XP Inc. Reports 1Q22 Financial Results

SÃO PAULO–(BUSINESS WIRE)–XP Inc. (NASDAQ: XP) (“XP” or the “Company”), a leading tech-enabled platform and a trusted pioneer in providing low-fee financial products and services in Brazil, reported today its financial results for the first quarter of 2022.

Business Metrics

	1Q22	1Q21	YoY	4Q21	QoQ
Operating and Financial Metrics (unaudited)
Total AUC (in R$ bn)	873	715	22%	815	7%
Active clients (in ‘000s)	3,504	2,993	17%	3,416	3%
Retail – gross total revenues (in R$ mn)	2,425	2,088	16%	2,725	-11%
Institutional – gross total revenues (in R$ mn)	548	294	86%	326	68%
Issuer Services – gross total revenues (in R$ mn)	121	234	-48%	270	-55%
Digital Content – gross total revenues (in R$ mn)	11	23	-53%	16	-33%
Other – gross total revenues (in R$ mn)	166	145	14%	110	51%
Company Financial Metrics
Gross revenue (in R$ mn)	3,270	2,784	17%	3,447	-5%
Net Revenue (in R$ mn)	3,121	2,628	19%	3,260	-4%
Gross Profit (in R$ mn)	2,231	1,787	25%	2,363	-6%
Gross Margin	71.5%	68.0%	346 bps	72.5%	-104 bps
Adjusted EBITDA1 (in R$ mn)	1,191	1,043	14%	1,390	-14%
Adjusted EBITDA margin	38.2%	39.7%	-150 bps	42.7%	-448 bps
Adjusted Net Income1 (in R$ mn)	987	846	17%	1,086	-9%
Adjusted Net Margin	31.6%	32.2%	-56 bps	33.3%	-169 bps
(1) See appendix for a reconciliation of Adjusted Net Income and Adjusted EBITDA

New Verticals Metrics

KPIs from New Verticals (unaudited)
Total Gross revenue from Selected Products (in R$ mn)	247	81	205%	223	11%
Pension Funds (in R$ mn)	74	43	72%	74	1%
Credit Cards (in R$ mn)	97	7	1240%	86	12%
Credit (in R$ mn)	54	17	212%	46	17%
Insurance (in R$ mn)	23	13	69%	18	29%
as a % of Total gross revenue	7.6%	2.9%	465 bps	6.5%	109 bps

Operational Performance

1. Investments

Assets Under Custody (in R$ billion)

Total AUC was R$873 billion as of March 31, up 22% year-over-year and 7% quarter-over-quarter. Year-over-year growth was driven by R$207 billion of net inflows and R$49 billion of market depreciation.

Total Net Inflow¹ (in R$ billion)

Despite a very challenging conjuncture with a new Covid peak in Brazil and the Russo-Ukrainian conflict, total net inflows were R$46 billion on 1Q22 vs R$48 billion on 4Q21, 5% lower sequentially. Adjusted by concentrated custodies, net inflows were R$30 billion, reinforcing the resilience of our business model amid the challenging scenario.

This environment weighed mainly on capital markets and client activity, which bottomed in January. Since then, a quick improvement of operating trends took place, with stronger performance in March across all our channels and businesses. Our long-term purpose is stronger than ever as we continue to improve peoples’ lives and disrupt the Brazilian financial industry, of which we represent less than 2% of the total revenue pool.

¹Concentrated custodies are custodies greater than R$ 5 billion per client/economic group. These custodies are more volatile by nature.

Active Clients (in ‘000)

Active clients grew 17% and 3% in 1Q22 vs 1Q21 and 4Q21, respectively, totaling 3.5 million.

IFA Network (in ‘000)

Our IFA network comprised a total of 10.7 thousand IFAs in 1Q22, up 4% quarter-over-quarter and 24% year-over-year. We intend to maintain our current leadership and further develop the IFA profession in Brazil over the long run, as we estimate that the total number of IFAs in the country could more than triple in the upcoming years.

