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XP Inc. Reports 3Q20 Financial Results

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XP Investimentos
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SÃO PAULO, Brazil, Nov. 09, 2020 (GLOBE NEWSWIRE) -- 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, today reported its financial results for the third quarter of 2020.

To our shareholders:

Today, we are reporting our fourth quarterly results since our IPO back in December 2019. Despite all the challenges imposed by the COVID-19 pandemic in 2020, we generated record revenue in 3Q20 (R$2.2 billion), representing 55% YoY growth, and well above our long-term target (+35%). More important than the most recent quarter’s results, we remain excited about the long journey we have ahead of us. As I have repeatedly emphasized in prior quarterly letters to shareholders, taking a long-term view is essential to how we view our business and the opportunities ahead.

Over the last 12 months, we generated Gross Revenue of R$8.0 billion, an increase of 148% when compared to R$3.2 billion for the full year of 2018. Despite the strong growth, we have captured a modest market share of the investments industry, where the incumbent banks still maintain a large majority (~90%). That said, we remain in the early stages of coming to market with additional services through our bank, including collateralized credit, margin loans, structures notes (COE) issuance, and credit cards, amongst others. This process of disruption likely continues for many years to come at an accelerating clip, mainly driven by swifter digitalization and low interest rates in Brazil.

With that scenario in mind, we stepped up the pace of investments in technology and people to further strengthen our platform to drive a differentiated customer experience. Our vision integrates an agile model with our strategic initiatives, utilizing more data analysis for decision making and driving greater scalability across our businesses.

Examples of recent technology initiatives that meaningfully enhanced the platform without a concurrent step up in related costs include Clear and the IFA tailor-made app Hub. Without meaningful headcount additions, Clear’s Active Clients were up 165% YoY and DARTs were up 141% YoY in 3Q20 reinforcing the stability of the platform. Furthermore, improvements in our Hub app, including the addition of CRM tools to Hub Web and Mobile, formed an integrated multi-channel platform that has substantially improved 2020 performance KPIs such as net inflows (+19%), portfolio diversification (+24%), NPS (+7%) and share of wallet (+3%).

Our unique ecosystem, scale across several markets, and financial strength enables us to fund key strategic initiatives, which are primarily expensed through the income statement (very few of these investments are capitalized), while maintaining a healthy level of profitability. While our margins may be modestly impacted in the short term as we continue to invest in technology, we remain focused on enhancing longer-term growth prospects as initiatives mature driving powerful economies of scale over time.

In addition to technology, we are intensifying investments to further strengthen our IFA network. By providing additional capital to the offices, they can accelerate hiring and training of new IFAs across Brazil. We maintain more than 659 commercial points that are well positioned to capitalize on opportunities to continue to take market share from the incumbent banks, which continue to close branches, particularly as a result of expanding digitalization during the pandemic. For example, in October alone, we on-boarded more than 500 new IFAs, the highest monthly total on record.

Finally, I would like to highlight our key differentiating factor over the long-run: our culture.

Ensuring the right people, in the right positions, with challenging goals, long-term alignment with the company and, above all, adhering to our culture (Dream Big, Open Mind and Entrepreneurial Spirit) is what allows us to continue transforming the financial market to improve more people's lives, and build an enduring enterprise.

Highlights

1)

Gross Revenue growth of 55% YoY, reaching R$2.2 billion;

2)

Direct Channel Active Clients’ growth;

3)

New businesses: Expansion of Collateralized Credit and Structures Notes’ issuance.


