Q4 2022 Dlocal Ltd Earnings Call
Yeah.
Okay.
Good day, Thank you for standing by and thank you all for joining the fourth quarter 2020 results conference call. At this time, all participants are in a listen-only mode. To ask a question, you will need to press star one on your telephone. To withdraw your question, please press star one again, and wait for your name to be announced. Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker today, Seward Det Nager, Head of Investor Relations. Please go ahead.
Thank you very much operator, good morning, everyone and thank you for joining our fourth quarter 2022 earnings calls to date is.
We have not seen our earnings release; a copy is available in the financial section of our Investor Relations website.
On the call today, I'm joined by Sebastian Kind, our Chief Executive Officer, and Acouple Ofthing Data, our President and COO.
You'll get the data, can I, our Chief Financial Officer, and Maria Oldham, Vice President of Corporate Development and Investor Relations.
We're providing a slide presentation to accompany our prepared remarks.
This event is being broadcast live via webcast and both the webcast and presentation may be accessed through the local website at investor that they look at Dot com.
The recording will be available shortly after the event concludes.
Before proceeding, let me mention that any forward-looking statements included in the presentation or mentioned in this conference call are based on currently available information and the company's current expectations and projections about future events. The company believes that.
Samsung expectations, I predict, are reasonable given currently available information. You are cautioned not to place undue reliance on those forward-looking statements.
I'll start. What we thought may differ materially from those included in the local presentation or discussed in this conference call about every deal we've done, including those described in the forward-looking statements and risk factors section of the local filings with the Securities and Exchange Commission.
We kind of base level on the local investor relation website.
Now I will turn the conference over to further thank you.
Good morning, everyone. Thanks for joining the call today. We will discuss our business and our results for the full year '20 Q-on-Q4 '22. I want to start by thanking our stakeholders. It was a challenging quarter, during which we were under a war on terror attack, and I could not be more grateful for the full first hour.
Through long-term partners, who we know just carefully come to trust with their volumes their records, DPB pinpointed $6 billion in 2022, including $3.3 billion in Q4, up 21% quarter over quarter. It's a testament to the trust they place in our solution and our expertise.
We are grateful to our team who continue to work very hard. I remain committed to delivering on our long-term ambitions, as we work best for them.
Our operations continue to run smoothly and better than ever.
Third, to our long-term investor partners.
You'll see in their regulatory filings or mentioned, it was hard that they have continued to support recently by increasing their positions, showing their contentment and excitement about the future value creation potential below. We strongly believe in the business we're building and are continuing our share buyback program in accordance with our trading partners.
This was our second year as a public company, and we have over-delivered on our initial expectations since we went public. 2022 was no exception.
Before we deep-dive into the results, I want to remind everyone why we started the local back in 2016. To strike everything we do up to today, we found that the logo, because we still have a very clear penguin extra thing, is doing beta testing in emerging markets. It's very difficult, as emerging markets in general are much more fragmented.
Payment systems and methods are not dependent on remarks; they also have a more unstable and complex regulatory environment, as well as different tax rules and consumer behaviors.
So even for large global companies with retail stores, it is very time-consuming and frustrating to set up just a single new payment method in a single market. When you extrapolate that to the multitude of payment methods across many emerging markets, it is a problem that is highly resource-intensive to solve, especially when you consider it's non-core.
Card for almost all bases.
This is where the local comes in by doing all of the hard work of integrating over 900 payment methods across 40 emerging markets I'm, making them all available interestingly.
We're able to help companies avoid all these hospitals because we support many hundreds of merchants, we benefit from economies of scale from combining their bodies.
Just to emphasize, through our one-below-par model, we provide a seamless experience for our merchants, one contract, one platform. We offer consistent support from the perspective of our merchants, whether they are receiving Brazilian Reais through Pix, a local payment method, or if they are paying out tonight.
Local bypass, or they have only one integration.
We believe the growth of the company over the past seven years is the first comment on the attractiveness of these propositions for merchants today, with some of the largest and best-known companies in the world, such as Microsoft, unmet than we.
We allow them to access over 2 billion consumers across 40 markets with over 900+ payment methods for both local-to-local and cross-border transactions on both pay-in and payout.
The exciting thing is that there's so much more to come; many more merchants to onboard, new markets to expand into, new products to launch, and new payment methods to introduce.
I often get asked if the program for locally solving is really so unique; then how did merchants operate in emerging markets before local execution?
The fact is that these merchants might forget about it, but only by expending a great amount of resources and time, and by accepting that many customers would be left behind before working with us. If our global merchant wanted to establish a presence in, let's say, 10 markets, they would have needed to integrate with at least 10 different providers.
At least 10 contracts.
At least 10 different partner relationships. Even then, they would often write off some markets or some payment methods altogether, because the burden of serving them was just too high, meaning they were leaving many customers behind.
I'm very proud to say that now, once a merchant connects to the local, they are able to immediately increase their reach to 40 countries and 2 billion-plus users.
Everything they need to operate in all markets, we offer our merchants benefits from rapid expansion and reach, reduced cost and complexity, and other advantages of our all-in-one solution, including high acceptance and conversion rates, reduced friction, support for regulatory and tax compliance, and an excellent reputation.
Prevention, we believe that for companies that want to sell across multiple emerging markets going with the local solution rather than doing their own integration.
It's a no-brainer.
We are proud to share with you that we partner with and serve some of the largest and most successful global enterprises and merchants on a micro basis, including Microsoft, Shopify, Spotify, Salesforce, Expedia Group, among many others. We also partner with other world-leading names that we cannot share with you.
As well, due to that.
Closer restrictions.
Together with the largest players operating out of the U S and Europe . We also serve leading companies born in emerging markets, such as gene Vincent Daily run lobby Dv Ambady, Russia we.
