Newswires
Brazil is the largest economy in Latin America , as measured by GDP. The following table shows data for real GDP, inflation and interest rates in Brazil and the U.S. dollar/real exchange rate at the dates and for the periods indicated.
Annual Report for Fiscal Year Ending December 31, 2024 (Form 20-F)
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements as of December 31, 2024 and 2023 and for each of three years in the period ended December 31, 2024 , 2023 and 2022 and the notes thereto, included elsewhere in this annual report.
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of events may differ materially from those expressed or implied in such forward-looking statements as a result of various factors, including those set forth in "Cautionary Statement Regarding Forward-Looking Statements" and "Item 3. Key Information-D. Risk Factors."
A. Operating Results
Overview
XP is a leading, technology-driven platform and a trusted provider of low-fee financial products and services in Brazil . We have developed a mission-driven culture and a business model that we believe provide us with strong competitive advantages in our market. We use these to disintermediate the legacy models of traditional financial institutions by educating new classes of investors, democratizing access to a wider range of financial services, developing new financial products and technology applications to empower our clients, and providing what we believe is the highest-quality customer service experience in the industry in Brazil . We believe we have established ourselves as the leading alternative to the traditional banks, with a large ecosystem of retail investors, institutions and corporate issuers in local and international markets, with offices in Brazil , New York , Miami and London .
OurXP Business Modelhas been developed over the course of our evolution and enables us to go to market in a very different way from the legacy models of the large traditional financial institutions. We believe our model provides us with a unique value proposition for our clients and partners and has enabled us to instill trust in the XP brands and begin to change the way investment services are sold in Brazil . This proprietary approach incorporates a unique combination of capabilities, services and technologies to deliver a highly differentiated and integrated client experience, with significant operating efficiency advantages that have enabled us to scale and grow profitably.
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Our technology-driven business model is asset-light and highly scalable. This enables us to generate scale efficiencies from increases in total Client Assets. We conduct most of our business online and through mobile applications and emphasize operational efficiency and profitability throughout our operations. These operating efficiencies enable us to generate strong cash flow in various market conditions, allowing us to continue investing in the growth of our business. Our business requires minimal capital expenditures to facilitate growth, with expenditures amounting to 1.9% of net revenues for the year ended December 31, 2024 , an increase from 1.3% of net revenues in 2023.
Key Business Metrics
The following table sets forth our key business metrics as of and for the periods indicated. These supplemental business metrics are presented to assist investors to better understand our business and how it operates.
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2024
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2023
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2022
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Operating Metrics (Unaudited)
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Total Client Assets (in R$ billions)
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1,227 | 1,122 | 946 | ||||||||||||||
| Total Net Inflow (in R$ bn) | 103 | 105 | 138 | ||||||||||||||
| Annualized Retail Take Rate | 1.29 | % | 1.28 | % | 1.29 | % | |||||||||||
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Active clients (in thousands)
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4,684 | 4,531 | 3,877 | ||||||||||||||
| Headcount (EoP) | 7,442 | 6,669 | 6,928 | ||||||||||||||
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18.2 | 17.2 | 14.7 | ||||||||||||||
| Retail DATs (in millions) | 2.3 | 2.2 | 2.4 | ||||||||||||||
| Retirement Plans Client Assets (in R$ billions) | 81 | 73 | 61 | ||||||||||||||
| Cards TPV (in R$ billion) | 48 | 41 | 25 | ||||||||||||||
| Loan Portfolio (in R$ billion) | 29 | 29 | 22 | ||||||||||||||
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Financial metrics (in R$ millions)
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Gross revenue and income
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17,988 | 15,726 | 14,036 | ||||||||||||||
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Retail(1)
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13,489 | 11,791 | 10,157 | ||||||||||||||
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Institutional
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1,373 | 1,516 | 1,919 | ||||||||||||||
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Corporate & Issuer Services(1)
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2,289 | 1,576 | 1,295 | ||||||||||||||
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Other
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837 | 842 | 666 | ||||||||||||||
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Total Revenue and Income
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17,031 | 14,860 | 13,347 | ||||||||||||||
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Gross Margin (%)(²)
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68.6 | % | 68.0 | % | 70.3 | % | |||||||||||
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EBT
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4,986 | 3,936 | 3,445 | ||||||||||||||
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EBT Margin (%)(³)
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29.3 | % | 26.5 | % | 25.8 | % | |||||||||||
| Net Income | 4,515 | 3,899 | 3,580 | ||||||||||||||
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26.5 | % | 26.2 | % | 26.8 | % | |||||||||||
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Adjusted Net Income
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4,544 | 3,899 | 3,580 | ||||||||||||||
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Adjusted
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26.7 | % | 26.2 | % | 26.8 | % | |||||||||||
(1)Revenues associated with corporate clients, companies with annual revenues above R$700 million , were segregated from retail clients, which include individuals and companies with lower revenues. The change was motivated by the growth of the Corporate business. Revenue from Corporate clients is being reported in Corporate & Issuer Services.
(2)Calculated as total revenue and income less operating costs, including expected credit losses, and divided by total revenue and income.
(3)Calculated as income before income tax divided by total revenue and income.
(4)Calculated as Net Income divided by total revenue and income.
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Total Client Assets
Client Assets is the market value of all client assets invested through XP's platform, including equities, fixed income securities, mutual, hedge and private equity funds (including those managed by XP Gestão de Recursos Ltda., XP Advisory, XP PE Gestão de Recursos Ltda., XP Allocation Asset Management Ltda ., XP Vista Asset Management Ltda . and XP Sports Asset Management Ltda., as well as by third-party asset managers), retirement plans funds (including those from XP VP, as well as by third-party insurance companies), exchanged traded funds, structured operations certificates, REITs (real estate investment funds), uninvested cash balances (Float Balances), among others. We consider Client Assets to be indicative of our appeal in the marketplace. Client Assets vary from period to period based on (1) the amount of cash and assets transferred into, and out of, XP's platform by clients and (2) fluctuation of market prices of securities and net asset values of mutual and retirement plans funds.
Retail - Active Clients
Active clients are the number of total clients served through XP, Rico, Clear and XP Investments brands, with Client Assets above R$100.00 or that have transacted at least once in the last thirty days. The majority of clients are individuals, but we also include retail, small and medium-sized enterprise clients and corporate clients that have investment accounts with us.
Retail - Gross Total Revenues
Retail gross total revenues include all types of revenue and income streams directly related to retail clients, including, but not limited to: (1) management and performance fees from funds managed by our asset managers, and rebates from management and performance fees from mutual funds managed by third-party asset managers, that are distributed to our retail clients; (2) rebates from management fees from retirement plans funds issued by third-party insurance companies or XP VP that are distributed to our retail clients; (3) management fees from exclusive funds of high net worth retail clients; (4) brokerage commissions earned on trading of stock, futures and derivatives listed on the B3 (although we charge zero commissions on self-directed trading of equities on Rico and Clear, and of futures on the three brands); (5) securities placement fees earned on structured operations certificates (COEs) sales to retail clients; (6) the distribution fee component from securities placement fees earned on the sale of funds and fixed income and equity securities to retail clients; (7) net income from corporate, bank and government fixed income securities and from derivatives sold to retail clients; (8) net interest income from credit products, such as loans and credit cards (interchange fees included), and (9) net income earned on Float Balances, which we allocate in sovereign bonds; (10) net income earned on demand deposits; (11) insurance brokerage fees from insurance products sold to retail clients from third-party insurance companies and premiums from insurance products sold to retail clients by XP VP; (12) Digital Content revenues generated from selling XP Educação educational courses and content sold to retail clients and to non-client individuals, selling branded content articles, direct media advertisements on websites or mobile sites, Infomoney TV insertions, and other advertising and digital content fees generated by Infomoney; and (13) sale of research reports and educational courses to retail clients and other non-client subscribers. A portion of our management fees is calculated based on the performance of the mutual funds we manage or distribute.
Institutional - Gross Total Revenues
Institutional gross total revenues include all types of revenue and income streams directly related to Institutional clients - asset managers, pension fund managers, bank treasuries and private client desks, single and multi-family offices, corporate client treasuries, municipal and state pension fund managers and insurance companies, among others. These clients, across all regions such as Asia , Europe , the United States and Latin America (mainly Brazil ), are served through our onshore and offshore trading desks and dedicated support teams in São Paulo, New York and London , both via electronic trading and voice platforms, and access a wide range of products and services, including products such as equities (cash, derivatives, stocks lending and index), fixed income government and corporate bonds, FX (spot, NDF, futures, derivatives), rates (futures, swaps and derivatives), commodities, XP Gestão and XP Vista mutual funds, among others. Therefore, we include in this line: (1) brokerage commissions on trades by Institutional clients; (2) the distribution fee component out of securities placement fees earned on the sale of fixed income and equity securities to Institutional clients; (3) management fees from funds managed by our asset managers and XP Vista and sold to Institutional clients; and (4) net income from corporate, bank and government fixed income securities and from derivatives sold to Institutional clients, among others. A portion of our management fees are calculated based on the performance of the mutual funds we manage or distribute.
