Q1 2024 XP Inc Earnings Call

Participants

Bruno Constantino Alexandre dos Santos; CFO & Director; XP Inc.

Thiago Maffra; CEO; XP Inc.

Daer Labarta; VP; Goldman Sachs Group, Inc., Research Division

Jorge Kuri; MD; Morgan Stanley, Research Division

Neha Agarwala; Analyst, LatAm Financials; HSBC, Research Division

Renato Meloni

Thiago Bovolenta Batista; LatAm Equity Research Analyst of Banks; UBS Investment Bank, Research Division

Unidentified Analyst

Presentation

Operator

Good evening, everyone. I'm Andre Parize, Head of Investor Relations at XP Inc. It's a pleasure to be here with you today. On behalf of the company, I would like to thank you all for the interest and welcoming to our '24 First Quarter Earnings Call. This quarter's results will be presented by our CEO, Thiago Maffra and our CFO, Bruno Constantino, who will both be available for the Q&A session right after the presentation. (Operator Instructions).
And before we begin our presentation, please refer to our legal disclaimers on Page 2 on which we clarify forward-looking statements, additional information on forward-looking statements can also be found on the SEC filings section in our IR website.
So now I'll turn it over to Thiago Maffra. Go evening, Maffra.

Thiago Maffra

Good evening, everyone. Thank you for joining us today on our 2024 first quarter earnings call. It's a pleasure to be here tonight. Before we review our financial results, it's important to acknowledge the devastating floods that have impacted (inaudible), resulting in tragic loss of lives and homes. It's particularly heartbreaking as XP began its journey in a small 200 square foot of (inaudible). During this difficult time, we are committed to supporting the affected communities. Our hearts go out to all those affected.
Now let us discuss our quarterly performance and the steps we are taking to ensure our continued growth and commitment to all our stakeholders as we continue our conversation today, I want to reiterate our commitment to serving our clients by delivering innovative and high-quality service. I am proud to announce that during this quarter, we have implemented a sophisticated and scalable financial planning tool. This technology provides us with a clear view of our clients' financial cycles enhancing our service offerings. Additionally, it integrates seamlessly with our recently launched open investments initiative which broadens our ability to present diverse investment alternatives at better rates and lower price. I will revisit this topic shortly to provide more details on how it functions.
Before we delve into our financial performance, it's crucial to address the macroeconomic environment, which remains challenging. The first quarter of 2024 began with terminal interest rates expectations nearing 9% per year, controlled inflation and appreciating real and a managed fiscal situation. However, as the quarter progressed, we saw interest rates adjust to 10%, a slightly depreciation of the real and an ongoing fiscal challenges. In terms of market activity, the appetite for equities has continued the trend from previous quarters with slightly lower turnover, why our attention remains focused on fixed income.
Despite competing with Tax-Exempt Credit notes, our competitive portfolio continues to grow benefiting from our complete ecosystem. For instance, during the quarter, our corporate credit book saw gains from narrowing credit spreads and our debt capital markets flow remain strong for a first quarter. On the flip side, we can say that we prepared ourselves to another tough year both in terms of expenses and also in what we would expect in terms of revenues. So recent worsening in market conditions didn't change much our overall expectations for the year.
Turning now to our financial performance. Despite the challenging macroeconomic scenario, we achieved a 28% year-over-year growth in top line and a 29% growth in bottom line. Our EBITDA margin expanded by approximately 81 basis points. This quarter was also marked by a strong focus on efficiency and cost discipline across all operations as presented by an efficiency ratio of 36.5%, which is 384 basis points lower year-over-year. Our diluted earnings per share increased by 25% year-over-year, reaching BRL 1.85 per share.
Lastly, I would like to highlight our return on tangible equity, which we consider a more accurate measure for running our business. It stood at 25.4% marked an increase of 491 basis points year-over-year. Moving on to the next slide. Let me provide an update on our strategy tracker for 2024 following up on our discussions on Investor Day last December. Firstly, regarding our leadership in retained investments, we are pleased to announce the appointment of (inaudible) as the new CEO of our Private Banking division. This division has seen relevant enhancements in process product offerings and service levels.
With (inaudible), we are confident in our path toward establishing ourselves as one of the top private banks in Brazil. Also, we have once again been recognized by Follett Sao Paulo as the best adviser platform in the country, a testament to our commitment, to excellence in client service. Our vision is clear. We aim to dominate the investment industry in Brazil, a big but achievable goal. I will dive deeper into the specifics of this strategic pillar in the next slides.
Last quarter, we introduced our financial planning tool for advisers, marking an important milestone in how we serve our clients. These 2 represents the third wave of differentiation for XP, following our open architecture platform for third-party products and our extensive distribution network. Moving on to our retail cross-sell strategy, particularly in banking, we are proud to be ranked second, in the (inaudible) ranking of the best banking service for 2024. Our digital account, though relatively new has a red game recognition. This rapid recognition is incredible ratifying.
Beyond investments, our new virtual segments have grown to represent a larger share of our total gross revenue, almost 13% in the first quarter of 2024, enhancing the resilience of our business model. In the corporate and SMB our unique position in wholesale banking continues to strengthen. This quarter, our role in structuring and distributing corporate credit has been once again prominent, underscoring our competitive advantage proved sophisticated retail investor clients and a large distribution channel. Our corporate and SME revenue was 5% of total revenue.
Lastly, on the top of quality and strategic execution, we have launched a financial planning tool for all our advisers and with rapid adoption with over 2,500 active advisers in the platform within only 2 weeks of the launch. We have also centralized the Chief Investment Officer role with Artur Wichmann to provide consistent allocation costs across all client and risk profiles, which have been recently reviewed. This launch coincides with open investment initiatives, which we see as a good opportunity for us. As I have previously mentioned, the next phase of XP's growth will be driven by our ability to provide higher quality experience for our clients throughout their financial journeys.
Our ongoing enhancements to the solutions we offer are designed to empower our advisers to deliver its market and more precise investment advice by optimizing clients' portfolios to align closely with individual goals we are raising the bar for what it means to engage in high-quality financial planning. We are committed to democratizing access to premium service broadening our perspective to proactively meet clients' objectives and offer a complete and curated set of investment alternatives. These efforts are designed to not only meet but exceed client expectations.
This new approach to allocation resource presents great opportunities for revenue generation and increasing lifetime value. It's simplifying how our emphasis on quality translates into tangible benefits for both our clients and our business. This strategy distinguishes us further from incumbent banks and strengthens our position for continued leadership in the coming years. This quarter, we have introduced new features that integrate our financial planning platform with open investments regulations, creating a positive feedback loop.
With our financial planning tools and servicing incentives, clients are encouraged to share their data, enabling us to provide even better service. With client permission, we gain visibility into their entire financial portfolio across XP and other platforms. We have already begun training our advisers on these new capabilities and we expect to complete training across our entire adviser base in the coming quarters.
Granting XP access to their full financial portfolio is a straightforward process for clients. allowing us to present an integrated and comprehensive view of their investment options by leveraging our modern financial planning platform, already a differentiator in the market we provide advisers with tools to offer holistic advice and compare investment opportunities, both within XP and across competitors. I want to highlight this as an important differentiator that sets us apart in the market. Currently, we are not aware of any other player implementing a strategy similar to ours on the same scale. This initiative represents a big step forward for XP marking what we like to call the third wave of differentiation.
This follows our development of the open architecture product platform and the establishment of a more sophisticated and complete distribution channel to our network of IFAs. These innovations underscore our commitment to be staying ahead in the industry and continuously improving the value we offer to our clients.
Now I will hand it over to Bruno so he can discuss this quarter's financials. Thank you.