Retail Daily Average Trades² (million trades)

Retail DATs totaled 2.3 million in 1Q22, down 28% year-over-year and 7% quarter-over-quarter. Aligned with market trends, the decrease in DATs reflected the less favorable environment for equities in 1Q22.

²Daily Average Trades, including Stocks, REITs, Options and Futures

NPS (Net Promoter Score)

Our NPS, a widely known survey methodology used to measure customer satisfaction, was 76 in March 2022, vs 74 in March 2021, reflecting our ongoing efforts to provide superior customer service at a lower cost. Maintaining a high NPS score remains a priority for XP since our business model is built around client experience. The NPS calculation as of a given date reflects the average scores in the prior six months.

2. New Verticals

Pension Funds

Total Pension Funds AUC³ (in R$ billion)

As per public data published by Susep, XPV&P continues with roughly 50% market share in net new money for pension funds in 1Q22. Despite our consistent growth, we still represent only 3.3% of the total market, as of March 2022.

Total Pension Funds AUC was R$50 billion in 1Q22, up 45% year-over-year and 5% quarter-over-quarter. AUC from XPV&P, specifically, grew over 115% year over year.

³Total Pension Funds AUC includes AUC from XP Vida e Previdência and from third party funds distributed in our platform.

Cards

Credit Card TPV (in R$ billion)

Total TPV reached R$4.5 billion in 1Q22, versus R$0.5 billion and R$4.4 billion in 1Q21 and 4Q21, respectively. The normalized pace of growth reflects seasonality seen in 4Q21, driven by Black Friday and end of year celebrations.

Active Cards (in ‘000)

Total active cards surpassed 308 thousand in 1Q22, a growth of 27% quarter-over-quarter and 316% year-over-year. The recent increase in active cards relates to our decision to lower the threshold for credit card eligibility to a minimum of R$5,000 invested within XP’s30k platform in early December, democratizing access to Visa Infinite cards to most of our clients in XP brand.

These results are helping us to confirm how important investments are as a differentiator for cross-selling lower switching-cost products, such as credit cards. Based on client’s data and assumptions, we estimate that over 50% of our cardholders have XP’s card as their primary one. On top of that, we see cardholders with a 4x lower churn.

Credit

Credit Portfolio⁴ (in R$ billion)

Our Credit portfolio reached R$11.5 billion as of March 2022, expanding 12% quarter-over-quarter and 142% year-over-year. The average maturity of our credit book was 3.2 years, with a 90-day Non-Performing Loan (NPL) ratio of 0.0%.

⁴This portfolio does not include Intercompany and Credit Card related loans and receivables

Total Gross Revenue

Total Gross Revenue (in R$ mn)

Total gross revenue grew 17% from R$2.8 billion in 1Q21 to R$3.3 billion in 1Q22. This growth was mainly driven by both Retail and Institutional businesses. Capital Markets did not perform well in the 1Q22, mostly due to market volatility and uncertainty, leading to many postponed offerings. On the flip side, we saw the same factors benefiting the Institutional business, that reached record high volumes and revenue. This reinforces the importance of the portfolio effect, also present in non-retail businesses.

Retail

Retail Revenue (in R$ mn)

Retail revenue grew 16% from R$2.1 billion in 1Q21 to R$2.4 billion in 1Q22, as we continued to see revenues that benefit from higher interest rates performing well in the current scenario, mainly floating and fixed income. In the 1Q22, we had our all-time high activity in the fixed income platform, following the trends from 4Q21, despite lower volumes in primary offerings.

New Verticals are getting more relevant, growing three times in one year and already representing 7.6% of total retail revenue.

In 1Q22, Retail-related revenues represented 71% of consolidated Net Income from Financial Instruments, as per the Accounting Income Statement, and were composed of Derivatives, Fixed Income secondary transactions and Floating, among others.

