did you book in expenses and revenues this quarter. And then the third one really is when we were looking at the revenues from credit, we see your loan book is flat -- relatively flat year over year. However, your credit revenues went from $71 million to $113 million. Was there anything unusual on the credit revenues? Thank you.\nThiago Maffra\n Thank you, Mario. So the first question about the commission costs, it's really hard to see change in COGS quarter like the B2C channel making a change in COGS from a quarter to the next one. You have to see this trend in a longer period of time in a year or two because if we have a very small change in revenue mix, it can change everything, okay? So remember what we said in Q2, we did a lot of revenues on investment banking, on credit issuance. And 3Q, we distribute a lot of this credit portfolio. And when we distribute, we make revenue on the retail and we pay commissions, okay? So it's a completely different COGS when you compare what you do on -- when you book the primary market from the environment banking to when you distribute on the secondary market, okay? When you pay commission, the other one you don't pay. So it's basically revenue mix. That's why you're not seeing a big change. But if you have to look like a longer trend to see the effect, okay? About the second one, we don't open how much we spend on expert but it's not zero, okay? So for a few years, it was slightly negative last year. This year was zero, okay? So it's not even positive, but it's very important for us because it's one of the the largest financial, if not the largest one in the world about the investments. So it's really important for the brand, but it's net zero and some years it's slightly negative. Victor will take the last one.\nVictor Mansur\n Okay. Thank you for the question. About the credit, we had two explanations. The first is the beginning of margin loan operations in the broker-dealer, which are more profitable than conventional credit. And the second one, some loans from the COVID era with lower NII mature during this quarter, and they were renovated by new operations with this new normal of price with higher NII. Basically, that is the explanation. The book is almost flat, but we have two new products with higher NII item before.\nMario Pierry\n Okay. That's clear. Maffra, let me just follow up here then on the gross profit and gross margin, right, because you provide guidance for EBT margin, I think 30% to 34%. You're running at 28% right now. The improvement in margin, does it come from the gross margin? Or where should we see the improvement coming from?\nVictor Mansur\n Okay. Thank you for your question. Talking about the guidance, we can give you some color about the improvement. First is operational leverage. You can see our efficiency ratio in the lowest level ever. And we expect that this ratio will keep improving over the next year. This is one factor. Another factor is a J-curve of the cross-sell verticals that we have. We mentioned before that credit card, for example, they had losses in 2022. They also lose money '23. This is the first year that they will make positive margins and that grow over our guidance in the period. Other verticals as they -- our own internal sales force also lost money over 2022 and '23. This is the first year of positive margin. And as they grow, they start being accretive in terms of EBT. And basically, those three things together can explain the expansion in margins.\nMario Pierry\n Great. Thank you very much.\nAndré Parize\n Tito Labarta, Goldman Sachs.\nTito Labarta\n Hi, good evening guys. Thanks for taking my question. Just a couple of questions on the revenues. Continued the performance on the fixed income retail revenues. How do you think that line sort of continues to evolve? I mean do you think you're benefiting from a higher rate environment? Is there room for that line to continue to grow in to year? Just to understand a little bit the growth dynamics there. And then on the issuer services revenue line, right? I mean there's been a good year overall, tough comps in 2Q, down a bit in this quarter. Do you think that comes back in 4Q and into next year? Just help us think about sort of DCM activity and how you feel about the issuer services revenues. Thank you.\nVictor Mansur\n Hi, Tito. Thank you for your question. I'll answer both of them together. DCM industry in Brazil is the new level. Our pipeline remains robust, and most likely, the same activity remains strong in the next quarters. As well, the demand for fixed income coming from our distribution channels, both retail and institutional, is very strong. So we believe that we'll see both lines, DCM and fixed income line is strong over the next quarter and next year? And also, you need to take into consideration the impact of our corporate restructuring. If the bank, a more competitive level, we can originate more deals in the same. We can warehouse more fixed income, and that includes competitively in both of those lines. So we are optimists for both in the next year and next quarter.