XP Inc. (XP) Q4 2021 Earnings Call Transcript

XP Inc. (XP -2.56%)
Q4 2021 Earnings Call
Feb 08, 2022, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Andre Martins

Everyone, we're just waiting for a couple of seconds -- a couple of minutes to onboard everyone on the room. OK. So good evening, everyone, or good afternoon, depending on where you are at. Welcome to another conference call or earnings call for XP Inc.

this time around for the fourth quarter of 2021 or for the whole year of 2021. I am Andre Martins. I am responsible for investor relations at the company. We also -- we have with us today our CEO, Thiago Maffra; and also Bruno Constantino, our CFO, together with the IR team, Marina and Antonio, as well.

So just before we begin, again, always refer to Page 2 of our presentation to read the disclaimers right? And some comments on forward-looking statements, OK? Anything that -- anything regarding the forward-looking statements and how -- actual results may differ from them can be found in the SEC filings on our IR website. So once again, thank you so much for your interest. [Operator instructions] So before I pass the word to Bruno, we will show a quick video just to show in a nutshell how the year of 2021 happened, what were the main milestones and so forth. So just a quick video before we begin.

Thank you. [Commercial break] Ok. Great. So that was our short video.

Bruno, please, the floor is yours.

Bruno Constantino -- Chief Financial Officer

OK. Thank you very much, Andre. Hi, everyone. Good evening or good afternoon.

A pleasure to be with all of you again in one more earnings call. I'm going to do the presentation. I promise to be brief here. So we -- I know we have already a lot of raised hands for the Q&A.

Maffra, our CEO, is going to be alongside with me for the Q&A session. Before we start, I think because we are talking about full-year results 2021, two years after our IPO listing the company in 2019. I'd like to say a few words here to all of you. I think that what we had in the video, the word remarkable is the right word for last year.

It was really a very strong year in all ways we can think about not only about the financial numbers, the growth that we had, but especially the investments that we've been doing in the company. We hired more than 2,500 new employees to our company. We have been developing new products, as you're going to see alongside the presentation. So we are really happy about the year we had last year, knowing that we still have a lot to accomplish and a lot to do looking forward.

I would like -- I don't know if you had the chance to read Maffra's letter in our earnings release, but I strongly recommend that all of you read it because I believe that letter says a lot about the kind of entrepreneurs that we are here in XP, considering our history since the foundation of the company by Guilherme Benchimol in 2001. And what do I mean by that? For us, entrepreneurship is keep bringing better experience to customers for sure, but with sustainable financial results. We believe that in times of evident capital an explosion of entrepreneurship all over the world. We often repeat in an environment like that to our teams that doing it well is quite easy.

The hard thing in our view, is doing it well, bringing alongside solid results, and balancing and improving the company's basic financials. And by that, we mean revenues and expenses. So in 2021, we added, as I said, more than 2,500 people in our company. That's a lot.

We continue to invest in all new businesses. And by those new businesses, I mean, pension, credit, credit card, and insurance others as well. And that together resulted in an increase in our SG&A year over year of more than 54%, a lot in terms of opex that we have. But despite all the investments that we had, our adjusted net income, as you saw, surpassed the historic mark of $4 billion, a 76% year-over-year increase.

When we compare that to our adjusted net income at the year of our IPO in 2019, only two years ago, it's almost four times greater. And what to expect for this year 2022? We are going to talk about that probably in the Q&A, the challenging year ahead, elections in Brazil, interest rates going up, etc. But in our view, we still hope to follow the same path of entrepreneurship that we've been doing year over year in our history, in our lifetime for more than 21 years. And that -- by that, I mean growing revenues, controlling our costs really well, and also delivering an even better experience for our clients in all way we can think of.

So with that, I will go -- we have just a few slides here to share with you basically three sessions, and I will ask to move forward, so I can present the numbers. Our first slide is just a recap about the IPO. We think that we owe that to investors accountability. And during the IPO time, in our road show, we didn't want to give any guidance at all.

We were convinced by the investment bankers that it was important for a high-growth company like XP, why didn't we want to give any guidance because we are long-term thinking. And if you give a guidance, especially short term, no way we're going to do that, you get stick to that guidance, and that's not the way we manage the company. But anyway, we got convinced we gave the long-term guidance -- mid-to long-term guidance of growth in terms of total gross revenues of 35% plus and an adjusted net margin between 18% to 22%. In 2019, our total gross revenue was $5.5 billion.

You add the 35% compound growth in two years, we would reach $10.5 billion gross revenue in 2021. We delivered $12.8 billion, a 52% CAGR instead of 35% in those two years. When we look at the adjusted net margin, mid- to long-term guidance, and we go to the upper limit, the 22% at the time of the IPO, it would lead us to a $2.1 billion adjusted net income, and we delivered $4 billion net income, much higher. So those are the results of two years.

But again, the message -- the main message here, in my view, is a long-term journey, and that's just accountability that we believe we owe investors that participated in our IPO and that believe in what we have said. Now going to the numbers of the fourth quarter and the year -- oh, before that, I'm sorry, I forgot. Just to share two recent developments. And why have we put this in our presentation because we get a lot of questions about that.

So the digital bank, when it's going to be ready, what's going on? Well, guess what, it's ready or read. It's plan. I already use it a lot. It's my primary bank, of course.

We have approximately already 150,000 digital account users. It's fully integrated experience, we can pay day-to-day bill. We can transfer between XP accounts. We have the peaks working perfectly.

We already have the automatic debit, payroll portability, deposits with care codes, everything that you see there. Is it complete? No, it's not. That's why we are investing a lot. But we already have 67% completion, and we believe that by the second semester this year, we're going to have more than 90% completion.

So we are going to be fully operational in 2022. And the second -- the next slide is about another example, the life insurance launch. We're going to talk about insurance. It's one of the new businesses that we believe has a huge potential for growth.

And this product, we have started the concept of the product fourth quarter last year. So not -- it's about like four months, less than four months. And we have just launched in January this year, a fully integrated experience for hiring a life insurance in our app, transparent, no hidden costs, you can do it really fast by clicking three buttons. So those are just two examples of products that we believe will expand our core business, which is investments and will also reinforce our core business as well.

