DLocal Limited (DLO) Earnings Call Transcript & Summary

Good day, everybody, and thank you for joining this discussion of what we achieved in Q4 of 2023. In case you didn't get a chance to see the earnings release, a copy is available under the Financial section of the Investor Relations site. Present with us today are Pedro Arnt, who serves alongside Sebastian Kanovich as our Co-Chief Executive Officer; Sergio Fogel, our Co-President and Chief Strategy Officer; Diego Cabrera Canay, our Chief Financial Officer; Maria Oldham, SVP of Corporate Development, Investor Relations and Strategic Finance; and Soledad Nager, who leads Investor Relations. A slide deck has been made available to accompany the remarks we've prepared. This session is streaming live, and both the webcast and the slide deck can be reached on DLocal's website, investor.dlocal.com. A recording will be made available shortly after we conclude. Before we move on, I want to note that any forward-looking statements in the presentation or mentioned on this conference call rely on information currently available as well as DLocal's present assumptions, expectations and projections regarding future events. Although the company believes our assumptions, expectations and projections are reasonable in light of information currently available, you should be cautioned against placing undue reliance on these forward-looking statements. Before we begin, please note that actual outcomes may vary significantly from what appears in DLocal's presentation or gets said during this call, for a variety of reasons — among them the points described in the forward-looking statements and risk factor disclosures included in DLocal's SEC filings, which are available on the company's Investor Relations site. At this point, I'll turn the call over to DLocal. Thank you. Video Presentation — Looking back at 2023, DLocal has plenty of remarkable achievements to highlight. In a span of only five years, we grew an incredible 14 times over, hitting a record TPV of $18 billion, which represents a 67% increase compared with the prior year. That speaks to the trust our merchants — some of the most exacting and sophisticated businesses anywhere — have put in what we offer. A large portion of our expansion has come from merchants we already work with, since we continue to capture a bigger slice of their spending. The confidence these merchants have in what we offer is reflected in our outstanding NRR, which came in at 150%. Our mission is to help unlock what emerging markets can offer; over the course of 2023, we made it possible for 154 million individuals in those markets to reach global goods and services. That marks a 62% rise from 2022. During 2023, we were proud to meet the needs of more than 600 merchants spanning 40 markets, and we kept bringing new merchants onto our platform. Of the six biggest technology companies globally by market capitalization, we counted five as customers. Revenue climbed sharply in Brazil, up 89%, and in Mexico, up 72% — our two most developed and fiercely competitive markets. In Africa and Asia, we saw a year-over-year jump of 114%, which was impressive. Our revenue guidance was exceeded, as we hit $650 million, which is more than 55% higher than the prior year. Our key metric, gross profit growth, remains our focus. There was a 37% year-over-year rise in gross profit, bringing it to $277 million. Through our consistent and disciplined approach to investing, along with a focus on sustainable growth, we achieved another outstanding year, with a Rule of 40 score of 110%, which is remarkable. For adjusted EBITDA, we surpassed $200 million, in line with the guidance we had given. Additionally, we maintained a best-in-class adjusted EBITDA over gross profit margin of 73%, all while continuing to invest in support of our long-term goals. How did we manage to achieve such remarkable results? Of course, it all boils down to our team and the way we work together. We grew our global workforce in an efficient manner, moving from 726 employees up to 901, located across 49 different nations. Most importantly, since we stay fixated on our merchants and place them at the heart of everything we do, we introduced innovative solutions and offerings that met the very demanding requirements of those merchants. Throughout 2023, momentum grew for our platform offering, especially among marketplaces, as we entered five major markets within just a single year. On behalf of our merchants, we have welcomed more than 230,000 sellers into our marketplaces, leveraging automated KYC tools as well as adaptable settlement options built for intricate platform setups. Last — and this is certainly not the least important — we're making our existing strengths even stronger by putting money into crucial capabilities. Those include broadening the set of licenses we hold, deepening ties with banking partners around the world, and boosting how efficiently our operations and back office run. Just in 2023, we received licenses in strategic markets such as Brazil, Nigeria, Kenya and Rwanda, plus registries in South Africa, the Philippines, Chile, Costa Rica, Panama and Peru. That momentum is carrying forward as we progress: throughout 2024, our entire focus is on serving customers and cementing our position as the infrastructure solution of choice for global merchants across emerging markets. We're committed to making 2024 our most outstanding chapter yet. DLocal Built for Success in Emerging Markets.