\nTito Labarta\n Okay. Perfect. That's clear. One quick clarification. Just on the BIS ratio, is that a fully loaded for Tier 1 ratio just to make sure is anything else in the BIS ratio.\nVictor Mansur\n Yes, that is it. It's fully loaded.\nTito Labarta\n Okay, perfect. Great. Thanks so much.\nAndré Parize\n Neha Agarwala, HSBC.\nNeha Agarwala\n Thank you for taking my questions. Just a quick one on the credit growth. Our credit book was flat year-on-year. What should we expect going forward? Why do we see a more strong growth on the credit side? Thank you so much.\nThiago Maffra\n So one important thing when we think about credit for XP, one main point for us, we don't want to pile up credit. So you cannot expect us like coming back here one year ahead and saying that now we have like BRL 100 billion, BRL 200 billion in corporate credit. So we don't have this strategy. We don't have the business to pile up credit. Of course, as the wholesale bank grows, we have to warehouse higher amount of volumes from investment banking for corporate bond flows and for other business lines, for example, credit risk from derivatives. So as the business grows, it will grow in nominal terms for sure, but not the same growth rate as the business grows, okay? So the idea here is always to recycle capital and recycle fast. It's always to give credit with some collateral. And that's the strategy. So we don't have any strategy to pile up a big credit portfolio here, okay?\nNeha Agarwala\n Thank you so much.\nAndré Parize\n Daniel Vaz, Safra.\nDaniel Vaz\n So to our side, looking at your expenses, I was trying to see beyond XP Expert. So we see the other revenue, other income, and other expenses net line. So you have another quarter of incentives coming from (inaudible) B3and also a positive covers in reversal of provisions. Can you comment on that, please, so we can get a sense on what are these other operating income? Were way higher than a year ago? And the second trying to see and get more color on your income? Or is your name in the release or share of profit on JVs and associates. So it went from BRL41 million to negative BRL3 million quarter over quarter. So any seasonality effects here, maybe associates pay higher cost to have a stand in XP Expert. So if you can get a color here that will be very helpful. Thank you.\nThiago Maffra\n Thank you for the question, Daniel. I will split the answer in three parts here. You first asked about the incentives, okay? So as we have built one of the largest distribution channels in Brazil -- we have today more than 18,000 advisers, every time that we launch a new product, we have some players in the industry that want to have access to our distribution. And what happened, usually they pay some some fees, it can be upfront and can be based on performance. It depends on the product and on the partner, okay? But it's recurring, okay? There is not an amount that's recurring every month. but it's recurring to have this kind of one-offs, okay, from different partners from credit cards, from B3, from consortium, from other players, okay, from whole life insurance. So you guys can expect this type of one-offs to be recurring, okay because it's part of giving access to these partners to our distribution. The second question that you asked, it was about the reversion in provisions, I imagine that it's the -- on the expected credit loss that you mentioned. We had a BRL42 million from the Aqua payment. There was a provision, and it was reverted. So a good way of thinking about expected credit loss for regular quarters, it's 80 million. That's a good number, okay, around this number. It can be a little bit less, a little bit more because we have some credit on the wholesale book that is less stable, but that's a good proxy, okay? And the third one about my March interest that you as it was BRL41 million last quarter. It was almost zero this quarter. We have done some deals with players, with some asset management, with especially IFAs, and some of them there like going through some reorganizations. As I mentioned some of them, they are like going to employee agreements. Some of them, they are like in different states. But I would say that for next year, you can expect this line to be a little bit higher than this year, okay, and a little bit more stable than this year, okay? Because we have a lot of reorganizations this year and these investments that we have done in the past years in IFAs, assets and other business, they will start to pay off next year, okay? So it's going to be a little bit higher.\nDaniel Vaz\n Okay. Thank you for the detailed answer. Very helpful.\nAndré Parize\n Henrique Navarro, Santander. Andrew Garey, Morgan Stanley.