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XP Inc. (XP) Q1 2021 Earnings Call Transcript

By Motley Fool Transcribing - May 5, 2021 at 4:01AM

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XP earnings call for the period ending March 31, 2021.

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XP Inc. (XP 0.47%)
Q1 2021 Earnings Call
May 04, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Andre Martins

OK. Good afternoon, everyone. We hope all of you and your families are healthy and safe. Welcome to XP Inc.'s earnings conference call for the first quarter of 2021.

I am Andre Martins, head of investor relations at XP Inc. And on behalf of the company, I would like to thank you all for the interest in our earnings call and make myself and Antonio Guimaraes available for future conversations and any follow-ups that you might have about this call or any other subject. Joining me today for the call are Bruno Constantino, our CFO; and also Jose Berenguer, XP Bank. We will be available for today's Q&A session.

[Operator instructions] Our earnings documents are available on the Investor Relations website, and a replay of this call will be available tomorrow or later today, actually, on the same web page. I kindly ask you to refer to our little disclaimer on Slide 2 and remind that certain statements in this call may relate to future events and expectations and, as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Information concerning factors that could cause actual results to differ from forward-looking statements is contained in our reports filed with the SEC. We will begin now the presentation with the quarter highlights delivered by Bruno Constantino.

Hi, Bruno.

Bruno Constantino -- Chief Financial Officer

Andre, thank you. Hi, everyone. Pleasure to be here with all of you one more time. In today's conference, we are going to -- we set up a shorter presentation in order for us to have more time for the Q&A.

I hope you enjoy this model. So I'm going to open with the highlights. Berenguer is going to give an update about the banking. I come back to talk about the first-quarter KPIs and financials, and then we go straight to the Q&A.

We also have moved several slides to the annex. You have access to that. There are a lot of details and numbers there if you want to look. So the highlights of this first quarter, first of all, our strongest quarter ever.

The way we look at the numbers, either the KPIs or the financials, they were all very strong as we are going to see when we move to the third section. You also can see the cost discipline and efficiency that we have in our business model through our margins expanding, even considering that we have been hiring a lot of people. Just to give you the numbers, in this first-quarter '21, the headcount in our company grew 64% year over year. We hired and onboarded in the first quarter, more than 300 people -- actually 322 people, more than 100 per month.

And we expect this pace to accelerate going forward. And the reason for that is the new businesses we are entering, the opportunity that we see in the markets, and the investment in technology that we have been doing through all this digital transformation journey that we have started three years ago, as we've mentioned in our last call. This operating leverage gives us the opportunity to reinvest in our platform. And that's very important.

We see it as a competitive advantage. And it's our expectation to keep reinvesting 100% of our results in our growth going forward. The reason for that, as you have heard a lot from myself and other partners of the company, is the huge opportunity that we see in the financial system, especially in Brazil, to be disrupted. Now moving to the second point, investments.

We have two highlights here that we'd like to share with you. One is about the international funds. It's interesting because this segment, basically, it didn't exist a few years ago. And we invested in it.

We established several partnerships with global players. We brought them to Brazil, some of them with exclusivity. And as of March, we have reached BRL 20 billion of assets under custody. That's six times higher year over year with 120 funds in our platform as of March this year.

We also recently established new partnerships with Systematica, Nordia, with two ESG global funds and with Goldman Sachs as well for emerging market bonds strategy. It's also known because it was published in the market recently, we have established a partnership with Bridgewater for the global macro fund, and it's interesting to mention that this fund, we are going to give access to investors, retail investors, with ticket as low as BRL 500. That's less than $100. So we are fulfilling our purpose to democratize investments in Brazil.

And this is a recent achievement that we celebrate because those small investors, they are going to have access to one of the most desired funds all over the world. And it's also worth mentioning that this industry, the investment funds industry, when we look at the funds industry as a whole in Brazil, according to ANBIMA, it has surpassed the amount of BRL 6 trillion, and less than 1% is invested in international funds. So that's the potential of growth of this segment standing alone. Now when we move to pension funds, it's not different in terms of the potential.

We have been growing a lot, but still, we represent a very small part of the industry when we look at assets under custody. Also, our insurance company is new. It was, as you know, established in 2019, and we have only 1.6% of market share in terms of assets under custody. But despite that -- and we are talking here about more than BRL 1 trillion segment.

Despite having only 1.6% in March, for example, we had an 88% market share of the transfers in this segment. So we've been growing a lot. But still, we have a lot more to grow considering our market share in terms of custody. Moving to banking.

I'm not going to last long here because Berenguer is going to talk about it. I just want to highlight the official launch of our credit card, XP Visa Infinity in March. And also our loan portfolio keeps growing. It grew 22% quarter over quarter and, in a very healthy way, 0% NPL, as you're going to see down the road.

And, lastly, we wanted to share with everyone, I don't know if you had the opportunity to see when we released our 20-F a few weeks ago, we had three material weaknesses when we went for our IPO late in 2019. And that's normal because of these standards, PCAOB standards, required by SEC for a company that -- a Brazilian company that doesn't have this kind of requirements, it's normal to have those material weaknesses. We have three, and we were able to remove out the three in our first year as a listed company. So we are not only playing offense, but we also are playing defense here.

We know that's very important. It keeps our company stronger for the long term. So we thought it would be interesting to share that with all of you. So now I would like to pass over to Jose Berenguer, the CEO of our bank, so he can share some banking highlights.

Berenguer, the floor is yours.

Jose Berenguer -- Chief Executive Officer, XP Bank

Thank you very much, Bruno. Good evening, good afternoon, everybody. It's great to be with you today. I will talk a little bit about what is going on in our banking initiative, but also, I will give you some views on the banking environment in Brazil.

