Good day, ladies and gentlemen. And welcome to MercadoLibre Second Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference Martin de los Santos. Please go ahead.

Hello, everyone. And welcome to MercadoLibre earnings conference call for the quarter ended June 30, 2014. I am Martin de los Santos, Head of Investor Relations for MercadoLibre. Our senior management presenting today is Pedro Arnt, Chief Financial Officer; additionally, Osvaldo Gimenez, Executive Vice President of Payments will be available during today’s Q&A session. This conference call is also being broadcast over the internet and is available through the Investor Relations sections of our website. I remind you that management may make forward-looking statements relating to such matters as continued growth prospects for the company, industry trends and product and technology initiatives. These statements are based on currently available information and our current assumptions, expectations, and projections about future events. While we believe that our assumptions, expectations, and projections are reasonable in view of the currently available information. You are cautioned not to place undue reliance on those forward-looking statements. Our actual results may differ materially from those discussed in this call for a variety of reasons, including those described in the Forward-Looking Statements and Risk Factors sections of our 10-K and other filings with the Securities and Exchange Commissions, which are available on our Investor Relations website. Finally, I would like to remind you that in the course of this conference call, we may discuss some non-GAAP measures. A reconciliation of those measures to the nearest comparable GAAP measures can be found in our first quarter 2014 earnings press release available on our Investor Relations website. Now, let me turn the call over to Pedro.

Thanks, Martin. Good afternoon. And welcome, everyone, to MercadoLibre second quarter 2014 earnings call. We are pleased to provide an update on the company’s operational and financial progress for the second quarter of 2014. We made solid progress on all fronts over the last three months, growing our business on the basis of the substantial upgrades we are bringing our users as we integrate payment and shipping into their buying and selling behaviors. As we introduced new formats for the sale of specific products and brands, and as we perfect the user experience that we offer buyers across all screens. We are increasingly delivering a shopping experience, that integrate all aspects of our ecosystem and the added value to our users translate to solid business performance. Let me start by giving you a quick snapshot of key metrics in areas of progress for the period. Reviewing key ‘14 versus ‘13 quarterly metrics for the second quarter, registered users continued growing pass the 100 million marker, now at 109.6 million registered users, up 21.5% year-on-year. Successful items grew 18%, reaching 23.6 million items sold. Gross merchandise volume surpassed $1.8 billion, up 67% in local currencies and up 22% in local currencies when we exclude Venezuela. Total payment transactions grew 40% to $10.3 million. Total payment volume grew 77% in local currencies, growing to $785 million. Revenue growth in local currencies came in at 66% year-on-year. Excluding our Venezuelan operations, revenue growth in local currencies came in at 47% year-on-year. Additionally, during the quarter we made significant progress across our strategic initiatives. Mobile sales reached 16% of gross merchandise volume. MercadoEnvios almost doubled its unit shipped approaching a combined 3 million in Brazil and Argentina, and our mall initiative continue to trend well as in the first quarter. This helped vertical categories…

(Operator Instructions) Our first question will come from Gene Munster from Piper Jaffray. Please go ahead.

Good afternoon, and congratulations. Couple of questions, first is that you mentioned that World Cup impact what it had on the entire quarter. Can you talk about how Brazil and Argentina were trending before the World Cup actually started? And then separately, can you talk a little bit about the unit growth number versus the overall local currency GMV growth and trying to understand how unit growth dipped a little bit but yet local currency growth accelerated? Thanks.

Sorry, Gene so just recapping the first question is a World Cup question. I think what we’re disclosing is the overall impact as we said in the prepared remarks. That impact was somewhat accentuated in Brazil but the reality is that Columbia, Mexico, Argentina are all countries that have a similar impact. And also did fairly well in the tournament as well as Chile. I want to make sure I don’t forget anyone here. And then as we’ve just mentioned, the additional headwind was also the way that the calendar played out in April vis-à-vis the previous year because of Easter vacation holidays. So we had a certain level of limited tailwinds on the front-end of the quarter and the back end of the quarter.