Bruno Constantino Alexandre dos Santos

Thanks, Maffra. Good evening, everyone. It's a pleasure to be here with you again. Moving on to next slide. Starting with our core operating KPIs, all 3 main KPIs for investments or core hit record numbers as of first quarter '24, signaling, we are on the right path towards our goal to be dominant in investments. One, total client assets at BRL 1.141 trillion, a 20% growth year-over-year. Two, total active clients at 4,587,000, a 16% growth year-over-year; and three, total advisers at 17,700, a 16% growth year-over-year. Total advisers number on the right includes our IFAs or B2B, as we call it, already disclosed in our previously quarters, added by internal advisers, our B2Cs and RIAs, registered investment advisers, which includes consultants and wealth managers, among others.
We decided to disclose these numbers starting in 2024 because of the growth of other channels beyond IFAs. We believe this number better represents our total distribution capability. As you know, the investment advisory profession in Brazil has evolved with XP leading this movement and different channels to serve the client have appeared and presented relevant growth in recent years. From now on, we are going to present the total number of advisers, including all channels.
On the left, we can see that total net new money, another important KPI stood at BRL 15 billion in first quarter '24, with retail net new money is slightly better quarter-over-quarter, moving from plus BRL 12 billion in fourth quarter '23 to plus BRL 13 billion in first quarter '24, while lower than its potential, especially considering the actual size of our ecosystem, we believe retail net new money will improve down the road as we keep growing our total advisers, improve the client experience with a powerful financial planning tool, as Maffra already mentioned, invest in our private banking segment also already mentioned and expect less tax-exempt credit notes from the incumbent banks due to change in regulation.
Of course, there is a macro component which impacts net new money and resilient inflation, coupled with still high interest rates, don't help. But we see a positive trend going forward considering we are moving towards a better cycle for investments, even acknowledging the pace is probably going to be slower than initially thought.
Moving on to the next slide, we are going to take a closer look at our gross revenue. Total gross revenue grew 28% year-over-year, helped by the diversification of our ecosystem, a strong DCM activity and easy comp with first quarter '23 when we had a dysfunctional market due to corporate credit problems in Brazil. On the right-hand side of the slide, where we can see our gross revenue breakdown. The main highlight is the continued relevance of corporate and issuer services at 12% of total revenue. and retail is still representing the majority of our total revenue at 73%. A strong performance from capital markets is reflected in both retail, especially in fixed income and corporate and Issuer Services.
Let's move to the next slide, which focus on retail new verticals. New verticals continued to deliver strong growth year-over-year. In first quarter '24, new verticals revenue stood at BRL 493 million, a 35% growth year-over-year. On a quarter-over-quarter basis, new verticals revenue remained almost flat, mainly due to the seasonality of cards in Q4, the main contributor to new verticals revenue. It is worth remembering this number only includes retirement plans, cards, insurance and credit to be consistent with our previous disclosure. If we add digital accounts, international platform and FX, all of them included in other retail revenue, we would have approximately an additional BRL 100 million in revenue in the first quarter. The main highlight here is that the evolution of new verticals underscores our efforts to make the company less cyclical and more importantly, enhance the investor experience at XP.
Moving on to the next slide, we will talk about our Institutional incorporate and Issuer Services revenue. Starting with institutional revenue displayed on the left-hand side of the slide, we have a BRL 354 million revenue in first quarter '24, a 7% growth year-over-year and 14% decrease quarter-over-quarter, mainly impacted by lower market activity by institutional clients in Brazil sequentially.
Now turning to the right-hand side of the slide, Corporate and Issuer Services revenue reached BRL 509 million in the first quarter '24, a strong growth of 91% year-over-year and flat quarter-over-quarter. In the last 3 quarters, sequentially, Corporate and Issuer Services presented revenue north of BRL 500 million, reinforcing our strategy to diversify our revenue stream through our wholesale bank and also demonstrating XP is well positioned to continue benefiting from DCM activity in Brazil.
