DLocal Limited (DLO) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for joining today's earnings call. If you haven't yet looked over the earnings release, you'll find a copy where it always is—in the financial section of the Investor Relations website. With us on the call today are Pedro Arnt, Chief Executive Officer; Guillermo López-Pérez, Chief Financial Officer; Christopher Stromeyer, SVP of Corporate Development; and Mirele Aragão, Head of Investor Relations. We've also made a slide presentation available to accompany 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. Recordings will be available shortly after the event concludes. Before we continue, I want to point out that any forward-looking statements in the presentation or shared on this conference call are based on information we have right now and on dLocal's current assumptions, expectations, and projections about future events. Although the company believes our assumptions, expectations, and projections are reasonable given the information available today, we caution you against relying too heavily on those forward-looking statements. For a range of reasons, actual results might differ materially from what appears in dLocal's presentation or is discussed on this conference call, including the reasons set out in the forward-looking statements and risk factors sections of dLocal's filings with the Securities and Exchange Commission, which you can find on dLocal's Investor Relations website. I'll now turn the call over to dLocal. Thanks. Hello, everyone, and we appreciate you being with us today. We delivered yet another quarter of steady execution, supported by stronger merchant partnerships, better operating leverage, and robust cash generation. TPV reached $18.3 billion, a 77% increase year-over-year, marking the eighth quarter in a row above 50% growth and the fourth at or above 70%. Net revenue retention was 140%, which shows the ongoing strength of our business with our current merchant base. Gross profit increased 28% year-over-year to $132 million, and operating profit rose 37% to $76 million. The significant operating leverage we anticipated for the second half of the year is now coming through. When we consider the forces behind our growth, a key dynamic is the way our ties with merchants have developed over time. As merchants expand their operations throughout emerging markets, we get several chances to secure a larger portion of their payment volumes; this may involve going into more countries alongside them, moving into new business verticals inside their organizations, or introducing payment methods and products in markets where we already work together. The GPV retention rate for the quarter stood at 173%, which mirrors this ongoing expansion within existing relationships. The reason we can seize these opportunities isn't just how broad our offering is — it's that we reliably deliver strong payment performance and operational reliability in markets where neither is the norm. Merchant-level NPS came in at 51, which is 5 percentage points higher than the second half of 2025, showing that merchants trust us more and more. Growth is moderating because prior-year comparisons are tough, but following the big ramps in earlier quarters, we still see solid momentum along with chances to deepen existing relationships and win new business. Capturing those opportunities and following through on them also requires building a business that scales efficiently. Across 2024 and 2025, we made substantial investments in technology, infrastructure, licensing, and the organizational capabilities required to support a far larger business and sustain compounding growth at scale. Organizational capabilities accounted for a significant portion of that spending, and those investments are now delivering improved productivity as we keep advancing payment coverage and performance. Headcount reached its high point in the second quarter before declining 3% in the third, and gross profit per employee surpassed $100,000 for the first time — a level we see as matching best-in-class productivity. Operating profit came in at 58% of gross profit, the highest since the fourth quarter of 2023. The numbers illustrate how much operating leverage the business could deliver, even if quarter-to-quarter improvement shifts depending on when we invest and how growth is mixed. Going forward, we'll continue to realize those efficiencies and put money into capabilities that fuel our next stage of expansion — notably product innovation, payment performance, local market expertise, and licensing — since each is critical for winning merchants and growing relationships with them. Regarding payment performance, we remain relentlessly focused on optimizing conversion, using tools that assist merchants in approving more card payments, recovering failed transactions, keeping stored cards functional, and managing fraud. As the volume we process rises, our ability to optimize performance improves, which in the end generates more revenue for our merchants. Past cards, this quarter we integrated 11 additional local payment methods, and we're building more technology to boost conversion—among it a card-on-file-style experience for non-card options like digital wallets and real-time payment networks. Being able to operate throughout emerging markets also depends on our regulatory infrastructure. Holding the proper licenses, both in the countries where merchants are located and in those where we collect and pay out funds, gives us a competitive advantage that is critical and hard for others to copy. In the quarter, we obtained 2 more money transmitter licenses in the United States, an AML registration in Canada, and a remittance authorization in Tanzania. Today we hold 42 licenses and registrations, along with 10 regulatory authorizations spanning 26 markets, and we have 20 additional applications in progress. To sum it up, we're looking at a company where stronger ties with merchants fuel higher volumes, greater scale enables better efficiency, and robust cash flow lets us keep putting money behind a sizable market opportunity while handling our capital structure in ways that build value for our investors. That's the short overview—now I'll turn things over to Guillermo, who will take you through the quarter's financial results.

