Antonio Guimarães: Good evening everyone. I'm Antonio Guimarães, Investor Relations in XP Inc. On behalf of the company, I'd like to thank you all for the interest and welcome you to our 2023 Second Quarter Earnings Call. Today, we have here with us our CFO, Bruno Constantino; and our CEO, Thiago Maffra. We will all be available for the Q&A session right after the presentation. [Operator Instructions] We also have the option of simultaneous translations to Portuguese. So, there's the button 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 two on which we clarify forward-looking statements. Additional information on forward-looking statements can also be found on the SEC Filings section on the IR website. So, now I'll pass the word to Thiago Maffra. Good evening, Maffra.

Good evening everyone. Thank you for joining us today on our 2023 second quarter earnings call. It's a pleasure to be here with you tonight. I would like to start with a brief introduction to this quarter's operational and financial highlights and also give you a bit of context of where we are in terms of our long-term strategy we talked about in the last quarter. In the second quarter of 2023, we achieved a key milestone, surpassing BRL1 trillion in client assets. Client assets have grown at a 30% CAGR since the IPO. Coupled with this historic milestone, we estimate we have gained approximately 30 bps in market share in investments in individuals year-to-date and approximately 60 bps in the last 12 months despite a very tough macro environment condition. For the second quarter, earnings before tax was BRL968 million, up 12% year-over-year, where our continued efforts to improve operation leverage resulted in 198 bps of additional margin expansion. Net income was BRL977 million, up 7% year-over-year, driving our net income margins up 91 bps year-over-year. Annualized retail take rate was 1.3%, up nine bps quarter-over-quarter. Return on average quite, a key profitability measure for XP, rose 334 bps sequentially to 22%, and our diluted earnings per share of BRL1.83, increased 24% over the first quarter. Moving to page six, we were happy to see the market trends and our profitability improve in the second quarter. Following a challenging first quarter, we have started to see a recovery in capital markets activity. We are pleased with the recovery in GCM volumes and we have started to see some activity in the equity capital market as well. Specifically, we saw the follow-on offerings window opening in late June and continue to see positive trends into the third quarter. On August…

Thanks Maffra. Good evening everyone. It's a pleasure to be here with you again. Moving on to slide 12. Starting with gross revenue on the left part of the slide, this quarter, we reached BRL3.7 billion, 12% growth quarter-over-quarter and 3% growth year-over-year. The sequential growth in gross revenue was mainly led by retail, especially fixed income, which we will discuss in further detail on the next slide. In terms of revenue mix between segments, retail has continued to gain relevance and represented 78% of total revenue, benefiting from our long-term strategy to become a full financial service platform, especially through our new verticals. Institutional and corporate and insurance services remain at 10% and 8%, respectively. Other revenue has been stable over time, representing around 4% to 5% of total revenues. On the next couple of slides, we are going deeper into retail revenue. Starting with slide 13. When we look at our core, we can see we had an improvement in fixed income to BRL578 million, a growth of 74% quarter-over-quarter, due to higher volumes in both primary and secondary markets and narrowing in corporate bonds credit spreads. After a tough first quarter, we had some relevant corporate credit events negatively impacting DCM activity, we saw a more normalized capital market in second quarter. As expected, we also had a sequential seasonal improvement of 9% quarter-over-quarter in the funds platform, reaching BRL341 million due to the recognition of performance fees, which tend to be recognized at the end of every semester. Also, we had a stabilization in equities revenue in BRL1.1 billion, flat quarter-over-quarter with lower daily average trades for equities and futures with higher volumes in structured notes. Moving to slide 14. All of our new vertical products continue to grow well, reaching a total of BRL398 million…

Hello. Thanks very much for taking the question. The inflow is clearly the better this quarter than in the first quarter, but they're still quite a bit below what we were used to seeing previously. Can you give us a sense, are you seeing inflows continuing to recover? And then can you point us to a normal rate of monthly inflows that you'd expect going forward?