Okay. So let me ask you this way, going into World Cup -- overall local currency growth was 66%. Going into the World Cup, was it -- can you give us what the growth rate was for those or just a rough number, was it 76%, was it 4% higher obviously it was a -- must have been a higher number than 66%, correct?

Yeah. So again, I don’t know the number of the top of my head. What I do know is April was somewhat lower because of the calendar. May was the month where the business picked up and was probably somewhat above that, so closer to 70 and then again somewhat slowed down by the World Cup for June. The impact is going to be significant June. You’re going to have something hovering around the 70 mark.

Okay. That’s helpful to get kind of a normalized growth rate. And then separately on the unit growth…

Yeah, so the spread between unit which decelerated on a consolidated basis and then the business which delivered accelerating local currency revenues across pretty much most business units in countries, couple of impacts there. First of all, the non-marketplace business units performed well in the quarter. Payments had another strong quarter during Q2 after strength in Q1. And then also the marketplace business hits the improved monetization as we’ve been able to better monetize GMVe through a combination of better insertion fees, improved adoption, there were some pricing elements. So that essentially explains why we have a business that’s accelerating revenue in local currencies throughout all of the countries. So even when we parse out the more inflationary countries, we’re seeing that same strength across the non-inflationary countries as well as both marketplace monetization improved and the non-marketplace businesses performed quite well.

Okay. That’s helpful. Thank you. Congrats.

Next question comes from Vera Rossi from Goldman Sachs. Please go ahead.

Thank you. I have a question on Venezuela. What was the percentage of revenues in local currency that the company generated prior to May 16 and after May 16 when the currencies went from 11 to 50? Thank you.

Okay. So remember that this a quarter where Venezuela is not full quarter accounted for SICAD 2. The numbers in terms of reported are roughly from 16% a year ago, so Q2 ‘13 Venezuela was 16% of the business, Q1, ‘14 Venezuela in terms of percentage of revenues was 17%. This quarters Venezuela was down to 12.5% in dollars that should continue to go down as we move into the next quarter and the SICAD II rate applies for the fourth quarter.

Okay. I think I was not very clear on my question and I apologize for that. I would like to know in local currency so assuming the Bolivars, how much of the revenue the company generate in local currency prior to May 16 and after May 16 in Bolivars? What was the distribution in local currency in Venezuela not in the company. So I want to know about the country, specifically?

Vera, I’m sorry, I’m not sure I’m understanding your question. You want to know in Bolivars what percentage of the Venezuelan business of the company?

We can talk offline. But I would like -- what I would to know as you go in the full quarter of second quarter, how much of the revenues were generated in the first part of the quarter, just in Venezuela? So if you generate 100 Bolivars, how much was before May 16 and after May 16 of the 100 Bolivars, assuming your revenues are only 100 Bolivars?

Okay. Great. So I think I got it, Vera. Let me give you three directional numbers that hopefully will help you get to where you’re trying to get at. The Bolivars for April were roughly -- I’m going to give you ballpark numbers, were roughly 80 million. Bolívar revenues for May were roughly 110 million and for June were also roughly 110 million. So I am rounding somewhat but that gives us a sense of the cadence of bolívar revenues for the three months in the quarter.

Okay. Thank you.

Thank you. And our next question comes from Ross Sandler from Deutsche Bank. Please go ahead.

Thanks guys. Just got a couple of questions. First was, can you-- could you help us -- you mentioned that you guys aren’t doing the offline ad campaign. So I’m trying to reconcile the 27% year-on-year growth, which are realized in dollars and not quite apples-to-apples. And so the marketing would be 17% or 18% unit growth. With advertising growing at a much slower rate in units or faster, can you just give us some color on how much adverting contributed to that sales and marketing growth? And then second question is just, how does the pace of business in Brazil look now that we’re fully clear the World Cup, if you can give us some color there. And then last one, assuming the bigger brick-and-mortar retailers in Brazil are getting a little bit more aggressive with marketplace strategies. Do you view B2W Inc., NovoaPontocom is viable marketplace competitors or not? Thanks.

