Q1 2021 Dlocal Ltd Earnings Call
[music].
Hello, everyone and welcome to the local second quarter 2021 results Conference call. This event is being recorded at this time all participants are in a listen only mode. After the local management team concludes their personal remarks.
Paired remarks, there will be a question and answer session to ask the question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star zero I'm going to turn the call over to D. Local.
Thanks, Operator, welcome to refresh quarterly earnings conference call after our IPO.
Reminder, this event is also being broadcast live via webcast and may be accessed through the logos website at Investor <unk> Com, where the presentation is also available the replay will be available. Shortly after the event is concluded.
Before proceeding let me mention that any forward statements included in the presentation or mentioned in this conference call are based on currently available information and the logos current assumptions expectations and projections about future events.
While the company believes that their assumptions expectations and projections are reasonable in view of currently available information you are cautioned not to place undue reliance on those forward looking statements.
Actual results may differ materially from those included in the locals presentation.
Discussed in this conference call for a variety of reasons, including those described in the forward looking statements and risk factors sections of the logos registration statements.
F one and other filings with the Securities and Exchange Commission, which are available on the locals investors relations website.
Now I will turn the conference over to sort of things I know, that's a key aspect of it.
To help you.
Sir you may begin your presentation.
Hello, everyone and thanks for joining our second quarter results conference call today, I'm joined by Sumita bundling, our Chief operating officer, and Bill covered it up by Knight, Our Chief Financial Officer.
This is our first earnings call after our IPO on June <unk> 2021 and we are excited to present, an update on our visa and we thank you for your interest.
Yes.
Let's get right into it on slide three.
We are aware that some of you are joining us to share our story for the first time. So we're providing a recap of who we are what are their flooring square addressing from a merchant on what we believe.
Our addressable market we.
We will then provide an update on our vectors of future growth followed by a review of our financial performance. We will leave time for a Q&A session at the end.
So who are we.
The local enables global merchants to connect seamlessly with billions of emerging market consumers our platform one of the local presents a single API single integration on single contract solution toward merchants, we are entirely b to be focused and we are proud to count some of the largest global merchant as our customer.
Such up Microsoft Rafi quite show Melching media in driver.
Today, our infrastructure supports our merchants across 30 emerging markets in Latin America Africa and Asia.
Now to the results.
The second quarter has been our best quarter ever.
Total process volume PPV grew 319% year over year, when compared to the second quarter of 2020, reaching U S. Dollar $1.5 billion during the quarter. Our GP. This quarter represents a milestone for the company as it is the first time, we have surpassed 1 billion in a single quarter.
As you May remember, we grew our TPB, 139% year over year in our first quarter of 2021.
So our growth has continued to accelerate both year over year as well as quarter over quarter.
Our revenues in the second quarter of 2021 increased to 59 million, representing 186% year over year growth compared to the second quarter of 2020.
Our business continues to benefit from cost discipline and efficiency as we continue to maintain our adjusted EBITDA margin along with high growth.
Slide four.
Let us briefly compare our Q2 2021 performance be somebody's Q1, 2021 as well as full year 2020.
We have improved every financial metric, we have discussed with you.
Our second quarter revenue of $59 million, it's 46% quarter over quarter growth versus $40 million in Q1.
Our Q2, 2021 revenue growth of 186% compared to a 124% in Q89% in full year 2020.
We have previously highlighted the net retention rate metric as a key kpis, we have stipulate truck, we achieved 196% net revenue retention in Q2 2021 versus an already impressive 186% in Q1 2021.
159% and full year 2020.
Our adjusted EBITDA margin in Q2, 2021 remained stable at 44% in comparison with our adjusted EBITDA margin for the first quarter on higher than our Q2 2020, adjusted EBITDA margin of 40%.
Merchants and consumers continue to evolve on their behaviors as the pandemic goes through its different stages in multiple countries we operate.
We are seeing more digitalization less cash and wider adoption of alternative payment methods.
We believe this new consumer behavior changes are here to stay and will continue to have a positive effect on our business.
During this quarter, we have seen continued growth.
From both existing and new merchants using our platform.
Our global employee base has continued to thrive and we will remain focused on serving our merchants. We have embraced a hybrid model of work office or at home as you continue to be flexible about where our employees choose to work for them.
It's not new for us even pre Covid, we had a flexible approach to physical location, given our global roster of merchants and extensive emerging market network. For example, the three of US on this call today are based in different locations I am calling from Israel, what Sumit that is in California, and Diego <unk>.