3Q20 KPIs

Total AUC
R$563 bn
+61% YoY

Active Clients
2,645 k
+72% YoY


IFAs
7,000+


NPS
70

Gross Revenue
R$2,245 mn
+55% YoY

Adjusted Net Income
R$570 mn
+119% YoY


3Q20

3Q19

YoY

2Q20

QoQ

Operating and Financial Metrics (unaudited)

Retail – AUC (in R$ bn)

563

350

61%

436

29%

Retail – active clients (in '000s)

2,645

1,536

72%

2,360

12%

Retail – gross total revenues (in R$ mn)

1,698

944

80%

1,475

15%

Institutional – gross total revenues (in R$ mn)

239

173

38%

333

-28%

Issuer Services – gross total revenues (in R$ mn)

169

143

18%

65

160%

Digital Content – gross total revenues (in R$ mn)

32

35

-8%

46

-30%

Other – gross total revenues (in R$ mn)

107

158

-32%

123

-13%

Company Financial Metrics

Gross revenue (in R$ mn)

2,245

1,453

55%

2,041

10%

Net Revenue (in R$ mn)

2,101

1,356

55%

1,921

9%

Gross Profit (in R$ mn)

1,395

911

53%

1,342

4%

Gross Margin

66.4%

67.2%

-79 bps

69.8%

-345 bps

Adjusted Net Income (in R$ mn)

570

261

119%

565

1%

Adjusted Net Margin

27.1%

19.2%

790 bps

29.4%

-228 bps

¹ See appendix for a reconciliation of Adjusted Net Income.

Operational Performance

Assets Under Custody (in R$ bn)

Total AUC reached R$563 billion at September 30, 2020, up 61% year-over-year. The R$212 billion increase over the last twelve months is shown on the bridge chart below and was driven by: (1) R$195 billion of cumulative net inflows and (2) R$18 billion of market appreciation.

Net Inflow, adjusted by extraordinary equity inflows/outflows, was R$134 billion over the last twelve months, or R$11 billion per month on average, and accelerating to R$13 billion for 3Q20. For both periods, flows were strong across all channels and brands, with the ongoing shift away from fixed income and savings into higher-yielding products continuing to gain momentum due to low interest rates combined with an underpenetrated market.

Active Clients (in 000’s)

Active clients grew 72% in 3Q20 vs 3Q19. Growth was strong across all channels led by our Rico and Clear brands.

Retail Equity DARTs¹ (million trades)

¹Daily Average Revenue Trades

Retail Equity DARTs increased 189% in 3Q20 vs 3Q19. The number of individuals investing on the stock exchange continues to grow, and we see further room for strong growth ahead as investors in Brazil maintain a relatively low equity penetration rate.

Net Promoter Score (NPS)

NPS, a widely known survey methodology used to measure customer satisfaction, reached 70 in 3Q20. Maintaining a high NPS score is a priority for XP since our business model is built around client experience. The NPS calculation as of a given date reflects the average scores in the prior six months.

3Q20 Revenue Breakdown

Total Gross Revenue (in R$ mn)

Total Gross Revenue increased 55% from R$1.5 billion in 3Q19 to R$2.2 billion in 3Q20, mainly driven by strong growth of the Retail business. Over the first nine months of 2020, gross revenue expanded 66% vs. the same period of the previous year.

Retail

Retail Revenue (in R$ mn)

Retail revenue grew 80% from R$944 million in 3Q19 to R$1.7 billion in 3Q20. The main growth drivers included, in order of contribution: (1) Equities and Futures, reflecting resilient trading volumes and growing participation of retail investors at B3; (2) Financial Products, represented by COEs (structured notes) and equity-linked derivatives and (3) Fixed Income.

LTM Take Rate (LTM Retail Revenue / Average AUC)

The Take Rate (or Revenue Yield) for the last 12 months was stable in 3Q20 vs. 3Q19 as higher Equities and Futures’ trading volumes and rising distribution of Financial Products offset the lower average Selic rate year-over-year and the impact from the recent extraordinary equity inflow. This custody mandate has a marginal contribution to Retail revenue but generates several cross-selling opportunities across our ecosystem, particularly for Private Banking and Issuer Services.

Institutional

Institutional Revenue (in R$ mn)

Institutional gross revenue totaled R$239 million in 3Q20, up 38% from R$173 million in 3Q19. Higher equity trading volume was the main driver in addition to higher Fixed Income secondary trading.

Issuer Services

Issuer Services Revenue (in R$ mn)

Issuer Services revenue expanded 18% year-over-year from R$143 million in 3Q19 to R$169 million in 3Q20. Key highlights for the quarter included: (1) REITs, with eighteen executed deals vs eleven in 3Q19 and (2) the Equity Capital Markets (ECM) division, with participation in fourteen deals vs four in 3Q19.

