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XP Inc. (NASDAQ:XP)
Q2 2020 Earnings Call
Aug 11, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Carlos Lazar

Good evening, everybody. Thanks for having us here in this second-quarter results event that we are holding here with Mr. Bruno Constantino, our CFO; and Andre Martins; together with me, Carlos Lazar, are part of the investor relations team of XP Inc. In today's event, we will be holding a presentation for all of you.

This presentation has a disclaimer on Slide 2 that I would like to ask you all to read. Additionally, we're going to have an audio/video to present during the beginning of this presentation that I also would like to ask you to control the volume of your device in this -- for this event. And finally, by the end of Bruno's presentation, we will be having a Q&A session. [Operator instructions] So by the end of his presentation, I'm going to be, again, having this information available for you.

And so we'll not take any longer here. I would like to ask Bruno to continue the presentation.

Bruno Constantino -- Chief Financial Officer

OK. Thank you, Lazar. No, Mr. Bruno Constantino, that's fine.

Good evening, everyone. Thank you for joining us for our third earnings call with the market about the second quarter of 2020. Before we get started talking about these opening remarks, I would like to say that, first of all, we had a very tough -- I mean -- and by we, I mean the whole world in this first semester, a lot of volatility, uncertainty. We were heading for a year of growth all over the world, and then we all were caught by surprise with a black swan, this pandemic.

And I believe that, as we move forward into this pandemic and its effect, XP, and by XP, I mean our close to 3,000 employees, plus 7,000 IFAs, we were able to show our resilience to adapt, we all had to; to strengthen our culture, what I believe to be our main competitive advantage when investors ask me, I always go for the culture and our people; and also to reinforce our values; the big dream to have an open mind in our entrepreneurial spirit. And all of that, together, made us able to deliver the results we are going to share with you. And as Lazar mentioned, we have this short video that we would like to share with all of you that will touch point in everything that happened during this first semester of 2020. So please, Andre, I hope it works.

Let's see.[Commercial break]

OK. It worked. So this short video is just to present some highlights, but let's go to the presentation. And I will try to be as short as I can, so as fast as I can, so we can go to the Q&A.

So going directly to our KPIs and financials of the second quarter this year, we start with our assets under custody. As you can see on the left, we reached, at the end of June, BRL 436 billion of custody, a 59% increase year over year, and compared to the BRL 366 billion of the first quarter this year, almost 20% increase. Part of that was market appreciation during the second quarter. But most relevant, I think we saw the net new money inflow picking up, especially in June, because of our offer that we did in July, end of June, beginning of July.

We presented a guidance. We had to be very conservative about this guidance, considering when we established the guidance, we were in the mid of June, first half of June. And with the lawyers and the banks in the syndicate, as we had an offer, we had to be sure we were not going to get numbers below the bottom of the range. In terms of net new money, we had a guidance between BRL 10 billion to BRL 12 billion for June.

We hit more than BRL 14 billion, the highest level compared to even pre-COVID numbers. When we go to active clients, it's no different. We reached the number of 2.4 million clients at the end of June, 81% increase year over year. And we also released -- we had a press release when we talked about Expert, our main event for the year.

And we mentioned that because of Expert, we get momentum in the month that Expert happens. Usually, we open more accounts in that specific month, and we said that we expected to deliver more than 10% growth of opening accounts in July because of Expert compared to the monthly average of the first semester of 2020. And at the end of the day, we actually get results beyond our expectation, more than 30% opening accounts increase in July, reaching the number of 187,000. So moving -- we can move to the next one, yes, keeping the KPIs.

When we look at the retail equity daily trades, also skyrocketing. You can see that by the B3 numbers. It's what we call, and we explained that a lot during our offering in the road show, the equitization process in Brazil. It's happening, and you can see that in those numbers.

So in the second quarter, we had an average of 2.7 million daily trades, a 187% increase year over year. And in July, this space kept a very high figure, reaching almost 3 million, our record ever for the month. And our NPS is stable in a very high level, around the 70, 71, which is the highest of the industry. Going for the financials.