Hi, everyone. The video shows we have just wrapped up an exceptionally powerful year, one that ended on a high note when it comes to gains in both TPV and revenue. For a company like ours that is growing, those two metrics matter a great deal, because they show what our merchants are choosing. Keep in mind that their revenue is our TPV, and it is the strongest signal of how well we capture and hold onto share of wallet. Our thinking spans decades, not quarters, and across the long term, which as I just mentioned is where our focus lies, steady expansion in those two metrics produces operational leverage, and that in turn produces better profitability and cash flow, which in the end is what creates shareholder value. So now let me take you through a nearer-term picture, going over what we posted in the fourth quarter of 2023. We achieved what we regard as outstanding TPV growth of 55% year-over-year along with 11% growth quarter-on-quarter, moving past $5 billion to reach $5.1 billion. That marks yet another quarterly record, demonstrating the powerful competitive standing of our solution. We turned in strong TPV numbers, and those flowed through to a 59% increase in revenue compared with the same period last year and a 15% gain from the prior quarter, reaching an all-time high of $188 million. Driving that improvement was exceptionally strong performance in the markets where we face the toughest competition: Brazil, where revenue was twice what it was a year earlier and 12% higher quarter-over-quarter, along with Mexico, which posted a 59% year-over-year rise and an 18% sequential increase. In addition, revenue in Nigeria doubled from a year ago and came in three times higher than the previous quarter, helped by a growing gap between the official exchange rate and the market rate — though that same gap drove a meaningful increase in expatriation costs. These gains across our largest markets, combined with ongoing expansion in our other markets, were partly offset by Argentina, which contracted 26% year-over-year and 56% quarter-over-quarter. Argentina's softness came from a pair of sources. The first was a sequential drop in our cross-border operation, which carries a higher take rate, brought on by stricter capital controls ahead of the government's year-end handover; in our view this caused merchants to move temporarily toward settling more transactions locally rather than across borders. The second was a sharp devaluation of the nation's currency late in the quarter, which hit our results in dollar terms even harder — much the same way it affected nearly every other business with meaningful Argentine exposure. Keep in mind that even with these near-term pressures, our perspective remains a long one: Argentina matters to us, and what counts even more is that it matters to our merchants. Complexity is where we do well, and we'll continue providing services to merchants and consumers around the world in that area. The effect I mentioned moved through to our gross profit line, bringing total gross profit for the quarter down to $70 million. That represents a 6% decline quarter over quarter. However, excluding the Argentine segment, gross profit climbed 7% quarter over quarter. Looking at it year over year, gross profit was still up a healthy 27%, or an impressive 48% when Argentina is taken out. Our net take rate dropped 20.5 basis points quarter over quarter during the period, landing at 1.4%. The reason was shifts in our business mix — namely, a reduced share coming from pay-ins and cross-border volumes. We think these figures show that while take rates are still facing downward pressure—something we've consistently pointed to—the decline is gradual. Even more significantly, it's mostly the result of mix shift, since we still see only modest pricing pressure stemming from competitive dynamics. Now let's turn to how our OpEx was structured this quarter. In Q4, we kept putting more into expanding our team and setting up the processes and systems needed to back our long-term growth goals. Because of that spending, total OpEx rose to $29 million for the quarter. The main places where costs went up were: first, technology-related items, such as engineers, software licenses, and other IT and security costs; second, non-IT salaries and wages, since we keep bolstering our team, including key leadership roles; and third, office costs, reflecting our expanded global footprint. Total OpEx came to 41% of gross profit, versus 31% in the previous quarter; for more detail, see slide 18 in the earnings material that accompanies this call. I want to emphasize that we firmly believe these investments in technology, product, and people matter greatly for sustaining a high-growth business over the long run. As we keep scaling up, we anticipate operating leverage emerging in the mid-term. Continuing down the P&L, all of this produced adjusted EBITDA of $49 million, which is 22% higher year-on-year but 11% lower quarter-on-quarter. The adjusted EBITDA margin shrank from quarter to quarter, landing at 26%, largely because of the gross profit margin compression I mentioned earlier. Even with adjusted EBITDA slowing, we still turn in best-in-class profitability. Our adjusted EBITDA to gross profit ratio reached 71% this quarter, even after the investments I just described. Net income came to $28 million for the quarter, a 47% increase year-on-year. On a sequential basis, that represented a 29% decline. As we lay out in the presentation that accompanies this call, net income's quarterly movement was hurt by reduced EBITDA, IFRS inflation adjustments—which are accounting effects—and greater stock-based compensation. As a result, we also saw our effective income tax rate rise from 18% in the previous quarter to 21% in Q4, which stems from a larger local-to-local portion of pre-tax income and from the fact that IFRS inflation adjustments can't be deducted. Turning to cash flow, we brought in $36 million of free cash flow for the quarter—that's our own fund generation—and $166 million across the year. Our conversion of net income into free cash flow stayed above 100%. The robust generation of own-funds cash flow came mainly from the net income profile of our financial model, along with the recovery of $13 million in restricted cash that we'd held as guarantees for standby letters of credit. In Q4, we additionally deployed some of our own capital to purchase $16 million more in Argentine dollar-linked treasury bonds, which let us effectively hedge FX exposure in that market. As a result, we closed out the year sitting on a solid liquidity base of $326 million—that figure includes $223 million in cash available for general corporate purposes plus $103 million held in short-term investments. Our commitment stands to keep assessing ways we can leverage our distinct financial profile, one that pairs profitable growth with exceptionally robust cash generation, enabling us to pursue inorganic growth, potential buybacks, and the establishment of a dividend policy. All in all, we take great pride in our 2023 accomplishments and feel enthusiastic regarding what 2024 holds for us, and even further out. Like I mentioned earlier, I joined DLocal firmly convinced this is a remarkable company with meaningful opportunities lying ahead. That belief has only grown stronger throughout my tenure here. Together as a team, we stay dedicated to seizing the enormous market opportunity in front of us by persistently carrying out our land-and-expand approach with merchants, capitalizing on possibilities and increasing our share of wallet from them. We'll likewise keep investing in and reinforcing the groundwork for upcoming expansion, since we're confident substantial future growth lies ahead. To start, we'll continue bolstering the DLocal team by putting resources into human capital, with special focus on the engineering talent pool; next, we'll keep enhancing our back-office capabilities; and third, we aim to keep funding our licensed portfolio across emerging markets, which we firmly believe can turn into a distinctive asset in the years to come. Regarding that final item, it deserves mention that we received additional licensees and registries spanning 10 markets throughout 2023, just as the intro video demonstrated. These three elements will help us further extend our competitive edge over the long term. I'd now like to pass things to Maria, who will guide you through how all that I've described translates into our financial outlook for 2024.

