Earnings Call Transcript - XP Q2 2025

Andre Parize, Investor Relations Officer

Good evening, everyone. I'm Andre Parize, Investor Relations Officer at XP, and it's a pleasure to be here with you today. On behalf of the company, I would like to thank you all for your interest, and welcome you to our Second Quarter 2025 Earnings Call. Today's presentation will be led by our CEO, Thiago Maffra; and our CFO, Victor Mansur, who will both be available for the Q&A session right after the presentation. Before we begin, please refer to our legal disclaimers on Page 2, where we provide additional information regarding forward-looking statements. You can also find more information in the SEC Filings section of our IR website. Now I will turn it over to Thiago Maffra. Good afternoon, Thiago.

Thiago Maffra, CEO

Thank you, Andre. Good evening, everyone. I appreciate you all joining us today for the second quarter 2025 earnings call. So half the year is already behind us, but there is much more to come. We are still working hard, I would say, in an obsessive way to keep evolving our clients' journey experience and product offering. 2025 has demonstrated to be more challenging than we estimated, demanding more efforts from all our teams to keep growing our business in a profitable way. As a result, we are continuously increasing our profitability. Now analyzing the main KPIs. The first one is client assets, AUM and AUA for which we posted BRL 1.9 trillion, a 17% growth year-over-year. Total advisers accounted for 18,200 represent flat figures year-over-year. And on active clients, we posted 4.7 million clients with 2% growth year-over-year. During the quarter, gross revenues marked BRL 4.7 billion with a 4% growth year-over-year. EBT year-over-year is 5% lower, reaching BRL 1.3 billion, mainly because last year, we had positive impacts from overhead, turning this quarter not like-for-like. And on the bottom line, it's another record. We achieved the highest net income in our history, reaching BRL 1.321 billion. It represents an 18% year-over-year growth. On profitability, we achieved 24.4% ROE during the quarter, a 223 basis points expansion versus second quarter '24. 10 out of 11 quarters posting consecutive growth. This means 10 out of 11 quarters posting consecutive growth. On capital ratio, we printed a comfortable level at 20.1%. It represented an increase of 110 bps quarter-over-quarter. Regarding diluted EPS, we posted 22% growth year-over-year, another quarter in which it grew faster than net income, driven by our share buyback program execution. As we speak, we still have a share buyback program of BRL 1 billion to be executed until next year. As I mentioned during last quarters, our capital distribution plan is aligned with our guidance, and we will operate the business with a big ratio between 16% and 19%. Now let's see more details on the next slide. Since last quarter, we have been sharing new info to provide a better understanding of our ecosystem, considering institutional clients in total client assets and provided assets under management from our asset management business and AUA from our fund administration business. Said that, our total clients, AUM and AUA comprehend almost BRL 1.9 trillion, which represented a 17% growth year-over-year. On the right hand of the slide is presented how net new money evolved. This net new money is only related to client assets. This quarter, we marked BRL 16 billion in retail net new money and minus BRL 6 billion in corporate and institutional. It's important to mention that during the second quarter, SMEs and large corporates' net new money reflected the dynamics of the current macro scenario. First, due to the payment of higher interest expense, companies have less liquidity than before. Second, in order to minimize this liquidity constraint, some companies withdrew part of their investments with us as they were used in reciprocity for credit lines with other players. On the retail side, the lower tax-exempt volumes in GCM impacted primary offerings allocation and consequently, the net new money coming from individuals. We keep developing our product offering and capabilities to constantly offer the best investment alternatives to clients, which should drive higher net new money in the long term. I would say that the current environment has proven to be more challenged than we expected at the beginning of the year, especially for investment banking origination activities. However, we still have a better GCM pipeline for the second half of the year, new investment products offering, and other initiatives supporting our efforts to achieve retail net new money averaging BRL 20 billion per quarter this year. On the next slide, let's delve into our retail strategy. Here, I'd like to address some topics that are connected to our business model. Today, the company presents a more complete ecosystem with retail, institutional, and corporate divisions fully integrated to generate investment opportunities. This benefits us in many instances. One of them is the fixed income platform in which we are much more complete now, being one, the largest distributor of midsized banks' time deposits; second, innovative in developing new instruments such as the bond repack structured notes; and third, also having a robust wholesale bank franchise with a corporate secured book to serve retail clients. As part of our business model to engage clients on another level, we also launched new verticals in strengthening our investment portfolio while attending clients to demand in banking, insurance, retirement plans, global accounts, FX, and now consortium. This competitive ecosystem enabled us to present higher profitability