XP Inc. Q2 FY2022 Earnings Call

Okay. Hello. Good evening. Good afternoon, everyone. Thank you for participating in another earnings call of XP Inc. now for the Second Quarter of 2022. I'm Andre Martins. I am the Head of Investor Relations. And I'm joined here today by our CEO, Thiago Maffra; and our CFO, Bruno Constantino; as well as the Investor Relations Team, Marina and Antonio. I hope everyone is safe. The materials from this result are already on the Investor Relations website. There you can find the SEC filings of XP Inc. and the definitions of forward-looking statements and how forward-looking statements of this call can differ from actual results. It's important to highlight as well that this call is being translated to Portuguese. You can use the tool in Zoom to change to Portuguese. Also important to highlight that for any questions at the end of the session, you can raise your hand and we will call you on a first-in, first-served basis. I can see that we have already seven raised hands here. So thank you for participating already. Now I'll move to Bruno to kick off our earning call. Hi, Bruno.

Hi. Thanks, Andre. Hi, Maffra. And hi, everyone. Good evening. It's a pleasure to be here with you for, I believe, the 11th time in terms of quarterly results. As usual, I'm going to be brief in the presentation so we can go to the Q&A as we have already many raised hands, right. Before I start the presentation, we would like to share a video with you. We are still recovering a little bit here from the experts that we had last week. Yes, I hope you like the video. As I said, we are still recovering from the expert; it's been very intense days. And I'd like to take the opportunity to thank all the personnel that really made it happen. It seems easy, but it's not. People are already working on the 2022 expert event. It takes a long time to plan everything. It was really amazing after three years without an in-person event; we did only virtual in 2020 because of COVID. This year, we finally came back. It was really, really great. The transformation during the expert was special because, as you already know in our numbers and everything that we have disclosed about the growth in our headcounts and the many new initiatives that we have been investing. We asked at the expert how many people raised their hands that it was their first contact with the expert. More than 60% stated it was their first time in an event like that. The energy was really good. Just sharing that before we go to the presentation. So Andre?

Fair enough. Let's move quickly here. The main highlights: we have selected five main points here. The first one is the business model resilience; nothing new here, we have been repeating that every quarter. We know we are in a tough macro environment with the bear markets, and that has an impact on the investment business, especially, but despite these tough macro conditions, we were able to deliver our all-time-high record quarterly revenues, R$3.6 billion in the second quarter of this year, with also an all-time-high retail revenues, a growth of 15% quarter-over-quarter. Number two, we've been diversifying our revenue streams. Last year, in December, we highlighted new verticals to give more disclosure about those new verticals that are in very early stages and do not get the same impact from the macro environment as investments. By the new verticals I mean, credit card credit, retirement funds, and insurance, and those new verticals added together grew 113% year-over-year, with very strong growth quarter-over-quarter as well, at 7%. The cost discipline is another highlight; as entrepreneurs, we are paranoid about keeping our costs under control. We've been investing a lot as a nation. We highlighted here the first semester of this year; first quarter plus second quarter, we invested approximately R$500 million in what we call early-stage initiatives. By early-stage initiatives, we mean banking from scratch, the direct international investment platform, and also we built from scratch XTAGE, our digital asset platform. We've been doing all these investments and we get hit upfront, and the revenue is not there yet. But even considering that everything expands upfront, we kept our margins at very healthy numbers, with an adjusted EBITDA margin above 35% and adjusted net margin even above the top range of 24% to 30%. So above 30%. And we expect to maintain that going forward. Number four, in the second quarter, we delivered a lot of new products. We are very proud of this. Of course, those products need to keep evolving and getting better, with feedback from our clients, but we delivered the debit card, the digital bank account, the direct international investment platform, and the crypto exchange, the digital asset platform. Finally, we got recognized as the most innovative financial services company by Valor Inovação. We are very proud of that. We know we have not conquered everything yet, and we still have a lot to accomplish, but it's always good to receive this type of recommendation.

