XP Inc. Q4 FY2024 Earnings Call

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 earnings call. This year was a record-setting year of results and today it 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. If you want to ask a question, you can raise your hand on Zoom, and we will attend to you on a first-come, first-served basis. We also have the option of simultaneous translation to Portuguese. There is 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, which clarify forward-looking statements, and additional information on forward-looking statements can also be found in the SEC filings section of the IR website. So now I'll turn it over to Thiago Maffra. Good evening, Maffra.

Thank you, Andre. Good evening to all. I appreciate everyone joining us for our fourth 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. 2024 was a positive year for us. Our results were aligned with our plan, bringing confidence that our ecosystem is complete and able to navigate through various weather conditions. This year, we also dedicated ourselves to increasing our ability to deliver higher quality service to our clients, better segmentation, innovative products, sales channel expansion, and all of this with strict cost control. Our business is supported by our more intelligent and sophisticated tech platform, creating opportunities to grow secondary trading; as a result, we delivered higher profitability to our shareholders. As part of our culture, we celebrate our people's commitment, highlighting partners with more than 10 years working at XP. Last month, I completed 10 years at XP, like many other partners. It was special to see all the transformation we experienced during the last decade and imagine how many new growth opportunities we still have for the next one. Now, I will share with you the main highlights we accomplished during the year, starting with client assets that we achieved BRL1.22 trillion, posting a 9% growth year-over-year. We also reached 18,200 advisors, representing a 5% growth year-over-year, and a client base achieved 4.7 million with a 3% growth year-over-year. In 2024, gross revenues posted BRL18 billion with a solid 15% growth year-over-year. We also delivered sound EBT growth of 26% year-over-year, reaching BRL5 billion. I'm happy to announce that we achieved the highest quarterly adjusted net income since our IPO, posting BRL1.2 billion in the fourth quarter of '24 and a total of BRL4.5 billion for the full year, which represented a 17% expansion year-over-year. On the balance sheet and profitability, we achieved a 28.7% ROTE in 2024 with 376 bps expansion versus 2023, and our ROE marked 23%, 163 bps expansion. This year-end ratio was 17.7%, a comfortable level when considering the payment of BRL2 billion in dividends, our secured loan book growth, and the effects of a higher interest rate curve at the end of the year. We will bring more details on this topic during the presentation. Regarding the adjusted diluted EPS, we posted 16% growth during the year. Looking ahead, EPS should grow faster than net income when we take into consideration the share buyback program we initiated last year. Our set of results confirms that we are on the right track to deliver our 2026 guidance. We will see more details on the next slides. Let's see how our business evolved since we presented our guidance in December 2023; we will go deeper into each pillar on the next slides. Since our total revenues reached $18 billion during the year, representing a 15% growth, to reach the top of the guidance, it is necessary to post a 22% CAGR, and to reach the bottom, it is necessary to post a 12% CAGR. When we take the EBT margin into consideration, we posted 256 bps expansion, reaching 29% for the year. This corroborates that our plan is on track to achieve our target range of 30% to 34% in 2026. Now, on the right-hand side of this slide, there is a comparison from final year 2024 with third quarter '23, which was the reference that we set our targets for 2026. Analyzing the three pillars that comprehend total gross revenues, we see that core investments and new verticals are within the growth range, and corporate and SMB are above. As a conclusion, gross revenues present a CAGR of 17%. The same idea is related to EBT margin, with a sound expansion during the period of 283 bps at 29%, which reinforced our confidence in achieving our goals. Moving to the next slide, in retail investments, during 2024, the number one question for XP was net new money, and we have been addressing this by demonstrating our capacity to deliver around BRL20 billion per quarter in retail. This quarter, we posted BRL20 billion in retail, marking a 67% growth year-over-year despite the challenging macro-environment. Comparing total net new money when corporate is included, we posted BRL26 billion, representing a 37% growth year-over-year. For the full year, we presented BRL103 billion in net new money with a 45% growth. Considering only retail, excluding Modal's acquisition, it was a 33% growth year-over-year with BRL81 billion. Our target remains the same for 2025, net new money around BRL20 billion per quarter in retail. We understand that our true differentiators set us apart from peers and will contribute to our continuous growth in the next years. Moving to the next slide, we will go deeper into our main levers, starting with our complete product platform offering sophisticated instruments to our clients according to their objectives. I'm happy to share our current fixed-income capacity. XP is a fixed-income powerhouse in Brazil, being the largest market maker for all fixed-income instruments. It became a relevant growth engine in our ecosystem, built not so long ago. Actually, we doubled the AUC size in the last two years. It begs the question if fixed income will perform as well as last year. As you can see in the slide, the traded volume to client assets ratio is steady over the years. AUC kept growing at a fast pace, and as a result, fixed-income daily average traded volume skyrocketed, reaching 40,000 trades in 2024. To achieve this service level, we have to consider the powerful combination of the largest, well-trained sales team in the country, diversified and innovative product offerings, and risk management accuracy. Moving to the next slide, we see our new distribution channel model. Since 2021, we built a multichannel distribution channel in two main categories: the first one, B2B, which comprises IFAs, wealth managers, and RIAs, and the second one, B2C, which includes internal advisors, self-direct models, and private banks. These categories have demonstrated to be complementary, addressing client needs and supporting our commercial trust, posting continuous AUC growth. It's important to highlight that the new distribution channels we launched during the last few years already represent 60% of total net-new money. As you can see on the right-hand side of this slide, our proprietary tools provide more intelligence to support advisors with their daily activities. We do this by providing data so advisors can manage clients' portfolios according to their objectives and simulate new strategies and performance. On the back of this new technology and servicing model, we have our RFA channel ready to accelerate even further in 2025, becoming adherent to this new concept of managing client portfolios, improving loyalty, and satisfaction. The adherence to these tools and practices is very important. A clear example that illustrates this is that advisors who adopted our new commercial behavior increased their daily activities by 11 times. This shows a powerful combination of tools and a new mindset in relation to our clients. On the next slide, we developed a segmentation with an accurate value proposition. As we can see in the slide, we have from digital to private; another part of our better understanding of this new segmentation is based on five different dimensions. Number one is focusing on what clients are looking for in the relationship with XP, from transactions and banking for digital clients to integrated solutions for private clients. Number two is the advisory model with three different approaches, focused on objective-based financial planning and wealth planning. Number three is investment options with proper pricing, sophistication, and access depending on the client segment. Number four is banking experience, also with differentiated pricing and products such as different credit cards that match our clients' expectations. Finally, number five is client support with increasingly higher personalization and benefits, such as faster SLAs and participation in events and experiences. Additionally, we are preparing new initiatives to launch