So we can increase the share of wallet of our investors' clients. Now going to the numbers, the KPIs and financials of the fourth quarter. On the left part here, we have the gross revenues, $3.4 billion in the quarter, a record in our history, 34% growth year over year, a gross profit of $2.4 billion 52% growth year over year. We also present a higher gross margin since our IPO in this quarter and adjusted EBITDA of $1.4 billion and adjusted net income, as we said, $1.1 billion, a 51% increase with an adjusted net margin greater than 33% in the fourth quarter '21.

When we look at the KPIs on the right part, you have seen that already. We have released in our press release, investment, AUCs domain KPI, $815 billion by December. Our pension AUC, it's considered in those $815 billion, it was $48 billion. We have in that number, not only our own insurance company, but also third party that goes into our marketplace and benefit from our distribution capability altogether, $48 million by December, a 51% growth year over year.

In the credit part, we started in 2020, a small credit amount ended the year of 2020 with $3.9 billion of portfolio, huge growth. And by the end of last year, more than $10 billion, a 164% growth year over year. And the credit card, the TPV, $4.4 billion, more than $1 billion per month and growing in the fourth quarter of '21. And also the NPS, the main KPI that we keep on track to understand if we are going in the right direction for our clients, 76%, a strong number as well.

In this Slide 10, we have the total revenues and the retail revenues. Retail revenues accounted for 79% of total revenue. We lost relevance of issuer service and institutional in comparison to retail, not only because of the high growth of the retail business, especially with those new businesses that they are mainly retail businesses but also at the insurance services, we had a good quarter in DCM, but the equity capital markets suffered because of the macro environment and institutional, we had a growth, but not a strong growth as we had in retail. So the relevance increased.

When we look at the contributions, the new verticals, we are going to talk more about it and fixed income products as well that benefits from the high interest rates. We can go -- yeah. We put this slide here. I don't know if all of you have seen -- you can see in our side, we presented in our Investor Day, December last year.

What is this is like? Basically, we have, on the blue line, the Selic rate that was around 14% in '15, '16, went down to almost 2% and then start to go up at 10.75% and probably going up close to 12%. That's the blue line. And on the green line, what we have is the last 12 months of revenues of fixed income plus floating divided by equities and feature. It's a ratio, OK? This ratio, as you can see, when the Selic rate starts to go down, so does the ratio because the denominator at within futures benefits from this positive, this tailwind of lower interest rates, it's the equitization process in Brazil, and then it gains relevance in comparison to fixed income and floating.

When we have a different scenario of interest rates going up, equities and futures, they suffer because of this macro impact. But on the other hand, fixed income and floating, they benefit from higher interest rates. So you have this green line going up, the ratio going up. Remembering that here in the ratio, we are seeing last 12-month data point and Selic rate is one data point.

So it has -- Selic rate a leading indicator of what we can expect of the green line going forward. And in our Investor Day, the revenue growth, we had the third quarter numbers was 28 times greater than the last 12 months of 2015 and adding one more quarter, this revenue growth went from 28 to 31 times. So despite Selic going up, the revenue growth is still intact there. Retail revenue and the new verticals.

Retail revenue, I'm only going to make two comments here. Number one is the take rate. As you know, it's an output of math equation. Retail revenue is divided by average AUC.

But what is interesting to note, since our IPO in 2019, every quarter, if you look at the take rate, retail revenues divided by the last 12 months, retail revenues divided by the average AUC for the last 12 months, 1.3% intact. The mix has changed a lot but that's the number, and it's flat. And we have -- in the middle of that way for faded more than probably $200 million of revenue per year when we decided back in 2020 to zero online brokerage commissions at the Rico brand and reduced by 75% at XP brand, a Clear brand was already zero. And despite all of that, 1.3%.

One of the reasons are the new verticals that I'm going to talk about right now. But other reasons is this portfolio effect that when we think about investments, depending on what the macro environment is, you're going to change your portfolio allocation, but you still have opportunity in terms of investments. Now talking about the right part of this slide, revenues from new verticals. That's a promise we have made in our Investor Day.

So here it is, pension funds, credit cards, credit, and insurance. Fourth quarter '20, all those four new businesses combined, they represented less than 2% of total revenue. You fast forward one year, fourth quarter '21, the relevance of those new businesses combined went up to 6.5% of total revenue, with a growth year over year of 387%, very strong growth. Now we are going to talk about each of them.

So you can look that, the growth has been impressive. Of course, the base is also low because they are new businesses, but the potential looking forward is too amazing. We are at very early stage in each of those new businesses. Let's talk about pension.

Here, we have only private pension. And by that, we mean the pension from our own insurance company that we have started as a start-up back in 2019. So basically, two years ago, brand new. At that time, we had a little bit more than 6% of the market share of net new money in terms of pension, our insurance company.

In fast forward two years, last year, we had more than 50% of market share. We were No. 1, as you saw in the video. Oh, that's great.

That's really impressive, but what is your market share in total [Inaudible] 3%? Nothing, nothing. If you look at the main players, more than 20%, 25% market share. So we have a long way to go here. Now move to credit cards, TPV.

The market share we are using third quarter because we do not have all the data for the fourth quarter from the Central Bank. But you can see that brand new product, 0.5% market share in the third quarter. In the first quarter, we expect this number to increase, but it doesn't change the picture, nothing. Despite 10 billion TPV for the whole year of 2021, knowing that we only had three-fourth of the entire year in terms of officially launching our credit card.

And in December last year, one month ago, we lowered our threshold for $5,000 yards of investment at XP brand. That's another important information. When we look at the 3.4 million clients that we have at XP, it's only a portion of that number that is considered eligible today to have our credit card. We don't have it at Rico brand.

We don't have a Clear brand today. So only in-house, a great potential for growth in the credit card business. Now let's talk about credit and then insurance. Credit, it's hard to put a market share here because we are almost creating a market when we talk about collateralized credit with investments.

It's a non -- it used to be an almost nonexisting market in Brazil, and we innovated there in scale, and we went from nothing to $10 billion credit portfolio, really fast. In terms of percentage of our assets under custody, in 2020, it represented 0.6% by the end of last year, 1.3%. And most importantly, zero NPL. What that means very good credit call it because we have the right client, the investor clients in the sense that for a credit perspective, it's a really good credit quality.

Now when we go to insurance, we see a lower growth here, but that's a brand-new product that we -- as I showed, the life insurance in our app, we just launched it January this year. So this business, we believe, has maybe one of the greatest potential. And here, we are talking about two verticals of insurance. We are talking about a marketplace, and we are talking about our own insurance company reading policies for life insurance.

