DLocal Limited

Good day. Thank you for standing by. Welcome to the local fourth quarter 2022 results conference call. At this time, all participants are in a listen-only mode. To ask a question, you'll need to press star 1-1 on your telephone. To withdraw your question, please press star 1-1 again. Please wait for your name to be announced. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Soledad Nager, Head of Investor Relations.

Please go ahead. Thank you very much, operator.

Good morning, everyone, and thank you for joining our fourth quarter 2022 earnings call today. If you have not seen our earnings release, a copy is posted in the financial section of our investor relations website. On the call today, I'm joined by Sebastian Canovic, our chief executive officer, Jacobo Singer, our president and COO, Diego Cabrera-Canay, our Chief Financial Officer, and Maria Oldham, Vice President of Corporate Development and Investor Relations. We are providing a slide presentation to accompany our prepared remarks. This event is being broadcast live via webcast, and both the webcast and presentation may be accessed through the local website at investors.thelocal.com. The recording will be available shortly after the event is concluded. Before proceeding, let me mention that any forward-looking statements included in the presentation or mentioned in this conference call are based on currently available information and the local current assumptions, expectations, and projections about future events. While the company believes that our assumptions, expectations, and projections are reasonable given currently available information, you are cautioned not to place undue reliance on those forward-looking statements. Actual results may differ materially from those included in 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 sections of the local filing with the Securities and Exchange Commission, which are available on the local investor relation website. Now I will turn the conference over to Seba. Thank you.

Good morning, everyone. Thanks for joining the call today. We will discuss our business and our results for full year 22 and Q4 22. I want to start by thanking our key stakeholders. It was a challenging quarter in which we were under unwarranted attack, and I could not be more grateful for the following. First, our customers. Through long-term partners who we know choose carefully whom to trust with their volumes. The record TPV of 10.6 billion in 2022, including 3.3 billion in Q4, up 21% quarter over quarter, is a testament to the trust they place in our solution and our business trend. We are grateful to our team. who continue to work very hard and remain committed to delivering against our long-term ambitions. We were tested and passed the test. Our operations continue to run smoothly and better than ever. Third, to our long-term investor partners. As you can see in the regulatory filings, our main shareholders continue to support us, recently increasing their positions. showing their confidence in and excitement about the future value creation potential of the local. We strongly believe in the business we are building and we are continuing our shared buyback program in accordance with our trading policy. This was our second year as a public company. We have over-delivered on our initial expectations since we went public and 2022 was no exception. Before we deep dive into the results, I want to remind everyone why we started the local back in 2016 and how this drives everything we do up to today. We founded the local because we saw a very clear pain point. Accessing and doing business in emerging market is very difficult. Emerging markets in general have much more fragmented payment systems and methods than developed markets. They also have more unstable and complex regulatory environments, as well as different tax rules and different consumer behaviors. So even for large global companies with relevant resources, it is very time consuming and frustrating to set up just a single new payment method in a single market. When you extrapolate that to the multitude of payment methods across the many emerging markets, it is a problem that is highly resource-intensive to solve, especially when you consider it is non-core for almost all businesses. This is where the local comes in. By doing all of the hard work of integrating over 900 payment methods across 40 emerging markets and making them all available through a single API, we are able to help companies avoid all this hassle. And because we support many hundreds of merchants, we benefit from economies of scale from combining their volumes. Just to emphasize here, through our 1D local model, we provide a seamless experience for our merchants. One contract, one platform, one API, one source of support. From the perspective of our merchants, whether they are receiving Brazilian reais through PIX, a local instant payment method, or they're paying out Nigeria and Naira via local bank transfer, they have only one integration. We believe the growth of the company over the past seven years is a testament to the attractiveness of this proposition for the merchants. Today, we serve some of the largest and best-known companies in the world, such as Microsoft and Meta. We allow them to access over 2 billion consumers across 40 markets via 900-plus payment methods for both local-to-local and cross-border transactions, both paying and payouts. And the exciting thing is that there is so much more to come. Many more merchants to onboard, new markets to expand to, new products to launch, and new payment methods to onboard. I often get asked if the problem the local is solving is really so hard. Then, how did merchants operate in emerging markets before the local existed? The fact is that these merchants managed to get by, but only by expending a great amount of resources and time, and by accepting that many customers would be left behind. Before working with us, if a global merchant wanted to do business in, let's say, 10 markets, they would have needed to integrate with at least 10 different providers, sign at least 10 contracts, and handle at least 10 different partner relationships. Even then, they would often write off some markets or some payment methods altogether because the burden of serving them was just too high, meaning they were leaving many customers behind. We are very proud to say that now, once a merchant connects to the local, they are able to immediately increase their reach to 40 countries and 2 billion plus users and have everything they need to operate in all the markets we offer. Our merchants benefit from rapid expansion in reach, reduced cost and complexity, and other benefits of the DeLocal solution, including higher acceptance and conversion rates, reduced friction, support for regulatory and tax compliance, and ethics translation and fraud prevention. We believe that for companies that want to sell across multiple emerging markets, going with DeLocal solution rather than doing their own integration is a no-brainer. We are proud to share with you that we partner with and serve some of the largest and most successful enterprise global merchants and microplaces, including Meta, Microsoft, Shopify, Spotify, Salesforce, Deal, Wish, Expedia Group, among many others. We partner with other world-leading names that we cannot share with you as well due to the disclosure restrictions. Together with the largest players operating out of the US and Europe, we also serve leading companies born in emerging markets such as Shein, Tencent, Telegram, Rappi, Didi, and Peridot Shop. We believe this is a testament to the value our solution delivers. Even companies from emerging markets that have local knowledge find it way more convenient to leverage our solution rather than creating their own integrations. Our ability to bring on board the world's top companies and retain them as loyal clients while consistently growing our business with them is powered by our technology and highly customer-centric approach, which also drives our continuous and rapid product innovation pipeline. Our sales teams are highly responsive and get to know our clients' businesses in depth, allowing us to understand our clients' challenges and solve them together. This often results in the creation of new products and features that are useful to our broader merchant base, continuously increasing the value that our platform provides. Now, I will share a couple of examples of our partnerships with large global enterprise merchants. Our first example is Salesforce, a customer we recently onboarded. Through our close partnership with Salesforce, we came to learn a problem they were facing. Processing payments and expatriating funds in emerging markets is complex due to local regulations, macro volatility, and currency fluctuations. We worked together with Salesforce to develop a new solution for B2B cross-border payments. This solution solves the complexity of B2B payments, managing currency volatility, enabling local payment options, and assuring the processing, expatriation, and settlement of funds. With this solution, the local enables B2B payments that typically have a higher average ticket. Merchants, such as Salesforce, can rely on the local infrastructure to access different payment methods and FX markets, ensuring success in payments processing, expatriation, and improving the reconciliation process. Without our solution, Salesforce would have eventually stopped taking payments in this market. We have now expanded the service to other global markets and have several of our largest clients using this new solution. On slide 8. The case study shows the power of our solution, allowing Meta to access a broad range of payment methods across many markets. We have been working with them for more than four years, and now we serve them across multiple geographies and products. Through our close relationship with large global enterprise clients such as Meta, we came to learn the challenges of receiving and sending payments via non-traditional payment methods. Companies were finding that they were losing conversion given their inability to receive non-traditional payments or through high friction user experience for these payment methods. By integrating non-traditional payment methods such as mobile money transfer and cash-like payments, we enabled Meta to deliver a smooth and frictionless payments experience in Africa. Taking mobile money as an example, this non-traditional payment method has been growing rapidly, reaching 346 monthly active users in 2021 globally across all payment providers. In markets such as Kenya, mobile money transfer has a 60% penetration versus 6% for credit cards. We opened up these payment methods to Meta to allow them to increase their customer reach in these markets. Now moving to the financial results, let me give you a quick overview of 2022. Last year was an exceptional year for the local. Our TPV grew 75% year-on-year and surpassed $10 billion. Our revenue grew largely in line, growing by 72% year-on-year and reaching $419 million. We have over-delivered against our ambitious NRR target with NRR of 165% in 2022. We continue to focus on growing our absolute gross profits and EVDA dollars. Gross profit grew by 55% year-on-year to $202 million, and adjusted EVDA grew by 54% year-over-year to reach $153 million. Despite the noise caused by the short seller report, we continue to grow the business in Q4, delivering strong TPV growth of 78% year-on-year and 21% quarter-on-quarter. We believe this demonstrates the consistent support of our existing clients as they continue to grow their business with us, as well as our continued ability to sign up new merchants. Revenues grew 55% year-on-year and 6% quarter-on-quarter with the slower revenue growth related to TPV driven by geographic and product mix. We reached a gross profit of $202 million in 2022 and $55 million in Q4. We continue to focus on absolute dollar profit growth, even with lower margins in the short term. Now, Maria will discuss our operations and performance in 2022.

