DLocal Limited (DLO) Earnings Call Transcript & Summary

Thanks a lot, operator. Hello, everyone, and I appreciate you being with us for the earnings call covering the fourth quarter of 2022. Should you not have looked at our earnings release yet, one can be found in the financial section on our investor relations site. Joining me on today's call are Sebastián Kanovich, who serves as our Chief Executive Officer, Jacobo Singer, our President and COO, Diego Cabrera Canay, our Chief Financial Officer, and Maria Oldham, Vice President of Corporate Development and Investor Relations. A slide presentation is being provided to go along with our prepared remarks. This event is streaming live over webcast, and the webcast along with the presentation can be reached via the dLocal website at investor.dlocal.com. A recording should be accessible soon after the event wraps up. Prior to moving forward, I want to note that any forward-looking statements contained in the presentation or brought up on this conference call rest on information currently available as well as dLocal's present assumptions, expectations, and projections regarding future events. Although the company considers our assumptions, expectations, and projections reasonable in light of information currently available, you should be advised against placing undue reliance on such forward-looking statements. Actual results could differ materially from those contained in dLocal's presentation or talked about on this conference call for numerous reasons, among them those outlined in the forward-looking statement and risk factor section of dLocal's filing with the Securities and Exchange Commission, which can be found on dLocal's investor relation website. I'll now hand the conference over to Seba. Thank you.

