Good day, and thank you for standing by. Welcome to DLocal's Third Quarter 2023 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to the company for prepared remarks and video. Please go ahead.

Good morning, everyone, and thank you for joining the third quarter 2023 earnings call today. If you have not seen the earnings release, a copy is posted in the Financials section of the Investor Relations website. On the call today, you have Pedro Arnt, Co-Chief Executive Officer; Sebastian Kanovich, Co-Chief Executive Officer; Sergio Fogel, Co-President and Chief Strategy Officer; Diego Cabrera Canay, Chief Financial Officer; Maria Oldham, SVP of Corporate Development, Investor Relations and Strategic Finance; and Soledad Nager, Head of Investor Relations. A slide presentation has been provided to accompany the prepared remarks. This event is being broadcast live via webcast, and both the webcast and presentation may be accessed through DLocal's website at investor.dlocal.com. The recording will be made available shortly after the event is concluded. Before proceeding, let me mention that any forward-looking 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, given 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 with the Securities and Exchange Commission, which are available on DLocal's Investor Relations website. Now, I will turn the conference over to Pedro Arnt. Thank you

Thanks for joining us today. Let me start by saying that after my initial quarter at DLocal, I'm enthusiastic about our future prospects and the promising opportunities that our business presents for us. As we'll cover briefly, our current performance, our future pipeline and market opportunity present a unique opportunity for sustained growth over a multi-year period, driven by the powerful secular trends behind emerging market adoption of digital products and services. We need to remain focused on executing behind that opportunity while constructing the foundational blocks as a company to ensure we can scale at the pace our merchants and our markets will demand. Let me walk us through some of the highlights of our Q3 '23 results that are a testament to these statements. We delivered another quarter of solid performance. TPV grew 69% year-on-year, reaching $4.6 billion, supported by our well-diversified merchant and geographic base. Revenue grew 47% year-on-year despite a strong devaluation of the Nigerian Naira in the quarter. If we exclude Nigerian revenue, growth came in at 58% year-on-year. We remain focused on achieving gross profit growth as our key metric. And in 3Q '23, we attained $75 million of GP, increasing by 38% year-on-year and 5% sequentially. We're still delivering best-in-class profitability. Our ratio of adjusted EBITDA to gross profit came in at 75% for the quarter, and our Rule of 40 framework, which adds our gross profit growth and our adjusted EBITDA over gross profit margin, continues to exceed 100%, coming in at 113% during the quarter. Free cash flow, which you can reconcile in the accompanying presentation, was $45 million, with a cash conversion ratio that still remains above 100%. Our investments remained thoughtfully focused on expanding our global team and building the appropriate processes, tools and governance mechanisms to ensure our…

Thank you, Pedro. Hi, everyone. During Q3, we continued to see strong growth across all verticals. We highlight triple-digit growth year-on-year in our commerce platform, becoming our largest vertical since last quarter, as we continue to see strong traction through our platform solution for marketplaces, particularly in Brazil and Mexico. This growth was followed by ride hailing, up by 81%; streaming, up by 59%; and SaaS, up by 54% year-on-year. This quarter, we observed a lower growth in financial services vertical, increasing 23% year-on-year, driven by customer churn at two of our financial services merchants. In Q4, we anticipate sustained growth in the commerce vertical, driven by the festive season. In terms of product, during Q3 2023, pay-ins increased by 68% year-on-year. Compared to Q2 of 2023, most of the growth came from pay-ins, which increased 8% quarter-on-quarter. Our pay-out volume remained stable quarter-on-quarter as we saw lower growth from our financial services vertical. Year-on-year growth was a very solid 73%. In terms of service mix, our cross-border and local-to-local volumes showed strong growth year-on-year, with the latter doubling year-on-year. Sequentially, we continue to see higher growth with our local-to-local volume, increasing by 10% quarter-on-quarter, while cross-border volume increased 2%. As a consequence, the share of local-to-local increased, reaching 51% in Q3 2023. In terms of geography, in Latin America, which is our largest region, we continue to experience sustained strong revenue momentum in Brazil and Mexico as we continue to grow with our existing customers and gain share of wallet. Growth in both countries has been driven mostly by merchants from commerce, on-demand delivery, streaming and travel verticals. We saw lower revenues in Chile, mainly driven by the slowdown in the financial services vertical as explained earlier. In Argentina, we saw higher revenue driven by the widening spread between the official and the parallel exchange rate, while gross profits remained fairly flat, despite the devaluation in the quarter. We continue to see strong growth in other countries in Latin America, including Dominican Republic, Colombia and Guatemala. Our business in Africa and Asia continues to perform very well. In Q3, revenues in Africa and Asia increased 14% year-on-year despite being negatively affected by the devaluation of the Naira. Excluding Nigeria, this region grew 79% year-on-year, mainly driven by Egypt, Kenya, Vietnam, South Africa, Philippines and Saudi Arabia. In Q3 2023, Nigeria revenues decreased by 39% year-on-year and 59% quarter-on-quarter. Continued strong growth of our diverse merchant base across multiple emerging markets translates into solid NRR, which was 141% in Q3 2023. We have built strong merchant relationships, and we have a tremendous opportunity to continue capturing more volume as our wallet share with our largest merchants is still low double digits. Diego will now review the financial highlights.