Thank you, Seba. Hi, everyone. Our key axes of growth are threefold, products, merchants, and markets. Regarding the first, products, our solution enables pains and payouts, both cross-border and local to local. The broader the payment method coverage we have, the more value accrues to our platform, as these methods become available to all our current and future customers, and the wider our mode. As Seba mentioned earlier in the call, one great benefit of the local solution is the ability to allow merchants access to non-traditional payment methods. In 2022, 67% of RTPV came from non-credit card payment methods, including non-traditional payment methods such as local debit cards, bank transfers, digital wallets, mobile payments, and cash-alike methods. Examples of these payment methods include PIX and Boleto in Brazil, Mobile Money in South Africa, UPI in India, and OXO in Mexico. Many of these payment methods have vastly higher penetration than credit cards. For example, in Nigeria, only 3% of the population have a credit card, according to statistics. Focusing on cross-border volume, the weighting of non-credit card payment methods is higher, accounting for 72% of our total cross-border transactions in 2022. Credit card volume, including local schemes as well, accounted for the remaining 28% of our cross-border volume in 2022. Now, moving on to the merchant axis of growth. Our solution is industry agnostic. These allow us to onboard merchants from diverse businesses, providing us with a robust natural hedge of business cycles and seasonality. Currently, no single vertical accounts for more than 20% of our TPD. Our largest vertical in 2022 was financial services, In this vertical, we mainly serve payment service providers that use our rails to reach our margin markets and remittance companies. We also serve wallets with 1% of our total TPV and crypto with 0.2% of our total TPV. Other important verticals include commerce and advertising, streaming and on-demand delivery. In 2022, we drove growth across every single vertical, with the fastest growth rates observed being travel, commerce, and on-demand delivery. During 2022, we continued onboarding new merchants to our platform. We have more than 600 enterprise merchants on our platform, and we currently actively manage more than 200 key accounts. We work extremely closely with merchants to help unlock new payment methods and new markets for them, besides continued enhancement in our platform. During 2022, our enterprise merchants on average processed payments in eight countries compared to six countries in 2020. In 2022, they accepted on average 79 payment methods with us, compared with 44 payment methods in 2020, an 80% increase. We are very excited about our sales pipeline in 2023, and we hope to share more about great new partnerships soon. The growth of our business with our top 10 merchants has been significant. In 2022, our revenue coming from top 10 merchants amounted to $211 million versus $138 million in 2021. At the same time, we continue to diversify our revenues with respect to our merchant base. Our top 10 client concentration has been decreasing year over year, dropping to 50% of our total revenues in 2022, compared with 56% in 2021 and 64% in 2020. Moving on to the third axis of growth, geographies. Since our inception, we harbored global ambition. We dream big. We started with a single, very localized payment method in Brazil. Our early success encouraged us to expand to other emerging markets, and our highly scalable solution allowed us to do so rapidly. This has enabled us to grow our operations to 40 countries across Latin America, Africa, and Asia, with the latest addition being Honduras in Q4 2022. In 2023, we will continue to pursue our expansion strategy based on two factors, the needs of our merchants and the attractiveness of the potential new markets. In addition, we will continue to balance the demands of adding new countries with deepening our presence in the countries in which we already operate. All this drives towards our goal of being the partner of choice for our global merchants across emerging markets in which they wish to operate. Now, I will pass on to Hako to discuss our achievements in the different geographies.

