Q4 2023 DLocal Ltd Earnings Call
Unknown Executive: Good day, and thank you for standing by. Welcome to the Dlocal fourth quarter 2023 results. At this time, all participants are in a listen only mode.
Okay.
Good day, and thank you for standing by walking through the day local fourth quarter 2023 results at this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session will need to press star one on your telephone.
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Unknown Executive: Please be advised that today's conference is being recorded. I would now like to hand the conference over to the company. Please go ahead.
I would now like to hand, the conference over to the company. Please go ahead.
Unknown Executive: Good morning everyone, and thank you for joining the fourth quarter 2023 earnings call. 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 Pedro Arnt, co-chief executive officer; Sebastian Kanovich, co-chief executive officer; Sergio Fogel, co-president and chief strategy officer; Diego Cabrera Canay, chief financial officer; Maria Oldham, SVP of Corporate Development, Investor Relations, and Strategic Finance; and Soledad Nager, Head of Investor Relations. A slide presentation has been provided to accompany the prepared remarks. This event has been broadcast for a live webcast, and both the webcast and presentation may be accessed through Dlocal's website at investor.dlocal.com. A recording of the event will be available shortly after it is concluded.
Good morning, everyone and thank you for joining the fourth quarter of 2023 earnings call. Today. If you have not seen the earnings release, a copy is posted in the financial section of the Investor Relations Web.
On the call today, you'd have Petro <unk> co Chief Executive Officer, Sebastien kind of Itch co Chief Executive Officer says you have political co president and Chief strategy Officer.
Jay you go camera can I, Chief Financial Officer, Maria older and SVP of corporate development, Investor Relations and strategic finance and soda maker head of investors relations.
Presentation has been provided to accompany the prepared remarks.
This event is being broadcast live webcast.
The webcast and presentation.
Maybe accessed through <unk> website at Investor adult.
The local adult calm the recording will be 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 D. Local.
Pedro Arnt: 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 Dlocal's 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 these forward-looking statements. Actual results may differ materially from those included in Dlocal's presentation or discussed in this conference call for a variety of reasons, including those described in the forward-looking statements and risk factors section and Dlocal's filings with the Securities and Exchange Commission, which are available on Dlocal's investor relations website. Now, I will turn the conference over to Dlocal. Thank you.
<unk> 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 these forward looking statements actual results.
<unk> 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 things like Kohl's.
Investor Relations website, now I will turn the conference over to <unk>. Thank.
Thank you.
Pedro Arnt: Looking back on 2023, Dlocal is celebrating remarkable achievements. Within a span of five years, our company experienced an extraordinary 14-fold expansion, achieving a record TPV of $18 billion, increasing by 67% year over year. This is a testament to the trust of our merchants, among the most demanding and sophisticated companies in the world, placed in our solution. Most of the growth has been fueled by our existing merchants as we continue to gain wallet share. The trust our merchants place in our solution is also evidenced in our stellar NRR of 150%. We are committed to unlocking the power of emerging markets. In 2023, we will enable 154 million people in emerging markets to access global products and services.
Looking back on 2023, he local celebrating remarkable achievement.
Within a span of five years, our company experienced an extraordinary 14 fold expansion achieving a record T. P D of $18 billion, increasing by 67% year over year.
This is a testament to the trust apart merchant among the most demanding and sophisticated companies in the world, placing our solution.
Most of the growth has been fueled by our existing merchants as we continued to gain wallet share.
Trust that makes this place in our solution is also evidenced in our stellar in are of 150%.
We are committed to unlocking the power of emerging markets.
In 2023, we enabled 154 million people in emerging markets to access global products and services.
Pedro Arnt: This is a 62% increase compared to 2022. In 2023, we proudly met the needs of over 600 merchants across 40 markets and consistently onboarded new merchants to our platform. Among the world's leading technology companies by market cap, we serve five out of the six major ones.
Is a 62% increase compared to 2022.
In 2023, we probably met the needs of over 600 merchants across 40 markets and consistently onboarding new merchants to our platform.
Among the world's leading technology companies by market cap, we serve five out of the six major ones.
Pedro Arnt: Revenue witnessed significant growth in Brazil, 89%, and Mexico, 72%. Our most mature and highly competitive market. Africa and Asia delivered an impressive 114% year-over-year increase.
Revenue witnessed significant growth in Brazil, 18, 9% and Mexico, 72%, our most mature in highly competitive markets Africa, and Asia delivered an impressive 114% year over year increase.
Pedro Arnt: We over-delivered on our revenue guidance, reaching $650 million, more than 55% year-over-year. We remain focused on achieving gross profit growth, our key metric. Gross profit grew 37% year-over-year to $277 million.
We over delivered on our revenue guidance, reaching $650 million over 55% year over year.
We remain focused on achieving gross profit growth a key metric.
Gross profit grew 37% year over year to $277 million.
Pedro Arnt: Our continued disciplined investment approach, coupled with a focus on sustainable growth, has delivered another outstanding year with a rule of 40 and an impressive 110%. Our adjusted EBITDA surpassed $200 million, in line with our guidance. Furthermore, we've maintained a best-in-class adjusted EBITDA over a gross profit margin of 73%, even amidst ongoing investments to support our long-term ambitions. How did we achieve these remarkable results?
Our continued disciplined investment approach coupled with a focus on sustainable growth.
Delivered another outstanding year with a rule of 40 and an impressive 110%.
Our adjusted EBITDA surpassed $200 million in line with our guidance.
Furthermore, we've maintained our best in class adjusted EBITDA or gross profit margin of 73%, even amidst ongoing investments to support our long term ambitions.
We achieved these remarkable results.
Pedro Arnt: Of course, to our people and culture. We efficiently grew our global team from 726 to 901 people located across 49 countries. Very importantly, by continuing to be obsessed about our merchants and having them at the center of everything we do, we deliver innovative solutions and products against highly demanding merchant needs. In 2023, our platform solution gained traction, especially in marketplaces, expanding into five key markets in just one year. We have onboarded more than 230,000 sellers on behalf of our merchants in our marketplaces with automated KYC capabilities and flexible settlements for complex platform configuration.
Of course to our people and culture. We officially grew our global team from 726, two 901 people located across 49 countries very importantly by continuing to be obsessed about our merchants and having them in the center of everything we do.
We delivered innovative solutions and products against highly demanding merchant needs.
In 2023, our platform solutions gain traction, especially in marketplaces expanding into five key markets in just one year.
We have on boarded more than 230000 sellers on behalf of our merchants in our marketplaces with automated ky's, he capabilities and flexible settlements, but complex platform configurations.
Pedro Arnt: Last but not least, we are building upon our existing strengths by making investments in key capabilities, including growing our licensed portfolio, deepening our relationships with global banking partners, and ramping up our operations and back-office effectiveness. In 2023 alone, we were granted licenses in strategic markets such as Brazil, Nigeria, Kenya, and Rwanda and registries in South Africa, the Philippines, Chile, Costa Rica, Panama, and Peru. And we are carrying this momentum forward. In 2024, we are relentlessly focusing on serving our customers and solidifying our position as a preferred infrastructure solution for global merchants across emerging markets. We are committed to making 2024 our most remarkable chapter yet. Built for Success in Emerging Markets Hi everyone.
Last and certainly not least we are building upon our existing strengths by making investments in key capabilities.
<unk> growing our licensed portfolio deepening our relationships with global banking partners and ramping up our operations and back office effectiveness.
In 2023 alone we were granted licenses and strategic markets, such as Brazil, Nigeria, Kenya, Andrew Wanda and registries in South Africa, Philippines, Chile, Costa Rica, Panama and Peru.
And we are carrying this momentum forward in 2024, we are relentlessly focusing on serving our customers and solidifying our position as a preferred infrastructure solution for global merchants across emerging markets.
We are committed to making 2024 I'm most remarkable chapter yet.
The local sales force success in emerging markets.
Hi, everyone.
Pedro Arnt: As the video illustrates, we've just delivered an incredibly strong year that ended on a high note with regard to increases in both TPV and revenue. As a growth company, these two metrics are really important to us, since they reflect our merchants' choices. Remember, our TPV is their revenue, and is the best indicator of our ability to capture and retain share of wallet. We think in terms of decades, not quarters.
As the video illustrates we've just delivered an incredibly strong year that is finished on a high note with regards to increases in both T. P V in revenue.
As a growth company. These two metrics are really important to us since they reflect our merchants choices remember our T. V is there revenue and is the best indicator of our ability to capture and retain share of wallet.
We think in terms of decades not quarters.
Pedro Arnt: And over the long run, which, as I've just said, is what we're focused on, consistent growth in these two metrics drives operational leverage, which in turn drives increased profitability and cash flow, which is ultimately what generates shareholder value creation. Now, let me walk you through a more short-term view, reviewing our fourth quarter 2023 results. We delivered what we consider stellar TPV growth of 55% year over year and 11% quarter on quarter growth, surpassing $5 billion to $5.1 billion.
And over the long run, which as I've. Just said is what we're focused on consistent growth in these two metrics drive operational leverage which in turn drives increased profitability and cash flow, which is ultimately what generates shareholder value creation now let me walk you through a more short term view.
Reviewing our fourth quarter of 2023 results.
We delivered what we consider stellar T. P V growth of 55% year over year, and then 11% quarter on quarter growth, surpassing $5 billion to $5 $1 billion. This is another quarterly record proving our solutions strong competitive position.
Pedro Arnt: This is another quarterly record proving our solution's strong competitive position. The strong TPV performance we deliver translated into revenue growth of 59% year-on-year and 15% quarter-over-quarter, reaching a record $188 million. Growth was driven by a very strong performance in our most competitive markets, Brazil, where revenues doubled year-over-year and grew 12% queue-on-queue, and Mexico, which was up 59% year-on-year and 18% quarter-on-quarter. Additionally, Nigerian revenues doubled year over year and increased 3x quarter-on-quarter, driven by a widening spread between the official and the market exchange rates, which, This strength in our biggest markets, combined with continued growth across other markets, was offset by a negative 26% year-on-year and negative 56% quarter-on-quarter contraction in Argentina. The weakness in Argentina was driven by two factors.
The strong PPV performance, we deliver translated into revenue growth of 59% year on year, and 15% quarter over quarter, reaching a record $188 million growth was driven by a very strong performance in our most competitive markets Brazil.
Were revenues doubled year over year and grew 12% Q on Q in Mexico, which was up 59% year on year and 18% quarter on quarter. Additionally.
