Q2 2024 Earnings Summary
- XP Inc. expects improved financial performance in the second half of the year, anticipating better revenues and net income, and confirms that they are on track to meet their 2026 guidance, which remains unchanged.
- The company has seen a significant increase in net new money, indicating that their competitive advantages are still intact and that the worst is behind them. They expect to maintain good levels of retail net new money going forward. ,
- XP Inc. is demonstrating strong operational leverage and cost control, leading to improved margins. The impressive control over Cost of Goods Sold (COGS) and SG&A expenses has contributed to a higher EBITDA margin, a trend expected to continue throughout the year.
- XP's effective tax rate increased significantly this quarter, reaching what management noted as the highest quarterly rate of the year. This increase is due to a shift in revenue mix towards higher-tax businesses like corporate services. The higher tax rate could reduce net margins and impact profitability going forward.
- The company's loan book declined by 14% quarter-over-quarter as a result of securitizing part of their loan portfolio and initiating a new risk recycling process. This is a new practice for XP, and while management claims asset quality remains strong, it raises concerns about their ability to sustain loan growth and the sustainability of low loan loss provisions, which were partially due to this process.
- Monthly spend per active credit card user decreased for the second consecutive quarter, indicating potential issues with customer engagement or increased competition from other banks and fintechs offering similar benefits. Management acknowledged the decline and is working to improve card benefits and expand the eligible client base, but the trend may affect the company's credit card business performance.
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Net Inflows Sustainability
Q: What drives the improved net inflows, and is it sustainable?
A: The improved net inflows are 100% organic, driven by the maturation of strategic levers we've implemented over past quarters. We believe the worst is behind us and expect good levels of retail net new money going forward. While macro factors like lower interest rates from 13.75% to 11.5% help, we attribute the growth more to our own initiatives than to cyclical components. -
Revenue Outlook and Inflows
Q: Can higher inflows accelerate revenue growth?
A: There's a small pickup in revenue due to inflows, but with BRL 1.1 trillion in retail client assets, the correlation is limited. Net new money is crucial as it demonstrates the company's future growth potential. We expect the second half of the year to be better than the first in terms of revenue and net income. -
EBIT Margin Sustainability
Q: Is the improved EBIT margin sustainable?
A: The EBITDA margin, currently at 28%, reflects operational leverage and better cost control. We anticipate a slight improvement towards our guidance levels over time, eliminating any quarterly variances due to business mix. -
Loan Book Reduction and Securitization
Q: Why did the credit portfolio decline 14% quarter-on-quarter?
A: We securitized part of our loan portfolio, moving it to corporate bonds as financial inventory. This is part of our new risk recycling process to create instruments to recycle risk and provide new products to our clients. The asset quality remains strong, with low risk and good clients. -
Cost Control and Operational Leverage
Q: How did you achieve impressive control over cost of services?
A: It's a reflection of our operational leverage and capacity to do more business without increasing costs. This trend should continue, supporting gross profit expansion. -
Credit Card Business Trends
Q: Why is monthly spend per credit card declining?
A: While we expanded our active credit card base to 1 million cards, monthly spend dropped due to limited eligible clients and competition. We're enhancing benefits by introducing miles points and working to make the other 3 million clients eligible, aiming to boost growth in the next quarters. -
Impact of Distribution Capabilities
Q: How did distribution strength aid net new money?
A: Our robust distribution, including integration between GCM and retail, helped originate new fixed income instruments, boosting net new money. We raised almost BRL 2 billion in a single REIT offer, demonstrating our platform's breadth. -
Effective Tax Rate Increase
Q: What drove the higher effective tax rate this quarter?
A: The effective tax rate increased due to revenue mix variations, with corporate services being a highlight and higher-tax business. We expect this quarter's tax rate to be the highest of the year.