DLocal Limited (DLO) Earnings Call Transcript & Summary

Hello, everyone, and thanks for being with us on the second quarter 2025 earnings call this afternoon. A copy of the earnings release is available in the Financials section of the Investor Relations website if you haven't had a chance to look at it yet. Joining us today are Pedro Arnt, Chief Executive Officer, Jeffrey Brown, Interim Chief Financial Officer, Christopher Stromeyer, Senior Vice President of Corporate Development, and Mirele de Aragao, Head of Investor Relations. We've provided a slide presentation to go along with the prepared remarks. This event is being webcast live, and you can access both the webcast and the presentation through dLocal's website at investor.dlocal.com. A recording will be made available shortly after the event ends. Before we go further, I should note that any forward-looking statements in the presentation or mentioned on this conference call are based on information currently available, as well as dLocal's current assumptions, expectations, and projections regarding future events. Although the company believes our assumptions, expectations, and projections are reasonable in light of currently available information, you are cautioned not to place undue reliance on those forward-looking statements. Actual results may differ materially from those included in dLocal's presentation or discussed on this conference call for a variety of reasons, including those described in the Forward-Looking Statements and Risk Factors sections of dLocal's filings with the Securities and Exchange Commission, which are available on dLocal's Investor Relations website. I'll now hand the conference over to dLocal. Thank you.

Good afternoon, and thanks for being with us. This quarter we once again posted strong growth and executed with discipline, seeing meaningful acceleration in several key financial measures. These results further prove that our model combines rapid expansion, widening margins, and robust free cash flow. They also show the considerable value we deliver to merchants. Momentum remains powerful throughout our business, as we set a new record for TPV at $9.2 billion and recorded a third straight quarter of year-over-year growth above 50%. Revenue and gross profit likewise hit record levels, at $256 million and $99 million, respectively. Our main markets, especially Brazil and Mexico, recovered and turned in strong results, while our remaining geographies are expanding at an even quicker pace. This highlights both our growing diversification and the durability of our larger markets. Even as we continue investing to fuel future growth, we have now achieved five quarters in a row of gains in the adjusted EBITDA over gross profit ratio, which shows we are committed to right-sizing the business through disciplined investment. Net income came to $43 million for the quarter, hurt by the Argentine peso devaluation affecting our bond portfolio. With market conditions shifting, we seized the chance to repatriate funds more efficiently, cutting our position by more than 80% and shifting into U.S. treasuries; this lowers expected volatility and boosts funds available for general corporate purposes. Excluding those effects, net income would have been $53 million. Over the long term, these are all strongly positive developments. Although this quarter's bottom line took a hit, the business keeps generating substantial cash, with $48 million of free cash flow in the quarter, plainly reflecting the strength of our underlying operations and our sound financial footing. In the quarter, we obtained three additional licenses: UAE, Turkey, and Philippines, a key milestone in our effort to give merchants the benefits of our expanding portfolio of financial services licenses throughout the global south. Before diving deeper into this quarter's results, I want to spend a few minutes revisiting the broader trends behind these strong results. To begin, we still see a large long-term opportunity in the markets where we operate. Our addressable market, measured by total payment volume, is worth trillions of dollars, and since digital adoption and card usage remain at low penetration, it is expected to grow at a double-digit annual rate through 2030. Second, looking at our existing merchants business in the countries where we operate, we see major opportunities to increase our share of wallet with those merchants. That will come as we grow alongside them into new countries, as we add more APMs, and as we unlock new lines of business we do not currently serve. The third growth vector is bringing on new merchants. If you want a lens for how much room there is for that merchant base to expand, consider this: when it comes to digital merchants in emerging markets localizing their payments, we're barely past the beginning of the S-curve. And what we've seen is that this expansion traces a fairly predictable path. Usually, a merchant first sets up shop in developed markets, and afterward, when it pushes into emerging markets, it relies solely on international acquiring. That approach gives it access at first to just a slice of the population, produces weaker conversion, and creates a largely subpar user experience full of hidden costs and friction. In time, these companies grow across EMs to a point where payments localization becomes necessary to remove those adoption obstacles, and at last they begin a staged push into additional emerging and frontier markets, running through the same cycle again. dLocal can walk alongside them throughout that process. As these merchants and we climb the S-curve together, what we build is a business that's more diversified, stickier, and subject to less volatility — one that serves a larger number of merchants, spanning more countries and a wider set of payment methods; our figures show this happening. Today, close to 760 merchants are with us. Looking at our top 50 clients, on average they work with us across 11 countries and 48 payment methods; just 18 months back, those figures stood at 8 and 35. As a result, our geographic mix has become more diversified, with our three biggest markets now accounting for under 50% of revenues, an 8 percentage point decline since 2023. Measured over the trailing four quarters, revenue across the remainder of our markets is climbing at almost triple that rate. As our merchant base grows and we climb the S-curve alongside them, we anticipate that merchant diversification will rise too. Looking ahead, as I've mentioned in prior quarters, our investment in product innovation keeps accelerating. Let me walk through a few of the highlights from what we deployed over the last 3 months. Only last week, Smart Pix went live in Brazil. This industry-first, truly innovative offering transforms what the Pix experience can be and brings merchants most of the functionality and ease that card-on-file payments provide. Smart Pix is already being used by clients, which shows how dedicated we are to leading in alternative payment methods across the global south. In the second quarter, we also rolled out several Buy Now Pay Later integrations across a number of markets, where we connect market-leading BNPL solutions into our global merchants' checkouts, building on the installment options we already offer in Brazil and Argentina. That marks one more significant move toward letting our merchants capture the enormous credit demand present across emerging markets. Worth noting: the credit risk stays off our books — instead, we get to share in revenue on the credit yields our BNPL partners generate. We're likewise still advancing when it comes to our stablecoin offerings, and we think our position is one of a kind when it comes to capturing certain opportunities that emerge from our extensive emerging markets footprint, our highly evolved pay-in and payout infrastructure, our local FX liquidity and know-how, plus our many years of work in stablecoins; for stablecoin companies and merchants who want to tap into what this emerging technology offers, we're an ideal provider of both on-ramp and off-ramp services. Our tie-ups with Circle and BVNK illustrate some of the strides we're making here. Before handing things to Jeff so he can walk you through a thorough look at our P&L for the quarter, I want to say a few things about operating leverage in our financial model. As you're aware, and as we've stated plainly, we've been going through an investment cycle centered on product, tech, operations, and compliance capabilities. Even so, in spite of that investment cycle, we've reached a turning point and keep posting rising revenues per employee that are climbing and that beat those of numerous best-in-class peers among public companies, every one of which, incidentally, handles more TPV than we do; this shows that even at a smaller scale, our culture is extremely lean and efficient. On top of that, we think efficiency and scalability benefits lie ahead thanks to our continuing AI and automation efforts, which represent a central destination for the technology resources coming out of our investment cycle. Great. Having said that by way of introduction, I'll pass things to Jeff now so he can give a more thorough review of our second quarter results.