Hello, everyone, and good morning. I appreciate you all being on today's call. Today, we'll go over how the business performed, along with our numbers for Q4 2022 and the complete 2022 fiscal year. To begin, I'd like to express gratitude to those who matter most to us; the past quarter brought a difficult period during which we faced criticism that wasn't justified, and for the following parties I feel deeply thankful. To begin with, the customers we serve. These are genuine partners for the long haul, and we recognize that they carefully select which companies to entrust with their payment volumes. Reaching a record TPV of $10.6 billion across 2022, which included $3.3 billion during Q4 — a 21% rise compared with the prior quarter — demonstrates the faith they have in what we offer and in the robustness of our business. We also owe thanks to our team, whose members keep putting in tremendous effort and stay dedicated to achieving what we've set out for the long term. We faced a trial and came through it successfully. Our operations carried on without disruption and performed even more effectively than before. Next, our partners who invest for the long haul. From the regulatory filings, it's clear that our biggest shareholders keep backing us, having recently grown their stakes, which reflects their belief in and enthusiasm for the potential future value dLocal can create. We have strong conviction about the company we're constructing, and we're proceeding with our share buyback program in line with our trading policy. This marked our second year operating as a publicly traded company. Since our listing, we've surpassed what we originally projected, and 2022 followed that same pattern. Prior to examining the results in detail, I'd like to take everyone back to why dLocal was founded in 2016 and how that purpose shapes all of our actions through the present day. The reason dLocal came into existence was that we identified an obvious problem. Gaining access to and conducting commerce within an emerging market proves extremely challenging. Compared with developed markets, emerging markets typically feature payment systems and methods that are far more fragmented. On top of that, they come with regulatory settings that are more volatile and complicated, along with varying tax regulations and differing ways consumers behave. Setting up even one new payment method in just one market demands a great deal of time and causes frustration, even for sizable global corporations that possess substantial resources. When you take that and multiply it across the numerous payment methods spanning the many emerging markets, you get a challenge that requires enormous resources to resolve, particularly given that it sits outside the core focus of nearly every company; this is the gap dLocal fills. Through completing all the demanding work involved in connecting more than 900 payment methods spanning 40 emerging markets and offering all of them via one API, we enable businesses to sidestep every one of these difficulties. Since we serve many hundreds of merchants, we gain advantages from economies of scale by pooling their payment volumes. To underline this point, our One dLocal model gives merchants a smooth, unified experience. A single contract, a single platform, a single API, a single point of support. From a merchant's standpoint, whether they're getting Brazilian reais via Pix, a local instant payment method, or sending out Nigerian naira through a local bank transfer, there's just one integration they need. We feel that what the company has achieved across the last 7 years shows how appealing this offering is to merchants. At present, we work with a number of the biggest and most recognized businesses on the planet, including Microsoft and Meta. Through us, they can reach more than 2 billion shoppers in 40 markets using 900+ payment methods, covering local-to-local as well as cross-border transactions, in both pay in and pay out. What's really thrilling is how much more lies ahead. There are plenty more merchants to bring on board, additional markets to enter, fresh products to introduce, and new payment methods to add. People frequently ask me: if the challenge dLocal addresses were truly that difficult, how were merchants able to function in emerging markets prior to dLocal's existence? The reality is those merchants did manage to cope — but only by pouring in an enormous amount of resources and time, and by resigning themselves to the fact that numerous customers would be abandoned. Prior to engaging with us, suppose a global merchant wished to operate in, say, 10 markets; they would have had to connect with no fewer than 10 separate providers, execute no fewer than 10 contracts, and manage no fewer than 10 distinct partner relationships. And even after all that, they'd frequently abandon certain markets or certain payment methods entirely, since the cost of serving them was simply too steep — which meant they were forsaking a great many customers. We take real pride in saying that these days, as soon as a merchant links up with dLocal, they can instantly extend their reach to 40 countries and 2 billion+ users, and possess everything required to run operations in every market we support. Our merchants gain from swift growth in reach, lower costs and less complexity, plus other advantages of the dLocal solution, such as strong acceptance and conversion rates, diminished friction, assistance with regulatory and tax compliance, and FX translation along with fraud prevention. For businesses seeking to sell throughout numerous emerging markets, we think choosing the dLocal solution instead of handling their own integrations is an obvious call. We're delighted to tell you that we work with and serve a number of the biggest and most prosperous enterprise global merchants and marketplaces, among them Meta, Microsoft, Shopify, Spotify, Salesforce, Deel, Wish, Expedia Group, and many more. Because of disclosure restrictions, we also partner with other globally leading names that we aren't able to reveal to you. Alongside the biggest players coming out of the US and Europe, we also serve top companies that originated in emerging markets, for example SHEIN, Tencent, Telegram, Rappi, DiDi, and PedidosYa. We see this as proof of the value our solution provides. Even businesses from emerging markets that possess local expertise consider it far more practical to take advantage of our solution instead of building their own integrations. Bringing the biggest global corporations on board, keeping them as devoted customers, and steadily expanding the volume of business we do with them comes down to our technology and our deeply customer-focused way of working — and that same approach fuels a pipeline of constant, fast-paced product innovation. Members of our sales organization respond quickly and develop a thorough familiarity with how each client operates, which lets us grasp the difficulties those clients face and work through them side by side. Frequently this leads to new products and features being built that benefit our wider merchant base, so the value delivered by our platform keeps rising. I'd now like to walk through two illustrations of the partnerships we have with major worldwide enterprise merchants. The first illustration involves Salesforce, which is a customer we brought on recently. Thanks to a tight working relationship with Salesforce, we discovered an issue they were dealing with. In emerging markets, handling payments and moving funds out of the country is complicated because of local rules, macroeconomic swings, and shifts in currency values. Together with Salesforce, we built a brand-new offering aimed at B2B cross-border payments. That offering addresses the intricacies of B2B payments, handles currency volatility, makes local payment options available, and guarantees the processing, expatriation, and settlement of funds. Thanks to this offering, dLocal makes possible B2B payments that usually carry a larger average ticket. Merchants like Salesforce are able to depend on dLocal's infrastructure to reach various payment methods and FX markets, which secures success in payments processing and expatriation while enhancing the reconciliation process.

Absent what we built, Salesforce would ultimately have ceased processing payments within this particular market. Since then, we've taken the service into additional regions worldwide, and a number of our biggest customers are now on this newer offering. Turning to slide 8. This case study illustrates how effective our solution is, since it lets Meta tap into a wide variety of payment options spanning numerous countries. Our partnership with them stretches beyond 4 years; today we support them in several geographies and products. Because of the tight ties we hold with major worldwide enterprise customers like Meta, we gained insight into the difficulties involved in both accepting and disbursing funds through alternative payment channels. Businesses discovered they were seeing reduced conversion because they couldn't accept alternative payments, or because of a cumbersome user journey tied to those methods. By bringing in alternative options like Mobile Money transfer and cash-like payments, we made it possible for Meta to provide a seamless, low-friction payment experience throughout Africa. Consider Mobile Money: this alternative payment method has expanded quickly, hitting 346 monthly active users in 2021 worldwide among all payment providers. In places like Kenya, Mobile Money transfer sits at 60% penetration, compared with 6% for credit cards. We made these payment methods available to Meta so they could extend their customer reach in those countries. Turning now to the financial results. Allow me to walk you through a brief recap of 2022. dLocal had a remarkable year last year. TPV rose 75% year-over-year, exceeding $10 billion. Revenue increased roughly in step, up 72% year-over-year, landing at $419 million. We beat our ambitious NRR goal, posting NRR of 165% for 2022. Our ongoing priority is expanding absolute gross profits and EBITDA dollars. Gross profit climbed 55% year-over-year, reaching $202 million. Adjusted EBITDA rose 54% year-over-year, hitting $153 million. Even with the distraction from the short seller report, we kept expanding the business during Q4, turning in robust TPV growth of 78% year-over-year and 21% quarter-over-quarter; in our view, that reflects steady backing from current clients as they keep scaling their business alongside us, plus our ongoing capacity to bring on new merchants. Revenues rose 55% year-over-year and 6% quarter-on-quarter, with the slower revenue growth relative to TPV stemming from geographic and product mix; 2022 gross profit came to $202 million, and Q4 gross profit was $55 million. Absolute dollar profit growth remains our focus, even if margins are lower near term. Maria will cover our operations and performance for 2022.