Thank you, Maria, and hello, everyone. As Pedro mentioned, I have decided to step down as Chief Financial Officer of DLocal to pursue new challenges. This is a personal decision that I have been discussing with the Board, and I believe now is the right time. It has been an honor to serve as the company's CFO for the past three years, working with such talented individuals, and I'm very thankful for the trust and support of the Board and the senior management of DLocal. During the forthcoming four months, I will remain fully engaged and committed to facilitating a smooth handover process. I am confident in the company's prospects and firmly believe that under the continued guidance of the Board leadership, DLocal will persist in its trajectory of growth and success. With that, let's get into the quarterly results. Revenues reached a record high of $164 million in Q3 2023, growing 47% year-over-year, while quarterly growth remained positive at 2% quarter-over-quarter, even after a particularly strong Q2. We remain focused on growing absolute gross profit dollars. Our gross profits reached $75 million in Q3, up 38% year-over-year and 5% quarter-over-quarter. Gross profit margin increased from 44% in Q2 to 45% in Q3, positively impacted by a higher share from Africa and Asia, driven by countries with higher-than-average gross margin and lower expatriation cost in Nigeria. Net take rate remains stable at 1.6%, showing our pricing power continues to hold steady despite continued TPV growth. Compared to Q2, we saw a positive contribution from the higher share of pay-ins and from certain countries in Africa and Asia with higher-than-average net take rate. This was offset by the higher share of local-to-local volume. Profitable growth remains a top priority. During the quarter, we were able to grow our adjusted EBITDA to…

Thanks, Diego. Everyone here at DLocal is proud of the strong set of results we've delivered year-to-date. We are reaffirming our outlook for fiscal year 2023 and expect to end the year in the upper range of the revenue guidance, between $620 million and $640 million and in the mid-range of the adjusted EBITDA guidance of $200 million to $220 million. We continue to be incredibly constructive about the growth potential that the company has. There's plenty of more growth to come and opportunities to unlock across emerging markets. We have a massive long-term opportunity ahead of us, and we will continue to execute on it. Let me remind everyone, DLocal is only getting started. One last thought; I want to send a big thank you to our entire global team for the work done, to our customers and our investors for their continued support and trust in us. And with that, let me hand things back over to the operator to open up for your Q&A, which Seba and Sergio will also be joining us to take. Thank you.

[Operator Instructions] Our first question comes from the line of Jorge Kuri with Morgan Stanley. Your line is open.

Hi, everyone. Good morning. And congrats on the numbers and Diego best of luck in your future endeavors. I wanted to ask about the devaluation of the currency in Nigeria and the impact you had on revenues. I just want to make sure it's clear how the FX impact is. I was of the understanding that the vast majority of your cross-border transactions, you were charging commissions based on the dollars appropriated or moved back to your merchant's home base. And hence, as they continue to charge the same amount in dollars to their customers, their commissions will be affected by the devaluation, which seems to be the case. So you're not really exposed to any FX movements on the cross-border transactions. And I believe that's kind of like the way you portray the business, especially when people asked about Argentina. And then in the local-to-local portion, I was of the understanding that you had hedges in place to make sure that your revenues were protected. And so I wanted to understand what exactly happened in Nigeria? Why are your revenue down 60%? And I guess it's an important question also because we're probably a few days, maybe a week from getting a big devalue in Argentina here with the changing government. And I also wanted to get your view on how that's going to play out or what the potential impact to your business is? Thank you.