Additionally, Nigerian revenue doubled year over year and increased three X quarter on quarter, driven by widening spread between the official in the market exchange rates, which Conversely also resulted in a significant increase in expatriation costs.
The strength in our biggest markets combined with continued growth across other markets was offset by a negative 26% year on year and negative 56% quarter on quarter contraction in Argentina.
The weakness in Argentina was driven by two factors first.
Pedro Arnt: First, a queue-on-queue decline in our higher-take-rate cross-border business as a consequence of tighter capital controls leading up to the year-end transition in government, which resulted in what we believe to be a temporary shift toward more local-to-local settlement by our merchants. Second, the country's currency devalued significantly towards the end of the quarter, further affecting our performance in dollars, not unlike the impact felt by most other companies with a relevant exposure to the Argentine market. I'd like to remind you that despite these short-term headwinds, we continue with a long-term view that Argentina is a relevant market for us, and, more importantly, for our merchants. In complexity, we thrive, and we will continue to serve global merchants and consumers in that market. This impact that I've just narrated carried over to our gross profit line, resulting in a quarterly decrease in total gross profit to $70 million. That's down 6% queue on queue.
Our Q on Q decline in our higher take rate cross border business as a consequence of tighter capital controls leading up to the year end transition in government, which resulted in what we believe to be a temporary shift towards more local to local settlement by our merchants.
The country's currency devalued significantly towards the end of the quarter further affecting our performance in dollars not unlike the impact felt by most other companies with a relevant exposure to the Argentine market.
I'd like to remind you that despite these short term headwinds we continue with a long term view that Argentina is a relevant market for us and more importantly for our merchants.
In complexity, we thrive and we will continue to serve global merchants and consumers in that market.
This impact that I've, just narrated carried over to our gross profit line, resulting in a quarterly decrease in total gross profit to $70 million, that's down 6% Q on Q.
Pedro Arnt: However, if we exclude the Argentine segment, gross profit grew by 7% Q1Q. When we go to a year-on-year basis, gross profit grew by a still sound 27% year-on-year or a very strong 48% when we exclude Argentina. Our net take rate decreased during the quarter by 20.5 basis points Q on Q to 1.4%.
However, if we exclude the Argentine segment gross profit grew by 7% Q on Q.
When we go to a year on year basis gross profit grew by a still sound, 27% year on year or a very strong 48% when we exclude Argentina.
Our net take rate decreased during the quarter by 25 basis points Q on Q to one 4%.
Pedro Arnt: This has been as a result of shifts in business mix, with a lower share of pay-ins and cross-border volume. We believe that these results indicate that although downward pressure on take rates continues, as we've repeatedly signaled, it is happening at a slow pace. And more importantly, driven primarily by mixed shifts, as we still continue to see limited pricing pressure that's derived from competitive dynamics. Now, let's move on to our OPEC structure for the corridor. During Q4, we continued to invest further in building out our team and establishing processes and systems to support our long-term growth ambitions. As a consequence of these investments, overall OPEX increased to $29 million in the quarter. The main areas of expense increases were, one, tech-related expenses, including engineers, software licenses, and other IT and security expenses.
This has been as a result of shifts in business mix with a lower share of pains and cross border volumes. We believe that these results indicate that although downward pressure on take rates continues as we've repeatedly signaled it is happening at a slow pace.
And more importantly, driven primarily by mix shift as we still continue to see limited pricing pressure that's derived from competitive dynamics.
Let's move on to our Opex structure for the quarter.
During Q4, we continued to invest further in building out our team and establishing processes and systems to support our long term growth ambitions.
As a consequence of these investments overall opex increased to $29 million in the quarter.
Main areas of expense increases were one tech related expenses, including engineers software licenses and other I T and security expenses.
Pedro Arnt: Second, non-IT salaries and wages as we continue to strengthen our team, including important leadership positions. And third, office expenses as we've grown our global footprint. Overall, OPEX represented 41% of gross profit compared to 31% the prior quarter.
Non a T salaries and wages as we continue to strengthen our team including important leadership positions.
And third office expenses as we've grown our global footprint.
Overall, opex represented 41% of gross profit compared to 31% the prior quarter.
Pedro Arnt: For a more detailed view, please refer to slide 18 from the accompanying earnings material. I'd like to stress that we are convinced that these investments in technology, product, and people are very relevant to continue building a sustainable, high-growth business. As we continue to gain scale, we expect to see operating leverage in the midterms. As I go down the P&L, all this resulted in an adjusted EBITDA of $49 million, up 22% year on year but down 11% Q on Q. Adjusted EBITDA margin contracted quarterly to 26%, primarily driven by the previously noted gross profit margin compression.
For a more detailed view please refer to slide 18 from the accompanying earnings material.
I'd like to stress that we are convinced that these investments in technology product and people are very relevant to continue building a sustainable high growth business.
As we continue to gain scale, we expect to see operating leverage in the mid term.
As I go down the P&L all of this resulted in adjusted EBITDA of $49 million up 22% year on year, but down 11% Q on Q.
Adjusted EBITDA margin contracted quarterly to 26% primarily driven by the previously noted gross profit margin compression.
Pedro Arnt: Despite the slowdown in adjusted EBITDA, we continue to deliver best-in-class profitability. Our ratio of adjusted EBITDA to gross profit came in at 71% for the quarter. Notwithstanding the investments undertaken, I've just walked you through, net income totaled $28 million during the quarter, growing by 47% year on year. sequentially, that was a decrease of 29%. As we detail in the accompanying presentation, the quarterly evolution of net income was negatively affected by lower EBITDA, inflation adjustments under IFRS, which are accounting impacts, and increased stock-based compensation. Consequently, we've also observed an increase in our effective income tax rate from 18% the prior quarter to 21% in Q4, and that's a result of a higher local-to-local share of pre-tax income and the fact that the IFRS inflation adjustments are non-deductible. Moving on to cash flow. During the quarter, we generated $36 million of free cash flow.
Despite the slowdown in adjusted EBITDA, we continue to deliver best in class profitability, our ratio of adjusted EBITDA gross profit came in at 71% for the quarter notwithstanding the investments undertaken I've just walked you through.
Net income totaled $28 million during the quarter growing by 47% year on year.
Sequentially that was a decrease of 29%.
As we detailed in the accompanying presentation. The quarterly evolution of net income was negatively affected by lower EBITDAR inflation adjustment under Ifr S, which are accounting impact.
And increased stock based compensation.
Consequently, we've also observed an increase in our effective income tax rate from 18% the prior quarter to 21% in Q4, and that's a result of higher local to local share of pretax income and the fact that the ifr S inflation adjustments are non deductible.
Moving on to cash flow during the quarter, we generated $36 million of free cash flow, that's our own funds generation and $166 million during the year.
Pedro Arnt: That's our own fund generation and $166 million during the year. Our net income to free cash flow conversion continued to be above 100%. Strong owned funds cash flow generation was mainly driven by the net income profile of our financial model and also by the recovery of $13 million of restricted cash that we had held as guarantees for standby letters of credit. During Q4, we also used part of our own funds to acquire an additional $16 million in Argentine dollar-linked treasury bonds in order to successfully hedge against FX exposure in that market. Consequently, we ended the year with a robust liquidity position of $326 million, including $223 million of available cash for general corporate purposes and $103 million of short-term investments.
Our net income to free cash flow conversion continued to be above 100%.
Strong own funds cash flow generation was mainly driven by the net income profile of our financial model and also by the recovery of $13 million of restricted cash that we had held as guarantees for standby letters of credit.
During Q4, we also used part of our own funds to acquire an additional $16 million in Argentine dollar linked to treasury bonds in order to successfully hedge against FX exposure in that market.
Consequently, we ended the year with a robust liquidity position of $326 million, including $223 million of available cash for general corporate purposes, and $103 million of short term investments.
Pedro Arnt: We remain committed to evaluating opportunities to take advantage of our differentiated financial profile that combines profitable growth with very strong cash generation, which allows us to explore inorganic growth, possible buyback, and instituting a Dividend Policy. Overall, we're very proud of what we achieved in 2023, and we're also excited about our outlook for 2024 and even beyond. As I said before, I came to Dlocal with the strong belief that this is an outstanding business with significant opportunities ahead. That conviction has done nothing but increase in my time here.
We remain committed to evaluating opportunities to take advantage of our differentiated financial profile that combines profitable growth with very strong cash generation, which allows us to explore inorganic growth possible buybacks and instituting a dividend policy.
Overall, we're very proud of what we achieved in 2023 and we're also excited about our outlook for 2024 and even beyond.
As I said before I came to the local with a strong belief. This is an outstanding business with significant opportunities ahead that conviction has done nothing but increase in my time here.
Pedro Arnt: As a team, we remain focused on capturing the huge market opportunity ahead of us by continuing to execute our land and expand strategy with our merchants, maximizing opportunities, and gaining share of wallet from them. We will also continue investing in and tightening the foundations for future growth because we trust there will be a lot of future growth. First of all, we will further strengthen the Dlocal team, investing in human capital with a particular emphasis on the engineering pool.
As a team we remain focused on capturing the huge market opportunity ahead of us by continuing to execute our land and expand strategy with our merchant maximizing opportunities and gaining share of wallet from them.
We will also continue investing behind and tightening the foundations for future growth because we trust there will be a lot of future growth.
First of all we will further strengthen the local team investing in human capital with a particular emphasis on the engineering pool.
Maria Santos Oldham: Second, we will further upgrade our back office capabilities, and third, we want to continue investing in our licensed portfolio throughout emerging markets, which we are convinced can become a unique asset in the coming years. On this last point, it's worth pointing out that we were granted incremental licenses and registries across 10 markets during 2023, as the intro video showed. These three factors will contribute to further widening our competitive position over the long run. I'd like to now hand it over to Maria, who will walk you through how everything I've just outlined for you translates in terms of our financial outlook for 2024. Thank you, Pedro. Good morning, everyone.
Second we will further upgrade our back office capabilities and third we want to continue investing behind our license portfolio throughout emerging markets, which we are convinced can become a unique asset in the coming years.
On this last point its worth pointing out that we were granted incremental licensees and registries across 10 markets. During 2023 as the intro video showed.
These three factors will contribute to further widening our competitive position over the long run I would like to now hand, it over to Maria who will walk you through how everything I've just outlined for you translate in terms of our financial outlook for 2024.
Thank you Pedro well good morning, everyone.
Like to share our expectations for the full year 2024.
We are adding to be the expectations. This year as we believe this is the most relevant operational metric for our company.