Thanks, Seba. Hi, everyone. Our growth has three primary pillars: products, merchants, and markets. Starting with products: what we offer supports both cross-border and domestic payments and payouts. The broader the range of payment methods we cover, the more value moves through our platform, since those methods become available to all our current and future customers — and that makes our competitive moat stronger. As Seba mentioned earlier today, one big strength of the dLocal solution is that it enables merchants to access non-traditional payment methods. In 2022, payment methods other than credit cards accounted for 67% of our TPV, including non-traditional options such as local debit cards, bank transfers, digital wallets, Mobile Money, and cash-alike methods. Some examples: Pix and Boleto in Brazil, Mobile Money in South Africa, UPI in India, and OXXO in Mexico. Many of these payment methods have much deeper penetration than credit cards; consider Nigeria, where only 3% of people have a credit card, according to Statista. Now for cross-border volume: non-credit card payment methods have a larger weighting there, representing 72% of all our cross-border transactions in 2022. Credit card volume, local schemes included, accounted for the remaining 28% of our cross-border volume in 2022. Moving to the merchant pillar of growth. Our solution doesn't favor any particular industry. That allows us to sign merchants across many kinds of businesses, which gives us a solid natural hedge against business cycles and seasonality. At present, no single vertical makes up more than 20% of our TPV. Financial services stood as our largest vertical in 2022. Inside that vertical, we mainly serve payment service providers that depend on our rails to reach our emerging markets, plus remittance companies. We also serve wallets, which represent 1% of our total TPV, and crypto, at 0.2% of our total TPV. Other important verticals include commerce and advertising, streaming, and on-demand delivery. During 2022, we grew in every single vertical, with the fastest rates coming from travel, commerce, and on-demand delivery. All through 2022, we continued onboarding new merchants onto our platform. More than 600 enterprise merchants are on our platform, and we actively manage over 200 key accounts at this moment; we work extremely closely with merchants to help them unlock new payment methods and new markets, along with continuous improvements to our platform. In 2022, our enterprise merchants processed payments in eight countries on average, up from six countries in 2020; in 2022, they accepted 79 payment methods with us on average, versus 44 payment methods in 2020 — an 80% increase. We're very excited about our sales pipeline in 2023, and we hope to share more soon about great new partnerships. Growth with our top 10 merchants has been substantial. In 2022, revenue from our top 10 merchants reached $211 million, compared with $138 million in 2021. At the same time, we keep diversifying our revenues across our merchant base, with $128 million in revenue from other merchants. Revenue derived from our top ten customers has continued to decline each year, dropping to 50% of total revenues during 2022, compared with 56% in 2021 and 64% in 2020. Let's now move to the third growth axis: geographies. Since the day of our founding, our ambitions have been worldwide. We think big. We started out with a single, highly local payment method in Brazil. That initial success gave us the confidence to enter other emerging markets, and since our solution scales so effectively, we completed that expansion rapidly. As a result, our operations today reach 40 countries across Latin America, Africa, and Asia, with Honduras being the latest addition in Q4 2022. Turning to 2023, we will continue executing our expansion playbook, led by two considerations: what our merchants require and how attractive potential new markets are; in addition, we will keep balancing the appeal of entering new countries against deepening our presence in those where we already operate. All of this supports our goal of becoming the partner of choice for our global merchants wherever in emerging markets they wish to conduct business. With that, I'll pass it to Jacobo to review what we've accomplished across the various geographies, including the $128 million figure.