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Corporate & Issuer Services - Gross Total Revenues
Corporate & Issuer Services gross total revenues include capital markets security placement fees earned from corporate clients that hire XP for structuring, underwriting or placement of debt (such as Debentures, Infrastructure Bonds, CRIs, CRAs, FIDCs, LFs) or equity securities (IPOs, follow-ons, block trades and tender offers), the majority of which are sold to our retail clients given the breadth and reach of our platform. Corporate & Issuer Services revenues also include services such as M&A advisory, structured finance operations and other services, including derivatives, credit and treasury solutions. We define our corporate clients as entities with more than R$700 million in annual revenue.
Other - Gross Total Revenues
We include in Other gross revenues and income not allocated to Retail, Institutional and Corporate & Issuer Services solution categories, such as principal trading operations, which consists of investing our own net cash balances in low-risk securities, arbitrage transactions and other investments with limited exposure to market risk.
Review of 2024 Results
Retail- Our number of active clients increased 3%, from 4,531 thousand as of December 31, 2023 to 4,684 thousand as of December 31, 2024 . The daily average trades for the year ended December 31, 2024 was 2.3 million, 4% lower compared with the year ended December 31, 2023 . Driven by a monthly average net inflow of R$9 billion , our Total Client Assets increased 9% from R$1,122 billion as of December 31, 2023 to R$1,227 billion as of December 31, 2024 . Also, there's a natural organic growth due to the expansion of our client base. Retail Gross Total Revenues increased 14% from R$11,791 million for the year ended December 31, 2023 to R$13,489 million for the year ended December 31, 2024 , attributable mostly to (1) growth in the client base and total Client Assets and (2) increased performance from products such as fixed income, credit cards and other retail revenue.
Institutional- gross revenues totaled R$1,373 million for the year ended December 31, 2024 , a 9% decrease from R$1,516 million for the year ended December 31, 2023 , mainly due to lower trading activity.
Corporate & Issuer Services- gross revenues totaled R$2,289 million for the year ended December 31, 2024 , a 45% increase from R$1,576 million for the year ended December 31, 2023 . This increase was attributable to a strong performance in Debt Capital Markets (DCM). The robust activity in DCM was driven by (1) favorable market conditions, that allowed the company to capitalize on high demand for debt financing solutions, thereby securing substantial deal flow and revenue, and (2) a lower cost of capital and funding for XP, which increase our competitiveness in underwriting . Simultaneously, the company experienced higher M&A advisory fees, reflecting its strategic effectiveness in navigating complex transactions and integrations for clients, along with more transactions with corporate clients with derivative instruments.
As a result, our total revenue and income increased 15%, from R$14,860 million for the year ended December 31, 2023 to R$17,031 million for the year ended December 31, 2024 . The year ended December 31, 2024 was also marked by an increase in technology solutions associated with new products, infrastructure and also in expanding our employee base. Selling expenses decreased 12%, from R$169 million to R$149 million , for the year ended December 31, 2024 and administrative expenses increased 10%, from R$5,641 to R$6,001 million for the same period, driven by higher personnel expenses and data processing. The increase in expenses and revenue resulted in a 27% higher income before income tax. Our tax expense was R$434 million higher in the year ended December 31, 2024 , resulting in a higher net income, from R$3,899 million for the year ended December 31, 2023 to R$4,515 million for the year ended December 31, 2024 , and a net margin increase from 26.2% to 26.5%. Adjusted Net Income also increase from R$3,899 million for the year ended December 31, 2023 to R$4,544 million for the year ended December 31, 2024 , and a net margin increase from 26.2% to 26.7%
Review of 2023 Results
Retail- Our number of active clients increased 17%, from 3,877 thousand as of December 31, 2022 to 4,531 thousand as of December 31, 2023 . The daily average trades for the year ended December 31, 2023 was 2.2 million, remained stable compared with the year ended December 31, 2022 . Driven by a monthly average net inflow of R$9 billion , our Total Client Assets increased 19% from R$946 billion as of December 31, 2022 to R$1,122 billion as of December 31, 2023 . Our AUM increased 4%, from R$132 billion as of December 31, 2022 to R$138 billion as of December 31, 2023 (12.3% of our Total Client Assets). Also, there's a natural organic growth due to the expansion of our client base. Retail Gross Total Revenues increased 12% from R$10,157 million for the year ended December 31, 2022 to R$11,791 million for the year ended December 31, 2023 , attributable mostly to (1) growth in the client base and total Client Assets and (2) increased performance from products such as fixed income, credit cards and other retail revenue.
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Institutional- gross revenues totaled R$1,516 million for the year ended December 31, 2023 , a 21% decrease from R$1,919 million for the year ended December 31, 2022 , mainly due to lower trading activity and lower results from our fixed income, currency and commodities desk.
Corporate & Issuer Services- gross revenues totaled R$1,576 million for the year ended December 31, 2023 , a 22% increase from R$1,295 million for the year ended December 31, 2022 . This increase was attributable to a strong performance in Debt Capital Markets (DCM) and an increase in revenues from merger and acquisition (M&A) advisory fees. The robust activity in DCM was driven by favorable market conditions that allowed the company to capitalize on high demand for debt financing solutions, thereby securing substantial deal flow and revenue. Simultaneously, the company experienced higher M&A advisory fees, reflecting its strategic effectiveness in navigating complex transactions and integrations for clients. This increase in revenue was pivotal in offsetting the weaker results from Equity Capital Markets (ECM), which continued to underperform due to less favorable conditions in the equity issuance landscape.
As a result, our total revenue and income increased 11%, from R$13,347 million for the year ended December 31, 2022 to R$14,860 million for the year ended December 31, 2023 . Gross margin decreased from 70.3% to 68.0%, mainly due to higher costs associated with credit cards. The year ended December 31, 2023 was also marked by an increase in technology solutions associated with new products, infrastructure and also in expanding our employee base. Selling expenses increased 22% to R$169 million for the year ended December 31, 2023 and administrative expenses decreased 3% to R$5,461 million for the same period, driven by lower personnel expenses and third-party services. The decrease in expenses and revenue growth resulted in a 14% higher income before income tax. Our tax expense was R$173 million higher in the period, resulting in a higher net income, from R$3.580 million for the year ended December 31, 2022 to R$3,899 million for the year ended December 31, 2023 , and a net margin decrease from 26.8% to 26.2%.
Non-GAAP Financial Measures
This annual report presents our Adjusted Net Income and its respective reconciliation for the convenience of investors, which is a non-GAAP financial measures. A non-GAAP financial measure is generally defined as a numerical measure of historical or future financial performance, financial position or cash flows that purports to measure financial performance but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure. For further information on why our management chooses to use these non-GAAP financial measures, and on the limits of using these non-GAAP financial measures, please see "Presentation of Financial and Other Information-Special Note Regarding Non-GAAP Financial Measures."
Adjusted Net Income
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2024
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2024
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2023
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2022
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(US$)(1)
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| Net Income | 729 | 4,515 | 3,899 | 3,580 | |||||||||||||||||||
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PSU expiration expenses
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(2) | (12) | - | - | |||||||||||||||||||
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Tax expenses
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7 | 41 | - | - | |||||||||||||||||||
| Adjusted Net Income | 734 | 4,544 | 3,899 | 3,580 | |||||||||||||||||||
(1)For convenience purposes only, amounts in reais as of December 31, 2024 have been translated to U.S. dollars using an exchange rate of R$6.1923 to US$1.00 , the commercial selling rate for U.S. dollars as of December 31, 2024 as reported by the Central Bank . These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. See "-Exchange Rates" for further information about recent fluctuations in exchange rates
Investments Cohorts
We believe that our strong value proposition and client-centric approach will continue to enhance our client loyalty and enable us to grow our share of wallet from our current customer base. We believe a simple cohort data analysis demonstrates this trend in our business and our significant opportunity in the future. For example, we measured the net new money invested with us over time across seven cohorts, which were defined as new clients that became active on our platform annually since January 2018 . We then eliminated the appreciation in the value of the invested assets so that we could calculate the accumulated net inflow of new money by each cohort.