We believe this is a testament to the value our solution delivers. Even companies from emerging markets, with local knowledge, find it more convenient to leverage our solution rather than creating their own integrations.
Our ability to bring on board the world's top companies, retain Australian clients, and consistently grow our business with them is powered by our technology and highly customer-centric approach. This also drives our continuous and rapid product innovation pipeline. Our sales teams are highly responsive and get to know our clients' businesses in depth.
Allowing us to understand our clients' challenges and solve them.
This often results in the creation of new products or features that are useful to our broader merchant base, continuously increasing the value that our platform provides.
Now I will share a couple of examples of our partnerships with large global enterprise merchants.
Our first example is Salesforce, a customer we recently onboarded through our close partnership with Salesforce. We came to learn about a problem they were facing.
Assessing unexpected payments and trading funds in emerging markets is complex due to local regulations, macro volatility, and currency fluctuations. We worked together with <unk> to develop a new solution for <unk> cross-border payments. This solution addresses the complexity of repayments, manages currency volatility, enables local payment options, and provides assurance.
The processing, exploration, and settlement of fun.
With this solution, the local enable speed to be payments that typically have a higher average ticket. Merchants such as Salesforce can rely on the local infrastructure to access different payment methods and ethics markets, ensuring success in payments processing exploration and improving the reconciliation process. Without our solution, Salesforce would have an event.
Actually stopped taking payments in this market. We have now expanded the service to other global market several of our larger clients using this new solutions on slide eight.
The case study shows the power of our solution, allowing method to access a broad range of payment methods across many markets.
We have been working with them for more than four years and now we started them across multiple geographic umbrella.
Our close relationship with large global enterprise clients, such as Meta, allowed us to learn the challenges of receiving and sending payments using non-traditional payment methods.
Companies, who are finding that they were losing conversion due to their inability to receive nontraditional payments, are reducing high friction user experiences for these payment methods by integrating non-traditional payment methods such as mobile money transfer and cashless payments. We enabled <unk> to deliver a smooth, frictionless payment experience in Africa.
Taking more money as an example, this non-traditional payment method has been growing rapidly, reaching 346 monthly active users in 2021 globally across all payment providers in markets such as Kenya. Mobile money transfer has a 50% penetration, versus 6% for credit cards. We opened up these payment methods for Meta.
To allow them to increase their customer rates in these markets.
Now, moving to the financial results, let me give you a quick overview of 2022. Last year was an exceptional year for the local our DPP; it grew 75% year on year and surpassed $10 billion. Our revenue grew largely in line, increasing by 72% year on year, and reaching for.
$119 million.
We have over-delivered against our ambitious target with <unk> of 165% in 2022. We continue to focus on growing our absolute gross profit and EBITDA dollars. Gross profit grew by 65% year on year to 202 million burgers, and adjusted EBITDA grew.
About 54% year-over-year to reach $153 million. Despite the noise caused by the short-seller report, we continued to grow the business in Q4, delivering strong TPB growth of 78% year-on-year and 21% quarter-on-quarter.
We believe this demonstrates the consistent support of our existing clients, as they continue to grow their business with us, as well as our continued ability to sign up new merchants. Revenues grew 55% year on year and 6% quarter on quarter, with the slower revenue growth related to <unk>, driven by geographic and product mix.
We reached a gross profit of $200 million in 2022 and $55 million in Q4, we.
We need to focus on absolute dollar profit growth, even with lower margins in the chart. Now, Marty will discuss our operational performance in 2022.
Hi, everyone. Our key axes of growth are three fold product margins and the market regarding the first product or a solution nabors space will payout, both cross border and local to local.
The broader the payment method to cover, do you have the more value a quick, sharp upfront, as this method becomes available.
All our current and future customers and the wider community.
As Stefan mentioned earlier in the call, one great benefit of the local solution is their ability to allow Martin's boxes to utilize non-traditional payment methods.
In 2022, 67% the offer TBD came from non credit card payment method.
I like non-traditional payment methods, such as local debit cards, bank transfers, digital wallets, mobile payments, and cash metrics.
Example of this payment method.
Fix in Burlington, Brazil; mobile mining in South Africa; Upi and OXXO in Mexico.
Many of these payment methods have vastly higher penetration than credit card.
For example, in Nigeria, only 2% of the population have a credit score. According to studies.
Focusing on our cross-border volume, they're noticing that non-credit pricing methods account for 72% of our total cross-border transactions, and you took advantage of them.
Credit card volume, including local schemes as well, accounted for the remaining 28% of our cross-border volume in 2020. Thank you.
Now moving on to the Martin axis of growth.
Our solution is industry agnostic these allow us from Brian Martin from diverse businesses.
Providing us with a robust natural hedge of business cycles and Susan Allen.
Currently no single large telecom from more than 20% of prior to Covid.
Our largest vertical in 2020 Q1 financial services.
In this vertical, we mainly serve payment service providers that use our technology to reach emerging markets and remittance companies.
We also serve wallets.
With 1% of our total GPC, and it creates 0.2 breast Tampa first after COVID-19.
Other important verticals equaled commerce and advertising, streaming, and on-demand delivery in 2019. We drove growth across every single vertical, with the fastest growth rates observed being travel, commerce, and on-demand delivery.
During 2022, we've continued onboarding new markets for our platform. We have more than 600 enterprise margins on our part to try, and we're currently actively managing more than 200 key accounts.
We work extremely closely with Martin's to help unlock new payment methods and new markets for them Besides continuous enhancements in our platform.
During twenty, thank you to our enterprise margins on average processed payments in eight countries compared to six countries in ten to drink.
Do you think that they accepted, on average, 79 payment methods?
Compared to 44 opinion matters in 2020, an 80% increase.