Now let's move on to the next slide where we will explore our SG&A and efficiency ratios. As stated in previous quarters, cost discipline is a priority at XP. SG&A ex incentives reached BRL 1.416 billion in first quarter '24, a growth of 36% year-over-year and a decrease of 9% quarter-over-quarter. The growth year-over-year is mainly explained by 2 facts: one, tough comp with first quarter '23 when we had very low share-based compensation due to the layoffs implemented in that period; and two, we didn't have Modal SG&A in first quarter '23. The decrease quarter-over-quarter can be explained by: one, our continuous focus in efficiency; and two, seasonality of some expenses like marketing and expert event, for example.
The bottom line, as you can see on the graph in the right, is that our efficiency ratios continue to be close to its lowest levels since IPO with comp ratio at 25.2% and efficiency ratio at 36.5%. This stability in our expenses ratios underscores the positive operating leverage of our business. which should benefit our EBT in the next years to come.
Moving on to EBT. Thanks to the operating leverage and efficiency ratios we have achieved a record EBT number for our first quarter at BRL 1.088 billion, a 33% improvement year-over-year and a 9% improvement quarter-over-quarter. This brings our pretax profit margin to 26.9%, 81 bps growth year-over-year and 226 bps growth quarter-over-quarter. Looking ahead, as per our midterm public guidance, we aim to reach a pretax profit margin between 30% and 34% by the end of 2026. This goal underscores our commitment to progressively moving towards these levels. While we may see some volatility on a quarterly basis as we saw in fourth quarter '23, for example, it's important to focus on our annual performance or on a last 12-month basis, which we believe better incorporates the seasonality aspects of our business. To get there, we expect to see better results at our core in the years to come, benefiting from its operating leverage. And until then, we will keep doing our homework to keep costs under control and enhance the experience and quality of service to our clients.
Moving on to our net income. We see similar improvement to what we have discussed with EBT Net income reached BRL 1.30 billion in first quarter 24, also a historical record for first quarter numbers. representing a 29% growth year-over-year and almost flat quarter-over-quarter. And net margin stayed at healthy levels in first quarter '24 at 25.4%. Finally, our return on tangible equity. We kept our annualized return on tangible equity in similar levels of the fourth quarter '23 at 25.4%. This consistency underscores the returns we are able to generate on our tangible equity independently of the macro environment, demonstrating the evolution of our ecosystem and business model.
We continue to be diligent about how to allocate capital. Every year, we analyze our capital needs, liquidated, decide how much of our excess capital we are going to return to shareholders. This is usually done in the second semester of the year when we also have our budget for the next year. As a company that is profitable, generates cash, is under leveraged and has excess capital it is reasonable to assume a distribution of capital to shareholders at some point in the second semester of this year.
And before I hand the call back to Maffra for his final remarks, I want to touch on our CFO transition as well as the important change that we have implemented from a corporate governance perspective. First, this will be my last earnings call as CFO as I transition to a Board member role. I'm excited that Victor Mansur will become CFO effective August 1. He's a long-term partner of XP, has joined the firm at the same year I did 2012. He's already a member of our Executive Committee and has worked together with me in the finance team since 2022 as Deputy CFO. He's the natural successor with his strong capabilities and experience to lead the finance organization. I have no doubt in my mind that I'm leaving the role in great hands. On behalf of the Board, I'm also pleased with the recently announced changes we have made to our corporate governance structure.
Following the upcoming annual meeting, we will have a majority independent Board of Directors, in line with best-in-class corporate governance practice. We are thrilled to add 4 new independent directors that bring critical skill sets to the Board, especially in risk management, banking and credit as we continue to diversify and grow our business in a dynamic financial landscape. We have also formed 2 new committees, one, risk credit and ESG committee and two, Strategy and Performance Committee that we will strengthen board oversight in areas that are important to the next chapter of growth for XP.
With that said, I will now turn it over to Maffra for his final remarks. Thank you very much.

