AGI Inc (AGBK) Earnings Call Transcript

Good afternoon, everyone, and welcome to Agi's Second Quarter 2026 Earnings Conference Call. Today's conference call is being recorded. At this time, I would like to turn the call over to Felipe Gaspar Oliveira, Head of Investor Relations. Please go ahead.

Hello, everyone, and welcome to Agibank's Second Quarter 2026 Earnings Conference Call. Thank you for joining us. I'm Felipe Gaspar Oliveira, Head of Investor Relations. Joining me today are Marciano Testa, our Founder and Chairman and CEO; Marcello Dubeux, our Chief Financial Officer; and Matheus Girardi, our Chief Client Officer. During today's call, we will discuss our second quarter results and business review, followed by a live Q&A session with our management team. Throughout this conference call, we will be presenting certain non-IFRS financial measures. These are important measures for Agibank's management but should not be considered in isolation or as a substitute for IFRS measures and may not be comparable to similar titled measures reported by other companies. Reconciliations between non-IFRS and IFRS measures are available in our earnings release. Unless otherwise noted, all figures discussed today are presented in Brazilian reals. I'd also like to remind everyone that today's discussion may include forward-looking statements, which are based on management's current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. These statements are not guarantees of future performance. This outlook reflects management's current expectations and assumptions, including, among others, assumptions regarding the trajectory of Brazil's benchmark interest rate, SELIC, the pace of credit originations, the regulatory environment governing payroll-linked lending, including the INSS framework and general macroeconomic conditions in Brazil and is not guarantee of future performance. The outlook is only effective as of the date given and should not be considered updated or affirmed unless and until we do so publicly. Before I hand the call over to Marciano, let me briefly walk you through today's agenda. We will begin with an overview of how the market environment has evolved over the past several months and why we believe the operating backdrop has become increasingly supportive of sustainable growth. Matheus will then introduce Agi+, our new subscription platform and discuss why we believe it represents an important new avenue for customer engagement, recurring revenues and long-term value creation. Finally, Marcello will review our second quarter financial results. With that, I will now turn the call over to Marciano. Marciano, please go ahead.

Good afternoon, everyone, and thank you for joining us today. I would like to begin today's call by reinforcing the 3 key principles that guidance our business long term. First, we live for the customers, which means that we prioritize clients' value when we make all of our decisions. Second, we win with technology. So we continuously enhance our technology capabilities to serve and operate in a better way. And third, we promote as entrepreneurial culture to innovate and grow while we maintain a disciplined focus on long-term returns. I keep these 3 principles in mind every day, and I want to make sure you understand that because they shape how we make decisions, allocate capital and build the company for the long term. Next, I want to share some thoughts on the evolution of our performance since the end of the last year. First, walking through the significant disruption we had over the past year. And finally, showing that we are still growing in this scenario, and we see the second quarter '26 results at an inflection point of this trajectory. As you know, we are affected by several regulatory changes in the market, which has impacted the whole sector. And temporarily, there was a growing new client signs and origination in the second half of the last year. Our results for the second and the third quarter are below our normal performance levels due to the delayed impact of slower origination in 2025. Since mid-April, the INSS has changed the full management and implement a series of measures to strengthen governance, improve operational processes and restoring the confidence across the system. These initiatives has increased confidence in the market that the regulatory environment has become more stable, predictable and supportive for the long-term sustainable development of the payroll lending market. As a result of our 3 principle and the business model, we are able to adjust these structural changes and the new regulatory requirement very quickly, perhaps faster than others. And I believe we are among the first companies to return the strong growth. Based on this quick adaptation, since the end of the first quarter, we started to see strong growth in the customer base with principles with Agi. As a result, we grew fee business and the credit origination through our hybrid platform, which is main digital channels and smart cards network. As you can see here on this slide, we originated over BRL 7 billion in gross credit this quarter, while attracting more than 600,000 new customers, reaching 7.6 million active clients, records for the company. As we will see further in this presentation, we have been able to grow at this pace while maintaining the asset quality under control. Our private payroll portfolio grew by almost 50% quarter-over-quarter with new origination doubling versus the previous quarter. And secured personal loan originations also increased by more than 80%, demonstrating that growing is returning across multiple products, not just as a single business line. And at the same time, we continue to gain market share in the INSS payroll business. We surpassed as a payroll of the benefits 1.5 million customers. We left Santander behind us. As a result, we are reaching 9.6% and increasing of 60 basis points in just 1 quarter, reinforcing that even after all the disruption the industry faced last year, we continue to execute well and strengthen our competitive position. Other clear evidence that our operating engine has fully recovered in the fee revenue. Fee revenues reached over BRL 135 million in the second quarter, an increase from more than 35% quarter-over-quarter. Unlike credit revenues, this carries no provision dynamics and are recognizing yet, making them one of the best real-time indicator of the business activity. Based on the performance in this current quarter, we are confident in delivering even higher growth in this third quarter. Taken together, these metrics given us the confidence that the business has reached an important operational inflection point. The origination engine is performing at full capacity again, and we expect this momentum to continue following through our financial results over the coming quarters. When you grow at this pace, we observe 3 costs upfront, expected losses provision on every new vintage, the customer acquisition cost, the cost to serve and active on the platform. The revenues from the same customers, interest, fees, cross-sells accrues over the following quarters and the years. In other words, these quarters, the P&L carries the full cost of customer whose the earnings belong to the upcoming quarters. These improvements will take some time to show with the number during the next few months because we have a natural lag between operational improvements and income statement. So I believe our research will begin to drive sequentially higher income starting in the third quarter and the full recovery in the fourth quarter with even more force. And again, we are in the inflection point. So finally, at the end of the quarter, we launched Agi+, our new subscription product, already showing strong engagement and increase the number of the customer now we use the platform daily or weekly, deepening each relationship. We will become a subscriber bank. The evidence of which is our over 250,000 subscribers in only 45 days, and we will see this positive impact reflected in our financial statements in the third quarter. With that, I will pass over to Matheus to cover Agi+ in detail and Marcello to present its unit economics. Thank you.