Thanks, Pedro. Morning, all. I want to walk you through what we're expecting for the whole of 2024. This year we're introducing TPV expectations, because we think that's the operational metric that matters most for us as a business. When it comes to market share, it's the clearest signal there is. Like we said before, at the end of the day, our merchants pick us when they send a larger and larger share of their volume through our rails rather than whatever else they could use. Our guidance is for TPV to expand somewhere between 40% and 50%, which puts us past $26 billion at the midpoint. The way we see it right now, the extra volume will skew toward the back half of the year — we begin at a level comparable to where we finished 2023, then accelerate as the months go on, thanks to expansion in the very seasonal e-commerce vertical and how we presently expect our late-stage pipeline to develop; the engine behind this robust TPV expansion will mostly be a bigger share of wallet among merchants we already serve, plus tier zero merchants continuing to scale. Structured tailwinds tied to the digital economy and the rising middle class in emerging markets keep working in our favor. Africa and Asia should expand more quickly, which points to the long-term potential for growth worldwide. The verticals where we expect the most expansion are e-commerce, advertising and ride-hailing. As we never tire of saying, our core financial objective is growing absolute dollar gross profit as much as possible. That's why our guidance is built on gross profit rather than revenue — in our view, it's the metric that captures best how we actually operate. For 2024, we anticipate gross profit landing between $320 million and $360 million. Several things sit behind that gross profit range. First, a bigger mix from tier zero merchants as those global relationships keep ramping, which brings extra TPV and wallet share from the leading tech companies worldwide, though at reduced take rates. Second, ongoing expansion in our local-to-local business. We take this as confirmation that our orchestration approach to payments works, and as proof we can compete with local acquirers. Third, FX spreads normalizing or tightening in certain dual-currency rate markets like Argentina and Egypt, which had produced windfall gains in 2023. Even though tighter FX spreads act as a headwind to our 2024 plan, they also give us a gross profit profile that's more sustainable and carries less risk. And fourth, growth mix rotating toward less mature markets where we haven't yet scaled. The last piece of guidance concerns adjusted EBITDA. We're dedicated to a financial model that pairs solid mid-term gross profit growth with an EBITDA margin that ranks among the best in our comp set. That's our playbook for highly profitable growth. So with that, we restate our mid-term guidance: 25% to 35% gross profit growth, and 75% adjusted EBITDA to gross profit margin. For 2024, the path toward that mid-term guidance sits at roughly 70% adjusted EBITDA to gross profit. That works out to adjusted EBITDA of $220 million to $260 million; we expect OpEx to rise about 45% year-on-year. If you look at our Q4 run rate as the baseline, our OpEx is going to rise by roughly 25%, even though TPV is projected to double during 2024. That confirms the operational leverage built into our business model, and it shows that a large share of the extra OpEx spending required to support long-term growth was already taken on in H2 2023. Tech investments will be the main force behind this year-on-year OpEx increase, since our goal is to expand our talent pool by approximately 50%. Sales and operations will be among the other key drivers of OpEx growth. Our short-term guidance makes clear that we are deploying capital carefully, keeping us from straying far from our mid-term margin guidance. And by restating our mid-term outlook, as we look past 2024, we are signaling that after we finish this short-term cycle of investment in tools, processes and people — which protects our capacity to scale the company for long-term growth — we expect the operational leverage inherent in our business model to become even more visible. As was said in the opening remarks, scaling of that kind is what produces the cash flows that fuel shareholder value creation over time. The obvious potential of DLocal comes into focus when you compound our growth in line with our mid-term targets across a multiyear stretch. I'll now pass it to Seba.