The total gross revenue, again, above the top range. We got our record quarter ever in all the numbers, more than BRL 2 billion of gross revenue, BRL 2.041 billion and mainly driven by retail and institutional business, I'm going to explain a little bit later. But when we look at the breakdown, the main shift is that retail and institutional did really well in the second quarter at the expense of issuer services, as we had anticipated, because the offers in the market, they were harmed by the crisis. We had April and May with not very good market windows for offers but we saw picking up in June, and we now are at full speed for the second semester, I believe.

In digital content, despite having this low number in terms of relevance, it's always important to highlight that is our core. We started the company with education, so it's a very important part of our ecosystem. We can move forward. Take rates.

So retail revenue, a growth of 69% year over year, almost BRL 1.5 billion in the quarter, mainly driven by equity and futures, fixed income and also financial products. The take rates, looking at the last 12 months, stable at 1.4. And when we compare to the first quarter, you need to have in mind that it's a function of numerator, the revenue of 1.5 in the second quarter, for example, and the denominator. And the denominator in the first quarter was the BRL 366 billion, the average of this number and the end number of the first quarter '19.

And because of the market appreciation, of course, the take rate should even go down, but we had this high number of revenue, reaching almost BRL 1.5 billion. We can move forward to the next slide. Institutional revenue, same thing. The market picked up, so the overall equity trading volume in the market in the second quarter year over year was around 90%.

If we take out of that equation retail investors, just look at institutional, it should be close to 80%. We had a 88% growth year over year, a very healthy pace of growth as well. In issuer services, as I already mentioned, a decline compared to second quarter last year of 25% but already picking up. Digital content, I already mentioned, 42% increase, BRL 46 million.

The relevance is more about the education concept that we have in our platform. And other revenue is basically a function of our gross cash that went up because of the IPO and the cash generation. And despite interest rates going down, the results compare year over year presents the 78% growth figure. And when we go to the last line, the net income, adjusted net income and margin, the top of the range that we gave was BRL 520 million for the second quarter.

We had a BRL 565 million of adjusted net income. That number, when I think about one year and a half ago, at the end of 2018, the whole year, we had an adjusted net income of BRL 491 million for 2018. One year and a half later, in one quarter, we have 15% above the entire net income -- adjusted net income that we had in 2018. This is to show how exponential this business can be.

But I would like to highlight that despite all this growth in this short period, it's nothing compared to the opportunity we have ahead of us. If we look for the five banks we are disrupting in the financial industry and we look at their quarterly net income in a stable position, not with these high provisions because of the COVID crisis, we're talking about more than BRL 20 billion quarterly net income, close to BRL 25 billion if we add Caixa in that number. And here, we are talking about less than BRL 1 billion. So that's just to give you a sense of the size of the opportunity that we still have ahead of us.

And the adjusted net margin, very high, 29.4%, above the top range as well, 28% that we had given the market during the offer. And that's a function of, number one, the high growth rates that we just showed; number two, the operating leverage that our model, by being an asset-light business model, has; and number three, a function of a lower effective tax rate. I know that's a thought also that investors have asked a lot. And we can go into Q&A, but I'm going to try to advance here some part of the explanation.

Basically, in terms of the effective tax rate, what we have is several companies. We have 30 companies in our group, each of them with different tax brackets that goes from zero to 45%. The bank is 45%. The broker-dealer is 40%.

We have companies at 34%, other companies at 22%. And all that cash from the IPO that is outside Brazil, invested in Brazil, it gets in a -- it's 15%, the tax rate. But the way we recognize this accounting is already discounting this 15% of tax. So you -- for accounting purpose, you recognize -- for example, a 100% revenue, you only recognize a 100 -- I mean, units of revenue, you recognize 85.

And for the financial accountability, it represents a tax bracket of 0%. So our effective tax rate, as a consolidated basis, is going to be something between 0% and 45%. In the middle -- in the midpoint, it would be 22.5%. And it will vary from quarter to quarter, depending on the revenue mix that we have.