Maria Santos Oldham: I would like to share our expectations for the full year 2024. We are adding TPV expectations this year, as we believe this is the most relevant operational metric for our company because it is the cleanest indicator of market share.
It is the cleanest indicator of market share.
As I mentioned earlier, ultimately Martin choose us by routing more and more volumes through our system and then are there aren't they don't think they may have.
Maria Santos Oldham: As we mentioned earlier, ultimately, our merchants choose us by routing more and more volumes through our systems than other alternatives they may have. We are guiding for TPV growth of 40% to 50%, surpassing $26 billion in TPV at the midpoint. As we currently see things, incremental volume growth will be back-ended in the year, starting off at a similar level to how we exited 2023 and picking up pace as the year progresses, given our growth in the highly seasonal e-commerce vertical and how we currently see our late-stage pipeline panning out. This strong TPP growth will be driven mainly by increased share of wallets from existing merchants and continued scaling of Tier 0 markets. We continue to benefit from structured tailwinds associated with the digital economy and the growth of the middle class in emerging markets. Africa and Asia are expected to grow at a faster pace, signaling the long-term potential for global growth.
We our guidance for capacity growth of 40% to 50%, surpassing $26 billion of TPB and then meet fine as it currently see things incremental volume growth will be back ended in the year starting off at a similar level to how we exited the 'twenty to 'twenty three and picking up.
And they are progresses, given our growth in the highly seasonal e-commerce vertical and how we currently see our late stage pipeline spanning out.
The strong deposit growth will be driven mainly by increased share of wallet from existing merchants and continued scaling of tier zero margin.
We continue to benefit from sector to Halloween associated with digital economy, and the growth of the middle class in emerging markets.
Africa, and Asia, I expect it to grow at a faster pace.
And in the long term potential for global growth.
Verticals with most expected golf R e-commerce advertising and ride hailing as he.
It provides our main financial focus is on maximizing absolute dollar gross profit to grow that.
We decided to guide for gross profit instead of revenue as we believe this metric better reflects how we run our business.
Maria Santos Oldham: Verticals with the most expected growth are e-commerce, advertising, and ride-hailing. As we always emphasize, our main financial focus is on maximizing absolute dollar gross profit growth. Thus, we decided to guide for gross profit instead of revenue, as we believe this metric better reflects how we run our business.
We see gross profit for 'twenty, Danny for between 320 and $360 million.
Gross profit range assumes first.
Increased mix coming from tier zero margins as they continue to ramp up of those global relationships driving incremental TPG and the wallet share from there all the leading tech companies, but at lower take rates.
Maria Santos Oldham: We see gross profit for 2024 between $320 and $360 million. Our gross profit range assumes, first, an increased mix coming from tier 0 merchants as we continue to ramp up those global relationships, driving incremental TPV and wallet share from the world's leading tech companies, but at lower take rates.
Second sustained growth in our local to local business. We see this as a validation of our frustration approach to payments and prove that we are competitive burst of local acquired third.
Normalization are tightening up the FX spreads in certain door currency rates markets, such as Argentina, and Egypt that generated the windfall benefits in point of entry.
Maria Santos Oldham: Sustained growth in our local-to-local business. We see this as a validation of our orchestration approach to payment and prove that we are competitive versus local acquirers. Normalization or tightening of effect spreads in certain dual currency rate markets, such as Argentina and Egypt, that generated windfall benefits in 2023.
Despite the tightening of FX spreads being a headwind for our planning paint any far it also represents a more sustainable and lower gross profit profile.
And for <unk>.
It makes off growth shifting to less mature markets, where we haven't scaled yet.
Final guidance is on adjusted EBITDA.
We are committed to running a financial model that combines robust midterm gross profits grow with EBITDA margin that is among the best in our comp set.
Maria Santos Oldham: Despite the tightening of FX spreads being a headwind for our plan in 2024, it also represents a more sustainable and lower risk gross profit profile, and four. Mix of growth shifting to less mature markets where we haven't scaled yet. Final guidance is on adjusted EBITDA.
This is a model of highly profitable growth.
As such we are reaffirming our midterm guidance off 25% to 35% gross profit growth.
75%, our adjusted EBITDAX gross profit margin.
Trajectory towards that mid term guidance comes in for 2034 S around 70% adjusted EBITDA to gross profit.
Maria Santos Oldham: We are committed to running a financial model that combines robust mid-term gross profit growth with EBITDA margin that is among the best in our comp set. These are examples of highly profitable growth. As such, we are reaffirming our midterm guidance of 25% to 35% cross-profit growth and 75% Adjusted EBITDA to Gross Profit Margin. The trajectory towards that mid-term guidance comes in for 2024 at around 70% adjusted EBITDA to gross profit. This is an adjusted EBITDA of $220 to $260 million.
This is our adjusted EBITDA of $220 million to $216 million.
We foresee opex, increasing around 45% year on year.
When compared to Q4 run rate opex growth will be around 25%. Despite a two X growth rates expected frankly, TV in 20th any farm Gulf.
So far I mean, the operational leverage existing in our business model and indicating that much of the incremental opex spend necessary for the long term growth has already been incurred during April 2023.
Maria Santos Oldham: We foresee OPEX increasing around 45% year-on-year. However, when compared to Q4 run rate, OPEX growth will be around 25%, despite a 2x growth rate expected for TPV in 2024, confirming the operational leverage existing in our business model and indicating that much of the incremental tax spend necessary for long-term growth has already been incurred during H2 2023. This growth in year-on-year OPEX will be driven primarily by tech investments, as we aim to grow our talent pool by around 50%. Other main areas of OPEC's growth will include sales and operations.
This growth in year on year, Opex will be driven primarily by stock investments as we aim to grow our talent pool by around 50%.
Their main areas of Opex growth will you include sales and operations.
As our short term guidance indicates we are investing with discipline, so as not to deviate significantly from our midterm margin guidance.
And by reiterating our midterm outlook as we look beyond 'twenty 'twenty four we are signaling that once it got called our short term investment cycle in tools processes and people to secure our ability to scale. The company for the long term growth. We believe we'll start to see the operational average in.
Her into our business model chicken, even more clearly.
You mentioned in the opening remarks that kind of scaling is watch at a rate the cash flow that drive shareholder value creation over time.
Maria Santos Oldham: As our short-term guidance indicates, we are investing with discipline so as not to deviate significantly from our mid-term margin guidance. And by reiterating our midterm outlook, as we look beyond 2024, we are signaling that once we conclude our short-term investment cycle in tools, processes, and people to secure our ability to scale the company for long-term growth, we believe we'll start to see the operational leverage inherent to our business model kick in even more clearly. As mentioned in the opening remarks, that kind of scaling is what generates the cash flows that drive shareholder value creation over time. The clear potential of Dlocal becomes obvious if one compounds our growth in landfarm return targets over a multi-year period. Let me now hand it over to Seba. In a carefully planned transition that has unfolded since August, Pedro is set to take on the role of Soledad Nager.
The clear potential of the local becomes August if one compounds or growth in line with our midterm targets over a multiyear period.
Let me now hand, it over to Sarah.
In a carefully planned transition that unfolded since August Pedro is set to take on the role of sole CEO.
My commitment to the local remains strong and I will actively lead the newly established commercial our name on a comedy as part of the company's board of directors.
Over the past few months Pedro and I have not only worked together, but learn from each other capitalizing on our complementary skills to enhance the company's performance specially in navigating integrate situations as we progressed through the next phase of our transition plan emphasizing efficiency in daily decision, making we are.
We're confident that bedrock is the ideal person to oversee the locals day to day operations. She has been instrumental role in scaling one of the most successful emerging market technology companies speaks volumes about his capabilities.
Sebastian Kanovich: My commitment to Dlocal remains strong, and I will actively lead the newly established Commercial and M&A Committee as part of the company's Board of Directors. Over the past few months, Pedro and I have not only worked together but learned from each other, capitalizing on our complementary skills to enhance the company's performance, especially in navigating intricate situations. As we progress to the next phase of our transition plan, emphasizing efficiency in daily decision-making, we are confident that Pedro is the ideal person to oversee Dlocal's day-to-day operations. His instrumental role in scaling one of the most successful emerging market technology companies speaks volumes about his capabilities. Pedro's focus will be on the ongoing mission of company building, while my attention tends towards identifying pivotal growth opportunities for Dlocal in the future. Now, I'll hand it back to Sergio to unveil further details about the upcoming management. Hi everyone.
<unk> focus will be on the ongoing mission of company building, while my attention towards identifying people that are growth opportunities for the local in the future.
Now I'll hand, it back to Sergio who I'm Bill further details about upcoming management changes.
Hi, everyone.
Thank you say about her charter you can these new rebel on behalf of Delek US board of directors and the shareholders I want to express our deep gratitude for their significant contributions to our company since inception, working with you has been and will continue to be an absolute pleasure.
Witnessing your journey steering below cause from a humble beginnings.
<unk> started up in Latin America, and now to a global powerhouse fills me with pride.
As we move forward, we anticipate a shift in the leadership style neither grade the company according to their various stages in its evolution.
The challenges of Pennington three prompted a defensive approach leading to operational consolidation.
With these changes now in truck we are transitioning to an offensive strategy. Our focus is on accelerating our long term growth prospects through a combination of innovation with new product launches expanded coverage and high potential verticals on growing our commercial team to ensure it is fit for purpose and.
Sergio Fogel: Thank you SEBA for sharing this news with us. On behalf of Dlocal's Board of Directors and the shareholders, I want to express our deep gratitude for your significant contributions to our company since inception. Working with you has been and will continue to be an absolute pleasure. Witnessing your journey steering Dlocal from its humble beginnings to a thriving startup in Latin America and now to a global powerhouse fills me with pride. As we move forward, we anticipate a shift in the leadership style needed by the company according to the various stages in its evolution. The challenges of 2023 prompted a defensive approach leading to operational consolidation.
When the right opportunities arise inorganic growth through M&A.
The box down people thought of ROI and leaving the newly constituted commercial business development and M&A Committee will be instrumental in executing the smartest that'd be strategy geared towards long term value creation for our shareholders.
You make a paucity of founder principal shareholder I'm active manager, it's immensely gratifying to observe pay their I'll say about and their board collaborating to navigate this transition seamlessly.
Our unwavering objective remains to preserve the core values and the capabilities that fueled our growth while embracing new opportunities as we scale into a much larger organization that can best serve our merchants throughout the emerging market. We firmly believe in this strategy as proof of this you ring fence it can be three.
