Good evening, everyone. I am Andre Parize, Head of Investor Relations at XP Inc. It’s a pleasure to be here with you today. On behalf of the company, I’d like to thank you all for the interest and welcome you to the 2023 Fourth Quarter Earnings Call. This quarter, along with 2023 results, will be presented by our CEO, Thiago Maffra, and our CFO, Bruno Constantino, who will both be available for the Q&A session right after the presentation. [Operator Instructions] And before we begin our presentation, please refer to our legal disclaimers on Page 2, on which we clarify forward-looking statements. And additional information on forward-looking statements can be found on the SEC Filings section on the IR website. So now I will turn it over to Thiago Maffra. Good evening, Maffra.

Thanks, Andre. Good evening everyone. Thank you for joining us today on our 2023 fourth quarter earnings call. It’s a pleasure to be here tonight. I will start with a brief introduction to this year’s highlights and key updates. As I mentioned in my annual letter, 2023 was both a challenging and transformative year for XP. Despite the still difficult macro environment, we remain committed to better serving our clients through innovation, high-quality service and growth. In this slide, I would first like to talk about our financial performance for the year, marked by the resilience of our business model. I will leave for Bruno to talk about the fourth quarter’s financials. In 2023, we celebrated the milestone of surpassing the $1 trillion mark in client assets with a market share at still less than 12% in investments for individuals in the country. This shows the large potential growth with still ahead of us. Despite the macroeconomic conditions I just mentioned, we were able to achieve a 12% growth year-over-year in top line and 10% growth year-over-year in bottom line, with approximately 100 bps growth in our EBT margin. This year was also marked by a strong focus on efficiency and cost discipline through the whole company as we achieved an efficiency ratio of 36%, the lowest level since our IPO. Our diluted EPS increased 16% year-over-year reaching BRL7.22 per share. Also in 2023, we returned almost BRL4.5 billion in capital to our shareholders both in dividends and share buybacks, totaling a payout ratio of 114%. Lastly, I would like to talk about our guidance. We prefer mid-term guidance than annual guidance, but at the start of 2023, we opened an exception aiming to better guide investors about 2023 in the context of an unusual weak results for the fourth…

Thanks, Maffra. Good evening, everyone. It’s a pleasure to be here with you again. Moving on to Slide 9. Starting with our gross revenue, on the left part of the slide, this quarter, we had a relatively stable gross revenue quarter-over-quarter at BRL4.3 billion, despite having roughly 6% less business days than the third quarter. On a year-over-year comparison, we had a 29% gross revenue growth in the fourth quarter ‘23. When we look at the full year, we posted 12% growth in our total gross revenue. Our strategy to go beyond investments with new verticals and corporate and SMB ex-investments has played an important role sustaining our gross revenue growth as the core retail is still impacted by the macro. Looking to the right side of the slide, in terms of revenue mix between segments, we maintain a relatively stable mix quarter-over-quarter, while year-over-year, we can notice an increment in retail revenue relevance, mainly due to new verticals growth as we are going to see in the next slide. Before we deep dive in new verticals, it is important to highlight that in this slide, we are only looking at the 4 new verticals we currently disclose, which are retirement plans, cards, credit and insurance, not including FX, digital accounts and global investments as presented in the Investor Day. So new verticals continue to perform in the fourth quarter, reaching a total gross revenue of BRL491 million, plus 21% year-over-year and plus 11% quarter-over-quarter. The main highlights of the quarter were cards and insurance. Cards reached BRL306 million, plus 18% quarter-over-quarter and plus 30% year-over-year. And insurance reached BRL46 million, plus 28% quarter-over-quarter and plus 48% year-over-year. As you know, the fourth quarter has a positive seasonality to cards activity due to the holiday season. On the right side…

Thanks, Bruno. For my final remarks, I would like to summarize my priorities for this year. First, our people and culture. Our success is linked to the dedication and talent of our team. In 2024, we will keep our focus on nurturing our culture of excellence and innovation. Second, cost discipline. For 2024, we will maintain the strict cost control and efficiency initiatives that we did company-wide during 2023, as this continues to be one of our top priorities. Third, our focus on what we believe is the new true differential quality by democratizing access to premium services which were previously available only to private clients. We are breaking down barriers and creating a more inclusive financial ecosystem repeating what we did before product offering. As a result, we expect higher LTV. Fourth, this year, we continue to focus on increasing penetration and principality of our new products. New verticals should continue to grow strongly, further diversifying our revenues and strengthening our business model. Lastly, this year, we intend to extend our product suite available to our wholesale clients. Throughout the year, we will roll out our digital bank account for Corporate and SMB clients to further improve their experience with our ecosystem. Now both Bruno and I will be happy to take your questions.

