DLocal Limited

Thank you for standing by, and welcome to the Local Limited Reports third quarter 2021 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference may be recorded. Should you require any further assistance, please press star zero. I would now like to hand the conference over to the company.

Thank you. Good afternoon and welcome to the local earnings conference call for the third quarter of 2021. We're 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 the local website at investor.thelocal.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 in the local current assumptions, expectations, and projections about future events. While the company believes that their assumptions, expectations, and projections are reasonable in view of currently available information, you are cautioned not to place under reliance on those forward-looking statements. Actual results may differ materially from those included in the LOCUS presentation or discussed in this conference call for a variety of reasons, including those described in the forward-looking statements and risk factors section of the LOCUS registration statements on Form F-1, and other filings with Securities and Exchange Commission, which are available on the local investor relations website. Now, I will turn the conference over to Sebastian Canoich, our Chief Executive Officer.

Hello, everyone, and thanks for joining us today. On the call today, I'm joined by Sumita Pandit, our Chief Operating Officer, and Diego Cabrera Canay, our Chief Financial Officer. We are excited to present an update on our business, and we thank you for your interest in our company. On slide three, dLocal enables global merchants to connect seamlessly with billions of emerging market consumers. Our platform, 1dLocal, presents a single API, single integration, and single contract solution to our merchants. We are entirely B2B focused, and we are proud to count some of the largest global merchants as our customers. such as Microsoft, Raffi, Kuaishou, MailChimp, Wikimedia, Indriver, and Wix. Today, our infrastructure supports our merchants across 32 emerging markets in Latin America, Africa, and Asia. Now to the results. The third quarter has been another outstanding quarter. Total process volume, TPV, grew 217% year over year when compared to the third quarter of 2020. reaching $1.8 billion during the quarter. Revenues for the quarter of $69 million represent 123% growth year-over-year when compared to the third quarter of 2020. Adjusted EBDAs for the third quarter of 2021 grew 110% year-over-year as compared to the third quarter of 2020. On slide four. Let us briefly compare our Q3 2021 performance vis-a-vis Q2 2021 as well as full year 2020. Our Q3 2021 revenue growth of 123% compares to 186% year-over-year in Q2 and 88% year-over-year growth in full year 2020. We have previously highlighted the net retention rate metric as a key KPI we manage our business on. We achieved 185% NRR in Q3 2021 versus 196% in Q2 2021 and 159% in full year 2020. Our adjusted EVDA margin in Q3 2021 was 38% in comparison to 44% in Q2 2021 and 40% for the full year 2020. As we continue to invest in our people, platform, and technology to pursue a path of growth. We expect our full year 2021 adjusted EBITDA margin to be aligned with our full year 2020 adjusted EBITDA margin. During this quarter, we have seen continued growth in our business from both existing and new merchants using our platform. We are seeing more digitalization, less cash, and wider adoption of alternative payment methods. We have continued our efforts on the expansion front, growing our presence in Africa and Southeast Asia. We've launched two new countries in the last quarter, Thailand and El Salvador. For the year to date, 2021, we have added six new countries to our network infrastructure. We have added 10 plus new merchants with material volumes in the third quarter of 2021. We continue to benefit from the diversification of our business across verticals. We have maintained our strong adjusted VDA margin, even with continued investment in our infrastructure and people. We have continued to hire and strengthen our employee count in key functions. The headcount in the local grew 105% year-over-year in the third quarter of 2021. On slide five, there are three primary challenges that we are solving for our merchants. One, payment methods are local by nature and very diverse in the 32 countries where we serve. The trend of fragmentation continues as consumers adopt newly available payment methods. are key to access this rapidly growing end market without building the payment rails themselves. Two, achieving healthy conversion rates while keeping fraud under control is a challenge in emerging markets. And three, we make the complex simple for our merchants by enabling our merchants to keep up with the changing regulatory and tax framework in emerging markets. On slide six, the complexity of the markets we serve makes our solution powerful. Flight 6 provides a breakdown of payment methods in Latin America, Middle East, and Africa and Asia Pacific to showcase the complexity that our merchants face when doing business in this market. Each market is evolving differently. For example, the proportion of digital mobile wallets is much higher in Asia Pacific. Bank transfers and cash and delivery are much more dominant in the Middle East-Africa region. There are also differences by country in each one of the continents. Merchants are seeking choice and agility in these end markets to keep up with the consumer preference. Slide seven. On our website, we have made available a market study completed by AMI on the key markets we serve. Our TPV for the third quarter 2021 was $1.8 billion at 217% year-over-year growth. Our TPV for the last 12 months at $4.9 billion was 2.4x our TPV for full year 2020. Our TPB is a very small portion of our addressable market that is expected to continue to grow at 27% CAGR in the next few years. Slide 8. On slide 8, we present a case study of a representative merchant on our platform. As shown, we typically take three to six quarters to ramp up volume. For this particular merchant, we started with a local-to-local payment flow. We've added payment methods, we've added new countries, and we've then added cross-border flow for a few markets. We went from 18 to 109 payment methods for this particular merchant. We've expanded to nine countries. The merchant has seen growth of 30x volume over approximately three years. Every merchant is, of course, unique, and the example provided is representative of how we grow as our merchants organically grow on our platforms. I will now hand it over to Sumita to go through our vectors of future growth.