Thank you, Marciano. For those of you who I have not met, my name is Matheus Girardi, and I am the Chief Client Officer here at Agi. It is a pleasure to be part of this earnings call to discuss a strategic milestone we are very excited about, the launch of Agi+, our new subscription program. Within the current challenging macroeconomic environment in Brazil, characterized by high interest rates, elevated household debt and rising consumer credit delinquency, we took on the mission of finding a new way to deliver the solutions our customers truly need. Our clients face daily challenge that go far beyond financial products, a lack of access to private health care, unexpected expenses, the high cost of medication, limited Internet access and daily household responsibilities. This is precisely where we see a clear opportunity for Agi to expand the relationship with the customer beyond financial service, increasing the customer lifetime value of the bank, generating cross-selling opportunities, improving retention and boosting engagement through solutions that address real recurring needs. This allow us to expand our relationship with the customer, increase customer lifetime value and driving recurring predictable service revenue. Agi+ is designed as a low-cost, high-value subscription service available in 3 tiers, ranging from BRL 39.9 to BRL 59.9. The program bundles medical, residential and dental assistance with mobile phone bonuses and even extra services such as pet care in our premium tiers. Furthermore, our plans provide monthly credits for daily expenses such as cooking gas, food and grocers, ranging from BRL 100 to BRL 150. Agi+ ensures a seamless end-to-end experience, and this is key to our strategy. It creates a sticky ecosystem that encourages daily engagement. For the customer, the value is immediate and tangible. A subscriber on our entry-level plan can save up to BRL 1,500 annually. For Agi, this model is a powerful engine for recurring service revenues, driving higher app open frequency, improved retention and deeper loyalty. This way, we are expanding our value proposition while also effectively derisking our business model. We are very pleased with the launch of Agi+ and have conviction that this program represents a shift in how we engage with our customers. We look forward to seeing Agi+ become a cornerstone of our long-term growth strategy, and we are confident that Agi+ will serve as a significant lever in the evolution of Agi's service revenues, a trend confirmed by our initial adoption hates and early engagement metrics. With that, I would like to turn the call over to Marcello, who will discuss the product unit economics and this quarter's results.

