Q2 2024 DLocal Ltd Earnings Call
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Operator: John Kupferberg, John Kupferberg, John Kupferberg, John Kupferberg, Good day and thank you for standing by. Welcome to the Dlocal second quarter 2024 results conference call. At this time all participants are in a listen-only mode.
Unknown Executive: Good day, and thank you for standing by.
Unknown Executive: Welcome to the Dlocal second quarter 2024 results conference call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question-and-answer session. To ask a question, please press star-1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star-1-1 again.
Speaker Change: Good day and thank you for standing by. Welcome to the D-Local second quarter 2024 results conference call. At this time all participants are in a listen-only mode.
Operator: Please be advised that today's conference is being recorded. After the speaker's presentation there will be a question and answer session. To ask a question please press star 1 1 on your telephone and wait for your name to be announced.
Speaker Change: Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. I would now like to hand it over to the company.
Operator: To withdraw your question please press star 1 1 I would now like to hand it over to the company. Good afternoon everyone and thank you for joining the second quarter, for EarningsPod. We have not seen the earnings.
Unknown Executive: I would now like to hand it over to the company.
Pedro Arnt: Good afternoon, everyone, and thank you for joining the second quarter in 2024 earnings call today. If you have not seen the earnings release, the copy is posted in the financial section of the Investor Relations website. On the call today, you have Pedro Arnt, Chief Executive Officer, Mark Ortiz, Chief Financial Officer, Maria Oldham, SVP of Corporate Development Strategy and Investor Relations. And Mirella Aragal, head of Investor Relations. A slide presentation has been provided to the company that prepared remarks. This event is being broadcast live via webcast, and both the webcast and presentations may be accessed through Dlocal's website at investor.dlocal.com.
Speaker Change: Good afternoon, everyone, and thank you for joining the second quarter in 2024 earnings call today.
Operator: Copy is posted in the financials section of the Investor Relations website. On call today, you have Pedro Arnt, Chief Executive Officer. Mark Ortiz, Chief Financial Officer; Maria Oldham, SVP of Corporate Development Strategy and Investor Relations Meirele Aragau, Head of Investor Relations. This slide presentation has been provided to the company The Prepared. This event is being broadcast live via webcast, and both the webcast and presentations may be accessed through Dlocal's website. Investor.dlocal.com. The recording will be available shortly after the event is over.
Speaker Change: If you have not seen the earnings release, the copy is posted in the financials section of the Investor Relations website.
Speaker Change: On the call today you have Pedro Arnt, Chief Executive Officer, Mark Ortiz, Chief Financial Officer, Maria Oldham, SVP of Corporate Development Strategy and Investor Relations, and Mirella Aragao, Head of Investor Relations.
Speaker Change: A slide presentation has been provided to accompany the prepared remarks.
Speaker Change: This event is being broadcast live via webcast, and both the webcast and presentations may be accessed through Dlocal's website at investor.dlocal.com.
Unknown Executive: The recording will be available shortly after the event is concluded.
Unknown Executive: Before proceeding, let me mention that any forward-looking statements included in the presentation or mentioned in this conference call are based on currently available information and the local's current assumptions, expectations, and projections about future events. While the company believes that their assumptions, expectations and projections are reasonable given currently available information, your caution not to place undue reliance on those 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 factor sections of Dlocal's filings with the Securities and Exchange Commission, which are available on Dlocal's investor relations website.
Operator: Before proceeding, let me mention that any forward-looking statements included in the presentation or mentioned in this conference will be recorded, are based on currently available information and Dlocal's current assumptions, expectations, and projections about future events. While the company believes that their assumptions, expectations, and projections are reasonable given currently available information, your caution not to place undue reliance on those forward-looking states. Actual results may differ materially from those included in Dlocal's presentation or discuss in this conference called for a variety of reasons, included those described in the forward-looking statements and risk factor sections of Dlocal's filing. Securities and Exchange Commission, which are available on Dlocal's Investor Relations, Now I will turn the conference over to Dlocal. Hi, thanks everyone for joining us.
Speaker Change: 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 the local's current assumptions, expectations, and projections about future events.
Speaker Change: While the company believes that their assumptions, expectations, and projections are reasonable given currently available information, you are cautioned not to place undue reliance on those forward-looking statements.
Speaker Change: Actual results may differ materially from those included in D-LOCAL's presentation or discussed in this conference call for a variety of reasons.
Speaker Change: Included those described in the forward-looking statements and risk factor sections of Dlocal's filings with the Securities and Exchange Commission, which are available on Dlocal's Investor Relations website.
Unknown Executive: Now, I will turn the conference over to Dlocal. Thank you.
Pedro Arnt: Hi, thanks everyone for joining us today. Let me start off with a summary of where things are as we've hit the halfway mark in 2024. We continue to see strong growth in our business, achieving another quarterly record of $6 billion of TPV during Q2-24. The evolution of this key metric demonstrates our continuity to grow as we gain share of wallet from our global merchant base, add new merchants to the mix as well. It also underscores our unique value proposition as a trusted partner for some of the largest and most sophisticated global companies across emerging markets.
D-Local: Now, I will turn the conference over to D-Local. Thank you.
Pedro Arnt: Let me start off with a summary of where things are as we've hit the halfway mark in 2020. We continue to see strong growth in our... Achieving Another Quarterly Record, $6 billion of TPPV during Q2. The evolution of this key metric demonstrates our continued ability to grow as we gain share of wallet from our global merchants. Add New Merchants to the Mix.
D-Local: Hi, thanks everyone for joining us today.
Speaker Change: Let me start off with a summary of where things are as we've hit the halfway mark in 2024. We continue to see strong growth in our business, achieving another quarterly record of $6 billion of TPV during Q2 2024.
Speaker Change: The evolution of this key metric demonstrates our continued ability to grow as we gain share of wallet from our global merchant base, add new merchants to the mix as well.
Pedro Arnt: It also underscores our unique value proposition as a trusted partner for some of the largest and most sophisticated global companies. Across, Emergen C. This momentum is solid, and our pipeline remains robust, both within existing merchant opportunities and also with new merchant logos, a promising leading indicator of long-term growth. During the quarter, we've started processing for a few more marquee global..., which is a leading global Chinese fintech and one of the world's largest events and ticketing markets.
Speaker Change: It also underscores our unique value proposition as a trusted partner for some of the largest and most sophisticated global companies across emerging markets.
Pedro Arnt: This momentum is solid and our pipeline remains robust, both within existing merchant opportunities and also with new merchant logos, which is a promising leading indicator of long-term growth.
Speaker Change: This momentum is solid and our pipeline remains robust, both within existing merchant opportunities and also with new merchant logos, which is a promising leading indicator of long-term growth potential.
Pedro Arnt: Potential. During the quarter, we've started processing for a few more marquee global names such as a leading global Chinese fintech and one of the world's largest events and ticketing marketplaces. We've also assisted multiple existing merchants that are among the world's largest e-commerce players in their initial forays into Africa as they've launched operations in South Africa during the last quarter, signaling our success across this very promising African continent. And finally, also worth noting, we continue to power the growth of cross-border payments in Brazil, being a part of the recent launch of a global marketplace powerhouse in that market.
Speaker Change: During the quarter, we've started processing for a few more marquee global names.
Speaker Change: such as a leading global Chinese fintech and one of the world's largest events and ticketing marketplaces.
Pedro Arnt: We've also assisted multiple existing merchants that are among the world's largest e-commerce players in their initial forays into Africa, as they've launched operations in South Africa during the last signaling our success across this very promising, And finally, also worth noting, we continue to power the growth of cross-border payments in Brazil, being a part of the recent launch of a global marketplace powerhouse in that. This $6 billion in TPV represents a 38% year-on-year growth, despite the tough comp-based, 80% year-on-year growth in the stellar quarter of last year. Performance was good for us across multiple vertices. Including Continued Strong Growth in Commerce, on Demand Delivery, and Remittance Vertical. Accelerating growth in the software-as-a-service and the ride-hailing market. Groves, 72% and 51% respectively, year over year.
Speaker Change: We've also assisted multiple existing merchants.
Speaker Change: that are among the world's largest e-commerce players in their initial forays into Africa as they've launched operations in South Africa during the last quarter, signaling our success across this very promising African continent.
Speaker Change: And finally, also worth noting, we continue to power the growth of cross-border payments in Brazil, being a part of the recent launch of a global marketplace powerhouse in that market.
Pedro Arnt: This 6 billion in TPV represents a 38% year-on-year growth, despite the tough comp basis of 80% year-on-year growth in the stellar quarter of last year. Performance was good for us across multiple verticals, including continued strong growth in commerce, on-demand delivery, and remittance verticals, accelerating growth in the software as a service and the ride-hailing merchants, which grew 72% and 51% respectively year-over-year. This kind of sustained and well-diversified TPV growth, with a focused commitment to low-risk, high-reputation verticals, sets us up well for long-term success. We believe that our year-over-year growth showcases a unique in-class combination of growth while focusing on reputable verticals, which is unique among the relevant compass, who either grow less, over-index, high-risk verticals, or do both.
Speaker Change: This $6 billion in TPV represents a 38% year-on-year growth, despite the tough comp basis of 80% year-on-year growth in the stellar quarter of last year.
Speaker Change: Performance was good for us across multiple verticals, including continued strong growth in commerce, on-demand delivery, and remittance verticals.
Speaker Change: Accelerating Growth in the Software-as-a-Service and the Ride-Hailing Merchants.
Pedro Arnt: This kind of sustained and well-diversified TPV growth, with a focused commitment to low-risk, high-reputation verticals, sets us up well for long-term success. We believe that our year-over-year growth showcases a unique in-class combination. Growth, while focusing on reputable verdicts, which is unique among the relevant, who either grow less, over-index high-risk verticals, or do both. Net take rates have held up sequentially. Despite unfavorable events, like the repricing by our largest merchant at the beginning of the year, Material currency devaluations in Nigeria and Egypt more recently, and continued weakening across most emerging market current, this type of stable sequential price.
Speaker Change: which grew 72% and 51% respectively year over year.
Speaker Change: This kind of sustained and well-diversified TPV growth, with a focused commitment to low-risk, high-reputation verticals,
Speaker Change: Sets us up well for long-term success.
Speaker Change: We believe that our year-over-year growth showcases a unique in-class combination of growth while focusing on reputable verticals.
Speaker Change: which is unique among the relevant comp base, who either grow less, over-index high-risk verticals, or do both.
Pedro Arnt: Net take rates have held up sequentially, despite unfavorable events like the repricing by our largest merchant at the beginning of the year, material currency devaluations in Nigeria and Egypt more recently, and continued weakening across most emerging market currencies. This type of stable sequential pricing and growing TPV during the quarter translated into 11% quarter-on-quarter growth profit growth. Our OPEX, excluding non-cash share-based compensation, only grew by $1 million sequentially after previous quarters of sequential growth above $4 million, and this happened as we adjusted our cash spend to the weaker gross profit that began to flow through our P&L.
Speaker Change: Net take rates have held up sequentially despite unfavorable events like the repricing by our largest merchant at the beginning of the year, material currency devaluations in Nigeria and Egypt more recently
Speaker Change: and continued weakening across most emerging market currencies.
Pedro Arnt: Growing TPV during the quarter translated into 11% quarter-on-quarter gross profit, are OPEX excluding non-cash share-based compensation, only grew by $1 million sequentially, after previous quarters of sequential growth above $4 million. And this happened as we adjusted our cash spend to the weaker gross profit that began to flow through our paychecks. As I've mentioned previously, there is a limit to how much we're willing to defend margins in the short term, as we're truly committed to certain investments which are crucial for our long-term success, particularly those in our engineering pool, back-office capabilities, and behind our license portfolio. But, to balance this out, we are always revising other discretionary spending to make sure it matches our top line performance and is aligned with our general philosophy of Frugalis.
Speaker Change: This type of stable sequential pricing and growing TPV during the quarter translated into 11% quarter-on-quarter gross profit growth.
Speaker Change: Are OPEX excluding non-cash share-based compensation?
Speaker Change: Only grew by $1 million sequentially after previous quarters of sequential growth above $4 million. And this happened as we adjusted our cash spend to the weaker gross profit that began to flow through our P&L.
Pedro Arnt: As I've mentioned previously, there is a limit to how much we're willing to defend margins in the short term, as we're truly committed to certain investments which are crucial for our long-term success, particularly those in our engineering pool, back office capabilities, and behind our license portfolio. But to balance this out, we are always revising other discretionary spending to make sure it matches our top-line performance and is aligned with our general philosophy of frugalis.
Speaker Change: As I've mentioned previously, there is a limit to how much we're willing to defend margins in the short term.
Speaker Change: As we're truly committed to certain investments which are crucial for our long-term success, particularly those in our engineering pool, back office capabilities, and behind our license portfolio.
Speaker Change: But, to balance this out, we are always revising other discretionary spending to make sure it matches our top-line performance and is aligned with our general philosophy of frugality.
Pedro Arnt: University. As a consequence of this, adjusted EBITDA reached 43 million dollars, reflecting what is still a lean structure and disciplined approach to spending, while our cash generation also accelerated versus the prior quarter. These highlights also come with certain challenges that we are focused on rapidly addressing, primarily that year-over-year gross profit performance was flat, driven by Latin America that was actually down 13% on Argentine FX devaluation and the repricing by our largest merchant in Brazil and Mexico. Stellar, African and Asian gross profit growth of 79% year over year, unfortunately, did not suffice to offset those two events in Latin America, still our largest region.
Pedro Arnt: As a consequence of this, Adjusted EBITDA reached $43 million, reflecting what is still a lean structure and disciplined approach, while our cash generation also accelerated versus the prior year. These highlights also come with certain challenges that we are focused on rapidly addressing. Primarily, the year-over-year gross profit performance was flat.
Speaker Change: As a consequence of this, adjusted EBITDA reached $43 million, reflecting what is still a lean structure and disciplined approach to spending, while our cash generation also accelerated versus the prior quarter.
Speaker Change: These highlights also come with certain challenges that we are focused on rapidly addressing.
Pedro Arnt: Driven by Latin America that was actually down 13% on Argentine FX devaluation and the repricing by our largest merchant in Brazil and, Stellar, African and Asian gross profit growth of 79% year over year, unfortunately did not suffice to offset those two events in Latin America still are large. Let me wrap up this first part by stating that not only do we see more good than bad in the reported quarter, but taking a step back from a short-term quarterly, Dlocal is an incredibly strong company, with a fantastic TAM, attractive business model and extremely promising future that at some point will be reflected in capital markets.
Speaker Change: Primarily, that year-over-year gross profit performance was flat, driven by Latin America that was actually down 13% on Argentine FX devaluation and the repricing by our largest merchant in Brazil and Mexico.
Speaker Change: Stellar African and Asian gross profit growth of 79% year-over-year unfortunately did not suffice to offset those two events in Latin America, still our largest region.
Pedro Arnt: Let me wrap up this first part by stating that not only do we see more good than bad in the reported quarter, but taking a step back from a short-term quarterly prison, Dlocal is an incredibly strong company with a fantastic time, attractive business model and extremely promising future that at some point will be reflected in capital market performance. So to keep things in perspective, we maintain strong product market validation as witnessed by nearly 40% year-over-year and 14% quarter-over-quarter TPV growth. We still run a high margin financial model with adjusted EBITDA to gross profit at 60% plus and ability to scale from here to previous levels going forward.
Speaker Change: Let me wrap up this first part by stating that not only do we see more good than bad in the reported quarter, but taking a step back from a short-term quarterly prism,
Speaker Change: Dlocal is an incredibly strong company with a fantastic TAM, attractive business model, and extremely promising future that at some point will be reflected in capital market performance.
Pedro Arnt: So to keep things in perspec, We maintain strong product market validation as witnessed by nearly 40% year-over-year and 14% quarter-over-quarter TPC. We still run a high margin financial model with adjusted EBITDA to gross profit at 60% plus and ability to scale from here to previous levels going forward. A cash conversion that remains very strong and growing as EBITDA increases sequentially with a cash conversion cycle that's still in the 100% range over the last 12 months.
Speaker Change: And so to keep things in perspective, we maintain strong product market validation as witnessed by nearly 40% year-over-year and 14% quarter-over-quarter TPV growth.
Speaker Change: We still run a high-margin financial model with adjusted EBITDA to gross profit at 60% plus and ability to scale from here to previous levels going forward.
Pedro Arnt: A cash conversion that remains very strong and growing as EBITDA increases sequentially, with a cash conversion cycle that's still in the 100% range over the last 12 months. When we analyze the potential of all this to compound over time, it's hard not to be optimistic about our future. Despite the inherent challenges and volatility existent throughout the Global South. We firmly believe that our long-term future is bright, and our own ability to execute is the single most important factor behind us capturing that opportunity. That optimism is not only being relayed in my remarks but also reflected in our capital allocation strategy.
Speaker Change: A cash conversion that remains very strong and growing as EBITDA increases sequentially with a cash conversion cycle that's still in the 100% range over the last 12 months.
Pedro Arnt: When we analyze the potential of all this to compound over time, it's hard to not be optimistic about our- Despite the inherent challenges and volatility existent throughout the Global South. I firmly believe that our long-term future is bright and our own ability to execute is the single most important factor behind us capturing that opportunity.
Speaker Change: When we analyze the potential of all this to compound over time, it's hard to not be optimistic about our future, despite the inherent challenges and volatility existent throughout the global South.
Speaker Change: We firmly believe that our long-term future is bright, and our own ability to execute is the single most important factor behind us capturing that opportunity.
Pedro Arnt: That optimism is not only being relayed in my remarks but also reflected in our Capitol. Our business has an attractive cash generation profile, and we see upside in our stock as we grow. And as a consequence of this, we have bought back stock during the quarter at a rapid pace.
Speaker Change: That optimism is not only being relayed in my remarks, but also reflected in our capital allocation strategy.
Pedro Arnt: Our business has an attractive cash generation profile, and we see upside in our stock as we grow and scale. As a consequence of this, we have bought back stock during the quarter at a rapid pace. We trust this will prove to be a savvy capital allocation decision over time.
Speaker Change: Our business has an attractive cash generation profile, and we see upside in our stock as we grow and scale. And as a consequence of this, we have bought back stock during the quarter at a rapid pace.
Maria Oldham: This will prove to be a savvy capital allocation decision over time. With that, let me hand it over to Maria and Mark to take you through a more detailed overview of our second quarter results. Thank you, Pedro. Good afternoon, everyone.
Speaker Change: We trust this will prove to be a savvy capital allocation decision over time.
Maria Oldham: With that, let me hand it over to Maria and Mark to take you through a more detailed overview of our second quarter results. Thank you, Pedro.
Speaker Change: With that, let me hand it over to Marie and Mark to take you through a more detailed overview of our second quarter results.
Maria Oldham: As Pedro just mentioned, during the second quarter, we once again delivered strong TPV growth of 38% year-over-year and 14% quarter-over-quarter, reaching $6 billion. Our cross-border business, core to our value proposition, grew 11% QOQ and 22% EOY, reaching a new record of $2.7 billion in TPV. The quarterly growth is driven especially by the ride-hailing. The local-to-local processing business continues to prove our strong values through the mass, posting a 16% increase quarter over quarter and 55% year over year, confirming our superior offering to our global merchants compared to direct integrations to local acquirers. The quartile increase was driven in particular by growth in commerce, in Mexico, and Argentine.
Maria Oldham: Good afternoon, everyone. As Pedro just mentioned, during the second quarter, we once again delivered strong TPV growth of 38% year over year and 14% quarter over quarter, which is $6 billion.
Speaker Change: Thank you, Pedro. Good afternoon, everyone. As Pedro just mentioned, during the second quarter, we once again delivered strong TPV growth of 38% year over year and 14% quarter over quarter, reaching $6 billion.
Maria Oldham: Collars. Our cross-order business, Court of Value Proposition, we will 11% Quart Over Quartor, and 22% year-over-year, which is a new record of 2.7 billion in TPV. The quarterly growth is driven specially by the ride-hailing vertical. The local to-local processing business continues to prove our strong value through the domestic growth, both in a 16% increase Quart Over Quartor, and 55% year-over-year, confirming our superior offering to our global merchants compared to direct integrations to local acquires. The quarterly increase was driven in particular by growth in commerce, in Mexico, and Argentina. Our business grew by healthy 70% Quart Over Quart, and 34% year-over-year, driven by strong performance in commerce, only money delivery, and right-hailing verticals.
Speaker Change: Our cross-border business, core to our value proposition, grew 11% QOQ and 22% EOY, reaching a new record of $2.7 billion in TPV.
Speaker Change: The quarterly growth is driven especially by the right hailing vertical.
Speaker Change: The local-to-local processing business continues to prove our strong values through domestic flows.
Speaker Change: posting a 16% increase quarter over quarter and 55% year over year, confirming our superior offering to our global merchants compared to direct integrations to local acquirers.
Speaker Change: The quarterly increase was driven in particular by growth in commerce in Mexico and Argentina.
Maria Oldham: Our paint business grew by a healthy 70% quarter over quarter and 34% year over year. Driven by strong performance in commerce, on-demand delivery, and ride-hailing. Our payouts business increased 7% quarter over quarter and close to 50% year over year. The Continuous Grove is driven specially by financial services, ride hailing, and fast. The Continuous Grove is driven specially by financial services, ride hailing, and fast.
Speaker Change: Our paint business grew by a healthy 70% quarter over quarter and 34% year over year.
Maria Oldham: Our pay-outs business increased 7% Quart Over Quartor, and close to 50% year-over-year. The continuous growth is driven specially by financial services, right-hailing, and soft verticals.
Speaker Change: Driven by strong performance in commerce, on-demand delivery, and ride-hailing verticals. Our payouts business increased 7% quarter over quarter and close to 50% year over year. The continuous growth is driven especially by financial services, ride-hailing, and fast verticals.