[Operator Instructions] The first one is going to be Thiago Batista from UBS. So, hi, Thiago, please now you can make your question.

Yes. Hi, guys. Thank you for the opportunity. I have one question about the potential improvement in the net new money. When we look – in the last – a couple of weeks ago, we saw a change in regulation in Brazil with the taxes instruments like the CRI, CRA, LIG, etcetera, become much more tougher to be issued. Can you comment on the possible impact of this change for XP? And also the federal government paid about BRL90 billion – 90-odd billion of precatórios in the last couple of weeks. Have you saw any positive impact? Or do you believe those precatórios will have any positive impact on the net new money of XP?

This is Thiago. Thank you for your question. When we talk about the new regulation, we see as positive when you look the long-term because you guys saw what happened in the past 2 years, mainly in the past year, the banks raised almost BRL1 billion – BRL1 trillion in tax exempt and products. So today, we have about one-third of the whole AUC in this type of product. So of course, for the long-term, as they have like to renew these products to issue new bank products, it’s going to be harder for them, but we don’t expect like to have a big impact on the short-term, okay? So that’s one side. The second side is when you look the secondary market for fixed income, you guys saw the – what happened with the spreads in the past 2 months, okay? So we saw an increased level of activity on the secondary market on the tax exempt fixed income, so – and the spreads they closed. So that’s also positive for us. So I would say that’s positive, but it’s not a big change on the short-term. So that’s my view, okay. And talking about the precatórios, it’s hard to say. It’s a big chunk of money, okay? But it’s not that related to the individual investors. When you look, we saw more impact mainly on the funds. We saw a lot of the funds receiving cash from this payment. So we believe we can see some of these structured funds with good returns for individual clients on the short-term, okay? So it might be positive because, as you know, when investors see the return is increasing, they start to like to invest more on this type of product. So can be positive, but I don’t see a big, big change also on that new money on the short-term.

Can I do more follow-up. You mentioned in the slides that you booked BRL44 million of one-off expenses. Only to double check. The earnings of BRL1.040 billion, this was not adjusted by these one-off expenses.

No. It’s not adjacent.

Okay, perfect. Thanks a lot.

Okay. Next one is Yuri Fernandes from JPMorgan. Hi, Yuri, now you can make your question.

Hey, guys. Good evening. I have a question regarding our results on the COGS line. It was a little bit heavy this quarter. You mentioned in the release IFAs, commissions and higher provisions for credit cards. So if you can explore a little bit what drove it. It was more the commissions. It was more the credit card. And if we should see a normalization of this line for the coming quarters. That’s my first one. And then I can do a follow-up. Thank you.

Hi, Yuri. This is Bruno. I’m going to take that one. The first and biggest impact in terms of the COGS was due to mix, revenue mix in the third quarter, the quarter that we had our highest gross margin in the year. We had part of the revenue with less commissions in the fourth quarter, I would say that kind of normalized because if you look at the gross margin throughout the whole year, which is a better time frame to look at the margins. We do have volatility between quarters, it was 68% all over the year. The gross margin of the fourth quarter was 68.1%. So in-line with the margin for the year. So that’s the main impact. But we did have, in the fourth quarter, some outliers, I would say, specifically in terms of provisions that we did because of a credit portfolio that came from Modal, nothing big, but in terms of the expected credit loss, it had an impact roughly about BRL30 million that we do not expect to see going forward. To talk about normalization, again, is hard because we do have the largest part of our COGS is commissions, and it’s related to the mix of the specific quarter.

