Q3 2023 DLocal Ltd Earnings Call

November 22, 2023

Good morning, everyone and thank you for joining the third quarter 2023 earnings call today.

If you have not seen the earnings release, a copy is posted in the financial section of the Investor Relations website.

On the call today, you have favorable items co Chief Executive Officer.

So bastian <unk> co Chief Executive Officer.

<unk> co president and Chief strategy Officer.

Diego Comdata <unk> Chief financial.

Natural officer.

<unk> old him SVP of corporate development, Investor Relations and strategic finance and solid as nugget head of Investor Relations.

A slide presentation has been provided to accompany the prepared remarks.

This event is being broadcast live via webcast and both the webcast and presentation may be accessed through <unk> website at investor Dot the local dot com.

The recording will be made available shortly after the event is concluded.

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 locals current assumptions expectations and projections about future events.

While the company believes that our assumptions expectations and projections are reasonable given 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 <unk> presentation or discussed in this conference call for a variety of reasons, including those described in the forward looking statements and risk factors sections of the locals filings with the Securities and Exchange Commission, which are available on D locals Investor Relations.

Right.

Now I will turn the conference over to Pedro Thank.

Thank you.

Thanks for joining us today, let me start by saying that after my initial quarter of de local.

<unk> about our future prospects and the promising opportunities that our business presents for us as we will cover briefly our current performance our future pipeline and market opportunity presents a unique opportunity for sustained growth over a multiyear period driven by the powerful secular trends.

Behind emerging market adoption of digital products and services, we need to remain focused on executing behind that opportunity while constructing the foundational blocks are as a company to ensure we can scale at a pace, our merchants and our markets will demand.

Let me walk us through some of the highlights of our Q3 23 results that are a testament to these statements.

We delivered another quarter of solid performance.

PPV grew 69% year on year, reaching $4 6 billion supported by our well diversified merchant and geographic base.

Revenue grew 47% year on year, despite a strong devaluation of the Nigerian naira in the quarter. If we exclude Nigerian revenue growth came in at 58% year on year.

We remain focused on achieving gross profit growth as our key metric and in <unk> 'twenty, three we attained $75 million of GP, increasing by 38% year on year and 5% sequentially.

We're still delivering best in class profitability, our ratio of adjusted EBITDA to gross profit came in at 75% for the quarter and our rule of 40 framework, which adds or gross profit growth in our adjusted EBITDA over gross profit margin continues to exceed 100%.

Coming in at 113% during the quarter free cash flow, which you can reconcile in the accompanying presentation was $45 million.

With a cash conversion ratio that still remains above 100% our investments remains thoughtfully focused on expanding our global team and building the appropriate processes tools and governance mechanisms to ensure our business grows efficiently and scales the right way during Q3 our.

Team grew by 155, ftes compared to the third quarter of 2022 or by 22% year over year to 867 employees.

Hirings, we're evenly allocated across the company as we have a tenths defied ongoing effort to strengthen support areas and further upgrade internal processes and tools, while maintaining our prior commitment to growing our engineering and sales teams, we continue to expand relationships with trusted fine.

National partners, adding more globally systemically important banks pan regional and national market, leading banks for our processing FX and hedging activities.

To place some data points behind this and as is included in our quarterly presentation, 84% of all our foreign exchange transactions. During the quarter were carried out via <unk> and Pan regional or national banks, 7% via authorized broker dealers, 6% via our payment processing.

Partners, 3% via authorized net settlement fund flows and 0.3% through alternative assets.

Sure I turn things back over to Maria I would like to share. Some additional news regarding key leadership changes within the company.

Firstly, our Chief Financial Officer Diego cover data can I has decided to step down from his position to pursue new opportunities.

Diego played a significant role in our financial success during his period at day local.

He has agreed to stay on through Q1 of next year to help us ensure a smooth transition.

As one exact leaves we're also strengthening our team Diane.

Diana Beitler will be joining us as senior Vice president of strategic partnerships and government relations Diane It comes to US after eight years at Microsoft and the Bill and Melinda Gates Foundation.

We've also appointed Ricardo break well as our Chief Accounting Officer.