Maria Oldham: As we move down to the P&L, we observe divergent dynamics at the revenue and profitability levels. Moving to revenue, we achieved $171 million, up 6% year-over-year, primarily driven by Egypt, with over 100% year-over-year growth across advertising and streaming verticals, commerce and streaming in Mexico, and strong performance of other Latin, asking Asia across different verticals. Dispositive results compensated for lower revenues in Nigeria due to the narrow devaluation in February 2024. On a Quart over Quartor basis, despite the healthy TPP growth, revenue declined by 7%, driven by the currency devaluation in Nigeria and Egypt. The more we continue to scale and diversify our business geographically, the more we expect a dilution in top-line volatility over time, as we reduce the reliance on a few markets.
Maria Oldham: As we move down to the P&L, we observe divergent dynamics at the revenue and profitability levels. Moving to revenue, we achieved $171 million, up 6% year-over-year, primarily driven by Egypt, with over 100% year-over-year growth across advertising and streaming versions. Commerce and Streaming Max, and Strong Performance of Oder Latam, Africa and Asia across different verticals. These positive results compensated for lower revenues in Nigeria due to the Naira devaluation in February 2024. On a quarter-over-quarter basis, despite the healthy TPV growth, revenues declined by 7%, driven by the currency evaluation in Nigeria and Egypt.
Speaker Change: As we move down to the P&L, we observe divergent dynamics at the revenue and profitability levels Moving to revenue, we achieved $171 million per dollar.
Speaker Change: Up 6% year-over-year, primarily driven by Egypt, with over 100% year-over-year growth across advertising and streaming verticals.
Speaker Change: Komas and streaming Mexico. [inaudible]
Speaker Change: and Strong Performance of Oder Latam, Africa and Asia across different verticals.
Speaker Change: These positive results compensated for lower revenues in Nigeria due to the Naira devaluation in February 2024.
Speaker Change: On a quarter over quarter basis, despite the healthy TPV growth, revenues declined by 7%.
Speaker Change: driven by the currency devaluation in Nigeria and Egypt. The more we continue to scale and diversify our business geographically, the more we expect a dilution in top-line volatility over time, as we reduce the reliance on a few markets.
Maria Oldham: Now, moving to growth profit dynamics. As you can see, in slides 8 and 9, from their company Ernie's materials, since last quarter, we have included growth profit breakdown by region. During the quartor, growth profit was $70 million, a slight decrease of 1% year-over-year. Starting with Latin, growth profit was $54 million, down 13% year-over-year. Most of this decline was driven by Argentina due to the lower effect spreads following the currency devaluation in December 2023. Mexico also impacted Latin growth profit, decreasing 17% year-over-year due to market repricing and local to local increase. Growth profit in Chile contracted by 7% year-over-year due to lower cross-border volume.
Maria Oldham: The more we continue to scale and diversify our business geographically, the more we expect a dilution in top line volatility over time as we reduce the reliance on a few months. Now, moving to gross profit dynamic. As you can see in slides 8 and 9 from the accompanying earnings materials. Since last quarter, we have included cross-profit breakdown by region. During the quarter, gross profit was $70 million, a slight decrease of 1% year-over-year, starting with LATAM. Gross profit was $54 million, down 13% year-over-year.
Speaker Change: Now, moving to Gross Profit Dynamics.
Speaker Change: As you can see in slides 8 and 9 from the accompanying earnings materials, since last quarter we have included gross profit breakdown by region.
Speaker Change: During the quarter, gross profit was $70 million, a slight decrease of 1% year-over-year.
Maria Oldham: Most of this decline was driven by Argentina, due to the lower FEC spreads following the currency devaluation in December 2022. Mexico also impacted LATAM gross profit, decreasing 17% year-over-year, due to market repricing and local to local increases. Dross-profit in Chidi, contracted by 7% E over a year, which will lower cross-border avoidance. Other Latin markets showed a 10% year-over-year increase in gross profit driven by Tier 0 merchants' growth. In Africa and Asia, gross profit grew 79% year over year. Supported by our overall group in Egypt.
Speaker Change: Starting with Latam, gross profit was $54 million, down 13% year-over-year.
Speaker Change: Most of this decline was driven by Argentina.
Speaker Change: Due to the lower fax spreads following the currency devaluation in December 2023.
Speaker Change: Mexico also impacted LATAM gross profit, decreasing 17% year-over-year, due to merchant repricing and local-to-local increase.
Speaker Change: Gross profit in Chile contracted by 7% year-over-year due to lower cross-border volumes.
Maria Oldham: Other Latin markets showed a 10% year-over-year increase in growth profit driven by tier-0 Martins growth. In African Asia, growth profit grew 79% year-over-year, supported by our overall growth in Egypt, ramp up of our Martins in South Africa, primarily in the commerce vertical, and the temporary effects dynamics in Egypt. Algeria, Una Quarta over Quarta basis gross profit increased by 11%. In Latam, gross profit increased by 10% Quarta over Quarta. The main drivers were the growth in Argentina and other Latam markets, mainly Colombian, Costa Rica, and Brazil, with lower processing costs following our re-negotiation with processors, coupled with a change in payment mix.
Speaker Change: Other Latin markets showed a 10% year-over-year increase in gross profit driven by Tier 0 merchants' growth.
Speaker Change: In Africa and Asia, gross profit grew 79% year-over-year, supported by our overall growth in Egypt, ramp up of our margins in South Africa, primarily in the commerce vertical, and the temporary effects dynamics in Nigeria.
Maria Oldham: Ramp-up of our markets in South Africa, primarily in the commerce vertical, and the temporary effects dynamics in Nigeria. On a quarter over quarter basis, gross profit increased by 11%. In LATAM, gross profit increased by 10% quarter over, The Main Driver's Ward, the growth in Argentina and other Latin markets, mainly Colombia and Costa Rica, and Brazil with lower processing costs following our renegotiation with processes. Corporate Exchange and Payment Manager. Those two factors partially upset the impact of the Kim-Martin reprise, with full impact in the second quarter compared to two months in the previous one.
Speaker Change: On a quarter over quarter basis, gross profit increased by 11%.
Speaker Change: In LATAM, gross profit increased by 10% quarter over quarter.
Speaker Change: The main drivers were the growth in Argentina and other Latin markets, mainly Colombia and Costa Rica, and Brazil, with lower processing costs following our renegotiation with processors, coupled with change in payment mix.
Guilherme Grespan: Guilherme Grespan. Good day and thank you for standing by. Welcome to the Dlocal Second Quarter 2024 Results Conference call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star-1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star-1-1 again.
Maria Oldham: Those two factors partially offset the impact of the Kim Martin reprise, with full impact in the second quarter compared to two months in the previous one. In African Asia, gross profit increased by 13% Quarta over Quarta. The main drivers were temporary effects dynamics in Nigeria and growth in other African Asia.
Speaker Change: Those two factors partially offset the impact of the key merchant repricing, with full impact in the second quarter compared to two months in the previous one. In Africa and Asia, gross profit increased by 13% quarter over quarter.
Maria Oldham: In Africa and Asia, gross profit increased by 13% quarter over quarter. The main drivers were temporary effects dynamics in Nigeria and growth in other African nations. Despite the quarterly improvement, we acknowledge that our results for this period are still challenging. However, it is important to emphasize that we do not see any structural changes in our ability. Let me now hand over to Mark to continue discussing our financial... Thank you, Maria.
Unknown Executive: I would now like to hand it over to the company.
Speaker Change: The main drivers were temporary effects dynamics in Nigeria and growth in other African nations.
Maria Oldham: Despite the quarterly improvement, we acknowledge that our results for the spirit are still challenging. However, it is important to emphasize that we do not see any structure changes in our business.
Unknown Executive: Good afternoon everyone and thank you for joining the second quarter in 2024 earnings call today. If you have not seen the earnings release, the copy is posted in the financial section of the investor relations website. On the call today, you have Pedro Arnt, Chief Executive Officer, Mark Ortiz, Chief Financial Officer, Maria Oldham, SVP of Corporate Development Strategy and Investor Relations. And Mirella Aragal, Head of Investor Relations. A slide presentation has been provided to the company that prepared remarks.
Speaker Change: Despite the quarterly improvement, we acknowledge that our results for this period are still challenging. However, it is important to emphasize that we do not see any structural changes in our business.
Mark Ortiz: Let me now hand over to Mark to continue discussing our financials. Thank you, Maria.
Speaker Change: Let me now hand over to Mark to continue discussing our financials.
Mark Ortiz: Hi, everyone. During this quarter, as Pedro mentioned earlier, we are committed and continue to invest in our team's capabilities and innovation, while also seeking efficiencies across many areas of our business. We are confident that this type of efficient investment, given the opportunities ahead of us, will pay off in the mid to long-term. With that, total operating expenses reached $40 million for the quarter, an increase of 72% year over year. OPEX, excluding share-based compensation, and certain other non-cash items, grew 46%. OPEX growth has a clear allocation towards investment focused on product development and IT capabilities. Product and IT OPEX is up by 143% year over year, while all other expenses grew by 55%.
Mark Ortiz: During this quarter, as Pedro mentioned earlier, we are committed to and continue to invest in our team's capabilities and innovation, while also seeking efficiencies across many areas of our business. We are confident that this type of smart investment, given the opportunities ahead of us, will pay off in the mid to long term.
Mark Ortiz: Thank you, Maria. Hi, everyone. During this quarter, as Pedro mentioned earlier, we are committed and continue to invest in our team's capabilities and innovation, while also seeking efficiencies across many areas of our business.
Unknown Executive: This event is being broadcast live via webcast and both the webcast and presentations may be accessed through Dlocal's website at investor. Dlocal.com. 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 mention in this conference call are based on currently available information and the local's current assumptions, expectations and projections about future events. While the company believes that their assumptions, expectations and projections are reasonable given currently available information, your caution not to place undue reliance on those forward-looking statements.
Mark Ortiz: We are confident that this type of efficient investment, given the opportunities ahead of us, will pay off in the mid to long term.
Mark Ortiz: An increase of 72% year-over-year. OPEX, excluding share-based compensation, and certain other non-cash items, group 46. Opix Gross has a clear allocation towards investment focused on product development and IT capers.
Speaker Change: With that, total operating expenses reached 40 million dollars for the quarter, an increase of 72% year-over-year. OPEX, excluding share-based compensation and certain other non-cash items, grew 46%.
Unknown Executive: Actual results may differ materially from those included in Dlocal's presentation or discuss in this conference call for a variety of reasons, included those described in the forward-looking statements and risk factor sections of Dlocal's filings with the Securities and Exchange Commission, which are available on Dlocal's investor relations website.
Speaker Change: Opix Growth has a clear allocation towards investment focused on Prague development and IT capabilities.
Mark Ortiz: Product and IT OPEX is up by 143% year over year, while all other expenses grew by 55%. We also continue an investment cycle behind strengthening our back office capability, will remain committed to maintaining a balanced approach to expense management, balancing short-term and long-term. As a result, we delivered operating profit of $30 million for the quarter, up 12% quarter-over-quarter.
Speaker Change: Product and IT OPEX is up by 143% year-over-year, while all other expenses grew by 55%, as we also continue an investment cycle behind strengthening our back-office capabilities for future growth.
Mark Ortiz: As we also continue, an investment cycle behind strengthening our back-off is capabilities for future growth. We remain committed to maintaining a balanced approach to expense management, balancing short-term and long-term opportunity. As a result, we delivered operating profit of $30 million for the quarter, up 12% quarter over quarter, and adjusted EBITDA of $43 million, up 16% quarter over quarter, representing an adjusted EBITDA margin of 25%. This is a result of higher growth profit and disciplined OPEX investment. The ratio of adjusted EBITDA to growth profit increased to 61% for the Quarta, up 3 percentage points quarter over quarter.
Speaker Change: We remain committed to maintaining a balanced approach to expense management, balancing short-term and long-term opportunity.
Pedro Arnt: Now, I will turn the conference over to Dlocal. Thank you. Hi, thanks everyone for joining us today.
Speaker Change: As a result, we delivered operating profit of $30 million for the quarter, up 12% quarter over quarter, and adjusted EBITDA of $43 million, up 16% quarter over quarter, representing an adjusted EBITDA margin of 25%.
Mark Ortiz: Adjusted EBITDA of $43 million, up 16% quarter, representing an adjusted EBITDA margin of 25%. This is a result of higher growth profit and disciplined OPEC. The ratio of adjusted EBITDA to gross profit increased to 61% for the, at three percentage points a quarter. On a year-over-year comparison, operating profit came down 37% and adjusted EBITDA was down 18%.
Pedro Arnt: Let me start off with a summary of where things are as we've hit the halfway mark in 2024. We continue to see strong growth in our business, achieving another quarterly record of $6 billion of TPV during Q2-24. The evolution of this key metric demonstrates our continuity to grow as we gain share of wallet from our global merchant base, add new merchants to the mix as well. It also underscores our unique value proposition as a trusted partner for some of the largest and most sophisticated global companies across emerging markets.
Speaker Change: This is a result of higher gross profit and disciplined OPEX investment.
Speaker Change: The ratio of adjusted EBITDA to gross profit increased to 61% for the quarter, up 3 percentage points quarter over quarter.
Mark Ortiz: On a year-over-year comparison, operating profit came down 37%, and adjusted EBITDA was down 18%. Given the growth profit dynamics that Maria explained and our decision to sustain many of the long-term investments that I just mentioned. Net income was $46 million for the Quarta, up 161% quarter over quarter, and 3% year over year. The earnings presentation provides a detail of the Quarta over quarter evolution of net income. Income, which was mostly impacted by higher finance income, mostly driven by a $23 million non-cash market effect related to the Argentine bond investments used to hedge our local currency position in that market.
Speaker Change: On a year-over-year comparison, operating profit came down 37% and adjusted EBITDA was down 18%.
Mark Ortiz: Given the growth profit dynamics that Maria explained, and our decision to sustain many of the long-term investments that are, Net income was $46 million for the quarter, up 161% quarter-over-quarter and 3% year-over-year. The earnings presentation provides a detail of the quarter-over-quarter evolution of net, which was mostly impacted by higher. Mostly driven by a $23 million non-cash mark-to-market effect related to the Argentine bond investment. Hedge, our local currency in position in that. Our effective tax rate decreased to 18% from 29% last quarter, closer to levels.
Speaker Change: Given the growth profit dynamics that Maria explained, and our decision to sustain many of the long-term investments that I just mentioned.
Pedro Arnt: This momentum is solid and our pipeline remains robust, both within existing merchant opportunities and also with new merchant logos, which is a promising leading indicator of long-term growth. Potential. During the quarter, we've started processing for a few more marquee global names such as a leading global Chinese fintech and one of the world's largest events and ticketing marketplaces. We've also assisted multiple existing merchants that are among the world's largest e-commerce players in their initial forays into Africa as they've launched operations in South Africa during the last quarter, signaling our success across this very promising African continent.
Speaker Change: Net income was $46 million for the quarter, up 161% quarter of a quarter and 3% year over year. The earnings presentation provides a detail of the quarter of a quarter evolution of net income, which was mostly impacted by higher finance income.
Speaker Change: mostly driven by a 23 million dollar non-cash mark-to-market effect related to the Argentine bonds investments used to hedge our local currency position in that market.
Mark Ortiz: Our effective tax rate decreased to 18% from 29% last quarter, closer at $35 million of free cash flow from our own funds, resulting in a free cash flow conversion rate of 77%, up $23 million and 7 percentage points from Q1. Without taking into account the extraordinary gain of the Argentine bond, cash conversion would be over 100% in line with our historical levels. We ended the quarter with a strong liquidity position of $306 million, including $106 million of available cash for general corporate purposes and $120 million of short-term investments.
Speaker Change: Our effective tax rate decreased to 18% from 29% last quarter, closer to levels of previous quarters.
Mark Ortiz: Moving on to cash flow for the quarter, we generated $35 million of free cash flow from our own savings, resulting in a free cash flow conversion rate of 77%, up $23 million and 7%... Without taking into account the externary gain of the Argentine bond, cash conversion would be over 100%, in line with our historical. We ended the quarter with a strong liquidity position of $306 million, including $186 million of available cash for General Corp. $120 million dollars of short.
Speaker Change: Moving on to cash flow for the quarter, we generated 35 million dollars of free cash flow from our own funds, resulting in a free cash flow conversion rate of 77%, up 23 million dollars and 7 percentage points from Q1.
Pedro Arnt: And finally, also worth noting, we continue to power the growth of cross-border payments in Brazil, being a part of the recent launch of a global marketplace powerhouse in that market. This 6 billion in TPV represents a 38% year-on-year growth, despite the tough comp basis of 80% year-on-year growth in the stellar quarter of last year. Performance was good for us across multiple verticals, including continued strong growth in commerce, on-demand delivery, and remittance verticals, accelerating growth in the software as a service and the ride-hailing merchants, which grew 72% and 51% respectively year-over-year.
Speaker Change: [inaudible]
Speaker Change: Without taking into account the externary gain of the Argentine bond, cash conversion would be over 100% in line with our historical levels.
Speaker Change: We ended the quarter with a strong liquidity position of $306 million, including $106 million of available cash for general corporate purposes. [inaudible]
Mark Ortiz: Before I pass it over to Pedro, let me give you a more detailed update on our share buyback program. As a reminder, we disclosed in the first quarter results that our board had authorised up to $200 million share buyback program to purchase Class A common shares as part of our capital allocation strategy. During the second quarter, we purchased $82 million, representing $9.2 million shares, using our own funds.
Mark Ortiz: Before I pass it over to Pedro, let me give you a more detailed update on our share buyback. And as a reminder, we disclosed in the first quarter results that our board had authorized up to $200 million share buyback program for Class A common shares as part of our capital allocation strategy. During the second quarter, we purchased $82 million, representing 9.2 million shares. With this, let me hand it over to Pedro.
Speaker Change: and $120 million of short-term investments.
Speaker Change: Before I pass it over to Pedro, let me give you a more detailed update on our Share Buy Back program.
Pedro Arnt: As a reminder, we disclosed in the first quarter results that our board had authorized up to $200 million share buyback program to purchase Class A common shares as part of our capital allocation strategy. During the second quarter, we purchased $82 million
Pedro Arnt: This kind of sustained and well-diversified TPV growth with a focused commitment to low-risk, high-reputation verticals sets us up well for long-term success. We believe that our year-over-year growth showcases a unique in-class combination of growth while focusing on reputable verticals, which is unique among the relevant compass, who either grow less, over-index, high-risk verticals, or do both. Net take rates have held up sequentially, despite unfavorable events like the repricing by our largest merchant at the beginning of the year, material currency devaluations in Nigeria and Egypt more recently, and continued weakening across most emerging market currencies.
Pedro Arnt: With this, let me hand it over back to Pedro for closing remarks.
Speaker Change: representing 9.2 million shares using our own funds.
Pedro Arnt: Now, and finalizing, as you know, emerging markets are inherently volatile, which can and often do impact our short-term results. However, our long-term view remains optimistic, as I mentioned earlier.
Pedro Arnt: Now, and finalized. As you know, emerging markets are inherently volatile, which can and often do impact our short-term results. However, our long-term view remains optimistic, as I mentioned earlier. During our quarterly bottom-up review of Pipeline and existing contract, where we project out share of wallet, probable market growth and new commercial opportunities on a merchant by merchant base. We are getting to the following revised outlook for 2020. Our new TPV expectation is explained by lower probability of volume ramp-up, and certain murders.
Speaker Change: With this, let me hand it over back to Pedro for closing remarks.
Pedro Arnt: Now, and finalizing.
Pedro Arnt: As you know, emerging markets are inherently volatile, which can, and often do, impact our short-term results. However, our long-term view remains optimistic, as I mentioned earlier.
Pedro Arnt: During our quarterly bottom-up review of Pipeline and existing contract where we project out share of wallet, probable market growth and new commercial opportunities on a merchant by merchant basis, we are getting to the following revised outlook for 2024. Our new TPV expectation is explained by lower probability of volume ramp-ups on certain merchants. Pipeline development that is skewed even more towards tier zero merchants with lower take rates and weaker emerging market currency expectations going forward. For Gross Profit, our forecast takes into consideration these impacts that I just mentioned for TPV while also assuming a growth of volumes in our local to local flows as our local businesses continue to thrive.
Speaker Change: During our quarterly bottom-up review of pipeline and existing contracts, where we project out share of wallet, probable market growth, and new commercial opportunities on a merchant-by-merchant basis,
Pedro Arnt: This type of stable sequential pricing and growing TPV during the quarter translated into 11% quarter-on-quarter growth profit growth. Our OPEX, excluding non-cash share-based compensation, only grew by $1 million sequentially after previous quarters of sequential growth above $4 million, and this happened as we adjusted our cash spend to the weaker gross profit that began to flow through our PNL. As I've mentioned previously, there is a limit to how much we're willing to defend margins in the short term, as we're truly committed to certain investments which are crucial for our long-term success, particularly those in our engineering pool, back office capabilities, and behind our license portfolio. But to balance this out, we are always revising other discretionary spending to make sure it matches our top-line performance and is aligned with our general philosophy of frugalis.
Speaker Change: We are getting to the following revised outlook for 2024. Our new TPPV expectation is explained by lower probability of volume ramp-ups on certain merchants.
Pedro Arnt: [inaudible] Pipeline development that is skewed even more towards tier zero merchants with lower take rates and weaker emerging market currency expectations going, For Gross Profit, our forecast takes into consideration... These impacts that I just mentioned for TPV, while also assuming a growth of volumes in our local to local flows as our local businesses continue to thrive. Our current expectations for adjusted EBITDA reflect our desire of not wanting to slow down certain key investments in long-term projects.
Speaker Change: pipeline development that is skewed even more towards tier 0 merchants with lower take rates and weaker emerging market currency expectations going forward.
Speaker Change: For gross profit, our forecast takes into consideration these impacts that I just mentioned for TPV, while also assuming a growth of volumes in our local-to-local flows as our local businesses continue to thrive.
