Good day and thank you for standing by. Welcome to the DLocal Second Quarter 2022 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your speaker today, Ms. Soledad Nager, Head of Investor Relations. Ms. Nager, please go ahead.

Thank you. Good morning, everyone, and welcome to DLocal's second quarter 2022 earnings call. On the call today, I'm joined by Sebastián Kanovich, our Chief Executive Officer; Jacobo Singer, our President; and Diego Cabrera Canay, our Chief Financial Officer. We are providing a slide presentation to accompany our prepared remarks. This event is being broadcast live via webcast, and both the webcast and presentation may be accessed through DLocal's Web site at investor.delocal.com. The replay will be available shortly after the event is concluded. Before proceeding, let me mention that any forward statements included in the presentation or mentioned in this conference call are based on currently available information and DLocal's current assumptions, expectations and projections about future events. While the company believes that our assumptions, expectations and projections are reasonable in view 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 in this conference call for a variety of reasons, including those described in the forward-looking statements and Risk Factors sections of DLocal's filings within the Securities and Exchange Commission, which are available on DLocal's Investor Relations Web site. Now, I will turn the conference over to Seba. Thank you. Sebastián Kanovich: Hello, everyone. Thanks for joining us today. Second quarter 2022 marked our first anniversary as a public company. During the past year, we have proven that going public was just the beginning of a new chapter for DLocal. We continue to build the best financial infrastructure to connect the emerging markets to the rest of the world, making our services available in 37 countries and offering more than 700 local payment methods. Our merchants value the convenience of a one-stop shop solution, and this gives us an…

Thanks, Seba. I'm delighted to join you all today from Cape Town and share more about our expansion plans. Growing our business outside Latin America remains a key strategic priority. And that's why a few months ago, I decided to make South Africa my base for the near future. We believe that in the future, further diversifying our geographical footprint will strengthen our business as merchants look for a single API and a single integration to access multiple emerging markets, including fast growing large markets in Africa and Asia. Besides, we believe that the infrastructure we are building across geographies make us an important partner for our merchants to achieve their own growth objectives. We are focused on growing with our merchants as they grow organically. Also today, 22 out of 37 countries in which we make our service available are outside Latin America compared to 16 a year ago and we prospect of opening new countries in this region in the near future. We started with one country in Africa, Turkey, back in 2016, adding Morocco two years after. And today, we have a presence in 13 countries in Africa. In Asia, we followed a similar journey and today we operate in nine countries. Our presence in these countries is already relevant with three countries from Asia and Africa being among our top 10 countries in terms of TPV and revenue. We have been able to not only add new countries, but also to deepen our presence in the countries where we currently operate by bringing new merchants and cross selling to our existing plans [ph]. For instance, 9 out of our top 10 merchants in terms of TPV, are already processing with us in these regions, and we see significant opportunities to continue scaling. During the last quarter,…

Thanks, Jacobo. Let's begin with Slide 10. We continue to see strong TPV growth during the quarter. In Q2 2022, our TPV reached $2.4 billion increasing by 67% year-over-year and 16% compared to the first quarter of 2022. As Seba highlighted, we have a fast growing and resilient business that continues to benefit from diversification. As you can see in the pie chart on the right, our business model is not dependent on the performance and outlook of any single industry vertical. We have merchants from more than 10 different verticals, and every vertical is well balanced in our portfolio with no single one accounting for more than 20% of our TPV in Q2 2022. The TPV growth is attributable to the performance and continued growth of our merchants across most verticals, particularly in commerce, on-demand delivery, travel, Software-as-a-Service and advertising. I would also like to highlight that we have experienced growth both in pay-ins and pay-outs during the quarter. For pay-ins, we have seen a steady increase in TPV quarter-after-quarter. Specifically in Q2 2022, pay-ins have doubled year-over-year. We continue to see improvement in our pay-outs volumes with double digit growth quarter-over-quarter. Year-over-year, pay-outs experienced mid single digit growth. As in the second quarter of last year, we saw higher than average volume that came from certain merchants that ran big marketing campaigns in that period. Regarding our cross border and local to local volumes, the relative contribution has remained stable in the past three quarters, both showing solid growth year-over-year and quarter-over-quarter. Slide 11. Revenue also reached a new record, surpassing for the first time the $100 million threshold in a quarter having grown 72% year-over-year, and 16% over the first quarter of 2022. Our revenues over TPV, or take rate, was 4.2% during the quarter, stable quarter-over-quarter…

[Operator Instructions]. Our first question will come from Jason Kupferberg of Bank of America. Your line is open.