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As our company is growing, our ecosystem is expanding and our brand is getting stronger, we see faster increases in net new money. For example, our January 2024 cohort began with an initial investment that was more than twice the size of our January 2018 cohort. More importantly, we continue to see the trend where the vast majority of the cohorts significantly grow in their total Client Assets invested with XP over time, after adjusting out the net appreciation of assets in each cohort. This demonstrates that after making their initial investments, clients' satisfaction with the XP client experience is strong enough for them to continue adding new money into their XP accounts. We believe this illustrates our significant opportunity to continue to penetrate our existing customer base and win a greater share of wallet, as shown in the following chart:
Accumulated Net Inflow
•January 2022 Cohort- This cohort began with an initial investment of R$6,639 million , up 39% over the January 2021 cohort. After adjusting out the net appreciation of assets, the net balance of invested assets in this cohort increased 35% after 6 months and 42% after 12 months.
•January 2023 Cohort- This cohort began with an initial investment of R$4,870 million , 27% lower than January 2022 cohort. However, after adjusting out the net appreciation of assets, the net balance of invested assets in this cohort increased 26% after 6 months and 37% after 12 months.
•January 2024 Cohort- This cohort began with an initial investment of R$4,881 million , in line with January 2023 cohort. However, after adjusting out the net appreciation of assets, the net balance of invested assets in this cohort increased 34% after 6 months and the same after 12 months.
As our clients add new money onto our platform and become more comfortable using our technologies and services, they may also purchase more products within their existing financial product categories or begin to explore new categories. For example, a customer with a portfolio of equity securities may purchase additional equities and equity products, such as futures, and also diversify into fixed income products.
Significant Factors Affecting Our Results of Operations
We believe that our results of operations and financial performance are driven by the following factors:
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Growth of Our Retail Client Assets
We generate a significant portion of our revenues from fees derived from our balance of Retail Client Assets, including advisory fees, commissions, distribution fees from product manufacturers and asset management fees across various solution categories. This income is primarily driven by:
•Current Balance of Retail Assets from Existing Clients- We provide our existing clients with a large range of financial products and services in which to invest their existing assets already on our platform. Depending on the mix of products and services that our clients choose, we generate numerous forms of income from our current balance of Client Assets. As our clients choose to diversify their portfolios and shift their investments from one product to another, we can generate new income from our current balance of Client Assets.
•New Assets from Existing Clients- As our clients enjoy the XP client experience, many choose to add more money into their accounts. They may use these additional funds to acquire (1) a greater amount of their existing products and services or (2) diversify their portfolios by purchasing additional products and services in new categories. For example, a customer with a portfolio of equity securities may purchase additional equity products and diversify into fixed income products. As our clients add more money to their accounts, we generate additional income from the new balance of Client Assets introduced onto our platform.
•New Assets from New Clients - As our omni-channel distribution and brands continue to grow, we attract and onboard new clients onto our platform who fund their accounts with new money. We generate additional income from the new balance of Client Assets introduced by these new clients.
Given the size and economies of scale of our platform and the recurring nature of our revenues due to our business model, we generate a significant amount of our revenues from our current balance of Client Assets and new Client Assets from existing clients, versus Client Assets from new clients (activated within the last twelve months), as shown in the following chart.
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% of Retail Revenue from New Clients vs. Existing Clients
The breakdown set forth in the chart above considers only the portion of retail revenues that we track on a client level that represents: (1) for 2022, 86% of total retail revenues; (2) for 2023, 91% of total retail revenues; and (3) for 2024, 92% of total retail revenues.
Adoption of Our Retail Financial Products and Services
We grow our Client Assets, in part, by providing an open platform that has a large and expanding base of retail financial products and services for our existing active clients to choose from. As our clients choose to diversify their portfolios and shift their investments from one product to another, we generate new income from their purchase of additional products and services. We drive the adoption of our retail financial products and services by:
•Cross-Sale of Our Products and Services- Our existing clients represent a sizable opportunity to cross-sell products and services with relatively low incremental marketing and advertising expenses for us. We believe the breadth of our offerings represents an opportunity to further increase engagement with our existing clients. To the extent that we are able to cross-sell these products and services and develop and introduce new products and services to our existing clients and attract new clients, we expect our revenues and financial income to continue to grow and our margins to increase.
•Development of New Products and Services- We strive to stay on the cutting edge of the financial technology solutions industry by developing and launching new products and services and intend to continue to invest in product development to build new products and services and to bring them to market. This allows us to continue to meet the needs of our clients, as these needs grow and change over time. We develop our products and services from: (1) our internal new product structuring initiatives; (2) our internal development of new services; (3) third-party vendors who provide complementary financial products and services that we do not provide ourselves; and (4) third-party vendors who provide competitive financial products and services that are similar to those that we offer or are in similar categories.
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We plan to continue to invest in product development in order to maintain and increase the attractiveness of our products and services. We also plan to continue integrating value-added services, including the expansion of our asset management and wealth management services to improve the popularity of our platform, enhance customer stickiness and increase revenue streams. While we expect our total expenses to increase in the short term as we plan for growth, we expect our expenses to decline as a percentage of our total revenue and income over the medium term as these investments benefit our business and our business grows. In addition, in implementing new solutions, we expect to incur initial operational investments in periods prior to the realization of any future revenues associated with this upfront investment. With the deployment of new and better technologies, management processes and training, we expect the productivity of our solutions to improve over time.
Growth of Our Active Retail Clients
We grow our Retail Client Assets, in part, by increasing the number of active clients who invest on our platform. We attract new active clients through our digital content initiatives, our direct online portals, such asXP Direct, RicoandClear, and our IFA network.
The number of these clients depends on several factors, including but not limited to: (1) our brand awareness and reputation; (2) the usability and popularity of our platform; (3) the user experience across the client's journey in our ecosystem and on our platform; (4) our offerings, including access to our broad range of existing products and services and potential new solutions that add value to our clients; (5) the level of customer service and support; and (6) our ability to continue to adapt and innovate.
Our ability to increase our Retail Client Assets from new clients who invest with us is an important lever of revenue growth, though it is decreasing in contribution due to the size and economies of scale of our platform and the recurring nature of our revenues due to our business model. New active clients accounted for 8% of our retail total gross revenues in 2024, compared to 9% in 2023 and 14% in 2022.
Growth of Our Commercial Services
We also generate a smaller portion of our revenues from our Issuer and Institutional services, which are complementary to our platform and enhance the value and liquidity (through the volume of unlisted securities traded through our platform in the secondary market) of our ecosystem. These include a range of financial services to over 800 commercial clients, such as institutions and corporate issuers, that generate several revenue streams, including advisory, structuring and distribution fees from issuers and commissions and asset management fees from institutions. These revenues are based on the volume of investment and capital markets activity accessed through or transacted on our platform. We have developed tailored solutions for commercial customers and intend to (1) expand our service offerings to them; (2) foster long-term partnerships with them; and (3) increase the proportion of revenues generated from them.
Management and Improvement of Our Technology Platform
Our technology platform is critical for us to offer high quality products and services as well as to retain and attract users and customers. We must continue to expand our platform capabilities for our users and customers and enhance our clients' experience by improving existing, and developing new and innovative, features and services. We intend to continue strengthening the innovation, security, efficiency and effectiveness of our services, including our user-friendly interfaces, comprehensive functionalities and customer service capabilities. With the ongoing improvement of our technology infrastructure and compliance capabilities, we are able to serve more clients. Our ability to serve more clients, depends on, among other things, our ability to support all aspects of customer verification, record keeping and compliance functions using our technology and human resources.
In addition, our technology infrastructure and compliance capabilities also enable us to facilitate secure, fast and cost-efficient financial transactions on our platform. We must continue to upgrade our technology infrastructure and to strengthen our compliance system to keep pace with the growth of our business. In addition, we experience cyber threats and attempted security breaches. If these were successful, these cybersecurity incidents could impact revenue and operating income and increase costs. We therefore continue to make investments, which may result in increased costs, to strengthen our cybersecurity measures.
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Implementation of Our Marketing Strategy
Our marketing strategy is designed to grow our business and platforms by reinforcing brand recognition and confidence associated with the XP brand and our related brands. We will continue to build and maintain brand recognition and awareness, while generating demand for our products and services through a variety of marketing campaigns, including advertising through traditional media, such as television, magazines and newspapers, online advertising and advertising through digital media, such as social media accounts, social media influencers, online videos and sponsored blogs. Marketing initiatives that specifically aim to attract new customers currently focus on introducing them to our financial services and products through our platform, enhancing our brand awareness by connecting them to our history, and creating awareness of the poor services and low returns of the products offered by traditional banks.
We believe that introducing our financial services and products to potential customers is the most efficient and cost-effective strategy to sustain our growth, creating a "network effect" where existing customers recruit new customers for us through word-of-mouth recommendations. Given the nature of our revenue streams, our investments in marketing and advertising campaigns do not realize returns in the same period in which they are made but over subsequent periods, which could adversely affect our short-term results.
