DLocal Limited (DLO) Earnings Call Transcript & Summary

Thanks a lot, operator. Hello everybody, and I appreciate you being with us for the earnings call covering our third quarter of 2023. Should you not have viewed the earnings release, one has been placed in the financial section on the 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 ready soon after the event wraps up. Before we move on, I want to point out 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 thinks our assumptions, expectations, and projections are reasonable in light of information currently available, you should be warned against putting undue reliance on those forward-looking statements. Actual results could differ materially from those contained in dLocal's presentation or talked about on this conference call for many reasons, including those laid out 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. We appreciate you being on today's call. It's my pleasure to report that the year has begun exceptionally well for us. TPV rose 70% compared with the same period last year, and 8% versus the prior quarter, hitting $3.6 billion. Revenue climbed 57% year-over-year and 16% quarter-over-quarter, arriving at $137 million. Our attention stays fixed on expanding Gross Profit and EBITDA in absolute dollar terms. During Q1 of 2023, we brought in an additional $7 million of Gross Profit along with $5 million of EBITDA. On both a year-over-year and quarter-over-quarter basis, each of those numbers rose by double digits. Gross Profit was up 42% from a year earlier and 12% from the previous quarter, landing at $62 million. Adjusted EBITDA increased 38% year-over-year and 13% quarter-over-quarter, totaling $45 million. Delivering profitable growth has always been our priority, even as we invest toward our long-term ambition and seize the enormous opportunity in front of us. We're delighted to report that across the past nine quarters, the proportion of adjusted EBITDA to gross profit has stayed above 70% without interruption. That stems from our disciplined approach to investment being embedded in our DNA; our commitment to profitable growth at scale remains unwavering. As a company, we're still young and in growth mode. Looking ahead over the long term, obvious chances exist to generate operating leverage. Maria will now cover our operations and results for Q1 2023.

Thanks, Seba. Hello, everyone. In the first quarter of 2023, we achieved substantial expansion of our business with our ten largest merchants. Revenue from those top 10 merchants came to $80 million during Q1, 2023, compared with $45 million the prior year. Concentration among our top 10 merchants in fact rose in Q1, 2023, since we posted very fast growth across those top 10, and with two merchants nearly making it onto the top 10 list; we collaborate extremely closely with our merchants. In Q1, 2023, our top 10 merchants on average handled payments with us across 10 countries, up from eight the year before. Every one of them used dLocal products in at least one country in Africa and Asia. That speaks to our successful cross-selling strategy and to the confidence our merchants place in our solution; we are the partner they choose, whether they decide to go local in a country or operate cross-border. Eight of our top 10 merchants process with us on both a cross-border and local-to-local basis. Turning to the next slide. Over the quarter, we concentrated our efforts on deepening our presence in the countries where we already operate, mainly in Africa and Asia, by building more direct connections with payment methods and acquirers and by continuing to improve our solution. On our previous earnings call, Jaco emphasized how enthusiastic we are about the growth opportunity in Nigeria. Let me share a bit more about our journey in that country. We launched this country back in 2019 because one of our merchants needed help accepting local payment methods. Since our roadmap is driven in large part by our merchants' needs and the request fell within emerging markets, we prioritized launching Nigeria. We could then offer this to our entire merchant base. Today, 6 of our top 10 merchants use our solution in Nigeria. A major advantage of selecting our solution is the broad access to non-traditional payment methods. According to Statista, just 3% of the population in Nigeria have a credit card, so merchants depend on us to connect to alternative payment methods and local card schemes such as Verve. Nigeria's opportunity is enormous, given the country's large and young population. From our merchants' point of view, it is a market that is complicated to operate in, and they gain a great deal from our solution there. As we said last quarter, gross take rate is considerably higher than average, while net take rate is largely consistent with other markets where dLocal operates. Gross profit margin is below the average; we believe that over the medium to long term, as we go deeper into the region, develop more integrations and payment methods, and gain more efficiency in accessing the FX markets, gross profit will expand. As we always stress, we focus on absolute dollars profit growth, even with lower margin in the short term. In the long run, the most valuable business gets built by maximizing profit in absolute dollars. At this point, I'll hand things over to Jaco, who will go over what we've achieved across the various geographies.