Sergio Fogel: With these changes now on track, we are transitioning to an offensive strategy. Our focus is on re-accelerating our long-term growth prospects through a combination of innovation with new product launches, expanded coverage in high-potential verticals, and growing our commercial team to ensure it is fit for purpose, and when the right opportunities arise for organic growth through M&A. Sebastian's pivotal role in leading the newly constituted commercial business development and M&A committee will be instrumental in executing this more assertive strategy geared towards long-term value creation for our shareholders. In my capacity as founder, principal shareholder, and active manager, it's immensely gratifying to observe Pedro, SEBA, and the board collaborating to navigate this transition seamlessly. Our unwavering objective remains to preserve the core values and the capabilities that fuel our growth while embracing new opportunities as we scale into a much larger organization that can best serve our merchants throughout emerging markets.
The main shareholders of the company, we have bought back $160 million worth of needle Coke shares showing our confidence in the long term success of their business.
In many ways I see myself I think we saw the end of our company's legacy and culture steering the cars to maintain continuity. While also bridging the path towards essential changes that when you think your our future success.
With this let me hand, it over back to bear there.
Thanks Hugh.
As we reconfigure these leadership structures I'm also very pleased to announce the newest addition to the team.
Mark Ortiz will be joining the company as Chief Financial Officer, starting his role in April.
As we continue our upward trajectory, we saw a robust financial leader capable of guiding us through the next phase of our growth Mark brings a wealth of experience in that sense boasting over 30 years of senior financial leadership, primarily at GE capital, where he held roles as global F. PNR.
Sergio Fogel: We firmly believe in this strategy. As proof of this, during 2023, as the main shareholders of the company, we bought back $160 million worth of Dlocal shares, showing our confidence in the long-term success of the business. In many ways, I see myself as the custodian of our company's legacy and culture. We are clearing the course to maintain continuity while also bridging the path toward essential changes that will secure our future success. With this, let me hand it over to Pedro.
A leader and global controller across multiple departments.
Mark has extensive background includes not only key financial expertise that's fit to our current requirements, but also working assignments across over 20 markets, making him well suited for the global complexity that our company presents I Trust Mark is the optimal CFO choice to propel.
Pedro Arnt: Thanks, Sergio. As we reconfigure these leadership structures, I'm also very pleased to announce the newest addition to the team. Mark Ortiz will be joining the company as Chief Financial Officer, starting his role in April. As we continue our upward trajectory, we sought a robust financial leader capable of guiding us through the next phase of our growth. Mark brings a wealth of experience in that sense, boasting over 30 years of senior financial leadership, primarily at GE Capital, where he held roles as global FP&A leader and global controller across multiple departments. Mark's extensive background includes not only key financial expertise that's fit to our current requirements but also working assignments across over 20 markets, making him well suited for the global complexity that our company presents. I trust Mark is the optimal CFO choice to propel us to the next level of growth and reinforce our standing as a frontrunner in payment solutions for emerging markets. I hope everyone has a chance to meet Mark over the coming years and share the same enthusiasm we have for his arrival.
As to the next level of growth and reinforce our standing as a front runner in payment solutions for emerging markets.
I hope everyone has a chance to meet mark over the coming years and share the same enthusiasm we have with his arrival.
I also wanted to make sure we all extend our gratitude to Diego Comdata Kanai for his invaluable contributions to the local Diego played a pivotal role in establishing numerous finance functions at the company prepped it for substantial international expansion and growth and guided the company through its public listing process.
Yes.
Over the last three and a half years Diego has been a steward of our business that has grown tenex in PPV opened over 20 country operations and multiplied its market cap by Forex.
We wish Diego the best.
In summary, I'd like to thank our global team, our valued customers and our investors for all their continued support.
And before we head back to your questions I'd like to wrap up today's prepared remarks with one last thought.
2023 was a watershed year for D. Local despite facing significant market tests and macro challenges. We believe we've demonstrated the resilience of both our value proposition to our merchants and also of our business model.
Pedro Arnt: I also want to make sure we all extend our gratitude to Diego Cabrera Canay for his invaluable contributions to Dlocal. Diego played a pivotal role in establishing numerous finance functions at the company, prepared it for substantial international expansion and growth, and guided the company through its public listing process. Over the last three and a half years, Diego has been a steward of a business that has grown 10x in TPV, opened over 20 country operations, and multiplied its market cap by 4x. We wish Diego the best.
Persistently growing and thriving through turbulent times.
We believe we emerged strengthened and focused on tapping into the immense business opportunity ahead of us.
We're committed to realizing the long term plenty purpose of unlocking the potential of emerging markets.
What we mean by this is building a bridge between the growing base of billions of consumers in the global South and the products and services they demand, but that until very recently were exclusive to the minority of consumers who had access to payment mechanisms from developed markets.
Pedro Arnt: In summary, I'd like to thank our global team, our valued customers, and our investors for all their continued support. And before we head back to your questions, I'd like to wrap up today's prepared remarks with one last thought. 2023 was a watershed year for Dlocal.
And as we accomplish this mission of closing the digital divide for emerging market consumers. We're also tapping into an incredibly attractive long term market opportunity that is the one that underlies the investment thesis and the local.
Pedro Arnt: Despite facing significant market tests and macro challenges, we believe we've demonstrated the resilience of both our value proposition to our merchants and also of our business model, persistently growing and thriving through turbulent times. We believe we have emerged strengthened and focused on tapping into the immense business opportunity ahead of us. We're committed to realizing the long-term company purpose of unlocking the potential of emerging markets. What we mean by this is building a bridge between the growing base of billions of consumers in the Global South and the products and services they demand but that until very recently were exclusive to the minority of consumers who had access to payment mechanisms from developed markets.
I look forward to giving you updates on our progress along this journey as the quarters evolve.
And with that we can take your questions.
Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone. If your question has been answered or you wish to move yourself from the queue. Please press star one again.
I'll pause for a moment, while we compile our Q&A roster.
Our first question comes from Tito <unk> with Goldman Sachs. Your line is open.
Hi, Good morning, everyone. Thank you for the call and taking my question.
A couple of questions I guess, if I can.
Maybe you could start with on Argentina, just given all the moving parts there.
Pedro Arnt: And as we accomplish this mission of closing the digital divide for emerging market consumers, we're also tapping into an incredibly attractive long-term market opportunity that is the one that underlies the investment thesis in Dlocal. I look forward to giving you updates on our progress along this journey as the quarters evolve. And with that, we can take your questions. Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star 1 1 on your telephone. If your question has been answered, or you wish to move yourself from the queue, please press star 1 1 again.
Just to clarify some of the commentary I think that I know you mentioned that it was more local.
Local transactions now is that does that mean that your existing merchants are they getting like local subsidiaries and then are able to interact locally.
Or are they get.
Being as they are and not being able to do.
Ross border keeping money in the country.
Just to understand some of the mechanics, given the issues there.
And then.
Do you expect that to sort of normalize in and <unk> already or would it take longer to normalize.
Unknown Executive: We'll pause for a moment while we compile our Q&A roster. Our first question comes from Tito Labarta with Goldman Sachs. Your line is open. Hi, good morning, everyone.
And somewhat related to that just on the gross profit guidance of $3 20.
The 360, what does that imply for Argentina does that mean, if Argentina sort of remains as it is.
Pedro Arnt: Thank you for the call and taking my question. There are a couple of questions, I guess, if I can. Maybe to start on Argentina, just given all the moving parts there, just to clarify some of the comments. I think, Pedro, you mentioned that there were more local to local transactions. Now, does that mean that your existing merchants, are they getting local subsidiaries and then are able to interact locally, or are they just the thing as they are and not able to do? Cross-border keeping money in the country, just to understand some of the mechanics given the issues there. And then would you expect this to sort of normalize in one cue already, or would it take longer to normalize?
At the midpoint of that guidance.
Do you expect Argentina to improve to deliver either at the higher end of it and why maybe it gets worse at the lower end.
And then my second question I guess it is.
More on in Nigeria, and Egypt could you also seen big devaluations, there in the first quarter.
This year and we did see a big growth in both Nigeria, and other Asia and Africa, maybe you can help us understand what the potential impacts of.
Of those devaluation should be I guess in <unk> and how that may have been reflected in the guidance. Thank you.
Okay.
Thanks, Tito so lots of moving pieces, let me walk down the questions. So the the increase in local to local settlement in Argentina is not a change in how our merchants are setup, but rather as volatility increased and more importantly.
Pedro Arnt: And somewhat related to that, just on the gross profit guidance of 320 to 360, what does that imply for Argentina? Does that mean if Argentina sort of remains as it is, you're sort of at the midpoint of that guidance? Do you expect Argentina to improve to deliver either at the higher end or does it imply maybe Argentina gets worse at the lower end?
It'll controls tighten even further leading into the election.
Many merchants started to opt for local settlement.
Okay.
We don't necessarily think that's a structural change we see that eventually is capital controls are lifted there is an opportunity to regain those flows into cross border.
Pedro Arnt: And then my second question, I guess, is more on Nigeria and Egypt because we've also seen big devaluations there in the first quarter of this year. And we did see big growth in both Nigeria and other parts of Asia and Africa. So if you can help us understand what the potential impact of those devaluations should be, I guess, in one metric and how that may have been reflected in the guidance. Thanks, Tito.
But that will take continued normalization in Argentina, which we believe will happen mid term not happening short term.
Our guidance for the year, when we compare it to the 2023 comps does assume Argentina structurally although potentially has an opening of capital controls will also have tighter spreads on FX.
As the government has signaled an intent to move towards a single exchange rate.
So we do.
Build into our 2024 guidance lower gross profit from Argentina when compared.
Pedro Arnt: So lots of moving pieces. Let me walk you through the questions. So the increase in local to local settlement in Argentina is not a change in how our merchants are set up. But rather, as volatility increased, and more importantly, capital controls tightened even further, leading into the election, many merchants started to opt for local settlement.
To 2023 on a margin perspective, what we need to see is does macro improve enough. So that towards the end of the year volumes pick up significantly or is that more of the mid term trend.
We do believe that long term that market continues to be an important and attractive market for us.
Yeah.
Yeah.
Pedro Arnt: We don't necessarily think that's a structural change. We see that eventually, as capital controls are lifted, there is an opportunity to regain those flows into cross-border. But that will take continued normalization in Argentina, which we believe will happen in the medium term, not in the short term.
Egypt, I would say has similar dynamics.
On Egypt as we've seen in Q1 the devaluation.
