XP Inc. — FY2021 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a stand-alone fourth-quarter report. Financial statements are audited and prepared under IFRS, in Brazilian reais (R$), unless stated otherwise.
Business context and key financial metrics
XP operates a technology-driven financial services platform focused primarily on Brazil, offering brokerage, advisory, investment products, asset management, banking, credit, insurance and financial content. It reported one operating segment. Retail assets under custody (AUC) reached R$815 billion, and active clients reached 3.416 million at year-end.
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total revenue and income | R$12,077 million | R$8,152 million | +48% |
| Net income | R$3,592 million | R$2,081 million | +73% |
| Adjusted EBITDA (non-IFRS) | R$4,848 million | R$2,918 million | +66% |
| Adjusted net income (non-IFRS) | R$4,003 million | R$2,270 million | +76% |
| Gross margin | 70.8% | 66.9% | +3.9 percentage points |
| Net margin | 29.7% | 25.5% | +4.2 percentage points |
| Adjusted EBITDA margin | 40.1% | 35.8% | +4.3 percentage points |
Net revenue from services rose 24% to R$6,196 million. Net income from financial instruments was R$5,881 million, versus R$3,135 million in 2020; within this, net income from instruments at amortized cost and FVOCI was negative R$1,559 million, compared with positive R$183 million in 2020. The effective tax rate fell to 5.8% from 14.0%, contributing to reported net income growth.
Retail gross revenue grew 57% to R$9,864 million; institutional gross revenue grew 6% to R$1,277 million; issuer services grew 52% to R$1,043 million; and digital content declined 24% to R$99 million. These are gross solution-category measures and should not be added directly to IFRS total revenue.
Cash flow, debt and liquidity
Cash and cash equivalents were R$3,752 million at year-end. IFRS cash flow from operating activities was negative R$4,020 million, versus positive R$1,511 million in 2020. Management attributed the swing mainly to movements in securities, derivatives, customer-related balances, pension balances and growth in banking activities. The company’s non-IFRS adjusted operating cash flow was negative R$1,101 million, compared with positive R$2,769 million in 2020; this measure excludes specified working-capital-related items and should not be treated as a substitute for IFRS cash flow.
Investing cash outflow was R$1,151 million, including R$757 million invested in associates and joint ventures and spending on technology and other assets. Financing cash inflow was R$6,639 million, mainly reflecting the US$750 million senior-note issuance, borrowings and XPAC proceeds restricted for SPAC purposes. Capital expenditures were R$353 million, or 2.9% of net revenue.
At year-end, reported balances included R$1,929 million of borrowings, R$319 million of lease liabilities, R$169 million of debentures and approximately R$4,138 million of 2026 senior notes. The filing also reports R$2,415 million of structured financing. These figures are distinct from substantial customer and market-funding liabilities, including deposits and structured operations certificates. Management said it expected available cash and operating cash flows to meet ordinary working-capital and capital needs for the next 12 months; all material loan and debenture covenants were reported in compliance.
Material changes and unusual items
- AUC increased 23% year over year, while active clients increased 23%. Monthly average net inflow was R$19.2 billion. Retail AUM rose 65% to R$119 billion.
- Personnel and administrative costs grew substantially as XP expanded its workforce and technology operations. Administrative expenses rose 56% to R$4,693 million; share-based compensation expense was R$658 million and was a major non-cash adjustment in adjusted earnings.
- The October 2021 XPart merger resulted in 225.8 million Class A shares issued to XPart shareholders, including Itaú-related holders. XP’s Class A and B shares had 424.2 million and 135.4 million outstanding, respectively, at year-end.
- Other comprehensive income was negative R$547 million, principally reflecting fair-value changes in financial assets recorded through OCI; this reduced total comprehensive income relative to net income.
- XP’s credit book grew 164% to R$10.2 billion. The company also expanded pension, card, credit and investment-management offerings.
Outlook, commentary and risks
The filing provides no formal numerical earnings or revenue guidance. Management expects near-term expenses to rise with investment in products, technology, staff and infrastructure, while stating that expenses may decline as a share of revenue over the medium term as the business scales. It planned higher capital spending, including construction of Villa XP, and expected corporate demand for alternative funding to support its debt-capital-markets business. The filing describes these statements as forward-looking and subject to uncertainty.
Key risks include Brazil’s economic, political, inflation, interest-rate and currency volatility; competition and pressure on fees; market activity and investment performance; reliance on XP CCTVM, the B3 and independent financial advisers; credit and liquidity exposure; cybersecurity and platform availability; evolving financial, privacy and consumer regulation; and the concentrated voting control associated with the dual-class share structure. The real depreciated 6.9% against the U.S. dollar in 2021, while Brazilian IPCA inflation was 10.1%.
Legal and regulatory matters include R$29 million of provisions for probable legal losses and R$487 million of claims assessed as possible losses, for which no provision was recorded. In February 2022, XP agreed to a R$5 million no-fault CVM settlement concerning platform stability and customer service, with additional service and reporting commitments. PROCON notices sought R$11 million in penalties; proceedings were pending. The company reported that securities class actions relating to its IPO had been dismissed, with the federal appeal denied in November 2021.
Important facts for investors to verify
- Reconcile statutory and adjusted cash flow, and assess the effect of securities, client balances and financing activities on liquidity.
- Distinguish corporate borrowing from customer deposits, pension liabilities and other funding balances; review debt maturities, interest exposure and covenant headroom.
- Assess the sustainability of earnings growth, including financial-instrument income, the unusually low effective tax rate and share-based compensation adjustments.
- Track credit-book growth, collateral quality, expected credit losses and the economics of newer banking and card products.
- Monitor resolution of the CVM and PROCON matters, possible-loss contingencies, IFA regulatory changes and the impact of Brazilian macroeconomic conditions.