Hi, Jorge. How're you? This is Diego. So, on Nigeria, overall, the impact of the conversion FX rates, as you remember, in May, I think it was basically the parallel FX rate and the official exchange of Nigeria compares, that was substantially neutral on our gross profit dollars in Nigeria. The only impact is on our gross revenues, as difference between the two exchange reduces, we have lower expatriation costs for taking those dollars out of Nigeria to our operating companies, and therefore, we charge lower revenues to our merchants. But on a gross profit level, that tends to be neutral. Just to give an idea, the impact on gross revenues is approximately compared to Q2 is $10 million more of revenues, if the FX difference in Nigeria would have been the same as in Q2. But again, this is in gross revenues. On a gross profit level, it's neutral. Our local-to-local business in Nigeria is very small and that didn't have any meaningful impact. Argentina is a quite different economy. We have, as you know, everything hedged in Argentina, and we don't have these levels of -- most of our business in Argentina has always been an official rate. So we don't have these levels of difference between official and the unofficial in Argentina.

If I may complement -- Jorge, Seba here. Thanks for your question. Our business in Nigeria today, it's better than last quarter. At a gross profit level, this has been neutral. What you see is the smaller amount of revenue that we are booking. There also are smaller amount of cost that we are booking, and at a gross profit level, which is what we are keeping track of, this is neutral. Why do we keep track of gross profit? Because that's a metric that indicates how much profit we are making from a merchant transaction. The other stuff we don't control. We are fully hedged. So the declining revenue is not a part of us taking a loss, by no means. What happened is that the gap between the market rates and the official rates shrunk. Therefore, the revenues we book are smaller. Also, the cost we book are smaller. And at a gross profit level, this is neutral to positive. The reason why I say we have a better business in Nigeria today than we did before, it's because these market conditions are healthier and easier for our merchants to navigate. We need -- or we are a better business when there is macro-certainty, and we believe that the steps that Nigeria have taken are positive. When we have merchant discussions, they welcome what has happened in Nigeria. It's now easier to understand how the market operates. By the way, the same applies to Argentina. We are very optimistic on what's to come in Argentina. This is not a political statement, by no means. But this is a view, our market having a clear set of rules should allow our merchants to invest more. And if you look at our business, we continue to be indexed to the growth of our -- this global merchants. So whenever there's more clarity, our business tends to benefit.

Thank you for that. And if I may just add a quick follow-up. Could you remind us on the financial services vertical, what are the main companies, if you can, that you're operating for?

Sure, Jorge. The ones that we're able to mention are typically public companies listed in the U.S., companies like Worldpay, Payoneer, Flywire, where they essentially utilize our last mile to finalize transactions in emerging markets where they operate. These are typically customers that give us distribution to merchant segments that we're going to be going after otherwise. For instance, Flywire onboards universities and hospitals, which are the type of merchants we typically go after, and that's why we like those merchants. This is the partnership we have with this airports, which essentially sells to global banks. We made - long ago, we made [technical difficulty] that's not the type of customer we want to pursue directly. And that's why we have those partnerships in play.

Great. Thank you very much.

Thank you. One moment for our next question, please. Our next question comes from the line of Tito Labarta with Goldman Sachs. Your line is now open.

Hi, good morning. Thank you all for the call and taking my question. A couple of questions actually, if I can. One, I guess, a little bit of a follow-up to Jorge, but more, I guess, on Argentina. Just I think, helpful just to go through the mechanics a little bit with devaluation in Argentina. I mean, revenues have actually come up this year a bit in Argentina. How should the devaluation impact revenues, specifically in Argentina? And I think there was also some impact related to inflation accounting. How should we take that into account going forward? And then my second question, I think, Pedro, we met a few months ago. You mentioned you were kind of reviewing the business would see if there were any additional investments that are needed. Noticed you kept your midterm guidance unchanged, although there were some management changes with Diego stepping down and some other people that were hired. Just any update on sort of that review? Could there be future changes to the guidance? Do you think everything is in place that you need to continue to grow and scale the business from here? Thank you.

