Greetings. Welcome to the XP Inc. Fourth Quarter 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host Carlos Lazar, Head of Investor Relations. Mr. Lazar You may begin.

Good afternoon, everyone and welcome to XP's first earnings conference call for the quarter and year-ended in December 31, 2019. I'm Carlos Lazar, Head of Investor Relations. Joining me today for the call are Guilherme Benchimol, Founder and CEO; Bruno Constantino, CFO; Gabriel Leal, Head of our Retail Business; Carl [ph], Head of Marketing and Digital Content; and Frederico Ferreira, our Finance Director; will be available for today's Q&A session. And also, our fourth quarter earnings release and presentations are available in our Investor Relations websites. I would like to remind that certain statements in this presentation and during the Q&A may relate to future events and expectations and as such constitute the forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from these forward-looking statements. Information concerning factors that could cause actual results to differ from forward-looking statements is contained in our reports filed with SEC. Please refer to Slide number 2, important disclosure of the presentation for our full disclaimer. Now, I will turn the conference over to Guilherme Benchimol who will deliver some opening remarks starting on Slide 5 of the presentation. Thank you.

Good afternoon. It's a great pleasure to present our results to the market for the first time as a public company. I would like to start this call with a message of optimism. I can affirm that XP will continue to transform the financial markets to improve people's life while delivering solid results. That's because our long-term perspective on the business was reinforced by the IPO concluded in December. It was another important step in our history, aligned with our goals of capitalizing a business and connecting with the investment community. Besides that, we required a very solid operational and financial performance, achieving an asset diversity of BRL409 billion, and net income of more than BRL1 billion during the year of 2015. Although we recognized the importance of those results is small when compared to the overall Brazilian financial system, that accounts to almost BRL500 billion in revenue. Therefore, we are more confident than ever, that this is only the beginning of our journey with our massive and concentrated market in Brazil, providing significant opportunities going forward. The competitive environment remains mostly unchanged, with the five largest banks in Brazil, holding about 90% of the investment assets. And combined with that we have unprecedented low level of interest rates. Certainly, the top comp investments for Brazilians has become a priority and it's no longer enough to buy government bonds or certificate of deposit from a large bank, as in the past. This trend represents an excellent opportunity for XP as investments and financial allocation [ph] are in our DNA. Of course, depending on the macroeconomic scenario, which other needs may differ, but a very important factor is that our company does not need to create new investors, but only confuse Brazilians for ratings fast that investing our platform is the…

Thanks, Guilherme. Good evening, everybody. Just -- if you notice any voice difference here because we are apart because of this coronavirus crisis. So moving to Slide 7, we present the evolution of our main operating KPIs; assets under custody, active clients and NPS. Our figures grew strongly in 2019 benefiting from the positive snowball effect generated through our brands, and investments made to enhance our platform and UX experience. Our AUC reached R$409 billion in December 2019, expanding 17% versus third quarter '19, and 103% year-over-year. The risk of mode of the markets in the fourth quarter '19 helped our AUC number, especially through the equity appreciation of our custody. It is important to highlight that without considering the market-to-market of our custody, we've kept a healthy base of net inflows during the fourth quarter, with an average around R$11 billion per month. Our second KPI, Active Clients, expanded 91% year-over-year to BRL1.7 million, reflecting solid performance across our channels and three retail brands. Lastly, XP ended the year with NPS of 73 highlighting the benefits of our self-reinforcing ecosystem for our clients. We will address the potential impact from the coronavirus crisis in our KPIs later during this call. On slide 9, we show our gross revenue evolution and it's breakdown across our businesses. 2019 total gross revenue was BRL5.5 billion, a 72% year-over-year increase. The growth in the fourth quarter '19 versus fourth quarter '18 was even higher, increasing 9% year-over-year from BRL957 million in fourth quarter '18 to BRL1.8 billion highs in fourth quarter '19. The main drivers or number one, mutual funds, especially performance fees in retail. Number two; equities and futures, in both retail and institutional businesses. And number three, I seek increase in issuer services revenue. In terms of revenue breakdown, retail remains…

Hi, good evening, everyone. Thank you for the call, very thorough presentation. I've got a couple of questions, if you could help. I guess, first on your AUC, and I understand it's difficult to predict in terms of market movements -- the impact; but just trying to get a sense, if we look in the fourth quarter, you got past and it was up around 11%, I estimate that market appreciation benefited your rate at roughly 7%. Suddenly, in terms of maybe the asset mix or just trying to understand how the market movement could potentially impact your AUC? Like, if the market falls 10% how sensitive will your AUC be to that? And I understand it's not just equities but other products you have under AUC; so you can maybe help us to understand a little bit from that perspective? And then my second question, Bruno, you mentioned that -- you did think the take rates could remain? We don't expect material changes in the take rate, I understand that, quarterly basis and given the current market scenario it's very difficult to predict. But during the IPO, you were saying that the take rates could fall, maybe closer to 1%. So do you think it phase out in longer term perspective, this 1.2 that we saw this quarter? And you do think that's sustainable now, did something change? Earlier you were saying that it could be closer to 1%. And just understand how you think about that from a longer term perspective, you know, we're moving from the short-term vows [ph]? Thank you.