Our Ability to Compete Effectively
We and our competitors compete to attract new customers and increase volume of Client Assets, attract IFAs, increase returns on customer investments, offer a broad range of products and services at competitive prices, win mandates on capital markets transactions; and introduce innovations in online digital solutions and financial services. Our ability to compete is influenced by key factors such as (1) the performance of our products and their asset classes; (2) our ability to improve our platform and launch new products and services; (3) the liquidity we provide on transactions; (4) the transaction costs we incur in providing our solutions; (5) the efficiency in the execution of transactions on our platform and through our issuer services business; (6) our ability to hire and retain talent and IFAs; and (7) our ability to maintain the security of our platform and solutions. See "Item 4. Information on the Company-B . Business Overview-Competition" for more detail on our competitors.
Brazilian Macroeconomic Environment
Our business is impacted by overall market activity and, in particular, trading volumes and market flows and volatility.
While our business is impacted by the overall activity of the market and market volatility, this impact is partially mitigated by the fact that customers do not typically withdraw the funds they invest with us, and instead allocate them to different products we offer depending on market and macroeconomic conditions. For example, during periods of high market volatility or high interest rates, our clients tend to allocate their funds in low-risk, fixed-income instruments, and during periods of low market volatility or low interest rates, they tend to allocate their funds to higher risk, high-yield instruments such as equities. In addition, we are actively engaged in the further digitalization of our financial services and products, which will help further mitigate this impact as we believe secular growth trends can offset market volatility risk. Nevertheless, there may be changes in our clients' preferences towards low-risk investments within the traditional banks, which could decrease our net inflows from both new and existing clients.
The vast majority of our operations are located in Brazil . As a result, our revenues and profitability are subject to political and economic developments and the effect that these factors have on the availability of credit, disposable income, employment rates and GDP growth in Brazil . Our results of operations are affected by levels of interest rates, the expansion or retraction of the capital markets, trading volumes and market inflows in Brazil , each of which impacts the number and overall volume of capital markets transactions and available overall liquidity. For more information, see "Item 3. Key Information-D. Risk Factors-Certain Risks Relating to Brazil-Economic Uncertainty and Political Instability in Brazil May Harm Us and the Price of Our Class A Common Shares."
| FORM 20-F | ||||||||
«
| For the year ended |
|||||||||||||||||
|
2024
|
2023
|
2022
|
|||||||||||||||
| (in percentages, except as otherwise indicated) | |||||||||||||||||
|
Real growth (contraction) in gross domestic product
|
3.4 | 3.2 | 3.0 | ||||||||||||||
|
Inflation (IGP-M)(1)
|
6.5 | (3.2) | 5.5 | ||||||||||||||
|
Inflation (IPCA)(2)
|
4.8 | 4.6 | 5.8 | ||||||||||||||
|
Long-term interest rates-TJLP (average)(3)
|
7.6 | 6.6 | 7.2 | ||||||||||||||
|
CDI interest rate (average)(4)
|
10.9 | 13.0 | 12.4 | ||||||||||||||
|
Period-end exchange rate-R$ per
|
6.192 | 4.841 | 5.218 | ||||||||||||||
|
Average exchange rate-R$ per
|
5.399 | 4.993 | 5.165 | ||||||||||||||
|
Appreciation (depreciation) of the real vs. US$ in the period(6)
|
(21.8) | 7.8 | 6.5 | ||||||||||||||
|
Unemployment rate(7)
|
6.2 | 7.8 | 9.3 | ||||||||||||||
Sources:FGV, IBGE, IPEA , Central Bank and Bloomberg.
(1)Inflation (IGP-M) is the general market price index measured by the FGV.
(2)Inflation (IPCA) is a broad consumer price index measured by the IBGE.
(3)TJLP is the Brazilian long-term interest rate (average of monthly rates for the period).
(4)The CDI (certificado de depósito interbancário) interest rate is an average of interbank overnight rates in Brazil (daily average for the period).
(5)Average of the exchange rate on each business day of the period.
(6)Comparing the US$ closing selling exchange rate as reported by the Central Bank at the end of the period's last day with the day immediately prior to the first day of the period discussed.
(7)Average unemployment rate for year as measured by the IBGE.
Inflation has a direct effect on our contracts with certain suppliers, such as telecommunications operators, whose costs are indexed to the IPCA, and data processors, whose labor costs are adjusted according to inflation. While inflation may cause our suppliers to increase their prices, we are generally able to offset this effect as higher inflation typically results in higher interest rates, increasing our spreads on certain transactions.
Our financial performance is also tied to fluctuations in interest rates, such as the Brazilian interbank deposit (certificado de depósito interbancário) rate, which is an average of interbank overnight rates in Brazil , or "CDI," because such fluctuations affect the value of the net interest margins we eaon financial investments we allocate customer funds to on an overnight basis, compounding our Client Assets base as well as the potential mix of products clients are willing to invest in.
Exchange Rates
The Brazilian foreign exchange system allows the purchase and sale of foreign currency and the international transfer of reais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures.
In 2018, therealdepreciated an additional 16%, to R$3.875 per US$1.00 on December 31, 2018 . In 2019, therealdepreciated an additional 4% to R$4.031 per US$1.00 on December 31, 2019 . In 2020, therealdepreciated an additional 29% to R$5.197 per US$1.00 on December 31, 2020 . In 2021, therealdepreciated an additional 7% to R$5.581 per US$1.00 on December 31, 2021 . In 2022, therealappreciated 6.5% to R$5.287 per US$1.00 on December 31, 2022 . Thereal/U.S. dollar exchange rate reported by the Central Bank was R$4.841 per US$1.00 on December 31, 2023 , which reflected a 7.8% appreciation of therealagainst the U.S. dollar during 2023. As of December 31, 2024 , thereal/U.S. dollar exchange rate reported by the Central Bank was R$6.192 per US$1.00 , which reflected a 21.8% depreciation of therealagainst the U.S. dollar during 2024. There can be no assurance that therealwill not depreciate or appreciate further against the U.S. dollar. The Central Bank has previously intervened in the foreign exchange market to attempt to control instability in foreign exchange rates. We cannot predict whether the Central Bank or the Brazilian government will continue to allow the real to float freely or will intervene in the exchange rate market by re-implementing a currency band system or otherwise. Therealmay depreciate or appreciate substantially against the U.S. dollar in the future. Furthermore, Brazilian law provides that, whenever there is a serious imbalance in Brazil's balance of payments or there are serious reasons to foresee a serious imbalance, temporary restrictions may be imposed on remittances of foreign capital abroad. We cannot assure you that the Brazilian government will not place restrictions on remittances of foreign capital abroad in the future.
The following table sets forth, for the periods indicated, the high, low, average and period-end exchange rates for the purchase of U.S. dollars expressed in Brazilianreaisper U.S. dollar. The average rate is calculated by using the average of reported exchange rates by the Central Bank on each business day during a monthly period and on the last day of each month during an annual period, as applicable.
| FORM 20-F | ||||||||
«
| Year | Period-End |
Average(1)
|
Low(2)
|
High(3)
|
||||||||||||||||||||||
| 2020 | 5.196 | 5.158 | 4.021 | 5.937 | ||||||||||||||||||||||
| 2021 | 5.581 | 5.397 | 4.894 | 5.879 | ||||||||||||||||||||||
| 2022 | 5.218 | 5.166 | 4.618 | 5.704 | ||||||||||||||||||||||
| 2023 | 4.841 | 4.995 | 4.720 | 5.446 | ||||||||||||||||||||||
| 2024 | 6.192 | 5.828 | 5.426 | 6.209 | ||||||||||||||||||||||
Source:Central Bank .
(1)Represents the average of the exchange rates on the closing of each business day during the year.
(2)Represents the minimum of the exchange rates on the closing of each business day during the year.
(3)Represents the maximum of the exchange rates on the closing of each business day during the year.
| Month | Period-End |
Average(1)
|
Low(2)
|
High(3)
|
||||||||||||||||||||||
| 5.778 | 5.624 | 5.431 | 5.780 | |||||||||||||||||||||||
| 6.054 | 5.807 | 5.662 | 6.054 | |||||||||||||||||||||||
| 6.192 | 6.097 | 5.941 | 6.199 | |||||||||||||||||||||||
| 5.830 | 6.022 | 5.830 | 6.209 | |||||||||||||||||||||||
| 5.849 | 5.766 | 5.698 | 5.869 | |||||||||||||||||||||||
| 5.742 | 5.747 | 5.663 | 5.835 | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||||
Source:Central Bank .
(1)Represents the average of the exchange rates on the closing of each business day during the month.
(2)Represents the minimum of the exchange rates on the closing of each business day during the month.
(3)Represents the maximum of the exchange rates on the closing of each business day during the month.
Description of Principal Line Items
Total Revenue and Income
Our total revenue and income consist of (1) net revenue from services rendered; and (2) net income from financial instruments.