Sure, Tito. So, let me start with Argentina, given that it's topical. First of all, as we've stated throughout, we've always taken a long-term view on Argentina, and this is a market that we've remained committed to throughout. We actually think that the removal of uncertainty after the election and I think potential for a more stable economy bodes well for our merchants in Argentina going forward. If you look at some of the slowdown in the business, although it has continued to grow through the tough macro and the devaluations, potentially gets reversed if we see that economy rebounding. So when we look mid-term, we see more positives than negatives to emerge out of Argentina. From a devaluation perspective, really, the impact will depend on how fast our merchants reprice. So you could see a growth in TPV to adjust to a new level of peso to dollar. We remind you that most of our merchants are global merchants that have an underlying dollarized cost to what they offer in Argentina. And equally important, as Diego mentioned earlier, from a financial perspective, our exposure to the Argentine peso is fully hedged. So, all in all, when we look at Argentina going forward, despite shorter-term dislocations that might occur, if there is a strong devaluation, the more important trends are mid-term. We think it bodes well for that market. Our merchants have the ability to reprice over time, and our Argentine peso exposure is almost entirely hedged. On guidance and cost; as mentioned in the prepared remarks, we continue to invest behind strengthening the foundational pieces of our business. There's a lot of work that's going on now that was already going on, and there's also additional work of scoping where else we can strengthen. We mentioned our increased partnerships with globally significant banks, with national banks. I think the more appropriate time to finally conclude on whether we need to change guidance or not is not now. For now, we've reiterated our midterm guidance and our underlying belief is that with the incremental gross profit that can flow through the P&L from our continuous growth of the business and the way we're seeing things trend towards the end of the year, will suffice to reinvest back into the business where necessary. But once we reiterate annual guidance for next year, we'll have even more detail on that front.

Okay. That's great. That's helpful color. Maybe just one quick follow-up on -- back on Argentina. Just to understand the impact of the inflation accounting, just to understand, is that something -- is that related to the operations of the business or was that related more to the bond that you guys bought? Just how would that impact the results going forward?

So -- hi, Tito. The inflation adjustment is required by IFRS for hyperinflationary countries, which is the case of Argentina. It's a non-cash adjustment, if you want. Basically, you need to restate revenues, cost and everything based on current prices and then divide them by the new exchange rates that appear from time to time. This particular quarter, we have, as you probably remember, the valuation of the official exchange right after the primary elections. And that was the main driver of that loss that you see in the P&L. That will continue or not, depending on how prices in Argentina and the valuations occur. What is important to note that this is a non-cash adjustment.

And picking up on that, let me just complement more on the actual financial exposure and instruments. And you will see significant disclosure in the accompanying presentation. What happened in the third quarter is the following. The U.S. dollars that we invested in Argentina generate an inter-company loan that sits on the Argentine balance sheet in U.S. dollars. That actual position is fully hedged. So, at maturity, there is a derivative instrument that entirely protects that investment. In the interim period before maturity, the bond, which has the derivative actually trades at mark-to-market. And during the second quarter, there was some dislocation between the mark-to-market value of the bond and the actual derivative. That is the loss that you will see and the gain that you will see disclosed in the package. So the U.S. dollar liability generates an exchange impact on the P&L and the value of the bond almost entirely offsets that loss. But it wasn't a perfect hedge from an accounting perspective because it's mark-to -market. What's really important to say is that at maturity, the bond is a perfect hedge to the investments made in Argentina. And the outcome of the election actually generates greater certainty that those hedges and those bonds will be honored.

Okay. Great. Thanks Pedro and Diego. And best of luck Diego, on your new role on your future endeavors.

Thank you. One moment for our next question, please. Next Question comes from the line of Jason Kupferberg with Bank of America. Your line is now open. Jason, your line is now open.

Sorry about that. I wanted to ask about Brazil, triple-digit growth there this quarter. It's really accelerated significantly over the past couple of quarters. So wanted to see how you feel about the potential sustainability of these elevated growth rates. I know you got the new payment license back in July, and it sounds like the platform business is doing well there. But just wanted to get a sense on your visibility of these very strong trends in Brazil revenue growth perhaps continuing here over the next two or three quarters?

Yes. So, we see extremely strong performance in our two largest markets, Brazil and Mexico, which is a great indication of the strength of our business and our merchant satisfaction with what we're offering. We're seeing that strength, as you can see, in the vertical breakout across most verticals. But interestingly enough, it's most marked in our largest vertical, which is commerce. A significant portion of that growth is a consequence of our platform product that we launched last year and is really solving complex payment flows for very large global marketplaces across those markets. And so everything seems to point to the direction of high levels of merchant satisfaction that we're solving complex problems for them across these markets. And therefore, we are still positive about those markets despite the fact that they are our largest markets and are quite stable markets.

Right. Right, okay. And then just a two-part question as a follow-up. The first part of it is just revenue from new merchants was down a bit quarter-over-quarter. So just curious how that came in versus your expectations? And then Pedro, if you could just comment a little bit more about -- I think you made some comments around hiring more for internal processes and I know you're bringing on the new Chief Accounting Officer. What have you seen kind of in the back office operations as you've dived in to do local over the last few months?