Okay.
We have continued our efforts on the expansion front growing our presence in Africa and Southeast Asia, We have launched four new countries in the first half of this year.
We have added 10, plus new merchants in the second quarter of 2021 we.
We continue to benefit from the diversification of our business our course verticals some verticals such as retail screaming advertising, so I'll kind of rate of growth as the business benefited from Boston. They make returned to work on the gradual opening of economy.
Our margins have remained stable in comparison with our previous quarter, even with continued investment in infrastructure.
People.
We have continued to hire and strengthen our employee count in key functions. The head count in the local grew 100% year over year.
We see tremendous opportunity in the markets merchants on products that we serve and we intend to continue to invest in our people plus per month acknowledging as we pursue a buck of growth.
Our disciplined approach to growth and profitability till date has provided us with a unique position we intend to continue investing in growth and therefore, our margins may decrease in the coming quarters, we will maintain our discipline to ensure that every new dollar. We broke this will contribute to our margin.
Slide five.
What are the programs we are addressing.
There are three primary challenges that we're solving for our merchants.
First payment methods are local by nature on very diverse into 30 countries we serve.
On top of that we are seeing a trend of continued fragmentation as consumers adopt newly available payment methods.
Cash methods are getting replaced by digital payment methods offering even more opportunities for consumers to participate in digital online commerce merchants I came to access these rapidly growing end market without building the payments themselves second.
Achieving a healthy conversion rates, while keeping them under control. It's a challenge in emerging markets. We deliver high conversion rates are lower friction through automatic validation and dynamic routing for transactions to multiple acquirers and payment methods and third we make the complex simple for our merchants for those of you.
I have traveled to any of the markets. We serve you would know that no two markets in this region are the same.
We enable our merchants to keep up with the changing of regulatory framework emerging markets.
Slide six.
As you May remember, we offer both pain and payouts capabilities forward merchants.
A typical funds flow for athene transaction from an emerging market user to a global enterprise merchant requires smart routing payments processing withholding tax collection FX management on merchant funds settlement.
Our typical payout funds flow in the opposite direction from a global merchants to an emerging market user imagine if you will or ride hailing company driver or a food delivery worker requires use their payment disbursement income tax management, FX management payment processing and merchant fun collection.
Our platform enables all of this by leveraging our connectivity to 600, plus local payment methods, including cards bankrupt wallets and alternative payment methods as well as local acquirers bumps are nonfinancial institutions, we are not an acquirer ourself and instead connected.
Multiple acquired from the local markets, where we operate.
We have recently launched issuing as a service to our global merchants, we have launched our first pilot with a merchant unexpected products to be highly complementary to our current product offering.
So meter over to you.
Thanks, Simba slide seven.
Our business benefited from strong industry tailwind such as the increasing globalization of online commerce. The rise of the digital economy, along with the rise of digital goods that moved even more quickly across borders than physical goods. The aspiration of the middle class that is expanding and is keen to buy the product.
So this is that users in the western developed economies have always had access to <unk> continues to expand in these countries and there is a trend towards equalization of achieving five that is driving global consumption trends.
Global merchants are meeting their own growth forecast they have promised investors by going outside their domestic markets to pursue growth.
Is it a does traditional bodies of commerce continue to blur.
We therefore grow organically without much at the.
The complexity of the markets, we serve mix absolution pilot food.
Slide eight we commissioned a market study by Eni two measured an addressable market in the countries we serve.
<unk> volume in the countries. We serve was estimated to be one two trillion dollars of which <unk> four trillion.
<unk> and is expected to grow at a 27% annual growth rate.
And going to eight trillion dollars.
Yes.
Am I expect the shadows payouts to increase versus <unk>, which implies an even higher percentage growth for payouts downgraded 7%.
This includes both cross border and local to local E. Commerce transactions. This does not include China E Commerce volume because the processed minerals volume of payments in China.
Also not all of this volume is comprised of global margins. However, our D. D. D. At one $5 billion for the quarter is a very small fraction of the opportunity ahead of us.
Do you a PPV an impressive 319% year over year.
In the second quarter.
<unk> hundred 59% year over year this quarter in the first half of 2021, we achieved U S dollars to $4 billion in PPV, 15% more than what the process on a 20 <unk> basis.
We have three primary vectors of growth commercial efforts product expansion and geographic expansion.
On the commercial effort side, we are focused on three levers are.
Organic growth of our merchants, our ability to cross sell through our account management and our ability to us nuclear.