And let me start by saying that we think that there is something really important and different going on regarding open banking and instant payments in this specific market. The level of change that the central bank or the authorities and the regulators are putting in place will change a lot the way we do banking in this country. And I will mention some of the examples as we move forward. But before we talk about open banking, let me talk about what is being delivered and the events in terms of the banking strategy within XP.

So we continue to grow our collateralized debt or credit portfolio, reaching BRL 4.7 billion. This is a conservative approach. Everything is collateralized with -- so zero NPL and, of course, lower capital requirements in terms of comparison with standard loan. As Bruno highlighted before, we launched the Visa Infinity card, higher-than-expected card activation rates and we delivered in the marketplace within two months, which was once again sooner than we anticipated in our timetable.

We are moving forward with the margin loan product. It's a credit line we are piloting as we speak. This is going to be very relevant to the trading experience. And once again, we are talking about collateralized credit which has, of course, a very low capital requirements and default rates.

If I may go back to the open banking initiative in Brazil, it will comprise or also affect some other products which is different from the reality in the U.K. or Europe or Australia. We'll have corporate clients and SMEs participating as well in the open banking initiative. Products such as insurance and investments will be included.

And the timetable will evolve in the second semester. And the Central Bank continues to say that the plan is to finalize 100% of the initiative by the end of this year. So what will happen is an individual or a corporate client will provide authorization for the financial company to look at the data and to offer products within the ecosystem of this new database for any client at the end of the day. So for instance, if Bruno has a car financing transactional loan with another player, XP or any other bank will be able to provide a competitive rate and send him information about the offering.

By just looking at the database, it will be available. So this is substantial. It will also, as in other geographies, include the information aggregation systems. But the fact that we are targeting also corporate clients, SMEs and the other products will be material, we think this is going to be completely different from other geographies.

So this is important. We like to say that this is going to be as important as the Plano Real when we brought inflation down to zero in '94, '95 to the banking system, and this could be important also to give clients the ability to shop around and to basically select the best alternatives in terms of products in a very smooth and client -- user-friendly way. So we want to pay attention to that. And the good news is that we are developing our banking initiative in parallel with the open banking initiative that is happening in the market as a whole.

So this gives us a competitive advantage and also considering the fact that we have newer IT platform compared to some of the incumbent players, but also, we have lower costs in terms of our branch network because we don't have any branch network, and we basically have the IFAs that are paid if they sell. So we believe that our pricing point will be substantially more competitive compared to the other players by just, once again, combining technology, combining lower costs, and by activating our existing client base. We are talking about 3 million individuals and roughly 35,000 to 40,000 corporate clients. There's huge potential in the SME and middle-market client base to expand this client base and also to deliver financial products to them.

But we're going to start, as we always did in the past, with the existing client base and then penetrating. As we penetrate more in our existing client base, we'll expand this base moving forward. One important thing, we believe that the total wallet of the financial markets in Brazil is close to BRL 800 billion. Today, we target less than BRL 100 billion with the existing products we have.

So the plan is, as we move forward, once again, is to move into more products and to basically penetrate this wallet and be more effective with the clients we have and other clients that we'll capture with our strategy. So this is, in a nutshell, what's going on. If we may move to the other slide, please. A different way to look on what we've been doing is, in the short term, let's say, between now and next year, looking at individuals -- and another important thing to highlight is that we target and we bank and we do business with the top of the pyramid and not the bottom of the pyramid.

We have mass affluent and private bank clients. The idea is, by the end of the year, to have a full digital account. We are preparing ourselves to offer debit cards and PIX, instant payments tools. We will expand the credit offering.

We will expand the insurance products offering as well. Credit products, once again, we plan to use technology, open banking, positive bureau, and also the central receivables platforms that are being created to mitigate the credit risks in these portfolios and to use collateralized loans as well. The business plan has the possibility or the optionality to attract and monetize retail clients through cross-sell and on investment products, and there are several open banking opportunities. Another way to look at it, we started with the top of the pyramid, we will gradually go lower in terms of the client base as we feel or we have confidence that our systems and our credit and risk management tools are working well.

But this client base that we have is the sweet spot of the marketplace. The clients typically has investments with us, has collateral to post against some of the transactions. And this is what we plan to do with the expanded client base moving forward once we are confident that we have everything working well. In the companies, or SME, middle and corporate clients, we want to scale existing products such as investments, foreign exchange, collateralized credit transactions and derivatives.

We are launching an energy trading desk, which will provide hedging and financing alternatives using energy as collateral. In the midterm, let's say, between two and three years, we will continue to expand the credit offering. Tailor-made insurance products also will be provided and offered to our client base. And as we move forward, cash management tools using PIX or instant payments and open banking tools will be provided and offered to corporate clients, SMEs or companies overall.

We have the optionality to enter the acquiring business and payments markets, enhance -- or use data analytics to be more effective with our client base. Corporate pension systems -- or corporate pension products being cross-sold to our existing client base is also an opportunity. And once again, open banking will provide a different geography, a different game plan, for the corporate clients as well. So we are very, very optimistic with what we have in front of us.

Once again, slowly but with the XP style, I mean, the sense of urgency is present every day but creating these new tools, these new products to be offered to this client base using a very competitive pricing point, technology, and the brakes -- or the IFA network that we have in our ecosystem. So in a nutshell, this is what we are planning to do. We think that there are plenty of opportunities, and we are confident that we will deliver the platforms in terms of products that I talked about in the banking business.

Bruno Constantino -- Chief Financial Officer

Thank you, Berenguer. That was very, very helpful. You gave a detailed road map how powerful the banking business can be in our ecosystem. It's also important to mention that -- we didn't bring a slide to talk specifically about strategy.

Of course, Berenguer already gave a lot of color in our banking strategy going forward. But the reason is that we are going to have, and I forgot to comment that in the beginning, we're going to have XP Strategy Day in the second semester where several of our C-level are going to be there to present to all of you our long-term strategy in more details. But I think that is important to mention our strategy, for example, in the individual market, when we talk about the banking. We did a lot of research with our customers.