during the last years. And there is much more to do since we will keep investing in channel diversification, expanding sales teams, improving our product platform experience with a more accurate client offering and improving our intelligent segmentation. Recently, we also launched new guidelines to the FFAs, sharing our knowledge, tools and methodologies focusing on opportunities to increase productivity, responsiveness, and efficiency. And independently if it's through XP internal teams or FFAs, we also developed and agreed on a new and more comprehensive way to serve our clients. New rules are aligned with one objective to improve client experience. Our main goal is to keep serving clients with excellence no matter in which channel or remuneration model they have chosen. With this new way of growing business, we are convinced that we have a more sustainable revenue model and profitability is a consequence. For sure, the current diversified ecosystem defines XP as a defensive business with long-term growth. We are confident that our unique business model will keep evolving to achieve our long-term goals, which is to become the leader in investments in Brazil. Moving to the next slide. We see on the left-hand side how we serve clients with different models, channels, and how XP is remunerated. By the way, we have already launched a fee-based model a long time ago, anticipating what's becoming reality today. It means that IFAs and internal advisers can attend clients with transactional fees or fee-based model according to clients' preference. We also have RIAs and consultants, which work in a fee-based model, attending clients with asset custody in different platforms. What we see today from the client perspective is a higher demand for fee-based model when compared to the recent past. Today, the fee-based model represents only 5% of our total client assets. Looking at developed markets, for example, the U.S., the fee-based model achieved around 50% share of clients' assets. If this is a trend in Brazil, we are ready to serve our clients. Our capacity to attend clients with different models differentiates us from competitors, and it translated into more share of wallet and longer lifetime. Moving now to the next slide about retail cross-sell. As we have stated before, we have implemented new initiatives and products to diversify our revenue streams during the last years. Starting with credit card, it grew 8% year-over-year, marking BRL 12.4 billion in TPV during the quarter. As we anticipated last quarter, we launched new products targeting affluent and private banking clients. We estimate that with the new value proposition, cards should accelerate in the next years. Life insurance written premiums posted 45% growth year-over-year. As we said in recent quarters, our insurance business is a growth avenue, which is still at its early stage. Since it presents a huge penetration potential, we understand that we'll keep growing at a fast pace on a quarterly basis. On retirement plans, our client assets posted 15% growth year-over-year in the second quarter and reached BRL 86 billion. We keep expanding our sales force to increase our relevance in this industry since our market share is mid-single digit, and there is a relevant addressable market to penetrate during the next years. In new products, we consider FX, global investments, digital account, and consortium. Altogether, they presented a 146% growth year-over-year with revenues reaching BRL 256 million this quarter. It's important to note that consortium came from scratch, and it's gaining traction month after month. Moving to the next slide, we will address our wholesale bank evolution. Taking GCM into consideration, this quarter, we saw decent industry volumes, but not close to last year's. Coupled with that, some players became more aggressive in pricing, trying to gain market share and therefore, resulting in lower fees. Finally, tax-incentivized products have lost share in total industry volumes during this quarter. For the next quarter, pipeline is solid. We have more opportunities, and there is a chance to reaccelerate our revenue growth. Regarding XP's broker-dealer, it was another positive quarter, and we became the leader in the local industry with 17% market share. As we saw this quarter, we still expect to see improvements bit by bit until 2026. This quarter, we kept the same size of our corporate securities book with BRL 34 billion. Bear in mind that we can have a change in tax rules, which can impact currently tax-exempt fixed income instruments. We are now expecting to increase this book during the year. The rationale behind this is that companies will try to anticipate their debt issuance before the change. Also for next year, with elections in sight, we are likely to see increasing volatility and therefore, a reduction in corporate clients' appetite for new issuance. So our strategy, that being the case, is to keep this warehouse book until we sell it to our retail clients during the next year. To conclude my presentation, I would like to reinforce that our innovative offering, advisory model, costs, and capital discipline are translating into higher profitability, even considering the more challenging scenario. Our ecosystem is way more complete than years ago, and there is a big opportunity in front of us to expand our core business, our retail cross-sell, and our wholesale activity. We are confident that by executing this, we reach our goals regarding market leadership in investments and also regarding our long-term growth. Now I will hand it over to Victor, who will provide a deeper look into our financial performance this quarter, and I will be back for the Q&A session.

