Q1 2025 DLocal Ltd Earnings Call
Okay.
Speaker Change: Good day, Thank you for standing by welcome to the local first quarter 2025 results call. At this time all participants are in listen only mode.
Speaker Change: After the Speakers' presentation, there'll be a question and answer session.
Speaker Change: To ask a question. During this session you will need to press star one one way or telephone you will then hear automated message you're backing your hand. This race to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I'll now like to hand, the conference over to D. Local please go ahead.
Speaker Change: Good afternoon, everyone and thank you for joining the first quarter 2025 earnings call. Today. If you have not seen the earnings release, a copy is posted in the financial section of the Investor Relations website on the call today, you have Pedro aren't Chief Executive Officer, Jeff.
Speaker Change: Brown interim Chief Financial Officer, and Mirror Law Ara go head of Investor Relations. A slide presentation has been provided to accompany the prepared remarks. This event is being broadcast live via webcast and both the webcast and presentation may be accessed through D. Locals website at Investor Dot D local dot.
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 D. Local current assumptions expectations and projections about future events, while the company believes that our is.
Speaker Change: <unk> expectations and projections are reasonable given currently available information you are cautioned not to place undue reliance on those forward looking statements actual results may differ materially from those included in the locals presentation or discussed in this conference call for a variety of reasons, including those described.
Speaker Change: In the forward looking statements and risk factors sections of the locals filings with the Securities and Exchange Commission, which are available on D. Locals Investor Relations website now I will turn the conference over to D. Local thank you. Thanks.
Speaker Change: Thanks, everyone for joining us today.
Speaker Change: Despite a more volatile global macroeconomic backdrop in 2025, the year has started broadly in line with our expectations.
Speaker Change: Building on the momentum of previous quarters. The local continues to demonstrate strong execution and to prove the resilience of our business model once again, achieving record highs across key financial and operational metrics.
Speaker Change: Despite Q1, not benefiting from seasonal strength in e-commerce.
Speaker Change: We believe that consistent sequential growth is a confirmation of our company's ability to compound growth over extended periods of time, Consequently, delivering shareholder returns.
Speaker Change: Net retention rate of T. P V reached an impressive 144%.
Speaker Change: This figure demonstrates the defensibility of our business with our merchant base.
Speaker Change: Additionally, we're encouraged by TPB that grew north of 50% for a second consecutive quarter underscoring the success of our strategy and the increasing demand for our services.
Speaker Change: These results reflect our continued commitment to innovation customer satisfaction and expanding our footprint throughout emerging markets.
Speaker Change: Furthermore, we continue to carry out strategic investments in technology and operations that are directly fueling the strong results of the quarter and building a robust foundation for sustained financial performance by strengthening our infrastructure optimizing efficiency.
Speaker Change: Expanding our service offerings and elevating the quality of our service key accomplishments highlighted during the quarter include.
Speaker Change: Our T. P V that reached the milestone of $8 billion, reflecting a 53% year over year growth or 72% in constant currency.
Speaker Change: And 5% quarter over quarter increase in this volume. This performance has been driven by sustained expansion in cross border payment volumes supported by Chile, Pakistan, Nigeria, Turkey, and Brazil, as well as robust growth across multiple verticals.
Speaker Change: With notable contributions from sectors, such as remittances commerce financial services and streaming.
Revenue and gross profit hit record highs of $217 million and $85 million, respectively and.
Speaker Change: And as in previous quarters, we continue to see the strength of continued geographic diversification with notable contribution from other Latam markets during this quarter.
Speaker Change: While we do continue to invest in opex to support and accelerate our future growth trajectory, we are still driving operational efficiencies across the organization.
Speaker Change: The adjusted EBITDA to gross profit ratio for the quarter reached 68%.
Speaker Change: A slight improvement, even when compared to the previous quarter, reflecting our ability to scale effectively.
Speaker Change: Despite ongoing investments. We've also continued to improve our revenue per head count over the last four quarters.
Speaker Change: Finally, we generated strong cash flow with free cash flow to net income conversion at 85% reinforcing our commitment to a high growth expanding margin and cash generating financial model now moving onto our commercial update I'd like to share.
Speaker Change: Some of the highlights from the quarter, you'll find additional detail in the accompanying slides.
Speaker Change: These results highlight our ability to maintain and strengthen these relationships over time.
Speaker Change: Timidly, increasing our share of wallet with merchants, we continue to strengthen our partnership with terminal, enabling their customers to transact seamlessly across over 15 emerging markets in Africa Asia and Latin America.
Speaker Change: Our partnership with <unk> is ramping up across key markets demonstrating strong growth in Latin America as well as in several African and Asian countries.
Speaker Change: We remain committed to supporting the merchants global expansion efforts launching operations in further markets in Africa, which further strengthened their global footprint.
Speaker Change: And then another noteworthy partnerships has been rapidly which has been achieving significant growth in both Colombia and Argentina. After our latest round of new feature deployment on their behalf on the technology front, our advancements were centered on leveraging automation and AI.
Speaker Change: To drive operational efficiency and optimize performance across key areas on.
Speaker Change: On the artificial intelligence front.
Speaker Change: The implementation of AI improved efficiency and customer experience and compliance monitoring by automating tasks and decisions previously handled manually.