Thank you, Matheus, and good afternoon, everyone. We are very excited about the launch of Agi+ and the revenue stream it has the potential to bring to our business. On Slide 12, we've highlighted a few early sales metrics and unit economics, which we believe are very encouraging given that the product has been in the market for less than 2 months. As we think about Agi+, we see a clear 2-phase growth path. The first wave is driven by penetration within our existing customer base. With 7.6 million active customers, we have a significant opportunity to distribute the product through channels we already own at a very attractive customer acquisition cost. The early results are encouraging. In just 45 days, we reached more than 250,000 active subscriptions with 67% of new credit originations, including an Agi+ cross-sell and 99% of our sales agents successfully selling at least one subscription. The second wave comes from the continued expansion of our customer base. As Agibank continues to add new clients across INSS beneficiaries, private sector workers and public service, Agi+ becomes another scalable layer of monetization embedded in our ecosystem. Just as importantly, the unit economics are very compelling. We estimate an annual ARPAC of approximately BRL 600 per customer against servicing costs of around BRL 118, resulting in an expected contribution margin of approximately 80%. We believe this makes Agi+ not only a highly attractive product for our customers, but also a meaningful long-term contributor to earnings and revenue diversification. With that, let me now turn to our financial results. In the second quarter, we've made further progress against our core strategic priorities, growing our customer base in Brazil with a focus on multiproduct relationships, expanding our market leadership in payroll lending through new products and integrations and maintaining our position among Brazil's most efficient and trusted financial institution. On today's call, I will walk you through our second quarter results in the context of a challenging macro environment and more importantly, the positive inflection we believe is now underway across our business. On Slide 14, we outlined a few of the key drivers of improvement we are seeing with material increases in active clients credit portfolio and INSS market share related to last year as well as sequential decline in our greater than 90 days NPL. Taking a closer look at customer growth, as seen on Slide 15, total active customer counts increased 36% in the second quarter compared to the prior year period and 7% quarter-over-quarter and had 7.6 million active customers as of the end of the second quarter of 2026, which we define as those using at least one product at quarter end. We believe this growth demonstrates the resilience of our business as earlier explained by Marciano. Turning to our credit portfolio on Slide 16. Total loan balances grew 21% year-over-year in the second quarter of 2026 to BRL 37.1 billion. Our credit portfolio maintains a healthy mix with secured loans representing 88% of total or BRL 32.6 billion and unsecured loans representing 12% or BRL 4.4 billion. We believe this mix brings a sustainable balance of profitability, credit quality and focus on long-term relationships with our clients. In unsecured lending, which is restricted to account holders who maintain primary relationships with Agi to mitigate default exposure while improving margins was flat year-over-year at BRL 4.4 billion in the second quarter. Quarter-over-quarter, we see a slight decrease sequentially, reflecting the short-term duration of this portfolio. However, we saw in the second quarter an increase in the number of clients with principality reaching 1.5 million clients. Within INSS payroll credit, we continue to successfully execute against our strategy of being the disruptor of this segment in Brazil, as you can see on Slide 17. Based on our strong positioning with the INSS and leveraging our competitive advantages in this segment, our market share in Q2 was 9.6%, an increase of 160 bps year-over-year. It is worth mentioning that we were able to expand our market share by 60 bps in this quarter despite the recent periods of regulatory volatility. In private payroll credit on Slide 18, our credit portfolio grew to BRL 1.4 billion, an increase of 48% sequentially and 184% year-over-year. It is worth mentioning that our appetite for production of this product remains strong after