Moving to the next slide, I will just discuss recent developments. I’m going to talk about the direct international investment platform and XTAGE. We believe this can be the beginning of our internationalization of our business. We are going to start from the low-end group, targeting our Brazilian clients who want to invest outside Brazil. The experience is something that we really care about; for those that are XT clients, you're going to see that it is frictionless. Why is that? Because everything is already embedded in the app you are using. With two clicks, you can open your account, move your money, do your FX transaction, and you are ready to buy more than 10,000 equities in the U.S., including ETFs, ADRs, REITs, and more. We are still in the early stage, so we are going to move forward with mutual funds, bonds, banking services, and much more, but the product is ready. We feel really optimistic about the following years. XTAGE is another venture we started from scratch. We conducted a lot of surveys with our clients. 59% of our clients already invest in crypto assets; 58% invest directly. When we asked those clients who have crypto assets, almost 90% told us that they would be willing to invest through XP. That's the reason we decided to move forward with this venture. Importantly, this is just the beginning. We start with Bitcoin and Ethereum, but XTAGE is much more than that; it's a digital asset platform that starts with a very powerful technology behind. We have NASDAQ as a service provider, and we utilized our previous experience through XTAGE to choose what we believe to be the best solution in terms of scalability for XTAGE. As we scale the business, we are prepared in terms of latency and velocity and everything that needs to provide a very good user experience to help our clients navigate through this digital asset platform. Now we can move directly to the KPIs. You have already seen them, so I'm going to focus on the financials. I mentioned already $3.6 billion gross revenue, gross profit of $2.5 billion. We kept our gross margin at a very high level in the second quarter, just as we did in the first quarter. The first quarter was 71.5%, and the second quarter 72.0% gross margin. The main reason for this is the mix of products; more fixed income and less equities had an impact on terms of commissions and helped the gross margin. When we look at our adjusted EBITDA, it was $1.2 billion, a 2% decrease year-over-year, and a 1% increase in adjusted net income, which was more than $1 billion. The main impact here is because of the new early-stage initiatives that we have been investing in a lot. As mentioned, we expense the whole thing, but the revenue is not there yet, which impacts us. However, we are always investing to ensure future growth with sustainability. We expect these businesses to scale as we move forward. The highlight here is the margins; they are in a very healthy position despite all those investments, showing the resilience of the business. Now we can move to the next slide. Total revenues grew 13% year-over-year and 17% in the first quarter. When we look at the first half of this year, 15% growth compared to 2021. Let me pause here to mention a few highlights that I think are worth sharing. When we think about the product mix and the difference between a bear market and a bull market, there is, of course, a difference. We have said to many investors that they should not expect XP's growth to be the same in a bear market compared to a bull market. What happens with the product mix? In a bull market, we have equities and futures going up, capital market activities increasing, listed funds rising, secondary trading, and follow-ons of listed funds and REITs; all of these are connected and related. When we have a bear market, all those components collectively get hit. On the other hand, fixed income and floating interest on our adjusted gross cash benefit from the bear market due to higher interest rates. When I look at the mix, the product mix; just to give you some numbers here, equities, capital markets, and listed funds altogether constituted about 35% of our total revenue in the first semester last year. So this was a vital revenue stream. When we move to 2022 in our bear market, all those components represented less than 22% of our total revenue. So, a significant drop. When we add them together, the decrease year-over-year is close to 30%. The main revenue lines in terms of products got hit by 30% year-over-year due to the macro environment. Still, we managed to deliver our all-time high gross revenue in this quarter. That's why we believe in the resilience of XP's business model, considering the ecosystem we have built. On the other hand, when we look at fixed income and floating returns and remuneration over our adjusted gross cash, when we combine them, last year in the first semester they constituted under 20% of total revenue. In the first semester this year, they represented together more than 30%. This illustrates the magnitude of the shift we experienced in terms of the product mix. The top line totals reflect in our numbers. On the right side of the slide, we have the breakdown, and of course, retail remains the most relevant segment in our business, but I'll address the institutional segment in a while; it's still growing healthily as well. Regarding retail revenue, we achieved all-time highs; in the first quarter this year, we received many questions from investors about the take rate. When you annualize the take rate, it was 1.15 in the first quarter. We mentioned that we started the first quarter weakly; March was already a much better month in terms of take rate for our retail business. Although we didn't know what the second quarter would be, we expected it would be better than the first quarter, and indeed the take rate in the second quarter was 1.3%, much better than the 1.15%. I prefer to evaluate the take rate over the last 12 months. Why? Because the take rate is not only influenced by the revenue but also the denominator, the average AUC. The last 12 months provide five data points for the denominator, smoothing the change quarter-over-quarter. We noticed the take rates in the last 12 months; they exhibited some volatility, but relatively minor fluctuations over quarters despite the macro environment. So this quarter, we had 1.30, 1.32, and 1.27, a little better than the first quarter, which was 1.26. Moving on to adjusted EBITDA: before we discuss adjusted EBITDA, let me mention the institutional revenue, which reached R$436 million, showcasing a robust 16% year-over-year growth. In the second quarter of 2021, institutional revenue was R$375 million, marking the best quarter we had during that year, showcasing substantial growth but lower than the first quarter as we already anticipated since there was an extraordinary volume in derivative demand in February stemming from the war. Additionally, issuer services contribute to our capital market revenue but do not fully constitute the investment banking revenue. This is a proxy to indicate potential growth, which clearly improved compared to the first quarter. In the first quarter, we witnessed a notable decline in capital market activity, but the second quarter was much better. However, when we look at 2021, there was still some drag in capital market activity. Returning to the adjusted EBITDA and adjusted net income; the main impact, as I mentioned, comes from the early-stage initiatives. We could opt for inorganic means, for example, the direct international investments for retail clients or additional asset platforms. Instead, we chose to pursue organic growth, which we believe is more beneficial in terms of costs. However, we need to acknowledge the upfront expenses, and we expect these businesses to scale over time. We are aware this affects our margins, which is why we highlighted it here, so you can see how much we have been investing in our long-term growth and the impact those investments have on our margins. In the first semester, we invested approximately R$500 million, knowing that revenues are still in their very early stages. We expect, as I mentioned, to see revenue growth in the coming years. With that, I'll stop here and let's move directly to the Q&A, so we can address any questions you may have. Thank you very much. Before we go to the Q&A, I want to state that we'd love to have our investors and all of you join us at our expo next year; it's an event I believe is worth attending. It's the largest investment event in the world, and we are very proud of that. When I remember what it used to be when I joined XP more than 10 years ago, it has grown into an enormous event. It would be an honor to host all of you in Brazil next year for the event. We will send invitations when the time comes. So Andre, you will be responsible for the Q&A, right?

