Good evening, everyone. I am Andre Martins, Head of Investor Relations of XP Inc. On behalf of the company, I’d like to thank you all for your interest in our quarterly earnings call. So welcome to the Fourth Quarter and Full Year of '22 Earnings Call. Today, we have with us our CFO, Bruno Constantino. We will both be available for the Q&A session right after the presentation. And whoever wants to ask a question can raise your hand on the Zoom tool, and we will attend you on a first-come first-serve basis. We have the option of simultaneous translation to Portuguese. So we have a bottom as well on the Zoom if you want to turn on the translation. And before we begin our presentation, please refer to our legal disclaimers on Page 2 on which we clarify forward-looking statements, their definition and we have on the SEC Filings section of the IR website, the definitions, as well regarding those legal disclaimers. So now, I'll pass the word to Bruno. Good evening, Bruno.

Good evening. Thank you, Andre. Good evening to all of you. And thank you for attending our 13th earnings call presentation. As a full year presentation I will take longer than usual in the introduction part, given more context about how XP business model works in different macroeconomic cycles. I will also mention the important achievements and lessons learned in 2022. On Slide 5, we highlight how XP benefits from a positive market environment. The recent bull market that went on until 2021 attracted many Brazilians to the capital market as you know. From 2018 to 2021, we had an increase of more than 4 million individuals come into the market. Still nothing compared to the size of the Brazilian population, as you know, but a lot compared to less than 1 million we had in 2018. And then as the main investment platform in Brazil, and having the biggest specialized distribution network, XP benefited a lot from this scenario with our disruptive and scalable business model. From '18 to '21, we grew our client assets by a CAGR of 59%, our revenue by a CAGR of 58% and our net income by a CAGR of 98%, basically doubling our net income for three consecutive years, way above market and our own expectation at IPO. And then comes 2022, a very challenging year, especially for the investment advisory business. With the Selic rate rising from 2% to 13.75%, there was a meaningful change on investors' willingness and sense of urgency to diversify investments from low risk fixed income options. This movement, which also was seen in other asset classes, is clearly shown by the almost 30% reduction in individuals equities average daily trading volume in full year '22 compared to '21. Other external factors contributed to the standby mode and…

Okay, Bruno. Thank you. So, again, we have a lot of analysts on the line here. So I'll ask you to be patient. We will go one by one, answering the questions. First one, Rosman, Eduardo Rosman from BTG.

Hi, Andre. Hi, Bruno. I have two questions. The first one is more related to the short-term. And the second one more related to the long-term. Do you prefer me to do the -- both at the same time or do you prefer -- so let me just do the both of them. So the first the short-term, you gave the guidance, which was great, thanks. I think it helps. And that guidance implies earnings growth, right, year-on-year. I think it has to do a lot with your cost control, right? But how do you think that will evolve throughout the year, right? Because my sense here is that first quarter is likely to be pretty weak, right? So this year, we know it's very bad after the Americanas situation. January is bad. You don't have the let's say the incentives. Costs as I know, usually, you have some upfront costs and then you benefit throughout the year. So it's fair to assume that first quarter very likely is going to be the weakest of the year, and then we're going to be recovering over time? So that's the first one. And the second one I think is related to -- it's more about the long-term, right? We know that the short term stuff, so let's try to think about the long-term here. Which I think it's an important theme, which is the partnership model, right? If you can, maybe talk a little bit more about the model, how it's working today? We know that you had a model in the past, which was at the controlling group, all the partners were there. And that worked pretty well during let's say, many years. But you had to change, right? You had to change that, because you've now bought big stake different times, changed that a few times or a couple, I don't know. And I assume there's a chance to change again. So how crucial you think it's this partnership model, if you have anything to add towards? Because we think here is something very important.

