XP : Third Quarter 2022 Earnings Release

XP Inc. Reports Third Quarter Financial Results

São Paulo, Brazil, November 8, 2022 - XP Inc. (NASDAQ: XP) ("XP" or the "Company"), a leading tech-enabled platform and a trusted pioneer in providing low-fee financial products and services in Brazil, reported today its financial results for the third quarter of 2022.

To our shareholders

After two years as a listed company, we decided at the beginning of 2022 to write an annual letter, instead of quarterly, addressing the main events, successes and mistakes, and our strategic vision. However, as we often say internally, each month at XP feels like a whole year due to the dynamism and intensity of our company. For this reason, we believe now is an appropriate moment to address some topics which are relevant to all stakeholders of XP Inc.

Strategy

Despite the changes in the macroeconomic scenario in recent quarters, the number and size of opportunities in front of us have continued to grow. We have never lost sight of the big picture, which is our purpose and what we need to strive for everyday in order to succeed on this long-term journey.

Our primary focus is to transform the investment market, providing access to products and services that help our clients build a better future. However, until a few years ago, only customers from premium segments had access to such offerings. Today, we are proud to deliver this experience to all investors, with no net worth restrictions.

We believe that investment services are based on trust and relationships, while other transactional services do not demand such a strong bond with clients. Hence, our strategy is to augment credibility, gain clients' confidence and, consequently, connect them to a complete ecosystem of financial solutions, aligned with their long-term goals.

In a nutshell, we work very hard for the right to be the top-of-mind financial services provider for Brazilian investors.

With the addition of complementary services such as credit, insurance, payments, among others, we have strengthened our value proposition within Investments, creating a virtuous cycle in the relationship with customers. We noticed higher client engagement in cohorts with a greater number of products, with an increase in share of wallet and unit economics, a reduction in churn and, most importantly, greater satisfaction.

People and Transformation

We consider our corporate culture to be unique and see ourselves as passionate entrepreneurs with a clear purpose, always guided by humility and consistency.

Over the last ten years we have grown exponentially and evolved from a medium-sized company to one of the main companies in the Brazilian financial sector. With the goal of building a company to last, we have increasingly invested in people and leadership management. Most of my time is dedicated to these fronts, as we seek to make XP a highly prepared talent pool with adequate processes and not limited by unnecessary hierarchy and bureaucracy.

We are building a company to perpetuate itself over the years and we know that this process is long and requires structural changes.

In 2018, we began a technological revolution process, which turned into a much broader and more complex company-wide transformation. Seeking to maintain innovation and proximity to clients, we reorganized XP in

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multidisciplinary business units, which are autonomous cells with end-to-end vision. This level of mobilization of the entire company imposes temporary challenges, but as we manage to overcome them, it will take us to a new level of scale and efficiency.

While we value the strengths that brought us here, we have the humility to recognize where we need to change and improve. Achieving our goals involves not only a new organizational model, but also changes in mindset to which one group of people adapts while another, once important, will not necessarily be with us for the next steps.

Our culture and values remain intact. We know that these are our greatest assets and that we need to take great care of it. Our employees and partners are more motivated than ever to make history.

Disclosure and Guidance

Since the IPO in 2019, the company and the external scenario have changed significantly and over this period we have made gradual adjustments to the way we disclose our results, always considering feedbacks from the global investment community. In this context, aiming to increase the understanding of our business and make the internal metrics consistent with those reported, we implemented what we believe to be important improvements this quarter.

First, we separated Corporate clients, companies with annual revenues above R$700 million, from Retail clients, which include individuals and companies with lower revenues. The change was motivated by the growth of the Corporate business, which was irrelevant until the end of 2021 and gained traction throughout 2022, and its very different nature.

Additionally, Retail revenue is now disclosed at the level of its main product classes: Equites, Fixed Income and Funds Platform. We believe that the new format will contribute to the understanding of the dynamics of each business line and their respective correlation with the macro scenario and Client Assets.

Lastly, we decided to discontinue the Adjusted Net Margin guidance. As of today, we introduce a new EBT Margin annual guidance of 26% to 32% of Net Revenue for 2023 to 2025, which may vary outside the range in quarterly results.

During the IPO process, we analyzed global benchmark companies and decided to consider share based compensation expense as an adjustment to Net Income and its guidance, mainly because it represented a change to our partnership after more than eighteen years with a closed and very particular model.

However, despite being mostly a non-cash expense with an impact that will stabilize over time, share based compensation is a key factor driving meritocracy and budget decisions and, as such, should be accounted for in our mid-term guidance.

Capital Allocation

We continue to have a highly scalable business despite the expansion of our scope and the growing demand for increasingly sophisticated products. In an underpenetrated market as Brazil, a disruptive player like XP is vital to promote liquidity and make unique products available, thus contributing to its development. Some of these products, especially over-the-counter securities, have similar characteristics to a service provision, such as brokerage, but involve holding financial instruments and have different accounting treatment.