Speaker Change: On the process automation front automation have enhanced handling of charge backs and refunds substantially augmenting merchant win rate on charge backs and accelerating refund flows.
Speaker Change: On integration efficiencies a redesigned integration system has accelerated the setup process for new integrations cutting down the time required to fully integrate with the local from days to just a few hours we've.
Speaker Change: We've also made interesting advances in our MCP server and L. L M friendly API documentation for integration to the local aiming for a near future where simple prompts will allow our merchants engineers to complete end to end integration with our systems through a.
Speaker Change: I agents.
Speaker Change: And on the merchant settlement front, the implementation of improved settlement system streamlined operations and greatly reduce the need for manual intervention and merchant settlement.
Speaker Change: These automation initiatives are beginning to deliver results more importantly, this is not a side project. It is a core strategic imperative that will shape, our future over the midterm. These results should deliver operational leverage and enhanced capabilities as we progressively.
Speaker Change: Integrate these technologies across the entire organization over the coming years.
Speaker Change: We anticipate these efforts will lead to a noticeable slowdown in mid term hiring growth improved operational leverage and ultimately a more robust and scalable business.
Speaker Change: Another key area of investment focus is on continuously optimizing performance to maximize conversion rates and T. P V, while delivering trusted and agile services to our merchants during the first quarter, we enhance our smart request strategies further these.
Speaker Change: Our machine learning models that optimize conversion rates by dynamically changing the API message to the acquirer during authorization, which resulted in a one two percentage point increase in conversion rates.
Speaker Change: On another front in some African markets, we deployed smart three D S strengthening payment security protocols for higher risk transactions.
Speaker Change: And driving a six percentage point improvement in conversion rates in those markets. We've also continued to be a driving force behind network tokens Asian readiness and support across networks in Argentina, Colombia, Uruguay, and Peru boosting system wide conversion.
Rates in those countries with notable gains in Colombia at one six percentage points in Argentina at nearly one and a half percentage point. Finally, it is important to highlight our continuous efforts in growing our licensed portfolio, which increase our competitive advantage.
Speaker Change: As our global merchants seek to navigate the complex regulatory environments, we serve them in.
Speaker Change: During the first quarter, we added three new registrations to our portfolio two in Argentina, as the aggregator and payment facilitator and one in Chile as a sub acquirer cross border system operator.
Speaker Change: This first quarter of 2025 demonstrated strong execution across many of the levers of our strategic plan.
Speaker Change: Our commercial team effectively leveraged existing merchant relationships and establish new partnerships.
Speaker Change: Financially, we executed our investment plan in a responsible and efficient manner in.
Speaker Change: In addition, our operations and technology teams delivered improved effectiveness to our merchants.
Speaker Change: And our legal and regulatory teams focused on expanding our license portfolios.
Speaker Change: With that intro, let me hand, it over to Jeff to take you through a more detailed overview of these first quarter results.
Jeff: Thank you Pedro good afternoon, everyone.
Speaker Change: I am pleased to be with you today for my first earnings call as interim CFO I want to thank the board and the leadership team for their trust and support and look forward to working with all of you, let's now turn to the results for the quarter as mentioned by Pedro Our first quarter has progressed as expected continuing the trends observed since the second quarter of 2024.
Speaker Change: We have consistently executed our strategy demonstrating strong operational performance by once again delivering record levels of revenue and gross profit along with disciplined cost management and ongoing geographic diversification as a result in the first quarter of 2025, TPB reached $8 1 billion.
Speaker Change: Representing a growth of 53% year over year, and 5% quarter over quarter in constant currency TPB would've grown 72% year over year from a business line perspective, our cross border flows grew 14% quarter over quarter and 76% year over year.
Speaker Change: The milestone of $4 billion for the first time, mainly driven by remittances commerce financial services and streaming across different markets.
Speaker Change: Our local to local TPB decreased by 3% quarter over quarter and increased 33% year over year.
Speaker Change: The quarter over quarter comparison is explained by the commerce performance in Mexico, given the seasonality effect in the fourth quarter and partial loss of share of wallet with a large merchant our pants business grew 2% quarter over quarter, and 49% year over year with strong performance and on demand delivery commerce and screaming partially.
Offset by weakness in the advertising vertical our payouts business grew 12% quarter over quarter, and 61% year over year, driven by remittances and financial services moves.
Speaker Change: Moving on to revenue revenue reached $217 million in the first quarter up 18% year over year or up 36% on a constant currency basis, driven by volume growth in Argentina, and the performance in other markets in Latin America, and Africa, and Asia with strong growth across commerce remittances and <unk>.
Speaker Change: Demand delivery verticals. These.
Speaker Change: These results were partially offset by.
Speaker Change: Brazil, despite experiencing year over year volume growth reported a decline in revenue primarily due to the migration to.
Speaker Change: To the payment orchestration model, which brings lower take rates.
Speaker Change: And just shifting the payment mix from a large merchant.
Speaker Change: Furthermore, Egypt demonstrated strong year over year volume growth. However, its revenue performance faced tough comps due to a wider gap between the official and market exchange rates. During the first two months of Q1 2024.
Speaker Change: On a quarter over quarter basis revenue grew 6% above TPB growth positively impacted by higher cross border share in the mix.
