DLocal Limited

Hello.

Thank you for standing by and welcome to the DLOCAL fourth quarter 2021 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'll need to press star 1 on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Soledad. Now, Gary, please go ahead.

Thank you.

Good morning, everyone, and welcome to D-Local's fourth quarter and full year 2021 earnings call. I hope you and your families are safe. I am Soledad Nader, the new head of investor relations at D-Local. Let me start by saying that it's my pleasure to have joined D-Local, the leading technology payment platform focused on emerging markets. On the call today, I'm joined by Sebastian Canovic, our chief executive officer, Sumita Pandit, our chief operating officer, and Diego Cabrera, our chief financial officer. We are providing a slide presentation to accompany our prepared remark. 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 and the local current assumptions, expectations, and projections about future events. While the company believes that our assumptions, expectations, and projections are reasonable in view of currently available information, you are cautioned not to place undue reliance on those forward-looking statements. Actual results might differ materially from those included in the local presentation or discussed in this conference call for a variety of reasons, including those described in the forward-looking statement and risk factor section of the local filing within the Securities and Exchange Commission, which are available on the local investor relations website. Now, I will turn the conference over to Seba.

Thanks, Sole. Hello, everyone. Thanks for joining us today. Before we dig into our Q4 and full year 2021 results, let me start this presentation by saying that our debut as a public company in June 2021 set the beginning of a new chapter for DiLoco. We're extremely proud of what we have achieved since we started serving global e-commerce merchants over six years ago. Our priorities and values have remained unchanged. We remain laser focused on building infrastructure, connecting the emerging markets to the rest of the world. We continue to turn the complex into simple for our global merchants, and we continue to redefine the online payments experience in emerging markets. We also value the continued support of our global team and our investors, and we have continued to grow and deliver despite the challenges posed by the pandemic. Our strong performance in 2021 has laid a solid foundation to fulfill our long-term vision. We are literally just getting started. On slide three. 2021 was a record year for us with triple-digit growth in total payments volumes, revenues, and EVTA. In 2021, total process volumes surpassed the $6 billion threshold. We have almost tripled our TPV, increasing by 193% over prior year 2020. If we compare our TPV in 2021 versus three years back, we have increased it by 11 times. Revenues for the year reached $244 million 134% increase over prior year 2020. If we compare our revenues in 2021 with 2018, we have increased it by an impressive seven times. We reached an all-time high NRR of 219% in 2021 and 198% in the fourth quarter as we grew wallet share with our existing merchants and had minimal churn of merchants. Adjusted EVDA for the year 2021 grew 136% year over year to 99 million. We posted a strong adjusted EVDA margin of 41% during the full year 2021. This was comparable to the 40% we posted in the full year 2020. Our EVDA margin for Q4 2021 was 38%, in line with our expectations for the second half of the year, as we focused on growing with large global merchants and continued investing in infrastructure and people to support our long-term growth strategy. These results were driven by the continued expansion of our relationship with both existing and new merchants using our platform, mainly driven by increased levels of digitalization in emerging markets. The inherent diversification of our business has continued to strengthen our business fundamentals. We serve a broad set of merchants across geographies, sectors, and products. This acts as a robust natural hedge to different economic cycles and consumption patterns. We remain committed to agile decision-making, helping our merchants achieve their growth plans in emerging markets. We remain bullish and are optimistic about our prospects for 2022. Our relationship with our existing customers and our commercial pipeline is stronger than ever. We are not currently seeing a major change in our business from specific factors, such as a higher interest rate, higher inflation in some developed markets, challenges in logistics in specific geographies, the Russia-Ukraine conflict, or the return to work. On slide four, as I have mentioned, our TPV has nearly tripled in 2021 year over year. The significant increase has been supported by the fast growth of our global merchants. We are