Ricardo joined the team after 12 years at Cielo, Brazil's largest publicly listed merchant acquirer, leading their accounting treasury and control operations.

I want to welcome both Diana and Ricardo and wish Diego the best in his future endeavors.

Let me now turn the call over to Maria to dive deeper into our business performance during the past quarter.

Thank you Pedro Hi, everyone. During Q3, we continued to see strong growth across all verticals.

We highlight triple digit growth year on year, and our commerce platform.

Becoming our largest vertical since last quarter.

As we continue to see strong traction to our Fox from solution for our marketplaces, particularly in Brazil and Mexico.

This growth was followed by ride hailing up by 81%.

Dreaming up by 69% and saw up by 54% year on year. This quarter, we observed a lora growth in financial services vertical increasing 22% year on year, driven by customer churn and to offer our financial services margin.

In Q4, we anticipate sustained growth in the commerce vertical driven by the <unk> season.

In terms of product during Q3, 2023 veins increased by 68% year on year compared to Q2 2023, most of the growth came through pain, which increased 8% cartoon partner.

Our payout volume remained stable quarter on quarter as we saw lower growth from our financial services vertical.

Year on year growth was a very solid 72% in terms of service mix, our cross border and local to local volumes showed strong growth year on year with still lots of it doubling year on year.

Sequentially, we continue to see higher growth for our local to local volume increasing by 10% quarter on quarter, while cross border volume increased 2% as a consequence this shelf local to local increase reaching 51% in Q3 2023.

In terms of geography in Latin America, which is our largest region. We continue to experience sustained strong revenue momentum in Brazil, and Mexico as we continue to grow if our existing customers and gain share of wallet.

Growth in both countries has been driven mostly by Martin from Commerce on demand delivery streaming and travel verticals.

We saw lower revenues in Chile, mainly driven by the slowdown in the financial services vertical as explained earlier.

In Argentina, we saw higher revenue driven by the widening spread between the official and the parallel exchange rate while gross profit remained fairly flat. Despite the devaluation in the court.

We continue to see strong growth in other countries in Latin America, including Dominican Republic, Colombia and Guatemala.

Our business in Africa, and Asia continues to perform very well.

In Q3 revenues in Africa, and Asia increased 14% year on year, despite being negatively affected by the devaluation of the in Ireland.

Excluding Nigeria. This region grew 79% year on year, mainly driven by Egypt, Kenya, Vietnam, South Africa, Philippines, and Saudi Arabia.

Q3, 2023, Nigeria revenues decreased by 39% year on year, and 59% Parkman part continued strong growth of our diverse Martin's base across multiple end margin markets translates into solid NR, which was 141% in Q3 2020.

Three.

We have built a strong march and relationships and we have a tremendous opportunity to continue capturing more volume as our wallet share with our largest margins is still low double digits.

Dave will now review the financial highlights. Thank you Maria Hello, everyone.

As Pedro mentioned I have decided to step down as chief financial officer of relocating to pursue new challenges. This is a personal decision that I had been discussing with the board and I believe now is the right Tyler.

This has been an honor to serve as the company's CFO for the past three years working with such talented individuals and I'm very thankful for the trust and support of the board and the senior management of the local during the forthcoming four months I will remain fully engaged and committed to facilitating a smooth handover process I am confident in the companys prospects.

We believe <unk> got underway continued guidance of newborn viewership may look I will persist in a process of growth and success with that let's get into the quarterly results revenues reached a record high of $164 million in Q3, 2000, frenectomy growing 47% a year, while quarterly growth remain positive.

Our second quarter over quarter, even after a particularly strong Q2.

We remain focused on growing absolute gross profit dollars or gross profit reached $75 million in <unk> up 38% year over year, and 5% quarter over quarter gross profit margin increased from 44% in Q2 to 45% Antiphony positively impacted by a higher share from Africa and Asia driven by.

This was higher than average gross margin and lower exploration costs in Nigeria.

<unk> remained stable at one 6% showing our pricing power continues to hold steady despite continuing CTV growth compared to Q2, we saw a positive contribution from the higher share of gains from certain countries in Africa, and Asia with higher and I would ask net take rate.