Great. So, I think if you look at concentration from larger merchants, which is a metric we disclose, you do see that growth was driven more in the past quarter by the expansion within merchants we had previously landed. That's just the way this quarter played out. Again, that's positive in that it shows that our ability to gain new merchants and then increase our share of wallet and grow their businesses is still very strong. During the quarter, new merchants was somewhat less of a driver of growth, but still growing. The pipeline looks very healthy when we look at more constant terms so -- and the more current period. So, I wouldn't look too much into that for any negative signal. Again, the pipeline remains very healthy.

Yes. And if I may complement on that point, on the pipeline and the new sales. So there's a natural lag in terms of that metric. So, one thing is when we onboard those customers, then there's a relative delay on how fast those customers ramp up, particularly during this quarter, we've onboarded the biggest company in the world, and we are yet to see those results. So, we are very optimistic about our ability to continue to land new customers and them kicking within NRR and net revenue retention, which is again our key metric.

And then just on the back office. Pedro, just your -- yes, thanks.

Again, I want to stress this and be very clear. Ordinary course of business, this is a company that's growing top line at nearly 70% across 40 emerging markets. It's expected that we have to continue to invest behind all of our back-office operations to ensure that they are as robust as our merchants require. Remember that a big part of our value proposition is that we are dealing with a payments layer but also a compliance and regulatory layer on behalf of our merchants. And so, that should always be an area of focus and investment for us, but just ordinary course of business. Also remind you that when you look at our value chain and hence, the disclosures on who we operate with in terms of financial institutions, we. We move money around primarily through global banks, national and regional banks. And that also generates, I think, a second layer of solidity to the operations that perhaps in the past we hadn't been as clear about.

Thank you for the comments.

Thank you. One moment for our next question, please. Our next question comes from the line of Jamie Friedman with Susquehanna International Group. Your line is now open.

All right. Good morning, guys. Thank you for taking the questions. So, one for you, Pedro, and then one for you, Seba. Pedro, in your prepared remarks and even in your prior answer, you're talking about the fabric of these global banks. That's a message that I was less familiar with coming from DLocal. I'm wondering why you're prioritizing that in the message. I just wanted to try and understand why that's important. That's the first one. And then Seba, I just have to ask, I think you said in your answer to the previous one, something about boarding the world's largest. What was -- is that in context of the logos that you had referred to in the Q2 that you had won. I realize you may not be able to say who that is, but if you could at least say what, I don't know, vertical it might be or -- because I think you said that in the previous answer. Thank you, both.

Jamie, so thanks for the question on banks. And I think that's simply one of the feedback we got from investors is that perhaps we hadn't educated the Street enough on how it is that we actually carry out repatriation of money and there was a perceived notion of potentially more usage of alternative assets or smaller broker dealers, and that's simply not the case. The vast majority of our fund flows, ForEx derivatives are carried out either through globally systemically important banks or national market-leading banks or regional market leading banks. And I think it's just an idea to give increased disclosure on not just what we do, but how it is that we do it.

Thank you, Pedro. Jamie, on the question on the commercial front, we cannot disclose the name, but we've onboarded the multi-vertical global leader, which is one of Top 5 biggest companies in the world. When you look at our merchant base, we've been able to disclose some of those products. We continue to work with others to be able to name them during this call. But we've also been very open about the fact that we want to onboard the Top 500 companies on the Internet and make sure that they are customers of ours. In investor discussions, I've been very open about the fact that there are some of those that we're missing and we knew who they were, and we wanted to make sure that they were our customers. Today, we are proud to say that one more logo has become a customer of ours.

Got it. Thank you, both. I’ll jump back in queue.

[Operator Instructions] Our next question comes from the line of Neha Agarwala with HSBC. Your line is now open.

Hi. Thank you, everyone. And congratulations on the results. My question is more on the tax rate. We've continued to see an increase quarter-over-quarter on the effective tax rate. Could you explain -- I saw the reasoning in the earnings release, but could you talk a bit more about why the effective tax rate is going up? And more importantly, should we expect this trend to continue? And is this inbuilt in the guidance that you have provided or it's not on the bottom line, but should we continue to expect this to go up in 2024 as well? And what is a good rate to expect in the coming years? And also the concentration in your top merchants continue to increase, which likely means a pressure on take rate. So is there a way that you can diversify a bit more? Is that a goal that you're looking at to reduce the concentration in the Top 10 merchants? Thank you so much.