during the year with this rationale. One of them is a new credit card experience that we expect to result in higher cross-sell and share of wallet. We have already observed that the new segmentation has started to translate into better results. One of many examples is our private bank, which is performing much better in terms of inflows and client satisfaction than in previous years. We are excited about the performance we experienced last month and expect a solid 2025. Moving to the next slide, we have financial planning. As we saw earlier, financial planning is an important pillar in our strategy. We are the only institution serving clients with a complete financial planning program for clients with over BRL300K. Not only does client base satisfaction increase, but so does their loyalty. As initial results, we can see on the right side of the slide that clients with the financial planning program increased their insurance conversion by two times and increased retirement plan conversions from 30% to 41%. Additionally, this enhanced our client's net new money by 43%, and we are only at the beginning, with more to be done in the next years. Moving on to retail initiatives, we will focus now on our cross-selling initiatives. You can see that credit card growth stood at 11% year-over-year, marking BRL13.1 billion in PPV during the fourth quarter of '24. When we compare the full year, credit card growth reached 17%. With regard to our total penetration, we still see a good opportunity to increase our credit card client base since we have only 29% penetration among eligible clients, while larger banks are running around 50%. We are excited about our new launches during the year and expect card revenue to grow around 20%. Life insurance written premium presented a 37% growth year-over-year in the fourth quarter and a 44% growth for the full year of 2024. This represents another growth avenue for the following years since our penetration is around 2%, while other players exhibit close to 17% penetration in this product. When we compare life insurance revenues, they grew 27% in the year, indicating that we are starting to reap the benefits from our own insurance company. It typically takes three years to see the positive impact in this business, while the first two years are primarily focused on commissions and provisions. For 2025, we expect an even higher revenue growth pace than what we saw in 2024, which was 41%. With retirement plans, our client assets continue to grow double-digit, showing a 10% year-over-year growth in the fourth quarter, with a market value of BRL81 billion. XP holds a 5% market share, with the market leader at 27%. As mentioned in recent quarters, we are launching new initiatives like cashback and salesforce expansion to remain relevant in this offering over the next years. As we observe more inflows, we believe we could grow retirement plans revenue at a double-digit rate in 2025. Retail credit NII posted a 79% growth year-over-year, marking BRL81 million in revenues this quarter. Since our lending in this concept is backed by client investments as collateral, our ECL to loans is lower than 1%, which represents one of the lowest levels in the Brazilian industry. We expect this revenue to grow around mid-teens for the year. Regarding other new products compounded by FX, global investments, digital accounts, and consortia, they presented a 103% growth year-over-year with revenues marking BRL213 million this quarter. This demonstrates how many opportunities we still have to capture through cross-sell in our retail client base; not long ago, it was close to zero. Looking ahead, this concept should cross the BRL1 billion mark per year. Moving to corporate and SMB, as we have been discussing, our complete ecosystem has wholesale as an important part of our growth engines. 2024 was a record-setting year for this segment. Now let's examine how it performed in different divisions, starting with DCM; it was a strong year, posting a 31% growth in volumes compared to the fourth quarter of '23, marking BRL9.3 billion, coupled with market share gains, achieving 13%. As a result, we were top-ranked in DCM, Agribusiness credit notes, and real estate funds. We could gain even further market share since XP is the largest investment platform in Brazil with dominance in secondary trading. In corporate credit and secondary trading, XP represents over 50% of the local market. Another highlight this quarter was XP's institutional broker-dealer; given our distribution power and quality in execution, we have been gaining market share consistently over the last few years. By the end of 2024, XP posted a 16% market share, which is getting closer to the market leader. Another relevant growth avenue is corporate securities. A few years ago, we faced completely different circumstances. Now, our capacity to originate, warehouse, and distribute corporate credit is on a new level. XP is a relevant player; more importantly than just size is the benefit of our unique loop of recycling or expanding the loan book to our retail and institutional clients. Our turnover on this front is 2 to 3 times per quarter. This quarter, our corporate securities book increased by BRL9 billion, predominantly with high-rated names, totaling BRL32 billion. This indicates that we distributed a large portion of this book last quarter while also originating a larger one. Our competitiveness is supported by our position as the largest corporate credit broker in the country. In derivatives, we continue to evolve our offerings while increasing penetration; as you would see in derivatives, we maintained our fourth-ranking position compared to the tenth two years ago. As we presented last quarter, XP is the leader in interest rate swaps, a true differential of our ecosystem. In FX, XP also sustained its 15th ranking position from 41st four years ago when we began. In issuer service and corporate, total revenues posted 45% growth; when the institutional concept is included, these three businesses grew 16% year-over-year. We are confident that our strengths will excel in the challenging scenario, marking another solid growth year in 2025. Moving to the next slide, we will discuss XP's growth potential. We recognize that our business has evolved in a complete ecosystem, and we have received many questions regarding our growth potential. Therefore, I would like to share a rationale that supports our plan for the year. It is important to bear in mind that XP's business model benefits from natural growth from total AUC. Today, as we speak, roughly 65% of total assets are allocated in fixed income directly or through funds, which corroborates our expectation of growth close to the Selic rate for these client assets. Additionally, we incorporated net new money. This combination translates into a potential for double-digit growth in AUC, subsequently supporting revenue growth. Regarding new verticals, as I presented earlier, we are confident that we are just at the beginning of the potential for cross-sell penetration. During the year, we grew 32%, and we expect to continue growing at this fast pace in the coming years. Another concept supporting our growth relates to our clients' float. By design, the performance will be aligned with the Selic rate, indicating again double-digit growth. The next pillar is issuer service, focused on DCM. In 2024, the Brazilian industry experienced all-time high DCM volumes, and it's premature to assert that this will not also be a solid year for DCM in 2025. If total DCM volumes for 2025 materialize at lower levels than last year, our plan is to expand our market share and benefit from a new level in the Brazilian industry that is significantly higher than in previous years. Our distribution power is our most critical differential to participate in many issuance mandates. Coupled with that is our lower cost of capital, which Victor will discuss in more detail shortly. Ultimately, corporate revenues go hand-in-hand with issuer services by providing derivatives and credit to our clients. XP is becoming more relevant in the wholesale business since our recycling model results in a higher distribution capacity to our retail and institutional channels. Even considering institutional revenues with a lower pace as part of this concept, both should post double-digit growth. As a reminder, we expect a softer primary offerings volume in DCM for the first quarter of '25 due to seasonality, but this should be offset by a higher activity in the corporate bond secondary market. Compounding all these factors, the end goal should be total revenues growing more than 10% during 2025. I'll hand it over to Victor so he can discuss this quarter's financials. Thank you.