That's made for tighter spreads on repatriation and cross border flows.
It potentially it starts signaling greater liquidity in the market for FX, but at a lower margin profile than what we had up until now.
Pedro Arnt: Our guidance for the year, when we compare it to the 2023 comp, does assume Argentina structurally, although potentially has an opening of capital controls, will also have tighter spreads on FX as the government has signaled an intent to move towards a single exchange rate. So we do build into our 2024 guidance lower gross profit from Argentina when compared to 2023 on a margin perspective. What we need to see is whether macro conditions improve enough so that, towards the end of the year, volumes pick up significantly, or is that more of a midterm trend? We do believe that, long-term, that market continues to be an important and attractive market for us. Egypt, I would say, has similar dynamics.
Just to give you an order of magnitude Egypt full year represented roughly less than 10% of our business.
But growing towards the back half of the year.
Given that spreads were widening and now with the tightening of spreads for 2024, we also assume that Egypt becomes a bit of a headwind short term for us so into 2020 for Nigeria is somewhat of a different situation I think as we've said consistently the revenue fluctuations in Nigeria don't really flow.
Gross profit as much so gross profit in Nigeria for the quarter was roughly in line with what it was for Q3.
Very very slightly down despite the big increase in revenues and so the guidance for Nigeria is that in terms of trajectory. We hope to continue to CTV growth there generally at similar margin levels than what we had in 2023.
Pedro Arnt: Egypt, as we've seen in Q1, the devaluation that's made for tighter spreads on repatriation and cross-border flows. It potentially starts signaling greater liquidity in the market for FX, but at a lower margin profile than what we had up until now. Just to give you an order of magnitude, Egypt for the full year represented roughly less than 10% of our business, but growing towards the back half of the year. Given that spreads were widening and now with the tightening of spreads on FX for 2024, we also assume that Egypt will become a bit of a headwind short term for us, so into 2024. Nigeria is somewhat of a different situation.
Great that's helpful and very clear, maybe just a follow up if I can I'm back on Argentina just to them.
Make sure I understood correctly. So you said that the merchants are opting for local settlement.
So that means I guess, they are basically keeping money in Argentina.
And.
And I guess they are not.
I'm, just trying to think how that necessarily impact their business, but I guess, the assumption would be as things normalize. They would eventually expatriate that money back to their home country and then could you get some additional revenue as that happens just to make sure I understood that correctly.
Pedro Arnt: I think, as we've consistently said, the revenue fluctuations in Nigeria don't really flow through gross profit as much. So gross profit in Nigeria for the quarter was roughly in line with what it was for Q3. Very, very slightly down, despite the big increase in revenues. And so the guidance for Nigeria is that, in terms of trajectory, we hope to continue to see TPP growth there, generally at similar margin levels to what we had in 2023. Federico Mazzoli, Gabriela Vieira, Sergio Fogel, Diego Canay, Sebastian Kanovich, and I guess they're not.
That's correct. So we have two flavors of settlement, we can settle locally and therefore, we don't have an FX component to our fee or the core of our business roughly half of the volume we can settle for merchants internationally and then there is an additional fee for the repatriation.
Asian service, what we've seen in Q4 and you see that in the disclosures is that the mix has shifted more towards local to local.
And that's been particularly the case in Argentina.
As capital controls tightened towards the end of the year.
Okay. That's clear thanks, a lot better I appreciate that response.
Well remember for our next question.
Yes.
Okay.
Okay.
Pedro Arnt: I'm just trying to think how that necessarily impacts their business, but I guess the assumption would be that as things normalize, they would eventually expatriate that money back to their home country. And then could you get some additional revenues as that happens? Just to make sure I understood that correctly. That's correct.
Our next question comes from Jason Kupferberg with Bank of America. Your line is open.
Hey, this is Melissa Chen on for Jason.
In your prepared remarks, you mentioned, making investments in hiring.
Back office capabilities in 'twenty, three can you give us an idea of the cadence of these investments throughout the year will they be spread evenly we're front or backend loaded any details there would be helpful.
Pedro Arnt: So we have two flavors of settlement; we can settle locally, and therefore we don't have an FX component to our fee, or the core of our business, roughly half of the volume, we can settle for merchants internationally, and then there's an additional fee for the repatriation service. What we've seen in Q4, and you see that in the disclosures, is that the mix has shifted more towards local to local. And that's been particularly the case in Argentina, as capital controls tighten towards the end of the year. Okay, that's clear. Thanks a lot, Pedro. I appreciate it.
Yeah.
Okay.
Two quick thoughts there.
The first one as you can see from the margin structure of the <unk>.
Adjusted EBITDA gross profit margin in the 24 guidance at the midpoint.
We are leaning into the business to build the right foundations, but we're doing so in a very very disciplined manner. So even in this year, where we're not delivering operational leverage.
We're still coming in at what would be best in class adjusted EBITDA gross profit margin at around 70%.
That's important to stress the cadence of incremental investment if we look at the Q4 run rate.
Unknown Executive: One moment for our next question. Our next question comes from Jason Kupferberg with Bank of America. Your line is open. Hey, this is Melissa Chen on behalf of Jason.
Is really not significantly increased.
Into 2024, which should be one of the heavier years in terms of investment and we continue to be optimistic about the mid term operational leverage and even more so the long term operational leverage of our financial model as is the case with most payments companies.
Pedro Arnt: In your prepared remarks, you mentioned making investments in hiring, and upgrading back office capabilities. Can you give us an idea of the cadence of these investments throughout the year? Will they be sort of like spread evenly or front or back and loaded? Any details there would be helpful. Two quick thoughts there. The first one, as you can see from the margin structure, the adjusted EBITDA to gross profit margin in the 24 guidance at the midpoint. We are leaning into the business to build the right foundations. But we're doing so in a very, very disciplined manner. So even this year, when we're not delivering operational leverage, we're still coming in at what would be best in class adjusted EBITDA to gross profit margin of around 70%.
And therefore, we've reiterated the midterm guidance the cadence of that could potentially be slightly skewed towards the first half of the year, but since the biggest areas of incremental investment as we said is engineering talent.
And that's also one of the reasons why we're optimistic about midterm operational leverage is a lot of what we're doing is building capabilities to be able to automate more to be more efficient. The local will continue to want to run as a leaner organization, where we automate as much as we can but so if.
We're able to hire more of those engineers in the first half of the year excellent that might lean might skew the investments to H one.
Pedro Arnt: I think that it's important to stress the cadence of incremental investment. If we look at the Q4 run rate, it is really not significantly increased into 2024, which should be one of the heavier years in terms of investment. And we continue to be optimistic about the midterm operational leverage and even more so the long-term operational leverage of our financial model, as is the case with most payments companies. Therefore, we've reiterated the midterm guidance, which could potentially be slightly skewed towards the first half of the year. But since the biggest areas of incremental investment, as we said, are engineering talent, And that's also one of the reasons why we're optimistic about midterm operational leverage is that a lot of what we're doing is building capabilities to be able to automate more, to be more efficient. Dlocal will continue to want to run as a lean organization, where we automate as much as we can.
But we wanted to make sure we're hiring the right people so that could end up being evenly distributed throughout the year, depending on the pace of hiring.
Okay.
Well remember for our next question.
Our next question comes from the Heart AGA wallet with HSBC. Your line is open.
Hi, Thank you for taking my questions just a quick one in terms of volume growth.
I'll pick up from.
From your key market any changes in terms of did you wanted it goes up more or.
Gordon.
I think to highlight in terms of what you can book.
And second question is again on Argentina should be expect Argentina, Nigeria, 90 day, you mentioned it could be a bit of a headwind.
Unknown Executive: But so if we're able to hire more of those engineers in the first half of the year, excellent. That might lean, might skew the investments to H1. But we want to make sure we're hiring the right people. So that could end up being evenly distributed throughout the year, depending on the pace of hiring. Okay, cool.
But what are the distortions getting the expected decent the first half of this year.
Categories, like Argentina, Nigeria, and India.
Got it.
Very helpful. Thank you so much.
Jaime Thanks, So in terms of verticals, if you look at the disclosures.
Pedro Arnt: I'm going to move on to our next question. Our next question comes from Neha Agarwala with HSBC. Your line is open. Hi, thank you for taking my question. Just a quick one on terms of volume growth. Are you seeing a pickup or a slowdown from your key merchants? Any changes in terms of which verticals are more important or less important?
We continue to see incredible strength in e-commerce.
That was nearly 200% year on year growth as a vertical and then continued strength across many of the other verticals financial services ride hailing.
We saw I would say less relevant growth in the high twenty's or low twenties across on demand delivery and advertising.
Pedro Arnt: Anything to highlight in terms of volume growth? And second question is, again, on Argentina. Should we expect Argentina and Nigeria? The latter you mentioned could be a bit of a headwind, but what other distortions can we expect at least in the first half of this year from countries like Argentina and Nigeria? Any specific color would be very helpful.
Some of that driven by the Argentina situation.
And some of that more globally, but in general I would say there hasn't been a significant change in verticals with the exception that ecommerce continues to gain mix, we are particularly well suited.
Service provider and solution for many of the global E Commerce players as they globalize more and more so we're seeing some really interesting gains in new markets that we are offering to some of the largest global e-commerce players.
Pedro Arnt: Thank you so much. Hi Neha, thanks. So in terms of verticals, if you look at the disclosures, we continue to see incredible strength in e-commerce, which was nearly 200% year-on-year growth as a vertical, and then continued strength across many of the other verticals, financial services, ride hailing. We saw, I would say, less relevant growth in the high 20s or low 20s across on demand delivery and advertising. Some of that is driven by the Argentina situation, and some of that is more global.
On Argentina, Nigeria, Egypt, just to be clear again on what I said before what we built into the guidance is we expect for Argentina and Egypt.
Certain level of margin headwinds when we think of gross profit margin in those markets.
As exchange rates spreads have tightened and so that is built in to 'twenty four the tougher comps from 'twenty three in those two markets that had high margins on wide FX spreads, especially in Q2 and Q3.
Pedro Arnt: But in general, I would say there hasn't been a significant change in verticals, with the exception that e-commerce continues to gain market share. We are a particularly well-suited Service Provider and Solution for many of the global e-commerce players as they globalize more and more. So we're seeing some really interesting gains in new markets that we are offering to some of the largest global e-commerce players. On Argentina, Nigeria, Egypt, just to be clear again on what I said before, what we built into the guidance is that we expect Argentina and Egypt to have a certain level of margin headwinds when we think of gross profit margin in those markets. The exchange rate spreads have tightened, and so that is built in to 24. The tougher comps from 23 in those two markets that had high margins on wide FX spreads, especially in Q2 and Q3. Nigeria, I said, is a different situation, where at the revenue level, we do see oscillations because of fluctuations between the official and the market exchange rates, but it's much more neutral at the gross profit level.