Hello Neha. On taxes, the income tax rate that we have is the result of the country and product mix that we have. And as you know, we don't solve for that. Particularly, we have been seeing in the past few quarters, a sequential increase in our local-to-local business, and that is basically taxed on local tax rates, which are higher than our average. So that is the main driver to that. Also, we discussed before about the inflation adjustment that has a loss that is non-deductible for tax basis, and that also affects the tax rate. We don't guide to a particular tax rate. Again, we say that said, we'll continue the same line that is now, but it will continue to change based on the different trends that we have in our country mix and product mix, service mix.

Hi, Neha, on concentration, we don't manage our business to that metric. I think the increase in concentration you've seen is a testament to how much share of wallet we've continued to gain from some of the largest global retailers and that's good news. Having said that, if we think over longer periods of time, Seba was mentioning, we aspire to have the 500 largest companies, digital companies in the world going through the platform. And so the longer-term tendency, yes, we believe we will diversify, add new logos and that over longer periods of time we should see diminishing dependence on any one or 10 single merchants. Also, remember that that Top 10 is not always the same Top 10 as you had in the prior quarter. This quarter, three of those are actually new Top 10. So there is increased diversification going on even when the concentration in the 10 in any given quarter might have gone up, driven by the stellar performance in Mexico and Brazil of our platforms product.

Thank you. One moment for our next question, please. Our next question comes from the line of John Coffey with Barclays. Your line is now open.

Great. thank you very much for taking my question. I had just had two short ones. I saw that the revenues in Chile look like they went down about 9%. And it seems like Chile had always been a fairly good grower. I wasn't sure if there's any one particular driver there. So just like to hear a little bit more about Chile. The second question is, it looks like sales and marketing, those expenses stepped up in Q3. Perhaps that ties to Pedro's earlier comments that you're investing in your sales channel. But how should we expect your thoughts about investing in the sales and marketing going forward through the rest of this year and onward into next year?

Let me take Chile. Diego can take the expense question. So Chile is driven by the financial services vertical. Seba had explained previously that the financial services vertical, in many instances, is us being used as distribution for certain segments of merchants that we don't -- or financial institutions that we don't access directly. One of our financial services partners for Chile lost a client that explains that decline. On the flip side of that, we have gained direct access to that client. We're still ramping up. So potentially, longer term, that could be positive news. Short term, the Chile decline is driven by a client loss from one of our financial services partners.

Regarding sales and marketing expenses, if you compare to Q2, you will see an increase from $3 million to $4.4 million. Actually, the number that was a little bit affected in Q2, which was affected by a recovery of stock-based compensation. If you look at the longer sequence, like the previous quarters, you see, for instance, that Q1 was 4.9%. Q4 of last year was roughly $4 million. So the trend continues to be the same. The outlier was particularly Q2 that had a recovery of basically of stock-based compensation for our features.

All right. Thank you.

Thank you. One moment for our next question, please. Our next question comes from the line of Matt Coad with Autonomous Research. Your line is now open.

Hi, guys. Good morning. And thanks for taking questions here. Just wanted to ask one more on Argentina. And I know it's kind of uncertain, a little bit of a black box right now, but wanted to ask about dollarization and the impact on your business if that ultimately occurs.

Hi, this is Sergio. Thank you for your question. As you know, there's lots of uncertainty about that. The elected President said that, that his plan is to dollarize, but lately it seems to be a bit more remote. So it will take some time. if it were to come, what we envision -- in general terms, what we envision is that the more certainty that there is around Argentina, the more customers are going to invest in the country. Argentina, by the size of its economy and by our previous experience should be one of our Top 3 countries in terms of volume. So we are -- the more certainty that there is around the country, the more bullish and the more positively impact it should have on our business in the country.

Just to complement on that, I think while it's very early to say what's going to happen in Argentina, we welcome normalization. But at the same time, Argentina is still a country that is full of friction. even in the context of full dollarization. Many of our merchants won't operate locally. There's still going to be cross-border settlement fees. So, we expect our business to thrive even in that scenario.

That's super helpful, guys. And then just one quick follow-up that I had. Just on the financial services vertical, you guys have mentioned churn a couple of times. So I just wanted to make sure that we understand that properly. Is it churn that your financial services partners are experiencing or is it churn in terms of you lost some financial services partners? And then I just wanted to make sure, did we experience that full impact of any churn in 3Q or is there some impact to come in 4Q as well?

Matt, thank you very much for that question. Super important to clarify. We've had no churn whatsoever in our merchant base. So, all of our financial service partners continues to be customers of ours. Some of -- one or two of them have lost customers of theirs, and therefore, we've been exposed to that. As Pedro mentioned before, with one of those key customers, we managed to build a direct integration, which hasn't ramped up yet. So we've taken the hit, but you haven't seen the upside yet.