LTM Take Rate (LTM Retail Revenue / Average AUC)

The take rate for the last twelve months ended March 31^st 2022 remained stable at 1.3%, as it has been since our IPO. Our ability to add new products and services to the platform coupled with a diversified revenue profile, kept our take rate stable.

Note: LTM Take Rate (LTM Retail Revenue / Average AUC). Average AUC = (Sum of AUC from the beginning of period and each quarter-end in a given year, being 5 data points in one year)/5

Institutional

Institutional Revenue (in R$ mn)

Institutional gross revenue totaled R$548 million in 1Q22, up 86% from R$294 million in 1Q21. Market volatility boosted overall volumes in trading desks, mainly the ones related to derivatives strategies. The aforementioned circumstances led clients to a peak demand for hedging their positions, creating unique opportunities regarding client’s flow in this quarter, which may not be recurring in next ones, leading us to all-time high revenue and volumes.

In 1Q22, Institutional revenue accounted for 18% of consolidated Net Income from Financial Instruments, as per the Accounting Income Statement, and was composed mostly of Fixed Income secondary transactions and Derivatives, among others.

Issuer Services

Issuer Services Revenue (in R$ mn)

Issuer services revenue decreased 48% year-over-year from R$234 million in 1Q21 to R$121 million in 1Q22. The same factors that led to record-high Institutional revenues also caused higher overall uncertainty and volatility, leading to a weaker industry activity in Capital Markets in the quarter, mainly in the first two months, across both ECM and DCM. In March, we saw better signs for DCM offerings, with pent-up demand creating a robust pipeline looking forward.

Other^*

Other Revenue*

Other revenue and digital content increased 5% in 1Q22 vs 1Q21, from R$168 million to R$177 million. Interest on gross cash was higher due to increases in interest rates, along with results coming from asset and liability management, partially offset by a lower digital content revenue.

In 1Q22, other revenue accounted for 10% of consolidated Net Income from Financial Instruments, as per the Accounting Income Statement, composed mostly of interest on adjusted gross cash and results related to our asset and liability management.

*Other and Digital Content Combined

COGS

COGS (in R$ mn) and Gross Margin

COGS rose 6% from R$841 million in 1Q21 to R$891 million in 1Q22 and decreased 1% quarter-over-quarter, with a gross margin of 71.5%, approximately 350 bps higher year-over-year and 100 bps lower than the previous quarter. Improving margins, on an annual basis, were driven by a product mix towards fixed income and floating revenues, resulting in a lower growth in COGS.

SG&A Expenses

SG&A Expense (ex-Share-Based Compensation) (in R$ mn)

SG&A expenses (excluding share-based compensation and other operating income, net) totaled R$1,051 million in 1Q22, up 34% from R$783 million in 1Q21. The increase was mainly related to our headcount expansion over the last year, with a 60% increase year over year. Most of the headcount increase is associated with our investments in client experience and technology, protecting the core and expanding our business to new verticals. When comparing to 4Q21, adding back the R $233 million coming from other operating income, net, mostly related to incentives received from third parties, our SG&A actually decreased roughly 14% in the quarter. We highlight those incentives received in 4Q21 should be seen as seasonal on a quarterly basis.

*Considers Other Operating Income, Net.

Share-Based Compensation (in R$ mn)

In 1Q22, Shared-Based Compensation expenses were 19% higher, from R$178 million in 1Q21 to R$212 million in 1Q22, following additional grants made in 4Q21. We have granted approximately two thirds of the current approved program authorizing dilution of up to 5%. We expect to use the approved dilution as originally planned: within five years from the IPO.

Adjusted EBITDA

Adjusted EBITDA¹ (in R$ mn) and Margin

Adjusted EBITDA grew 14% year over year, from R$1,043 million to R$1,191 million. Adjusted EBITDA margin was 38.2%, down 150 bps year-over-year, driven mainly by higher relative SG&A expenses due to our investments in new verticals. Despite the high growth and increasing contribution of the new verticals, they are still far from maturity, considering market size.