proud to count some of the largest global merchants and marketplaces as our customers, such as Microsoft, Rappi, MailChimp, Spotify, Dropbox, and Deal, amongst various others we cannot name here given confidentiality clauses. Besides, during the year, we have onboarded high-growth merchants who are looking to expand outside their home geographies, such as Wish and Kuaishou, among many others. Our TPV growth will continue to be supported by the strong organic growth of our merchant CPV, as well as our ability to expand wallet share, sell additional products to our existing merchants, and take them to new geographies and payment methods. On slide five. Our business model is not dependent on the performance and outlook of any single industry vertical. As you can see, we have merchants from more than 10 different verticals. In the last two years, we have seen different verticals go through specific cycles, but our overall business benefits from verticals showing growth, while another vertical may go through a short-term down cycle. Right-handing and streaming during 2020 are a great example of this balancing trend. We are constantly looking for new opportunities to further diversify our business while following the best industry standards in terms of risk. We have added crypto as a new vertical. We are still in our early stages of pilots that we are running, as well as use cases we are exploring in multiple geographies with several merchants. We will continue to evaluate the risk framework and explore areas of growth. On slide six, our merchants are also well diversified on a geographical basis. We serve merchants located in more than 40 countries. We have continued to grow our presence in Africa and Southeast Asia, adding Pakistan, Tanzania, and Uganda to our infrastructure network during Q4 2021. For the full year 2021, we've added nine countries to our network, bringing the total number of countries which we make our service available to 35 compared to 26 in 2020. We have added new countries based on where our merchants want us to serve them, as well as our internal view of the prospects for a new country across our merchant base and the wider industry. We typically have our merchant in waiting when we add a new geography, and this enables us to generate a high ROI on our expansion into a new country. We believe that infrastructure we are building across geographies is a key strategic differentiator for our business. because adding new countries and establishing multiple local connections is complex, and merchants value the infrastructure network we are creating. On slide seven, our expansion efforts are reflected in our strong revenue growth across all geographies. Our dollar revenues in LATAM increased by 140% year over year. LATAM accounted for 92% of the total revenues in 2021, whereas Asia and Africa accounted for 8% of the total revenues. This was despite the fact that Asia and Africa revenues increased by 86% year over year and grew almost 5x in the last two years. Our addressable market in our core markets in Latin America is immense, and we are pleased to note that our core markets in LATAM continue to see solid triple-digit growth as we deepen our relationship with current merchants or add new logos. We expect our share of Asia and Africa revenue to gradually increase over time as we continue to cross-sell to merchants that originally started their relationship with us in Latin America to countries such as Nigeria, Kenya, India, and Indonesia. We are also increasingly starting to see merchants initiate their relationship with us through markets in Asia and Africa and then expanding to Latin America. The opportunity remains significant across our different regions, and we will continue to take steps to further diversify our geographic footprint, especially in Africa and Asia. Slide 8. During the year, we have been able to not only upsell and cross-sell to our existing merchants, but also to onboard new merchants with solid prospects, such as a leading US video streaming platform that launched 13 geographies with us, a leading Chinese short video social app that has been explosive growth globally, and a leading Latin American on-demand delivery platform. Total merchants on our platform have grown steadily from 300 plus in 2020 to 400 plus in 2021. If we focus on merchants with TPV greater than $100,000 annually as a threshold, we see that our merchants count increased massively from 150 plus in 2020 to 240 plus in 2021. Going forward, we will focus on a minimum TPV threshold to provide a merchant account for our large global merchants as it is a better indicator of the performance of our clients. As we add new merchants and scale existing ones, our revenue share from our top 10 merchants has continued to decrease. Revenues from top 10 merchants dropped to 56% in 2021 compared to 64% in 2020 and 73% back in 2018. I will now hand it over to Sumita.