Thanks, Maria. For us, Africa and Asia have served as a major growth engine. In these geographies, our merchants keep showing robust demand for what we offer, and the economics in those markets are appealing as well. What we've achieved from pushing into these regions is evident on its own. During Q1 2023, revenue across Africa and Asia rose 297% compared with the same period last year and 53% versus the prior quarter, hitting $39 million, with Nigeria responsible for a substantial share of that acceleration. By Q1 2023, Asia and Africa already made up a meaningful slice of our business, at 28% of revenue. In Q1 2023, Nigeria delivered impressive expansion, with revenues climbing 16 times compared with a year earlier and 91% from the previous quarter. Nigeria represented 20% of our revenues in Q1, up from 2% a year before; we're also quite proud of the strides made in a number of other markets, including Egypt, Morocco, Indonesia, and Malaysia—each of them expanding at triple-digit rates compared with last year and growing more important to our business; we're truly enthusiastic about what we see as a considerable opportunity lying ahead. Turning to Latin America, we kept witnessing healthy growth throughout the region in Q1 2023, with revenue up 27% compared with the same period last year and 6% versus the prior quarter, reaching $98 million. Q1 2023 was when Argentina returned to positive revenue growth, rising 41% from the previous quarter, though still somewhat below where it stood a year earlier. LATAM, when Argentina is excluded, posted robust revenue growth of 38% compared with last year and held steady from quarter to quarter. Looking quarter by quarter, you may observe revenue growth differing by geography. As an illustration, during the most recent quarter, Mexico did better than other markets. To get a normalized picture and evaluate how a region is developing, we take a 12-month perspective; across the 12 months ending in Q1 2023, every one of the main countries on its own recorded meaningful revenue growth exceeding 20% compared with last year, amounting to 62% growth in aggregate; it's worth emphasizing that how revenue is distributed across markets stems from our merchant strategy. Our commercial teams are structured internally around merchants, and we don't optimize for geographic targets. We hold global agreements with our merchants, and we give them access to every emerging market where we operate, assisting them in whichever markets they want to expand. We keep investing carefully in growing our global team; we've brought on new talent, especially in sales and marketing, tech and product, and operations, to chase the opportunities we identify in the markets and to move toward our long-term objectives. Roles tied to tech now make up roughly 41% of our FTEs, underpinning our fast-paced innovation of new products. In Q1 2023, we expanded our team by 201 FTEs, or 36% compared with last year, bringing us to 763 employees. Our hiring efforts keep expanding beyond the Americas, since our emphasis is on bringing people aboard in their own regions — this lets us tap into firsthand expertise and build a thorough grasp of how each local market behaves in its own distinct ways. By the close of Q1 2023, our headcount across Africa and Asia hit 173 FTEs, which works out to 23% of all our employees. We'll keep putting money into talent, doing so prudently, remaining lean, and making certain at all times that those we bring in align strongly with our culture. Our team makes us proud, and we feel it has never been stronger. Diego is going to walk everyone through the financial highlights now.