This was offset by the higher share of local to local volume.

Growth remains a top priority.

During the quarter, we were able to grow our adjusted EBITDA to $56 million up 34% year over year, and 7% quarter over quarter adjusted.

Adjusted EBITDA margin increased by two percentage points quarter on quarter until 34% in Q3.

Our adjusted EBITDA, our gross profit increased to 75% quite a bit of our water.

Net income totaled $40 million during the quarter growing by 25% year over year sequentially and decreased by 10% quarter over quarter.

Neither in the accompanying presentation quarterly net income was negatively affected by the impact of Argentine devaluation on intercompany loans denominated in U S dollars and.

The inflation adjustment underwrite if RFS on stock based compensation.

This was partially offset by gains from hedge bonds acquired to protect from that devaluation.

We also observe an increase in our effective income tax rate from 16% in Q2 to 18% in Q3 as a result of the country mix with higher local to local share of pretax income and the non deductibility of <unk> inflation adjustment moving to cash flow during the quarter, our real strong cash flow generation of our own funds.

Mainly driven by our net income and also by the recovery of $20 million of the restricted cash we feel is warranted for standby letters of credits decreasing the amount of our assets to $28 million in Q3.

We use part of our own funds to acquire an additional $50 million in Argentine golar in treasury bonds as the final part of our investment plan for Argentina.

Martin funds decreased quarter over quarter, mainly driven by a decrease in net trade payables, but I think largely due to a reduction in the settlement videos to startup in Martin's as Pedro mentioned earlier, our net income to free cash flow conversion continued to be above 100% with $45 million of free cash flow generated during the quarter we will.

We've got a strong cash position remains a competitive advantage as it allow us to continue investing in the business Federal philosophy ours. Thanks Diego everyone here at the local is proud of the strong set of results we have delivered year to date.

We are reaffirming our outlook for fiscal year 2023, and expect to end the year in the upper range of the revenue guidance between $6 20, and $640 million and in the mid range of the adjusted EBITDA guidance of $200 million to $220 million, we continue to be incredibly constructive about the growth.

Potential that the company has theres plenty of more growth to come and opportunities to unlock across emerging markets. We have a massive long term opportunity ahead of us and we will continue to execute on it let me remind everyone. The local is only getting started one last thought I want to send.

A big Thank you to our entire global team for the work done to our customers and our investors for their continued support and trust in us and with that let me hand things back over to the operator to open up for your Q&A, which sabre and Sergio will also be joining us to take thank you.

Thank you.

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 standby, while we compile the Q&A roster one moment for your first question.

And our first question comes from the line of Jorge Kuri with Morgan Stanley. Your line is open.

Hi, everyone. Good morning.

Russell on the number.

Best of luck.

No.

I wanted to ask about the devaluation of the currency.

Currency.

Robert.

I just want to make sure.

How.

Same park.

I wasn't real this time.

Goodbye.

Your cross border.

Charging Commission.

Our broker.

Buck.

Your merge out of home.

Okay.

They completed recharging cordless market.

Yes.

It was about the ratio.

Okay.

No it would be exposed to it right.

With me on the call.

I believe.

Portrayed it.

Especially when people.

And then in the local to local portion.

They're struggling.

Just to make sure that your revenue.

And so I wanted to understand.

Yeah.

Why.

60%.

And I guess, it's a reportable question would also be cool.

We're probably a few days, maybe a week, we're getting a bit.

No I agree with the change.

Change in government and also.

Also wanted to get your view on how.

And what the potential impact for you.

Thanks.

Yes.

Hi, Jorge how are Ya zero, so on Nigeria overall, the impact of the conversion of fixed rates as you remember.

I think it was.

Basically the Paralympics right on the extra Ginger Nigeria compares.

That was substantially neutral on our gross profit dollars in Nigeria. The only impact is on our gross revenues as the difference between the gross revenue says we have lower operational costs or taking those dollars out of Nigeria.

And companies and therefore, which are slower revenue to our merchants, but our gross profit level that tends to reduce them just to give an idea of the impact on gross revenues of approximately.

Compared to Q2 is $10 million more of revenues if the FX difference in Nigeria, we have been the thing that I think you do it but again this is in gross revenues on a gross profit level issues.