Thank you, Pedro, and good afternoon to all of you. I'd like to begin with a brief look at how we performed financially during this quarter. In this quarter, robust volume growth pushed gross profit 28% higher year-on-year, and our focus on cost discipline along with automation helped us widen the operating profit margin over gross profit. Consequently, operating profit came in at $76 million, which is 37% higher year-on-year and 19% higher sequentially; this marks the first time this year that operating profit has grown year-on-year at a faster pace than gross profit. Our operating profit to gross profit ratio came in at 58%. That's the highest level we've seen since 2023. Net income, meanwhile, totaled $68 million. That sets a new record. It rose 31% year-on-year and 24% sequentially. And lastly, adjusted free cash flow came in at $99 million; that shows the strength of our cash generation and lets us continue putting money into growth while also returning capital to shareholders. Now let me take you through the main details underlying these results. Beginning with volumes, TPV came to $18.3 billion, which is up 77% year-on-year and 4% sequentially. The growth was broad-based. The biggest year-on-year contributions came from Brazil, Mexico, Argentina, Colombia, and South Africa. Looking at verticals, our platform keeps expanding across a wide variety of industries and use cases. The bulk of the growth came from verticals like ride-hailing and on-demand delivery. Ride-hailing expanded sequentially in every region, especially Mexico, Brazil, Colombia, South Africa, and the smaller Latin American markets; that growth came from multiple merchants and is largely a local-to-local flow, which accounted for 62% of TPV this quarter. Financial services posted strong growth in Turkey, Morocco, and small-scale markets across Latin America, Africa, and Asia-Pacific. Remittance growth was concentrated in Latin America, with both being mainly payout flows. Payouts made up 25% of TPV. Lastly, social media advertising was particularly strong in Brazil, fueled by election-related activity. We expect that to normalize once the elections are over. Travel also contributed, reflecting our commercial efforts and the investment we've made in product-market fit. E-commerce was stable quarter-on-quarter. Inside e-commerce, social commerce grew strongly, mainly local-to-local in Mexico and Brazil, and it offset softer cross-border volumes. Turning to gross profit, we generated $132 million in the quarter, an increase of 28% year-on-year and 4% sequentially. Sequential growth was led by Africa and Asia, where volumes rose across most markets. Gross profit also got a boost from 2 items: a one-off cost recovery in Nigeria and lower FX losses in Mozambique versus the second quarter. Argentina also grew, even though volumes softened following a hot-sale-related seasonal peak in the second quarter, but that was offset by lower advancement costs, thanks to a more efficient funding structure and lower interest rates; these gains were partly offset in other markets. In Brazil, underlying volume growth was offset by payment methods shifting toward PIX and boleto, and by processing cost catch-ups. In Mexico, volume growth slowed after the second quarter. Gross profit was also hit by higher processing costs, including cost catch-ups from prior periods. In other Latin American markets, growth came from remittances, on-demand delivery, and ride-hailing, mostly local-to-local and payout volumes. Now on costs: total OPEX came in at $56 million, which was 11% lower quarter over quarter. The main reasons were tight cost discipline, especially reduced third-party spending and a smaller headcount, and we're still seeing gains from automation efforts. The comparison also has a timing element, since marketing spend was weighted toward the first half of the year. Consequently, operating profit came to $76 million. That was up 37% year-on-year and 19% sequentially. Operating profit was 58% of gross profit. That compares with 50% in the prior quarter and 54% a year earlier. Going forward, we still see room to boost efficiency via automation, while retaining the flexibility to keep investing as the business expands. Below the operating line, net income came in at $68 million. It rose 31% year-on-year and 24% sequentially. The sequential increase came from higher operating profit and better finance results. Finance results rose largely because of greater interest income on our cash balances, which more than offset increased interest expense tied to the $150 million credit facility we signed in August. Our effective tax rate for the quarter was 15%, roughly unchanged both year-on-year and sequentially. Diluted EPS came to $0.23, a record for the company. It rose roughly 35% year-on-year, ahead of net income growth, helped by our share repurchase program. In the quarter, we bought back about $34 million of shares, and year-to-date total repurchases came to roughly $120 million. That's approximately 9 million Class A shares, all of which have already been cancelled; we still view our buyback program as a core part of capital allocation and a driver of better EPS ahead. Lastly, on cash generation, adjusted free cash flow was $182 million year-to-date. That's 111% conversion to net income year-to-date, and 146% in Q3. It reflects strong operating profit and the reversal of temporary working capital effects from the first quarter. Some of the working capital benefit we saw in free cash flow in Q3 should normalize in coming quarters.