Victor Andreu Mansur Farinassi, CFO

Thank you, Maffra. Good evening, everyone. It's a pleasure to be here with you to discuss our financial performance for the second quarter of 2025. Total gross revenues for the quarter reached BRL 4.7 billion, marking a 4% increase year-over-year and a 2% increase quarter-over-quarter. Retail's contribution to total revenues grew to 77%. This quarter, fixed income and other retail segments, including new verticals like global accounts and consortium, drove retail growth. In the wholesale banking sector, corporate revenues were a highlight, somewhat balancing the decline in issuer services due to a tough comparison with 2Q 2024. I will provide more details in the following slides. Retail revenue for the quarter was BRL 3.6 billion, reflecting a 9% growth year-over-year and a 4% growth quarter-over-quarter. This growth was predominantly driven by equities, which showed a higher average daily trading volume during the period. Equities generated slightly over BRL 1 billion, achieving a 7% quarter-over-quarter increase. Year-over-year, fixed income was the primary contributor, growing 20% to reach BRL 988 million in revenue. It's worth noting that in the other retail category, the main driver was float remunerations, benefiting from higher average volumes due to increased interest rates in the quarter. Now let's move on to Corporate and Issuer Services. It's important to note that in 2Q 2024, we achieved record-high revenues in corporate and issuer services, driven by robust DCM activity. Therefore, we faced a challenging comparison for this quarter. Issuer services generated BRL 268 million, down 30% year-over-year and 5% quarter-over-quarter. Conversely, corporate revenues rose 14% year-over-year and remained flat quarter-over-quarter, totaling BRL 279 million. This growth was supported by our ability to provide various solutions to clients, primarily in derivatives. Moving on to SG&A and efficiency ratios, our SG&A expenses totaled BRL 1.56 billion this quarter, a 10% increase year-over-year and quarter-over-quarter. We are continuing to invest in our business, and this quarter saw higher non-people expenses largely due to marketing and technology investments. Despite slower revenue growth, our operational cost discipline helped maintain our efficiency ratio at 34.5% over the last 12 months, an improvement of 161 basis points compared to last year. We will continue our focus on enhancing business efficiency alongside ongoing investments aimed at improving our technology platform, product offerings, and expanding our sales team. Next, let's review our EBT. To recap, last year we had a favorable EBT impact from overhead associated with certain assets and liabilities, which means our EBT this quarter may not be directly comparable. In 2Q 2025, our EBT was BRL 1.3 billion, representing a 4% increase quarter-over-quarter. Despite the impact of issuer services on our revenues, we still managed to expand our EBT margin by 50 basis points. On the next slide, we will see the net income results. Net income reached BRL 1.3 billion, reflecting an 18% year-over-year increase and a 7% quarter-over-quarter rise. Our net margin expanded by approximately 130 basis points quarter-over-quarter and 320 basis points year-over-year, now at 29.7% for 2Q 2025. In this quarter's revenue mix, increased secondary market activity helped offset lower investment banking volumes, affecting our effective tax rate. This resulted in a record high net income for a quarter alongside significant EPS growth. Let's take a closer look at earnings per share and ROE details in the upcoming slides. Our diluted EPS for 2Q 2025 reached BRL 2.46 per share. With the ongoing execution of our share buyback program and the cancellation of the respective shares, the growth in EPS was quicker than our net income growth this quarter, with diluted EPS growing by 22% compared to an 18% growth in net income, both year-over-year. Our RoTE was 30.1%, reflecting a 209 basis points increase year-over-year. Our ROE grew on a quarterly basis to 24.4%, an increase of 230 basis points from the same quarter last year. These metrics indicate that we continue to provide consistent income returns to our shareholders. In terms of capital management, we remain committed to our targets for dividend distribution and share buybacks. Collectively, these amounts should exceed 50% of net income for 2025 and 2026. We currently have a BRL 1 billion share buyback program planned for execution until next year, with further announcements to be made based on the Board of Directors' decisions. Moving to the final aspect of capital management, our BIS ratio stands at a comfortable 20.1%. Similarly, our CET1 ratio is at 18.5%, significantly above the average of 12% among peers. Our total RWA to total asset ratio is at 27%, showing a third consecutive reduction and a 4% decrease year-over-year. Total RWA remained stable quarter-over-quarter and increased by 9.8% year-over-year, reaching BRL 101 billion. As mentioned last quarter, we expect RWA to grow at a moderate pace compared to net income, which aligned with the 18% year-over-year growth in net income for this quarter. As Maffra earlier indicated, potential new tax regulations could affect DCM dynamics, influencing our readiness to hold more assets for distribution in the fourth quarter and 2026. It's also important to mention that our VaR market is at 13 basis points of our equity, or BRL 28 million, demonstrating our commitment to risk management, down 4% year-over-year. Now we can proceed to the Q&A.