Thanks, guys. Good morning. I just wanted to pick up on some of that guidance commentary around both NRR and adjusted EBITDA margins. Obviously, on both metrics, you're trending comfortably ahead of your full year target through the first half of the year. So just wondering if we should expect some meaningful moderation in both NRR and margin in the second half? And if so, what would drive that? Or are you just being conservative, given some of the macro uncertainty out there? Thank you. Sebastián Kanovich: Jason, good morning. Thanks for the question. Diego, I'll start. Please feel free to complement. So we've stayed very consistent on this topic from the beginning of the year. We insist on our expectation of 150% for the full year and 35% plus on EBITDA margin. We think that's the right thing to do. We are very bullish on what we've seen in our business. We are very proud on the quarter we just posted. But we think it's the right thing to do to stay consistent and continue with the expectations of what we've said in the past.

Okay. So nothing obvious you would call out that we should be wary of in the second half? Sebastián Kanovich: So we are today presenting on our Q2 and it's one we're very proud of and we are happy to discuss. We've never been a better company in our history, and we are very comfortable saying that we've never had more products. We've never had more geographies. We never had a better customer at least, and we are building this for the long run and part of being very consistent on the expectations and what we share with you is having the flexibility of building for the long-term, which is what we want to do. We believe the opportunity ahead of us is massive. And that won't change in any short-term hiccup that we might find in the future. We are very consistent and we want to continue to be so. We are extremely proud of the quarter we just posted. We are extremely proud of the business we are building, and we believe the opportunity ahead of us is massive.

That makes sense. Just a follow up on TPV in the quarter. It seemed like the strength was pretty well balanced among a bunch of your verticals, and obviously you continue to benefit from diversification. But was just wondering if you can talk about which parts of the business maybe lagged a little bit in the quarter in terms of TPV growth. I mean, I'm thinking maybe parts of your financial services vertical, for example. Sebastián Kanovich: Diego, feel free to complement, but, Jason, we've shared in the past that we are a very balanced basket of different industries in the Internet economy. We've seen things like streaming growing slower than it used to be. I think that's not news and that's information you can probably get on the wider market. But the fact that we are very diversified means that there's always winners and losers. We've been through cycles like this in the past. The winners are the one you would expect on-demand delivery, travel, ads and SaaS. And some of the ones that have grown slower are on the streaming side. But again, the fact that we are very well diversified has continued to work as a hedge. And we've said this in the past that we are still micro in our macro environment. So we still believe that our ability to grow will be very much dependent on our ability to drive value to our customers and bring them to new geographies and products.

Okay. Thank you for the color. Sebastián Kanovich: I appreciate it, Jason.

Thank you. One moment please for our next question. Our next question will come from Neha Agarwala of HSBC. Your line is open.

Hi, Seba and team. Thank you for taking my questions. Could we take a bit on the EBITDA margin, your guidance is above 35% for the full year. But for the first half, you've been pretty stable at 38%. So should we expect higher investments in the second half of the year, which could lead to a compression in the EBITDA margin? Where are these investments going to come from? More specifically, if you can shed some light on that? Sebastián Kanovich: Sure. Neha, thanks for your question. Diego, do you want to take it?

Sure. Hi, Neha. How are you doing? So as you saw in the past four quarters, our adjusted EBITDA margin has been around 38%, very consistent across the board, actually have a 10 basis point increase quarter-over-quarter. We write 35% plus for the full year. We don't see any significant change in trends, but we always want to have the flexibility to invest and accelerate growth whenever it makes sense for us. So the guidance is still 35 plus for the full year. But if you want, we don't see any significant change in trends going forward.