Okay. So the first question is on what’s happening with sales and marketing leverage, essentially if we could give a little bit more visibility into that? There are about 150 roughly basis points of margin contraction on the sales and marketing line, that is not mainly driven by customer acquisition. We did not do TV as you pointed out a lot of that money was reinvested online. What’s driving some of that delevrage is essentially charge-backs where last year quarter we had a very slow number because of a one-off and also we’ve had a little bit more fraud loss provisions for charge-backs this quarter, both versus last year and versus previous quarter. And there has also been some increase in bad debt levels. So it’s not driven by increases in customer acquisition. That one is only slightly up. And then in terms of the competitive landscape, I think as we always say the opportunity is huge. The Brazilian market has always been and will continue to be competitive. And if we continue to focus on our strategy, our plan, improving both buying and selling experience through our ecosystem, we think that the business will continue to grow for many, many years. Yes there are viable competitors. Our focus is primarily on what we need to do to continue to grow for as long as we can.

Okay. And lastly just on unit growth post the World Cup, if it’s possible?

Yeah I think probably for this quarter, we should wait until we actual report it.

Okay. Thanks guys.

Thank you. And our next question comes from Mark Miller from William Blair. Please go ahead.

Hi, good afternoon everyone. I’d like to get a sense for how the assortment is changing with the mall initiative and verticalization efforts? So I guess first off on the sales mix, can you give us a sense of how that’s changed outside of consumer electronics? And is there a way to encapsulate the size of the assortment and how that changes and how much of that is coming from the large stores?

Mark, can you just repeat the last part of the question? I got the first part.

Yeah, the number sounds impressive in terms of the number of large stores that you brought on. I am trying to understand how meaningful that is in terms of the selection you are offering to consumers -- additional point of perspective would be how large is that relative to where you see the business opportunity?

Okay, great. So first of all in terms of mix we’ve continued to see a decline in the overall share coming from consumer electronics. It declined by roughly another slightly over 1%. So we are continuing to see the shift towards some of these newer categories and away from consumer electronics. And then in terms of how relevant it is right now, we’re seeing really strong progress in terms of on-boarding brands. We are seeing improvements in the mall product. But there is still significant work to be done. This isn’t a material amount of our GMVe, its still small. We are very pleased with this, but it’s definitely the very initial steps. I think once brands converts that gives us greater creditability to go speak to more brands and more branded retailers. And hopefully we’ll continue to see good traction there but it still very early. So as a percentage of overall GMVe coming from official stores that’s still very low.

Okay. On the new user acquisition front there was a nice jump in the quarter, is that due to the efficiency of your marketing or your particularly on mobile or what cause the jump, Pedro, is there anything that one-off about that or do you anticipate continued acceleration of new users?

Yeah. So when we look at the cadence of additional new users for the quarter, it did accelerate versus Q1. We added about 4.7 million new users. That’s not very distinct to previous quarters. So it’s in line with some quarters we’ve had in the past. It’s good to see that accelerating again versus somewhat soft Q1 that is driven by improvements Q-on-Q in the efficiency of marketing spend. We’re getting a lot better with mobile registration and mobile integration. So we’re converting mobile traffic into better registrations. But I wouldn’t necessarily say that it’s a huge difference to certain quarters we’ve delivered in the past.

Okay. Final question for me on the acquisition opportunities you’re looking at. Could you just highlight what your criteria are for acquisitions and in fact, you’re doing this now, does this suggest that we could see something in the near term or is it just really to give you flexibility further out? Thanks.