Perfect, Rosman. I mean, the first question about how we're going to evolve over 2023 with the guidance. You're 100% correct. First quarter, should be the weakest quarter in 2023. The Americanas event, that you mentioned, has a secondary effect in capital market activity. We know that DCM activity has been like frozen, especially in the distribution part where XP acts as the key role there. So yes, first quarter, it continues to be a tough quarter. We do have the expense reduction that is 100% under our control, as I mentioned. So we do expect when we look at SG&A to show already a reduction, considering the guidance that we gave. You also are correct, when you say that in the first quarter, we had the benefit of the SG&A because of the incentives and we are not going to have that in the first quarter. That's correct. But as our guidance goes to SG&A ex incentives, it doesn't matter that much. But yes, we are going to see evolution of the SG&A in the first quarter, okay? And then we expect to keep evolving that throughout the whole year. Going to the partnership and the more long-term question. You already gave some of the answer when you mentioned what happened with Itau. We liked a lot the model that we had in the past with XP Controle. We had to change that model after the IPO exactly because of Itau, they went to super voting rights, super voting rights should be for the controlling shareholders, but it was their agreement. We had to accommodate that. And we didn't have, I would say space to keep the same model that we had as non-listed company. Then we started with the restricted stock here and it's with a different vesting period. In the middle of the way we improved the model that we had learning from feedbacks and from experience as a newly listed company. And we are always thinking about improvements in our partnership model. That I can assure you, because that's the heart of our business and we take that as a main priority. The model that we had in the past, not directly related to share price fluctuations. For example, take the model of return on equity model where you buy and sell based on return on equity, we think it's a very good model, because it aligns you in terms of the return of the company, in terms of cost reductions for example. And you are not directly exposed to market fluctuations, but more about the fundamentals of the business. We like that very much. We don't have anything to announce right now but what I can tell you is that we are always open and thinking about ways to improve our partnership model. The restricted stock units are working, are working just fine. Can it be improved? We think yes.

Great, crystal clear. But do you think that when you have -- if you do any changes, or anything on that front, I think it will be great.

No, we will announce. That's for sure. Because as I said Rosman we think it's a priority in terms of, it's a very important topic for the company. No question about it.

Okay. Our next question is from Mario Pierry. Just a couple of seconds.

We have some delay. We are trying. You should announce that Andre. We are trying to a new model where we can see the analysts, whoever is asking the questions. So we might have a delay.

Hi, guys. Thanks for taking my question. Two questions. In the last quarter, I think you had changed your guidance to be on earnings before tax because of the volatility in the tax rate. So I was wondering what kind of effective tax rate are you assuming on your guidance for the net income that you gave? And then the second question is related to your expense reductions, right? You’re talking about you reduced your headcount by 5.5% from December to January. I was wondering if you have any other plans, like in order to get to the bottom of your guidance, right, so 11% reduction in SG&A. So in order for you to get to the 11%, does it mean further headcount reductions or does it mean cost savings in other areas? And what kind of impact this could have on the growth of some of your other businesses?

Perfect, Mario, good to see you. Regarding the income tax rate, you're right. We gave the earnings before tax margin guidance. And we know that the accounting income tax rate is tricky depending on the mix of revenue. But that's exactly why we have this I would say wider range in terms of the net income from 3.8 billion to 4.4 billion. We have many different assumptions here. So I cannot give you a specific what we use to give this guidance, because it depends from the range. What I can tell you is we're confident that we can deliver the bottom of the range. And one simple math here to help you out is the following. Imagine that we are in 2022, the whole year, so R$14 billion revenue, R$3.6 billion of net income. We would have instead of 5.6, R$5 billion of SG&A, right, R$600 million of reduction in expenses would mean more than R$300 million additional to net income. So with that, we would be able to reach the bottom of the guidance. Of course, as I answered the previous question, the year started in a very tough way, because of what happened with Americanas and its capital markets activity and so on. But we do not expect the market to stay, I would say dysfunctional throughout the whole year. So capital market activity should resume at some point, the companies need to roll over their debt. We have several investments in fixed income that mature around this year. So all of that factored in is what gave us the confidence with that. So I don't have a specific income tax rates to give you. Your second question about the headcount. You mentioned the 5.5, the 5.5 reduction is only comparing January to December. But what I would -- I would say two things here. Number one, yes, you can expect further reductions, that's going to be -- the efficient theme is going to be constant throughout the whole year. But most important than paying attention to headcount is to pay attention to SG&A, right? Because we can have, for example, in third quarter last year, just to give you an example, third quarter last year, our headcount growth went up. We had a growth in headcount compared to the second quarter. But we had a lot of interns and young developers that we had a partnership with that we bring -- brought in the company. And that's a different structure of layer. So, the transformation, the benefit of the transformation ongoing is exactly to have less span in layers, to have merge of leadership, to simplify. And that's how the reduction in SG&A will come, headcount decrease. It's happening, but I would pay attention to the reals, to the expense itself. It's more relevant than the number of headcount, that's what I'm trying to say.