Thanks, Jacob, and hello everybody. We've observed a consistent quarter-over-quarter rise in both pay-ins and payouts TPV. In Q1 2023, pay-ins rose 52% compared with a year earlier and 7% versus the prior quarter. Payouts were up 133% year-over-year and 11% quarter-over-quarter. Product mix stayed about the same versus the previous quarter, with pay-ins making up 70% of our TPV and payouts the other 30%. Payouts' contribution has grown compared with a year ago, since we've succeeded in delivering last mile payment services in emerging markets for global public payment companies, and we keep establishing ourselves as the preferred payment service provider in emerging markets for global payroll, ride-hailing, and on-demand delivery companies; we are product agnostic. Every product we offer generates incremental profit, and together they create synergies for our merchants as well as for us. The proportion of pay-ins versus payouts can shift depending on which customers we bring on and what their strategy is during the quarter. We regard product diversification as one of our business's strengths. Looking ahead, we're quite optimistic about our products' continued expansion. Our cross-border and local-to-local volume demonstrates solid growth versus a year ago and versus the prior quarter, with cross-border volume up 12% quarter-over-quarter, raising its share contribution from 53% in Q4 to 55% in Q1 2023. As Maria said earlier on the call, we've noticed that large merchants often adopt a combined strategy, and we anticipate quarter-to-quarter fluctuation between services will persist. Revenues likewise hit a record $137 million in Q1 2023, up 57% year-over-year and 16% quarter-over-quarter. We keep producing strong revenue growth from our existing customers as well as our new ones. In Q1 2023, out of the 57% year-over-year revenue growth, 47 percentage points, or $41 million, was generated by existing merchants, while 10 percentage points, or $9 million, came from new merchants. Our revenue over TPV, or gross take rate, stood at 3.8% for the quarter, versus 3.6% in Q4 2022. Quarter-to-quarter fluctuations are mostly caused by shifts in business mix, since Nigeria and Argentina, which have a higher than average gross take rate, were the primary drivers of the quarter-over-quarter revenue and gross take growth. We keep delivering a strong net revenue retention of 147% for the quarter; this stems from very low churn, under 1% year-over-year, organic growth of our merchants in emerging markets, and our capacity to keep bringing them into new countries, products, payment methods, and to increase share of wallet. Turning to slide 16, we stay focused on growing absolute Gross Profit dollars. In Q1, our Gross Profit hit $62 million, up 42% year-over-year and 12% quarter-over-quarter, with a net take rate steady quarter-over-quarter at 1.7%. During the quarter, we recorded a rise in processing costs from 1.8% in Q4 2022 to 2% in Q1 2023, which aligns with the increase in gross take rate from 3.6%-3.8%. These increases are primarily due to higher TPV in Nigeria, which carries higher fees and higher expectation cost. When you look at gross profit margin, it fell to 45%, versus 47% during Q4 2022 and 50% during Q1 2022. The waterfall chart on the right side lays out the biggest shifts in that gross profit margin. Products, service mix, and cost optimization helped the margin, since cross-border and payouts made up a bigger portion quarter-over-quarter. Country mix pulled the margin down, because we saw strong growth in Nigeria, which delivers positive gross profit dollars with a net take rate broadly consistent with other markets, yet a gross profit margin below average. If you set Nigeria aside, gross profit margin would have exceeded 50% in the earlier quarters, hitting 54% in Q1 2023, up from 51% in Q4 2022, again with Nigeria excluded; we also stay focused on expanding our EBITDA. Across the quarter, we managed to lift adjusted EBITDA to $45 million, which is 38% higher year-over-year and 13% higher quarter-over-quarter. Adjusted EBITDA margin came in at 33% in Q1. That decline both year-over-year and quarter-over-quarter stems from the drop in gross margin. Especially in Q1 2023, the biggest cause of that decline was rapid growth in Nigeria alongside a gross margin below average. Net income came to $35 million for the quarter, a rise of 35% year-over-year. On a sequential basis, it climbed 83%, since in Q4 2022 we booked non-recurring expenses of $8 million. Before I return the call to Seba for closing remarks, I want to address liquidity. In Q1 2023, we saw robust net cash generation of $50 million, even after acquiring $37 million of our own shares under the $100 million buyback program. Our cash flow generation rested on 2 main drivers: our profits, plus a sequential normalization of funds and bonds, or amounts held in escrow as warranties for merchants and partners. The primary cash use was the buyback. On our previous earnings call, we told you we had adopted extraordinary short-term measures through warranties and advancements of funds, using our own funds, to give merchants and partners added comfort. We also said we anticipated conditions would normalize across the coming quarters. In Q1, we have already gathered $10 million of the $13 million in advances extended to certain merchants. We retrieved $4 million of restricted cash held as warranty or standby letters of credit, bringing other assets down from $57 million to $43 million. Lastly, we see a sequential normalization in our merchants' settlement periods, which in a few cases had been shortened in Q4, and we keep generating cash while TPV grows. All together, that produced an inflow of $32 million from the change in net trade receivables and payables. As of March 31st, 2022, we closed with a consolidated cash position of $518 million, comprising $233 million of own funds and $285 million of merchant funds; we believe our strong cash position continues to be a competitive advantage. Seba, the floor is yours.