So we always want to think about the sequence that makes sense to approach the existing clients, and then you expand that to other profile of clients moving forward down the road. So the reason we started with, for example, the credit card and the collateralized credit is exactly because all the research that we did internally, those two products were the most desired ones, more than, for example, the digital bank accounts that we are going to have. We're going to start next month, a pilot test in the second semester, it's going to be totally operational. So just to give you a highlight about that.

But thank you very much, Berenguer. And now I think we can move to the first-quarter KPIs and financials, and then we go straight to the Q&A. So here, in the KPIs -- you have seen already the KPIs. We just brought some banking KPIs.

When we talk about investments, BRL 715 billion of AUC, 3 million clients. And in DARTs, they were very, very strong, 3.2 million. We had in the first quarter of '20, 1.7 million. And remember that the first quarter of last year, we had the pandemic, so a lot of activity, especially in March -- end of February and March because of the COVID, and it's still a growth of 91% year over year.

That was impressive. When we go to the banking KPIs, Berenguer already mentioned the BRL 4.7 billion, it's worth -- I mean, the credit card is brand new. We officially launched it in March. And it takes -- there is a natural inertia to pick up as people ask for the card, activate the card, and start using the card, as you know.

But in the first quarter, we already had more than BRL 500 million of TPV transactions in using our credit card. And all that with 0% NPL ratio, as I have said already. And when we look at the financials, everything a record, BRL 2.8 billion of gross revenue, 50% growth year over year. Our adjusted EBITDA, and it's adjusted just by the share-based compensation, surpassed the mark of BRL 1 billion, also a quarterly record.

And our adjusted net income of BRL 846 million, more than double of the net income of the first quarter last year and with NPS of 74%, which is a very high NPS. Here, just the net new money. We already talked about the other KPIs. The net inflow was very strong this first quarter, BRL 69 billion when we adjust that for extraordinary inflows and outflows.

And those inflows and outflows, they are important because they are basically equity custody. But considering that they are usually from high net worth individuals and they are more uncertain, we always like to be transparent about it when it happens. So the market analysts do not project that for the next quarter and so forth, but we would be more than happy to have those extraordinary inflows more frequently. But extracting that off our equation, we still have a very strong net inflow of BRL 43 billion in the quarter, the highest in the last four quarters, with an average of more than BRL 14 billion per month.

So a very strong pace, and that talks to the investments we have made in our IFA network. Also the digital, the XP Direct, is growing really well. So there is not one -- that's important to mention, there is not one single channel here that we would have to say this is responsible for the growth. It's basically across the board.

All brands are going well. And all channels, XP Direct and the IFA channel, is also going well in terms of net new money. Revenue, I already talked about, 50% growth. Only mentioning that, in the last 12 months, retail is the great -- responsible for that growth, more than 90% of the growth year over year and, in the first quarter, represented 75% of our total revenue.

The take rates. So going to retail revenue, as I mentioned, you can see that the growth is higher than the company growth, it's pushing up, 67% growth, more than BRL 2 billion in the first quarter. And again, this quarter, all the products and channels, they were all strong. So very diversified, very, I would say, quality results because we cannot highlight one product compared to the other.

Equities, futures, financial products, fixed income, all of it was very strong in the first quarter this year. And when we go to the last 12 months' take rates, what we can see is that despite the zero brokerage at clear and lastly -- at the end of the third quarter of last year, the zero online price for Rico and 75% reduction for XP, we still kept the take rate at 1.3% percent. So stable -- when I get this question and when I think about the future, I always answer stable because it's hard to predict and forecast, but that's what our trend shows when we look backwards. And it's important to mention, even considering that we do not have, in the first quarter this year, this online brokerage revenues that we had in the first quarter of last year, so we had, let's say, a tough comp just based on that metric, but still, we more than compensated and mitigated that effect with other products, the growth of the platform and so forth.

And also important to mention that when you look in our consolidated financials, net income from financial instruments, because we are in the financial business, so a lot of the revenue comes from that accounting segment, almost 80% of it is related to retail lines. Going to EBITDA, we decided last call to show our operating results so we can get away from the discussion about the low effective tax rate. So looking at the EBITDA, as I said earlier, we had more than BRL 1 billion adjusted EBITDA in this first quarter, our record ever, with a growth of 75%. So this number shows the benefit of the operating leverage model that we have.

As I mentioned earlier, we have been investing a lot in existing business to improve technology, experience, and so forth, and we're going to keep investing, especially in new businesses. And despite all of that, we are able to scale the business. And our operating results shows clearly the benefit of this operating model that we have. And the adjusted EBITDA margin, also more than 500 basis points of expansion based on what I just mentioned, despite the growth of headcount, etc., very scalable business model that we have.

The adjusted net income, it's everything I said, plus the low effective tax rate. We more than doubled the adjusted net income from BRL 415 million in the first quarter last year to BRL 846 million in the first quarter this year with a margin expansion from 23.9% last year to 32.2% this year. And as you can see on the right, you see the benefit I mentioned: so revenue growing 50%; the operating leverage, allowing the EBITDA to grow more than revenue, 75%, with more than 500 basis points increase; and adjusted net income because of the corporate structure, allowing the net income to grow more than 100% with more than 800 basis points of margin expansion. With that, I mean, before we go to the Q&A and I open for your questions, I would like to close here with some points that we talked, myself and Berenguer, during the presentation.

Number one is the size of the revenue pool, close to BRL 800 billion. That's what the financial system in Brazil, when you take into account everything, is going to make. We only have, if you look at our last 12 months' revenue, a little bit more than 1%, and so 1% -- a little bit more, 1.2%, 1.3% of this revenue pool. We are going to address, if not all, most part of this revenue pool in our journey.