Pedro Arnt: Our current expectations for adjusted EBITDA reflect our desire of not wanting to slow down certain key investments in long-term projects, and hence the decision to not defer fend our short-term margin structure as aggressively as we could, given our ability to tightly control costs and the flexible cost structure. We have.
Speaker Change: Our current expectations for adjusted EBITDA reflect our desire of not wanting to slow down certain key investments in long-term projects.
Pedro Arnt: And hence, the decision to not defend our short-term margin structure as aggressively as we could, given our ability to tightly control costs. Flexible Cost Structure. We need to continue hiring more IT and product talent, strengthening our internal controls for the ever more complex businesses we manage, and investing in control functions that protect our merchants' business and reputation. Across the Global South.
Speaker Change: And hence, the decision to not defend our short-term margin structure as aggressively as we could, given our ability to tightly control costs and the flexible cost structure we have.
Pedro Arnt: We need to continue hiring more IT and product talent, strengthening our internal controls for the ever more complex businesses we manage, and investing in control functions that protect our merchants' business and reputations across the global south. I want to make sure I remind you that we still see significant operational leverage in the business midterm once these investments are carried out. Rapping up, we continue to thrive across emerging markets, despite their complexities, which we embrace as we deliver simple, effective solutions to our merchants. Our focus remains on execution and long-term growth, and our commitment to our merchants and our expertise in the regions where we operate enable us to consistently win business from these global players.
Speaker Change: We need to continue hiring more IT and product talent, strengthening our internal controls for the ever more complex businesses we manage, and investing in control functions that protect our merchants' business and reputations across the Global South.
Pedro Arnt: University. As a consequence of this, adjusted EBITDA reached 43 million dollars, reflecting what is still a lean structure and disciplined approach to spending, while our cash generation also accelerated versus the prior quarter. These highlights also come with certain challenges that we are focused on rapidly addressing, primarily that year over year gross profit performance was flat, driven by Latin America that was actually down 13% on Argentine FX devaluation and the repricing by our largest merchant in Brazil in Mexico. Stellar, African and Asian gross profit growth of 79% year over year unfortunately did not suffice to offset those two events in Latin America still our largest region.
Pedro Arnt: I want to make sure I remind you that we still see significant operational leverage in the business midterm once these investments are carried out. Wrapping up, we continue to thrive across emerging markets. Despite their complexities, which we embrace as we deliver simple, effective solutions to our, Our focus remains on execution and long-term growth and our commitment to our And our expertise in the regions where we operate enable us to consistently win business, from these global places. As we scale, this growth will help mitigate short-term volatility and dilute market fluctuations.
Speaker Change: I want to make sure I remind you that we still see significant operational leverage in the business mid-term once these investments are carried out.
Speaker Change: Wrapping up, we continue to thrive across emerging markets.
Speaker Change: despite their complexities which we embrace as we deliver simple effective solutions to our merchants.
Speaker Change: Our focus remains on execution and long-term growth and our commitment to our merchants and our expertise in the regions where we operate enable us to consistently win business from these global players.
Pedro Arnt: As we scale, this growth will help mitigate short-term volatility and dilute market fluctuations.
Speaker Change: As we scale, this growth will help mitigate short-term volatility and dilute market fluctuations.
Pedro Arnt: Therefore, it's crucial for us to continue focusing on TPPV growth, increasing our share of wallet and addressing new clients, all of which we have consistently delivered since the company's inception, while continuing to drive operational leverage in the business once we get through the business. Through the current, disciplined investment cycle we're in.
Operator: Therefore, it's crucial for us to continue focusing on... TPV Growth. Increasing our share of wallet and addressing new clients, all of which we have consistently delivered since the company's inception, while continuing to drive operational leverage in the business once we get through the current disciplined investment cycle work. With that, we're ready to take your questions and thank you for your time. Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.
Pedro Arnt: Let me wrap up this first part by stating that not only do we see more good than bad in the reported quarter, but taking a step back from a short-term quarterly prison, Dlocal is an incredibly strong company with a fantastic time, attractive business model and extremely promising future that at some point will be reflected in capital market performance. So to keep things in perspective, we maintain strong product market validation as witnessed by nearly 40% year over year and 14% quarter over quarter TPV growth.
Speaker Change: Therefore, it's crucial for us to continue focusing on TPV growth, increasing our share of wallet, and addressing new clients, all of which we have consistently delivered since the company's inception.
Speaker Change: while continuing to drive operational leverage in the business once we get through the current disciplined investment cycle we're in.
Unknown Executive: With that, we're ready to take your questions, and thank you for your interest. Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for questions.
Speaker Change: With that, we're ready to take your questions and thank you for your interest.
Speaker Change: Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. One moment for questions.
Pedro Arnt: We still run a high margin financial model with adjusted EBITDA to gross profit at 60% plus and ability to scale from here to previous levels going forward. A cash conversion that remains very strong and growing as EBITDA increases sequentially with a cash conversion cycle that's still in the 100% range over the last 12 months. When we analyze the potential of all this to compound over time, it's hard to not be optimistic about our future.
Tito Labarda: Our first question comes from Tito LaBarda with Goldman Sachs. He may proceed.
Operator: One moment for questions. Our first question comes from Tito Labarta with Goldman Sachs. He may proceed. Hi, good evening.
Speaker Change: Our first question comes from Tito Labarta with Goldman Sachs. You may proceed.
Tito Labarda: Hi. Good evening. Thank you for the call and taking my question. I guess my question is on the guidance just to understand a little bit the dynamics there and take further for the explanation that was helpful. If I go back a little bit and your first quarter conference call, you're already halfway through 2Q and you felt comfortable that you could deliver the lower end of the guidance. I completely understand all of all of Italy and emerging markets.
Tito Labarta: Thank you for the call and taking my question. I guess my question is about guidance, just to understand a little bit the dynamics there. And thanks, Pedro, for the explanation. That was helpful.
Tito Labarda: Hi, good evening. Thank you for the call and taking my question. I guess my question is on the guidance, just to understand a little bit the dynamics there. And thanks, Pedro, for the explanation. That was helpful.
Speaker Change: If I go back a little bit, you know, in your first quarter conference call, you were already kind of halfway through 2Q and you felt comfortable that you could deliver the lower end of the guidance. And I completely understand all the volatility in emerging markets. So
Pedro Arnt: Despite the inherent challenges and volatility existent throughout the global south. We firmly believe that our long-term future is bright and our own ability to execute is the single most important factor behind us capturing that opportunity. That optimism is not only being relayed in my remarks but also reflected in our capital allocation strategy. Our business has an attractive cash generation profile and we see upside in our stock as we grow and scale and as a consequence of this, we have bought back stock during the quarter at a rapid pace. We trust this will prove to be a savvy capital allocation decision over time.
Tito Labarda: I just want to understand if something changed from the last conference call and now. One growth profit you had mentioned that March was very strong; this looks like it had been running below that March rate. Going forward, it affects a lot of increasing growth profit from here.
Tito Labarta: But just if I go back a little bit, you know, in your first quarter conference call, you already kind of halfway through 2Q, and you felt comfortable that you could deliver the lower end of the guidance. And I completely understand all the volatility in emerging markets. So I just want to understand if something changed from, you know, the last conference call, and now, You know, one, you know, gross profit, you had kind of mentioned that March was very strong. You know, this looks like it had been running below that March rate. And, you know, it.
Speaker Change: I just want to understand if something changed from, you know, the last conference call.
Speaker Change: and now
Speaker Change: You know, one, you know, gross profit, you had kind of mentioned that March was very strong, you know, this looks like it had been running below that March rate. And it
Pedro Arnt: Going forward, you expect a modest increase in gross profit from here, it seems, but just to understand if there was anything different from 2Q, from when you had the 1Q conference call to today, to have you a little bit more cautious on delivering that guidance, and then I have another question after that. Sure. Thanks, Tito.
Tito Labarda: It seems, but just to understand if there was anything different from 2Q from when you had the 1-2 conference call today to have you a little bit more cautious on delivering that guidance and then have another question after that. Thank you.
Speaker Change: Going forward, you expect a modest increase in gross profit from here, it seems.
Speaker Change: But just to understand if there was anything different from 2Q, from when you had the 1Q conference call to today, to have you a little bit more cautious on delivering that guidance. And then I have another question after that.
Pedro Arnt: Sure. Thanks, Tito.
Maria Oldham: With that, let me hand it over to Maria and Mark to take you through more detailed overview of our second quarter results. Thank you Pedro. Good afternoon, everyone.
Pedro Arnt: Admittedly, I think the evolution of guidance over the last few quarters, has shown that it's evolved as we run through our process of trying to project out how existing volumes on the 706 merchants we have running, will play out over the remainder of the year, then what our assumptions are on new volumes from those merchants and new merchants. And then finally, there's an element of trying to overlay some macro expectations in terms of currency.
Pedro Arnt: Admittedly, I think the evolution of guidance over the last few quarters has shown that it's evolved as we run through our process of trying to project out how existing volumes on the 706 merchants we have running. We'll play out over the remainder of the year, then what our assumptions are on new volumes from those merchants and new merchants. And then finally there's an element of trying to overlay some macro expectations in terms of currency.
Pedro Arnt: Sure. Thanks, Tito.
Speaker Change: Admittedly, I think the evolution of guidance over the last few quarters
Maria Oldham: As Pedro just mentioned, during the second quarter, we once again delivered strong TPV growth of 38% year over year and 14% quarter over quarter, which is $6 billion. Collars. Our cross-order business, Court of Value Proposition, we will 11% Quart Over Quartor, and 22% year-over-year, which is a new record of 2.7 billion in TPV. The quarterly growth is driven specially by the right-hailing vertical. The local to-local processing business continues to prove our strong value through the domestic growth, both in a 16% increase Quart Over Quartor, and 55% year-over-year, confirming our superior offering to our global merchants compared to direct integrations to local acquires.
Speaker Change: has shown that it's evolved as we run through our process of trying to project out how existing volumes on the 706 merchants we have running
Speaker Change: will play out over the remainder of the year, then what our assumptions are on new volumes from those merchants and new merchants. And then finally, there's an element of trying to overlay some macro expectations in terms of currency.
Pedro Arnt: Unfortunately, I think the revisions as we run that methodical process have been towards the downside over the last two reviews, but that's exactly what it's been. So it's 40 plus markets, 700 plus merchants. These are not software as a service contracts.
Pedro Arnt: Unfortunately, I think the revisions, as we run that methodical process, have been towards the downside over the last two reviews. So it's 40 plus markets, 700 plus merchants. These are not Software as a Service contracts. We're actually having to regain our business every day with them. And we do the best we can in trying to project how we think the year will come out on the cost line. We feel we have absolute control of what we spend on the TPV and gross profit levels. I think it's clear that we do the best we can.
Speaker Change: Unfortunately, I think the revisions as we run that methodical process have been towards the downside over the last two reviews, but that's exactly what it's been. So it's 40 plus markets, 700 plus merchants.
Pedro Arnt: We're actually having to regain our business every day with them. And we do the best we can in trying to project how we think the year will come out. On the cost line, we feel we have absolute control of what we spend on the TPV and gross profit levels.
Maria Oldham: The quarterly increase was driven in particular by growth in commerce, in Mexico, and Argentina. Our business grew by healthy 70% Quart Over Quartor, and 34% year-over-year, driven by strong performance in commerce, only money delivery, and right-hailing verticals. Our pay-outs business increased 7% Quart Over Quartor, and close to 50% year-over-year. The continuous growth is driven specially by financial services right-hailing and soft verticals.
Speaker Change: These are not software-as-a-service contracts. We're actually having to regain our business every day with them, and we do the best we can in trying to project how we think the year will come out. On the cost line, we feel we have absolute control of what we spend.
Pedro Arnt: I think it's clear that we do the best we can. Where we're coming from is that we continue to see strong adoption of our products and services. And I think that's reflected in the TPV guidance and the TPV growth. However, when you get to gross profit, we do see a greater share towards existing tier zero merchants. We see a continued outperformance in the local to local business, which on the one hand doesn't have the FX monetization. So that drives take rates down modestly, but down.
Speaker Change: on the TPV and gross profit levels. I think it's clear that we do the best we can. Where we're coming at is we continue to see
Pedro Arnt: Where we're coming at is we continue to see a strong adoption of our products and services. And I think that's reflected in the TPV guidance and the TPV growth. When you get to gross profit, we do see a greater share towards existing Tier Zero merchants. We see a continued out performance in the local to local business, which in one hand doesn't have the effects monetization. So that drives take rate down modestly, but down on the other hand, you could argue those local to local businesses both prove the staying power of what we offer and our pure transactional revenues.
Speaker Change: a strong adoption of our products and services. And I think that's reflected in the TPV guidance and the TPV growth.
Maria Oldham: As we move down to the P&L, we observe divergent dynamics at the revenue and profitability levels. Moving to revenue, we achieved $171 million, up 6% year-over-year, primarily driven by, Egypt, with over 100% year-over-year growth across advertising and streaming verticals, commerce and streaming in Mexico, and strong performance of other Latin, asking Asia across different verticals. Dispositive results compensated for lower revenues in Nigeria due to the narrow devaluation in February 2024. On a Quart Over Quartor basis, despite the healthy TPP growth, revenue declined by 7%, driven by the currency devaluation in Nigeria and Egypt. The more we continue to scale and diversify our business geographically, the more we expect a dilution in top-line volatility over time, as we reduce the reliance on a few markets.
Speaker Change: When you get to gross profit, we do see a greater share towards existing tier zero merchants.
Speaker Change: We see a continued outperformance in the local-to-local business.
Speaker Change: which in one hand doesn't have the FX monetization
Pedro Arnt: On the other hand, you could argue those local to local businesses both prove the staying power of what we offer and our pure transactional revenues. So in a way, those are less volatile and you could argue lower margin, higher quality volume that we think mix will skew towards more than we did a quarter ago. And then on EBITDA, as I said, we fully control what we spend.
Speaker Change: So that drives take rate down modestly, but down. On the other hand, you could argue those local to local businesses both prove the staying power of what we offer and our pure transactional revenues.
Pedro Arnt: So, in a way, those are less volatile, and you could argue lower margin higher quality volume that we think mix will skew towards more than we did a quarter ago.
Speaker Change: So, in a way, those are less volatile, and you could argue lower margin, higher quality volume that we think mix will skew towards more than we did a quarter ago.
Pedro Arnt: And then on EBITDA, as I said, we fully control what we spend. We just want to make sure that we continue to build the term. And so the adjustments we're making are not fully aggressive on trying to deliver the margin target, but making sure that if there are investments, we think we need to make. We're making them anyway.
Pedro Arnt: We just want to make sure that we continue to build for the long term. And so the adjustments we're making are not fully aggressive in trying to deliver the margin target, but we make sure that if there are investments we think we need to make, we make them anyway. And as we've said a few times, and as the evolution of our OPEX shows, those are heavily skewed towards product development and technology and then strengthening some of the mid office and back office. Okay, no, that's very helpful, Pedro. Thanks for the color there.
Speaker Change: And then on EBITDA, as I said, we fully control what we spend, we just want to make sure that we continue to build for the long term. And so the adjustments we're making are not
Maria Oldham: Now, moving to growth profit dynamics. As you can see, in slides 8 and 9, from their company Ernie's materials, since last Quartor, we have included growth profit breakdown by region. During the Quartor, growth profit was $70 million, a slight decrease of 1% year-over-year. Starting with Latin, growth profit was $54 million, down 13% year-over-year. Most of this decline was driven by Argentina due to the lower effect spreads following the currency devaluation in December 2023.
Speaker Change: and fully aggressive on trying to deliver the margin target, but making sure that if there are investments we think we need to make. [inaudible]
Tito Labarda: And as we said a few times, and as the evolution of our opX shows, those are heavily skewed towards product development and technology, and then strengthening some of the mid office and back office functions. Okay, now that's very helpful.
Speaker Change: We're making them anyway. And as we've said a few times, and as the evolution of our OPEX shows, those are heavily skewed towards product development and technology, and then strengthening some of the mid-office and back-office functions.
Tito Labarta: And I guess a follow up on that, right. And you mentioned, you know, growing more in local to local, we did see a big drop in the gross take rate, but the net take rate, I guess, maybe positively held up fairly well. I guess, do you expect this shift towards more local to local to continue? Could that put maybe more pressure on the gross take rate?
Tito Labarda: Thanks for the color there. And I guess a follow up on that, right? And you mentioned growing more in local to local. We did see a big drop in the gross take rate, but then that take rate, I guess maybe positively helped off your fairly well. I guess, do you expect this shift towards more local to local to continue?
Speaker Change: Okay, no, that's very helpful, Pedro. Thanks for the color there. And I guess a follow-up on that, right, and you mentioned, you know, growing more in local-to-local. We did see a big drop in the gross take rate, but the net take rate, I guess, maybe positively held up fairly well. I guess, do you expect this shift towards more local-to-local to continue?
Pedro Arnt: Could that put maybe more pressure on the gross take rate, but do you think maybe, and again, I know this is hard to predict, but the net take rate is maybe fabilizing a little bit from what we had seen in the prior quarters. Yeah, so one thing I do strongly suggest we focus on the net take rate as we try to understand the monetization capacity of our business going forward. The gross take rate is heavily influenced by revenue that is very volatile, especially driven by dual exchange rate markets. So I do think the net take rate question you're asking is the right question.
Pedro Arnt: But do you think maybe, and again, I know this is hard to predict, but that the net take rate is maybe stabilizing a little bit from what we had seen in the prior quarter? Yeah, so one thing I do strongly suggest we focus on the net take rate, as we try to understand the monetization capacity of our business going forward. The gross take rate is heavily influenced by revenue that is very volatile, especially driven by dual exchange rate markets.
Maria Oldham: Mexico also impacted Latin growth profit, decreasing 17% year-over-year, due to market repricing and local to local increase. Growth profit in Chile contracted by 7% year-over-year, due to lower cross-border volume. Other Latin markets showed a 10% year-over-year increase in growth profit driven by tier-0 Martins growth. In African Asia, growth profit grew 79% year-over-year, supported by our overall growth in Egypt, ramp up of our Martins in South Africa, primarily in the commerce vertical, and the temporary effects dynamics in Egypt.
Speaker Change: Could that put maybe more pressure on the growth take rate? But do you think maybe, and again, I know this is hard to predict, but that the net take rate is maybe stabilizing a little bit from what we had seen in the prior quarters?
Pedro Arnt: So I do think the net take rate question you're asking is the right question. If you look at the midpoints of the guidance, we believe that given the local to local shift, and the greater concentration in tiers year merchants, that you will continue to see decline in take rates in the short run. But those are moderate declines.
Pedro Arnt: Yeah, so one thing I do strongly suggest we focus on the net take rate as we try to understand the monetization capacity of our business going forward. The gross take rate is heavily influenced by
Speaker Change: revenue that is very volatile, especially driven by dual exchange rate markets. So I do think the net take rate question you're asking is the right question. If you look at the midpoints of the guidance, we believe that given the local to local shift,
Pedro Arnt: If you look at the mid points of the guidance, we believe that given the local to local shift and the greater concentration in tears here, merchants that you will continue to see decline in take rates in the short run. But those are moderate declines. I think if anyone was expecting the bottom to fall out or merchants queuing up to reprice as our largest merchant did at the beginning of the year, that has definitely not been the case. And you can see that in the Q on Q evolution of net take rate, which is down by a few single basis points.
Pedro Arnt: I think if anyone was expecting the bottom to fall out, or merchants queuing up to reprice as our largest merchant did at the beginning of the year, that has definitely not been the case. And you can see that in the queue on queue evolution of net take rate, which is down by a few single basis points, single digit basis points. So again, if you look at the mid points, our expectation is downward, but in a very controlled fashion.
Maria Oldham: Algeria, Una Quarta over Quarta basis gross profit increased by 11%. In Latam, gross profit increased by 10% Quarta over Quarta. The main drivers were the growth in Argentina and other Latam markets, mainly Colombian Costa Rica, and Brazil with lower processing costs following our re-negotiation with processors, couple with change in payment mix. Those two factors partially offset the impact of the Kim Martin reprise, with full impact in the second quarter compared to two months in the previous one. In African Asia, gross profit increased by 13% Quarta over Quarta. The main drivers were temporary effects dynamics in Nigeria and growth in other African Asia.
Speaker Change: and the greater concentration in tiers year merchants that you will continue to see decline intake rates in the short run.
Speaker Change: But those are moderate declines, I think.
Speaker Change: If anyone was expecting the bottom to fall out or merchants queuing up to reprice as our largest merchant did at the beginning of the year, that has definitely not been the case.
Speaker Change: And you can see that in the queue-on-queue evolution of net take rate, which is down by a few single basis points.
Pedro Arnt: Single-digit basis points. So, again, if you look at the mid points, our expectation is downward, but in a very controlled fashion.
Speaker Change: Single-digit basis points.
Speaker Change: So again, if you look at the midpoints, our expectation is downward, but in a very controlled fashion. If we take somewhat more of the midterm view on take rates,
Pedro Arnt: If we take somewhat more of the mid-term view on take rates, what we're working on, and I think the objective here is, as some of our newer products, like the invoicing products or the platform products, and hopefully new products we launched to market, begin to grow in scale, we can try to offset some of the structural declines in take rates that are happening across all of FinTech, especially in the payments piece, try to offset that with more value-added services. But that's more of a mid-term strategic answer. Your specific question, if you look at the mid points, we're expecting somewhat of a downward trajectory in take rates, driven by more local to local, and more tier zero merchants, so the very large merchants in the mix, but fairly controlled in terms of the magnitude of that take rate decline.
Maria Oldham: Despite the quarterly improvement, we acknowledge that our results for the spirit are still challenging. However, it is important to emphasize that we do not see any structure changes in our business.
Pedro Arnt: If we take somewhat more of a midterm view on take rates, what we're working on, and I think the objective here is, as some of our newer products like the invoicing product or the platform products, and hopefully, new products we launch to market begin to grow in scale, we can try to offset some of the structural declines in take rates that are happening across all of FinTech, especially in the payments piece, try to offset that with more value-a But that's more of a midterm strategic answer.