Thiago Maffra

Before I go to my final remarks, I want to take a moment to thank Bruno for his outstanding service as a CFO. We are profoundly grateful for his dedication and contributions. Bruno, we look forward to your continued contributions on the Board of Directors and wish you all the best in this new role. So to wrap things up, we have had a strong quarter, especially considering seasonality. We have kept our expense under control and we are confident in our ability to manage the company effectively throughout the year.
This disciplined approach positions us well to capitalize on any improvements in the market conditions whenever they arise. Additionally, the integration of open investments as a catalyst in our financial planning tool is something we are particularly optimistic about creating an opportunity to make our clients' financial lives better, enhancing overall service quality, the third wave of differentiation for XP.
Now let's proceed to the Q&A session.

Question and Answer Session

Operator

And the first one is from Thiago Batista, UBS. Now you can make your question.

Thiago Bovolenta Batista

My first question, Maffra, you mentioned several times about this tough (inaudible) scenario that we have right now. What are, in your view, the main alternatives that XP has to post a higher EPS in the case of no improvement in the (inaudible) scenario that seems more likely now than a couple of months ago. And also, second 1 about the that new money, The total net new money of BRL 14 billion, BRL 15 billion in this quarter or BRL 13 million for the retail only, it's probably one of the lowest ever or at least lowest in the last years. Bruno's speech was a bit more positive with the outlook of the net new money. So can you give to us an idea of the evolution of the net new money in the last couple of months, not necessarily with the numbers, but only for the trends, wanted to see this sense of possible improvement in this net new money. And finally, Bruce, thanks a lot for the partnership in the last couple of years.

