DLocal Limited (DLO) Earnings Call Transcript & Summary

Good afternoon, everyone, and thanks for being on today's earnings call. Should you not have had a chance to review the earnings release, a copy, as usual, can be found in the financial section of the investor relations website. Joining us on this call are Pedro Arnt, our Chief Executive Officer; Guillermo López Pérez, our Chief Financial Officer; Christopher Stromeyer, SVP of Corporate Development; and Mirele Aragão, Head of Investor Relations. A slide presentation accompanies the prepared remarks. This event is streaming live via webcast, and you can access both the webcast and the presentation through DLocal's website at investor.dlocal.com. Recordings will be made available shortly after the event ends. Before we continue, please note that any forward-looking statements contained in the presentation or made during this conference call rest on information currently available and on DLocal's present 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 should not place undue reliance on those forward-looking statements. Actual results could differ materially from those contained in DLocal's presentation or discussed during this conference call for many reasons, including those set forth in the forward-looking statements and risk factors section of DLocal's filings with the Securities and Exchange Commission, which can be found on DLocal's investor relations website; I will now hand the conference over to DLocal. Thank you.

Hello, everyone, and thank you for joining us this afternoon. For DLocal, 2026 marks a pair of major anniversaries: a decade has passed since our founding, and it has been five years since we listed on Nasdaq. Before we get into this quarter's numbers, I want to pause and reflect on the decade behind us and why it shapes our path forward. The past 10 years represent a narrative of consistent, compounding expansion, built on a mission to link top-tier global merchants with shoppers across emerging economies—what we call the markets of the future. If we rewind to 2016, our TPV stood at $100 million, generated in a single country. Taking the trailing twelve months through this quarter into account, we've crossed the $47 billion mark across the entire Global South. A single day of processing now exceeds what we handled during our whole first year of operations, which was only ten years back. That translates into a compound annual growth rate of roughly 90%, maintained over a decade. The most remarkable thing about this path isn't the size — it's how steady it has been. At every stage — moving from Latin America to Africa and Asia, growing from a small set of payment methods to more than 1,000, evolving from a startup into a publicly listed company — our strategic model hasn't changed. One API, deep local infrastructure, ongoing growth in payment method coverage, licensing, regulatory capabilities, and products. We're equally committed to enabling merchants to run their businesses smoothly in regions where the next generation of digital buyers is coming online. DLocal's footprint now spans over 60 countries, and that includes newer markets like Algeria, Qatar, Kuwait, and Oman. Across 26 markets, we've secured 38 licenses and authorizations, and 16 more applications are currently underway. Roughly 70% of the global population can be reached through our platform, which supports more than 760 enterprise merchants via a single API; getting here required ten years of infrastructure investment, developing regulatory expertise, cultivating ties with local ecosystem players, and mastering large-scale operations in markets that most consider too difficult to crack. Such foundations are tough to copy and even tougher to beat. Why does this entire infrastructure build-out matter? Because success in emerging markets ultimately comes down to localization. Alternative payment options is no longer the right label for local payment methods. They have become the main channel through which consumers in many of our markets shop online, and their share keeps expanding. For merchants, offering these methods isn't merely a matter of a better checkout experience — it's also how they reach shoppers who have no other way to pay. Take Peru: Yape brings 40% net new customers to some of our merchants. In South Africa, Payflex brings 80%. And through our own innovation layer — Smart Pix and biometric-enabled Pix — we can deliver differential performance on top of those existing local rails. When you're dealing with worldwide credit card networks, having the ability to process transactions within a given country is what really drives the best approval and conversion numbers in developing economies. Consider how cross-border acquiring stacks up against our own approach: for a merchant running a payment through an international card rail, we've seen