Of course, if we have more revenue at XP Inc. level, it's going to be lower. If we have more revenue at the bank level, it's going to be a higher tax -- effective tax rate, so it's going to be a mix. We are going to see volatility in there, but that's what explains these low effective tax rate effect.

Now talking -- we already showed in the video our recent developments. We have launched, it's in beta mode, our credit card. But it's in place. It's here.

I don't know if you can see here. I have mine. I've been using it. And we have the expectation to roll out for clients in the fourth quarter, together with the digital bank accounts and other services that we want to provide with our bank for our investor clients.

We also are just highlighting in the first semester the number of deals that our issuer services area participated in DCM, ECM and REITs, seven -- 67 deals totaling more than BRL 6 billion in offers in the market, and we are very confident that this segment is going to pick up now that we have this open window in the market. The fixed fee, it's -- we are always thinking how to complement our ecosystem and what we can do. We are agnostic again about -- the decision is the client decision, we are a 100% client-centric company, and we felt that our IFA network needed a second option in terms of how the client wants to pay for the services. We have the commission-based model.

And now we introduced, for the IFAs, the fixed-fee business model as well. And at the end of the day, it's going to be the client choice as it should always be and everything done with transparency for the client. And the international funds platform with this low interest rate environment is going really well. We have more than BRL 6 billion already in our platform, new funds as Bridgewater, Oaktree, Moneda, Ashmore and much more, more than 45 funds in our platform, and we expect to keep growing that business in our ecosystem as well.

And lastly, this slide, I mean, we already talked about in the video. I'm not going to take longer here. Only to highlight that Expert was something else this year. We, as I said, were caught by surprise regarding this crisis, what to do with Expert.

Our tenth edition of our most important annual event, we were expecting to have 50,000 people in presence in São Paulo this year, and we had to adapt. And we did, and the result was, again, beyond expectation. We got more than 5 million people with high-quality financial content for free. The feedback that we got because of it, it's something else, and it gives us a lot of motivation to create new experience for our next Expert in 2021.

And now I think we go for the last slide, the closing remarks. Again, you're going to see me talking a lot about it. It's the same. The same thing because we are in a long journey.

So from quarter to quarter, we don't have much to add here. It's the retail investment business, despite all the growth, still 90% of the investments are made through five banks. There is a long way to disrupt this business. If you look at the first semester, for example, it's impressive, in a low interest rate environment, the Poupanca in Brazil savings accounts hit new record in terms of total money, almost BRL 1 trillion and in specific months of net inflow.

The Tesouro Direto government bond, same thing. So people still have this huge gap in terms of financial knowledge. It's improving. It's changing, but it's a long journey.

That leads to the equitization process. Brazil, the number of individuals in B3 is going up in a very high rate. We have now more than 2.8 million already. It's growing, but it's still a very undehrpenetrated market.

So we believe, again, it's going to be a secular trend there, low penetration in a percentage of the population. The corporate banking, it's another market that we have an optimistic view about it. We want to do an equal, if not greater, disruption in this market that we have done in the retail business. As you know, we have hired Jose Berenguer, the CEO of -- former CEO of JPMorgan Brazil.

And Berenguer is going to lead all these efforts across the company. And we believe that, with our network, with the bank, with the products that we can offer, we have everything to disrupt this high-concentrated market as well. Same thing with the pension industry. Our insurance company's going really well in terms of growth, but it's nothing compared to the BRL 1 trillion total addressable market only for the open-pension industry in Brazil.

So a lot to do to transform the financial market in Brazil, our strong purpose -- we believe that to have a strong purpose is something else that gives us the motivation and not only us but all the ecosystem that we can impact to keep doing the right thing, no shortcuts but a long journey ahead of us to transform the financial market and improve people's lives in Brazil, always having our core values with us. So with that, I end the second-quarter presentation, and let's go for the Q&A. I'm sure you have probably a lot of questions to do.