And local to local business in Nigeria is very small and that we have any any meaningful impact.

Argentina has a quite different economy, we have as you know everything hitch in Argentina.

And.

We don't have these levels of.

Most of our business.

It would be an unofficial rate.

So we don't have these levels of defense within the future.

Dale if I may complement our high volume show up here. Thanks for your question.

Our business in Nigeria today, it's better than last quarter.

The gross profit level, the first being neutral.

Will do you see a smaller amount of revenue that we are booking there also a smaller amount of costs that we're working on other gross profit level, which is what they're keeping track of this.

Why do we keep track of gross profit because that's the metric that indicates how much profit, we're making from a merchant transaction.

The other stuff, we don't control we are fully hedged so the declining revenues not a part of us taking a loss by no mean.

What's happened is the gap between the market rates on the additional rigs shrunk there.

The revenues are smaller.

So the costs, we books are smaller and a gross profit level. This is neutral to positive. The reason why I say, we have a better business in Nigeria today than we did before because these market conditions are healthier on ECR for our merchants to navigate well.

Or we are a better business on various micro certainty.

We believe that the steps on the NGL hub data are positive when we have merchant discussions they welcome more cassava and.

Easier to understand how the marketplace by the way the same applies for Argentina. We are very optimistic of what's to come in Argentina is not a political statement by no mean.

But this is a beautiful AR market is having a clear set of rules should allow our merchants to invest more and if you look at our business. We continue to be indexed to the growth of our global merchant. So whenever there is more clarity our merchants our software business.

Yes.

Thank you for that.

I'm really just got a quick follow up could you remind those oh.

Financial services vertical.

What are the main components of your cat that Youre operating in core.

Sure Jorge.

The ones that we are able to mention are typically a public company.

In the U S component.

Wallpaper lightwater.

We're essentially utilize our last mile to finalize plans our goals in the emerging markets, where they operate these are typically customers that give us distribution to merchant segments that we won't be going after otherwise.

While you're on mortgage universe.

And hospitals.

The type of merchants, we typically go after and that's why we like those.

All of this is conscious of how we'd be sorry.

Which essentially solves to a global banks, we've made long long ago, we made.

Customer, we want to pursue directly on that.

So we held those furniture simply.

Great. Thank you very much.

Thank you one moment for our next question. Please.

Our next question comes from the line of Teetotaler BARDA with Goldman Sachs. Your line is now open.

Hi, Good morning, Thank you for the call and taking my question a.

A couple of questions actually if I can I'm wondering if a little bit of a follow up to Jorge but more I guess on Argentina just.

I think helpful.

Go through the mechanics, a little bit with devaluation, Argentina, I mean revenues have actually come up this year a bit in Argentina, how should a devaluation impact revenues, specifically in Argentina, and I think there was also some impact related to inflation accounting out or should we take that into account.

Going forward and then my second question.

Pedro.

A few a few months ago. You mentioned you were kind of reviewing the business would see if there were any additional investments that are needed noticed you kept your mid term guidance unchanged. Although there were some management changes.

Diego stepping down and some other people that were hired.

Any update on sort of that review could there be future changes to the guidance do you think everything is in place that you need to continue to grow and scale the business from here. Thank you.

Sure. So let me start with Argentina, given that it's topical.

First of all as we stated throughout we've always taken a long term view on Argentina and this is a market that we've remained committed to throughout.

We actually think that the removable removal of uncertainty after the election.

And I think potential for a more stable economy bodes well for our merchants in Argentina going forward. If you look at some of the slowdown in the business. Although it has continued to grow through the tough macro and the devaluations.

Potentially gets reversed if we see that economy rebounding. So when we look mid term, we see more positives and negatives to emerge out of Argentina.

From a devaluation perspective.

Really the impact will depend on how fast our merchants re price. So you could see a growth in TPG to adjust to a new level of peso to dollar we remind you that most of our merchants our global merchants that have an underlying dollarized cost to what they offer in Argentina.

And equally important as Diego mentioned earlier from a financial perspective, our exposure to the Argentine peso is fully hedged.