Thank you, Diego. We feel a great deal of pride in how well we kicked off 2023, and our enthusiasm about the road that lies before us hasn't faded. What we've delivered demonstrates just how uniquely powerful this company is, and we keep strengthening it, with our eyes fixed on profitable growth over the long haul, bringing together solid gains in dollars across TPV revenue, gross profit, adjusted EBITDA, and net income. Strategically speaking, we've shown we can execute our approach of cross-selling to merchants, plus remarkable international expansion, seizing the enormous chance in front of us; all of this rests on our technology-first identity and our habit of putting merchants at the center. Finally, and above all, we have a lean, disciplined culture; everything gets done by a small, agile crew that never stops chasing excellence. That culture matters most if we're to keep hitting our long-term goals. For the remainder of the year, we stand by our guidance. Top line of $620 million to $640 million, which implies NRR of 140% to 150%. Adjusted EBITDA of $200 million-$220 million. We stay grounded and committed to giving merchants in emerging markets the finest, most complete offering available. I can't wait to tell you more about what we do and where we're headed at our inaugural Investor Day on June 8; that day also marks two years since we became a public company. Since the IPO, plenty has shifted, and we look forward to seeing everyone once more and updating you on what comes next in our journey. A huge thank you goes out to our team around the world, the customers we serve, and those who've invested in us for standing by us. At this point I'll turn things back to the operator so we can take your questions.

Hey there, is this coming through okay?

Hey, Jorge. Yes, we can hear you.

Hello there. My apologies. I appreciate it. Thank you, and congratulations on the results as well as the extra transparency — that's really appreciated. I was hoping you could go deeper on the Nigeria business. Clearly it has become your largest geography, and there are plenty of questions in the market regarding how you function in that market, given its very heavy capital controls and restrictions. Could you perhaps take us through what share of that business is cross-border as opposed to local-to-local? For the cross-border portion, how does it work from an FX standpoint? Are you able to meet all of your requirements through the official FX market?

Thanks a lot, Jorge. I really appreciate all the questions. Before I start, I want to say sorry in advance — I've got the flu right now, so forgive the way I sound. Let's talk about Nigeria. Our results there have us tremendously excited, and in our view this is extremely encouraging news. Part of that reflects what makes this company special, and part of it comes down to the strength of what we offer customers; we launched in Nigeria back in 2019, so success didn't come overnight. Reaching this milestone required more than four years of work, and it's something we take great pride in. To put it in perspective, right now in Nigeria, six of our 10 biggest merchants work with us, across both cross-border and local-to-local. In Nigeria, the market works in a way where you'll find almost no globally issued credit cards. Verve is one card brand that's widely used there. Sorry—as you were saying, my apologies. The availability is extremely restricted. Capital controls are quite tight. The situation in Nigeria involves two exchange rates: an official one and a market one. At present we obtain the market rate, and we hold a license permitting that; this explains why our margins—our gross margins—come in below our net take rate. My apologies—I mean our gross margins come in below what they typically average. Our net take rate is accretive and closely matches what we see in other countries; put differently, Nigeria is a profitable market for us. We do generate value for our merchants, though the margin profile is thinner. That's simply baked into what we expect moving forward. As we secure steadier access to FX markets and scale up volume in payments, payouts, cross-border, and local-to-local, we think our margin has room to improve. Jacobo, feel free to chime in with anything you'd like to add.

Okay. Jorge, I really appreciate you saying that, and thanks for raising the question. It's worth noting too, as you mentioned, that right now we can meet 100% of what the market requires, run at scale, and provide every one of our merchants with a complete product suite. Another thing worth bringing up is Nigeria. Our success there has been tremendous, since for global merchants aiming to expand and scale inside that market, going local is essential. Through that single API, they connect with us and are able to provide every local payment method — Verve being one instance — while operating, expanding, and pursuing scale in that market.

Jorge, apologies. Regarding what you asked about Argentina, the right lens for our business isn't each individual country, and it isn't any single quarter — it's the regions taken together. Your question and the point behind it are valid. Argentina delivered a strong quarter for us. After a crisis that hit us in Q3 and Q4, we're now seeing fundamentally healthy patterns return to that market. Some of that normalization we referenced is what you observed. Argentina is, of course, a complicated market, and volatility comes with it. The crucial thing about Argentina, I'd say, is just how much merchants depend on what we offer. That holds true for Nigeria as well. The environments we're solving for are highly complex. In places such as Argentina or Nigeria, we're solving for merchants — Facebook, Netflix, Spotify among them. On the ground, these countries and these merchants matter a great deal, both to us and to the country, and we anticipate they'll keep finding their way. Since 2016 we've run successfully in Argentina through every macroeconomic environment, and we don't anticipate that shifting anytime soon.