Thank you, Maria. Africa and Asia have been a key engine of growth for us. Our merchants continue to sign a strong demand for our solution in these geographies, and these markets also have attractive economies. The result of our push into these regions speaks for themselves. Revenue in Africa and Asia in 2022 grew by 259% year-over-year, reaching $74 million in 2022, with significant opportunities ahead of us. In 2021, African Asia revenue represented 8% of our total revenue. In 2022, this grew to 18% of total revenues. In Q4, revenues increased by five times year over year and grew 4% quarter over quarter, reaching $26 million. This is more than the $21 million revenue we recorded for the 12 months of 2021. We were able to further grow revenues in the region in Q4, despite the hard comparison of 80% quarter-over-quarter growth in Q3. This geographic diversification complements our business vertical diversification as well as creating more value to our platform for current and future customers, widening our mold. It is still early days for us in these regions, and we are very excited about what we believe to be a significant opportunity ahead. In Africa, we are seeing strong traction in Nigeria, South Africa, Egypt, Morocco, Turkey and Kenya in particular. Meanwhile, in Asia, we are seeing strong traction in India, Indonesia, Malaysia, Pakistan and Philippines, to name a few. We are excited to see how these regions continue to grow as we both cross-sell to merchants that originally started the relationship with us in Latin America, as well as onboard new merchants that are based in Africa and Asia. Among those regions, I would like to call out Nigeria. We experience higher than expected growth in Nigeria, which already accounts for 12% and 8% of our revenues in Q4 and full year 2022, respectively. We are very positive about the growth opportunities there. From the perspective of our merchant, it is a market that is large but complex to operate in. We believe they can benefit strongly from our solution there. Growth in Nigeria is accretive to the local, albeit with lower gross profit margins. Over the medium to long term, as we go deep in the region, developing more integrations and payment methods and getting more efficiency in accessing the FX market, we believe the gross profit margin will expand. We look forward to keeping you updated on our growth in the region over the following period. As we always emphasize, we focus on absolute dollar profit growth, even with lower margins in the short term. Maximizing absolute dollar profit will create the most valued business in the long run. Moving on to Latin America, we continue to see solid growth across the region in 2022, with revenue growing by 54% year-over-year, to $345 million in 2022. Going into more detail, in Q4 2022, revenue grew by 30% year-over-year and by 6% quarter-over-quarter to $93 million. We continue to be very excited about our growth prospects in the region as we onboard new merchants and cross-sell to our current base. Our revenue is well diversified across the markets with no country accounting for more than 20% of total revenues in 2022. Key highlights were very robust revenue growth in Mexico of 104% and growth of 44% in other Latin markets, mainly from Peru and Colombia. Despite the challenges accessing foreign exchange markets in Argentina, we deliver strong revenue growth of 55% year over year. The situation has largely normalized and we have been able to operate with no major problems. Important to highlight that the revenue distribution by market is a result of our merchant strategy. Our commercial teams are internally organized by merchant and we do not optimize for targets by geography. We have global agreements with our merchants and we offer them access to all the emerging markets in which we operate, supporting them in the markets in which they wish to grow. Slide 19. We continue to invest thoughtfully in expanding our global team. We have hired new talent, particularly in the areas of sales and marketing, tech and product and operations to pursue the opportunities we see in the market and to drive towards our long-term objectives. Tech-related roles continue to represent around 40% of our FTEs, supporting our rapid innovation of new products. In 2022, We grew our team by 191 FTEs or by 36% year-over-year to 726 employees, while our gross profit grew 55% over the same period of time. Our health count has significantly expanded outside of the Americas as we focus on hiring locally to leverage on the ground knowledge and develop deep understanding of local market idiosyncrasies. We reached 159 FTEs in Africa and Asia by the end of the year 2022, representing 22% of our workforce. We will continue to invest in talent in a disciplined way, staying lean and always ensuring that we onboard talent that has a strong cultural fit. We are proud of our team and believe it is as strong as ever. Diego will now review our financial highlights.