Thiago Maffra

Thank you, Thiago. And Bruno will continue with us forever here. So (inaudible). So about your first question, EPS. As we have been talking about our strategy and how we think about the company for the future, the growth I'd like to think on the 3 pillars that we have been talking, investments, cross-sell and wholesale banking, okay? So these are the 3 pillars. And of course, investments, it's -- we have been growing but at a very slow pace compared to the past because of the macro environment, and we have been growing more on cross-sell and the wholesale part, okay?
So that's how we have been managing to keep growing, of course, at the lower levels that we have been growing 2020, 2021, but we have been growing despite the macro environment. It's because we have been investing in these new verticals on the wholesale part and diversifying the business. And besides that, we have been controlling costs. So what we have planned for 2024, internally, of course, not the market math or expectations is despite any macro improvement, okay? So we have prepared the company for 2024, expecting another very tough year as we had in the past 2 years, okay? So -- but at some point, for sure, we will have a better market. We will have operational leverage. But for sure, on the first pillar, investments will grow at a slower pace if the macro doesn't change, okay?
But we have been investing in new verticals, and we believe we can deliver a good growth, not a spectacular growth despite the macro environment improving or not, okay? So that's my view.
And about net new money. Yes, I believe that the worst is behind us. But as you mentioned, we are about like what Bruno said, we are more optimistic today than we were like a year ago or 2 years ago, I believe the worst is behind, but it will take some time to recover to levels that we have been seeing again in 2020, 2021.
I mentioned a lot about what we have been doing here, diversifying channels, what the wealth managers, the internal advisors and so on to keep growing. We have been investing a lot on financial planning on delivering another level of services to our clients. So we have been investing a lot in what we call the third wave of differentiation because we believe that will pay off, okay? So -- and that's the way we believe we will recover net new money, okay? And we already see that in some of our numbers. And again, we also see some improvement from the change on the tax exempt notes, okay? So that's our view.

Operator

Next question is from Jorge Kuri, Morgan Stanley.

Jorge Kuri

I wanted to ask something -- I wanted to ask about the tax rate. Given the change in the macro landscape that you described before and how that maybe changes the type of business and profit centers that you're going to be booking versus the environment that we thought was going to play out earlier this year. How does -- can you help us understand how does that affect your effective tax rate or not. If more of the business is going to come from the excess capital rather than the capital deployment locally because it's a slower business environment, does that benefit your tax rate? Anything that you can help us get our arms around how does that look over the next 2 years if indeed, we have sort of like a sluggish equities environment with Selic rates at -- stock at 10% for the next 18 months, which seems to be the consensus view to date.

Bruno Constantino Alexandre dos Santos

Yes, sure. Yes. Regarding the tax rate, we saw a higher tax rate -- effective tax rate if we come back with the tax withholdings that we have in funds. It was 18% this quarter, for example, compared to 11% in fourth quarter '23 and 17% in first quarter last year. So if there is more -- and it depends a lot on the mix of the revenue, right? So it's hard to forecast the tax rate because we do not know what the mix is going to be. It depends part on the macro, capital market activity and so forth. But I would say in the next 2 years, if we continue with an environment like the one we are living right now, the first quarter '24 is a good guess. So that's -- but it's a hard forecast, honestly.

Operator

Your next question is from Renato Meloni, Autonomous Research.

Renato Meloni

So mine is on the equity take rate. I wonder if you can give us some more clarity here on the decline this quarter. Was this a mix shift? Or maybe the competitive environment is a bit tougher and you're seeing some declines here in fees? And then some expectation on the trends in the equity take rate if the scenario continues the same.

Bruno Constantino Alexandre dos Santos

The take rate, the take rate is -- it was a marginal decrease, right, a few basis points, and that's normal because Again, it's a function of total client assets in the denominator and revenues in the numerator. So there is a little bit of mix, but it's been in the range that we believe is normal in the past years or quarters, if you look at it.

Thiago Maffra

I've just got the answer here. There was no change in price, okay? So because you mentioned if we had any price pressure, there was no change in any price okay.

Renato Meloni

Okay. So you expect stable equity take rates for the rest of the year in this scenario?

Bruno Constantino Alexandre dos Santos

Yes. Equity take rates. Remember that in the equity bucket, in retail. We have not only brokerage futures, but we also have, for example, listed funds. So depending on if we have a quarter with a lot of the listed funds doing follow-ons or even IPOs, then the take rate could go up. If we don't, it can be less favorable compared to quarters where we have that kind of activity. There is also structured notes and structured finance there in that bucket as well.
So again, it's more about the mix than in turnover, mix and the turnover of the equities. You saw that, the debt year-over-year has decreased. So the activity in capital markets in the velocity turnover, whenever it's weak, then it's a negative impact. Everything else equal, a negative impact in the equity take rate. If turnover picks up, it's a positive impact in take rate.