So it is possible that for the full year, you might come at around 38% adjusted. It could be around 37%, 38%.

Sorry, Neha, the right value is 35 plus, so we want to have that flexibility. We don't have any significant change in trends, but we are not guiding to 38% or any number different to 35 plus.

Okay. But there are no specific investments that we should be mindful of in the second half, which should lead to necessarily for the margin to decline?

Nothing different to what we have been doing, very focused on our expansion and our technology team or our sales team. Those are the main focus of our investments, but nothing very different to what we have been doing in the past few months.

Okay. Another question I have is on the cost of services. It has gradually been inching up. It was marginally higher, now around 51% of the gross revenues, a bit higher than what we expected. Could you give us some color as to why the pickup again this quarter? Anything related to a change in mix that might have led to a higher cost of services?

Sorry. So basically, the change quarter-over-quarter is 3 basis points, which we consider very minor. Remember that we don't focus in percentages. We focus in absolute dollars and we incentivize our teams in absolute dollars. If you see the increase in gross profit in the quarter, quarter-over-quarter was actually $6 million compared to $4.5 million in the previous two quarters. So we are very pleased that in absolute values, the gross profit has grown higher -- the highest growth in the past four quarters. Things like changes of 3 basis points in a quarter, I think that will happen from time to time. We have 47 countries, 450 or more merchants and any changes in the processes of those merchants or countries may modify slightly the gross profit or cost up or down. Also, keep in mind that we launched many countries. When we launch smaller countries, typically, we don’t start at an optimal level of gross profit. But after we launched, we're continuously ready to get to that optimization. So those smart things may change a little bit the gross profit or cost. But again, we're talking about only 3 basis points in the quarter. And in absolute values, it's the highest growth we had in the past year.

Okay. But 50% gross profit margin sounds reasonable and should be around there. No reason for it to fluctuate a lot. Sebastián Kanovich: Yes, Seba here. So we continue to not optimize for our percentage take rate. And I think it's really important to explain the rationale behind that. We are building a business for many years based on the dollar amount. We are happily going to trade a higher dollar amount for a lower take rate. We want bulk to do that. We believe the opportunity ahead of us is massive, and we shouldn't hold ourselves to any given margin threshold. We don't think that's the right way of building the company long term. We've shared -- these objectives are shared with the team. We have them go and get us more customers to use our infrastructure and do so at a profitable level. Every dollar in our platform contributes to our margins, and that's something that has always been the case. So while the margin numbers you mentioned have been relatively stable in the past, we are not optimizing for that and that's not an internal goal of ours. We want to build a bigger business on a gross profit dollar amount because we think that's the right way of building it in the long run.

Understood, Seba. Thank you. Last thing I wanted to check on is the issue in Chile, the litigation that came up. Do we have any update there? Sebastián Kanovich: So, Neha, on Visa and Mastercard, we don't have any significant updates. Just to get everyone up to speed, both Visa and Mastercard are valued partners of ours. We are all-in for transparency and making sure that we contribute to the ecosystem. So far, we are still in start of school in Chile, and we are yet to see a final resolution for this. But we feel very comfortable that both Visa and Mastercard are great partners of ours. We've been a healthy part of their ecosystem, and we intend for that to continue to be the case in the future.

Thank you, Seba and Diego and everyone. Sebastián Kanovich: Thanks, Neha.

Thank you. And again one moment please for our next question. Our next question will come from Ygor Azevedo of GS. Your line is open.

Hi. This is Tito. Can you hear me? Sebastián Kanovich: Yes, Tito.