Speaker Change: Result was partially offset by Mexico as I explained earlier.
Speaker Change: Turning to gross profit dynamics, we continue to benefit from the increasing geographic diversification of our operations.
Speaker Change: This diversification as highlighted in previous quarters enables the company to sustain strong growth momentum even in the face of short term challenges in certain markets.
Speaker Change: During the quarter gross profit reached a record level of $85 million up 35% year over year or close to 60% on a constant currency basis.
Speaker Change: Given by the volume growth in Argentina performance in Egypt and growth in other markets, particularly Chile and Turkey.
Speaker Change: These results were partially offset by Brazil, which in addition to the revenue effects. Previously explained was also impacted by one off incremental processing costs.
Speaker Change: On a quarter over quarter basis gross profit increased by 1% driven by Argentina with gross profit following revenue trends. In addition to increasing advancement volumes, which have higher take rates and a wider gap between official in parallel Opex in Q1, 2025 versus Q4 2024 and two other law.
Speaker Change: Tam market with highlights being the positive performance in Chile. This result was offset by drivers in Brazil, and Mexico as explained previously.
Speaker Change: In addition, despite volume growth across various countries other Africa and Asia was adversely affected by increased processing costs in South Africa and Nigeria.
Net take rate was down four basis points quarter over quarter, driven mostly by weakness in our key merchant in the advertising sector and to the one off increase in costs in Brazil as I. Just explained those effects were partially compensated by higher FX fees in Argentina higher shares of cross border and the growth in frontier markets moving.
Speaker Change: Our P&L, we maintained our disciplined expense management, improving operational leverage this quarter, while planned investments in technology and operations are expected to increase throughout the rest of the year. These results demonstrate our company's Fu a culture and the inherent leverage within our business model.
Speaker Change: With this for the first quarter, our total operating expenses are at $39 million.
Speaker Change: A 6% decrease quarter over quarter, and an 8% increase year over year.
Speaker Change: Annual comparison most of the Opex growth is explained by the increase in head count as we continue to invest in our capabilities.
Speaker Change: On a quarterly basis. The decrease in Opex is primarily attributed to a reduction in G&A and technology and development expenses driven by the decrease in third party services and travel expenses combined with the timing of the implementation of new initiatives. This decrease was partially offset by growth in head count within both technology.
Speaker Change: And operations, particularly through the hiring of engineers and the expansion of our operational footprint and strategically important markets and an increase in sales and marketing expenses driven by key commercial events that typically occur in the first half of the year. As a result, we delivered an operating profit of $46 million for the quarter.
Speaker Change: Up 8% quarter over quarter, and 70% year over year.
Speaker Change: Adjusted EBITDA reached $58 million.
Speaker Change: Up 2% quarter over quarter, and 57% year over year, representing an adjusted EBITDA margin of 27% the ratio of adjusted EBITDA gross profit was 68% for the quarter slightly above the fourth quarter, marking the fourth consecutive quarter of improvement moving on to net income net income was $47 million.
Speaker Change: For the quarter of 57% quarter over quarter, and 163% year over year compared to the prior quarter. The result was impacted by a positive noncash mark to market effect related to our Argentine bond investments and lower finance costs.
Speaker Change: Our effective income tax rate ended at 10% for the quarter compared to 27% in the fourth quarter 2024, or 16% when excluding the tax settlement as mentioned in the last earnings release.
Speaker Change: As a result of higher cross border share of pre tax income and a lower pre tax income in Brazil, given the higher costs as explained previously.
Speaker Change: Lastly, free cash flow for the quarter, which is the net cash from operating activities, excluding merchant funds less capex amounted to $40 million up from $33 million in the fourth quarter of 2024, representing a 22% increase.
Speaker Change: Ended the quarter with cash and cash equivalents totaling approximately $512 million up $86 million versus the previous period and $125 million of.
Speaker Change: Short term investments related to cash you are probably already seen in our filings that the company has made some announcements regarding dividends.
Speaker Change: I'll turn it over to Pedro to tell you more.
Pedro Aren: Thanks, Jeff so on the capital allocation front.
Pedro Aren: We are announcing that our board of directors has approved both a dividend policy as well as the payment of an extraordinary cash dividend the one.
Pedro Aren: One off dividend will be of approximately.
52, and a half cent per.
Pedro Aren: Per common share.
Pedro Aren: For a total cash outlay of $150 million. This decision reflects our commitment to returning value to our shareholders, while maintaining a disciplined approach to capital allocation.
Pedro Aren: After careful consideration of our capital allocation strategy, we concluded that a dividend policy aligns with our long term objectives.
Pedro Aren: Our company expects to generate consistent cash flows over time.
Pedro Aren: This cash generation will suffice to meet our strategic goals, including possible inorganic growth through targeted mergers and acquisitions.
Pedro Aren: Increases in Capex when required.
Pedro Aren: And investments in larger business development deals.
Pedro Aren: The dividend policy, which we are launching will provide an annual dividend payment equal to 30% of the company's free cash flow.
Pedro Aren: This approach will allow us to return capital to shareholders in a methodical fashion, while ensuring that we maintain flexibility to reinvest in growth opportunities as they arise.