Appreciate it, Seba and Jacobo, and congratulations once more.

Hello there. Good morning to Seba, Jacobo, and everybody. Thanks for hosting the call and for letting me ask. I have a couple of things. First, I suppose it's a follow-up regarding Argentina. There's just, you know, a bit of worry about a possible currency devaluation. I'm aware you've faced plenty of challenges in Argentina over the recent quarters, and those appear to be getting fixed. Should the currency be devalued, in what way might that affect your operations, if in any way? Just assist us in thinking through, you know, the possible risk tied to that. My second thing, I mean, I suppose it's about Latin America broadly, though more specifically Brazil. You know, growth across Latin America has eased somewhat. Looking at Brazil, you know, across the past four quarters, revenues have been roughly flat. I know you say, you know, don't focus on any single country in particular, just to figure out whether anything is happening, especially in Brazil, as to why revenues have been roughly flat. Whatever detail you can offer regarding the outlook there would be useful. Thanks.

Tito, many thanks for your question. Regarding devaluation, we've operated in Argentina throughout all these years, and devaluation has been ongoing, yet our business has not been harmed by it. Bear in mind that we have global merchants who consider their products in dollars. Usually, whenever a devaluation occurs, they reprice. Devaluation has no effect whatsoever on our capacity to expatriate or repatriate funds. It's merely a different rate at which we purchase or sell currency. We anticipate no effect from any currency devaluation. We lack precise exposure to Argentina. Our revenues come in dollars, in U.S.D accounts. A devaluation of the peso would not impact us the same way it hasn't impacted us previously. Regarding Brazil, your question is reasonable. We've grown. Brazil's growth over the last 12 months has been 30%. Latin America has been 38%. Mexico, just to give you a sense, was 93%. The reason I picked these metrics is that those are supposed to be the most mature markets. We're already seeing very positive trends in Q2 in Brazil. Brazil is a market that has slightly more exposure for us on the retail side. Retail obviously is a bit more seasonal in Q4 than in Q1. We expect growth in Q2 to come from multiple different markets, including Brazil and Mexico. If you like, we expect more of a normalization in that regard. We don't grow in step. We usually grow in step functions, so you don't see linear growth, and that's why looking at it annually is typically an easier thing to do.

All right, that's useful. Appreciate it, Seba.

Morning, all. Thanks for fielding this. Two things from me. First, Seba, I just want clarity — whenever you deliver services to clients over in Argentina, can you use the official FX rate at roughly 230 right now, or the market rate around 460? That's my second point.

Hi Dom, how are you doing? I appreciate the question. It's both, actually. One group of merchants goes through something known as MULC — that's the official rate, as you'd call it. A different group of merchants uses the market rate instead. We've run under both of those models. During our Q3 and Q4 calls, we mentioned that this kind of access has been restricted. What we've observed is that merchants conduct their business in the country regardless of the FX rate. The truth is, they aren't going anywhere. Our merchants are deeply established here, and the FX number, or what the currency costs, is simply a fixed reference point. Bear in mind, when an official rate is in play, there's also a group of taxes that come with it. We work within both models; we also have payouts, and those function as a hedge against the flow on the other side. Both of these dynamics matter. Paco, please jump in if you'd like to add anything.

I just want to check on something, to be clear. As for you personally, can you expatriate at the official rate, the market rate, or are both available to you as well?

Jacobo? Jacobo, it seems your microphone is off.

My apologies. Dom, I want to make one thing clear. In Argentina as well, both our profits and revenues are denominated in dollars. Dollars are what we receive as revenue. Before settlement, our revenues are subtracted, and those are denominated in dollars; that serves as a norm across every market, Argentina included.