Thanks, Maffra. Good evening, everyone. It's a pleasure to be here with you. Let's start with gross revenue. Our total gross revenue posted a 15% growth in 2024 and a 4% growth quarter-over-quarter. Retail fixed income and corporate issue services were the highlights of the quarter. The strong performance in retail fixed income reflects our growing ability to deliver fixed-income products and enhance our market-making capacity. In parallel, corporate issue services benefited from our warehousing strategy. We changed to meet client demand in the first quarter of 2025 while mitigating the expected weaker seasonality. When we compare the gross revenue breakdown on the right-hand side of the slide, in 2024, retail maintained 75% of total revenues, and corporate and issuer services gained space against institutional revenues. Let's move on to the next slides for more details on the different segments. Retail revenue posted BRL11.791 billion, a 14% growth in 2024 and marked BRL3.569 billion in the fourth quarter of '24, representing a 2% growth quarter-over-quarter. As expected, fixed income was the highlight for the year and in the quarter, achieving BRL3.447 billion with 49% growth, and BRL985 million in the quarter, posting 5% growth quarter-over-quarter. It is important to note, as Maffra mentioned earlier, fixed income is a relevant component of our ecosystem and the results in retail are entirely connected with our distribution capacity and relevance in secondary trading. I would also like to highlight that the new vertical products presented more than 30% growth in the year, which means we are on track with our plan presented on our Investor Day in 2023. Moving on to corporate and issuer services, which have become an important contributor in our ecosystem, posted BRL2.289 billion, marking a 45% growth in the year. In the quarter, it posted BRL599 million, representing a 9% growth quarter-over-quarter and marked a solid 45% growth in the year. Issuer services delivered solid results again on the back of DCM activity, achieving BRL1.324 billion with 46% growth during the year and reached BRL337 million in the quarter, a 5% growth quarter-over-quarter. On the back of a stronger quarter for issuer services, Corporate division was able to capture cross-selling opportunities, mainly with derivatives. Corporate posted BRL260 million in the quarter with 14% growth quarter-over-quarter. Looking to the full year, it represented BRL965 million, a 45% growth year-over-year. We have been talking about our warehousing strategy and recycling mode for some quarters. To provide you with a clear view of the robust engine we have in the fixed-income arena, the engine starts with origination, investment banking, allocating a part of our issuance into our book, and the offering in retail institutional clients. This was another quarter in which we not only distributed most of the previous quarter book but also built a new portfolio with competitive products to meet client demand in the first quarter of 2025, mitigating expected seasonal impacts. This approach mirrors the strategy we executed in the second quarter of 2024, enhancing our competitiveness by offering high-return products compared to traditional time deposits and large banks' tax notes. Our securities book achieved BRL32 billion, representing a 4% growth quarter-over-quarter. Moving on to the next slide, we will explore our SG&A and efficiency ratios. We believe our competitive edge is driven by our ability to continually invest in our core business, new technologies, expansion of our advisor network, and product development while maintaining strict cost and expense control. Unlike our competitors, we are born digital, which positions us to sustain growth while improving efficiency. As a result, we grew 15% in total revenues and 10% in SG&A during the year. Total expenses posted BRL5.927 billion. Just a reminder, we incorporated Banco Modal in the second half of '23, creating a new baseline for the full year of 2024. So when we compare 4Q '24 and 4Q '23, the SG&A grew only 2%. At the same time, we also launched several new products, introduced our financial planning platform, and hired close to 800 new internal advisors. Looking to 2025, we have new rounds of investments to enhance our platform, improving our banking product offerings with better segmentation than the full-year carry of the new internal advisors hired in 2024. Moving to the efficiency ratio in the next slide. As we can see on the right-hand side of the slide, we improved the efficiency ratio by 157 basis points during the year, achieving 34.7%. We also improved this ratio by 78 basis points in the quarter. As mentioned in the previous slide, our goal for the full year is to enhance our efficiency while continuing to invest in strategic areas. We expect our efficiency ratio to improve throughout the year. Let's delve into EBT now. As a result of our assertive strategy to provide new and innovative solutions, together with our strict cost control, we drove unprecedented EBT and EBITA margin expansion throughout the year. Along with these actions, we also organized our corporate structure, decreasing maturity in our cost of