Thank you, Jaco. And hi, everyone. We continue to scale our business rapidly. We saw record TPV during 2022, surpassing the $10 billion mark, increasing 75% year over year. In Q4 2022, we saw strong growth in our TPV, reaching $3.3 billion, up by 78% year-over-year and a strong 21% quarter-over-quarter. Our cross-border and local-to-local volumes show solid growth year-over-year and quarter-over-quarter. Following the trends seen in Q3, in Q4 we also experienced high growth in local-to-local TPD, increasing by 125% year-over-year and 30% quarter-over-quarter due to the strong performance of some of our merchants. Cross-border volume increased by 50% year-over-year and by 13% quarter-over-quarter. Cross-border accounted for 53% of our total TPV in Q4 2022 and 58% for the full year 2022, driven by the ramp up of recently onboarded merchants with a high mix of local-to-local. We have seen large merchants tend to have a combined strategy. 55% of our top 20 merchants use both local-to-local and cross-border services. During 2022, we drove growth both in pay-ins and pay-outs, increasing by 91% and 39% respectively. We have seen a steady increase in TPV quarter after quarter. Specifically, in Q4 2022, pay-ins increased by 65% year-over-year and by 14% quarter-over-quarter. In Q4 2022, pay-outs increased by 119% year-over-year and 40% quarter-over-quarter. We are product agnostic. All our products bring incremental profit, and when we combine them, they bring synergies both for our merchants and for us. Depending on which customers we onboard and their strategy in the quarter, the share of pay-ins versus pay-outs may vary. We see product diversification as one of the strengths of our business. Going forward, we are very positive about the continued growth of our products. Payings accounted for 71% of our total TPV in Q4 2022 and 75% for the full year 2022. Revenues also reached a new record high of $118 million during Q4 2022 and $419 million for the year 2022, having grown 55% and 72% year-over-year, respectively. Compared to Q3 2022, revenues increased by 6%. Our revenues over TPV or gross take rate was 3.6% during the quarter compared to 4.1 in Q3. Fluctuations from quarter to quarter are mainly driven by changes in the business mix. In Q4 2022, we had a combination of higher local-to-local payouts, some large global retail merchants with lower than average stake rate growing faster, and a decrease in revenue in Argentina with higher than average stake rate. Zooming in on our revenues, we continue delivering strong revenue growth both from our existing customers and from our new customers. During 2022, of the 72% year-over-year revenue growth, 65% of $158 million came from existing merchants, and 7% or $17 million came from new merchants. For Q4 2022, of the 55% year-over-year revenue growth, 46% or $35 million came from existing merchants and 9% or $7 million came from new merchants. We deliver strong net revenue retention, reaching 165% for the full year versus our expectation of 150% plus. This is the result of having almost no churn, less than 1%, the organic growth of our merchants in emerging markets, and our ability to continue bringing them to new countries, products, payment methods, and to increase share of wallet. Moving to slide 25, we remain focused on growing gross profit dollars. During the year, we were able to scale our gross profit to $202 million, up by 55% year-over-year. In Q4, our gross profit reached $55 million, up 42% year-over-year and 2% quarter-over-quarter. We continue to focus on incremental gross profit dollar amounts, as we have been consistently delivering on. From a gross profit margin perspective, we maintain healthy margins at 47% in Q4 and 48% for the 12 months of 2022. Particularly in Q4, our gross margin was impacted by higher volumes from global merchants in certain geographies and a decrease in revenues in Argentina. Some of the decrease in gross take rate is mirrored in lower cost take rate, but not all. We expect further optimization of our cost to be realized in the upcoming periods. We also remain focused on growing our EBITDA. During the year, we were able to scale our adjusted EBITDA to $153 million, up 54% year-over-year. Our adjusted EBITDA was $40 million for the fourth quarter of 2022, increasing by 39% year-over-year. Compared to Q3 2022, adjusted EBITDA dropped by 3%. As a result of continued investment in expanding our team, marketing and travel expenses related to two main annual commercial events and higher legal fees. As a result, our adjusted EBITDA margin was 34% in Q4. For the year 2022, our adjusted EBITDA margin was 37% and delivering on our expectations for the year of 35+. Before handing the call back to Seba for the closing remarks, I will briefly touch on our net income and liquidity. Reported net income totaled $109 million during the year, compared to $78 million in the full year 2021, an increase of 40% year-over-year. Reported net income in Q4 2022 totaled $19 million. During Q4, we incurred expenses of $8 million related to FTX loss provision of $5.6 million and short-seller-related legal and advisory expenses of $2 million. Excluding these expenses that we believe are non-recurring in nature, net income would have been $116 million in 2022, an increase of 49% year-over-year, and $27 million in Q4 2022. Besides non-recurring items, net income in Q4 2022 was impacted by net financial losses of $3 million, mainly driven by negative exchange differences and higher income taxes in the quarter. The annual income tax was 10% in line with previous years. Regarding our cash position, in Q4, we took extraordinary short-term measures to bring additional comfort to our merchants and partners using our own funds. As we have constantly maintained a healthy balance sheet, we had the flexibility and could comfortably absorb this short-term impact with our own funds. This resulted in an increase in other assets of $53 million, which mainly includes $19 million in cash collateral for standby letter of credits required by merchants, $20 million in cash collateral for credit lines with banks, $13 million of advancements to merchants, and increasing $2 million in guarantees for credit cards and processors. We expect this situation to normalize over the next quarter. As of December 31st, 2022, we had consolidated cash of $468 million with $248 million of own funds. We believe our strong cash position remains a competitive advantage. Seba, the floor is yours.

Thanks, Diego. Exceptionally for Q1 2023, I would like to share our expectation based on how the business is tracking. For the first three months of 2023, we expect TPV between 3.5 and 3.6 billion, revenue between 135 and 138 million dollars and gross profits between 57 and 59 million dollars for the full year 2023 the outlook is revenue between 620 and 640 million dollars with an implied nrr between 140 and 150 percent an adjusted evda in the range of 200 million dollars to 220 We believe these are solid numbers that show we can keep growing the business rapidly. As we always emphasize, we focus on maximizing absolute dollar profit growth, which will create the most valuable business in the long run. We are very proud of what we achieved in 2022 and even more excited with the runway ahead of us. We remain humble and focused on providing the best and most comprehensive solution for our merchants in emerging markets. Big thank you to our global team, our customers, and our investors for their continued support. I'll now hand it back to the operator to open it up for questions.