On the product front, we continue to enhance our product portfolio with improvements in our future for pain and payouts together with the development and launch of new product right.
On the geographic expansion Victor we are constantly deepening our presence in the countries, where we currently operate together with significant effort to expand our offering into new countries. That's an example of the latter we have other Vietnam, Malaysia on what that might lead to a platform issue too.
Our financial results are a reflection of the power of our platform the operating leverage of our business and the stickiness of our merchant relationships.
Our revenue growth plus EBITDA margin the rule of 40. Some of you may call. This metric was 129% in 2020, 168% in Q1, 2021, and 230% in Q2 2021.
We believe that the strong cash flow generation of our business also supports an inorganic strategy that will accelerate our time to market.
We plan to pursue inorganic opportunities to accelerate any of our three growth vectors, including commercial efforts product or geographic expansion.
Let's double click on these three growth vectors sliced and commercial sector.
We saw expansion in our relationships with existing and new merchants, we are actively targeting margins globally, including in China that are looking to expand outside their local market and expand into Latin America Africa and Asia.
Our net retention rate as shown on this slide is a function of organic growth of how much and an increase in share of wallet with not much of an increase in product. So much an increase in country. So much IND and increase in payment methods pretty much it.
We continued to improve our niche attention paid 196% in Q2 2021 by improving our commercial efforts with our existing Hudson.
We calculate <unk> by measuring the dollar revenue.
From existing merchants, we had on our platform on a year over year.
Basis, therefore $100.
Revenues in Q2 2020 from the same set of merchants became $196 in Q2 2021.
This is the key kpis excessively measure as it indicates the strength and predictability of how much inflation chips.
We've on boarded 10, plus new much in this quarter, including a merchant that does the U S content provider that launched in 13 countries with that changed our dog.
A little bit shocked video sharing app.
And our social network platform that Devil upsell lip syncing the deal that launched in four countries with us.
Revenues from new clients was $19 million in Q2 2021.
This is $1 million in Q2 2020 revenue.
He was coming from merchants onboard in the last 12 months are considered under new clients for these kpis.
This is the rolling measure for the year over year comparison.
Slide 11 product sector.
Our product innovation journey is never static emerging markets are always changing and we believe we need to remain agile as it is our biggest competitive advantage.
In this quarter, we continued to bring enhancements to our <unk> solution with new features such as the flexible schedules they need.
<unk> dynamic on transfer.
The improved tax manager to allow that handling might be missing that could both debit and credit.
This new integration to add redundancy in our card processing in existing markets.
And we added new payment methods.
We also enhanced our.
Solution, expanding our instant payouts in more countries.
Yes, I did direct connections with new partners and banks and the event live with fixed mobile App in Brazil.
One <unk>.
We improved our fraud and visa capabilities with new machine learning models tailored for retail and gaming verticals, we added profiling and fingerprinting tools and went live with device IV among other cave IC improvements.
Issuance as a service solution enables merchants to create new lines of revenue and easily issue prepaid cards in local currencies to reach millions of consumers in emerging markets.
Slide two Atlas geography vector <unk>.
We've added four countries to our network in the first half of 'twenty 'twenty. One our strategy is not to innovate in a vacuum and to the extent possible have a merchant and meeting when we open a new country.
This is an example outside of disciplined growth strategy.
The expansion strategy is both merchant led that as we go at a much faster proliferation as well as the local lab that is markets, where we know that there will be demand we are not dependent on any single country for Apple comments.
So don't forecast Apple comments by country.
Solely focused on measuring our performance by a much it.
Slide 14.
We see strong growth across verticals with the 319% year over year CTV growth as a business benefit from diversification our business model is not dependent on the performance and outlook of any single industry vertical.
We see continued growth in vertical such as ride hailing and travel.
Started seeing strong return and volumes in the first quarter of 2021.
We are also seeing accelerated growth in multiple verticals, such as streaming retail advertising and financial services.
I'm now going to hand, it over to Diego to review our financial highlights.
Thank you Mr.
Let's start with slide 15.
Since we started operations five years ago, we have on average almost double our TBD year. After year, we see an acceleration in our CTV growth with 319% in the second quarter of 2021 compared to 60% in fiscal year 2020.
This growth benefited from specific belt, because at a slight acadian and silo, but what I'll quickly into 2020.
We have also seen tremendous growth in all of the other verticals, that's a streamlined retail advertising and financial services.
Let me highlight that we have been in Q2 2020 during the heart of the pandemic, we have seen a grown 17% year over year.