Awesome. Thanks guys.

Thank you. One moment for our next question, please. Our next question comes from the line of Guilherme Grespan with JPMorgan. Your line is now open.

Hi, good morning, everyone. Thank you for the presentation. Just one question on G&A on our side. We saw a meaningful drop quarter-over-quarter 17%. Just want to make sure there is nothing here less recurring this quarter? And how should we think about G&A going forward? And if I may, just a clarification, is still on Argentina, just want to make sure I got the message. If there is a big depreciation of the FX, you guys are saying that from an accounting standpoint, we should not expect meaningful impact to earnings. Is that right? Thank you.

Let me start with Argentina quickly, and we're not trying to avoid the answer. The reality is that there are multiple factors that will boil into whether we have an accounting impact or not from Argentina. So let me try to recap again. We have hedges on our Argentine positions that at maturity will fully cover us financially from any devaluation. Prior to maturity, those instruments are marked to -market. And if for some reason the performance of the instruments mark-to-market doesn't entirely follow the underlying hedge, which is what happened in the third quarter, and you can look at the disclosures for breakouts, then you could have an accounting impact. Furthermore, as Diego walked you through, IFRS inflation adjustments could also generate accounting impacts from a devaluation. The third portion of this is how fast our merchants reprice under a devalued scenario to protect the dollar value of the digital services that they are offering. So, all in all, financially hedged, and then what the impact of the deval is, shorter-term will depend on those variables, and it's not that easy to predict beforehand.

Okay, super clear. And on the G&A?

So, overall, we see G&A expenses stable quarter-over-quarter. I don't know if you refer to a specific line item, maybe we can take it offline, but overall G&A, we see very stable quarter-over-quarter.

Guilherme, if I can complement on the previous question, the remark that Pedro made. I know Argentina, it's tough news. We've all seen the elections. We operate across 40 markets. Argentina represents less than 15% of our revenues. And we believe that the worst is behind us in Argentina. So if anything, there's upside to be had from that country. But at the same time, the beauty of our business is that you can have Brazil kick me at very fast speed; Mexico, Egypt, Vietnam, Indonesia, Saudi, Kenya. So the reason why we built a business that operates across 40 countries is exactly to have natural hedges in our business and have multiple growth levers. Some of those levers are going to be faster in given quarters and others are going to be slower. But fundamentally, we have built this business to be reliant -- to be resistant to any particular crisis across any particular market. And I think you've seen that effect. We've gone through many crisis across many geographies and our business continues to operate at scale and continues to be able to grow. So I don't want to lose sight of that fact, which I think it's key.

Okay. Thank you.

Thank you One moment for our next question, please. Our next question comes from the line of Kaio Da Prato with UBS. Your line is now open.

Hello, thank you for taking the question. Two quick on my side, please. First, in your presentation you mentioned that e-commerce has become your main vertical and Pedro also did mentioned about the launch of the platform Solutions last year that is supporting this level of growth. So just would like to better understand here what explains this growth after the launch of this feature. If there is any competitive advantage in this platform solution, what are you doing differently from your competitors in the business? And also, if you can share after the launch, how was the evolution of the share of wallets of your main e-commerce peers? And then my second one is in terms of your cash position. This quarter, we saw a reduction in your cash due to lower settlement period, again, for certain merchants and you also mentioned the repatriation of outstanding loans. So just would like to know if you could share a little bit more details on both reasons behind that, especially on the reduction of the settlement period for certain merchants. Why did that happen this quarter? If it was a one-off or if it did change somewhat the profile of your working capital going forward?

Let me take the commerce one. So, yes, the platform solution, which is not only for commerce, by the way, right, but was part of the story behind the stellar growth in the commerce category. It's not the only explanation. We have many commerce merchants that grew very well in the quarter. I would say that there are competitive advantages to our solution in that our solution has been tailor-built for the markets where we are offering it. And that has been one of the reasons why we have seen very large global marketplaces, either increase share of wallet through our platform solution or in some cases, fully migrate away from competitor solutions onto our solutions, driven by a very strong adaptation of the platform to their needs and to the local realities, both in Brazil and Mexico. Specific numbers on share of wallet, we don't know. But like I said, we do know that in one instance, there was churn away from a competitor, and in others, given the growth in volume, we are receiving an overwhelming portion of their platform volumes in those markets.