That's why we keep saying we have a long journey ahead of us. But what is our strategy to do that? So we started, as Berenguer mentioned, from the top, the most profitable and the hardest market to penetrate, investments from the middle and the top, the affluent and the private of the pyramid. Being profitable and having the entrepreneur spirit and this long-term mindset, and also using the pricing power that we have on behalf of the customer, that's our strategy to address the base of the pyramid. And as Guilherme mentioned in his letter, I don't know if you had the time to read it, it's important to connect the dots in a chronological sequence that makes sense.

And that's exactly what we are doing. Now it has to talk also with our purpose. The value proposition that we offer to our existing and future clients, it needs to be clear, transparent, and with the pricing that is sustainable for ourselves as a company and especially for the customer as a client. And we believe there are several pricings being executed in the market in the segments that we are still about to address and to enter that are not sustainable, at least on the lens of the customer.

And as I mentioned, on the second semester of this year, we don't have a specific date yet, but as soon as we do, we're going to let you all know, we are going to have XP Strategy Day so we can go deeper in detail about our long-term strategy here. With that, I open for Q&A.

Andre Martins

Great. Bruno, thank you very much. Thank you, Berenguer, for such a thorough presentation. [Operator instructions] The first question is from Jorge Kuri from Morgan Stanley.

We'll unmute you, Jorge.

Jorge Kuri -- Morgan Stanley -- Analyst

Hi, everyone. Thanks for the presentation, and congratulations on the very strong numbers. I wanted to ask you about margin expansion. At the EBITDA level, 535 basis points year on year, 247 quarter on quarter, how do you see this level of margin? Is this sustainable going forward? Is this a level that should be the basis for the buildup of your business ahead or if you have strong investments to make that will probably bring down the margins closer to where they were, say, last year? And if you don't mind, let me just add another one because it is related to the margin, which is the tax rate, this is obviously to the net margin.

But the tax rate has been surprisingly now. You started in 2018 and certainly 2019 at around 23%; in last year, in the teens; and now we're at 6%. So what is the right level? And evidently, 6% is too low. But, yes, I don't know, maybe no.

So those are my two questions. Thank you very much.

Bruno Constantino -- Chief Financial Officer

Thank you, Jorge. Yes, the margin going forward, like I always say, it's hard to predict because we have --[Technical difficulty]

Andre Martins

Bruno, your connection is a little bit unstable. Maybe you can adjust? Yes. It's a bit --

Jorge Kuri -- Morgan Stanley -- Analyst

Turn off the camera. Maybe it will --

Bruno Constantino -- Chief Financial Officer

Let me see if I can get it better. Is that better, or it's still --

Andre Martins

No. It's not, Bruno. You're breaking.

Bruno Constantino -- Chief Financial Officer

So, yes, I will hang up and get in again. Let's see if it gets better. OK? Just one sec.

Andre Martins

Sure. Let's just wait for Bruno to come back.

Jorge Kuri -- Morgan Stanley -- Analyst

Thank you. Thank you.

Andre Martins

We actually have a slide on the deck with some additional information on taxes. I think that this will be useful to show because we are kind of conciliating the taxes that we actually pay with what we report, right, for result purposes. So I think that at the end of Bruno's explanation, after he talks about the operating leverage and the opportunities that we have for margin expansion going forward, and be sure that there are plenty, we can show this particular slide about the tax rate. Hey, Bruno.

Bruno Constantino -- Chief Financial Officer

Is it better?

Andre Martins

Perfect.

Bruno Constantino -- Chief Financial Officer

OK. Can you hear me well? All right. Sorry about that. So, Jorge, going back to your question about the margin going forward, as I was saying, it's hard to forecast because we have a lot of investments, considering the number I just gave, almost BRL 800 billion of total revenue pool in the financial industry.

We want to address it. We will over time, and that will require a lot of investments from our side. Having said that, we do have a strong operating leverage in our business model as our numbers show. So for example, in the short term, we wish we had hired more than 320 headcount in this first quarter.

But sometimes, the execution -- you have to find the right person with the right culture and so forth. So sometimes we have a pace that is delayed, and we hope to accelerate the pace in the following quarters in terms of onboarding new employees compared to the first quarter. So that's, by itself, effects that will increase our SG&A and, by consequence, reduce our margin. But on the other hand, we are going to keep growing our revenues and expanding our business.

So it depends on the mix of our revenues as well. So we think that there is a component today in our margins that it's not, I would say, the margin at maturity because we have been investing a lot, and the revenue is not there yet. But we're going to keep investing going forward. So I wouldn't expect the following quarters to have a strong margin expansion as we keep investing.

But again, it will depend how fast the new businesses pick up. And in terms of the effective tax rate, we have a slide to show and share, I think it's Page 22, to walk you through. But basically, it's going to be a consequence of the revenue mix, depending on where the revenue is coming from or most of the revenue is coming from. So here, as you can see, in our financials, we show a 6.4% effective tax rate.

Right? Then when we think about the share-based compensation, that is a non-cash expense that generates a tax credit that is also noncash, but it goes in our financials, we are talking about -- if we adjust by that effect itself, our effective tax rate would go from 6.4% to 12.1%. So we would add BRL 67 million in our income tax in the first quarter. And then if we add the impact of the corporate structure -- and what is the corporate structure? It's basically the way we have to recognize the revenue that comes from our proprietary funds where most of the books of flow are because of the proceeds that we received since the primary of the IPO in '19 and lately, the follow-on that we did in December, and the recognition of that revenue is net of tax. So it's a revenue that goes directly to the bottom line.

But at the end of the day, the revenue is higher than the one we showed in the first quarter, BRL 105 million. So the revenue instead of BRL 2.8 billion, in my view, it should be BRL 2.9 billion, OK, because we had that revenue. But when we deduct the provision for tax, if we redeem that cash from the funds, there is a tax bracket from 15% to 20%, depending on how the fund is structured, we would get net of that provisions. And that's what we take into account in our numbers.