Thank you. As a reminder, to ask a question, you'll need to press star 1-1 on your telephone. To withdraw your question, please press star 11 again. Please wait for your name to be announced. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question comes from the line of Tito Labarta with Goldman Sachs. Your line is now open.

Hi, good morning. Thank you for the call and taking my question. And thanks for all the additional disclosures. That was helpful as well. A couple of questions, I guess, to start just on this. understand a little bit the use of the cash in in the quarter the I know Diego just kind of went over it a little bit um but was this kind of at the request of your merchants I mean did you need to do this to retain some of these merchants um and you said you expect this to normalize in in the next quarters did it normalize already in one queue I don't know if you can give some color on how your cash ended in one queue or will it take longer? So just to understand a little bit the need to continue to do this and if that's some type of retention tool to keep your clients and is it directly related to the issues with the third party report that we saw. And then my second question, I guess on the net take rate or your gross profit margin, you know, the net take rate has continued to fall. The gross margin has been declining. You mentioned, Jacobo, I think as you continue to grow in Africa, there should be some increase in that. But yet, you've grown in Africa a lot and that growth margin has fallen just over the last year or so. And even in one queue, that's going to fall again. So just to help us understand a little bit what's driving that pressure. I mean, is it just mix? Is there anything else? competitively putting pressure on those net take rates, any call you can give on that would be helpful. Thank you.

Tito, thanks very much for your question. Sebastian here. So starting on the cash point, we are very proud of the results we posted in Q4 and Q1. Many of our merchants vote with their volumes. You've seen record volumes for us in Q4 and the flash numbers in Q1. Obviously, this has been a stressful time for us at the local, and we wanted to make sure we use our balance sheets during these stressful times to shore up confidence with our merchants. This is, we believe, a short-term impact, if you will, and it's a tool that we'll continue to use. We offered both advancement in the settlement periods and credit lines, sorry, and bank guarantees for some of our merchants. We don't expect those to be sustained over the long run, and those customers that will require so we'll intend to charge for that because if anything, that's a revenue opportunity. I think the fact that we're a public company and there's the level of scrutiny there is on us, obviously plays in our advantage. And we've always spoken about the importance of having a strong cash position, which in a situation like the one we went through in Q4, I think has proven to be the right strategy. Okay. On the gross profit point, Tito, we continue to optimize for gross profit dollars. And if anything, we are extremely proud of saying that our gross profit grew over 50% year on year. That's a key metric. We'll continue to accrue and bring those customers on board, provided that they're accretive to our customers, sorry, to our platform. This is a long-term game. We are not optimizing for a given quarter. We want to optimize for the long run. And we want she in TikTok. Meta, Microsoft, to be our partners for decades, not for a quarter. And therefore, we will happily take a business at eventually a lower margin than the current one, provided that it has gross profit dollars. That's a key point here. Every time we add a new customer in a new geography, during the remarks mentioned Nigeria, that's compounding our value proposition. We are a better business when customers use us in Nigeria. We might have a lower gross profit margin in the short run, But we see that as an opportunity and nothing but that. We've spoken about net secrets going down over time. We are open about it. But we believe the name of the game in the business we are in is to continue to gain skill through TPV. And therefore, the gross profit dollar amount will continue to increase. I want to emphasize this point. We want to continue to serve our customers everywhere in as many geographies with as many products as possible. We will never have a gross profit margin target. We will have a gross profit dollar target.

Great. No, that's helpful. Thank you for that color. Just a couple of follow ups, if I may just on the can you give color on? Did you have to do that again in 1 queue? Did you cash? Did you use more cash in 1 queue? For those purposes that you mentioned, and you also, I think, use about 15Million dollars to pay back alone. You mentioned with that, you'd want to do that. Did the bank call that in any way? Just to understand a little bit what happened with that loan position as well. And then just to clarify on the gross profit, I mean, I understand you're targeting gross profit dollars. But as you grow, I guess, more in Asia and Africa, should we expect initially that there's some pressure on that margin? And as you scale up in those countries, that's when you can see some operating leverage and the gross margin expands. Just understand the trajectory of that.

Sure. I'll take the second part. I'll let you compliment on the cash side. Maria, also feel free to compliment, please. Tito, I don't want to sound like a broken record, but we are not optimizing for the gross profit margin. Obviously, there's opportunities for us. When we just launch a new geography, we are not fully optimized. We don't have the full suite of products. We don't have payments, payouts, cross-border, local to local. We typically also don't have the width, the width of partnerships from a banking standpoint that in a more mature stage we would have. So, It could be said that when we launch, we are leaving some money on the table. We are happy to do that. We believe that's the right thing for our business in the long run. But this is also a function of which geographies are going to grow faster and which customers are going to grow faster. Keep in mind, we're always powering hundreds of merchants across 40 geographies across many products. That will always result in our margin going up and going down the way you've seen it. And that's why we care so much about this gross profit dollar concept. That's how we ask our commercial teams to focus. That's what we compensate them on because that's where we believe the real value is for our company. We need to bring more gross profit dollars. That's how we are going to build a great business on the long run. Jaco, Diego, feel free to compliment on the cash point.