Thanks, Teba. We are now on slide nine, vectors of future growth. We have three primary vectors of growth, commercial efforts, product expansion, and geographic expansion. Our commercial efforts are focused on the land and expand strategy. Our growth is driven by the organic growth of our merchants, our ability to cross-sell through account management, and our ability to add new clients. Our NRR, Net Retention Rate, for the third quarter was an impressive 185% in comparison with 159% in 2020. We calculate NRR by measuring the dollar revenues we earned from existing merchants we had on our platform on a year-over-year basis. Therefore, $100 of revenues in Q3 2020 from the same set of merchants became $185 in Q3 2021. Revenues from new clients was $12 million in the third quarter of 2021, in comparison with 9 million for full year 2020 and 3 million in the third quarter of 2020. We continue to enhance our product portfolio with improvements in our features for pay-ins and pay-outs, together with the development and launch of new product lines such as issuing as a service. On the geographic expansion vector, we are constantly deepening our presence in the countries where we currently operate and adding new countries. We've added Thailand and El Salvador to our platform in the third quarter. Our revenue growth plus EBITDA margin, the rule of 40, was 161% in the third quarter of 2021 versus 129% in full year 2020. We believe that the strong cash flow generation of our business supports an inorganic strategy that will accelerate our time to market. We plan to pursue inorganic opportunities to accelerate any of our three growth sectors. Slide 10. Existing clients drive our growth. Our account management team is solely focused on harvesting our existing client relationships. This team works closely with our clients to solve their existing needs and cross-sells new payment methods, new countries, and new product use cases. At any given time, we have over 50 pricing proposals extended to our existing clients, about 30 plus in the testing stage, and about 20 plus waiting to go live. On slide 11, New clients continue to feed our industry-agnostic sales funnel. The rapid expansion and ramp-up of merchants online, the growth of the creator economy, the emphasis on merchants' place in digital marketing that in many cases have no geographic boundaries, the viral growth of users that some of our highest growth merchants experience has continued to expand our sales funnel. We expect this trend to continue as we see new companies emerge and become dominant online much more quickly today than even a few years back. The new age company is global and is growing across national and regional boundaries, and we enable them to access consumers anywhere in the world. As shown on slide 11, at a given time, we have about 175 plus merchants in the early stages of our funnel and over 75 plus waiting to go live. Once live, we typically take three to six quarters to ramp up volume with a merchant. We've onboarded 10 plus new merchants this quarter. Slide 12. Comprehensive and differentiated solution suite. Our product team is constantly working on optimization of our features and solutions. Slide 12 provides a snapshot of our platform. The back end supports our merchants for regulation, compliance, tax collection, fraud and security, smart routing, and settlement. The front end provides our merchants consumers with support for refunds, reminders for alternative payment methods, subscriptions, installments for mobile or desktop support at checkout. Slide 13. We have added six countries to our network year-to-date. Our expansion strategy is both merchant-led, that is, we go where our merchants ask us for a solution, as well as the local-led. We have a pipeline of merchants working to launch in the new markets we have expanded into more recently. We are not dependent on any single country for our performance. We also don't forecast our performance by country. Slide 14. We see strong growth across verticals with a 217% year-over-year TTV growth as our business benefits from diversification. Our business model is not dependent on the performance and outlook of any single industry vertical. We are also exploring additional opportunities with merchants, including to provide payment solutions in connection with cryptocurrencies. We will continue to evaluate the risk framework around cryptocurrency to provide our merchants with the appropriate solutions.