Digital Content and Other

Digital Content Revenue

Gross revenue totaled R$32 million in 3Q20, down 8% from R$35 million in 3Q19, mainly driven by the absence of in-person events and courses compared to the year-ago quarter.

Other Revenue

Other revenue decreased 32% in 3Q20 vs. 3Q19, from R$158 million to R$107 million, primarily driven by a lower average Selic rate.

COGS

COGS (in R$ mn) and Gross Margin

COGS rose 59% from R$445 million in 3Q19 to R$706 million in 3Q20 driven by product mix and higher investments recently made in the IFA network through incentives, which are capitalized and amortized over the life of the signed contracts, in addition to the increase in Active Clients, which for some products drives higher clearinghouse fees. Furthermore, gross margin contracted to 66.4% in 3Q20 from 67.2% in 3Q19.

Investments in the network enhance one of our key distribution channels and provide additional capital to our offices for them to attract more professionals, expand operations to new geographies and accelerate net inflow and client acquisitions.

SG&A Expenses

SG&A Expense ex-Share Based Compensation (in R$ mn)

SG&A expenses totaled R$669 million in 3Q20, up 39% from R$481 million in 3Q19. As a percentage of net revenue, SG&A expenses represented 31.9% in 3Q20 vs. 35.5% in 3Q19, as the expansion in personnel expenses, due to the 67% year-over-year growth in headcount, and in data processing, as a consequence of technology investments, was more than offset by efficiency gains in Marketing and Third-Party Services and Other Administrative Expenses, which were net positive in 3Q20. The latter was impacted by three main factors: (1) higher revenue related to incentives from Tesouro Direto, B3, Visa and other parties; (2) higher losses on write-offs and disposal of assets related to XP Inc.’s recent headquarter footprint reduction in São Paulo; and (3) a one-time fine payable to BSM (B3’s self-regulatory entity) from a disciplinary administrative proceeding started in 2015 which concluded in 2020.

As a high-growth company operating in a massive and concentrated market, we are constantly looking for investments that can accelerate our initiatives and strengthen our platforms and infrastructure to support our business’ expansion. Hence, although we remain focused on enhancing efficiency and operating leverage, several near-term expenses including technology across all fronts (headcount, infrastructure, data processing, among others), and the digital bank and trading platforms are expected to drive accelerating revenue growth over the next years. In the last twelve months, these expenses represented approximately 80% of SG&A growth, paving the way for future growth and potential margin improvement in the long term, as we reap the benefits from the enhanced scalability of our business model.

Adjusted Net Income

Adjusted Net Income¹ (in R$ mn) and Margin

In 3Q20, Adjusted Net Income grew 119% vs 3Q19 and reached R$570 million. The adjusted net margin expanded from 19.2% in 3Q19 to 27.1%, reflecting: (1) strong growth in Retail Revenue, which was mainly driven by Equity, Derivatives, Financial Products and Fixed Income and (2) a lower effective tax rate.

¹ See appendix for a reconciliation of Adjusted Net Income.

Cash Flow

Cash Flow Data

3Q20

3Q19

2Q20

(R$ mn)

Income before income tax

632

382

610

Adjustments to reconcile income before income tax

128

53

127

Income tax paid

19

(162

)

130

Contingencies paid

(0

)

(0

)

(0

)

Interest paid

(44

)

(1

)

(17

)

Changes in working capital assets and liabilities

(1,910

)

37

(21

)

Adjusted net cash flow (used in) from operating activities

(1,174

)

308

828

Net cash flow (used in) from securities, repos, derivatives and banking activities

1,589

(98

)

(369

)

Net cash flows from operating activities

415

210

459

Net cash flows from investing activities

(302

)

(33

)

(37

)

Net cash flows from financing activities

(478

)

(38

)

(95

)