We are very excited about our sales pipeline in 2023, and we hope to Cerro Moro about great New partnership front.
The golf apparel business in our top 10 markets has been significant.
Twenty thousand two, our revenue coming from the top 10, Martin's amounted to $211 million versus $138 million in 'twenty. Thank you both.
At the same time, we continue to diversify our revenue with respect to our margin base.
Our top 10 client concentration has been decreasing year over year, dropping to 50% of our total revenue in trying to think if you compare the 56% in 2021 and 64% in 2020.
Moving on to the third axis of growth geography.
<unk> section, we harbored global ambition, we dream big. We start that this was a single, very localized payment method in Brazil.
Our artists' success encourages us to expand to other emerging markets, and our highly scalable solution allows us to do this rapidly.
This has enabled.
To grow our operations to 40 countries across Latin America Africa, and Asia with the latest addition, being and do it in Q4 2022.
In 'twenty to 'twenty-three, we will continue to pursue our expansion strategy based on two factory their needs are for Martin and that truck picked off the potential new markets.
In addition, we will continue to balance the demands of adding new countries with deepening our presence in the country. We are ideal for it.
All of these drive starts with Argo being the partner of choice for our global margins across the emerging markets in which they wish to operate.
Now, I will pass it onto hackers to discuss our achievements in different geographies. Thank you, Maria.
Africa and Asia, being key engines of growth for us, our merchants continue to find strong demand for our solutions. In these geographies, these markets are also called a drug they would go to.
The results of our Busch and there'll be three Jones speaks for themselves; revenue in Africa and Asia grew.
<unk> grew by 259% year over year, reaching $74 million in 2017 with significant opportunities.
In 2021, African Asia revenue represented 8% of our total revenue.
In 2020, these grew to 18% of total revenues. In Q4, revenues increased by five times year-over-year and grew 4% quarter-over-quarter, reaching $26 million.
This is more than the $21 million revenue we can call it. In the 12 months of 2021, we were able to further grow revenues in the region in Q4, despite the comparison of an 80% required growth in Q3.
This geographic diversification complements our business vertical diversification, as well as our creating a more valuable platform for current and future customers, widening our moat.
It is still early days for us in these regions, and we are very excited about what we believe to be a significant opportunity.
In Africa, we are seeing strong traction in Nigeria, South Africa, Egypt, Morocco, and Turkey on King in part D. Meanwhile, in Asia, we are seeing strong traction in India and Indonesia.
In Asia, Pakistan, Philippines to name a few.
We are excited to see how these regions continue to grow as we both cross-sell to merchants who originally started their relationship with us in Latin America, as well as onboard new merchants who are based in Africa and Asia.
Among those regions, I would like to call out in Nigeria.
We experienced higher-than-expected growth in Nigeria, which already accounts for 12% and 8% of our revenues in Q4 and our full year 2022, respectively. We are very positive about the growth opportunity there.
With respect to all of our merchants, it is a market that is large but complex. Cooperating, we believe they can benefit strongly from our solution over there.
Nigeria contributes to the local events with a lower gross profit margin.
Over the medium to long term, as we go deep in the region, developing more integrations of payment methods and gaining more efficiency, you have.
Taking the fixed market, we believe the gross profit margin will explain.
We look forward to keeping you updated on our growth in the region. Over the portal, as we always emphasize, we focus on absolute dollar profit growth. Even with lower margins in the short term, maximizing absolute dollar profit will create the most valuable business in the long run. Moving on to Latin America, we continue to see.
Solid growth across the region in 2022, with revenue increasing by 54% year over year to $345 million in 2022.
Going into more detail, in Q4 2022, revenue grew by 30% year-over-year by 6% to $93 million. We continue to be very excited about our growth prospects in the region and are focused on boarding new merchants and cross-selling to our current base. Our revenue is well diversified.
Across the markets, with no country accounting for more than 20% of total revenues in 2022, key highlights were very robust revenue growth in Mexico, 100%.
Growth of 44% in other Latam markets, mainly from Peru and Colombia.
Despite the challenges facing foreign exchange markets in Argentina, we've had numerous strong revenue growth of 55% year over year.
Duration has largely normalized without being able to operate with no major broker.
It's important to highlight that the revenue ratio by market is a result of our merchandise strategy. Our commercial teams are internally organized by merchants.
We don't know what the device for targets by geography.
Through global agreements with our merchants, we offer them access to emerging markets in which we operate, supporting them in the markets where they wish to grow.
19.
We continue to invest thoughtfully in expanding our global team; we have hired new talent, particularly in the areas of sales, marketing their product, and operations to pursue their goal communities. We've seen the market and are driving towards our long-term objective.
They can relate that rugs continue to represent around 40% of our sales, supporting our ongoing innovation of new products.
In 2022, we grew our team by 191 FTEs or 36% year-over-year to 736 employees, while our gross profit grew by 55% over the S&P overnight.
<unk> has significantly expanded I'd tell us they are very good as we focus on hiring locally to leverage on the ground knowledge and deep understanding of local market have you seen for us here.
We reach 159 neck deep in Africa, and Asia by the end of the year 2022, representing 22% of our workforce. We will continue to invest in talent in a disciplined way Lynn I know with ensuring that we on board talent that has a strong cultural fit.
We are proud of our team and believe it is strong as a theater deal will now review our financial highlights. Thank you, Marco, and hi everyone. We continue to scale our business rapidly. We saw a record TBD during 2022, surpassing the $10 billion market, increasing 75% year over year.
In Q4 of 2022, and we saw strong growth in our <unk>, which is $3 3 billion up by 78% year over year on a strong 21% quarter over quarter, our cross border, but I'm not going to look at volumes showed solid growth year over year and quarter over quarter. Following the trend seen in Q3 in Q4, we also experienced high growth in <unk>.