Thanks, Seba. I'm pleased to join you all today. I'm on slide nine. There's a lot of data on this slide, so let me try to simplify the key messages. We show the performance of each of our cohorts we've added in the last few years on this slide. Let's focus on the left-hand side. There are three key takeaways here. One, each cohort is posting solid TPV growth year after year. Two, each cohort starts at a higher starting point than the previous year. This demonstrates our ability to continue adding incremental volume from new merchants in the first year of our relationships. Three, the 2018 and 2020 cohorts showed the highest growth in 2021. The merchants we add in a given year typically take a few quarters to show relevant growth on our platform. These specific cohorts growth was driven by the performance of some blue chip clients that have scaled their volume very fast while we were able to add new geos and payment methods with them, thus gaining significant share of wallet with these customers. Let us now look at the right-hand side of the slide. You can see the trend for revenues over TPV or take rate for each cohort during 2021. For those of you who followed our post-IPO journey, you've heard us say that we do not manage our business to maximize take rate, and take rate is not an input to our model. It is an output based on business mix, volume per merchant, and volume-based pricing tiers for merchants with increasing volumes. Take rate also varies by region. For example, LATAM is different from Africa, which is different from Asia, product as well as payment method. Thus, our take rate has gone up as well as come down in the last few quarters given these factors. There are three key takeaways for the right-hand side of this slide. For each cohort, the take rate remains almost unchanged versus 2020. Different cohorts have different pricing points depending on the business mix, and we continue to see that there are multiple factors that make our merchants want to do business with us, and pricing is just one of them. The drop in our average take rate from 5% in 2020 to 4% in 2021 is mainly explained by changes in the underlying business mix. The cohorts that grew the most in 2021 were the 2018 and 2020 vintages, and these cohorts came with a lower take rate, mainly driven by their business mix of higher payouts and local to local payment flows. Third, it is worthwhile to highlight that the 2021 cohort of merchants posted a higher take rate than our overall take rate in 2021. We've included this slide to show our strong performance by cohort and going forward, we expect to share this cohort data sporadically. Before moving on to the next slide, let me say that our focus is on increasing our gross profit dollar. As Diego will show you in the financial section. This is how we manage our business. We do not manage our business on a take rate basis. Our sales team is not incentivized to maximize gross take rate. Instead, they negotiate the contracts aiming to maximize the net dollar total value while deducting processing costs that the agreement will bring to the local. Slide 10. On this slide, you can see that we have three primary vectors of growth, commercial efforts, product expansion, and geographic expansion. Our commercial efforts are focused on a 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 for the fourth quarter was an impressive 198%. We calculate NRR by measuring the dollar revenues we earn from existing merchants we had on our platform on a year-over-year basis. As we've mentioned in the past, we expect the NRR to be at the 150% plus level in the next 12 months. Our product innovation journey is never static. Emerging markets are constantly changing and we need to remain vigilant and agile. This is what keeps us at the forefront of the industry. During the year, 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, as Seba previously mentioned, we have added nine new countries during 2021, of which six are outside of Latin America. We will continue to deepen our presence in the countries where we currently operate and add new countries. As an example of our commitment to growing our non-Latin America business, we've moved two senior executives to Singapore and South Africa to lead our commercial and expansion efforts in Asia and Africa respectively. This allows us to retain our D-local culture in a new geography, and at the same time, we are focused on hiring locally to grow faster. We believe that the strong cash flow generation of our business supports a complementary inorganic strategy that will accelerate our time to market. We plan to pursue selective inorganic opportunities to accelerate any of our three growth vectors. The correction in valuation of Fintech assets has made many more businesses more attractive, and we continue to evaluate M&A though nothing is imminent. Next slide, slide 11. Slide 11 shows our continued success in bringing our merchants to more countries and payment methods. In 2021, our enterprise merchants on average processed payments in seven countries and through more than 67 payment methods. In comparison, in 2018, on average we were processing payments in four countries and through 29 payment methods. Credit cards continue to account for about 35% of our volume, so a significant portion of our businesses includes a non-credit card-based payment method. As we offer more than 700 payment methods in 35 countries, our merchants value the convenience of a one-stop shop that gives them access to so many alternatives through a single API. This gives us an immense opportunity to continue scaling our customers and increase the barriers of entry for our competitors. We remain focused on continuing to monetize our existing client base and gaining share of wallet. Slide 12. On this slide, we show the number of opportunities we have in our sales funnel for both existing and