DLocal Limited (DLO) Earnings Call Transcript & Summary

Good day, everybody, and thank you for being with us on this call. For the first time ever, we posted a record quarter with TPV crossing $10 billion and gross profit exceeding $100 million. That stands as one more illustration of robust expansion and ongoing diversification, both of which highlight the promise and durability of how we operate. A quick reminder that TPV is the primary metric against which we keep steering this business, since we believe lasting scale and market share are the essential ingredients underpinning our investment thesis. In dollar terms TPV climbed almost 60% versus the same period a year earlier, and 66% when measured on a constant currency basis; that makes four quarters in a row in which TPV rose by more than 50% against the comparable prior-year period, which speaks to the supportive secular trends across emerging markets and to our demonstrated ability to execute alongside our merchants as they expand into additional geographies and adopt new ways to pay. Gross profit came in at $103 million, an increase of about 32% from a year ago and 36% across the opening nine months of 2025. Results for the quarter were fueled by robust volume gains throughout the business, showing particular momentum in Brazil, Colombia, and our other LatAm plus other Africa and Asia segments, though these were partly offset by a choppy macro backdrop in Argentina, short-term cost strain in Mexico, possible tariff-related headwinds in that same market, and the impact of a complete quarter from the share of wallet losses in Egypt that we already flagged back in the second quarter. As we had expected, our investment cycle pushed headcount expenses higher. Even so, tight cost discipline allowed us to maintain solid operating leverage, and adjusted EBITDA came to $72 million, which equals 70% of gross profit. Net income growth was strong, largely because finance costs fell after we substantially cut our exposure to bonds denominated in Argentine pesos during the second quarter of 2025. Conversion of adjusted free cash flow into net income stays at healthy levels, which underscores how cash-generative our business model is. These impressive outcomes show we remain capable of steering through the fragmentation and complexity that emerging markets' financial infrastructure naturally involves, enabling us to return value to our shareholders and deliver growth to our investors. Such complexity and fragmentation throughout the Global South is not fading—if anything, we would contend it is deepening. In Brazil, local payment methods powered by PIX now make up over half of e-commerce volume. We observe these patterns everywhere across emerging markets. Local payment methods account for most e-commerce volumes and should hit close to 60% by 2027. Buy now, pay later offerings, one of the newer areas we are focused on, remain smaller at present yet are expanding more quickly than the broader market and, in our view, hold tremendous potential. Stablecoin-based crypto corridors are quickly becoming a meaningful piece of the payments infrastructure landscape too, which opens fresh business possibilities and puts dLocal in position as a major supplier of on- and off-ramps connecting stablecoins with fiat in the more than 40 markets we serve. Given this constantly growing complexity and fragmentation, our central value proposition, One dLocal, only becomes more valuable to our merchants. Having the ability to take all that complexity off their hands through one partner offering the broadest and deepest reach — meaning the greatest number of emerging market countries plus the highest count of payment methods in each country — is essential. So our proposition to merchants is exactly that: serve as the single destination for whatever emerging market financial infrastructure they need, delivering every card-based, local payment, and alternative financial infrastructure option available in whichever country. You might remember that last quarter we laid out our thinking on the S-curve of digital merchants embracing payment localization across EM. What you see here is that our expansion is broad-based across TPV contributions along that S-curve; we bring on new merchants, grow our share of wallet among existing ones, introduce additional payment methods, and stand alongside them as they enter new countries. Along the way, we gain from secular digitalization and economic growth trends in our markets, plus the appetite of the world's top brands to grow wherever the growth is — and that means emerging markets. The bulk of these results originate from merchants we already have, which speaks to how strong and large our current merchant base is; take, for instance, the fact that our clients count six of the MAG-7 among them. Robust volume growth among our key merchants, combined with our value proposition, produces the customer loyalty we take real pride in. We hold leading net retention of revenue relative to most peers in payments and software, which shows durable upsell and cross-sell across geographies, payment methods, and flows. Our NRR has stayed above 100% since 2020, and it climbed to 149% this past quarter. During the quarter, we kept partnering with best-in-class players on both commercial and capabilities fronts to help them address financial infrastructure challenges in our markets. Let me give you a few examples of prominent recent integrations. There's our work backing Western Union's pay-ins throughout Latin America as they digitize their operations, the broadening of checkout options for Bolt, the ride-hailing service, across Africa, Asia, and Latin America, and our use of a unique position to provide on- and off-ramps for stablecoins alongside Fireblocks for their global payments network. Then there's our partnership with Google on AP2, their agent payments protocol, as together we probe what opportunities AI creates for commerce. As we keep doing great work for our merchants and thereby scale up the breadth, depth, and quality of service, our business grows stickier — as the NRR data I just mentioned shows — and, more significantly, increasingly diversified. In the last quarter, we pointed out that our country market concentration had been falling. The three biggest markets we operate in are still expanding at a very robust clip, though not as fast as the others, which brings diversification and, crucially, lessens how much the built-in ups and downs of any one emerging market affect our consolidated quarterly and yearly figures. When it comes to concentration among merchants — meaning simply the top 10 merchants in any particular quarter — we remain roughly at the levels we've historically seen, yet as we expand our share of wallet with merchants we already serve and bring on board new large ones, which names sit in that top 10 shifts each quarter. So if we examine things on a cohort basis, taking the top 10 merchants of a given quarter, we find that their concentration declines over time — and that's not due to shrinkage, but rather because in most instances newer merchants outgrow them. Why does looking at this by cohort matter? Because it demonstrates that real merchant diversification is in fact rising on a name-by-name basis, and our reliance on any single merchant diminishes as time passes. Another top priority is our product innovation roadmap, as we aim to diversify where our revenue comes from and push up average revenue per merchant. This quarter we wanted to share two updates. First, our APM on-file capabilities now span 27 of these local payment methods throughout 16 countries, and that footprint is expanding rapidly, bringing card-on-file-style convenience to cut checkout friction and boost conversion while letting merchants gain from the cost, speed, and adoption of these leading local payment methods. Take, for instance, what happened after we rolled out tokenization of Yape, a leading APM in Peru: conversion rates for that payment method jumped by an impressive 34 percentage points. Second, two weeks ago we introduced Buy Now, Pay Later Fuse, our own aggregator for Buy Now Pay Later solutions. It's already live across six countries, with two additional ones coming soon, spanning Latin America, Africa, the Middle East, and Asia. That marks a significant step toward letting our merchants capture the enormous demand for credit in our markets. While it's still very early, we're already seeing initial evidence of product-market fit, with volumes up 2.5x quarter-over-quarter; worth noting too is that we run it through a revenue share arrangement with local partners, so we carry no credit risk and earn a higher take-rate payment volume on those transactions. To close out this section, the quarter clearly cements the favorable trends we've witnessed across the last nine months: steady growth, a better business mix, a cost discipline, and ongoing robust cash generation. With that, I'll hand the call over to Jeff, who will take you through a detailed analysis of this third quarter's performance.