Thank you, Bruno. If I may, still on the cost side, but now on financial expenses. It was a bit higher this quarter, and I was checking our gross debt, it was mostly stable around BRL9.5 billion. For sure, we don’t know like the inter-quarter. So just checking if there is anything different on your financial expenses line this quarter. And again, where this should evolve going forward? Thank you.

I mean we had in the fourth quarter, there is a line, there is a very cheap line that we have through the Banamex, the Mexican bonds that we carry, and we use them to finance around BRL2 billion roughly and we were waiting to renew that line. So if you look at previous quarter, you’re going to see that part of the debt was reduced in the previous quarter and went up again in the fourth quarter. That’s the main explanation for interest rates, interest expenses going up in the quarter.

Thank you, Bruno.

Okay. So next one is Neha Agarwala from HSBC. Hi, Neha, now you can make your question.

Hi, thank you for taking my question. Just wanted to quickly understand how do you see 2024 evolving? What levers do you have in terms of – on the revenue side, on the cost side, because you’ve done most of the cost management in 2023. So what would be the drivers for 2024 profitability? Will it be more on the revenue side or more on the cost side? Because net new money, as you mentioned in your last answer that will probably be on the weaker side in the very near-term. So any trends of how 2024 should be evolving will be very helpful.

Hi, Neha. Thank you for your question. About revenue, as we mentioned in the presentation, we don’t have a guidance for revenue or margins, okay? We gave last year more reference because what we just explained about the results of the fourth quarter. So we don’t have a revenue guidance for this year. So – but about costs, as we already mentioned in previous calls and meetings, I would say that the last two quarters, they are a good reference of the level of SG&A for 2024. But again, as we already mentioned, we have very strong cost discipline that’s still in place on the company. So we expect to keep gaining efficiency throughout the year here. Okay.

Okay. Prefect. If I can just follow-up quickly. Going forward in ‘24, is there a mix in terms of capital distributions that we should expect between buybacks and dividends?

I can take that one. No, we have not decided yet. What we have just announced is a buyback of 2.5 million shares approved by our Board in order to neutralize the dilution expected for this year due to our long-term plan for our partners in our partnership model. So that’s something that we want to continue to do to avoid dilution of shareholders. And as I mentioned in my part of the presentation, you can expect more capital to be returned to shareholders throughout the year. We keep generating cash. We have underleveraged, I would say, balance sheet with capacity leverage. If we want, we do carry excess capital. So all the conditions for us to continue distributing capital to shareholders are in place, and we are going to do it. But we have not decided when and how much and if it’s going to be buyback or dividends, whenever we do, we are going to announce to the market.

Perfect. Thank you so much.

Okay. Next one is Mario Pierry from Bank of America. HI, Mario, now you can make your question.

Hey, guys. Can you hear me? Parize, can you hear me?

I can hear you. Can you hear us?

Sorry. Perfect. Sorry. My question, let me ask you if you can give us any color on net new money so far in the year, if you can separate that between inflows and outflows? Because I do think you have made comments in the past that inflows remain very high but outflows had also increased. And then related to that question is, when we look at your AUC, it grew 19% year-on-year. But if I take inflows out, your AUC grew only 7%, so which is significantly lower than CDI. So I was wondering how do you see the performance of your clients’ portfolios? How can that improve? Is that something that you think could be hurting some of the inflows that you’re seeing? Thank you.

Okay, Mario. Regarding the explanation about gross inflows and outflows, honestly it hasn’t changed that much about what I’ve already said in the past. So basically – and we monitor that on almost on a daily basis. When we look at the core, the engine of XP being affluent clients, B2B, B2C outflows and compared to the client assets, the percentage of outflows is pretty much stable over, I would say, the past seven, eight quarters. So it has not changed, okay? And the inflows overall, they have increased in 2023 compared to 2022. What has hurt the net new money more is the outflows from companies, corporate, it’s really volatile. But remember that we do have in retail SMBs and corporate clients that have an annual revenue below the threshold of BRL700 million and also the private, but not the engine. So that scenario has not changed, and we haven’t seen any big change compared to the past quarter. Regarding the remuneration of our clients and the growth of market appreciation, you need to remember that our portfolio overall, on average, when you look at our portfolio and total client assets more diversified. And to be more diversified, it means that you’re going to own more equities, you’re going to own more move-to-market funds, alternatives and so on. In the past year has been tough for all those asset classes, as you probably know. And most of the funds and someone they are below the SELIC rate, for example. So on average, yes, the portfolio has not performed well, but we do not see that impacting outflows. We have the advisers, the clients are aware of the portfolio. You need to have a longer time horizon in the long-term, it should pay off to have this type of portfolio diversification.