Net Revenue from Services Rendered
This is our main source of revenue, deriving mostly from services rendered and fees charged at daily transactions from customers and consisting of:
•Brokerage commissions, which consist of: (1) commissions earned on trading of stock, futures and derivatives listed on the B3 by our retail clients; (2) commissions earned on trading of stock, futures and derivatives listed on the B3 by our institutional clients; (3) commissions earned on intermediation of non-deliverable-forward and other over-the-counter contracts; and (4) commissions earned on trading of US equities, futures and derivatives by our international institutional clients.
•Securities placements, which consist of: (1) fees earned on COE sales to retail clients (we structure the COE based on perception of demand and attractiveness of a specific exposure under current and prospective macroeconomic scenarios, and a partner bank issues the COE); (2) structuring fees related to issuer services where we are hired by corporate clients placing fixed income, equity or exchange traded fund securities in the capital markets; (3) distribution fees on the sale of such securities to our retail and/or institutional clients; and (4) recurring fees we charge third-party financial institutions that regularly offer CDs or other bank fixed income securities to our retail clients.
•Management fees, which consist of (1) fixed and performance-based management fees from funds managed by our asset managers and sold to our clients; (2) fees from distributions (rebates from fixed and performance-based management fees) of mutual and hedge funds managed by third-party asset managers to our clients; and (3) fixed management fees from XP Advisory managed portfolios and exclusive funds for high net worth retail clients. Fixed management fees are charged on a monthly basis and performance-based management fees for the majority of our funds are charged in June and December of each year.
•Insurance brokerage fees, which consist of (1) fees from distributions (rebates from fixed and performance-based management fees) of retirement plans managed by third-party asset managers sold to our retail clients; and (2) rebates on Whole Life insurance products issued by third-party insurance companies, sold to our retail clients.
•Educational services fees, which consist of fees we charge in connection with the financial education and investment-related courses produced by XP Educação and sold to our retail clients and to non-clients, as part of our digital content offerings.
| FORM 20-F | ||||||||
«
•Commission Fees, which consist mainly of interchange fees, related to credit card transactions, and loan operations structuring fees.
•Other services, which consist of several small revenue streams, including (1) fees charged to retail clients with negative cash balances (typically as a result of margin calls related to equities and derivatives trading); (2) advertising and other digital content fees generated by Infomoney; and (3) issuer services advisory fees from M&A and other financial advisory mandates.
•Deduction from sales taxes and contributions on revenues, including taxes on services (ISS) and contributions on revenues (Social Integration Program - PIS, and Social Security Program - COFINS).
Net Income from Financial Instruments.
A portion of our total revenue and income we generate from our investment distribution platform to retail clients and our institutional brokerage business lines are accounted for not as net revenue from services rendered but as net income from financial instruments, including through: (1) the difference between purchases and sales earned on sales of corporate, bank and government fixed income securities to our retail clients and institutional clients (some of which we purchase from the issuer and resell to the client instantaneously, and some of which we hold over short periods to leverage flow and add liquidity to the market); (2) sales of structured notes and more complex derivative instruments to our retail clients (in which we are the counterparty of the listed derivative that the client is buying to build the structured note, and we then hedge consolidated exposures in the market); (3) interest income on loans to our retail clients; and (4) interest earned on uninvested cash balances of our retail clients which we allocate to overnight and other highly liquid investments. In addition, a small portion of this revenue line is linked to our principal trading operations, which in general consist of investing our own net cash balances in conservative securities and arbitrage and other investments with little to no direct exposure. Income from financial instruments is deducted by taxes and contributions on financial income.
Operating Costs and Expenses
Operating costs.Operating costs primarily consist of: (1) commission and incentive costs paid to IFAs based on the revenues they generate from the retail clients that they serve and additional incentives to accelerate business expansion; (2) clearinghouse, custody and other financial services fees paid, primarily to the B3; (3) operating losses related to our activities in the ordinary course of our business; and (4) provisions for bad debts.
Selling expenses.Selling expenses consist of advertising and publicity/marketing expenses, primarily in connection with our initiatives to promote our brands to retail clients.
Administrative expenses.Administrative expenses primarily consist of personnel related expenses, including fixed and variable compensation, benefits and social and payroll taxes. Administrative expenses also consist of expenses related to: (1) data processing services; (2) technical services; (3) third-party services; (4) office rent; (5) depreciation and amortization; (6) communications; (7) travel; (8) legal and judicial; and (9) miscellaneous taxes.
Other operating income (expenses),net. Other operating expenses, net primarily consist of: (1) incentives earned from the Brazilian Treasury Bonds (Tesouro Direto) and B3 transactions as a result of marketing campaigns to increase our number of retail clients and Client Assets of certain asset classes and incentives received from third parties, mainly due to the joint development of retail products; (2) recovery of charges and expenses; (3) reversal of operating provisions, and other income lines, net of expenses; (4) legal, administrative proceedings and agreements with customers; (5) operating losses on write-offs and disposal of assets; (6) fines and penalties; (7) charitable contributions; (8) associations and regulatory fees and (9) other expenses.
Expected credit losses.Expected credit losses primarily consist of the difference between the contractual cash flows due in accordance with certain agreements and all the cash flows that we expect to receive, discounted at an approximation of the original effective interest rate.
Interest expenses. Interest expenses arising from the loans, lease liabilities and debentures that we have borrowed, contracted and issued.
Share of profit or (loss) in joint ventures and associates. Share of profit or (loss) in joint venture and associates is related to equity accounting.
| FORM 20-F | ||||||||
«
Income before Income Tax
Income before income tax consists of our net revenue and income minus our operating costs, selling and administrative expenses, others deductible expenses and interest expenses.
Income Tax Expense
Our subsidiaries are subject to different income tax regimes and statutory rates as of December 31, 2023 . Given that: (1) Banco XP and Banco Modal are taxed at a 45% corporate income tax rate; (2) XP CCTVM and XP Seguradora are taxed at a 40% corporate income tax rate; (3) XP Gestão, XP Educação, XP Corretora de Seguros, XP Vista, XP PE and XP Allocation and holding entities are taxed at a 34% corporate income tax rate; (4) XP Finanças, Infomoney, Tecfinance and other operating entities are taxed at a 10.9% tax rate on revenues (34% corporate income tax rate on a presumed net margin of 32%); and (5) XP Investments and XP Investments UK LLP are taxed at U.S. and UK tax rates, respectively. Accordingly, the effective tax rate of our consolidated operations fluctuates over time according to the portion of our total net income that was generated in each of these entities. For 2024, 2023 and 2022, our effective tax rate was 9.4%, 0.9% and -3.9% respectively.
Net Income for the Year
Net income for the year consists of our income before income tax minus our income taxes and social security obligations.
Results of Operations
Year Ended December 31, 2024 , Compared to the Year Ended December 31, 2023
The following table sets forth our income statement data for the years ended December 31, 2024 and 2023:
| For the years ended |
|||||||||||||||||
|
2024
|
2023
|
Variation (%) | |||||||||||||||
| (R$ millions, except for percentages) | |||||||||||||||||
| Income statement data | |||||||||||||||||
| Net revenue from services rendered | 7,425 | 6,532 | 14 | % | |||||||||||||
| Net income from financial instruments at amortized cost and at fair value through other comprehensive income | (1,766) | 1,573 | (212) | % | |||||||||||||
| Net income from financial instruments at fair value through profit or loss | 11,372 | 6,756 | 68 | % | |||||||||||||
| Total revenue and income | 17,031 | 14,860 | 15 | % | |||||||||||||
| Operating costs and expenses | |||||||||||||||||
| Operating costs | (5,063) | (4,399) | 15 | % | |||||||||||||
| Selling expenses | (149) | (169) | (12) | % | |||||||||||||
| Administrative expenses | (6,001) | (5,461) | 10 | % | |||||||||||||
| Other operating income (expenses), net | 189 | 11 | 1676 | % | |||||||||||||
| Expected credit losses | (288) | (361) | (20) | % | |||||||||||||
| Interest expense on debt | (780) | (617) | 26 | % | |||||||||||||
| Share of profit or (loss) in joint ventures and associates | 47 | 74 | (36) | % | |||||||||||||
| Income before income tax | 4,986 | 3,936 | 27 | % | |||||||||||||
| Income tax expense | (471) | (37) | 1175 | % | |||||||||||||
| Net income for the year | 4,515 | 3,899 | 16 | % | |||||||||||||
n.m. = not meaningful.