The effective tax rate would go up by that effect to 20.8%. 17.4% only by that effect, added with the share-based compensation benefit to 20.8%. So on the quarters that we have very strong revenue coming from XP Inc. directly, this will bring a lower effective tax rate in our results.

When there is less revenue coming from XP Inc. directly and more from the other companies of the group, the effective tax rate shown in our numbers is going to be higher.

Jorge Kuri -- Morgan Stanley -- Analyst

Thank you, Bruno. That's clear.

Bruno Constantino -- Chief Financial Officer

Thank you, Jorge.

Andre Martins

OK. Next question is from Otavio Tanganelli from Bradesco.

Otavio Tanganelli -- Bradesco BBI -- Analyst

Hi, guys. Thanks for taking my question. I wanted to understand a little better the margin expansion trends, especially because in the quarter, there was more relevance of the retail revenue. So what's really driving this margin expansion? So probably, obviously, credit is gaining more relevance, and that probably has a 100% margin as well, does not entail a lot of COGS.

But if you could give us a little more color on that would be very helpful. Thank you.

Bruno Constantino -- Chief Financial Officer

Yes. As I said -- thank you, Otavio. As I said, the growth, it was across the board, OK, so futures, equities, fixed income. And when that revenue goes from our proprietary books, the books of flow that I mentioned, there is a margin expansion.

Also, it's the benefit of the scalability of the business. So those -- it's not the banking. The banking -- if you take the banking revenue, it was really small compared to the total. There is a huge potential for growth there.

We are talking about here less than 2% of revenue. So taking into account everything that the bank offers. Because a lot of things are brand new in our scaling still, so it's not relevant yet. So the margin expansion, it's what I explained during the presentation, it's related to the business model that we have.

All products were strong and we were able -- I mean, we did in the first quarter -- remember that the first quarter, we don't have performance fees usually because of seasonality. And still, we presented a revenue stronger than the fourth quarter where we have performance fees. And the trading activity was really strong. You can see that in our DART numbers.

So it was spread all over the business. I do not have one single explanation to give you. It's the sum of the parts.

Otavio Tanganelli -- Bradesco BBI -- Analyst

Very clear, Bruno. Thank you.

Andre Martins

Thank you, Otavio. Next is Mr. Tito Labarta from Goldman Sachs. Hey, Tito.

Tito Labarta -- Goldman Sachs -- Analyst

Hi, Andre. Hi, Bruno. Hi, everyone. Thanks.

Can you hear me OK?

Bruno Constantino -- Chief Financial Officer

Yes.

Tito Labarta -- Goldman Sachs -- Analyst

Great. Thank you. Thank you for the call and taking my question. My question is on, I guess, on the inflows.

Right? Even if you exclude the nonrecurring inflows, still the highest level we've seen. If you can give some color, how do you see that evolving this quarter, throughout the year? Can that continue to increase? Just to get a sense of the inflows.

Bruno Constantino -- Chief Financial Officer

Yes. No. You're right, Tito. Inflows they were higher than in the previous quarter.

We explained that BRL 14.3 billion if I'm not mistaken, compared to BRL 12.2 billion on a monthly average in the last quarter. I mean, as I mentioned, it was -- all the channels were strong, if I would have to highlight two channels, I would say the high net worth, the private and also the IFA. I think that some of it is related to the investments we've been making in the IFA network. Because of competition, again, it allowed us to make those investments.

And our IFA network is taking the money and making a very good use of it, taking the opportunity that the market is offering because of the financial dip in Brazil at early stage and the banks in a closing branch mode that they will keep like that for the next years to come. And that's been very good for the business. So yes, when I look forward, I think that the first quarter trend, it's a very positive one, and I expect that to continue, but we'll see.

Tito Labarta -- Goldman Sachs -- Analyst

Great. Thanks, Bruno. I guess a follow-up on that. More on the IFAs.

Right? You've been investing a lot in IFAs. There was a lot of competition last year. But I guess one, do you expect to continue to investing in the IFAs as much as you have? Will you continue to see a big increase in IFAs? And how long does that take for an IFA to sort of get to a level where they're bringing a lot of inflows?

Bruno Constantino -- Chief Financial Officer

Yes. We expect to continue investing in the IFA. We want to. We think it's a very good use of capital in our business model.

And competition is still there. It's going to be there. As I've said, I don't see competition reducing in the future especially because of our own success in our business model. And we just have to keep moving forward faster and focus on the kind.

So it's more of the same in that sense. Of course, last year, we made a lot of investment already. So the pace of future investments should not be like last year, but we are going to keep investing. And the maturity of the IFAs, hiring new IFAs, and bringing money, it depends on the profile of the new IFA, but usually, it matures after six months.

So there is a lag in there from six to 12 and depending on the IFA can break even after 12 months or 18 months.

Tito Labarta -- Goldman Sachs -- Analyst

Great. Thank you, Bruno.

Bruno Constantino -- Chief Financial Officer

Sure.

Andre Martins

Thank you, Tito. Nice to see you or at least hear you.

Bruno Constantino -- Chief Financial Officer

People cannot open that camera, Andre.

Andre Martins

No. Unfortunately not. I mean, we have to talk to someone at Zoom. We have a good --

Bruno Constantino -- Chief Financial Officer

At least Tito had a photo. We could see the photo.

Andre Martins

We have a good license for this webinar. But, unfortunately, we just cannot do that. So next question is from Neha Agarwala from HSBC. Hi, Neha.

Neha Agarwala -- HSBC -- Analyst

Hi. Congratulations on the results. Can you hear me?

Bruno Constantino -- Chief Financial Officer

Hi, Neha. Yes.

Neha Agarwala -- HSBC -- Analyst

OK. Perfect.