You got to look at TPB, increasing by 175% year over year, and 30% quarter over quarter due to the strong performance of some of our merchants crossroad.
Cross-border volume increased by 50% year-over-year and by 13% quarter-over-quarter.
Cross-border accounted for 53% of our total <unk> in Q4 2022.
58% for the full year 2022, zero and the ramp-up of recently onboarded merchants with a high mix of local-to-local.
Have seen large merchants tend to have a combined strategy, 55% of our top 20 merchants use both local to local and cross border services.
During 2020, to withdraw growth, both employees and somebody else increased by 91% and 39%, respectively.
<unk> seen a steady increase in CBD quarter after quarter.
Pacifically in Q4 of 2022 base increased by 65% year over year, and 14% quarter over quarter.
In Q4, 2022 increased by 119% year over year, and 40% quarter over quarter.
We are product agnostic; all our progress brings tremendous profit, and when we combine them, they create synergies both for our merchants and for us.
Spending on which customers we embarked on was sluggish in the quarter, the sharp pains versus payouts were made by which.
We see further diversification as one of the strengths of our business going.
Going forward, we are very positive about the continued growth of our product face, accounting for 71% of our total TPB in Q4 2022, and 75% for the full year 2022.
Revenues also reached a new record high of $118 million during Q4 2022, and $419 million for the year 2022, having grown 55% and 72% year over year, respectively.
Compared to Q3 2022, revenues increased by 6%.
Our revenues our TPB are gross take rate was three 6% during the quarter compared to <unk> one in Q3.
Durations from quarter to quarter are mainly driven by changes in the business mix. In Q4, 2022, we had a combination of higher local-to-local payouts, some large 'gorilla' everyday medicines with lower than average take rates growing faster, and decreasing revenue in Argentina, which had a higher than average take rate.
So many in our revenues, we continued delivering strong revenue growth both from our existing customers and from our new customers.
During 2022, under 72% year-over-year revenue growth, 65% of $158 million came from existing maritime and 7% or $17 million came from new merchants.
For Q4 2022, of the 55% year-over-year revenue growth, 46% or $35 million came from existing medicines, and 9% or $7 million came from your margins.
We delivered strong net revenue retention, reaching 165% for a full year versus our expectation of 150%-plus.
This is the result of having almost no churn, less than 1% organic growth of our merchants, and emerging markets.
We need to continue bringing them to new countries products payment methods and to increase share of wallet.
Moving to slide 25, we remain focused on growing gross profit dollars.
During the year, we were able to scale our gross profit to $202 million, up by 55% year over year.
In Q4, our gross profit reached $55 million, up 42% year-over-year and 2% quarter-over-quarter.
We continued to focus on incremental gross profit dollar amounts, as we have been consistently delivering on them.
From a gross profit margin perspective, we maintained healthy markets at 47% in Q4 and 48% for the 12 months of 2022.
Particularly in Q4, our gross margin was impacted by higher volume from Global America, Southern geographies, and a decrease in revenues in Argentina.
Some of the decrease in gross take rate is reflected in a lower cost of take rate, but not all of it. We expect further optimization of our costs to be realized in the upcoming periods.
We also remain focused on growing our EBITDA.
During the year, we were able to scale our adjusted EBITDA to $153 million, up 54% year-on-year.
<unk> EBITDA was <unk>.
$40 million for the fourth quarter after symptom two increased by 39% year-over-year comp.
Compared to Q3 2022, adjusted EBITDA dropped by 3% as a result of continued investments in expanding our team, marketing, and travel expenses related to two main commercial events, and higher legal fees.
As a result, our adjusted EBITDA margin was 34% in Q4 for the year is there something to our adjusted EBITDA margin was 37% and delivering on our expectations for the year of 35 plus.
Before handing the call back to Sara for the closing remarks, I will briefly touch on our net income and liquidity.
We reported a net income totalling $109 million during the year, compared to $78 million in the full year of 2021, an increase of 40% year over year. Reported net income in Q4 2022 totalled $19 million.
During Q4, we incurred expenses of $8 million, ranging from SPX loss provision of $5-6 million and short-seller related legal and advisory expenses of $2 million.
Excluding these expenses that we believe are non-recurring in nature, net income would have been $116 million in 2022, an increase of 49% year over year, and $37 million in Q4 2022. Besides non-recurring items, net income in Q4 of 2022 was impacted by net financial losses of $3 million.
Mainly driven by negative exchange differences and higher income taxes in the quarter, the annual income tax was 10%, in line with previous years.
Regarding our cash position in Q4, we took extraordinary short-term measures to bring additional comfort to our merchants and partners using our own funds. As we have consistently maintained a healthy balance sheet, we have the flexibility and can comfortably absorb this short-term impact with our own funds. This has already resulted in an increase in other assets of 50 <unk>.
$3 million, which mainly includes $19 million in cash collateral for standby letters of credit required by marathons, and $20 million in cash collateral for credit lines with banks.
<unk> million dollars of advancement for marathon, and increasing 2 million, they're asking for warranties from credit cards and processors.
We expect this situation to normalize over the next quarter. As of December 31, 2022, we had consolidated cash of $468 million.
With $248 million in phone funds, we believe our strong cash position remains a competitive advantage. Sir, the floor is yours.
Thanks Neil.
Additionally, for Q1 'twenty-two 'twenty-three, I would like to share our expectations based on how the business is structured.
For the first three months of 2023, we expect TPB between three five and $3 6 billion.
Revenue between 135 on $138 million on gross profits between 50 $759 million for the full year 2023. The outlook is revenue between 620 $640 million with an implied in our art between 140 on 150%.
And adjusted EBITDA in the range of $200 million or 203.
We believe these are solid numbers that show we can continue growing WCS rubbish.