new clients and how this compares with the opportunities we had in March 2021 before our IPO. We have seen a major increase in the opportunities for both existing and new clients in the last year. Our IPO has significantly enhanced the visibility of our company and capabilities to our merchants, and it has reinforced our credibility as a solid and trusted payments partner. Starting with our existing clients, we have an account management team solely focused on harvesting these relationships. This team works closely with our clients to solve their existing needs and cross-sell new payment methods, new countries, as well as new product use cases. We have over 190 open opportunities with existing clients to expand to new markets, products, or payment methods. These proposals are at different stages, having over 50 pricing proposals extended to our existing clients and about 40 plus waiting to go live. The total number of open opportunities compares with about 60 plus back in March of 2021, representing a strong increase of three times in less than a year. Moving to our new clients, we have seen that our sales funnel continues to expand given the rapid expansion and ramp up of merchants online, the growth of the creator economy, the emphasis our merchants place on digital marketing, that in many cases have no geographic boundaries, and the viral growth of users that some of our highest growth merchants experience. 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. These companies, as we call them the next tier of merchants, are not always the same size and type of the mega merchants we already have in our portfolio, but they are also not SMBs. They are mainly regional players that want to expand outside their home markets and we enable them to access consumers anywhere in the world. As shown on this slide, we have open opportunities with more than 640 new merchants with over 250 pricing proposals extended to new clients and over 100 waiting to go live. Once live, we typically take three to six quarters to ramp up volumes with a merchant. The number of opportunities has scaled significantly by about two times compared to the 350 plus we had in March of 2021. The merchants we expect to onboard during 2022 came from diverse businesses such as commerce, gaming, crypto, messaging apps, payroll, amongst many others. Slide 13. On this slide, we show a recap of the main enhancements done during the year to our existing product portfolio. On Pains, we started offering new integrations to add redundancy to our card processing. in existing as well as new markets during the year. We enhanced our solution with new features such as network tokenization, removing the need to handle sensitive cardholder data as network tokens are maintained and automatically updated. We integrated PIX in Brazil, enabling instant payments for users, which provides better user experience, new integration options through full API solutions, and even giving local merchants their own PIX keys. We recently received an award for our PIX integration that you can find on our website where we provide you more details on that initiative. We improved our tax manager to allow tax handling by payment methods, both debit or credit. In Q4, we introduced a new auto debit payment solution for subscription business model companies in India for both domestic and cross-border transactions to comply with the latest auto debit regulations. We also increased our card and APM acceptance rates with better smart routing, chaining, and UX improvements through rigorous A-B testing. On the payout side, we expanded instant payouts offering in more countries, previously only available in Nigeria and Brazil, and improved our PIX payout solution with our PIX mobile app. We also enhanced our logic and automations to overcome local Rails processing limitations. Besides, during the year, we added 20 plus direct connections with new partners and banks for processing redundancy and capability enhancements in both existing and new markets. Slide 14, we also broadened our product portfolio. We launched defense suite, including our smart defense and defense manager products. Additionally, we continued improving our fraud and data modules with new machine learning models, tailored for retail and gaming verticals. We added profiling and fingerprinting tool live, device ID live, among other KYC improvements. In the middle of last year, we had also launched our issuing as a service solution, which enables merchants to create new lines of revenue and easily issue prepaid cards in local currencies to reach millions of consumers in emerging markets. This product comes to our offering as another building block for what we consider to be a one-stop shop, particularly appealing when analyzing bankerization rates, which are significantly lower than in developed countries. We have launched a solution in four markets and have signed new deals that we are in the process of integrating and are soon to go live. We have partnered with local banks as issuers to help grow the product. Although we are still at very early days, we remain bullish about the evolving use cases for our merchants. Slide 15. We continue to invest in our business, responding to the incremental opportunities we face. At the end of 2021, we had 535 employees, increasing by 73% or by 225 FTEs year over year. During the year, we grew significantly in all areas, with particular focus on technology and products, as well as sales and marketing, but also in our support areas to upgrade them to the standards and best practices of public companies. We will continue hiring and scaling our team with focus on technology and product and sales and marketing. We intend to do so with a balanced approach, making sure we identify talents that fit with our culture. With that, I'm going to turn it over to Diego to review our financial highlights.