capital and funding, benefitting both wholesale and retail banking businesses and better positioning XP to compete in those markets. Our EBT responded accordingly during the year, presenting a 26% growth, achieving BRL4.907 billion. In the quarter, EBT totaled BRL1.289 billion, posting a 6% growth quarter-over-quarter and a 30% growth compared to 4Q '23. Our EBT margin marked 29.1% for the year, posting a strong increase of 263 basis points. In the quarter, the EBT margin was 28.7%, 66 basis points higher quarter-over-quarter, and 430 basis points higher compared to 4Q '23. For 2025, our efforts will focus on expanding our ecosystem, capturing the benefits of a larger business and targeting our commitment to deliver an EBT margin between 30% and 34% by 2026. On the next slide, we will discuss adjusted net income. 2024 was a year with more peaks and valleys than average, even for Brazil. Remember, in the beginning of the year, macro expectations were different compared to 2Q '24 and were significantly different from the last quarter of the year. We did what we said and delivered results aligned with our 2026 guidance released in December 2023. The adjusted net income for the year reached BRL4,504 million, a 17% growth year-over-year, and in the quarter, it was BRL1,210 million, excluding the one-off impact representing a 2% growth quarter-over-quarter. As we discussed during the last two quarters, it's essential to remember that our estimates of normalized ETR were around 18%, and that has indeed been the case. As the quarter marked 17.9% and in the year at 18.7%, we expect the effective tax rate to remain around 18%. Let's move on to the next slide to talk about capital management. As we highlighted last quarter, we initiated providing a full view of capital and risk-weighted asset figures. Our ratio stood at 17.7% at the end of 2024. Just a reminder, we distributed BRL2 billion in dividends and have an ongoing share buyback program. As we mentioned earlier, turnover volume in fixed income reached an all-time high, driven by our investments in secondary trading technology. We remain highly optimistic about this trend, which gives us the confidence to expand our books by BRL9 billion of high-quality securities. This strategy allowed us to capitalize on the widening credit spreads at the end of the year, enabling us to warehouse those assets at a more competitive level. Additionally, it's important to note that half of the volume was related to tax-exempt notes from quasi-sovereign banks supported by the launch of a new product in Brazil called development credit notes. Similar to the second quarter, we expect to sell these assets in the first quarter of 2025, helping to offset the seasonally weaker DCM activity during that period. With that in mind, we are confident in our capital level, and there are no changes to our guidance. We continue to target a BIS ratio between 16% and 19%. It is also important to highlight that XP holds a higher proportion of CET1 capital at 16%, significantly above local peers. Additionally, we anticipate that the implementation of the new 4966 regulation from the Brazilian Central Bank will have a positive impact on our BIS ratio in 2025. On the right-hand side of this slide, we once again presented our RWA total assets ratio at 30. The observed shift in the breakdown between credit and market RWA was driven by the increase in our warehouse books. Since the third quarter, credit spreads in the trading book have been accounted for as market risk. Despite this, our business maintains a comfortable average daily VAR of 16 basis points over equity or BRL32 million in absolute terms. Our capital strategy results in a conservative BIS ratio while supporting higher profitability and returns to shareholders, as we are about to see in the next slide. This slide summarizes our capital distribution for the past three years, reaching close to BRL10 billion in dividends and buybacks. This year, our total payout ratio was 74%, with BRL3.6 billion capital return. Looking ahead, we maintain our goal to deliver more than a 50% payout ratio over the next couple of years. Now let's look at our EPS and ROE. Our earnings per share have continued to post solid growth, achieving a figure of BRL8.28, reflecting a 16% increase year-over-year. The same trend is seen in ROTE and ROE. ROTE achieved 29.2% in the quarter, representing a 7 basis points increase, and ROE posted 23.4%, 40 basis points higher quarter-over-quarter. Over the year, ROTE marked 28.7%, up 376 basis points year-over-year, and ROE achieved 23%, a 164 basis points increase compared to last year. Moving to my last topic, the new corporate structure, we mentioned last quarter that we concluded the corporate structure in Brazil, where the bank became the parent company. As a result, as we can see in this slide, the cost of capital is 35% lower than before since we issued AT1 and T2 during the year. We could only capture some of these benefits in 2024, and we will only see the fully-loaded impacts of lower costs of capital and also mature, lower-cost funding in 2025. Now I'll hand it back to Maffra so he can provide his final remarks, and then we will proceed to the Q&A.