When we look at our own insurance company, it's nothing in 2021. So we are going to start this basically this year. When we look at the marketplace, it does exist for a longer time. We do have a broker insurance company for a while.

But when we think about other insurance products, everything is new, all to insurance, health insurance, all of that, they are products that our clients can want to consume through our app, through our platform that we do not -- or we did not offer to our clients and we're going to offer right now. So the market share is relevant 0.41%, nothing, and we are going to aim high here as well. Moving forward for the financials, the adjusted EBITDA, we're looking in the right part of the chart, the adjusted EBITDA went up from $891 million in the fourth quarter '20 to $1.4 billion in the fourth quarter '21, 6% increase -- increasing the EBITDA margin from 37% to 42.7% approximately. When we look at the operating expenses, you can see an increase year over year of 38%.

But on a quarterly basis, it's tricky. I'd rather see it on a full year basis. On a quarterly basis, you have a reduction in the fourth quarter, mainly because we do have some incentives that we received from third parties. We have had that in all the years since our IPO in 2019, 2020, 2021, we expect to have this year as well 2022.

And the main components there in 2021 were Visa incentives and B3 incentives as well. But we do have more than that. So that's why when you look at a quarterly basis, it's a little bit tricky. I would look the whole year in terms of operating expenses.

Now moving to the next slide, adjusted net income, a record quarter, $1.86 billion of adjusted net income with a 33.3% as I have already said. And when we look at the whole year, four times, two years before 2019, the IPO year, a 76% growth year over year. And finally, last slide of promise. Here, we put this slide because we also get a lot of questions about the effective tax rate.

Is it sustainable or not? What happens there? You guys seem to present a very low effective tax rate. But that's tricky because that's what the IFRS tells us to show in our financials. But at the end of the day, we pay much more tax. And that's exactly what we try to put here, you have this profile managerial income statement in our earnings release.

You had already in the third quarter, but we decided to bring to the earnings presentation, so everyone here can see. Basically, what we have here, looking at the column of the fourth quarter '21, you go down to taxable equivalent adjustment, what is that? The $157 million that you can see there. That's the taxpayer at our investments that the revenue associated with this tax, it's recognized in our total revenue, net of the tax. That's because it's done through funds, and that's the way it has to be recognized.

But at the end of the day, the tax does exist, and we pay that. So what we did here, we added the tax to the earnings before tax. And then we also added the tax to the tax expense. It's a tax expense normalized.

That's the $287 million. And when we do the math, you're going to see that in the fourth quarter '21, our effective tax rate was 22.5%. In the whole year of 2021, it was 18%. This number can vary from 15% to 25% a larger spread here.

Basically because it depends on the revenue mix that we are going to get. If we have a lot of, for example, offers hot equity markets, probably the effective tax rate is going to be higher. If the full business is the one that benefits the most, the opposite way around because it's a lower tax business. So it depends on the mix.

But the main point here is the effective tax rate, not 6%, 5%, it's more like 20%, 25%. With that, I end my presentation. Thank you one more time for the interest, and let's go for the Q&A.

Andre Martins

Great, Bruno. So once again, we have a lot of raised hands here. If anyone wants to ask a question, please, we will do like a first in first serve type of line. So I kindly ask you to limit your question to just one.

So we can go through all of you, OK? So the first participant is Mr. Tito Labarta from Goldman Sachs. Hey, Tito.

Tito Labarta -- Goldman Sachs -- Analyst

Hey, Andre. Good evening, everyone, Bruno, Maffra --

Bruno Constantino -- Chief Financial Officer

Hi, Tito.

Tito Labarta -- Goldman Sachs -- Analyst

Thanks for the presentation. Very helpful as usual. I guess my question will be on the retail revenues. AUC was up 23%.

Retail revenue is up 48%, right? I mean you showed there the benefits of the new products, which as you've guided for, you expect around $10 billion by 2025. But also you mentioned in the press release, you benefited from higher rates. Is that still a tailwind? Do you think -- how much more can you benefit from rising interest rates? Just trying to think about how that revenues should grow in 2022 in a higher interest rate environment. If you can help us think about -- I mean, it's an indirect way of asking your take rate, no, but just to try to understand because very strong growth given AUC did not grow nearly as much.

Bruno Constantino -- Chief Financial Officer

Do you want me to take or do you want to start. It's your call here.

Thiago Maffra -- Chief Executive Officer

Yeah. I can start, but that's funny Tito when you asked that because a few months ago, we are receiving the opposite question, OK? Like, OK, now that the interest rate went up, what's going to happen with your revenues? And as Bruno mentioned, it's because we have a powerful ecosystem and a portfolio of products that some of them benefit from high interest rates, some others benefit from low interest rates. And what we see is that we are able like to grow in any environment because it's -- I'd like to say that a micro play, not a macro play in Brazil because we still very high concentrated market in Brazil. 85% of the revenues and investments.

It's a ballpark, right? It's still inside the five big banks, OK? So it doesn't mean like high interest rates doesn't mean that we are going to grow less or more and the same thing for low interest rates. So we have been telling this like to invest for a few months. And so it's what we see.

Bruno Constantino -- Chief Financial Officer

It's a resilient business model, Tito. The growth rate, it's hard to to tell, we do not give, as I said, in the beginning, annual guidance. We want to have our many investors focus like we are in the long term. But as Mantra said, I mean -- and last year, it was tricky as well because the first semester in terms of equities and trading activity was really great, right? The second semester, especially the fourth quarter, if you look at the daily average traded was a disaster compared to the first quarter.

It's -- if I'm not mistaken, something like 25% reduction when you compare the fourth quarter with the first quarter. And still, we were able to, in an environment like that, of course, again, that has an impact in the equity part of the business. No question about it. But we were able to mitigate that effect with other businesses.

Because at the end of the day, again, our business is not selling one product or other products. Our business is about establishing this deep long-term relationship with our clients. And if our core business is investment investment independently of the macro environment is something that you have to consider always what to do with your portfolio, how to allocate. And that's exactly our business.

So --

Tito Labarta -- Goldman Sachs -- Analyst

Great. Bruno, maybe just one follow-up, if I can, on that revenue. I think at the Investor Day, you mentioned $40 billion in revenues by 2025. I mean, do you still feel comfortable with that? And I think maybe on a more shorter term -- I know you don't want to give annual guidance, but maybe on a two-year guidance, so that trajectory be sort of fairly steady.