Total Revenue and Income
Total revenue and income for the year ended December 31, 2024 was R$17,031 million , an increase of R$2,171 million , or 15%, from R$14,860 million for the year ended December 31, 2023 . Net revenues from services rendered represented an increase of R$893 million within total revenue and income, driven by:
•a R$306 million increase in revenue from securities placements, primarily attributable to the increase in mandates where we acted as placement agents or underwriters for third-party transactions in the domestic and international capital markets. Despite the unfavorable scenario for equity capital markets, our debt capital markets revenue has been more relevant, as we believe it tends to be less volatile in different macroeconomic scenarios;
| FORM 20-F | ||||||||
«
•an increase of R$142 million in brokerage commissions, driven by an increase in the average daily volume traded in shares in the year ended December 31, 2024 ;
•a R$115 million increase in management fees, as a result of a 9% increase in Retail Fund's Client Assets. Additionally, (1) fees from distributions (rebates from management fees) of funds managed by third-party asset managers and management fees attributable to funds managed by third parties (fees from distributions) increased from 44% of total management fees for the year ended December 31, 2023 to 45% for the year ended December 31, 2024 , or R$48 million , while management fees attributable to funds and portfolios managed by our asset managers decreased from 56% to 55%, or R$ 1 million , during the same period. For the year ended December 31, 2024 , 5% of management fees were performance-based and 95% were non-performance-based (i.e., fixed annual fees);
•a R$44 million increase in insurance brokerage fees, driven by a higher sale of retirement plans and insurance products to retail clients;
•a R$207 million increase in commission fees, mainly related to interchange fees received in credit card transactions, due to the greater volume of these transactions;
•a R$145 million increase in other services, including a R$34 million decrease in penalties collected from retail clients, a R$32 million increase in client's margin coverage fees, a R$135 million increase in other ancillary revenues related to the increase in trading operations, such as third-party trading platform fees, revenue from marketing events, and education services; and
•net of a R$65 million increase in taxes and contributions on services.
Net income from financial instruments represented R$1,278 million of the increase in total revenue and income, driven by the growth in our retail investment distribution platform (whose number of retail clients grew 20% and Client Assets grew 19% period-over-period), in our institutional businesses, and the increase in our Adjusted Gross Financial Assets balances.
Operating Costs and Expenses
Operating costs.Operating costs for the year ended December 31, 2024 were R$5,063 million , an increase of R$664 million , or 15%, from R$4,399 million for the year ended December 31, 2023 . This increase was primarily attributable to a R$56 million increase in cashback costs related to credit card transactions performed by our customers, which are a strategy for customer acquisition, since it is a percentage of client spending and a R$390 million increase in commission and incentive costs payable to our IFAs as part of the growth of our omni-channel distribution network. In addition, clearinghouse fees increased by R$100 million and other costs and third-party services by R$72 million . As a percentage of total revenue and income, our operating costs were 29.7% for the year ended December 31, 2024 compared to the 29.6% for year ended December 31, 2023 .
Selling expenses.Selling expenses for the year ended December 31, 2024 were R$149 million , a decrease of R$21 million , or 12%, from R$169 million for the year ended December 31, 2023 , due to higher investments in brand awareness and marketing campaigns.
Administrative expenses.Administrative expenses for the year ended December 31, 2024 were R$6,001 million , an increase of R$540 million , or 10%, from R$5,461 million for the year ended December 31, 2023 . This increase was primarily attributable to:
•a R$268 million , or increase in personnel expenses related to an increase in total employee headcount;
•a R$129 million , or 17%, increase in data processing expenses, mainly related to consultancy services in connection with the operation and maintenance of our platform's software;
•a R$10 million , or 3%, increase in third parties' services, mainly due to the optimization of expenses with technological solutions related to social and online media;
•a R$7 million , or 6%, increase in depreciation of property and equipment and right-of-use assets as a result of new leases contracts; and
Other operating income (expenses), net. We recorded other operating income/expenses, net of R$189 million for the year ended December 31, 2024 compared to other operating income, net of R$11 million for the year ended December 31, 2023 . This variation is primarily due to an increase of R$149 million income related to incentives from third parties, mainly as a result of the joint development of retail products and also the association of such entities with the XP ecosystem for the year ended December 31, 2023 .
| FORM 20-F | ||||||||
«
Income before Income Taxes
As a result of the foregoing, income before income taxes for the year ended December 31, 2024 was R$4,986 million , an increase of R$1,050 million , or 27%, from R$3,936 million for the year ended December 31, 2023 .
Income Tax Expense
Income tax expense for the year ended December 31, 2024 was a R$471 million income, an increase of R$434 million from a R$37 million expense for the year ended December 31, 2023 . This increase was primarily attributable to an increase in our effective tax rate to 9.4% for the year ended December 31, 2024 from 0.9% for the year ended December 31, 2023 , as a result of revenues at the level of entities and investment funds which adopt different taxation regimes according to the applicable rules in their jurisdictions.
Net Income for the Year
As a result of the foregoing, net income for the year ended December 31, 2024 was R$4,515 million , an increase of R$615 million from R$3,899 million for the year ended December 31, 2023 .
Year Ended December 31, 2023 , Compared to the Year Ended December 31, 2022
The following table sets forth our income statement data for the years ended December 31, 2023 and 2022:
| For the years ended |
|||||||||||||||||
|
2023
|
2022
|
Variation (%) | |||||||||||||||
| (R$ millions, except for percentages) | |||||||||||||||||
| Income statement data | |||||||||||||||||
| Net revenue from services rendered | 6,532 | 5,940 | 10 | % | |||||||||||||
| Net income from financial instruments at amortized cost and at fair value through other comprehensive income | 1,573 | 1,145 | 37 | % | |||||||||||||
| Net income from financial instruments at fair value through profit or loss | 6,756 | 6,262 | 8 | % | |||||||||||||
| Total revenue and income | 14,860 | 13,347 | 11 | % | |||||||||||||
| Operating costs and expenses | |||||||||||||||||
| Operating costs | (4,399) | (3,871) | 14 | % | |||||||||||||
| Selling expenses | (169) | (139) | 22 | % | |||||||||||||
| Administrative expenses | (5,461) | (5,641) | (3) | % | |||||||||||||
| Other operating income (expenses), net | 11 | 257 | (96) | % | |||||||||||||
| Expected credit losses | (361) | (94) | 283 | % | |||||||||||||
| Interest expense on debt | (617) | (402) | 53 | % | |||||||||||||
| Share of profit or (loss) in joint ventures and associates | 74 | (12) | (704) | % | |||||||||||||
| Income before income tax | 3,936 | 3,445 | 14 | % | |||||||||||||
| Income tax expense | (37) | 136 | (127) | % | |||||||||||||
| Net income for the year | 3,899 | 3,580 | 9 | % | |||||||||||||
n.m. = not meaningful.
Total Revenue and Income
Total revenue and income for the year ended December 31, 2023 was R$14,860 million , an increase of R$1,513 million , or 11%, from R$13,347 million for the year ended December 31, 2022 . Net revenues from services rendered represented an increase of R$592 million within total revenue and income, driven by:
•a R$348 million increase in revenue from securities placements, primarily attributable to the increase in mandates where we acted as placement agents or underwriters for third-party transactions in the domestic and international capital markets. Despite the unfavorable scenario for equity capital markets, our debt capital markets revenue has been more relevant, as we believe it tends to be less volatile in different macroeconomic scenarios;
•a R$111 million decrease in brokerage commissions, driven by a 5% decrease in the average daily traded volume in equities in the year ended December 31, 2023 ;
| FORM 20-F | ||||||||
«
•a R$47 million increase in management fees, as a result of (1) fees from distributions (rebates from management fees) of funds managed by third-party asset managers and management fees attributable to funds managed by third parties (fees from distributions) increased from 42% of total management fees for the year ended December 31, 2022 to 44% for the year ended December 31, 2023 , or R$48 million , while management fees attributable to funds and portfolios managed by our asset managers decreased from 58% to 56%, or R$ 1 million , during the same period. For the year ended December 31, 2023 , 5% of management fees were performance-based and 95% were non-performance-based (i.e., fixed annual fees);
•a R$22 million increase in insurance brokerage fees, driven by a higher sale of retirement plans and insurance products to retail clients;
•a R$226 million increase in banking fees, mainly related to interchange fees received in credit card transactions, due to the greater volume of these transactions;
•a R$140 million increase in other services, including a R$34 million decrease in penalties collected from retail clients, a R$32 million increase in client's margin coverage fees, a R$135 million increase in other ancillary revenues related to the increase in trading operations, such as third-party trading platform fees, revenue from marketing events, and education services; and
•net of a R$53 million increase in taxes and contributions on services.
Net income from financial instruments represented R$921 million of the increase in total revenue and income, driven by the growth in our retail investment distribution platform (whose number of retail clients grew 20% and Client Assets grew 19% period-over-period), in our institutional businesses, and the increase in our Adjusted Gross Financial Assets balances.
Operating Costs and Expenses
Operating costs.