Speaker Change: What we're working on, and I think the objective here is, as some of our newer products, like the invoicing product, or the platform products, and hopefully new products we launch to market,
Mark Ortiz: Let me now hand over to Mark to continue discussing our financials. Thank you, Maria.
Mark Ortiz: Hi, everyone. During this quarter, as Pedro mentioned earlier, we are committed and continue to invest in our team's capabilities and innovation, while also seeking efficiencies across many areas of our business. We are confident that this type of efficient investment given the opportunities ahead of us will pay off in the mid to long-term. With that, total operating expenses reached $40 million for the Quarta, an increase of 72% year over year. OPEX, excluding share-based compensation, and certain other non-cash items, grew 46%.
Speaker Change: begin to grow and scale.
Speaker Change: We can try to offset some of the structural declines in take rates.
Speaker Change: that are happening across all of FinTech.
Speaker Change: especially in the payments piece.
Pedro Arnt: Your specific question, if you look at the midpoints, we're expecting somewhat of a downward trajectory in take rates driven by more local to local and more tier zero merchants, so the very large merchants in the mix, but fairly controlled in terms of the magnitude of that take rate decline. Yeah, okay, that's super helpful.
Speaker Change: try to offset that with more value added services. But that's more of a midterm strategic answer. Your specific question, if you look at the midpoints, we're expecting somewhat of a downward trajectory in take rates driven by more local to local and more tier zero merchants, so the very large merchants in the mix.
Speaker Change: but fairly controlled in terms of the magnitude of that take rate decline.
Tito Labarda: Okay, that's super helpful. Thanks a lot, Pedro.
Mark Ortiz: OPEX growth has a clear allocation towards investment focused on product development and IT capabilities. Product and IT OPEX is up by 143% year over year, while all other expenses grew by 55%. As we also continue, an investment cycle behind strengthening our back-off is capabilities for future growth. We remain committed to maintaining a balanced approach to expense management, balancing short-term and long-term opportunity. As a result, we delivered operating profit of $30 million for the Quarta, up 12% quarter over quarter, and adjusted EBITDA of $43 million, up 16% quarter over quarter, representing an adjusted EBITDA margin of 25%.
Unknown Executive: Thank you.
Speaker Change: Okay, that's super helpful. Thanks a lot, Pedro.
Jeremy Grisman: Our next question comes from Jeremy Grisman with JP Morgan. You may proceed. Jeremy Grisman, your line is now open. One moment for our next question.
Operator: Thank you. Our next question comes from Guilherme Grespan, with J.P. Morgan. You may proceed. Mr. Grespan, your line is now open.
Speaker Change: [inaudible]
Speaker Change: Thank you.
Speaker Change: Our next question comes from Guilherme Grespan with J.P. Morgan. You may proceed.
Speaker Change: [inaudible]
Sumitata: Our next question comes from Sumitata, with new street research he may proceed. Hi there, thanks, guys, for the opportunity to ask a couple of questions. First of all, just to go back to the merchant re-pricing point, as you said, there isn't kind of a long queue of people lining up to try and reduce prices. But how much visibility do you have on that in terms of looking forward in the coming months? I guess we're all a little surprised by developments at the beginning of the year. What sort of visibility do you have on that process, particularly given the concentration of merchants remains still pretty high?
Operator: One moment for our next question. Our next question comes from Sumit Dutta with New Street Research. He may proceed. Hi there.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from Sumitata with New Street Research, you may proceed.
Sumit Dutta: Thanks, guys, for the opportunity to ask a couple of questions. First of all, just to go back to the merchant repricing point, as you said, You know, you're saying that, you know, there isn't kind of a long queue of people lining up to try and reduce prices, but how much... Visibility to you have on that in terms of, you know, looking forward in the coming months? I guess we're all a little surprised by developments at the beginning of the year.
Sumetara: Hi there, thanks guys for the opportunity to ask a couple of questions. First of all, just to go back to the merchant repricing point, as you said,
Mark Ortiz: This is a result of higher growth profit and disciplined OPEX investment. The ratio of adjusted EBITDA to growth profit increased to 61% for the Quarta, up 3% points quarter over quarter. On a year over year comparison, operating profit came down 37% and adjusted EBITDA was down 18%. Given the growth profit dynamics that Maria explained and our decision to sustain many of the long-term investments that I just mentioned. Net income was $46 million for the Quarta, up 161% quarter over quarter, and 3% year over year.
Speaker Change: You know, you're saying that, you know, there isn't kind of a long queue of people lining up to try and reduce prices, but how much?
Speaker Change: visibility to have on that in terms of
Speaker Change: You know, looking forward in the coming months.
Sumit Dutta: You know, what sort of visibility do you have on that process, particularly given the concentration of merchants remains still pretty high? So first question, please, and if I could just squeeze in another quick one, just a kind of more detailed one on Egypt, actually, where, There was obviously the devaluation effect, but actually the gross profit seemed to hold up pretty well relative to what I was looking for and relative to how things trended in Argentina. So maybe just a bit of detail on how that all played through in Egypt would be helpful. Thanks very much.
Speaker Change: I guess we're all a little surprised by developments at the beginning of the year, you know, what sort of visibility do you have long?
Speaker Change: on that process, particularly given the concentration of merchants.
Sumitata: That's first question please.
Sumitata: If I could just squeeze in another quick one, just a more detailed one on Egypt, actually where there was obviously the devaluation effect. But actually, the gross profit seems held up pretty well relative to what I was looking for and relative to how things trended in Argentina. So maybe just a bit of detail on how that will play to an Egypt would be helpful. Thanks very much. Thank you. So visibility. As we mentioned last quarter, our pricing is not stipulated in long-term contracts or dated contracts. They're stipulated in the contract, but the merchant has the option to approach us and discuss pricing at any moment.
Speaker Change: remains still pretty high. So that's the first question, please. And if I could just squeeze in another quick one, just a more detailed one on Egypt, actually, where...
Mark Ortiz: The earnings presentation provides a detail of the Quarta over quarter evolution of net income. Income, which was mostly impacted by higher finance income, mostly driven by a $23 million non-cash market effect related to the Argentine bond investments used to hedge our local currency position in that market. Our effective tax rate decreased to 18% from 29% last quarter, closer at $35 million of free cash flow from our own funds resulting in a free cash flow conversion rate of 77% up $23 million and 7 percentage points from Q1.
Speaker Change: There was obviously the devaluation effect, but actually the gross profit seemed held up pretty well relative to what I was looking for and relative to how things trended in Argentina. So maybe just a bit of detail on how that all played to in Egypt would be helpful. Thanks very much.
Pedro Arnt: Thank you. So visibility, as we mentioned last quarter, our pricing does not is not stipulated in in long term contracts or dated contracts. They're stipulated in the contract, but the merchant has the option to approach us and discuss pricing at any moment, and therefore there are no predetermined moments of pricing renegotiation. That's both good and bad, right?
Speaker Change: Thank you.
Speaker Change: So, visibility, as we mentioned last quarter,
Speaker Change: Our pricing.
Speaker Change: It's not stipulated in long-term contracts or dated contracts. They're stipulated in the contract, but the merchant has the option to approach us and discuss pricing at any moment.
Pedro Arnt: and therefore there are no predetermined moments of pricing renegotiation. That's both good and bad, right? So the visibility is really driven by the constant conversation the commercial team has with different merchants, and if the pricing issue is being brought up or not. The way we try to avoid this becoming a constant conversation is most of our contracts are tier driven, and so the merchant knows that as he attains great linear volumes, there's a built in automatic pre-negotiated repricing. That's not what happened in the beginning of the year, where there was a sit down and let's renegotiate all the tiers beyond what the tiering had initially identified.
Speaker Change: and therefore there are no predetermined moments of pricing renegotiation that's both good and bad right
Pedro Arnt: So the visibility is really driven by the constant conversation the commercial team has with different merchants and if the pricing issue is being brought up or not. The way we try to avoid this becoming a constant conversation is most of our contracts are tier driven and so the merchant knows that as he attains greater volumes there's a built-in automatic pre-negotiated repricing. That's not what happened in the beginning of the year where there was a sit down and let's renegotiate all the tiers beyond what the tiering had initially identified and so when we say we're not seeing other merchants lining up to try to drive price it literally means that most of our contracts continue to run as according to the original tiering structures that were determined at signing and that's what gives us to the best of our current knowledge, confidence that what happened with the largest merchant, which we've always said was 2x larger than the number two.
Mark Ortiz: Without taking into account the extraordinary gain of the Argentine bond, cash conversion would be over 100% in line with our historical levels. We ended the quarter with a strong liquidity position of $306 million including $106 million of available cash for general corporate purposes and $120 million of short-term investments.
Speaker Change: So the visibility is really driven by the constant conversation the commercial team has with different merchants.
Speaker Change: and if the pricing issue is being brought up or not. The way we try to avoid this becoming a constant conversation is most of our contracts are tier-driven and so the merchant knows that as he attains greater volumes, there's a built-in automatic pre-negotiated repricing.
Mark Ortiz: Before I pass it over to Pedro, let me give you a more detailed update on our share buyback program. As a reminder, we disclosed in the first quarter results that our board had authorised up to $200 million share buyback program to purchase class A common shares as part of our capital allocation strategy.
Speaker Change: That's not what happened in the beginning of the year where there was a sit down and let's renegotiate all the tiers beyond what the tiering had initially identified. And so when we say we're not seeing other merchants lining up
Pedro Arnt: And so when we say we're not seeing other merchants lining up to try to drive price, it literally means that most of our contracts continue to run as according to the original tiering structures that were determined at signing. And that's what gives us, to the best of our current knowledge, confidence that what happened with the largest merchant, which we've always said was 2x larger than the number 2. So there was a significant scale; there is not something that is playing out across the rest of our merchant base.
Speaker Change: to try to drive price. It literally means that, that most of our contracts continue to run as according to the original tiering structures that were determined at signing. And that's what gives us
Mark Ortiz: During the second quarter, we purchased $82 million representing $9.2 million shares using our own funds.
Pedro Arnt: With this, let me hand it over back to Pedro for closing remarks. Now, and finalizing, as you know, emerging markets are inherently volatile, which can and often do impact our short-term results. However, our long-term view remains optimistic as I mentioned earlier.
Speaker Change: To the best of our current knowledge, confidence that what happened with the largest merchant, which we've always said was 2x larger than the number two, so there was a significant scale there, is not something that is playing out across the rest of our merchant base.
Pedro Arnt: So there was a significant scale there is not something that is playing out across the rest of our merchant. On Egypt, James Friedman, Jason Kupferberg, John Coffey, I think Egypt has been a better performer than maybe we anticipated.
Pedro Arnt: On Egypt, I think Egypt has been a better performer than maybe we anticipated. We have seen the macro conditions play out as we anticipated, with a tightening of the spreads between the market rate and the official rate, which that dynamic compresses our gross profit in the market. However, that has been made off by very strong TPD growth of roughly 30% plus. So we continue to be one of the most reliable providers of liquidity in that market for our global merchants to be able to do cross-border transactions. And as a consequence of that and our strong both pay in and pay out combination in that market that generates that liquidity, we've seen significant growth in payments volumes there cross border, which has offset the compression in the unit gross profits.
Speaker Change: on Egypt.
Pedro Arnt: During our quarterly bottom-up review of Pipeline and existing contract where we project out share of wallet, probable market growth and new commercial opportunities on a merchant by merchant basis, we are getting to the following revised outlook for 2024. Our new TPV expectation is explained by lower probability of volume ramp-ups on certain merchants. Pipeline development that is skewed even more towards tier zero merchants with lower take rates and weaker emerging market currency expectations going forward.
Speaker Change: I think Egypt has been a better performer than maybe we anticipated. We have seen the macro conditions play out as we anticipated with a tightening of the spreads between
Pedro Arnt: We have seen the macro conditions play out as we anticipated, with a tightening of the spreads between the market rate and the official rate, which that dynamic compresses our gross profit in the market. However, that has been made off by very strong TPV growth of roughly 30% plus. So we continue to be one of the most reliable providers of liquidity in that market for our global merchants to be able to do cross-border transactions.
Speaker Change: the market rate and the official rate, which that dynamic compresses our gross profit in the market. However, that has been made off by very strong TPV growth of roughly 30% plus.
Speaker Change: So we continue to be one of the most reliable providers of liquidity in that market for our global merchants to be able to do cross-border transactions and as a consequence of that,
Pedro Arnt: And as a consequence of that, and our strong pay-in and pay-out combination in that market that generates that liquidity, we've seen significant growth in payments volumes there cross-border, which has offset the compression in the unit gross profit, so to speak. Okay, that's clear, thank you.
Pedro Arnt: For Gross Profit, our forecast takes into consideration these impacts that I just mentioned for TPV while also assuming a growth of volumes in our local to local flows as our local businesses continue to thrive. Our current expectations for adjusted EBITDA reflect our desire of not wanting to slow down certain key investments in long-term projects and hence the decision to not defer fend our short-term margin structure as aggressively as we could given our ability to tightly control costs and the flexible cost structure.
Speaker Change: and our strong both pay-in and pay-out combination in that market that generates that liquidity, we've seen significant growth in payments volumes there, cross-border, which has offset the compression in the unit gross profit, so to speak.
Sumitata: So to speak. Okay. Thank you.
Speaker Change: Okay, that's clear. Thank you.
Gary Maygrespen: Our next question comes from Gary Maygrespen with JP Morgan. You may proceed.
Operator: Our next question comes from Guilherme Grespan with J.P. Morgan. You may proceed. Hello.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Guilherme Grespan with J.P. Morgan. You may proceed.
Pedro Arnt: We have. We need to continue hiring more IT and product talent, strengthening our internal controls for the ever more complex businesses we manage, and investing in control functions that protect our merchants business and reputations across the global south. I want to make sure I remind you that we still see significant operational leverage in the business midterm once these investments are carried out.
Gary Maygrespen: Hello.
Guilherme Grespan: Thank you, Pedro and team for the call. Two questions on my side. The first one is actually, Pedro, if you can provide a quick update on the remittancy evolution.
Pedro Arnt: Thank you, Peter, for the call. Two questions on my side. The first one is, Peter, if you can provide a quick update, remitancy, evolution. I think this is one of the opportunities that is continuing going forward. Just a highlight of how this is evolving. And if you specifically comment a little bit on which countries you can use the remittances, different flows, right? The two sides of the vision to offset the cross border business.
Speaker Change: Hello, thank you Pedro for the call. Two questions on my side. The first one is actually, Pedro, if you can provide a quick update on the remittancy evolution.
Speaker Change: I think this is one of the opportunities that is being going forward. Just a highlight of how this is evolving. And if you specifically comment a little bit on which countries, you can use these remittances, different flows, right? The two sides of the vision. [inaudible]
Guilherme Grespan: I think this is one of the opportunities that we see going forward. Just to highlight how this is evolving, and if specifically, can you comment a little bit on which countries you can use these remittances, different flows, right, to offset the cross-border business. And then the second question is actually, not sure if a technicality, but just to understand, Nigeria gross profit was higher than just want to understand what exactly drove this mismatch. Thank you.
Pedro Arnt: Rapping up, we continue to thrive across emerging markets, despite their complexities which we embrace as we deliver simple, effective solutions to our merchants. Our focus remains on execution and long-term growth and our commitment to our merchants and our expertise in the regions where we operate, enable us to consistently win business from these global players. As we scale, this growth will help mitigate short-term volatility and dilute market fluctuations. Therefore, it's crucial for us to continue focusing on TPPV growth, increasing our share of wallet and addressing new clients all of which we have consistently delivered since the company's inception, while continuing to drive operational leverage in the business once we get through the business. Through the current, disciplined investment cycle we're in.
Pedro Arnt: And then the second question is actually not sure if a technicality was just to understand Nigeria gross profit was higher than saving just one to understand what exactly drove this mismatch. Thank you.
Speaker Change: to offset the cross-border business. And then the second question is actually, not sure if a technicality, but just to understand, Nigeria gross profit was higher than... Just want to understand what exactly drove this mismatch. Thank you.
Pedro Arnt: Sure. So the Remittance vertical continues to be a very strong performer. It grew at 80 plus percent year-on-year, as we continue to onboard more global remittance consumer-facing remittance companies. Remember, we are in this vertical, and as in most verticals, we're a provider of enterprise solutions, so we serve as infrastructure for companies that actually have the consumer-facing relationships on remittances.
Pedro Arnt: Sure. So the remittance vertical continues to be a very strong performer. It grew at 80 plus percent year on year as we continue to onboard more global remittance, consumer facing remittance companies. Remember, we are in this vertical and as in most verticals, we're a provider of enterprise solutions. So we serve as infrastructure for companies that actually have the consumer facing relationships on remittance. So, one new vertical for us that we really started to lean into about a year and a half, two years ago, but has really began to pick up over the last few quarters.
Speaker Change: Sure. So, the remittance vertical...
Speaker Change: continues to be a very strong performer. It grew at 80 plus percent year on year as we continue to onboard more global remittance consumer facing remittance companies. Remember we are in this vertical and as in most verticals we're a provider of enterprise solutions so we serve as
Speaker Change: Infrastructure for companies that actually have the consumer facing relationships on remittances.
Pedro Arnt: So one new vertical for us that we really started to lean into about a year and a half, two years ago, but has really begun to pick up over the last few quarters. It's an interesting business in itself, but as we've also said, it also allows us to have very efficient liquidity in certain markets where netting is permissible. The list of markets where netting is permissible is actually a quite long one. There are some markets where it can't be done. Historically, Brazil was one where that was not possible. That's potentially in flux, but we don't really net in Brazil.
Speaker Change: So one new vertical for us that we really started to lean into about a year and a half, two years ago, but has really began to pick up over the last few quarters.
Pedro Arnt: With that, we're ready to take your questions and thank you for your interest.
Pedro Arnt: It's an interesting business in itself, but as we've also said, it also allows us to have very efficient liquidity in certain markets where netting is permissible. The list of markets where netting is permissible is actually a quite long one. There are some markets where it can't be done. Historically, Brazil was one where that was not possible.
Unknown Executive: Thank you.
Unknown Executive: As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for questions.
Speaker Change: It's an interesting business in itself, but as we've also said, it also allows us to have very efficient liquidity in certain markets where netting is permissible.
Tito Labarda: Our first question comes from Tito LaBarda with Goldman Sachs. He may proceed. Hi. Good evening. Thank you for the call and taking my question. I guess my question is on the guidance just to understand a little bit the dynamics there and take further for the explanation that was helpful. If I go back a little bit and your first quarter conference call, you're already halfway through 2Q and you felt comfortable that you could deliver the lower end of the guidance.
Speaker Change: The list of markets where netting is permissible is actually a quite long one.
Speaker Change: There are some markets where it can't be done. Historically, Brazil was one where that was not possible. That's potentially in flux, but we don't really net in Brazil. And then there are a handful of others. Most of the other markets we are able to net, and we net wherever we have
Pedro Arnt: That's potentially in flux, but we don't really net in Brazil. And then there are a handful of others. Most of the other markets we are able to net and we net wherever we have payout flows flowing into those markets as our remittance business grows. That's super clear. And Nigeria, is there a reason for the gross profit to be higher? Yeah, sure. On that, hi, Guilherme.
Pedro Arnt: And then there are a handful of others. Most of the other markets we are able to net, and we net wherever we have payout flows flowing into those markets as our remittance business grows. That's super clear.
Speaker Change: Payout flows flowing into those markets as our remittance business grows
Pedro Arnt: And Nigeria, do you have any reasons for digress profit to be higher? Yes, on that high, on Nigeria, what you're having, do you have the effects dynamics, where you have the official rates trading above the far-all markets? So these dynamics results in the T&L, as you're seeing where you see the growth profit higher than the revenue. We see this as a temporary dynamics. Okay. Thank you.
Tito Labarda: I completely understand all of all of Italy and emerging markets. I just want to understand if something changed from the last conference call and now one growth profit you had mentioned that March was very strong, this looks like it had been running below that March rate. Going forward, it affects a lot of increasing growth profit from here. It seems, but just to understand if there was anything different from 2Q from when you had the 1-2 conference call today to have you a little bit more cautious on delivering that guidance and then have another question after that.
Speaker Change: That's super clear. And Nigeria, any reason for the gross profit to be higher?
Pedro Arnt: On Nigeria, what you're having, you have the FX dynamics, where you have the official rate trading above the parallel market. So these dynamics result in the P&L that you're seeing where you see the gross profit higher than the revenue. We see this as a temporary dynamic. Okay, thank you. Thank you. Our next question comes from Neha Agarwala with HSBC. You may proceed. Hello and good afternoon, this is Carlos Gomez from HSBC. I have two questions.
Speaker Change: Yes, sure. On Nigeria, what are you having? Do you have the effects dynamics where you have the official rates trading above the parallel markets?
Speaker Change: So these dynamics results in the P&L that you're seeing where you see the growth profit higher than the revenue.
Speaker Change: We see this as a temporary dynamic.
Neha Aguavala: Our next question comes from Neha Aguavala with HSBC. You may proceed. Hello, everyone.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Neha Agarwala with HSBC. You may proceed.
Tito Labarda: Thank you. Sure. Thanks, Tito. Admittedly, I think the evolution of guidance over the last few quarters has shown that it's evolved as we run through our process of trying to project out how existing volumes on the 706 merchants we have running. We'll play out over the remainder of the year, then what our assumptions are on new volumes from those merchants and new merchants. And then finally there's an element of trying to overlay some macro expectations in terms of currency.
Carlos Comas: This is Carlos Comas from HSBC. I have two questions. The first one refers to your assumptions. You mentioned that you are trying to forecast, to some degree, also what the four exchanges are doing. Which markets are of particular concern for you? Which ones do you think we could see? Another significant foreign exchange assessment is it Egypt, Argentina, and the others that we are not looking at right now. In fact, regarding your investment phase and the necessary investments that you are making now, would you be able to quantify how many quarters or years you consider this investment phase will take?