Okay, Tito. Thanks for the questions. So going to question number one, the AUC; as we said during the IPO, basically, we have three main parts of breakdown the AUC, equities, fixed income and funds, and in fund we have all kinds of funds in that third-part. And I mean, they -- it varies from time to time but you can assume that those three are the main the main parts. Of course, with the market drop down, the equity part and a less smaller parts of the funds, they tend to go down as well in terms of AUC. But as I said in the call, in the presentation, not necessarily these dropdown will have an impact in revenue especially, if we are talking about a portion of the equity AUC that does not contribute in a relevant way to repay residents [ph]. We do have -- we are one of the main players in the stock loan market, so we do have a large portion of equity in the market and debts large portion does not necessarily bring retail revenue. So that's why it's hard to forecast the take rate going to your second question, because it's a function of repay revenues divided by, of course, the AUC; and maybe, if the AC goes down, losing part of the custody that does not contribute to the revenue, then the take rate should go up by this fact isolated, as I said in the presentation. Going to the 1.2 going down to 1% or higher than 1.2, it's the same thing that we told you during the IPO. It's hard to forecast, we believe that there is not a price pressure in terms of the funds and everything else in the market considering that we already have I said, for example, a zero brokerage fee for equities at Clear [ph], one of our brands. So we don't see that, it's going to be more a function of the type of revenue that comes in and how the AUC behaves regarding the market prices of the securities that we have in our AUC, so that's basically it. So I don't know if I answered your question, but it's really hard to forecast those two variables but I wouldn't expect the retail revenue and put in a different way, I wouldn't expect the retail revenue being impacted in a strong way because of a reduction of AUC, because of market prices.

Thanks, Guilherme. I mean that is very helpful in understanding the difficulty of forecasting it. And maybe just one follow-up though. Moving on since within the institutional revenues, we also saw a big increase there. Maybe you can help us put those into perspective also in terms of market movements, right. Like how sensitive will that be to the movements in the market and we saw like BRL300 million this quarter, up from BRL172 million last quarter, so how much of that benefited from the market? And conversely, how much could it be impacted in a negative scenario?

Okay. Yes, basically it was the market appreciation that we had in fourth quarter represented roughly more than 40% of the AUC growth, so it's not that you take the BRL409 billion of assets under custody as of December, and you take out the BRL350 million as on September 19, and it's not BRL22 billion per month. As I said, the pace is closer to BRL10 billion to BRL11 billion of net new money per month, and the rest is market appreciation. What I can tell you is the following, up to now we don't know how it's going to be going forward because of the crisis but up to now we haven't seen any major impact in the net new money coming in. So, so far our platform has been healthy, just as last year in terms of net new money. Having said that, we might have some -- as I said, some equity custody withdraw but not necessarily with an impact in retail revenues.

Thanks, Guilherme. Sorry, I don't think that was my exact question, though. I was asking more on the institutional revenues, like we saw a big increase there was over BRL300 million this quarter compared to when BRL173 million last quarters. So I just wanted to understand the institutional revenue in the current market movement. Thanks.

Okay, sorry about that. I missed the beginning of the question.

No problem.

Yes. The institutional part, it's basically a function of volume in the market. So, as you know, we are -- as I said, we are investing outside Brazil. I mentioned the hiring of another partner [indiscernible] came to join us. Also in the Brazilian market, we have our institutional sales; services, we are one of the main players in the market as well, so the increasing volume helped that. We have basically, a little bit more than 60% of institutional revenue coming from Brazil, a little bit less than 40% from outside, but both markets performed really well in 2019, it's a function of volume basically.

Okay. Thanks, Guilherme.

Our next question is from Mariana Todeto [ph], UBS. Please proceed with your question.

Hi, thank you for the…

Marianna, your line is now live. If your line is muted on your end, you will need to unmute it. Our next question is from Marcelo Telles, Credit Suisse. Please proceed with your question.

Hello, everyone. Thanks for the disclosure regarding the coronavirus, in fact, that's very helpful in your presentation. I have a couple of questions. The first one, can you tell us -- I mean, how much of your revenues were related to performance fees on your asset management platform, including both, your own and third-party funds. And how do you think that should playout this -- into 2020? Could that be a detractor to your revenue -- to revenue yield? And my other question is, regarding the growth now you see -- I know you touched those points in your presentation; the markets is down close to 40% in year-to-date, and it looks like your equity participation in terms of revenues is close to 30% of to retail revenues at least. So, do you think -- I know you mentioned there is a big portion for equity, a part doesn't really generate a lot of revenue but how do we reconcile that -- the fact that the -- your brokerage side represents close to 30% of your retail revenues? And given the decline that we've seen, the market -- I mean, should we expect, perhaps a bigger, a bigger impact on your revenue stream, not only AUC but on the revenues as well? Thank you.