Carlos Lazar

Thank you, Bruno. So let's start the Q&A session. [Operator instructions] We already have some questions here, Bruno. I'm going to start with Otávio Tanganelli.

Can you dig a little further in the restructuring you mentioned to lead to such a low effective tax rate? Is this sustainable going forward?

Bruno Constantino -- Chief Financial Officer

OK. Yeah. Otavio, this structure is what I explained. We have cash in different companies in our group.

We have 30 companies, as I mentioned, offshore and onshore companies. And because of the proceeds of the primary, of the IPO in December last year, we kept most of this cash at XP Inc. level. And XP Inc.

has that effect. It's a 15% tax rate that, in terms of the accountability, it says zero because the revenue recognition is net of taxes already. And that brings the effective tax rate down. If it's sustainable going forward, yeah, it is sustainable.

I wouldn't -- I mean, the first semester of this year, our effective tax rate was close to 17% in the group. If we take the midpoint of 0% and 45% that I mentioned before, we are talking about an effective tax rate of 22.5%. So I would say that our tax rate should be between 20% to 25%. But again, there is volatility there.

It can be lower. It can be higher. It will depend on the market condition, the mix of revenue, where the revenue is in our companies in the group.

Carlos Lazar

Again, in the same subject, Bruno, Mario Pierry also -- I mean, it's running well below the historical levels, the tax rate. Consequently, the net margin is above 29%. So much, much above also the mid- to long-term guidance of 18% to 22%. Are you planning to revise in your guidance?

Bruno Constantino -- Chief Financial Officer

Yeah, Mario, you're correct. And we want to think about it after one year, at least, because this guidance that we gave is not annual guidance. We decided not to give annual guidance. It's more a long-term guidance, mid- to long-term guidance.

And by that, we mean three to five years, right? And we haven't had one year after the IPO yet. So we think it's -- the right thing to do is let's wait for one year and then think if we should revise the guidance. But you're correct, the actual margin -- adjusted net margin is much higher than what we gave as a mid- to long-term guidance, basically because of this effect of the primary proceeds of the IPO in -- at the XP Inc. level, bringing this lower effective tax rate that was not taken into account at the time of the guidance.

So we should revise, but after 1 year. That's what I'm trying to say here.

Carlos Lazar

OK. From Jorge Kuri. To what extent was the jump in the revenue positively impacted by the high trading during the quarter given the volatility? And what would be the revenue adjusting for this event? And also, how it's trending now, the third quarter, when we don't see any more volatility as we saw priorly? And one more, which is the -- what is the outlook for 2021? I guess it's also regarding revenue.

Bruno Constantino -- Chief Financial Officer

OK. Yeah. The revenue -- the volatility happened basically, I mean, in March, right? March was when we had the circuit break and everything else, then the volatility starts to accommodate. And we keep seeing high-volume trading despite the volatility reducing over time.

When we look forward, it's hard to tell. I mean, we don't have too much volatility right now, and we presented the numbers of daily average trades at 2.9 million in July, our record -- monthly record ever in our history. So I think there is much more to do with the equitization process in Brazil than volatility itself. So the revenue, yes, you are correct.

It was impacted by that, by the volatility, but mostly by these equitization trends that we have in Brazil. And we don't see that reducing the pace going forward, especially in an environment with 2% interest rate in Brazil and a very underpenetrated market when we think about the stock market as well. I don't know if I missed any other point of Jorge.

Carlos Lazar

The trend, the trends for the future, for the near future, 2021 and so on.

Bruno Constantino -- Chief Financial Officer

In terms of the take rates?

Carlos Lazar

Yeah, yeah. And just putting together here Mario Pierry's question also, if we have any ability to maintain the revenue about 1.4% when market rates are around 2%.

Bruno Constantino -- Chief Financial Officer

OK, OK. The trend -- revenue yields. The take rate, I am always conservative when I talk about it because, for real, there is volatility there depending on where the mix is. When we have more equities and futures and even fixed income or financial products as we have had so far in this year, that tends to be a higher take rate at the end of the day, but it's also a function of other products that we keep adding.