And do you think similar to the IPO, is there upside to that? Like how conservative do you think -- that outlook is from here.

Thiago Maffra -- Chief Executive Officer

To, we are never comfortable OK? Because we always have like one of our key values is big dream, OK? So we always have very challenging, like dreams and goals for the team.

Bruno Constantino -- Chief Financial Officer

We aim high, right?

Thiago Maffra -- Chief Executive Officer

Yeah. So it's not comfortable. And if it gets comfortable like during the journey, we will increase for share the internal goals, OK? So it's not never easy for us like to beat the internal rules that we have because we have big dreams, OK? We have very -- we like to say that we prefer people that have an achievable goals and reach like 60%, 70% of these goals, then people that have very weak goals and reached like 150% of the goal, OK? So that's the way we think here. So we are not comfortable, but for sure, we will do all the efforts like to beat the goal that we believe, OK?

Bruno Constantino -- Chief Financial Officer

And your first part of the question, yes, I mean, we gave that guidance a month ago, right? It sounds like that, a little bit more than a month ago. So --

Thiago Maffra -- Chief Executive Officer

Nothing changing.

Bruno Constantino -- Chief Financial Officer

Nothing changed. I mean and you saw the total revenue of those four new businesses, they represented 6.8% of our record gross revenue in the fourth quarter. Our long-term guidance for those all four businesses combined by 2025 is to represent 25% of total revenue. They're going to get traction in relevance for sure.

The slope of the growth, it will depend on manufacturers. So we are going to share the results with all of you each quarter, no matter what the results are, OK? Either good or bad we are going to share.

Thiago Maffra -- Chief Executive Officer

And just another point here, like because we -- you guys saw some numbers that in insurance, we have 0.1% of market share in pension, 3% market share. And even if we get there, the $4 billion, we will have like 3% of market share in the total revenue in the financial market in Brazil. So it's still a very small market share, like $40 billion in revenue. So that's what I'm trying to say about the micro play.

We still have like around -- today around like BRL 800 billion in revenue in the financial market in Brazil. So $40 billion is nothing because the market will grow Trail in 2025. So it's going to be 4% market share. So it's nothing.

Tito Labarta -- Goldman Sachs -- Analyst

Great. Thanks, Bruno. Thanks, Maffra. Congratulations on the strong quarter.

Thiago Maffra -- Chief Executive Officer

Thanks, Tito.

Andre Martins

Thank you, Tito. So next is Jorge Kuri from Morgan Stanley. Hi, Jorge.

Jorge Kuri -- Morgan Stanley -- Analyst

Good evening. Hi, everyone. Congrats on the numbers. Great quarter.

Let me ask you about your margins, which are pretty impressive 400 basis point increase in EBITDA margins year on year, if I look at the full year 2020 versus 2021 and 500 basis points increase in your adjusted net margin. Given the significant investments that you made during the year to grow the IFA network to grow the new businesses, it's very surprising to see these very attractive margin expansion. Where are we in that process? How much can you continue to grow those margins? Is it the right thing to grow the margins and not maybe put more money in the business. How should we think about what's doable or not doable over the next couple of years in terms of margins for your business? Thank you.

Bruno Constantino -- Chief Financial Officer

We have put a lot of money in the business, Jorge and we are going to still put more as we tell investors that ask us, what about dividends? We say, look, we are in a high-growth business, great opportunities. And we believe the right course of action here is to reinvest 100% of our profitability into our growth in new businesses. Considering the returns we see each way we look around in the financial industry in Brazil. Again, as Maffra said, highly concentrated.

Having said that, our long-term new guidance after the IPO that we revisited last year between 24% to 30%. We are not going to change that for now. We do see this high growth, especially in terms of hiring and those new businesses peaking this year, 2022. So we are probably the growth of headcount that we had, I think, close to 70% last year, year over year.

It's going to slow down in 2021. So we are passing the pick in terms of -- you have an inertia there because you do not hire everyone in one single month. So you do have a cost carry consequence of this hiring. People with our main expense in the company.

So we see that peak in 2022. So by that only, everything else constant, you could expect that by 2023 onwards, you would see the operating leverage playing itself. But on the other hand, we have new businesses with different margins. Right? That will have an impact in the business.

If we look at credit card, for example, we do get -- the mainly revenue that we have in the credit card is interchange. We have FX. The revolving credit part is not really relevant for the type of client XP has. And we do have the invest back of 1%.

So it goes into our COGS. And also, if you grow very fast, the credit card business, you have an accounting policy that you need to estimate the NPL, no matter the client is not going to default and you need to recognize in your financials, and that has an impact in the rev. So it's a mix there that the credit card, for example, growth should lower the rate, the carry effect of the high growth in headcount should lower the rate, but other businesses and the operating leverage of the more mature businesses in investments should expand the operating margins at the company. So I know I didn't give you a straight answer, but you don't give --

Jorge Kuri -- Morgan Stanley -- Analyst

I was going to say that I'm glad you said it.

Bruno Constantino -- Chief Financial Officer

No. I know that. I know that.

Jorge Kuri -- Morgan Stanley -- Analyst

No, no, I understand. Thank you. Thanks, Bruno. Congrats again --

Bruno Constantino -- Chief Financial Officer

But look, the way we think here internally, it's not that, well, OK, we can sacrifice 300 basis points of EBITDA margin to accelerate investments growth but we are doing already. That's the point. It's not -- we are investing a lot, OK? And it's not about putting more money to work here. That's not the issue here.

You have an execution issue. You have to learn about the product with your clients so you can involve the product. So it takes time. There is a time frame to have all of that.

Thiago Maffra -- Chief Executive Officer

And another way to say that Bruno is, as you mentioned, we have hired 2,500 people last year. So it's a lot of people. We cannot hire more people like because it's impossible, like to put more people like inside the company at once. Then you say, OK, you should invest like building new business lines, we are building like, I would say, dozens of new business lines, new products in the last year.

So we are growing really fast. And if you look at the numbers, we are growing like 50%, 60% in some new business lines like triple digits. So it's growing, and it's growing fast. So it's not a matter of like investing more.