Okay, Marcelo. Thank you. The first question about the performance fee; yes, it plays an important role in the fourth quarter of '19. We do not disclose exactly in the number but as you know, there is this seasonality in our business regarding the performance fee that are charged on the middle of the year in June and on in December. And because of the market appreciation we had last year, the performance fee was relevant in that chance. Going forward, of course, looking at the markets right now with the picture that we have; the performance fee would diminish significantly. We don't know how it's going to be in June, neither in December. But having said that, I mean, the business has other ways to compensate itself, that's the beauty of our self-reinforcing ecosystem in our business. They are all interconnected somehow, and because we are focused on investments, the important thing to bear in mind is; people will have to invest in something, right. So either a government bond or equity funds or directly in equities or fixed income securities or REITs, but they will have to invest in something and it's a function of the price of the security and the frequency of the trading and the investments made in our platform. So up to now, this year, when the crisis started, what we notice is the following; the price of course, you know, it's now -- as we said, the stock markets are around 30% down from last year, but the frequency has been very high compared to last year, so it's early to tell how it's going to behave. Looking forward, we could have a short-term impact of course, we are not immune to crisis, I think nobody -- or almost nobody is but what…

That's very helpful. If you allow me just want one extra question, regarding your technology, your IT systems during this time of volatility in the markets, it seems that XP -- according to the press had experienced in a lot of -- or several issues in terms of speed that people will not be able to trade or maybe things taking slower in the platform; we've heard that from some -- IF [ph] phase as well. Do you -- how they feel about the current state of [indiscernible]? Do you think you may have to invest more to be able to solve some of these bottlenecks down the road or we -- just to hear your thoughts there? Thank you.

Okay, great. So, yes, the platform -- what I can tell you is that the platform is working just fine. We have IT team all over it but just bear in mind that XP is by far the leader of the market, right. So if we talk about retail investment in equities, we have around 50% of market share. If we go to futures, that number goes up to 60%, so we have the volume of the market. Now, imagine that increasing by a number of five, for example, people trying to log in at the same time. Of course, you can have one or other problem in terms of interest [ph] in the platform, but all of that that we had on the Wednesday, when Brazil's stayed closed for two and a half days, and the market was melting down outside Brazil, and when it opened, everybody just jumped in at the same time; so it's normal, in anyplace you're going to have some kind of -- some people will have a problem but we kept, our market share is stable through all times. And nowadays, I mean, the platform is working just fine, we don't have a problem in terms of the platform. And you can check, I mean, the best way that I recommend you to check that is just go and look at the market share in all kinds of markets that we trade in Brazil.

Thank you very much.

As a reminder, we are now conducting a question-answer-session. [Operator Instructions] Our next question is from Mariana [ph], UBS. Please proceed with your question.

Hi, good night. Sorry, I lost the connection before. I have a question; you mentioned earlier that [indiscernible] we are not seeing major impacts from coronavirus. I want to understand a little bit better in terms of product mix, if you're right, seemed some changes and in case of redemptions, not only from the mutual fund but also from maybe the patient product. Thank you.

Okay, thank you, Mariana. Yes, the inflows as a said; I mean, so far it's been business as usual. We have in our DNA, the education business, right, the financial education business. And in times like this, this is more important than ever for all the Brazilians. One other point to make here is that it's different than other prizes that we have; in each crises is somehow unique in itself and this one is a different one for everybody all over the world but one thing in Brazil that is different than other crises is the level of interest rates that we have. So Brazil, we're going to know tomorrow but probably interest rates are going to be below 4%; we never had that in 2008 when we had the subprime crisis, I believe the interest rates were above 14% or like that. So it's a no-brain decision to go to fixed income and buy government bonds. Now it is a different situation, of course there is a lot of volatility in the market that can impact net inflows and decisions season from investors on how to invest. But one thing we are very confident about that our platform keeps providing a better value propositions for the clients. And as I said, in the presentation, in times like these we step in, we go after our clients, we expose ourselves with our financial education DNA, exactly to -- in times of uncertainty what people need is information. And we have that to provide them, so I believe that looking in a short-term view, and most importantly, in our long-term view, will you position XP as a player in the market that really is there to help the client for the long-term, and that of course, helps the net inflow as well. So it's hard to tell looking forward because again, nobody knows what's going to happen with this crises but so far what I can tell you is based on what we have seen on the daily basis; so far then the netting flows -- they've been keeping the same pace, except for some large equity custodies. And I made this point, just so everybody can be aware that we might have a drop in assets under custody, because of these, some small clients, few clients, I mean, with large equity custodies but that does not mean that will impact our revenue because those large custody, they not necessarily contribute to the revenue as other equities and fixed income and other custodies that we have in our platform.

Thank you.

As a reminder, we are now conducting a question-and-answer session. [Operator Instructions] There are no further questions at this time, and I would like to pass the call back over to Carlos Lazar for closing comments.

Well, once more, I would like to thank you all for participating in this conference call. For additional questions, please contact our Investor Relations department; our email address is ir@xpi.com.br. Have faith [ph] and have a good night. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.