Okay. Have you done any exercise where you monitor how well portfolio client – portfolios are doing in other platforms? Do you think the performance from your clients has been worse or not? Or is this something right – is there room for you to improve – because again, like – I think, was up like 20% plus last year. Sure, the book of the performance came in the second half of the year. But I’m just wondering if you think there’s something else you can do, like, I don’t know, training IFAs or getting more involved in client portfolios.

This is Thiago. There is one slide in the presentation and I mentioned, we have a very strong focus on quality and that means for investments being the best financial planning service provider in Brazil. So we have been doing in the past, I would say, 1.5 years a lot of change here in the company, very focused on having the best service to our clients. It’s not only about like having the best portfolios, but goes beyond that, like tax planning, section and all the other stuff that usually only private clients have. So we have been scaling that training, all the IFAs and internal advisers. So we have been doing chains here. Today, we have a new segmentation in the company. We have a new – not a new CIO, but we have – we took the CIO from the private banking and now he manages all the segments in the companies, all the locations. So, we have changed incentives to our internal advisors. We have changed some of the incentives for their face. So, we have been doing a lot of things like to have them to follow the correct allocation for all the clients. So, yes, we have been doing a lot of stuff on that. To your point about how it’s compared to other companies, I would say that the easiest way to compare because it’s easy to get is if you compare the exclusive funds, okay. If you look the funds that we manage here through Chispa asset, we have been doing, I would say, good compare like to other places. You can compare all the private banks and we have been doing okay, bad – not very good against the Selic rate, as Bruno mentioned, but okay or good when you compare to other portfolio managers for exclusive funds. So, that’s very easy to check.

Okay guys. And just final question, on the NPS score, right, you used to show that. I don’t know if I missed it, but like are you seeing your NPS scores relatively stable?

Yes, was pretty much stable, I believe, it’s 72 in the fourth quarter, Mario.

Okay. Thank you. Okay.

Next one is Tito Labarta from Goldman Sachs. Hi Tito, now you can make your question.

Hi. Good evening everyone. Thanks. Good evening Marfa and Bruno. I guess a bit of a follow-up here on the efficiency and margins. Marfa, you mentioned you continue to focus on efficiency and you have operating leverage. But how dependent is that operating leverage on sort of cyclical environment getting better? I mean I understand the cyclicality of the business. But I mean you mentioned that the second half of the year expense is sort of a good base to think about. I mean just annualizing 1Q expenses that would imply your expenses have been going to grow roughly 15%, right? So, to have some operating leverage with that, you need revenues to grow faster. So, how do you just think about that potential improvements in EBT margin to get to the guide, the longer term guidance that you have given, should that be sort of linear improvements? Is it very dependent on rates coming down, things improving? Just to understand, and particularly in this quarter, right, the margin was a bit lower. I know there were some one-offs – is there just some seasonality in 4Q because 4Q last year, EBITDA margin is also a bit lower, so just to think about how those margins improve from here? Thank you.

Hi Tito. I would say that, yes, it is dependent of the macro part of it to have this operating leverage kick in our business, I mean has been growing at a slower pace than in the periods of bull market, still growing. But with margins healthy, but at the low end of our guidance for EBT margin. And we have said that. We said, look, we expect the margins – annual margins because on a quarter basis, it’s – as I have said, it’s volatile. But on an annual basis, we expect to go from 26% to 32% from 2023 to 2025. And in that assumption, it is embedded in a better environment and scenario for investments as we move forward. We are not there yet. So, we – all of the businesses that we have been growing like cards, for example, it has a lower margin compared to the 26% EBT margin, for example, so of course, as the relevance of this business growth. And the other part is growing less because of the macro and it’s the most relevant part in our business. EBT margin will struggle to accelerate the pace really faster even with a strict cost control, but – so it’s not a linear. I don’t see this as a linear movement going forward, okay, because we do have – and that’s the point of that slide that I presented regarding the operating leverage of our business. That’s why when we gave the guidance for our net income in 2023, it was a large spread, BRL3.8 billion, with BRL4.4 billion, and we ended delivering the BRL3.9 billion. But why was that, because if the macro change, it is for us another scenario that we do not control in, we do not have a crystal ball to know exactly what it’s going to be. It could be much higher. That’s exactly the operating leverage of the business that we carry in our ecosystem. So, the macro, it is important to see the EBT margin expanding forward.