Bruno Constantino -- Chief Financial Officer

Loud and clear.

Neha Agarwala -- HSBC -- Analyst

Congratulations on the results, and thank you for all those comments. Just quickly wanted to get some color on the costs. Despite the significant increase in the headcount that you mentioned, the costs were relatively well behaved. How should we think about that in the coming quarters as you continue to invest in your platform? But should the costs grow like what you've seen in the first quarter? Or should there be a jump later as you pick up investing in the platform and hiring more people? And the second question is a very brief one, on the banking services that Jose mentioned.

Do you intend to use your IFA network in any way to distribute your banking platform? And how do you think that can work out with your client base? Any color on that would be helpful. Thank you.

Bruno Constantino -- Chief Financial Officer

All right. Thank you, Neha. About the cost, on absolute terms, it's going up because of the investments and the hiring that we have been doing. So that's a certainty.

But on a relative basis, we expect to keep showing the operating leverage that we have in our business as the revenue grows faster than the cost. As we like to think, you always have to grow revenues faster than expenses. And if you're able to do that for too long, you're going to be a successful entrepreneur. So we have a strict cost control in the company.

We do grow exponentially. Any exponential company, it's a big challenge to keep costs under control, but we have a very talented team internally only focused on that. So we are always looking for efficiency opportunities, and we always have. I mean, any way you look around, it doesn't matter how lean your company is, you have opportunities to reduce cost and to be more efficient.

So that's what I have to tell you about costs and efficiency. So you can expect us to keep a very tight cost control but that doesn't mean we are not going to invest a lot in new businesses and opportunities that we see ahead of us. We will, and we are and we have been. In terms of the client service in the IFA, I mean we always try to use and want to use this IFA network.

It's very powerful. They are all entrepreneurs as well. They benefit from the ecosystem we have built. So yes, it depends on the products.

It depends on the profile of the IFA office. But it's natural to use the ecosystem and benefit from it as we move forward in different segments.

Neha Agarwala -- HSBC -- Analyst

Great. Thank you so much.

Bruno Constantino -- Chief Financial Officer

My pleasure.

Andre Martins

Thank you, Neha. Next question is from Marcelo Telles, Credit Suisse. Telles, Can you hear us?

Marcelo Telles -- Credit Suisse -- Analyst

Hey, Andre. Hey, Bruno. Hey, Berenguer. Thanks for the time, and congratulations on the results.

I have a couple of questions. The first one, when you think about -- when you look at the growth in your net inflows, the BRL 43 billion that just closed in the quarter, where is it coming from? Can you give us a sense how much is coming from the IFA channel and how much is coming from the B2C? And fast forward, like three years, how do you think that composition will be. Do you see B2C gaining more relevance in your business? Thank you.

Bruno Constantino -- Chief Financial Officer

Hi, Telles. Thank you. In terms of the net inflows, we do not give the exact breakdown about channels. But what I can tell you, in your question, is that when you think about number of clients, I think we have shown that in the past, XP Direct has gained more traction than the IFA network.

When we go for net inflow, the breakdown is pretty much stable over time. So the IFA, they have a larger, on a relative base, share in terms of per client because naturally, they look for clients of higher income. Otherwise, they will, as entrepreneur, not be able to either be profitable or serve the client well. So it's natural that the smaller client, the client -- the mass affluent that is at the lower in the pyramid, goes to XP Direct.

And also we have in that number, Rico and Clear, two brands that we have that do not have an IFA network plugged in. So going forward, I believe both channels are going to coexist, and I also believe that the advisory, the IFA model, needs to aim for higher ticket to pay the bill at the end of the day. So the average ticket from the IFA is going to keep being higher than the average ticket from the direct channel. And the relevance, on a relative basis, it's hard to predict.

So far, it's been stable, both of them growing very healthy.

Marcelo Telles -- Credit Suisse -- Analyst

Just one additional question, just going back to the opportunity on the banking side and particularly, the credit book. I think you've reached 0.7% of AUC in terms of credit book to AUC. Now that I think you had more time since you launched the product, what do you think is the real potential in terms of AUC for the credit book?

Bruno Constantino -- Chief Financial Officer

Yes. This credit book that you're mentioning is about the collateralized credit. When we think about credit, there are so many different types of credit that if we only talk about what we have today, it's not what we are going to have in the future, we're going to have many more credit modalities going forward. We said in the past that we could have between 2% to 3% of AUC as a credit book.

It's still too early to tell if that number is too conservative or too aggressive because the AUC keeps growing at a very strong pace and so is the credit book. What I can tell you in terms of credit is that we think there is a huge and large avenue for ourselves. But as Berenguer mentioned, we are going to do it with a lot of responsibility, understanding the client, evaluating the risks, and using, when needed, the capital market. That's another important thing to understand about our strategy going forward.

XP has the benefit to be at the heart of the Brazilian capital markets. By survivorship, we needed to invest a lot in the Brazilian capital markets to bring products -- to develop the secondary trading so we could bring more products to the market to our retail base and also help the corporate clients. And the capital markets in Brazil still has a lot to develop, but it has developed very well in the past years. And when we think about credit going forward, we know several asset managers with specific funds that would love to buy several different types of credits.

So we can use the capital market as a leverage to help the whole ecosystem and not carry a lot of credit in our own balance sheet. That's not what we want to do. We want to -- we are going to carry credit in our balance sheet. But as we keep growing, we also are going to recycle in the capital markets because we believe it's a good use for the capital markets, and we keep being an asset-light business model.

I don't know, Berenguer, if you have anything to comment on what I just said here.

Jose Berenguer -- Chief Executive Officer, XP Bank

I think it's spot-on, Bruno. I think you covered all the angles. Thank you.

Marcelo Telles -- Credit Suisse -- Analyst

Excellent. Thanks, again, Bruno. Thanks, Berenguer.

