XP Inc. Reports Fourth Quarter 2023 Results
XP Inc. (NASDAQ: XP) (“XP” or the “Company”), a leading tech-enabled platform and a trusted pioneer in providing low-fee financial products and services in Brazil, reported today its financial...
SÃO PAULO: XP Inc. (NASDAQ: XP) (“XP” or the “Company”), a leading tech-enabled platform and a trusted pioneer in providing low-fee financial products and services in Brazil, reported today its financial results for the fourth quarter of 2023.
To our shareholders
As we reflect on the journey of 2023, it's evident that the year was both challenging and transformative for XP Inc. In an environment marked by ongoing macroeconomic uncertainties and the evolving needs of our clients, we kept our commitment to innovation, quality, and growth. This year was a demonstration of our resilience, agility, and the enduring strength of our business model.
Business Model Resilience
Despite the still challenging macroeconomic environment mentioned beforehand, 2023 was a year of significant achievements that continued to prove the resilience of our business model. On the second quarter of 2023, we were happy to celebrate the monumental milestone of surpassing R$1 trillion in Client Assets, a clear indicator of our growing market presence and the trust our clients place on us. This achievement underscores our position as a leader in the Brazilian financial services industry and highlights our potential for further growth, given our market share of less than 12% in investments for individuals.
Our resilience was further demonstrated through our financial performance. Despite the macroeconomic headwinds, we reported record quarterly revenues and profitability, showcasing our ability to capitalize on market opportunities and maintain cost discipline. Our Earnings Before Tax (EBT) and Net Income saw year-over-year growth, reflecting our operational efficiency and the successful execution of our strategic initiatives.
Execution of Strategic Initiatives
Throughout the year, we continued to focus on our three key strategic pillars: 1. Leadership in investments, 2. Enhancement of our ability to cross-sell superior products and 3. Wholesale synergies. Central to these pillars is our commitment to a culture of quality – our third wave of differentiation. Also, during the year, we had the acquisition and subsequent integration of Banco Modal, which marked a significant step in our journey, expanding our capabilities and enhancing our product suite. This integration is almost complete by now, delivering revenue synergies and cost efficiencies.
Our New Verticals and Corporate & SMB initiatives continued to thrive, contributing significantly to our revenue diversification efforts, already contributing to more than 17% of our total gross revenue for the year, if we consider all the New Verticals, as we did on our Investor Day – including Retirement Plans, Cards, Credit, Insurance, FX, Global Investments and Digital Account. The recognition of our credit card as the Best in Brazil, recognized by Melhores Cartões, is evidence of our commitment to offer superior products and services.
Also, 2023 was marked by a strong focus on efficiency and cost discipline throughout the whole company, as we achieved an Efficiency Ratio of 36.3%, the lowest level since our IPO.
Distribution Channels Evolution
In our efforts to expand and diversify, we have positioned ourselves as a hub for entrepreneurs, consistently pioneering in our distribution channel efforts. Our strategy encompasses a broad spectrum of distribution channels, including B2B, B2C, wealth managers, broker as a service, and consultants, enabling us to reach a diverse client base and cater to their unique needs. This diversification allows us to be at the forefront of the financial services industry, adapting to changes and seizing opportunities with agility and foresight.
Democratizing Access to Premium Quality Services
A cornerstone of our mission this year has been to focus more on the quality of what we offer to our clients. We are dedicated to democratizing access to premium services which were previously available only to private clients. By extending these high-quality offerings to affluent clients, we are breaking down barriers and creating a more inclusive financial ecosystem with scalability. This initiative mirrors our past successes in making top-tier investment products accessible to a broader audience, underscoring our commitment to excellence in financial services.
Investing in Our People and Culture
Our success is linked to the dedication and talent of our team. In 2023, we focused on nurturing our culture of excellence and innovation. We made significant strides in expanding and empowering our network of Financial Advisors. Our commitment to providing our advisors with the best tools and technology has not only enhanced our service quality but also reinforced XP Inc. as the premier platform for financial advisors in Brazil.
While we are proud of our accomplishments, we acknowledge that there is still much to be done. Our efforts to increase penetration and provide the best banking experience to our clients and advisors continue to be a top priority. We are committed to enhancing our offerings and services to meet and exceed the expectations of those we serve.
Looking Forward
As we look to the future, we remain optimistic about our growth trajectory and the opportunities that lie ahead. While we recognize that there may be a delay for retail investors to shift their behavior in a more favorable market environment, we are confident that this positive cycle will come eventually. In the meantime, we will maintain our cost discipline and stay focused on delivering the quality and service excellence that our clients expect from us.
The initiation of the monetary easing cycle by the Central Bank and the improving market conditions are positive signals for our core investments business. We remain committed to driving our Return on Equity (ROE) growth through strategic earnings expansion and capital distributions to our shareholders.
In closing, I extend my deepest gratitude to our clients, executive partners, team members, and you, our shareholders, for your continued trust and support. Together, we are not only navigating the complexities of the present but also shaping a promising future for XP Inc. and the financial services industry in Brazil.
Thiago Maffra
CEO, XP Inc.