Thanks, Sumita. Let's start with slide 17. We have seen strong TPV growth during the year. In 2021, our TPV surpassed the $6 billion threshold, increasing by 193% year-over-year. And in the fourth quarter of 2021, TPV has grown 145% year-over-year. The growth is is attributable to the performance and continued growth of our enterprise merchants across most verticals, particularly in ride hailing, streaming, advertising, software as a service, on-demand delivery, and commerce. During 2021, both our pay-ins and pay-outs experienced triple-digit growth. For pay-ins, we have seen a steady increase in TPV quarter after quarter. Specifically, in Q4 2021, pay-ins have grown 190% year-over-year and 14% compared to the third quarter of 2021. Payouts TPV has seen short-term fluctuations resulting in a quarter-over-quarter drop in Q4 2021, given higher than normal volume that came from certain margins in Q2 and Q3 of 2021, as they decided to run big marketing campaigns in these quarters. On a year-over-year basis, our TPV for payouts still shows strong double-digit growth. The strength of our business is best measured over slightly longer time periods as we continue to grow our relationship with our merchants. Going forward, we expect our business to continue growing strongly in 2022, both in pay-ins and pay-outs. Slide 19. Revenues also reached a new record high of $76 million during Q4 2021 and $244 million for the year 2021, having grown 120% and 134% year over year, respectively, and 11% over the third quarter of 2021. our revenues over TPD, or take rate, decreased from 5% in 2020 to 4% in 2021, mainly explained by changes in the underlying business mix towards larger global merchants and higher share of local to local payments, as explained before by Sumita. Particularly, in Q4, we see a slight increase in take rate from 3.8% to 4.1% when compared to the third quarter of 2021, mainly explained by a higher share of pay-ins. Slide 20. Zooming in our revenue, 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 period of last year. And revenues from new merchants are those revenues that are driven by merchants that started operating with us after the same period of last year. As our merchants typically have a three to six quarters ramp up period, we believe that the revenues from new merchants are just an initial indication of the potential of our new customers. During 2021, of the 134% year-over-year revenue growth, 119% or $124 million came from existing merchants, and 15% or $16 million came from new merchants. For Q4 2021, of the 120% year-over-year revenue growth, 98% or $34 million came from existing merchants, and 22% or $8 million came from new merchants. As some of the fast-growing merchants onboarded in late 2020 moved into the existing merchants' bucket during 2021, they contributed to the high net revenue retention of 219% for the year and 198% for the fourth quarter. Our high net revenue retention is driven by having minimum level of churn, by the growth of our merchants, and by the result of our own performance in terms of gaining share of the wallet. However, we do not expect to maintain the same net revenue retention levels in 2022, as 2021 represented an all-times high in terms of revenue and TPV growth, and therefore the comparison gets tougher, particularly since the second quarter of 2022. Thus, in the next 12 months, we expect to maintain a healthy net revenue retention north of 150%, in line with what we have been able to achieve in the previous years. Slide 21. As Sumita mentioned, our commercial focus is to increase our gross profit dollars per merchant. As a result, our gross profit continues to grow at a healthy rate. In 2021, we more than doubled our gross profit, increasing 117% year over year to $130 million. And we were able to scale our gross profit each quarter, reaching $39 million in Q4 2021, up by 88% year over year and by 13% when compared to the third quarter of 2021. Our cost of services for the full year 2021 represented 1.9% of our TPV compared to 2.1 in 2020. This decrease was mainly driven by an increase in the share of local to local pay-ins with a cost below our average. In the fourth quarter of 2021, our cost of processing was 2% compared to 1.9% in the third quarter of 2021 and 1.8% in the fourth quarter of 2020. These sequential increases were mainly driven by a higher share of pay-ins, both local to local and cross-border, with higher average costs than payouts. Slide 22. Our adjusted EBITDA for the fourth quarter of 2021 was $29 million, increasing by 112% year-over-year. Our adjusted EBITDA margin was 38% compared to 39% in Q4 2020 and flat on a quarter-over-quarter basis. Adjusted EBITDA for the year increased by 136% year-over-year to $99 million and represented 41% of revenue compared to 40% in 2020. This shows our commitment to continue driving profitable growth. If we look at operating expenses for the year, excluding one-time or non-cash items, in line with our adjusted EBITDA calculation, we see that they have grown 81% year-over-year, slightly above our headcount increase of 73% as we added more senior members to our team and we increased our professional services as part of becoming a public company. We expect our VDA margin for 2022 to remain north of 35%. In the medium term, as we grow our top line and gain scale, we continue to expect operating leverage in our business and therefore the ability to expand our margin. With that, I will turn the call back to Seba to conclude.