Net Cash Flow Used in Operating Activities

Our net cash flow used in Operating activities represented by Adjusted net cash flow (used in) from operating activities (which in management’s view is a more useful metric to track the intrinsic cash flow generation of the business) decreased to R$1,174 million for 3Q20 from R$308 million in 3Q19, and decrease from R$828 million in 2Q20 to R$1,174 million in 3Q20 driven by:

  • Higher balance of securities and derivatives that we hold in the ordinary course of our business as a Retail investment distribution platform and as an Institutional broker dealer (with respect to the sale of fixed income securities and structured notes);

  • Our strategy to allocate excess cash and cash equivalents from treasury funds, from Floating Balances and from private pension balances to securities and other financial assets. These balances may fluctuate substantially from quarter to quarter and were the key drivers to the net cash flow from operating activities figures;

  • Increased in our banking activities from loans operations, deposits mainly derived from time deposits, structure operations certificates (COEs) and other financial liabilities which include financial bills as a result of our expected growth in new financials services verticals.

  • Growth of our omni-channel distribution network through our network of IFA partners;

  • Our income before tax of R$761 million in 3Q20 combined with non-cash expenses consisting primarily of (i) share based plan of R$32 million (ii) depreciation and amortization of R$36 million, (iii) Losses on impairment and write-off of property, equipment, intangible assets and leases of R$30 million. The total amount of adjustments to reconcile income before income taxes for 3Q20 was R$128 million.

Net Cash Flow Used in Investing Activities

Our net cash used in investing activities increased from R$33 million in 3Q19 to R$302 million in 3Q20 and R$ 37 million in 2Q20 from R$302 million in 3Q20, primarily affected by:

  • Our acquisitions of FinTech’s, investments in associates and joint ventures of R$ 260 million in 3Q20;

  • the investment in intangible assets, mostly IT infrastructure and capitalization software development which increased from R$22 million in 3Q19 to R$35 million in 3Q20 and from R$24 million in 2Q20 to R$35 million in 3Q20.

Net Cash Provided by Financing Activities

Our net cash flows from financing activities increased from R$38 million in 3Q19 to R$478 million in 3Q20 and from R$95 million in 2Q20 to R$478 million in 3Q20, primarily due to:

  • R$400 million related to principal payments of the first series of non-convertible debentures in 3Q20;

  • R$66 million related to a partial repurchase of the second series of non-convertible debentures in 2Q20;

  • R$78 million in 3Q20, R$27 million in 2Q20 and R$30 million in 3Q19 related to Payments of borrowings and lease liabilities.

Floating Balance and Adjusted Gross Financial Assets (in R$ mn)

Floating Balance (=net uninvested clients' deposits)

3Q20

2Q20

Assets

(1,484)

(1,949)

(-) Securities trading and intermediation

(1,484)

(1,949)

Liabilities

15,160

14,851

(+) Securities trading and intermediation

15,160

14,851

(=) Floating Balance

13,676

12,902

Adjusted Gross Financial Assets (=cash and equivalents, net of floating)

3Q20

2Q20

Assets

83,061

55,384

(+) Cash

642

346

(+) Securities - Fair value through profit or loss

38,702

26,453

(+) Securities - Fair value through other comprehensive income

9,589

5,252

(+) Securities - Evaluated at amortized cost

1,366

1,226

(+) Derivative financial instruments

13,149

15,589

(+) Securities purchased under agreements to resell

18,244

6,142

(+) Loan Operations*

1,369

377

Liabilities

(61,514)

(33,570)

(-) Securities loaned

(1,112)

(473)

(-) Derivative financial instruments

(12,730)

(15,005)

(-) Securities sold under repurchase agreements

(35,254)

(10,118)

(-) Private Pension Liabilities

(9,649)

(7,194)

(-) Deposits*

(1,627)

(142)

(-) Structured operations certificates*

(1,142)

(639)

(-) Floating Balance

(13,676)

(12,902)