Thanks, Maria. Africa and Asia have functioned as a key engine of growth for us. Our merchants in these areas continue to demonstrate strong appetite for our offerings, and the unit economics there look attractive too. What our expansion into these markets has produced speaks for itself. Across 2022, revenues in Africa and Asia climbed 259% year over year, reaching $74 million for 2022, and we believe a sizable opportunity remains ahead of us. In 2021, these two regions accounted for 8% of our total revenue. Come 2022, their contribution had risen to 18% of overall revenues; during Q4, revenues multiplied fivefold versus the same period a year prior and grew 4% quarter over quarter, amounting to $26 million. That figure tops the $21 million we recorded over the 12 months of 2021. Even facing the difficult comparison of 80% quarter-over-quarter growth in Q3, we still grew revenues in the region during Q4; this geographic diversification complements our vertical diversification and boosts the value of our platform for current and prospective customers, deepening our moat. We remain at an early stage in these regions, and we are quite excited about what we see as a substantial opportunity ahead; inside Africa, we observe especially strong traction in Nigeria, South Africa, Egypt, Morocco, Turkey, and Kenya. Meanwhile, in Asia, we see strong traction in India, Indonesia, Malaysia, Pakistan, and Philippines, among others. We are eager to watch these regions continue expanding as we both cross-sell to merchants who first started their relationship with us in Latin America, and onboard new merchants headquartered in Africa and Asia. Among those regions, I want to call out Nigeria. Growth in Nigeria surpassed our expectations, and it already accounts for 12% and 8% of our revenues in Q4 and full year 2022, respectively. We feel very optimistic about the growth opportunity there. From our merchant's standpoint, it is a market that is big yet complicated to operate in. We think they can gain a great deal from our solution there. Nigeria's growth is accretive to dLocal, though it comes with a lower gross profit margin. Over the medium to long term, as we build deeper presence in the region, creating more integrations and payment methods and achieving greater efficiency in accessing the FX market, we expect the gross profit margin to widen. We look forward to updating you on our growth in the region in the periods ahead. As we consistently stress, our focus is on absolute dollar profit growth. Even if margins are lower in the near term, maximizing absolute dollar profit will build the most valuable business over time. Turning to Latin America, we continued to see solid growth throughout the region in 2022, with revenue up 54% year-over-year to $345 million in 2022. To go into further detail, in Q4 2022, revenue increased 30% year-over-year and 6% quarter-over-quarter to $93 million. We're still very excited about the growth potential ahead in the region, as we add more merchants and offer additional services to our existing customer base. Revenue is well diversified throughout our markets — in 2022, no individual country accounted for more than 20% of the total. Notable highlights were exceptionally robust top-line growth in Mexico, reaching 100%, along with 44% expansion in the rest of LatAm, mainly fueled by Peru and Colombia. Despite the challenges we faced accessing foreign exchange markets in Argentina, we still achieved strong revenue growth of 55% compared to the previous year. Operations have largely normalized, and we've been functioning without any major problems. It's important to note that our market-by-market revenue distribution reflects our merchant-centric approach. Internally, our commercial teams are organized around merchants, and we don't pursue objectives based on geography. We maintain global contracts with our merchants, providing them entry to every emerging market where we operate and assisting them in whichever markets they wish to grow. Turning to Slide 19. We continue to invest thoughtfully in expanding our team worldwide; we've added new talent, particularly in sales and marketing, tech and product, and operations, so we can seize the opportunities we identify and progress toward our long-term objectives. Roles related to technology still represent about 40% of our FTEs, which drives our rapid development of new offerings. In 2022, we brought on 191 FTEs, a 36% increase year-over-year, taking us to 726 employees, while gross profit climbed 55% over that same period. Our headcount has expanded significantly in certain areas of the Americas, since we emphasize hiring locally to leverage on-the-ground expertise and develop a deep understanding of each market's distinct characteristics. By the end of 2022, we reached 159 FTEs in Africa and Asia, representing 22% of our workforce. That figure now stands at 104% of where it was a year earlier. We'll continue to invest in talent in a disciplined way, staying lean and always ensuring we bring on people who align well with our culture. Our team is a source of pride, and we believe it's stronger than ever before. Diego will now take you through our financial highlights.