Yes, I will and for sending the invitations next year as well.

Yes.

Thank you, Bruno. So as I said, we'll be answering the questions based on the order in which hands were raised. So we will start with Andrew from Morgan Stanley. I kindly ask you to limit yourself to one question so we can be productive and allow everyone to ask their questions. Thank you very much for your interest, and now Andrew, can you hear?

Hi, it's Jorge Kuri from Morgan Stanley. Hi everyone. Thanks for taking my question and congrats on the numbers. I wanted to see if you could share how the business is tracking in July and so far in August. How much of that normalization in inflows, AUC, and take rate from the full quarter continues so far in August, and if you can quantify how back to normal your levels are or if there are still weak trends as experienced at the beginning of this quarter, and whether we should expect further normalization to the upside for the full third quarter. Thank you.

If I were to answer based on January's performance, I would say it looked like a disaster, as January was really weak; however, we saw a much better March, hitting net new money of $10 billion per month. The second quarter showed a very positive trend with $14.3 billion in net new money monthly. As for the third quarter, I would prefer to wait until the end of it to comment. I can say that we still maintain a soft guidance of $10 billion to $15 billion. I wouldn’t adjust that high. The reason is that the investment business is not governed by quarterly dynamics; you must convince clients to test our platform. Once they do so, we hook them, and they stay with us long-term, bringing more money. This is evidenced by our cohorts; our clients are encouraged to move beyond just investments to access the other 50% of share wallets we currently don't have. We just launched the digital bank account and made numerous investments; this will pick up in the future, but it takes time. Therefore, until we reach that point, I believe a monthly net new money figure of $10 billion to $15 billion seems reasonable, considering we are not experiencing the tailwind that we saw in a bull market.