¹ See appendix for a reconciliation of Adjusted EBITDA.

Adjusted Net Income

Adjusted Net Income¹ (in R$ mn) and Margin

Adjusted Net Income grew 17%, from R$846 million in 1Q21 to R$987 million in 1Q22, in connection with the factors explained in the Adjusted EBITDA and a lower normalized effective tax rate. The effective tax rate, normalized by withholding taxes, was 16.0% in 1Q22, from 17.4% in 1Q21. Our Adjusted Net Margin decreased by 169 bps to 31.6% in 1Q22, still above our medium-term guidance.

¹ See appendix for a reconciliation of Adjusted Net Income.

Adjusted Cash Flow

(in R$ mn)

Adjusted Net Cash Flow (Used in) from Operating Activities¹

			1Q22	4Q21	1Q21
Cash Flow Data
Income before income tax			856	1,121	784
Adjustments to reconcile income before income tax			(554)	503	233
Income tax paid			(237)	(305)	(236)
Contingencies paid			(1)	(0)	(1)
Interest paid			(7)	(69)	(0)
Changes in working capital assets and liabilities			(1,251)	50	(122)
Adjusted net cash flow (used in) from operating activities excluding net cash flow (used in) from securities, repos, derivatives and banking activities			(1,194)	1,299	658
Net cash flow (used in) from securities, repos, derivatives and banking activities (i)			2,313	182	157
Brazilian government bonds (Assets)			(4,435)	(2,597)	(12,024)
Securities from Private Pension Liabilities			(4,260)	(5,230)	(3,516)
Other Securities (Assets and Liabilities)			1,637	(1,018)	285
Derivative financial instruments (assets and liabilities)			(986)	1,919	(315)
Securities trading and intermediation (assets and liabilities)			1,622	(4,396)	(2,038)
Securities purchased (sold) under resale (repurchase) agreements			684	1,023	12,529
Loan operations			(1,626)	(2,297)	(1,122)
Market funding operations			5,338	5,214	1,711
Private pension liabilities			4,285	5,210	3,509
Foreign exchange portfolio (assets and liabilities)			370	(17)	32
Credit cards operations (liabilities)			290	656	256
Other activities			(607)	1,715	850
Adjusted net cash flows (used in) from operating activities			1,119	1,481	815
Adjusted net cash flows (used in) from investing activities			(126)	(1,011)	(550)
Investment in IFA Network			–	(484)	(388)
Acquisition of PP&E and Intangible			(14)	(39)	(139)
Investments/Acquisitions in associates and subsidiaries			(112)	(489)	(23)
Adjusted net cash flows (used in) from financing activities			(41)	(119)	(93)
Net increase (decrease) in cash and cash equivalents			952	351	172

Our net cash flow used in Operating activities represented by Adjusted net cash flow (used in) from operating activities (which in management views as represents a more useful metric to track the intrinsic cash flow generation of the business) decreased to R$1,119 million in 1Q22 from R$1,481 million in 4Q21, and R$815 million in 1Q21, driven by:

• Higher balance of securities and derivatives that we hold in the ordinary course of our business as a Retail investment distribution platform and as an Institutional broker dealer (with respect to the sale of fixed income securities and structured notes);
• Our strategy to allocate excess cash and cash equivalents from treasury funds, from Floating Balances and from private pension balances to securities and other financial assets. These balances may fluctuate substantially from quarter-to-quarter and were the key drivers to the net cash flow from operating activities figures;
• Increases in our banking activities from loans operations, market funding operations mainly derived from deposits (time deposits), structured operations certificates (COEs), financial bills and other financial liabilities as a result of our expected growth in banking services;
• Our income before tax combined with non-cash expenses consisting primarily of (i) Net foreign exchange differences of -R$881 million in 1Q22 and R$148 million in 4Q21, (ii) share based plan of R$155 million in 1Q22, R$171 million in 4Q21 and R$141 million in 1Q21 and (iii) depreciation and amortization of R$61 million in 1Q22, R$52 million in 4Q21 and R$70 million in 1Q21. The total amount of adjustments to reconcile income before income taxes was -R$554 million in 1Q22, R$503 million in 4Q21 and R$233 million in 1Q21.