While we expect to see continued strength in our business and the remainder of the year the percentage growth mainly normalized the comparison quarters in the second half of 2020 huddle room listening to community count growth.
Let's move to slide 16.
Our revenues in the second quarter of 2021 reached USD $59 million, 186% year over year growth from Q2, 2020, and 46% quarter over quarter growth from Q1 2021.
Our revenue, although TBD ratio our take rate was four 1% in Q2 2021 that was four 3% in Q1 to 2021.
This is equal to the big lease income in 2019.
This ratio changes based on the underlying business mix.
In 2000, <unk> have swung to a larger portion of our overall weakness, resulting in a higher revenue, although TPG ratio of 5%.
This ratio also increases the volumes with some of our largest merchants with Greece.
But we said pricing tiers by volumes and our merchant agreements.
Europe volumes with our largest medicine typically decreases duration, but it's great for our business I think bring incremental EBITDA.
Let's switch to slide 17.
We are very pleased with our continued improvement in adjusted EBITDA.
In Q2, 2021, adjusted EBITDA grew to $25.1 million, 213% year over year growth and 45% quarter over quarter growth.
Our adjusted EBITDA margin remained stable at 44% since last quarter on improved 684 basis points year over year.
We have achieved this while we have continued to invest in our people platform and technology.
We intend to continue investing in growth and that's why the margin may decrease in the coming quarters, maintaining our discipline to drive profitable growth with every additional dollar revenue process.
Cost of services dropped from two 6% of <unk> in the second quarter of 2012 to one 7% of complete in the second quarter of 2021, mainly as a result of mix.
<unk>.
Operating expenses grew $11.2 million year over year, mainly driven by expenses related to the secondary portion of the initial public offering and four 3 million stock based compensation of $2.1 million on salaries and wages.
$3.7 million as we doubled our headcount umbrella keep talent on board.
Let's continue with slide 18.
Of the 196% year over year revenue growth due to the thousands of $120 million concurrent symptom Melton on 19 medium things on your margins the comparable numbers for Q1, 2000 and won work with Tina 7 million respectively.
Revenue from existing medicines out of those revenues that are driven by milestones what are already processing in the same quarter of last year.
And revenue from new medicines are those revenues that are driven by months, thus profit operating with us after the same quarter of last year.
As mentioned our.
Our net revenue retention rate continues to improve with 196% in the second quarter of 2021 compared to on a radio spending 186% in the first quarter.
Switching to slide 19.
When we look at our Kpis, our medicine, we see a big jump sequentially continue to improve.
The average number of countries that I mentioned in the second quarter of 2021, seven compared to six in the first quarter.
Given that we have already built our payments more than 30 countries very significant capability to continue to bring our medicines to milk geographics.
And the same applies to the payment method <unk>.
Reached 62 compared to 63 in the first quarter, while we are more than 600 payment methods in the countries that we operate.
With that I will turn it back to setup to conclude.
Thanks, Steve.
On slide 20.
In conclusion, our strengths are as follows.
First we have a large and expanding addressable emerging market ecosystem.
We'd have a direct integration with some of the largest online merchants in the world third our scalable single API technology infrastructure makes it complex simple for our merchant fourth we are diversified across verticals and clients.
Fifth our rapid growth combined with our disciplined profit ability.
And this is just the beginning we continue to remain focused humble and agile as we enable our global merchants to connect with billions of emerging market users and execute on our growth strategy.
Thank you for joining us today I will now request the operator to open it up for questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please stand by we compile the Q&A roster.
Our first question comes from Jorge Kuri with Morgan Stanley You May proceed with your question.
Hi, good afternoon, everyone. Congrats on the numbers.
I have two questions if I may.
The first one is on.
Your new merchant growth of.
19 million was pretty spectacular.
More than two X what you did in the previous quarter.
Can you give us a little bit of a sense of who those new merchants are how big can they be.
Hum.
Of them potentially be one of your top 10, merch and <unk>.
Thats evidently a very large uptake in new merchant growth I'm, assuming there is some really large clients there.
And then the second question is on your net revenue retention rate of.
196 is.
Evidently we're well ahead of it.
What you did last year.
Well ahead of the soft guidance you had provided over 150 <unk> hundred 60, <unk>, how do you see this number trending in the second half of this year.
<unk>.
Okay.
Thanks, Alright, thanks Jorge.
Thanks, very much for joining us so on your first question I think.
Clarification to make is that this is.