Okay, so here's what I'd like to drill into. You're booking roughly $20 million of revenue out of Argentina. Based on what I know about the accounting standards, that has to get translated using official FX effects — and we've seen the same situation with other companies in our coverage. In those other instances, the cash never truly leaves the country or gets taken out; if you actually swapped it at the market rate, then in your situation it's as though you aren't really making $20 million — you're making $10 million at the market rate in Argentina. What I'm driving at is this: when you do that conversion, can you actually realize the 230? Same question for Nigeria, since as I understand it you're operating in both, or are we looking at financial statements that reflect an official rate while that money is either sitting idle or changed over at some other rate — and how does that precisely flow through your income statement?

Thanks, Dom. I appreciate the follow-up, and we'll drive this point home since it matters a great deal. Let me make it plain: every one of those funds gets moved out of the country. That transfer happens at the official rate. Once moved, we hold the dollar figure for all of it. Before we settle with a merchant, we take our fees out in dollars. So when fee revenue is deducted, those funds already sit as dollars inside our operating entities located in the EU or the U.S.

Dom, I want to—

Nothing is sitting in Argentina or anything of that sort where, you know...

No.

Okay.

Dom, I'd like to add something.

Right now, it's the same situation in Nigeria.

Our. Yeah. The money we make sits in accounts denominated in dollars, held in the U.S. and the European Union. This isn't neutral to FX movements — these are dollar accounts operating across global markets. We keep none of our earnings in the currency of a given locality, nor in those local marketplaces.

Super clear. Thank you very much, guys, and congrats on the brand.

Thanks, guys. Morning. I'd like to return to Argentina — no, sorry, Nigeria, that's what I meant. I'm aware you've operated there since 2019, yet the expansion has been quite striking. Over just the past 12 months, the share of overall revenue coming from there jumped from 2% to 20%. Could you identify which factors have contributed most to that? Is it a small number of big merchants whose operations there have really grown? And could you elaborate a bit more on the reason the gross margin is lower? Is it the pay in/pay out blend? Is it the cross-border local-to-local blend? Or is it simply that processing costs are, well, higher within the country for certain alternative payment methods? Thanks.

Jason, many thanks for asking. What's taken place in Nigeria is that our offering has improved step by step. Earning your merchants' trust when entering a new region isn't simple. That doesn't occur in a single night. Right now, 6 of our top 10 customers work with us in Nigeria, and that makes us very proud; on top of that, looking at competition, what you find on the ground is that few alternatives exist for what we provide, especially not for global public companies. I believe we've managed to stand apart on that front. Once more, our offering keeps improving as time passes, and our understanding, and our product line in this country, are far deeper. There are points where global merchants plainly recognize that Nigeria represents an enormous opportunity. You're talking about one of the largest nations by population anywhere in the world. It's among the nations where growth is anticipated most, and yet it's also an incredibly complicated nation to operate in. Put all those elements together, and for us it's an ideal combination. Another point I'd make is that this isn't limited to Nigeria. I'm aware Nigeria has been hugely positive with tremendous growth, and that's something we take great pride in. You witness a lot of the same patterns across our business in Egypt, in Morocco, Indonesia, in Malaysia. Certain parts of that require time, but eventually, and that's the reason we keep insisting on putting money into this opportunity. We think those elements build on each other and let us stand apart; we hold a very bullish view of what's possible in Nigeria. Not just because of Nigeria, but also since when merchants rely on us in Nigeria, we turn into a stronger company; we grow more entrenched. Our competitive advantage becomes far more substantial, and we stand apart from all other players out there; regarding margin, Maria, Diego, please jump in if you'd like to add. Our gross take rate sits well above average. Our net take rate is very much in line, and that stems from what it costs us to process payments and to expatriate, and that's the cause. Let me be clear about this 40-country figure. Nigeria certainly draws the most notice, and that makes us proud, yet plenty of other drivers exist — which is exactly why we put such emphasis on addressing all of them. Some quarters, a single nation will post quicker growth. Nigeria happened to be that case here. In other quarters, Brazil will take that role. At still other times, it will be Indonesia; in our view, that pattern is entirely healthy.

Thanks, Jason. I just want to add a bit more about the gross profit margin. It’s really worth pointing out that Nigeria counts among the markets where we’re expanding. As we move further into that market, establish additional connections with our car, and achieve volume scale, we have chances to bring down our processing costs and grow our gross margin.