making enhancements to its credit model and observing good evolution in its credit quality. With regards to credit quality in the overall portfolio on Slide 19, nonperforming loans exceeding 90 days declined in the second quarter to 3.3%, reflecting normalization in defaulting cohorts. At the quarter end, NPLs for the overall portfolio remained comfortably below the average for consumer credit in Brazil, which continues to trend up. The coverage ratio measured by provisions over NPLs over 90 days was 182% at the end of June, a level we consider comfortable to operate the business. On Slide 20, we have aggregated the key financial KPIs across our business, which I will now discuss in greater detail. Turning to our revenue on Slide 21. In the second quarter, we delivered total revenue of BRL 3.2 billion, a slight acceleration in the quarter and an increase of 26% year-over-year and 6% quarter-over-quarter, even considering the disruptions in the period. On Slide 22, we see net interest income growth of 11% year-over-year and 3% quarter-over-quarter to BRL 1.3 billion. The slight decline in NIM on an LTM basis is primarily due to the asset mix with a lower contribution from personal loans in the credit portfolio. Annualized NIM was flattish at 11.9% and after provisions was 6.8%, compressing 50 bps on a quarterly basis, suggesting that the portfolio is in a normalization path after the impacts of the suspensions. While persistently high interest rates continue to weigh on spreads, we view this compression as transitory and expect margins to recover as higher-yielding vintages season and our asset mix normalizes. Moving to efficiency on Slide 23, which highlights the operating leverage embedded in our unique and highly scalable business model. Our operating efficiency ratio, which we calculate as NII plus fee revenues divided by operating and personnel expenses increased to 48.9% in the second quarter, up 570 basis points quarter-over-quarter. This increase mainly reflects the operating expense growth tied to the acceleration in principality clients and in our credit portfolio, costs we incur ahead of the revenue these relationships generate. Continue down to income statement and to Slide 24, recurring net income in the second quarter reached BRL 200 million, an increase of 7% over the previous quarter, indicating that Agi's profitability improved quarter-over-quarter. Now on to our funding approach on Slide 25. As a regular debt issuer, Agi maintains established relationship with Brazil's credit markets, diversifying funding sources to support portfolio expansion. As a result, total deposits reached BRL 39.9 billion, an increase of 18% from the second quarter 2025. Institutional counterparties now representing 62% of total funding, while retail sources came down to a share of 38%. Recently, Agi also received credit rating upgrades from both Moody's and Fitch Ratings, who raised up a notch the bank's credit rating from AA- to AA. These upgrades are a significant demonstration of confidence in Agi's business model. Moving to equity on Slide 26. It increased by 62% in June 2026 compared to the prior year period, reflecting the receipt of the net proceeds of the IPO. Return on equity over the last 12 months was stable at 21.6%, impacted by the proceeds of the IPO now being accounted for the net equity. On Slide 27, you can see our total assets have grown to BRL 51.1 billion, an increase of 33% year-over-year and representing a 1.7 trailing 12 months increase in ROE, driven by the growth of the credit portfolio. Lastly, as you can see on Slide 28, our capital adequacy ratio consolidated at the holding level declined by 60 bps to 18.7% in the second quarter with a Tier 1 capital ratio of 17.6%, also reflecting the receipt of the net proceeds from the IPO. These are comfortable levels of capital adequacy, allowing us to continue investing in customer growth and technology while maintaining disciplined focus on long-term returns. As Marciano mentioned, we believe we have compelling evidence of a recovery in the business both in our credit products and in our fee-based revenue. Looking ahead, we are encouraged by improving trends in the business and are confident in Agi's long-term investment thesis and our ability to execute towards a full recovery in 2027. On behalf of Agi, I would like to thank you all for your interest and support. And now we would like to open the call for the Q&A session. Thank you very much. Operator?