Let me give you one example, credit card. We are in beta test. But when we have the revenue of credit card, by adding new products, that goes to retail because the clients that are using this product and providing this revenue is a retail client, right? And there is no AUC attached to that revenue. So it's going to be a revenue on top of the existing AUC.

When you think about that, only by this math, revenue yield should go up. That's a confusion that a lot of people make. When we think about the 1.4, people think about like a fee paid by the retail client. That's not it.

That's not it, not even brokerage. Just to give you another number. If we only look for brokerage in that revenue yield, it's less than 30 basis points, OK? So if, for example, we got this question from international investors about the trend of brokerage fees going to zero in the United States. If that happened, for example, in this 1.4, our revenue would go down to 1.1 or even a little bit higher than that.

If that brings another kind of revenue that is not in this math that I just explained. So at the end of the day, the trend of the revenue yield, it will depend on a function of how our AUC grows because we can have, as we had in the first quarter, part of the AUC left our base, but it was an AUC without the sync or the corresponding revenue because it was basically linked to equity, B2C market and not relevant for the revenue of the retail. That, by itself, should increase the revenue yield. As we have an increase of the pension industry that has a lower revenue yield as a product, but it's a very good product that we are stepping on the accelerator to grow.

Then if that increase as a mix, that should bring down the revenue yield. So it's multiple factors that impact the revenue yield. At the end of the day, the way we like to think about our business model is that it doesn't matter what the product is. But if we offer all the products, they are suitable for the clients, and they are the right products for the client to achieve his or her goals in the long term.

That's what's the most important thing for us. So the revenue will keep growing. I have little doubt about it because of the total addressable market, because of our business model. But if the revenue yield is going down or up, compared to this 1.4, it's hard to say.

Carlos Lazar

From Christian Bolu from Autonomous Research. What drove the 300% year over year growth in the net income from financial instruments?

Bruno Constantino -- Chief Financial Officer

That's financial instruments in there, we have several different instruments. The main relevance, a lot of, for example, in the equity market, derivatives that retail clients want to protect their positions or trading derivatives and also the structured notes known as COE in Brazil, the certificate operation structured notes, that it's a new product. We already had this product. But this year, it's a new product because of the bank.

So as we have the bank, we are able to issue those structured notes. Before that, we relied on partners and other banks that also issue, and we keep also selling structured notes from other banks in our platform because we are this investment ecosystem, so it's open for whoever wants to make a good use of it, providing good products for our investor clients. But because of our bank, we were able also to grow. And we expect that line to keep growing a lot going forward because that's just a new product that we didn't have before.

Also for institutional clients, it's the same thing. Because of the bank, we can provide derivative products for institutional clients, independent asset managers, for example, or corporate clients that want to make use of our secondary markets and our ability to -- because of the flow that we have to provide good prices for those clients to have their positions and match that with our retail client base as well.

Carlos Lazar

OK. Some questions about competition here, Bruno, from Thiago Gomes and also from Teeja Boye. So basically, the question is how -- can you please share some thoughts on the competitive threats to your retail business from other platforms? What do you think is their strategy in going aggressively against the IFA network and what we expect in terms of AUC departure as well?

Bruno Constantino -- Chief Financial Officer

OK, yeah. I know this topic has been a hot topic in the moment, the competition in the IFA business. So I will take the opportunity of this question to -- if you allow me, to step back a little bit and explain the framework of the IFA business in Brazil, and then I will provide what I believe to be the consequence of this competition intensifying going forward. Because, as we have said, competition is going to intensify.

It's a natural thing. Considering our leader position and all the success that XP has had, it's a natural thing, and we believe it's going to keep like that going forward. So number one, I'd like to share with you some points. As you know, XP started as an IFA and has worked hard to develop this profession in Brazil.