Thanks, Jacobo. Hello, everyone. Our business keeps expanding at a fast pace. During 2022, we hit record TPV, crossing the $10 billion threshold, which was a 75% rise compared with the prior year. In Q4 2022, our TPV growth was robust, arriving at $3.3 billion — a 78% year-over-year gain and a solid 21% improvement quarter-over-quarter. Both our cross-border and local-to-local volumes are showing healthy gains versus last year and versus the previous quarter. Carrying forward the patterns from Q3, Q4 also brought us rapid expansion in local-to-local TPV, which climbed 125% year-over-year and 30% quarter-over-quarter, thanks to outstanding results from certain merchants. Cross-border volume rose 50% year-over-year and 13% quarter-over-quarter. In Q4 2022, cross-border represented 53% of our overall TPV, while for the entirety of 2022 it was 58%, fueled by the scaling up of newly added merchants that carry a substantial local-to-local component. We've observed that big merchants usually favor a blended approach. Among our top 20 merchants, 55% utilize both local-to-local and cross-border offerings. Throughout 2022, we generated growth in pay-ins and payouts alike, with those rising 91% and 39%, respectively. Quarter by quarter, we've watched TPV climb steadily. To be specific, in Q4 2022, pay-ins rose 65% year-over-year and 14% quarter-over-quarter. In that same Q4 2022, payouts rose 119% year-over-year and 40% quarter-over-quarter. We don't favor any particular product. Each of our products delivers added profit, and combining them creates synergies for our merchants as well as for us. The proportion of pay-ins relative to payouts can shift based on which customers we bring on board and what strategy they pursue that quarter. We regard product diversification as a key strength of our business. Looking ahead, we're quite optimistic about our products continuing to grow. In Q4 2022, pay-ins made up 71% of our overall TPV, and for the full year 2022, 75%. Revenues likewise set a fresh record, hitting $118 million in Q4 2022 and $419 million for 2022, with growth of 55% and 72% year-over-year, respectively. Versus Q3 2022, revenues were up 6%. Our revenues over TPV, or gross take rate, came to 3.6% for the quarter, versus 4.1% in Q3. Quarter-to-quarter swings are chiefly the result of shifts in business mix. In Q4 2022, we had a blend of greater local-to-local payouts, certain large global retail merchants with a below-average take rate expanding more quickly, and a decline in Argentina revenue, which carries an above-average take rate. Looking closely at our revenues, we kept up robust revenue growth from both our current customers and our newly acquired ones. In 2022, out of the 72% year-over-year revenue growth, 65%, or $158 million, originated from existing merchants, while 7%, or $17 million, originated from new merchants. For Q4 2022, out of the 55% year-over-year revenue growth, 46%, or $35 million, originated from existing merchants, while 9%, or $7 million, originated from new merchants. Our net revenue retention came in strong at 165% for the entire year, compared with the 150%+ we had anticipated. That outcome reflects virtually zero churn — under 1% — along with organic expansion from merchants in emerging markets, plus our capacity to keep introducing them to additional countries, offerings, payment options, and to grow share of wallet. Turning to slide 25, our attention stays on expanding gross profit dollars. Over the year, we managed to grow gross profit to $202 million, a 55% rise year-over-year. Gross profit for Q4 came to $55 million, which is up 42% year-over-year and 2% quarter-over-quarter. Our focus continues to be on incremental gross profit dollar amounts, which we have consistently been delivering. Looking at gross profit margin, we keep healthy margins — 47% in Q4 and 48% across the 12 months of 2022. In Q4 specifically, our gross margin felt pressure from greater volumes out of global merchants in certain geographies, together with a decline in revenues in Argentina. Part of the drop in gross take rate is reflected in a lower cost take rate. Not all of it. We anticipate additional cost optimization will be achieved in periods ahead. Growing our EBITDA also remains a priority. Across the year, we scaled adjusted EBITDA to $153 million, up 54% year-over-year. Adjusted EBITDA for the fourth quarter of 2022 was $40 million, a 39% increase year-over-year. Against Q3 2022, adjusted EBITDA fell 3%, driven by ongoing investment to expand our team, marketing and travel costs tied to two main annual commercial events, and greater legal fees. Consequently, our adjusted EBITDA margin stood at 34% in Q4. For 2022 overall, adjusted EBITDA margin was 37%, meeting our expectation for the year of 35%+. Before I return the call to Seba for closing remarks, I'll briefly address net income and liquidity. Reported net income came to $109 million for the year, versus $78 million in full year 2021 — a 40% increase year-over-year. Reported net income for Q4 2022 was $19 million. In Q4, we recorded expenses of $8 million tied to an FTX loss provision of $5.6 million and short seller-related legal and advisory expenses of $2 million. If you exclude these expenses, which we view as non-recurring in nature, net income would have been $116 million in 2022 — a 49% increase year-over-year — and $27 million in Q4 2022. Apart from non-recurring items, net income in Q4 2022 was affected by net financial losses of $3 million, largely from negative exchange differences and higher income taxes during the quarter. The annual income tax was 10%, consistent with prior years. On our cash position, during Q4 we adopted extraordinary short-term measures, using our own funds to provide added comfort to our merchants and partners. Our balance sheet has always stayed in solid shape. We've got the flexibility, and covering this near-term hit using our own money would be entirely manageable. That's why other assets grew by $53 million, made up mostly of $19 million posted as cash collateral for standby letters of credit that merchants require, $20 million put up as cash collateral for bank credit lines, $13 million advanced to merchants, and a $2 million rise in warranties tied to credit cards and processors. Over the coming quarter, we anticipate things returning to normal. At December 31, 2022, our consolidated cash stood at $468 million, of which $248 million was our own funds, and we see our robust cash position as a lasting edge. Seba, over to you.