And as Bruno mentioned, it's on the letter, we are the type of entrepreneurs that we like to grow with profitability, OK? We are not going to grow just to like for growing, like, OK, let's put like millions of clients inside the platform because we will show growth. It doesn't make sense. It's not a strategy, OK? So we structured this strategy. We believe we are growing really fast with profitability.

So that's the strategy, OK? And the IGAs continue to grow at this similar level of -- like of growth for many, many years. So it's a long-term investment for us. It's a long-term like mindset and view, OK?

Jorge Kuri -- Morgan Stanley -- Analyst

Thanks, everyone.

Thiago Maffra -- Chief Executive Officer

Thank you.

Bruno Constantino -- Chief Financial Officer

Thank you, Jorge.

Andre Martins

Thanks, Kuri. Next question is from Thiago Batista from UBS. Hi, Thiago.

Thiago Batista -- UBS -- Analyst

Hi, Andre. Hi, Bruno. Hi, Maffra. Hi, everyone.

So I had one question about the credit card business. A couple of months ago, XP reduced the threshold of debit card to BRL 5,000, not too long, of investments in XP.

Bruno Constantino -- Chief Financial Officer

In December.

Thiago Batista -- UBS -- Analyst

In December, yes. Can you give us the first impression of this process, how was the step goal of the clients with this card for this type of clients? Clearly, those guys are the kind of middle individuals, not, let's say, high income as the previous threshold. How was the first impression of this business for those type of clients?

Andre Martins

Do you want to take Bruno? You can take.

Bruno Constantino -- Chief Financial Officer

I can take. Yeah. Yeah. How can I answer that? OK.

We just released in December, so it's very new. Today, we sell the credit cards 100% online, OK? So when we look at penetration, it's close to 35, 40, 45. It depends on the aging of the cohorts, OK? 100% online, OK? And when you look the credit card for 5k plus, it seems to be, again, it's very, very new, OK, one month that we have been operating, one and a half months. We have been operating in this new product.

So it seems that's even stronger, OK? Of course, we have a sample with 20,000, 30,000 that has six months. And the most impressive is the NPL, it's -- that's very close to 0.4 because for the 50k plus is -- we have the collateral, it's even lower, OK? So again, it's zero. And so it seems that it will be a very good fit because usually, you have in Brazil a card with this kind of benefits, you have to be a fluent client in Brazil with, I would say, BRL 200k, BRL 300k inside the big banks. Otherwise, you have to pay huge fees.

So I believe it's going to be a very good project for these guys. And if you -- I don't know if you saw last week, but we just announced some new benefits like VIP room in airports and some other stuff. So -- because we collect the feedback from the clients, OK? We still have a lot of clients that they are allowed to have the credit card, but they didn't ask why. For example, VIP rooms was one of -- it was actually the top point.

And so we are going to address the points. And the goal, as we always have is to penetrate 100% of our clients because our clients, they -- for sure, they have credit cards and they have very low NPLs. So that's the target.

Thiago Maffra -- Chief Executive Officer

And one -- another interesting point that we have not mentioned about our credit card is when it becomes eligible for someone, it just appears in the app. It's a message. It's not that we advertise our credit card yet on an aggressive perspective. So that's -- again, the product is developing itself.

It's evolving. It's getting better and better, listening to the clients, and that's how it goes.

Bruno Constantino -- Chief Financial Officer

And the most important part about the credit card and checking account and the banking part -- payment part, what's the thesis behind it? Today, we have about like a 50% share of wallet of the investments, OK, of the clients that invest with us. So we can double the company if we bring 100% of the share of wallet. And the thesis why -- why did we ask it actually the clients? Why they don't have 100% with us? Because they need some service that we didn't have or we shouldn't have, OK? So they have to keep an account with one of the big banks here in Brazil. So now that we have cohorts of 10 months, almost a year, and when we compare the heavy users of the banking, the payment products with the nonusers, we see a very big increase in the share of wallet, OK? So that's the thesis, OK? So -- and by the way, when you look at credit card, the product itself is profitable, and we reinforce the ecosystem, we increase the share of wallet.

So that's the beauty behind the banking part that we are developing here.

Thiago Batista -- UBS -- Analyst

Very clear, Maffra and Bruno. Congratulations for the results.

Bruno Constantino -- Chief Financial Officer

Thanks, Thiago.

Andre Martins

-- Thiago. So Otavio Tanganelli from Bradesco BBI is the next question. Hi, Otavio.

Otavio Tanganelli -- Bradesco BBI -- Analyst

Hi, guys. Congratulations on the results. Thanks for taking my question. Thiago, quick one.

Maybe -- you mentioned in the press release that the mix of products had a positive impact on gross margins. So going forward, with higher interest rates and also with the slide that you've shown that it's likely for us to continue to see the contribution coming from this portion of the revenues that would likely have lower commissions, let's put it this way. What's the margin outlook that you think that you can reach here? Is it possible for us to see sustainably higher gross margin levels than what we saw in the past?

Thiago Maffra -- Chief Executive Officer

Honestly, I wouldn't say that. It can happen, of course, but I wouldn't say it's the base case. I would say that the mix of the fourth quarter, if it continues, you should see pretty much the same type of margins we presented in the fourth quarter. But again, that's not a guidance because there is volatility in our margins depending on the mix of products.

As you mentioned, for example, when you compare equities and fixed income, the commissions for equities are higher than fixed income. So if equities go down and fixed income go up, this balance only, in terms of the COGS and the gross margin, would have a positive impact. So I would say that -- I wouldn't say that you should expect gross margins going up from the level of the fourth quarter, but it can happen.

Otavio Tanganelli -- Bradesco BBI -- Analyst

Very clear, guys. Thank you.

Andre Martins

Thank you, Otavio. Mario from Bank of America. Good evening, Mario. Mario can you unmute? Is he on mute? Are you on mute, Mario? Or -- So perhaps he's having perhaps some connection problems.

Mario, please send us message if you want to talk, and we can put you again. Geoffrey from Autonomous. Hey, Geoff.

Bruno Constantino -- Chief Financial Officer

Andre, have you blocked all the analysts from asking us questions?

Andre Martins

I would never do that if all of them. One by one. We're going to get a bad [Inaudible] from the analysts of the sell side about this call. Jeff? OK.

Let me try the next one. Domingos from J.P. Morgan. Maybe we can hear him.