Andre Parize, Investor Relations Officer

Okay. We're going to start our Q&A session. And the first question is from Eduardo Rosman from BTG.

Eduardo Rosman, Analyst

My question is about capital generation, dividends, and buybacks. Can you explain your capital generation further? It appears that you have improved it this quarter and are growing your capital base faster than your net income. However, your buybacks and dividends this year are still significantly lower than last year. Can we expect to see an acceleration in the second quarter? What are your thoughts on this? We notice your soft guidance of above 50% for 2025 and 2026, but could you provide more details?

Victor Andreu Mansur Farinassi, CFO

Thank you for your question. Let me break down my response into a few parts. First, as we expected, the net income is growing a bit faster than the risk-weighted assets this year, providing some leverage in terms of capital. That has indeed been the case. Additionally, as you noted, we didn't distribute as much of our net income this quarter as we generated. Secondly, we are still benefiting from some leverage regarding the new regulation. The advantages will manifest throughout the year in the detailed risk assessment and market risks, particularly in the credit spread risk within market risks. We will also see improvements related to risk-weighted assets in operational risk in the coming quarters. Regarding the annual trend, we anticipate that risk-weighted assets will grow slower than net income. The new tax regulations might alter the dynamics of the debt capital markets. Depending on how things unfold, we may accelerate our warehouse strategies to capitalize on client demand to issue before these regulations take effect in 2026. Nonetheless, we do not expect these factors to affect our target of distributing more than 50% of our profits this year, since we still have significant capital reserves. Our CET1 ratio stands at 18%, well above the industry average of 12%, which gives us considerable flexibility. We may announce further payouts throughout the year, and the decision between dividends and buybacks will depend on the stock price, which we will need to discuss with our Board.

Andre Parize, Investor Relations Officer

Next question is from our Yuri Fernandes, JPMorgan.

Yuri Rocha Fernandes, Analyst

I have a question about our corporate lending strategy. I understand it's important to you, but you've been talking about new products and strategies. My question is whether corporate lending is significant for the overall ecosystem. When we look at your AUC, we notice that the commercial segment isn't growing much, and net new money remains the same. I’m trying to grasp your view on corporate lending and whether you think it might be lacking in your ecosystem and strategy.

Andre Parize, Investor Relations Officer

Could you repeat the question? We couldn't hear in the beginning. Sorry about that.

Yuri Rocha Fernandes, Analyst

No, let me stick closer to the mic here. So I would like to understand a little bit about corporate lending. If you believe corporate lending is important for your strategy overall.

Victor Andreu Mansur Farinassi, CFO

This is Victor. Thank you for the question. Our idea in corporate lending is the same as other products we originate to sell. You may see the corporate book growing, but everything that we put in, we expect to put out at the same moment in time. So the growth you see in the credit portfolio is exactly that. The portfolio grew hopefully BRL 3 billion, and that will go under a securitization and we're going to sell those assets over the next quarters.