Carlos Gomez: The first one refers to your assumptions. You mentioned that you're trying to forecast to some degree also what the foreign exchange is doing. Which markets are of particular concern for you? Which ones do you think we could see another significant foreign exchange adjustment? Is it Egypt, Argentina, any others that we are not looking at right now?
Speaker Change: Hello, good afternoon, this is Carlos Comas, from HSVC. [inaudible]
Carlos Comest: I have two questions. The first one refers to your assumptions. You mentioned that you're trying to forecast, to some degree, also what the foreign exchange is doing. Which markets are of particular concern for you? Which ones do you think we could see another significant foreign exchange adjustment? Is it Egypt, Argentina, any others that we are not looking at?
Carlos Gomez: And second, regarding your investment phase and the necessary investments that you are making now, would you be able to quantify how many quarters or years do you consider this investment phase will take? Thank you. Yeah, sure. So look, the assumptions in terms of currencies. I don't recall specifically on a market per market basis. I recall real Mexican peso, some of the bigger ones in the mix for sure.
Speaker Change: In second, regarding your investment phase and the necessary investments that you are making now, would you be able to quantify how many quarters or years do you consider this investment phase will take?
Tito Labarda: Unfortunately, I think the revisions as we run that methodical process have been towards the downside over the last two reviews. So it's 40 plus markets, 700 plus merchants. These are not software as a service contracts. We're actually having to regain our business every day with them. And we do the best we can in trying to project how we think the year will come out on the cost line. We feel we have absolute control of what we spend on the TPV and gross profit levels.
Pedro Arnt: Thank you. Yeah, sure. So look, the assumptions in terms of currencies, I don't recall specifically on a market per market basis. I recall Raal, Mexican face, so some of the bigger ones in the mix for sure, but across I think the majority of the basket of EM currencies, we've used bank and market data to reassess the projections for the remainder of the year, and they come in with weaker emerging market currencies than what we had used in the prior course. Carter. So I think it's more of a blanket statement in general of a strengthening dollar versus the overall mix of currencies in the 40-plus markets where we operate.
Speaker Change: Thank you very much.
Pedro Arnt: But across, I think the majority of the basket of EM currencies, we've used bank and market data to reassess the projections for the remainder of the year. And they come in with weaker emerging market currencies than what we had used in the prior quarter. So I think it's more of a blanket statement in general of a strengthening dollar versus the overall mix of currencies in the 40 plus markets where we operate.
Speaker Change: [inaudible]
Speaker Change: Yeah, sure. So, look, the assumptions in terms of currencies,
Speaker Change: I don't recall specifically on a market per market basis. I recall real Mexican peso, some of the bigger ones in the mix for sure. But across
Speaker Change: I think the majority of the basket of EM currencies, we've used bank and market data to reassess the projections for the remainder of the year, and they come in with weaker emerging market currencies than what we had used in the prior quarter.
Tito Labarda: I think it's clear that we do the best we can. Where we're coming at is we continue to see a strong adoption of our products and services. And I think that's reflected in the TPV guidance and the TPV growth. When you get to gross profit, we do see a greater share towards existing tier zero merchants. We see a continued out performance in the local to local business, which in one hand doesn't have the effects monetization.
Speaker Change: So I think it's more of a blanket statement in general of a strengthening dollar versus the overall mix of currencies and the 40 plus markets where we operate.
Pedro Arnt: On the investment cycle, and let me be precise here because investment cycle at times can generate certain concerns. I think the company had issued a midterm guidance of 75% of EBIT Datta gross profit, and it had actually hit that number last year in Q3, I believe. We've since lowered that number in Q1, and that was driven by weaker gross profit than we expected to high 50s. It's now back to low 60s. So if you assume compounding out of sequential gross profit growth faster than growth in OPEX, and you take a bit of midterm view, we believe that we can be back where we were historically, and that this is in a structural long-term change in the market structure of the business.
Pedro Arnt: On the investment cycle, and let me be precise here because investment cycle at times can generate certain concerns. I think the company had issued a midterm guidance of 75% of EBITDA to Gross Profit, and it had actually hit that number last year in Q3, I believe. We've since lowered that number in Q1 and that was driven by weaker gross profit than we expected to high 50s. It's now back to low 60s.
Speaker Change: On the investment cycle, and let me be precise here, because investment cycle at times can generate certain concerns. I think the company had issued a mid-term guidance of 75%.
Tito Labarda: So that drives take rate down modestly, but down on the other hand, you could argue those local to local businesses both prove the staying power of what we offer and our pure transactional revenues. So in a way, those are less volatile and you could argue lower margin higher quality volume that we think mix will skew towards more than we did a quarter ago. And then on EBITDA, as I said, we fully control what we spend.
Speaker Change: of EBITDA to Gross Profit, and it had actually hit that number last year in Q3, I believe.
Speaker Change: We've since lowered that number in Q1, and that was driven by weaker gross profit than we expected to high 50s. It's now back to low 60s.
Pedro Arnt: So if you assume compounding out of sequential gross profit growth faster than growth in OPEX and you take a bit of a mid-term view, we believe that we can be back where we were historically and that this isn't a structural long-term change in the market structure of the business. Now, what that specific time frame is, I don't think we've nailed that down. There are still investments in product and technology. I previously mentioned accelerating the pace of launching new products as one of the long-term drivers of offsetting take rate declines.
Speaker Change: So, if you assume compounding out of sequential gross profit growth, faster than growth in [inaudible]
Tito Labarda: We just want to make sure that we continue to build the term. And so the adjustments we're making are not fully aggressive on trying to deliver the margin target, but making sure that if there are investments, we think we need to make. We're making them anyway. And as we said a few times, and as the evolution of our opX shows, those are heavily skewed towards product development and technology and then strengthening some of the mid office and back office functions.
Speaker Change: And you take a bit of a midterm view, we believe that we can be back where we were historically and that this isn't a structural long-term change in the market structure of the business.
Pedro Arnt: Now, what that specific time frame is, I don't think we've nailed that down. There's still investments in product and technology. I previously mentioned accelerating the pace of launching new products as one of the long-term drivers of offsetting take rate declines. I think the local went through a massive expansion of its number of markets over the last two, three years, which means we've built capabilities and processing a processing network across many of these markets, and now we're in the process of strengthening those capabilities, deploying more features across all of these partners, and that requires investing in technology and product.
Speaker Change: Now, what that specific time frame is, I don't think we've nailed that down. There's still investments in product and technology. I previously mentioned accelerating the pace of launching new products.
Pedro Arnt: Okay, now that's very helpful. Thanks for the color there. And I guess a follow up on that, right? And you mentioned growing more in local to local. We did see a big drop in the gross take rate, but then that take rate, I guess maybe positively helped off your fairly well. I guess, do you expect this shift towards more local to local to continue? Could that put maybe more pressure on the gross take rate, but do you think maybe, and again, I know this is hard to predict, but the net take rate is maybe fabilizing a little bit from what we had seen in the prior quarters.
Speaker Change: as one of the long-term drivers of offsetting take rate declines.
Pedro Arnt: I think Dlocal went through a massive expansion of its number of markets over the last two, three years, which means we've built capabilities and processing, a processing network across many of these markets. And now we're in the process of strengthening those capabilities, deploying more features across all of these partners. And that requires investing in technology and products. Is this a multi-year cycle? Probably not.
Speaker Change: I think Dlocal went through a massive expansion of its number of markets over the last 2-3 years.
Speaker Change: which means we've built capabilities.
Speaker Change: and Processing.
Speaker Change: a processing network across many of these markets.
Speaker Change: And now we're in the process of strengthening those capabilities, deploying more features across all of these partners, and that requires investing in technology and product. Is this a multi-year cycle? Probably not. I think we're thinking of it more in terms of multiple quarters, so certainly the margins this year.
Pedro Arnt: Yeah, so one thing I do strongly suggest we focus on the net take rate as we try to understand the monetization capacity of our business going forward. The gross take rate is heavily influenced by revenue that is very volatile, especially driven by dual exchange rate markets. So I do think the net take rate question you're asking is the right question. If you look at the mid points of the guidance, we believe that given the local to local shift and the greater concentration in tears here merchants that you will continue to see decline in take rates in the short run.
Pedro Arnt: Is this a multi-year cycle? Probably not. I think we're thinking a bit more in terms of multiple quarters. So certainly the margins this year come in below what the midterm guidance was. Obviously, with gradual sequential improvement. So we should be exiting this year on track to deliver margins next year much closer to that midterm guidance, and then ideally when we look towards the back half of next year and beyond, we'll be closer already at what those historical levels were in the low mid-70s.
Carlos Gomez: I think we're thinking a bit more in terms of multiple quarters. So certainly the margins this year come in below what the midterm guidance was, obviously, if you look at H1, but with gradual sequential improvement. So we should be exiting this year on track to deliver margins next year, much closer to that midterm guidance. And then ideally, when we look towards the back half of next year and beyond, we'll be closer already at what those historical levels were in the low to mid-70s.
Speaker Change: Come in below what the mid-term guidance was, obviously if you look at H1, but...
Speaker Change: with gradual sequential improvement. So we should be exiting this year on track to deliver margins next year, much closer to that midterm guidance. And then ideally, when we look towards the back half of next year and beyond, we'll be closer already at what those historical levels were in the low to mid 70s.
Pedro Arnt: Thank you very much for that particular answer. On the forex, I understand that you are saying that you respect the general depreciation of EM currencies versus the US dollar, but as you have seen, particular markets can have an impact on the company. Again, Argentina, Egypt, Turkey, any other currencies that we should be watching carefully? Yeah, look, I think if we look at the 2024 business, Argentina especially has normalized somewhat. We've seen a pickup in the Argentine business. It was one of the strong performers in Q2; bear in mind that isn't because the spreads have widened dramatically there, although they have widened, but it's driven by a genuine acceleration in our Argentine business.
Carlos Gomez: Thank you very much for that detailed answer. On the forex, I understand that you are saying that you expect a general depreciation of EM currencies versus the U.S. dollar, but as you have seen, particular markets can have an impact on the company. Again, Argentina, Egypt, Turkey; any other currencies that we should be watching carefully?
Pedro Arnt: But those are moderate declines. I think if anyone was expecting the bottom to fall out or merchants queuing up to reprice as our largest merchant did at the beginning of the year, that has definitely not been the case. And you can see that in the Q on Q evolution of net take rate, which is down by a few single basis points. Single-digit basis points. So, again, if you look at the mid points, our expectation is downward, but in a very controlled fashion.
Pedro Arnt: If we take somewhat more of the mid-term view on take rates, what we're working on, and I think the objective here is as some of our newer products, like the invoicing products or the platform products, and hopefully new products we launched to market, begin to grow in scale, we can try to offset some of the structural declines and take rates that are happening across all of FinTech, especially in the payments piece, try to offset that with more value added services. But that's more of a mid-term strategic answer.
Speaker Change: Thank you very much for that detailed answer. On the forex, I understand that you are saying that you expect a general depreciation of EM currencies versus the US dollar, but as you have seen, particular markets can have an impact on the company. Again, Argentina, Egypt, Turkey, any other currencies that we should be watching carefully?
Pedro Arnt: Yeah, look, I think if we look at the 2024 business, Argentina especially, has normalized somewhat, we've seen a pickup in the Argentine business, it was one of the strong performers in Q2. Bear in mind, that isn't because the spreads have widened dramatically there, although they have widened, but it's driven by a genuine acceleration in our Argentine business. So, the currencies that typically have been more volatile and have had a bigger impact on the business have been the Argentine peso and the Egyptian pound. I'd look at those, but I think significantly de-risked, especially Argentina, from where it was last year.
Speaker Change: Yeah, look, I think if we look at the 2024 business,
Speaker Change: Argentina especially has normalized somewhat. We've seen a pickup in the Argentine business. It was one of the strong performers in Q2.
Speaker Change: Bear in mind, that isn't because the spreads have widened dramatically there, although they have widened, but it's driven by a genuine acceleration in our Argentine business.
Pedro Arnt: Business. So the currencies that typically have been more volatile and have had a bigger impact on the business have been the Argentine peso and the Egyptian pound. I'd look at those, but I think significantly de-risked, especially Argentina from where it was last year. The Egyptian pound, I just mentioned the spreads have tightened, but volumes there have picked up, 30 plus percent Q on Q. So I don't know how much more room for tightening there is.
Speaker Change: So, the currencies that typically have been more volatile and have had a bigger impact on the business have been the Argentine Peso and the Egyptian Pound. I'd look at those, but I think significantly de-risked.
Pedro Arnt: Your specific question, if you look at the mid points, we're expecting somewhat of a downward trajectory in take rates, driven by more local to local, and more tier zero merchants, so the very large merchants in the mix, but fairly controlled in terms of the magnitude of that take rate decline. Okay, that's super helpful. Thanks a lot, Pedro.
Pedro Arnt: The Egyptian pound, I just mentioned, the spreads have tightened, but volumes there have picked up 30 plus percent queue on queue, so I don't know how much more room for tightening there is. Turkey is an interesting opportunity for us, but still a very, very small business. We're beginning to see more interest and offering more and more services in that market as some other global processors pull out, but that's still a small one for us. So I would look at the gross profit disclosures we give you, and those are the currencies to track more closely, Brazilian real, Mexican peso, Chilean peso, Argentine peso, Egyptian pound, Nigerian Naira. Thank you very much.
Speaker Change: Especially Argentina from where it was last year.
Speaker Change: The Egyptian pound, I just mentioned, the spreads have tightened, but volumes there have picked up 30 plus percent queue on queue. So I don't know how much more room for tightening there is. Turkey is an interesting opportunity for us, but still a very, very small business.
Pedro Arnt: Turkey is an interesting opportunity for us, but still a very, very small business. We're beginning to see more interest and offering more and more services in that market as some other global processors pull out, but that's still a small one for us. So I would look at the gross profit disclosures we give you, and those are the currencies to track more closely. Brazilian rail, Mexican peso, Chilean peso, Argentine peso, Egyptian pound, Nigerian naira. Thank you very much.
Speaker Change: We're beginning to see more interest and and offering more and more services in that market as some other global processors pull out but that's still a small one for us.
Jeremy Grisman: Thank you. Our next question comes from Jeremy Grisman with JP Morgan, you may proceed.
Speaker Change: So I would look at the gross profit disclosures we give you and those are the currencies to track more closely Brazilian Real Mexican Peso, Chilean Peso, Argentine Peso, Egyptian Pound, Nigerian Naira.
Unknown Executive: Jeremy Grisman, your line is now open. One moment for our next question.
Operator: And again, thank you for the addition of this closure. It's very useful. Thank you. Thank you. Our next question comes from Cassie Chan with Bank of America. You may proceed. Hey, this is Cassie from Edrumer.
Carlos Comas: And again, thank you for the official discussion. It's very useful. Thank you.
Sumitata: Our next question comes from Sumitata with new street research he may proceed.
Speaker Change: Thank you very much. And again, thank you for the additional disclosure. It's very useful. Thank you.
Cassie Chan: Our next question comes from Cassie Chan with Bank of America. You may proceed.
Sumitata: Hi there, thanks guys, for the opportunity to ask a couple of questions. First of all, just to go back to the merchant re-pricing point, as you said, there isn't kind of a long queue of people lining up to try and reduce prices, but how much visibility do you have on that in terms of looking forward in the coming months? I guess we're all a little surprised by developments at the beginning of the year. What sort of visibility do you have on that process, particularly given the concentration of merchants remains still pretty high? That's first question please.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Cassie Chan with Bank of America. You may proceed.
Cassie Chan: Hey, this is Cassie from Bank of America. I just wanted to ask if there's anything you can tell us about quarterly trends in July and August relative to the second quarter, anything you're seeing there, either by GPV or gross profit. And I guess how should we think about the third quarter versus the fourth quarter?
Cassie Chan: I just wanted to ask if there's anything you can tell us about quarter-to-day trends in July and August, you know, relative to the second quarter, anything you're seeing there, either by TPV or gross profit. And, and I guess how should we think about, you know, the third quarter versus the fourth quarter, understanding you don't give quarterly guidance, you know, just how should we think about it in terms of, you know, maybe a third quarter in your mind, probably the trough before we're expecting to see reacceleration in fourth quarter? Anything there would be helpful.
Speaker Change: Hey, this is Cassie from Edrumer. I just wanted to ask if there's anything you can tell us about quarter to date trends in July and August , you know, relative to the second quarter, anything you're seeing there, either by TPV or gross profit and, and I guess how should we think about
Cassie Chan: Understanding you don't give quarterly guidance. You know, this how should we think about it in terms of maybe a third quarter in your mind, probably the Trump before we're expecting to see the acceleration in fourth quarter. Anything there would be helpful.
Speaker Change: You know, the third quarter versus the fourth quarter, understanding you don't give quarterly guidance, you know, just how should we think about it in terms of, you know, maybe a third quarter in your mind, probably the truck before we're expecting to see the acceleration in fourth quarter, anything there would be helpful. Thank you.
Pedro Arnt: Thank you.
Sumitata: If I could just squeeze in another quick one, just a more detailed one on Egypt, actually where there was obviously the devaluation effect. But actually, the gross profit seems held up pretty well relative to what I was looking for and relative to how things trended in Argentina. So maybe just a bit of detail on how that will play to an Egypt would be helpful. Thanks very much.
Pedro Arnt: Thanks. So let me try to give you a TPV cadence. May had significant e-commerce promotional days across the region.
Pedro Arnt: Thank you. Thanks. So let me try to give you a TPV cadence.
Speaker Change: Thanks. So let me try to give you a TPV cadence.
Pedro Arnt: May had significant e-commerce promotional days across the region, so May was a very strong month, above 2 billion of TPV, which was a new landmark for us. June came in a little bit softer than May in terms of TPV, but held up quite nicely in terms of gross profit. And then as we entered the current quarter, July was once again a above two billion dollar TPV month. So the second month ever where we've surpassed the two handle in terms of monthly TPV, and margin wise, slightly softer than June.
Pedro Arnt: So May was a very strong month, above two billion of TPV, which was a new landmark for us. June came in a little bit softer than May in terms of TPV, but held up quite nicely in terms of gross profit. And then, as we entered the current quarter, July was once again an above two billion dollar TPV month. So the second month ever where we've surpassed the two handle in terms of monthly TPV. And margin-wise, slightly softer than June, but still I think we need to continue focusing on the TPV metric.
Speaker Change: above 2 billion of TPV which was a new landmark for us.
Pedro Arnt: Thank you. So visibility. As we mentioned last quarter, our pricing is not stipulated in long-term contracts or dated contracts. They're stipulated in the contract, but the merchant has the option to approach us and discuss pricing at any moment, and therefore there are no predetermined moments of pricing renegotiation. That's both good and bad, right? So the visibility is really driven by the constant conversation the commercial team has with different merchants and if the pricing issue is being brought up or not.
Speaker Change: June came in a little bit softer than May in terms of TPV, but held up quite nicely in terms of gross profit.
Speaker Change: And then as we entered the current quarter, July was once again a above $2 billion TPV month. So the second month ever where we've surpassed the two-handle in terms of monthly TPV.
Pedro Arnt: But still, I think we need to continue focusing on the TPV metric. If we compound that over time, and we continue to deliver solid sequential growth, that's really, I think, the core of the investment thesis here, is looking back in multiple quarters, and at that level of sequential compounding. For example, if you look at these results, or you look at the high end of the guidance, and you play that out, it's really a remarkable opportunity, and driven by the TAM we have, and how increasingly important emerging markets are becoming to global companies. Um...
Speaker Change: Margin-wise, slightly softer than June , but still, I think we need to continue focusing on the TPV metric.
Pedro Arnt: If we compound that over time and we continue to deliver solid sequential growth, that's really, I think, the core of the investment thesis here is looking back in multiple quarters. And at that level of sequential compounding, for example, if you look at these results or you look at the high end of the guidance and you play that out, it's really a remarkable opportunity and driven by the time we have and how increasingly important emerging markets are becoming to global companies.
Speaker Change: If we compound that over time and we continue to deliver solid sequential growth,
Pedro Arnt: The way we try to avoid this becoming a constant conversation is most of our contracts are tier driven and so the merchant knows that as he attains great linear volumes, there's a built in automatic pre-negotiated repricing. That's not what happened in the beginning of the year where there was a sit down and let's renegotiate all the tiers beyond what the tiering had initially identified. And so when we say we're not seeing other merchants lining up to try to drive price, it literally means that that most of our contracts continue to run as according to the original tiering structures that were determined at signing.
Speaker Change: That's really, I think, the core of the investment thesis here, is looking back in multiple quarters and at that level of sequential compounding. For example, if you look at these results, or you look at
Speaker Change: the high end of the guidance, and you play that out, it's really a remarkable opportunity and driven by the time we have, and how increasingly important emerging markets are becoming to global companies.
Pedro Arnt: So those are the positives. I think in general, again, you have our guidance update to get a general sense of the quarter. Yes, that does skew towards Q4 as e-commerce has become our largest vertical. E-commerce obviously is very seasonal, and that's generated increased seasonality in the company, which I think also shows that we do see some limited risks in Q3 and then picking up in Q4. But it's still early to tell; there's still more than half of the quarter to go.
Pedro Arnt: So those are the positives. I think in general, again, you have our guidance update to get a general sense of the quarter. Yes, that does skew towards Q4 as e-commerce has become our largest vertical, eCommerce obviously is very seasonal and that's generated increased seasonality in the company which I think also shows that we do see some limited risks in Q3 and then picking up in Q4 but it's still early to tell there's still more than half of the quarter to go and so we'll report back with the specifics when we announce the third quarter. Got it.
Speaker Change: So those are the positives. I think in general, again, you have our guidance update to get a general sense of the quarter. Yes, that does skew towards Q4 as e-commerce has become our largest vertical.