Okay. And the impact that this headcount reductions could have on revenue growth?

Sorry, I didn't I didn't answer that. None. And that's what I tried to explain throughout the presentation. It's the benefits of the transformation. Whenever you have a transformation, it's natural to have a J curve, because you're going to be working with more than you need. But it's important, so you do not let anything fall off the table. And we accelerated that. That process intensified when Maffra assumed as our CEO, and last year, the second semester, mostly in the fourth quarter, we accelerated a lot. So, the way XP now is organized through business units, it gives us more agility, and efficiency in terms of the teams working together, and that's the big benefit. So we are not postponing any deliverable in terms of products or, we are not jeopardizing experience for our clients as I mentioned, nothing like that. So, we're not dropping anything.

This is all related, like, on the SG&A guidance that you gave, are you including any severance charges associated with these layoffs?

Yes, we are.

So, there's not going to be additional?

No, it's not additional. We are including because -- you're correct, we have several layoffs. So everything -- it's going to be in the first quarter. So basically, most of it.

And then when you talked about, like the SG&A falling from 5.6 billion to 5 billion, the 600 million delta, and you said it'll be 300 million to the bottom line. But we know that your effective tax rate has been close to zero?

No, it depends. Yes, but, depends on where -- I'm using, I would say a conservative approach in terms of where we are reducing the costs. But yes, that's just a conservative approach. The tax rate is -- it's the accounting one is trickier than the one that we release when we have the equivalent. Because remember that we do pay more tax than what is shown in our accounting because we have parts of our business where we do not recognize the full revenue. We recognize the revenue already net of tax. That's what happens, but we pay the taxes.

Okay, I'm bringing Geoff in from Autonomous Research.

First, just a very quick clarification, the net income guide, is that on an adjusted basis or a GAAP basis?

No, it's -- Geoff, it's on accounting basis, not adjusted. It's the gap, net income gap. We still release the adjusted net income but we have withdrawn the adjusted net margin guidance, as we look at it, including the share based compensation, despite a noncash expense, we consider an expense. So, we -- that in the last quarter.

And then in terms of the pressure that you saw in the retail business, and specifically in equities, how much of that is simply less activity and how much of that is product mix, kind of people trading cash equities versus -- and derivative products and things like that. What's driving the pressure there?

I would say activity, especially -- in the full year, it's -- we have equity part, clients migrating out of equity into more fixed income products because of interest rates. But on a quarterly basis in the fourth quarter activity, not for the brokerage business, the trading part. But for example, you mentioned structured notes. Structured notes, I believe the industry fell like 20% to 25% quarter-over-quarter. So there was less activity. So, that's basically what I would say in terms of the equity drop in the fourth quarter. The base is low now, Geoff, because we've been in that train for a while.

Okay. Next in line Domingos from JP Morgan.