Great. Thanks Bruno. That’s helpful. Maybe, I guess one follow-up there. In terms of also how you think about maybe the seasonality, if we look at B3 volumes sort of continue to be weak. So, could there be more short-term pressure on that EBITDA margin, at least in the first half of the year because you are not seeing volumes sort of recover yet. Rates are still in the double digits. I know you are not going to give short-term guidance. But just to think about sort of the current dynamics that we are still currently seeing in the markets right now. Is it fair to assume perhaps a little bit of short-term pressure?

I don’t know if a short-term pressure. What I can share here, Tito, are two points. Number one, in terms of – for example, in terms of the efficiency ratio going forward, just remember that when we have the first quarter of 2024, we are going to take out the first quarter of 2023. In the first quarter of 2023, the SG&A was helped by a very low share-based compensation. If you go back there and look at the numbers, it was BRL53 million of share-based compensation in the first quarter 2023 and in the fourth quarter now, BRL166 million. And that BRL53 million was low because we had the impact of the layoffs and so on cancellations, etcetera. That had a positive impact in the first quarter. So, that’s one thing to have in mind for the short-term. The other point is we do have seasonality in our results. If you go back in the last 5 years and you do an average, you are going to see that the first quarter of the year is always the weakest quarter for the year, okay, because that’s how the business works, especially at our core business investments. So, the last 5 years, the average for revenue for EBT and for net income in the first quarter, 21% of the total of the year, not 25%, so it’s lower. And then second quarter and third quarter tend to be better. Fourth quarter is trickier because we have the performance fees, you might have some capital market activity. But in terms of the investments, business days and holidays and so on, it’s not as strong as the third quarter, for example. So, we will see. That’s why I always like to guide to look last 12 months, look at the year, look last 12 months, take one quarter and put the other with the same seasonality, because looking on a quarterly basis, you can get it wrong. It can be a very good and you are going to expect to continue, and that’s not what happens or the opposite way around.

Great. Thanks Bruno. One quick just clarification, you didn’t really have much incentives from B3 and some of the card companies. Is this a new normal now, should we no longer really expect those incentives going forward?

No. From the Visa and types of things, no, we do not expect to have anything relevant there going forward. From B3, we might. I mean it’s – they have its slot because that’s an annual process. But the main change that you saw, it was related in the fourth quarter this year to the fourth quarter ‘23, sorry, with the fourth quarter ‘22 was due to some incentives that we received from Visa that this last year, fourth quarter ‘23, it didn’t happen. But we are always looking for incentives to value our ecosystem, our [indiscernible] and any player that want to access our ecosystem knows that we have a premium, I would say, type of client because we are focused on the investors.

Okay. That’s great. Thank you, Bruno.

Okay. Next one is Renato Meloni from Autonomous. Hi Renato, now, you can make your question.

Hi Thiago and Bruno. Thanks for the question here. I wanted to get some more clarity on the Issuer Services dynamics for revenues. So, it came from a very strong 3Q that was affected by particular reasons there. But again, you repeated a very strong quarter, you had higher volumes, but you also mentioned that M&A helped. So, I am trying to understand here to which proportion M&A contributed? And going forward, what’s a recurring level of revenue in this segment that you expect? Thank you.