Hi. Tito Labarta from Goldman. Hi, Seba, Diego. Thanks for the call and taking my questions. A couple of questions. First, can you give any color in terms of the mix between, say, payment message, you talked -- I think pay-outs you said were kind of stable, that you're growing a lot in pay-ins. Any color you can give on that in terms of like how much is pay-out, how much is pay-in, cross border versus local to local? Just to get some context on how the different payment methods are evolving and also between like alternative payment methods and cards, if you can give any color on that? And then I have a separate question after. Sebastián Kanovich: Diego, do you want to take it?

Yes, sure. So mixes have been very stable, Tito. So pay-ins remains roughly close to three-quarters of the total for the past three quarters, I would say. Local to local is roughly one-third of the business. And again, in the past two quarters have been very, very stable. Both pay-ins and payouts grew mid to high single digits quarter-over-quarter, so that is consistent to what I just said. And sorry, was there any other part of your question in terms of mixes?

And then alternative payment methods versus credit card?

Yes, also, let me say, but roughly credit cards is one-third of the business and close to 50% of pay-ins.

Okay. Perfect. Thanks, Diego. And my second question in terms of the growth we're seeing in Asia and Africa, a very strong growth there. And I think you're on average around nine countries per merchant, if I saw that slide correctly. Should we expect Asia and Africa to continue to outpace the growth in LATAM? Is this driven by your [indiscernible] to go to Asia and Africa? And can you give any color on the unit economics between Asia and Africa versus LATAM? I don't know if it's different margins, is it maybe a little bit earlier? Is there upside to margins as you grow in those countries? Thank you. Sebastián Kanovich: Tito, we lost you for a few seconds on the second half of the question. We got on the trends in Africa and APAC, but we've lost a part of the second of the question. Would you mind repeating?

Sorry. Sure, no problem. Just any unit economics you can give between like Asia and Africa and Latin America, I don't know if like margins or take rates, is there upside as you scale up in those countries? Sebastián Kanovich: Jacobo, I'll start. Feel free to complement. Tito, it's one of the things we are the proudest of, the fact that our business in Africa and APAC continues to grow really fast. It was one of our strategic bets, having $40 million in a quarter, growing at 155%. It's definitely something we are extremely proud of. When we launch a new geography, and both geographies in Africa and APAC are newer, we are not optimized for margin. That's some what we're optimizing for. We want to make sure we are bringing the right customers and we are bringing them in the right countries and with healthy unit economics. But we are not optimized the way we are in LATAM where in some of the markets we've been live for seven years. So while the unit economics there's no fundamental reason why they should be different on the long run, obviously, on the short term, we are less optimized and on purpose. We are willingly probably paying a little bit more on the cost side than we are going to be paying on a more mature stage. We think that's the right thing to do on the short term that gives us the ability to build the infrastructure. And we know the more scale we build, then we have the ability of getting better conditions from our partners downstream.

Great. Thanks. That's helpful. And then just on the first part in terms of the growth, should we expect Asia and Africa to continue to outpace Latin America? I don't know if you have a target for what percent of revenues should come from those countries or anything like that? Sebastián Kanovich: Jacobo, do you want to take it?

Sure. Tito, Jacobo here. Thanks for your question. So we expect Africa and Asia to continue outpacing LATAM. Just to remark a little bit of number that we captured, Africa and Asia have grown 155% year-over-year compared to 63% year-over-year in Latin America. And in Africa and Asia, revenues also grew 38% quarter-over-quarter. So we are super excited and positive on the growth Africa and Asia and representing within the company. In relation to the second part of your question, we are not pursuing a particular target. But we are pursuing all the opportunities we have with our merchants to bring them to this geography.

Great. Thanks, Jacobo, for that color. And maybe just one quick follow up on that. In terms of the competitive environment there, do you see more opportunities? Is it more competitive than Latin America? Just in terms of things to think about that opportunity and where you fit in versus competitors?