Pedro Aren: The first dividend under this policy would be payable in 2026 based on our free cash flow performance for the preceding year. Once audited financials are released and pending board approval at that time.
Pedro Aren: The 2025 extraordinary dividend will be paid to all shareholders as of the record date of May 27th with a payment date of June 10th.
Pedro Aren: In evaluating the most efficient way to return capital to investors, we carefully weighed the option of a dividend versus share buybacks.
Pedro Aren: Given the current limited liquidity in our stock we along with advisors determined that a dividend was the optimal choice.
Pedro Aren: A buyback program in the order of $150 million with future repurchase in the order of 30% of our free cash flow would have placed further liquidity constraints on trading volumes potentially impacting the stock's performance by.
Pedro Aren: By opting for a dividend, we ensure a direct and equitable return of capital to our shareholders, while preserving the flexibility needed to execute our strategic initiatives effectively without placing additional strain on the daily liquidity of trading and day local shares.
Pedro Aren: Before we wrap up I'd like to take a step back and reflect on the bigger picture as we announced how we started 2025.
Pedro Aren: While short term macroeconomic headwinds persist across emerging markets, we remain deeply confident in the strength of the secular growth trends shaping these regions are.
Pedro Aren: Our long term investment thesis is built around a massive and expanding addressable market supported by powerful demographic and technological shifts.
Pedro Aren: Nearly 90% of the global population under the age of 20 will reside in emerging markets by 2050.
Pedro Aren: These regions are also projected to account for approximately 65% of global economic growth by 2035.
Pedro Aren: This youthful tech native population is driving the rapid adoption of digital solutions, especially in areas like mobile payments digital wallets and embedded financial services.
Pedro Aren: This demographic and macroeconomic momentum reinforces our investment thesis a massive addressable market high top line growth attractive margins strong cash generation and a robust innovation pipeline that allows us to be a market leader.
Pedro Aren: At the same time global trade dynamics are rapidly evolving.
Pedro Aren: The ongoing discussion around tariffs and the fragmentation of traditional trade models are creating opportunities for both emerging markets and four day local.
Pedro Aren: We are seeing a shift to a more multilateral diversified global trading environment and this shift is prompting developed economies to engage with emerging markets more strategically and with greater urgency and environment that plays directly into our mission of empowering global Marine.
Pedro Aren: <unk> to localize and optimize their payment strategies in high growth emerging regions of the world.
Pedro Aren: While global players such as many of the Mega cap companies have already embraced localization and alternative payment methods a.
Second portion of the market remains as of yet Unserved on this front.
Pedro Aren: And as emerging markets gained prominence demand for seamless localized payment solutions should only accelerate substantially expanding our total addressable market crew.
Pedro Aren: Crucially this shift also underscores the importance of flawless execution comp.
Pedro Aren: Competition in this space is expected to intensify, but we continue to differentiate ourselves through our ability to deliver reliable cost effective and frictionless payment solutions.
Pedro Aren: Our ongoing improvements in net promoter score, which results from our focus on addressing emerging market specific payments fragmentation and merchant pain points through be spoke financial infrastructure solutions evidences stronger relationships with our partnerships and the fat.
Pedro Aren: That we are uniquely positioned to capture the incremental volume of rising from the structural shifts I've just mentioned.
Pedro Aren: So the opportunity ahead is both massive and tangible and we are confident in our ability to seize it.
Pedro Aren: That's why we are reaffirming our full year guidance and remaining fully committed to disciplined execution and relentless drive on long term sustainable growth. Thank you for your continued trust and support and with that we'd like to take your questions.
Pedro Aren: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please stand by while the composite Q&A roster.
Speaker Change: And our first question comes from the line of <unk> <unk> of Goldman Sachs. Your line is now open.
Speaker Change: Alright, thanks for the call.
Speaker Change: My question again.
Speaker Change: Yeah.
Speaker Change: One question two parts.
Speaker Change: Okay.
Speaker Change: Got it and just maybe get some color on the growth in Argentina.
Speaker Change: You mentioned there that there was some increasingly advanced.
Speaker Change: Benson volumes and just understand.
Speaker Change: That's a little bit better how sustainable is that do you think that can increase.
Speaker Change: Seasonality to that.
Speaker Change: And then.
Speaker Change: Mexico.
Speaker Change: I understand that the peak volume.
Speaker Change: Just the parcel volume loss with that with the merchant.
Speaker Change: Can you give any additional color or do you expect that could be a risk at all the volumes there just I understand.
Speaker Change: Thank you.
Tito: Sure Tito.
So art.
Tito: Argentina seems sustainable we've seen a pickup in interest in that market from global merchants.
And a search for more alternative payment methods.
Tito: So as capital controls are gradually lifted in Argentina, we do begin to see companies begin to look at that market again with favorable eyes and leaning into it.
Mexico.
We need to execute better and reignite growth there, we don't see anything from a structural perspective.
Tito: That shouldn't allow us to accomplish that with better execution.
Tito: It did grow sequentially. Despite the seasonal weakness so that's I think positive.
Tito: And on the specific explanation on share loss I think Mexico had been the strongest grower throughout large parts of 2024 with concentration around a few merchants that drove a lot of those growth and so small shifts in <unk>.