Appreciate that, Diego. In an unusual move for Q1 2023, I'd like to walk through what we're anticipating, given the way the business is currently performing. Across the first three months of 2023, our expectation for TPV sits at $3.5 billion to $3.6 billion, with revenue landing somewhere between $135 million and $138 million, and gross profits coming in at $57 million to $59 million; turning to the full year 2023, we're looking at revenue of $620 million to $640 million, alongside an implied NRR of 140% to 150%, and adjusted EBITDA falling within $200 million- $220 million; these strike us as strong figures that demonstrate our capacity to continue expanding the business at a fast clip. As we never tire of stressing, our priority is growing absolute dollar profit as much as possible, since that is what builds the most valuable business over the long term. What we pulled off in 2022 makes us extremely proud. And we're even more thrilled about the opportunity that lies before us. We stay humble and committed to delivering the finest, most complete solution available to our merchants across emerging markets. A huge thank you goes out to our global team, our customers, and our investors for sticking with us. At this point I'll pass things back to the operator so we can take questions.

Hi there, and good morning. I appreciate you hosting the call and letting me ask something, plus thank you for the extra disclosures — those were quite useful too. I have a few questions. First off, I'd like to get a better sense of how the cash got used this quarter. Diego touched on it briefly, I realize, but I'm wondering whether your merchants actually asked for this. In other words, did you have to take these steps in order to hold onto certain merchants? You mentioned that you anticipate things returning to normal over the coming quarters. Has that already happened in 1Q? Could you share any detail on where your cash stood at the end of 1Q, or is it going to take more time? I'm just trying to grasp the rationale for keeping this up and whether it functions as a kind of retention mechanism for your clients. Is there a direct link to the problems stemming from that third-party report we all saw? My next question concerns the net take rate, or your gross profit margin. As you're aware, the net take rate keeps dropping. Gross margin has been trending lower. Jacobo, I believe you said that as Africa keeps expanding, there ought to be some uplift there. And yet Africa has grown substantially for you, while gross margin has dropped over roughly the last 12 months. Even in 1Q, it's going to decline once more. So please help us get a clearer picture of what's behind that pressure. Is it purely a mix issue? Are there other factors, perhaps competitive ones, weighing on those net take rates? Any insight you could offer would be much appreciated. Thank you.