Yes. The third quarter was really strong because of DCM activity. You are 100% right on that. And – but again, we are growing our investment banking franchise as we move forward. The whole ecosystem, what Maffra mentioned, in terms of the potential for wholesale in our ecosystem, considering we already have the relationship with the corporate clients giving them access to capital markets through our distribution and so on. It’s important. It plays a role. Those things, they take time. So, everything is recurrent, but the point is it’s not a straight line. You have some types of revenue that, by nature, on a quarterly basis, they are more volatile. M&A is one of those. And M&A is a business that takes time to build. You need to build the portfolio, you need to build the relationship, you need to get the mandates, and that’s a long-term view. And in this fourth quarter, we do not disclose exactly how much was the revenue, but it was relevant in terms of contribution. It was by far the highest growth quarter-over-quarter. And that’s an ongoing business that we are not where we believe we can be in the future. So, we are going to keep investing in our franchise business and the wholesale platform for our clients.

And do you think you have a baseline revenues here that you can disclose, or still expected to be volatile?

I can’t disclose a baseline. The baseline that we have, for example, is the DCM business. This is like a very, I would say, I don’t want to use the word, current [ph], but it’s more stable. It’s less volatile. But again, you saw the third quarter, DCM, was the best quarter for DCM activity with some volatility.

That’s clear. Thank you.

Okay. Next one, it’s Jorge Kuri from Morgan Stanley. Hi Jorge, you can make your question.

Hi and good afternoon everyone. Thanks for taking my question. I wanted to go back to Slide 11, where Bruno talked about the potential for unlocking potential for operating leverage. You highlighted Bruno, 1.5% take rate in 2021 versus 1% in 2023 and mentioned that that’s around a $4 billion revenue gap and I just want to understand why are you going back to 2021 to that 1.5%? How is that achievable again? And I mean I am guessing you purposely pointed it out because you do think that that’s something where we could head or the business would head. So, under what circumstances could you be, again, at 1.5% take rate? Does it take a year, 2 years, 3 years? And maybe that’s not the taker that you can get to that was sort of like extraordinary times given where rates were I think is a leak average less than 5% that year, which is just like any possibility for Brazil anytime soon. So, maybe what do you think is achievable in terms of upside to your take rate, which sat at 1% in 2023, say, over the next 2 years? Thank you.

Hi. How are you? The idea of this slide was not a guidance, anything like that, okay. That’s why I mentioned a math exercise. But was to remind all of us about the business we have in XP because sometimes, we have been through 2 years, very tough 2 years in terms of our core business investments. It’s been really tough for 2 years. And we tend to forget the type of business that we have in our core. When we put the market share of B3 for retail, to remind that, our market share has been pretty much stable around 50%, 48% and in the end of December, 48%, 4x our closest competitor. But that type of business can have a huge operating leverage. If we have, for example, a market where risk unload a lot of IPOs, capital market activity, individuals in Brazil that is sub-penetrated coming to the stock market to invest in equity, so on and so on. In that type of environment, this operating leverage in our ecosystem can be huge. So, the math exercise is not to say, oh, if we have a risk on mold, we are going to have BRL4 billion additional in revenue without one single real in additional SG&A. That’s not the point. It can be BRL1 billion, can be BRL2 billion, can be the BRL4 billion. I don’t know. I don’t know what the take rate would be in such an environment. And you have a point because in 2021, probably we had very low interest rates in Brazil, 2%. We had the COVID, so different scenario, probably is not going to be like 2021. I don’t know what it’s going to be. But I know or at least I expect that at some point in time, because this business is cyclical, we are going to have or we are going to be in the part of the cycle where it’s going to be a bull market, a risk-on mode, a lot of companies coming back to the market. And in this environment, our ecosystem as of today is much bigger than what it was back in the last bull market cycle. And we expect our business to really benefit from that scenario. So, that’s the message of this slide. Do not forget this because that’s what XP has in its ecosystem. It’s been dormant for the past 2 years.

No, I appreciate that I fully understand it. But so just to continue on that thought, I am sure you know what your different business lines can do in a scenario of low rates, risk on volume growth? How prices on an apples-to-apples basis have changed because of competition and how the mix of your business also implies a change in the take rate. Just help us understand what is that attractive upside? Is it 1.1, 1.2, 1.3 take rates in a sort of like blue sky scenario or maybe it’s not, right? I mean maybe it could be 10% because competition just continues to do what it normally does, which is extract excess pricing from the market. So, just help us understand that because that’s obviously a really critical component of how your earnings look in 2024 and 2025, so that would be much appreciated. Thank you.