conversion improvements reaching 20 percentage points in certain markets. Run that identical Visa or Mastercard through a domestic setup instead, and the results are noticeably stronger. Still, those two networks don't represent everything. A rising number of homegrown card systems is emerging throughout the Global South; in Saudi Arabia, Mada accounts for approximately 90% of all cards issued. Roughly 60% of Nigeria's digital payment market is represented by Verve, while in Egypt, Meeza is in the hands of about half of eligible adults. If you can't support these schemes, there's no way to succeed in those markets. That's the essence of DLocal: handling payments locally, processing global card schemes locally, and covering local schemes, all via one API. Vertical diversification forms the other pillar of resilience in our model. Many payment firms become concentrated in just one or two verticals. Across a broad spectrum of industries and use cases, our platform has demonstrated it can scale. From Q1 2024 through Q1 2026, growth occurred in all of our portfolio's verticals, and our category mix has grown more varied over time. Our biggest vertical remains e-commerce; within our markets, we partner with 50% of the leading global platforms, and those relationships keep getting bigger. When it comes to ride hailing, we work with 4 of the 5 biggest operators across emerging markets and are still growing global agreements with them; for a number of these operators, we handle their on-demand delivery operations as well. These two segments naturally have a bigger local-to-local element, since local payment options get adopted more readily there, and that's what's driving the local-to-local volume strength you're observing. In remittances, which rank among our fastest-growing verticals, we keep working with major partners and backing their geographic expansion, thanks to sustained strategic focus and continuous merchant onboarding. Going forward, we see exciting potential in travel and gaming as we keep developing payment flows for these verticals that account for the specific needs of various industries. Maybe the clearest example of our business model at work shows up with each individual merchant. I'd like to briefly go over three instances of merchants in our top 10 by TPV, which show the way we grow together with our customers as time goes on. A pattern we observe again and again is that once the early ramp-up phase is over, ties get stronger because merchants move into additional countries, take on more products, and bring in extra payment methods. Take one of our busy ride-hailing clients, a partner of ours since 2016: they began with a single use case and afterward moved into on-demand delivery. Today we support this customer across 18 countries in an end-to-end manner, and we're broadening that footprint via freshly signed agreements, which further underscores how much long-term growth this relationship can deliver. One merchant we classify as software as a service, an internet service provider that came on board in 2021, has gone from 19 countries to 40 over the past three years, which speaks to how much these merchants trust DLocal to fuel their growth abroad. What makes that speed possible comes down to our licensing portfolio, the local payment methods we cover, and how fast we can open frontier markets. Take Kenya — there, more than half of the users transacting with this merchant through mobile money are net new customers that they wouldn't have reached any other way. An e-commerce merchant that joined us in 2023 began with just two countries and today operates in 21, and buy now, pay later has gone live in Mexico and South Africa across the last two quarters, which is driving higher ticket sizes and over 50% net new users for them. It's examples like these that explain why our revenue retention has been above 140% for four quarters in a row. As we like to say, we're still in the early, early days. These three merchants, for instance, each grew TPV north of 70% year-on-year during the first quarter of 2026. To wrap up, 10 years and the thesis is intact. There's never been a bigger opportunity in front of us, and we've never been in a stronger position to seize it. Everything we've constructed — our infrastructure, licensing, payment options, ties with stakeholders, plus our data and technology — strips away the complications that come with operating locally and grows more valuable as time passes. When you put together solid momentum in our core business, a product roadmap that's starting to get real momentum, and favorable long-term trends in our markets as more and more merchants move to local processing, we feel good that the coming ten years could be just as remarkable as the previous ten. So with that, I'll turn things over to Guillermo, who will walk through our quarterly financials.