Trailing metric. So we are taking into account to every customer.
New merchants that we're in there on a year ago. So youll see that number continues to evolve.
Having said that.
It was a very strong quarter.
Sumita and touch on her remarks on some of the merchants, we have been able to win including.
Ocean network or U S content provider.
<unk> short video sharing app.
For us or had the whats what do you believe it's more important than this trajectory rather than the starting point. Yes. We are extremely excited of these customers we've been able to onboard.
But having the ability of avoiding them. If they want then it's where we need to make sure we're continuing adding value into new geographies new products and.
Our net revenue retention starts.
Starts to trigger on subsequent bulk so we are definitely excited with the current once we've been able to onboard.
Hopefully, we'll be able to see their growth.
The next many quarters to come.
Okay.
And on your second question around net revenue retention.
Sumit do you want to take it yeah sure happy to step outside and coordinate the question.
I want to make sure that we understand the macula methodology carefully here when we see revenue from new clients and that number was $19 million in second quarter 2021 that number used to be $1 million in second quarter, 2020, and disease and Youll see that in these days that's the revenue from any new.
Clients in the last 12 months and so it could be a time that we added in Q3 of last year. Our Q4, plus Q1 of <unk> all of that aggregates into that $19 million number and that's why you know in comparison to Q2 that number look.
That big a $19 million versus $1 million.
On your question on the guidance.
What I would say is that.
This has been a fantastic quarter for us.
If you look at the year over year and crude trade number. The reason also the percentages is too high is that Q2 2020 was right in the middle of the pandemic and we are getting the benefit of a slightly lower base last year in the second quarter I think as we look out over the next two quarters.
We expect our dollar numbers look good but I would not.
Percentage growth rates that are similar to what we've been able to achieve in the second quarter, because Q3, and Q4 of last year, when the stronger quarter than Q2 of last year.
Sorry, sorry to.
Pushback, but.
So again.
My first question a stance so what type of merchants are you, adding about the ramping of the revenue so rapidly and there are bringing such a large amount of no revenue.
Whether or not this could be.
Much bigger sounded like top 10 revenues were trying to understand.
How can your revenue ramp up from here and I don't think it'll be really helpful. If you can help us understand.
You know what.
Who are these clients why don't what are sort of on what they do how big are they are.
Even the names would be very useful to try to get a better sense of how revenue scan <unk> go.
<unk> from here. Thank you.
Sure.
Okay.
First of all I think it's worth conceptually discussing where we focused on SEC.
Some of the largest companies in the world.
On many of those and names you can you get to see on our website.
Obviously, we tried to state.
We've tried to make sure we disclose together with them and those are the NIM stuff, we've been able to to disclose out there, but these are companies that have ambitions to operating more than one country.
That are some of the world leaders in their respective areas and we've announced some of those partnerships.
Not only the last quarter, but during the year. So a lot of those customers are out there.
We obviously have expectations for them to become a much much bigger if somebody that was touching on that point.
Well, we believe our numbers could be.
Very impressive and we are extremely proud of him. We are clearly still a drop in the ocean of different unity, we have ahead.
We are of the idea that those volumes in emerging markets are going to be driven by the type of merchants, we serve which are the largest companies in the world. So.
That's our that's it I would love to give you the name, but that's it I hope.
Further carrier traditional hold those merchants.
Thanks.
<unk>.
Congrats again, great numbers, so all the best Thank you.
Thanks Jorge.
Thank you. Our next question comes from Tito <unk> with Goldman Sachs. You May proceed with your question.
Hi, good afternoon, congratulations on a very strong results.
Two questions.
Piggybacking, a little bit on Jorge questions.
But.
First on the growth of new merchants more given the strong growth at IPO. You had mentioned you did most of the growth do you expect it to be coming from the existing merchants. So.
Are there more new merchant.
Going forward from here on out that you can boost that growth from new merchants more than you. Initially expected I guess, maybe to rephrase. It post IPO has something changed where you think you can maybe capture more new merchant than before which should boost that growth.
And then second question also on the net revenue retention rate, but I guess following up on Horn. His question right you had guided for that $1.50 to 160.
You're well above that.
Looking back do you think that $1.50 to 160 with too conservative.
Can you accelerate even from here and there weren't any <unk> I understand.
You have soft comps last year, but just to get a sense right. When 96, well above that 150, it looks like there should be upside to that $1.50 to 160 guidance that you had given at.
The IPO is that fair to assume thank you.
Yes.
I can start.
Good question.
