DLocal Limited

Good day and thank you for standing by. Welcome to the DLocal second quarter 2024 results conference call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. I would now like to hand it over to the company.

Good afternoon, everyone, and thank you for joining the second quarter 2024 earnings call today. If you have not seen the earnings release, a copy is posted in the financial section of the Investor Relations website. On the call today, you have Pedro Arndt, Chief Executive Officer, Mark Ortiz, Chief Financial Officer, Maria Oldham, SVP of Corporate Development Strategy and Investor Relations, and Mirele Aragao, Head of Investor Relations. A slide presentation has been provided to accompany the prepared remarks. This event is being broadcast live via webcast, and both the webcast and presentations may be accessed through dLocal's website at investor.dlocal.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 eLocal's current assumptions, expectations, and projections about future events. While the company believes that their assumptions, expectations, and projections are reasonable given currently available information, you are cautioned not to place undue reliance on those forward-looking statements. Actual results may differ materially from those included in DLOCAL's presentation or discussed in this conference call for a variety of reasons, including those described in the forward-looking statements and risk factor sections of DLOCAL's filings with the Securities and Exchange Commission, which are available on DLOCAL's Investor Relations website. Now, I will turn the conference over to DLOCAL. Thank you.

Hi, thanks everyone for joining us today. Let me start off with a summary of where things are as we've hit the halfway mark in 2024. We continue to see strong growth in our business, achieving another quarterly record of $6 billion of TPV during Q2 2024. The evolution of this key metric demonstrates our continued ability to grow as we gain share of wallet from our global merchant base, add new merchants to the mix as well. It also underscores our unique value proposition as a trusted partner for some of the largest and most sophisticated global companies across emerging markets. This momentum is solid and our pipeline remains robust, both within existing merchant opportunities and also with new merchant logos, which is a promising leading indicator of long-term growth potential. During the quarter, we've started processing for a few more marquee global names, such as a leading global Chinese fintech and one of the world's largest events and ticketing marketplaces. We've also assisted multiple existing merchants that are among the world's largest e-commerce players in their initial forays into Africa, as they've launched operations in South Africa during the last quarter, signaling our success across this very promising African continent. And finally, also worth noting, we continue to power the growth of cross-border payments in Brazil, being a part of the recent launch of a global marketplace powerhouse in that market. This $6 billion in TPV represents a 38% year-on-year growth, despite the tough comp basis of 80% year-on-year growth in the stellar quarter of last year. Performance was good for us across multiple verticals, including continued strong growth in commerce, on-demand delivery, and remittance verticals, accelerating growth in the software as a service and the ride-hailing merchants, which grew 72% and 51% respectively year over year. This kind of sustained and well-diversified TPV growth with a focused commitment to low-risk, high-reputation verticals sets us up well for long-term success. We believe that our year-over-year growth showcases a unique-in-class combination of growth while focusing on reputable verticals, which is unique among the relevant comp base, who either grow less, over-index high-risk verticals, or do both. Net take rates have held up sequentially, despite unfavorable events like the repricing by our largest merchant at the beginning of the year, material currency devaluations in Nigeria and Egypt more recently, and continued weakening across most emerging market currencies. This type of stable sequential pricing and growing TPV during the quarter translated into 11% quarter-on-quarter gross profit growth. Our OPEX, excluding non-cash share-based compensation, only grew by $1 million sequentially after previous quarters of sequential growth above $4 million. And this happened as we adjusted our cash spend to the weaker gross profit that began to flow through our P&L. As I've mentioned previously, there is a limit to how much we're willing to defend margins in the short term, as we're truly committed to certain investments which are crucial for our long-term success, particularly those in our engineering pool, back-office capabilities, and behind our license portfolio. But, to balance this out, we are always revising other discretionary spending to make sure it matches our top-line performance and is aligned with our general philosophy of frugality. As a consequence of this, adjusted EBITDA reached $43 million, reflecting what is still a lean structure and disciplined approach to spending, while our cash generation also accelerated versus the prior quarter. These highlights also come with certain challenges that we are focused on rapidly addressing, primarily that year-over-year gross profit performance was flat, driven by Latin America that was actually down 13% on Argentine FX devaluation and the repricing by our largest merchant in Brazil and Mexico. Stellar African and Asian gross profit growth of 79% year over year unfortunately did not suffice to offset those two events in Latin America, still our largest region. Let me wrap up this first part by stating that not only do we see more good than bad in the reported quarter, but taking a step back from a short-term quarterly prism, D-Local is an incredibly strong company with a fantastic TAM, attractive business model, and extremely promising future that at some point will be reflected in capital market performance. And so to keep things in perspective, we maintain strong product market validation as witnessed by nearly 40% year-over-year and 14% quarter-over-quarter TPV growth. We still run a high-margin financial model with adjusted EBITDA to gross profit at 60% plus and ability to scale from here to previous levels going forward. A cash conversion that remains very strong and growing as EBITDA increases sequentially with a cash conversion cycle that's still in the 100% range over the last 12 months. When we analyze the potential of all this to compound over time, it's hard to not be optimistic about our future, despite the inherent challenges and volatility existent throughout the global south. We firmly believe that our long-term future is bright and our own ability to execute is the single most important factor behind us capturing that opportunity. That optimism is not only being relayed in my remarks, but also reflected in our capital allocation strategy. Our business has an attractive cash generation profile and we see upside in our stock as we grow and scale. And as a consequence of this, we have bought back stock during the quarter at a rapid pace. We trust this will prove to be a savvy capital allocation decision over time. With that, let me hand it over to Maria and Mark to take you through a more detailed overview of our second quarter results.