Domingos Falavina -- J.P. Morgan -- Analyst

Can you guys hear me?

Andre Martins

Yes.

Bruno Constantino -- Chief Financial Officer

Yeah.

Domingos Falavina -- J.P. Morgan -- Analyst

Great. Since I benefited from it, then [Inaudible] goes up.

Andre Martins

I'm gonna [Inaudible] next.

Domingos Falavina -- J.P. Morgan -- Analyst

Jokes aside, guys. You had a pretty big benefit. My numbers here is about -- estimate around 200 million in the bottom line or so coming from a revenue that you book in other operating income, specifically, it's something that used to be [Inaudible] so B3 rebates. I think I mentioned Visa.

Nine months, it was tracking at BRL 111 million. 4Q it went to BRL 360 million, implying BRL 250 million in the last quarter. My questions are twofold. Number one, kind of, what's the breakdown of the B3 versus -- if you want to pack it Visa and others in a separate group book or 50-50, 80-20.

As I understand this was pretty much only B3 in the past. And number two, which ones are recurring? We always assume that B3 was recurring. I mean, they changed the goals, but they keep rebating. Should we assume Visa and others are recurring in the future as well?

Bruno Constantino -- Chief Financial Officer

Sure. We cannot disclose the numbers because of contract issues about incentives that we get. But what I can tell you to help answering your question, Domingos, is B3 is more recurring than Visa, but we had Visa in 2020. We had Visa in 2021, and probably we're going to have in 2022 as well, right? And there is a seasonality in those numbers.

Usually, they occur heavily in the fourth quarter compared to the other quarters. So you should not expect that on a quarterly basis to be repeated in the first, second, or third quarter this year, but in the fourth quarter, yeah. And if you look, as I said, in that slide of the adjusted EBITDA and the operating expenses and you look on a year basis that I prefer dilute the impact on a year basis in 2019. We have that line to 2020, 2021.

We probably are going to have in 2022. There is a volatility in terms of the magnitude. But, yeah, we do expect that to be recurring somehow.

Domingos Falavina -- J.P. Morgan -- Analyst

And, Bruno, just a quick one. You're right, year on year, it didn't grow as much, but like it was unusually strong this quarter. Any reason for having this bigger seasonality this year?

Bruno Constantino -- Chief Financial Officer

No. Basically, the main impact of seasonality this year was more about Visa than B3, that I can tell you. And that's because of large agreements that we had in our contracts. But again, I cannot give you the specifics of the contract, but that's --

Thiago Maffra -- Chief Executive Officer

We had the same seasonality last year. I mean --

Bruno Constantino -- Chief Financial Officer

Last year as well, 2020. Not last year. The previous year, right?

Thiago Maffra -- Chief Executive Officer

Yeah. The -- Yeah. It was $150 million versus $250 million the last quarter. So it was bigger this year and this is --

Bruno Constantino -- Chief Financial Officer

Yeah. Yeah. Yeah. The access to XP distribution capability, it's become more expensive I'll say.

Domingos Falavina

Gotcha. Thank you, guys. Congrats again.

Bruno Constantino -- Chief Financial Officer

Thank you, Domingos.

Andre Martins

Thank you, Domingos. Marcelo Telles from Credit Suisse. Good night, Telles.

Marcelo Telles -- Credit Suisse -- Analyst

Hi. Good evening, everyone. Can you hear me well?

Andre Martins

Yep.

Bruno Constantino -- Chief Financial Officer

Yes. Hi, Telles.

Marcelo Telles -- Credit Suisse -- Analyst

Hi. How are you? Thanks for your time and for the presentation. I have two questions. The first one, I kind of want to dig a little bit deeper in terms of the core -- the evolution of your core performance in the quarter.

Kind of a follow-up on Domingos' question. If we consider this, I think that line, the other operating expenses that was positive was roughly BRL 233 million in the quarter. And for the year, we finished around BRL 266 million, right? So that probably people see there, let's say, a normalized level of about a quarter of that amount. We're probably implying maybe you have to maybe potentially deduct from your adjusted profit around BRL 140 million, which would probably lead to a 10% decline in your earnings vis-a-vis the third quarter.

And -- because, of course, we're trying to normalize, right, on a quarterly basis, right, that we benefit from this center. And tied to that is also look at our accounting income statement. And when you look at the evolution of your -- actually your core business revenue, right, the service revenues as we report [Inaudible] and when we try to reconcile that with the growth in total revenue, which I think was around 3% growth, it looks like the entire growth came from mark-to-market losses that were lower than in the third quarter, meaning your business -- your core business is to be going down in [Inaudible] and all that when you compare that to the third quarter. So I think interested to your views on that.

And my second question is just regarding the floating balance. There was a very significant decline in customers, I think, of 24% quarter over quarter. And if you can explain, I mean, if you think this will continue to decline as rates go up and where has this money go, maybe some fixed income funds, and how that decline will be including from customers? What is the net impact for you from a contribution standpoint? Thank you.

Bruno Constantino -- Chief Financial Officer

Sorry, Telles. The second question was about -- What was it about?

Marcelo Telles -- Credit Suisse -- Analyst

[Inaudible] with the floating balance from customers.

Bruno Constantino -- Chief Financial Officer

The floating -- yes.

Marcelo Telles -- Credit Suisse -- Analyst

[Inaudible] for the quarter, and was it [Inaudible]. Yeah.

Bruno Constantino -- Chief Financial Officer

No. Got you. So regarding your first question, when we look at margins, to be honest, I think it's tricky to compare on a quarterly basis because you have those impacts. For example, you mentioned some of the provisions we had in the quarters.

In one of the quarters, we had an adjustment, increasing some of the provisions, and that has an impact in that specific quarter. But at the end of the day, you have one year to make those adjustments. And there are adjustments that you make on the fourth quarter because you are looking at the whole year on an accounting perspective. Remembering that every quarter, it's revised and the one that is really audit is the whole year.

So that happens between quarters. So that's a little bit tricky. About your consideration in terms of margins and what the net profit would be if you discounted the SG&A, other expenses, the BRL 233 million out of it, it would have decreased from the third quarter into the fourth quarter. Yes.

That's correct. If you do that adjustment, your math, it's 100% correct. But at the end of the day, remember that the top line, in my view, it's the most important thing. It has grown in the fourth quarter compared to the third quarter.