Tito: <unk> from those merchants.
Tito: Can attribute kicking it can drive a lot of the slowdown in that market as we continue to scale it out and diversify across more merchants than the impact of a single merchant isn't as big.
Tito: There is no merchant churn. These are small changes in share of wallet that can go in either direction in subsequent quarters.
Okay.
Tito: Maybe just on the take rate.
Tito: Alright, you mentioned.
Tito: Going back to advanced in volumes at higher take rate.
Tito: How sustainable is that.
Tito: More interest in Argentina, maybe.
Can you talk a little bit easier.
Tito: Great.
Tito: Sustainable you think.
Tito: Great. So.
Tito: Argentina is one of the markets, where one of the products that we sell is a full payment suite white label.
Tito: And as part of that we also get involved in the discounting of receivables and in different financing alternatives for our merchant there's no credit risk involved nothing of that type, but it does generate an incremental take rate when there are periods, where consumers are by.
Tito: And more on installments.
Tito: And so therefore theres more advancing of receivables factoring of receivables. So it's inherent to the business model, it's inherent to a particular product that Argentina has the greatest exposure to that product and so I think it's sustainable in that we have a higher take.
Tito: Right there as a consequence of periods, where consumers are buying on longer installments and theres more factoring involved.
Tito: Okay. That's great. Thank you better.
Tito: Thank you one moment for our next question.
Tito: Yes.
Tito: Yeah.
Speaker Change: And our next question comes from the line of Jamie Friedman of Susquehanna International Group. Your line is now open.
Tito: Okay.
Jamie Friedman: Hey, guys. Congratulations good start to the year I'll ask a couple of just upfront to get them out of the way. So first on the operating expenses page are they grew 3% adjusted operating expenses grew 3% in the quarter that did seem to be lower than what was contemplated in the annual basis. So I'm just trying to figure out is that going to come back with that temporary.
Jamie Friedman: That's the first one and then yes in terms of debt.
Jamie Friedman: Five basis points.
Jamie Friedman: Impact from the advertising client that sounds right.
Jamie Friedman: Alright, it close the decorated but that slide where you show the reconciliation of take rate.
Speaker Change: I was just wondering that seems like a lot for.
Jamie Friedman: What.
Jamie Friedman: Seem to be one client is that contemplated to continue in the current guidance and any context on that one. So those are the two questions. Thank you.
Jamie Friedman: Okay.
Jamie Friedman: Hi, Jamie this is Jeff thanks for your questions.
Jamie Friedman: On the Opex side.
Jamie Friedman: Just say most of that there is a slight element of timing there.
Jamie Friedman: Really we're continuing to.
Jamie Friedman: Make sure we're laser focused on the expense base of the business and just being really responsible there.
Jamie Friedman: Okay.
Jamie Friedman: It's a very large global client in the advertising space.
Jamie Friedman: And if their growth slows down relative to others, which doesn't necessarily mean that they're decreasing.
Jamie Friedman: Then we have merchant mix shift in the PPV away from a higher take rate merchant with.
Jamie Friedman: <unk> operations with us in Egypt, which is one of the very high take rate markets and so as other merchants and other verticals and other verticals outpaced that merchant.
Jamie Friedman: It drives down the take rate. So it's a mix shift issue. This is a global.
Jamie Friedman: Very very very very large mega cap merchant and so.
Jamie Friedman: That explains the five basis points of impact.
Speaker Change: Okay that makes sense and I'll jump back in the queue. Thank you.
Speaker Change: Thank you Amit for next question.
Speaker Change: And our next question comes from the line of Kim <unk> of Jpmorgan. Your line is now open.
Speaker Change: Thank you Pedro Jeff Congratulations on the quarter and all the capital agenda.
Speaker Change: Interesting announcements the two questions on my side. The first one is related to other Latam pretty strong performance in the quarter.
Speaker Change: I tried to calculate the gross profit margin was 40% so not inquiries it seems to be less related to take rates.
Speaker Change: And more related to volumes.
Speaker Change: So just want a little bit more color if that statement makes sense or not and if you can provide a little bit more granularity.
Speaker Change: What happening in other long term debt was so strong and then the second quarter's extra follow up just in terms of the margins of the business EBITDA margins.
Also strong this quarter just wanted to understand how youre seeing the evolution throughout the quarters.
Speaker Change: If we do if we should see the margins by some reason decline or if it's natural to expect some either stable or some inquiries on those margins. Thank you.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Sorry, just just trying to get the numbers for you so.
Speaker Change: Latam has shown really strong TPB evolution across some of the more frontier ish markets.
Speaker Change: That are showing.
Speaker Change: Positive growth.
Speaker Change: As merchants globalize payments more and more so there is an element of what we typically look at in terms of take rate, but you could also look at it in terms of gross margin, where you are beginning to have more take rate in more frontier market, sorry, more volume and more frontier.
Speaker Change: <unk> with higher take rates some of the central American markets some of the markets in in.
Speaker Change: South America that are not the large economies.
Speaker Change: So it's it is partially driven by improved take rates and frontier markets.
Speaker Change: Which we've always said is part of our thesis and part of the reason that we believe that although there is a secular decline in take rates. There are strong the offsets to that as well as we continue to diversify into more and more markets.