Two, I think more simple questions in here. First one is you mentioned you're now recognizing interchange at the moment of TPV. My question is, how did you recognize prior to that? Because it's the only way I could think of recognizing this. And it wasn't much of an impact. The second one is everybody had one-off impacts on many -- big suspicions, I guess, go towards the Americanas. But in any case, everybody had some sort of loss. I'm just curious, if you had any one-off impact in your income statement?

Okay. Now, regarding the interchange, Dom, was basically -- the installments we recognize, basically on a cash basis. And the installment not paid, we didn't recognize and we adjusted that in the fourth quarter. So that's why we say, it's related to the TPV. Our recognition was below what actually was the TPV. That's what we change. Regarding one-off, I mean, we decided to not adjust anything for one-off, right? Because we always operate in business, you have one-offs every single quarter or every single day. So, if we would adjust anything for what we believe to be one-off, it would be a mess. The Americanas event, I believe can be like one-off because it was a like a very singular event. We didn't have any impact. Like the banks in the credit book because our credit book of R$17 billion at the end of last year, zero exposure to Americanas, 90% of that credit book is collateralized. So we are in a different situation here. But we do have market making book in fixed income, that of course the branches and bonds [ph] of Americanas were traded. And we had an exposure that, but we could not recognize in the fourth quarter because it was not a credit that you can have NPL there and recognize. It was recognized in January this year with the market to market proceeds of the tradable parts of the book. And to give you the impact, because that's going to -- it's going to be I believe -- it's fair to consider a one-off . It's going to impact the first quarter, and the amount is close to 125 total -- 100%, R$125 million in the bottom line.

Are you clear of this risk? Is it fully done?

Yes, basically. Yes. We don't have our market making activity. We don't have big exposures to one single name. So, it's basically a function of what the clients buy and sell. And we do have many different names. Americanas unfortunately was one of them. It's 100% recognized in January, you're going to see that in the first water, but -- that's it.

Okay. Next Neha from HSBC.

Hi Neha, I think you are on mute, if you can hear us.

So let's try. We can come back to Neha. I'm bringing Tito from Goldman Sachs.

Thanks for the call. Thanks for the guidance and color. That’s helpful. Maybe just on the revenues. You had you mentioned challenging quarter. 1Q is going to be a bit challenging. Help us think about sort of the long-term growth potential on the revenue side. One, what do you think needs to happen? Is it just a better macro environment, interest rates coming down? And I know there's a lot of moving parts in there but just to try to think about that. And yes, I'll go back a little bit. Yes, at the end of 2021, your Investor Day, got it, R$10 billion in revenues from new verticals. That will be 25% of revenues, like $40 billion in 2025, which is only two years away. So I mean, I think we can reset those expectations, I imagine. But just help us think about revenue growth from here, downside risks and upside risks as much as you can will be helpful.

Yes. Sure. I think that -- I will separate my answer here in two parts, Tito. Let's look at these tough environment for investments with high interest rates and assume we're going to be in this environment for longer, right? If that is the case, the equity part of the business is going to continue to suffer from the macro environment. What do we have as an ecosystem, two positive things that will benefit from it, no matter what. Number one, I already talked about the new verticals. So, if you look at R$1.3 billion, 50% to 60% of growth this year, we are confident that we can deliver that. And it's not correlated with investments. We're talking about R$700 million to R$800 million of additional revenue this year. Number two, when I think about the funds platform, and we have the largest funds platform, open funds platform in the market, and I think about the fixed income business, both of them, they should grow, what, at Selic rate, which is 13.75%. So, we're talking about mid double digits here. It's important to have that in mind. The client assets, because of the shift that we already had, in terms of movement, the fourth quarter, it was the first quarter where fixed income client assets was greater than equities in our breakdown. So, what I'm trying to say here is the impact can continue to happen. Yes, but a lot has been done already. In the fixed income part and the funds platform should grow at Selic rate. So that component also will help revenue growth. When I think about a longer term perspective, for revenue to really play this operating average and exponential growth, again, we would need the market upturn again. So, the reverse of the tightening cycle.…

One follow-up, if I may. I guess just on why you're confident that the cost cutting won't impact the revenues, and particularly some headcount reductions? I mean, do you think you over hired? Will you -- when the cycle comes back, will you need to hire again? And is there no impact on that?

