Inter & Co Inc

NASDAQ:INTR

Earnings Call Transcript 2019-Q4

[Operator]

Good morning. Thank you for waiting. Welcome to Banco Inter S.A. Conference Call to discuss the Earnings of the Fourth Quarter of 2019.

We have here today with us, the CEO of Banco Inter, Mr. João Vitor Nazareth; and the Vice President, Alexandre De Oliveira; and the IR officer [indiscernible]. This event is being recorded. [Operator Instructions] This conference is being webcast live and can be accessed through ri.bancointer.com.br. And a replay of this event will be available just after it’s finished.

[Operator Instructions] This conference is translated into English to provide for the needs of our foreign investors.

Before we proceed, I'd like to mention that forward-looking statements that may be made during this call regarding the company's business prospects as well as projections, operating and financial targets are based on the management's expectations and premises, and also information that is currently available to Banco Inter. Future considerations are not an assurance of performance as they involve risk and uncertainties and [indiscernible]. We refer to future the events and the important circumstances that may or may not occur.

And right now we will give the floor to Mr. João Vitor Nazareth, CEO, who will start the presentation. Mr. João Vitor, please, over to you.

[João Vitor Nazareth Teixeira de Souza, executive]

[Interpreted] Good morning, everyone. It's a great pleasure to talk to our shareholders today, our employees, all stakeholders. This is our second earnings release. In the year, we had other earnings releases. This is our second. We reported 2018, and we're reporting the entire 2019 results. This is also a very different call. It may seem nonsense, but it is important. We're doing this in our new headquarters. We started moving in December, our 1,600 employees. We are now in 6 different -- now 7 different sites. So we brought our 1,600 new employees to the new headquarters in a record time, and we're really happy to be here today. It's really great to see everyone in a more sustainable headquarters with more integration throughout, and it's really cool to see everyone together here which will make our day-to-day more integrated, more dynamic. So our shareholders are kindly invited to pay us a visit.

This conference call is more about our annual and our quarter release -- earnings release, as I said before. We're really happy to be reporting very good earnings from an economic and financial perspective, outstanding in structural terms. Banco Inter's project, which started in 2015, '16, has great change in the Brazilian banking market, the first 100% digital bank. This for me is like running in marathon. As many people know, it requires a lot of dedication with long-term goals. We are not here just for the quarter earnings or the yearly results. Every mile that's run is important to us, of course. And we have this sense of accomplishment, have great satisfaction of using the right strategy. And the 1,600 employees, these people are passionate about our company, we really dedicate fully, they're highly engaged. And this, of course, because we have a very common -- a very strong purpose.

There's another point, we're also reporting our sustainability report for the first time. As I said, we've been reporting economic and financial results that are good operating results, but are also great. And now our social and environmental results are also extremely interesting. When we consider that we are spending 10x less paper than traditional banks -- or less power than traditional banks, it really shows that we now live in new dynamic. We have new standards. And this makes our assets more attractive.

Now the highlights of this quarter -- of the last quarter of '19 -- 2019. As we reported before, we had 4 million customers. That's what we had. We're talking about account holders, not customers alone. So this is very important to us. We have exceeded what we had expected. We had expected 3.5 million, and we reached 4 million. The profit was BRL 82 million, that was higher than last year. So much better than expected. And we reached a very important number, BRL 1 billion in revenue. So Banco Inter is everything but a smart hub. And we have this revenue of BRL 1 billion, another important point, which was very important to us, too.

We wanted to reach 30%. And some of you know that we are service revenue was what we wanted. And we reached 30.3%. We are not only a credit bank, but also a services bank. So we can reach our customers in many different ways.

Another very important point when we talk about account activation. When people open payment accounts and deposits are -- demand deposits have grown again, greatly, with over [ 2.0 billion ] time at demand deposits. Our peso rates and liquidity in -- we said this demand deposits are more important and then time deposits because it shows how much our customers comply with us that are loyal to us. And why more than and about being complete, as we deliver well. We have great numbers.