Thank you, Pedro. Hello, everyone. I'll take you through a deeper look at the numbers and what primarily drove our performance in this quarter. We delivered another strong quarter, setting new records for TPV, revenue, gross profit, adjusted EBITDA, and net income, while keeping operating leverage at healthy levels even as we continued to invest. TPV reached $10.4 billion, representing significant growth of 59% year-over-year and 13% quarter-over-quarter. On a constant currency basis, TPV would have increased 66% year-over-year, despite the Argentine peso's depreciation acting as a drag. That robust performance was particularly evident in remittances, e-commerce, on-demand delivery, and SaaS verticals. The weakness in advertising is due to Egypt, as Pedro mentioned. Results were broad-based across all flows and products, with each achieving a new record high. This level of consistency strongly validates the value proposition we offer our merchants. Cross-border grew 13% from the previous quarter and 75% compared to a year ago, while local to local increased 13% sequentially and 46% year-over-year. This once again shows how resilient our cross-border offering is. Pay-ins grew 12% quarter-over-quarter and 55% year-over-year, while payouts increased 14% quarter-over-quarter and 70% year-over-year. Revenue came to $282 million, up 52% year-over-year, or 63% on a constant currency basis. On a sequential basis, revenue grew 10%, driven by volume growth. As for gross profit, it reached a record $103 million for the quarter, up 32% year-over-year, or approximately 41% in constant currency; this was primarily driven by volume growth, with meaningful year-over-year contributions from Brazil, Argentina, and Colombia. Relative to the prior quarter, gross profit was 4% higher, mainly due to volume growth across frontier markets with strong performance in Colombia, Bolivia, and Nigeria, plus Brazil's solid expansion in streaming, e-commerce, and advertising, along with a greater share of pay-ins; that positive result was partially offset by Egypt, as previously discussed, by Argentina reflecting tighter interest rate spreads and a temporary increase in processing costs, and by a payment mix shift toward an APM that created temporary margin pressure in Mexico, as well as slower TPV growth likely driven by higher import tariffs, which we had highlighted in our prior guidance update. A non-cash IFRS inflation adjustment in Argentina also impacted the quarter. Our net take rate declined sequentially, primarily due to a lower share from Egypt, volatility in Argentina, and payment mix shifts in Mexico; it's worth noting that take rates in our business can vary from quarter to quarter, as many mix shifts affect them. We continue to demonstrate operating leverage and disciplined expense management. Total operating expenses were $48 million this quarter, which was 10% higher than the previous quarter and 28% higher than a year ago. Looking at it quarter over quarter, most of that increase comes from salaries and wages, especially in sales and marketing and tech, and it's partly offset by a $1 million decrease in impairment losses on financial assets. One important thing to note: within the salaries and wages increase, there's almost a $2 million lift from non-cash share-based payments. Adjusted EBITDA was about $72 million, up 2% from the previous quarter and 37% above the same period last year. Adjusted EBITDA as a percentage of gross profit was around 70% for this quarter. Revenue per employee improved solidly for a second quarter in a row, helped by gains from our investment cycle and the first returns on our automation and AI efforts. Net income, as Pedro mentioned earlier, came to $52 million for the quarter, reflecting lower finance costs after we reduced our exposure to bonds denominated in Argentine pesos. Over the next few months, we expect to finish moving away from that Argentine securities portfolio, which ought to bring less volatility in financial results going forward. Turning to income taxes, the effective rate for this quarter was 15%. Finally, free cash flow for the quarter was $38 million. With that, I'll turn it back to Pedro for his closing remarks. If that figure had been 103%, it would have been down just 4 basis points on a sequential basis.