Always emphasize that we focus on maximizing absolute dollar profit growth, as this will create the most valuable business in the long run.
We are very proud of what we achieved in 2022 and even more excited with a runway ahead of US we remain humble and focused on providing the best and most comprehensive solution for our merchants in emerging markets Big Thank you to our global team our customers and our investors for their continued support.
Now I'll hand it back to 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, please press star one again. Please wait for your name to be announced. Please stand by while we compile the Q&A roster.
One moment for your first question.
Our first question comes from the line of Tito (unknown) with Goldman Sachs. Your line is now open.
Okay.
Hi, good morning. Thank you for the call and taking my question, and thanks for all the additional disclosure provided. It was helpful as well.
A couple of questions, I guess, to start focusing on the standard a little bit: the use of cash during the quarter. I don't know, David just kind of went over it a little bit.
But was this kind of at the request of <unk>?
Merchants, I mean, do you need to do this to retain some of these merchants? And you said you expect this to normalize in the next quarters.
Normalized already in <unk>, I don't know if you can give some color on how your cash ended in <unk>, or will it take longer? Just to understand a little bit.
We need to continue doing this, and if it's some type of a retention tool.
To keep your clients, and is directly related to the issues with the third-party report.
Now we saw.
Then my second question I guess on the.
The net take rate or your gross profit margin.
That then, that take rate has continued to fall, and the gross margin has been declining.
You mentioned how I think, with Covid, as you continue to grow in Africa, there should be some increase in that, but yet you've grown a lot in Africa and that gross margin is falling.
Just over the last year or so, and even in <unk>.
That's going to fall again, so just to help us understand a little bit, what's driving that pressure? I mean, is it just the mix, or is there anything else?
Competitively putting pressure on the net take rate.
Any color you can give on that would be helpful. Thank you.
Thanks very much for your question. So attempt here so starting on the on the cash point.
We are very proud of what of the results we posted in Q4 and Q1 <unk>.
Many of our merchants, both with their bodies, have seen record volumes for us in Q4.
<unk> numbers in Q1, obviously this has been a stressful time for us at the local, and we wanted to make sure we use our balance sheet during this stressful time.
Sure up content with our merchants. This, we believe, is short term.
Impact if you will.
Although we will continue to use.
<unk>, both advancement into settlement periods on created nine sorry.
On guarantees where for some of our merchants, we don't expect those to be sustained over the long run.
Customers who will require so.
We would intend to charge for that because, if anything, that's a revenue opportunity. I think the fact that we're a public company.
The level of scrutiny there is on us obviously places us at an advantage.
And we've always spoken about the importance of having a strong cash position, which.
Duration like the one we went through in Q4, I think, has proven to be the right strategy.
Carlos on.
On the gross profit.
We continued to optimize gross profit dollars, and if anything, we are extremely proud to say that our gross profit grew over 50% year on year. That's a key metric we will continue to accrue and bring to those customers. Some board provided that they are accretive to our customers, sorry, to our platform. This is a long term game and we are not optimizing for it.
For a given quarter, we weren't optimized for the long run and we want Shin dig docs meta Microsoft do we our partners for decades, not for a quarter and therefore, we will be happy to take a visit that eventually a lower margin than the current ones provided that it's up on gross profit dollars. So that's a key point here every time, we've got a new customer in a new geography HOKA during.
Remarks mentioned Nigeria, thus enhancing our value proposition. We are a better business when customers use us in Nigeria.
We might have a lower gross profit margin in the short run, but we see that as an opportunity and nothing about that we've spoken about net take rates going down over time, we are open about it but we believe the name of the game in the business, where it needs to continue to gain scale through TPB and therefore, the gross profit dollar amount will continue to increase I want to emphasize this point, we will not continue.
To serve our customers everywhere, so many.
You referenced, with as many products as possible, we will never have gross profit margin targets. We will have a gross profit built our targets.
Great.
That's helpful. Thank you for that color.
A couple of follow ups, if I may just on the can you give color on did you have to do that again in <unk> did you cash did you use more cash in <unk>.
For those purposes that you mentioned, and I think you also used about $15 million.
Payback alone.
You mentioned was that.
Sure.
You'd want to do that at the bank; call that in any way just to understand a little bit about what happened with that long position as well. And then, just as clarification on the gross profit, I mean, I understand you're targeting gross profit dollars, but as you grow, I guess more in Asia and Africa, should we expect initially?
Some pressure on that margin as you scale up in those countries. That's when you can see some of the operating leverage in our gross margin expanded just to understand the trajectory of that.
Sure.
I'll take the second part; the Harsco deal led to a complement of cars.
Marty, you also feel free to compliment.
I don't want to sound like a broken record, but we are not optimizing for the gross profit margin. Obviously, there are opportunities for us, and we just launched in a new geography. We are not fully optimized; we don't have the full suite of products. We will have gains, but we also have a smaller local-to-local network. Typically, we also don't have the breadth of partnerships from a banking standpoint.
We're at the mature stage; we could say that when we launched, we were leaving some money on the table. We are happy to do that as we believe that it's the right thing for our business in the long run.
But this is also a function of which geographies are going to grow faster, in which customers have in our growth. Keep in mind, it's also – we're always borrowing.
<unk> of merchants across.
Europe is across many products.
That will always result in our margin going up and going down, the way you've seen it.
And that's why we care so much about this gross profit dollar concept - that's how we ask our commercial teams.
Two to focus that's, what what the compensate demand because that's, where we believe the real value is for our company. We need to bring more gross profit dollars. That's how we're going to build a great business in the long run.
Hugs or idiosyncrasies to compliment the customers.
Thank you, so we'll start with us on the fundamentals of the touchpoint, the detail on that.
On the on the on the specifics on the numbers so.
If we consider this situation to be the new normal for the coming quarters.