Thank you, Sego. We'll start on the fundamentals on the cash point, Dito, and we'll let Diego on the specifics, on the number. So if we expect this situation to be the new normal for the coming quarters, answer is no. This is, I would say, a one-off under a specific situation that has been under attack during the ending of the last quarter. It's not a trend. It's not a strategy. It was a single situation where we use our cash to bring confidence to our merchants. If anything, we expect that situation to start normalizing within the next quarter in the very short term.

And I guess you asked a little about the loan. The loan is, you know, loans we take from time to time in local countries to finance working capital. We have a $15 million loan that we cancel in Q4. You know, that is totally business as usual. Obviously, that resulted in a use of our own cash. From time to time, we may take a different type of loans in different countries to do that in the future. I also would like to highlight that we started a buy-back program, and we used $2 million of our own cash by the end of the year. Keep in mind that the buyback started one week before the year end. And we have already used $40 million, so that is going very well as expected.

Okay, great. No, that's helpful. And just so that I'm clear, so it doesn't sound like it normalized in one queue, but in the next couple of quarters, the use of cash should begin to normalize, correct?

Totally, and again, we don't expect significant differences in Q1, but particularly after this, we definitely expect that going back to normal and recovering that cash or start charging for it.

Okay, great. Thank you very much, everyone.

Thank you. One moment for our next question. Next question comes from Jorge Echeverria with Morgan Stanley. Your line is now open.

Hi, Sebastian, Jacobo, and Diego. Thank you for taking the call. So we appreciate the new disclosure. Looking at the 20F filing, where you also disclose the TPV breakdown by country, we can calculate the implied take rate for Argentina and Brazil. We're getting a 10.4 revenue yield for Argentina and 3.5% for Brazil in 2021. So I want to understand what are the costs associated to Argentina to get to a gross profit take rate and whether you are or not using wallets like FTX for repatriation in Argentina as well. Thank you.

Jorge, thank you very much for the question. No, we don't use any wallets in Argentina. The gross take rate, it's always a reflection of the underlying cost structure. So the numbers you pointed are accurate. On Argentina, the cost of processing payments, it's very high. Keep in mind, many of our payments in Argentina are done using installments, which are very high cost. And therefore, our net take rate should be pretty much in line in both countries. Expatrating funds from Argentina, it's expensive. Argentinian pesos is a less liquid currency than many others. and therefore has a higher cost to expect rate. But fundamentally, we always reflect in our gross take rate every underlying cost to process that given payment. So when you look at a net take rate basis, countries tend to be more in line, and I understand that's harder to see from a gross standpoint because, again, the underlying cost factors are different. And just to emphasize the whole history on this, We operate with many of the largest local and regional gold banks in Argentina. We are approved by them. We comply with central bank requirements. And that's an example in Argentina in a situation where we do have the maturity that we are still to get in Nigeria, where we already have all those banking partners. We already have all those redundancies that allow us to be more efficient. That's the stage we would like to be over time will be in some of the markets where we are operating in Africa and in April.

That's very clear. Thank you.

Thank you. One moment for our next question. Our next question comes from... One moment. Next question comes from Jason Kupferberg with Bank of America. Your line is now open.

Good morning, guys. Thanks for taking the question. As we think about potential trends in gross and net take rates for 2023, is the Q1 model a good proxy to use for the rest of the year? I mean, obviously, there'll be vagaries quarter to quarter, depending on all the mixed factors you guys have talked about, but is Is Q1 a decent benchmark as a way to think about a reasonable range for full year 2023 take rate?

Sure. So, Maria, do feel free to compliment. Jason, we believe it's a fairly accurate indication of where we're going to land for the year. Obviously, this year we've given guidance in terms of revenue. We're expecting revenue growth north of 50%, which we believe to be a great outlook. And we are expecting EVDA to go up 40%. So gross profit, which is the underlying breakdown between those two, should be pretty much in line with those. So I think Q1 is a good proxy for what we expect to happen in the full year. Again, as you said, we continue to be a basket of industries, customers, and geographies, and therefore our take rate will go up and will go down. But I think your comments are fair.

Okay, that's helpful. And then just as we think about the quarter-over-quarter decline in gross take rate in the fourth quarter, Obviously, it was a sizable move. Can you just break down which of the mixed factors that you've talked about were the most significant contributors to that quarter-over-quarter decline?

Sure. Jason, I just want to comment on one thing, and I'll let Maria cover exactly your question. We are proud of the results we posted in Q4. Our revenue grew significantly. our gross profit dollars grew. We continue to get these merchants to rely on us in as many areas as possible. So I want to, at least I want to convene the feeling we have here at the local of how proud we are of what we've achieved in Q4 and what we've seen also in Q1. Maria, let's take the question.

Sure. Thank you, Jason. On the net trade that you see in Q4, first of all, like, is the result of the mix, right? As we mentioned earlier, we have, like, higher local to local and payout volume in certain geographies. For example, Mexico is a geography that you can see. We grew like 100% on a year base. This is a result of that. When you look into the net, they create some of the decrease from the growth they create, which could mirror, but there are still opportunities for us to optimize on the cost base.

Jason, I just could compliment on that. We don't face any backwards pressures. We are not giving discounts. We are not renegotiating existing deals with our previous customers. So what do you see? It's a function of the mix and the growth. We don't see any backward pressure. Obviously, as we onboard bigger merchants that send more volumes our way, they do have more bargaining power and some of those newer deals come at lower take rates. But the fundamental underlying business, the conditions of the underlying business hasn't changed.