But I strongly recommend that you look on a year basis than on a quarterly basis because we do have some of those adjustments in terms of the expenses between quarters. Regarding the floating, we had a reduction in the floating amount, and that doesn't have to do exactly with the interest rates going up, right? It has more to do with the trading activity. Because the floating at a broker-dealer level, it's related to trading activity. As you have more customers buying and selling, they set aside the uninvested cash for very short-term periods, and then the floating rises.

And when you have less activity as happened, I mentioned that that's daily average trading in the fourth quarter last year was 25% less than the first quarter last year, the first semester last year, the activity was much stronger than the second semester, and that had an impact in the floating. That's the main correlation. Of course, you can have a secondary effect of interest rates going up, but it's hard to measure that. I don't know if I answered the questions, Telles.

Marcelo Telles -- Credit Suisse -- Analyst

Yeah. No. You did. Thank you so much, Bruno.

Just a follow-up on my first question regarding the evolution of your revenues. When we look at the accounting income statement, your service revenues were actually down for the quarter. And what seems to explain the growth in your total revenues is really lower mark-to-market losses, meaning like it seems that the business, the revenues from the core business is actually down and not up. So what was behind -- what is this -- the mark-to-market -- why was that down? Or -- And how should we think about the evolution going forward of your service revenues?

Bruno Constantino -- Chief Financial Officer

No. The -- I mean, it was not provisions. You have -- when you look at -- the way I recommend looking at that accounting standard, you probably are on our notes of the financials, if I'm not mistaken, the 28, something like that, about the total revenue and income, where you have a different kind of segmentation. You have net revenues from service rendering.

There you have brokerage, stop-loss risk, you have also placement fees. So all the placement fees are there, insurance, management fees, the funds platform. So there are basically fees there altogether that they represent in the whole year something around 55% -- between 50% to 55%. And then you have the net income from financial instruments.

And that part of the revenue, you have two different accountings there. You have a through profit and loss and also amortized at cost, right? And you -- I strongly recommend, Telles, that you look both of them together. And why is that? Because when we have our flow business, the way we manage our risk is to hedge everything we can. Of course, not always we have like a perfect hedge.

So we do have some exposure, but we try to hedge most of what we can. And when you have a derivative as a hedge instrument that goes into profit and loss, it's a mark to market, then you have an underlying asset that has been hedged that is recognized at amortized cost, it goes in a different line. But all of them are together net income from financial instruments, which by the way, we disclosed at our presentation that 88% of that number in the fourth quarter came from retail activity, and it's pretty much recurrent, as you can see throughout our history. And that portion of our revenue has been growing over time because of the growth of clients plus activity in the market in Brazil.

Floating also goes into that revenue line, OK? So there is a component of floating that benefits from higher interest rates, also presenting a growth in the fourth quarter compared to the other quarters because the interest rate has gone up in the fourth quarter. I don't know if that explains that --

Marcelo Telles -- Credit Suisse -- Analyst

Yeah. No. That's clear. Yeah.

I think it's very much understood in the sense that you are earning more financial revenues or float or on cash a little bit. And -- but -- and then in terms of services, we are going down and you are partially -- you are, let's say, more focused in the effect of higher rates or whatever here. The composition of the revenue it looks like toward more [Inaudible] revenues.

Bruno Constantino -- Chief Financial Officer

Yes. The fourth -- look, the fourth quarter, for example, it was not a good quarter on the opposite in terms of equity capital markets. You know that. And also REITs, we are No.

1 in the REIT market in Brazil. So new distribution of REIT products in the fourth quarter was really not good. Also, management fee, performance fees that usually they are stronger in the fourth quarter because of the performance of the fund industry in our platform as well in 2021, the performance fees were also not good. So all of that, those revenues that I mentioned, reads ECM and performance fees, they go in the service rendering net revenue, right? So they decreased in the fourth quarter because of the market conditions.

But you're correct. We more than compensated that with other revenues, and most of it goes into net income from financial instruments.

Marcelo Telles -- Credit Suisse -- Analyst

Thank you.

Bruno Constantino -- Chief Financial Officer

Sure.

Marcelo Telles -- Credit Suisse -- Analyst

I appreciate it.

Andre Martins

Thank you, Telles. So indeed, [Inaudible], we couldn't hear him, but he sent us two simple questions. The first one is why other revenues decline, right? He was assuming that since the cash is higher and also the Selic, that revenue should be benefited. That's the first.

And the second is commissions, right, which are falling as a percentage of retail revenues. Again, Otavio mentioned that in his question. He's only [Inaudible] only -- he wants to know the dynamics for the future, Bruno, because we signed the long-term agreements right with the IFA network through prepaid expenses, maybe the -- maybe some of the market was expecting those revenues or those expenses to be higher as a percentage of retail revenues, but they are lower. So he's asking about the dynamics.

These are the two questions.

Bruno Constantino -- Chief Financial Officer

OK. Now in terms of other revenue, what do you -- we have there, besides the interest on adjusted gross cash, is also our asset liability management results. And we have a hedge policy to hedge our floating balance up to 50% of the floating. And when you hedge, basically, you're taking out risk of the income in terms of a pre-fixed rates.

But when you have a market where pre-fixed rates are going up, as we had in the second semester, you do have a negative impact on that, right? And that's what explains other revenues being less than probably you would expect. Regarding the second question, Andre, is about the IFAs, but being in the COGS, that's the question.

Andre Martins

Yes.

Bruno Constantino -- Chief Financial Officer

OK. Yeah. We -- I mean, we have the impacts there, right? What probably came different than your expectation, I'm assuming that it's not the impact of the prepaid expenses that we have with long-term contracts with our IFA network. It's the mix of products.

And then the commission went down because of the mix of revenue that we had through the IFA channel. That's probably what explains the difference. But all the prepaid expense, they are amortized through their lifetime of the contract we have with each IFA.

Andre Martins

Great. Thank you, Bruno. So the next question, probably we'll have two more. Gabriel Gusan from Citi.

Hi, Gabriel.

Gabriel Gusan -- Citi -- Analyst

Can you hear me?

Bruno Constantino -- Chief Financial Officer

Yes. Hi, Gabriel.

Gabriel Gusan -- Citi -- Analyst

Great. My question is also about the prepaid expenses. We're seeing it at almost BRL 4 billion right now, increasing around BRL 500 million just in the fourth quarter. And I'm getting more and more questions from investors about that.