The answer is no.
Tc saw.
I would say a one-off specific situation that has been underway.
On the right.
Good day.
The ending of the last quarter; it's not a trend, it's not a strategy.
It was a similar situation, where we used our cash to bring confidence forward for merchants. If anything, we expect DAS installations will start normalizing within.
The next quarters in the very short term.
Yes.
John Malone is launched; we'll take time to time in looking at countries to finance working capital. We paid out a $50 million loan that weekend, 72 four.
Totally business as usual, obviously that or something you know, use of our own gas from time to time. We may take different types of loans in different countries to invest in the future.
Also, I would like to highlight that we started our buyback program, and we used $2 million of our own cash.
By the end of the year, keep in mind that the buyback started one week before the year-end, and we have already used $40 million. So, that is going very well.
Suspected.
Okay, great, no, that's helpful. And so you're saying, just so that I'm clear, it doesn't sound like it's normalized in <unk>, but in the next couple of quarters, the use of cash should begin to normalize, correct?
Totally and again.
We don't expect significant differences in EQM.
I think what you have done with these DSA, we definitely expect that, going back to normal and recovering that gaslog startups viewpoint.
Okay, great. Thank you very much anyway.
Thank you. One moment for our next question.
Next question comes from Jorge <unk> with Morgan Stanley . Your line is now open.
So bastian Hucklebone Dear all thank you for taking the call. So.
I appreciate it; we appreciate the new disclosure.
Looking at the.
20-F filing where you also disclose the TPB breakdown by country, we can calculate the implied take rate for Argentina and Brazil.
We're getting a 10-four.
Revenue yield for Argentina, and 3% for Brazil in 2021. So, I wanted to understand what are the costs associated with Argentina getting to.
Gross profit take rate and whether you are or not you're seeing.
Wallets like SPX Flow.
Battery industry in Argentina as well.
Thank you.
Okay. Thank you very much for the question. No, we don't; we don't use any wallets in Argentina.
Decorate its always the gross acreage, it's always a reflection of the underlying cost structure. So, the numbers you pointed out are accurate in Argentina. The cost of processing payments is very high. Keep in mind that many of our payments in Argentina are done using installments, which have very high costs.
And therefore, our net debt, which should be pretty much in line in both countries.
Export trading funds from Argentina; each expensive Argentinian business results in less liquid currencies for many others and therefore has a higher cost per trade.
Fundamentally, we are always reflecting our gross take rate on every underlying cost to process payments. So when you look at our net deadweight basis, countries tend to be more in line.
I understand that it's harder to see from a gross standpoint because, once again, the underlying cost structures are different.
Okay.
Okay.
Industrial besides the focus oriented we operate in many of the largest local and regional banks in Argentina.
We are approved by them; we comply with central bank requirements.
As an example, in Argentina, in a situation where we do have the maturity that we are still to achieve in Nigeria, we already have all of those banking partners. We already have all of those redundancies that allow us to be more efficient in DOCSIS.
Page, we would like to be over time will be in some of the markets, where we're operating in Africa.
That's very clear, thank you.
Thank you.
One moment for our next question.
Our next question comes from:
Okay.
One moment.
Next question comes from Jason Kupferberg with Bank of America. Your line is now open.
Good morning, guys. Thanks for taking the question as we think about potential trends in gross and net take rates for 2023 is the Q1.
Is Q1 a good proxy to use for the rest of the year? I mean, obviously, there will be variations quarter to quarter, depending on all the mixed factors you guys have discussed, but is Q1 a decent benchmark as a way to think about a reasonable range for the full-year 2023 take rate?
Sure. So Maria, feel free to compliment Jason. We believe it's fairly accurate.
Indication of where we're going to land for the year. Obviously, this year, we've given guidance in terms of revenue. We are expecting revenue growth of over 50%, which we believe is agreeable.
We have a great outlook as we are expecting EBITDA to grow at 40%. The gross profit, which is the underlying breakdown between those two, should be pretty much in line with that.
I think Q1 is a good proxy for what we expect to happen in the full year. That being said, we continue to be a basket of industries, customers, and geographies, and therefore, our take rates will go up and down. But I think your comments are fair.
Okay, that's helpful. And then, just as we think about the quarter-over-quarter decline in gross take rate in the fourth quarter.
So it was a sizable move. Can you just break down which of the mixed factors that you've talked about were the most significant contributors to that quarter-over-quarter decline?
Sure.
Jason, I just want to comment on one thing.
Let me address your question exactly. We are proud of the results we posted in Q1, sorry, in Q4.
Our revenue grew our gross profit dollars grew and we continue to get these merchants, who rely us rely on us investment in Europe as possible so I want to.
On a combined feeling, we have here at the local of how proud we are and what we've achieved in Q4 and what we are, what we have seen also in Q1, and maybe I'll let you take the question.
Sure.
Thank you Jason on the on the net take rate that is seen Q4.
First of all, like a separation from the mix, right? As we mentioned already, we have higher local-to-local and payout volume in certain geographies. For example, Mexico is that geography where you can see we do like a 100% on a yearly basis.
This is a result of that.
When you're looking at the net take rate, some of the decrease from the gross take rate could be mirrored, but there are still opportunities for us to optimize by name.
The cost base.
We could complement that we don't face any backward pressures, we are not giving discounts, and we're not renegotiating existing deals with our previous customers. So, what you see is a function of the mix in our growth.
We don't see any backward pressure, obviously, as we onboard bigger merchants.
And more volumes our way they do have more bargaining power in some of those newer deals come up lower take rates.
But the fundamental underlying business.
The conditions of the underlying business haven't changed.
Okay. So, no like-for-like pricing pressure it sounds like. So, thanks for clarifying that. My last question was just the vertical breakdown: financial services, obviously, the largest piece.