Operator

Next question is from Antonio Huet, Bank of America.

Unidentified Analyst

So I would like to follow up on Thiago's question on clients. So if you could explore a little bit more on how to serve this client because my question comes from the decline in NPS. So we continue to see on top of inflows, we see weak client additions and declining NPS. So what does it reflect in your opinion? And also, would you say that going forward, your revenue expansion tends to come from outside or inside? Do you still have market share gains? Or should it come much more from the monetization of your own clients and how have you seen outflows in this scenario, okay? So this is my first question. And also, if you could explore a little bit the performance of the IFA commissions in this quarter.

Thiago Maffra

Okay. I will take the first question about the NPS. The decline was 1 point. So it's probably not even like a strategical relevant, okay. But yes, at a very high level. So we don't see any relevant decline on NPS. And so I don't see any problem here. And we should as we have been investing a lot on quality, increasing the level of service to our customers, the tools, financial planning and so on. We expect to see in the medium term an increase on NPS, okay?
So about how we expect to make money if it's internally or externally, it's both of them. When we talk about the first pillar, it's investments, it's, again, about gaining market share, but also if we have a market recover here, we will increase revenues. So there are like 2 main catalysts here. We kept growing market share in the past years despite the macro environment, and we'll keep growing, okay? And also, as Bruno mentioned, if we have a recovery, we will see people moving from low fees products to more risk on products. So we should see an increase on take rate, okay? So that's how we're growing investments.
And then we have the cross-sell part. That's basically how we cross-sell products, okay? Now we have dozens of products here that we can sell to our investor clients, okay? So basically, what we have been reporting on the new verticals of course, we have some other products that are not included on the new verticals, but we have been talking about them explicitly. And so we should increase the ARPU in the next quarters, okay? So both internally and externally, market share plus cross-sell.

Bruno Constantino Alexandre dos Santos

Regarding your second question about the commission costs, it's in a expected, I would say number considering a percentage of net revenue, for example. So we have oscillations among quarters, but it's nothing relevant. If you take the first quarter '23, for example, our total commission costs represented 23% of net revenue. If you look at last quarter, fourth quarter '23, it represented 20% of net revenue in this quarter, 21%. So it's inside a natural band. And what explains that fluctuation is one thing, mix. So it depends on the mix. we can have higher percentage of net revenue or lower percentage of net revenue.

Operator

Next question is from Neha Agarwala from HSBC.

Neha Agarwala

Just quickly on the open finance initiative that you mentioned with the open investments, you seem to be trying to persuade that with your client base how much traction you have received in that? And you mentioned that you don't see most of the competitors making utilizing that. But once they do, do you see that as a hindrance for your platform, so just discussing a bit more the dynamics from open investments?
And second question is on costs. Like you continue to maintain cost discipline, but are there any more levers for pulling down the cost-to-income ratio? Or are we kind of done here, and this is the level that we should continue, we should expect going forward?

Bruno Constantino Alexandre dos Santos

You broke up, sorry, Neha. So the first question is about the financial planning.

Neha Agarwala

Open investments. Yes, In fact of that and how the competition is behaving. And the second 1 is on the costs. Do you have any other cost lever? Or should we expect this kind of cost to revenue ratio kind of continue going forward?

Thiago Maffra

Yes about open investment, we just released the 2 RIFs internal advisers and clients. So it's at a very early stage. But the beauty for us is what we have been doing when we talk about financial planning is we have replicated the level of service that only high and ultra-high clients usually have at private banking to all our clients, okay? So we have created -- and we have been developing this system for the past year. We just released financial planning system and open investments together.
So the beauty here is you have a completely different conversation with your clients because it's not -- you're trying to sell a product or only trying to sell a product or a portfolio, but you are selling a service, okay? So you really understand their needs, their goals, their lifetime, their objectives and so on, and then you help them to get there, okay? So it's a much broader conversation and where open investments get here because once they give, they allow us to go to the banks and get all the information we see all the portfolio, okay?
So we have been doing that for, I would say, 2 to 3 weeks now. And the results they are quite impressive, okay, the level of conversation and engagement with the clients. But it's too soon to give a number or any stream achieve about the (inaudible) or something. But we are very optimistic about the tools and especially with the new services that we are providing to our clients.