(=) Adjusted Gross Financial Assets

7,871

8,913

*Banking activities added due to increased relevance in 3Q20

We present Adjusted Gross Financial Assets because we believe this metric captures the liquidity that is in fact available to us, net of the portion of liquidity that is related to our Floating Balance (and therefore attributable to clients). We calculate Adjusted Gross Financial Assets as the sum of (1) Cash and Financial Assets (comprised of Cash plus Securities – Fair value through profit or loss, plus Securities – Fair value through other comprehensive income, plus Securities – Evaluated at amortized cost, plus Derivative financial instruments, plus Securities (purchased under agreements to resell), plus Loans, less (2) Financial Liabilities (comprised of the sum of Securities loaned, Derivative financial instruments, Securities sold under repurchase agreements and Private pension liabilities), Deposits, Structured Operation Certificates and (3) less Floating Balance.

It is a measure that we track internally on a daily basis, and it more intuitively reflects the effect of the operational profits we generate and the variations between working capital assets and liabilities (cash flows from operating activities), investments in fixed and intangible assets (cash flows from investing activities) and inflows and outflows related to equity and debt securities in our capital structure (cash flows from financing activities).

Our management treats all securities and financial instrument assets, net of financial instrument liabilities, as balances that compose our total liquidity, with sub line items (such as, for example, “securities at fair value through profit and loss” and “securities at fair value through other comprehensive income”) expected to fluctuate substantially from quarter to quarter as our treasury manages and allocates our total liquidity to the most suitable financial instruments.

Other Information

Web Meeting

The Company will host a webcast to discuss its second quarter 3020 financial results on Monday, November 9, 2020 at 5:00pm ET (7:00pm BRT). To participate in the earnings webcast please subscribe at: 3Q20 Earnings Web Meeting. The replay will be available on XP’s investor relations website at https://investors.xpinc.com/

Investor Relations Team

Carlos Lazar

André Martins

Natali Pimenta

ir@xpi.com.br

Important Disclosure

IN REVIEWING THE INFORMATION CONTAINED IN THIS RELEASE, YOU ARE AGREEING TO ABIDE BY THE TERMS OF THIS DISCLAIMER. THIS INFORMATION IS BEING MADE AVAILABLE TO EACH RECIPIENT SOLELY FOR ITS INFORMATION AND IS SUBJECT TO AMENDMENT.

This release is prepared by XP Inc. (the “Company,” “we” or “our”), is solely for informational purposes. This release does not constitute a prospectus and does not constitute an offer to sell or the solicitation of an offer to buy any securities. In addition, this document and any materials distributed in connection with this release are not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would require any registration or licensing within such jurisdiction.

This release was prepared by the Company. Neither the Company nor any of its affiliates, officers, employees or agents, make any representation or warranty, express or implied, in relation to the fairness, reasonableness, adequacy, accuracy or completeness of the information, statements or opinions, whichever their source, contained in this release or any oral information provided in connection herewith, or any data it generates and accept no responsibility, obligation or liability (whether direct or indirect, in contract, tort or otherwise) in relation to any of such information. The information and opinions contained in this release are provided as at the date of this release, are subject to change without notice and do not purport to contain all information that may be required to evaluate the Company. The information in this release is in draft form and has not been independently verified. The Company and its affiliates, officers, employees and agents expressly disclaim any and all liability which may be based on this release and any errors therein or omissions therefrom. Neither the Company nor any of its affiliates, officers, employees or agents makes any representation or warranty, express or implied, as to the achievement or reasonableness of future projections, management targets, estimates, prospects or returns, if any.

The information contained in this release does not purport to be comprehensive and has not been subject to any independent audit or review. Certain of the financial information as of and for the periods ended December 31, 2019, 2018 and 2017 has been derived from audited financial statements and all other financial information has been derived from unaudited interim financial statements. A significant portion of the information contained in this release is based on estimates or expectations of the Company, and there can be no assurance that these estimates or expectations are or will prove to be accurate. The Company’s internal estimates have not been verified by an external expert, and the Company cannot guarantee that a third party using different methods to assemble, analyze or compute market information and data would obtain or generate the same results.