To Rich's question on net retention rate and then let's come back to the new much in question.
On the net retention rate if you look at our cohorts over a period of time the reason.
We've spoken about the $1, 50% to 160% by the way that was also a net retention rate number for the full year 2020 as you may remember.
When we look at cohorts over a slightly longer period of time, and we look at the trends.
Do you see that.
The 160 number is actually quite stable. So I think in the medium term, we still think that that is the right net retention rate to consider as the cohorts mature.
In the initial years, when we add a merchant.
<unk> could be really really high but if it stabilizes as we've discussed with you in the past.
So we think that the 150% to 160% it's still the right medium term net retention rate.
And therefore, it's still what we've modeled.
In terms of your first part of the question, which was related to your new merchant.
We actually think that that number will actually come down because we've added some very large merchants in the last 12 months as I mentioned it is all in measure so keep in mind. These are not new merchant fee that is only in this quarter visa.
Are there any merchants that were not in our book of business.
In Q2 of 2020, so it's a rolling measure of any new merchant in the last 12 months.
And so we've added some merchant in the last 12 months that that are contributing to that new client number.
Expect that number to come down in the next the next two quarters as the tolling measure changes.
Great and just to complement.
To complement on that sorry.
The other driver for new merchant growth is having the advantage of having new products both.
New product a new geography. So you had a question around are there more customers to B b.
So we want.
What we expect is that through additional geographies through additional products through additional capabilities.
On the medical long term, we'll be able to continue.
Merchant not necessarily we did this quarter, but yes, we do believe there is plenty of opportunity ahead in terms of for new logos to bring it to the platform.
Great. Thanks.
And to me that's helpful. Maybe one follow up then on the net revenue retention rate again, I understand you're in the midterm should trend lower to that 150.160.
But I guess in the shorter term.
Looks like.
That should be running higher right so midterm.
Maybe I guess to quantify the midterm is that like in two three years and in the shorter term there seems to be some upside or is the midterm next year just to.
Tried to quantify that the midterm a little bit thank you.
Yeah, I think that.
It's about two years from the start up in a much income from both sides.
<unk> based measure detour and I think we discussed this with you during the IPO as to how those cohorts trend out.
We've added some pretty large merchants in the last 12 months, we expect them to stabilize in about 24 months from the beginning of when they come on our platform. So I would say it's in the next 12 to 18 months is when we see the 150% to 160% to be a stable plan.
Perfect. That's very helpful. Thank you sumit.
Thank you. Our next question comes from Nick <unk> with HSBC you May proceed with your question.
Hi, Congratulations on the earnings are very strong results I have a clarification Moshe on the revenues in PPV does that also include the impact of the Penelope acquisition that closed in April of this year.
Leave some of the new module revenues might be driven from the acquisition of <unk> is that right with you.
Yes. This includes fan out okay.
Could you tell us what would the PPV and the revenue look like without the matter.
Starting to look with an up dramatically this quarter.
I don't think we're disclosing that information.
But I would say that it is.
It's not significant enough to make as much of a difference to the numbers, but we are not disclosing the prime hurricane numbers separately because it was an asset deal as you know we acquired the assets of <unk>.
He will not be breaking out those numbers, but it's not significant enough to be broken out either.
Okay perfect.
Then.
Again on the operating expenses this quarter was a bit high because of some extraordinary lease.
But going forward should we expect costs to be a bit elevated as you mentioned you expect some tissue COVID-19 could see some pressure on margins what is your expectations in terms of cost.
Given that revenues are already coming very very strong so far.
Should we see a pickup in the cost.
Do you plan to have stronger geographical expansion in the coming quarters any color on that.
Hi, Nick obviously Guillermo.
So if you look at Q2 2021 main.
One off expenses that we had worthy IPO expenses from roughly $2 million on some in my neighborhood.
Expenses, mainly related to premium pay for our around we havent done. This so everything else is organic.
To continue our sequential increase going forward as we continue to grow so you should exclude those numbers on the revenues.
To continue going forward.
Okay.
And lastly on the the issue. It is a service program, we launched a pilot program. How has the response been so far and when do you think you can formally launch this new service play airplanes.
Hi, and thanks very much for your question. So we've launched a pilot the product it's readily available to our customers who wish to use it.
Obviously, we have enterprise merchants, so the sales cycles as you are well aware our lung.
So we see this product the same way as we've seen payouts walking today things are highly complementary.
Elementary one with each other.
Going forward don't intend to break down revenue by product.