Pedro Arnt: And that's what gives us to the best of our current knowledge, confidence that what happened with the largest merchant, which we've always said was 2x larger than the number 2. So there was a significant scale there is not something that is playing out across the rest of our merchant base.
Speaker Change: E-commerce obviously is very seasonal and that's generated increased seasonality in the company.
Speaker Change: which I think also shows that we do see some limited risks in Q3 and then picking up in Q4 but it's still early to tell there's still more than half of the quarter to go.
Pedro Arnt: On Egypt, I think Egypt has been a better performer than maybe we anticipated. We have seen the macro conditions play out as we anticipated with a tightening of the spreads between the market rate and the official rate, which that dynamic compresses our gross profit in the market. However, that has been made off by very strong TPD growth of roughly 30% plus. So we continue to be one of the most reliable providers of liquidity in that market for our global merchants to be able to do cross border transactions.
Pedro Arnt: And so we'll report back with the specifics when we announce the third quarter. Got it. That's helpful.
Speaker Change: and so we'll report back with the specifics when we announce the third quarter.
Cassie Chan: That's helpful. And then I guess just wanted to ask, you guys had mentioned some delays in new launches last quarter. Did that materialize in the second quarter?
Pedro Arnt: And as a consequence of that and our strong both pay in and pay out combination in that market that generates that liquidity, we've seen significant growth in payments volumes there cross border, which has offset the compression in the unit gross profits. So to speak.
Pedro Arnt: And then I just wanted to ask; you guys have mentioned some delays in new launches last quarter. Did that materialize in the second quarter? Are you expecting that in back half? And I guess the NR is that what's kind of driving the NR, which was about 100% this quarter. I know you guys mentioned that. And Nigeria, but you know, just any thoughts or details there. And if we know what you're expecting that metric to be for fiscal 24. Great.
Speaker Change: Got it, that's helpful. And then I just wanted to ask, um, [inaudible]
Speaker Change: You guys had mentioned some delays in new launches last quarter. Did that materialize in the second quarter or are you expecting that in back half? And I guess that was kind of driving the NRR, which was about 100% this quarter. I know you guys mentioned Nigeria, but just any thoughts or details there, and what you're expecting that metric to be for fiscal 24?
Unknown Executive: Okay. Thank you.
Pedro Arnt: Let me take those backwards. If you would just the NRR excluding Nigeria and the strong devaluation there. And remember that as Maria walked us through, revenues in Nigeria didn't necessarily affect gross profit performance, which was up sequentially. But the Nigeria adjusted NRR is about 114%, which continues to show the stickiness of what we offer. We rarely ever churn merchants, which is one of the positives about the company. Again, when we think of long term growth. Thank you. No, no, sorry. Sorry. There's a second part to the question.
Pedro Arnt: Or are you expecting that in back half? And I guess the NR, is that what's kind of driving the NR, which was about 100% this quarter? I know you guys mentioned Nigeria, but you know, just any thoughts or details there? And if you know what you're expecting that metric to be for fiscal 24? Great. Let me take those backwards.
Pedro Arnt: If you adjust the NRR, excluding Nigeria and the strong devaluation there. And remember that as Maria walked us through, revenues in Nigeria didn't necessarily affect gross profit performance, which was up sequentially. But the Nigeria adjusted NRR is about 114%, which continues to show the stickiness of what we offer. We rarely ever churn merchants, which is one of the positives about the company, again, when we think of long term growth. Thank you.
Speaker Change: Great.
Speaker Change: Let me take those backwards. If you adjust the NRR, excluding Nigeria and the strong devaluation there...
Speaker Change: And remember that as Maria walked us through, Reven News in Nigeria didn't necessarily affect gross profit performance, which was up sequentially. But the Nigeria-adjusted NRR is about 114%.
Speaker Change: which continues to show the stickiness of what we offer. We rarely ever churn merchants, which is one of the positives about the company, again, when we think of long-term growth.
Gary Maygrespen: Our next question comes from Gary Maygrespen with JP Morgan.
Pedro Arnt: No, no, sorry, sorry, there's a second part to the question. So we we had called out delays in certain important new businesses for us. We've given you some color in the prepared remarks. Those are live now, which is very good.
Speaker Change: i
Gary Maygrespen: You may proceed.
Pedro Arnt: So we had called out delays in certain important new businesses for us. We've given you some color in the prepared remarks. Those are live now, which is very good. We mentioned the prepared remarks that we see ourselves as a central player in the cross-border payments growth of Africa. Three of the world's largest e-commerce companies have made maiden forays into e-commerce in Africa and South Africa. And we are a payments provider for all three of those very large global e-commerce players, and those all got launched a little bit later than we anticipated. So the rampups are also taking slower.
Speaker Change: Thank you. No, no. Sorry. Sorry. There's a second part to the question So we we had called out delays in certain important new businesses for us We've given you some color in the prepared remarks
Gary Maygrespen: Hello. Thank you, Peter, for the call. Two questions on my side. The first one is, Peter, if you can provide a quick update, remitancy, evolution. I think this is one of the opportunities that is continuing going forward. Just a highlight of how this is evolving. And if you specifically comment a little bit on which countries you can use the remitances, different flows, right? The two sides of the vision to offset the cross border business.
Pedro Arnt: And then the second question is actually not sure if a technicality was just to understand Nigeria gross profit was higher than saving just one to understand what exactly drove this mismatch. Thank you. Sure. So the Remittance Vertical continues to be a very strong performer. It grew at 80 plus percent year-on-year, as we continue to onboard more global remittance consumer-facing remittance companies. Remember, we are in this vertical, and as in most verticals, we're a provider of enterprise solutions, so we serve as infrastructure for companies that actually have the consumer-facing relationships on remittances.
Speaker Change: Those are live now which is very good. We mentioned the prepared remarks that
Pedro Arnt: We mentioned in the prepared remarks that we see ourselves as a central player in the cross-border payments growth of Africa. Three of the world's largest e-commerce companies have made maiden forays into e-commerce in Africa, in South Africa. And we are a payments provider for all three of those very large global e-commerce players. And those all got launched a little bit later than we anticipated. So the ramp-ups are also taking slower. I don't think Africa is necessarily a short-term material impact on our business. It's certainly accretive and long term.
Speaker Change: We see ourselves as a central player in the cross-border payments.
Speaker Change: growth of Africa. Three of the world's largest e-commerce companies have made maiden forays into e-commerce in Africa in South Africa.
Speaker Change: And we are a payments provider for all three of those.
Speaker Change: Very large global e-commerce players
Speaker Change: and those all got launched a little bit later than we anticipated, so the ramp-ups are also taking slower. I don't think Africa is necessarily a short-term material impact.
Pedro Arnt: I don't think Africa is necessarily a short-term material impact on our business. It's certainly a creative. And long term, we see enormous opportunity there. And we think we're super well positioned to capture it. And you see that in the growth of our African Asian segment.
Pedro Arnt: We see enormous opportunity there and we think we're super well positioned to capture it. And you see that in the growth of our Africa and Asian segment. The second one is one of the world's largest fintechs based out of Asia, and this one got delayed, I'd say, by quite a bit. And we're very, very encouraged by already having that live and running.
Speaker Change: On our business it's certainly accretive and long term we see enormous opportunity there and we think we're super well positioned to capture it and you see that in the growth of our Africa and Asian segment.
Pedro Arnt: The second one is one of the world's largest fintechs based out of Asia. And this one got delayed. I'd say by quite a bit. And we're very, very encouraged by already having that live and running. It's still relatively small, but the focus now is making sure we deliver for them and be able to ramp up that business. We started in Brazil, which is a good first market. And we're already beginning to look at incremental markets with. Thank you.
Speaker Change: The second one is one of the world's largest fintechs.
Speaker Change: Based out of Asia and this one got delayed I'd say by quite a bit
Pedro Arnt: It's still relatively small, but the focus now is making sure we deliver for them and be able to ramp up that business. We started in Brazil, which is a good first market, and we're already beginning to look at incremental markets with, Thank you. Our next question comes from John Coffey with Barclays, you may proceed. Hi, thanks for taking my call.
Speaker Change: and we're very very encouraged by already having that live and running. It's still relatively small but the focus now is making sure we deliver for them and be able to ramp up that business. We started in Brazil which is a good first market and we're already beginning to look at incremental markets with them.
Pedro Arnt: So one new vertical for us that we really started to lean into about a year and a half, two years ago, but has really began to pick up over the last few quarters. It's an interesting business in itself, but as we've also said, it also allows us to have very efficient liquidity in certain markets where netting is permissible. The list of markets where netting is permissible is actually a quite long one.
John Coffey: Our next question comes from John Coffey with Barclays; he may proceed. Hi, thanks for taking my call. Just two quick questions I can ask both at once. I think you had mentioned the tax rate had to climb to about 18% this quarter. Is that a good way to think about the Dlocal tax rate going forward in future periods, quarters, years? And the second is, it seems like Pedro from your comments. It doesn't seem like there's any real change in your medium-term guidance, but are there any other little caveats you would like to add from that guidance given last year in your investor deck.
Speaker Change: Thank you for watching.
Speaker Change: Thank you. Our next question comes from John Coffey with Barclays. You may proceed.
John Coffey: Just two quick questions I can ask both at once. I think you'd mentioned the tax rate had declined to about 18% this quarter. Is that a good way to think about the Dlocal tax rate going forward in future periods, quarters, years? And the second is, and it seems like, Pedro, from your comments, it doesn't seem like there's any real change in your medium-term guidance. Are there any other little caveats you would like to add from that guidance given last year in your investor day? I'll take the tax question here.
John Coffee: Hi, thanks for taking my call. Just two quick questions I can ask both at once. I think you had mentioned the tax rate had declined to about 18% this quarter. Is that a good way to think about the Dlocal tax rate going forward in future periods, quarters, years?
Pedro Arnt: There are some markets where it can't be done. Historically, Brazil was one where that was not possible. That's potentially in flux, but we don't really net in Brazil. And then there are a handful of others. Most of the other markets we are able to net, and we net wherever we have payout flows flowing into those markets as our remittance business grows. That's super clear.
Unknown Executive: So as you know, we operate in over 40 countries, right? So our tax rate is derived from all those activities. And in the mix of revenues, you know, we talked about local to local increasing. We've got our sophisticated hedging strategies. All of those things tend to impact the way our business is taxed. And so at this stage, I would say second quarter, we came back to what I call more historical levels, which, you know, were the ones that, you know, we were experiencing in the last 12 months. Q1 was a bit of a peculiar, you know, time for us.
Mark Ortiz: And Nigeria, do you have any reasons for digress profit to be higher? Yes, on that high, on Nigeria, what you're having, do you have the effects dynamics, where you have the official rates trading above the far-all markets? So these dynamics results in the T&L, as you're seeing where you see the growth profit higher than the revenue. We see this as a temporary dynamics. Okay. Thank you.
Mark Ortiz: I'll take the tax question here. So, as you know, we operate in over 40 countries, right? So our tax rate is the right for all those activities. And the mix of revenues, you know, we talked about local to local increasing. We've got our sophisticated hedging strategies. All of those things tend to impact the way we, you know, the way our business, you know, is taxed. And so at this stage, I would say, second quarter, we came back to what we call more historical levels, which, you know, we're the ones that, you know, we were experiencing in the last 12 months.
John Coffee: I'll take the tax question here.
Ola: So as you know, we operate in over.
Ola: 40 countries, right? So our tax rate is derived from all those activities and
Speaker Change: And the mix of revenues, we talked about local to local increasing. We've got our sophisticated hedging strategies. All of those things tend to impact the way our business is taxed.
Speaker Change: And so at this stage, I would say second quarter, we came back to what we call more historical levels.
Mark Ortiz: Q1 was a bit of a peculiar, you know, time for us. So again, it's hard to tell, you know, where we're going to be in here in the future. I think it's hard to pinpoint that it's certain tax rate. But I think, you know, where we sent today is just about the place where we think we're going to be. As we grow the local to local business, maybe the tax rates go up a little bit here. But I think, you know, you know, we feel pretty good about kind of the rate that we have at this stage.
Speaker Change: which were the ones that we were experiencing in the last 12 months. Q1 was a bit of a peculiar time for us.
Unknown Executive: So again, it's hard to tell, you know, where we're going to be in, you know, here in the future. I think it's hard to pinpoint a certain tax rate. But I think, you know, where we stand today is just about the place where we think we're going to be as we grow the local to local business. Maybe the tax rates go up a little bit here. But I think, you know, you know, we feel pretty good about kind of the rate that we have at this stage. Great, thank you for that.
Neha Aguavala: Our next question comes from Neha Aguavala with HSBC. You may proceed. Hello, everyone. This is Carlos Comas from HSBC. I have two questions. The first one refers to your assumptions. You mentioned that you are trying to forecast to some degree also what the four exchanges are doing. Which markets are of particular concern for you? Which ones do you think we could see? Another significant foreign exchange assessment is it Egypt, Argentina, and the others that we are not looking at right now.
Speaker Change: So...
Speaker Change: Again, it's hard to tell, you know, where we're going to be in, you know, here in the future. I think it's hard to pinpoint a certain tax rate.
Speaker Change: But I think, you know, where we stand today is just about the place where we think we're going to be. As we grow the local to local business, maybe the tax rates go up a little bit here, but I think, you know, we feel pretty good about kind of the rate that we have at this stage.
Mark Ortiz: Great. Thank you.
Speaker Change: Thank you for joining us.
Neha Aguavala: In fact, on regarding your investment phase and the necessary investments that you are making now, would you be able to quantify how many quarters or year do you consider this investment phase will take? Thank you. Yeah, sure. So look, the assumptions in terms of currencies, I don't recall specifically on a market per market basis. I recall Raal, Mexican face, so some of the bigger ones in the mix for sure, but across I think the majority of the basket of EM currencies, we've used bank and market data to reassess the projections for the remainder of the year and they come in with weaker emerging market currencies than what we had used in the prior course. Carter. So I think it's more of a blanket statement in general of a strengthening dollar versus the overall mix of currencies in the 40 plus markets where we operate.
Pedro Arnt: Our next question comes from Madeline Zal with Suskihana International Group. You may proceed. Sorry. Let me, sorry, Madeline. Let me just answer the second part of the question. At the risk of thinking that otherwise, we've avoided it.
Pedro Arnt: Thank you. Our next question comes from Madeline Zaw with Susquehanna International Group. You may proceed.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Madeline Zhao with Susquehanna International Group. You may proceed.
Pedro Arnt: Sorry, Madeline, let me just answer the second part of the question, at the risk of thinking that otherwise we've avoided it. So, but let me be very precise on the question around midterm guidance. At this time, we have not reviewed our midterm guidance.
Speaker Change: Sorry, let me, sorry Madeline, let me just answer the second part of the question.
Pedro Arnt: So, but let me be very precise on the question around midterm guidance. At this time, we have not reviewed our midterm guidance. It's a bit of a longer process, and we'll do that at the end of the year. I think we're incredibly proud of a lot of the work we've been doing here. I think guidance has been something somewhat challenged, given the volatility and the markets where we operate. So we haven't formally given any update on the midterm guidance. I think conceptually we continue to see, and I've said this a few times, really good opportunities to compound TPV growth over a multi-year period.
Speaker Change: at the risk of thinking that otherwise we've avoided it. So but let me be very precise on the question around midterm guidance.
Pedro Arnt: It's a bit of a longer process, and we'll do that at the end of the year. I think we're incredibly proud of a lot of the work we've been doing here. I think guidance has been somewhat of a challenge, given the volatility in the markets where we operate. So we haven't formally given any update on the midterm guidance.
Speaker Change: At this time, we have not reviewed our midterm guidance.
Speaker Change: It's a bit of a longer process and we'll do that at the end of the year.
Speaker Change: I think we're incredibly proud of a lot of the work we've been doing here. I think guidance has been something somewhat challenged, given the volatility in the markets where we operate. So we haven't formally given any update on the midterm guidance.
Pedro Arnt: I think conceptually, we continue to see, and I've said this a few times, really good opportunities to compound TPV growth over a multi-year period. We see a pipeline that's still full of opportunities as we work with our global merchants. That should also drive continued compounding of growth, gross profit growth over longer periods of time. I think if you look at 24 versus 23, where gross profit growth has not been a positive, there are very specific tailwinds that we had in 23, which make it a tough comp.
Speaker Change: I think conceptually, we continue to see, and I've said this a few times, really good opportunities to compound TPV growth over a multi-year period.
Pedro Arnt: We see a pipeline that's still full of opportunities as we work with our global merchants. That should also drive continued compounding of growth, growth profit growth over longer periods of time. I think if you look at 24 versus 23, where growth profit growth has not been a positive, there are very specific tailwinds that we had in 23, which make it a tough comp. And so we believe to the best of our current understanding that 24 somehow is a reset and there should be a good opportunity to growth both sequentially and certainly more so year over year from the new 24 base.
Speaker Change: We see a pipeline that's still full of opportunities as we work with our global merchants. That should also drive continued compounding of growth profit growth over longer periods of time.
Pedro Arnt: On the investment cycle, and let me be precise here because investment cycle at times can generate certain concerns. I think the company had issued a midterm guidance of 75% of EBIT Datta gross profit, and it had actually hit that number last year in Q3, I believe. We've since lowered that number in Q1, and that was driven by weaker gross profit than we expected to high 50s. It's now back to low 60s.
Speaker Change: I think if you look at 24 versus 23 where gross profit growth has not been a positive, there are very specific tailwinds that we had in 23 which make it a tough comp.
Pedro Arnt: And so we we believe to the best of our current understanding that 24 somehow is a reset and there should be a good opportunity to growth both sequentially and certainly more so year over year from the new 24 base.
Speaker Change: And so we we believe to the best of our current understanding that 24 somehow is a reset and there should be a good opportunity to growth both sequentially and certainly more so year-over-year from the new 24 base.
Pedro Arnt: And I think the sequential growth we've just seen Q2 versus Q1 is one historical example of that. And then on EBITDA, the previous question kind of alluded to this. We are going through a disciplined investment cycle. Our EBITDA to gross profit margins are now in the low 60s.
Pedro Arnt: And I think the sequential growth we've just seen Q2 versus Q1 is one historical example of that.
Pedro Arnt: So if you assume compounding out of sequential gross profit growth faster than growth in OPEX, and you take a bit of midterm view, we believe that we can be back where we were historically, and that this is in a structural long-term change in the market structure of the business. Now what that specific time frame is, I don't think we've nailed that down. There's still investments in product and technology. I previously mentioned accelerating the pace of launching new products as one of the long-term drivers of offsetting take rate declines.
Speaker Change: And I think the sequential growth we've just seen, Q2 versus Q1, is one historical example of that.
Pedro Arnt: And then on EBITDA, the previous question kind of alluded to this. We are going through a disciplined investment cycle. Our EBITDA to gross profit margins are now in the low 60s. That's still best in peer set or among the best in peer sets, even versus companies that have significantly larger scale than ours. I think it is important to remember that as well, right? This is a very lean, well-run organization, even as we invest a little bit more, and even more so if you compare against other similar companies, much larger than we are. And we believe that once we're through this investment cycle, there is strong operational leverage in the financial model.
Speaker Change: And then on EBITDA, the previous question kind of alluded to this, we are going through a disciplined investment cycle.
Pedro Arnt: That's still best in Pearset or among the best in Pearset, even versus companies that have significantly larger scale than ours. I think it is important to remember that as well. Right.
Speaker Change #100: Our EBITDA to gross profit margins are now in the low 60s.
Speaker Change #100: That's still best in peer set or among the best in peer sets.
Pedro Arnt: This is a very lean, well-run organization, even as we invest a little bit more and even more so if you compare it with other similar companies much larger than we are. And we believe that once we're through this investment cycle, there is strong operational leverage in the financial model. So those are the conceptual, I think, undertaking of what we see for the midterm will give updated specific midterm guidance on numbers towards the end of the year.
Speaker Change #100: even versus companies that have significantly larger scale than ours.
Speaker Change #100: I think it is important to remember that as well, right? This is a very lean, well-run organization, even as we invest a little bit more.
Speaker Change #100: and even more so if you compare against other similar companies much larger than we are.
Pedro Arnt: I think the local went through a massive expansion of its number of markets over the last two, three years, which means we've built capabilities and processing a processing network across many of these markets, and now we're in the process of strengthening those capabilities, deploying more features across all of these partners, and that requires investing in technology and product. Is this a multi-year cycle? Probably not. I think we're thinking a bit more in terms of multiple quarters.
Speaker Change #100: And we believe that once we're through this investment cycle, there is strong operational leverage in the financial model.
Pedro Arnt: So those are the conceptual, I think, undertakings of what we see for the midterm. Will give updated specific midterm guidance on numbers towards the end of the year. Thank you.
Speaker Change #100: So, those are the conceptual, I think, undertakings of what we see for the midterm. We'll give updated, specific midterm guidance on numbers towards the end of the year.
Pedro Arnt: And we believe that once we're through this investment cycle, there is strong operational leverage in the financial model. Thank you. And our next question comes from Madeline Zhao with Susquehanna International Group. You may proceed. Hi, thank you, Pedro, it's Jamie at SOS Gohana. I just want to ask about constant currency. Abel.
Madeline Zal: And our next question comes from Madeline Tao with Susquehanna International Group. You may proceed. Hi. Thank you. Pedro, it's Jamie at Susquehanna. I just want to ask about constant currency.
Speaker Change #101: Thank you. And our next question comes from Madeline Zhao with Susquehanna International Group. You may proceed.
Jamie Haidt: Is there is there a structure that you may be thinking about that you could share to gauge the performance of the company on a constant currency basis both from an as reported but also from an investor relations perspective? I think a lot of us in the buy side are struggling to meter that. Your old shop used to be, you know, more forthcoming about that. Is it possible to share that with an investor relations message? Jamie Haidt.
Pedro Arnt: So certainly the margins this year come in below what the midterm guidance was. Obviously, with gradual sequential improvement. So we should be exiting this year on track to deliver margins next year much closer to that midterm guidance, and then ideally when we look towards the back half of next year and beyond, we'll be closer already at what those historical levels were in the low mid-70s.