Thanks, Dio. On slide 24. As we look ahead, we are very excited with the opportunities we foresee. We remain focused on our large and expanding TAM, our direct integrations with our merchants, our scalable infrastructure, our exposure to a diverse mix of verticals, and our focus on growth and profitability. We do not anticipate a change in our expectations for our overall business for 2022 from specific factors, such as a high interest rate, high inflation in subdeveloped markets, challenges in logistics in specific geographies, the Russia-Ukraine conflict, or the return to war. While individual merchants may have idiosyncratic exposure to these factors, we continue to benefit from the diversity of our merchant base, geographies, and consumer behavior patterns as we expand our payment infrastructure across 35 countries and 700-plus payment methods. We remain bullish about our business and our expectations for 2022 from both our existing clients as well as the addition of new clients. As mentioned in our previous quarterly earnings calls, we reiterate our expectation of our net retention rate to be at the 150 plus level in the next 12 months. And we expect a healthy new client revenue based on the current pipeline we see. We expect our EVDA margin for the full year 2022 to be north of 35 percent. In the medium term, we continue to expect operating leverage in our business and therefore the ability to expand our margins. We are immensely grateful to our merchants, employees, and investors for your continued support. I'll now turn it back to the operator to open it up for questions.

As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Kyle Creto with UBS. You may proceed with your question.

Hello, everyone. Good morning. Thank you for taking my question. So I have two questions here, if I may start with the first one. The first one is that I would like to understand what kind of impact you could have in your business because of this geopolitical scenario currently. I understand that you don't have presence in any of these countries today. But I believe you have some clients with headquarters in some of these. So just would like to understand if that is the case. And what is the company doing about that? If we should see any impact in terms of TPV and revenues because of this. And then I will follow up with my second question, please.

Hi, Gaius. Sebastian here. Thank you very much for the question. We have zero exposure today to Ukraine and Russia businesses. We don't process payments in any of those two countries, and we don't have a merchant base either in Russia, so we don't expect any impact in 2022 of that price.

Okay, great. And the second question is that this year you added nine new countries and looks like more than 100 merchants, according to the slides. So I was wondering if you could give us some details about the pipeline for 2022 and how should we expect in terms of revenues coming from new merchants throughout the year, please. Sure.

So Caio, I think it's important to break down the geographic expansion. So I saw the geographic expansion from our new revenues. We'll continue to increase our geographic footprint. We do have, and Sumita covered this, a focus on making sure we continue to double down on our current 35 geographies. And we do expect to continue to be able to add new geographies as our merchants will require it. Keep in mind, we typically have a merchant in line while launching a new country. Geographies are extremely important to us. Geographic expansion is extremely important to us in the sense that it allows us to have more touch points with our merchants. The more footprint we have, the better chances we have to be able to get a merchant to integrate into us. And that's where the whole net revenue retention kicks in. We know once we are integrated, our merchants don't churn, but not only that, continue to drive more revenue dollars through our platform.

Okay, great. And just a follow-up, how could we expect in terms of revenues coming from new merchants throughout the year? Because you mentioned that net Revenue retention rate around 150. But coming from new merchants, do you have an estimate?

Sure. Sumita, you want to take this?

Yeah, sure. Kale, I think as you heard us say, we think that our pipeline is super strong. We are not giving a specific guidance on new client revenue. You've seen how we have performed consistently as far as new client revenue is concerned, not just in the whole year, but in every given quarter. We think it's going to be a strong growth, but given how quickly we are growing, we are giving you what we think is our best estimate of net retention rate, which comes from existing clients that we can measure more accurately. For new clients, we are not giving a specific range at this point in 2022, but we expect it to be strong.

Okay, great. Thank you very much.

Thank you. Our next question comes from Jason Kupferberg with Bank of America. He may proceed with your question.

Hey, guys. This is Cassie on for Jason. I first wanted to ask, will you guys provide medium-term financial targets at your upcoming Analyst Day?

Hi, thanks for the question.

Yes. Let's go ahead.

Sorry, Sabah. Thanks for the question. We don't have an exact date for our analyst day yet. We expect it to be in the next few weeks. We decided to delay it because of the current geopolitical situation. When we have our analyst day, we will share our views of our business at that point in time. But we are not giving specific guidance for the full year, other than what we've shared with you, which includes our net retention rate. We expect it to be 150% plus. We are also indicating that as far as our EBITDA margin is concerned, we expect it to be 35% plus. As you've seen, we continue to perform above our expectations in every quarter. since we went public and the guidance that we've given since then. So it's very consistent with the guidance that we've given to you in Q2, Q3, as well as Q4 that we are giving you now.