Regarding cash flow and settlement periods. So, during the quarter, we had some negotiations of terms with a few merchants, large merchants, particularly in Brazil. They had higher than average settlement period and much higher than our collection period. So part of their transition of the terms was a reduction of those days that we pay. We were paying roughly 30 days. Now we're paying approximately 15 days to those merchants. That has a one-off effect that you see in the cash flow of around $60 million. It doesn't continue going forward. And it's important to point a couple of things. One, we keep our negative working capital for merchant funds both on a total level, but also on a merchant-by-merchant level. And we have an excellent quarter in terms of generation of own cash. If you see the cash flow, we basically generated $45 million of free cash flow. And if you add to that, the $20 million recovery of the restricted cash we had with certain banks, that $65 million generations of own cash. Part of that, as you also see there, was invested around $50 million in the bonds that we have in Argentina.

Thank you. One moment for our next question. Our next question comes from the line of Ashwin Shirvaikar with Citi. Your line is now open.

Thanks. I had a question, and I guess, my first question is on the TPV evolution charts that you provided on Page 12. As I sort of look at the quarter-over-quarter growth, when we look at the relative growth of cross-border TPV evolution versus local-to-local, are there specific things you're doing to promote the local-to-local, if you could talk about that? Is that a trend that we should see continue? And then the flat growth on payouts versus the pretty good sequential growth on pay-ins, what is the underlying factor that's driving that?

Look, we are primarily focused on merchants that operate in three or more geographies that are large and global. And so, purely local merchants are not merchants that we pursue. The local-to-local component you see growing very well is simply because our merchants appreciate our solution and our technology sufficiently to also use us for local processing, which I think is very relevant because at times that came into question, whether we were competitive as merchants matured and markets matured and they had a growing portion of local-to-local business to complement with their cross-border business that they did with us. And if you look at the data, we are consistently being chosen for both local-to-local and cross-border. But this is not any sort of concerted effort to pursue local merchants. Our merchant focus and segmentation remains multi-geography merchants that will have a component of cross-border and of local transactions. It's just testament to the strength of our solution. In terms of pay-ins, we do see a very large opportunity -- sorry, in terms of payouts, you had asked, we do see a very large opportunity and Seba mentioned this earlier to help global remittance companies with last mile into the markets where we operate. And so, there is an increasing focus on our part in that vertical. And we see the strength there when we look at the year-over-year evolution of that business. On a quarterly basis, that was somewhat impacted by the financial service churn we mentioned previously where one of our financial services partners that had payouts as part of their TV PPV lost one of their customers. But we still see significant strength and opportunity there. And obviously, a strong payout business in markets where net settlement is possible, also improves our margins on the cross-border component of our business.

Got it. Got it. And then one question for Pedro. As you looked at sort of the business and the evolution of the business over the last -- as you come in over the last three months and looked at it. Are there sort of design principles that you sort of implement that can benefit a couple of points, and these points are, as I sort of look at TPV dollar growth versus revenue dollar growth, gross profit dollar, adjusted EBITDA dollar, there's always been a higher or often been a higher growth rate for TPV versus revenue versus gross profit versus EBITDA, which is kind of the opposite of what one might generally expect in a payments company with operating leverage. And the other thing, growth is often driven by one or two countries in spurts. Nigeria or Argentina and then the company gets into some sort of idiosyncratic factors affect you in those countries. Is there a way to avoid these sorts of things just from how you look at the future growth? I know it's a broad question, but that's what I'd ask.

Sure. So I think in terms of the financial model, which you allude to in the first question, in large part, this is a consequence of a growing relationship with large merchants. So there is downward pressure on take rates. If you look at a year-on-year evolution, I think if you look at this quarterly, you see that pricing power has actually remained fairly strong Q-on-Q, which is a good sign. But I don't necessarily think that over the shorter period, we will see a dramatic reversion in the fact that our TPV is growing faster than our gross profit. From a margin perspective, if you look at our adjusted EBITDA to gross profit, we have extremely high margins, and I don't think we are in a phase over the next multiple quarters where we should be focusing on significant margin expansion. I think that will come over the long run and the mid-term as we grow out our overall size and scale. But right now, we need to make sure we continue to invest in a very disciplined fashion within the construct of our midterm guidance, but making sure that we continue to invest behind the opportunity we have, which is huge. So, we do not have a design principle for this period of delivering significant margin growth or GP growth above TPV. I think that's not the phase we're in. We're in a phase where we have an extremely attractive margin profile. We generate an extremely healthy net income to cash conversion and what we need to focus is on sustaining growth and then the operational leverage will kick in more aggressively over the mid-term once we have a larger and more diversified business.

Very, very, helpful. Yes. Thank you.

Thank you. Thank you for your questions. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.