Thank you, Pedro. Good afternoon, everyone. Let me walk you through how Q1 turned out. Momentum at the topline kept building, with TPV surpassing $14 billion for the very first time, while gross profit set a fresh record. The bottom line, however, shows two particular dynamics I'd like to get out of the way right at the start: the high OpEx we had anticipated and already signaled, carried over from the investments we made in 2025, plus a tax adjustment from the prior year that won't recur. In Q1, TPV came in at $14.1 billion, which is 73% higher year-on-year and 7% higher quarter-on-quarter — our sixth straight quarter growing above 50%. We're extremely proud of that figure. What matters even more is that this growth is not clustered in a single geography. It's widespread, spanning multiple countries, verticals, merchants, and products. Mexico, Brazil, and Argentina — our three biggest markets — keep expanding at a steady pace, and markets such as Chile, Nigeria, Colombia, and Vietnam are contributing strongly as well. Turning to verticals, travel posted the fastest quarter-on-quarter expansion at 38%, powered by a new expansion deal signed with a major global travel merchant; this vertical remains at an early stage for us, yet it is building genuine momentum. On-demand delivery likewise posted solid quarter-on-quarter growth of 24%, propelled by expanding deals with both regional and global merchants; e-commerce and remittances, by contrast, came in soft on a sequential basis, in line with the seasonality we expected after the Q4 peak. Gross profit hit a record $119 million, rising 40% year-on-year and 2% quarter-on-quarter; sequentially, two main positive drivers explain the gross profit result: Argentina's recovery, where we saw strong volume growth and normalized funding cost, and expansion across Africa and Asia, with meaningful contributions from Nigeria, Mozambique, and Vietnam, which also helps us build a more diversified geographic mix. Those gains were partly offset by Brazil's normalization following an exceptionally strong Q4, along with a slight mix shift toward merchants with lower take rates across all the LATAM markets and other smaller ones. Volume in most of these markets is still climbing robustly, and the quarter-on-quarter movements come from mix and seasonality rather than any underlying weakness in demand. Very importantly, this quarter we chose to book a one-off tax adjustment tied to a prior period. While internally reviewing certain tax items, and after consulting our advisors, we changed our tax treatment for prior periods related to one of our installment payment products in certain markets, so that it reflects the position we determined to be most appropriate and the applicable rules. This out-of-period adjustment had no material effect on any annual or interim period previously reported, and we don't anticipate recording similar items in quarters ahead. The total impact came to $9.7 million, with roughly $5.3 million falling in the corporate tax line and $4.4 million in operating expenses; it concerned indirect and other taxes. Because it is non-recurring and relates to a prior period, we believe the normalized figures better capture the true bottom line story. For the quarter, operating profit came in at $53 million on a reported basis, or $57 million once you strip out that one-off out-of-period adjustment — that's growth of 25% compared with a year earlier, and a 48% ratio of operating profit to gross profit when the one-off is excluded. Turning to costs, total operating expenses reached $62 million, again excluding the out-of-period adjustment, which is up 58% versus a year ago and 16% versus the prior quarter; that mirrors the carryover we anticipated from second half 2025 OpEx into the first quarter, which we had called out on our previous earnings call. With our investment cycle winding down, part of that cost base gets annualized into 2026, and the first half is understandably when that pressure shows up most. That's the 2024 and 2025 investment cycle working its way through our P&L; we look for it to ease as the year goes on. Under the operating line, net income was $42 million as reported. If you adjust for that same one-off, we'd land at $52 million, roughly 11% growth year-on-year. Worth keeping in mind that Q1 2025 got a lift from about $7 billion of non-cash mark-to-market gains on our Argentina bond holdings, plus a low 10% effective tax rate. The effective tax rate we reported this quarter was around 26%, pushed up by the non-recurring item. Take that out and the effective tax rate would have been roughly 16%. Adjusted free cash flow took a hit from temporary working capital effects, mainly the timing of tax credit netting and higher receivables from our advancements operations; we look for that to reverse gradually across the coming quarters. Cash generation remains healthy, with cash flow from operations before working capital changes of $69.3 million, up nearly 10% from a year earlier. The underlying cash generation is doing what it should. So to sum up, top-line momentum stayed strong this quarter, setting new records for both volume and gross profit. Reported operating profit and net income were dragged down by a one-off out-of-period tax adjustment, yet the underlying business is in great shape, and our full year guidance stays unchanged. With that, I'll turn it over to Chris.

Hi, everybody. Ahead of taking your questions, we decided to do something slightly unusual for today — a short discussion alongside Pedro and Guillermo, walking through the main topics from the quarter that we believe investors will find most relevant. Guillermo, we'll begin with you, and we'll begin with the numbers. Gross profit landed really solidly in this quarter, actually exceeding what we ourselves had projected, and normally this period is a seasonally weaker one for the company following Q4. What was behind that result?