So the fact that other platforms want to mimic what XP has been doing for years down the road, in our view, is a recognition that our model is in the right direction. That's number one. Number two, when we think about the potential of this profession, the IFA profession going forward in Brazil, taking into consideration how many bank managers Brazil still has, the ongoing reduction of branch already announced by the banks and this low interest rate environment, it seems to us that the growth of the IFA profession is far from the end. Number three, when we look at the numbers of new IFAs coming to the market, I don't know if you follow those numbers, but it's a clear recognition that the IFAs or the new IFAs recognize XP as the best brand and platform to allow an IFA to succeed in this new endeavor.

And why am I saying that? Because, for example, in the last 12 months, more than 80% of new IFAs have chosen to go to XP platform. Those are new IFAs coming to the market. We presented a number. We are talking about more than 150 new IFAs per month.

It's close to 200 new IFAs per month coming to the market. It's a new profession that is still underpenetrated in Brazil and I believe is going to grow a lot. Those new IFAs that come to the market, why do they choose, more than 80% -- the actual number in the last 12 months is 84%. Why do they choose to go to XP and not other platform? And again, at the end of the day, considering that, we developed this profession.

We were down the road by ourselves for many and many years. We have the ecosystem of the IFA. We have a company inside our company, just to deliver the best service for those IFAs and to help them to succeed in their profession. And considering the number of new IFAs choosing XP as their final destination for the long term as they decide to become an entrepreneur, it's a natural thing that other platforms that are not able to attract those new IFAs that they want to come to our platform and try to convince some of our IFAs to migrate to their platform.

So yeah, some IFAs might leave our platform, as they have in the past, and it will happen in the future as well. But again, it's nothing, nothing relevant to change our exponential growth. It has not been because those other platforms, they've been attacking our IFA network, it's not a new thing. They've been there for more than two years attacking and remember again how underpenetrated the independent platform business in Brazil is with 90% of the investments inside five big commercial banks.

That's where the gold pot is. So even for those IFAs that decide to leave our platform, their success is not obvious at all as the decision to leave is not an easy one, and I will give you four main reasons because it's not an easy decision if you are an IFA linked to our platform. Number one, because you don't know -- I mean, you know that you will not take all the clients in the custody from our platform. We have a press release that -- with these historical numbers about it.

Number two, usually, this kind of negotiation of our competitors happens on a controlling level of the office. It's not IFA by IFAs, a controlling office of the office -- they want to take the office. But this office has several IFAs that some of them decide not to leave with the controlling group of the office, migrating to either existing IFA offices that we have or create a new IFA office and keep their attachment with XP platform. Number three, this migration is a very cumbersome process because it can take time.

You're talking about different systems. Depending on the assets that the client has, it's not easy to transfer. Some assets, it's easier. Other -- there is tax effect for the client, negative.

The client doesn't want to do it. The app and the experience the client is used to is already ours. So you can lose at the end of the day, on an IFA perspective, you can lose momentum if you decide to migrate. And number four, the IFAs, they know that his or her growth potential is much higher at XP.

That is exactly what has brought them here, is this partnership between XP and the IFA that is showing this value that competitors are trying to mimic and to convince the IFA to leave. So in summary, when an IFA decides to leave our platform, it's much more an individual decision of the IFA, then a decision to migrate to a platform that is going to be better for the clients or that will help the IFA to accelerate the growth. That's not the case. Now in terms of impact from this higher competition going forward, we see basically two main developments in a practical way to think about our numbers going forward.

Number one, the margin compression, that we should expect a margin compression. We are not going to stand still, so we can expect a higher investment from our part in the IFA network, that will follow, OK? And we are doing already. We are still in this preliminary assumptions, but what we can tell you in terms of our preliminary assumptions that we expect some margin compression of 200 basis points in gross margin and 100 basis points in adjusted net margin. Again, that's in the short term that will lead to higher margins in the long term.