Statements in the release, including those regarding the possible or assumed future or other performance of the Company or its industry or other trend projections, constitute forward-looking statements. These statements are generally identified by the use of words such as “anticipate,” “believe,” “could,” “expect,” “should,” “plan,” “intend,” “estimate” and “potential,” among others. By their nature, forward-looking statements are necessarily subject to a high degree of uncertainty and involve known and unknown risks, uncertainties, assumptions and other factors because they relate to events and depend on circumstances that will occur in the future whether or not outside the control of the Company. Such factors may cause actual results, performance or developments to differ materially from those expressed or implied by such forward-looking statements and there can be no assurance that such forward-looking statements will prove to be correct. These risks and uncertainties include factors relating to: (1) general economic, financial, political, demographic and business conditions in Brazil, as well as any other countries we may serve in the future and their impact on our business; (2) fluctuations in interest, inflation and exchange rates in Brazil and any other countries we may serve in the future; (3) competition in the financial services industry; (4) our ability to implement our business strategy; (5) our ability to adapt to the rapid pace of technological changes in the financial services industry; (6) the reliability, performance, functionality and quality of our products and services and the investment performance of investment funds managed by third parties or by our asset managers; (7) the availability of government authorizations on terms and conditions and within periods acceptable to us; (8) our ability to continue attracting and retaining new appropriately-skilled employees; (9) our capitalization and level of indebtedness; (10) the interests of our controlling shareholders; (11) changes in government regulations applicable to the financial services industry in Brazil and elsewhere; (12) our ability to compete and conduct our business in the future; (13) the success of operating initiatives, including advertising and promotional efforts and new product, service and concept development by us and our competitors; (14) changes in consumer demands regarding financial products, customer experience related to investments and technological advances, and our ability to innovate to respond to such changes; (15) changes in labor, distribution and other operating costs; (16) our compliance with, and changes to, government laws, regulations and tax matters that currently apply to us; (17) other factors that may affect our financial condition, liquidity and results of operations. Accordingly, you should not place undue reliance on forward-looking statements. The forward-looking statements included herein speak only as at the date of this release and the Company does not undertake any obligation to update these forward-looking statements. Past performance does not guarantee or predict future performance. Moreover, the Company and its affiliates, officers, employees and agents do not undertake any obligation to review, update or confirm expectations or estimates or to release any revisions to any forward-looking statements to reflect events that occur or circumstances that arise in relation to the content of the release. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented and we do not intend to update any of these forward-looking statements.

Market data and industry information used throughout this release are based on management’s knowledge of the industry and the good faith estimates of management. The Company also relied, to the extent available, upon management’s review of industry surveys and publications and other publicly available information prepared by a number of third-party sources. All of the market data and industry information used in this release involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. Although the Company believes that these sources are reliable, there can be no assurance as to the accuracy or completeness of this information, and the Company has not independently verified this information.

The contents hereof should not be construed as investment, legal, tax or other advice and you should consult your own advisers as to legal, business, tax and other related matters concerning an investment in the Company. The Company is not acting on your behalf and does not regard you as a customer or a client. It will not be responsible to you for providing protections afforded to clients or for advising you on the relevant transaction.

This release includes our Floating Balance, Adjusted Gross Financial Assets, Adjusted EBITDA and Adjustments to Reported Net Income, which are non-GAAP financial information. We believe that such information is meaningful and useful in understanding the activities and business metrics of the Company’s operations. We also believe that these non-GAAP financial measures reflect an additional way of viewing aspects of the Company’s business that, when viewed with our International Financial Reporting Standards (“IFRS”) results, as issued by the International Accounting Standards Board, provide a more complete understanding of factors and trends affecting the Company’s business. Further, investors regularly rely on non-GAAP financial measures to assess operating performance and such measures may highlight trends in the Company’s business that may not otherwise be apparent when relying on financial measures calculated in accordance with IFRS. We also believe that certain non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties in the evaluation of public companies in the Company’s industry, many of which present these measures when reporting their results. The non-GAAP financial information is presented for informational purposes and to enhance understanding of the IFRS financial statements. The non-GAAP measures should be considered in addition to results prepared in accordance with IFRS, but not as a substitute for, or superior to, IFRS results. As other companies may determine or calculate this non-GAAP financial information differently, the usefulness of these measures for comparative purposes is limited. A reconciliation of such non-GAAP financial measures to the nearest GAAP measure is included in this release.