Because again, we're always driven by this idea of having more products more solutions to offer our merchants that Brexit is readily available for merchants, who want to be on boarded.
Having said that we expect.
Our ramp up to take time.
And you separately monetize that its not included as the as the full package studies yourself is that how much in skin.
Pickup on on a separate basis that you can monetize that service.
Exactly so the exactly the same way of paying somebody else work wear.
Our fee for our fans transaction, there's a fee for our payouts transaction there'll be a fee for it.
Issuing final reshape product.
It's going to be a new revenue line, if you will from a.
<unk>.
Youll see bundle, but it will be a new source of revenue for our growth.
Perfect. That's very clear. Thank you so much of a circuit that Jacob.
Thanks Neil.
Thank you. Our next question comes from Ashwin <unk> with Citi. You May proceed with your question.
Sure.
Thank you.
And congratulations from me as well a good quarter.
You had mentioned the benefit of ride hailing in travel leisure clients recover from the impact of the pandemic.
Could you maybe help size this or maybe.
Indicate how much more benefit you might get if you.
Just get back to say 2019 levels from purely.
The economic recovery.
Sure Ashwin hi, Thank you very much for the question. Obviously, we are very different business than what we were back in 2019, so that normalization wouldn't make much of a change.
We are not dependent on any particular vertical that we have.
Really well diversified so yes, we've seen some recovery on the ride hailing and travel.
But we are not counting on any sort of threep unlimited numbers, we don't forecast by the way, we're not counting on that to happen. If it happens it will be good news for us.
But at the end of the day, we like to believe we'd been COVID-19 diagnostic yet theres been interested.
Accelerated there've been others that have been looser.
We believe in the long run we are in a very sustainable trajectory, which will help to some looseness that arent going to lag.
Therefore, our performance is going to like together with them.
But we're not counting on any bounce back office, Daniel envisage to move the needle for us.
Understood and then a separate question as you ramped many of these new clients that you are signing.
Including perhaps.
Transitional or some of the <unk>.
Client.
What should we expect with regards to.
A margin impact from that.
Is that what you are indicating when you say that.
Margins may be a bit softer.
In the near term quarters.
Yes, I think ashwin. Thanks for the question I think on the margin question as you can see our margin has been stable between Q1 and Q2.
And we think that we will we will really look to invest over the next few quarters.
And we think that you know that.
Could be some margin compression from the 44% levels in the coming quarters and the reason for that is really driven by an expansion plan.
Product plans and and I think our commercial effort.
The other thing to also keep in mind is that one of the reasons I think vehicle mentioned this in his prepared remarks. He walked you through what that revenue number is.
At four 1% in the quarter was four 3% in Q1.
The reason, we think that there could be some margin compression as we continue to see tremendous volume growth.
Martin and I think we've mentioned that we have volume tiers and our contract so as the dollar volume goes up.
And if you go off the pricing comes down it is actually good for our business he actually likely because that means that we're going to get more volume but.
But I think given those two factors, we think that while on a dollar basis, we will continue to grow.
From a margin perspective, we expect to see some compression in the next two quarters.
Would you be able to size the level to which EMEA.
Talking noteworthy.
Not lower than that.
Yeah, I think we are talking non parties I think.
If you think about the 'twenty 'twenty.
Numbers, both for net retention and margin, we think that that's a good good place for us to plan for it.
Great very helpful. Thank you. Thank you all.
Thank you Ashwin.
Thank you and as a reminder, a question you will need to press star one on your telephone. Our next question comes from Sumit <unk>.
<unk> Research you May proceed with your question.
Hi, guys, thanks very much.
Congratulations on good numbers.
Just two quick ones from me please.
First of all just on <unk>.
Pay in and.
Payout, which I guess is.
Shaping your shaping you'll take rate to a degree are we kind of broadly back too.
If you like the historic ratios, we've seen between pain and payout.
<unk>.
So can we think about this level as kind of being a little bit more normalized what you still think post COVID-19 does a bit of a reset likely to take place.
Secondly, just on competition.
Competition.
Hudson Hasnt been mentioned.
Are we seeing anything.
They have a response from the incumbent.
Thanks, a lot.
Ken anything kind of happening.
On the <unk>.
It's worth flagging.
And then just a final one please maybe just looking forward talked a little bit about.
Card issuance, a service, which sounds pretty interesting and one.
One other thing I was interested in was prepayment income, which is such a source of revs.
Revenue and profit across Latin America in particular any thoughts on whether that is a.