No, we over hired. I think we over hired, right? That's one part of the explanation. We -- again, when I look at what happened in -- we doubled our net income in three consecutive years, and we were doing too much too fast at the same time. So, it's really hard to stop the train. And we did that in a pandemic. So we started -- in '20, we hired 1,200 employees in 2020, in the pandemic, 2,500 in 2021, working from home. So, of course, it's hard to manage that. And of course, we have over hired. I have no doubt it. So that's one part of the explanation. But I think the most important than that, because that's easy to correct now and it's done already. But the other part of the cost reduction, in my view is more important is the transformation, because it gives us a structural competitive advantage in terms of the way we are organized and our agility. So, we are not lacking anything -- we are not giving up anything. We have already invested. So, we have the bank working the digital accounts, we have our insurance company working, we have our international accounts working, we have X stage working, we have the corporate business working and we have our internal advisors already hired. Now it's time to consolidate everything that we have done. And through the transformation, we have done leaner cost structure. So, it's not about letting anything go. It's about not doing anything new, but on the other hand, consolidating and taking the opportunity of the cross sell of everything we have done.

I'm bringing Marcelo from Credit Suisse.

I have two questions. I think the first one is more strategic question. I mean, we've seen XP having a very successful business model. In previous years, there was certainly a very strong growth in a scenario where interest rates were abnormally low and where I think the XP had indeed a winning value proposition for the customer, especially vis-à-vis what was being offered by the banks at the time. So there's a lot of growth. Now, the relationship with the IFAs was easy. The relationship with internal stakeholders was probably easier. When there's more money, it's always easier, in that respect. But now, we are in an environment where interest rates are double digit, we can argue whether they're going to be 14, 15, or 10, but they're definitely not going back the 2% they had before. And you have an environment where the IFAs made up them are struggling in this environment, and in an environment where you may not have that same winning value proposition that you had before, because now I mean, banks are fighting back. They have products that you don't have. As you mentioned earlier, some investors are looking for low risk, type of instruments with -- which at times puts the large banks in that advantage, and now you have a large bank -- large banks also willing to replicate a bit your model of having offices throughout different countries, and trying to bring that entrepreneur spirit to them, something that you guys did very well over the years. And when I hear your -- you talk a lot about now it's -- let's reduce costs, which I think it's something that you have to do for sure in that environment, adequate to a new level of revenues. But you talk a lot…

You made a lot of questions and assumptions there. I will try to address the concept, and please let me know if I do it. I don’t -- I think there is a narrative there that I don't necessarily agree with that. I think it's simpler than that. XP is evolving in the business, in the investment business. It's not that -- of course, there is competition and so on but that's not the point. The point is a very tough macro environment that makes the investment business to suffer because as I said, people -- there is a higher inertia in moving money when you have very high interest rates, and then your money just invested in fixed income is more than fine. So when you look at the KPIs that I mentioned, the main KPIs for the investment business, we advanced last year, with all of that, competition, with interest rates going from less than 10% to 13.75%. We added 2,000 new IFAs. We added net inflows of R$155 billion, and we added new clients -- 406,000 new clients. If you look at our market share, in 2000 -- in the investment the way we see it, in the investment business in 2019, 7.3%; in 2020, 8.6%; in 2021 10.1%; November, the last data that we have last year, 11%. We are gaining market share, the pace of it is reducing, because of high interest rates, it’s not because of competition. I’m confident that whenever the cycle changes, XP is going to be the main destiny from clients to come here because we have sales force trained in a different way to serve clients in terms of investments, or not other reason, we've been elected in four consecutive years as the top of mind platform for investments in…

If you allow me just to go one, my second question. The cash flow, I saw -- I couldn't find the managerial cash flow statement in your press release. I don't know the reason why it wasn't there. But, I just don't understand, I saw there was a reduction in the net assets of about R$459 million quarter-over-quarter, because you guys didn't publish the cash flow statement. I don't know if that was because of share buyback, or payments to our face. So if you could explain to us what drove that cash burn, that would be great. Thank you.