For purposes of this release:

“Active Clients” means the total number of retail clients served through our XP Investimentos, Rico, Clear, XP Investments and XP Private (Europe) brands, with an AUC above R$100.00 or that have transacted at least once in the last thirty days. For purposes of calculating this metric, if a client holds an account in more than one of the aforementioned entities, such client will be counted as one “active client” for each such account. For example, if a client holds an account in each of XP Investimentos and Rico, such client will count as two “active clients” for purposes of this metric.

“Assets Under Custody (AUC)” means the market value of all client assets invested through XP’s platform and that is related to reported Retail Revenue, including equities, fixed income securities, mutual funds (including those managed by XP Gestão de Recursos Ltda., XP Advisory Gestão de Recursos Ltda. and XP Vista Asset Management Ltda., as well as by third-party asset managers), pension funds (including those from XP Vida e Previdência S.A., as well as by third-party insurance companies), exchange traded funds, COEs (Structured Notes), REITs, and uninvested cash balances (Floating Balances), among others. Although AUC includes custody from Corporate Clients that generate Retail Revenue, it does not include custody from institutional clients (asset managers, pension funds and insurance companies).

Rounding

We have made rounding adjustments to some of the figures included in this annual report. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.

Unaudited Managerial Income Statement (in R$ mn)

3Q20

3Q19

YoY

2Q20

QoQ

Managerial Income Statement

Total Gross Revenue

2,245

1,453

55%

2,041

10%

Retail

1,698

944

80%

1,475

15%

Institutional

239

173

38%

333

-28%

Issuer Services

169

143

18%

65

160%

Digital Content

32

35

-8%

46

-30%

Other

107

158

-32%

123

-13%

Net Revenue

2,101

1,356

55%

1,921

9%

COGS

(706 )

(445 )

59%

(579 )

22%

As a % of Net Revenue

(33.6%)

(32.8%)

-0.8 p.p

(30.2%)

-3.5 p.p

Gross Profit

1,395

911

53%

1,342

4%

Gross Margin

66.4%

67.2%

-0.8 p.p

69.8%

-3.5 p.p

SG&A

(669 )

(481 )

39%

(638 )

5%

Share Based Compensation

(44 )

-

n.a.

(40 )

10%

EBITDA

681

430

58%

664

3%

EBITDA Margin

32.4%

31.7%

0.7 p.p

34.5%

-2.1 p.p

D&A

(36 )

(23 )

55%

(38 )

-4%

EBIT

645

407

59%

626

3%

Share of profit or (loss) in joint ventures and associates

(1)

-

n.a.

-

n.a.

Interest expense on debt

(12 )

(24 )

-53%

(16 )

-27%

EBT

632

382

66%

610

4%

Income tax expense

(91 )

(121 )

-25%

(69 )

32%

Effective Tax Rate

(14.4%)

(31.8%)

17.3 p.p

(11.4%)

-3.1 p.p

Net Income

541

261

108%

540

0%

Net Margin

25.8%

19.2%

6.5 p.p

28.1 %

-2.4 p.p

Non Recurring Items

29

-

n.a.

24

18%

Adjusted Net Income

570

261

119%

565

1%

Adjusted Net Margin

27.1 %

19.2 %

7.9 p.p

29.4 %

-2.3 p.p


Accounting Income Statement (in R$ mn)

3Q20

3Q19

YoY

2Q20

QoQ

Accounting Income Statement

Net revenue from services rendered

1,278

944

35%

1,064

20%

Brokerage commission

548

350

57%

543

1%

Securities placement

388

328

18%

186

109%

Management fees

274

207

32%

280

-2%

Insurance brokerage fee

18

27

-36%

27

-36%

Educational services

25

33

-22%

44

-43%

Other services

155

85

82%

85

82%

Taxes and contributions on services

(131)

(86)

52%

(102)