Appreciate that, Jeff. Before we wrap things up, we wanted to bring you up to speed on guidance. Our guidance figures are being reaffirmed, based on how we see the business performing as of right now; that said, several significant risks persist that we feel compelled to flag. At present, we anticipate that TPV will come in above the top end of the range we provided on the second quarter 2025 earnings call. Our market share and merchant traction continue to be quite robust. Let me say it again — for us, this is the metric that matters most. Revenue is trending near the top end for the year, whereas gross profit and adjusted EBITDA will probably land somewhere from the midpoint up to the upper level. As we pointed out previously, it's crucial to keep in mind the shifting global macro, currency, and trade environment across EMs. To be more specific, the recent tariff hikes in Mexico on low-value goods have already produced a deceleration in our Mexican business, which we saw during this quarter. That factor, together with possible trade barriers elsewhere in other markets, deserves close attention. In addition, changing fiscal and tax regimes in Brazil, which we likewise flagged last quarter, represents yet another possible headwind. Lastly, there's the possibility of currency devaluations and/or alterations to FX regimes outside Argentina, for instance Egypt or Bolivia. So, with all of that said, allow me to close. As a team, our focus is squarely on carrying on with execution against the big opportunity in front of us, and we're confident that over the next decade and beyond we are building a leading emerging market financial infrastructure company. Thank you all for your trust and partnership — and now we'll open up the line for your questions.

