XP Inc. — FY 2022 Form 20-F
Business context and reporting period. This is XP Inc.’s audited annual report for the fiscal year ended December 31, 2022, prepared under IFRS and presented primarily in Brazilian reais (R$). It describes the full year, not standalone 2022 Q4 results; the supplied filing text does not provide clear standalone Q4 financial figures. XP operates a technology-driven financial services platform, principally in Brazil.
Financial and operating metrics
| Metric | FY 2022 / Dec. 31, 2022 | Prior comparable period | Change |
|---|---|---|---|
| Total revenue and income | R$13.347bn | R$12.077bn | +11% |
| Net income | R$3.580bn | R$3.592bn | Approximately flat |
| Income before income tax | R$3.445bn | R$3.815bn | -10% |
| Gross margin | 70.3% | 70.8% | -0.5 percentage points |
| Net margin | 26.8% | 29.7% | -2.9 percentage points |
| Adjusted net income (non-IFRS) | R$4.075bn | R$4.003bn | +2% |
| Cash and cash equivalents | R$4.967bn | R$3.752bn | — |
| Net cash from operating activities | R$1.804bn | Net use of R$4.020bn | Improved |
| Net cash used in investing activities | R$0.371bn | R$1.151bn | Lower use |
| Net cash used in financing activities | R$0.200bn | Net inflow of R$6.639bn | Shifted to use |
| Total assets / total liabilities | R$192.035bn / R$174.992bn | R$139.340bn / R$124.921bn | Both increased |
Year-end equity was R$17.042bn. The company reported R$1.866bn in borrowings, R$2.597bn in debentures, R$3.911bn in senior notes, and R$0.286bn in lease liabilities. These components total approximately R$8.660bn; this is a simple total and should not be treated as a company-reported net-debt measure. XP said it was compliant with covenants on material loan agreements and debentures.
Operating indicators included R$946bn in Client Assets (+16%), 3.877 million active retail clients (+14%), R$132.2bn in retail assets under management (+11%), and a R$17.1bn loan book (+67%). Client Assets and AUM are operating metrics, not consolidated balance-sheet assets.
Material changes versus FY 2021
- Revenue growth was led by financial instrument income, while net revenue from services rendered fell 4% to R$5.940bn. Brokerage commissions declined R$362m amid an 11% decrease in average daily equity trading volume; securities placement revenue declined R$286m.
- Management fees rose R$91m, supported by growth in assets managed by XP’s own managers. Banking fees increased R$371m, mainly from credit-card interchange. Institutional gross revenue rose 50% to R$1.919bn, primarily due to stronger fixed-income, currency and commodities desk results.
- Operating costs rose 13% to R$3.871bn, including higher card cashback and IFA incentives. Administrative expenses increased 20% to R$5.641bn, including personnel, data-processing and third-party service costs. Selling expenses fell 39% to R$139m.
- Despite 11% revenue growth, faster expense growth reduced pretax income 10%. A R$135.6m income-tax benefit in 2022, compared with R$222.7m expense in 2021, helped keep net income nearly flat. The reported 2022 effective tax rate was -3.9%.
- Operating cash flow reversed from use to generation, but the filing attributes significant movements to securities, repos, derivatives and banking activity. The company’s non-IFRS adjusted operating cash flow was R$2.855bn, versus use of R$1.101bn in 2021.
- XP spent R$1.815bn acquiring treasury shares in 2022 under its repurchase program. Capital expenditures were R$127m, down from R$353m in 2021.
Outlook, commentary, risks and contingencies
- Outlook: XP said existing cash and operating cash flows should cover ordinary working-capital needs and capital expenditures for the next 12 months. Management expected capital expenditures to increase to support growth; it also expected expenses to rise in the short term and decline as a percentage of revenue over the medium term. The filing provides no quantitative earnings or revenue guidance.
- Market and business risks: Results are exposed to Brazilian interest rates, inflation, currency movements, market activity and political and economic conditions. Competition, fee pressure, client attrition, reliance on XP CCTVM and independent financial advisors, technology and cybersecurity incidents, and regulatory changes may affect performance. The filing cites the 2022 Omicron surge and reduced market activity as pressure on retail inflows and revenue, particularly in January.
- Digital assets: XTAGE launched in 2022 and contributed less than 0.1% of FY 2022 revenue and income. The filing highlights uncertain Brazilian regulation, potential security classifications, market volatility and custody risks. XP reported no direct exposure to FTX or the other named failed crypto firms.
- Contingencies: Provisions for probable legal losses totaled R$43.5m; judicial deposits were R$12.1m. Possible-loss proceedings totaled approximately R$893.7m, including R$543.5m in tax matters and R$335.6m in civil matters; these possible losses were not provisioned. XP agreed to pay R$5m to the CVM in a no-fault settlement and improve platform-response and customer-service measures. PROCON had sought R$11m in penalties; a final decision was pending.
- Other notable items: The Modal transaction remained subject to Central Bank approval at year-end. XP declared no dividends for 2022 or 2021. Its R$2bn share-repurchase authorization ran through May 12, 2023, subject to completion and market conditions.
Most important facts for investors to verify
- Review the audited IFRS statements and notes for revenue composition, financial-instrument gains, the unusual tax benefit and the drivers of lower pretax income and margins.
- Reconcile operating cash flow to movements in client balances, securities and banking activities; assess the non-IFRS adjusted cash-flow measure separately from IFRS cash flow.
- Check debt maturities, refinancing needs, floating-rate exposure, collateral and covenant headroom, particularly for the borrowings maturing in 2023 and 2026 senior notes.
- Assess credit growth and credit quality alongside collateral values, expected credit losses and the growth in unused credit-card limits.
- Track the outcome and potential financial exposure of tax, civil, labor and consumer proceedings, including the possible-loss claims not reflected in provisions.
- Monitor execution and costs of new businesses and acquisitions, including Modal, and the regulatory, custody and revenue risks associated with XTAGE.
- Verify subsequent share repurchases and treasury-share cancellation: the filing reports cancellation of 31.3 million Class A shares on April 5, 2023.