So all in all when we look at Argentina going forward. Despite shorter term dislocations that might occur. If there is a strong devaluation. The more important trends are mid term, we think it bodes well for that market our merchants have the ability.

80 to reprice.

Overtime, and our Argentine peso exposure is almost entirely hedged.

On guidance and cost.

As mentioned in the prepared remarks, we continue to invest behind strengthening the foundational pieces of our business.

There's a lot of work that's going on now that was already going on and there is also additional work of scoping where else we can strengthen.

We mentioned our increased partnerships with globally.

Hmm.

Significant banks with national banks.

I think the more appropriate time to finally conclude on whether we need to change guidance or not is now not now for now we've reiterated our midterm guidance.

Our underlying belief is that with the incremental gross profit that can flow through the P&L from our continuous growth of the business and the way were seeing things trend towards the end of the year will suffice to reinvest back into the business where necessary.

But once we reiterate annual guidance for next year, we'll have even more detail on that front.

Okay. That's great. Thank you Pedro that's helpful color and maybe just one quick follow up on back on Argentina, just to understand the impact of the inflation accounting just to understand is that something is that related to the operations of the business or was that related more to the bond that you guys bought just how would that impact the results.

Going forward.

So heidi.

Inflation adjustment is required by a price or a hyperinflationary countries, which is the case of Argentina is a non cash adjustment. If you want basically you need to overstate our revenues caused on everything based on current prices and then.

B by them by the by the New exchange rates that appear from time to time. This particular quarter, we have as Youll, probably remember are the evaluation of the official exchange rate after the primary elections.

What the main driver of that loss that you've seen that in the P&L.

That will continue or not depending on how prices in Argentina devaluation Saqqara what is important to note that these are non cash.

Adjustments and picking up on that let me just complement more on the actual financial exposure and the instruments and you will see significant disclosure in the accompanying presentation.

What happened in the third quarter is the following.

U S dollars that we invested in Argentina generate an intercompany loan that sits on the Argentine balance sheet in U S dollars.

That actual position is fully hedged so at maturity there is a derivative instrument that entirely protects that investment in.

In the interim period before maturity the.

Bond, which has the derivative actually trades at mark to market.

And during the second quarter, there was some dislocation between the mark to market value of the bonds and the actual derivatives.

That is the loss that you will see and the gain that you will see disclosed in the package. So the U S. Dollar liability generates an exchange impact on the P&L and the value of the bond almost entirely offsets that loss, but it wasn't a perfect hedge from an <unk>.

Accounting perspective, because its mark to market.

What's really important to say is that at maturity. The bond is a perfect hedge to the investments made in Argentina, and the outcome of the election actually generates greater certainty that those hedges and those bonds will be honored.

Okay, great. Thanks, So Pedro and Diego and best of luck Diego on Europe.

In your future endeavors.

Thank you one moment for our next question. Please.

Okay.

Next question comes from the line of Jason Kupferberg with Bank of America. Your line is now open.

Jason Your line is now open.

Sorry about that.

Wanted to ask about Brazil triple digit growth there.

This quarter, it's really accelerated significantly over the past.

Couple of quarters. So wanted to see how you feel about the potential sustainability of these elevated growth rates I know you got the new payment license back in July.

It sounds like the platform business is doing well there, but just wanted to get a sense on your visibility of these are very strong trends in Brazil revenue growth, perhaps continuing here over the next two or three quarters.

Yes, so we see extremely strong performance in our two largest markets, Brazil, and Mexico, which is a great indication of the strength of our business.

And our merchant satisfaction with what we're offering.

We're seeing that strength as you can see in the vertical breakout across most verticals, but interestingly enough. It's most marked in our largest vertical which is commerce.

A significant portion of that growth as a consequence of our platform product that we launched last year and is really solving complex payments flows for very large global marketplaces across those markets and so everything seems to point to the direction of <unk>.

High levels of merchant satisfaction that we're solving complex problems for them across these markets and therefore, we are still positive about those markets. Despite the fact that they are our largest markets and are quite stable markets.

Right right Okay.

And then just just a two part question as a follow up the first part of it is just revenue from new merchants I think was down a bit quarter over quarter. So just curious how that came in versus your expectations.