¹ Excluding net cash flow (used in) from securities, repos, derivatives and banking activities.

Adjusted Net Cash Flow Used in Investing Activities

Our adjusted net cash used in investing activities decreased from R$1,011 million in 4Q21 and R$550 million in 1Q21, to R$126 million in 1Q22, primarily affected by:

• Investments related our IFA Network decreased since 4Q21, from a use of R$484 million to zero;
• Investment in intangible assets, mostly IT infrastructure, software development and property and equipment which decreased from R$39 million in 4Q21 and R$138 million in 1Q21, to R$14 million in 1Q22;
• Our investments in associates and joint ventures, decreased to R$112 million in 1Q22, from R$489 million in 4Q21.

Adjusted Net Cash (used in) from Financing Activities

Our adjusted net cash used in financing activities decreased from R$119 million in 4Q21 and R$93 million in 1Q21, to R$41 million in 1Q22. This relates mainly to our payment of R$25 million in borrowings and lease liabilities.

Reconciliation of Adjusted Cash Flow

In addition to cash flow from operating activities presented in accordance with GAAP, we use adjusted cash flow, a non-GAAP measure, to measure liquidity.

We present Adjusted Cash Flow because we believe it is a useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our core operations after changes in working capital.

Adjusted Cash Flow has limitations as an analytical tool, and you should not consider Adjusted Cash Flow in isolation or as an alternative to cash flow from operating activities or any other liquidity measure determined in accordance with GAAP. You are encouraged to evaluate each adjustment. In addition, in evaluating Adjusted Cash Flow, you should be aware that in the future, we may incur changes similar to the adjustments in the presentation of Adjusted Cash Flow. In addition, Adjusted Cash Flow may not be comparable to similarly titled measures used by other companies in our industry or across different industries.

The table set forth below presents a reconciliation of our cash flow from operating activities, investments and financing activities to Adjusted Cash Flow:

			1Q22	4Q21	1Q21
Adjusted Cash Flow Reconciliation
Accounting net cash flow (used in) from operating activities			1,103	993	361
(+) Investments in IFA’s Network			–	484	388
(+) Financing instruments payable			16	4	67
Adjusted net cash flows (used in) from operating activities			1,119	1,481	815
Accounting net cash flow (used in) from investing activities			(126)	(528)	(162)
(-) Investments in IFA’s Network			–	(484)	(388)
Adjusted net cash flows (used in) from investing activities			(126)	(1,011)	(550)
Accounting net cash flow (used in) from financing activities			(25)	(114)	(26)
(-) Financing instruments payable			(16)	(4)	(67)
Adjusted net cash flows (used in) from financing activities			(41)	(119)	(93)

Floating Balance and Adjusted Gross Financial Assets (in R$ mn)