Operating costs for the year ended December 31, 2023 were R$4,399 million , an increase of R$528 million , or 14%, from R$3,871 million for the year ended December 31, 2022 . This increase was primarily attributable to a R$117 million increase in cashback costs related to credit card transactions performed by our customers and a R$258 million increase in commission and incentive costs payable to our IFAs as part of the growth of our omni-channel distribution network. Incentive costs are capitalized and amortized over the life of the signed contracts. In addition, clearinghouse fees increased by R$46 million and other costs and third-party services by R$111 million . As a percentage of total revenue and income, our operating costs increased at 30% for the year ended December 31, 2023 compared to the 29% for year ended December 31, 2022 .
Selling expenses.
Selling expenses for the year ended December 31, 2023 were R$169 million , an increase of R$31 million , or 22%, from R$139 million for the year ended December 31, 2022 , in line with the marketing guidance, that focused on alternative and efficient communication strategies.
Administrative expenses.
Administrative expenses for the year ended December 31, 2023 were R$5,461 million , a decrease of R$ 180 million , or 3%, from R$5,641 million for the year ended December 31, 2022 . This increase was primarily attributable to:
•a R$215 million , or 5%, decrease in personnel expenses related to an decrease in total employee headcount (from 6,928 employees as of December 31, 2022 to 6,669 employees as of December 31 , 2023);
•a R$54 million , or 8%, increase in data processing expenses, mainly related to consultancy services in connection with the operation and maintenance of our platform's software;
•a R$90 million , or 23%, decrease in third parties' services, mainly due to the optimization of expenses with technological solutions related to social and online media;
•a R$8 million , or 8%, increase in depreciation of property and equipment and right-of-use assets as a result of new leases contracts; and
•a R$38 million , or 40%, increase in amortization of intangible assets as a result of Banco Modal acquisition.
| FORM 20-F | ||||||||
«
Other operating income (expenses), net.
We recorded other operating income/expenses, net of R$11 million for the year ended December 31, 2023 compared to other operating income, net of R$257 million for the year ended December 31, 2022 . This variation is primarily due to a decrease of R$261 million income related to incentives from third parties, mainly as a result of the joint development of retail products and also the association of such entities with the XP ecosystem for the year ended December 31, 2022 .
Income before Income Taxes
As a result of the foregoing, income before income taxes for the year ended December 31, 2023 was R$3,936 million , an increase of R$492 million , or 14%, from R$3,445 million for the year ended December 31, 2022 .
Income Tax Expense
Income tax expense for the year ended December 31, 2023 was a R$37 million expense, a decrease of R$173 million from a R$136 million income for the year ended December 31, 2022 . This decrease was primarily attributable to an increase in our effective tax rate to 0.9% for the year ended December 31, 2023 from -3.9% for the year ended December 31, 2022 , as a result of revenues at the level of entities and investment funds which adopt different taxation regimes according to the applicable rules in their jurisdictions.
Net Income for the Year
As a result of the foregoing, net income for the year ended December 31, 2023 was R$3,899 million , a decrease of R$319 million from R$3,580 million for the year ended December 31, 2022 .
B. Liquidity and Capital Resources
As of December 31, 2024 , we had R$12,910 million in cash and cash equivalents. We believe that our current available cash and cash equivalents and the cash flows from our operating activities will be sufficient to meet our working capital requirements and capital expenditures in the ordinary course of business for the next 12 months.
The following table shows the generation and use of cash for the periods indicated:
| For the year ended |
|||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (R$ millions) | |||||||||||||||||
| Cash flow data | |||||||||||||||||
| Income before income tax | 4,986 | 3,936 | 3,445 | ||||||||||||||
| Adjustments to reconcile income before income tax | 2,910 | 1,193 | 1,097 | ||||||||||||||
| Income tax paid | (542) | (403) | (371) | ||||||||||||||
| Contingencies paid | (8) | (53) | (3) | ||||||||||||||
| Interest paid | (349) | (141) | (198) | ||||||||||||||
| Changes in assets and liabilities | 4,183 | 3,595 | (2,166) | ||||||||||||||
| Net cash flows from (used in) operating activities | 11,179 | 8,127 | 1,804 | ||||||||||||||
| Net cash flows from (used in) investing activities | (1,667) | 539 | (372) | ||||||||||||||
| Net cash flows from (used in) financing activities | (5,784) | (4,395) | (200) | ||||||||||||||
| Net increase in cash and cash equivalents | 3,727 | 4,271 | 1,232 | ||||||||||||||
| Effects of exchange rate changes on cash and cash equivalents | (28) | (28) | (17) | ||||||||||||||
Our cash and cash equivalents include cash on hand, interbank certificate deposits with banks and other highly liquid securities purchased under agreements to resell with original maturities of nine months or less, which have an immaterial risk of change in value. For more information, see note 6 to our audited consolidated financial statements included elsewhere in this annual report.
| FORM 20-F | ||||||||
«
Net Cash Flows from Operating Activities
Our net cash flows from operating activities for the year ended December 31, 2024 increased to a net cash generated of R$11,179 million from a net cash generated of R$8,127 million in the year ended December 31, 2023 , primarily driven by: (1) higher balance of securities and derivatives that we hold in the ordinary course of our business as a retail investment distribution platform and as an institutional broker-dealer (with respect to the sale of fixed income securities and structured notes); (2) our strategy to allocate excess cash and cash equivalents from treasury funds, from Float Balances and from retirement plans balances to securities and other financial assets. These balances may fluctuate substantially from quarter to quarter and were the key drivers to the net cash flow from operating activities figures; (3) increases in our banking activities from loans operations, market funding operations mainly derived from deposits (time deposits), structured operations certificates (COEs) and financial bills as a result of our expected growth in new financials services verticals; and (4) other financial liabilities as structure financing, credit card operations among others. Our income before tax combined with non-cash income/expenses consisted primarily of (a) net foreign exchange differences of R$1,188 million in 2024 and R$471 million in 2023, (b) share-based plan of R$417 million in 2024 and R$366 million in 2023, (c) interest accrued of R$609 million in 2024 and R$638 million in 2023, and (d) depreciation and amortization of R$ 265 million in 2024 and R$252 million in 2023. The total amount of adjustments to reconcile income before income taxes was R$2,910 million in 2024 and R$1,193 million in 2023.
Our net cash flows from operating activities for the year ended December 31, 2023 increased to a net cash generated of R$8,127 million from a net cash generated of R$1,804 million in the year ended December 31, 2022 , primarily driven by: (1) higher balance of securities and derivatives that we hold in the ordinary course of our business as a retail investment distribution platform and as an institutional broker-dealer (with respect to the sale of fixed income securities and structured notes); (2) our strategy to allocate excess cash and cash equivalents from treasury funds, from Float Balances and from retirement plans balances to securities and other financial assets. These balances may fluctuate substantially from quarter to quarter and were the key drivers to the net cash flow from operating activities figures; (3) increases in our banking activities from loans operations, market funding operations mainly derived from deposits (time deposits), structured operations certificates (COEs) and financial bills as a result of our expected growth in new financials services verticals; and (4) other financial liabilities as structure financing, credit card operations among others. Our income before tax combined with non-cash expenses consisted primarily of (a) net foreign exchange differences of R$471 million in 2023 and R$302 million in 2022, (b) share-based plan of R$366 million in 2023 and R$585 million in 2022, (c) interest accrued of R$638 million in 2023 and R$429 million in 2022, and (d) depreciation and amortization of R$252 million in 2023 and R$206 million in 2022. The total amount of adjustments to reconcile income before income taxes was R$1,193 million in 2023 and R$1,097 million in 2022. Reclassifications of prior period amounts, related to income from share in the net income of associates measured at fair value, have been made to conform to the current period presentation.
Net Cash Flows used in Investing Activities
Our net cash flows generated or used in investing activities decreased from R$539 million generated in the year ended December 31, 2023 to a cash consumption of R$1,667 million in the year ended December 31, 2024 , primarily affected by: (1) R$1,394 million in investments in subsidiaries, associates and joint ventures, mostly related to our asset management strategy, which decreased from R$705 million generated in the year ended December 31, 2023 ; and (2) R$330 million in investments in intangible assets and property plants and equipment, mostly IT infrastructure and capitalized software, which increased from R$196 million in the year ended December 31, 2023 .
Our net cash flows used in investing activities decreased from R$372 million in the year ended December 31, 2022 to a cash generated of R$539 million in the year ended December 31, 2023 , primarily affected by: (1) R$705 million in investments in subsidiaries, associates and joint ventures, mostly related to our asset management strategy, which decreased from R$244 million in the year ended December 31, 2022 ; and (2) R$196 million in investments in intangible assets and property plants and equipment, mostly IT infrastructure and capitalized software, which increased from R$127 million in the year ended December 31, 2022 .