Tito, I really appreciate your questions. This is Sebastián Kanovich speaking. To begin with the cash topic, the results we reported in Q4 and Q1 make us extremely proud. A large number of our merchants made purchases using their volumes. You've witnessed record volumes from us in Q4, along with the flash figures in Q1. Clearly, this period has been a stressful one for us here at dLocal, and we wanted to be certain that our balance sheets get put to work amid that stress, demonstrating confidence to our merchants. In our view, this represents a short-term effect, so to speak, and it's a tool we will keep employing. What we provided was both acceleration of settlement periods and credit lines — pardon me — as well as bank guarantees to certain merchants of ours. We don't anticipate those continuing over the long term. For any customers needing that, our plan would be to charge them, since if anything, it stands as a revenue opportunity. The fact that we're a public company, with the degree of scrutiny that comes with it, clearly works to our benefit. We have consistently emphasized how crucial it is to maintain a robust cash position, and in a scenario such as what we faced in Q4, I believe that has shown itself to be the correct approach. Jacobo. All right; regarding the gross profit matter, you know, we keep optimizing for gross profit dollars. If anything, we take great pride in stating that our gross profit increased by more than 50% compared to the same period last year; that is a vital metric. We will keep accumulating and onboarding those customers, as long as they bring accretion to our customers. Apologies, to our platform. This is a long-term endeavor. We are not optimizing for any particular quarter; our focus is on optimizing for the long haul, and we want SHEIN, TikTok, Meta, Microsoft, to be our partners for decades, not merely for a quarter. We would gladly accept a business at ultimately a lower margin than the present one, as long as it translates into profit dollars. That is a crucial point here. Each time we bring on a new customer in a new geography, Jacobo referenced Nigeria during the remarks, that is compounding our value proposition. We become a stronger business when customers utilize us in Nigeria. We may experience a lower gross profit margin in the near term, but we view that as an opportunity, and nothing other than that. We have discussed net take rates declining over time. We are transparent about it, but we think the essence of the game in the business we operate in is to keep gaining scale through TPV, and as a result, the gross profit dollar amount will keep rising. I want to stress this point. We want to keep serving our customers everywhere in as many geographies with as many products as we can. We will never set a gross profit margin target; we will set a gross profit dollar target.

Excellent, Seba. That's useful, thanks for explaining. A few more questions, if I can. On the — can you share whether you had to repeat that during 1Q? Did you spend additional cash in 1Q for the things you referenced? Also, I believe roughly $15 million went toward repaying a loan, as you noted. Was that something you chose to do? Or did the bank demand it? I just want to grasp what occurred with that loan position; and then, to be clear about gross profit — I get that you're focused on gross profit dollars, but as you expand more into Asia and Africa, should we anticipate some initial pressure on that margin? Once you scale in those markets, that's when operating leverage appears and gross margin grows? I just want to understand how that path looks.

Of course. I'll handle the second question. Jacobo, Diego, I'll have you add on the cash side. Maria, please jump in too if you'd like. I don't want to come across like a broken record, but gross profit margin isn't what we're optimizing for. Clearly, there are chances for us. Right when we enter a new geography, we aren't fully optimized. The complete product suite isn't there. We lack pains, payouts, cross-border, local to local; usually we also don't have the breadth of banking partnerships that we'd have at a more mature stage. You could say that at launch, we leave some money on the table. We're glad to do that. We think that's correct for our business over the long haul; it also depends on which geographies will grow quicker and which customers will grow quicker. Remember, it's always — we're always serving hundreds of merchants in 40 geographies, across many products. That will always make our margin rise and fall the way you've observed. That's why the gross profit dollar idea matters so much to us. That's what we tell our commercial teams to prioritize. That's what we pay them based on, since we think that's where the true value lies for our company; we must deliver more gross profit dollars; that's how we'll create a great business over the long run. Jacobo, Diego, please add on the cash point.

Appreciate that, Seba. Tito, let's begin with the basics regarding the cash position, and then we'll have Diego walk through the details behind the figure. Should we anticipate that this set of circumstances represents the new normal across upcoming quarters? The answer is no. What I'd call it is a one-time event tied to a particular set of conditions that came under pressure as the previous quarter drew to a close. This isn't a pattern, nor is it a strategy. It was an isolated case in which we deployed our cash to give our merchants reassurance. If anything, we anticipate that this set of conditions will begin returning to normal over the next quarters, in the very near term.

So regarding the question about that loan — that's just a facility we occasionally draw down in various local markets to cover working capital needs. There was a $15 million loan that we wound up canceling during Q4. That's completely normal course for us. Naturally, it meant we ended up using our own cash. Going forward, we might from time to time arrange other kinds of loans in different countries for the same purpose. I'd also point out that we launched a buyback program, and by year-end we'd spent $2 million of our own cash on it. Bear in mind the buyback only kicked off a week before the year closed, and we've already deployed $40 million, so it's progressing very well, just as we anticipated.

All right, that's useful. Just to make sure I've got it right, it doesn't seem like things went back to normal in 1Q, but over the following couple of quarters, cash usage ought to start returning to normal. Is that right?