Yuri Rocha Fernandes, Analyst

Thank you, Mr. Victor. But I don't believe like being more or less active here, it could be more helpful for your operation.

Victor Andreu Mansur Farinassi, CFO

Yes. Yes, it could. But the same as capital markets, we have our risk appetite, and we are buying credit to sell or originate a security to sell. It occupies the same risk space. So we are not going to increase our portfolio over our risk appetite because of any other strategy because they use the same pocket.

Andre Parize, Investor Relations Officer

Okay. Next question is from Thiago Batista, UBS.

Thiago Bovolenta Batista, Analyst

I have 2 questions. Maffra, in the beginning, you commented about the new initiatives to try to speed up the net new money on XP in the second half of the year. Can you give a little bit of more details about those initiatives? The second one about the guidance for next year. Are you still comfortable with the guidance that you gave, I would say, 2 or 3 years ago? If you look to consensus for this year on top line, consensus is something close to BRL 20 billion of top line. So to achieve the low end, you need to expand 14%, 14% next year. It seems still feasible, but I wanted to hear for you guys if the guidance for next year is still achievable.

Thiago Maffra, CEO

Thank you for the question, Thiago. Regarding net new money, as mentioned in the presentation, we believe that BRL 20 billion per quarter in retail is a reasonable target for the upcoming quarters. If there are changes in the macro environment, like interest rate cuts, we anticipate that the BRL 20 billion could increase. For now, we feel comfortable with this level. This quarter was challenging for small and medium-sized businesses and corporate lending, but we believe that BRL 20 billion is a stable figure. To achieve this, we have implemented various initiatives. A significant change from a few years back was diversifying our channels. In 2021, we had only one channel, the B2B IFA channel. Currently, we also have internal advisers and the RIA model in place. As a result, more than half of our net new money now comes from these new channels. We are continuously investing in increasing our internal advisers and the number of IFAs in our network, which contributes to our expansion efforts. Additionally, in a tougher environment with high interest rates, it’s not easy to compete with banks' products, especially tax-exempt ones. Therefore, we are consistently launching new products to make our offerings competitive. Recently, we introduced new products that have been performing well, including a type of fund with a senior tranche that is linked to the Selic rate and is tax-exempt. We also build partnerships with public banks and other financial institutions through auctions and bilateral distribution, aiming to create various products. Another immediate area of focus is enhancing the productivity of our IFAs. We have invested significant time in helping our channel increase productivity through technology and sales management, and we are already seeing improvements. Lastly, in the medium term, we are enhancing our service levels to clients through financial and wealth planning, succession strategies, and tax planning. We have developed internal models and have been training our financial advisers to improve client service. In the current climate, it may be challenging to persuade investors to switch to XP given alternatives like SCG at 15%, but in the longer term, improving how we serve our clients represents a substantial opportunity in the Brazilian market. Regarding our guidance for next year, we are still working towards it. Currently, we are targeting the lower end of the guidance, but we believe that our revenue target of around 10% remains achievable. Although our figures for the first half of the year came in a bit lower at 5.5%, we are confident that growth will accelerate in the second half, resulting in a higher growth rate compared to the first half.

Andre Parize, Investor Relations Officer

Okay. Next question is from Mario Pierry, Bank of America.

Mario Lucio S Pierry, Analyst

Can you provide more details on the inflows so far in the third quarter? It seems you are confident about returning to BRL 20 billion per quarter. Have you observed a number in the first half of this quarter that gives you that confidence? That's my first question. For my second question, regarding your EBT margin, I see that it continues to improve, but you are still below your medium-term guidance, and it looks like revenues are growing a bit slower than you expected, even though you are still aiming for over 10% growth this year. Is there anything you can do about costs if revenues don't meet expectations this year?

Thiago Maffra, CEO

Thank you so much for the question. We'll take the first one. We cannot talk about net new money for the quarter so far. But my answer for you will be we are confident in delivering the BRL 20 billion or around BRL 20 billion for the next quarters, as I mentioned before.