Right. Thanks, Bruno. And any commentary on the take rate?

Yes, sorry for skipping the take rate question. We did experience a strong take rate in the second quarter, at 1.3%. I'm speaking from the perspective of analysts evaluating the results, not my view, which focuses on annualized take rates per quarter. The 1.3% is significant. However, I'd expect a slight decrease in the third quarter due to performance fees reflected in the second quarter. Performance fees for the funds distributed for retail clients contributed positively to that. If we exclude those, we might expect a take rate around 1.24% to 1.25%. We're discussing a 5 to 7 basis points impact in terms of performance fees.

That makes sense. Thanks a lot, and congrats again.

Thank you.

Thank you, Jorge. Nice to hear from you. Jeff from Autonomous is next. Hi, Jeff.

Hi. Can you hear me okay?

Yes. Hi, Jeff.

Yes, we can.

Great. Thank you. You’ve spoken in the past about your desire to identify new investors who might potentially alleviate some of this overhang; perhaps someone strategic could come in and take a stake. Can you provide an update on that? What progress have you been able to make?

Let me answer this way: I wasn’t able to hear Itaú's results today, so I don’t know what they specifically said about our XP shares. They usually get questions from investors about what their plans are with their XP shares.

They said they are not in a rush to sell the shares. They don’t have a price target.

Yes, that’s correct. It’s up to them. What I can tell you about conversations we have with investors is that there is demand; it's not a demand problem. Some investors have already spoken directly with Itaú. Our goal is to communicate clearly that if they want to sell, we are here to facilitate a structured process. By the way, we also want to buy. We have a buyback program in progress for Class A shares, the listed shares, but it’s important to note that Itaú also has Class B shares that we can buy outside the share buyback program. This is exactly what we did in June this year. We purchased over 1 million Class B shares from Itaú when they decided to sell a small portion of their stake to drop below the 10% total capital in XP. This was managed without affecting their capital requirements. We remain ready to buy more shares if they wish to sell. Unfortunately, given circumstances, we can only buy Class B shares outside the buyback program. From other investors, I am quite confident that it’s not a demand issue. We have to rely on Itaú to make their decision.

Thank you.

Thank you, Jeff. Next is Mr. Otavio Tanganelli from Bradesco.

Hi, Andre, Maffra, and Bruno.

Otavio.

Hello, Otavio.

Thanks for taking my question. I have a quick one. It was concerning to see EBITDA margins compress in the quarter, given everything you've mentioned about operating leverage and cost discipline. I understand you're ramping up some products expected to mature in the coming quarters, but could you provide some background on why such a high level of investments is required or what your plans are for this in the coming quarters? When do you expect to see the benefits of this operating leverage? Thanks.

Sure, I will start here and Maffra feel free to join me. Otavio, I mentioned the options of organic or inorganic decisions; for instance, Itaú acquired Avenue, but we’ve built our direct international investment platform from scratch. Everything we developed in the app for our clients was carefully constructed with upfront costs. XTAGE is another example; we could have purchased a platform, but we chose to build one from scratch. All these expenses hit our P&L upfront. Despite this, we've maintained our margins at a very healthy level, and we believe these new businesses are early initiatives that will yield positive returns and provide optionality for our perpetual growth. Consequently, we are continuously thinking about innovation. The R$500 million I mentioned in the first semester represents two key impacts in the short term. Number one, with cards, we have to invest upfront as card provision costs increase. As you analyze Neobank and other market players, when you grow your card base, your revenue will grow alongside your costs. Currently, we have a small market share and significant internal cross-sell capability, therefore this growth trajectory will continue. In terms of cohort data, with the growth of internal advisors, it will eventually yield returns as those advisors manage client portfolios. We are investing aggressively in several fronts, which is impacting short-term margins. However, despite this, we believe our profitability is healthy, giving us the confidence to maintain a balanced approach towards aggressive and conservative spending. We don’t possess a crystal ball, given external factors like inflation and a potential downturn. Our strategy is to be prepared for the worst but remain focused on a long-term growth trajectory.