Hi Geoff, this is Bruno. First, when we think about the inflows, I'd rather think about total client assets? And why is that? Is -- total client assets surpassing the mark of BRL1 trillion is more relevant for revenues than inflows? So, that's a point important to bear in mind. Second, inflows as I have also mentioned in previous calls, it's a component of total inflows minus outflows. In total inflows, they have been good. We had like all-time high in the last quarter, the second quarter. But so the outflows have also grown as well, bringing the net inflow to a better number than the first quarter, but still short compared to the boom [ph] market years. We believe that individuals, they are lagging in the process of bringing money into riskier assets. We are not there yet. We don't know when we are going to get there, but it's a cyclical part of the business. So, yes, we, in the future, expect inflows to grow. But in the short-term, we don't have a guidance, and my statement is look at total client assets more than to inflows. And just--

Good evening, this is Thiago. Just to complement Bruno here. One way I like to think about is we are at the very beginning of the easing cycle in Brazil. And if you think about the next, let's say, one, two, three years, in our opinion, we will have another good cycle for investments, a good macro environment in the next years. And for us, it's more important when you look the scenario then quarter-by-quarter, okay? What I'm trying to say here is, we believe we are very well-positioned with the company very organized to capture this good momentum that we have ahead. So, it's hard to say if the net inflow will change this quarter, next quarter, in three quarters. But we believe that at some point, with this macro scenario ahead of us, at some point, we'll have a good environment for investments again.

Great. Thanks very much. Antonio Guimarães: Next one in line Eduardo Rosman from BTG.

Hi, can you hear me? Antonio Guimarães: Yes, we can.

So, congrats on the numbers. I have two questions. The first one is regarding your market share growth. The company has expressed the goal of doubling its AOC. But when we look to your market share in the core high-income segment, you have almost 20%. So, can you provide more details about your plans for expansion in this segment as well as in the high net worth and also the lower income segment? This would be the number one question. And the second question relates to your ambitions beyond investments. What's the company plan? How aggressive you are willing to expand in loans, for instance, at the bank? Anything here would be appreciated, right? So, thanks a lot, and again, congrats on the numbers.

Thank you, Rosman. The way I like to think about investments, as we mentioned, we have 11% market share of individuals, okay, and 8% if you consider companies, okay? Itaú is the leader in the market with more than double that we have, okay? So, -- and when you look at the different segments, if you look high net worth clients we have, I would say, about 5% to 6% in the middle, closer to the 20 that you mentioned. And if you go to the retail clients, we have 2%, okay. And the way of serving these clients in these different segments, they are completely different, okay? One easy way to think about it, if you go to high net worth clients, you have an account load of 20 in the middle, 100 to 200 at the bottom, almost 2,000, okay? So, the strategy that we have for the different segments are completely different, okay? We start at the middle of this pyramid, okay, the affluent clients. So, that's why we have 20 -- almost 20% market share, but we believe we can continue to grow here, okay? And of course, we have plans on the upper part and the lower part. The lower part, we have what we call digital-first. Here basically is how you use technology, CRM, intelligence, data to have higher account load per banker, but at the same time, giving a very good service compared to the market, okay? And the middle is more of the same and at the top we are talking about high net worth clients. So, here different from the other parts, it's more personalization, more value-added, so different strategies, and we believe we have the right path for these three different segments, okay? Completely different financials, KPIs, completely different ways…

If I just may add, Maffra, to your point. The way we like to think, Rosman, so to your question about our ambitions, we have strong ambitions for the long term, that's for sure. but we also believe a lot in execution and focus. And as Maffra appointed, many new products and service that we have launched in the past two to three years, we believe there is a lot of work to do to cross-sell and upsell in our ecosystem with our existing clients. And just bear in mind that we also added with Modal acquisition of 500,000, given or taken new clients into our ecosystem as of today. So, we are talking about a little bit more than 4.5 million total clients with that low penetration that Maffra just mentioned. So, I think it's -- there is a strong ambition, but we need to go brick-by-brick executing.

Great. Thanks a lot guys. Antonio Guimarães: Thanks Rosman. Next one in line is Thiago Batista from UBS.

Hi guys.

Go ahead Thiago.

Hello.

Thiago, can you hear us?

Can you hear me?

Yes, now we can.

Okay. Sorry, guys. So, I have two questions. And sorry for the issue. The first one, I'm trying to understand the dynamics for the earnings for next year for XP. And do you see room for further improvement in the efficiency ratio of the company next year? Probably next year, we'll see a better topline. So, my question is, we will see this operating leverage in the company? And the second one about Modal, I think Maffra already mentioned that Modal should be zero impact in the earnings in the short-term. But do you believe that Modal should be accretive for EPS 2024? Or because of all the change that we saw in the market, this should take a little bit longer to see a really positive impact from Modal on the XP earnings?