Victor Andreu Mansur Farinassi, CFO

Mario will address the second part regarding EBT and SG&A. Starting with EBT, our earnings before tax depend on the product mix, as we have mentioned previously, and the tax rate. The trend for both should remain consistent this quarter if the market continues as it is. Regarding SG&A, we have made significant reductions in our efficiency ratio over the past two years, nearly 400 basis points. While we continue to invest in strategic areas such as new advisers and technology, we might see the index stabilize this year. It is important to emphasize our commitment to cost control and efficiency, but we will not halt investments in our core business due to some unpredictable revenue levels from the wholesale banking sector. As Maffra mentioned, there is still plenty of time until the end of 2026, and for now, we are comfortable with the current levels.

Mario Lucio S Pierry, Analyst

Okay. That's clear. Let me rephrase the first question then. When we look at inflows during the second quarter, did you see an improving pattern throughout the quarter on a monthly basis? Are you seeing flows improving? Or do you see them improving in the quarter? Or is it relatively the same amount of inflows per month?

Thiago Maffra, CEO

Mario, I will give you the same answer that I gave before. I believe we can deliver the BRL 20 billion. If you get the last quarter, it was BRL 16 billion. I imagine that one customer or two could make the difference here. So billion. It's the number here and around BRL 20 billion, it could be a little bit higher or a little bit lower, okay? But that's the pace right now.

Andre Parize, Investor Relations Officer

Next question is from Marcelo Mizrahi, BB.

Marcelo Mizrahi, Analyst

So my question is regarding again about the corporate portfolio, which was a huge growth in a quarterly basis and not too much in a yearly basis. But just to understand what's the trip of this credit, what's happening exactly here? And looking forward, another question is regarding the net new money of the corporates. To understand if there are any new strategy here, if there are any news here to justify this net new money negative on the corporate side.

Victor Andreu Mansur Farinassi, CFO

Thank you for your question. Regarding the credit portfolio, as we mentioned before, these are credits we originated to sell. Essentially, we engage in operations with corporations to create receivables that will be securitized and sold to our client base. This is something we have done in previous quarters, and we plan to continue doing it. We expect to sell those credits. Concerning the corporate new money, the issue lies in the market dynamics. We noticed this trend starting in the first quarter, which then intensified in the second quarter. Banks providing credit to companies are now demanding reciprocity in terms of investments to offer credit lines. Since we are not in this business and cannot provide credit as a primary product, we see funds flowing to banks that offer products like cash flow solutions and credit card advances. That's the situation we are facing.

Andre Parize, Investor Relations Officer

Moving to the next question Tito Labarta from Goldman.

Daer Labarta, Analyst

Firstly, I'd like to follow up on the revenue growth. You're maintaining around 10% for this year, and Maffra mentioned it should accelerate in the second half. If we break that down, retail is growing 9% year-over-year, which is significant. Do you think retail alone will accelerate in the second half? Or is it more about the Issuer Services, corporate, and other lines that you expect to drive growth, especially considering the weaker performance in the first half? It would be helpful to differentiate between retail and other revenues and identify which segments will contribute to that revenue growth.

Victor Andreu Mansur Farinassi, CFO

Tito, this is Victor. So basically, we can break that revenue growth between the first half of the year and the second half is 3 factors. The first one is very easy to explain. We have 6% more business days. So more business days, we have more trading days, more interest rates over capital and clients' cash and also a higher Selic rate in the second half of the year against the first. That's the first part of the explanation. The second one is the new verticals and new advisers. So basically, we keep hiring advisers, and we have a lot of products that are still in rollout and are growing a lot as international investments, consortium, and other products in the new verticals portfolio. And the last one that is more volatile is the product mix. If we have a second quarter, if a DCM that is stronger and more primary offering from funds, we may see a lift in retail revenues and also in issuer services revenues. So basically, those are the 3 components and why we are expecting to have higher revenues in the second half against the first.

Daer Labarta, Analyst

Great. That’s helpful. Just one quick follow-up on the fixed income revenues, which remain strong at 20% year-over-year, although there was a slight decline this quarter. You mentioned higher rates. How do you view the fixed income situation? Are we approaching the peak level for fixed income, or is there still potential for it to outperform the other segments? How do you see fixed income revenue in relation to the overall demand?