In 2022% to 20% of TPB I think you mentioned remittance companies and there is that the biggest piece of financial services just wanted to understand some of the different categories of merchants that are most significant in that vertical. Thank you.
Sure Jason for disclosure reasons, we cannot say the exact names, but these are all U S listed public companies that rely on our services to access emerging markets.
The likes of the beats us in the world based on the slide <unk> of this world. They use our rails to access emerging markets. We believe this is a testament to how powerful our proposition is.
So, they rely on our services to access.
These emerging markets, where we operate, and we like those partnerships because through them, we get distribution. We get access to customers that otherwise we wouldn't be getting. Just use an example: By Wire will serve.
Our education merchants and those are not our target merchants on those are the type of partners we want.
We want to have direct connections with <unk>.
[Unknown] with Facebook, with Mehta, with so many others, but we are okay having a financial institution between us on those when the underlying merchants, it's not us.
And at least our target customer.
Understood. Thank you for the comments.
Thank you. One moment for our next question.
Our next question comes from Neal Agarwala with HSBC. Your line is now open.
Alright, thank you for taking my question.
Let the data that you provided, we are seeing some.
Cross border to Bill Clinton.
And the mix shift for your FTB.
That ship's with session in New York.
I believe that would be incorporated in the guidance that you have.
Ross, 18th floor play.
Coming out of <unk>, 8% as you mentioned, you can stimulate the Ludington.
Why is this clearly happening? Is it more because you're seeing?
Raj, good evening. They are substituting locally, and that is why they are moving from Guadalajara to turn it over to Luca.
Is it because of the type of wells you get you have unwanted recently, so if you can shed some light on that mix that would be helpful. Sure Nicole I think the right words not shift its evolution.
Have seen no shift from merchants moving from cross-border to local to local; what we do see is that the merchants.
Winning more and more merchants that decided to, there'll be assessing in locals. Local Diego mentioned during his remarks.
55% of our top 20 users in both local-to-local and cross-border, and I won't explain this, this is the same customer. This can be Microsoft that, besides the use of local-to-local in Guangxi and geography and cross-border in one other, will do. We are not seeing, and I want to emphasize this point, it's merchants starting on cross-border and then moving to a local-to-local.
Brooks.
We serve merchants, where they are really big so these are not startups that go big on their one of their entities. Many of our key customers already have their entity set up in many of our key geographies and therefore choose whether to use as a local to local or cross border. We internally see this is a huge strength. This wasn't obvious a few years, but that wouldn't be able to win those.
Local to local deals now it's clear that not only do we win them, but they can.
Continued to expand with us, and we believe that compounds our value proposition. We want to make sure merchants can never graduate from us, and therefore, we need to make sure that we go with them. If they decide to look at the global cross-border space, payout Latin America, Africa, origins.
Very helpful. If I may ask another question, could you shed more light on financial income and financial expenses?
Should we expect the use of cash in paying back loans and giving guarantee margins? Should we expect financial income to be weaker in the coming quarters? And how should we think about the evolution of financial expenses, as that has been quite significant in the last two quarters.
Thank you so much.
The ticket.
Sure.
Hi, Nick So basically we started high.
[UNK] financial statements, particularly in Q3, were a result of having higher positions in many countries, one of them being Argentina, and the basis with all the regulation that we had at that point, which is unfortunately going down and I would say pretty much normal by the end of the year. So, we still have higher financial expenses in Q3 and Q4.
But we expect that to continue reducing going forward. You will also see that we had a significant financial commercially that number for Q4.
As a television, you have noticed expenses of $17 million for the year.
<unk> expense pension expense of $19 million for financial income tends to offset each other.
Whenever we have hedge funds, we also put them in money markets or interest-bearing accounts. So they represent a higher expense, but also higher income if we look at the net financial expenses. It would be more like two or $3 million net in the quarter, which is not very different from what we have had in previous quarters.
Did they use the whole cash for other purposes? You mentioned a note here; should that have an impact on your P&L?
Joining me.
Not much, keep in mind that.
Most of our cash.
We have it at the consolidated level in US dollars in global bonds.
And finally, you gave us, let's say, a 4% interest rate. So, there are only a part of you who aren't profitable together with refining at that 4% take rate on the amounts that we use for a solid year of case, and again, we expect basic.
Situation to sequentially return to normal in Q2.
So, we will likely recover those, but obviously not on our balance sheet.
Thank you Glenn.
One moment for our next question.
Our next question comes from Andrew Barish with SMBC Nikko Securities. Your line is now open.
Hey, guys. Thanks for taking the call and for all the added disclosure provided in the report.
Appreciate your comment on the gross margin, and that's not necessarily managing this business to gross margin, but the absolute gross profit dollars.
Using the some of the earlier commentary you made.
Margins in the first quarter should be somewhere in the same range for the rest of the year.
We're seeing a pretty sizable.
And in absolute gross profit dollars in 2023, I mean, is there something in 2023 that is going to be a headwind in <unk>?
Thinking about the longer term are there variables that we should think about it. Thanks, Dan would either accelerate this growth beyond where it's implying it's going to be three R&R or something thats a headwind in 'twenty three that were not necessarily maybe catching.
Andre, thank you very much for your question.
We're guiding to a 50% growth in revenue; I don't called out the headwinds.
We are very optimistic on our business I don't think there are many visits as growing profitably.
80% on the scale, where we are, we are extremely bullish on all of the underlying trends. We believe we have very significant secular tailwind as merchants are moving online, and merchants care more about the emerging markets. We are indexed to some of the biggest companies in the world. So, we are, we see the guidance we provided as extremely positive.
We believe our business is in a very unique position.
To be a leader in emerging markets, I think there is going to be significant value that the leader will be able to accrue. So, we see no issues.