\nAndrew Garey\n Hi, everyone. Congratulations on the results and thank you for the opportunity to ask questions. I just want to briefly touch on the take rate, which was certainly a highlight of the quarter, expanding on a sequential basis. It looks like a lot of the improvement kind of came from the fixed income retail take rate. And so I just kind of wanted to ask, I know you had mentioned some new products on the fixed income side. Is there anything in particular that makes you believe that this like higher take rate on fixed income specifically is sustainable? Or is this again just kind of a quarter-to-quarter fluctuation? Thanks.\nThiago Maffra\n Hi Andrew. Thank you for your question. Basically the highlight of the quarter in the retail line was fixed income and that what was drive to take a higher As we expect the retail revenue to keep growing in the pace of our guidance, you can expect the take rate to be stable or slightly higher than it is what it is today.\nVictor Mansur\n Victor here. We have been mentioning that for a few quarters, I would say, when we think about take rate, when you look at our guidance, we didn't factor a better take rate into guidance. But if you ask our view at some point, the market will change, and we expect to see a change in the mix of products towards more higher ROAE product because most of the money flow to fixed income products with low ROAE in the past quarters or years at some point that we will revert and we can expect a higher take rate. So that's our view. But a higher take rate is not factored into our guidance for 2026. So you can consider that an upside if it starts to go up.\nAndrew Garey\n Okay. Got it. But you do think that at least over the coming quarters, take rate, as mentioned earlier, should be somewhat flat to slightly higher from here is a reasonable assumption?\nVictor Mansur\n Yeah.\nAndrew Garey\n Okay. Thank you.\nAndré Parize\n Breno Pavao, Autonomous.\nRenato Meloni\n This is Renato Miloni from Autonomous. I think it was just a link issue. So I just wanted to deep dive on the fixed income take rate. That's a large expansion this quarter, right? So can you explain the breakdown here of how much was client activity? And how much was from the securities that you're having or mark-to-market securities that you're having in your balance sheet? And then further down, just thinking here of the dynamics that we're seeing in market with spreads compressing and the cycle rates, how do you expect the fixed income take rate to behave in the next couple of quarters? Thank you.\nVictor Mansur\n Thank you, Renato. We don't close this level of detail on the fixed income line. What we can say is that almost everything that we are housing the last quarter, we sold this one, and that was one of the drivers of the revenue. About the credit spreads, we are seeing some inflection, but as we said before, the DCM pipeline is still very hot. And the demand for -- the client demand is still all-time high. So we don't expect any structural changes in the market.\nRenato Meloni\n Okay. So similar take rates in the two quarters?\nVictor Mansur\n It's better and bigger than ever before.\nRenato Meloni\n I don't know if you could hear me. So similar take rates, fixed income take rates in the next quarter.\nVictor Mansur\n Yes, we believe so.\nRenato Meloni\n Okay, thank you.\nAndré Parize\n Henrique.\nHenrique Navarro\n My question is on competition. All the large banks have been advanced if they are all IFAs, high-financial advisers as well as improving the open investment platforms. The level of competition XP is facing was not there like maybe two or three years ago, and it has been increasing. How do you see this advancement of competition from the large banks affecting your business?\nThiago Maffra\n Thanks for the question, Navarro. I would say, of course, the incumbent banks, they are not sitting down, doing nothing, okay? So -- but for us, the most structural change in the last, I would say, two years, it's not that the banks. The incumbent banks they improved a lot in investments. And the main reason is the high interest rates, tax exempt products, and so on, okay? So if you look at some of these incumbent banks without giving any names, they didn't improve at all, okay, in investments. But when you look at the NPS from affluent clients from the same bank, the NPS went up like 40 bps. The main reason is the level of profitability that they can have with just tax-exempted products. So it's a little bit harder to compete with the incumbent banks with this environment. But again, we are not like blaming the macro environment. We are not waiting the macro to get better, and our guidance doesn't depend on the macro environment. That's an upside, but for us, it's more the environment than the structural change in most of the incumbent banks.\nHenrique Navarro\n Thank you very much. That was very clear.\nAndré Parize\n Okay. This is -- that was the last question. So we thank you for your participation. And our team and the management are available for further questions. It will be a pleasure to answer anyone that you send to us. 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