Okay, so no like for like pricing pressure, it sounds like. So thanks for clarifying that. My last question was just the vertical breakdown. Financial services, obviously the largest piece in 2022, 20% of TPV. I think you mentioned remittance companies in there. Is that the biggest piece of financial services? Just wanted to understand some of the different categories of merchants that are most significant in that vertical. Thank you. Sure.

Jason, for disclosure reasons, we cannot say the exact names, but these are all U.S.-listed public companies that rely on our services to access emerging markets. The likes of the visas and world pays and fly wires and pioneers of this world, they use our rails to access emerging markets. We believe this is a testament of how powerful our proposition is. So they rely on our services to access these emerging markets where we operate. And we like those partnerships because through those, we get distribution. We get access to customers that otherwise we wouldn't be getting. Just to use an example, Flywire will serve education merchants. Those are not our target merchants. And those are the type of partnerships we want. We want to have direct connections with Google, with Facebook, with Meta, with so many others. But we are okay on having a financial institution between us and those when the underlying merchant is not that important. that it's at least our target customer.

Understood. Thank you for the comments.

Thank you. One moment for our next question. Our next question comes from Neha Agarwala with HSBC. Your line is now open.

Hi. Thank you for taking my question. With the data that you provided, we are seeing a shift from cross-border to local to local, a change in mixtures for your TPV. that should put pressure on your take rate. I believe that would be incorporated in the guidance that you're providing of gross take rate for 2023 coming around 3.8%, as you mentioned, should be similar to 1Q. So why is this trend happening? Is it more because you're seeing large merchants creating their subsidiaries locally and that is why they're moving from cross-border to local to local? Or is it because of the type of merchants you have onboarded recently? If you can shed some light on that mix, that would be helpful.

Sure. I think the right word is not shift, it's evolution. We have seen no shift from merchants moving from cross-border to local to local. What we do see is that merchants, we are winning more and more merchants that decide to do business in local to local. Diego mentioned during his remarks that Fifty-five percent of our top 20 use us in both local-to-local and cross-border. And I want to explain this. This is the same customer. This can be Microsoft that decides to use us local-to-local in one given geography and cross-border in one other. What we are not seeing, and I want to emphasize this point, is merchants starting on cross-border and then moving to a local-to-local product. We serve merchants where they are already big. So these are not startups that go big and they want to set up their entities. Many of our key customers already have their entities set up in many of our key geographies and therefore choose whether to use that in local to local or cross-border. We internally see this as a huge trend. This wasn't obvious a few years back that we would be able to win those local to local deals. Now it's clear that not only do we win them, but they continue to expand with us. And we believe that compounds our value proposition. We want to make sure that merchants can never graduate from us. And therefore, we need to make sure that we go with them if they decide to be local to local, cross borders, pay-ins, pay-outs, Latin America, Africa, or Asia.

Very helpful. If I can ask another question, could you shed more light on financial increment, financial expenses, Should we expect with the use of cash in paying back loan and giving guarantees to large merchants, should we expect financial income to be weaker in the coming quarter? And how should we think about the evolution of financial expenses as that has been quite significant in the last two quarters? Thank you so much.

Do you want to take it?

Sure. Hi, Neha. So basically, we started having high financial statements, particularly in Q3. That was a result of having higher positions in many countries, one of them being Argentina and the pesos with all the regulations that we had at that point. That is sequentially going down, and I would say pretty much normal by the end of the year so we still have higher financial expenses in q3 and q4 but we we expect that to continue reducing going forward you will also see that we also have a significant financial income actually the number for q4 if i'm not wrong is a 18 million dollars of expenses and 18 million dollars for the year, $19 million for financial income. They tend to offset each other, but whenever we have to hedge funds, we also put them in money markets or interest-bearing accounts. So they represent a higher expense, but also higher income. If we look at the net financial expenses altogether, I think it was like $2-3 million net in the quarter, which is not very different to what we had in previous quarters.

Should the use of own cash for the purposes you mentioned earlier, should that have an impact on your P&L by any means?

Not much. Keep in mind that most of our cash, we have it at the consolidated level in US dollars in global banks. that eventually give us, let's say, 4% interest rate. So the only part of profitability that we would be assigning is that 4% take rate on the amounts we use for letter of grades. And again, we expect the situation to sequentially go back to normal, particularly in Q2 and Q3. So we will likely recover those balances in our balance sheet.

Thank you. One moment for our next question. Our next question comes from Andrew Belch with SMBC NECO Securities. Your line is now open.

Hey, guys. Thanks for taking the call and for all the added disclosure provided this quarter. Appreciate your comment on the gross margin and that you're not necessarily managing this business to gross margin, but to absolute gross profit dollars growth. You know, using some of the earlier commentary you made that the margins in the first quarter should be somewhat in the same range for the rest of the year, we're still seeing a pretty sizable deceleration in absolute gross profit dollars growth in 2023. I mean, is there something in 2023 that is going to be the headwind? And thinking about the longer term, Are there variables that we should think about that would either accelerate this growth beyond where it's implying in 2023 or something that's a headwind in 2023 that we're not necessarily maybe catching?

Andrew, thank you very much for your question. We are guiding to 50% growth in revenue. I don't call that a headwind. We are very optimistic about our business. I don't think there are many businesses growing profitably at 50% of the scale where we are. So we are extremely bullish on all the underlying trends. We believe we have very, very significant secular tailwind. Merchants are moving online. Merchants care more about emerging markets. We are indexed to some of the biggest companies in the world. So we see the guidance we provided as extremely positive. We believe our business is in a very unique position. We prove to be a leader in emerging markets. I think there's going to be significant value that the leader is going to be able to accrue. So we see nothing negative. If anything, having the customers we have, having the products we have, having the footprint we have in the geographies where we operate makes us extremely, extremely bullish. And again, we believe the guidance reflects us. 50% growth, 40% growth in EVTA, which is already positive. We believe it's a great place to be.