Thanks, Pedro. Good afternoon, everyone. I'll take you through the key results for the quarter. It was another solid quarter for us, continuing the favorable momentum we've experienced since the middle of 2024. Through steady implementation of our strategy, we once again achieved records in TPV, revenue, gross profit, and adjusted EBITDA, while keeping costs well managed and pressing ahead with our geographic expansion. As a result, during Q2 2025, our TPV crossed $9 billion for the first time, up 53% versus the prior-year period and 14% compared with the prior quarter. Had currency rates remained constant, TPV would have risen 65% year-over-year. Performance was especially robust in remittances and commerce, with SaaS, delivery, streaming, and ride-hailing following, partly held back by softness in advertising. Our TPV increase was widespread. We recorded solid gains both sequentially and year-over-year across cross-border, local-to-local pay-in, and payout flows. That confirms our leading position across a range of solutions in the markets we serve. Revenue came in at $256 million for the second quarter, an increase of 50% year-over-year, or 63% when currency effects are excluded. That reflects strong volume expansion, with a rebound in Brazil and Mexico, meaningful growth in Argentina, and significant contributions from Turkey, South Africa, and Pakistan. Sequentially, revenue rose 18%, outpacing TPV growth thanks to a high proportion of pay-ins. Egypt partially counteracted this favorable outcome, since we saw a partial loss of volume there when a large merchant made redundancies in that market, along with reduced FX spreads stemming from the currency devaluation. Turning to gross profit trends for the quarter, gross profit hit a record $99 million, an increase of 42% year-over-year, or roughly 55% excluding currency effects. This came from volume expansion in Argentina, Brazil, Egypt, and Mexico, plus growth in additional markets, notably Bolivia, South Africa, and Turkey. It shows how our business keeps globalizing, with earnings coming from both larger and smaller economies; sequentially, gross profit rose 17%, mainly on the strength of Brazil's performance given a greater proportion of installment payments and the recapture of one-off processing costs from the prior quarter. Argentina's robust results, fueled by higher volumes and greater advancements, more than compensated for reduced FX spreads, as well as results in other African and Asian markets, especially South Africa, on the back of volume growth and reduced processing costs. Egypt, as noted earlier, worked against this favorable outcome, along with other LatAm markets that, despite volume gains across a number of countries, were negatively impacted by retry costs billed during this quarter in Chile and Colombia. Without Chile and Colombia, those markets expanded 9%. Our net take rate improved by nearly 3 basis points sequentially, mostly because of a greater proportion of pay-ins and the recapture of processing costs from the prior quarter. Those favorable impacts were partly counterbalanced by reduced FX charges in Argentina stemming from spread compression. As you're able to observe, various mix shifts play a role in how our take rate moves from one quarter to the next. Through prudent expense management, we once again show operational leverage in this quarter. So, for Q2, our total operating expenses came to $43 million, which is a 10% rise versus the prior quarter and a 9% rise versus the same quarter last year. The OpEx growth is mainly tied to more headcount, particularly in tech, along with greater third-party services. Adjusted EBITDA came in at $70 million, climbing 21% from the previous quarter and 64% from a year earlier. Adjusted EBITDA as a share of gross profit during the quarter stood at 71%, which is 2.7 percentage points higher than Q1, making it the fifth quarter in a row of gains. Even though we expect OpEx to grow during the latter half of the year while our investment cycle continues, these figures underscore both our company's thrifty culture and the leverage inherently present in our business model. As Pedro said earlier, net income for the quarter amounted to $43 million, hit by the Argentine peso devaluation along with expatriation costs tied to our Argentine bonds. We seized a window of opportunity to substantially cut our exposure to Argentine securities, which should lower volatility in our finance results moving forward. Our effective income tax rate closed the quarter at 16%, versus 10% during Q1 2025, driven by a larger local-to-local portion of pre-tax income. As you might remember, the effective tax rate in Q1 benefited from a one-off cost in Brazil. Lastly, free cash flow for the quarter—defined as net cash from operating activities excluding merchant funds, minus CapEx—was $48 million, a notable 22% gain over Q1; we closed the period in a strong liquidity position, with corporate cash and cash equivalents of roughly $254 million. The drop relative to the previous quarter is due to dividend payments made in June. With that, I'll hand things back to Pedro for his closing comments.