This point is very important, Bruno. We won't sacrifice short-term results for long-term investments that we believe will yield returns to our shareholders. We understand that initiatives like our credit card or internal advisors entail a J Curve in returns, but we are planning to keep investing because the payback periods are relatively short.

We are not accelerating investments as we must find the right advisors and hire them, among other strategies. If we are confident in our ability to identify and hire effectively, we will act aggressively; but this typically takes time. We will continue to invest to capture growth potential.

Super clear.

Thank you, Otavio. Moving on to Tito Labarta from Goldman Sachs. Hi, Tito.

Hi, good evening. Thanks Andre. Hey, Bruno, Maffra, good to see you.

Hey, Tito.

My question is a follow-up regarding margins, and delving more into the expenses which spiked. I know you discussed personnel expenses; you've hired significantly more than last year. Could you provide some insights on your hiring needs going forward? You had indicated that you would expect hiring to slow a bit; do you anticipate having 8,000 people by the end of the year? Any insight would be appreciated. The other expense that increased substantially was data processing, which surged around 60% compared to last year. Is this expenditure entirely driven by investments in the app, or could you provide some other insights on this to help us forecast and model some of these expenses? Considering the surge in SG&A this quarter.

Absolutely, Tito. Let's start with the data processing costs; it's driven by growth in personnel, license expenses, etc. Additionally, part of it pertains to some accounting measures where certain expenses that were previously capitalized are now classified under SG&A. We can discuss that in greater detail offline later. Regarding personnel, we had a headcount of around 6,300 in the second quarter, compared to roughly 6,200 in the preceding quarter. Much of the growth in personnel took place primarily in the second semester last year as we initiated multiple new projects—the direct investment platform and XTAGE, which began last year. Looking ahead, I would not expect significant growth in my overall headcount; any increase would be single-digit. The line that could potentially increase would be internal advisors. We aspire to grow in this domain; however, hiring the right personnel to join us is our highest priority. If we don't find the right personnel, we will not increase headcount hastily, as we are very data-driven. For instance, if we see performance metrics that indicate certain personnel types aren't ideal for our objectives, we will reassess and realign our hiring approach accordingly. Our XP Future—education—is part of our DNA, and we have developed various tools that empower advisors, even those from non-financial backgrounds, to succeed in finance.

That's insightful. Thanks, Bruno. One quick follow-up on bonuses; you mentioned they are typically paid in Q2 and Q4. Observing last year's Q2, there was a noticeable jump, but the Q4 wasn't as marked. Should we expect similar levels in Q4 regarding the bonus structure?

Yes. The bonus percentage relative to net revenue is a better view taken on a semester basis rather than quarterly. In the first semester this year, it accounted for 13.4% of net revenue; the second semester last year stood at 15%, while the first semester last year was 13.7%. There are components of the bonus that hinge upon performance fees and institutional desk performance, which become evident only in December since it relies on year-end metrics. I would anticipate retaining similar percentages relative to net revenue on a semester basis.

That's clear. Thanks, Bruno.

Thank you, Tito. Next we have Thiago Batista from UBS. Go ahead, Thiago.

Yes. Hi guys. Thanks for the opportunity. Can you hear me?

Yes.

Yes.

My query revolves around XP's excess capital or cash. I'm trying to gauge how asset-light XP is at this point. The company is posting, let’s say, an EBITDA of $1 billion per quarter, but it’s challenging for us to determine if this cash generation is sustainable. In your view, does XP have excess capital or, framed differently, has XP become a more capital-intensive entity due to the investments discussed? Would we eventually see XP revert to being the asset-light entity it once was, or have new business initiatives necessitated a more capital-intensive future?