Thanks, Victor. Before moving to Q&A, I would like to reinforce four topics. First, our all-weather ecosystem, demonstrating that our business goes beyond equities. 2024 was challenging, but we presented solid results, showing that our growth strategy is well-positioned to deliver on our 2026 guidance. Second, our retail net new money was BRL81 billion during the year, reaffirming that our target to increase BRL20 billion per quarter is also on track for 2025. Third, we understand that our true financials remain intact. We are continuously evolving our product platform, our multichannel distribution, our new segmentation, and our value-added services, all of which set us apart from other players for the long run. Lastly, our capital discipline translates into a conservative approach, which is more efficient and provides a higher return to our shareholders. Over the past three years, XP distributed dividends and executed share buyback programs close to BRL10 billion, and we will continue to work to increase our profitability during 2025 and the years to come. Now, Andre Parize, we will start our Q&A session.

Thank you, Maffra. We're going to start the Q&A. The first question is from Thiago Batista, UBS. Thiago, you may proceed.

Hi, guys, are you hearing me?

Yes.

Okay. Congrats on the results. I have two questions. The first one on the capital or the BIS ratio. This quarter, we saw a significant increase in risk-weighted assets, if I'm not mistaken, around 12% quarter-over-quarter, mainly due to market risk. Can you comment on this movement? The second question is about the internal advisors. Maffra, you mentioned in the first pages of the press release that they represented about 60% of all the net new money of the year while being only about 15% of your salesforce. Can you comment on why those individuals are so much more efficient than the overall salesforce? And by the way, congrats on the beginning of the press release; the short page you wrote was excellent.

Thank you, Thiago, for your question. I will start with the second part of your question, and then Victor will take the first one. Good evening again to everyone here. The 60% of net new money is not solely from internal advisors. Remember that we have three channels to date: internal advisors, IFAs, and that RIA model, which mainly deals with wealth management and consultants. When we talk about the 60%, we're referring to the wealth services channel here, including B2C. However, regarding the productivity level, yes, the level of productivity of internal advisors is significantly higher than that of IFAs. We have some hypotheses here, but the main one is that we manage our sales team here with a comprehensive view of activity indicators and sales processes. We control the sales process in a much more standardized way than we do with IFAs. That being said, we provide the same tools, intelligence, and technology that we developed for internal advisors to IFAs as well. Everyone at XP knows that the channel they will focus on most in 2025 will be the IFAs and B2B channel because I believe there is hidden potential to unlock value this year, as we apply all the tools and techniques to the IFA network that we have developed for internal advisors. So that's my main goal when discussing channels for 2025, and I believe we can help IFAs further increase their productivity.

Thank you, Maffra. Thank you for your question, Thiago. Just to remind you, since the third quarter of the year, credit spreads risk is allocated at market risk by the new Central Bank regulation. So when we increased our book by BRL8 billion of corporate securities and quasi-sovereign government banks, we added risk to market RWA, not to credit RWA since everything is booked in the trading book.

Clear. Thanks for the answers.

Okay, the next question is from Eduardo Rosman from BTG. Eduardo, you may proceed.

Hi, everyone. Congrats on the quarter. I have a question regarding competition with the banks and regulation. Earlier last year, we saw the regulator adjusting the rules on instruments with tax benefits, such as LCIs and LCAs, which traditionally gives large banks an advantage, right? I think this has impacted our ability to supply the market, and we saw an improvement in the fixed income market outside these banking instruments, which naturally benefits you, right? However, at the end of the year, we observed a significant reacceleration in the issuance of these banking instruments with tax benefits. So I'd like to know if you can explain what happened. Additionally, we've seen some reports in the press discussing a potential relaxation of these rules. Could you share your thoughts on whether you believe this will happen and how it may impact your business?

Hi Rosman. I will start and then Victor can complement me. To be honest, the scenario with high interest rates is very clear to everyone; it helps the banks somewhat on the competitive side. However, especially in 2024, if we look back a year or a year and a half, it was incredibly difficult for us to compete against LCIs, LCAs, and similar instruments because we didn't have the volume or the right pricing to match that of the banks. However, we have been working diligently to develop partnerships, warehouse strategies, revolving lines, and repos. We've developed technology and instruments to compete against the banks. While it is not identical, we have made significant progress. This past problem in 2023 is not as pronounced as it once was. Meaning, I do not think that any change in regulation would dramatically affect us right now. I expect this year to see the BRL20 billion we mentioned earlier as more of a floor than the target—anticipating higher net new money in 2025.

Great, Maffra, thanks a lot.

Next question is from Guilherme Grespan from JPMorgan. You may proceed.