Thank you, Batista for the question. So, about your point on the efficiency ratio. The way I like to see is, as we mentioned, we believe we have a better macro outlook for the future, okay? Again, it will take some time because it's not a 50 bps cut that will make a total difference when you think about retail clients. Of course, if you think about capital markets, institutional clients, it change faster, okay? We start to see follow-ons in the previous months. So, -- but retail clients will take more time, okay? But when we look this positive cycle for the future, we believe we can have higher revenue growth rates in the future, okay? We have the company ready to capture this growth. On the other part, we spent the last, I would say, two years, one year and a half inside the company, improving the level of governance, the way we manage the company, we have created the XP management system. So, we have created a lot of tools and controls that we didn't have in the past to manage the company. So, I believe we are better prepared today for the -- this new cycle than we were like a few years back, and we have done a cost control. So, when you put together like a good cycle that we probably will have ahead combined with cost control and better management governance tools in the company, I believe we can have a very high operational leverage in the future. So, that's what we have been talking about with investors, we believe we can increase our EBT margins close to the high part of the guidance in the next years, we can increase our ROE close to, I would say, 30 in the next years. But again, it's something that will take time, one year, two year, three years, that's the timeframe that we are looking here.

Yes. And then about Modal, yes, we believe it's going to be accretive for our EPS on 2024. We have been executing the integration that started last month and our goal here is to finalize all the integration until the end of this year. So, we are going to give updates in the next quarters. But yes, it's accretive and the momentum of the market getting better, again, individuals take longer. So, it's going to be a gradual improvement over time. But Modal integrated with XP should benefit from that. And just to give you one example to make it tangible, what Maffra explained about the operating leverage of our business, I'd like to use the funds platform as an example. The funds platform in the second quarter of last year had a total of BRL175 billion of client assets. We all know that this year has been a tough year for the fund industry as a whole. Our funds platform has reached at the end of second quarter, BRL222 billion of client assets. Performance fees, so we have more client assets in the funds platform as of today than we had one year ago. But performance fees in the second quarter of last year was much higher than this quarter. We decreased the performance fees by 70%. So, that's one example of the potential of the operating leverage that this business has. As the market recovers, if we get, for example, performance fees in the next semesters to come, we have more client assets and this -- it's just the tax and its straight to the bottom-line. We don't have to hire one single individual to make it happen.

Okay, very clear Bruno and Maffra. Antonio Guimarães: Great. Thanks Batista. Next one on the line is Mr. Tito Labarta from Goldman Sachs.

Hi, good evening. Thank you for the call and taking my question. A couple of questions also. One, just first on the results. Looking at the other revenue line in particular, BRL167 million although up modestly compared to 1Q, but 1Q was impacted, I think, almost BRL70 million from Americana, so I was a little surprised that, that line did not maybe improve potentially more. It was actually lower if you factor in the Americana's impact. So, if you can give any color on what happened there and how that should evolve from here? And second question, Bruno and Maffra, you talked about increasing ROE from here, kind of the main drivers, but also how much can you potentially increase that ROE? And what are your latest thoughts on the capital returns, whether buybacks, dividends and curious what you're thinking there? Thank you.

Okay. I will start with the other revenue. The other revenue is everything that is not in the segments that we highlight. So, we can have many different things there, Tito. And that's why when I made the presentation, I said it's stable over time between 4% and 5% of total revenue. It hasn't changed that much. Specifically, in the second quarter, we did have a negative impact in revenues because of this pack that we had in our balance sheet. It didn't happen and was a negative impact, a little bit more than BRL40 million that it's a financial instrument, so impacted other revenue because it was not related to the any other segments. So, it can happen from time-to-time, those different types of impact they're positive or negative. So, that's what happened in the second quarter.

Yes. And about the capture about the ROE, I believe, as Bruno mentioned on the presentation before, we have a mix of tow things. We already mentioned the positive cycle, the cost control and so on that will probably impact and increase profits in the next quarters. But we also have a huge excess of capital. So today, we have more than BRL5 billion and we have a Basal index of, I would say, close to 24%, okay? So, it's a combination of earnings growth and adjust in the capital structure for the future, okay? So, that's the combination that will bring us from, let's say, the current 22 to something closer to 30.

Thanks Maffra. That's helpful. Any color just on when you could return some of that capital and the former returning it again through buybacks or dividends?

Second semester, we already mentioned in the first quarter that we would return to shareholders either through share buyback or dividends or both at least 50% of payout ratio that we did last year. We have already returned BRL960 million in the first semester of this year and we are going to return more in the second semester. But we have not decided yet the number. So, whenever we do, we are going to announce to the market.