485 active customers on our PAI investment platform. Even in the end of December, we started running the project. And in 10 months, we achieved great JOC. We never released this, but we have 120 people with shares in custody on our PAI investment platform. So we have 8% of the investment market in 10 months. As I said, we have BRL 16 billion, BRL 17 billion and when we include DLM, which was approved in January, that's 20 billion JOC. So we now have a good project, a very good project in investment at Banco Inter.

Operating efficiency, we keep reducing the cost of service quarter-over-quarter. We have, in addition, increased the revenue for our customers, revenue generated by our customers. So the 2 combined -- these 2 elements combined due to our point of inflection, which we always discuss. And then our efficiency rate has been reducing 4 -- in 4 quarters in a row.

Another highlight, which you may remember, I always mentioned this that we thought we had a cap in our costs, and we had another quarter where we had surprising reductions. So the combination of demand deposits and people using our open platform to buy our CDB, everything combined is -- has led to these great results. And it's something that the market demands from us is credit growth. This is -- has also been great. We have exceeded BRL 5 billion in our credit portfolio, 51% growth. That's a small nominal growth. But when consider large banks, this growth of 51% shows that our underwriting is very good. We also know that this growth is not only in collateral products like credit cards, but also mortgage and payroll loans as well.

So the end of the year, we also launched our super app. We invited our shareholders, investors and partners to see this app being launched. This is just the beginning of our projects. This super app is -- means great change for the history of the company. When we started in 2016, we were still in our infancy. So we have been improving on this in the last 4 years. And this led us to where we are. Our super app is now much better. It's not as primary -- or -- as our checking account system.

I'm expecting a lot to happen in 2020. I have a great team, leading the super app. We have Rodrigo, leading the team. And we are convinced that Super App may have -- will have a great impact on our history. We won't just be a digital bank. We'll be a whole business idea. So this was the end of 2019 with all these highlights. And this is what I had to tell you about the dedication to our project, to our purposes. We want to keep working hard. And at the end of 2020, we want to have great savings, savings of fees to our consumers, to our customers with very good -- very positive results. So this was a great year for us, 2019. We really thank all our shareholders that are part and parcel of this success. And then people of SoftBank Bank, they were also very important and Andre Maciel, our Board member. So we have a lot to do in this respect too.

I now turn it over to Alexandre, our CFO. And we can discuss more details in our Q&A session later. Thank you very much.

[Alexandre De Oliveira, executive]

[Interpreted] Good morning, everyone. Thank you, and I'd like to stress that we are thankful for your participation in our eighth earnings release call for 2 years, to entire years reporting as a public company. We see participants in many different segments, many stakeholders, analysts, investors. And people sometimes don't understand that we have sometimes a customer, that also brings best in us. Now our major business drivers. So the increase of the number of customers engagement, NII, credit revenue, service revenue, cost of service, value generation.

In terms of our client -- customer base, we have exceeded 4 million, which is much more than we expected at the time of our IPO. We thought of less than 2 million clients at the end of 2019, and we have reached 4 million. And the major reasons for this 2.8x growth year-over-year with a very well behaved cap, if you will. So we just have new clients. There was a slight increase in our operating CAC. And this means that our customers have better usability in opening their accounts, with geolocation. And in this quarter, 100% of our customers now have a contactless card. Our customer base is still highly active. So the rate over 70% activation. So all our benchmark activities, this is our global benchmark. And we still see an increase in activation in the older customer groups, in terms of demand deposits, 237% was the increase. So with very good indications in the average balance per customer in 2018.

When we look at the final balance at the end of the year, it was about BRL 710 per customer. Now at the end of 2019, BRL 850 per customer. That's a very good increase, especially considering the number of -- the large number of customers we have. And this has, of course, led to this decreasing of funding costs, below 75% of the CDI. Another important highlight in terms of engagement, 270% growth in our customer base in the PAI platform, and this was proportional to the number of customers. So from 10%, the customers that also invest. We should also stress what João said, almost 100,000 investment -- investors in home broker, 7% of the market.

Finally, in terms of engagement, we have seen over 2 million logins daily, which is very good. And in consequence of all our launches and how much our product has been enriched with marketplace, with our super app, and with increases in each version. Yesterday, we uploaded our end-to-end version to iOS. That's, again, a very good development.