Yeah, I believe it makes sense to dig into this, since as you mentioned, the headline figure for Q1 came in really robust. Argentina was without a doubt the highlight. For some background, our fourth quarter in Argentina was soft; we ran into FX swings tied to the election. Funding costs weighed on us, and that squeezed margins during that period. What we observed in Q1, though, was a distinct bounce back from all that. Pressures of that kind — funding costs, for instance — eased considerably, and volumes kept climbing at a very brisk pace in that market. So you get both a genuine market rebound and a quarter-over-quarter gain in gross profit. A really positive story there in Argentina. Brazil, by contrast, moved the other way during the quarter. Q4 had been especially robust there. You had that seasonal high point from things like Black Friday and holiday e-commerce installments, which gave the quarter a big lift. Then you got the pattern you'd normally anticipate in Q1, meaning a drop-off sequentially from that peak. What really counts for Brazil, however, is that when you examine the results, they're extremely strong versus a year ago; gross profit for the quarter nearly doubled — actually more than doubled compared with the same period last year. Another item I'd point to is Africa and Asia. Those regions now account for roughly 29% of gross profit, and they posted 16% growth quarter-over-quarter, which beats the company average. That's clearly growing faster than the company overall and is genuinely aiding us in terms of geographic diversification too. The main takeaway is quite straightforward. Every one of our core markets is expanding in volume, the quarter-to-quarter shifts largely come down to mix, seasonality, and for Argentina, an obvious rebound from a soft Q4. What matters most is that diversification I mentioned regarding the gross profit base, which signals a healthier mix of countries.

If we keep the focus on the financial results for a moment and dig further into what's driving the bottom line, particularly operating expenses: we said before, and discussed at length back in the fourth quarter, what we expected for the OpEx path this year, and we signaled that operating leverage would show up far more strongly in the year's second half compared with the first half. Given what you've observed up to now, has anything shifted, and how ought investors to view operating leverage from here on?

My view on that hasn't shifted. Where OpEx is concerned, what we saw in the first quarter is exactly what we told you about back in Q4 of last year during the earnings call. We're still absorbing costs from the investment cycle that took place at the close of 2025. As we explained, those costs show up more heavily early on, during the first half of 2026. The relationship between operating profit and gross profit clearly mirrors that. OpEx also took a hit from the prior year tax adjustment I brought up. To break it down, out of $9.7 million, $4.4 million sat in OpEx. That piece is tied to indirect and other taxes. Naturally, that runs through operating expenses and the operating profit to gross profit ratio. When you're trying to see the true underlying expense performance, normalizing for this matters. Strip out that one-off — which, as you know, I'll get into a bit more shortly — and the underlying operating profit to gross profit ratio comes to 48%. That's still fairly healthy. Once we lap the 2025 cost build-out, the rate of OpEx growth ought to settle down on its own as the year progresses. Those are the mechanics we're looking for as the year unfolds. Paired with the top-line momentum that keeps going, that ought to produce better operating leverage in the back half of the year. That path is what we care about more than, say, how any one quarter turns out; now, turning to what's ahead, the continued effect of this updated tax treatment I referenced should, we believe, be limited. We're in active discussions with merchants about passing this cost along commercially, and if we can't fully achieve that, we think whatever impact remains will be something we can handle. At this stage, we don't anticipate any significant further prior period adjustments tied to this. Once again, to see things clearly, you have to normalize for the tax adjustment I described. With this item excluded, operating profit rose 25% year-over-year, while net income was up roughly 11% year-over-year, and I'd say that's what really reveals how the underlying business performed.

So, bringing everything together now, Pedro, and just to remind everyone in our investor community: unless something material shifts, we plan to give guidance updates only two times per year. And just so there's no confusion here, in terms of how this ties to our full year guidance, how should investors be reading our results?

Right. The outlook is still the same, just like Guillermo said when wrapping up his prepared comments. We keep witnessing considerable momentum on the top line; from a margin standpoint, we anticipated costs landing heavily during H1 and then getting better as we move toward H2 compared with the prior year. I would say those costs actually arrived a bit beyond even what we had anticipated, though we are already tackling that. The guidance stays as it was.

All right. Now I'd like to turn to the commercial side — the part that truly drives our business. Pedro, a few weeks back, during our big annual event, you met with several of our key merchants. In those discussions, what struck you most? What's top of mind for them?