Slide 15. As I mentioned at the beginning of this call, we continue to invest in our business. Our people are our biggest competitive advantage. At the end of Q3, we had 532 employees from 30 plus nationalities. The headcount in the local grew 105% year over year in the third quarter 2021. Slide 16. Diego will now review our financial highlights.

Thanks, Seba. Let's start with slide 17. We have another quarter with a record TPV of $1.8 billion and record revenues of $69 million. In the third quarter of 2021, TPV has grown 217% year-over-year and 24% quarter-over-quarter. We continue benefiting from secular trends in e-commerce and digital payments as things go back to normal, as well as from our merchants' performance and our success in bringing them to more countries and payment methods. This growth is benefiting from the performance of our merchants in specific verticals, such as ride-hailing, streaming and advertising, as well as the sequential recovery of travel. Revenues have grown 123% year-over-year and 16% quarter-over-quarter, both very similar to what we grew in the first quarter of 2021. Our revenue over TPV ratio or take rate was 3.8% versus 4.1% in Q2 2021. This ratio varies as a result of changes in business mix of products, countries, and payment methods. Particularly in this quarter, some large and high potential merchants with a take rate lower than average or reaching better pricing tiers have grown significantly. Higher volumes with our largest merchants typically decreases the take rate, but they are great for our business as they bring incremental BTA. It is also important to note that our revenues exposure to our top 10 merchants continues decreasing from 62% in the second quarter of 2021 to 57% in the third quarter of 2021. Slide 18. Adjusted EBITDA for the third quarter of 2021 was $26 million or 38.3% over revenues, which compares to 40.6% in the third quarter of 2020. This margin decrease is the result of our commitment to continue investing in building the foundations for long-term growth as well as the combination of an outstanding world in our large and high potential merchants with lower take rate. Our cost of services in Q3 2020 was 2.4% of TPV. In comparison, our cost of services for the third quarter this year was 1.9%. This decrease year-over-year is the result of efficiencies and changes in business needs. If we look at operating expenses, excluding one-time and non-cash items, in line with our adjusted EBITDA calculation, we see that they have grown 92% year over year, more or less in line with our headcount increase of 105%. We intend to continue investing in growth, and therefore our margins may continue decreasing in the coming quarters, while maintaining our discipline to drive profitable growth with every additional dollar that we process. Slide 19. We continue delivering strong revenue growth, both from our existing and from our new customers. Revenues from existing merchants are those revenues that are driven by merchants that were already processing in the same quarter of last year. And revenues from new merchants are those revenues that are driven by merchants that started operating with us after the same quarter of last year. As our merchants typically have a three to six quarter ramp-up period, we believe that revenues from new merchants are just an initial indication of the potential of our customers. During this third quarter, our revenue from existing merchants was $57 million, more than double the revenues of $28 million in the same period of 2020. Revenue from new merchants was $12 million, four times the $3 million in the same period of 2020. As some fast-growing merchants onboarding Q3 2020 moved these quarters into the existing merchant's bucket, they contributed to the sustained high net revenue retention this quarter, which was 185%, and reduced the quarter-over-quarter contribution of the new merchant's bucket, which was an all-time high last quarter. In the medium term, we expect our net revenue retention to be in the 150 to 160 range. Slide 20. Of the 123 year-over-year revenue growth in Q3 2021, 85% of $26 million came from existing merchants and 38% of $12 million came from new merchants. Our net revenue retention remains at an outstanding level of 185%, significantly above our historical average and our performance of 159% in 2020. And also the revenue from new merchants remain higher than what we have achieved last year. As a recap, our net revenue retention is driven by having minimum levels of chance of less than 1%, by the growth of our merchants that are some of the e-commerce world leaders, typically growing from 20% to 30% annually in emerging markets, and the result of our performance in terms of gaining share of their wallet within the same payment methods and bringing them to more countries, products, and payment methods. With that, I will turn the call to Seba to conclude.