Victor Andreu Mansur Farinassi, CFO

Okay. I understood the first part of your question, but the second part was a bit unclear. I'll do my best to answer. First, it's worth noting that in fixed income, retail clients are experiencing the highest average Selic rate in almost 20 years, meaning we're at the peak of the cycle. Clients perceive that current interest rates are the highest they've ever encountered. This is significant because clients tend not to extend their duration in such situations, given the slope of the interest rate curve. We're observing an increase in volume but a decrease in ROA due to this duration profile. When interest rates begin to decline or return to a more typical shape, we may see duration increase again, leading to a rise in ROA. This illustrates the current dynamics in fixed income. The second half of the year might see changes driven by the DCM market and primary offerings that could emerge if the pipeline continues as expected due to new tax regulations. Many primary offerings can attract clients, possibly encouraging them to extend their duration again. Overall, we anticipate that fixed income will continue to perform well, and depending on the DCM primary market, we might see this figure increase a bit.

Andre Parize, Investor Relations Officer

Next question is from Siraj from Citi.

Arnon Orzes Shirazi, Analyst

I have 2 questions here. My first one is related to non-people-related expenses. We saw a 38% year-on-year increase. I know that it was explained by marketing and also technology, but it seemed a little bit too much for me. And also, the second one is related to tax how the tax increase, especially on offshore funds has been involved? And what drove the positive income tax rate for this quarter?

Victor Andreu Mansur Farinassi, CFO

Okay. Thank you for your question. First here, talking about SG&A. We had a lot of investments in marketing. We had some events that are the first time that we're doing the size that we did. We had the B2B experience event for all our IFAs network outside of Brazil, where we announced some important measures for the year. And second is the GAF. It's an agribusiness event here in Brazil that we sponsored, and it's very important to us because we get closer to the clients that issue tax-exempt notes, corporations that are able to issue tax-exempt notes. Also investments in markets to get our reputation a bit more stronger and more visible over all brands and newspapers and etc. In terms of technology, it's one of events that we did in terms of cloud and other kinds of tech. Talking about the trend over the year, keep in mind the next quarter, we have our main event of the year, the expert. So also another quarter if no people expenses that are higher than the comparison quarter-over-quarter. Moving to tax rates. I think we talked in a few opportunities in that given the dynamic of the market and the product mix, if the market making activity and secondary market was a bit more stronger than investment banking and broker-dealer revenues, then our tax rate should be trading around 15%, and that was basically the case. Now we closed 14 something over the last 12 months. And if the product mix keeps the way it is, that's the number that we may see over the year.

Arnon Orzes Shirazi, Analyst

But as related to offshore tax, the potential increase, what thoughts?

Victor Andreu Mansur Farinassi, CFO

Okay. Perfect. I think as any other financial institution in Brazil, there is a lot of ways to plan our tax structure, and we are confident that the impact will be marginal in your business.

Andre Parize, Investor Relations Officer

Next question is from Neha Agarwala from HSBC.

Neha Agarwala, Analyst

Just once again, sorry to go back to this, but the corporate net new money was significantly weak versus what we seen in the previous quarters. I understand the volatility, but anything specific this quarter that led to this big decline compared to previous quarter? And should we expect more of that next quarter? Or was this like a one-off trend with some one-off moves? And my second question is, you talked a bit about the fee-based model and that's only 5% of your AUC and that's been growing. Can you talk a bit more about what impact we could see from that on your take rate, if any?

Victor Andreu Mansur Farinassi, CFO

Okay. Thank you, Neha. I will take the first one. I think the corporate dynamics is a bit there what I said. If the banks that give credit to their clients keep asking for investments in terms of reciprocity, we may suffer a bit more in the 3Q or 4Q since we end up going to this business. But also, it's important to remember that the ROA of this money is extremely low. So the impact in revenues to losing that money, they are not relevant. But it's very hard to predict what we are going to see over the next quarters, as you say, these are more volatile cash.