Speaker Change: Chile was particularly strong within that segment of other Latin America, Chile does have a higher gross margin profile than Brazil or Mexico.
Speaker Change: More in line with Argentina, and Thats, a consequence of merchant mix and payment mix.
Speaker Change: So that's the answer on other Latam gross profit PPV versus take rates I think it's double strength there its strong PPV growth and yes, because they are smaller markets. They tend to command take rates that are above the average.
Speaker Change: On the EBITDA evolution as Jeff mentioned, there is an element of timing of the expenses throughout the year on Opex. So this is not linear.
More expenses planned for subsequent quarters.
Speaker Change: And as we made clear this is still a year of investment for us.
Speaker Change: Having said that I think the beauty of this financial model is that it is an asset light model with significant leverage opportunity.
Speaker Change: And so when we say, we're still investing behind the business. If we do so efficiently and in a controlled manner, we can hit our target of modest.
Speaker Change: Margin expansion this year.
Speaker Change: And then exiting this year, we should be able to allow the natural leverage of the model to begin to flow through if.
Speaker Change: If you overlay to that everything that's happening on the AI front and automation, particularly to help you improve cost structures and I tried to address this in the prepared remarks I think it's positive in terms of our ability to return to margin levels. We've had in the past.
Speaker Change: And eventually even surpass those when you take more of the mid term view.
Speaker Change: Of how we're thinking through cost structures and potential to generate incremental EBITDA.
But let's not get ahead of our skis for 2025 just yet.
That's clear thank you for the explanation and congratulations again.
Speaker Change: Yes.
Thank you one moment for our next question.
Speaker Change: And our next question comes from the line of Jorge <unk> of Morgan Stanley. Your line is now open.
Speaker Change: Thank you.
Speaker Change: Hi, everyone and congrats on the quarterly numbers.
Speaker Change: I have two questions. If I may the first one is on.
Speaker Change: On Brazil.
Speaker Change: Do you mind double clicking on.
Speaker Change: Both revenues and gross profit in Brazil, and our revenues are.
Speaker Change: Around 20% year on year.
Speaker Change: Gross profit down 27%.
Speaker Change: <unk> profit margin down.
Speaker Change: <unk> thousand 400 basis points.
Speaker Change: You you did mention that there was a one off Eric.
Speaker Change: Cost impact.
Speaker Change: How much of.
Speaker Change: That's declining.
Speaker Change: Gross profit is not one of how much of the decline in revenues is something you can gain back out of the path forward look for.
Speaker Change: Brazil, both revenues and gross profits I mean, given it's still your biggest our second biggest market I think it's important to drill a little bit more on the dynamics there.
Speaker Change: And then my second question is.
Speaker Change: I mean, I know I know you don't.
Speaker Change: So you don't have all the Capex youre generating.
Speaker Change: Decent amount of cash flow.
Speaker Change: But it still feels like.
Distributing half of your cash.
Speaker Change: Cash back to investors, which.
Speaker Change: By the way your float is very small so it's back to the founders.
In these early days of emerging market growth and E Commerce growth and everything you said better at the end of your.
Speaker Change: The presentation about just the excitement and massive opportunity in emerging markets wouldn't that be just best using redeploying to the company.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Great. Good questions. So first one on Brazil.
Speaker Change: Where I think the glass half full is its beginning to stabilize after a few quarters of shrinking in terms of volume as well as gross profit.
Speaker Change: At least the volumes have began to pick up again.
Far from where it needs to be much like my answer on Mexico, nothing structural there I think the tendency of moving from negative TPB to at least growing TPB is the right direction and as we continue to grow and execute ideally we can see Brazil accelerate.
Speaker Change: And if not it's not market dynamics, it's purely execution.
Speaker Change: Going into greater detail on the drivers of your question.
Speaker Change: There's two things if you will recall we had.
Speaker Change: On a year on year basis, the now infamous repricing from our largest merchant which was still present in our Q1 'twenty four numbers. So we don't really comp away from that until Q2.
Speaker Change: You also had the migration to the gateway product.
Speaker Change: Of a portion of our Brazilian volume, which as we said at the time is lower take rate.
Speaker Change: So that's what's driving the gross profit compression part of that is comped away starting Q2, the launch of the gateway product is more towards the second half of the year.
Speaker Change: And then there are about $2 $5 million of one off costs, which don't repeat themselves in subsequent quarters.
Speaker Change: So that's the impact on gross profit of these one off costs in Q1 for Brazil.
Speaker Change: <unk> is still an enormous market with huge opportunities for us we've seen cross border flows pick up we're seeing a lot of innovation on picks automated picks coming up.
Speaker Change: The emergence of more and more a digital wallet. So again, if we execute Brazil will deliver growth for.
The foreseeable future and it's down to us to capture that.
Speaker Change: On the capital allocation policy.
A couple of thoughts one is if you look at our history over the last few years, it's not that big of a divergence mean, the company deployed over $100 million in share buybacks in 2023, it deployed another $100 million in share buybacks in <unk>.
Speaker Change: 24.
Speaker Change: To your point of reinvesting back in the business for growth.
Speaker Change: We get that but the beauty of this business model in this financial model is that you don't need to throw capital at it it's asset light, it's very driven by innovation execution and service model differentiation and not by Capex or compressing margins.