Exactly. Once more, we don't anticipate anything major changing in Q1. Especially following this, we certainly anticipate getting back to normal and either recouping that cash or beginning to charge for it.

All right, excellent. Many thanks, everybody.

Hello, Sebastián, Jacobo, and Diego. Thanks for having the call. We're grateful for the fresh disclosure. When we look at the 20-F filing, which also breaks out TPV by country, we can back into the implied take rate for Argentina and Brazil; for 2021 we arrive at a 10.4 revenue yield in Argentina and 3.5% in Brazil. What I'd like to grasp is which costs attach to Argentina in order to arrive at a gross profit take rate, and whether or not you happen to be using wallets such as FTX for repatriation in Argentina too. Thank you.

Jorge, many thanks for that question. No, in Argentina we don't use any wallets. Your gross take rate invariably mirrors the cost structure underneath, so the figures you cited are right. Where Argentina is concerned, processing payments carries a very steep cost. Bear in mind, a lot of our payments there are made through installments, and those come with a very high cost. As a result, our net take rate ought to be fairly consistent across both countries. Moving funds out of Argentina is pricey. The Argentinian peso is less liquid than numerous other currencies, so expatriating it costs more. At bottom, whatever cost sits underneath the processing of a given payment always shows up in our gross take rate. Once you switch to a net take rate basis, countries generally line up more closely. And I realize that's tougher to detect on a gross basis, since, as I said, the cost structures underneath differ.

All right.

Let me just underscore what Jorge described here — in Argentina, we work alongside a large number of the biggest local banks as well as regional and global ones. Those institutions have given us their approval. Central bank rules are something we satisfy. Argentina serves as an illustration of a market where we possess the maturity that Nigeria has yet to reach, since there our banking partners are already all in place, and all the redundancies we need are already there, letting us operate more efficiently. Over time, that's the point we'd like to reach in certain markets across Africa and Europe where we currently do business.

That's quite easy to follow. Appreciate it. Sebastián.

Hello, everyone. Thanks for fielding this. When we consider how gross and net take rates might move during 2023, can the Q1 model serve as a solid stand-in for the remaining months? Clearly, there will be fluctuations from quarter to quarter, driven by every mix element you've described. Is Q1 a reasonable yardstick for framing an acceptable band for the full-year 2023 take rate?

Of course. Maria, Diego, jump in if you'd like. Jason, we see it as a pretty reliable signal of where we'll end up this year. Clearly, this year we've provided guidance on revenue; we anticipate revenue growth above 50%, and we consider that a strong outlook. We expect EBITDA growth of 40%. Gross profit, the basic split between those two figures, ought to be largely consistent with them. In my view, Q1 works well as a proxy for our full-year expectations. Once more, like you mentioned, we remain a mix of industries, customers, and geographies. As a result, our take rates will rise and will fall. Your points strike me as reasonable.

Jason, that's useful. When we consider how the gross take rate fell from one quarter to the next in Q4, it was clearly a big shift. Could you specify which of those mix factors you mentioned contributed most heavily to that sequential decrease? Sebastián, go ahead.

Absolutely. Jason, before Maria answers your question directly, I want to make one point. We feel great about what we delivered in Q1 — pardon me, Q4. Our top line increased, and our gross profit in dollars also rose. We keep getting these merchants to depend on us across as many geographies as we can. I want to express, at least, the pride all of us at dLocal feel about our Q4 accomplishments and about what we've also observed in Q1. Maria, over to you for that question.

Alright, thanks, Jason. Regarding the net take rate you're seeing for Q4, the main thing is that it comes down to mix, correct? Like we said before, we've got more local-to-local and payouts volume in specific markets. Take Mexico, for instance — that's a market where, as you can observe, we expanded by roughly 100% compared with the prior year. That's what drives this. If you dig into the net take rate, a portion of the drop relative to the gross take rate is something we could offset, though there remain chances for us to fine-tune the cost base.

Jason, if I may add something there — we aren't up against any backward pressure at all, and we aren't handing out discounts. With customers from before, we aren't reopening deals that already exist. What you're seeing comes from mix and from growth. No backward pressure is showing up on our end. Of course, when larger merchants come aboard and push bigger volumes toward us, their leverage is greater, so a number of those more recent agreements carry reduced take rates. The core business itself, the underlying state of that business, remains the same.