Neha Agarwala

And this service, if I can follow up, this service is on digital, and there's no extra expenditure that you have to make to provide this better quality service. And do you still think that your service is much superior than the incumbents or have the incumbents kind of closed the gap in terms of service level that you provide?

Thiago Maffra

I'd like to say that we have 3 waves of differentiation here at XP. The first one back in 2010, was product the first open platform. The second one that we still have a huge differentiation is distribution. We have a much bigger sales force dedicated to investments, better trained, 100% focused on investments, okay? So we still have a big differentiation here, but we are working on the third wave of differentiation that's not selling products, but selling a completely different service, okay? I would say that the banks there, the incumbent banks, they are trying to replicate the first 2 waves. Of course, they open the platform, okay? But they still sell 80%, 85% of their own products on the client's portfolio, okay? And they are trying to replicate the distribution, training people and creating specialized people on investments. But again, I believe we are already opening the gap again on the third wave of differentiation here. We have been training about the costs that you mentioned.
The cost here is we have to train or retrain all the IFA network, the internal advisers. We have invested a lot in technology because it's a scaled business here. So of course, it's very easy to do that. A very good job on financial planning when you're working with only high net worth individuals, but when you do that for 5 million clients, it's not so easy. So we have been training a lot of people. We have developed (inaudible) technology.
And again, what we call financial planning, plus open investments, for example. We just centralized the CIO figure on our Artur Wichmann, recreate all the segments in the company and Artur is giving all the allocation calls to all the segments and these financial planning tools they give the correct allocation, they rebalance the portfolios and so on, okay? So it's a completely different services from what you can get on the incumbent banks.
Again, if you are a high net worth client, for sure, you have this service in any bank, okay? But if you have -- if you are affluent or if you have only a few thousand U.S. dollars you don't have this service, okay, in other place than XP.

Bruno Constantino Alexandre dos Santos

Here Neha is to do what Maffra explained at scale. That's the main challenge. We just released in this quarter, our total number of advisers, more than 17,000 advisers talking about investments, which is a complex topic, especially if you are going into financial planning and make that at scale with the quality and service that we want to achieve, that's the challenge, but we believe we have all the tools to make it happen.
And your second question, it was about the costs. Yes, we -- look, last year, we mentioned that for this year, you should look more at the second semester SG&A being the first semester, mainly because of Modal. We didn't have Modal the first semester. We had it in the second semester. Now everything is integrated. It's only XP now. And the level of SG&A that you saw in the first quarter, of course, there will be volatility among quarters. But when we look throughout the year, our expectation is to keep costs under control, as Maffra mentioned in his speech.
In this slide during the presentation. I also mentioned just that we have some seasonality, which is how our company works. So for example, we will have expert events in the third quarter. We will have higher marketing expenses throughout the year compared to the first quarter because there is seasonality there. But overall, the efficiency ratio should be close to the lowest levels going forward as well.

Operator

Next question is from Glen (inaudible), JPMorgan.

Unidentified Analyst

Two questions on your side. The first one is related to net asset value. I think you guys departed from BRL 9.9 billion in the fourth quarter, you printed BRL 1 billion profit. So it was supposed to go up to BRL 10.9 million. But I see this number actually decline to BRL 9.4 billion in NAV this quarter. So it's a BRL 1.6 billion gap. We were taking a look here on the notes. I know that we spent something close to BRL 700 million in IFA, probably the brokerage of select IFAs, but still close to BRL 1 billion missing here in that NAV being burned. Just want to understand the breach. What has actually drove this declining NAV.
And then the second question is related to energy. You published here an adjustment on the financial assets that is related to energy has been growing a lot quarter-over-quarter, BRL 3.6 billion to be precise. Just want to make sure I understand what exactly you mean by energy assets? If you can explain just what you you booked there and what the BRL 3.6 billion means in the context of the energy trading business.