Since August, we've been executing a well-thought-out handover, and now Pedro will step into the position of soul CEO. I'm not going anywhere when it comes to DLocal — I'll be taking an active part in leading the recently formed Commercial and M&A Committee within the Board of Directors. During these last several months, Pedro and I have collaborated closely and gained knowledge from one another, drawing on strengths that complement each other to lift the company's results, particularly when it comes to steering through complex circumstances. Moving into the following stage of our transition blueprint, with a focus on making everyday choices more efficient, we have full confidence that Pedro is the right individual to run DLocal's operations on a daily basis. The key part he played in growing one of the most successful emerging market technology businesses says a great deal about what he can do. Ongoing company building will be where Pedro directs his attention, whereas I'll be turning my efforts toward spotting crucial growth opportunities for DLocal going forward; at this point I'll pass things back to Sergio so he can share more information regarding the management changes that are coming.

Hello, everyone. Seba, thank you for bringing us this update. On behalf of DLocal's Board of Directors and the shareholders, I'd like to convey how profoundly grateful we are for everything you've done for our company from the very start. Collaborating with you has been an absolute pleasure, and it will remain one. Watching you guide DLocal from its earliest days as a small venture in Latin America, then into a flourishing startup, and today into a worldwide powerhouse makes me incredibly proud. Looking ahead, we see a change coming in the style of leadership the company requires, matching the different phases of its development. The difficulties encountered in 2023 called for a defensive posture, which brought about operational consolidation. Now that those adjustments are progressing well, we're pivoting toward an offensive approach. Our emphasis is on reigniting our long-term growth potential via a blend of innovation through new product introductions, broader reach into high potential verticals, and expanding our commercial team so that it is fit for purpose, plus, whenever the right opportunities present themselves, inorganic growth by way of M&A. Sebastian's crucial part in heading the newly constituted Commercial, Business Development, and M&A Committee will be key to carrying out this bolder strategy, aimed at creating long-term value for our shareholders. In my role as founder, principal shareholder and active manager, it's deeply satisfying to see Pedro, Seba and the Board working together to steer through this transition smoothly. Our steadfast goal stays the same: safeguard the core values and the capabilities that drove our growth, while welcoming new opportunities as we expand into a far bigger organization capable of best serving our merchants across emerging markets. We strongly believe in this strategy. As evidence of that, throughout 2023, as the company's main shareholders, we repurchased $160 million worth of DLocal shares, demonstrating our confidence in the business's long-term success. In numerous respects, I view myself as the guardian of our company's legacy and culture, guiding the course to keep continuity, while at the same time bridging the way toward necessary changes that will lock in our future success. With that, let me pass it back over to Pedro.