Appreciate that, Jeff. Now I'd like to turn to an update regarding our guidance for TPV and revenue. Our expectation is to finish the year near the top end of the outlook we gave at the start of the year, and the same applies to gross profit and adjusted EBITDA. In our view, we will probably surpass the upper bound we previously communicated. The reason is the robust results achieved during the first six months, together with the continued momentum we anticipate throughout our business lines. For your convenience, we've set out new ranges, though we should also call attention to certain risks worth considering as you assess them. To begin with, the changing global macro and trade picture, and how that might affect consumers in emerging markets. Next, the latest tariff hikes affecting cross-border e-commerce in Mexico, plus possible regulatory shifts in additional markets. Third, alterations to fiscal frameworks in Brazil, and lastly, the possibility of currency depreciation and adjustments to capital controls in the countries where we do business. Notwithstanding the risks that come with this territory, our outlook for H2 2025 stays positive. It is exactly within such volatile conditions that our main points of differentiation — a rigorous method for growing our operations, thorough on-the-ground knowledge, and an unwavering dedication to providing value for our merchants — demonstrate their value. We feel sure about our capacity to handle these obstacles should they arise, and to capture the considerable opportunities that await us. I have one last group of announcements that we consider possibly the most pertinent, even given such impressive quarterly figures. Following a comprehensive examination conducted by our Board of Directors concerning our corporate governance, structure, and practices, we wish to share a number of significant decisions. First, regarding personnel, we are delighted to share that Guillermo López Pérez is coming aboard as our incoming CFO. Guillermo possesses 20 years of experience in the payments sector, initially with American Express and, more lately, with Visa. While at Visa, he served as CFO of Continental Europe and has more recently occupied roles at Tink, a top European open banking provider, and at Featurespace, a U.K.-based fintech focused on real-time fraud detection and risk management. Guillermo carries with him extensive fintech know-how along with an evident history of growing businesses; all of us are thrilled to have him join. I'd also like to express thanks to Jeff for his commitment and leadership during this entire transition. We are likewise happy that Christopher Stromeyer came on board in June as SVP of Corporate Development. Chris carries with him many years of experience at Bain spanning North and Latin America, and most recently acted as Chief of Staff and Head of Strategy at the Latin American fintech Ualá. A number of you have already been introduced to Chris. He additionally heads up our Investor Relations team. Within his scope of responsibilities, we are dedicated to moving toward a board that is majority independent. Every one of our independent directors at present is totally on board with staying in their positions; we've kicked off a hunt for new independent board members who'd bring skills and backgrounds that round out what we already have. When it comes to the non-independent directors who are left, General Atlantic said yes to staying on the Board, and so did I. The other spots are going to be filled by folks from the founding team while we finish putting together the new Board. On top of that, we're going to set up Nominating and Corporate Governance and Compensation Committees, which will tighten up oversight and bring us in line with what's considered best practice for corporate governance. Also, the treasury shares sitting on our balance sheet right now are going to be cancelled. Taking this step shows we can produce solid growth in the underlying business while handing extra capital back to shareholders, either via dividends or buybacks, and it signals that we're aligned with the best practices out there for corporate governance. There's been plenty to get through in today's session. dLocal has strong momentum in the business and a great deal happening, exactly the way we figured it would be. We appreciate the trust and partnership from all of you, and now it's time to take questions on this call.