Pedro Arnt: Is there a structure that you may be thinking about that you could share to gauge the performance of the company on a constant currency basis, both from an as reported, but also from an investor relations perspective, because I think a lot of us in the buy side are struggling to meter that your old shop used to be more forthcoming about that. Is it possible to share that with me with an investor relations message? Jamie, hey, so yeah, you're right. I've spent most of my life within a constant currency universe. I'm not necessarily sure it addresses the complexity here.
Madeline Tao: Is there a structure that you may be thinking about?
Madeline Tao: that you could share to gauge the performance of the company on a constant currency basis, both from an as reported but also from an investor relations perspective, because
Speaker Change #103: I think a lot of us in the buy side are struggling to meter that. Your old shop used to be, you know, more forthcoming about that.
Speaker Change #104: Is it possible to share that with an investor relations message?
Pedro Arnt: Thank you very much for that particular answer. On the forex, I understand that you are saying that you respect the general depreciation of EM currencies versus the US dollar, but as you have seen particular markets can have an impact on the company. Again, Argentina, Egypt, Turkey, any other currencies that we should be watching carefully? Yeah, look, I think if we look at the 2024 business, Argentina especially has normalized somewhat. We've seen a pickup in the Argentine business.
Pedro Arnt: So, yeah, you're right. I've spent most of my life within a constant currency universe. I'm not necessarily sure it addresses the complexity here. I think the complexity here is simply the footprint of so many emerging market countries with very volatile currencies. So even if you were to look at these things in constant currency, you'd still see that tremendous volatility. The answer to your question is yes.
Jamie Hayd: Jamie Haidt.
Jamie Hayd: Um...
Jamie Hayd: So, yeah, you're right, I've spent most of my life within a constant currency universe.
Pedro Arnt: I think the complexity here is simply the footprint of so many emerging market countries with very volatile currencies. So even if you were to look at these things in constant currency, you'd still see that tremendous volatility. The answer to your question is yes. Again, it wouldn't even be disclosing anything that isn't really available because you can grab the dollar disclosures and work them back to constant currency. We can make your life easier and prepare that. We'll jot that down. But I don't necessarily think that that necessarily solves both everyone's difficulty in projecting going forward, but even times in actually understanding the different markets.
Speaker Change #106: I'm not necessarily sure it addresses the complexity here. I think the complexity here is simply the footprint of so many emerging market countries with very volatile currencies. So even if you were to look at these things in constant currency, you'd still see that tremendous volatility. The answer to your question is yes.
Pedro Arnt: Again, it wouldn't even be disclosing anything that isn't really available because you can grab the dollar disclosures and work them back to constant currency. We can make your life easier and prepare that. We'll jot that down. But I don't necessarily think that that necessarily solves both everyone's difficulty in projecting going forward, but even times in actually understanding the different markets. The currencies are public information, so we give it in dollars. It's fairly easy to translate back into constant currencies.
Pedro Arnt: It was one of the strong performers in Q2, bear in mind that isn't because the spreads have widened dramatically there, although they have widened, but it's driven by a genuine acceleration in our Argentine business. Business. So the currencies that typically have been more volatile and have had a bigger impact on the business have been the Argentine peso and the Egyptian pound. I'd look at those, but I think significantly de-risked, especially Argentina from where it was last year.
Speaker Change #107: Again, it wouldn't even be disclosing anything that isn't really available because you can grab the dollar disclosures and work them back to constant currency. We can make your life easier and prepare that. We'll jot that down.
Speaker Change #107: But I don't necessarily think that that necessarily solves both everyone's difficulty in projecting going forward, but even times in actually understanding the different markets.
Pedro Arnt: The currencies are public information. So it's we give it in dollars. It's fairly easy to translate back into constant currencies. We can do that. And the reality will still be that emerging markets present incredible opportunities. Many of those opportunities are because of volatility and complexity. That's really what we're solving for our merchants. It makes things like projecting challenges.
Pedro Arnt: We can do that. And the reality will still be that emerging markets present incredible opportunities. Many of those opportunities are because of volatility and complexity. That's really what we're solving for our merchants. It makes things like projecting challenging.
Speaker Change #107: The currencies are public information so it's we give it in dollars.
Speaker Change #107: It's fairly easy to translate back into constant currencies. We can do that.
Pedro Arnt: The Egyptian pound, I just mentioned the spreads have tightened, but volumes there have picked up, 30 plus percent Q on Q. So I don't know how much more room for tightening there is. Turkey is an interesting opportunity for us, but still a very, very small business. We're beginning to see more interest and offering more and more services in that market as some other global processors pull out, but that's still a small one for us. So I would look at the gross profit disclosures we give you, and those are the currencies to track more closely. Brazilian rail, Mexican peso, Chilean peso, Argentine peso, Egyptian pound, Nigerian Naira.
Speaker Change #107: And the reality will still be that emerging markets present incredible opportunities. Many of those opportunities are because of volatility and complexity. That's really what we're solving for our merchants. It makes things like projecting challenging.
Pedro Arnt: Eugene. Okay. Yeah, I think it would be helpful. You may be giving us so much credit if you think we could do it. And I mean, we try it by certain markets, but 40 markets is, it's a treasury assignment. It's hard for an hour.
Jamie Haidt: Okay, yeah, I think it would be helpful. You may be giving us too much credit, if you think we could do it. And I mean, we try by certain markets, but 40 markets is, It's a treasury assignment, it's hard for an analyst. And then, So to go back to John's question about the medium-term guidance, I mean, I guess asked another way. Is there anything that you know now that you didn't know when you took the job?
Speaker Change #108: Okay, yeah, I think it would be helpful. You may be giving us too much credit if you think we could do it. And I mean, we try it by certain markets, but 40 markets is...
Pedro Arnt: And then, so to go back to John's question about the medium-term guides. I mean, I guess asked another way, is there anything that you know now that you didn't know when you took the job. I mean, you said in your prepared remarks, this is still a great team, a great company, and I know you love the payments universe, but is there anything operationally that you know now that you didn't know that absolutely not. Again, I think it'll be a year I think tomorrow. I remember when I took the job, I mentioned super attractive opportunity in terms of addressable market.
Speaker Change #109: It's a treasury assignment. It's hard for an analyst.
Speaker Change #109: So to go back to John's question about the medium-term guidance, I mean I guess asked another way.
Unknown Executive: Thank you very much. And again, thank you for the official discussion. It's very useful. Thank you.
Pedro Arnt: I mean, you said in your prepared remarks, this is still a great TAM. Great company and, I know you love the payments universe, but is, you know, is there anything operationally that you know now that you didn't know that? Absolutely not. Again, I think it'll be a year, I think, tomorrow.
John Coffee: Is there anything that you know now that you didn't know when you took the job? I mean, you said in your prepared remarks, this is still a great TAM.
Cassie Chan: Our next question comes from Cassie Chan with Bank of America. You may proceed. Hey, this is Cassie from Bank of America. I just wanted to ask if there's anything you can tell us about quarterly trends in July and August relative to the second quarter, anything you're seeing there, either by GPV or gross profit. And I guess how should we think about the third quarter versus the fourth quarter? Understanding you don't give quarterly guidance.
Speaker Change #110: I know you love the payments universe, but is there anything operationally that you know now that you didn't know then?
Speaker Change #111: Absolutely not. Again, I think it'll be a year, I think, tomorrow. I remember when I took the job, I mentioned super attractive opportunity in terms of addressable market and the relevance that the Global South will have for global businesses.
Pedro Arnt: I remember when I took the job, I mentioned a super attractive opportunity in terms of the addressable market and the relevance that the Global South will have for global businesses. A fantastic lineup of global merchants, most of the largest global digital companies by market cap, which we are serving in one market or the other, and then a high margin, high cash generation financial model. I think all of that continues to be true, and so it gives us an incredibly solid base off of which to build Dlocal.
Pedro Arnt: And the relevance that the Global South will have for global businesses, a fantastic lineup of global merchants, most of the largest global digital companies by market caps. We are serving in one market or the other. And then a high margin, high cash generation financial model. I think all of that continues to be true. And so it gives us an incredibly solid base off of which to build the local. Now, again, 24 has been challenging from a profitability perspective, not so from a TV perspective, which I still think is the most important metric. And so I'm equally encouraged as I was when I took the job, and actually, you know, looking back on the prior quarters, I think things begin to look in a way easier going forward, as I really think there has been a general reset.
Cassie Chan: You know, this how should we think about it in terms of maybe a third quarter in your mind, probably the Trump before we're expecting to see the acceleration in fourth quarter. Anything there would be helpful. Thank you. Thanks.
Speaker Change #112: a fantastic.
Speaker Change #112: lineup of global merchants.
Speaker Change #112: most of the largest
Speaker Change #112: Global digital companies by market caps. We are serving in one market or the other. And then a high margin, high cash generation financial model. I think all of that continues to be true. And so it gives us an incredibly solid base off of which to build Dlocal.
Pedro Arnt: So let me try to give you a TPV cadence. May had significant e-commerce promotional days across the region. So May was a very strong month above two billion of TPV, which was a new landmark for us. June came in a little bit softer than May in terms of TPV, but held up quite nicely in terms of gross profit. And then as we entered the current quarter, July was once again a above two billion dollar TPV month.
Pedro Arnt: Now again granted 24 has been challenging from a profitability perspective. Not so from a TPV perspective, which I still think is the most important metric, equally encouraged as I was when I took the job. And actually, you know, looking back on the prior quarters, I think things begin to look in a way easier going forward, as I really think there has been a general reset. And now we can start growing from here.
Speaker Change #112: Now, again, granted, 24 has been challenging from a profitability perspective.
Speaker Change #112: Not so from a TPV perspective, which I still think is the most important metric.
Speaker Change #112: Equally encouraged as I was when I took the job and actually, you know, looking back on the prior quarters I think things begin to look in a way easier going forward
Pedro Arnt: And now we can start growing from here. It'll be volatile; emerging markets are volatile at our scale. As our scale grows and we have more TPV and more merchants. I think we benefit from law of large numbers, and hopefully the volatility lady gets, you know, decreased. But I continue to be optimistic; there's a lot of work, and execution will be key. But I don't see anything structural or anything that makes me less optimistic on our ability to generate shareholder value over the appropriate time period. Great. Thank you. I'll drop back in the queue.
Speaker Change #112: As I really think there has been a general reset and now we can start growing from here. It'll be volatile. Emerging markets are volatile at our scale. As our scale grows and we have more TPV and more merchants, I think we benefit from law of large numbers and hopefully the volatility gets...
Pedro Arnt: It'll be volatile, emerging markets are volatile at our scale. As our scale grows, and we have more TPV and more merchants, I think we benefit from law of large numbers, and hopefully the volatility gets, You know decreased but I continue to be optimistic. There's a lot of work and execution will will be key but I don't see anything structural or anything that makes me less optimistic on our ability to generate shareholder value over the appropriate time period. Great. Thank you. I'll jump back in.
Pedro Arnt: So the second month ever where we've surpassed the two handle in terms of monthly TPV. And margin wise, slightly softer than June, but still I think we need to continue focusing on the TPV metric. If we compound that over time and we continue to deliver solid sequential growth, that's really I think the core of the investment thesis here is looking back in multiple quarters. And at that level of sequential compounding, for example, if you look at these results or you look at the high end of the guidance and you play that out, it's really a remarkable opportunity and driven by the time we have and how increasingly important emerging markets are becoming to global companies.
Speaker Change #113: You know decrease
Speaker Change #113: But I continue to be optimistic. There's a lot of work and execution will be key, but I don't see anything structural or anything that makes me less optimistic on our ability to generate shareholder value over the appropriate time period.
Unknown Executive: Thank you. And, as a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced.
Operator: Thank you. And as a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. Our next question comes from Matt Coad with Autonomous Research. You may proceed.
Speaker Change #114: Great. Thank you. I'll drop back in the queue.
Speaker Change #115: Thank you. And as a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. Our next question comes from Matt Coad with Autonomous Research. You may proceed.
Matt: Our next question comes from Matt. Go ahead with autonomous research. You may proceed. Hey guys, thanks for taking the question. I just wanted to go back to the net take rate discussion, and Pedro, you gave some great detail on, you know, like kind of what drove the conversation with your largest client. But I was hoping we could apply on that a little bit more right to like what was what were what are what were the factors in the market that allowed your largest merchant to make you sit down and lower those tiers. And why wouldn't yours.
Matt Coad: Hey, guys, thanks for taking the question. I just wanted to go back to the net take rate discussion. And Pedro, you gave some some great detail on, you know, like, kind of what drove the conversation with your largest client. But I was hoping we could opine on that a little bit more, right?
Matt Coad: Hey guys, thanks for taking the question. I just wanted to go back to the net take rate discussion and Pedro you gave some some great detail on you know like kind of what drove the conversation with your largest client.
Pedro Arnt: So those are the positives. I think in general, again, you have our guidance update to get a general sense of the quarter. Yes, that does skew towards Q4 as e-commerce has become our largest vertical. E-commerce obviously is very seasonal and that's generated increased seasonality in the company, which I think also shows that we do see some limited risks in Q3 and then picking up in Q4. But it's still early to tell there's still more than half of the quarter to go.
Matt Coad: But I was hoping we could opine on that a little bit more, right? So like, what was what are what were the factors in the market that allowed your largest merchant to make you sit down and lower those tiers? And why wouldn't your
Pedro Arnt: So like, what was what are what were the factors in the market that allowed your largest merchant to make you sit down and lower those tiers? And why wouldn't your, like merchants two through 10 be able to do this. If we could better understand that.
Pedro Arnt: Like merchants two through ten be able to do the same thing. If we could better understand that, I think we could maybe put a floor on the nut take rate and get excited about the stock again. Thanks. Yeah, so look, I think there are multiple factors here. The first one is starting point is a very relevant part of the conversation. I think, as we disclosed last time, this was a merchant who we had accompanied through a phenomenal execution and growth across the region, where their focus in managing us was very much on efficiency, conversion, reliability, redundancy.
Matt Coad: like merchants two through 10 be able to do the same thing. If we could better understand that, I think we could, you know, maybe put a floor on the net take rate and get excited about the stock again.
Pedro Arnt: I think we could, you know, maybe put a floor on the net take rate and get excited about the stock again. Yeah, so look, I think there are multiple factors here. The first one is the starting point, which is a very relevant part of the conversation.
Pedro Arnt: And so we'll report back with the specifics when we announce the third quarter. Got it. That's helpful.
Matt Coad: Thanks.
Pedro Arnt: And then I just wanted to ask, you guys have mentioned some delays in new launches last quarter. Did that materialize in the second quarter? Are you expecting that in back half? And I guess the NR is that what's kind of driving the NR, which was about 100% this quarter. I know you guys mentioned that. And Nigeria, but you know, just any thoughts or details there. And if we know what you're expecting that metric to be for fiscal 24. Great.
Pedro Arnt: I think as we disclosed last time, This was a merchant who we had accompanied through a phenomenal execution and growth across the region, where their focus in managing us was very much on efficiency, conversion, reliability, redundancy. They were pushing go-to-market very quickly and weren't necessarily optimizing around cost. That's the typical go-to-market strategy, and they've clearly been very successful. That also meant that we were running them at a net take rate, like we said, which was literally 10x what they were being offered by certain local processes.
Speaker Change #117: This was a merchant who we had accompanied through a phenomenal execution and growth across the region.
Speaker Change #118: where their focus in managing us was very much on efficiency, conversion, reliability, redundancy. They were pushing go-to-market very quickly and weren't necessarily optimizing around cost.
Pedro Arnt: They were pushing go to market very quickly and weren't necessarily optimizing around cost. That's the typical go-to-market strategy, and they've clearly been very successful. That also meant that we were running them at a net take rate, like we said, which was literally 10x what they were being offered by certain local processors. So it really wasn't sustainable, and that's not the case with all the tier zero merchants. We just mentioned another very large Asian cross-border merchant who have been also been assisting with across all of Latam; their starting point from a take rate perspective is much lower.
Pedro Arnt: Let me take those backwards. If you would just the NRR excluding Nigeria and the strong devaluation there. And remember that as Maria walked us through revenues in Nigeria didn't necessarily affect gross profit performance, which was up sequentially. But the Nigeria adjusted NRR is about 114%, which continues to show the stickiness of what we offer. We rarely ever churn merchants, which is one of the positives about the company again when we think of long term growth. Thank you. No, no, sorry. Sorry. There's a second part to the question.
Speaker Change #119: That's the typical go-to-market strategy, and they've clearly been very successful. That also meant that we were running them at a net take rate, like we said, which was literally 10x what they were being offered by certain local processors.
Pedro Arnt: So it really wasn't sustainable, and that's not the case with all the tier zero merchants. We just mentioned another very large Asian cross-border merchant who have been also been assisting with across all of LATAM. Their starting point from a take rate perspective is much lower. So the risk of downside is smaller. Um, um, Other than that, there are vertical category considerations, country mix considerations that go into the conversation. But I think the most important driver is Really, we had grown very quickly with them and they were running at a take rate that simply wasn't sustainable over time.
Speaker Change #119: So it really wasn't sustainable and that's not the case with all the tier zero merchants.
Speaker Change #119: We just mentioned another very large Asian cross-border merchant who have been also been assisting with across all of LATAM. Their starting point from a take rate perspective is much lower. So the risk of downside is smaller.
Pedro Arnt: So the risk of downside is smaller. Other than that, there are vertical category considerations, country mix considerations that go into the conversation. But I think the most important driver is really we had grown very quickly with them, and they were running at a take rate that simply wasn't sustainable over time. So as they've gone to a more sustainable take rate in the 40, 50, 60 net take rate range, which is still 3, 4, 5X, what they could get with local providers, I think that shows the value of what we offer them. That's probably more along the lines of what an incredibly large merchant in that vertical with their country footprint potentially should be running at and not where they were running prior to that.
Pedro Arnt: So we had called out delays in certain important new businesses for us. We've given you some color in the prepared remarks. Those are live now, which is very good. We mentioned the prepared remarks that we see ourselves as a central player in the cross border payments growth of Africa. Three of the world's largest e-commerce companies have made maiden forays into e-commerce in Africa and South Africa. And we are a payments provider for all three of those very large global e-commerce players and those all got launched a little bit later than we anticipated.
Speaker Change #119: Other than that, there are vertical category considerations, country-mixed considerations that go into the conversation, but I think the most important driver is
Pedro Arnt: So as they've gone to a more sustainable take rate in the 40, 50, 60, Net Take Rate Range, which is still 3, 4, 5x what they could get with local providers. I think that shows the value of what we offer them. That's probably more along the lines of what an incredibly large merchant in that vertical with their country footprint potentially should be running at and not where they were running prior to that. That's super helpful, Pedro.
Speaker Change #119: Really, we had grown very quickly with them and they were running at a take rate that simply wasn't sustainable over time. So as they've gone to a more sustainable take rate in the 40, 50, 60,
Speaker Change #119: That's probably more along the lines of what an incredibly large merchant in that vertical with their country footprint potentially should be running at and not where they were running prior to that.
Pedro Arnt: So the rampups are also taking slower. I don't think Africa is necessarily a short term material impact on our business. It's certainly a creative. And long term we see enormous opportunity there. And we think we're super well positioned to capture it. And you see that in the growth of our African Asian segment. The second one is one of the world's largest fintechs based out of Asia. And this one got delayed. I'd say by quite a bit.
Pedro Arnt: And then just one follow up kind of thing about like the long term, right, I was hoping you could opine a little bit on like what you believe your moat is. And this is kind of from a competitive dynamic standpoint as well, just thinking your net take rate is 115 basis points today. Your largest global peers like Stripe and Audi and some company like Nuve, they all have net take rates in their developed markets of say 15, 20 basis points, right? So you have a really attractive revenue pool that they might want to come after. So I was hoping you could kind of like just talk big picture about like, what's your moat? Right?
Pedro Arnt: That's super helpful, Pedro.
Pedro Arnt: And then just one follow-up kind of thing about like the long term, right, I was hoping you could apply a little bit on like what you believe your moat is. And this is kind of from a competitive dynamic standpoint as well, just thinking your net take rate is 115 base points today. Your largest global peers, like a Stripe and Audi and some company like New Day, they all have net take rates in their developed markets of safe 15, 20 basis points, right. So you have a really attractive revenue pool that they might want to come after.
Pedro Arnt: That's super helpful, Pedro. And then just one follow-up kind of thing about like the long-term, right? I was hoping you could opine a little bit on like what you believe your moat is.
Speaker Change #120: And this is kind of from a competitive dynamic standpoint as well, just thinking.
Speaker Change #121: Your net take rate is 115 basis points today. Your largest global peers like Stripe and Audi and some company like Nuve, they all have net take rates in their
Pedro Arnt: And we're very, very encouraged by already having that live and running. It's still relatively small, but the focus now is making sure we deliver for them and be able to ramp up that business. We started in Brazil, which is a good first market. And we're already beginning to look at incremental markets with. Thank you.
Speaker Change #122: Developed markets of say 15-20 basis points right so you have a really attractive revenue pool that they might want to come after.
Pedro Arnt: So I was hoping you could kind of like just talk big picture about like what's your moat, right? And like why won't your merchants leave if a company like Audi and our Stripe offers them more attractive processing rights? Thanks. That's a great question, and kind of questions we like to answer. So first of all. Um. I'd be very wary of extrapolating developed market take rates to emerging markets, and you've done that implied in the question. You're not extrapolating, but I also think the key success factors and what a company's core competences should be built around are very different to be successful in developed markets and emerging markets.
Pedro Arnt: And like, why won't your merchants leave? If a company like Audi and our Stripe offer them more attractive products? Thanks. That's a great question.
Speaker Change #123: So I was hoping you could kind of like just talk big picture about like, what's your moat?
Speaker Change #124: Right, and like why won't your merchants leave if a company like Addy and our Stripe offers them more attractive processing rights?