Nigeria, I said is a different situation where at the revenue level, we do see oscillations because of fluctuations between the official in the market exchange rate, but it's much more neutral at the gross profit level and so Nigeria, we see a similar gross profit.
<unk> for the 2020 for guidance.
You bet, Joe Oh, one last one I know this year that focuses more on building up.
And investing a bit more stepping up.
But any plans in terms of revenue diversification.
Nevada.
So this is like so.
Pedro Arnt: And so, in Nigeria, we see a similar gross profit margin for the 2024 guidance. Perfect. Super clear, Pedro.
Yes.
Is any of it.
On your mind that you would expect during this year.
Sure. Thank you so much.
Pedro Arnt: One last one. I know this year, the focus is more on building up the organization and investing a bit more in stepping up the company. But any plans in terms of revenue diversification? Previously, you talked about additional services like fraud as a service. Are there any new services on your mind that we would expect during this year or next year? Thank you so much.
So as Sergio mentioned in his remarks, our strategy is one of being innovative and launching new products into the market and also pursuing new verticals.
We've had tremendous recent success with the marketplace product and we hope to continue to see that in 2024, we've launched an invoice product, which is aimed at corporate treasuries and accounts receivables that we'd like to push and see that grow and then there are a few new <unk>.
Pedro Arnt: So, as Sergio mentioned in his remarks, our strategy is one of being innovative and launching new products into the market and also pursuing new verticals. We've had tremendous recent success with the marketplace product, and we hope to continue to see that in 2024. We've launched an invoice product that is aimed at corporate treasuries and accounts receivables that we'd like to push and see that grow, and then there are a few new verticals that we're beginning to plant the seeds for. We'll need to see how those play out.
<unk> that we're beginning to plant the seeds for we'll need to see how those play out as you know in our business. There are sometimes long lead times in terms of moving into a new vertical and then those ramp ups really kick in so if anything those are expected more towards the back half.
24, and then potentially into 'twenty five.
Okay. Thank you one of them for our next question.
Yeah.
Okay.
Our next question comes from Jamie Friedman with Susquehanna International Group. Your line is open.
Unknown Executive: As you know, in our business, there are sometimes long lead times in terms of moving into a new vertical, and then those ramp-ups really kick in, so if anything, those are expected more towards the back end of 24 and then potentially into 25. Thank you. One moment for our next question. Our next question comes from Jamie Friedman with Susquehanna International Group. Your line is open.
I think you guys said.
Okay.
Thank you for taking my questions I like the new format of the presentation by the way I just want to mention but I wanted to ask about the revenue growth from new merchants up 68, 6%, which accelerated from the third quarter can you help unpack that.
Pedro Arnt: Hi, guys. Thank you for taking my questions. I like the new format of the presentation, by the way. I just want to say. But I want to ask about the revenue growth from new merchants, up 68.6 percent, which accelerated from the third quarter. Can you help unpack that?
Is that.
From the new merchants that you had alluded to earlier in the year.
Sure a framework about how to think about new framework, new merchant contribution it would be helpful.
Yeah.
Yeah.
Yeah.
Yeah.
Okay.
Yeah.
Yeah.
Yeah.
Yeah.
Okay.
Yeah.
Okay.
Okay.
Yeah.
Yeah.
Yeah.
Yeah.
Yeah.
Yeah.
Still there Pedro.
Unknown Executive: Is that from the new merchants that you had alluded to earlier in the year? Or if you could share a framework about how to think about new frameworks, a new merchant contribution, it would be helpful. Still there, Pedro?
Yeah.
We're here, we're just making sure we get our numbers right. Okay. Just wanted to make sure you guys didn't give disconnect. Thank you yeah no. We're here so Jamie thanks for the comments on the presentation.
Unknown Executive: We're here; we're just making sure we get our numbers right. Okay, just wanted to make sure you guys didn't get disconnected. Thank you. Yeah, no, we're here.
Give you directional so when.
When I look at the new merchant growth, there's a combination of.
Unknown Executive: So Jamie, thanks for the comments on the presentation. I'll give you directions. So when I look at the new merchant growth, there's a combination of some of the well-known large global brands, particularly some out of Asia, that have been relying on us for their expansion, mainly into Latin America, but we continue to increase some new geographies with them. You see that when you look at the e-commerce vertical, the growth there. We've had some ramp-up from another very large global merchant in Chile, that's also adding to that. And then the rest is fairly distributed among some smaller tier two merchants that we've onboarded and whose ramp-up has been quicker, sometimes also because they typically exclusively use us for their international expansion. Okay, and maybe just a follow up to that same direction. I should know this, but... Can you remind us how much?
Some of the.
Well known large global brands.
Particularly some out of Asia that had been relying on us for their expansion mainly into Latin America, but we continue to increase some new geographies with them you see that when you look at the e-commerce vertical the growth there.
We've had some ramp up from another very large global merchant in Chile. That's also adding to that and then the rest is fairly distributed among some smaller tier two merchants that we've on boarded and whose ramp up has been quicker sometimes also because they typically.
Exclusively use us for their international expansion.
Sure.
Yeah.
Okay, and maybe just as a follow up to that same.
Direction I should know this but.
Can you remind us how much.
Unknown Executive: of the TPV or revenue come from the installed base each year? If that's an obvious question, I apologize, but if not, is there a way to think about that? Jamie, I think Maria or Diego or Seba can take that one.
Of the TPG or revenue.
Come from the installed base each year.
It's an obvious question.
I apologize, but if not.
Is is there a way to think about that.
Okay.
Yeah.
Yeah.
Yeah.
Okay.
Okay.
Yeah.
Jamie I think Maria or Diego or SIB I can take that one just one more clarification on your previous question.
Maria Santos Oldham: Just one more clarification on your previous question. Also, some of those tier two merchants have an overlay from Nigeria, and we've seen the big revenue jump in Nigeria because of the exchange issue. So that also drives some of the new merchant volume growth. I'd say the large global merchants in Latin America, that's long term, sustainable, and very healthy.
Also some of those tier two merchants.
Have an overlay from Nigeria, and we've seen the big revenue jump in Nigeria because of exchange Schuh. So that also drives some of the new merchant volume growth I'd say, the large global merchants in Latin America, that's long term sustainable and very healthy the Nigeria piece as you know is.
Maria Santos Oldham: The Nigeria piece, as you know, is somewhat more volatile and less impactful at a gross profit level. I'll hand it over to the team for the question on recurring revenue versus new merchant revenue. So, in terms of our business trends, you know, one of those is our NIR. So we continue to post 149% NIR for Q4 and 150% for the year, which shows that we continue to grow with our existing merchant base. We are still at low tens on the market, wallet share of those merchants.
Somewhat more volatile and less impactful at a gross profit level I'll hand, it over to the team for the question on.
Recurring revenue versus new merchant revenue.
Okay.
Sure.
In terms of our business trends you know one of those is our NR. So we continued to post a 149% and our Q4 and 150 for the year, which shows that we continue to grow with our existing merchant base. We are still in that low tenths on the market and wallet share of those Martin told there.
Maria Santos Oldham: So they're still very high potential from our existing base. Still, we continue to work on our pipeline, with very strong names coming in. In Q4, you saw $12 million of revenues coming from new merchants' cohorts, and this is pretty much in line with the start of the cohort. Great. Thank you, Maria.
Very high potential from our existing base.
We'll continue to work on our pipeline with very strong names coming in in Q4, you saw 12 million of revenues coming from new Martin's cohort and this is pretty much in line with Paragon optical heart.
Yeah.
Unknown Executive: Thank you. Please take a moment for our next question. Our next question comes from Matt Coad with Autonomous Research. Your line is open. I have no, I think that was for me. This is Matt Coad from Autonomous Research. Guys, your language, I feel like, has changed a little bit in terms of potential M&A. Just wanted to ask a question about that, just if you could double-click on kind of like what assets, what type of assets? Matt, Sebastian here.
Great. Thank you Maria Thank you Pedro.
Okay.
One moment for our next question.
Okay.
Our next question comes from <unk> with Autonomous Research your line is open.
Okay.
Hum.
I think that was for me the smack code from autonomous research.
Guys. Your language I feel like changed a little bit in terms of potential M&A. Just wanted to ask a question about that just if you could double click on kind of like what assets.
Type of assets would intriguing.
Sebastian Kanovich: Thanks for the question. We've stayed very consistent over the years about our intentions to potentially do M&A. We've been extremely conservative around that, particularly because we really like our company and our organic growth story. We'll continue to look at three potential vectors. One is commercial distribution, the other one is product innovation, and the third one is geographic footprint.
So I'll stop here thanks for the question.
We've stayed very consistent over the years about our intention to potentially do M&A.
We've been extremely conservative around.
Around us, particularly because we really like our company our organic.
Growth story.
We'll continue to look up.
<unk> potential in <unk> one.
Commercial distribution.
One is product innovation on the third one is geographic footprint ideally.
Sebastian Kanovich: Ideally, we'll combine all three of those. We've done only one deal in our history, which was, in our view, an absolute home run back in 2021. But at the same time, we'll always benchmark any potential M&A against our own company and what we could potentially do by buying back our own shares. So when we check or deal with any other company, we always make sure to benchmark those against Dlocal as a potential M&A target. We have a big pipeline of opportunities, and we continue to engage with multiple targets. There's nothing imminent today, but it's definitely a vector that we're going to continue to explore. We believe there will be consolidation in this space, and we believe that Dlocal is very well positioned to be a consolidator. I really helped Seba a lot.
We will combine all three of those we've done only 1 billion NRG story, which was in our view an absolute homerun back in 2021.
But at the same time, we'll always benchmark any potential M&A again, our own company.
Well they could potentially do.
By buying back our reinsurers so.
When we got it.
Michelle any other company, we always make sure to a benchmark dose again.
The local publishing M&A target.
We have a big pipeline of opportunity, we continue to engage with multiple targets.
There is nothing imminent today, but it's definitely up Victor that we're going to continue to explore we believe theres going to be consolidation in this space and we believe that.
The local is very well positioned.
It'll be a consolidator.