To begin with, we maintain the viewpoint that XP is, and intends to remain, an asset-light business. We do have some capital requirements, especially as it pertains to the credit card and credit business, but we can mitigate a portion of the required capital since most of it is collateralized. Our cash flow generation is robust, and we produce significant cash flow each month, primarily for our market-making activities; this is where most of our cash is directed. Going forward, as Brazilian capital markets evolve, the amount of capital tied up in our warehouse should reduce. It’s important to clarify that when we discuss adjusted cash, we have close to R$10 billion. However, most of this cash is utilized for our market-making activity within our books. Looking at recent trends, our cash usage was primarily due to two lines: Firstly, to IFAs, historically since 2020, we undertook a large investment to establish long-term contracts with our IFAs; this showed up in our prepayment expenses amounting to about R$4 billion. Secondly, we engaged in some minor M&A activity totaling R$2 billion. We do not expect to incur those levels of spending in the future. It's also worth noting that although we have utilized our cash flow for substantial investments, we've managed these expenditures effectively—even with our internal capabilities—creating a clear pathway for maintaining an asset-light structure as we progress.

Very clear. Thank you for that, Bruno.

Thank you. I'll pass the word here to Rozman since he was first in line and then he was disconnected. Can you hear us?

Yes, yes. Can you hear me?

Yes.

Hi, Bruno. Hi, Maffra, and Andre. My question is a follow-up to Thiago’s. It’s an important theme, as XP has been rapidly growing earnings over the last few years, but when looking at ROE and ROA, they seem to be declining. Recently, I believe you raised R$1.8 billion in debt to cover routine operations. I’d like to understand how ROE and ROA are tracked internally, as I know you refer to net margin and EBITDA margin. Still, I'm curious about long-term ROE expectations and overall returns. Thank you.

Certainly, Rozman. Yes, we do closely monitor metrics including ROE and ROA; however, the declines you're observing are primarily the result of macroeconomic conditions and less due to internal inefficiencies. The limited scale of our credit portfolio, which reached R$12.9 billion in the second quarter, is the outcome of our strategic decisions. The rationale for acquiring a bank differs from that of conventional competitors; we did it to enhance our client base beyond investments. The bank license provides more avenues for business trajectory. Currently, we have a broker dealer structure in Brazil, whereas most other players operate under the opposite structure. Our bank leverage strategy is deliberately not fully deployed at present. The downturn in ROE and ROA is primarily due to a bear market causing revenue dips; these metrics tend to rebound once the market strengthens.

Okay. Thanks a lot, Bruno.

Sure.

Thank you. Moving to Marcelo Telles from Credit Suisse. Hello?

Currently, we have a broker dealer structure in Brazil, whereas most other players operate under the opposite structure. Our bank leverage strategy is deliberately not fully deployed at present. The downturn in return on equity and return on assets is primarily due to a bear market causing revenue dips; these metrics tend to rebound once the market strengthens. Thank you. Moving to Marcelo Telles from Credit Suisse. Hello?

Okay, Telles. I will respond in English. Look, in terms of cash flow, it's more than the 500 million per quarter you've mentioned; it's close to the adjusted EBITDA if we don’t have M&A and incentives for the IFA as you mentioned. We did have a small M&A in the second quarter, around 100 million. As for the IFA, it was less than the 300 million you mentioned. It's challenging to predict going forward; we analyze each case individually. As we've previously stated, we have a strong grasp of all our IFAs and determine our expenditure based on strategic value. If it doesn’t align with our growth goals, we won’t allocate funds for long-term commitments. Our quarterly cash flow figures can fluctuate. For instance, last quarter, it was minimal; this quarter was a bit over R$200 million. Our cash generation reflects our core operations, but we maintain our buyback program and have acquired shares previously. We’ve executed around one-fourth of the total buyback program announced in May.

Thank you, Telles. Bye-bye.

Thank you, Telles. Bye-bye.

Next question comes from Neha from HSBC. Hi, Neha.

Hello. Hi, Andre, Thiago, Bruno. Congratulations on the results.

Hi, Neha.

My two questions are quick; first, regarding credit revenues, they appeared somewhat softer this quarter. Can you provide insights on that? Secondly, the tax rate has been rather volatile over the past few quarters; can you offer guidance on expectations for the upcoming quarters?

Yes, yes, yes. Regarding the credit revenues, it’s challenging with quarterly variations. There are cases of significant one-off credit transactions which may create distortions. For instance, we had something similar in the first quarter that boosted those figures. Overall, we expect credit revenues to continue to grow, but we prioritize risk management over any targets. We are the stakeholders, and we will act accordingly. As for the tax rate, the effective tax rate is a better measure to use, reflecting the diverse market-making activity we engage in that results in different tax implications based on the specific funds that fluctuate between 15% to 20%. When we account for these elements, the normalized effective tax rate was around 15% in the first half of the year. We expect it to rise as capital market activities rebound. However, with a change in revenue mix, while we could face a higher tax burden, it would likely accompany increased revenues as well.