Thanks, Leo. On slide 20, we are very excited about the future ahead of us. We remain focused on our large and expanding thumb, our direct integrations with our merchants, our scalable infrastructure, and our exposure to a diverse mix of verticals and our focus on growth and profitability. We thank our merchants, employees, and investors for your continued support. I request the appraiser to open it up for questions.

As a reminder, to ask a question, please press star 1 on your telephone. To withdraw your question, press the pound key. Again, that's star 1 on your touchtone telephone to ask a question. Please stand by while we compile the Q&A roster. Our first question comes from George Currie of Morgan Stanley. Your line is open.

Hi. Good evening, everyone. Hope everyone is doing well. Well, congrats on the numbers. I have two questions. The first one is on your gross profit take rate, which is I think the right way to look at your profitability on a revenue basis. It was 1.9% this quarter, which was a 40 basis point reduction versus 2.3% in the previous quarter. That decline was actually pretty steep relative to the revenue yield, which fell roughly half of that. And I get it that you said that the revenue yield came because your volumes in very large clients grew and you need to offer lower prices. I get it. But aren't you able also to get better transaction costs out of the acquirers as you pass on more volumes? I mean, your volumes are up 217% year-on-year. So shouldn't you also be... getting some of these benefits and hopefully keep that relationship between the revenue yield and the gross profit yield flattish. It's evidently deteriorating. So that's the first question. If you can help us understand why that's happening and what do you think it will look like over the next few quarters. And then my second question is on the comment you made on Lower EBITDA margins. What exactly does that mean? I mean, I think it would be super helpful for us to understand the dimension that comment, you know, the magnitude, the duration of that decline, when do you think it will inflate back up, just any color that we can have just to, you know, put it in the right context and not getting carried away either up or down. Thank you.

Hi, Jorge. Thank you very much for the question. Sewa here. So on the first part of the question around gross profit, there's two sides to it. First, there's the fact of the business mix. Our business continues to evolve. Keep in mind we are offering multiple products across multiple geographies, and those will have different take rates. That's why we continue to insist on the fact that we don't optimize for a take rate because we know that number will move around. I do agree with you in terms of us getting better rates from acquirers and payment methods. You can see that our transaction costs have continuously declined. But, again, you might see them going up because it might also be a function of us processing payments in countries or in payment methods that are more expensive. So we continue to optimize for NRR, making sure that we are bringing more additional dollars that come out of profit. And, yes, definitely we are constantly getting better rates from acquirers, from payment methods, from banks. But that's not what we are optimizing for. We want to make sure that more dollars are coming through, and they always contribute to our margin. That's how we think of it. Sumit, I'll let you take the second part of the question around DBDA margin.

Yeah, thanks, Jorge, for the question. So I think, Jorge, as we mentioned, even in our second quarter earnings call, if you look at our margin performance for this quarter, it's very comparable to our margin performance in the same quarter last year. What I think we are planning towards is that our overall margin for the full year 2021 will be within the range of where we were for the full year 2020. And that guidance hasn't changed. It's a soft guidance that we are giving you as to, you know, what we are planning towards as a management team. We expect the margin to be in and around that level. Having said that, I think that, you know, we are not tying ourselves to a specific number. It's a range because we do feel that we have to continue to invest in the business.

Thanks, Seva and Sumita. Just a follow-up on this last part, Sumita. So I guess 2021 is behind, right? So what the margin is going to be in the fourth quarter is not that relevant at this point, I guess. I'm thinking more about 2022. So when you say you're going to see lower margins, I mean, are you talking about throughout 2022? And if you can help us, again, dimension what that lower level will look like. What is it that you're thinking? How much is lower? How much lower is lower?

Yeah, it's not. I think it won't be too far away from our 2020 numbers. So if you look at our 2020 margin, that is our short-term expectation of where we will keep margin. What I don't want to say is that it's definitely going to be a 40% number. It's going to be in that range. It won't be too different from what you've seen us perform in 2020. Great.