Thanks. Good evening, Pedro, Jeff, and everybody. I appreciate the call and for giving me the chance to ask questions. Nice work on those solid results and the raised outlook. I suppose my focus is just on that outlook. Just. To get a sense of what caused the, I guess, the result that came in above what you'd expected. You had, you know, growth in volume. Brazil and Mexico did well, but was there anything that, I guess, caught you off guard relative to when you first provided guidance? I guess what's your view on whether this roughly 50% TPV growth can be sustained? Just consider, you know, how at some point that can be tolerated. I think the potential over the long term remains quite strong, but just to think about how that might ease over time, and yeah, what was, sort of, better than expected that's giving you more volumes than you originally anticipated.

Appreciate it, Tito. Really impressive numbers. Clearly, with how much we're lifting our guidance, the momentum we're observing in the business is far greater than what we saw at the start of the year. I'd say it's pretty broad-based. Brazil came back fast. After a soft quarter, Mexico grew again, though Egypt was the exception. Africa outside of Egypt and Asia are also performing quite strongly. As for the rest of LatAm, Colombia, as we noted, saw gross profit hurt by retries from earlier quarters. Beyond that, there's plenty of strength there too. As we've said, it truly is broad-based. In our view, some of the geopolitical realignment has cast a brighter spotlight on, and given more importance to, emerging markets as a growth avenue for global merchants. Regarding the S-curve explanation we offered in the prepared remarks, what we're essentially conveying is that interest from global merchants in localizing payments is picking up. We're seeing them expand with us into additional markets and adopt more local payment methods in places where they already had a presence. It's always tough to forecast what will unfold across EM 24, 36 months ahead; we believe this upside surprise in how the first half has unfolded is something likely to carry into the back half of the year. There are risks we've laid out, so our guidance reflects some caution. Overall, the business has come into the third quarter carrying the same positive momentum it had leaving the first half.

Okay, that's useful. Thanks, Pedro. Perhaps I could ask one more thing on that. If you consider the scope of this expansion in relation to your merchants, is it perhaps originating from a handful of specific merchants? Or are you observing it universally, among every one of your merchants? Just thinking, I mean, considering the wallet here, you have this, there's substantial space for expansion. What's our view on how broad the rise in volume is from all of your merchants overall, or does it sit concentrated among just a few merchants?

When you examine how concentrated our revenue is among merchants, that figure likewise hasn't really begun to spread out to a greater degree. It's reasonable to say that this stronger drive into emerging markets, along with genuinely deep localization of payments, remains more common among the biggest global players. None of that suggests these strong results come from just one or two merchants. What I'd call it is results powered by the top 20 merchants, and I believe that's positive news too.

Yeah, all right, that really helps a lot. Thanks, Pedro. And once more, congratulations on that impressive outcome.

Thanks, Pedro. I appreciate the presentation, and best wishes to Guillermo, Chris, and Will as they come onto the board. Pedro, I have two questions. The first concerns Brazil. You referred to the one-off processing cost as a gain. Just to clarify, I recall that you had this one-off cost in the prior quarter. What I want to determine is whether this was a reversal. Was it a double-positive in this quarter that will prove to be a one-off and won't recur in the next quarter, or is it merely correcting for the fact that a one-off existed last quarter that doesn't repeat? To put it plainly, was it a reversal, or just the absence of that cost? For my second question, I'll use this chance to ask about stablecoins. Honestly, 90% of my conversations regarding dLocal have centered on this subject, and I believe it isn't straightforward. Many people hold the view that this poses a threat to the business, but I think you actually have some use cases that represent an opportunity. Please take a few minutes to share your perspective on how stablecoins will affect our business and whether anything is currently happening in the short term with our clients. Thank you.