Honestly, this was a truly invigorating gathering. What struck me as the most fascinating aspect is just how dramatically the dialogue has evolved across the last 3, 4 years. Previously, merchants would usually approach us with a quite particular market or payment method issue, and typically it involved one of the handful of extremely sizable emerging markets where we have operations. What the conversations reveal today is that they regard emerging market payments infrastructure as a fundamental component of what they must address as part of their broader go-to-market approach throughout emerging markets. The discussions go deeper, and merchants are unquestionably more and more convinced about the idea of localizing payments as a crucial key to unlocking growth. Their talks with us have become far more central to them, not just in a handful of markets and a handful of payment methods, but genuinely throughout the Global South. It extends past your standard BRICS discussion, and they begin requesting solutions for a huge number of frontier markets. Merchants who once approached us with a quite rudimentary local acquiring coverage of only Visa or MasterCard now begin inquiring about real-time networks such as Pix and Bre-B in Colombia; we're starting to witness a robust surge in curiosity regarding credit solutions and buy now, pay later, local wallets, and certainly local card schemes that are likewise growing more and more significant across various markets. All of this elevates the standard for what they anticipate from us. It likewise elevates the portion of wallet that we're able to secure from these merchants on a global scale. I believe one telling discussion involved one of our extremely, extremely sizable clients essentially telling us, "Look, you've now achieved a scale with us such that you rank among our biggest payment partners." This is precisely where we wish to be positioned with these merchants, with considerable growth in share of wallet, but also our connection with them growing very pertinent for them globally. That's how you genuinely can maintain the sort of compounding of growth that we intend to maintain.

Okay, let's shift gears just a bit — I've got one more thing I'd like to ask you, Pedro. That AZA deal we discussed during the previous year wrapped up in the quarter that just ended. In what ways should investors view what this unlocks on the strategic front, and what does it signify regarding DLocal's footprint across Africa in a wider sense?

Yes. I believe we should put this in the proper context. What's most helpful is to be extremely clear regarding what the AZA transaction represents and what it does not. Let me state plainly: this deal has no material or meaningful bearing on the results we just reported, largely owing to several legal and regulatory obstacles we encountered before we could complete it. I'm pleased we finally got past that point, and during that stretch of time, the structure of the deal changed considerably. It ultimately became an asset purchase, and since the process dragged on so long, AZA's top line clearly suffered as a result. On the brighter side, what we gain carries strategic value for strengthening our capabilities and our position throughout Africa. It delivered customer relationships to us, along with intellectual properties and certain licenses, plus essential talent that will assist us in further extending our leadership in African markets. Building all of that on our own would certainly have required far more time than getting this acquisition over the finish line did. Perhaps most significantly, Africa is a region where we have invested steadily, and where the long-term potential regarding digital payment adoption, growth in cross-border commerce, and broadening financial inclusion stays among the most attractive anywhere in the world. Above everything else, this transaction cements our dedication to the region and leaves us better positioned to seize the opportunity as it unfolds. We are not indicating any revenue effect in the near term from this. Broadly speaking, it ought not to create any kind of distortion in upcoming quarters that would push you toward evaluating the business using some same-store sale style metric or similar. I'm glad it's done, glad to have AZA's team and assets with us, and we'll keep building a phenomenal business throughout the continent.

All right. Guillermo, we’ve got time for one last question as we close this out. It’s been roughly 6 months since you joined DLocal. I’d really like to hear how you see the company so far, where things are right now, what you’re concentrating on, and anything that caught you off guard.