Bruno Constantino -- Chief Financial Officer

[Foreign language] Telles.

Andre Martins

Thank you, Telles. Next question from Mr. Geoffrey Elliott from Autonomous Research. Hey, Geoffrey.

Can you -- hey, Geoff. Can you hear us?

Geoffrey Elliott -- Autonomous Research -- Analyst

I can hear you fine. Hope you can hear me as well. Question on the accounting P&L, the trading revenue number is pretty big this quarter and accounted for a lot of the growth. Can you just help us understand why that was so strong and then how sustainable that should be going forward.

Bruno Constantino -- Chief Financial Officer

Thank you, Geoffrey. And first of all, nice meeting you. I hope we have the chance to talk later. But going to your question, Geoffrey, basically, to understand, what you call the trading book, we call the flow book, and it's based on the development of the Brazilian capital market.

Everything is embedded. So it's not like a natural trading book if you look, for example, for United States or for any broker-dealer, that's not it. This is more related to creating new experience for new products. And it's not only equities.

In fixed income, we're talking about REITs, we are talking about structured notes with the secondary market that gives liquidity, even the derivatives markets and so forth. So this part of the financial income that we have in our financials is related, as we explained, to the retail business, most of it. As I showed in the first quarter, 79% of the financial income was related to retail business. So as the retail business grows, we have this -- it's like a warehouse that we buy and sell using proprietary capital based on providing a better experience for the client in the market, and we also are able to make money out of it.

But most importantly, we develop the liquidity of the secondary markets and provide a very good experience for the clients. That's how, for example, the corporate debt market in Brazil has been developed. It trades nowadays more than BRL 1 billion per day. Still nothing compared to the corporate bond market in the United States, for example, that trades more than USD 30 billion, but a few years ago, it used to trade less than BRL 100 million in the secondary market.

So to create this market, same thing with REITs, listed funds and so forth, so these kinds of flow books, that's what explained the most the growth that we have. And as the platform grows, it's natural to see this revenue growing as well. So it's linked to the platform.

Geoffrey Elliott -- Autonomous Research -- Analyst

Thank you. And if I could squeeze something else in quickly. The stock comp number looked pretty high again, similar to 4Q. It sounded, on the last call, like the 4Q number you said was higher because of some acceleration of stock comp into 2020.

So just wanted to understand why it's still at the same sort of levels.

Bruno Constantino -- Chief Financial Officer

The share-based compensation?

Geoffrey Elliott -- Autonomous Research -- Analyst

Share-based compensation, yes.

Bruno Constantino -- Chief Financial Officer

OK. Yes. No. I mean, actually, it's not going to reduce because when you -- on the fourth quarter last year, we had a strong share-based compensation in our fourth-quarter results because we had a program that was released to our partners on October 1, basically, a very sizable program of long-term incentive plan.

And then that reflected on the fourth quarter and will keep reflecting in our numbers going forward, first quarter, second quarter, third quarter. And you have a -- most of those plans, they are a five-year plan, and you have a methodology based on a model that you keep recognizing those expenses in our numbers despite our noncash expenses. And when the restricted stock units are vested then, at that time, we're going to have the real cash expense to pay for it. So that's the recognition model.

So you can expect to have the same size going forward. It has a volatility. It varies -- part of it, it varies with the share price and so forth. So it has a volatility quarter over quarter, but that's what explains.

Geoffrey Elliott -- Autonomous Research -- Analyst

Thank you.

Andre Martins

Geoffrey, we would be happy to wrap this up with you on a later call this week on the two questions and anything that you might need. Thank you very much for your questions. Have a good one.

Geoffrey Elliott -- Autonomous Research -- Analyst

Thanks very much.

Bruno Constantino -- Chief Financial Officer

Thank you. So next in line is Mr. Mario Pierry from Bank of America. Hey, Mario.

Mario Pierry -- Bank of America Merrill Lynch -- Analyst

Hi, guys. Congratulations on the quarter. Thank you for taking my question. Most of my questions have been asked already but also I was just wondering, when I look at your credit portfolio this quarter, it seems like the origination slowed down a little bit.

At the same time, you showed that NPLs remain at zero. So I was just wondering, are you just being a little bit more conservative? Or what happened? I think you were originating close to BRL 2 billion per quarter. This quarter, I think it was closer to less than BRL 1 billion. And how should we think about the way that -- if you can quantify the revenues generated from this portfolio?

Bruno Constantino -- Chief Financial Officer

OK. Mario, no. The origination is not reducing. On the contrary.

OK? So first, you need to take into account the natural installments that are paid and then reduces the credit portfolio. What we show is net already of that. So the origination is higher than the BRL 4.7 billion compared to the BRL 3.9 billion. But probably what you are talking about -- because in the fourth quarter, especially on the fourth quarter, we had a very strong number because of December.

And that was related to the exempt of the IOF for credit in, if I'm not mistaken, the last couple of weeks on December. And then we did a lot of campaign, good efforts. And a lot of clients took the opportunity because you wouldn't have to pay the IOF tax. And that was an outlier, so to speak.

So I think in December, we originated in one month like BRL 1 billion. So that's not something that you can think it's going to keep happening at that pace. So if you take that out, the base is growing. It's very healthy.

But again, it's a collateralized credit. The client needs to -- want to take it. So there is a process. It's something in Brazil, really underpenetrated.

People -- at least those profile of customers, they are not that used to take this type of debt, so they need to get used to it. It's a process. But the way we look at it, it's going just fine. Sure.

Mario Pierry -- Bank of America Merrill Lynch -- Analyst

So, yes, I think you answered my question. That's what I meant. Right? I think originations are still going up, but it was just slower than the previous quarter. And as you mentioned, then you had BRL 1 billion, almost like a nonrecurring event in December.

And how should we think about then how you're monetizing on this portfolio? What is the return you're getting on this portfolio?