When will this stop? If it will stop at some point, do you have some [Inaudible] that you can give us into the future if that might? Thank you.

Bruno Constantino -- Chief Financial Officer

Look, I cannot say when it's going to stop. It has reduced each quarter. But our decision-making process here is about what it makes sense for us to cover what it doesn't. It's an economic analysis.

We have the data. We have said many times that we do benefit from [Inaudible] selection process in terms of knowing which IFA we should retain here. And it has reduced each quarter, but I cannot tell you that it's going to stop in x quarters. I don't know.

We -- It's a day-by-day business here. We are going to analyze if we do have any proposal on the table that we would consider to cover or not. And it's going to be an economic analysis with strong data points to guide our decision. That I can assure you.

Gabriel Gusan -- Citi -- Analyst

All right. Thank you very much.

Bruno Constantino -- Chief Financial Officer

Sure.

Andre Martins

Thank you, Gusan. The next question is from Carlos from HSBC. Hi, Carlos.

Unknown speaker

So can you hear me?

Thiago Maffra -- Chief Executive Officer

Yes.

Bruno Constantino -- Chief Financial Officer

Yes. Hi, Carlos.

Unknown speaker

Thank you very much for taking my question. I have two and they are both related to your equity actually. First, if you could give us some idea about how much you're expecting share-based compensation. There was a significant increase this year -- sorry, in 2021 versus '20.

What do you expect for 2022 and 2023, again, share-based compensation. And the other question I'm sure you receive this all the time, would you consider anticipating or buying back from Itau the stake that they are supposed to buy during 2022 to reduce the overhang in the market? Thank you.

Bruno Constantino -- Chief Financial Officer

Yeah. Regarding share-based compensation, we have been discussing internally to give a better range. So we don't have sell-side analysts forecasting a very wide range. Basically, what we have, the way it works is when you have one share-based compensation issue for any partner, what varies each quarter or each month is basically the taxes that you have to pay over that -- over time.

So that's a more volatile expense because it fluctuates with the share price. And then it has the same volatility of the share price. And that's around, to give you a rough number, around one-third of the total amount that we have in our expenses, OK? We expect that number to increase from 2021 to 2022. But we don't have here a specific figure to give you.

It would be probably more than 30% increase, I would guess. But it depends on the share price that you estimate each quarter. Regarding the share, the Itau, I think the other question was about Itau acquisition, right, the one that has been approved by Central Bank. And that's -- It's going to --

Unknown speaker

It's going to happen?

Bruno Constantino -- Chief Financial Officer

It's going to happen. Right now, we were waiting for the financials to be released. There is a process there. And I believe that in the first quarter, we are going to have these shares being bought by Itau, remembering that we are talking about here all secondary shares, so no primary shares being sold, which 80% approximately are from General Atlantic and 20% from XP control.

Unknown speaker

And the question is there, would you consider buying back from Itau to reduce the overhang because eventually Itau would want to dispose the share. Would you be willing to put a bid on them?

Bruno Constantino -- Chief Financial Officer

We -- I mean, they need to tell us they want to sell. We could analyze that. But remember that here, we have a lot of investments to still do in our company and our growth. We are, as we tried to show here in our presentation at very early stage in many, many different verticals.

And even in our core business investment, the way we look at market share in the investment business, we are not No. 1 yet. So a long journey ahead of us. And if we have to decide to buy back shares in the short term and not having enough cash to invest in our business, thinking about the long term because of overhang issues, I mean, we are going to opt for investing in the business because, again, we are -- we think like owners.

We think for the long term of the company, and we believe that's the right course of action, especially considering all the opportunities we see ahead of us. So if we had idle cash, we would be more than happy to consider that hypothesis. But the business is growing very fast and many different business is scaling. So we do not have that idle cash.

We do have a great amount of gross cash in the company, but we use that for our business outflow and many other businesses. So I don't think that option would be on the table right now considering our balance sheet as it is.

Unknown speaker

That's a very clear answer. Thank you. Going back to the first one. So the BRL 700 million that we have this year, that should be the base.

We should think about the number above that for share-based compensation in 2022?

Bruno Constantino -- Chief Financial Officer

Yes. I think so because you have -- think like that, Carlos. We always have the partnership meritocracy once a year. And usually, it happens in the beginning of the second semester.

And we have the RSUs being released at October usually, OK? So all the new shares that were released last year, they only accounted for one-fourth of the year, and now they have the whole year here. We also are going to have this year. The first issuances of RSUs being vested by December. And yes, December -- probably December.

Thiago Maffra -- Chief Executive Officer

November, maybe. Yeah.

Unknown speaker

Yeah. That's clear. Thank you so much.

Bruno Constantino -- Chief Financial Officer

OK. My pleasure.

Andre Martins

Thank you, Carlos. So we're out of the Q&A. I'm happy that we can -- we could answer all of you. The participation was great, the audience, and so forth.

And thank you, everyone, so much for your interest. I would leave maybe Bruno or Maffra or both of you to finalize the call. But on our part here, thank you very much for the participation, and we are fully available for the many follow-up calls that we might have on the next few days.

Bruno Constantino -- Chief Financial Officer

No. I can start and Maffra can finish here. Now just would like to thank you very much for the interest, and I hope to see you in the next earnings call and be together in this long-term journey that we have ahead of us.

Thiago Maffra -- Chief Executive Officer

Thank you very much, everyone. And as we like to say, we are at the very beginning of our journey here. As I mentioned, we still have very small market shares of revenue in Brazil with two at a very early stage here, and this is our life. We are here for the next 10, 20 years.

So I hope to have you guys alongside all the journey, all the way. So thank you very much.

Andre Martins

Bye-bye, everyone.

Duration: 79 minutes

Call participants:

Andre Martins

Bruno Constantino -- Chief Financial Officer

Tito Labarta -- Goldman Sachs -- Analyst

Thiago Maffra -- Chief Executive Officer

Jorge Kuri -- Morgan Stanley -- Analyst

Thiago Batista -- UBS -- Analyst

Otavio Tanganelli -- Bradesco BBI -- Analyst

Domingos Falavina -- J.P. Morgan -- Analyst

Domingos Falavino

Marcelo Telles -- Credit Suisse -- Analyst

Gabriel Gusan -- Citi -- Analyst

Unknown speaker

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