Yes.
Negative, if anything, and having the customers we have, having the products we have, and having the footprint we have in the geographics in Europe where we operate.
Makes us extremely extremely extremely bullish, and again, we believe the guidance reflects a 50% growth, 40% growth in EBITDA, which is really positive.
We believe it is great, basically.
No, I appreciate that, and I think just everybody is trying to, too.
Saying, you're managing the business for absolute gross profit dollar growth, we're trying to think about it in the same way.
Thinking about the conversations you're having with incremental logos, it's nice to see some some additional big names with meta and Salesforce I mean, how much more.
Big names are out there, our marquee logos you may or may not be in discussions with in the months and quarters ahead.
And how can you talk - can you characterize their ambitions in emerging markets?
And particularly as we get out of this current macro situation.
Sure.
Thank you again for the question.
We have a very deep pipeline.
And having a healthy pipeline, it's always a function of having more products to sell to those customers. We see products and geographies as such wins. There are more things we can go and discuss with our customer base. We are very proud of the clients we have, but we're also very cautious and conscious that many are still not our customers. We are a very commercially-oriented organization, so we are mindful of those potential customers.
I think the trust company that, as we open new geographies, whole new verticals have opened up for me, and we didn't see that coming.
And that's it if anything.
A huge opportunity on the micro side, obviously, you guys will have a much better view on the macro front and we do what we understand from our own conversations on many of this is anecdotal is our customers understand that emerging markets are important they're finding a lot of their growth. So that's the <unk>.
They're not finding it in the US and in Europe. They are finding it in emerging markets. There is obviously an environment where some of them have fewer resources to invest in this and therefore need to rely more on services like ours. We've seen payment stream.
Come in smaller.
Obviously, it can be a challenge, but most importantly, it's an opportunity we won merchants rely more and more on our infrastructure and we believe the emerging markets are here to stay and are here to stay and are going to be the driver of growth for many of our merchants on where index.
Great, and best of luck in the new year.
Thank you very much. Thank you one moment for our next question.
Our next question comes from Kyle <unk> with UBS. Your line is open.
Yeah.
Okay.
Hey, everyone. Good morning.
You said about for opportunity to ask questions and all the team.
On our side here, I have a question related to the guidance for 2023.
We examine your guidance for adjusted EBITDA and revenues; would you see that?
Not off the guidance of EBITDA.
Imply an EBITDA margin of 31% for 2023.
<unk> bought off the guidance, which would be way below the adjusted EBITDA that you reported for 2022, around six percentage points below.
I wonder if you could please share with us the dynamics.
Behind that, what should be the drivers for that? Just trying to understand if this could be much more related to cost and gross profit margin contraction, and I think you already mentioned in this call, or is this much more related to a potential increase in expenses? And what should be the drivers for that, thank you.
<unk> for your question, Maria. You feel free to contain it.
I don't want to sound like a broken record, but we are not optimizing for the margin for the percentage margin. We are guiding to us in the lower range of the of the of the guidance at least $70 million of adjusted EBITDA. We believe that numbers will be very healthy and I'm very positive.
We also don't believe this time for us to overlook in mice on EBITDA margin. We believe if we do that we would be hurting our business. This is a time for us to differentiate there are not many brokerage our companies out there we have seen many of our competitors retrenching and focusing on less on emerging markets. We went into the exact opposite so this is a time for us to invest.
Gross profit dollars are going to be there, but we want to continue to have the ability to invest. It will be relatively easy for us to bring our EBITDA margins up just with respect to reducing the distribution of the investment, but we don't believe that's the right thing to do in a situation where we are. We want to continue to be profitable.
We believe we are a very profitable company.
One that has shown to be able to drive profit.
<unk> customers at the same time, we went out.
We intend to continue to stay focused on <unk>.
To complement.
Got you. Thank you for your question I would also point out that we believe we have very healthy margins I know you appointed as for margin. We have very healthy margins and then on the EBITDA level is also good to look at.
<unk> overall gross profit, and then do you see that over time, and like, we have increasing these. We were at 56% in 2019. Are afraid if anything, two year, we had 77%. So we believe this is extremely healthy and why we are used to investing on the Gulf operating tomorrow.
Okay. Thank you very much. Just a quick follow-up here in terms of expenses.
If you take a look at your DNA expenses, even excluding the one-off related to the internal review.
We saw a huge increase on a quarter-over-quarter basis. So.
Just would like to understand what happened here this quarter, and also, if this should be the same level that we could expect, specifically on the DNA for the following quarters.
I'll take it.
At this time, I would like to hand the conference back over to Mr. Kennedy for closing remarks.
Sorry, you were speaking. Can I answer that question?
Yeah.
Yes. Thank you.
Yes, sorry, I was saying that you typically see longer periods, but just one quarter. This quarter was very particular and demos of expenses keep in mind that we have a one off or <unk>, we have $2 million.
Mated to assure salary expenses in terms of <unk> on accounting and legal work, and we also increase our investment in people. You will see that we have.
$2 million or higher, and I would actually stock-based compensation expense you should expect that going forward.
And finally in Q4 is strong in some seasonal events. We have two main commercial events, one east and deliberate connected the big event, we might monetize important dialogue.
Also, we have another strong event.
Yes.
Monitoring 'twenty, so those typically happen in Q4 or not.
Current during the whole year.
Thank you.
Now, I'd like to hand the conference back over to Mr. Kennedy for closing remarks.
Thank you, everyone, and thanks for the goals. Again, I want to thank our customers, our team, and our investors for their continued support. Q4 has been a stressful time for the company, and I couldn't be prouder.
How we weather the storm, we continue to be extremely bullish on our perspectives on the business.
We are thankful to all of those have been very supportive of Haas and thanks, everyone for the questions.
This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.
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