29%

Net income from financial instruments at amortized cost and at fair value through other comprehensive income

190

27

615%

(93)

-303%

Net income from financial instruments at fair value through profit or loss

633

385

64%

951

-33%

Total revenue and income

2,101

1,356

55%

1,921

9%

Operating costs

(706)

(445)

59%

(579)

22%

Selling expenses

(38)

(30)

27%

(28)

39%

Administrative expenses

(810)

(482)

68%

(690)

17%

Other operating revenues (expenses), net

98

7

1229%

1

9058%

Interest expense on debt

(12)

(24)

-53%

(16)

-27%

Share of profit or (loss) in joint ventures and associates

(1)

-

n.a.

-

n.a.

Income before income tax

632

382

66%

609

4%

Income tax expense

(91)

(121)

-25%

(69)

32%

Effective tax rate

(14.4%)

(31.8%)

17.3 p.p

(11.4%)

-3.0 p.p

Net income for the period

541

261

108%

540

0%


Balance Sheet (in R$ mn)

3Q20

2Q20

Assets

Cash

642

346

Financial assets

84,433

57,381

Fair value through profit or loss

51,850

42,042

Securities

38,702

26,453

Derivative financial instruments

13,149

15,589

Fair value through other comprehensive income

9,589

5,252

Securities

9,589

5,252

Evaluated at amortized cost

22,994

10,087

Securities

1,366

1,226

Securities purchased under agreements to resell

18,244

6,142

Securities trading and intermediation

1,484

1,949

Accounts receivable

251

346

Loan Operations

1,369

377

Other financial assets

280

47

Other assets

1,484

712

Recoverable taxes

170

225

Rights-of-use assets

182

245

Prepaid expenses

1,091

167

Other

41

75

Deferred tax assets

379

401

Investments in associates and joint ventures

697

-

Property and equipment

95

131

Intangible assets

670

567

Total Assets

88,399

59,537


3Q20

2Q20

Liabilities

Financial liabilities

69,389

43,013

Fair value through profit or loss

13,841

15,478

Securities

1,112

473

Derivative financial instruments

12,730

15,005

Evaluated at amortized cost

55,547

27,536

Securities sold under repurchase agreements

35,254

10,118

Securities trading and intermediation

15,160

14,851

Deposits

1,627

142

Structured operations certificates

1,142

639

Accounts payables

655

325

Borrowings and lease liabilities

512

640

Debentures

339

777

Other financial liabilities

859

45

Other liabilities

10,299

8,379

Social and statutory obligations

380

583

Taxes and social security obligations

235

395

Private pension liabilities

9,649

7,194

Provisions and contingent liabilities

16

15

Other

19

192

Deferred tax liabilities

41

-

Total Liabilities

79,729

51,392

Equity attributable to owners of the Parent company

8,669

8,143

Issued capital

0

0

Capital reserve

7,022

6,990

Other comprehensive income

172

218

Retained earnings

1,476

935

Non-controlling interest

1

2

Total equity

8,671

8,145

Total liabilities and equity

88,399

59,537


Adjusted
Net Income (in R$ mn)

R$ million

3Q20

3Q19

YoY

2Q20

QoQ

Net Income

541

261

108%

540

0%

(+) Stock Based Compensation

44

-

n.a.

41

9%

(+) Offering expenses

2

-

n.a.

-

n.a.

(+/-) Taxes

(18)

-

n.a.

(16)

10%

Adj. Net Income

570

261

119%

565

1%


Adjusted
EBITDA (in R$ mn)

3Q20

3Q19

YoY

2Q20

QoQ

Net Income

541

261

108%

540

0%

(+) Income Tax

91

121

-25%

69

32%

(+) Depreciation and Amortization

36

23

55%

38

-4%

(+) Interest Expense on Debt

12

24

-53%

16

-27%

(+) Share of profit or (loss) in joint ventures and associates

1

-

n.a.

-

n.a.

(-) Interest Revenue on Adjusted Gross Financial Assets

(45)

(40)

12%

(60)

-25%

Adjusted EBITDA

636

390

63%

603

5%