[Operator Instructions] The first question comes from Jorge Kuri with Morgan Stanley.

I have 2 questions, if I may. The first one is on your private payroll loans growing 48% quarter-on-quarter and not coming from a small base anymore. I mean you've been one of the leaders in that product. What gives you comfort that, that is the right level of growth? And then you're not going to end up with higher NPLs. It is still a relatively untested product. Some of your peers that have gone aggressively into the product have seen first payment default and delinquency levels that are well above expectations. Just want to get some comfort on why a 50% increase in one single quarter is the right level of growth without putting too much risk on the balance sheet? And my second question is if you can address your pretax profit, which was BRL 115 million, if I'm correct, down 47% quarter-on-quarter, missing consensus by, say, 50%. What exactly happened there? And to what extent this is transitory? Is this a new level of underlying profitability? Just help us understand this very surprising decline in pretax profit.

Thank you, Kuri, for your question. Good to talk to you. So this is Marcello. I will answer both of the questions. So first of all, in the private payroll loans, we previously mentioned in the first quarter, we had arrived at a quality of credit modeling where we were comfortable in accelerating growth in this product at a level of circa BRL 200 million per month of origination. That's what we did. So the 50% comes a fixed number at a smaller base. But it's kind of the same pace we want to continue to go over in the future from BRL 200 million to BRL 250 million net origination per month. And what gives us comfort is that we are seeing the cohorts of we are looking into this product as providing us good quality of first payment depos below teens level. And as we improve using technology, data, AI in the credit modeling over time. Remember, we took a step back in the end of the last year, reduced a lot in the production of this product. We tested a lot of the models, and we arrived at a point that we are comfortable in having this pace of growth now at BRL 200 million, BRL 250 million per month in this product. So -- and another point is that we look at a product with the loss absorption concept, right? So we take the cost of credit and we divided the NII of the product over the cost of credit expected for that product. And if you reach a number that is 1.4x, 1.5x that, we have appetite to continue growth in that product. And that's what we are getting from this product, and we'll continue to do so. So this is what we see for the private payroll. And also, that is a product that can bring us cross-sell of other products -- other services products as we have in the portfolio, brings us with more relationship with the clients that we originate. So today, out of the 7.6 million clients that we have, we have a big portion of those clients that are from the private sector, not only for the private payroll specifically, but the private in general. So circa half of the clients are from the private sector and the other half are from the social security system. So we are indeed continue to have appetite and continue growing in this product. Always, we have cautious on taking very seriously the provisioning, as you saw. And then you link to your other question, right, on the earnings before taxes. One of the reasons of the -- and the transitory name that you used, I think, is very appropriate for this number because we are planting the seeds in the operational side for a much stronger second semester. As we have been saying the whole year, we are in a recovery phase. We were able to grow portfolio across the franchise in the INSS payroll credit, in the private payroll credit. Our unsecured credit also -- the origination also grew very strongly. You don't see that in the balance of the portfolio because of 2 factors, specifically for the unsecured, the short-term duration of the amortization and also we have in the second quarter, the amortization of the 13th salary in Brazil in May, which, in our case, is part of our unsecured portfolio as well and contributes to reduce this portfolio momentarily, but we are in a pace of origination that will bring us to growth again going forward. So what happens is as we grow the operational side very strongly as we did in this quarter and growing the number of clients, growing the number of clients with principality, reaching 1.5 million clients. All of that makes us to absorb the costs upfront. As Marciano mentioned in his speech, is the expected losses is the cost to serve these clients and the transactional cost that is involved in serving all of this increased amount of credit origination and new clients. What we see is that all of that will eventually compound month-over-month and the escalation in the NII is as a technical explanation is mathematically has to happen over time. And we have under control the expenses going forward. We think it's in a normal pace of growth. So transitory is what we really believe for the number in terms of the earnings before taxes. On top of that, we see the fee business as very strongly, not only in this quarter, growing 35%. But if you open the notes, you see that specifically the brokerage fees line grew of almost 80% in the quarter, which means that the business is recovering at a very healthy pace. And on top of that, you might have seen today, we launched the Agi+ a product, which will add another very stable stream of revenue to our results. So we are very confident with the place where we are now operationally. And financially, we are momentarily with these adjustments, but in a very good position for the second half.

If you don't mind, can I do a follow-up on this last part?

Sure.

I want to make sure it's clear. So if I understood correctly, the rapid acceleration in loans, particularly private sector payroll loans, required an upfront investment that is pressuring your pretax profit more than expected also because the growth was higher than expected. Now how do I think about the provisioning? Because if I look at your provisions for the quarter at BRL 562 million, that was up 12% quarter-on-quarter, which is obviously nowhere near this very rapid growth you're seeing in private payroll loans. So or I might just not able to look exactly at what the provisioning is for that specific product? And to what extent do you think that it is really the provisions that show that upfront investment? Or is there anything else on the P&L that you think is not going to be recurrent at this high level going forward because it's related to that growth that we saw in the second quarter.