Thank you Bruno. Thanks Maffra. Antonio Guimarães: Thanks Tito. So, now we have Daniel [indiscernible] from Credit Suisse.

Hi guys. Can you hear me?

Yes, we can. Antonio Guimarães: Yes.

Thank you. So, first, congrats on the results. I would like to go on the revenues or the results part. We talked to some IFAs last month, so -- which pointed to strong recovery in revenues in June, right? So, I'm trying to do a quarter breakdown months. So, how strong could June be compared to April, right, so it could help us to understand how results could have reached already in the second quarter, considering like a full potential from doing results? Or any details you could share with us in relative terms it would be good as well? And second question, SBC expenses came in BRL30 million to BRL40 million below Q4 or Q3, right? So, should this BRL130 million from Q2 be more normalized levels considering the rightsizing you did in people or it had some still cancellation effects from Q1? Thank you.

Yes. Regarding your question about the months, we don't think it's the best way to analyze our business. There is a lot of volatility between months, even between quarters. So, to take June compared to May or May compared to April and extrapolate that, it can be misleading. So, I would not recommend that. To your question about the share-based compensation. We don't have a guidance, but I would say that the pattern around BRL130 million to BRL150 million per se. In other words, BRL500 million to BRL600 million per year. It sounds reasonable. It depends on the price action as well because there is a component of the share-based compensation that is related to the price actions. The other part is hedged. So, it's hard to state an exact number. But yes, second quarter was a more normalized level than first quarter, which we announced that it had like one-off positive effects reducing the share-based compensation and should not be extrapolated for the rest of the year.

Okay. Thank you. Antonio Guimarães: Thank you, Daniel. And now we have the last question from Neha from HSBC. Hi Neha.

Hi. Thank you for taking my question. Very quickly on the impact from lower rates. Should we expect any negative impacts as policies go down especially on the financial income part of the revenues? And second question is on competition. Any change in competitive dynamics either more aggressive or competition softening? Any trends that you could highlight? Thank you so much.

Yes. Regarding, Neha, the lower rates, we more than welcome. It's a good macro environment and it probably will generate a positive tailwind in our core business. Reminding that is a gradual fact because individual investors, they tend to be lag in that process, but it's positive. I don't see financial revenues being jeopardized by lower interest rates because market activity probably will enhance. So, we're going to have a very good environment as we had in the last positive cycle.

Hello Neha. And about the second part of your question, competition. As we like to mention, in Brazil, the concentrations to very high, 80% of the investments is still inside the same five big banks, okay? And when you look at the macro environment that we had in the past 12 to 24 months, they were very positive for these banks because they can offer some products that we don't have here as LCIs, LCAs, free of tax and paying 13.75%. So, it's a very, very good macro environment for these kind of products. The banks, they issued more than BRL1 trillion in the last 12 months, okay? So, -- but this money is most of them with a very high liquid, most of them daily liquid. So, once the interest rates starts to go down, but again, it's not 50 bps that will make a difference. At some point, the individual investors, they will realize that they are not making 1% a month anymore with a very low risk with daily liquids, then they will change the products, change the portfolio, reallocate the money. So, it happens in all the other cycles and will happen again. We have today more than BRL2 billion on this banks CGs, LCIs, LCAs and so on. And we believe we can benefit once the interest rates are lower, okay? So, that's for me is the biggest point about competition in the last 12 to 14 months, okay, the level of interest rates and the bank products.

Perfect. If I can ask, at what level of rates do you see money moving back into equities or new inflows coming in, maybe at around 8%, 9% or even 10% would be sufficient to see the move in your view?

Hard to say, it's hard to say, Neha. But again, today, imagine that you are a Brazilian investor, you can invest at 13.25% with very low risk daily liquidity. So, you can make one point-something percent a month, okay, doing nothing. So, it will take some time, okay, for people to say, okay, I cannot do -- I don't have this level of interest rate anymore, so I have to take some more risk. I have to buy longer products. I have to buy a lower credit, okay? But we have products in Brazil with FIGC, guarantee, this kind of stuff. So, at some point, they will move.

Perfect. Thank you so much, Thiago, Bruno. Antonio Guimarães: Thanks Neha. Thank you for your question. It was the last one. So we would like to thank you all for participating in the call. We will be able, the IR team, to discuss the results with you later and have a good night everyone.