Bruno Constantino -- Chief Financial Officer

I mean, the return, if you look at directly to the portfolio, it's going to be different than if you look at the cross-sell that, most of the time, this type of credit generates in our platform. So for example, we can have a product that it's raising capital -- like we did have, for example, last year, private equity fund, several clients on long-term investment, several clients wanted to participate, but they did not want to redeem their other investments to participate. And then comes what we call the Credit as a Service. If you take that into account, it's going to be a lot higher than if you do not take that into account.

So the Credit as a Service, if for some case, depending on the collateral, if we have to break even on the credit part, we will do it, OK, because it makes sense for the client experience. And when we look at the whole, we still have a very profitable operation. And in terms of the client experience, it's really differentiated in that sense. But if we look only at the breakeven and the credit part, I would say that on average, we are talking about a spread between 100 to 300 basis points on a year basis.

That's on average. It depends on the collateral we are talking about and so forth. This part of the revenue, Mario, is still not relevant, as I said, in the first quarter, but it's supposed to grow going forward.

Mario Pierry -- Bank of America Merrill Lynch -- Analyst

Great.

Jose Berenguer -- Chief Executive Officer, XP Bank

If I may add, Bruno, if you think about the future, Mario, once the open banking platform is up and running, we will be able to create campaigns to core clients, hey, listen, you have this and that loan with another player, here is what you can do, here's our offer to down pay this transaction with another player. And the systems that are being created around this initiative will basically allow the client with one click to pay the loan with another player and bring the transaction to any other player that will provide the most attractive offer to them.

Mario Pierry -- Bank of America Merrill Lynch -- Analyst

Very clear. Thank you.

Bruno Constantino -- Chief Financial Officer

Thank you, Mario.

Andre Martins

Thank you, Mario. Last, but not least, we have Gabriel Gusan from Citi. Hey, Gabriel.

Gabriel Gusan -- Citi -- Analyst

Hello, guys. Good evening. My question is about pension plans. So you mentioned you have 80% of market transfers in March in those products.

I'd just like to understand that, if you check the figures that you said, they are much lower. They're still impressive, but something around 36% is what we had for February. And I'd like to understand, does this 88% consider funds that you're distributing for GPLs and VGPLs that you're distributing from other managers and from under other insurance companies. Is that why you have that big of a difference?

Bruno Constantino -- Chief Financial Officer

No. No. It only considers our own insurance. We also distribute from other insurance partners in our platform.

The 88% is in March. If you look at the first quarter, on average, I think it's 45%. It has a lot of volatility on a monthly basis because you consider all the transfers there. But I think the main point here, I mean, so 88% is only -- it's not the first quarter, it's only March.

OK? If we take January, February, and March, it would be 45% of all the transfers. I think it was BRL 8 billion the total of the system, and we've got BRL 3.6 billion in the first quarter of net new money coming from those transfers only for our insurance that has total custody a little bit above, as of March, BRL 16 billion. So the point here is we are like No. 1 or No.

2, depending on -- because the other players that have the largest AUC, they have a natural inflow in that business. With less than 2% of market share, it's really hard to be No. 1 or No. 2, but we have been in several months.

That's the main point here. The opportunity is huge. We believe we have the best pension platform in the market with many products to offer, digital experience for our clients, and we expect to keep growing. This business, stand-alone, it has a different growth profile than investments but it's related, just because the inertia of the client in the pension business, it is lower.

But it's a very interesting business because it created this long-term relationship with the client. And as I mentioned, we are in the business of establishing a deep and long-term relationship with our clients, and pension is strategic for that.

Gabriel Gusan -- Citi -- Analyst

Excellent. Thank you very much.

Bruno Constantino -- Chief Financial Officer

Thank you, Gabriel.

Andre Martins

OK. I think we're done for the Q&A. Thank you so much, everyone, for the interest and for your questions. We hope that was helpful.

Again, we are available for any follow-up that you'd like in the next days or so. Myself, Bruno, and Antonio are all available. So, Bruno, I don't know if you want to deliver some closing remarks, but thank you all for the interest, and have a great week.

Bruno Constantino -- Chief Financial Officer

I just would like to thank you all for participating again. Thank you, Berenguer, for participating here with us. And I'll remind you that on the second semester, we're going to have several of our senior partners and C-level together in XP Strategy Day. Myself; Berenguer; Thiago Maffra, that's going to be the new CEO next week; Guilherme Benchimol, our founder, next week, the executive chairman; and other partners, so we can give more color about our long-term strategy.

But bear in mind that we are very optimistic about the long term. I don't like to answer your questions about the short term, the quarterly results. I understand that everybody has to model it. But I think that the big picture here is the BRL 800 million revenue pool.

We have entered in our history in several different businesses. We started as mono products, mono clients, retail, equities. And you look at us now, we have been able to diversify, to be entrepreneurs, successful entrepreneurs, and we hope that's not going to be different in the other segments that we want to address. We believe to have the brand, to have the culture, to have the money and the mindset to do the will to do it.

So we are very optimistic about this long journey ahead of us. So thank you one more time, and see you on the next quarterly results. Have a great night. Stay safe.

Duration: 79 minutes

Call participants:

Andre Martins

Bruno Constantino -- Chief Financial Officer

Jose Berenguer -- Chief Executive Officer, XP Bank

Jorge Kuri -- Morgan Stanley -- Analyst

Otavio Tanganelli -- Bradesco BBI -- Analyst

Tito Labarta -- Goldman Sachs -- Analyst

Neha Agarwala -- HSBC -- Analyst

Marcelo Telles -- Credit Suisse -- Analyst

Geoffrey Elliott -- Autonomous Research -- Analyst

Mario Pierry -- Bank of America Merrill Lynch -- Analyst

Gabriel Gusan -- Citi -- Analyst

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