Okay, got it. And on the margins that you mentioned, the 35% plus, I mean, can you quantify some of the specific investments that you're making? I mean, you guys did 40%, north of 40% of EBITDA margins in 2021. I know you guys talked about sales and marketing investments and headcounts. But can you give a little bit more quantification of where these additional investments will come in 2022 versus 2021? Thanks. Sure.

Thanks for the question. So for us, investments always come down to technology and infrastructure and the team to support that. We have a very aggressive infrastructure expansion plan where we continue to add new geographies, new products, and that does require investments. We do expect those investments to pay off in the long term. We think our business has shown the ability of being very profitable, so we do want to have some leeway to be able to invest more as we see fit. We'll continue to expand our commercial teams, our sales teams, and our support teams, keeping in mind we are still running on a relatively small organization. We like it that way. We want to preserve the culture, but we do expect to be able to invest more in the future. At the end of the day, to make sure we have a better product, better technology, and better infrastructure for our merchants.

Okay, got it. And if I could ask a really quick follow-up, I just wanted to ask, are there any mixed effects on volume or take rate that we should be aware of in the near term?

Diego, Sumita, feel free to compliment. No, we just come from an amazing quarter and a year we're extremely proud of. We've never been more bullish about our expectations for next year. We've never been in a better place from an offering perspective, the product we have, the infrastructure we have. So we do expect take rates to fluctuate over time. You've seen it going up and going down in Q2, Q3, now in Q4. So that's entirely a function of the business mix. We think that's healthy. That means that we have multiple business lines and multiple geographies that are being used by our merchants. So we don't have any specific expectations, but we are extremely bullish about what's to come in 2022.

Okay.

And I think particularly so in Q4, you see that the rate went up from 3.8 to 4.1%, and that is what we always explain, that our business needs change from quarter to quarter. Going forward, as we always say on the medium term, we expect the rates to sequentially go down, but any quarter may go up and down. And when we talk about the 150-plus net revenue retention, we see potential growth both in pay-ins, pay-outs, cross-border, local to local, and also cross-directions.

Thank you.

Thank you. And as a reminder, to ask a question, you'll need to press star one on your telephone. Our next question comes from Andrew box with SMBC. You may proceed with your question.

Hey, good morning guys. And thanks for taking my question. We just wanted a point of clarification. So the NRR rate of 150% that you're calling out in 2022, is that a full year number or is that kind of where you should be as like an extra rate in fourth quarter? And how should we think about the cadence of that number as we kind of progress throughout the year?

Sumita, you want to take it?

Yes. Thanks for that question. The 150% plus guidance that we are giving for net retention rate is for the full year. We expect that for the full year, that's where we'll come out in NRR. In any given quarter, we expect it to be within that range, obviously, because it is going to come down to about 150% plus. And you're seeing that our current NRR is much, much higher for Q4. There will be some linear decrease. Whether that will happen in Q2 or Q3 will depend on where we come out in those quarters. As you know, Q2, Q3 of last year were extremely strong quarters for us. And so, you know, our base is already higher in the previous year. And therefore, we expect changes in the quarters going forward. But we want to reiterate that it is 150% plus NRR guidance for the full year 2022.

Got it. Thank you for that color. And so, look, you had the increased volumes on payouts in Q2 and Q3 from, you know, the marketing campaigns called out from certain clients. I mean, how much visibility do you have into these marketing campaigns? And do you expect, you know, the payouts to reaccelerate as we kind of get through the next couple of years? And maybe if there were any COVID impacts that affected certain verticals in the fourth quarter, it would be interesting to hear that.

Sure. Andrew, thanks for the question. So we have a fair amount of visibility in terms of our payouts business, the same as with our payings business. We are extremely bullish on what we see for that product. Nothing has changed from a fundamental perspective. We continue to have a very healthy pipeline. We continue to be able to onboard merchants, and our existing merchants continue to operate at a very healthy rate. We do expect our payouts business to be slightly more chunky than our payments business, so we do expect to have some fluctuations. We have had zero churn in this phase. That's a very important point. So all the merchants that were driving these volumes are still with us. And we are very bullish in terms of the ability of payouts to not only recover but continue to grow. Keep in mind, and I want to insist on this point, we continue to look at our products together. We think of merchants first. So we'll have some of those volumes moving from pay-ins to pay-outs. That's only natural as our merchants go through different cycles. But we do feel extremely confident that our payouts business will continue to perform over time.