So basically, Tito, on that, each region it's particular. But the most important part is the value of having a single API for our merchants while expanding into geographies, it represents a value-added service. So we see the same trends and opportunities in regard to facilitating the international merchants to come to these geographies. So competitive landscape and environment, it's good for us having the value of having most of the merchants integrated into the platform. Sebastián Kanovich: And, Tito, just to complement on that. Some markets in Africa and some geographies in APAC look very much like LATAM did when we started DLocal. You see fragmentation. You see the clear need and the clear demand for merchants to go into these markets. The other thing that has happened is that businesses that didn't have healthy business models are clearly struggling, and that's obviously an opportunity for us. So we think in a market like the one we are in, businesses that have invested on -- sorry to be redundant, but on building a business the right way and doing so profitably and investing step by step are going to be able to differentiate. And as Jacobo was saying, the fact that we are covering not only APAC but Africa and LATAM will continue to prove a differentiated offering even more than ever in the current environment where resources for engineers are less available than they used to be in the past.

Okay, great. That's good color. Thank you, Seba, Jacobo.

Thank you. [Operator Instructions]. One moment please for our next question. Our next question will come from Andrew Bauch of SMBC Nikko Americas Inc. Your line is open.

Hi, guys. Thanks for taking my questions. Just wanted to get a sense of the level of visibility you have within your merchant base today. I know one of the challenges with modeling this business has been around really your growth being somewhat dictated by the ambitions of your merchant partners. And so as you kind of reach these greater levels of scale within each of these different merchants, is there more visibility that they're giving you today on what revenue could be shifted over, what they plan on pushing through the platform over time? Sebastián Kanovich: Andrew, thanks for the question. And yes, we do have further visibility than we used to have essentially because we have more touch points and we have become a more strategic partner for our merchants than we used to be before. Years back, we would only discuss one country, Latin America, then the whole of Latin America. And now we are discussing the whole emerging market strategy. So that's definitely beneficial for us. Our business will continue to depend on our merchants, and that's the nature of who we are as a company. We don't have any dependencies and we don't have any concentration, not by industry and not by merchant. But the reality is that we are as good as our merchants are and we are indexed to their growth, and that's going to continue to be the case. We continue to keep track of our pipeline. It's in a very healthy position. We see that emerging markets continue to be a priority for global companies and more than ever, they understand the importance of being local in those markets. One of the things we've worked really hard on is making sure we have turned the visibility on our merchants' plan, so we can plan accordingly. Keep in mind that drives a lot of our product strategy. We want to be going where our merchants want us to go. So the more information we can have the better off we are.

Got it. Thank you. And then in previous quarters, we've talked about some of your efforts around local to local. Could you just give us an update on what you're seeing in regards to that effort? And remind investors and the community of the value proposition that you can provide there? Thanks. Sebastián Kanovich: Sure. So local to local is a very complementary business from what we call cross border. The service itself is the same. We always process payments locally through local payment methods and in local currency. The only difference is if the merchant wants to receive the funds internationally or they want to receive them locally in market. Many of our biggest merchants use us in both models. So in some selected geography, they'll ask us to settle those funds locally. And in other countries, they will ask us to expatriate or repatriate and then sell it to them. For us, we are agnostic. We want to make sure that merchants don't graduate from us. And whatever way they decide to do business, we have a solution to go with them. Both businesses are important to us. They both contribute to our margin. We believe both are strategically important to our merchants. We don't want them to have a partner for local to local and then one for cross border. That's not a good business for us. We want to make sure we have a holistic solution and that we can work with them for many years, no matter what way they decide to operate.

Got it, very clear. Thank you.

I am seeing no further questions in the queue. I would now like to turn the conference back to Sebastián Kanovich for closing remarks. Sebastián Kanovich: Sure. So I want to thank everyone for participating today. We are extremely proud of the second quarter we've just posted and the great progress we've made in diversifying our business outside of LATAM with Africa and Asia influencing our overall business. We've reached 13% of revenues. So we think that's a very important milestone. We want to reiterate our expectation of NRR to be north of 150% and EBITDA margin to be north of 35%, both metrics for the full year. And as always, we are available. So feel free to ask any questions at any point. We are available to you. It was great being here today, and thanks very much for your time.

This concludes today's conference call. Thank you all for participating. You may now disconnect. Have a pleasant day.