Thank you, Maffra and team. Congrats on the results. I have two questions. The first one is on the balance sheet. We saw BRL0.5 billion mark to market on the equity side, which I imagine is related to securities in fixed income or housing. Could you provide a bit more color on this? It was surprising to us since we understood that there was a hedge whenever you warehouse the security; we thought you had only exposure against the inflation-linked bonds and were exposed only to the corporate credit risk. But based on your comments, we understood that the market-to-market impact here was the Selic rate rising. Could you explore the dynamics of this warehousing exposure to macro dynamics and whether we should expect a reversal of this market-to-market impact in the first quarter? My second question is related to capital. You are running around 30% return on tangible equity while risk-weighted assets are growing at about 35%. The top-down conclusion here we reach is that you're not generating organic capital at this pace of RWA growth. When we try to do the math, I think we see guidance around a 50% payout for the next two years. It seems like you'll fall below the 16% ratio you've maintained before. At the same time, towards the end of my presentation, there were some CET1 numbers that weren’t clear to us if you were revising the target or not.

Thank you for the questions, Guilherme. Starting with the OCI, that does not come from the warehouse books. Those are balance sheet hedges. To clarify, that's the MTM of government bonds that goes against equity. However, the bonds hedge several assets and liabilities booked at amortized cost. As a consequence, we have a distortion in your OCI since one component goes into action, and the other one does not. For example, if you have an inflation-linked loan booked at amortized cost and the hedge is against an N10B at available-for-sale going to OCI, your P&L remains zero, but the first one won't go to the action, while the second one will go to the action. We will take advantage of the new Central Bank regulation, 4966, to harmonize these booking models for hedges and the balance sheet, eliminating this effect in the future. I hope I was clear.

Yes, that was super important. So, actually, you have unrealized gains in the held-to-maturity of BRL0.5 billion as well.

Exactly. At amortized cost, my loan portfolio and emissions that I had against the market and then you go.

No, that's clear. That's important and very clear.

Moving to the RWA question, it's important to restate that RWA growth has primarily been driven by the expansion of the wholesale banking franchise, which is relatively new. We are gaining market share and delivering higher ROEs than our peers. Most of our wholesale banking business relates to derivatives, market-making, and warehousing; you start by dragging your capital, then realize your gains over time. So as we scale the business, it's natural to see RWA growth. However, if you compare RWA growth against growth in corporate banking business, we're growing our revenue faster than risk. Additionally, our bank will eventually reach maturity, and the pace of evolution of RWA will normalize with revenue growth.

To complement what you mentioned, because you noted whether we would be changing guidance for payouts for next year—No, we're very comfortable with our plan to pay more than 50% this year and the next year.

Okay, and just to confirm, the capital ratio target is still 16% to 19%, right?

Yes, it is.

Okay. Next question is from Gustavo Schroden of Citi. Schroden, you may proceed.

Hi, good evening, everybody. Thanks for taking my questions, and congrats on a good year—a challenging year during which you achieved good results. Before I ask my question, I would like to follow up on the previous question about IFAs and internal advisors. Maffra, do you mean that, when you say your main goal in 2025 is to focus on IFAs, you intend to replicate all the tools and techniques that you've applied to internal advisors in order to achieve similar productivity levels? My second question concerns the take rate. Going back to your business, you've been clear in stating that you expect net new money to be BRL20 billion per quarter in 2025, so it's part of our equation. Could you share your insights regarding the implied take rate in your 2025 expectations? I believe that as your fixed income gains share, it exerts more pressure on the take rate, so how does the company view the take rate? What should we expect in 2025? Do you think that 1.30 or 1.33 is the best guess we might have?

Yes, thanks for the question, Gustavo. Starting with the first question, just to clarify: when I say my main goal is addressing channels, I have other goals here. But when we talk about the three channels, the main one I will focus more on this year is the B2B channel. Why is this? If we consider a few years ago, I would estimate that IFAs governed about 80%, while now it's roughly 40%. We spent a significant amount of time developing the B2C channel and the corporate channel. Today, those two channels are in a stronger position, and we have the right leaders in place performing well with good returns. Now it's time to allow IFAs to adopt the same productivity-enhancing practices we implemented for internal advisors. So that’s my main goal regarding the channels, not suggesting it’s my sole goal for 2025 and explaining nicely how it relates to what you mentioned about the channels. For your second question, regarding take rate: over the past three years, it's been about 1.28. It was projected to land around 1.29 this year. It has remained relatively flat. When we say we will deliver over 10% growth on the top line, which I believe is conservative, it is based on the same take rate. We are not projecting increased take rates in the near future, as we believe we are nearing the end of the cycle; shifts due to high select rates and volatility among products from higher ROAE products towards fixed-income products associated with lower ROAE. We believe we end this cycle and do not expect increased take rates in our internal budget or numbers.

Alright. That's super clear, guys. Thank you.

Next question is from Tito Labarta, Goldman Sachs. Tito, you may proceed.