Great. Congratulations for the first years of public company.

Appreciate it.

Thank you. Our next question comes from Neha Agarwal with HSBC. You may proceed with your question. Hi.

Thank you for taking my question. And apologies if we've already discussed this. But could you please explain the impact of efforts that might be there this quarter? Thank you.

I'm not sure I hear well. Yes, thanks very much for the question. Would you care to repeat the question, please?

It's the impact of ethics. Ethics movements that might happen on your financials in the first quarter, if there was any.

Yeah, I can take that one. So as you remember, Nika, ethics for us is a source of revenue, so which You have a lot of noise. Can you go mute for a second? When we provide cross-border services to any of our merchants, we charge for an FX fee as part of the total revenue. And from a cost perspective, we manage that as a cost. So we discount our receivables to minimize FX exposure and convert to US dollars on a daily basis all the balances. Whenever we have an amount for more than one or two days, we hedge it. So we convert that risk into cost. The number is actually in the financial statements. If you look at 2021, we combined together what is called effects variations or volatility and broker costs, and that put together was roughly 3% of our revenues in 2021 and actually also 3% in 2020. Roughly half of that is broker cost and the other half is volatility. So, you know, it's a cost for us. It's very minimum compared to other revenues. And obviously for us, FX is more a source of income and not source of cost.

In terms of impact on your volume because of the currency conversion to US dollars.

Can you say that again, please? I cannot hear you.

Apologies. I'll be more in terms of volume is because of the FX movement that impacted your volumes in the fourth quarter.

No, yes, I got the question. So basically you see that in the slide that shows pay-ins and pay-outs. We typically don't measure our TPV on an FX neutral basis. We think of the company in U.S. dollars. Obviously, if we were to reproduce growth in local currencies, it would be slightly higher than in U.S. dollars. But the main driver of the 2.5% roughly quarter-over-quarter increase in TPV from Q3 to Q4 is what you see in slide 18 of payouts. that we had these seasonal short-term marketing campaigns from short video social media companies that did a strong investment in those periods in Latin America, and they reduced these investments. As we always mention, we have no churn. These companies still work with us, but they reduce significantly the level of investments. Payouts work this way, are a little bit more chunky than pay-ins. But going forward, as Eva mentioned, we have very strong opportunities in both pay-ins and pay-outs, and we see them growing going forward.

Perfect. That's very helpful. If I could just, if any, I can get any thoughts on your expansion in Asia and Africa. The growth in Latin America was stronger than in Asia and Africa, but can you give us any sort of sense of how can the proportion of total revenues change in the next three, four years? Like, currently, 92% is from Latin America. Where do you see it in the next three, four years? Thank you so much. Sure.

Thanks for the question. I think there's two sides to this question. Number one, we continue to grow really, really heavily on LATAM. I think that's a really important point. That's where we started and our time continues to expand in our original LATAM market. If you look at our non-LATAM business, including Africa and Asia, it's already very healthy where we've done over 20 million dollars in revenue for the year. We are not optimizing for a share of split between LATAM and Africa and Asia. We don't think that's the right way to do it. We do expect Africa and Asia to continue to grow. We've grown this year to 86%, so it's very healthy growth. We do have the positive challenge of LATAM going even higher at 140%. We highlighted this. We are investing very heavily in both Africa and Asia regions where we move more people. We are moving more of our headcount there. So while we don't commit to a specific share between both regions, we do expect our Asia and Africa business to continue to grow very heavily because we do see massive opportunity and we do see a lot of the frictions and challenges we face back in the day, replicating themselves in Africa, in Southeast Asia, and in India.

If I may also emphasize here, Neha, I think one really important point to also stay focused on is that our LATAM business actually grew by 140% year over year, a very, very strong growth on a much bigger base. We grew it to $223 million for 2021. So we think it's a great sign to know that even our core business can continue to grow at those levels within LATAM.

Very clear. Thank you so much for the answers and congratulations on this one.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Sebastian for any further remarks.

I want to thank everyone once again for joining the call. To our merchants, employees, investors, thanks for being with us along the ride. We've had an amazing 2021. We are very, very bullish in terms of our capability to continue to grow, not only 2022, but the long term. I want to thank you everyone once again, and I hope you all have a great day.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.