Speaker Change: <unk>.
Speaker Change: If anything I think we've said, it's another investment year.
Speaker Change: Don't know if the market loved that but we know it's what we need to do so we are investing back into the business and then there is significant natural leverage in the business.
Speaker Change: Leaving all of that cash on the balance sheet.
Speaker Change: Think doesn't make sense from an ROE perspective.
Speaker Change: It leaves us with a unlevered balance sheet with significant cash on it which from a defensibility perspective is potentially not ideal either.
Speaker Change: And.
Speaker Change: And so we're executing the way we have been executing over the last few years, which is ensuring that we're investing where we need to invest confidence in the business model's ability to generate cash and then giving the portion of that cash that we feel is unnecessary.
Speaker Change: Back to investors share buybacks at this level of daily float is probably not a good idea and hence the dividend in terms of our dry powder.
Speaker Change: We do also have significant short term investments of about $120 million. So the overall cash available and the portion of this that we're returning.
Speaker Change: Is.
Speaker Change: Okay.
Speaker Change: Not exactly half of it but again, it's fairly consistent with the level of cash returns from prior years and the business has continued to grow and to be able to invest.
Speaker Change: Everywhere it needed to invest.
Speaker Change: Great. Thank you bet at all and congrats again.
Speaker Change: Thank you Amit for next question.
Speaker Change: And our next question comes from the line of Matt Agarwalla of HSBC. Your line is now open.
Matt Agarwalla: Hi, Jessica.
Speaker Change: Go ahead stations on the quarter, just two quick questions.
Speaker Change: Questions first.
Speaker Change: So in Brazil, and Mexico at the softness out there.
Speaker Change: Do you think these volumes are going in terms of your competitors.
Speaker Change: And second question you noted that the precession question, South Africa, Nigeria, inched up a bit could you explain why that happened because you're noticing that the costs.
Speaker Change: Costs are.
Speaker Change: Cost of services.
Speaker Change: <unk> has been going up.
Speaker Change: So just like to get more clarity on that and how that shifted thank you so much.
Speaker Change:
Speaker Change: Okay.
Speaker Change: Mexico.
Speaker Change: When we refer to share of wallet losses by definition. It means it's going to someone else.
Speaker Change: That's the.
The nature of this business, we compete across over 40 markets.
Speaker Change: We generally are significant share gainers.
Speaker Change: In most of our merchants and in most markets that doesn't always play out that way from one quarter to the next the beauty of an increasingly diversified.
Speaker Change: Global South business as I've been saying for a few quarters now is that weakness in one market and one quarter increasingly gets offset by strengths elsewhere. So this quarter we had.
Speaker Change: Weakness in gross profit in emerging Africa, and Asia, we didn't have a great quarter in Brazil, or Mexico, but rest of Latam in Argentina, we're able to pick up whereas in the past, maybe we had a different situation.
Speaker Change: So.
Speaker Change: Again, I don't think competitive dynamics are such that we can reignite growth in any of these markets, but there will be quarters, where we will lose share on some merchants that in some markets and many others, where we will win share.
Speaker Change: Nigeria, and South Africa, just a couple of quick thoughts there that I think are relevant typically when you see these costs eking up it.
Speaker Change: It will be driven by one or two factors not lack of scale or lack of ability to flex that scale to improve cost on a per processor basis, but it typically means that either through smart routing decisions or merchant overrides.
Speaker Change: We've prioritized performance.
Over costs on the pipes that we are routing merchant volume too in a specific market.
Speaker Change: Part of our management of all of this is we will at times send volume through a slightly more expensive pipe to insure merchant.
Speaker Change: Performance thinking long term, we will then work with processors, where performance is weak, but have a better cost to see if we can improve that performance and then reroute back through those professor processes and Thats really the bread and butter of what we do.
Speaker Change: And the reason over longer periods of time, we believe we add enormous value to global merchants that simply don't have that kind of local capability to manage around multiple processors.
Speaker Change: And their respective performances the other driver that affects in Nigeria, South Africa is also payment type mix.
Speaker Change: When you move away from just credit cards.
Speaker Change: And you begin to look at APM as bank transfers that could also have an impact as the mix between those different payment types shifts from one quarter to another.
Speaker Change: If I can just go back on the competition is could you point out maybe one or two things that you could do this and do you have that you're trying to do.
Speaker Change: To reignite, Jordan, Brazil, and Mexico as you pointed out.
Speaker Change: I mean, our strategy continues to be one of landing new merchants, Brazil, and Mexico for that should actually be very fertile ground. If you think of merchants that begin to look at.
Speaker Change: <unk> of payments across emerging markets typically the first markets, where you do that are the larger more attractive markets across the global South. So you will start with our Brazil, where the Mexico with in India.
Speaker Change: With in Indonesia, So theres a lot of trying to attract more merchants to our solutions in those markets.
Speaker Change: It's selling those markets to existing merchants that don't use us there and it's ensuring competitive conversion rates.
Speaker Change: Rising uptime and latency for existing merchants that are already processing with us in those markets. So that they gave us more share of wallet and not less share of wallet. There. So there are multiple growth drivers and hence my conviction that there are no structural issues. This is about <unk>.