Okay, that's correct — 6 months in. I've got to tell you, my belief in this chance, the very thing that originally drew me to DLocal, has done nothing but grow. Early on I described us as merely scratching the surface, and after 6 months, that's precisely what I keep witnessing. This company is truly outstanding at what it does. When you consider how deep our local infrastructure runs, how strong the ties are with our merchants, and then how reliably we deliver in markets that are hard to run in — that combination has genuinely struck me; it's uncommon, and replicating it isn't easy. Next, regarding where I see the work in front of me, 3 key areas have my attention. Number one is to keep enhancing the way we convert the top line growth we're seeing, this quarter for instance, into operating profit — particularly as we come out of the investment cycle DLocal has spent the past 2 years in. The mechanics work in our favor, though that leverage won't materialize on its own. My job, as I see it, is to ensure we hold the discipline as a company to seize it. Something else quite personal to me is making certain our financial model turns the robust cash generation this business delivers into greater returns for our shareholders. We've already made meaningful moves to carry these out. Take, for instance, the $300 million payback, the authorization we secured and talked about during last year's fourth quarter. Last of all, I also need to ensure the finance organization keeps building and evolving its processes and systems in a manner suited to a business now handling north of $14 billion in volume each quarter, one expanding by over 70% year-on-year. One more thing worth noting — having arrived from companies at varying stages of maturity, the chance sitting in front of DLocal is truly enormous. Honestly, even I underestimate it; this opportunity has genuinely caught me off guard. The markets where we operate remain early in adopting digital payments, and our merchant base keeps growing and deepening. The product roadmap Pedro brought up — he mentioned BNPL and stablecoins. These represent genuine growth possibilities and levers only now starting to add. What else can I say? A solid business, obvious work lying ahead in my hands, and a vast opportunity in front of the company — all of it exciting work.

Perfect. Pedro and Guillermo, I appreciate you both. We're hoping this discussion has been valuable for our investors. That brings it to a close, and at this point we can turn the line over to your questions.

Hi there, and good evening to Pedro, Guillermo, and Chris. Thanks for hosting this call and for taking my questions. I want to go a little deeper, particularly on expenses. Pedro, you mentioned they came in a bit above what people had been expecting. Looking at the guidance, gross profit is beating expectations, while OpEx is a touch below. What made it run hotter than expected? You mentioned some corrective actions. Can you walk through what those are? I'm trying to get a sense of how this could play out from here—could it trend toward the high end of guidance by the time the year wraps up, or should it stay a bit below the trajectory we're seeing for gross profit? Thank you.

Happy to start with that one. It's worth noting that Q1 2025 benefited from roughly $7 million in noncash mark-to-market gains on our Argentina bond holdings. Also, Q1 captures the full annualized impact of the investment cycle ramp-up that started showing up in late 2025, which we'd already called out during Q4. The key point is that this is the single largest driver of the year-over-year increase in OpEx. That impact should fade as 2026 moves along. You're right that in our prepared remarks, I said OpEx landed slightly above our expectations for the quarter. To be honest, there wasn't one single cause; instead, it was a handful of smaller items across some discretionary areas and third-party spending, along with somewhat higher average salaries. We've already started putting several targeted corrective measures in place. For instance, we don't expect any further net hiring for the rest of the year. Looking at what remains of 26, I think four things should come together to create a better trajectory for OpEx growth. The first is what I mentioned at the start—the annualization from the late 2025 investment cycle gradually rolling off. The second is our plan to accelerate the whole automation agenda. Then there are those corrective actions I just outlined, and on top of that, we expect, on a mechanical basis, lower share-based payments expenses as the graded vesting attribution method plays out through the remainder of the year. All together, I think these four should help improve operating leverage as the year goes on, particularly in the back half.

To add to that, I want to remind everybody that, as Guillermo said a moment ago, operating expenses are going to be brought under control going forward. We had indicated during the last quarter that margins would be somewhat soft in the first half, with sequential improvement after that. Even more significantly, we shouldn't overlook the fact that the investments made across the previous 2 years, as Guillermo mentioned, are now cycling into the first 6 months of this year against a comparison in H1 of 2025 that carries less expense weight. That is precisely what enables us to produce the TPV revenue and gross profit acceleration and consistency we have been achieving. It's what positions us for the long run to be leaders at scale, to hold the broadest set of commercial relationships with global merchants, which, taking a longer-term perspective, is precisely how we think this business ought to be run; with the investment cycle now behind us, we begin moving into a period over the coming few quarters in which the business model's inherent operating leverage ought to start flowing through the P&L.

All right, that is quite useful. Thank you, Pedro and Guillermo, for the clarification. One clarification: there was that one-off item, and my understanding is it had no effect on operating expenses. Is that being factored into the guidance, or is it being left out? I mean, we ought to make an adjustment for it, correct? Just to be certain.