Okay, so first, regarding Brazil, part of this is a reversal, though not the entirety. I think what matters more is that we don't view this as something producing as many sequential quarter-on-quarter headwinds that would lead us to think Brazil will decelerate meaningfully as we enter the third quarter. There is some element of that. A portion of the result stems from a reversal. Even so, Brazil has in fact rebounded nicely and, based on what we currently know, ought to carry that momentum forward in gross profit terms into the third quarter at minimum and ideally through the rest of the year and beyond as well. The accounting reversal isn't large enough that we believe it creates a significant enough sequential comparison to then cause Brazil to pull back once more next quarter, at least according to what we know as of August 13. Stablecoins. Interesting. I think there's something of a misconception that this is purely a threat to us. We actually believe we're uniquely positioned to benefit from stablecoin adoption as it continues to expand. A few reasons for that. First, we've been engaged in this space for several years now. I think previously that carried a bit of a stigma. That knowledge and experience, I believe, is an advantage; when you consider how stablecoins are increasingly being adopted, there remains a tremendous need for the on-ramps and the off-ramps and really on-ramps and off-ramps from fiat to stable and from stable to fiat. Offering that service is something only we can really do. What matters here is local liquidity along with competitive FX rates, and those happen to be areas where dLocal excels. Thanks to our pay-ins and payouts operations spanning many, many emerging markets, we already give merchants the option to settle with us or from us using stablecoin, which speeds up settlement for cross-border flows. Looked at from that angle, we believe the toughest pieces to construct inside the stablecoin value chain — moving from fiat into stable and then back out of stable into fiat, plus the fact that a great deal of the margin in stablecoin comes from FX — are precisely the places where dLocal operates and takes part. To be very specific, we maintain a vertical sales force and a vertical product team dedicated to this. In fact, we see room for us to grab more. If you step back and consider our business, what we basically do is address merchants' requirements for various methods of paying and settling funds across borders. Unless someone is a total maximalist who thinks fiat will disappear entirely, or local currencies will disappear entirely, and all worldwide commerce will suddenly occur in U.S.-denominated stablecoins — something we definitely do not think will happen — that creates every kind of merchant requirement surrounding their stablecoin infrastructure. dLocal and its partners, that is genuinely what we do, that is what we stand for; right now we view stablecoin far more as an opportunity than as a threat.

Understood, Pedro, and congratulations on the quarter.

I wanted to ask what your latest commentary on take rate would be, Pedro. You showed some improvement there; it seems you're highlighting pay-in and payout mix along with certain processing-related items. Looking at the bigger picture, over the truly long term, how are you framing your thinking regarding where take rates are headed?

Thank you, Jamie; nothing has changed on that. Even when you consider the guidance, we keep observing our merchants growing their volumes with us substantially, possibly reaching new pricing tiers. Broadly speaking, we keep applying downward pressure on our acquirers and processors, yet merchants likewise apply downward pressure on us regarding what it costs to process payments. Our view remains that the overall direction is downward. What we have stated for quite a while, and I believe recent quarters have confirmed, is that this take rate erosion happens gradually, that as we bring in more frontier markets and the mix shifts away from certain larger markets and, even more significantly, as we speed up our go-to-market for new products and new value-added services like Buy Now Pay Later, those likewise tend to be products with higher take rates. Taking everything together, though we still expect take rates to keep falling, we likely hold a more constructive view regarding both how quickly that decline occurs and where the floor might sit.

Alright, I appreciate that answer. While you were laying out those growth vectors and the adoption S-curve, you brought up new offerings too, and then you mentioned and rolled out the Pix parcel feature as part of the broader Pix solution. So I'd like to know: which new product launches have you most enthusiastic? What kinds of things are merchants coming to you asking for, and when do you expect to deliver them?

Sure — everything we just named is already live. If I had to give you a direct response, I'd say we're seeing a lot of merchant appetite for credit products and for letting their customers in emerging markets get credit without having to take on the underwriting risk themselves. That's why we built the Buy Now Pay Later Fuse platform — it lets them bring in the top Buy Now Pay Later providers on the market, and it gives us room to share revenue with those Buy Now Pay Later providers, since we're handing them enormous distribution through some of the biggest digital companies on the planet. That's one focus for us, and things there are progressing quickly. Smart Pix is a pretty distinctive route into Pix, bringing together Brazil's open banking framework and the Pix rails; through it we can create Pix capabilities that behave more like credit cards and tokenized payment methods, and our merchants have shown plenty of enthusiasm for that as well. The third one we brought up is stablecoin and crypto. Those three, I'd say, are where we're concentrating hardest in this product innovation cycle. There's possibly a fourth: starting to provide solutions for offline global merchants too; those four, in my view, are where most of our engineering resources are going when it comes to launching new products.