Hi, thanks, Parize. Good evening, Maffra and Victor. Thank you for the call and for taking my question. I have two questions as well, if I may. Thank you for the revenue guidance for 2025. Maffra, you mentioned that you think it’s conservative, but it does need to be a little bit higher to achieve that 2026 guidance. Could you help me think about where upside might come from regarding the growth? I mean, do you think you need to see equities improve? Is there enough growth in just fixed-income and the new verticals, particularly as the base will be higher in '25 to achieve 2026 growth? So where would that upside come from? Do you need it to meet your guidance? Secondly, expenses have grown around 10%, but you are still guiding for margin expansion. Is that 10% growth reasonable? How flexible is your cost structure? Do you expect to cut costs to keep the growth a bit lower? What are your thoughts on expense growth for this year?

Thank you, Tito. Regarding your first question, the way we’ve been presenting and managing the company considers three verticals: investments, cross-sell, and wholesale bank. Looking back at what we did last year, it’s crucial to remember the context in early 2023 when we set our guidance and budget—expecting FX at BRL4.5, interest rates at 8.5% to 9%, and equities possibly reaching 150; the environment in 2024 has been completely different. However, we were prepared for a tough environment and are still anticipating a challenging environment for 2025. We are not projecting a better macro environment. We’re working only with levers that we control, and if we evaluate the three verticals I mentioned: Investments grew 13% last year. Our core investments show that AUC growth is close to the Selic rate because 65% of total AUC is in fixed income linked somehow to the Selic rate. Assuming a Selic rate of 14% to 15% this year, our AUC should also grow close to that figure. On top of that, we have BRL80 billion to BRL100 billion-plus in net new money, signalling another 8% to 10% growth in AUC. It's difficult not to forecast a 13% growth in core investments, just like we did in 2024. In terms of cross-sell initiatives, we delivered 32%, and we have some projections relating to growth in various business lines during 2024, such as credit cards and insurance. It would be nearly impossible not to expect similar numbers for 2025 from what we delivered in 2024. Once we approach wholesale banking, we’re looking at 45% growth if we exclude institutional business, which is more mature. Again, while I can’t guarantee whether it will be at the same level, it will be close to that level. Overall, that provides a strong base to suggest we won't deviate from achieving our guidance. It may vary within the range, but we are very confident about hitting the middle to upper part of the guidance.

Thank you for your question. I'll take the one regarding expenses. First, I'd like to clarify how we manage expenses in the company. We have a low latency management system in place for efficiency ratios. Every business line is projected in terms of revenue, expense, and cost, for every segment that we have. Our commitment is to continually improve the efficiency ratio throughout the year. If revenue surpasses our expectations, there's space to invest more in areas that are strategically important for the company. Conversely, if revenue hovers around the lower threshold of growth that we projected, we will manage expenses accordingly to meet our targets and improve the efficiency ratio.

That’s very clear. Thank you, Victor. Thank you, Maffra.

Next question is from Antonio Ruette, Bank of America. Antonio, you may proceed.

Hi guys, thank you for your time. I have two questions, if I may. Firstly, in the quarter, could you help us understand the headcount? We see an increase of about 200 users quarter-on-quarter, but total advisors decreased by 200. Does this indicate greater contribution from internal advisors? Also, following up on the soft guidance, is the target of 10,000 internal advisors still available, or how might that behave over the next quarters? Secondly, a more strategic question on new products. We note that a significant part of your guidance for 2025 and even for 2026 is tied to deploying banking products and cross-selling consortium cards. Could you explore the challenges involved in this approach, particularly as many of your IFAs are already distributing these products—not necessarily from XP?

Thank you for the question, Antonio. Regarding headcount and advisors, we’ve been adding between 50 to 80 internal advisors every month. We aim for around 500 to 600 internal advisors in 2025. The 10,000 advisor target was more aspirational than a strict goal; we are hedging on 500 to 600 internal advisors this year and can adjust that number based on KPIs and progress. As for your observation on the decreasing number of total advisors, I highlighted that the difference in performance between internal advisors and IFAs is closely tied to the quality of our advisors. We've been focused on retaining and working with only the best advisors. That said, we’re intentionally decreasing the number of IFAs in some cases. Regarding your second point about IFAs distributing products, there are some ways to mitigate challenges. Firstly, an IFA typically operates on a smaller scale compared to XP. When we launch products and partner with various players for our marketplace, we usually negotiate more favorable agreements than the IFAs can secure independently. For instance, when we launched life insurance, many IFAs already worked with other players, but the terms and conditions we offered were better, leading them to shift to our program. We've also improved the overall client experience, integrating life insurance into our financial planning platform, significantly better than the fragmented approach from before. As a result, IFAs are much more inclined to work with XP today. Lastly, we have exclusivity agreements with approximately 90% of our IFA offices for investment products, and we generally maintain similar agreements across other product lines.

That's very clear. Thank you for the comprehensive answer.

Next question is from Neha Agarwala, HSBC. Neha, you may proceed.

Hi, thank you for taking my question. You mentioned changes to the credit card proposition; could you elaborate? What are you changing for the credit card? Are there any new features being added? I believe you will continue to focus on your captive client base and not the open market. Thank you.

Thank you, Neha, for your question. To clarify, we are not going to open the market; our focus is on our current customers. Regarding the products we have today, we currently have two credit card options—one for small clients and the other, XPFinish, which provides 1% cashback. This year, we will be launching two new card options, one aimed at clients with over BRL3 million in AUC and another targeting private bank clients, each having different value propositions, offerings, and benefits. We believe these new credit cards will be a notch above the market with unique value propositions, especially for private banking clients in Brazil.