All right. All right. Got it, that’s clear. As a quick follow-up, I was hoping to ask about your own cash position. I’m aware there were $37 million of buybacks during the quarter, and we saw your own cash decrease versus the prior quarter. When we think about the second quarter directionally, how should we view that number? Do you expect your own cash to rise or fall quarter-over-quarter in Q2?

Diego, would you like to handle that?

Absolutely, and thanks for bringing that up. To begin with, the quarter saw really robust cash generation for us. We ended up with $50 million more in total cash, and that's after putting $37 million toward the share buyback program. Absent that buyback, the quarter's increase would have been $87 million. From that, $18 million is tied to an inflow stemming from the release of a portion of the warranties and advancements extended to our merchants and partners. On top of that, we posted $35 million in net income, which turns into cash, along with the inflow created as our TPV grows; looking ahead, we anticipate this pattern will persist. Now, when it comes to our own funds, the key is that any time you examine our own cash, you have to look at two things: what sits in their own bank accounts, and the profits still awaiting transfer from the other accounts. Put those two together, and you'll see our own cash rose by $20 million, again even after purchasing $37 million under the share buyback program. Strip that out, and own cash is up $57 million. Relative to Q4, we're carrying a larger sum of profits pending transfer into our own bank accounts, which stems from the fact that we release our financial statements in April, so essentially we held what we had in Q4 plus the quarter's profits. In the next quarter, we anticipate this will decline sequentially.

That's useful detail. Appreciate it, everyone.

Thanks. Hi there, everyone. I'd like to keep digging into the cash topic, since when I look at page 19 in your deck, you're sort of discussing freeing up restricted cash into your own funds via the $10 million reduction in merchant advancements plus the lower guarantees to merchants credit processors. Could you walk us through part of the thinking behind that? Is this kind of a structural change that keeps helping you going forward, or is it more of a one-time item that you did? Perhaps a bit of context on why that's the case.

Maria, would you like to handle that?

Absolutely. Thanks, Ashwin. I appreciate your question. To start with, just like we said during Q4, we implemented unusual steps to give our merchants reassurance. That's why you're seeing a rise in other assets. Just as we stated in Q4, we anticipate that will shrink as time goes on. This $14 million decrease is, you know, the pattern we've been pointing to. We anticipate that shrinking will keep going.

Put differently, what we're seeing is a change in the underlying setup — meaning the way you do business with your customers, draft your agreements, and everything along those lines — I just want to make sure that's right.

Ashwin, what we're seeing here is the prior patterns settling back to normal. During Q4, we were dealing with an attack. We said this would return to normal in Q1, and that return has already happened, and it's going to keep returning to normal through Q2 and Q3. Nothing about the structure of our business has changed. Growing doesn't demand that we have a balance sheet. Our TPV in fact produces cash, which explains why in the quarter we're in right now, you're seeing our cash flow go up. There was no basic distinction or difference in how our business dynamics work in this Q1. What occurred was a normalization relative to what had been going on prior to the short seller report.

Understood.

Is that clear?

Right, that's clear. Thanks for clarifying. My next question concerns... when I examine your TPV growth, revenue growth, gross profit growth, and adjusted EBITDA growth, naturally TPV is expanding quickest while adjusted EBITDA is growing most slowly. I recognize the reason — expansion in Nigeria is the main factor behind gross profit growing more slowly, and the investments you're making are why adjusted EBITDA growth lags even further behind. What I'm really asking about is how this normalizes over time, since, you know, when you move into new countries.

Does that form part of how you make money, and will you keep doing it? You know, you said already that for you Nigeria remains at a fairly early stage. On the financial side, what level of gross profit margin would count as a good normalized one? Over time, what would a normalized EBITDA margin be?