I hear you, but if I give you a number, it’s going to be like giving a guidance. And honestly, I don’t want to do that. What I can tell you, it’s not about price competition. The price, I mean we – for equities, for example, brokerage commissions, with zero brokerage commissions back in 2018 with clear. We were the first one to do so. So, it’s not exactly about price. Competition can have an impact in terms of market share, in terms of flow and so on, but not about price in my view. So, the potential exists, how much the potential means in the bull market, it will depend. It will depend how strong the bull market is. It will depend on various factors that it’s hard to give you a number right now. But I am pretty sure that whatever the number is, is going to be relevant, considering the size of our ecosystem.

Great. Bruno, thank you. Thanks for that.

Okay. Next one is Gabriel Gusan from Citi. Hi Gabriel, now you can make your question.

Hey guys. Good evening. So, we will move from my questions to the answer. One last is about your other operating expenses line. There is lining legal, administrative proceedings and agreements with clients. This line has been growing much quicker than anything else. It was like BRL2 million per quarter last year. It was somewhere around BRL12 million this quarter. And there were several news about like complaints recently in XP possibly having to reimburse those clients. Is this something related to what was mentioned in the news? It is something we should expect to continue growing at a quicker pace? Can you please shed some lines on it? Thank you.

Hi Gabriel. No, I would – I mean it’s mainly – I would say it’s mainly related to Modal acquisition. When we onboarded the whole thing, we might have some part of it related to the cost cuts that we did at the beginning of 2023. Those things, they usually, they take like six months to kick in. So, we would hit in the second semester last year, but we do not expect anything unusual going forward here.

Perfect. Thank you.

Okay. Next one is Ricardo Bucio [ph] from BTG. Hi Ricardo, now you can make your question.

Hi guys. Thanks for the opportunity. I have one question here about credit. We haven’t seen that the unsecured portion of the client portfolio has been accelerating the growth pace, which also has been fallen by a higher loan loss provision, right? So, once you get more color on what we should expect for both of these lines in the following quarters and years? And what exactly is the client profile of the individual taking secured credit line? Thank you.

Yes. Hi Ricardo. We have been growing our credit card business, as you know. And as we move down in XP and Rico, we go to unsecured credit card credit exposure. But with a client that has investments somehow with us can be a low investment, but has investment with us. What we monitor closely also is our loss absorption ratio, which despite the growth in NPL because of this unsecured part, the LA is above 2x for sure, and in a very healthy pace. But as you know, the credit card business, as you grow, it has this impact to recognize the expected credit loss right up front. So, yes, we monitor the economic sense of the business. And if it makes sense, we are going to continue to grow cautiously there, but we are going to continue to grow even if it hurts a little bit in the short-term, for accounting purposes, if it makes economic sense for sure.

And just a follow-up here, as you go to the lower part of the pyramid in its operation, when you look at cost of risk, that is the provisions divided by the unsecured portfolio, should we expect an increase looking forward because of this mix?

I don’t know. I don’t know if you would see a higher provision ratio because of that. I think we are well provisioned right now. And we intend to continue like that going forward. I don’t know, Maffra want to add something?

Yes. One important point is we don’t have any strategy to go to the bottom of the pyramid or focuses on investor clients, okay. So, that’s why when you look our NPL, it’s much lower than the market. Of course, we have different card segments for different types of clients. What I can say is when you look the collateralized credit card, it’s very low, clients with 50,000 plus invested at XP when you go to clients with less than 50,000 at XP, the NPL more than double. When you go to it triples compared like to the collateralized one, okay. But as Bruno mentioned, there was absorption on the worst cohorts still above two, okay, that’s very high. And when you talk about provisions against the NPL, we have very good provisions today. So, we do not expect like to have any additional provisions. But when you look the card portfolio is growing, so that’s why you can expect the provisions to grow, okay.

Okay. Thank you.

Okay. So, this is the end of our conference call. So, thank you very much for attending today. And the IR team is available for any further details that you might need. And we are going to meet you again in the next quarter. Thank you so much.