And then Pedro if you could just comment a little bit more about I think you made some comments around hiring more for internal processes and I know, you're bringing on the new Chief accounting officer, what have you seen kind of in the in the back office operations of <unk>.

To the local the last few months.

Yeah.

Great. So I think if you look at concentration from larger merchants, which is a metric. We disclose you do see that growth was driven more in the past quarter by the expansion within merchants, we had previously landed.

Good.

That's just the way this quarter played out again, that's positive in that it shows that our ability to gain new merchants and then increase our share of wallet and grow their businesses is still very strong.

During the quarter, new merchants with somewhat less of a driver of growth, but still growing the pipeline looks very healthy when we look at more constant terms. So the more current period. So I wouldn't look too much into that for any negative signal.

Again, the pipeline remains very deep.

Yes, and if I may complement on that point on the pipeline on the new store. So there's a natural lag in terms of metrics. So one thing is what we want more of those customers.

Then there is a relative delay on how hospitals those customers ramp up particularly during this quarter, we on boarded the biggest company in the world.

We have yet to see those results.

So we are very optimistic about our ability to continue to land new customers.

<unk> within an unmet potential launches.

Hurricanes.

And then just on the back office Pedro just geared yep. Thanks.

Hum.

Again, I want to stress this and be very clear ordinary course of business. This is a company that's growing top line at nearly 70% across 40 emerging markets. It's expected that we have to continue to invest behind all of our back office operations to ensure that.

There are as robust as our merchants require remember that a big part of our value proposition is that we are dealing with a payments layer, but also a compliance and regulatory layer on behalf of our merchants and so that should always be an area of focus and investment for us, but just ordinary course of busy.

<unk>.

Also remind you that when you look at our value chain and hence the disclosures on who we operate with in terms of financial institutions, we move and money around primarily through global banks national and regional banks.

And that also generates.

I think a second layer of solidity to the operations that perhaps in the past we haven't been as clear about.

Thank you for the comments.

Thank you one moment for our next question. Please.

Our next question comes from the line of Jamie Friedman with Susquehanna International Group. Your line is now open.

Hi, Good morning, guys. Thanks for taking the questions.

So one for Ya Pedro and then one for you Sir.

Hmm.

Pedro in your prepared remarks, and even in your.

Prior answer you you were talking about the fabric of these global banks, that's a message that.

I was less familiar with coming from day local I'm wondering why youre prioritizing that and the message is just what I'm trying to understand why that's important that's the first one.

And then.

So, but I just have to ask I think you said in your answer to the previous one something about boarding the world's largest.

What was that in context of the.

Logos that you had referred to in the Q2 that you had won I realize you may not be able to say who that is but if you could at least say what I don't know vertical it might be or because I think you said that in the previous answer. Thank you both.

Jamie So thanks for the question on banks and I think Thats simply one of the feedback we got from investors is that perhaps we hadn't educated the street enough on how it is that we actually carryout repatriation of money and there was a perceived notion of potentially more use.

<unk> of alternative assets or smaller broker dealers and that's simply not the case.

The vast majority of our fund flows Forex derivatives are carried out either through globally sustainably.

Signet systemically important banks or national market, leading banks or regional market, leading banks and I think it's just a.

An idea to.

Give increased disclosure on not just what we do but how it is that we do it.

Okay.

Thank you Jamie on the question on the commercial front.

We cannot disclose the name, but we will more than.

A multi vertical and global either.

Which is one of the biggest companies in the world. When you look at our merchant base, we've been able to disclose some of those rollouts. We continue to work with others to be able to name them. During these calls but we've also been very open about the fact that we want to onboard the top 500 companies on the Internet and make sure that they are customers of ours.

In Investor discussions I've been very open up although there are some hospitals that were missing a renewable there where we wanted to make sure that they were our customers. So they were proud to say that one more lower cost become a customer shops.

Got it thank you both I'll jump back into queue.

Thank you.

We ask that you limit yourself to one question.

Until all have had a chance to ask your questions and after which we'll answer any additional questions as time permits. Please standby for our next question.

Our next question comes from the line of Neil.

<unk> with HSBC. Your line is now open.