In terms of revenues in services or service revenues. We have a greater base, 203 million against 99 million in the previous year. We reached our internal target of 30% in the services rate of the total net services. The PAI investment platform when we had our core, before, we expected an increase in the revenues, and there was 300% in growth in the PAI revenues. Card revenue have also increased. And insurance revenues growth was over 40%, with new products being added. Again, we did well.

In terms of credit, 51% growth and on our target was to reach 40%. And we exceeded this rather comfortably. It should also highlight that collateral credit has grown in our major strategy in nonperforming loans 4.4%, maintaining the pattern we had in 2018 of the standards. And then the NII that was this quarter 44% year-over-year. A good net margin at 8.9%. In terms of costs of services has calculated in operating expenses, we are still reaching what we wanted, in other words, to reduce BRL 178 per client per year, 37% reduction year-over-year. So this was important also to reduce our efficiency rate, as João mentioned.

Finally, value generation of net profit BRL 24.7 million, 81.6% throughout the year, exceeding BRL 1.1 billion in revenues for the first time. Our revenue grew about 40% over the year, and we finished the year with a Basel rate of about 40%, which gives us good margin for growth. BRL 2.2 billion is our shareholders' equity, BRL 2.2 billion. And then our total assets for the first time exceeded BRL 10 million.

So thank you, again, everyone, especially, our 1,600 employees who have been delivering this -- have been doing good job to our customers.

And [indiscernible] now, over to you.

[Unknown Executive]

[Interpreted] Good morning, everyone. Thank you very much for participating in this earnings release call. Around what João Vitor and Alexandre highlighted, I'd also like to add that in 2019 was the first year, that we have the first 2 M&M transactions, M&A and LMs. But the earnings of these transactions, we restructured our business development, and M&A strategy is becoming more robust. And also, of course, capturing the opportunities that we see ahead.

We're working with a team, with adding new people, but only added to our teams. And we have new opportunities with partnership and to leverage a project that we mentioned here, before, that the bank as a service. So we can provide other companies with the possibility of offering our services as we are able to the customers of these other companies in other products, a B2B relationship. And we will start our first project in this respect. We're really excited about this new front. And this was my message to you.

Again, thank you for participating. We will now open our Q&A session.

[Operator]

[Operator Instructions] First question, Gabriel da Nóbrega, Citi.

[Gabriel da Nóbrega, analyst]

[Interpreted] We've been growing strongly in credit cards. Now what is your sentiment about increasing risk? And maybe offering new credit products, as Alexandre mentioned? And I have another question later.

[João Vitor Nazareth Teixeira de Souza, executive]

[Interpreted] Gabriel, thank you your questions. While this is something we repeat consistently, our goal at Banco Inter in terms of credit is to include collateral products. Collateral may include your home, your salary, your investment, your pay to rate in our marketplace. So this is the -- my math for Banco Inter. We want to expand aggressively. In our credit card portfolio, of course asset losses, for those who have no collateral to provide the charge 16% -- 15%, 16%, which is the greatest enemy of Brazil's Central Bank, not really. So what do we need to do to provide credit? BRL 5 million, BRL 10 million, BRL 15 million, BRL 20 million to provide credit more easily with more methods of collateralization.

And this will be launched on our app very soon. We will have a field, where investors or customers can increase their credit limit. So it's in their hands to decide what kind of collateral they want to use, the marketplace, or their investment, or their salary. So with 1 or 2 clicks, they can do this easily. So we want to have more people, and to buy them more the credit, more loans with a low rate of loss. We don't want to offset losses, with no income, no job people. So we want really to provide our clients with this. And this is our philosophy in terms of credit loan and credit cards or personal loans. Your second question?

[Gabriel da Nóbrega, analyst]

[Interpreted] It was very clear. My other question is about the services revenue, which grew considerably this quarter. But then there were other things that happened this quarter like the launch of your super app and then your Black Friday and Christmas promotions. So I'd like to understand how recurrent you believe that these results may be in the next 3 quarters?