And number two is that by making these investments that we are doing, especially in a moment like the one we are living with, low interest rate environment, we are going to have, at the end of the day, an IFA network much more capitalized. It's like we are decentralizing the cash all over Brazil, spread over all over Brazil and remember with 90% of the investments in those five banks. So when I give you this margin compression number, I'm not taking into consideration the potential acceleration of the pace of net new money and growth of those IFAs because of this capitalization that is going on right now. So at the end of the day, I think we might even have a positive net effect, depending on how this decentralization of the cash at the hand of the IFA office spread all over Brazil impacts the growth going forward.

Carlos Lazar

OK. From Teeja, another question here. Can you please help me think about the revenue potential and timing for the new products pipeline, lending, cards, digital banking, insurance distribution and so on?

Bruno Constantino -- Chief Financial Officer

Yeah. We don't have a number yet to give to the market in that sense. As I said, those are brand-new business. You're going to see most of those business impacting the retail revenue line, but we also have institutional, for example, institutional clients, as I mentioned, with the bank and financial products.

It's another revenue line that is impacting institutional revenue line. But we see a lot of potential because, for example, I mentioned some, OK? If you look at our Limite and Resgate Express line, our structured notes as leverage for margin loan business that we don't have in Brazil in scale, it's a brand-new business in scale. We are small. As the end of this second quarter, we had something close to BRL 400 million in our balance sheet, basically nothing.

There is a lot of potential of growth there as well. And the credit card is just starting. We are going to open for the public in the fourth quarter, and it's going to skyrocket. So no question it's going to contribute in our revenue, but we don't have a figure to share with you right now in terms of how much it will impact the revenue going forward.

Carlos Lazar

A question from Mariana Taddeo and also Tito Labarta. It's practically the same question about -- can you please share with us about the net inflow in the near future and also if the BRL 14 billion is sustainable?

Bruno Constantino -- Chief Financial Officer

So the future, we're talking about the future, we have July, right? So it's only one month. What I can share with you is that July, we kept a very healthy base as in June. And we believe that the worst because of the COVID crisis is behind of us. It's the BRL 6.9 billion that we presented in April as net new money.

It's behind of us. So we are seeing healthy base of growth coming back. The IFA network was the part that was most affected by the crisis because we also could not have the tests, the certification for new IFAs to come to the market and the restrictions of the lockdown impacted more the IFA than the XP direct channel, but now it's resuming. Things are getting back to normal, and we believe that we're going to keep a healthy base going forward.

Carlos Lazar

For second-half 2020, as issuer services resume activity and that boosts distribution revenues. Is it fair to expect revenue yield expansion?

Bruno Constantino -- Chief Financial Officer

On that perspective by itself, yeah, it is. But it will depend because, remember, it's always a function of the denominator and numerator. So you're talking about the numerator, but it depends if the denominator, the AUC growth, with AUC that is not bringing revenue right upfront, you see that it's not, yeah, bringing revenue right upfront, then the impact should reduce a little bit. So it will depend.

If you say that, "OK, I'm going to be very conservative in your AUC projections going forward," I would say, yeah, I should expect revenue going up. If you say, I'm going to be really aggressive about your AUC going forward, maybe the revenue yield could go down, so a little bit. It's a function of numerator and denominator. One thing that I didn't comment, but I think it's important to highlight going forward.

We kept hiring new people into our company. But of course, because of the COVID crisis, even the challenge of onboarding, we reduced a little bit the pace. And now with everything that we saw when we got into this crisis, we didn't know how it would work for XP. And with the benefit of what happened and how our people engaged to make the impossible possible during this pandemic, we are confident about the future and what we can deliver and all the opportunities ahead of us.

So we decided to resume at full speed our other projects and hiring people. So we might see SG&A going up a little bit in the short term. But again, it's something that will pay off really soon as we keep adding new revenue lines and new businesses in our ecosystem.

Carlos Lazar

Another one also from Mario Pierry here. What is the trend in terms of commission expenses that you can share with us?

Bruno Constantino -- Chief Financial Officer

Yeah. Commissions are already very, very high. There is -- the trend in commissions expenses is basically a function of which products. It's a mix of products, more than anything else.