Yes. So for the provisions, if you look at the cost of credit in percentage, it's a bit higher, but very slightly in terms of the percentage, 5.9%. And that is due to the mix, right? So when we add more of the product that has higher provisions like the private payroll and the pace of growth, it brings us to a higher necessity. So we take very seriously the 4699 CMN instruction to provision in our balance sheet. And on top of that, our NPLs went down, right, as you could see, with the coverage ratio also going up with 180%. So for us, everything matches and goes together with the growth that we saw in the mix that we had in this quarter. In terms of expenses, what we saw is, as I said, expenses that are part of the expenses that are variable with the number of clients and the originations and the transactional expenses. So part of that is due to technology involved. Part of that is due to the cost to serve the new clients with principality. And that will be surpassed by the compounding of the revenues and the growth of the NII going forward. This is a natural consequence when we grow very fast. The expenses come first and then the compounding will come in the second stage. But the size that we see of -- in the income state that expenses in general expenses occupy there, I think it is appropriate for the size of the company.

The next question comes from Tito Labarta with Goldman Sachs.

A couple of questions also, if I may. I guess, first on the -- you mentioned this quarter should be an inflection point, and we're seeing some of that growth. But how do you think about the profitability from here going forward, right? Because you're having to book additional provisions given the growth in private payroll. I mean, I guess that could be a short-term headwind. You also had a very negative tax rate. I mean, almost half of your earnings were from a tax benefit. How should that evolve going forward? How do we think about the tax rate from here? Just to think about given that like to really recover profitability, you really need to grow earnings -- pretax earnings at a very strong pace, considering a more normalized tax rate. And then my second question is maybe to get a little more color on the Agi+, right? It seems to have a nice uptake with only 45 days. Can you give some color in terms of where you're seeing? Is it more in the entry, the medium or the premium where there's the most interest? And how quickly do you think that can really expand into your client base, right? If you have 250,000 today, do you have targets or even initial color on how quickly that can penetrate your client base?

Tito, good to be talking to you. And then -- so just starting with the last part of the question, at Agi+, yes, we're correct. We are at a very strong pace of penetration in our customer base. We see this product, the entry package as the most stronger in terms of selling. But on the average ARPAC will be that BRL 600 per year with an 80% contribution margin. What we see is that it is possible to reach 1 million number of clients by the end of the year in terms of subscribers. So it is a very strong contributor of profitability that we see now that hasn't contributed a single in the second quarter in our revenues. So today, we already have 250,000 subscribers. we do the math, it is going to be a good contributor to the fee revenues in the income statement going forward. And the penetration continues, the cross-sell continues to be very strong and improving time over time. So this is one part of your question. The second part is the earnings before taxes. You are right. So the focus here, of course, we know and we understand that although net profit grew, we understand the slowdown in the pretax profitability. And all what we are seeing in the operational side will put us in position or already put us in position. We already passed the point of inflection. I can comment about July operational results already. So July had continued to operate at high pace of origination in all of the products that we work with. So we continue to plant the fees to have compounding revenues and compounding net interest income to have the operational leverage we need to go back to increasing profitability in the earnings before taxes. So that's why we say we are in a strong position for the second half of the year and will be probably sequentially in terms of how we can demonstrate that over time. So it's a technical explanation because we have the expenses shouldn't move in a very abruptly way over the quarters, but the NII has the potential and the fee business has the potential to compound strongly over the course of the next months. And in terms of the provisioning, provisioning, we don't see -- we haven't seen much of big changes in terms, in percentage terms, as I said, so 5.9%. We've been saying between that and 6% or low 6% and the NPLs from 3.5% to 4%. We are now at 3.3%. The coverage ratio, 180%. So we are very comfortable with a large cushion of provisions to go forward. So also, that's something -- a point of comfort in our numbers. And then now talking about the negative effective tax rate. It's a combination of a few components. First, the cash from the IPO proceeds are allocated into eligible instruments offshore, right? And they have separate tax treatment, and they are structural in our balance sheet, the way we manage. Then deferred tax assets in the period include tax losses are a result of the current organizational structure that we have. And third, which is the reason of this magnitude is the lower pretax base. As we had the lower pretax base, it could not -- the current tax could not offset the deferred taxes that we saw in the quarter. So I would say, directionally, the as the pretax -- the earnings before tax recovers, the rate normalizes upwards going forward, if that makes sense to you.

Yes, it does. No, that's helpful. So just to clarify, I guess, cost of risk, it sounds like it should remain around the 6%. And on the tax rate, maybe harder to figure out, but how should that normalize from here? Like should it stay negative in the short term? Does it get back to positive quickly? Just any color on how you think at least maybe the full year tax rates are going into next year?