Unknown Executive: Thank you. And then just as my follow-up, guys, the short-term investment cycle that you guys have touched on so far today, just kind of wanted to unpack that a little bit more. And it just makes sense to us, right?
Super helpful. Thank.
Thank you and then just as my follow up guys.
The short term investment cycle that you guys have touched on.
So far today, just kind of wanted to.
<unk> Pak that a little bit more than just it makes sense to US right. There was a lot of reinvestment back needs to occur to Brian a complicated cross border payment system.
Pedro Arnt: Like, there's a lot of reinvestment that needs to occur to run a complicated cross-border payment, but could you unpack a little bit of why that's occurring today and why it hasn't occurred over time and kind of just reinforce why you think this is kind of a one-time investment cycle rather than just natural reinvestment that needs to occur consistently? Sure. Let me start with the back question. There is an element of playing catch up.
But.
Could you unpack a little bit like of why thats occurring today and why it hasn't occurred over time and kind of just reinforce why you think this is kind of a one time investment cycle.
Rather than just natural reinvestment that needs to occur consistently over time.
Yeah.
Right.
Sure let.
Let me start by the back of the question.
There is an element of playing catch up let me, let me give some more granularity when we look at 2020 for guidance and where we're increasing our investments the greatest area of incremental spend is on the engineering talent pool.
Pedro Arnt: Let me give some more granularity when we look at 2024 guidance and where we're increasing our investment. The greatest area of incremental spend is on the engineering talent pool. We are striving to grow that talent pool by between 50 and 75 percent, and that's by far the largest increase in spending. The second area is in operations.
We were striving to grow that talent pool by between 50, and 75% and that's by far the largest increase in expand the second area is in operations as we begin to consolidate our position.
Pedro Arnt: As we begin to consolidate our position across these 40 plus markets, we continue to add more processing partners, more relationships with issuers, and more relationships with the local payments ecosystem. And that requires a level of increase in feet on the ground to build increasingly more robust operational capabilities in many markets, where initially we launch with the bare minimum necessary to serve our merchants. And then we add more and more capabilities in those markets. So I think part of the pickup and spend is just the natural tendency to go deeper in markets. But then that has sort of flattened out.
Across these 40 plus markets, we continue to add more processing partners more relationship with issuers more relationships with the local payments ecosystem and that requires a level of increase on feet in the ground to build in.
Creasing, the more robust operational capabilities in many markets, where initially we launch with the bare minimum necessary to serve our merchants and then we add more and more capabilities in those markets. So I think part of the pick up in spend is just the natural <unk>.
Tendency to go deeper in markets, but then that has sort of a flattening out I think we've said, we don't necessarily aspire to cover 80 markets our footprint will grow if our much merchants ask for more markets, but we believe we have a good grasp on MAU.
Pedro Arnt: I think we've said we don't necessarily aspire to cover 80 markets. Our footprint will grow if our merchants ask for more markets, but we believe we have a good grasp on most of the attractive emerging markets. And so you go a bit deeper, but there's a point where you already feel you have very robust capabilities, and the investment cycle flattens out a little bit. And the same goes for IT. I mean, clearly, we're not going to be growing our engineering talent pool at those levels consistently over a multi-year process because that's simply not efficient.
Cost of the attractive emerging markets and so you go a bit deeper, but theres a point, where you already feel you have very robust capabilities and the investment cycle flattens out a little bit and the same goes for it I mean, clearly we're not going to be growing our engineering talent pool at those levels consistently over them.
Multi year process, because thats simply not efficient we do think there's a bit of catching up to do and we also think that with this leaning into the engineering talent short term. It also allows us to be much more efficient on the back end of that because we're able to automate more and more.
Pedro Arnt: We do think there's a bit of catching up to do, and we also think that by leaning into the engineering talent in the short term, it also allows us to be much more efficient on the back end of that because we're able to automate more and more functions that otherwise would require increases in headcount or third-party services. Hence, we believe that there's this cadence of a short-ish term, and we're not being specific about how long that is, where we won't be able to deliver operational leverage. We'll still have best-in-class margin structures, as I mentioned before, and then once we're through with that, operational leverage kicks in once again. Really, really helpful, Pedro.
Functions that otherwise would require increases in head count or third party services. Hence we believe that there is this cadence of.
A short ish term and we're not being specific how long that is where we won't be able to deliver operational leverage will still have best in class margin structures as I mentioned before and then once we're through with that the operational leverage kicks in once again.
Really really helpful. Pedro Thank you.
Unknown Executive: One moment for our next question. Our next question comes from John Coffey with Barclays. Your line is open. Great, thank you very much for taking my call. I just want to understand the cadence of 2024 with respect to your guidance. As I understand from Ria's comments, the TPV might be backloaded in 2024.
One moment for our next question.
Our next question comes from John Coffey with Barclays. Your line is open.
Great. Thank you very much for taking my call I just want to understand the cadence of 2024 with respect to your guidance as I understood from <unk> comments, the <unk> might be back loaded in 2024, and then also from Pedro comments that.
Unknown Executive: And then also from Pedro's comments that perhaps EBITDA is also back-end loaded if you have more investments in Q1. So if that's true, how should I think about the gross profit cadence? Will this roughly move in line with TPV growth? Or are there some other variables here that might make that otherwise?
Perhaps EBITDA is also back end loaded if you have more investments in Q1. So if that's true how should we think about the gross profit cadence will just roughly move in line with TPG growth or are there. Some other variables in here that might make that otherwise.
Unknown Executive: Great. So just let me make one reminder here, and then I will answer your specifics. But don't forget that we operate in very complex emerging markets that tend to be very volatile. And ours is not really a subscription business. Our business is entirely predicated on how our merchants' businesses perform.
Great. So just let me make one reminder, here and then I will answer your specifics, but don't forget that we operate in very complex emerging markets that tend to be very volatile and ours is not really a.
Subscription business, our business is entirely predicated on how our merchant business perform many of these e-commerce companies travel companies financial services companies that are exposed to all these macro volatilities across emerging markets so with that.
Unknown Executive: Many of these e-commerce companies, travel companies, financial services companies that are exposed to all these macro volatility across emerging markets. So with that, we do see the general entering the year on a similar pace to the way we were exiting the year. And then when we look at our late stage pipeline, if we execute well on what looks like a promising late stage pipeline, our expectation is that business will begin to pick up as we move forward towards the end of the year. Again, that's predicated on continued successful execution. But to the best of our knowledge today, that's what's built into the guidance.
We do see.
E G.
General entering the year on a similar pace to the way we were exiting the year and then when we look at our late stage pipeline, if we execute well on what looks like a promising late stage pipeline. Our expectation is that the business begins to pick up as we move.
Move forward towards the end of the year again, that's predicated on continued successful execution, but to the best of our knowledge today, that's what's built into the guidance.
Unknown Executive: All right. Thank you. But given that, I think we only have like, you know, 10 or 12 more days left in Q1. You've seen a lot of the quarter already.
Alright. Thank you I just had one follow up but given that I think we only have like 10 or 12 more days left in Q1, you've seen a lot of the quarter already do you have any.
Unknown Executive: Do you have any early comments you could say about anything that you may have seen in January, February or what we've seen in March so far? Regarding any early indicators and just any thoughts you have on Q1. I think we should.
Early comments you could say about anything that you may have seen in January February or what we've seen of March so far.
Any early indicators and just any thoughts you have on Q1.
I think we should.
Unknown Executive: Let's follow the protocol of commenting on Q1 when we come out with the complete information and communication to the market. So we'll be more than glad to give you guys as much detail as is necessary when we announce Q1. I think in terms of the general cadence built into the guidance, which was your previous question, we've given you as much directional understanding of what the guidance implies as makes sense at this point. All right. Thanks, Pedro.
Follow the protocol of will comment on Q1, when we come out with the complete information and communication to the market.
So we'll be more than glad to give you guys as much detail as is necessary. When we announce Q1 I think in terms of the general cadence built into the guidance, which was your previous question. We've given you as much directional understanding of what the guidance implies as as makes sense at this point.
Alright, Thanks Pedro.
Unknown Executive: One moment for our next question. Our next question comes from Ashwin Shirvaikar with Citi. Your line is open. Thank you. I appreciate all the detail and color in the call.
One moment for our next question.
Okay.
Yes.
Okay.
Our next question comes from Ashwin <unk> with Citi. Your line is open.
Thank you I appreciate all the detail and color on the call.
Pedro Arnt: Pedro, a question for you, you know, as I sort of look at the stock over time. Look at the stock over time, right? One of the repeated issues for the stock has been this theory, the definition of where you focus, which is emerging markets, which implies, you know, the narrow situations, volatility, influence of regulation by country, so on. So, is there anything you think you could do from an organizational design or risk management perspective? You know, and it may already be in progress, but just want to figure out what you can do to avoid sort of the, you know, Quarter-to-quarter volatility by country that has plagued the stock for many quarters in a row. Yeah, I wish I had a better answer for you. But the reality is that we operate in volatile parts of the world. The answer to that is scale.
So a question for you.
As I sort of look at.
Look at the stock over time, one of the repeat issues for the stock has been just do you have any.
Definition of where your focus which is emerging markets, which implies.
Now those situations one activity influence of regulation by country. So on so that anything you think you could do from a organizational design a risk management perspective.
And it may already be in in progress, but just wanted to figure out what it can do too.
Avoid sort of the you know.
Quarter to quarter volatility by by country that has plagued the stock for.
Many quarters in a row now.
Yeah, I wish I had a better answer for you, but the reality is that we operate in volatile parts of the world. The answer to that is scale as our business continues to grow as our TPG continues to come from an increasing number of <unk>.
Pedro Arnt: As our business continues to grow, as our TPV continues to come from an increasing number of markets, and an increasing number of merchants, In general, that diversification ideally will generate less lumpiness in the business as it scales out. That's both from exposure to a market but also exposure to merchants. We still have a higher level of concentration in the top merchants than is ideal, and then we strive to have, if we look forward, two, three, five years. So the best answer I can give you is this is a lumpy business driven by the complexity of the markets where we operate and the fact that our merchants sometimes take a long time to ramp up and then when they begin to ramp up, they ramp up very aggressively, as we saw in the fourth quarter, where concentration actually increased driven by two merchants that have given us incremental share and have grown volumes significantly.
<unk> is an increasing number of merchants in general that diversification ideally will generate less lumpiness in the business as it scales out.
That's both from an exposure to a market, but also exposure to merchants we.