Thiago Maffra, CEO

This is Thiago. Thank you for your question. I will address the second part. Regarding the fee-based model, I see it evolving in Brazil. For instance, in the U.S. market, the assets under custody are split 70-30, but in terms of revenues, it's closer to 50-50. In Brazil, it's still relatively small but experiencing growth. As I mentioned in the presentation, we are ready to offer a variety of models to our clients, including consultancy, fee-based, IFA, and transactional-based models. We tailor our services to what's best for our clients. We anticipate growth in the coming years, aiming for an increase from about 3% to 7-8%. It's a gradual process, and while we will grow, it's not something that will happen overnight. We consider ourselves the best platform for delivering all these models and believe that being flexible in our approach is a key differentiator in serving our clients effectively. In terms of revenue, while the take rate may decline slightly, this usually coincides with a greater share of wallet. When we support a client through a fee-based model or consolidate funds from outside XP, we typically enhance the overall value we manage. Thus, even if we expect the take rate to decrease gradually over the next quarters or years, the increase in client wallet size should offset this decline.

Andre Parize, Investor Relations Officer

Okay. Next question is from Pedro Leduc from BBA. Leduc, you may proceed.

Pedro Leduc, Analyst

Okay. Good evening, everyone. I would like to explore the gross margin a little bit more expanded Q-on-Q when I try to look at the moving pieces here. IFA commission incentives get nicely diluted. So I was trying to dig into this trend a little bit more, what drove it, if it was related to maybe the lower pace of net new money or the mix of your revenue movements, more equities less fixed income trying to get a sense of what is driving this gross margin expansion and how to think about it in the second half?

Victor Andreu Mansur Farinassi, CFO

Thank you for your question. First, regarding some events, we expect credit losses to be slightly lower than last quarter, staying around BRL 90 million to BRL 100 million. Additionally, we noted a higher than average sales tax, which should return to normal. I anticipate the numbers will normalize as we look at the last 12 months. The margin is expected to stabilize. It's also important to highlight the growth of our internal sales force, which should continue to improve over the coming quarters. Based on the last 12 months, this pace is what we should expect for the remainder of the year.

Andre Parize, Investor Relations Officer

Next question is from Daniel Vaz from Banco Safra.

Daniel Vaz, Analyst

In recent opportunities, you mentioned that the B2C productivity has been much stronger than the B2B, right? So the B2C has been a large focus recently, and you standardized probably an approach for selling and for the sales team, right? So it seems more well-structured right now. When it comes to the B2B, I think the productivity has deteriorated like over the years. So I want to hear from you first, if you're seeing net outflows from this channel from the B2B? And secondly, if you could tell us a bit about your diagnostic right on the B2B channel, if you need a higher focus right now to maybe refresh or review this model. So this has been in the press recently regarding M&As on the advisory offices, a lot of mandates. It would be good to hear from you the diagnostic.

Thiago Maffra, CEO

Thank you for the question. As we have said in the past, for us, it's not one channel or the other. We believe in having multiple channels for different reasons. But when we look at the B2B, the B2B channel specifically, as you mentioned, the productivity was very low. It's still low when compared like to 2 years ago, 1.5 years or more ago. But it's getting back. It's improving bit by bit. It's not going to change a lot from one quarter to the other, but it's improving. So everything that we have been done, a lot of efforts and energy that we have put on the channel since the end of last year and more specifically at the beginning of this year, is paying off, and we are starting to see the performance of B2B channel improving. So that's why we are confident on the BRL 20 billion.

Daniel Vaz, Analyst

Okay. So just a follow-up. So a refresh or a review in this model, as you did in B2C.

Thiago Maffra, CEO

Well, it's just normal evolution. You have to evolve the model. We just announced back in on the B2B experience, the big event that we do annually for the B2B channel. This year was in Mendoza, and we announced some changes on the way of serving clients. So I would say minimal standards of serving our clients. So location, number, and ways, points of contact with the customers. And so I would say more like a franchisee model where we have minimal standards, and we just announced that like 2 months ago. So it's an evolution. It's not like a big change.

Andre Parize, Investor Relations Officer

Okay. We are out of time. So in the name of the company, I'd like to thank you all for participating in our second quarter 2025 earnings call. Any further questions will be more than welcome. Just look for the IR team, and we keep in touch and see you soon. Thank you very much.