So with that, I’ll turn it back over to Pedro. Thanks, Guillermo. Before we wrap up, we’d like to share an update on how we’re viewing this year. Put simply, we are reaffirming the guidance ranges we gave, based on how the business is tracking as of today. Solid volume momentum is still driving TPV growth toward the top end of the 60% to 70% range we laid out. As I said earlier, volume growth is slowing as expected given tougher comparisons after merchant ramps over the prior 2 semesters. At the same time, we now anticipate FX headwinds in Brazil, Mexico, and Argentina during Q4 that we hadn’t expected before, and as of today we estimate those will swing year-on-year gross profit growth for the quarter by 6 percentage points; we’re also seeing somewhat softer performance in smaller high-take-rate markets across Africa and Asia. Because of that, we now expect full-year gross profit growth only around the midpoint of our 25% to 30% range. As a reminder, fourth-quarter results are highly sensitive to seasonal performance during the year’s peak shopping period, which starts in the next few days and could shift these expectations in either direction. Over the past few quarters, we’ve placed a heavy focus on AI deployment, automation, and expense discipline; with those efforts now producing returns, we saw much of the OPEX improvement we anticipated materialize in 3Q ’26 as we keep balancing expense management with our strong volume growth and targeted investments heading into next year. Given the FX headwinds for the remainder of the year, our current operating profit view has moderated toward the lower end of our 27.5% to 32.5% year-or-year range. As always, this guidance reflects what we see in the business today and is subject to the inherent volatility of the emerging markets where we operate; with that, let me close and hand it over to Chris to lead us through some questions on these quarterly results. Thank you.

Thanks, Pedro. Thanks, Guillermo. Let's turn now to a few questions that could be on the minds of our investor community as we consider both the results of this quarter and where the business is trending going forward. Pedro, growth is still coming mainly from merchants we already have as we grow with them into additional markets and additional business units. But give us some detail on how the merchant pipeline is shaping up and when we expect some of those wins to ramp up down the road.

It doesn't strike me as surprising that our current merchant base keeps generating a large share of the growth. For me, that confirms just how early we still are when it comes to localizing payments in emerging markets, and it shows the potential sitting inside that existing merchant base. As for new merchants, those sales cycles are usually quite long, and predicting the timing of a big ramp-up is difficult. The huge ramp-up we saw recently from our biggest client came from a client that had been with us for more than 7 years before it happened. Most importantly, I'd say the pipeline looks very strong, with very strong growth in some new verticals we've placed bets on, like travel, crypto, and business banking-as-a-service; the pipeline looks healthy. So this falls within the ordinary course of business. We still see substantial potential across many of these merchants where we've won initial business. And that's really the hardest part: how do you get a foot in the door so that a ramp-up eventually happens? It's simply hard to predict whether that occurs while they're still considered new merchants, meaning the first 12 months, or whether it occurs at a later stage when we no longer consider them new merchants, but they can still be extremely accretive to the business.

Yes, that makes a lot of sense. Guillermo, coming over to you, we observed some trends this quarter that moved in different directions across markets, yet overall volume and gross profit continue trending strongly. So, to cut through some of the noise, what trends are underneath?

That's really having an impact this quarter. Yes, thanks, Chris. So I think the first thing is to step back and look at the big picture, and if you look at volume growth on a year-over-year basis,

We’re seeing volume growth, revenue growth, and gross profit growth, and in most of the regions we track, volume is increasing by more than 50%. Now, when you examine a single quarter’s results, particularly by specific region, there is clearly some noise and quarter-to-quarter volatility. And on revenue, Argentina had a major effect this quarter; Argentina saw very strong seasonal volume growth in Q2 that did not recur in Q3; and excluding Argentina, the portfolio as a whole grew quite well.

Yeah, those puts and takes are just part of how our business works. Now, on the cost side, Guillermo, we've discussed OPEX quite a bit this year. This quarter, operating profit came in at 58% of gross profit, which is what we expected given operating leverage, and that marks the highest level since 2023. From here, how should we be thinking about it?