Thank you very much.

That's very helpful. We think the opportunity ahead is massive. We want to make sure we have enough opportunity to invest in the opportunities we think make sense. So we don't want to tie ourselves up to not be able to pursue those opportunities. I think we've built a track record of being profitable and doing so at scale. So we take our capital allocation really seriously, but we want to have the ability to continue to invest into the future. That's why we don't want to give a particular number.

Great. Thanks again.

Thank you. Our next question comes from Jason Kupferberg of Bank of America. Your line is open.

Thanks, guys. Good afternoon. Really nice top line momentum here. So in the third quarter, you delivered mid-teens quarter over quarter revenue growth, despite having a really tough comparison there. So I'm wondering, based on your expectations for growth at both new and existing merchants, can we see double digit quarter over quarter growth again in the fourth quarter?

I can start. Diego and Seba jump in with additional thoughts. I think, Jason, thanks for that question. I think that we are focused on year-over-year metrics. We want to continue to build a business in the long run. We are not as focused on quarter-over-quarter trends because we think that that can be misleading in terms of how we think about our business in the long run. If you look at our current quarter, our TPV in this quarter grew at 217%. If you look at Q3 2020, because I think it's helpful to think about where we were last year, for Q3 2020, our year-over-year growth was 65%. So we made the 55 grow to 217 in this quarter. For the next quarter, we continue to remain focused on what would that number look like versus Q4 of last year. Keep in mind that Q4 of last year was a reasonably strong quarter. A lot of the impact of COVID had gone away and Q4 was already looking very strong. We will see dollar growth from our Q4 2020 numbers, but it may not be the same percentage increase that you're seeing in Q3 versus Q3 of last year.

Okay. Yeah, I see that. I mean, the comp on TPP gets tougher. The comp on revenue is pretty similar, but obviously you've got the large merchant mix, so the take rate is going to be lower in Q421 than Q420. So maybe double-digit quarter-over-quarter growth is maybe a little bit too much to ask. I get it. Okay. Still great year-over-year growth. Yeah. Sorry.

Just one thing on that. If you can go back and also just take a look at our revenue growth numbers. We have that in our press release. It was not in the presentation. But again, that will give you some sense of where we were on our revenue growth numbers in Q3 of last year, which was 96% versus where we are right now, which is 123%. Again, give you a little bit of insight into how we have continued to accelerate our overall growth for the business.

Right. Right. Okay. Yeah, no, thanks for that. Just as a follow-up, I'm curious to get your latest views just on the competitive landscape. I mean, we've heard some players talking about potentially planning a bigger move into Latin America and wondering if that's something you're watching as well and whether or not you think that could have implications for pricing.

Sure. Hi, Jason, and thanks for the question. So in terms of competitive landscape, I think there's a few key aspects here. Number one, this is a huge market, and we are expecting more players who are already participating to do so at scale. We continue to be obsessed with differentiating. That's why you see us expanding geographically. You'll see that we are constantly adding more product lines because at the end of the day, we want to make sure we have enough touch points with our merchants. If you only do one market or one region, you are easier to replicate. The more problems you are solving for a merchant, the tougher it is for someone to come and compete. So, yes, we'll have competitors in particular payment methods, in particular geographies, but we are yet to see companies doing in emerging markets what we are trying to build at scale across payments, payouts, issuing, fraud prevention, and that's how and why we plan to differentiate.

Okay. Thank you for those thoughts.

Thank you. Again, to ask a question, please press star 1 on your touch-tone telephone. Again, that's star 1 on your touch-tone telephone to ask a question. Our next question comes from the line of Neha Argawala of HSBC. Your question, please.