However, the excess capital on our balance sheet does not reflect an indefinite need for retention to sustain the company's growth. It is rather consistent with our conservative risk and liquidity philosophy and a conscious decision to navigate uncertain periods with a higher safety margin, even if it results on lower returns on capital in the short term.

In the last three years, our Shareholders' Equity has increased more than five times due to retained earnings and offering. An important use of capital was the long-term contracts signed with our distribution network, a major

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competitive advantage that we chose to preserve. In addition, other smaller acquisitions were executed to strengthen our ecosystem.

Even with new investments expected for the coming years, we don't expect a similar cycle to that seen in 2020 and 2021.

Currently we hold excess capital of approximately R$5 billion, a level that allows us to continue to grow and be competitive while maintaining a good margin of safety, especially in normalized markets.

Hence, we see room to return capital to our investors gradually in the form of dividends or share buybacks, converging over time our accounting ROE to our marginal ROE, which is above the traditional financial sector average.

As we currently evaluate share repurchase as the most appropriate form of return, today we announced a R$1 billion increase in the program opened in last May. As partners whose personal holdings are concentrated in XP Inc. shares and that are confident with its success, we are 100% aligned with all our shareholders. We look forward to dividends, new share buybacks and greater returns for our business, preserving our management and risk principles which are vital to long-term, sustainable success.

Expenses and Efficiency

The macroeconomic scenario in 2022 proved to be more challenging than expected. In the history of XP, we went through several other difficult moments which demanded a strong adaptability and focus on efficiency and profitability, which we never took for granted.

At the beginning of the year, we reduced the pace of hiring and identified initiatives that could limit expense growth without affecting the progress of new businesses. Thus, most of the expense increase of 2022 so far was due to decisions we made in 2021, when we significantly expanded our commercial team.

Our plan is to conclude 2022 and go through 2023 with headcount addition primarily concentrated on internally trained advisors, as seen in the third quarter. Therefore, we do not expect to see expense growth of the same magnitude in 2023 as we did in 2022.

Conclusion

Lastly, on behalf on XP, I would like to thank all our clients, employees, partners, and shareholders for your trust and for being part of our history.

The size of the opportunity in Brazil and the constant efforts to delight our clients make clear for us that we are taking the first steps of an infinite journey. Because we believe in our Purpose, we treat XP as a life project, to which we dedicate wholeheartedly.

We are committed to build an increasingly better, more complete company that generates long-term value beyond its ecosystem and contributes to a better society.

Thiago Maffra, CEO

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Summary12

	3Q22	3Q21	YoY	2Q22	QoQ
Operating Metrics (unaudited)
Total Client Assets (in R$ bn)	925	789	17%	846	9%
Total Net Inflow (in R$bn)	35	37	-7%	43	-19%
Annualized Retail Take Rate	1.33%	1.45%	-12 bps	1.40%	-7 bps
Active clients (in '000s)	3,805	3,296	15%	3,629	5%
Headcount (EoP)	6,948	5,527	26%	6,339	10%
IFAs (in '000s)	11.6	9.6	21%	11.3	3%
Retail DATs (in mn)	2.3	2.6	-11%	2.3	3%
Retirement Plans Client Assets (in R$ bn)	58	43	36%	54	7%
Card's TPV (in R$ bn)	6.6	3.3	100%	5.5	21%
Credit Portfolio (in R$ bn)	16.3	8.6	88%	12.9	26%
Financial Metrics
Gross revenue (in R$ mn)	3,811	3,368	13%	3,618	5%
Retail (in R$ mn)	2,629	2,589	2%	2,673	-2%
Institutional (in R$ mn)	577	281	105%	436	32%
Corporate and Issuer Services (in R$ mn)	436	325	34%	335	30%
Other (in R$ mn)	170	172	-1%	173	-2%
Net Revenue (in R$ mn)	3,620	3,171	14%	3,429	6%
Gross Profit (in R$ mn)	2,615	2,277	15%	2,469	6%
Gross Margin	72.2%	71.8%	44 bps	72.0%	23 bps
EBT (in R$ mn)	983	908	8%	867	13%
EBT Margin	27.2%	28.6%	-148 bps	25.3%	186 bps
Net Income (in R$ mn)	1,031	936	10%	913	13%
Net Margin	28.5%	29.5%	-105 bps	26.6%	186 bps
Basic EPS (in R$)	1.85	1.67	11%	1.63	14%
ROAE¹	24.4%	28.8%	-436 bps	22.8%	162 bps
ROAA²	3.3%	4.7%	-143 bps	3.2%	12 bps
Adjusted Net Income³ (in R$ mn)	1,149	1,039	11%	1,046	10%
Adjusted Net Margin	31.7%	32.8%	-102 bps	30.5%	124 bps

1 - Annualized Return on Average Equity.

2 - Annualized Return on Average Adjusted Assets. Adjusted Assets excludes Retirement Plans Liabilities and Float Balance. 3 - See appendix for a reconciliation of Adjusted Net Income.

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