Yeah. One added on the registered user number that’s also relevant is that some of that increase is also driven by the acquisition of Portalinmobiliario. So that did bring in some additional users. We’re still seeing efficiencies in terms of the mobile and marketing acquisition but some of that was also non-organic from the Portalinmobiliario acquisition. In terms of use of proceeds from the raise, I think we’ve been pretty consistent in saying that this was driven more by market timing and market conditions and a long-term vision that as the ecosystem in the region continues to grow, interesting M&A opportunities will come up. And the added cash gives us the flexibility to be able to move quickly when the opportunity arises. But not necessarily anything that we had in the pipeline right now nor are there any letters of intent outstanding.

Okay. Thanks. Nice results.

Comes from Marcelo Santos from JP Morgan. Please go ahead.

Hi, good afternoon. Thanks for taking the question. If you could you mentioned in the prepared remarks that the new marketplace business performed particularly well in most geographies. If you could provide an update on the classifieds front, am I understanding that you pointed out the financial revenues were particularly good but what about classifieds? Was there an improvement from the previous quarters and what’s the outlook here? Thank you.

Yes, so the classifieds business which is a business that we continue to be very long term positive about. Over the previous quarters had seen a slowdown in growth rates. We did some acceleration there again, the classifieds marketplace definitely picked up its local currency year-on-year growths. Again that is partially driven by non-organic growth from the acquisition. If we were to look at it organically it would have been growing more in line with what we saw in the first quarter. So part of that strength also comes from the portalinmobiliario acquisition which definitely helped the classifieds business.

Okay. And second question, you mentioned that there were some pricing changes that helped the result. Did you increase acreage in the countries like -- increase some fees in the countries, if you could give more information on that, that would be great?

So towards the end of the quarter, so June there were some increases in the commissions that we charge in some of the countries. There was also some increasing to the caps that we place on final value fees per item. So there were some pricing events in more than one country, primarily in June. Additionally monetization improved -- additionally monetization also improved not from pricing, but from improvements in adoption of placement fees and improvements in the overall monetization of the marketplace platform.

Okay. Great. Thank you.

Next question will come from Chad Bartley from Pacific Crest. Please go ahead.

Great, thank you. So two questions, just trying to better understand the strength in the quarter. First you highlighted many different drivers and initiatives, but was there one in particular that stood out that really can’t afford disproportionate amount of the growth in the quarter? And then second in general, was there something fundamental or structural that changed in the business that drove the inflection and acceleration that we saw? Thanks.

Yeah. So let me start with the second question. I wouldn’t say there have been any structural changes quarter-on-quarter or any step function changes in the e-commerce dynamics. I think as we’ve always said we are innovating on a lot of fronts across the platform. Shipping, as we gave some data really showed tremendous growth in adoption during the quarter. If you think about it, we are exiting the quarter in Brazil, doing 25% of our sold units through the MercadoEnvios platform, that number was much closer to zero a year ago. So great traction there. That overall drives better purchasing, purchasing of higher more expensive items, that’s one of the drivers that helping monetization across the platform, but there are also many others. And then in terms of the non-marketplace, I’d say there is no structural change there either. We have continued to see two quarters where the payments business has accelerated consecutively after being somewhat soft in the back half of last year. It improved in Q1 and improved once again in the second quarter both on platform but also off platform. And so that’s probably been the most significant driver within the non-marketplace category of improved financial results has been MercadoPago.

And if I could ask another question and thank you. Just real quick, sorry, if I miss this. Did you disclose the revenue contribution from the acquisition or what organic growth was or anything to help us on that?

Yeah. So we -- the revenue contribution per quarter of the classified business is roughly $3 million of the acquisition -- of the acquired companies.

Okay. So $3 million was the contribution in the quarter and its going to be fairly steady at that level?

Well, we’d hope to see that growing, but this quarter was about $3 million.

Great. Thank you, Pedro.

Okay. Great. So we were hoping that some one on the service provider side will close the quarter -- the call but I think we don’t have any other questions. So thanks everyone and we look forward to updating you again in the next quarter.