Speaker Change: <unk>.
Speaker Change: And.
Speaker Change: Let's see what happens over the next few quarters and ideally we've found a way to reignite growth in those markets.
Speaker Change: And again just to stress again, the increased diversification leaves us with confidence that weakness in one market will increasingly be able to be offset by strength in a growing number of other markets.
Speaker Change: Perfect. Thank you so much.
Speaker Change: Thank you Amit for next question.
Speaker Change: And our next question comes from the line of John Kolsky of Barclays. Your line is now open.
John Kolsky: Great. Thank you very much for taking my call.
John Kolsky: Pedro one question for you I think I read an interview that you made earlier in the year. I think you had mentioned that local is considering some kind of M&A and then again you mentioned the M&A I think either in your prepared comments or in response to somebody. So I was wondering when it comes to M&A are you just sort of casually.
John Kolsky: Browsing the store right now or are there particular function. So we're licenses or capabilities. Our rolodex of clients that you are actively pursuing and considering a purchase for.
John Kolsky: So I think the comments on M&A and the way we're looking at M&A right now is.
John Kolsky: We do see something that I think many of us in the Fintech space has kind of been talking about for a few years now, but it's finally happening which as you begin to have a fairly large cohort of funded companies through the.
John Kolsky: Hey days, a fintech that are have become subscale and really begin to realize that they need to nestle their product their service under a larger company with a more robust balance sheet to be able to continue to grow and so we're looking at a lot.
John Kolsky: Of.
John Kolsky: Interesting opportunities in Asia.
John Kolsky: Valuation ZIP code that we can carry out with.
John Kolsky: The cash that we have on hand.
John Kolsky: And the cash that we look to generate so the answer to the rollout of <unk> I think I don't know if its a rolodex, but there are a lot of.
John Kolsky: Opportunities to find good assets at now attractive valuations that could be interesting add ons to what we're doing.
John Kolsky:
John Kolsky: And if we find something that is executable and we execute obviously, we'll communicate to the market, but that's where the corp. Dev team is spending their time.
Speaker Change: Great. Thank you I just have one follow up for Jeff.
Speaker Change: We consider the your opex for the remaining three quarters.
Speaker Change: I was wondering I know, it's hard to say, but you know given that you were in this period of investment when we think about like technology costs for sales costs or G&A.
Speaker Change: Should we expect that Q2 Q3 Q4 are these roughly in line with what you see in Q1 or is there some sort of like higher peaks in different or low points during.
Speaker Change: The remaining three quarters, just trying to get a certain sense of what that investment keeps could look like.
Speaker Change: Hi.
Speaker Change: Thanks, I think looking forward again, we mentioned there were some timing elements here.
Speaker Change: Do think Opex will go up.
Speaker Change: And then the investments will go up against still staying very focused on.
Speaker Change: Not over spending in it and being very diligent there are prudent there.
Speaker Change: Do you think about the mix I think that will continue to invest more and more.
Speaker Change: Ship more onto the tech side.
Speaker Change: More than anything, but I think we will see an increase.
Speaker Change: The board.
Speaker Change: Alright, thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And our next question comes from the line of Cathy Chan of Bank of America. Your line is now open.
Speaker Change: Great. Thanks, I just wanted to add.
Speaker Change: About 10 that you're seeing in April or May thus far have been had they been relatively similar to what you've seen in the first quarter or or in March and are you kind of assuming that macro continues to remain volatile, but relatively steady overall for the remainder of the year. Thank you.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: We're continuing to see things trend.
Speaker Change: Within the range of expectations I think any bad news, we'd be informing it I'd rather talk about Q2, once we report Q2, but.
Speaker Change: I think thats the answer.
Speaker Change: Nothing significant to report at this time and a business that.
Speaker Change: We understand had strong Q3 stronger Q4 continued momentum into Q1, and we're not seeing any relevant signs of slowdown.
Speaker Change: Okay. That's helpful and then I guess on that.
Speaker Change: A great bridge that you guys provided to the higher share of payout.
Speaker Change: And the key advertising merging and then the one off processing costs are these expected to all continue into Q1 and the rest of the year just thinking about how the shape of the rest of the year comes out in terms of the gross profit take rate that we should be modeling.
Speaker Change: Okay. So if you look at the midpoint of our annual guidance.
It expected.
Speaker Change: A continued.
Speaker Change: Yet I would say increasingly asymptomatic.
Speaker Change: Impression in take rates.
Speaker Change: I think it was somewhere in the low teens full year. So if you think of four five basis points for Q1.
Speaker Change: In general things are tracking in line with our expectations on the product mix pricing front as well.
Speaker Change: Again, I think the bearish thesis that the repricing last year was the FERC shoe to drop by now we can eliminate that thesis and now there is a secular trend towards take rate decline, we need to manage around that through pricing through expansion.
Speaker Change: Into higher take rate frontier markets as I mentioned earlier.
Speaker Change: I think youll see as the year progresses.
Speaker Change: We're feeling better about our innovation pipeline, so our ability to push new products and services that ideally help us monetize better so we're managing for take rate.
Speaker Change: And Q1 decline you have the bridge there and in line with our expectations.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you I'm showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Speaker Change: Okay.
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