The share buyback, you brought an important point that I didn't mention. We have bought throughout the year R$1.8 billion in share buyback approximately. We have now in treasury more than 3.5% I guess from total capital nowadays. But most of it was in the fourth quarter, because remember that in the fourth quarter, on top of the share buyback program, we had the Itaúsa block that was more than R$550 million, something like that. So in the fourth quarter, we have bought R$1.3 billion approximately in total. And that's probably what you saw there. But we can go into details later, because I don't have any in front of me. But that's probably the share buyback program. That continues, so we have been -- January, it ends in May.

Did you pay anything to IFAs in this quarter?

This quarter, it’s going to minor.

Similar base of recent quarters.

Remember Telles that we have -- with all the long term agreements that we have done with the IFAs. We have some variable components of it linked to performance. So if achieves, we pay; if doesn't, we don't. And then, depending -- it’s a case by case.

Thank you. I appreciate your time.

Thank you, Telles.

Last one in line Thiago Batista from UBS.

Hi, Thiago. We cannot hear you. I don't know -- you doesn't seem on mute now. Yes, now perfect.

Okay. Sorry, guys. Hi Bruno, Hi Andre. So I have two questions. One, actually a follow-up. The follow-up about the guidance only to ensure. The implied top line growth of the guidance in my collection is a low single digit. It is the case so the top line should expand into the three single digits. The second one about the impact of the higher interest rates in your working capital. So, I believe we have not seen yet the full impact of the working -- of the highest -- rate in your working capital, if it's possible to see this line expanding into inventory?

The top line, the next time we should give the P&L because you do the backwards calculation to get to the top line. Okay. Look, the guidance that we gave we are not giving top line guidance. But to your point can we achieve the net income guidance with high single digit or high single digit or low double digit revenue growth, yes, we believe we can. So it's an approach that we factor in especially considering that the first quarter it's probably going to be tough considering the Americans event and what happened with capital markets. We were conservative in the assumptions to bring this guidance, but it's not a top line guidance. And regarding the tax, we do have that in the cash flow working capital variation here. But I don't know exactly what you're missing there, Thiago.

Now, the other point is the highest take [ph] rate tend to have a positive impact in your working capital after a while. If not wrong, you guys are investing part of the working capital in kind of fixed income securities. So probably we’ll see higher impact of these in '23 onwards?

From the increase in tax?

Not tax, your…

Thiago is referring to interest on gross cash and interest on equity for example, like…

Yes.

Okay, the working capital, okay. Now I got it. Yes, it's going to be higher. You're right.

Okay. Do you have the magnitude of this increase?

Of interest on gross cash?

Yes. If I’m not wrong, you guys invest part of this working capital in fixed income securities, so.

In a lot of different securities, but yes, fixed income.

The deposit -- we have not seen yet the full impact of the highest take rate in your working capital. It's true to say that?

I don't know if you’re talking about the other revenue -- you’re talking about the other revenue. Now, I understood. Yes, because we also have of the hedge -- of the floating, the network that we have offshore, and the corporate FTP that goes into other revenue as a reduction in some part. So we do have that benefit. But we also have, I would say, negative numbers that when you add it to gather, probably, is what explains a lower number than you expected. That's what I'm guessing here, but we can we can go offline later too. So I can understand exactly what your math or calculation is. And we can help you with that for sure.

Okay. Thiago was the last one. Thank you, everyone, for your participation. Hope to see you all soon and touch bases. Bruno, any final remarks or goodbyes?

Just thank you for being here with us in one more call. And that's all. Thank you.

Bye all. Thank you.

Bye, bye.