Understood. Would that require additional investment? Should we anticipate an increase in OpEx or CapEx due to these changes? Any material impact?

Nothing material. Although we anticipate some increased costs, the corresponding revenue expansion, such as higher interchange fees and better cashback from Visa, should offset that, so we do not expect a meaningful impact.

Next question is from Marcelo Mizrahi, Bradesco BBI. Mizrahi, you may proceed.

Hi, everyone. Thank you for the opportunity to ask questions. My inquiry is about expenses; you mentioned gaining efficiency over the next year or the next quarters. In the last quarter, we observed a substantial increase in bonuses compared to the last few years. How can we predict expenses? We have to predict margins—EBT margins are gaining, growing year-over-year and quarter-over-quarter. Also, regarding provisions; we saw an increase in provisions again in the last quarter. To clarify, is this a recurrent level, say around BRL100 million, which could recur over the next quarters?

To address this, both the compensation ratio and compensation efficiency ratio are at historical lows, and they should continue to achieve further margin over the year. There may be one or two quarters where there will be slightly higher numbers, like in our third quarter when we have annual events, but through the year, we aim to deliver on both of those indicators. Regarding provisions, as we mentioned in past quarters (Q2 and Q3), we noted that the levels were not quite accurate due to temporary positive impacts on the same line of around BRL40 million to BRL50 million. We indicated that the correct level should be around BRL90 million per quarter. As the business and the loan book continue to grow, we should approach levels of BRL100 million to BRL110 million in subsequent quarters for 2025, noting that it’s a slight increase as the loan book expands. Taking the expense questions, it's worth looking at the compensation ratio and efficiency ratio—both are set to improve throughout the year, contributing to gaining margins. We might see a quarter here or there with slightly higher numbers, like Q3 events, but generally speaking, over the year, we expect improvements in both metrics.

Next question is from Daniel Vaz from Safra. Daniel, you may proceed.

Hi, everyone. Good night, and thank you for the opportunity to ask questions. I have two questions. On the waterfall slide you showed us, the contribution by segment to reach the 10% growth in 2025, two points caught my attention. First, the DCM contraction you expect for the market. This might be directly linked to your market share gains. Can you share your assumption for the system contraction in issuances? Second, regarding growth above 10% in corporate and institutional; given that the institutional business in Brazil has struggled to grow, and not much optimism around net new money inflows into funds, what's your breakdown between these segments? Are you expecting growth in the institutional business in 2025?

Hi, Vaz. Thank you for your question. Starting with DCM activity, it's still early to predict whether DCM activity will be lower throughout the year. We are seeing a softer pipeline for the first quarter due to expected seasonality; summer vacations and the carnival period impact activity levels. According to our projections, we are warehousing BRL8 million to BRL9 billion in corporate assets and quasi-sovereign government banks to have products ready to offer clients despite a decreased primary offering. Thus, we expect fixed-income levels to hold steady during the quarter. Regarding institutional growth, as Maffra mentioned, that line is more mature and impacted by volume levels and the size of the industry of funds. If this proves to be another tough year for institutional investors, our revenue line will likely reflect the pattern of last year. We see clients’ portfolios shifting, which may approach the end of the mix shift due to interest rates. In essence, we weathered years where clients transitioned from equities to fixed-income; this has compressed our take rate from investments but is compensated by the growth of our fixed income platform. Thus, we expect steady revenues from both lines.

Thank you; that's very helpful.

Next question is from Renato Meloni, Autonomous. Renato, you may proceed.

Hi, everyone. Thanks for taking my question. I wanted to revisit the slide showing revenue growth drivers. Specifically regarding DCM, as mentioned in your last answer, you're anticipating flat overall DCM volumes, yet one of the bars indicates a contraction. I'd like to clarify what assumptions you're embedding in that projection; are you anticipating lower fixed-income take rates in this market this year? Furthermore, on the growth you estimate in corporate and institutional—what market share increases underlie these projections? How confident are you that you will gain market share in a more competitive environment?

I'll begin with the first half of your question, with Victor following up. When discussing the 10% growth projections, I believe, more than anything, they represent a baseline, not a target. If we account for the potential decrease in DCM volumes, there will be some impact on the year, but it won't be particularly pronounced. As Victor indicated, we have a comprehensive fixed-income ecosystem. We command 50% market share in the secondary market for corporate bonds and our trading volume among retail and institutional clients has increased significantly over the last three years. Thus, even if the market contracts, we believe that our share will grow since we are the major issuer for certain products. We have a lot of new business lines in that area, ensuring a strong foundation to maintain steady revenue, no matter the marketplace.

The last point about the corporate restructuring we finalized in the fourth quarter is also worthy of attention. We initiated this restructuring in 2024, and completing it took an entire year. The final approval from the Brazilian Central Bank was received on November 19. We didn’t benefit from a single quarter of the full potential of this structure. In 2025, our bank will have considerably more competitive rates on capital and funding compared to prior periods, equipping us to compete for business we might not have previously been able to pursue, which supports our confidence in increasing market share.

That's well understood regarding market share. Should we assume that fixed-income take rates will decrease this year?

In our view, that isn’t the case; we do not anticipate a drop.

Okay, thanks. That's clear and very helpful.

Thank you all for your participation. Today's call was extensive, an hour just in Q&A. We will gladly address any further questions through the IR team, and management is always available for discussions in the next quarter. Thank you.