Maria will go first, and Diego or Maria, please jump in if you want to add. Ashwin, thanks for that question. I believe it helps to take one step back and look at where things stand right now. If you consider where we sit on GP, which is how a number of our competitors report, we rank best in class. This quarter our margin was 74%. It has stayed above 70% consistently, and we believe our position is very healthy. We are on a page today that we intend to go over in the short term; we think doing that would be a very big mistake for us and for our shareholders. We want to preserve the independence of investing. We have the advantage of already running a very profitable business. We do it with a very disciplined approach. We've already guided you on this year's numbers. That's all we can say at this point. There's no fundamental reason for us to change that right now. You brought up geographic expansion. Yes, that's going to keep coming. At the same time, there aren't another 100 markets we want to pursue. We already have 40. I believe that's quite a handful. We aren't optimizing. We don't have any particular targets we are optimizing for. We want to keep the independence and the ability to keep investing, which we believe is the right thing to do. Again, taking into account that our TPV profit is best in class today.

Got it. Thanks.

Hello, and I appreciate you answering my question. Nice work on the quarter. A few things I want to clarify. To start, regarding Nigeria. Based on the figures you gave, I believe I worked out a gross profit margin for Nigeria of roughly 9%. You said fees run higher and repatriation costs are greater there, but at what point should we see this settle down, and to what level? Right now I'd say it's pretty dilutive to your overall gross profit margin. Even measured in dollars, that's 3%-4% of total gross profit dollars. My next question concerns the cash balance. During the prior quarter, you said you used $72 million of your own funds to extend advances to certain merchants. Is it fair to think that out of that $72 million, you managed to free up $80 million in the current quarter? The third thing I'd like to ask about is TPV growth. Could you share any insight into how the pipeline for 2Q and 3Q is shaping up, given that you have such strong visibility into how your merchants are acting? That color would be really useful. Thanks a lot.

Absolutely. Neha, I appreciate the questions. Let me begin with the one about Nigeria. When it comes to Nigeria, our net take rate sits above the average. What that means is it delivers gross profit dollars into our business. That is our goal, and that is what we are optimizing for. It's true that Nigeria dilutes our margins. If we were to turn off Nigeria tomorrow, our margins would reach 54%; we don't believe that's the correct move; we don't believe that's a wise move, and we don't believe it builds long-term value. How quickly will those margins normalize? We don't know. Our expectation is that over time, in the mid to long term, they will normalize. It also depends on how the market evolves, how our customers evolve, and how our product evolves. Even right now, in the current situation, we want to keep running this business. We believe this is an excellent business for our company. Again, we are not optimizing for the margin structure. We don't believe that's the right thing for our business to do. Nigeria adds to our profits at a very similar level that every other market does. The dynamics behind revenue are different, and that's why you see it, the margin being slower. I'll say it again, tomorrow morning, we switch off Nigeria, our margin jumps to 54%, but we are a much, much worse company. That's the first question; regarding cash, Maria, Diego, I'll let you take it.

Hello, Neha. Right — when you factor in the earnings that haven't yet been moved into our personal bank accounts, our own cash increased by $20 million. That figure comes after spending $37 million on repurchasing shares; by the close of the quarter, $74 million in cash remained untransferred. Essentially, that matches what we held in December. Back then it was roughly $38 million, plus the quarter's projected profits; our practice is to be extremely cautious prior to moving profits into our personal bank accounts. We confirm that the information has been audited. Remember that our audited financial statements get filed in April, following the close of the first quarter. The numbers for both Q4 and Q1 underwent auditing after the quarter ended. In Q2, we anticipate moving those funds, or a large portion of them, into our bank accounts. There will always still be profits generated during the quarter awaiting transfer, since results undergo auditing.

Neha, regarding that final point you raised about TPV, the pipeline we're looking at is really strong. As I've said previously, what we've observed during this quarter up to now is very encouraging activity in a number of different regions. And like I've noted before, from the perspective of our products and where we operate geographically, this company has never been in a stronger position. If you examine our merchant base, it has never looked better than it does right now. Our outlook for Q2 and then Q3 as we move ahead is quite bullish. To your comment — indeed, we do have solid visibility. Everything we've encountered up to this point has been quite favorable in many various geographies.

Thanks. Could I just ask Diego a quick follow-up about the cash piece? I'm not fully clear on it. During 4Q, $72 million got used. From that amount, $18 million came back this quarter, and $54 million remains tied up with certain merchants, which should be freed up over the next few quarters. Is that correct?

Neha, I'm not certain I'm tracking the figures you're working through, but essentially, when it comes to restricted cash, that's really a separate matter.