Hey, I mentioned earlier that I’m still experiencing a hangover from expert; I forgot to mention Telles. Concerning your earlier inquiries about the buyback, as mentioned, we have been actively repurchasing shares. We completed approximately one-fourth of our total buyback program announced in May.

Thank you, Neha. Next, we have Mario from Bank of America.

Hey guys. Good afternoon. Thank you for taking my question. Two quick inquiries: first, regarding the retail revenue yield at about 5 to 7 basis points benefit from performance fees; could you remind me about the frequency of these performance fees and whether any were observed one year ago? Secondly, could you provide an update on the Modal transaction timeline? I know they reported earnings, and it seems their results fell short of initial expectations. Was the price you paid fixed at the issuance of shares?

Regarding the take rate and the impact from performance fees, there were indeed performance fees in the second quarter last year, but they were much lower than the roughly $150 million we had this year—it was around $50 million. Performance fees are usually stronger in the second and fourth quarters because they correlate with performance-driven fund outcomes. This quarter's take rate was positively affected by these fees. The take rate could have been 1.23 to 1.25 without the performance fee impact. Additionally, about the Modal situation, we anticipate closing the deal by the end of this year, although the process is not entirely in our hands. We're mostly waiting on approvals from both the central bank and the SEC as they have a role in the issuance process. The total number of shares is close to 19.5 million, and that part is set. Modal's performance, while it fluctuates, signifies there is synergy potential. Nevertheless, they still have work to do, which is something we can navigate through, considering our diverse portfolio. The synergies we anticipate could yield about 30% to 50% in terms of cost savings and a similar margin on revenue.

That’s helpful. Thank you.

Thank you, Mario.

Thank you, Mario. Last but not least, Domingos from JP Morgan. Good evening, Domingos.

Good evening guys. Thanks. I guess my question also pertains to cash flow; just starting with a bit of a background. Let’s assume your assets under custody see mid-teen growth with limited capital requirements and cash needs over time. When do you expect dividends to be paid, and what sort of payout can be anticipated? Would this be realistic for 2023 or 2024? The attractiveness of your tech-driven underwriting framework for many is your asset-light structure; comparably, B3 pays upwards of 90%. When can we expect cash to flow back to investors?

Yes, to clarify, we maintain a growth-focused mentality. Therefore, returning cash to shareholders is less of a priority than exploring avenues for long-term expansion. We believe there are significant opportunities ahead; for instance, progressing on our international venture. The direct investment for retail clients in the U.S. represents a smaller piece but could facilitate broader growth initiatives beyond Brazil. Unfortunately, I cannot provide guidance on when potential dividends or payout percentages would materialize. Maffra, do you have further insights?

Regarding the matter of Faria Lima and the villa, let me clarify, it's not a decision primarily based on cost. As you know, we experienced significant workforce expansion during the pandemic; initially, we had 3,500 employees, and now we have over 6,500, while our physical space reduced from 12 to 4 floors. We're searching to align workspace more effectively with our workforce needs, with additional floors being of paramount importance, especially for our teams directly engaging with our clientele across sectors.

Indeed, we encountered challenges with construction timelines and regulatory matters, which delayed our expansion plans. However, moving forward, we remain committed to improving and maintaining our operational capacity.

Thanks guys. Congrats on the quarter and good evening.

Thank you, Domingos.

Thank you, Domingos. You were the last one; I would like to thank everyone for their interest in our call. We are available for any follow-ups as usual. Bruno, I believe you could extend an invitation to everyone for next year's event. Final thoughts?

We are going to consider something beyond just inviting our international investors; we want their visits to be worthwhile by including participation in the experts’ event, which is noteworthy to experience firsthand. Thank you all for the call.

Thank you, everyone.

Bye everyone. Thank you.

Bye-bye.