Hello, good evening, Pedro and Jeff. I appreciate the call and for taking my question. I suppose I have two questions once more. I suppose first regarding Argentina. I realize you have been signaling certain worries about the consequences, but what portion of Argentina was affected merely by the uncertainty surrounding the September elections and then moving into October? Do you believe that now, since the market perceives the election result as favorable, that can diminish and could possible expansion in Argentina counterbalance some possible FX depreciation from this point? I mean, you also brought up shifting tax regimes in Brazil. There was some interquarter news that affected Netflix regarding taxes on remittance funds outside of Brazil. If you could provide some insight into how that might potentially affect your business, if at all, and how that might affect volumes between cross-border and local to local?

Thanks, Tito. Argentina, we have observed a gradual increase in total payment volume following the elections as consumers in that market likely perceive somewhat more stability and predictability in the economy. So from a TPV standpoint, it has been favorable. We now must watch what occurs with exchange rates, correct? I believe that was our sole word of caution. It is a market that we are quite bullish on for the fourth quarter regarding volume growth and the fundamental expansion of our business; we simply do not know what will occur with FX. We are tracking that one closely in the near term. I believe over the longer term, the indicators emerging from Argentina are favorable. The spread compressions that adversely impacted the third quarter and were the main cause of weak gross profit, much of that has been repriced in order to enhance spreads once more. That is also favorable regarding the potential for Argentina in Q4. Regarding Brazil, the particular tax that our client mentioned is one of the numerous shifting elements in the Brazilian fiscal puzzle. That specific one, not only does it not impact us, but I believe possibly with some of our payment structures could become more appealing for global merchants seeking local payment capabilities that do not become subject to that particular tax. Generally, since the ruling does not apply to payment facilitators like ourselves, that is not a negative. The only items we are bringing up about the Brazilian fiscal landscape, just to be clear here, is we have not necessarily seen anything that adversely impacts us. There have simply been so many shifting elements there that we are just leaving a note for investors to track all the happenings. There is no expectation at this point that something will adversely impact us during the next few quarters, given everything that has been determined up to now.

All right. No, that makes sense, Pedro. Thank you. I've got two brief follow-ups, if that's okay; regarding FX in Argentina, I mean, right now, it looks like the government intends to keep the band they currently have. Should that band stay in place, at least over the near term, does that work in your favor? If they allow the currency to float, might that be worse for you? Just trying to grasp how the band, taking the band away, and whatever follows would affect you. Second thing, about Brazil, there was talk of taxing fintechs at a higher rate, which Congress didn't pass. Just wondering, would you potentially have been among those fintechs facing that higher tax rate had it gone through? Just where would your Brazilian subsidiary fall under that tax regime?

Should Argentina stay within the crawling peg they've currently signaled, then that's likely a favorable result for us. I think what would be unfavorable for us or for anybody exposed to Argentina, and just to give some context here, right? Argentina accounted for merely 12% of our business from a gross profit perspective in the last quarter. I get that it's a complicated market, but let's not zero in solely on that market when we're witnessing incredible strength in other markets. Brazil, which had been a worry, has come back. Setting aside Egypt, the rest of Africa and Asia keep delivering really well, and the remaining Latin America performed very strongly. Just to, I think, step back and frame Argentina properly, otherwise we fixate on the noise there and miss everything else happening. I think the response to your question is, should things stay inside the crawling peg, which the government is deeply committed to and also has considerable support from the US government, then that's a favorable result for us going forward. If they let it float, then it hinges on how large a devaluation there is, if any. Who knows? On Brazil and the possible fintech tax regime, I don't have the answer to that.

All right. That's something I can circle back on with you afterward. Appreciate it, Pedro. Not trying to harp on the worrisome items — I just want to see that these questions do get addressed.

No, no. Completely get it. Just attempting to frame it within the broader picture too.

Absolutely, absolutely. No, I appreciate that. Many thanks, Pedro.