Thank you, Sergio. Along with reshaping these leadership frameworks, I'm delighted to share news of the latest person joining our team. Mark Ortiz is coming aboard as Chief Financial Officer, and he'll step into the position during April. Given the upward path we remain on, we looked for a strong finance executive who could steer us through the coming stage of expansion. In that regard, Mark carries a great deal of experience, with more than 30 years spent in senior financial leadership roles, mostly at GE Capital, where he served as Global FP&A Leader and Global Controller spanning various departments. Beyond the essential financial know-how that matches what we need right now, Mark's broad background features assignments spanning more than 20 markets, which makes him a strong fit for the worldwide intricacy our company involves. I believe Mark is the ideal pick for CFO to carry us toward the next level of growth and to strengthen our position as the leading provider of payment solutions for emerging markets. My hope is that everyone gets an opportunity to meet Mark across the years ahead and feels the same excitement we do about his arrival. I'd also like us all to express appreciation to Diego Cabrera Canay for the tremendous value he added at DLocal. Diego was instrumental in building out many finance functions here, getting the company ready for major international expansion and growth, and steering it through the process of going public. Across the past three and a half years, Diego served as a steward of a business that expanded 10x in TPV, launched operations in more than 20 countries and lifted its market cap by 4x. We send Diego our best wishes. To sum up, I want to thank our team around the world, our loyal customers and our investors for their ongoing support. And prior to returning to your questions, I'd like to close today's prepared remarks with a final reflection. 2023 proved a watershed year for DLocal. Even while confronting major market tests and macroeconomic hurdles, we feel we've shown the resilience both of what we offer our merchants and of how our business is built, growing and prospering consistently amid turbulent times. We feel we came out of it stronger and concentrated on seizing the enormous business opportunity that lies ahead. We remain dedicated to fulfilling the long-term purpose of the company, which is unleashing the potential of emerging markets. By that, we mean creating a bridge linking the expanding base of billions of consumers throughout the Global South with the products and services they want, which until quite recently were available only to the minority of consumers able to access payment mechanisms from developed markets; and while we fulfill this mission of closing the digital divide for emerging market consumers, we're simultaneously capturing an extremely appealing long-term market opportunity — the very one underpinning the investment thesis in DLocal. I'm eager to bring you updates on our progress along this journey as the quarters go by. With that said, let's take your questions.

Hello, and good morning to all of you. I appreciate the call and for answering my questions. I have a few things I'd like to ask, if that's alright. Perhaps I'll begin with Argentina, since there are so many shifting elements involved there. I just want to get some clarity on a few of the remarks, and Pedro, you said there were more transactions happening local-to-local. So, does this mean your current merchants are acquiring local subsidiaries and then can conduct business locally, or do they simply remain in their present state and cannot engage in cross-border activity while keeping funds within the country? I'm just trying to grasp the mechanics of this, considering the problems there; and after that, do you anticipate this will partly return to normal by 1Q, or would it require a longer period to normalize? And connected to that somewhat, regarding the gross profit guidance of $320 million to $360 million, what does that suggest for Argentina? Does it mean that if Argentina mostly stays the way it is, you'd land around the midpoint of that guidance? Are you expecting Argentina to get better so you deliver at the higher end, and does it suggest Argentina might deteriorate at the lower end? Then my second question, I suppose, concerns Nigeria and Egypt, since we've also witnessed significant devaluations in those countries during the first quarter of this year, and we did observe substantial growth in Nigeria as well as other Asia and Africa. Could you help us grasp what the likely effect of those devaluations will be, I suppose, in 1Q and how that might be captured in the guidance? Thank you.