John Coffey: Our next question comes from John Coffey with Barclays, he may proceed. Hi, thanks for taking my call. Just two quick questions I can ask both at once. I think you had mentioned the tax rate had to climb to about 18% this quarter. Is that a good way to think about the Dlocal tax rate going forward in future periods, quarters years? And the second is, it seems like Pedro from your comments. It doesn't seem like there's any real change in your medium-term guidance, but there are any other little caveats you would like to add from that guidance given last year in your investor deck.
Pedro Arnt: And, kind of questions we like to answer. So first of all, I'd be very wary of extrapolating developed market take rates, to emerging markets, and you've done that implied in the question, you're not extrapolating. But I also think the key success factors and what a company's core competences should be built around are very different to be successful in developed markets and emerging markets. I think in developed markets, it's really become a race for features and a race for volume.
Speaker Change #125: Thanks. That's a great question.
Speaker Change #126: I'd be very wary of extrapolating developed market take rates.
Speaker Change #127: to emerging markets. And you've done that implied in the question, you're not extrapolating. But I also think the key success factors and what a company's core competences should be built around are very different to be successful in developed markets and emerging markets.
Pedro Arnt: I think in developed markets it's really become a race for features and a race for volume. Primarily, those companies you mentioned have all built the stacks in the markets where they operate. If you were to try to replicate that across 40-50 emerging markets, it simply doesn't translate because many of these markets are sub-scale. So you might see greater vertical integration in Brazil or in India; you're not going to go build a full-fledged acquirer across 50 markets. So I always like to say, dlocal is less of a vertical play and it's more of a horizontal play.
Speaker Change #127: I think in developed markets it's really become a race for features and a race for volume. Primarily those companies you mentioned have all built
Pedro Arnt: Primarily, those companies you mentioned have all built their stacks in the markets where they operate. If you were to try to replicate that across 40, 50 emerging markets, it simply doesn't translate because many of these markets are subscale. So you might see greater vertical integration in Brazil or in India, but you're not going to build a full-fledged acquirer across 50 markets.
Mark Ortiz: I'll take the tax question here. So as you know, we operate in over 40 countries, right? So our tax rate is the right for all those activities. And the mix of revenues, you know, we talked about local to local increasing. We've got our sophisticated hedging strategies. All of those things tend to impact the way we, you know, the way our business, you know, is taxed. And so at this stage, I would say, second quarter, we came back to what we call more historical levels, which, you know, we're the ones that, you know, we were experiencing in the last 12 months.
Speaker Change #127: the stacks,
Speaker Change #127: in the markets where they operate. If you were to try to replicate that across 40, 50 emerging markets, it simply doesn't translate because many of these markets are subscale.
Speaker Change #127: So you might see greater vertical integration in a Brazil or in India, you're not going to go build a full-fledged acquirer across 50 markets.
Speaker Change #128: So I always like to say Dlocal is less of a vertical play and it's more of a horizontal play. We are this API layer and this middleware, one single
Pedro Arnt: We are this API layer and this middleware, one single platform that abstracts all of the complexity, both technological but also regulatory conciliation across 40 plus emerging markets. And that's a very different build to what you have to build if you're building for developed markets. So we've always said, we don't think we have something to offer in developed markets.
Pedro Arnt: We are this API layer and this middleware, one single that abstracts all of the complexity, both technological but also regulatory, conciliations across 40-plus emerging markets. And that's a very different build to what you have to build if you're building for developed markets. So we've always said we don't think we have something to offer in developed markets, and hence we've retained our focus on the global south. I think it's fair to say many of our developed market competitors, with their playbooks, we don't believe will fare as well as we do in emerging markets because the key success factors are others.
Mark Ortiz: Q1 was a bit of a peculiar, you know, time for us. So again, it's hard to tell, you know, where we're going to be in here in the future. I think it's hard to pinpoint that it's certain tax rate. But I think, you know, where we sent today is just about the place where we think we're going to be. As we grow the local to local business, maybe the tax rates go up a little bit here. But I think, you know, you know, we feel pretty good about kind of the rate that we have at this stage.
Mark Ortiz: Great. Thank you.
Speaker Change #128: that abstracts all of the complexity, both technological but also regulatory conciliations across 40 plus emerging markets. And that's a very different build to what you have to build if you're building for developed markets.
Pedro Arnt: And hence, we've retained our focus on the global South. I think it's fair to say many of our developed market competitors, with their playbooks, we don't believe will fare as well as we do in emerging markets because the key success factors are others. It's how do you make this network of multiple acquirers, multiple digital wallets, multiple central bank-sponsored payment systems in a highly fragmented, highly volatile world work, which is different to what works in the US or Europe. On take rates, don't forget that what currency pairs you're doing on your FX and your cross-border make a big difference. So our developed world competitors are doing euro to dollar. There's no spread there.
Speaker Change #128: So we've always said we don't think we have something to offer in developed markets and hence we've retained our focus on the global south
Speaker Change #128: I think it's fair to say many of our developed market competitors with their playbooks we don't believe will fare as well as we do in emerging markets because the key success factors are others. It's how do you make this network of multiple acquirers, multiple digital wallets.
Madeline Zal: Our next question comes from Madeline Zal with Suskihana International Group. You may proceed. Sorry.
Pedro Arnt: It's how do you make this network of multiple acquirers, multiple digital wallets, multiple central bank sponsored payment systems in a highly fragmented, highly volatile world work, which is different to what works in the US or Europe. On take rates, don't forget that what currency pairs you're doing on your FX and your cross border make a big difference. So our developed world competitors are doing Euro to dollar. There's no spread there. When you're doing Argentine peso, Egyptian pound, Nigerian niro, Peruvian saw, you begin to see currency pairs that actually generate much more FX spread. That's always been the case.
Pedro Arnt: Let me, sorry, Madeline. Let me just answer the second part of the question. At the risk of thinking that otherwise we've avoided it. So, but let me be very precise on the question around midterm guidance. At this time, we have not reviewed our midterm guidance. It's a bit of a longer process and we'll do that at the end of the year. I think we're incredibly proud of a lot of the work we've been doing here.
Speaker Change #128: Multiple central bank sponsored payment systems in a highly fragmented, highly volatile world work, which is different to what works in the U.S. or Europe.
Speaker Change #129: On take rates, don't forget that what currency pairs you're doing on your FX and your cross-border make a big difference.
Pedro Arnt: When you're doing Argentine peso, Egyptian pound, Nigerian naira, Peruvian sol, you begin to see currency pairs that actually generate much more FX spread. That's always been the case. That's the case for credit cards. And that's part of the attractiveness of the emerging market play is that you do have that cross-border overlay, which is much higher in terms of take rates than if you focus on developed markets. So at the end of the day, that combination of sole focus on the Global South, one single middleware that abstracts complexity across 40 plus markets, and the FX overlay is what we think differentiates what we're doing and gives us a high chance of success going forward. That's a really comprehensive answer, Pedro.
Speaker Change #129: So our developed world competitors are doing euro to dollar. There's no spread there
Pedro Arnt: I think guidance has been something somewhat challenged given the volatility and the markets where we operate. So we haven't formally given any update on the midterm guidance. I think conceptually we continue to see, and I've said this a few times, really good opportunities to compound TPV growth over a multi-year period. We see a pipeline that's still full of opportunities as we work with our global merchants. That should also drive continued compounding of growth, growth profit growth over longer periods of time.
Speaker Change #130: When you're doing Argentine peso, Egyptian pound, Nigerian naira, Peruvian sol, you begin to see currency pairs that actually generate much more FX spread. That's always been the case. That's the case for credit cards.
Pedro Arnt: That's the case for credit cards, and that's part of the attractiveness of the emerging market play, is that you do have that cross border overlay, which is much higher in terms of take rates than if you focus on developed markets. So at the end of the day, that combination of sole focus on the global south, one single middleware that abstracts complexity across 40 plus markets, and the FX overlay is what we think differentiates what we're doing and gives us a high chance of success going forward.
Speaker Change #130: And that's part of the attractiveness of the emerging market play, is that you do have that cross-border overlay, which is much higher in terms of take rates than if you focus on developed markets.
Speaker Change #130: So, at the end of the day, that combination of sole focus on the global south, one single middleware that abstracts complexity across
Pedro Arnt: I think if you look at 24 versus 23 where growth profit growth has not been a positive, there are very specific tailwinds that we had in 23 which make it a tough comp. And so we believe to the best of our current understanding that 24 somehow is a reset and there should be a good opportunity to growth both sequentially and certainly more so year over year from the new 24 base. And I think the sequential growth we've just seen Q2 versus Q1 is one historical example of that.
Speaker Change #130: 40 plus markets and the FX overlay is what we think differentiates what we're doing and gives us a high chance of success going forward.
Pedro Arnt: That really comprehensive answer, Pedro, thank you.
Pedro Arnt: Thank you. I would now like to turn the call back over to the company for any closing or thanks.
Pedro Arnt: That's a really comprehensive answer, Pedro. Thank you.
Pedro Arnt: Thank you. Thank you. I would now like to turn the call back over to the company for any closing remarks. Yeah, thank you.
Speaker Change #131: Thank you. I would now like to turn the call back over to the company for any closing remarks.
Pedro Arnt: Yeah, thank you.
Pedro Arnt: So thanks, everyone, for the interest and support, as always. There's a lot going on here. I think we're all excited about what we're building as we've reset the base in this 2024 for a long-term growth story. We mentioned many times in the call today, our addressable opportunity is really, really large across emerging markets. And we believe that emerging markets will continue to become ever more important to global companies. And we're one of the default options for payment needs across the global South.
Pedro Arnt: So, thanks everyone for the interest and support, as always. There's a lot going on here. I think we're all excited about what we're building. As we've reset the base in this 2024 for a long term growth story. We mentioned many times in the call today, our addressable opportunity is really, really large across emerging markets. And we believe that emerging markets will continue to become ever more important to global companies. And we're one of the default options for payment needs across the Global South. We continue to launch a few select new markets. We continue to see great interest in our Southeast Asian and Middle Eastern expansion.
Speaker Change #132: Yeah, thank you.
Speaker Change #133: So, thanks everyone for the interest and support as always.
Pedro Arnt: And then on EBITDA, the previous question kind of alluded to this. We are going through a disciplined investment cycle. Our EBITDA to gross profit margins are now in the low 60s. That's still best in peer set or among the best in peer sets, even versus companies that have significantly larger scale than ours. I think it is important to remember that as well, right? This is a very lean well run organization, even as we invest a little bit more and even more so if you compare against other similar companies much larger than we are.
Speaker Change #134: There's a lot going on here. I think we're all excited about what we're building as we've reset the base in this 2024 for a long-term growth story.
Pedro Arnt: And we believe that once we're through this investment cycle, there is strong operational leverage in the financial model. So those are the conceptual, I think, undertakings of what we see for the midterm will give updated specific midterm guidance on numbers towards the end of the year.
Madeline Zal: Thank you.
Speaker Change #134: We mentioned many times in the call today, our addressable opportunity is really, really large across emerging markets.
Speaker Change #134: and we believe that emerging markets will continue to become ever more important to global companies and we're one of the default options for payment needs across the global South.
Pedro Arnt: We continue to launch a few select new markets. We continue to see great interest in our Southeast Asian and Middle Eastern expansion. So there are many growth vectors we need to execute on. We've tried to recognize and highlight that short term, there is volatility across the global footprint that we serve. But longer term, as we grow in scale, that volatility hopefully becomes more manageable. And we really think that this company is uniquely positioned to continue to grow and capture value, given the right time horizon and investment outlook. Our financials are super solid, our balance sheet position is super strong.
Speaker Change #134: We continue to launch a few select new markets, we continue to see great interest in our Southeast Asian and Middle Eastern expansion, so there are many growth vectors we need to execute on.
Pedro Arnt: So there are many growth vectors we need to execute on. We've tried to recognize and highlight that, short term, there is volatility across the global footprint that we serve, but longer term, as we grow in scale, that volatility hopefully becomes more manageable. And we really think that this company is uniquely positioned to continue to grow and capture value, given the right time horizon and investment outlook. Our financials are super solid. Our balance sheet position is super strong. And so we really can focus on continuing to deliver a value for our merchants over the long way.
Speaker Change #134: We've tried to recognize and highlight that short term there is volatility across the global footprint that we serve but longer term as we grow in scale that that volatility hopefully becomes more manageable.
Madeline Zal: And our next question comes from Madeline Tao with Susquehna International Group. You may proceed. Hi. Thank you. Pedro, it's Jamie at Susquehanna. I just want to ask about constant currency. Is there is there a structure that you may be thinking about that you could share to gauge the performance of the company on a constant currency basis, both from an as reported, but also from an investor relations perspective, because I think a lot of us in the buy side are struggling to meter that your old shop used to be more forthcoming about that.
Speaker Change #134: And we really think that this company is uniquely positioned to continue to grow and capture value given the right time horizon and investment outlook.
Speaker Change #134: Our financials are super solid. Our balance sheet position is super strong. And so we really can focus on continuing to deliver value for our merchants over the long run.
Pedro Arnt: And so we really can focus on continuing to deliver value for our merchants over the long run. We look forward to reporting back to you as all of this happens on a quarterly basis. And we will speak again in three months time. Thank you very much. Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Pedro Arnt: We look forward to reporting back to you as all of this happens on a quarterly basis.
Unknown Executive: And we will speak again in three months' time. Thank you very much. Thank you.
Speaker Change #134: We look forward to reporting back to you as all of this happens on a quarterly basis and we will speak again in three months time. Thank you very much.
Unknown Executive: This concludes the conference. Thank you for your participation. You may now disconnect. Thank you.
Speaker Change #134: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Speaker Change #134: [inaudible]
Madeline Zal: Is it possible to share that with me with an investor relations message? Jamie, hey, so yeah, you're right. I've spent most of my life within a constant currency universe. I'm not necessarily sure it addresses the complexity here. I think the complexity here is simply the footprint of so many emerging market countries with very volatile currencies. So even if you were to look at these things in constant currency, you'd still see that tremendous volatility.
Madeline Zal: The answer to your question is yes. Again, it wouldn't even be disclosing anything that isn't really available because you can grab the dollar disclosures and work them back to constant currency. We can make your life easier and prepare that. We'll jot that down. But I don't necessarily think that that necessarily solves both everyone's difficulty in projecting going forward, but even times in actually understanding the different markets. The currencies are public information.
Madeline Zal: So it's we give it in dollars. It's fairly easy to translate back into constant currencies. We can do that. And the reality will still be that emerging markets present incredible opportunities. Many of those opportunities are because of volatility and complexity. That's really what we're solving for our merchants. It makes things like projecting challenges. Eugene. Okay. Yeah, I think it would be helpful. You may be giving us so much credit if you think we could do it.
Madeline Zal: And I mean, we try it by certain markets, but 40 markets is, it's a treasury assignment. It's hard for an hour. And then, so to go back to John's question about the medium term guides. I mean, I guess asked another way, is there anything that you know now that you didn't know when you took the job. I mean, you said in your prepared remarks, this is still a great team, a great company, and I know you love the payments universe, but is there anything operationally that you know now that you didn't know that absolutely not.
Madeline Zal: Again, I think it'll be a year I think tomorrow. I remember when I took the job, I mentioned super attractive opportunity in terms of addressable market. And the relevance that the global South will have for global businesses, a fantastic lineup of global merchants, most of the largest global digital companies by market caps. We are serving in one market or the other. And then a high margin, high cash generation financial model. I think all of that continues to be true.
Madeline Zal: And so it gives us an incredibly solid base off of which to build the local now again, granted, 24 has been challenging from a profitability perspective, not so from a TV perspective, which I still think is the most important metric. And so I'm equally encouraged as I was when I took the job and actually, you know, looking back on the prior quarters, I think things begin to look in a way easier going forward, as I really think there has been a general reset.
Madeline Zal: And now we can start growing from here, it'll be volatile emerging markets are volatile at our scale as our scale grows and we have more TPV and more merchants. I think we benefit from law of large numbers and hopefully the volatility lady gets, you know, decreased, but I continue to be optimistic there's a lot of work and execution will will be key, but I don't see anything structural or anything that makes me less optimistic on our ability to generate shareholder value over the appropriate time period. Great. Thank you. I'll drop back in the queue. Thank you. And as a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced.
Matt Go Ahead: Our next question comes from Matt go ahead with autonomous research. You may proceed.
Pedro Arnt: Hey guys, thanks for taking the question. I just wanted to go back to the net take rate discussion and Pedro, you gave some some great detail on, you know, like kind of what drove the conversation with your largest client. But I was hoping we could apply on that a little bit more right to like what was what what are what were the factors in the market that allowed your largest merchant to make you sit down and lower those tiers.
Pedro Arnt: And why wouldn't yours. Like merchants two through ten be able to do the same thing. If we could better understand that, I think we could maybe put a floor on the nut take rate and get excited about the stock again. Thanks. Yeah, so look, I think there are multiple factors here. The first one is starting point is a very relevant part of the conversation. I think as we disclosed last time, this was a merchant who we had accompanied through a phenomenal execution and growth across the region, where their focus in managing us was very much on efficiency, conversion, reliability, redundancy.
Pedro Arnt: They were pushing go to market very quickly and weren't necessarily optimizing around cost. That's the typical go to market strategy and they've clearly been very successful. That also meant that we were running them at a net take rate, like we said, which was literally 10X, what they were being offered by certain local processors. So it really wasn't sustainable and that's not the case with all the tier zero merchants. We just mentioned another very large Asian cross border merchant who have been also been assisting with across all of Latam, their starting point from a take rate perspective is much lower.
Pedro Arnt: So the risk of downside is smaller. Other than that, there are vertical category considerations, country mix considerations that go into the conversation. But I think the most important driver is really we had grown very quickly with them and they were running at a take rate that simply wasn't sustainable over time. So as they've gone to a more sustainable take rate in the 40, 50, 60 net take rate range, which is still 3, 4, 5X, what they could get with local providers, I think that shows the value of what we offer them. That's probably more along the lines of what an incredibly large merchant in that vertical with their country footprint potentially should be running at and not where they were running prior to that.
Pedro Arnt: That's super helpful, Pedro. And then just one follow up kind of thing about like the long term, right, I was hoping you could apply a little bit on like what you believe your moat is. And this is kind of from a competitive dynamic standpoint as well, just thinking your net take rate is 115 base points today. Your largest global peers, like a stripe and Audi and some company like new day, they all have net take rates in their developed markets of safe 15, 20 basis points, right.
Pedro Arnt: So you have a really attracted revenue pool that they might want to come after. So I was hoping you could kind of like just talk big picture about like what's your moat right and like why won't your merchants leave if a company like Audi and our stripe offers them more attractive processing rights. Thanks. That's a great question and kind of questions we like to answer. So first of all. Um. I'd be very wary of extrapolating developed market take rates to emerging markets and you've done that implied in the question, you're not extrapolating but I also think the key success factors and what a company's core competences should be built around are very different to be successful in developed markets and emerging markets.
Pedro Arnt: I think in developed markets it's really become a race for features and a race for volume primarily those companies you mentioned have all built the stacks in the markets where they operate. If you were to try to replicate that across 40-50 emerging markets, it simply doesn't translate because many of these markets are sub-scale so you might see greater vertical integration in Brazil or in India, you're not going to go build a full-fledged acquirer across 50 markets.
Pedro Arnt: So I always like to say, Dlocal is less of a vertical play and it's more of a horizontal play. We are this API layer and this middleware, one single that abstracts all of the complexity, both technological but also regulatory, conciliations across 40-plus emerging markets. And that's a very different build to what you have to build if you're building for developed markets. So we've always said we don't think we have something to offer in developed markets and hence we've retained our focus on the global south.
Pedro Arnt: I think it's fair to say many of our developed market competitors with their playbooks we don't believe will fare as well as we do in emerging markets because the key success factors are others. It's how do you make this network of multiple acquirers, multiple digital wallets, multiple central bank sponsored payment systems in a highly fragmented, highly volatile world work, which is different to what works in the US or Europe. On take rates, don't forget that what currency pairs you're doing on your FX and your cross border make a big difference.
Pedro Arnt: So our developed world competitors are doing euro to dollar. There's no spread there. When you're doing Argentine peso Egyptian pound, Nigerian niro, Peruvian saw, you begin to see currency pairs that actually generate much more FX spread. That's always been the case. That's the case for credit cards and that's part of the attractiveness of the emerging market play is that you do have that cross border overlay, which is much higher in terms of take rates than if you focus on developed markets.
Pedro Arnt: So at the end of the day, that combination of sole focus on the global south, one single middleware that abstracts complexity across 40 plus markets and the FX overlay is what we think differentiates what we're doing and gives us a high chance of success going forward.
Pedro Arnt: That really comprehensive answer, Pedro, thank you. Thank you, I would now like to turn the call back over to the company for any closing or Thanks. Yeah, thank you. So, thanks everyone for the interest and support, as always. There's a lot going on here. I think we're all excited about what we're building. As we've reset the base in this 2024 for a long term growth story. We mentioned many times in the call today, our addressable opportunity is really, really large across emerging markets.
Pedro Arnt: And we believe that emerging markets will continue to become ever more important to global companies. And we're one of the default options for payment needs across the global south. We continue to launch a few select new markets. We continue to see great interest in our Southeast Asian and Middle Eastern expansion. So there are many growth vectors we need to execute on. We've tried to recognize and highlight that short term, there is volatility across the global footprint that we serve, but longer term, as we grow in scale, that volatility hopefully becomes more manageable.
Pedro Arnt: And we really think that this company is uniquely positioned to continue to grow and capture value given the right time horizon and investment outlook. Our financials are super solid. Our balance sheet position is super strong. And so we really can focus on continuing to deliver a value for our merchants over the long way. We look forward to reporting back to you as all of this happens on a quarterly basis. And we will speak again in three months time.
Unknown Executive: Thank you very much. Thank you.
Unknown Executive: This concludes the conference. Thank you for your participation. You may now disconnect. Thank you.