Hi. Thank you for taking my question. I just wanted to follow up a bit more on Jorge's question earlier. The cost of services actually went up quite a lot. It was around 43% of revenues in the last quarter, and now in this quarter it was 50%. I understand that there's volatility, but is that a level around that? Is that what we should expect in the coming quarter because of whatever change in the mix that has happened? So just a bit more color on that would be very helpful. My second question is on the merchant base. You've added around 10,000 more merchants this quarter, you mentioned. Are you focusing, I understand that most of the merchants are in the U.S. and Europe, and you have a few merchants, a few Chinese merchants. Would that be a focus area for you? Would you like to concentrate on more serving the Chinese merchants? Or that's not a focus area? If not, then why? And my last question is on competition. You mentioned that you have a moat of geographic presence. That is what differentiates you. But are you seeing more pricing competition? You mentioned earlier that this is not the key point for a merchant when they work with you. And do you continue to believe that for a merchant it makes sense to work with two or three players and not just work with one player? And this is not a zero-sum game and you can have two or three key players for a particular merchant. Any thoughts on that would be very helpful. Thank you so much.

Anyhow, I will answer the first part and leave the rest to Sumit and Sarah. So basically, as we mentioned before, the second quarter was outstanding for us in terms of profitability. Part of that, the changes between the two quarters had to do with merchant and business mix. And as we mentioned, the third quarter profitability is more in line with what we had in Q4 or Q3 of last year. And yes, that is more in line with what you expect going forward. So the numbers that you see, I think it's 1.9% of TPV of cost. Again, we will not commit to a number that may fluctuate up or down. In the long run, we believe that that number will sequentially go down as we access to new pricing tiers and negotiate better prices with them. payment methods, but you would expect that to be in similar ranges as it is now.

Hi, Niha. Thanks for the question. So in terms of your question around what merchants we target, first of all, we want to target any company in the world that wants to do business across more than two geographies. And that means that we today onboard merchants that are coming from the U.S., from Europe, and definitely from China. If you look at our customer base and some of the names we've been able to disclose, you'll see that there are some of the Chinese leaders. I want to make this clarification because I think it's a really important one. We are not processing payments inside China, so we are helping Chinese companies go into the emerging markets, the same way we do for American companies and for European companies, and more and more through local leaders that are coming out of Africa, of Asia, and from Latin, who also are becoming relevant across more than one geography. China is a big focus for us, and it's going to continue to be, again, helping Chinese companies process payments internationally. And in terms of competition, so we don't compete on price. Keep in mind we are serving some of the biggest companies on earth. They have a lot of bargaining power. So we wouldn't be able to charge much more than the alternative if we wouldn't be differentiating. So we don't compete on price. We compete on making sure who has the better conversion rate making sure that our merchants get a higher access. We are revenue enabler. Merchants come to us because they want to drive their business in the emerging markets where they operate. And the last point around redundancy, I think we've been super consistent around this. We are almost never the sole provider for a merchant. Keep in mind, we don't process payments in Western Europe and in the U.S. So it is expected for a merchant to have another provider. Are they going to decide to have redundancy in our market? It really depends. It depends. We sometimes see one country having redundancy and others don't. So that continues to evolve. But we don't believe that it's sustainable, and we don't expect to be the sole provider for any of these global companies. That wouldn't be a best practice for them either.

That's super clear. Thank you so much, Deborah and Diego.

Thank you. Our next question comes from Tito Labarta of Goldman Sachs. Your line is open.

Hi, good evening. Thank you for the call and taking my question. I guess just following up on the net revenue retention rate, it still remains pretty healthy. Just to think in terms of the 150 to 160 guidance, you mentioned like in the midterm, is that still what you're thinking, like 12 to 18 months and you normalize to that 150 to 160 level? Do you think any indication on how that can evolve even in the next few quarters? And then also I guess thinking longer term, like for how long could that be sustainable for within that range? And then the second question, also I guess a bit on competition, but more in terms of, you know, how are you seeing competition in terms of like the wallet share and like the investments that you're making? Is that to protect against competitors taking either some existing clients? Is it to get more clients or just? to be able to increase the wallet share you have with those clients, just to understand where the competitive threats may be in terms of either existing clients or new clients and how the investors that you're doing can help protect against that. Thank you.

