Inter & Co., Inc. Q1 FY2024 earnings call

Management Statement and Operational Highlights

• Strategy Overview: Focus on the 60/30/30 plan, aiming to continue growing clients, loans, deposits, and top line revenue; increase client engagement and principality; improve operational leverage and net interest margin (NIM).
• Growth Perspectives: Disrupting the Brazilian banking market through client base expansion, loan portfolio growth, and revenue growth from client monetization.
• Business Achievements:
  • Loop as a comprehensive rewards program driving client engagement.
  • Scaling new credit lines (fixed financing, Buy Now Pay Later) in Intershop.
  • Building global accounts by replicating Brazil's app infrastructure to the U.S.
• 2024 Priorities:
  • Continue growing clients, loans, deposits, and top line revenue through innovation.
  • Increase client engagement and principality by offering broad digital solutions.
  • Improve operational leverage and NIM by streamlining operations and optimizing portfolio mix.
• Innovation and Market Share: Welcomed 1 million new active clients in Q1, with a 3.9 million total increment in the last 12 months and 340 bps higher activation rates, gaining market share across markets.
• Product Performances: Intershop saw GMV growth, insurance had strong sales and revenue, investments grew significantly, global deposits expanded, Loop loyalty program thrived, and loan portfolio grew with focus on profitable segments.

Segment Performance

• Client Base: Reached nearly 32 million clients this quarter, with an activation rate of 55% (an 86 bps improvement).
• Day-to-day Banking: Total TPV increased 42% year-over-year, with credit card volumes surpassing debit for the first time this quarter.
• Intershop: Resumed GMV growth and increased net take rate, achieving BRL 1 billion GMV in a seasonally weak quarter.
• Insurance: Recorded over 404,000 sales and 1.9 million active clients, with net revenue of BRL 52 million.
• Investments: Experienced 61% year-over-year growth, reaching BRL 95 billion in assets under custody.
• Global: Assets under custody and deposits in U.S. dollars reached $460 million, a 223% year-over-year growth.
• Loyalty (Loop): Achieved 6.6 million active clients, with Loop clients showing a 66% spending lift compared to non-Loop clients.
• Loans: Portfolio grew 28% year-over-year to over BRL 32 billion, with all-in loans rate up 1.0%; FGTS and Home Equity had the highest growth in loan mix.
• Funding: Funding base stood at BRL 43.8 billion, with transactional deposits making up 32% of total funding; cost of funding was 61.9% of CDI.
• Revenue: Gross revenue reached BRL 2.3 billion, net revenue BRL 1.4 billion, a 37% year-over-year growth.
• Unit Economics: ARPAC stable at ~BRL 30 per month, cost-to-serve at BRL 11.8, margin per active client BRL 18.5 (23% year-over-year growth).
• Net Interest Margins: NIM 1.0 and 2.0 increased 20 bps, with risk-adjusted NIM at record levels.
• Efficiency Ratio: 47.7%, an improvement of 3.6 percentage points.
• ROE: 9.7%, approaching double digits.

Guidance

• Growth Expectations: Expect to continue growing clients, loans, deposits, and top line revenue. Loan portfolio growth is expected to be in the 30s year-over-year.
• Operational Leverage: Aim to maintain and improve the efficiency ratio, with a focus on continuing cost control and operational leverage.
• Profitability: Expect ROE to remain strong, with a focus on balancing growth and profitability while building a long-term franchise.

Risks

• Asset Quality: NPLs increased 20 bps in Q1 due to seasonality, but credit card NPLs improved by cohort; need to manage impact of unsecured credit line growth on coverage ratio.
• Interest Rate Volatility: Impact on loan rates and NIM from repricing legacy portfolios and inflation; need to manage rate fluctuations.
• Regulatory Changes: Potential impact on products like payroll loans due to government initiatives and rate caps; need to adapt to regulatory shifts.
• Unsecured Credit Risks: Delinquency and coverage ratio considerations for growing unsecured credit lines like PIX Financing and Buy Now Pay Later.

Question and Answer

• Q: Good loan growth, asset quality held up despite some seasonality. How much of the pickup in NPLs do you think was related to seasonality and comfort with continuing to grow the loan book close to this 30% level? A: Santiago Stel - We think NPLs were mainly due to seasonality. We expect asset quality metrics to stay around current levels, with potential upside, but increasing underwriting on unsecured lines may put pressure, offset by growth in FGTS and home equity.
• Q: Decline in the capital ratio in the quarter. Clarification on the dividend payment and equity decline? A: Santiago Stel - Factors include AOCI (mark-to-market of securities portfolio), dividends (BRL 160 million), and capital contribution to broker dealer (BRL 140 million). Excess capital expected in holding company as financial performance improves.
• Q: PIX Financing transformational potential, interest hedge strategy? A: João Vitor Nazareth Teixeira de Souza - PIX Financing has better delinquency and economics than credit cards, with 80% PIX penetration; Santiago Stel - Hedging originations of long-duration loans (payroll, FGTS, etc.) paused but will resume when rates drop.
• Q: Loan book growth, client profile, pace of growth? A: Alexandre De Oliveira - Growth driven by Loop loyalty program, PIX Financing, and existing client wallet share gains; growth expected in the 30s year-over-year, balancing secured and unsecured segments.
• Q: PIX Financing differentiation, cost control expectations? A: João Vitor Nazareth Teixeira de Souza - Differentiation via seamless digital app, best cost of funding; Alexandre De Oliveira - Cost control to continue with operational leverage, costs growing at half revenue growth pace.
• Q: Engagement and principality, coverage ratio? A: Alexandre De Oliveira - Principality from innovation and technology-driven Super App; Santiago Stel - Coverage ratio balanced by portfolio mix, with unsecured part around 30% and expected to grow but not substantially skew mix.
• Q: Payroll loans, digital origination, government initiatives? A: Alexandre De Oliveira - Focus on healthy portfolio, digital origination evolving (e.g., INSS through WhatsApp); potential government initiatives to drive payroll loan growth, expected to boost digital offerings.
• Q: Derivatives impact on NII? A: Santiago Stel - Derivatives break down by product to calculate implied rates; interest rates of portfolios (e.g., payroll, real estate) expected to evolve with hedges, shown in breakdowns for NII calculation.
• Q: NPL formation, personnel expenses? A: Santiago Stel - NPL formation stable, cost of risk around 5.2%; personnel expenses affected by bonus provisioning (voluntary payments in strong years), levels to vary with net income growth.