Thanks, Chris. There are 2 things I'd like to split out here: a structural gain in our cost base, and timing. On the structural piece, we put a lot of investment in during 2025, and a good chunk of that expense landed in our base during the first half of this year. As we said in earlier quarters, we weren't anticipating any more material headcount growth over the remainder of 2026. Beyond that, automation and cost discipline are beginning to come through in the results. Operating expenses fell 11% sequentially, and this marked the first quarter this year in which payroll costs were lower sequentially. On timing, Q3 got some help as well. Marketing spend was weighted toward the first half, and one-off expenses came in below the usual level; so I wouldn't treat this quarter's result as a margin target, and I'd be cautious about extrapolating from one quarter to future quarters; on an annual basis, the way we think about it is capacity in the P&L; on one hand, automation and cost discipline free up room in our P&L, and we'll continue deploying some of that room into growth investment. And looking ahead, we expect gross profit to grow above OPEX on an annual basis, though quarterly figures could be somewhat more lumpy.

And Pedro, last question goes to you, since we're nearing the close of the year. So let's spend a moment on what lies ahead and on the meaningful growth opportunities from here. Which areas strike you as the biggest growth opportunities, and what investments might be required to capture them?

Look, dLocal is still at a really early stage, and in my view this business can compound growth across many years. We've discussed those growth vectors, and they stay quite consistent. So I'd say there remains plenty of room to grow share of wallet by expanding with existing merchants into new markets and into new products. Then there are new merchants, as we covered in the earlier question; with global companies that want to localize financial infrastructure, we're only scratching the surface; and there's also a geographic piece, which I think is important to highlight. I'm heading to Asia right after this. We're very optimistic about at least the size of that market. That will require licenses. It will require deeper local partnerships, which we've really started to build. So we expect Asia to become a growing part of our business, with an enormous addressable market. And then there's the new product angle. We've already launched physical payments in Mexico. Our buy-now-pay-later product platform is growing nicely; it has over 15 merchants and keeps adding new merchants that use us to integrate into multiple buy-now-pay-later offerings across the global south. Banking-as-a-service and financial infrastructure is also starting to emerge as an increasingly demanded portion of our product portfolio; so when we put all of that together, right, ample room to grow share of wallet with existing merchants, new merchants, new geographies, and new products, it really becomes a very strong growth thesis for us if you take a 3-to-5-year view.

All right, that brings the prepared portion of this webinar to a close, so we'll now open things up for questions.

Hi there, good evening, Pedro and everybody. I've got two questions for you. Well done on the print. The first one touches a little on Asia; that was going to be my question anyway. Pedro, you seem very excited in the recent interactions about this particular geography. I believe you brought on a new CEO for Asia-Pacific not long ago. My question is really about the ramp-up curve. How should we think about how much Asia contributes to gross profit as time goes on? Is it still too early to call it meaningful? Just try to give us a bit of help with the timeline for eventually seeing the business there ramp up more materially. And then the second question is just a refresher. You took a $150 million credit facility this quarter, correct? Remind me, is that purely for share repurchases, or is there any inorganic use or any other application of proceeds? Thank you so much.

Thanks. So on Asia, in terms of sheer size this is by far the biggest emerging market region for financial infrastructure; the more we've studied it, the more we see similar issues that need solving on behalf of global merchants and local merchants; and it's also a region marked by a very large number of local payment methods, so it's very much marked by fragmentation, and many, many geographies each with their own specific regulatory environments. So all of this plays strongly into why dLocal is able to add value. As I've always said, we have an initial go-to-market strategy that focuses heavily on cross-selling into our existing merchant base; and also, we already have multiple feet on the ground sourcing local merchants as well. So I think the long-term ambition here is a very large one. Always, this depends very much on execution. I wouldn't expect this to be material or sizable in 2027. I think for year 1, since we've hired a local team and local seniority, think of it more in terms of maybe a mid- to high-single-digit contribution of top-line, but with the potential to scale very quickly if we are successful.

And if I may, the second question that came to us this August,

If I could give a bit more detail on that credit facility we...

You know, our business generates cash, though it sits scattered among many of our operating subsidiaries. A sizable portion has to stay local for purposes such as pre-funding payouts, posting collateral with partners, and satisfying regulatory requirements. In the end, getting that cash up to the holding company costs both time and money; this facility gives us liquidity at the holding level more quickly and efficiently — I'd describe the use as general corporate purposes, which of course includes buybacks. The credit facility's economics are quite reasonable, and the cash held in our subsidiaries actually earns local rates that are probably similar to, or even above, what this facility costs. One thing to keep in mind is that our balance sheet stays quite conservative, with leverage sitting at roughly half a turn of EBITDA and a very solid net cash position. As for your question on inorganic growth, our capital allocation framework hasn't changed at all; the first priority is clearly to put our cash to work, be it organic or inorganic, and the second is returning capital to stakeholders via dividends and the buyback program.

Crystal clear. Thanks.