Peter, thanks for the question. I'll take the first part. So on your question on net retention rate and what we think we should be achieving in the more medium term, As we mentioned to you in the last quarter results also, we still think that in the near term, which is 12 to 18 months, 150 to 160% net retention rate is achievable, and that's what we are planning for. We've also mentioned to you that the reason why the NRR was so high right now is we are benefiting from some of the clients that were in our new client bucket moving into our existing client buckets. As a result, in the absolute near term, you're seeing these very high NRRs of 180 plus. It was 196% in Q2 and 185 in this quarter. In the medium term, it will be around 150 to 160. Regarding your question on how long will that sustain, that's a more difficult question for us to answer, but we have guided you to believe that in the more long term, it will probably come down to 120 to 130. We are a B2B-focused enterprise business, and we think 120 to 130 NRRs are achieved by some of the best software companies in the world, and we think that we will trend to that level, which will also be very close to the organic growth rate of our merchants in these end markets. Seba, do you want to take the next question?

Yes, sure. Tita, thanks for the question. Around our investments, we invest in two key things. Number one is continue to have the best platform in the markets where we operate, making sure we have the best conversion rate that our merchants get the best results, keep front-end under control, we're working with that, and having the team to support that. We are serving some of the most demanding companies on earth, which makes it really important for us to have the right team on the other side. At the same time, we continue to invest in expanding. We've announced our issuing as a service product. We've announced some of the new markets where we are starting to process payments. And the reality is that those are all ways to differentiate. And those apply both for our existing customers and our newer customers to come. Whenever we open a new geography or a new payment method, we have a new set of opportunities to go discuss with our current customer base. Obviously, we also expect that those new payment methods, those new geographies, those new products are going to allow us to bring new merchants into the platform. But then those new merchants are one day going to go into that NRR bucket, and we're going to be discussing all the other opportunities. We think those two things are hand-in-hand. They continue to complement each other, and we think continue to invest is the right thing because that's a way for us to differentiate on the long run.

Thanks, Eva and Sumita. That's very clear.

Thank you. Our next question comes from Domingos Falavina of J.P. Morgan. Your line is open.

Thank you. Congrats on the results again. Just a quick question around cost of funding, specifically in Brazil. So I understand you guys usually pay around 7 days to 10. We all know the credit cycle is a bit longer than that. We're seeing some funding pressures taking place in the acquirer, which I'm assuming they're passing on to you. So I'm basically assuming this flows in the cost of service lines. The 34 million, if I'm mistaken. So the question is, how much did that impact rising cost of funds in Brazil, impact your cost of service lines? And I'm assuming this should be an ongoing pressure in future quarters.

Yeah, sure. So just keep in mind that obviously Brazil is a relevant country, but roughly one-third of our volume is credit card, and within that, not that much is in installments. We discount everything as a policy. Everything that is cross-border, we discount it to mitigate any effects risk. And as interest rates may increase, we build that in the pricing that we provide. So the pricing that we set to our merchants assumes that we discount any receivables we have in Brazil related to installments.

And if I may compliment a little bit more here, Dom, thanks for the question. Keep in mind that Brazil is one of five countries just in LATAM for us. As we mentioned to you, we don't have necessarily a big concentration on Brazil. And therefore, you know, you're looking at a very, very small portion of our business, and even within that context, we don't think of this as a big factor in how we think about our cost of services in the country.

Sumit, about like 30% of volumes, if we apply, you know, even 30 days anticipation, 50 BIPs, 100 BIPs makes a difference, right? So just trying to carve out from the 34 what's kind of recurring and should continue to increase from what's not financially related.

Don, we haven't seen our cost per dollar going up. We've always advanced all of our funds. I think we've discussed this in the past. That's not a source of revenue for us. So we've always paid the acquirers their fees. We understand that that's where many of them do their margins in Brazil. But this hasn't been a driver of our cost of service. Again, there's also the component of local to local. So it's 30%, but when it's local to local, we don't have the need of advancing funds because we don't have FX risk. So this hasn't been a big driver of the increase in costs. All right. We don't expect it to be.

Okay.

That perhaps.

Thank you.

Again, to ask a question, please press star 1 on your touchtone telephone. Again, that's star 1 on your touchtone telephone to ask a question. As there appear to be no further questions in queue at this time, I'd like to turn the call back over to Sebastian Kenovich for closing remarks. Sir?

Thanks, everyone, for taking the time for your attention. I really appreciate the questions. Have a great one.

And this concludes today's conference call. Thank you for participating. You may now