So I don't see -- you're going to see -- because of the investments that we are doing in the IFA network, you're going to see that line combine the commission and incentives, everything together, growing over time. And that's where the margin compression comes from. That's what I talked about, the 200 basis points that we roughly estimate, yet to be seen. Taking only this effect of the investments we are making in the IFA network as a whole.

But I wouldn't say there is a pressure for specific commissions there because they are already very, very, very high. And people that -- if you want to pay 100% of commission, like gave everything, for the IFA and stay with nothing, you can do that. But at the end of the day, I mean, it's not going to be profitable there. I don't know -- I cannot see any numbers from any competitor showing the health of their IFA business.

Ours is healthy. It's a partnership, a long-term partnership with our IFAs because, again, they are entrepreneurs, and we are here to make history. So we really make a history in a strong purpose. That's a huge difference when we look at other players in the market.

We are here to really transform the financial market, doing the right thing for the client, side by side. When we announced this fixed fee for our IFA network, the feedback was impressive. They all were -- look like thanking us for that initiative that they would have both options to share with the client. And I believe that the commission base is going to be, by far, the largest one because, at the end of the day, depending on what investments the client has, the fixed fee is more expensive than the commission base.

So if you have a commission base with transparency and with suitability and doing the right thing for the client in the long term, it's the best model. I have no question about it. But again, it's going to be a decision of the client. In the IFA network, they looked at it and said, "Great news.

We are with you. Let's go for it." So it's a long-term partnership.

Carlos Lazar

From Guilherme Oliva, do you have any estimated impact in XP Inc.'s numbers considering the future launch of the XP bank?

Bruno Constantino -- Chief Financial Officer

No. As I said, we are not giving specific numbers because of the bank. But the bank is -- it's another tool that we have in our ecosystem that allow us to provide products that, before the bank, we could not. So the credit card is one of them.

The structured notes issued by our bank, the COE, it's another one of them. The derivatives with institutional clients and corporate clients, its counterpart, it's another of them. So there are several products there that we have had revenue from those products that we didn't have before the bank existing.

Carlos Lazar

One final question here. Where we will be in 2025? How big are projects for XP for the next five years? And what is the company's market share targets?

Bruno Constantino -- Chief Financial Officer

No. We don't have a market share target. It's hard to say where we are going to be in 2025 because when you make that question, I'd like to go back to 2015 and make that same question. And I remember, I am here since 2012.

And in 2015, I remember us thinking about the long term and probably -- despite the dream, big part of our culture and value, probably I wouldn't say we would be where we are right now. Again, I think that when we think -- when we talk about the long term, we can do anything. It's the second value that we have, make the impossible, possible, the dream big. There is nothing impossible.

And the most important thing is for us to keep our culture, to keep our DNA intact to be really not only hard workers, but to have this obsession about doing the right thing for the client, doing the best thing. If we look at competitor doing a better thing than us, we have -- we are not ashamed of saying, "OK, you're right. We were wrong. Let's do it," or "You have a better thing, let's match." We are about the client in the long run, and we have built this unique ecosystem.

But still, we are very, very, a small part of the whole financial industry in Brazil that is highly concentrated in those five banks. So when I think about it, I would say that in 2025, I mean, I don't know. I don't know. I don't want to give here a guess, but we can do much more.

What I would tell you is the following. We can do, in the next five years, much more than we have done in the last 20 years. That's what I believe.

Carlos Lazar

Well, thank you, Bruno. Thank you all for joining us in this conference call. Our investor relations area continue to be completely available for you to discuss any matter of the second-quarter results and any other subject that you wanted to raise with us. Thank you, and have a good night.

Bruno Constantino -- Chief Financial Officer

Thank you very much. See you in the next call.

Carlos Lazar

Bye-bye.

Bruno Constantino -- Chief Financial Officer

Bye-Bye

Duration: 50 minutes

Call participants:

Carlos Lazar

Bruno Constantino -- Chief Financial Officer

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