Summary
Operating Metrics (unaudited) | 4Q23 | 4Q22 | YoY | 3Q23 | QoQ |
| 2023 | 2022 | YoY |
Total Client Assets (in R$ bn) | 1,122 | 946 | 19% | 1,080 | 4% |
| 1,122 | 946 | 19% |
Total Net Inflow (in R$ bn) | 19 | 31 | -40% | 48 | -61% |
| 104 | 155 | -33% |
Annualized Retail Take Rate | 1.27% | 1.22% | 5 bps | 1.34% | -7 bps |
| 1.28% | 1.29% | -1 bps |
Active Clients (in '000s) | 4,531 | 3,877 | 17% | 4,413 | 3% |
| 4,531 | 3,877 | 17% |
Headcount (EoP) | 6,669 | 6,928 | -4% | 6,699 | 0% |
| 6,669 | 6,928 | -4% |
IFAs (in '000s) | 14.3 | 12.3 | 16% | 14.3 | 0% |
| 14.3 | 12.3 | 16% |
Retail DATs (in mn) | 2.2 | 2.7 | -19% | 2.1 | 3% |
| 2.4 | 2.4 | 0% |
Retirement Plans Client Assets (in R$ bn) | 73 | 61 | 21% | 68 | 8% |
| 73 | 61 | 21% |
Cards TPV (in R$ bn) | 11.8 | 8.2 | 44% | 10.7 | 10% |
| 40.9 | 24.9 | 64% |
Credit Portfolio (in R$ bn) | 21.0 | 17.1 | 23% | 19.9 | 6% |
| 21.0 | 17.1 | 23% |
Financial Metrics (in R$ mn) | 4Q23 | 4Q22 | YoY | 3Q23 | QoQ |
| 2023 | 2022 | YoY |
Gross revenue | 4,309 | 3,337 | 29% | 4,364 | -1% |
| 15,726 | 14,036 | 12% |
Retail | 3,152 | 2,549 | 24% | 3,179 | -1% |
| 11,791 | 10,157 | 16% |
Institutional | 413 | 357 | 16% | 386 | 7% |
| 1,516 | 1,919 | -21% |
Corporate & Issuer Services | 508 | 275 | 85% | 519 | -2% |
| 1,576 | 1,295 | 22% |
Other | 236 | 156 | 52% | 281 | -16% |
| 842 | 666 | 27% |
Net Revenue | 4,046 | 3,177 | 27% | 4,132 | -2% |
| 14,860 | 13,348 | 11% |
Gross Profit | 2,753 | 2,067 | 33% | 2,896 | -5% |
| 10,100 | 9,382 | 8% |
Gross Margin | 68.1% | 65.1% | 299 bps | 70.1% | -202 bps |
| 68.0% | 70.3% | -232 bps |
EBT | 995 | 738 | 35% | 1,157 | -14% |
| 3,936 | 3,445 | 14% |
EBT Margin | 24.6% | 23.2% | 136 bps | 28.0% | -341 bps |
| 26.5% | 25.8% | 68 bps |
Net Income | 1,040 | 783 | 33% | 1,087 | -4% |
| 3,899 | 3,580 | 9% |
Net Margin | 25.7% | 24.6% | 107 bps | 26.3% | -59 bps |
| 26.2% | 26.8% | -58 bps |
Basic EPS (in R$) | 1.90 | 1.43 | 33% | 1.99 | -4% |
| 7.22 | 6.44 | 12% |
Diluted EPS (in R$) | 1.88 | 1.39 | 36% | 1.96 | -4% |
| 7.16 | 6.25 | 15% |
ROAE¹ | 21.1% | 18.1% | 293 bps | 22.6% | -152 bps |
| 21.4% | 22.8% | -139 bps |
ROAA² | 2.4% | 2.4% | 5 bps | 2.6% | -19 bps |
| 2.5% | 3.2% | -66 bps |
| ________________________ | |
1 | – Annualized Return on Average Equity. |
2 | – Annualized Return on Average Adjusted Assets. Adjusted Assets excludes Retirement Plans Liabilities and Float Balance. |
Discussion of Results
Total Gross Revenue
Gross Revenue was R$4.3 billion in 4Q23, down 1% QoQ and up 29% YoY, primarily driven by growth in our Retail revenue year-over-year. In 2023, Gross Revenue totaled R$15.7 billion, up 12% YoY, also led by Retail.
Retail Revenue
(in R$ mn) | 4Q23 | 4Q22 | YoY | 3Q23 | QoQ |
| 2023 | 2022 | YoY |
Retail Revenue | 3,152 | 2,549 | 24% | 3,179 | -1% |
| 11,791 | 10,157 | 16% |
Equities | 1,180 | 995 | 19% | 1,131 | 4% |
| 4,444 | 4,276 | 4% |
Fixed Income | 690 | 393 | 76% | 718 | -4% |
| 2,318 | 1,886 | 23% |
Funds Platform | 334 | 311 | 7% | 323 | 3% |
| 1,311 | 1,259 | 4% |
Retirement Plans | 94 | 93 | 1% | 98 | -4% |
| 365 | 333 | 10% |
Cards | 306 | 234 | 30% | 259 | 18% |
| 1,001 | 593 | 69% |
Credit | 46 | 47 | -4% | 49 | -8% |
| 180 | 160 | 12% |
Insurance | 46 | 31 | 46% | 36 | 28% |
| 149 | 97 | 53% |
Other Retail | 457 | 443 | 3% | 565 | -19% |
| 2,023 | 1,553 | 30% |
Annualized Retail Take Rate | 1.27% | 1.22% | 5 bps |
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