We still have a higher level of concentration in the top merchants than is ideal and then we strive to have if we look forward to three five years. So the best answer I can give you is this is a lumpy business driven by the complexity of the markets, where we operate and the fact that our.
Merchants, sometimes take long to ramp up and then when they begin to ramp up ramp up very aggressively as we saw in the fourth quarter were concentration actually increased driven by two merchants that have given us incremental share and have grown volumes significantly. So the solved here is not a short term solve it is.
Pedro Arnt: So the solution here is not a short-term solution; it is what it is, and the solution is simply size, scale, and diversification, which ideally generates more predictable revenue streams going forward. Also focus on gross profit, that is a metric that, although it's also characterized by the volatility typical of emerging markets, is less volatile than the revenue metric, and hence why we've been giving increased importance to that. Okay, no, that makes a ton of sense.
What it is.
And the solve this simply size scale and diversification ideally generates more predictable revenue streams going forward also focus on gross profit.
That is a metric that although it's also characterized by low volatility typical of emerging markets is less volatile than the revenue metric and hence why we've been giving increased importance to that one.
Okay, no that makes that makes a ton of sense.
Sebastian Kanovich: I guess the second question is just with regard to all the changes that have been going on at Dlocal. As you've been having conversations with your clients, do they care about all the internal changes? Going on, or is it more, more or less that, you know, they need these capabilities in emerging markets; the list of companies that provide services across multiple markets is a short list. And so the TPE growth should continue at a healthy level. Hi Ashwin. How are you?
I guess the second question is just with the with regards to all the changes that have been going on at the local.
And you've been having conversations with your clients.
Do they do they care about all the internal changes going.
Going on.
More more or less that.
They need these capabilities in emerging markets. The list of companies that provides.
Services across multiple markets as a shortlist.
And so.
TPB growth should continue at a healthy level.
Hi, Ashwin how are you so I hear.
Sebastian Kanovich: Seba here. And thanks for the question. So, Ashwin, the way merchants vote, if you will, it's where to send volumes. And because that's what they get to decide.
Thanks for the question.
Ashwin the way merchants boat, if you will where to send volumes though.
Yeah.
Sebastian Kanovich: Revenue, gross profit, EVDA, it's everything more on our own efficiency. And if anything, we've seen that merchants not only continue to vote for the local, but they do so at a scale that we've never seen before. Last year, we grew our volumes more than 50%. You see, quarter on quarter growth.
Because that's what they get to the site revenue gross profit EBITDA and more on our own efficiency.
If anything we've seen that merchants not only continued to both for the local but they do so at the scale that would be <unk>.
Never seen before.
Last year, we grew our volumes more than 50% youll see quarter on quarter growth.
Sebastian Kanovich: And I think that's a testament to how valuable what we are doing is. Merchants derive a lot of value from our offering, and we continue to be extremely differentiated. And if you ask me, that's probably what makes it the most bullish. We've been through a lot last year.
I think that's a test on the default valuable will do we are doing.
Yes.
Merchants derive value from our offering and we continue to be extremely differentiate it.
Yes, it does.
Charlie what makes you the most bullish we've been through a lot last year.
Sebastian Kanovich: And the fact that we haven't lost any customers, but not only that, I've been able to grow as much as we did. I think it's a testament to how unique our positioning is. Merchants want Dlocal to be a living creature. We've always been a living creature where we are always iterating and trying to become a better company. We will continue to do so, and I think if there's anything that our customers value, it's the fact that we are very innovative and we move fast. And we continue to do so, and we intend to continue to do so. We are very, very optimistic about what we've seen in 2023 and what we are seeing for the future.
We haven't lost any customer, but not only that.
Yes.
I've been able to grow as much as we did I think is the best moment to how unique our positioning.
Merchants want the local to be living creature, we've always been a living creature, where we're always iterating on trying to become a better company. We will continue to do so.
I think if there is anything that our customers value is the fact that we are very innovative we moved fast.
We continue to the Sony will intend to continue to do so.
We are very very optimistic for what we've seen in 2023.
What we are seeing for the future.
Unknown Executive: Thank you. One moment for our next question. Our next question comes from Kaio Prato with UBS. Your line is open. Hello, everyone. Good morning. Thanks for the opportunity. I have two on my side.
Thank you.
For our next question.
Okay.
Our next question comes from <unk> <unk> with UBS. Your line is open.
Okay.
Hello, everyone. Good morning, Thanks for the opportunity I have two on my side.
Pedro Arnt: First, a quick follow-up on Argentina, please. You mentioned in your first answer that you believe that merchants will probably come back to cross-border operations. But just to understand here, what makes you comfortable with that?
First is a quick follow up on the.
Please you may begin.
Your first answer does believe that most of that will probably come back.
Cross border operations, but just to understand if you what makes you comfortable wish that like in other words. So I do think it would make sense for merchants swaps for cross border again to to date, yes, probably working with other options.
Pedro Arnt: Like, in other words, why do you think it would make sense for merchants to opt for cross-border again since today you are probably working with other options? So just to understand if you're already seeing increasing demand for cross-border again at this point. And then I will come back to the second.
Just like to understand if you are already seeing increasing demand for cross border again at this point.
Pedro Arnt: Thank you. Okay, so our indication was not that merchants are doing cross-border through other options. Instead, merchants with stricter capital controls were settling locally so as to not leave funds with their processor, namely us, but have the funds themselves. The ultimate objective of these merchants is to repatriate those funds.
Then I will come back.
Okay. So.
Sure.
Our indication was not that merchants are doing cross border through other options merchants with stricter capital controls were settling locally so as to not leave funds with their processor, namely us but have the funds themselves.
The ultimate objective of these merchants is to repatriate those funds.
Pedro Arnt: Many times, the alternative to local payment methods like the ones we offer is simply international processing, which is more expensive, has lower performance, and also locks out millions of consumers. So just if we look at the underlying dynamics of payments, and that's why we exist and why we add so much value to our merchants, the cross-border option is often a better solution for them than local to local. At the end of the day, we need to serve our merchants, which is whatever is best for them; we don't decide if it's local to local or cross-border. We've seen really good growth in our local to local business, which is something that was doubted about us, and we've delivered consistently, so we'll see what happens.
Many times the alternative to local payment methods like the ones. We offer is simply international processing, which is more expensive has lower performance and also locks out millions of consumers. So just if we look at the underlying dynamics of payments and that's why we exist and why we add so.
Much value to our merchants the cross border option. Many times is a better solution for them than local to local at the end of the day, we need to serve our merchants, which whatever is best for them. We don't decide if it's local to local or cross border. We've seen really good growth in our local to local business.
Which is something that was doubted avast and we've delivered consistently so we'll see what happens, but our conversations with merchants and the underlying logic is that eventually as capital controls are lifted.
Pedro Arnt: But our conversations with merchants and the underlying logic is that, eventually, as capital controls are lifted, cross-border will pick up again. And we do have access in Argentina for a series of verticals to do cross-border repatriation already. We're beginning to see increased liquidity, and we're beginning to see that market open, and therefore, short term, we don't see any dramatic change in what we saw in Q4, but more midterm, we do believe that cross-border can pick up again.
Cross border will pick up again, and we do have access in Argentina for a series of verticals to do cross border repatriation already so we're beginning to see increased liquidity and we're beginning to see that market open and therefore short term, we don't see any dramatic change in.
What we saw in Q4, but more mid term, we do believe that cross border can pick up again.
Yeah.
Pedro Arnt: Okay, great. This is very clear. Thank you, Pedro.
Okay, Great. That's very clear thank you and the second one is regarding to your letter that you mentioned that.
Pedro Arnt: And the second one is regarding your letter that you mentioned about the license portfolio. I just would like to understand if you could give us an example of a license that you are aiming to pursue this year and what benefits that could bring to the company. Just wondering if you are thinking about an acquired license in Brazil at this point as well. Thank you.
About the licensed portfolio.
So understand if you could give us. An example of license that you are able to pursue this year and what benefit could that link to the company. Just wondering if you are thinking about in the final license in Brazil.
Point, there as well thank you.
Pedro Arnt: Okay, I believe our license portfolio in Brazil is already complete for what we have applied for in terms of short and midterm plans. It's one of the markets where we have multiple, When I look globally, we have many, many licenses in the pipeline, both at an emerging market level and also at an opcode level. The licenses, for us, enable us to integrate more vertically. So many times, we don't have to rely on licensed partners. If we have the license ourselves, which allows us to offer better solutions. In some cases, the licenses allow us to move into verticals or flows that we can't pursue without the license.
Okay I believe our licensed portfolio in Brazil is already complete or what we have applied to in.
In terms of short and mid term plans, it's one of the markets, where we have multiple licenses.
When I look globally, we have many many licenses in the pipeline both at an emerging market level and also at an opco level.
The licenses for us.
<unk> enable us to integrate more vertically. So many times, we don't have to rely on licensed partners. If we have the license ourselves, which allows us to offer better solutions in some cases, the licenses allow us to move into verticals or flows that we can pursue with <unk>.
Pedro Arnt: And equally important, the license, I think, brings us under regulatory oversight and gives our merchant an added sense of comfort with the operation. So because of that, there is, as we've said, a fairly large pipeline of licenses and registries that we've applied for. We've continued to be granted some of those in Q1. We'll give details when we announce Q1. And that should continue to be the trend going forward. We actually see a robust license portfolio across complex emerging markets as a potential competitive advantage when we think of Dlocal in the long term.
The license.
And equally important the license I think is brings us under regulatory oversight and gives our merchant and added sense of comfort with the operation. So because of that there is as we've said.
A fairly large pipeline of licenses and registries that we've applied for we've continued to be granted some of those in Q1, we'll give detail when we announce Q1 and that should continue to be the trend going forward, we actually see a robust license portfolio across complex emerging.
Markets as a potential competitive advantage when we think of the local long term.
Unknown Executive: Okay, great. Thank you very much. And I'm not showing any further requests at this time. I'd like to turn the call back over to the company for any closing remarks. Thanks everyone for the questions. A lot of information we've sent your way. I hope the increased disclosures are helpful, and we look forward to updating you on our Q1 results in the coming months. Thank you very much. Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day. [inaudible]
Okay, great. Thank you very much.
And I'm not showing any further question at this time I would like to turn the call back over to the company for any closing remarks.
Thanks, everyone for the questions.
A lot of information we've sent your way I hope the increased disclosures are helpful and we look forward to updating you on our Q1 results.
In the coming months, thank you very much ladies.
Hello, Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Okay.
Yeah.
Okay.
Yeah.
Yes.
Yes.