Bruno Constantino Alexandre dos Santos

Yes, sure. I can take those 2 questions. So the NAV, it's basically -- first remember that there is part of this variation that is explained by seasonality, especially in the first quarter, third quarter as well, but most in the first quarter because of tax and bonuses payments. So tax and bonuses payments in the first quarter '24 net presented almost close to BRL 800 million deduction of the NAV, right? So that, coupled with the close to BRL 700 million that you highlighted in investments that we made that had a cash disbursement.
The investments were made at the end of last year, but the cash disbursement happened in the first quarter this year. That's from the NAV as well because you change the lines, right? So it's not a financial asset anymore, it becomes an investment. So those 3 components altogether, (inaudible), the investments, tax and bonuses, they are close to BRL 1.5 billion in this quarter, so mainly explains the variation that you asked for.
Regarding the energy, it's basically energy prepayment. We have energy desk in XP. Most of the -- so it's a loan book that is not in the loan operations, right, because it's a merchant. It's not a -- it's not a financial asset, the way it's considered by accounting standards. But it's a loan book. It's basically prepayment against AAA corporate clients that we have and resell, yes. So that's basically it.

Operator

Our next question is from Daer Labarta, Goldman Sachs.

Daer Labarta

A couple of questions also. One, first on the midterm EBT margin of 30% to 34% how dependent was that on rates coming down in Brazil? Just kind of going back to when you gave that guidance, you're probably expecting lower rates. Does potentially these higher rates for longer impact that guidance in any way? Would it lead be closer to the lower end of the guidance? Just to think about what kind of macro you were thinking about when you gave us the guidance.
And then second question, just on the cards revenues, down a little bit in the quarter. I know there's some seasonality there, but it is the first quarter where you see a slight decline, is that a sign that you're beginning to mature in that vertical and growth going forward could be a bit closer to the industry? Just to think how we should take that seasonality and then potential future growth in the required revenues?

Bruno Constantino Alexandre dos Santos

Yes. I can take the EBT margin here. Remember, in the Investor Day, we said we gave the guidance for 2026, and we said, it probably will not be a straight line. So it's more like an exponential, right? So our embedded assumptions to give that guidance is that, as Maffra mentioned at the beginning of this Q&A, we expected another tough year in 2024. Maybe it's going to be, I don't know, a little bit worse than our expectation, a little bit better. But so far, it's on track with our plan. It's too early to tell. There is part of that operating leverage kicking in that should help the EBITDA margin. That's for sure.
So the 30% to 34% by 2026, if we continue until 2026 with the same macro environment we are as of today, it's going to be really tough to achieve. That's for sure. But we expect to have a different scenario, doesn't have to be a scenario where you have very low interest rates and the capital markets, equities booming, that's not embedded in our assumptions. It's just more normalized capital markets activity, having a little bit of IPOs, how many IPOs have we had last year? How many this year, 0, 0. So we are in an environment that we believe is not going to stay like that for the next a couple of years, right (inaudible). So there is an assumption of better macro environment, but nothing really aggressive.

Thiago Maffra

Just to complement Bruno here. We are confident that we are going to deliver the year 1, 2024, okay? So we are going according to the plan so far. And of course, we have a good visibility for the rest of the year. So we are confident that we are going to deliver 2024, okay? And if you look at the numbers that we showed for -- on the Investor Day, especially when you look investments, the CAGR was 13%, okay? So it was already a very low number, okay? Imagine that the interest rate is 10%, 9%, okay, for this period, okay? It's (inaudible) 10 plus, if you look at the curve right now. So it means that we have to gain some market share, okay, because the AUC will grow the Selic rate on average and we have to gain some market share.
So for me, the macro environment, if the -- of course, it's going to be harder than a good macro environment, but it doesn't change the plan. If you go to the other 2 pillars cross-sell and wholesale banking. Then we have BRL 30% to 30% percent, okay, 30% to 35%, 37% CAGR and we are delivering. So we are confident.
Going to your point about cards, as you mentioned, you have a big seasonality on the first quarter every year, okay? And I would say that probably we are not growing at the same pace that we have been growing in the past years for sure. But if you look at the penetration that we have, we have million cards, okay? And we have 5 million customers, okay, rounding the number here. So we still have a lot of clients to penetrate, of course, different risk profiles. But when you compare to open season, to the market, we have very good 5 million clients. So at the right point, at the right time, we are going like to penetrate these clients, but -- so we still have a very good pool inside the house here like to penetrate card. So it's not the end of the growth, but we will grow at a lower pace than at the very beginning, okay?

Operator

Thank you, Maffra. Thank you, Bruno. Our Q&A session came to an end. If you have any further questions, there are teams available. Thank you so much for attending our earnings call this evening and we see all of you or we talk to you in the next one. Thank you.