No, I appreciate that. I think just everybody's trying to You know, if you're saying you're managing the business to absolute gross profit dollars growth, we're trying to think about it in the same way. You know, thinking about the conversations you're having with, you know, incremental logos, it's nice to see some additional big names with Meta and Salesforce. I mean, how much more, you know, big names are out there or marquee logos that you may or may not be in discussions with in the months and quarters ahead? And how Key Talk can characterize their ambitions in emerging markets, you know, particularly as we get out of this, current macro situation?

Sure. Andrew, thank you. Thank you again for the question. We have a very deep pipeline and having a healthy pipeline, it's always a function of having more product to sell to those customers. We see product and geographies as touch points. There's more things we can go and discuss with our customer base. We are very proud of the logos we have, but we are also very conscious about those that are still not our customers. We are a very commercially oriented organization, so we know who those customers are. And we want to be able to import them. The other thing that has happened is that as we've opened new geographies, whole new verticals have opened up for needs that we didn't see coming. And that's, if anything, a huge opportunity. On the macro side, obviously, you guys will have a much better view on the macro front than we do. What we understand from our own conversations, and many of this is anecdotal, is that customers understand that emerging markets are important. They're finding a lot of their growth. So the growth they're not finding in the U.S. and in Europe, they're finding in emerging markets. There's obviously an environment where some of them have less resources to invest in this and therefore need to rely more on services like ours. We've seen payments seem becoming smaller. And that obviously can be a challenge, but most importantly, it's an opportunity. We want merchants to rely more and more on our infrastructure. And we believe emerging markets are here to stay and are here to stay and are going to be the driver of growth for many of our merchants. And we are indexed to them. Great.

And best of luck in the new year. Thank you very much.

Thank you. One moment for our next question. Our next question comes from Kyle Preto with UBS. Your line is open.

Hey, everyone. Good morning. Thank you, Seba, for the opportunity to ask questions and all the team. So on our side here, I have a question related to the guidance for 2023. When we look to our guidance for adjusted EBITDA and revenues, we see that the bottom of the guidance of EBITDA could imply an EBITDA margin of 31% for 2023. the bottom of the guidance, which would be way below the adjusted EBITDA that you reported for 2022, around six percentage points below. I just wonder if you could please share with us the dynamic behind that. What should be the drivers for that? Just trying to understand if this could be much more related to cost and gross profit margin contraction that I think you already mentioned this call, or this is much more related to a potential increase in expenses, and what should be the drivers for that? Thank you.

Thank you, Caio, for your question. Maria, Diego, feel free to compliment. Caio, I don't want to sound like a broken record, but we are not optimizing for the margin, for the percentage margin. We are guiding to add in the lower range of the guidance at least $70 million of unjust EVTA. We believe that number to be very healthy and very positive. We also don't believe this is a time for us to over-optimize on EVTA margin. We believe if we do that, we would be hurting our business. This is a time for us to differentiate. There are not many profitable companies out there. We've seen many of our competitors retrenching and focusing on less on emerging markets. We want to do the exact opposite. So this is a time for us to invest. Gross profit dollars are going to be there, but we want to continue to have the ability of investing. It would be relatively easy for us to bring our EBITDA margins up. It's just to reduce the speed of the investment. But we don't believe that's the right thing to do in the situation where we are. We want to continue to be profitable the way we are. We believe we are a very profitable company and one that has shown to be able to drive profits and add value to its customers at the same time. We intend to continue to stay focused. Maria, feel free to compliment.

Caio, thank you for your question. I want to also point out that we believe we have very healthy margins. I know your point is about margins. We have very healthy margins. And then on the EBITDA level, it's also good to look into EBITDA over gross profit. And then you see that over time, like we have increasing this, we were at 56% in 2019. For the 2022 year, we are at 77%. So we believe this is extremely healthy and why we are still investing on the growth opportunity for our businesses.

Okay, thank you very much. Just a quick follow-up here in terms of expenses. If you take a look on your DNA expenses, even excluding the one related to the internal review, we saw a huge increase on a quarter-over-quarter basis. So I just would like to understand what happened here this quarter and also if this would be the same level that we could expect specifically on the DNA for the following quarters.

Dio, do you want to take it?

At this time, I'd like to hand the conference back over to Mr. Kenovich for closing remarks.

Sorry, I was speaking and can I answer the question?

Yes, thank you.

Yes, sorry. I was saying that you typically see longer periods, but just one quarter. This quarter was very particular in terms of expenses. Keep in mind that we have the one off for FTX of 5.6 million. We have $2 million related to short seller expenses in terms of due diligence and accounting and legal work. And we also increase our investment in people. You know, you will see that. We have around $2 million or higher than average stock-based compensation expense. You should expect that going forward. And finally, Q4 is strong in some seasonal events. We have two main commercial events. One is the Local Connect, the big event we invite merchants in Punta del Este. And also we have another strong event, the Money 2020. So those typically happen in Q4 and are not occurring during the whole year.

Thank you. I would now like to hand the conference back over to Mr. Kanovich for closing remarks.

Thank you, everyone, and thanks for the calls. Again, I want to thank our customers, our team, and our investors for the continued support. Q4 has been a stressful time for the company, and I couldn't be prouder of how we weathered the storm. We continue to be extremely bullish on our perspectives on the business, and again, this is a time to be thankful to all of those that have been very supportive of us. Thanks, everyone, for the questions.

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