Thank you, Tito. So, there are numerous shifting elements. Let me go through the questions one by one. So, the rise in local-to-local settlement in Argentina isn't a modification to how our merchants are configured, but instead, as volatility grew, and more significantly, capital controls became even tighter heading into the election, a lot of merchants began choosing local settlement. We don't really view that as a structural shift. We expect that ultimately, once capital controls are removed, there's a chance to recover those flows into cross-border. But that's going to require ongoing normalization in Argentina, which we think will occur over the mid-term, not within the short-term. Our guidance for the year, when we stack it against the 2023 comps, does presume Argentina structurally, though it possibly has an opening of capital controls, will also see narrower spreads on FX as the government has indicated a desire to move toward a single exchange rate; so, we do factor into our 2024 guidance reduced gross profit from Argentina relative to 2023 from a margin standpoint. What we need to observe is whether macro improves sufficiently that by the latter part of the year, volumes rise considerably, or whether that's more of a mid-term pattern. We do think that over the long term, that market remains a significant and appealing market for us. Egypt, I'd say, has comparable dynamics. Egypt, like we observed during Q1, the currency devaluation has resulted in narrower spreads when it comes to repatriation as well as cross-border flows. It may begin to indicate more liquidity available in the FX market, though with a lower margin profile compared to what we've experienced so far. To provide a sense of scale, Egypt across the entire year accounted for approximately under 10% of our operations, yet was expanding as we moved toward the latter half. Since spreads had been broadening and now with FX spreads narrowing for 2024, we likewise anticipate Egypt turning into somewhat of a short-term obstacle for us, heading into 2024. Nigeria presents a rather distinct scenario. As we have repeatedly stated, revenue swings in Nigeria don't truly carry through to gross profit to the same degree; therefore, gross profit for Nigeria during the quarter came in about even with Q3's figure. Down just marginally, even with the substantial rise in revenues. Thus, regarding Nigeria, our guidance on trajectory is that we expect to keep seeing TPV expansion there, broadly at margin levels comparable to those we saw in 2023.

Nice, that helps a lot. Really clear, Pedro. Perhaps one more question, if that's okay. Coming back to Argentina, only to confirm I got it right, you mentioned merchants are choosing to settle locally. So that would mean, I suppose, they're essentially leaving the funds in Argentina, and I suppose they aren't taking that out, I'm just attempting to figure out how that really affects their operations, but I suppose the presumption would be that once things return to normal, they'd ultimately move that money back to their home country, and then, might you capture some extra revenues when that occurs, just to confirm I grasped that properly?

That is right. So, settlement comes in two varieties; we're able to settle in the local market, and as a result, there's no FX element in our fee or the heart of our operations, around half of the volume. We're able to settle for merchants on an international basis and then an added charge applies for the repatriation service. What we observed in Q4 and you can see that in the disclosures, is that the mix has moved more in the direction of local-to-local and that's been especially true in Argentina as capital controls became tighter near the end of the year.

All right, that makes sense. Many thanks, Pedro. I’m grateful for the answer.

Hi there. Melissa Chen here, filling in for Jason. During your prepared comments, you noted that in 2023 you would be investing in bringing on staff and improving back office capabilities. Could you share some sense of the timing pattern for those investments across the year? Would they be roughly evenly spaced, weighted more toward the beginning or the end? Any specifics on that would be useful.

Two brief points on that. First, looking at the margin structure, the adjusted EBITDA to gross profit margin under the 2024 guidance at the midpoints, we are investing into the business to establish the proper foundations, yet we’re doing it with a great deal of discipline. So even this year, when we aren’t producing operational leverage, we still expect to land at what would be best-in-class adjusted EBITDA to gross profit margin, near 70%. I believe that deserves emphasis. Regarding how the additional investment is timed, based on the Q4 run rate, it isn’t really materially higher going into 2024, which ought to be among the heavier years for investment, and we remain optimistic regarding mid-term operational leverage and even more so the long-term operational leverage of our financial model, as holds true for most payments companies, and because of that, we have reaffirmed the mid-term guidance. That timing might be somewhat weighted toward the first half of the year. However, given that the largest areas of additional investment, as we noted, are engineering talent, and that is also among the reasons we’re optimistic about mid-term operational leverage, much of what we’re doing involves building capabilities so we can automate more and become more efficient. DLocal will keep wanting to operate as a lean organization, automating wherever possible. But if we can bring on more of those engineers during the first half of the year, great. That could tilt — could weight the investments toward H1, but we want to ensure we’re bringing on the right people. So it may wind up being spread evenly across the year, based on how quickly hiring proceeds.