Okay.

Hi, thank everyone and congrats Doug.

My question is more on the tax rate to be continue to see.

Increased quarter over quarter on the effective tax rate could you explain.

I saw that reasoning in the earnings release, but could you talk a bit more about why they think that that rate is going up and more importantly should we expect this trend to continue and is this embedded in the guidance that you have provided.

Got.

It's not on the bottom line, but.

We continue to expect it to go up in 2024 is that and what is a good rate to expect in the coming years.

Also the concentration in Europe.

Margins continue to increase which likely means a pressure on take rate. So is there a way that you can diversify a bit more is that a goal that youre looking at.

To reduce the concentration in ductile iron.

And margin.

You so much.

Hello, Luca on taxes.

The income tax rate that we have is the result of the country umbrella the mix that we have.

We don't sell for that.

Particularly we have seen in the past few quarter, a sequential increase in our local for local business and that is basically tax on local tax rates, which are higher than us. So that is the main driver to that also <unk> discussed before our observation that government law studies nondeductible for tax basis and that also affects the tax rate.

And we don't we don't guide to a particular tax rate again, we say that <unk> will continue the same language now.

It will continue to change the based on the on the different brands that we have in our country mix and product mix everything.

Hi, Nisha on concentration, we don't manage our business to that metric I think the increase in concentration you've seen is a testament to how much share of wallet. We've continued to gain from some of the largest global retailers and that's good news.

Having said that if we think over longer periods of time Sabre was mentioning we aspire to have the 500 largest companies digital companies in the world going through the platform and so the longer term tendency. Yes, we believe we will diversify add new logos and that over longer.

Periods of time, we should see.

Diminishing dependence on any one or 10 single merchants also remember that that top 10 is not always the same top 10 as you had in the prior quarter. This quarter three of those are actually new top 10. So there is increased diversification going.

On even when the concentration in the 10 in any given quarter might have gone up driven by the stellar performance in Mexico, and Brazil of our platforms product.

Thank you one moment for our next question. Please.

Yeah.

Our next question comes from the line of John Coffey with Barclays. Your line is now open.

Great. Thank you very much for taking my question I had just two short ones I saw.

The revenues in Chile, It looked like they went down about 9% and it seems like Chile had always been a fairly good grower I wasn't sure. If there's any one particular driver there. So just secure a little bit more about Chile and the second question is it looks like a sales and marketing those expenses stepped up in Q3, perhaps that ties to Peter's earlier comments that you're investing in your sales.

But how should we expect your I don't know Youre your thoughts about investing in the sales and marketing.

Going forward through the rest of this year and onward into next year.

Let me take Chile, Dale can take the expense question.

So Chile is driven by the financial services vertical.

Saba had explained previously that the financial services vertical in many instances.

Is us being used or is distribution for a certain segment of merchants that we don't or financial institutions that we don't access directly.

One of our financial services partners for Chile lost a client that explains that decline on.

On the flip side of that we have gained direct access to that client, we're still ramping up so potentially longer term that could be positive news short term. The Chile decline is driven by a client loss from one of our financial services partners.

Sorry on regarding the sales and marketing expenses compared to Q3, you will see an increase from three before on $4 million.

And I'll tell you that the number that I had was a little bit Africa into Q2, which was affected by a recovery of stock based compensation. If you look at the longer sequence like the previous quarters, you'll see for Q1 was $4 nine.

Q4 of last year was roughly $4 million. So the brand continues to be the same the outlier category in Q2 that had a recovery of basically a stock based compensation for futures.

Alright, thank you.

Thank you one moment for our next question. Please.

Our next question comes from the line of Matt Coad with Autonomous Research. Your line is now open.

Hey, guys. Good morning, Thanks for taking the question here just wanted to ask one more on Argentina.

And I know, it's kind of uncertain a little bit of a black box right now, but I wanted to ask about dollarization.

And the impact on your business.

If that ultimately occurs.

Hi.

I. Thank you for your question.

As you know.

Yes.

Great.

Alright.

It used to be a bit more remote.

So we can take some time.

In regard to come.

What we envision in general terms with me recently and more.

The reason we're honored.

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