[Unknown Executive]

[Interpreted] As I was telling, Rodrigo, the CEO of our marketplace, of course, we understand there will be seasonality in the third quarter, fourth quarter, not only in terms of our marketplace, but also our [ DPDF ] credit cards, which lead to interchange stronger this quarter, will be weaker in the first quarter. Well, it's expected to be weaker, but it may not. But I think this is not highly representative when we consider the whole. And why am I saying this? Again, this is the advantage of being a complete bank. If we just acquired products and dependent on seasonality alone, we will have a much stronger impact in our business. If you just invest and you just change interest rates, again, you just depends on that. So when you have a wide range of products and services, you can offset seasonality in your earnings. So once you have Black Friday, and then the credit card is lower, and then you have lower interest rates. So I think the beauty of having a more complete, thorough platform that grows fast is what we have, and that leads to more protection to -- for the seasonality movements.

[Operator]

[Operator Instructions] The next question [indiscernible] from XP Investment.

[Unknown Analyst]

I have a question about shopping, you had 34 million transactions in the last 2 months, and this seemed a little different from what we expected. So can you expand on this, consider maybe the beginning of January and February? And what we're doing to achieve these results?

[Unknown Executive]

Marcelo -- [ Marcel ], thank you for your questions. Well, January is within our expectations. To be honest, even a little below my expectations. I expected more. Now what I think is nice about this. What you should consider is that our current situation, [ 1.0000 ], I don't know if you use iOS or Android, but last week, we launched our new version for Android. So this is like when you buy from -- with 1 click from Amazon, we launched the version to Apple. So it may be available to our users today. And then this is transformative. In other words, people in Brazil will have a banking app [indiscernible] 1 click, they may buy a product. As I said, last year, we finished the year by launching our super app because I have extremely high expectations from it.

In our roadshows, I discussed this, we can increase monetization and collateralization for more credit, more engagement, more recurrence, it more -- even more thorough experience. And this is really cool. And we'll be launching 2 , 4, 3, 4, 10 different versions of the app. Following the same philosophy, the same spirit, as having a checking account and digital account in Banco Inter, bringing -- winning customers over considering the efficiency rate that will be generated. Our technology team is very special. Our product team is also very nice. And our marketing team does a great job, too.

So we get support from that huge amount of data. 100% of everything we do is on our app. So I'm convinced that this DPV perspective, with this focus on our Super App, is a growing trend in Banco Inter, it's very dynamic. It's not just growth that is not dynamic. So I'm really positive. And I'm expecting very good results, a lot of achievement throughout 2020, through our super app.

[Operator]

The next question, Philippe [indiscernible], webcast.

[Unknown Analyst]

Competitors are fighting against international in dollars. How do you see this trend? Do you do want to do something along similar lines?

[Unknown Executive]

Thank you for this question. Again, as we consider the thoroughness or how complete our solution is, I think we can relate this to another issue, which is internationalization. So competitors, how do we see our competitors? While Banco Inter's strategy is slightly different. Of course, there's a value in providing an account in a different currency. Of course, that's a very interesting market. But we also believe that the way that this can be done, well, we think along more comprehensive lines, more open lines. In other words, we will offer a global account in dollars as soon as we have the right conditions. In other words, a robust structure that is very thorough, that's regulated in another country, for instance, in the United States. So as soon as we get this, we may -- we will have an account like we have in Brazil. So our global account has to be a complete checking account that's very robust, properly regulated, highly compliant. This is how we see this product, a product such as this. It will only happen, if we can meet all these conditions, otherwise, we won't offer it.

[Operator]

[Operator Instructions] So this is the end of our Q&A session. Right now, we'd like to turn it over to João Vitor Nazareth for his final remarks.

[João Vitor Nazareth Teixeira de Souza, executive]

Thank you, again, for your question. Thank you for participating in this call. So we are at your disposal for any other questions. We know the agenda of our analysts are very busy, but capital market has been heating up in Brazil, like we have see for -- in many years. So really happy about answering further questions, passing it on to our analysts and also individuals. Thank you, everyone, again. See you again in 3 months' time. Have a great day.

[Operator]

Banco Inter's conference call is over. Thank you very much for participating. Have a nice day. Thank you for using Chorus Call.