Net Cash Flows from Financing Activities
Our net cash flows from financing activities decreased from a cash used in financing activities of R$4,395 million in the year ended December 31, 2023 to R$5,784 million in the year ended December 31, 2024 , primarily due to (1) the acquisition of treasury shares under the share buy-back program in the total amount of R$1,354 million ; (2) the proceeds from the issuance of debt securities in the total amount of R$1,159 million ; (3) the payments of borrowings, lease liabilities and debt securities in the total amount of R$3,552 million ; and (4) dividends paid in the total amount of R$2,037 million .
| FORM 20-F | ||||||||
«
Our net cash flows from financing activities decreased from cash used in financing activities of R$200 million in the year ended December 31, 2022 to R$4,395 million in the year ended December 31, 2023 , primarily due to (1) the acquisition of treasury shares under the share buy-back program in the total amount of R$916 million ; (2) the proceeds from the issuance of debentures in the total amount of R$373 million ; and (3) borrowings mostly derived from our loans agreements with Banco Nacional de México in a total amount of R$2,253 million ; (4) the payments of borrowings, lease liabilities and debt securities in the total amount of R$2,557 million ; and (5) dividends paid in the total amount of R$3,542 million .
Indebtedness
As of December 31, 2024 , we had R$1,666 million in outstanding loans, R$311 million in lease liabilities, R$1,875 million in outstanding debentures and R$5,814 million in senior notes issued by us. As of December 31, 2024 , we were in compliance with all the covenants of our material loan agreements and debentures. The following is a description of our material indebtedness as of the date of this annual report:
Borrowings
On March 28, 2018 , XP Brazil entered into a loan agreement with the International Finance Corporation (IFC), or the "IFC Loan," in the amount of R$325.4 million , which was borrowed to finance the expansion of operations and increase the number of clients and IFAs. The loan accrues interest at a rate per annum equal to the CDI Rate + 0.74% and matured on April 15, 2023 . The principal amount was due on the maturity date and interest was payable semiannually on April 15 and October 15 of each year. In July 2020 , we prepaid a portion of the IFC Loan in the aggregate amount of R$54 million . According to the maturity date, the principal amount was paid in April 2023 .
On May 28, 2021 , we entered into a credit agreement with Banco Nacional de México S.A . for a term loan in the amount of US$295 million . This loan bears interest at the annual rate of 2.55%, payable annually in arrears on May 23, 2022 , and matures on the same date. On May 2022 , the loan agreement was rolled over for 1 year, amending the maturity to May 23, 2023 . The loan is guaranteed by collateral securities. We paid off this agreement on the maturity date.
On September 26, 2023 , we entered into a credit agreement with Banco Nacional de México S.A . for a term loan in the amount of US$250 million . The loan accrues interest at a rate per annum equal to Term SOFR + 0.40% and matures on August 30, 2024 . The principal amount is due on the maturity date and interest is payable quarterly on November 30 , February 29 , May 30 and August 30 . We paid off this agreement on the maturity date.
On October 23, 2023 , we entered into a credit agreement with Banco Nacional de México S.A . for a term loan in the amount of US$200 million . The loan accrues interest at a rate per annum equal to Term SOFR + 0.40% and matures on August 30, 2024 . The principal amount is due on the maturity date and interest is payable quarterly on November 30 , February 29 , May 30 and August 30 . We paid off this agreement on the maturity date.
On December 27, 2024 , we entered into a credit agreement with Banco Citi México in the total amount of R$ 1.6 billion . The borrowing accrues interest at a rate per annum equal to Term SOFR + 0.60% and matures on June 30, 2025 . This amount was disbursed by the counterparty on January 6, 2025 . As of December 31, 2024 , the total amount of the borrowing was R$ 1.6 billion .
On January 16, 2025 , we entered into a credit agreement with Banco Santander for a term loan in the amount of US$180 million . The loan accrues interest at a rate per annum equal to SOFR overnight + 0.79% and matures on December 22, 2025 . The principal amount is due on the maturity date and interest is payable quarterly on March 24 , June 23 and September 22 .
On February 24, 2025 , we entered into a credit agreement with Bank of America for a term loan in the amount of US$64 million . The loan accrues interest at a rate per annum equal to 4.358% and matures on May 6, 2025 . The principal and interest amounts are due on the maturity date.
On February 24, 2025 , we entered into a credit agreement with Bank of America for a term loan in the amount of US$36 million . The loan accrues interest at a rate per annum equal to 4.395% and matures on June 3, 2025 . The principal and interest amounts are due on the maturity date.
On March 11, 2025 , we entered into a credit agreement with Bank of America for a term loan in the amount of US$27.5 million . The loan accrues interest at a rate per annum equal to 4.343% and matures on May 6, 2025 . The principal and interest amounts are due on the maturity date.
| FORM 20-F | ||||||||
«
On March 11, 2025 , we entered into a credit agreement with Bank of America for a term loan in the amount of US$27.5 million . The loan accrues interest at a rate per annum equal to 4.332% and matures on August 4, 2025 . The principal amount is due on the maturity date and interest will be amortized on June 11, 2025 .
Debentures
On July 19, 2022 , XP Brazil issued non-convertible debentures in the amount of R$1.8 billion (R$900 million of series 1 and R$900 million of series 2). Both series have in aggregate a maximum authorized issuance up to R$1.8 billion . The principal amount is due and will be paid on the maturity date as follow: (i) June 23, 2024 (series 1) and (ii) June 23, 2025 (series 2). The interest rates for series 1 and series 2 debentures are CDI+1.75% and CDI+1.90%, respectively. As of December 31, 2024 , the total amount was R$ 1.2 billion .
3.250% Senior Notes Due 2026
On July 1, 2021 , we issued senior notes due 2026 in an aggregate principal amount of US$750.0 million . The 3.250% notes due 2026 bear interest at the annual rate of 3.250%, payable semiannually in arrears on January 1 and July 1 of each year, which commenced on January 1, 2022 . The 3.250% notes due 2026 are guaranteed by XP Investimentos S.A. and have been listed on the Singapore Exchange Securities Trading Limited since July 1, 2021 . As of December 31, 2024 , the aggregate principal amount outstanding of the 3.250% notes due 2026 was US$449 million .
6.750% Senior Notes Due 2029
On July 2, 2024 , we issued senior notes in an aggregate principal amount of US$500.0 million . The 6.750% senior notes due 2029 bear an annual interest rate of 6.750% payable semiannually in arrears on January 2 and July 2 of each year, which commenced on January 2, 2025 . The 6.750% notes due 2029 are guaranteed by XP Investimentos S.A and have been listed on the Luxembourg Stock Exchange since July 2, 2024 . As of December 31, 2024 , the aggregate principal amount outstanding of the 6.750% notes due 2029 was US$500 million .
Certain of our loans and debentures are subject to certain restrictive covenants and require that the borrower entity (as indicated below) meet certain financial ratios, which are as follows:
Debentures
•an XP Brazil regulatory capital ratio 1% or more above the minimum regulatory capital requirement as established by the Central Bank from time to time; and
•an XP Brazil pre-tax income to financial expenses ratio greater than or equal to 2:1.
As of December 31, 2024 , we were in compliance with the covenants in our loan agreements and debentures.
Off-balance Sheet Arrangements
As of December 31, 2024 , the off-balance sheet arrangements total an amount of R$7,874 million (compared to R$8,913 million as of December 31, 2023 ). The off-balance sheet arrangements refer to credit card limits granted and not used by our customers. The amounts granted are linked to the value of customers' assets held in guarantee by XP, and may vary daily according to the variation in the credit risk of our customers, as well as the variation in the value of the guarantees. Besides that, we offer to our customers other types of collateral agreements, such as letters of guarantee.
Capital Expenditures
In the years ended December 31, 2024 , 2023 and 2022, we made capital expenditures of R$330 million , R$196 million , and R$127 million , respectively. Total capital expenditures as a percentage of total net revenue and income were 1.9% in 2024, 1.3% in 2023, and 1% in 2022. These capital expenditures mainly include expenditures related to the upgrade and development of our IT systems, software and infrastructure, and the expansion of our office spaces due to accelerated growth in employee headcount.
| FORM 20-F | ||||||||
«
We expect to increase our capital expenditures to support the growth in our business and operations. We expect to meet our capital expenditure needs for the foreseeable future from our operating cash flow and our existing cash and cash equivalents. Our future capital requirements will depend on several factors, including our growth rate, the expansion of our research and development efforts, employee headcount, marketing and sales activities, the introduction of new features to our existing products and the continued market acceptance of our products.
C. Research and Development, Patents and Licenses, Etc.
See "Item 4. Information on the Company-D. Property, Plants and Equipment-Intellectual Property."
D. Trend Information
For a discussion of trend information, see "Item 4. Information on the Company-B . Business Overview-Key Market Trends."
E. Critical Accounting Estimates
Not applicable. See note 4 to our audited consolidated financial statements included elsewhere in this annual report.
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