Our revenue you could try and tissue going forward. Thanks.
Thanks very much.
Thank you Sumit.
So on the on the question around the split between paying somebody else we've seen.
Those to evolve along the years and we believe it's going to continue to people, we're still in a micro and a macro world. So depending on which customers you are able to have more than a blip speed, you'll see pains payouts and gaining a different sure.
I don't think we can point you to any mature stage split between those two depending on who the merchants are and how.
Throw me that use our platform you'll see that.
<unk> continues to evolve on the competition question.
We've lived for many years in a very competitive space and we believe there are many great companies.
Many great payments companies worldwide some of them are public.
But we also are up the idea that this opportunity in the emerging emerging markets. It's huge.
We also believe we are very well positioned to capture it.
Hopefully a lot of that opportunity.
Some of the competitive advantage that we built the idea of having the direct connections to the idea of the technology having.
The deep cultural understanding of the markets, where we operate we believe are sustainable but just so to answer your question we are counting on competition.
Griffin.
But at the same time, we are confident of.
The efforts on the bump it just built in into our platform.
The fourth the third question on some prepayment.
I'll start there.
Employment also for now.
Don't make revenue from prepayments the way you would see for other companies.
In particular in Brazil.
Is that an opportunity.
Priority, yes, it's not included in any of our internal forecast we are more focused today on continuing with our geographic roadmap continuing with our product roadmap.
Anything that would be.
A week or an easy win to pursue further down the line.
Okay. Thanks.
Thank you. Our next question comes from Domingos <unk> with Jpmorgan you May proceed with your question.
Thank you hi, good evening, everyone at the time of the repetitive here, congratulations as well amazing figures.
I'm, having a little bit I think to what his first question you guys brought in a lot of new clients and I remember you guys had kind of a funnel that.
Processes long like you said.
So you should give you even if it's either quantitative or qualitative comments on you know.
Kind of how the pipeline looks like an example, you had in the last.
Page of this fund are like 30 companies who've converted nine of them and maybe move that additional five. This one we just wanted to kind of grasp and understand a little bit how this pipeline of new clients, how how maturities how it's evolving.
Hi, Don.
Thanks for the question. So we've onboard the 10, new merchants in the last quarter.
Brian It doesn't go much of the story.
Part of the reason why we've decided to become value growth and we wanted to raise awareness in the market our assistance to our merchants and we believe we manage to do so to a certain extent.
But by no means have any impact on our current quarter, if anything that will help us.
Yeah.
Drive more leads into that funnel that we were discussing the other thinking about that funnel is fed by opportunities that are based on geography. Some of the products. So the more geographies. We have the more products. We have the more we are able to have a conversation with any customer until then we have a service store for you.
So we see our pipeline, but it's extremely healthy.
But it's a full of opportunities across all different stages, but also if you remember what they discuss with IPO Theyre Stookey final for athletes and your sales funnel.
Going after the new merchants, but at the same time, there's an account monitoring funnel, which is the one that drives the net revenue retention and that's the one we focus the most making sure theres more opportunities with each one of these customers that are on boarded.
It's never going to healthcare.
Very clear and in the New company funded these last stage did it grow or did you shrink. So basically did you absorbed most of the opportunities or you basically stable as far as.
The things that were expecting let's say next six months.
It's very much in line with what we were expecting.
Again enterprise merchants by nature are cyclical theres going to be times, where we're going to have higher new merchants. There it's going to be a time, where we're going to be slower. That's why we care. So much out there called monitoring funds, having a customer in our world doing at one dollar we do I mean, it's not much and we want to know if those customers continue to grow with us continuing to do.
More of a visa.
And that's where we had the most focus making sure we have enough opportunity with our current merchants.
Because we know new merchants will come but you also know that our success is going to be tight with us and delivering value to them and being able to grow with them as they grow.
Great. Thank you everyone.
Sorry, one other thing.
Uh huh.
I would say you know.
Big opportunity for us at merchants that want to grow outside their home countries. I think we mentioned that in my prepared remarks, we see that there is tremendous pent up demand from merchants looking to go outside their home countries, including from China. So as we keep highlighting we don't actually profit.
Significant payments volume in China, but we do work with Chinese merchants outside of China, and that's also been beneficial to us.
Okay.
Thank you again and congrats.
Thank you.
I would now like to turn the call.
Back over to Sebastian for any further remarks.
Thanks, everyone for joining today, we are good and thanks for your question.
Such in the future.
Thank you very much.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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