Floating Balance (=net uninvested clients’ deposits)				1Q22	4Q21
Assets				(2,489)	(1,406)
(-) Securities trading and intermediation				(2,489)	(1,406)
Liabilities				18,313	15,598
(+) Securities trading and intermediation				18,313	15,598
(=) Floating Balance				15,824	14,192
Adjusted Gross Financial Assets				1Q22	4Q21
Assets				150,528	128,226
(+) Cash				3,222	2,486
(+) Securities – Fair value through profit or loss				64,600	58,180
(+) Securities – Fair value through other comprehensive income				33,604	32,332
(+) Securities – Evaluated at amortized cost				6,379	2,239
(+) Derivative financial instruments				21,442	10,944
(+) Securities purchased under agreements to resell				6,061	8,895
(+) Loans and credit card operations				14,432	12,820
(+) Foreign exchange portfolio				788	332
Liabilities				(118,619)	(95,847)
(-) Securities				(7,410)	(2,665)
(-) Derivative financial instruments				(21,345)	(11,908)
(-) Securities sold under repurchase agreements				(24,132)	(26,281)
(-) Private Pension Liabilities				(36,207)	(31,921)
(-) Deposits				(14,093)	(9,899)
(-) Structured Operations				(8,576)	(7,636)
(-) Financial Bills				(2,792)	(2,588)
(-) Foreign exchange portfolio				(1,253)	(425)
(-) Credit card operations				(2,813)	(2,523)
(-) Floating Balance				(15,824)	(14,192)
(=) Adjusted Gross Financial Assets				16,084	18,188

We present Adjusted Gross Financial Assets because we believe this metric captures the liquidity that is, in fact, available to us, net of the portion of liquidity that is related to our Floating Balance (and therefore attributable to clients). We calculate Adjusted Gross Financial Assets as the sum of (1) Cash and Financial Assets (comprised of Cash plus Securities – Fair value through profit or loss, plus Securities – Fair value through other comprehensive income, plus Securities – Evaluated at amortized cost, plus Derivative financial instruments, plus Securities (purchased under agreements to resell), plus Loans and Foreign exchange portfolio (assets) less (2) Financial Liabilities (comprised of the sum of Securities loaned, Derivative financial instruments, Securities sold under repurchase agreements and Private pension liabilities), Deposits, Structured Operation Certificates (COE), Financial Bills, Foreign exchange portfolio (liabilities), Credit cards operations and (3) less Floating Balance.

It is a measure that we track internally daily, and it more intuitively reflects the effect of the operational profits we generate and the variations between working capital assets and liabilities (cash flows from operating activities), investments in fixed and intangible assets and investments in the IFA Network (cash flows from investing activities) and inflows and outflows related to equity and debt securities in our capital structure (cash flows from financing activities).Our management treats all securities and financial instrument assets, net of financial instrument liabilities, as balances that compose our total liquidity, with subline items (such as, for example, “securities at fair value through profit and loss” and “securities at fair value through other comprehensive income”) expected to fluctuate substantially from quarter to quarter as our treasury manages and allocates our total liquidity to the most suitable financial instruments.

Other Information

Web Meeting

The Company will host a webcast to discuss its 1Q22 financial results on Tuesday, May 3^rd, 2022, at 5:00 pm ET (6:00 pm BRT). To participate in the earnings webcast please subscribe at 1Q22 Earnings Web Meeting. The replay will be available on XP’s investor relations website at https://investors.xpinc.com/

Important Disclosure

IN REVIEWING THE INFORMATION CONTAINED IN THIS RELEASE, YOU ARE AGREEING TO ABIDE BY THE TERMS OF THIS DISCLAIMER. THIS INFORMATION IS BEING MADE AVAILABLE TO EACH RECIPIENT SOLELY FOR ITS INFORMATION AND IS SUBJECT TO AMENDMENT.

This release is prepared by XP Inc. (the “Company,” “we” or “our”), is solely for informational purposes. This release does not constitute a prospectus and does not constitute an offer to sell or the solicitation of an offer to buy any securities. In addition, this document and any materials distributed in connection with this release are not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would require any registration or licensing within such jurisdiction.

This release was prepared by the Company. Neither the Company nor any of its affiliates, officers, employees or agents, make any representation or warranty, express or implied, in relation to the fairness, reasonableness, adequacy, accuracy or completeness of the information, statements or opinions, whichever their source, contained in this release or any oral information provided in connection herewith, or any data it generates and accept no responsibility, obligation or liability (whether direct or indirect, in contract, tort or otherwise) in relation to any of such information.

Contacts

Investor Relations Team


André Martins
Antonio Guimarães
Marina Montemor
ir@xpi.com.br

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