Hey, everyone. Good evening. Thanks for taking my question. Pedro, as you said, yet another very robust quarter for volume expansion, roughly 50% compared to the prior year. To me, it looks like much of that momentum has come out of the remittances and e-commerce verticals. I was simply hoping you might be able to share your thoughts on that and address the disproportionate growth drivers in those areas. And perhaps also discuss what your view is on those verticals over the coming 12 months. Is there any reason we should worry about a deceleration stemming from tariffs, from tax regimes, from the law of large numbers and harder comps? I'm just hoping you could go into that a little further.

Yeah. Look, these represent two of the biggest digital payment verticals. Commerce is likely the biggest. The reality that it keeps expanding at a healthy pace is in a sense an indexation of the broader digital payment landscape across emerging markets. I would also highlight quite solid growth spread across a reasonably diversified set of verticals. I mean, sitting at roughly that 50% average, you've got our streaming business, software as a service merchants, on-demand delivery merchants, ride-hailing merchants. Pretty much the whole online consumer digital world is expanding at or near that average. The one still showing weakness is advertising. I think as we look toward 2026, we anticipate sustained strength in remittances and commerce. Let me point out that remittances matter especially since it produces outbound flows into the emerging world. That renders us rather distinctive in that we're among the global PSPs, perhaps the only one, having the finest balance between pay-ins and pay-outs, which creates cross-selling opportunities spanning merchants, but also opens up appealing netting opportunities, which keep the take rate on our businesses more defensible thanks to those netting opportunities where we retain the whole FX spread; we observe no warning signs for those businesses. Naturally, when you're expanding at more than 200%, as the remittance business does year-on-year, you might see some natural deceleration, but nothing past what's anticipated when you're starting from such powerful growth.

Thanks, Pedro; that was really useful. As a quick follow-up, I'd like to discuss the take rate; on the bright side, what I was hoping to grasp better, you provide that helpful walk in the deck. You mention a headwind of four basis points coming from an others category. I was curious whether you could shed some light on what caused that and whether anything one-time was in there that might reverse. The other question I had was, on the guidance slide, you noted the possible risk of competitors discounting aggressively. Is that merely a risk to keep in mind, or is it something you have actually been observing in certain markets?

Yeah. That other item has a strongly one-off character. It does not represent a continuing compression of the take rate. If you were to treat it as a normalized take rate, excluding one-offs, it would have stayed above 100 basis points during the quarter. We have consistently noted that, in our view, the overall direction for the take rate is still potentially downward, though with a volatile path and not at a particularly rapid pace. Had it been 103, it would have declined just four basis points quarter over quarter after rising somewhat in the second quarter compared with the first quarter. On discounting, I don't think we are flagging something that is very particular to this quarter, but generally, each Q4, this is typical in the payments industry, where you observe more discounting in return for volume during the peak shopping season. Competitors do it, and we do it too. It is simply, I believe, something we see in the industry during peak season and something worth mentioning just so you are aware.

That's really useful. Thanks a lot.

Hi there. Good evening, Pedro and Jeff. Appreciate you taking the call, and congratulations on the results. I'd like to ask about Brazil. I'm just piecing together what I have on Brazil — another pretty solid sequential rebound. We have our own internal tracking, and it showed a really strong performance starting in May, at least according to our tracking. My question is really about understanding what's behind it. Is it one particular client? How concentrated are these extra revenues and gross profit you're seeing from Brazil? If you could give a bit more detail, that would help. I also notice the gross profit margin for the country has been climbing. It hit a low of 38% in the first quarter, and has now recovered to 50%, which sometimes suggests this is more FX cross-border. So in short, I'm just trying to figure out what makes up this Brazilian growth. Quite a strong rebound. Thank you.

Yeah. To start, categorically, this isn't coming from any single merchant. It comes from a sharp re-acceleration of growth among some of our long-standing global relationships, together with the ramp-up of some key additions we made in 2024, plus some significant wins from more recently that have also started gaining momentum very quickly; it's highly likely that most of the major global digital services or e-commerce players doing well in Brazil right now, we handle some or all of their payments. Brazilian strength has been very broad-based. Brazil does have a higher share of cross-border and also a higher take rate composition than, say, Mexico, which is the next market in size; that means that there are more cross-border merchants and more ForEx that we do in Brazil and also better spreads than in Mexico.