All right. Great. Thank you.

Hello, and thanks for letting me ask. I’ll keep it brief — on volume growth, are your main merchants accelerating or decelerating? Has anything shifted regarding which verticals matter more or less? Is there anything worth calling out about volume growth? My other question is also about Argentina. What should we anticipate for Argentina and Nigeria? You said Nigeria might act as somewhat of a drag, but what other distortions should we expect, at minimum across the first half of this year, from places such as Argentina and Nigeria? Any specifics would really help. Thanks a lot.

Hello, Neha. Thank you. Regarding verticals, based on what’s in the disclosures, e-commerce keeps showing remarkable momentum. As a vertical, it grew almost 200% versus the prior year, and we keep seeing momentum throughout numerous other verticals — financial services, ride-hailing. Across on-demand delivery and advertising, growth was, I’d call it, less material — in the high 20s or low 20s. Part of that stems from the situation in Argentina, and part of it is broader than that. Still, broadly speaking, I’d say verticals haven’t shifted much, except that e-commerce keeps increasing its mix. For many worldwide e-commerce companies that are expanding their global footprint further and further, we are an especially fitting service provider and solution. So in new markets where we serve some of the biggest worldwide e-commerce companies, we’re seeing some genuinely compelling gains. On Argentina, Nigeria, and Egypt — to restate clearly what I noted earlier, our guidance incorporates an expectation of some margin drag for Argentina and Egypt when we consider gross profit margin in those markets, since exchange rate spreads have narrowed, and that’s included in 2024, along with the harder comparables from 2023 in those two markets, which carried high margins on wide FX spreads, particularly during Q2 and Q3. Nigeria, as I said, is a separate case: at the revenue level we do observe swings due to movements between the official and the market exchange rate, yet at the gross profit level it’s far more neutral, so for Nigeria we anticipate a gross profit margin comparable to what’s in the 2024 guidance.

Got it. That's very clear, Pedro. Just one more from me. I realize that the priority this year is largely on expanding the organization and putting more investment into elevating the company, but is there anything planned when it comes to diversifying revenue? In the past, we discussed extra offerings such as fraud-as-a-service. Are there any new services you're considering that we might see this year or the next one? Many thanks.

As Sergio said during his remarks, our approach involves innovating and bringing new products to market, along with going after new verticals; we've enjoyed great recent results with the marketplace product and we're hoping that continues through 2024. We introduced an invoice product, targeting corporate treasuries and accounts receivables, which we want to advance and watch expand; and beyond that, there are several new verticals where we're starting to sow the seeds. How those develop remains to be seen. In our line of work, as you're aware, entering a new vertical can sometimes involve lengthy lead times, and only after that do those ramp ups truly take off. So if anything, those should arrive more toward the latter part of 2024 and possibly carry into 2025.

Hey there. Thanks, everyone, and I appreciate you fielding my questions. By the way, I do like how the presentation has been reformatted — just thought I'd say so; but what I'd like to inquire about is the 68.6% rise in revenue from new merchants, which picked up speed compared with the third quarter. Could you break that down for us? Does it come from those new merchants you mentioned earlier in the year, or perhaps you could offer a framework for how we should think about the contribution of new merchants — that would be useful.

We're right here. We're just double-checking that our figures are correct.

Right. No, we're all on the line. Jamie, I appreciate what you said about the presentation. Let me give you some color on it. Looking at how we're bringing on new merchants, it's really a mix of things. Part of it comes from some of those big global names everyone knows, especially a few based in Asia, that have counted on us to grow, mostly in Latin America, though we keep adding new markets alongside them. You can see that reflected in the e-commerce category and how it's growing; we've also seen volume pick up from another sizable worldwide merchant down in Chile, which is contributing there too. Beyond that, it's spread pretty evenly across a number of smaller Tier 2 merchants we've brought aboard, and those have been scaling faster, in part because they often use us as their only partner when going international.

All right; and perhaps continuing along that same line, I probably ought to know this already, but could you remind us what portion of TPV or revenue is generated annually by the installed base? If that's something obvious, I apologize. But if it isn't, is there a framework for thinking about it?